UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____to_____
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
1-1443 Central and South West Corporation 51-0007707
(A Delaware Corporation)
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
(214) 777-1000
0-346 Central Power and Light Company 74-0550600
(A Texas Corporation)
539 North Carancahua Street
Corpus Christi, Texas 78401-2802
(512) 881-5300
0-343 Public Service Company of Oklahoma 73-0410895
(An Oklahoma Corporation)
212 East 6th Street
Tulsa, Oklahoma 74119-1212
(918) 599-2000
1-3146 Southwestern Electric Power Company 72-0323455
(A Delaware Corporation)
428 Travis Street
Shreveport, Louisiana 71156-0001
(318) 222-2141
0-340 West Texas Utilities Company 75-0646790
(A Texas Corporation)
301 Cypress Street
Abilene, Texas 79601-5820
(915) 674-7000
<PAGE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
Central and South West Common Stock, New York Stock Exchange, Inc.
Corporation $3.50 Par Value Chicago Stock Exchange, Inc.
CPL Capital I 8.00% Cumulative Quarterly New York Stock Exchange,
Income Preferred Inc.
Securities, Series A,
Liquidation Preference $25
per Preferred Security
PSO Capital I 8.00% Trust Originated New York Stock Exchange,
Preferred Securities Series Inc.
A, Liquidation Preference
$25 per Preferred Security
SWEPCO Capital I 7.875% Trust Preferred New York Stock Exchange,
Securities, Series A, Inc.
Liquidation amount $25 per
Preferred Security
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Registrant Title of Each Class
Central Power and Light Cumulative Preferred Stock, $100 Par Value
Company
Public Service Company of Cumulative Preferred Stock, $100 Par Value
Oklahoma
Southwestern Electric Cumulative Preferred Stock, $100 Par Value
Power Company
West Texas Utilities Cumulative Preferred Stock, $100 Par Value
Company $100 Par Value
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) have been subject to such filing
requirements for the past 90 days. Yes _x_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K:
Central and South West Corporation [ ]
Central Power and Light Company [ x ]
Public Service Company of Oklahoma [ x ]
Southwestern Electric Power Company [ x ]
West Texas Utilities Company [ x ]
Aggregate market value of the Common Stock of Central and South West
Corporation at March 6, 1998 held by non-affiliates was approximately $5.7
billion. Number of shares of Common Stock outstanding at March 6,
1998:212,271,060. Central and South West Corporation is the sole holder of the
common stock of Central Power and Light Company, Public Service Company of
Oklahoma, Southwestern Electric Power Company and West Texas Utilities Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Notice of Annual Meeting and Joint Proxy Statement of
Central and South West Corporation and American Electric Power Company, Inc. are
hereby incorporated by reference into Part III hereof.
This Combined Form 10-K is separately filed by Central and South West
Corporation, Central Power and Light Company, Public Service Company of
Oklahoma, Southwestern Electric Power Company and West Texas Utilities Company.
Information contained herein relating to any individual Registrant is filed by
such Registrant on its own behalf. Each Registrant makes no representation as to
information relating to the other Registrants.
<PAGE>
TABLE OF CONTENTS
GLOSSARY OF TERMS................................................ii
FORWARD LOOKING INFORMATION......................................v
PART I
ITEM 1.BUSINESS................................................1
ITEM 2.PROPERTIES..............................................27
ITEM 3.LEGAL PROCEEDINGS.......................................28
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....29
PART II
ITEM 5.MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.....................................2-1
ITEM 6.SELECTED FINANCIAL DATA.................................2-2
Central and South West Corporation
Central Power and Light Company
Public Service Company of Oklahoma
Southwestern Electric Power Company
West Texas Utilities Company
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................2-2
Central and South West Corporation
Central Power and Light Company
Public Service Company of Oklahoma
Southwestern Electric Power Company
West Texas Utilities Company
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............2-2
Central and South West Corporation
Central Power and Light Company
Public Service Company of Oklahoma
Southwestern Electric Power Company
West Texas Utilities Company
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.....................2-133
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS....3-1
ITEM 11.EXECUTIVE COMPENSATION.................................3-7
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................3-13
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........3-15
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.............................................4-1
i
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-K are defined
below:
Abbreviation or Acronym Definition
ACSI.......................American Customer Satisfaction Index(TM) (Survey
conducted by the University of Michigan Business
School and the American Society of Quality Control)
AEP........................American Electric Power Company, Inc.
AEP Merger.................Proposed Merger between AEP and CSW where CSW would
become a wholly owned subsidiary of AEP
APBO.......................Accumulated Postretirement Benefit Obligation
AFUDC......................Allowance for funds used during construction
Alpek......................Alpek S.A. de C.V.
ANI........................American Nuclear Insurance
Arkansas Commission........Arkansas Public Service Commission
Btu........................British thermal unit
Burlington Northern........Burlington Northern Railroad Company
C3 Communications..........C3 Communications, Inc., Austin, Texas (formerly CSW
Communications, Inc.)
CAAA.......................Clean Air Act/Clean Air Act Amendments
Cajun......................Cajun Electric Power Cooperative, Inc.
CEO........................Chief Executive Officer
CERCLA.....................Comprehensive Environmental Response, Compensation
and Liability Act of 1980
ChoiceCom..................CSW/ICG ChoiceCom, L.P., a joint venture between C3
Communications and ICG Communications, Inc.
CLECO......................Central Louisiana Electric Company, Inc.
Court of Appeals...........Court of Appeals, Third District of Texas, Austin,
Texas
CPL........................Central Power and Light Company, Corpus Christi,
Texas
CPL 1997 Final Order.......Final orders received from the Texas Commission in
CPL's rate case Docket No. 14965, including both the
order received on September 10, 1997 and the revised
order received on October 16, 1997
CPL 1997 Original Rate
Order....................Final order issued on March 31, 1997 by the Texas
Commission in CPL's rate case Docket No. 14965
CPL 1995 Agreement........Settlement agreement filed by CPL with the Texas
Commission to settle certain CPL regulatory matters
CPL 1996 Fuel Agreement....Fuel settlement agreement entered into by CPL and
other parties
CSW........................Central and South West Corporation, Dallas, Texas
CSW Common.................CSW common stock, $3.50 par value per share
CSW Credit.................CSW Credit, Inc., Dallas, Texas
CSW Energy.................CSW Energy, Inc., Dallas, Texas
CSW Energy Services........CSW Energy Services, Inc., Dallas, Texas
CSW International..........CSW International, Inc., Dallas, Texas
CSW Investments............CSW Investments, an unlimited company organized in
the United Kingdom through which CSW International
owns SEEBOARD
CSW Leasing................CSW Leasing, Inc., Dallas, Texas
CSW Power Marketing........CSW Power Marketing, Inc., Dallas, Texas
CSW Services...............Central and South West Services, Inc., Dallas, Texas
and Tulsa, Oklahoma
CSW System.................CSW and its subsidiaries
CSW UK Finance Company.....CSW Finco, an unlimited company organized in the
United Kingdom through which CSW International owns
CSW Investments
CSW U.S. Electric System...CSW and the U.S. Electric Operating Companies
CWIP.......................Construction work in progress
DeSoto.....................Parish of DeSoto, State of Louisiana pollution
control revenue bond issuing authority
DGES.......................Director General Electricity Supply
DHMV.......................Dolet Hills Mining Venture
DOE........................United States Department of Energy
ECOM.......................Excess cost over market
El Paso....................El Paso Electric Company
El Paso Merger Agreement...Agreement and Plan of Merger between El Paso and CSW,
dated as of May 3, 1993, as amended
EMF........................Electric and magnetic fields
Energy Policy Act..........National Energy Policy Act of 1992
EnerShop...................EnerShopSM Inc., Dallas, Texas
Entergy Texas..............Entergy Texas Utilities Company
EPA........................United States Environmental Protection Agency
ii
<PAGE>
GLOSSARY OF TERMS (continued)
The following abbreviations or acronyms used in this Form 10-K are defined
below:
Abbreviation or Acronym Definition
EPS........................Earnings per share of common stock
ERCOT......................Electric Reliability Council of Texas
ERISA......................Employee Retirement Income Security Act of 1974, as
amended
Exchange Act...............Securities Exchange Act of 1934, as amended
EWG........................Exempt Wholesale Generator
FASB.......................Financial Accounting Standards Board
FCC........................Federal Communications Commission
FERC.......................Federal Energy Regulatory Commission
FMB........................First mortgage bond
FUCO.......................Foreign utility company as defined by the Holding
Company Act
Guadalupe..................Guadalupe-Blanco River Authority pollution control
revenue bond issuing authority
HL&P.......................Houston Lighting & Power Company
Holding Company Act........Public Utility Holding Company Act of 1935, a
amended
HVdc.......................High-voltage direct-current
IPP........................Independent power producer
IBEW.......................International Brotherhood of Electrical Workers
ISO........................Independent system operator
ITC........................Investment tax credit
Joint Proxy Statement......The Notice of Annual Meeting and Joint Proxy
Statement of American Electric Power Company, Inc.
and Central and South West Corporation
KW.........................Kilowatt
KWH........................Kilowatt-hour
LIFO.......................Last-in first-out (inventory accounting method)
Louisiana Commission.......Louisiana Public Service Commission
LTIP.......................Long-Term Incentive Plan
Matagorda..................Matagorda County Navigation District Number One
(Texas) pollution control revenue bond issuing
authority
Mcfs.......................Thousand cubic feet of gas
MD&A.......................Management's Discussion and Analysis of Financial
Condition and Results of Operations
MDEQ.......................Mississippi Department of Environmental Quality
MGP........................Manufactured gas plant or coal gasification plant
Mirror CWIP................Mirror construction work in progress
Mississippi Power..........Mississippi Power Company
MMbtu......................Million Btu
MW.........................Megawatt
MWH........................Megawatt-hour
National Grid..............National Grid Group plc
NEIL.......................Nuclear Electric Insurance Limited
NRC........................Nuclear Regulatory Commission
OASIS......................Open access same time information system
OEFA.......................Oklahoma Environmental Finance Authority pollution
control revenue bond issuing authority
Oklahoma Commission........Corporation Commission of the State of Oklahoma
Oklaunion..................Oklaunion Power Station Unit No. 1
OPEB.......................Other postretirement benefits (other than pension)
PCB........................Polychlorinated biphenyl
PCRB.......................Pollution Control Revenue Bond
PowerShare.................CSW's PowerShareSM Dividend Reinvestment and Stock
Purchase Plan
PRP........................Potentially responsible party
PSO........................Public Service Company of Oklahoma, Tulsa, Oklahoma
PSO 1997 Rate Settlement
Agreement................Joint stipulation agreement reached by PSO and other
parties to settle PSO's rate inquiry
PURA.......................Public Utility Regulatory Act of Texas, as amended
PURPA......................Public Utility Regulatory Policies Act of 1978
QF.........................Qualifying Facility as defined in PURPA
RCRA.......................Federal Resource Conservation and Recovery Act of
1976
Red River..................Red River Authority of Texas pollution control
revenue bond issuing authority
Registrant(s)..............CSW, CPL, PSO, SWEPCO and WTU
RESCTA.....................Rural Electric Supplier Certified Territory Act
iii
<PAGE>
GLOSSARY OF TERMS (continued)
The following abbreviations or acronyms used in this Form 10-K are defined
below:
Abbreviation or Acronym Definition
Retirement Plan............CSW's tax-qualified Cash Balance Retirement Plan
Rights Plan................Stockholders Rights Agreement between CSW and CSW
Services, as Rights Agent
RUS........................Rural Utilities Service of the federal government
Sabine.....................Sabine River Authority of Texas pollution control
revenue bond issuing authority
Siloam Springs.............City of Siloam Springs, Arkansas pollution control
revenue bond issuing authority
SAR........................Stock Appreciation Right
SEC........................United States Securities and Exchange Commission
SEEBOARD...................SEEBOARD plc., Crawley, West Sussex, United Kingdom
SEEBOARD U.S.A.............CSW's investment in SEEBOARD consolidated and
converted to U.S. Generally Accepted Accounting
Principles
SERP.......................Special Executive Retirement Plan
SFAS.......................Statement of Financial Accounting Standards
SFAS No. 52................Foreign Currency Translation
SFAS No. 71................Accounting for the Effects of Certain Types of
Regulation
SFAS No. 87................Employers' Accounting for Pensions
SFAS No. 106...............Employers' Accounting for Postemployment Benefits
SFAS No. 115...............Accounting for Certain Investments in Debt and Equity
Securities
SFAS No. 123...............Accounting for Stock-Based Compensation
SFAS No. 125...............Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities
SFAS No. 128...............Earnings Per Share
SFAS No. 130...............Reporting Comprehensive Income
SFAS No. 131...............Disclosure about Segments of an Enterprise and
Related Information
SPP........................Southwest Power Pool
STB........................Surface Transportation Board of the United States
Department of Transportation
STP........................South Texas Project nuclear electric generating
station
STPNOC.....................STP Nuclear Operating Company, a non-profit Texas
corporation, jointly owned by CPL, HL&P, City of
Austin, and City of San Antonio
SWEPCO.....................Southwestern Electric Power Company, Shreveport,
Louisiana
SWEPCO Plan................The amended plan of reorganization for Cajun filed by
the Members Committee and SWEPCO on January 15, 1998
with the U.S. Bankruptcy Court for the Middle
District of Louisiana
Tejas......................Tejas Gas Corporation
Texas Commission...........Public Utility Commission of Texas
ThriftPlus.................CSW's employee thrift plan
Titus County...............Titus County Fresh Water Supply District No. 1
pollution control revenue bond issuing authority
Transok....................Transok, Inc. and subsidiaries, Tulsa, Oklahoma
Trust Preferred
Securities...............Collective term for securities issued by business
trusts of CPL, PSO and SWEPCO classified on the
balance sheet as "Certain Subsidiary (or
CPL/PSO/SWEPCO)-obligated, mandatorily redeemable
preferred securities of subsidiary trusts holding
solely Junior Subordinated Debentures of such
Subsidiaries (or CPL/PSO/SWEPCO)"
Union Pacific..............Union Pacific Railroad Company
U.S. Electric or U.S.
Electric Operating
Companies................CPL, PSO, SWEPCO and WTU
Vale.......................Empresa De Electricidade Vale Paranapanema S/A
WTU........................West Texas Utilities Company, Abilene, Texas
WTU 1995 Stipulation and
Agreement................Stipulation and Agreement to settle certain WTU
regulatory matters
iv
<PAGE>
FORWARD LOOKING INFORMATION
This report made by CSW and its subsidiaries contains forward looking statements
within the meaning of Section 21E of the Exchange Act. Although CSW and each of
its subsidiaries believe that, in making any such statements, their expectations
are based on reasonable assumptions, any such statements may be influenced by
factors that could cause actual outcomes and results to be materially different
from those projected. Important factors that could cause actual results to
differ materially from those in the forward looking statements include, but are
not limited to: the impact of general economic changes in the U.S. and in
countries in which CSW either currently has made or in the future may make
investments; the impact of deregulation on the U.S. electric utility business;
increased competition and electric utility industry restructuring in the U.S.;
the impact of the AEP Merger or other merger and acquisition activity; federal
and state regulatory developments and changes in law which may have a
substantial adverse impact on the value of CSW System assets; timing and
adequacy of rate relief; adverse changes in electric load and customer growth;
climatic changes or unexpected changes in weather patterns; changing fuel
prices, generating plant and distribution facility performance; decommissioning
costs associated with nuclear generating facilities; uncertainties in foreign
operations and foreign laws affecting CSW's investments in those countries; the
effects of retail competition in the natural gas and electricity distribution
and supply businesses in the United Kingdom; and the timing and success of
efforts to develop domestic and international power projects. In the non-utility
area, the aforementioned factors would also apply, and, in addition, would
include, but are not limited to: the ability to compete effectively in new
areas, including telecommunications, power marketing and brokering, and other
energy related services, as well as evolving federal and state regulatory
legislation and policies that may adversely affect those industries generally or
the CSW System's business in areas in which it operates.
v
<PAGE>
PART I
ITEM 1. BUSINESS.
CSW, incorporated under the laws of Delaware in 1925, is a Dallas-based
public utility holding company registered under the Holding Company Act. CSW
owns all of the outstanding shares of common stock of the U.S. Electric
Operating Companies, CSW Services, CSW Credit, CSW Energy, CSW International, C3
Communications, EnerShop and CSW Energy Services and indirectly owns all of the
outstanding share capital of SEEBOARD. In addition, CSW owns 80% of the
outstanding shares of common stock of CSW Leasing. In 1997, the U.S. Electric
Operating Companies, SEEBOARD U.S.A. and CSW's other subsidiaries contributed
the following percentages to aggregate operating revenues, operating income and
income before extraordinary item.
SEEBOARD Total
CPL PSO SWEPCO WTU U.S.A. Electric Other Total
----------------------------------------------------------
Operating Revenues 26 13 17 8 35 99 1 100%
Operating Income 35 11 13 12 30 101 (1) 100%
Income before
Extraordinary Item 37 15 28 7 36 123 (23) 100%
The relative contributions of the U.S. Electric Operating Companies and
SEEBOARD U.S.A. to the aggregate operating revenues, operating income and net
income before extraordinary item differ from year to year due to variations in
weather, fuel costs reflected in charges to customers, timing and amount of rate
changes and other factors, including changes in business conditions and the
results of non-utility businesses. Sales of electricity by the U.S. Electric
Operating Companies tend to increase during warmer summer months and, to a
lesser extent, cooler winter months, because of higher demand for power. The
sale of electricity by SEEBOARD tends to increase during colder winter months
because of a higher demand for power. For additional detail related to CSW's
reportable business segments, see ITEM 8-NOTE 14. BUSINESS SEGMENTS and for
financial results showing CSW's seasonality, see ITEM 8-NOTE 19. QUARTERLY
INFORMATION.
The CSW System is subject to the jurisdiction of the SEC under the Holding
Company Act with respect to the issuance, acquisition and sale of securities,
the acquisition and sale of utility assets or any interest in any business and
accounting practices, including certain affiliate transactions, and other
matters. See RATES AND REGULATION below, and ITEM 7. MD&A for additional
information regarding the Holding Company Act.
PROPOSED AEP MERGER
On December 22, 1997, CSW and AEP announced that their boards of directors
had approved a definitive merger agreement for a tax-free, stock-for-stock
transaction creating a company with a total market capitalization of
approximately $28.1 billion ($16.5 billion in equity; $11.6 billion in debt and
preferred stock). CSW expects the combination to be accounted for as a pooling
of interests. The transaction must satisfy many conditions, some of which may
not be waived by the parties. There can be no assurance that the AEP Merger will
be consummated.
1
<PAGE>
This combination is expected to create one of the nation's preeminent
diversified electric utilities serving more than 4.6 million customers in 11
states and approximately 4 million customers outside the United States. Both
companies have low-cost generation and offer their customers in every state
prices below the national average. Over the last two years, both CSW and AEP
have ranked among the top five electric utilities in customer satisfaction in
the ACSI.
Under the merger agreement, each common share of CSW will be converted
into 0.6 shares of AEP common stock. Based upon AEP's closing price immediately
prior to the merger announcement, this represented a premium of 20% over the CSW
closing price. AEP will issue approximately $6.6 billion in stock to CSW
stockholders to complete the transaction. CSW stockholders will own
approximately 40% of the combined company. Both companies anticipate continuing
their current dividend policies until the close of the transaction.
Under the merger agreement, there will be no changes required with respect
to the public debt issues, the outstanding preferred stock or the Trust
Preferred Securities of CSW or its subsidiaries.
The companies anticipate savings related to the merger of approximately $2
billion over a 10-year period from the elimination of duplication in corporate
and administrative programs, greater efficiencies in operations and business
processes, increased purchasing efficiencies, and the combination of the two
workforces. At the same time, the companies will continue their commitment to
high quality, reliable service. Job reductions related to the merger are
expected to be approximately 1,050 out of a total domestic workforce of
approximately 25,000. The combined company will use a combination of growth,
reduced hiring and attrition to minimize the need for employee separations.
Organizational and staffing recommendations will be made by transition teams of
employees from both companies.
The electric systems of AEP and CSW will operate on an integrated and
coordinated basis as required by the Holding Company Act. Any fuel savings
resulting from the coordinated operation of the combined company will be passed
on to customers.
The merger agreement contains covenants and agreements that restrict the
manner in which the parties may operate their respective businesses until the
time of closing of the merger. In particular, without the prior written consent
of AEP, CSW may not engage in a number of activities that could affect its
sources and uses of funds. Pending closing of the merger, CSW's and its
subsidiaries' strategic investment activity, capital expenditures and non-fuel
operating and maintenance expenditures are restricted to specific agreed upon
projects or agreed upon amounts. In addition, prior to consummation of the
merger CSW and its subsidiaries are restricted from (i) issuing shares of common
stock other than pursuant to employee benefit plans, (ii) issuing shares of
preferred stock or similar securities other than to refinance existing
obligations or funds permitted capital expenditures and (iii) incurring
indebtedness other than pursuant to existing facilities, in the ordinary course
of business or to fund permitted projects or capital expenditures. These
restrictions are not expected to limit the ability of CSW and its subsidiaries
to make investments and expenditures in amounts previously budgeted.
The merger is conditioned, among other things, upon the approval of CSW
stockholders and several state and federal regulatory agencies. AEP shareholders
must authorize additional common stock and approve a new common stock issuance
to be used in the exchange for CSW common stock. The companies anticipate that
regulatory approvals can be obtained in 12 to 18 months from the date of
announcement. However, there can be no assurance that the AEP Merger will be
consummated, and if it is, the timing of such consummation or the effect of any
regulatory condition that may be imposed on such consummation.
See ITEM 7. MD&A and ITEM 8-NOTE 16. PROPOSED AEP MERGER.
2
<PAGE>
U.S. ELECTRIC OPERATING COMPANIES
The U.S. Electric Operating Companies are public utility companies engaged
in generating, purchasing, transmitting, distributing and selling electricity.
The U.S. Electric Operating Companies serve approximately 1.7 million customers
in one of the largest combined service territories in the United States covering
approximately 152,000 square miles in portions of Texas, Oklahoma, Louisiana and
Arkansas. The customer base includes a mix of residential, commercial and
diversified industrial customers. CPL and WTU operate in portions of south and
central west Texas, respectively. PSO operates in portions of eastern and
southwestern Oklahoma, and SWEPCO operates in portions of northeastern Texas,
northwestern Louisiana and western Arkansas. Information concerning each of the
U.S. Electric Operating Companies for 1997 is presented in the following table.
Estimated
Service Average Rural
State and Estimated Territory Number of Electric
Registrant Year of Population (sq. Retail Municipal Cooperatives
Incorporation Served miles) Customers Customers Served
- --------------------------------------------------------------------------------
CPL Texas - 1945 1,778,000 44,000 627,900 1 4
PSO Oklahoma - 1913 1,100,000 30,000 481,400 2 2
SWEPCO Delaware - 1912 943,000 25,000 415,900 3 8
WTU Texas - 1927 393,000 53,000 186,700 3 13
The largest cities in CPL's service territory are Corpus Christi, Laredo
and McAllen. The economic base of CPL's service territory includes
manufacturing, mining, agricultural, transportation and public utilities
sectors. Major activities in these sectors include oil and gas extraction, food
processing, apparel, metal refining, chemical and petroleum refining, plastics
and machinery equipment. Contracts with substantially all large industrial
customers provide for both demand and energy charges. Demand charges continue
under such contracts even during periods of reduced industrial activity, thus
mitigating the effect of reduced activity on operating income.
The largest cities in PSO's service territory are Tulsa, Lawton and
Bartlesville. The economic base of PSO's service territory includes petroleum
products, manufacturing and agriculture. The principal industries in the
territory include natural gas and oil production, oil refining, steel
processing, aircraft maintenance, paper manufacturing and timber products,
glass, chemicals, cement, plastics, aerospace, telecommunications and rubber
goods.
The largest cities in SWEPCO's service territory are Shreveport/Bossier
City, Longview and Texarkana. The economic base of SWEPCO's service territory
includes mining, manufacturing, chemical products, petroleum products,
agriculture and tourism. The principal industries in the territory include
natural gas and oil production, petroleum refining, manufacturing of pulp and
paper, chemicals, food processing and metal refining. The territory also has
several military installations, colleges and universities.
The largest cities in WTU's service territory are Abilene and San Angelo.
The economic base of WTU's service territory includes agricultural businesses,
such as the production of cattle, sheep, goats, cotton, wool, mohair and feed
crops. Significant gains have been made in economic diversification through
value added processing of these products. The natural resources of the territory
include oil, natural gas, sulfur, gypsum and ceramic clays. Important
manufacturing and processing plants served by WTU produce cotton seed products,
oil products, electronic equipment, precision and consumer metal products, meat
products, gypsum products and carbon fiber products. The territory also has
several military installations and state correctional institutions.
3
<PAGE>
The CSW U.S. Electric System operates on an interstate basis to facilitate
exchanges of power. PSO and WTU are interconnected through the 200 MW North HVdc
transmission interconnection located at Vernon, Texas. SWEPCO and CPL are
interconnected through the 600 MW East HVdc transmission interconnection located
at Pittsburg, Texas.
CPL and WTU are members of ERCOT which operate in Texas. Other ERCOT
members include Texas Utilities Electric Company, HL&P, Texas Municipal Power
Agency, Texas Municipal Power Pool, Lower Colorado River Authority, the
municipal systems of San Antonio, Austin and Brownsville, the South Texas and
Medina Electric Cooperatives, and several other interconnected systems and
cooperatives. PSO and SWEPCO are members of the SPP, which includes 18
investor-owned utilities, 11 municipalities, 11 cooperatives, 3 state and 1
federal agency as well as IPPs and power marketers operating in the states of
Arkansas, Kansas, Louisiana, Oklahoma and parts of Mississippi, Missouri, New
Mexico and Texas. ERCOT members interchange power and energy with one another on
a firm, economy and emergency basis, as do the members of the SPP.
CSW Services performs, at cost, various accounting, engineering, tax,
legal, financial, electronic data processing, centralized economic dispatching
of electric power and other services for the CSW System, primarily for the U.S.
Electric Operating Companies. During 1996, CSW functionally reorganized its
domestic utility operations into three organizational units including power
generation, energy delivery and energy services, which are centrally managed by
CSW Services. The functional unbundling of CSW's vertically integrated structure
was undertaken to provide a more competitive organizational structure for CSW.
Certain employees moved from the U.S. Electric Operating Companies to CSW
Services in connection with this functional reorganization.
SEEBOARD
SEEBOARD is one of the 12 regional electricity companies formed as a
result of the restructuring and subsequent privatization of the United Kingdom
electricity industry in 1990. CSW acquired indirect control of SEEBOARD in April
1996. SEEBOARD's principal regulated businesses are the distribution and supply
of electricity. In addition SEEBOARD is engaged in other businesses, including
gas supply, electricity generation, electrical contracting and retailing.
SEEBOARD's service area covers approximately 3,000 square miles in
Southeast England. The service area extends from the outlying areas of London to
the English Channel, and includes large towns such as Kingston-upon-Thames,
Croydon, Crawley, Maidstone, Ashford and Brighton, as well as substantial rural
areas. The area has a population of approximately 4.6 million people with
significant portions of the area, such as south London, having a high population
density. Over the past 25 years, the services sector of the area's economy has
grown in importance, while the industrial sector has declined. Considerable
commercial development has occurred in a number of towns in the area over the
last ten years, in particular in the areas around Gatwick Airport and the
English Channel ports.
OTHER CSW BUSINESS OPERATIONS
CSW continually seeks opportunities to expand its non-utility business in
areas related to energy and energy services. This expansion frequently occurs
through strategic domestic and international acquisitions, through marketing
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initiatives inside and outside of the service territories of the U.S. Electric
Operating Companies and through new business investments. Acquisitions of any
new assets, or development of any new business opportunities, must meet defined
criteria, including the potential to lower CSW System costs, increase long-term
efficiency and competitiveness, and provide an acceptable return on investment
to CSW.
CSW Energy develops, owns and operates independent power and cogeneration
facilities within the United States. Currently, CSW Energy has ownership
interests in six electricity generating projects and other projects in various
stages of development. CSW International engages in international activities,
including developing, acquiring, financing and owning EWGs and FUCOs, either
alone or with partners.
C3 Communications was the first Holding Company Act registrant affiliate
communications company to be granted exempt telecommunications company status.
C3 Communications has two main lines of business. C3 Communications' Utility
Automation Division specializes in providing automated meter reading and related
services to investor owned, municipal, and cooperative electric utilities. C3
Communications offers systems to aggregate meter data from a variety of
technologies and vendor products which span multiple communication mode
infrastructures including broadband, wireless network, power line carrier and
telephony-based systems. In January 1997, ChoiceCom was formed to offer local
telephone service, long distance, and data communications services to customers
in the four-state region where CSW operates, with an emphasis on the business
customer market. During its first year, ChoiceCom established operations in
Texas and plans to expand to the other three states under a five year business
plan.
EnerShop provides energy services to commercial, industrial, institutional
and governmental customers in Texas. These services help reduce customers'
operating costs through increased energy efficiencies and improved equipment
operations. EnerShop utilizes the skills of local trade allies in offering
services that include facility analysis; project management; engineering design,
equipment procurement and construction; and performance monitoring.
CSW Energy Services will spearhead CSW's competitive efforts in the retail
electricity markets of states outside of CSW's historical service territories.
CSW Energy Services will not only attempt to secure electricity supply business
in states which soon will permit retail competition, but will also extend CSW's
business reach and name recognition beyond CSW's traditional customer base. In
March 1998 CSW Energy Services signed its first major supply contract in
California.
CSW Credit was originally formed to purchase, without recourse, accounts
receivable from the U.S. Electric Operating Companies to reduce working capital
requirements. In addition, because CSW Credit's capital structure is more
leveraged than that of the U.S. Electric Operating Companies, CSW's overall cost
of capital is lower. Subsequent to its formation, CSW Credit's business has
expanded to include the purchase, without recourse, of accounts receivable from
certain non-affiliated parties subject to limitations imposed by the SEC under
the Holding Company Act. CSW Leasing has investments in leveraged leases.
COMPETITION AND INDUSTRY CHALLENGES
Competitive forces at work in the electric utility industry are affecting
the CSW System and electric utilities generally. Current legislative and
regulatory initiatives are likely to result in even greater competition in both
the wholesale and retail markets in the future. As competition in the industry
increases, the U.S. Electric Operating Companies will have the opportunity to
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seek new customers and at the same time be at risk of losing customers to other
competitors. Additionally, the U.S. Electric Operating Companies will continue
to compete with suppliers of alternative forms of energy, such as natural gas,
fuel oil and coal, some of which may be cheaper than electricity. As a whole,
the U.S. Electric Operating Companies believe that their prices for electricity
and the quality and reliability of their service currently place them in a
position to compete effectively in the marketplace. In light of these changes,
CSW continues to seek opportunities to expand its business operations that are
not regulated by state utility commissions (The foregoing statement constitutes
a forward looking statement within the meaning of Section 21E of the Exchange
Act. Actual results may differ materially from such projected information due to
changes in the underlying assumptions. See FORWARD LOOKING INFORMATION).
To address the anticipated changes in the electric utility industry and
to properly align its business operations with its non-regulated activities, CSW
has functionally reorganized its business operations into six distinct lines of
business. These business lines fall into both the regulated and non-regulated
categories. In addition, given the expected deregulation of the utility
industry, certain aspects of the business lines will eventually cease to be
regulated. Consequently, CSW's operating structure is designed to accommodate
both the current business environment as well as the future. The six business
lines are: (i) electricity generation; (ii) energy delivery; (iii) energy
services; (iv) international energy operations; (v) energy trading; and (vi)
telecommunications.
For additional information regarding competition and industry challenges,
including legislative initiatives at both the state and federal level, see ITEM
7. MD&A.
RATES AND REGULATION
The CSW System is subject to the jurisdiction of the SEC under the Holding
Company Act with respect to the issuance of securities, certain acquisition and
divestiture activities, certain affiliate transactions and other matters. The
Holding Company Act generally limits the operations of a registered holding
company to that of a single integrated public utility system, plus such
additional businesses as are functionally related to such system. The U.S.
Electric Operating Companies have been classified as public utilities under the
Federal Power Act. Accordingly, the FERC has jurisdiction, in certain respects,
over their electric utility facilities and operations, wholesale rates, and
certain other matters. The U.S. Electric Operating Companies are subject to the
jurisdiction of various state commissions as to retail rates, accounting
matters, standards of service and, in some cases, issuances of securities,
certification of facilities and extensions or divisions of service territories.
Franchises
The U.S. Electric Operating Companies hold franchises to provide electric
service in various municipalities within their service areas. These franchises
have varying provisions and expiration dates including, in some cases,
termination and buy-out provisions. CSW considers the U.S. Electric Operating
Companies' franchises to be adequate for the conduct of their business.
Texas Rates - CPL, SWEPCO and WTU
The Texas Commission has original jurisdiction over retail rates in the
unincorporated areas of Texas. The governing bodies of incorporated
municipalities have original jurisdiction over rates within their incorporated
limits. Municipalities may elect, and some have elected, to surrender this
original jurisdiction to the Texas Commission. The Texas Commission has
appellate jurisdiction over rates set by incorporated municipalities.
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In Texas, electric service areas are approved by the Texas Commission. A
given tract in a utility's overall service area may be certificated to one
utility, to one of several competing electric cooperatives or investor owned
utilities, to one of the competing municipal electric systems, or it may be
certificated to two or more of these entities. The Texas Commission has changed
these certificated areas only slightly since 1976.
Oklahoma Rates - PSO
PSO is subject to the jurisdiction of the Oklahoma Commission with respect
to retail prices. Pursuant to authority granted under RESCTA, the Oklahoma
Commission established service territorial boundary maps in all unincorporated
areas for all regulated retail electric suppliers serving Oklahoma. In
accordance with RESCTA, a retail electric supplier may not extend retail
electric service into the certified territory of another supplier, except to
serve its own facilities or to serve a new customer with an initial full load of
1,000 KW or more. RESCTA provides that when any territory certified to a retail
electric supplier or suppliers is annexed and becomes part of an incorporated
city or town, the certification becomes null and void. However, once established
in the annexed territory, a supplier may generally continue to serve within the
annexed area.
Arkansas and Louisiana Rates - SWEPCO
SWEPCO is subject to the jurisdiction of the Arkansas Commission and
Louisiana Commission with respect to retail rates, as well as the Texas
Commission as described above.
SEEBOARD Rates/Franchise
The distribution and supply businesses of SEEBOARD are principally
regulated by the Electricity Act of 1989 and by the conditions contained in
SEEBOARD's public electricity supply license. The public electricity supply
license generally continues until at least 2025, although it may be revoked upon
25 years prior notice after 2000. In addition, the public electricity supply
license may be revoked by the United Kingdom's Secretary of State in certain
specified circumstances. At the end of 1997, SEEBOARD had the sole right to
supply substantially all of the consumers in its authorized area, except where
demand exceeds 100 KW. However, beginning September 1, 1998, on a phased-in
basis, the regional electricity companies' supply businesses, including
SEEBOARD's, will no longer be protected by a franchise. The original April 1,
1998 start up date to full competition was delayed due to information technology
issues.
Most of the income of the distribution business is regulated by a formula
set by the DGES based upon, among other factors, the United Kingdom Retail Price
Index. The formula generally sets a cap on the average price per unit of
electricity distributed, with allowed annual increases based upon changes in the
United Kingdom Retail Price Index plus a percentage factor set from time to time
by the DGES. The DGES is not scheduled to review the allowed distribution
charges for the regional electricity companies, including SEEBOARD, until 2000,
although the DGES may reopen the review before such time under certain
circumstances.
The prices charged by SEEBOARD in its franchise supply business are also
determined from a formula set from time to time by the DGES. The formula
generally provides for the pass through to customers of certain costs incurred
by SEEBOARD in supplying the electricity, which includes electricity purchase
costs, transmission charges, and distribution costs, together with an allowed
margin as determined by the DGES. All holders of a second-tier license,
including SEEBOARD, who supply electricity to non-franchise customers (i.e.,
demand of 100 KW or above) must pay charges to the host regional electricity
company for the use of its distribution network.
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Nuclear Regulation - CPL
Ownership of an interest in a nuclear generating unit exposes CPL and,
indirectly, CSW to regulation not common to a fossil fuel generating unit. Under
the Atomic Energy Act of 1954 and the Energy Reorganization Act of 1974,
operation of nuclear plants is intensively regulated by the NRC, which has broad
power to impose licensing and safety-related requirements. Along with other
federal and state agencies, the NRC also has extensive regulations pertaining to
the environmental aspects of nuclear reactors. The NRC has the authority to
impose fines and/or shut down a unit until compliance is achieved, depending
upon its assessment of the severity of the situation. For additional information
regarding STP, see ITEM 7. MD&A.
Environmental Regulation
For a discussion of regulation by the various environmental agencies that
applies to the CSW System, see ENVIRONMENTAL MATTERS below.
FUEL RECOVERY
The recovery of fuel costs from retail customers by the U.S. Electric
Operating Companies is subject to regulation by the state utility commissions in
the states in which they operate. All of the U.S. Electric Operating Companies'
contracts with their wholesale customers contain FERC approved fuel-adjustment
provisions for recovery of fuel costs.
Texas Fuel Recovery - CPL, SWEPCO and WTU
Electric utilities in Texas, including CPL, SWEPCO and WTU, are not
allowed to make automatic adjustments to recover changes in fuel costs from
retail customers. A utility is allowed to recover its known or reasonably
predictable fuel costs through a fixed fuel factor. The Texas Commission
established procedures whereby each utility under its jurisdiction may petition
to revise its fuel factor every six months according to a specified schedule.
Fuel factors may also be revised in the case of emergencies or in a general rate
proceeding. Fuel factors are in the nature of temporary rates and the utility's
collection of revenues by such factors is subject to adjustment at the time of a
fuel reconciliation. Under these procedures, at its semi-annual adjustment date,
a utility is required to petition the Texas Commission for a surcharge or to
make a refund when it has materially under- or over-collected its fuel costs and
projects that it will continue to materially under- or over-collect. Material
under- or over-collections including interest are defined as variances of four
percent or more of the most recent Texas Commission adopted annual estimated
fuel cost for the utility. A utility does not have to revise its fuel factor
when requesting a surcharge or refund. An interim emergency fuel factor order
must be issued by the Texas Commission within 30 days after such petition is
filed by the utility. Final reconciliation of fuel costs is made through a
reconciliation proceeding, which may contain a maximum of three years and a
minimum of one year of reconcilable data, and must be filed with the Texas
Commission no later than six months after the end of the period to be
reconciled. In addition, a utility must include a reconciliation of fuel costs
in any general rate proceeding regardless of the time since its last fuel
reconciliation proceeding. Any fuel costs that are determined to be unreasonable
in a reconciliation proceeding are not recoverable from retail customers.
Oklahoma Fuel Recovery - PSO
In general, MWH sales to PSO's retail customers are made at rates which
include a service level fuel cost adjustment factor reflecting the difference
between projected fuel and purchased power costs and the fuel rate embedded in
PSO's base rates. The factors are determined semi-annually and are based upon
projected fuel, natural gas transportation, and purchased power costs. Any
difference between projected and actual costs is included in the fuel recovery
calculation for future periods. Oklahoma law requires that an examination of
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PSO's retail fuel cost adjustment factor be performed annually by the Oklahoma
Commission which approves the utility's embedded fuel rate per KWH.
Arkansas and Louisiana Fuel Recovery - SWEPCO
SWEPCO's retail rates currently in effect in Louisiana are adjusted based
on SWEPCO's cost of fuel in accordance with a fuel cost adjustment which is
applied to each billing month based on the second previous month's average cost
of fuel. Provision for any over- or under-recovery of fuel costs is allowed
under an automatic fuel clause. Under SWEPCO's fuel adjustment rider currently
in effect in Arkansas, the fuel cost adjustment is applied to each billing month
on a basis which permits SWEPCO to recover the level of fuel cost experienced
two months earlier. SWEPCO's fuel recovery mechanisms are subject to the
jurisdiction of the Arkansas Commission and the Louisiana Commission.
Recoverability of Fuel Costs
Under current regulation, the U.S. Electric Operating Companies recover
all their material fuel costs from their customers. The inability of any U.S.
Electric Operating Company to recover its fuel costs under the procedures
described above could have a material adverse effect on such company's results
of operations and financial condition.
See ITEM 7. MD&A and ITEM 8-NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
for further information with respect to regulatory, rate and fuel proceedings.
FUEL SUPPLY AND PURCHASED POWER
The U.S. Electric Operating Companies' present net dependable summer
rating power generation capabilities and the type of fuel used are set forth in
ITEM 2. PROPERTIES. Information concerning energy sources and cost data for the
years 1995 through 1997 is presented in the following tables. In addition,
detailed fuel cost and consumption information for 1997 is also presented.
1997 1996 1995
--------------------
CSW
Source of Energy (based on MW)
Natural Gas 36% 36% 43%
Coal 41 39 33
Lignite 9 9 9
Nuclear 7 8 7
Other -- 1 --
--------------------
Total Generated 93 93 92
Purchased Power 7 7 8
--------------------
Total 100% 100% 100%
--------------------
Fuel cost data
Average Btu per net KWH 10,405 10,440 10,299
Cost per MMBtu $1.83 $1.81 $1.58
Cost per KWH generated 1.90 1.89 1.63
cents cents cents
Cost, including purchased power, as a
percentage of revenue 38.1% 37.4% 35.0%
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1997 1996 1995
--------------------
CPL
Source of Energy (based on MW)
Natural Gas 50% 42% 51%
Coal 18 22 20
Nuclear 22 22 23
--------------------
Total Generated 90 86 94
Purchased Power 10 14 6
--------------------
Total 100% 100% 100%
--------------------
Fuel cost data
Average Btu per net KWH 10,386 10,391 10,175
Cost per MMBtu $1.83 $1.62 $1.37
Cost per KWH generated 1.90 1.68 1.39
cents cents cents
Cost, including purchased power, as a
percentage of revenue 32.9% 30.8% 28.7%
PSO
Source of Energy (based on MW)
Natural Gas 39% 43% 56%
Coal 48 46 37
--------------------
Total Generated 87 89 93
Purchased Power 13 11 7
--------------------
Total 100% 100% 100%
--------------------
Fuel cost data
Average Btu per net KWH 10,264 10,225 10,151
Cost per MMBtu $1.98 $2.04 $1.73
Cost per KWH generated 2.03 2.09 1.75
cents cents cents
Cost, including purchased power, as a
percentage of revenue 46.4% 45.1% 43.0%
SWEPCO
Source of Energy (based on MW)
Natural Gas 12% 15% 18%
Coal 52 45 45
Lignite 26 26 27
Other -- 4 --
--------------------
Total Generated 90 90 90
Purchased Power 10 10 10
--------------------
Total 100% 100% 100%
--------------------
Fuel cost data
Average Btu per net KWH 10,554 10,606 10,531
Cost per MMBtu $1.69 $1.76 $1.61
Cost per KWH generated 1.79 1.87 1.70
cents cents cents
Cost, including purchased power, as a
percentage of revenue 43.4% 45.1% 40.3%
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1997 1996 1995
--------------------
WTU
Source of Energy (based on MW)
Natural Gas 37% 46% 58%
Coal 36 35 32
--------------------
Total Generated 73 81 90
Purchased Power 27 19 10
--------------------
Total 100% 100% 100%
--------------------
Fuel cost data
Average Btu per net KWH 10,275 10,568 10,370
Cost per MMBtu $1.98 $2.01 $1.83
Cost per KWH generated 2.03 2.12 1.90
cents cents cents
Cost, including purchased power, as a
percentage of revenue 42.6% 43.5% 42.1%
1997
Fuel Type Cost 1997 Consumption
per MMbtu (millions)
- ------------------------------------------------
MMbtus Mcfs Tons
CSW
Natural gas $2.67 254 249
Coal 1.45 280 16
Lignite 1.19 65 5
Nuclear 0.51 52
Composite 1.83
CPL
Natural gas $2.53 124 121
Coal 1.38 41 2
Nuclear 0.51 52
Composite 1.83
PSO
Natural gas $2.89 67 65
Coal 1.22 81 4
Composite 1.98
SWEPCO
Natural gas $2.65 32 32
Coal 1.69 129 8
Lignite 1.19 65 5
Composite 1.69
WTU
Natural gas $2.81 31 31
Coal 1.09 29 2
Composite 1.98
Natural Gas
The U.S. Electric Operating Companies purchase their natural gas from a
number of suppliers operating in and around their service territories. In 1997,
approximately 36% of the U.S. Electric Operating Companies' total natural gas
purchases were made under long-term contracts and approximately 64% came from
short-term contracts and spot market purchases.
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CPL
CPL's eight gas-fired electric generating plants are supplied by a
portfolio of long-term and short-term natural gas purchase agreements through
multiple natural gas pipeline systems. Approximately 48% of CPL's total natural
gas requirements in 1997 were purchased under long-term arrangements
representing both purchase obligations and discretionary purchases. The balance
of CPL's natural gas requirements was acquired under short-term arrangements
from the spot market.
PSO
PSO's six gas-fired electric generating plants are supplied by a portfolio
of long-term and short-term natural gas purchase agreements. In 1997,
approximately 37% of PSO's natural gas requirements were provided under firm
contracts with the remaining requirements acquired from the spot market. In
order to comply with an Oklahoma Commission order issued in 1991, PSO has
contracted with two pipeline suppliers to connect to four of the natural
gas-fired generating units. Duke Energy Field Services, Inc. is now connected to
Riverside Power Station, and ONEOK Gas Marketing Company is connected to
Riverside Power Station, Northeastern Power Station, Southwestern Power Station
and Tulsa Power Station. Transok, a former affiliate, is still connected to all
six plants. These additional connections will give PSO greater access to
competitive supplies.
SWEPCO
SWEPCO purchased approximately 97% of its natural gas requirements in 1997
pursuant to spot purchase contracts. Since SWEPCO's five gas-fired electric
generating plants are used primarily for peaking requirements, a majority of
SWEPCO's natural gas requirements will continue to be purchased on the spot
market and will be subject to market conditions.
WTU
WTU purchases its natural gas requirements from numerous suppliers. The
long-term purchase contract with Lone Star Gas Company was renegotiated into a
long-term transportation agreement with Lone Star Pipeline Company during the
latter part of 1997. This new agreement will allow WTU to buy natural gas from
alternative suppliers. In 1997, WTU purchased approximately 22% of its natural
gas requirements under firm contracts with Lone Star Gas Company, and the
remaining 78% was purchased from a number of suppliers on the spot market.
Coal and Lignite
The U.S. Electric Operating Companies purchase coal from a number of
suppliers. In 1997, the U.S. Electric Operating Companies purchased
approximately 86% of their total coal purchases under long-term contracts with
the balance procured on the spot market. The coal for the CSW U.S. Electric
System plants comes primarily from Wyoming and Colorado mines which are located
between 1,000 and 1,700 rail miles from the generating plants.
Oklaunion - CPL, PSO and WTU
The jointly-owned Oklaunion plant purchases coal under a coal supply
contract with Caballo Coal Company which accounts for approximately 68% of the
total 1997 Oklaunion coal requirements for WTU, 68% for CPL and 69% for PSO with
the balance procured on the spot market. As of December 31, 1997, CPL's share of
the year-end 1997 coal inventory at Oklaunion was approximately 22,000 tons,
representing a 29-day supply. PSO's share was approximately 41,000 tons,
representing a 27-day supply. WTU's share was approximately 178,000 tons,
representing a 33-day supply.
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Burlington Northern supplies railcars to Oklaunion for the transportation
of coal pursuant to a tariff filed with the Interstate Commerce Commission,
whose authority in the matter was transferred to the STB effective January 1,
1996. In a decision issued May 3, 1996, the STB declared the rate set forth in
Burlington Northern's tariff of $19.36 per ton to be unreasonably high and
imposed a maximum rate of $13.68 per ton. On July 2, 1996, Burlington Northern
established the new rate for the transportation of coal to Oklaunion. Burlington
Northern appealed the May 3, 1996 decision and a related June 25, 1996 decision
to the U.S. Court of Appeals for the District of Columbia Circuit. On May 23,
1997, the STB decisions were upheld. Subsequently, on October 24, 1997, the STB
ordered Burlington Northern to pay reparations, including interest, to WTU on or
before November 24, 1997. On November 24, 1997, Burlington Northern paid WTU
approximately $12.4 million. WTU's share of this amount was $7 million; PSO's
share was $1.9 million; CPL's share was approximately $1 million, and the
outside participants' share was $2.5 million. WTU, CPL and PSO each credited its
respective fuel expense in November 1997 for the refund amounts.
Coleto Creek - CPL
CPL has a long-term coal supply agreement with Colowyo Coal Company
covering approximately 25% of the coal requirements of its Coleto Creek plant.
During 1997, this agreement was suspended and replaced with an agreement
pursuant to which both coal and coal transportation, using CPL-owned railcars,
were provided by Colowyo Coal Company, which, in turn, entered into
transportation agreements with Southern Pacific Transportation Company.
Approximately 83% of Coleto Creek's deliveries were furnished under this
agreement. The balance of the plant's coal deliveries resulted from spot
purchases of Powder River Basin coal that was delivered under spot rail
transportation agreements. Additionally, approximately 26,000 tons of coal were
purchased from a supplier in Columbia and transported via ship to the Port of
Corpus Christi where it was then transferred by train to the plant. At December
31, 1997, CPL had approximately 144,000 tons of coal in inventory at Coleto
Creek, representing a 21-day supply.
During 1998, CPL intends to purchase Powder River Basin coal on the spot
market for approximately 50% of the Coleto Creek plant requirements and will
transport such coal pursuant to a rail transportation agreement with Union
Pacific. The remainder of CPL's coal will be purchased from the Colowyo Coal
Company. This coal will also be transported by Union Pacific. As a result of the
recent merger between Union Pacific and the Southern Pacific Transportation
Company, Union Pacific is currently the only rail carrier with access to the
Coleto Creek Plant. In 1994, CPL instituted a proceeding at the Interstate
Commerce Commission requesting a reasonable rate for the 16 miles transported
from Victoria, Texas to Coleto Creek. Southern Pacific Transportation Company
moved to dismiss the complaint and, in a decision issued December 31, 1996, the
STB granted the motion. CPL has appealed this decision to the U.S. Court of
Appeals for the Eighth Circuit.
Northeastern Station - PSO
PSO has a contract with Kerr-McGee Coal Corporation, which substantially
covers the coal supply for PSO's Northeastern Station coal units through at
least 2004. Coal delivery is by unit trains from mines located in the Gillette,
Wyoming vicinity, a distance of about 1,100 rail miles from Northeastern
Station. PSO owns sufficient railcars for operation of six unit trains. Coal is
transported to Northeastern Station pursuant to a long-term contract with
Burlington Northern. The plant is also equipped to accept deliveries from Union
Pacific. At December 31, 1997, PSO had approximately 269,000 tons of coal in
inventory at Northeastern Station representing a 22-day supply.
Welsh and Flint Creek - SWEPCO
The long-term coal supply for SWEPCO's Welsh plant and its 50% owned Flint
Creek plant is provided under a contract with Cyprus/Amax. Coal under this
contract is mined near Gillette, Wyoming, a distance of about 1,500 and 1,100
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miles, respectively, from the Welsh and Flint Creek plants. Coal is delivered to
the plants under rail transportation contracts with Burlington Northern and the
Kansas City Southern Railroad Company having expiration dates ranging between
1997 and 2007. SWEPCO owns or leases under long-term leases sufficient railcars
and spares for operation of fifteen unit trains. SWEPCO has supplemented its
railcar fleet from time to time with short-term leases. At December 31, 1997,
SWEPCO had coal inventories of approximately 502,000 tons at Welsh representing
a 25-day supply and approximately 179,000 tons at Flint Creek representing a
24-day supply. See ITEM 8-NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS and NOTE
3. COMMITMENTS AND CONTINGENT LIABILITIES for additional information.
Pirkey and Dolet Hills - SWEPCO
SWEPCO has acquired lignite leases covering an aggregate of about 27,000
acres near the Henry W. Pirkey power plant. Sabine Mining Company is the
contract miner of these reserves. At December 31, 1997, approximately 231,000
tons of lignite were in SWEPCO's inventory at the Pirkey plant representing a
19-day supply. Another 25,000 acres are jointly leased in equal portions by
SWEPCO and CLECO in the Dolet Hills area of Louisiana near Dolet Hills Power
Plant. The DHMV is the contract miner for these reserves. At December 31, 1997,
SWEPCO had 161,000 tons of lignite in inventory at the Dolet Hills plant
representing a 28-day supply. In the opinion of the management of SWEPCO, the
acreage under lease in these areas contains sufficient reserves to cover the
anticipated lignite requirements for the estimated useful lives of the
lignite-fired plants.
Nuclear Fuel - CPL
The supply of fuel for STP involves a complex process. This process
includes the acquisition of uranium concentrate, the conversion of uranium
concentrate to uranium hexafluoride, the enrichment of uranium hexafluoride into
the isotope U235, the fabrication of the enriched uranium into fuel rods and
incorporation of fuel rods into fuel assemblies. The fuel assemblies are the
final product loaded into the reactor core. The time associated with this
process requires that fuel decisions be made years in advance of the actual need
to refuel the reactor. Fuel requirements for STP are being handled by the
STPNOC.
Outages are necessary approximately every 18 months for refueling. Because
STP's fuel costs are significantly lower than any of the other CPL units, CPL's
average fuel costs are expected to be higher whenever an STP unit is down for
refueling or maintenance.
CPL and the other STP participants have entered into contracts with
suppliers for 100% of the uranium concentrate sufficient for the operation of
both STP units through April 2001, with additional flexible contracts to provide
69% of the uranium concentrate needed for STP through 2002. In addition, CPL and
the other STP participants have entered into contracts with suppliers for 100%
of the nuclear fuel conversion service sufficient for the operation of both STP
units through November 1998, with additional flexible contracts to provide at
least 50% of the conversion service needed for STP through 2002. Enrichment
contracts were secured for a 30-year period from the initial operation of each
unit. The STP participants have canceled the enrichment requirements for the
period from October 2000 to September 2007 under a ten-year no-cost termination
provision of the enrichment contracts. The STP participants believe that other,
lower cost options will be available in the future. CPL and the other STP
participants have entered into additional flexible contracts to provide
enrichment service from October 2000 to December 2004. Also, nuclear fuel
fabrication services have been contracted for operation through 2005 for Unit 1
and 2006 for Unit 2. Although CPL and the other STP owners cannot predict the
availability of uranium and related services, CPL and the other STP owners do
not currently expect to have difficulty obtaining uranium and related services
required for the remaining years of STP operation.
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The Energy Policy Act has provisions for the recovery of a portion of the
costs associated with the decommissioning and decontamination of the gaseous
diffusion plants used in the enrichment process. These costs are being recovered
on the basis of enrichment services purchased by utilities from the DOE prior to
October of 1992. The total annual assessment for all domestic utilities is
limited to $150 million per federal fiscal year and assessable until October
2007. The STP assessment will be approximately $2.0 million each year with CPL's
share being 25.2% of the annual STP assessment.
The Nuclear Waste Policy Act of 1982, as amended, requires the DOE to
develop a permanent high level waste disposal facility for the storage of spent
nuclear fuel by 1998. The DOE last estimated that the permanent facility will be
available in 2010. The DOE will take possession of all spent fuel generated at
STP as a result of a contract CPL and other STP participants have entered into
with the DOE. STP has on-site storage facilities with the capability to store
all the spent nuclear fuel generated by the STP units over their lives.
Therefore, the DOE delay in providing the disposal facility will not impact the
operation of the STP units. Under provisions of the Nuclear Waste Policy Act of
1992, a one-mill per KWH assessment on electricity generated and sold from
nuclear reactors funds the DOE waste disposal program.
Risks of substantial liability could arise from the operation of STP and
from the use, handling, disposal and possible radioactive emissions associated
with nuclear fuel. While CPL carries insurance, the availability, amount and
coverage thereof is limited and may become more limited in the future. The
available insurance may not cover all types or amounts of loss or expense which
may be experienced in connection with the ownership of STP. See ITEM 8-NOTE 3.
COMMITMENTS AND CONTINGENT LIABILITIES for information relating to nuclear
insurance.
Governmental Regulation
The price and availability of each of the foregoing fuel types are
significantly affected by governmental regulation. Any inability in the future
to obtain adequate fuel supplies or adoption of additional regulatory measures
restricting the use of such fuels for the generation of electricity might affect
the CSW U.S. Electric System's ability to economically meet the needs of its
customers and could require the U.S. Electric Operating Companies to supplement
or replace, prior to normal retirement, existing generating capability with
units using other fuels. This would be impossible to accomplish quickly, would
require substantial additional expenditures for construction and could have a
significant adverse effect on CSW's and/or the U.S. Electric Operating
Companies' financial condition and results of operations.
The Registrants are unable to predict the future cost of fuel (The
foregoing statements constitute forward looking statements within the meaning of
Section 21E of the Exchange Act. Actual results may differ materially from such
projected information due to changes in the underlying assumptions. See FORWARD
LOOKING INFORMATION). See ITEM 7. MD&A and ITEM 8-NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS for additional information concerning fuel costs.
Power Purchases and Sales
The U.S. Electric Operating Companies serve various municipalities,
electric cooperatives and public power authorities. The U.S. Electric Operating
Companies exchange power with various neighboring electric systems and engage in
electric interchanges with each other. In addition, they contract with certain
suppliers including power marketers and independent power producers for the
purchase or sale of capacity, firm energy, responsive reserves and other
wholesale services.
15
<PAGE>
CPL - Magic Valley Electric Cooperative
CPL's largest wholesale customer, Magic Valley Electric Cooperative, is
currently served under an agreement that requires a five year notice of
termination. During 1996, the cooperative exercised such notice of termination.
Magic Valley Electric Cooperative's contract will expire July 23, 2001. During
1997, Magic Valley Electric Cooperative purchased 755 million KWHs from CPL
which represents 43% of CPL's sales for resale but only 3% of CPL's total sales.
WTU - Weatherford and Hearne
WTU began wholesale service to a new customer, the City of Weatherford,
Texas, in January 1997. Service to the City of Weatherford for its load of
approximately 55 MW will continue through the year 2001. WTU will begin
wholesale service to a new customer, the City of Hearne, Texas, in April 1998.
Service to the City of Hearne for its load of approximately 12 MW will continue
through March 2003.
ENVIRONMENTAL MATTERS
The CSW System is subject to regulation with respect to air and water
quality, solid waste standards and other environmental matters by various
governmental authorities. These authorities have continuing jurisdiction in most
cases to require modifications in facilities and operations. Any such changes in
environmental statutes or regulations could require substantial additional
expenditures to modify the CSW System's facilities and operations and could have
a material adverse effect on CSW and each of the U.S. Electric Operating
Companies' results of operations and financial condition. Violations of
environmental statutes or regulations can result in fines and other costs.
Air Quality
Air quality standards and emission limitations are subject to the
jurisdiction of state regulatory authorities in each state in which the CSW
System operates, with oversight by the EPA. In accordance with regulations of
these state authorities, permits are required for all generating units on which
construction is commenced or which are substantially modified after the
effective date of the applicable regulations.
In 1990, the U.S. Congress amended the Clean Air Act. CAAA places
restrictions on the emission of sulfur dioxide from gas-, coal- and
lignite-fired generating plants. Beginning in the year 2000, the U.S. Electric
Operating Companies will be required to hold allowances in order to emit sulfur
dioxide. The EPA issues allowances to owners of existing generating units based
on historical operating conditions. Based on the CSW U.S. Electric System
facilities plan, CSW believes that the U.S. Electric Operating Companies'
allowances are adequate to meet their needs at least through 2008. Public and
private markets are developing for trading of excess allowances.
As a result of requirements imposed by the CAAA, CSW spent approximately
$16 million over the three year period from 1995 to 1997 for annual testing of,
software modifications to, and maintenance of continuous emission monitoring
equipment. Approximately $0.6 million of this amount was spent in 1997.
Similarly, the expenditures for each of the U.S. Electric Operating Companies
are presented in the following table.
16
<PAGE>
CPL PSO SWEPCO WTU
-------------------------------
(thousands)
Total expenditures (1995-1997) $530 $310 $469 $295
Expenditures in 1997 194 100 166 102
The CAAA also directed the EPA to issue regulations governing nitrogen
oxide emissions and requiring government studies to determine what controls, if
any, should be imposed on utilities to control toxic air emissions. The acid
rain rules have not been released. Accordingly, the impact on CSW and the U.S.
Electric Operating Companies cannot be determined at this time.
Under the Acid Rain Title IV rules of the CAAA for nitrogen oxide control
for coal units, the U.S. Electric Operating Companies have elected alternate
standards for their units under an optional provision regarding emission limits.
This will eliminate any capital expenses through 2007, if the alternate
standards are met. Approximately $150,000 was expended in 1997 towards
optimizing nitrogen oxide emissions at the coal units to safeguard against
exceeding those limits.
There is a legislative initiative in Texas to have older units, which
were grandfathered under the CAAA, operate under permits and reduce emissions.
Based upon reduction levels being discussed, the U.S. Electric Operating
Companies' cost could be approximately $131 million. The time frame has not been
established for these controls. The issue will be considered in the 1999 Texas
legislative session.
The EPA recently promulgated revised, more stringent ambient air quality
standards for ozone and particulates. While these standards do not mandate
emission levels for facilities such as electricity generating power plants, they
may result in more areas being designated as non-attainment for these two
pollutants. States will be required to develop strategies to achieve compliance
in these areas, strategies that may include lower emission levels for
electricity generating power plants, possibly including facilities within the
CSW System. The impact, if any, on CSW or the U.S. Electric Operating Companies
cannot yet be determined, but the impact could be significant.
At the Kyoto Conference on Global Warming held in December 1997, U.S.
representatives agreed to a treaty which could require new limitations on
"greenhouse gases" from power plants. CSW and the U.S. Electric Operating
companies could be affected if this treaty is approved by Congress in its
present form. The impact, if any, on CSW or the U.S. Electric Operating
Companies cannot yet be determined, but the impact could be significant.
Water Quality
Water quality is subject to the jurisdiction of each of the state
regulatory authorities in which the U.S. Electric Operating Companies operate as
well as the EPA. These authorities have jurisdiction over all wastewater
discharges into state waters, establish water quality standards and issue waste
control permits covering discharges which might affect the quality of state
waters. The EPA has jurisdiction over point source discharges through the
National Pollutant Discharge Elimination System provisions of the Clean Water
Act.
RCRA and CERCLA
The RCRA and the Arkansas, Louisiana, Oklahoma and Texas solid waste rules
provide for comprehensive control of all solid wastes from generation to final
disposal. The appropriate state regulatory authorities in the states in which
the U.S. Electric Operating Companies operate have received authorization from
the EPA to administer the RCRA solid waste control program for their respective
states.
17
<PAGE>
The operations of the U.S. Electric Operating Companies, like those of
other utility systems, generally involve the use and disposal of substances
subject to environmental laws. CERCLA, the federal "Superfund" law, addresses
the cleanup of sites contaminated by hazardous substances. Superfund requires
that PRPs fund remedial actions regardless of fault or the legality of past
disposal activities. PRPs include owners and operators of contaminated sites and
transporters and/or generators of hazardous substances. Many states have similar
laws. Theoretically, any one PRP can be held responsible for the entire cost of
a cleanup. Typically, however, cleanup costs are allocated among PRPs.
CSW's subsidiaries incur significant costs for the handling,
transportation, storage and disposal of hazardous and non-hazardous waste
materials. Unit costs for waste classified as hazardous exceed by a substantial
margin unit costs for waste classified as non-hazardous.
The U.S. Electric Operating Companies, like other electric utilities,
produce combustion and other generation by-products, such as ash, sludge, slag,
low-level radioactive waste and spent nuclear fuel. The U.S. Electric Operating
Companies own distribution poles treated with creosote or other substances. The
EPA currently exempts coal combustion by-products from regulation as hazardous
wastes. Distribution poles treated with creosote or other substances are not
expected to exhibit characteristics that would cause them to be hazardous waste.
In connection with their operations, the U.S. Electric Operating Companies also
have used asbestos, PCBs and materials classified as hazardous waste. If
additional by-products or other materials generated or used by companies in the
CSW U.S. Electric System were reclassified as hazardous wastes, or other new
laws or regulations concerning hazardous wastes were put into effect, CSW System
disposal and remedial costs could increase materially. The EPA is expected to
issue new regulations stating whether certain other materials will be classified
as hazardous.
SEEBOARD
SEEBOARD's operations are subject to regulation with respect to water
quality standards and other environmental matters by various authorities within
the United Kingdom. Under certain circumstances, these authorities may require
modifications to SEEBOARD's facilities and operations or impose fines and other
costs for violations of applicable statutes and regulations. From time to time
SEEBOARD is made aware of various environmental issues or is named as a party to
various legal claims, actions, complaints or other proceedings related to
environmental matters. Management does not expect disposition of any such
pending environmental proceedings to have a material adverse effect on CSW's
consolidated results of operations or financial condition.
PSO Sand Springs/Grandfield, Oklahoma Sites
In 1989, PSO found some PCB contamination in a Sand Springs, Oklahoma PCB
storage facility. The EPA-approved cleanup began in 1994. In 1996, the EPA filed
a complaint against PSO alleging that PSO failed to comply with provisions of
the Toxic Substances Control Act. The complaint has three counts, two of which
pertain to the Sand Springs facility and the third of which deals with a
substation in Grandfield, Oklahoma. The EPA alleges improper disposal of PCBs at
the Sand Springs site due to the length of time between discovery of the
contamination and the actual cleanup at the site. The complaint at the
Grandfield site alleges failure to date PCB articles at the site. The total
proposed penalty for the three counts, which was accrued by PSO in 1996, was
$479,000. PSO settled all claims in the suit in March, 1998. The settlement did
not have a material adverse effect on CSW's or PSO's results of operations or
financial condition.
PSO Compass Industries Superfund Site
PSO has received notice from the EPA that it is a PRP under CERCLA and may
be required to share in the reimbursement of cleanup costs for the Compass
Industries Superfund site which has been remediated. PSO has been named
18
<PAGE>
defendant in a lawsuit filed in Federal District Court in Tulsa, Oklahoma on
August 29, 1994, for reimbursement of the cleanup costs. PSO's degree of
responsibility, if any, is believed to be insignificant, and management expects
that PSO will have an opportunity to pay its share of costs and remove itself
from the case. Accordingly, in 1995, PSO accrued $100,000 for this matter.
On March 19, 1996, a district judge ruled in favor of the defendants and
determined that the plaintiffs do not have a cause of action under CERCLA. The
plaintiffs may have a claim to funds expended after August 29, 1991. This
greatly reduces PSO's exposure since most of the remediation was completed prior
to this date. In October, 1996, the plaintiffs appealed this ruling, and PSO is
awaiting the outcome of this matter.
SWEPCO Biloxi, Mississippi MGP Site
SWEPCO was notified by Mississippi Power in 1994 that it may be a PRP at a
MGP site in Biloxi, Mississippi, which was formerly owned and operated by a
predecessor of SWEPCO. Since then, SWEPCO has worked with Mississippi Power on
both the investigation of the extent of contamination on the site as well as on
the subsequent sampling of the site. The sampling results indicated
contamination at the property as well as the possibility of contamination of an
adjacent property. A risk assessment was submitted to the MDEQ, and the MDEQ
requested that a future residential exposure scenario be evaluated for
comparison with commercial and industrial exposure scenarios. However,
Mississippi Power and SWEPCO do not believe that cleanup to a residential
scenario is appropriate since this site has been industrial/commercial for more
than 100 years, and Mississippi Power plans to continue this type of usage.
Mississippi Power and SWEPCO also presented a report to the MDEQ demonstrating
that the ground water on the site was not potable, further demonstrating that
cleanup to residential standards is not necessary.
The MDEQ has not agreed to a non-residential future land use scenario and
has requested further testing. Following the additional testing and resolution
of whether cleanup must meet a residential usage scenario or a
commercial/industrial scenario, a feasibility study will be conducted to more
definitively evaluate remedial strategies for the property. The feasibility
study process will require public input prior to a final decision being made.
At the present time, SWEPCO has not had any further substantive
discussions with MDEQ regarding the ultimate resolution of this issue.
Therefore, a final range of cleanup costs is not yet determinable. SWEPCO has
incurred approximately $200,000 to date for its portion of the cleanup of this
site, and based on its preliminary estimates, anticipates that an additional $2
million may be incurred. Accordingly, SWEPCO has accrued $2 million for the
cleanup of the site.
SWEPCO Voda Petroleum Superfund Site
In April 1996, SWEPCO received correspondence from the EPA notifying
SWEPCO that it is a PRP to a cleanup action planned for the Voda Petroleum
Superfund Site located in Clarksville, Texas. SWEPCO is conducting a records
review to compile documentation relating to SWEPCO's past use of the Voda
Petroleum site. The proposed cleanup of the site is estimated by the EPA to cost
approximately $2 million and to take approximately twelve months to complete. An
option for over 30 PRPs to conduct the cleanup in lieu of the EPA conducting the
cleanup is under consideration. Any SWEPCO liability associated with this
project is not expected to have a material adverse effect on its results of
operations or financial condition.
EMFs
Research is ongoing whether exposure to EMFs may result in adverse health
effects. Although earlier studies suggested a correlation between EMFs and some
types of effects, the research to date has not established a cause-and-effect
19
<PAGE>
relationship between EMFs and adverse health effects from electric lines.
Recently, more comprehensive studies have failed to show any correlation. CSW
cannot predict the impact on CSW or the electric utility industry if further
investigations or proceedings were to establish that the present electricity
delivery system is contributing to increased risk or incidence of health
problems.
Other Environmental Matters
From time to time the Registrants are made aware of various other
environmental issues or are named as parties to various other legal claims,
actions, complaints or other proceedings related to environmental matters.
Management does not expect disposition of any such pending environmental
proceedings to have a material adverse effect on CSW's or any of the U.S.
Electric Operating Companies' results of operations or financial condition.
See ITEM 7. MD&A, ITEM 8-NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
and NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES, for additional
information relating to environmental matters.
20
<PAGE>
OPERATING INFORMATION - U.S. ELECTRIC OPERATING COMPANIES
CSW
(excludes SEEBOARD)
1997 1996 1995
------------------------
Kilowatt-hour sales (millions)
Residential 17,995 17,883 16,872
Commercial 14,546 14,256 13,755
Industrial 21,087 20,266 19,321
Other retail 1,705 1,592 1,518
------------------------
Sales to retail customers 55,333 53,997 51,466
Sales for resale 7,824 8,428 8,468
------------------------
Total 63,157 62,425 59,934
------------------------
Average number of electric customers (thousands)
Residential 1,462 1,443 1,425
Commercial 214 210 206
Industrial 23 24 24
Other 13 13 13
-----------------------
Total 1,712 1,690 1,668
-----------------------
Revenue per KWH (cents)
Residential 6.96 6.95 6.75
Commercial 6.13 6.12 5.89
Industrial 3.85 3.85 3.63
Sales for Resale 3.11 3.03 2.65
Peak Load and Capability
Net system capability (MW) (1) 14,290 14,377 14,168
Maximum coincident system demand (MW) 13,105 12,613 12,314
Percentage increase in peak demand
over prior period 3.9% 2.4% 7.7%
Generation at time of peak (MW) 12,817 11,625 12,053
Percent of peak demand generated 97.8% 92.2% 97.9%
Net purchases at time of peak (MW) 288 988 261
Percent of net purchases at time of peak 2.2% 7.8% 2.1%
Date of maximum coincidentsystem demand July 28 July 22 July 28
The preceding table sets forth (i) the net system capability, including the net
amounts of contracted purchases and contracted sales, at the time of peak
demand, (ii) the maximum coincident system demand on a one-hour integrated
basis, exclusive of sales to other electric utilities and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.
(1)Does not include 310 MW of system capability in storage and 156 MW of system
capability in 1997 as described in ITEM 2. PROPERTIES, 358 MW of system
capability in storage in 1996, 392 MW of system capability in storage in 1995
and 54 MW of SWEPCO capability in 1995 that was not available at the peak due
to fuel procurement issues.
21
<PAGE>
CPL
1997 1996 1995
------------------------
Kilowatt-hour sales (millions)
Residential 6,771 6,680 6,223
Commercial 4,846 4,773 4,656
Industrial 7,999 7,610 7,250
Other retail 486 499 465
------------------------
Sales to retail customers 20,102 19,562 18,594
Sales for resale 1,737 2,029 1,680
------------------------
Total 21,839 21,591 20,274
------------------------
Average number of electric customers
Residential 538,700 536,500 526,900
Commercial 79,700 78,900 77,700
Industrial 5,600 5,700 5,700
Other 3,900 3,900 3,600
------------------------
Total 627,900 625,000 613,900
------------------------
Revenue per KWH (cents)
Residential 7.99 7.92 7.48
Commercial 8.26 8.13 7.63
Industrial 4.13 4.05 3.53
Sales for resale 4.06 3.56 3.10
Peak Load and Capability
Net system capability (MW) (1) 4,319 4,380 4,200
Maximum coincident system demand (MW) 4,232 4,046 3,862
Percentage increase in peak demand
over prior period 4.6% 4.8% 3.5%
Generation at time of peak (MW) 4,227 3,484 3,846
Percent of peak demand generated 99.9% 86.1% 99.6%
Net purchases at time of peak (MW) 5 562 16
Percent of net purchases at time of peak 0.1% 13.9% 0.4%
Date of maximum coincident system demand August 20 August 13 July 26
The preceding table sets forth (i) the net system capability, including the net
amounts of contracted purchases and contracted sales, at the time of peak
demand, (ii) the maximum coincident system demand on a one-hour integrated
basis, exclusive of sales to other electric utilities and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.
(1)Does not include 60 MW of system capability in storage in 1997 as described
in ITEM 2. PROPERTIES, 108 MW of system capability in storage in 1996 and 142
MW of system capability in storage in 1995.
22
<PAGE>
PSO
1997 1996 1995
------------------------
Kilowatt-hour sales (millions)
Residential 5,054 5,098 4,753
Commercial 4,698 4,621 4,427
Industrial 4,714 4,581 4,307
Other retail 192 81 80
------------------------
Sales to retail customers 14,658 14,381 13,567
Sales for resale 958 1,487 1,617
------------------------
Total 15,616 15,868 15,184
------------------------
Average number of electric customers
Residential 419,600 414,800 411,000
Commercial 55,300 54,400 53,800
Industrial 5,100 5,200 5,200
Other 1,400 1,400 1,400
------------------------
Total 481,400 475,800 471,400
------------------------
Revenue per KWH (cents)
Residential 5.88 5.89 5.89
Commercial 4.82 4.80 4.76
Industrial 3.44 3.45 3.43
Sales for Resale 3.23 2.64 2.12
Peak Load and Capability
Net system capability (MW) (1) 3,882 3,848 3,759
Maximum coincident system demand (MW) 3,474 3,360 3,292
Percentage increase in peak demand
over prior period 3.4% 2.1% 3.9%
Generation at time of peak (MW) 3,376 3,009 3,025
Percent of peak demand generated 97.2% 89.6% 91.9%
Net purchases at time of peak (MW) 98 351 267
Percent of net purchases at time of peak 2.8% 10.4% 8.1%
Date of maximum coincident system demand July 28 August 7 August 28
The preceding table sets forth (i) the net system capability, including the net
amounts of contracted purchases and contracted sales, at the time of peak
demand, (ii) the maximum coincident system demand on a one-hour integrated
basis, exclusive of sales to other electric utilities and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.
(1)Does not include 250 MW of system capability in storage in 1997 as described
in ITEM 2. PROPERTIES, and 250 MW of system capability in storage in 1996 and
1995.
23
<PAGE>
SWEPCO
1997 1996 1995
------------------------
Kilowatt-hour sales (millions)
Residential 4,549 4,487 4,406
Commercial 3,780 3,658 3,521
Industrial 6,968 6,833 6,531
Other retail 445 432 424
------------------------
Sales to retail customers 15,742 15,410 14,882
Sales for resale 6,791 6,395 5,002
------------------------
Total 22,533 21,805 19,884
------------------------
Average number of electric customers
Residential 356,600 353,200 349,000
Commercial 50,800 49,600 48,600
Industrial 5,800 5,900 5,800
Other 2,700 2,600 2,600
------------------------
Total 415,900 411,300 406,000
------------------------
Revenue per KWH (cents)
Residential 6.37 6.46 6.32
Commercial 5.08 5.19 5.03
Industrial 3.78 3.85 3.77
Sales for Resale 2.16 2.11 1.89
Peak Load and Capability
Net system capability (MW) (1) 4,636 4,554 4,783
Maximum coincident system demand (MW) 4,157 4,018 3,932
Percentage increase in peak demand
over prior period 3.5% 2.2% 11.5%
Generation at time of peak (MW) 3,839 3,608 4,022
Percent of peak demand generated 92.4% 89.8% 102.3%
Net purchases at time of peak (MW) 318 410 (90)
Percent of net purchases at time of peak 7.6% 10.2% (2.3)%
Date of maximum coincident system demand July 28 July 22 July 28
The preceding table sets forth (i) the net system capability, including the net
amounts of contracted purchases and contracted sales, at the time of peak
demand, (ii) the maximum coincident system demand on a one-hour integrated
basis, exclusive of sales to other electric utilities and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.
(1)Does not include 54 MW of system capability in storage in 1995 that was not
available at the peak due to fuel procurement issues.
24
<PAGE>
WTU
1997 1996 1995
------------------------
Kilowatt-hour sales (millions)
Residential 1,622 1,620 1,490
Commercial 1,223 1,203 1,152
Industrial 1,406 1,241 1,233
Other retail 580 581 549
------------------------
Sales to retail customers 4,831 4,645 4,424
Sales for resale 2,504 2,411 2,268
------------------------
Total 7,335 7,056 6,692
------------------------
Average number of electric customers
Residential 146,900 146,500 145,700
Commercial 27,800 27,600 27,000
Industrial 6,000 6,300 7,400
Other 6,000 5,700 5,600
------------------------
Total 186,700 186,100 185,700
------------------------
Revenue per KWH (cents)
Residential 7.68 7.67 7.67
Commercial 5.99 6.02 5.76
Industrial 4.05 4.22 4.17
Sales for Resale 3.55 3.69 3.26
Peak Load and Capability
Net system capability (MW) (1) 1,453 1,595 1,426
Maximum coincident system demand (MW) 1,481 1,433 1,435
Percentage increase (decrease) in peak
demand over prior period 3.3% (0.1)% 13.7%
Generation at time of peak (MW) 865 1,048 1,167
Percent of peak demand generated 58.4% 73.1% 81.3%
Net purchases at time of peak (MW) 616 385 268
Percent of net purchases at time of peak 41.6% 26.9% 18.7%
Date of maximum coincident system demand September 17 July 8 July 28
The preceding table sets forth (i) the net system capability, including the net
amounts of contracted purchases and contracted sales, at the time of peak
demand, (ii) the maximum coincident system demand on a one-hour integrated
basis, exclusive of sales to other electric utilities and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.
(1) Does not include 156 MW of system capability for 1997 as described in
ITEM 2. PROPERTIES.
25
<PAGE>
EMPLOYEES AND EXECUTIVE OFFICERS
The number of employees in the CSW System at December 31, 1997 is
presented in the table below. Of the employees listed below, 565 of the
positions at PSO and 805 of the positions at SWEPCO are covered under collective
bargaining agreements with the IBEW. In addition, 2,456 employees at SEEBOARD
are covered by collective agreements with several different unions. These unions
include the Amalgamated Electrical and Engineering Union, GMB, EMA, Unison and
the Transport and General Workers Union. For information related to ongoing
union negotiations at PSO, reference is made to ITEM 7. MD&A.
CSW SYSTEM EMPLOYEES
CPL 1,668
PSO 1,273
SWEPCO 1,529
WTU 907
SEEBOARD 4,161
CSW Services 1,553
Other Non-Regulated Businesses 324
------
11,415
------
EXECUTIVE OFFICERS Age at
March 1, Present Position
1998
- -------------------------------------------------------------------------------
E. R. Brooks 60 Chairman, CEO and Director
T. V. Shockley, III 52 President, Chief Operating Officer and Director
Glenn Files 50 Senior Vice President, Electric Operations
Ferd. C. Meyer, Jr. 57 Executive Vice President and General Counsel
Glenn D. Rosilier 50 Executive Vice President and Chief Financial
Officer
Thomas M. Hagan 53 Senior Vice President, External Affairs
Venita McCellon-Allen 38 Senior Vice President, Customer Relations and
Corporate Development and Assistant Corporate
Secretary
Kenneth C. Raney 46 Vice President, Associate General Counsel and
Corporate Secretary
Wendy G. Hargus 40 Treasurer
Lawrence B. Connors 46 Controller
The information in the foregoing table is included in Part I pursuant to
Regulation S-K, Item 401(b), Instruction 3. Each of the executive officers of
CSW is elected to hold office until the first meeting of CSW's Board of
Directors after the next annual meeting of stockholders. CSW's next annual
meeting of stockholders is scheduled to be held May 28, 1998. Each of the
executive officers listed in the table above has been employed by CSW or an
affiliate of CSW in an executive or managerial capacity for at least the last
five years.
26
<PAGE>
ITEM 2. PROPERTIES.
U.S. ELECTRIC OPERATING COMPANIES
The total capabilities (MW, net dependable summer rating) of the U.S.
Electric Operating Companies, which owned the following electric generating
units or portions thereof in the case of jointly owned facilities, as of
December 31, 1997 are shown in the following table. These properties are all
located in either Arkansas, Louisiana, Oklahoma or Texas.
Natural Lignite Nuclear Other Total
Company Stations Gas MW Coal MW MW MW MW (a) MW (b)
- ---------------------------------------------------------------------
CPL 12 3,056 685 630 6 4,377(c)
PSO 8 2,629 1,006 25 3,660(c)
SWEPCO 9 1,784 1,848 842 4,474
WTU 11 847 370 11 1,228(c)
--------------------------------------------------------
CSW 40 8,316 3,909 842 630 42 13,739
--------------------------------------------------------
(a) Some plants have the capability of burning oil in combination with gas. Use
of oil in facilities primarily designed to burn gas results in increased
maintenance expense and a slight reduction in capability. PSO and WTU have
25 MW and 11 MW, respectively, of facilities primarily designed to burn oil.
(b) Data reflects only the U.S. Electric Operating Companies' portion of plants
which are jointly owned with non-affiliates. For additional information
concerning jointly owned facilities see ITEM 8-NOTE 6.
JOINTLY OWNED ELECTRIC UTILITY PLANT.
(c) Excludes 310 MW from units in storage, consisting of 60 MW at Victoria for
CPL and 250 MW at Tulsa for PSO of which 125 MW will be available in March
1998. Excludes 117 MW at Paint Creek and 39 MW at Rio Pecos for WTU which
will be available in June 1998.
All of the generating facilities described above are located on land owned
by the U.S. Electric Operating Companies or, in the case of jointly owned
facilities, jointly with other participants. The U.S. Electric Operating
Companies' electric transmission and distribution facilities are mostly located
over or under highways, streets and other public places or property owned by
others, for which permits, grants, easements or licenses (which the U.S.
Electric Operating Companies believe to be satisfactory, but without examination
of underlying land titles) have been obtained. The principal plants and
properties of the U.S. Electric Operating Companies are subject to the liens of
the first mortgage indentures under which the U.S. Electric Operating Companies'
FMBs are issued.
OTHER PROPERTIES
In addition to the generating facilities described above, CSW has
ownership interests in other electrical generating facilities, both foreign and
domestic. Information concerning these facilities is listed below.
27
<PAGE>
Capacity Capacity Ownership
Company Location Total Committed Interest Status
-------------------------------------------------------
Operating Facilities -
United States
Brush II CSW Energy Colorado 68 68 47% QF
Ft. Lupton CSW Energy Colorado 272 272 50% QF
Mulberry CSW Energy Florida 120 110 50% QF
Orange Cogen CSW Energy Florida 103 97 50% QF
Newgulf CSW Energy Texas 85 n/a 100% IPP
Sweeny CSW Energy Texas 330 90 50% QF
------------
978 637
------------
Operating Facilities - International
Medway CSW International United Kingdom 675 675 37.5% n/a
Enertek CSW International Mexico 109 109 50% FUCO
------------
784 784
------------
CAPITAL EXPENDITURES
The CSW System, including the U.S. Electric Operating Companies, maintains
a continuing construction program, the nature and extent of which is based upon
current and estimated demands upon the system. In addition, the CSW System
requires capital to invest in new enterprises, either through equity investments
or loans to projects, when deemed appropriate. See ITEM 7. MD&A for detailed
information related to historical and projected capital expenditures.
ITEM 3. LEGAL PROCEEDINGS.
The Registrants are parties to various legal claims, actions and
complaints arising in the normal course of business which are not described
herein. Management does not expect disposition of these matters to have a
material adverse effect on any of the Registrants' results of operations or
financial condition. See ITEM 1. BUSINESS, ITEM 7. MD&A and ITEM 8-NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS for information relating to pending legal,
environmental and regulatory proceedings.
28
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
CSW None.
CPL None.
PSO None.
SWEPCO None.
WTU None.
29
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
CSW COMMON STOCK INFORMATION
1997 1996
Market Price Dividends Market Price Dividends
High Low Paid High Low Paid
------- ------ ---------- ------- ------- ----------
First Quarter $25 3/4 $21 1/4 43.5(cent) $28 1/2 $26 3/8 43.5(cent)
Second Quarter 22 1/8 18 1/4 43.5 28 7/8 26 1/2 43.5
Third Quarter 22 7/16 19 3/4 43.5 28 1/2 25 3/4 43.5
Fourth Quarter 27 5/16 20 5/8 43.5 28 25 1/2 43.5
CSW's common stock is traded under the ticker symbol CSR and listed on
the New York Stock Exchange, Inc. and Chicago Stock Exchange, Inc. Market prices
were obtained from the composite listing of all closing prices on CSW Common
trades as reported on Bloomberg Financial Commodities News.
In January 1998, CSW's board of directors elected to maintain the
quarterly dividend, payable on February 27, 1998, to stockholders of record on
February 9, 1998, unchanged at $0.435 per share, or an indicated rate of $1.74
per year.
CSW plans to continue to pay dividends on its common stock until the
closing of the AEP Merger at approximately the same times and at rates per share
as was paid during 1997, subject to continuing evaluation of CSW's financial
condition and earnings by the CSW board of directors. Traditionally, the CSW
board of directors has declared dividends to be payable on the last business day
of February, May, August, and November.
There were approximately 65,000 record holders of CSW's common stock as
of March 6, 1998. See NOTE 12. COMMON STOCK for information on CSW Common.
CPL, PSO, SWEPCO AND WTU COMMON STOCK INFORMATION
All of the outstanding shares of common stock of the U.S. Electric
Operating Companies are owned by CSW. Consequently, there is no market for their
common stock. Cash dividends declared and paid to CSW on their common stock for
1997 and 1996 are presented in the following table.
CPL PSO SWEPCO WTU
-------- ------- -------- -------
(thousands)
1997 $157,000 $59,000 $90,000 $26,000
1996 $128,000 $35,000 $44,000 $19,000
During 1997, the common stock dividends paid to CSW by the U.S.
Electric Operating Companies were higher than 1996 because of increased earnings
available for common in 1997 at the U.S. Electric Operating Companies. This
resulted primarily from charges associated with certain investments for plant
sites, engineering studies and lignite reserves of the U.S. Electric Operating
Companies during 1996. For information related to restrictions on the ability of
the U.S. Electric Operating Companies to pay dividends to CSW, see NOTE 8.
LONG-TERM DEBT.
CSW
2-1
<PAGE>
Reference is made to the page numbers noted in the table below for the locations
of the following items:
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page Number
CSW CPL PSO SWEPCO WTU
----- ----- ----- ------ -----
SELECTED FINANCIAL DATA 2-4 2-81 2-95 2-108 2-121
MD&A (1) 2-5 2-5 2-5 2-5 2-5
RESULTS OF OPERATIONS 2-29 2-82 2-96 2-109 2-122
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 2-35 2-85 2-98 2-111 2-124
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 2-76 2-92 2-105 2-118 2-131
REPORT OF MANAGEMENT 2-79 2-93 2-106 2-119 2-132
(1) In 1997 CSW combined the MD&A sections of the Registrants except for the
Results of Operations which are located at the page numbers indicated in
the table above.
CSW
2-2
<PAGE>
CENTRAL AND SOUTH WEST
CORPORATION
CSW
2-3
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for each of the five years ended
December 31 is provided to highlight significant trends in the financial
condition and results of operations for CSW. CSW recorded the United Kingdom
windfall profits tax in the third quarter of 1997 as an extraordinary item. CSW
sold Transok in 1996. Accounting rules require the classification of both the
sale and the actual operating results prior to such sale as discontinued
operations. In addition to the Transok reclassifications, certain other
financial statement items for prior years have been reclassified to conform to
the 1997 presentation.
1997(1) 1996(2) 1995 1994 1993(3)
-------- ------- ------ ------- -------
(millions, except per share and ratio data)
INCOME STATEMENT DATA
Revenues $5,268 $5,155 $3,143 $3,105 $3,084
Income from continuing operations 329 297 377 369 247
Income before extraordinary item and
cumulative effect of changes in
accounting principles 329 429 402 394 260
Net income for common stock 153 429 402 394 308
EPS of common stock from continuing
operations $1.55 $1.43 $1.97 $1.95 $1.32
EPS of common stock $0.72 $2.07 $2.10 $2.08 $1.63
Dividends paid per share of common
stock $1.74 $1.74 $1.72 $1.70 $1.62
Average common shares outstanding 212.1 207.5 191.7 189.3 188.4
BALANCE SHEET DATA
Assets $13,451 $13,332 $13,869 $11,066 $10,604
Long-term obligations (4) 4,259 4,057 3,948 2,975 2,807
Capitalization ratios
Common stock equity 45% 47% 43% 48% 49%
Preferred stock 2 4 4 5 6
Certain Subsidiary-obligated,
mandatorily redeemable
preferred securities of
subsidiary trusts holding
solely Junior Subordinated
Debentures of such Subsidiaries 4 -- -- -- --
Long-term debt 49 49 53 47 45
(1) Earnings in 1997 decreased significantly due primarily to the accrual of
the United Kingdom Windfall Profits Tax. Also contributing to the decline
in earnings was the effect of both the CPL 1997 Final Order and the PSO
1997 Rate Settlement Agreement. Further reducing earnings in 1997 was the
settlement of litigation with El Paso and the write-offs associated with
other assets including certain regulatory assets, capitalized demand side
management energy efficiency assets and obsolete inventory.
(2) Revenues in 1996 increased significantly due to the acquisition of
SEEBOARD. Earnings in 1996 were significantly impacted by the charges
associated with certain investments for plant sites, engineering studies
and lignite reserves at the U.S. Electric Operating Companies, the
write-off of certain investments at CSW Energy and the gain realized on the
sale of Transok.
(3) Earnings in 1993 were significantly impacted by restructuring charges, the
$46 million cumulative effect of changes in accounting principles, the
establishment of reserves for fuel and other properties and prior year tax
adjustments.
(4) Long-term obligations includes long-term debt, Trust Preferred Securities
and preferred stock subject to mandatory redemption.
CSW
2-4
<PAGE>
REGISTRANTS' COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND CENTRAL AND SOUTH WEST CORPORATION'S
RESULTS OF OPERATIONS
Reference is made to CSW's Consolidated Financial Statements and
related Notes to Consolidated Financial Statements and Selected Financial Data.
The information contained therein should be read in conjunction with, and is
essential in understanding, the following discussion and analysis. The RESULTS
OF OPERATIONS of CSW and the U.S. Electric Operating Companies precede their
financial statements.
OVERVIEW
The electric utility industry is changing rapidly as it is becoming
more competitive. In anticipation of increasing competition and fundamental
changes in the industry, CSW's management is implementing a strategic plan
designed to help position CSW to be competitive in this rapidly changing
environment and is developing an emerging global energy business.
CSW has undertaken key initiatives in the implementation of this
overall strategy and is determining new directions for the corporation's future.
One of these new directions is the proposed merger between AEP and CSW that was
announced in December 1997. CSW would become a subsidiary of AEP in the proposed
merger. The proposed merger would join two companies which are low cost
providers of electricity and would achieve greater economies of scale than
either company could achieve on its own. In 1997, CSW International doubled its
investment in a Brazilian electric distribution utility and made other
investments in Latin America. CSW continues to pursue the acquisition of the
non-nuclear generating assets of Cajun, a Louisiana member electric cooperative.
C3 Communications' joint venture limited partnership, ChoiceCom, has entered the
local telephone markets in the Texas cities of Austin, Corpus Christi and San
Antonio and plans to enter the markets of Dallas and Houston offering a variety
of telecommunications services. These events are discussed below and elsewhere
in this report.
CSW believes that, compared to other electric utilities, the CSW System
is well positioned to capitalize on the opportunities and challenges of an
increasingly deregulated and competitive market for the generation, transmission
and distribution of electricity (The foregoing statement constitutes a forward
looking statement within the meaning of Section 21E of the Exchange Act. Actual
results may differ materially from such projected information due to changes in
the underlying assumptions. See FORWARD LOOKING INFORMATION). The CSW System
benefits from economies of scale by virtue of its size and is a reliable and
relatively low-cost provider of electric power. Specifically, CSW seeks
competitive advantages through its diverse and stable customer base, competitive
prices for electricity, diversified fuel mix, extensive transmission
interconnections, diversity of regulation and financial flexibility. See RECENT
DEVELOPMENTS AND TRENDS for additional information.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW OF OPERATING, INVESTING AND FINANCING ACTIVITIES
Net cash provided by operating activities decreased $149 million during
1997 compared to 1996. The decrease was primarily attributable to the December
1997 payment of $88 million on the first installment of the windfall profits tax
imposed on SEEBOARD in the United Kingdom. In addition, increased factored
accounts receivable purchases at CSW Credit, federal and state income tax
payments for the gain on CSW's 1996 sale of Transok which totaled approximately
$122 million (after being offset in part by the utilization of Alternative
Minimum Tax credits that CSW had previously generated), and a $35 million
CSW
2-5
<PAGE>
payment related to the settlement of litigation between CSW and El Paso all
contributed to the decrease. Offsetting part of the decrease, the U.S. Electric
Operating Companies realized greater fuel recovery during 1997 compared to 1996.
Net cash used in investing activities was $904 million in 1997 compared
to $1.3 billion in 1996. There were no acquisition expenditures during 1997
while $1.4 billion in SEEBOARD acquisition expenditures were made during 1996.
However, during 1996, CSW received $690 million in cash on the sale of Transok
and $99 million on the sale of the National Grid shares. During 1997, while
CSW's total construction expenditures decreased $14 million compared to 1996, a
combined total of approximately $294 million was invested by CSW Energy and CSW
International in 1997 on several projects compared to $124 million in 1996. In
addition, during 1997, CSW Energy made its final payment on the Ft. Lupton
cogeneration project which was more than offset by the reduction of CSW Energy's
equity investment in the Orange cogeneration project when permanent external
financing was obtained on the project.
Net cash flows from financing activities decreased substantially during
1997 compared to 1996. During 1996, CSW incurred substantial debt to finance the
acquisition of SEEBOARD. In addition, CSW sold approximately 15.5 million shares
of common stock and received net proceeds of approximately $398 million in a
primary public offering in 1996, the proceeds of which were subsequently used to
repay a portion of the debt incurred in connection with the SEEBOARD
acquisition. CSW Energy also issued $200 million in Senior Notes during 1996.
During 1997, CSW made changes in its common stock plans and stopped issuing
original shares through these plans. Consequently, $20 million in new common
stock was issued pursuant to these plans in 1997 compared to $79 million in
1996. CPL's $200 million Series BB, 6% FMBs also matured in 1997. However,
offsetting a portion of the decrease, the business trusts of CPL, PSO and SWEPCO
received cash proceeds of approximately $323 million from the issuance of Trust
Preferred Securities during 1997. These proceeds were used primarily to redeem
preferred stock and repay short-term debt of the companies.
The non-cash impacts of exchange rate differences on the translation of
foreign currency denominated assets and liabilities were recorded on a separate
line on the cash flow statement in accordance with accounting guidelines.
INTERNALLY GENERATED FUNDS
Internally generated funds, which consist of cash flows from operating
activities less common and preferred stock dividends, should meet most of the
capital requirements of the CSW System. However, CSW's strategic initiatives,
including expanding CSW's core electric utility and non-utility businesses
through acquisitions or otherwise, may require additional capital from external
sources. For a description of certain restrictions on CSW's ability to raise
capital from external sources, see PROPOSED AEP MERGER. Productive investment of
net funds from operations in excess of capital expenditures and dividend
payments is necessary to enhance the long-term value of CSW for its investors.
CSW is continually evaluating the best use of these funds. CSW's internally
generated funds totaled $343 million, $499 million and $451 million for 1997,
1996 and 1995, respectively. Internally generated funds for the U.S. Electric
Operating Companies are detailed in the following table.
CSW
2-6
<PAGE>
1997 1996 1995
------------------------
CPL ($ - millions)
Internally Generated Funds $172 $268 $100
Construction Expenditures Provided
by Internally Generated Funds 136% 196% 66%
PSO
Internally Generated Funds $62 $107 $88
Construction Expenditures Provided
by Internally Generated Funds 78% 128% 89%
SWEPCO
Internally Generated Funds $108 $153 $100
Construction Expenditures Provided
by Internally Generated Funds 100% 165% 96%
WTU
Internally Generated Funds $69 $52 $12
Construction Expenditures Provided
by Internally Generated Funds 217% 121% 27%
CAPITAL EXPENDITURES
The CSW System's need for capital results primarily from its
construction of facilities to provide reliable electric service to its
customers, and the historical capital requirements of the CSW System have been
primarily for the construction of electric utility plant. However, current
projected capital expenditures are expected to be primarily for existing
distribution systems and for various non-utility investments. The U.S. Electric
Operating Companies maintain a continuing construction program, the nature and
extent of which is based upon current and estimated future demands upon the
system. Planned construction expenditures for the U.S. Electric Operating
Companies for the next three years are primarily to improve and expand
distribution facilities and will be funded primarily through internally
generated funds. These improvements will be required to meet the anticipated
needs of new customers and the growth in the requirements of existing customers.
CSW regularly evaluates its capital spending policies and generally
seeks to fund only those projects and investments that management believes will
offer satisfactory returns in the current environment. Consistent with this
strategy, the CSW System is likely to continue to make additional investments in
energy-related and non-utility businesses and will continue to search for
electric utility companies or other electric utility properties to acquire.
Primary sources of capital for these expenditures are long-term debt, trust
preferred securities and preferred stock issued by the U.S. Electric Operating
Companies, long-term and short-term debt issued by CSW, as well as internally
generated funds. Historically, the issuance of common stock by CSW has also been
a source of capital. CSW Energy and CSW International typically use various
forms of non-recourse project financing to provide a portion of the capital
required for their respective projects as well as utilizing long-term debt for
other investments. Although CSW and each of the U.S. Electric Operating
Companies expect to fund the majority of their respective capital expenditures
for their existing utility systems through internally generated funds, for any
significant investment or acquisition, additional funds from the capital markets
may be required. For a description of certain restrictions on CSW's ability to
raise capital from external sources, including through the issuance of common
stock, see PROPOSED AEP MERGER.
The historical and estimated capital expenditures for the CSW System,
including the U.S. Electric Operating Companies, SEEBOARD and other diversified
operations are shown in the CAPITAL EXPENDITURES table. The amounts include
construction expenditures for the U.S. Electric Operating Companies and, for
SEEBOARD and CSW's other diversified operations, construction expenditures and
net equity investments. It does not include the $2.1 billion used to acquire
SEEBOARD during 1995 and 1996. The majority of the capital expenditures for the
U.S. Electric Operating Companies for 1995 through 1997 were spent on
distribution facilities. It is anticipated that the majority of the estimated
capital expenditures for 1998 through 2000 will be for distribution facilities
as well. For a description of certain restrictions on CSW's ability to make
capital expenditures, including through the issuance of common stock, see
PROPOSED AEP MERGER (The table and statements below contain forward looking
information within the meaning of Section 21E of the Exchange Act. Actual
CSW
2-7
<PAGE>
results may differ materially from such projected information due to changes in
the underlying assumptions. See FORWARD LOOKING INFORMATION).
CAPITAL EXPENDITURES
Estimated expenditures
1995 1996 1997 1998 1999 2000
-------------------- --------------------
(millions including AFUDC)
CSW $495 $644 $760 $569 $586 $595
CPL 155 139 130 129 157 136
PSO 102 85 82 71 75 89
SWEPCO 115 95 110 95 116 122
WTU 45 44 33 36 42 47
Estimated capital expenditures for 1998 - 2000 do not include expenditures for
acquisition-type investments
Although CSW does not believe that the U.S. Electric Operating
Companies will require substantial additions of generating capacity over the
next several years, the U.S. Electric system's internal resource plan presently
anticipates that any additional capacity needs will come from a variety of
sources including power purchases. Refer to INTEGRATED RESOURCE PLAN for
additional information regarding the U.S. Electric System's capacity needs.
INFLATION
Annual inflation rates, as measured by the U.S. Consumer Price Index,
have averaged approximately 2.4% during the three years ended December 31, 1997.
CSW believes that inflation, at this level, does not materially affect CSW's
results of operations or financial position. However, under existing regulatory
practice, only the historical cost of plant is recoverable from customers. As a
result, cash flows designed to provide recovery of historical plant costs may
not be adequate to replace plant in future years.
FINANCIAL STRUCTURE, SHELF REGISTRATIONS AND CREDIT RATINGS
As of December 31, 1997, the capitalization ratios of CSW were 45%
common stock equity, 2% preferred stock, 4% Trust Preferred Securities and 49%
long-term debt. CSW is committed to maintaining financial flexibility through a
strong capital structure and favorable securities ratings in order to access
capital markets opportunistically or when required. CSW continually monitors the
capital markets for opportunities to lower its cost of capital through
refinancing activities. The estimated embedded cost of long-term debt for CSW
and the U.S. Electric Operating Companies is shown below.
CSW 7.2%
CPL 6.8
PSO 6.9
SWEPCO 6.8
WTU 6.7
CSW can issue common stock, either through the purchase and reissuance
of shares from the open market or original issue shares, to fund its LTIP, stock
option plan, PowerShare plan and ThriftPlus plan. Following the issuance of the
CPL 1997 Original Rate Order and the decline in the market price of CSW Common,
which CSW believes was attributable in part to the CPL 1997 Original Rate Order,
the determination was made that it was appropriate for CSW to begin funding
these plans through open market purchases, effective April 1, 1997. Prior to
that time, CSW had issued $20 million in new common stock in 1997. CPL has shelf
registration statements on file for the issuance of up to $60 million of FMBs
and up to $75 million of preferred stock, and PSO has a shelf registration
statement on file for the issuance of up to $35 million of Senior Notes. For a
description of certain restrictions on CSW's ability to raise capital from
external sources, see PROPOSED AEP MERGER.
CSW
2-8
<PAGE>
The current securities ratings for each of the Registrants is presented
in the following table, including the securities rating on the Trust Preferred
Securities issued by CPL Capital I, PSO Capital I and SWEPCO Capital I.
Duff & Standard
Moody's Phelps & Poor's
----------------------------------
CPL
First mortgage bonds A3 A A
Senior unsecured Baa1 A- A-
Preferred stock baa1 BBB+ A-
Trust preferred (CPL Capital I) baa1 BBB+ A-
Junior subordinated deferrable
interest debentures Baa2 -- --
PSO
First mortgage bonds A1 AA- AA-
Senior unsecured A2 A+ A
Preferred stock a3 A+ A
Trust preferred (PSO Capital I) a2 A+ A
Junior subordinated deferrable
interest debentures A3 -- --
SWEPCO
First mortgage bonds Aa3 AA AA-
Senior unsecured A1 AA- A
Preferred stock a1 AA- A
Trust preferred (SWEPCO Capital I) aa3 AA- A
Junior subordinated deferrable
interest debentures A2 -- --
WTU
First mortgage bonds A2 A+ A
Senior unsecured A3 -- A-
Preferred stock a3 A A-
CSW
Commercial paper P-2 D-2 A-2
These securities ratings may be revised or withdrawn at any time, and each
rating should be evaluated independently of any other rating.
LONG-TERM FINANCING
On April 24, 1997, PSO's business trust, PSO Capital I, sold to
underwriters in a negotiated offering $75 million, 8.00% Series A, Trust
Originated Preferred Securities due April 30, 2037. The proceeds from the sale
of these securities were used by PSO to repay short-term debt, to reimburse
PSO's treasury for the cost of reacquiring approximately $14.5 million of 4.00%
Series and 4.24% Series preferred stock, to provide working capital and for
other general corporate purposes. Settlement of the transaction occurred on May
2, 1997. PSO Capital I is treated as a subsidiary of PSO whose only assets are
the approximately $77.3 million principal subordinated debentures issued by PSO.
In addition to PSO's obligation under the subordinated debentures, PSO has also
agreed to a security obligation which represents a full and unconditional
guarantee of PSO Capital I's trust obligations.
On April 30, 1997, SWEPCO's business trust, SWEPCO Capital I, sold to
underwriters in a negotiated offering $110 million, 7.875% Series A, Trust
Preferred Securities due April 30, 2037. The proceeds from the sale of these
securities were used by SWEPCO to repay short-term debt, to reimburse SWEPCO's
treasury for the cost of reacquiring approximately $15.5 million of 4.28%
Series, 4.65% Series, 5.00% Series and 6.95% Series preferred stock, to provide
working capital and for other general corporate purposes. Settlement of the
transaction occurred on May 8, 1997. SWEPCO Capital I is treated as a subsidiary
of SWEPCO whose only assets are the approximately $113.4 million principal
subordinated debentures issued by SWEPCO. In addition to SWEPCO's obligation
CSW
2-9
<PAGE>
under the subordinated debentures, SWEPCO has also agreed to a security
obligation which represents a full and unconditional guarantee of SWEPCO Capital
I's trust obligations.
On May 8, 1997, CPL's business trust, CPL Capital I, sold to
underwriters in a negotiated offering $150 million, 8.00% Series A, Cumulative
Quarterly Income Preferred Securities due April 30, 2037. The proceeds from the
sale of these securities were used by CPL to repay short-term debt, to reimburse
CPL's treasury for the cost of reacquiring approximately $87.5 million of 4.00%
Series, 4.20% Series, 7.12% Series and 8.72% Series preferred stock, to provide
working capital and for other general corporate purposes. Settlement of the
transaction occurred on May 14, 1997. CPL Capital I is treated as a subsidiary
of CPL whose only assets are the approximately $154.6 million principal
subordinated debentures issued by CPL. In addition to CPL's obligation under the
subordinated debentures, CPL has also agreed to a security obligation which
represents a full and unconditional guarantee of CPL Capital I's trust
obligations.
In March 1997, an affiliate of Orange Cogeneration Limited Partnership,
an entity that is 50% indirectly owned by CSW Energy and accounted for by the
equity method of accounting, issued $110 million, 8.175% Senior Secured Bonds,
due 2022. The bonds are unconditionally guaranteed by Orange Cogeneration
Limited Partnership. Concurrently, $53.2 million was distributed to CSW Energy
representing its equity investment in the Orange Cogeneration project.
SHORT-TERM FINANCING AND ACCOUNTS RECEIVABLE FACTORING
The CSW System uses short-term debt, primarily commercial paper, to
meet fluctuations in working capital requirements and other interim capital
needs. CSW has established a system money pool to coordinate short-term
borrowings for certain of its subsidiaries, primarily the U.S. Electric
Operating Companies. In addition, CSW also incurs borrowings for other
subsidiaries that are not included in the money pool. As of December 31, 1997,
CSW had a revolving credit facility totaling $1.4 billion to back up its
commercial paper program. At December 31, 1997 CSW had $721 million outstanding
in short-term borrowings. The maximum amount of short-term borrowings
outstanding during the year, which had a weighted average interest yield for the
year of 5.8%, was $725 million during December 1997. Information concerning
short-term borrowings for each of the U.S. Electric Operating Companies is
presented in the following table.
Maximum
Borrowing Amount Date of Maximum
Limit Borrowed Borrowed
-------------- -------------- -----------------
($ - millions)
CPL $300 $149 December 30, 1997
PSO 125 89 February 4, 1997
SWEPCO 150 83 April 23, 1997
WTU 65 44 April 11, 1997
CSW Credit purchases, without recourse, the accounts receivable of the
U.S. Electric Operating Companies and certain non-affiliated electric companies.
The sale of accounts receivable provides the U.S. Electric Operating Companies
with cash immediately, thereby reducing working capital needs and revenue
requirements. In addition, CSW Credit's capital structure contains greater
leverage than that of the U.S. Electric Operating Companies, so CSW's cost of
capital is lowered. CSW Credit issues commercial paper to meet its financing
needs. At December 31, 1997, CSW Credit had a $900 million revolving credit
agreement, secured by the assignment of its receivables, to back up its
commercial paper program, which had $637 million outstanding. The maximum amount
of such commercial paper outstanding during the year, which had a weighted
average interest yield of 5.6%, was $890 million during September 1997. The
average and year end amounts of accounts receivable sold during 1997 by the U.S.
Electric Operating Companies to CSW Credit are shown in the following table.
CSW
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1997 1997
Average End of Year
------------ ------------
(millions)
CPL $115 $65
PSO 82 62
SWEPCO 109 77
WTU 38 59
CSW has recently made several finance-related filings with the SEC
under the Holding Company Act which, if approved, would increase CSW's financial
flexibility. In the first filing, CSW requested authority to repurchase up to
ten percent of its outstanding common stock as of June 30, 1997, from its stock
and employee benefit plans (pursuant to the terms and conditions of such plans)
from time to time through December 31, 2002, and to utilize its short-term
borrowing program, including funds borrowed through its commercial paper
program, to finance its repurchase in the open market of up to twenty percent of
its outstanding common stock as of June 30, 1997. No decision regarding this
application has been made by the SEC. Such authority would increase CSW's
flexibility to adjust its capital structure. The second filing requests
authority through December 31, 2002 for CSW, the U.S. Electric Operating
Companies and CSW Services to finance ongoing business, repay short-term debt
and finance the potential repurchase of outstanding securities. CSW has
requested authority to issue common stock, while the U.S. Electric Operating
Companies and CSW Services have requested authority to issue common stock,
preferred stock and debt. Such authority would give CSW the flexibility to take
advantage of favorable market conditions for routine financings. The SEC issued
an order on December 30, 1997 granting the requested authority. The third filing
requests an increase in the authorized short-term borrowing capacity for CSW and
certain of its subsidiaries. The SEC has not issued an order with respect to
this application. For a description of certain restrictions on CSW's ability to
repurchase common stock and to raise capital from external sources, see PROPOSED
AEP MERGER.
CSW ENERGY AND CSW INTERNATIONAL
In October 1996, CSW Energy issued $200 million, 6.875% Senior Notes
due 2001. The proceeds from the notes were for the acquisition, development and
construction of electric generation assets in the United States and to make
affiliate loans to CSW International.
CSW Energy has authority from the SEC to expend up to $250 million for
general development activities related to qualifying facilities and independent
power facilities. CSW Energy may seek specific authority to spend additional
amounts on certain projects subject to limitations contained in the AEP merger
agreement. See NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES, for a discussion
of CSW's investments and commitments in CSW Energy projects at December 31,
1997.
In January 1997, CSW received authority from the SEC under the Holding
Company Act to spend an amount up to 100% of consolidated retained earnings on
EWG or FUCO investments. This represents an increase in authority previously
granted under the Holding Company Act. However, the amount of any such
expenditures is subject to the terms of the AEP merger agreement. As of December
31, 1997, CSW had invested an amount equal to 49% of consolidated retained
earnings, as defined by rule 53 of the Holding Company Act, on EWG and FUCO
investments. For a description of certain restrictions on the ability of CSW and
its subsidiaries to make capital expenditures in respect of qualifying
facilities and independent power facilities and to make EWG and FUCO
investments, see PROPOSED AEP MERGER.
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RECENT DEVELOPMENTS AND TRENDS
CSW STRATEGIC RESPONSES
CSW and the U.S. Electric Operating Companies have, from time to time
considered, and expect to consider in the future, various strategies designed to
enhance CSW's competitive position and to increase its ability to anticipate and
adapt to changes in the electric utility industry. These strategies may include
business combinations with other companies, internal restructurings involving
the complete or partial separation of CSW's generation, transmission and
distribution businesses, acquisitions or dispositions of assets or lines of
business, and additions to or reductions of franchised service territories. CSW
and the U.S. Electric Operating Companies may from time to time engage in
discussions, either internally or with third parties, regarding one or more of
these potential strategies. Those discussions may be subject to confidentiality
agreements and CSW's policy is generally not to comment on such activities. No
assurances can be given that any potential transaction of the type described
above may actually occur, or, if one does occur, the ultimate effect thereof on
CSW's or any U.S. Electric Operating Company's results or operations, financial
condition or competitive position (The foregoing statement constitutes a forward
looking statement within the meaning of Section 21E of the Exchange Act. Actual
results may differ materially from such projected information due to changes in
the underlying assumptions. See FORWARD LOOKING INFORMATION).
AEP MERGER
In December 1997, AEP and CSW announced that their boards of directors
approved a definitive merger agreement. If the merger is completed, the combined
company will be a diversified electric utility serving more than 4.6 million
customers in 11 states and approximately 4 million customers outside the United
States. On January 19, 1998, CSW announced a corporate realignment to more
effectively position itself for competition and to better align itself with AEP
related to the proposed merger of the two companies. The transaction must
receive regulatory approval from federal and state authorities and must satisfy
a number of other conditions, some of which, such as CSW and AEP shareholder
approval, may not be waived by the parties. There can be no assurance that the
AEP Merger will be consummated, and if it is, the timing of such consummation or
the effect of any regulatory conditions that may be imposed on such
consummation. See PROPOSED AEP MERGER.
COMPETITION AND INDUSTRY CHALLENGES
Competitive forces at work in the electric utility industry are
impacting the CSW System and electric utilities generally. Increased competition
facing electric utilities is driven by complex economic, political and
technological factors. These factors have resulted in legislative and regulatory
initiatives that are likely to result in even greater competition at both the
wholesale and retail levels in the future. As competition in the industry
increases, the U.S. Electric Operating Companies will have the opportunity to
seek new customers and at the same time be at risk of losing customers to other
competitors. Additionally, the U.S. Electric Operating Companies will continue
to compete with suppliers of alternative forms of energy, such as natural gas,
fuel oil and coal, some of which may be cheaper than electricity. In the United
Kingdom, the franchised electricity supply business is scheduled to open to full
competition on a phased-in basis on September 1, 1998. As a result, SEEBOARD
will be able to seek customers while risking the loss of existing customers to
other competitors. As a whole, the CSW U.S. Electric System believes that,
overall, its prices for electricity and the quality and reliability of its
service currently place it in a position to compete effectively in the energy
marketplace (The foregoing statement constitutes a forward looking statement
within the meaning of Section 21E of the Exchange Act. Actual results may differ
materially from such projected information due to changes in the underlying
assumptions. See FORWARD LOOKING INFORMATION). See RATES AND REGULATORY MATTERS
for a discussion of several current issues impacting the CSW System.
Electric industry restructuring and the development of competition in
the generation and sale of electric power requires resolution of several
important issues, including, but not limited to: (i) who will bear the costs of
prudent utility investments or past commitments incurred under traditional
cost-of-service regulation that will be uneconomic in a competitive environment,
sometimes referred to as stranded costs; (ii) whether all customers have access
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to the benefits of competition; (iii) how, and by whom, the rules of competition
will be established; (iv) what the impact of deregulation will be on
conservation, environmental protection and other regulator-imposed programs; and
(v) how transmission system reliability will be ensured. The degree of risk to
CSW and the U.S. Electric Operating Companies associated with various federal
and state restructuring proposals aimed at resolving any or all of these issues
will vary depending on many factors, including the proposals' competitive
position and treatment of stranded utility investment resulting from such
requirements. Although the U.S. Electric Operating Companies believe they are in
a position to compete effectively in a deregulated, more competitive
marketplace, if stranded costs are not recovered from customers, then the U.S.
Electric Operating Companies may be required by existing accounting standards to
recognize potentially significant losses from unrecovered stranded costs,
especially with respect to STP (The foregoing statement constitutes a forward
looking statement within the meaning of Section 21E of the Exchange Act. Actual
results may differ materially from such projected information due to changes in
the underlying assumptions. See FORWARD LOOKING INFORMATION). See REGULATORY
ACCOUNTING for additional information.
At the federal level, several bills were introduced in Congress during
the 1997 legislative session which provided for restructuring and/or
deregulating the electric utility industry. However, no such bills were enacted
into law. In 1998, the United States Senate has progressed further in its
consideration of comprehensive energy restructuring legislation than the United
States House of Representatives. However, in the United States Senate,
differences must be resolved between those who favor legislation to repeal the
Holding Company Act and those who support repeal only in the context of
comprehensive legislation. Prospects for repeal of the Holding Company Act in
1998 are unclear.
While a majority of the states, including the four states in which the
U.S. Electric Operating Companies operate, have considered deregulation that
requires some form of retail competition, several states have enacted actual
legislation mandating retail competition including Oklahoma in which PSO
operates. CSW and the U.S. Electric Operating Companies cannot predict when and
if they will be subject to one or more of these legislative initiatives, nor can
they predict the scope or effect of such legislation on their results of
operations or financial condition. For additional information related to such
state initiatives, see INDUSTRY RESTRUCTURING INITIATIVES IN TEXAS, LOUISIANA,
OKLAHOMA AND ARKANSAS.
WHOLESALE ELECTRIC COMPETITION IN THE UNITED STATES
The Energy Policy Act, which was enacted in 1992, significantly altered
the way in which electric utilities compete. The Energy Policy Act created
exemptions from regulation under the Holding Company Act and permits utilities,
including registered utility holding companies and non-utility companies, to own
EWGs. EWGs are a relatively new category of non-utility wholesale power
producers that are free from most federal and state regulation, including
restrictions under the Holding Company Act. These provisions enable broader
participation in wholesale power markets by reducing regulatory hurdles to such
participation. The Energy Policy Act also allows the FERC, on a case-by-case
basis and with certain restrictions, to order wholesale transmission access and
to order electric utilities to enlarge their transmission systems. A FERC order
requiring a transmitting utility to provide wholesale transmission service must
include provisions generally that permit the utility to recover from the FERC
applicant all of the costs incurred in connection with the transmission services
and any enlargement of the transmission system and associated services.
Wholesale energy markets, including the market for wholesale electric power,
have been increasingly competitive since enactment of the Energy Policy Act. The
U.S. Electric Operating Companies must compete in the wholesale energy markets
with other public utilities, cogenerators, qualifying facilities, EWGs and
others for sales of electric power. While CSW believes that the Energy Policy
Act will continue to make the wholesale markets more competitive, CSW is unable
to predict whether the Energy Policy Act will adversely impact the U.S. Electric
Operating Companies.
FERC ORDERS 888 AND 889
The FERC issued Order No. 888 in 1996, which is the final comparable
open access transmission service rule. The provisions of FERC Order No. 888
provide for comparable transmission service between utilities and their
transmission customers by requiring utilities to take transmission service under
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their open access tariffs for wholesale sales and purchases and by requiring
utilities to rely on the same transmission information that their transmission
customers rely on to make wholesale purchases and sales.
In addition, the Texas Commission adopted a rule governing transmission
access and pricing for ERCOT in 1996. The pricing method adopted by the Texas
Commission is a hybrid combination of an ERCOT-wide postage stamp rate covering
70% of total ERCOT transmission costs and a distance-sensitive component which
recovers the remaining 30% of ERCOT's transmission costs. CPL and WTU began
recording transmission revenues and expenses in accordance with the Texas
Commission's rule on January 1, 1997.
FERC Order No. 888 requires holding companies to offer single system
transmission rates. The transmission rates of the U. S. Electric Operating
Companies are under the exclusive jurisdiction of the FERC while the
transmission rates of most of the transmitting utilities in ERCOT are under the
exclusive jurisdiction of the Texas Commission. Because the two commissions have
different approaches to defining and implementing comparable open access
transmission service, Order No. 888 granted the U. S. Electric Operating
Companies an exemption permitting them an opportunity to propose a solution that
provides comparability to all wholesale users. On November 1, 1996, the U. S.
Electric Operating Companies filed a system-wide tariff to comply with Order No.
888 and, on December 31, 1996, the FERC accepted for filing the system-wide
tariff which became effective on January 1, 1997, subject to refund and to the
issuance of further orders.
On December 10, 1997 the FERC issued an order regarding the U. S.
Electric Operating Companies' proposed system-wide tariff filed on November 1,
1996. The FERC's order accepted the proposed tariff subject to several
modifications, including revisions to provide for system-wide transmission
service under a single system rate. The U. S. Electric Operating Companies filed
the required compliance tariff on February 9, 1998 and are waiting for FERC's
acceptance of the revised tariff.
In 1996, the FERC issued Order No. 889 requiring transmitting utilities
to establish and operate an OASIS for the dissemination of information regarding
available transfer capability for their respective transmission systems. The
OASIS is an on-line information system that provides the same information about
the utility's transmission system to all transmission customers. The U.S.
Electric Operating Companies utilize, and participate in the OASIS systems for
ERCOT and SPP. Order No. 889 also created standards of conduct requiring
utilities to conduct any wholesale power sales business separately from their
transmission operations. The standards of conduct are designed to ensure that
utilities and their affiliates, as sellers of power, do not have preferential
access to information about wholesale transmission prices and availability.
RETAIL ELECTRIC COMPETITION IN THE UNITED STATES
Increased competition in the utility industry has resulted in increased
pressure to stabilize or reduce rates. The retail regulatory environment is
beginning to shift from traditional rate base regulation to incentive
regulation. Incentive rate and performance-based plans encourage efficiencies
and increased productivity while permitting utilities to share in the results.
Retail wheeling, a major legislative initiative which would require utilities to
"wheel" or move power from third parties to their own retail customers, is
evolving gradually. Most states either have introduced legislation or are
investigating the issue, and several states have already passed legislation
which mandates retail choice by a certain date.
CSW believes that retail competition would not be in the best interests
of CSW's and the U.S. Electric Operating Companies' security holders unless CSW
and the U.S. Electric Operating Companies receive fair recovery of the full
amounts previously invested to finance power plants. These investments, which
were reasonably incurred, were made by the U.S. Electric Operating Companies to
meet their obligation to serve the public interest, necessity and convenience.
This obligation has existed for nearly a century and remains in force under
current law. CSW intends to strongly oppose attempts to impose retail
competition without just compensation for the risks and investments CSW
undertook to serve the public's demand for electricity. For additional
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information related to retail wheeling in the United States, see HOLDING COMPANY
ACT AND LEGISLATIVE UPDATE and INDUSTRY RESTRUCTURING INITIATIVES IN TEXAS,
LOUISIANA, OKLAHOMA AND ARKANSAS.
INDUSTRY RESTRUCTURING INITIATIVES IN TEXAS, LOUISIANA, OKLAHOMA AND
ARKANSAS
Several initiatives regarding restructuring the electric utility
industry have recently been undertaken in the four states in which the U.S.
Electric Operating Companies operate. Legislation was enacted in Oklahoma while
legislative activity in Texas, Louisiana and Arkansas stopped short of any such
definitive action.
In April 1997, the Oklahoma Legislature enacted legislation dealing
with industry restructuring in Oklahoma, which provides for retail competition
by July 1, 2002. The legislation directs the Oklahoma Commission to study all
relevant issues relating to restructuring and develop a framework for a
restructured industry. The legislation divides the study of restructuring issues
by the Oklahoma Commission into four parts: (i) independent system operator
issues; (ii) technical issues; (iii) financial issues; and (iv) consumer issues.
At the end of each of these studies, the Oklahoma Commission must provide
reports along with legislative recommendations. The legislation directs the
Oklahoma Tax Commission to study the impact of electric utility restructuring on
state tax revenues and the existing tax structure, consider the establishment of
a uniform consumption tax, and report to the Oklahoma Legislature by December
31, 1998. The legislation prohibits the establishment of retail competition
until a uniform tax policy is established. The legislation also creates a Joint
Electric Utility Task Force, a 14-member panel composed of an equal number of
representatives from the Oklahoma House of Representatives and the Oklahoma
Senate. The duties of this task force include the oversight and direction of the
studies by the Oklahoma Commission and the Oklahoma Tax Commission. Management
is unable to predict the outcome of these studies or their ultimate impact on
the results of operations and financial condition of CSW and PSO.
In March 1997, the Arkansas Legislature passed a resolution directing
interim legislative committees to study competition in the electric power
industry in Arkansas. The study began in October 1997, and the committees will
continue to hold hearings throughout 1998. Also, the Arkansas Commission has
initiated a series of generic restructuring dockets. The Arkansas Commission
will provide a report to the Arkansas Legislature by October 1998. In Louisiana,
a special legislative committee created by the Louisiana Senate is studying the
impact of retail competition on the state of Louisiana. The committee is
scheduled to issue a report before the next regular session of the Louisiana
Legislature. The Louisiana Commission has also opened a proceeding to study
restructuring and retail competition. In Texas, the Texas Lieutenant Governor
appointed a Senate interim committee to study retail competition and
restructuring. The committee is holding a series of hearings and is scheduled to
issue a report by September 1998. Management cannot predict the outcome of the
studies in Arkansas, Louisiana and Texas or their ultimate impact on the results
of operations and financial condition of CSW, CPL, SWEPCO and WTU.
INDUSTRY RESTRUCTURING IN TEXAS
Amendments to PURA, the legal foundation of electric regulation in
Texas, became effective on September 1, 1995. Among other things, the amendments
deregulate the wholesale bulk power market in ERCOT, permit pricing flexibility
for utilities facing competitive challenges, provide for a market-driven
integrated resource planning process and mandate comparable open access
transmission service.
PURA also required that the Texas Commission adopt a rule on comparable
open transmission access by March 1, 1996. In conjunction with this rulemaking
proceeding (Project No. 14045), the chairman of the Texas Commission issued a
proposal on September 6, 1995, for the purpose of maximizing competition in the
ERCOT wholesale bulk power market. The proposal calls for the functional
unbundling of integrated utilities where distribution entities could purchase
their power requirements from any generator or set of generators in ERCOT. Those
generators which are currently regulated would be deregulated after provisions
are in place to recover stranded costs. The proposal was assigned a separate
proceeding (Project No. 15000), and after a series of workshops and technical
conferences conducted during 1996, the Texas Commission submitted a final Scope
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of Competition report to the Texas Legislature in January 1997. The final report
contains numerous recommendations to the Texas Legislature including requests
for additional regulatory authority or clarification of existing authority
including to certificate electric service resellers, the authority to adopt
consumer protection and universal service standards, the authority to determine
and allocate stranded costs to all customers, the authority to promote
unbundling, the authority to allow alternative forms of regulation, increased
authority to address mergers, authority to correct market power abuses,
authority over the ERCOT ISO and authority to permit alternative methods for
fuel cost recovery. In addition, the final report offers the Texas Legislature
four restructuring options. Option 1 maintains the regulatory status quo; Option
2 would permit utilities to voluntarily offer retail access; Option 3 would
provide for full wholesale competition; and Option 4 would provide for full
retail competition. The report's final recommendation is for the Texas
Legislature to direct the Texas Commission to prepare for full retail
competition using a careful and deliberate approach on a timetable to be
established by the Texas Legislature, but with no retail access before the year
2000. The Texas legislature considered but did not pass any of these proposals
in the 1997 legislative session.
On February 7, 1996, the Texas Commission adopted a rule governing
transmission access and pricing (Project No. 14045). The pricing method adopted
by the Texas Commission is a hybrid combination of an ERCOT-wide postage stamp
rate covering 70% of total ERCOT transmission costs and a distance-sensitive
component referred to as a vector-absolute megawatt mile which recovers the
remaining 30% of ERCOT transmission costs. The open access tariffs filed with
the FERC on February 9, 1996 did not reflect Project No. 14045 pricing. However,
on November 1, 1996, CSW filed tariffs with the FERC in accordance with FERC
Order 888 that conform to the Texas Commission's rule. See FERC ORDERS 888 AND
889 for additional information regarding the transmission pricing rules
prescribed by FERC.
By statute the Texas Commission was required to submit a report to the
1997 Texas Legislature on "methods or procedures for quantifying the magnitude
of stranded investment, procedures for allocating costs, and the acceptable
methods of recovering stranded costs." The Texas Commission initiated Project
No. 15001 to collect information to prepare the required report. In response to
the Texas Commission's order in Project 15001, CPL, SWEPCO, and WTU each filed
information on estimates of potential stranded costs. While the filings for CPL
included estimates of significant potential stranded costs, no significant
potential stranded costs were identified in the filings for SWEPCO or WTU. In
January 1998, the Texas Commission requested updated information on CPL's
stranded costs for a report that the Texas Commission is preparing for the
Senate interim committee on restructuring. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for a discussion of the potential impact of potential stranded costs
relating to CPL.
The Texas Commission's Project 15002, "Scope of Competition Report," is
a report that the Texas Commission is required to present to the Texas
Legislature in each odd-numbered year detailing the scope of competition in the
electric markets and the impact of competition and industry restructuring on
customers. In addition, the report is required to include the Texas Commission's
recommendations to the Texas Legislature for further legislation. In June 1996,
CPL, SWEPCO and WTU each filed information for the Texas Commission's report.
TEXAS INDEPENDENT SYSTEM OPERATOR PLAN
In June 1996, CSW, including CPL and WTU, and more than 20 other
parties, including other investor-owned utilities, municipal power companies,
electric cooperatives, independent power producers and power marketers, filed
plans to create an ISO to manage the ERCOT power grid. The filing marks a major
step towards implementing the Texas Commission's overall strategy to create the
competitive wholesale electric market that was mandated by the Texas Legislature
in 1995. The Texas Commission approved the ISO in August 1996. Such approval
made Texas the first state in the nation to adopt a plan for a regional ISO and
a regional competitive wholesale bulk power market.
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INTEGRATED RESOURCE PLAN
In January 1997, CPL, WTU, and SWEPCO filed with the Texas Commission a
joint integrated resource plan outlining the companies' future electric needs
over a 10-year forecast horizon and the manner in which the companies propose to
meet those needs. In July 1997 the Texas Commission issued an Interim Order on
the Preliminary Plan which adopted a settlement agreement that had been reached
with all the parties in the case. The Interim Order approved the load forecast
and individual resource needs for each of the companies, as well as the request
for proposal documents to be used to procure future resource needs. The Interim
Order also approved the targeted purchase goal amounts for renewable and energy
efficiency programs, which will result in renewable and energy efficiency
programs being included in the companies' resource mix. The targeted purchase
goals were developed in response to customer input obtained through the
deliberative polling process conducted at each operating company in the summer
of 1996. A separate phase of the Integrated Resource Plan was created to address
the value of interruptible resources at CPL. That phase is expected to be
completed in March 1998. The Interim Order also required that a green pricing
tariff be filed which would allow customers who are interested in acquiring a
greater portion of their personal consumption from environmentally beneficial
generation to exercise that choice. A green pricing tariff was approved for use
in San Angelo, Texas in October 1996. A system-wide filing is expected in
mid-1998.
HOLDING COMPANY ACT AND LEGISLATIVE UPDATE
The Holding Company Act generally has been construed to limit the
operations of a registered holding company to a single integrated public utility
system, plus such additional businesses as are functionally related to such
system. Among other things, the Holding Company Act requires CSW and its
subsidiaries to seek prior SEC approval before effecting mergers and
acquisitions or pursuing other types of non-utility initiatives. Such pervasive
regulation may impede or delay CSW's efforts to achieve its strategic and
operating objectives. Consequently, CSW continues to support efforts to repeal
or modify this legislation.
In 1995, the SEC issued a report to the United States Congress
advocating repeal of the Holding Company Act, either on a conditional and
transitional basis or immediate and outright repeal. The basis for the SEC's
recommendation for repeal is that the Holding Company Act is anachronistic and
duplicative of other federal and state regulatory regimes that have developed
over the past sixty years. Following the SEC's report, there were several bills
introduced in both the United States Senate and House of Representatives in 1996
which would have repealed the Holding Company Act on a conditional and
transitional basis and transferred its oversight functions to the FERC and the
states. Another bill was introduced into the United States House of
Representatives that, in addition to repealing the Holding Company Act, would
have repealed PURPA, which among other things, requires investor owned utilities
to purchase power at their avoided cost from qualifying facilities. Although
none of these bills were enacted into law, they may suggest the form of future
legislation.
In January 1997, a bill was introduced in the United States Senate
providing for comprehensive electric utility industry restructuring and for
retail choice by December 2003, repeal of the Holding Company Act one year after
the bill is enacted, as well as repeal of the requirement that electric
utilities purchase power at their avoided cost from qualifying facilities under
PURPA. Under this bill, many of the oversight functions performed by the SEC
under the Holding Company Act would be shifted to the FERC and the states. In
addition, a bill was reintroduced in the United States House of Representatives
providing for choice of electricity suppliers at the retail level by the year
2000. Under this bill, which is substantially similar to the United States
Senate bill, the application of the Holding Company Act to a particular holding
company system would be eliminated after each state served by the electric
utility companies in that system made a determination that retail competition
existed in that state. No legislation was enacted in 1997.
In February 1997, the SEC adopted Rule 58 allowing a holding company
registered under the Holding Company Act or any of its subsidiaries, to acquire,
without prior SEC approval, the securities of any energy-related company subject
to certain limits. Under the new rule, investment in energy-related company
securities without prior SEC approval is limited to the greater of (i) $50
million and (ii) 15% of the consolidated capitalization of the registered
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holding company as reported on its most recent Form 10-Q or Form 10-K as filed
with the SEC. Rule 58 does not exempt the acquisition by a registered holding
company of the securities of an electric utility company or a gas utility
company, which remains subject to the SEC's prior approval as does the issuance
of securities for the purpose of making such exempt investments.
In 1998, the United States Senate has progressed further in its
consideration of comprehensive energy restructuring legislation than the United
States House of Representatives. However, in the United States Senate,
differences must be resolved between those who favor legislation to repeal the
Holding Company Act and those who support repeal only in the context of
comprehensive legislation. Prospects for repeal of the Holding Company Act in
1998 are unclear.
REGULATORY ACCOUNTING
Consistent with industry practice and the provisions of SFAS No. 71,
which allows for the recognition and recovery of regulatory assets, the U.S.
Electric Operating Companies have recognized significant regulatory assets and
liabilities. Management believes that the U.S. Electric Operating Companies
currently meet the criteria for following SFAS No. 71. However, in the event the
U.S. Electric Operating Companies or some portion of their business no longer
meets the criteria for following SFAS No. 71 due to deregulation or for other
reasons, a write-off of regulatory assets and liabilities would be required,
absent a means of recovering such assets or settling such liabilities in a
continuing regulated segment of the business. For additional information
regarding regulatory accounting, reference is made to NEW ACCOUNTING STANDARDS
and NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PSO UNION NEGOTIATIONS
As previously reported, PSO and its Local Union 1002 of the IBEW have
been engaged in contract renewal negotiations. The underlying agreement expired
in September 1996 and, to date, the parties have been unable to reach an
agreement. In December 1996, PSO implemented portions of its final proposal
after declaring an impasse. The principal issue of disagreement involves PSO's
need for flexibility in a deregulated environment.
In April 1997, Oklahoma's governor signed into law an electric industry
restructuring bill. The new law mandates the implementation of retail
competition to begin on July 1, 2002. PSO believes that the new law also broke
the impasse in the contract negotiations and has resumed negotiations with the
union. At this time, PSO cannot predict the outcome of this matter. However, PSO
believes that, even in the event of a strike, its operations would continue
without a significant disruption and that a strike would not have a material
adverse effect on its results of operations or financial condition (The
foregoing statement constitutes a forward looking statement within the meaning
of Section 21E of the Exchange Act. Actual results may differ materially from
such projected information due to changes in the underlying assumptions. See
FORWARD LOOKING INFORMATION).
IMPACT OF COMPETITION AND INDUSTRY RESTRUCTURING INITIATIVES
CSW is unable to predict the ultimate outcome or impact of competitive
forces on the electric utility industry in the United States, and in the United
Kingdom or on the CSW System. As the electricity markets become more
competitive, however, the principal factor determining success is likely to be
price, and to a lesser extent reliability, availability of capacity, and
customer service. CSW and the U.S. Electric Operating Companies cannot predict
the form or effect of any federal or state electric utility restructuring
initiatives at this time. Federal and/or state electric utility restructuring
may cause impairment of significant recorded assets, material reductions of
profit margins, and/or increased costs of capital. No assurance can be made that
such events would not have a material adverse effect on CSW's or any U.S.
Electric Operating Company's results of operations, financial condition or
competitive position. (The foregoing statement constitutes a forward looking
statement within the meaning of Section 21E of the Exchange Act. Actual results
may differ materially from such projected information due to changes in the
underlying assumptions. See FORWARD LOOKING INFORMATION).
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RATES AND REGULATORY MATTERS
CPL RATE REVIEW - DOCKET NO. 14965
In November 1995, CPL filed with the Texas Commission a request to
increase its retail base rates by $71 million, and in May 1996, CPL placed a $70
million base rate increase into effect under bond, subject to refund based on
the receipt of the CPL 1997 Original Rate Order of the Texas Commission. On
March 31, 1997, the Texas Commission issued a rate order in CPL's rate review,
Docket No. 14965. Thereafter, CPL filed a motion for rehearing which requested
the reconsideration of numerous provisions of the order. Motions for rehearing
were also filed by other parties to the rate proceeding. In response to the
motions for rehearing, in June 1997, the Texas Commission made several
modifications to the CPL 1997 Original Rate Order and also agreed to rehear on
remand several other issues. CPL restored its rates in July 1997, with two
exceptions, to levels existing prior to the May 1996 implementation of bonded
rates. On August 21, 1997, after reconsidering the issues on remand, the Texas
Commission voted to issue a revised final order and on September 10, 1997, CPL
received a revised final order. CPL filed its second motion for rehearing on
September 30, 1997. The second motion for rehearing again requested
reconsideration of numerous issues in the rate case. On October 16, 1997, the
Texas Commission issued the CPL 1997 Final Order. The CPL 1997 Final Order
lowers the annual retail base rates of CPL by approximately $19 million, or
2.5%, from CPL's rate level existing prior to May 1996. The Texas Commission
also included a "Glide Path" rate methodology in the CPL 1997 Final Order
pursuant to which CPL's annual rates will be reduced by an additional $13
million in mid-1998 and another $13 million in mid-1999.
There are numerous contributing factors to the difference between the
$71 million retail base rate increase originally requested by CPL and the $19
million retail base rate reduction included in the CPL 1997 Final Order. The CPL
1997 Final Order decreased CPL's requested return on equity of 12.25% on its
retail rate base to a 10.9% return on equity for all non-ECOM invested capital,
which results in a $30 million decrease in CPL's rate request. The CPL 1997
Final Order provides for the disallowance of approximately $18 million of
affiliate transactions. In addition, the CPL 1997 Final Order denied CPL's
request to use straight line amortization for CPL's deferred accounting costs.
Instead, the CPL 1997 Final Order requires CPL to continue to use the mortgage
amortization method to amortize its deferred accounting costs, resulting in a
reduction of $14 million from CPL's rate request. The CPL 1997 Final Order also
decreased depreciation by $17.4 million from CPL's rate request.
Another major provision of the CPL 1997 Final Order was the Texas
Commission's categorization of $800 million of CPL's investment in STP as ECOM.
The term ECOM has been used to refer to the amount of costs that potentially
would become "stranded" if retail competition were mandated and prices were set
in the market, rather than the price being determined by current regulatory
standards of reasonable and necessary cost of providing service. The CPL 1997
Final Order reduced CPL's equity return on the ECOM portion of CPL's investment
in STP to 7.96%, compared to the 10.9% return on common equity approved for all
other invested capital, resulting in a $15.9 million decrease in CPL's rate
request. At the same time, the CPL 1997 Final Order accelerated the recovery of
the $800 million designated as ECOM to 20 years from the remaining 32-year life
of STP.
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The following table contains details of the estimate of the financial
impact of the CPL 1997 Final Order.
1997 1998 1999
-----------------------------
(millions)
Decrease in revenue $(24.2) $(28.7) $(41.9)
Items included in decrease in revenue
with an offsetting effect on expense:
Recovery of STP (ECOM) 20.0 20.0 20.0
Change in depreciation (11.3) (11.3) (11.3)
Decommissioning 4.3 4.3 4.3
Other 6.8 2.1 2.1
------ ------ ------
19.8 15.1 15.1
------ ------ ------
Change in current year income before tax (44.0) (43.8) (57.0)
Federal income taxes 14.8 14.8 19.3
------ ------ ------
Current year impact on net income (29.2) (29.0) (37.7)
------ ------ ------
1996 effect (18.9) -- --
------ ------ ------
Estimated impact on net income $(48.1) $(29.0) $(37.7)
------ ------ ------
CPL appealed the CPL 1997 Final Order to the State District Court of
Travis County to challenge the resolution of several issues in the rate case.
The primary issues include: (i) the classification of $800 million of invested
capital in STP as ECOM which was also assigned a lower return on equity than
non-ECOM property, (ii) the Texas Commission's use of the "Glide Path" rate
reduction methodology to be applied to rates in mid-1998 and mid-1999, and (iii)
the $18 million of disallowed affiliate transactions from CSW Services. As part
of the appeal, CPL seeks a temporary injunction to prohibit the Texas Commission
from implementing the "Glide Path" rate reduction methodology, currently
scheduled to begin in May 1998. A hearing has been set for the temporary
injunction on April 3, 1998. Management is unable to predict how the final
resolution of these issues will ultimately affect CSW's and CPL's results of
operations and financial condition.
CPL currently accounts for the economic effects of regulation in
accordance with SFAS No. 71. Pursuant to the provisions of SFAS No. 71, CPL had
recorded approximately $1.3 billion of regulatory-related assets at December 31,
1997. The application of SFAS No. 71 is conditioned upon CPL's rates being set
based on the cost of providing service. In the event management concludes that
as a result of changes in regulation, legislation, the competitive environment,
or other factors, including the CPL 1997 Final Order, CPL no longer meets the
criteria for following SFAS No. 71, a write-off of regulatory assets would be
required. In addition, CPL and CSW could experience, depending on the timing and
amount of any write-off, a material adverse effect on their results of
operations and financial condition.
The foregoing discussion of CPL RATE REVIEW - DOCKET NO. 14965
constitutes forward looking information within the meaning of Section 21E of the
Exchange Act. Actual results may differ materially from such projected
information. See FORWARD LOOKING INFORMATION. See NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS for additional information on the CPL 1997 Final Order.
PSO 1997 RATE SETTLEMENT AGREEMENT
In July 1996, the Oklahoma Commission staff filed an application
seeking a review of PSO's earnings. In accordance with the established schedule,
PSO subsequently filed financial data, cost of service and rate design testimony
supporting both its current rates and an increase in annual depreciation expense
of $26 million. In July 1997, the Oklahoma Commission staff and other
intervenors to the proceeding filed their revenue requirements testimony. In its
filing, the Oklahoma Commission staff recommended a rate reduction of $76.8
million for PSO.
On October 15, 1997, PSO reached a stipulated agreement with parties to
settle the rate inquiry that was pending before the Oklahoma Commission. On
October 23, 1997, the Oklahoma Commission issued a final order approving the
agreement. The following table represents the financial impact of the PSO 1997
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Rate Settlement Agreement on PSO's 1997 results of operations and also an
estimate of its ongoing annual impact on net income in successive years.
Ongoing
1997 Annual
Impact Impact
-------------------
(millions)
Decrease in revenue
Refund to customers $(29.0) $--
Change in rates (2.5) (35.9)
----- -----
(31.5) (35.9)
----- -----
Changes in expenses (offsetting
impact included in revenues)
Depreciation (6.3) (10.9)
Rate case deferred costs 2.2 --
Income tax (10.2) (8.8)
----- -----
(14.3) (19.7)
----- -----
(17.2) (16.2)
Write-off of deferred assets, net of tax (10.2) --
----- -----
$(27.4) $(16.2)
----- -----
The PSO 1997 Rate Settlement Agreement resulted in a material adverse
effect on PSO's results of operations for 1997 that will have a continuing
material adverse effect on its results of operations because of the rate
decrease. However, it also reduced significant risks for PSO related to this
regulatory proceeding and will enable PSO's rates to remain competitive for the
foreseeable future.
The foregoing discussion of PSO 1997 RATE SETTLEMENT AGREEMENT
constitutes forward looking information within the meaning of Section 21E of the
Exchange Act. Actual results may differ materially from such projected
information. See FORWARD LOOKING INFORMATION. See NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS for additional information on the PSO 1997 Rate
Settlement Agreement.
SWEPCO LOUISIANA RATE REVIEW
In December 1997, the Louisiana Commission announced it would review
SWEPCO's rates and service. In 1993, the Louisiana Commission issued an order
initiating a review of the rates of all investor-owned utilities in the state.
Since that time, each of the other investor-owned utilities in Louisiana have
been reviewed. SWEPCO's last rate activity was an $8.2 million rate decrease,
initiated by SWEPCO and approved for its small and large industrial customers in
January 1988. Prior to that, SWEPCO's last rate increase was in 1985.
The Louisiana Commission has requested bids from consultants to perform
a review of SWEPCO's rates and charges and to review SWEPCO's quality of
service. The Louisiana Commission plans to select consultants during the second
quarter of 1998 and a timeline for the review will be determined shortly
thereafter. Management cannot predict the outcome of this review.
SEEBOARD RECENT REGULATORY ACTIONS
Following the phased-in opening of the United Kingdom domestic and
small business electricity market to competition in September 1998, customers
will be able to choose their electricity supplier. SEEBOARD will compete for
customers in its own area as well as throughout the rest of the United Kingdom.
The DGES has allowed some of the system development costs associated with the
introduction of competition to be recovered by the regional electricity
companies through a charge to all customers over the next five years. The DGES
has also announced price restraints which set a maximum amount that existing
electricity supply companies can charge their domestic and small business
customers over the first two years following the introduction of competition,
taking into account its view of future electricity purchase costs. For SEEBOARD,
this proposal reduces prices in real terms by 6% for the regulatory year ending
March 31, 1999 and a further 3% for the following regulatory year ending March
31, 2000.
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<PAGE>
OTHER
Reference is made to NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for
information regarding fuel proceedings at CPL, SWEPCO and WTU.
PROPOSED AEP MERGER
On December 22, 1997, CSW and AEP announced that their boards of
directors had approved a definitive merger agreement for a tax-free,
stock-for-stock transaction creating a company with a total market
capitalization of approximately $28.1 billion ($16.5 billion in equity; $11.6
billion in debt and preferred stock). CSW expects the combination to be
accounted for as a pooling of interests. The transaction must satisfy many
conditions, some of which may not be waived by the parties. There can be no
assurance that the AEP Merger will be consummated.
This combination is expected to create one of the nation's preeminent
diversified electric utilities serving more than 4.6 million customers in 11
states and approximately 4 million customers outside the United States. Both
companies have low-cost generation and offer their customers in every state
prices below the national average. Over the last two years, both CSW and AEP
have ranked among the top five electric utilities in customer satisfaction in
the ACSI.
Under the merger agreement, each common share of CSW will be converted
into 0.6 shares of AEP common stock. Based upon AEP's closing price immediately
prior to the merger announcement, this represented a premium of 20% over the CSW
closing price. AEP will issue approximately $6.6 billion in stock to CSW
stockholders to complete the transaction. CSW stockholders will own
approximately 40% of the combined company. Both companies anticipate continuing
their current dividend policies until the close of the transaction.
Under the merger agreement, there will be no changes required with
respect to the public debt issues, the outstanding preferred stock or the Trust
Preferred Securities of CSW or its subsidiaries.
The companies anticipate net savings related to the merger of
approximately $2 billion over a 10-year period from the elimination of
duplication in corporate and administrative programs, greater efficiencies in
operations and business processes, increased purchasing efficiencies, and the
combination of the two workforces. At the same time, the companies will continue
their commitment to high quality, reliable service. Job reductions related to
the merger are expected to be approximately 1,050 out of a total domestic
workforce of approximately 25,000. The combined company will use a combination
of growth, reduced hiring and attrition to minimize the need for employee
separations. Organizational and staffing recommendations will be made by
transition teams of employees from both companies.
The electric systems of AEP and CSW will operate on an integrated and
coordinated basis as required by the Holding Company Act. Any fuel savings
resulting from the coordinated operation of the combined company will be passed
on to customers.
The merger agreement contains covenants and agreements that restrict
the manner in which the parties may operate their respective businesses until
the time of closing of the merger. In particular, without the prior written
consent of AEP, CSW may not engage in a number of activities that could affect
its sources and uses of funds. Pending closing of the merger, CSW's and its
subsidiaries' strategic investment activity, capital expenditures and non-fuel
operating and maintenance expenditures are restricted to specific agreed upon
projects or agreed upon amounts. In addition, prior to consummation of the
merger CSW and its subsidiaries are restricted from (i) issuing shares of common
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<PAGE>
stock other than pursuant to employee benefit plans, (ii) issuing shares of
preferred stock or similar securities other than to refinance existing
obligations or to fund permitted investment or capital expenditures and (iii)
incurring indebtedness other than pursuant to existing credit facilities, in the
ordinary course of business or to fund permitted projects or capital
expenditures. These restrictions are not expected to limit the ability of CSW
and its subsidiaries to make investments and expenditures in amounts previously
budgeted.
The merger is conditioned, among other things, upon the approval of CSW
stockholders and several state and federal regulatory agencies. AEP shareholders
must authorize additional common stock and approve a new common stock issuance
to be used in the exchange for CSW common stock. The companies anticipate that
regulatory approvals can be obtained in 12 to 18 months from the date of
announcement. See NOTE 16. PROPOSED AEP MERGER.
OTHER MERGER AND ACQUISITION ACTIVITIES
SETTLEMENT OF LITIGATION RELATED TO TERMINATION OF EL PASO MERGER
In July 1997, CSW and El Paso reached a settlement agreement that
resolved all of the pending litigation resulting from the termination of the
proposed merger. Under the terms of the settlement agreement, CSW and El Paso
agreed to dismiss all pending claims in the litigation and give a mutual release
from any potential claims related to the El Paso Merger Agreement or the pending
litigation, and CSW paid $35 million to El Paso, various of its creditor groups
under its plan of reorganization, and its attorneys. CSW recorded a charge of
$25 million in the first quarter of 1997 following the court's interim order and
recorded an additional charge of $10 million in the second quarter of 1997 to
fully recognize the $35 million settlement amount. The bankruptcy court vacated
the interim order and approved the settlement agreement. See NOTE 2. LITIGATION
AND REGULATORY PROCEEDINGS.
SWEPCO CAJUN ASSET PURCHASE PROPOSAL
On March 18, 1998, SWEPCO, together with the Cajun Members Committee,
which currently represents 7 of the 12 Louisiana member distribution
cooperatives that are served by Cajun, filed the SWEPCO Plan in the bankruptcy
court. Under the SWEPCO Plan, a SWEPCO affiliate or subsidiary would acquire all
of the non-nuclear assets of Cajun, comprised of the two-unit Big Cajun I
natural gas-fired plant, the three-unit Big Cajun II coal-fired plant, and
related non-nuclear assets, for $940.5 million in cash, subject to adjustment
pursuant to terms of the asset purchase agreement proposed as part of the SWEPCO
Plan. The SWEPCO Plan incorporates the terms of a settlement between the RUS,
the Cajun Members Committee, Claiborne Electric Cooperative, Inc. and SWEPCO.
The SWEPCO Plan filed March 18, 1998 replaces plans filed previously by
SWEPCO on January 15, 1998, October 26, 1996, September 30, 1996 and April 19,
1996. Two competing plans of reorganization for the non-nuclear assets of Cajun
have been filed with the bankruptcy court, each with different purchase prices,
rate paths and other provisions. Confirmation hearings in Cajun's bankruptcy
case are now scheduled through April 1998. Consummation of the SWEPCO Plan is
conditioned upon confirmation by the bankruptcy court, and the receipt by SWEPCO
and CSW of all requisite state and federal regulatory approvals in addition to
their board approvals. If the SWEPCO Plan is confirmed, the $940.5 million
required to consummate the acquisition of Cajun's non-nuclear assets is expected
to be financed through a combination of external borrowings and internally
generated funds with approximately 70% of the external borrowings funded with
non-recourse debt. There can be no assurance that the SWEPCO Plan will be
confirmed by the bankruptcy court or, if it is confirmed, that it will be
approved by federal and state regulators. For additional information regarding
the SWEPCO Cajun asset purchase proposal see NOTE 3. COMMITMENTS AND CONTINGENT
LIABILITIES.
CSW
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<PAGE>
OTHER INITIATIVES
As described in OVERVIEW, a vital part of CSW's future strategy
involves initiatives that are outside of the traditional United States electric
utility industry due to increasing competition and fundamental changes in this
industry. In addition, lower anticipated growth rates in CSW's core United
States electric utility business combined with the aforementioned industry
factors have resulted in CSW pursuing other initiatives. These initiatives have
taken a variety of forms; however, they are all consistent with the overall plan
for CSW to develop a global energy business. CSW has restrictions on the amounts
it may spend under the AEP merger agreement. While CSW believes that such
initiatives are necessary to maintain its competitiveness and to supplement its
growth in the future, the Holding Company Act may impede or delay its ability to
successfully pursue such initiatives (The foregoing statement constitutes a
forward looking statement within the meaning of Section 21E of the Exchange Act.
Actual results may differ materially from such projected information due to
changes in the underlying assumptions. See FORWARD LOOKING INFORMATION). See
RECENT DEVELOPMENTS AND TRENDS.
CSW ENERGY AND CSW INTERNATIONAL
CSW Energy presently owns interests in six operating power projects
totaling 978 MW which are located in Colorado, Florida and Texas. In addition to
these projects, CSW Energy has other projects in various stages of development.
In August 1997, an affiliate of CSW Energy sold 50% of its 100% interest in the
Sweeny Cogeneration project. CSW Energy provided the $56.5 million non-recourse
financing for the sale which is expected to be repaid from project distributions
or proceeds from sale, as defined in the sales agreements. Construction of the
330 MW electricity generating facility was completed in early 1998 with a
commercial operation date of February 1, 1998. CSW Energy did not recognize a
gain or loss on this transaction.
CSW International was organized to pursue investment opportunities in
EWGs and FUCOs. CSW International currently holds investments in the United
Kingdom, Mexico and Latin America. CSW International acquired a minority
interest in Vale, a Brazilian electric utility company, for an initial
investment of approximately $40 million in December 1996. In 1997, CSW
International made additional equity investments of approximately $150 million
in Latin America. The $190 million used to make the equity investments was
funded through loans to CSW International by CSW Energy. CSW Energy obtained the
funds from its $200 million Senior Note issuance in October 1996. CSW
International continues to seek to expand into other countries in Latin America,
Europe, and Asia that meet its investment criteria and the investment criteria
contained in the AEP merger agreement.
C3 COMMUNICATIONS
C3 Communications has two active business units; its Utility Automation
Division and a telecommunications partnership, ChoiceCom.
C3 Communications' Utility Automation Division performs consulting,
implementation and integration of utility meter automation products and services
for traditional utility companies and, as competition markets open, in states
like California, for energy service providers. C3 Communications offers clients
innovative meter-based competitive data services including automated meter
reading; hourly, daily and monthly delivery of consumption data; advanced load
profiling data; aggregation reports for customers with multiple accounts and
operational services like outage and tamper detection and real-time-pricing and
time-of use data.
ChoiceCom offers telecommunications services including local telephone
service, long distance and long-haul data transmission services. ChoiceCom began
offering local telephone service in August, 1997, in Austin, Corpus Christi and
San Antonio, Texas with an emphasis on the business customer. ChoiceCom also
installed state-of-the-art Lucent 5ESS(R) switches in those three cities. In
January 1998, ChoiceCom began offering telephone service in Dallas and Houston
with plans to install Lucent 5ESS(R) switches in both cities by the end of the
year. With the addition of Dallas and Houston, ChoiceCom's expected 5-year
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<PAGE>
capital budget has increased to $210 million from $104 million. The partnership
has grown to about 150 employees during its first year of operation.
In November 1997, the parties amended the ChoiceCom Limited Partnership
Agreement to provide that CSW hold 100% of the economic interest in ChoiceCom
and 60% of the voting interest. ICG Communications, Inc. holds the remaining 40%
voting interest in ChoiceCom, and has an option to acquire a 50% economic
interest in ChoiceCom. In the event that its option terminates without being
exercised, ICG Communications, Inc. will be bound by a non-compete agreement in
CSW's service territory.
ENERSHOP
EnerShop currently provides energy services to customers in Texas which
help reduce customers' operating costs through increased energy efficiencies and
improved equipment operations. EnerShop utilizes the skills of local trade
allies in offering services that include energy and facility analysis; project
management; engineering design, equipment procurement and construction; and
performance monitoring.
OTHER VENTURES
CSW Energy Services will spearhead CSW's competitive efforts in the
retail electricity markets of states outside of CSW's historical service
territories. CSW Energy Services will seek to secure electricity supply business
in the markets which soon will have retail competition, and will enable CSW to
extend its business reach and name recognition beyond CSW's traditional customer
base. In March 1998, CSW Energy Services signed its first major supply contract
in California. The CSW Services Business Ventures group pursues energy projects
related to the business activities of the U.S. Electric Operating Companies.
Projects for these groups include staffing services for electric utility nuclear
power plants, energy management systems, electric substation automation software
and electric vehicles. In June 1997, the FERC approved the request of CSW Power
Marketing to sell power and energy at market-based rates in the wholesale
market. CSW has temporarily suspended this initiative in light of the AEP Merger
since AEP is already pursuing this initiative.
SOUTH TEXAS PROJECT
CPL owns 25.2% of STP, a two-unit nuclear power plant which is located
near Bay City, Texas. HL&P owns 30.8%, San Antonio owns 28.0%, and Austin owns
16.0% of STP. STP Unit 1 was placed in service in August 1988, and STP Unit 2
was placed in service in June 1989.
STP Unit 1 and Unit 2 were removed from service during 1997 for
scheduled refueling outages which lasted 24 days and 18 days, respectively. For
the year 1997, Unit 1 and Unit 2 operated at net capacity factors of 90.1% and
91.0%, respectively.
In September 1997, STPNOC was formed to replace HL&P as the STP Project
Manager. Each of the four STP co-owners are represented on the STPNOC board of
directors. The CPL representative has been elected as the initial chairman of
the board of directors. On October 1, 1997, all HL&P employees assigned to STP
were transferred from HL&P to STPNOC. On November 17, 1997, HL&P was removed as
STP Project Manager, and STPNOC became the operator of the plant. CPL believes
the formation of STPNOC is in the best interest of CPL.
The establishment of STPNOC provides the following advantages: (i)
allows the management and work force to focus exclusively on the safe, reliable
and efficient operation of the STP units; (ii) removes most of the possibility
of disputes between the four owners over the operation of the facility; (iii)
removes dissension concerning the potential liability of HL&P who was acting as
the project manager; and (iv) allows the management of the facility to tailor a
total compensation package for the STP work force which best suits that work
force and its needs. In addition, the formation and operation of STPNOC is
CSW
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<PAGE>
expected to result in a decrease in costs allocable to CPL related to its
investment in STP (The foregoing statement constitutes a forward looking
statement within the meaning of Section 21E of the Exchange Act. Actual results
may differ materially from such projected information due to changes in the
underlying assumptions. See FORWARD LOOKING INFORMATION).
For additional information regarding STP and the accounting for the
decommissioning of STP, see NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
and NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS.
ENVIRONMENTAL MATTERS
The operations of the CSW System, like those of other utility systems,
generally involve the use and disposal of substances subject to environmental
laws. CERCLA, the federal "Superfund" law, addresses the cleanup of sites
contaminated by hazardous substances. Superfund requires that PRPs fund remedial
actions regardless of fault or the legality of past disposal activities. PRPs
include owners and operators of contaminated sites and transporters and/or
generators of hazardous substances. Many states have similar laws. Legally, any
one PRP can be held responsible for the entire cost of a cleanup. Usually,
however, cleanup costs are allocated among PRPs.
The U.S. Electric Operating Companies are subject to various pending
claims alleging that they are PRPs under federal or state remedial laws for
investigating and cleaning up contaminated property. CSW believes that
resolution of these claims, individually or in the aggregate, will not have a
material adverse effect on CSW's or any U.S. Electric Operating Company's
results of operations or financial condition. Although the reasons for this
expectation differ from site to site, factors that are the basis for the
expectation for specific sites include the volume and/or type of waste allegedly
contributed by the U.S. Electric Operating Company, the estimated amount of
costs allocated to the U.S. Electric Operating Company and the participation of
other parties (The foregoing statements constitute forward looking statements
within the meaning of Section 21E of the Exchange Act. Actual results may differ
materially from such projected information due to changes in the underlying
assumptions. See FORWARD LOOKING INFORMATION). See NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS and NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES for
additional discussion regarding environmental matters.
The EPA recently promulgated revised, more stringent ambient air
quality standards for ozone and particulates. While these standards do not
mandate emission levels for facilities such as electricity generating power
plants, they may result in more areas being designated as non-attainment for
these two pollutants. States will be required to develop strategies to achieve
compliance in these areas, strategies that may include lower emission levels for
electricity generating power plants, possibly including facilities within the
CSW System. The impact, if any, on CSW or the U.S. Electric Operating Companies
cannot yet be determined, but the impact could be significant.
At the Kyoto Conference on Global Warming held in December 1997, U.S.
representatives agreed to a treaty which could require new limitations on
"greenhouse gases" from power plants. CSW and the U.S. Electric Operating
companies could be affected if this treaty is approved by the United States
Congress in its present form. The impact, if any, on CSW or the U.S. Electric
Operating Companies cannot yet be determined, but the impact could be
significant.
CSW
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<PAGE>
RISK MANAGEMENT
In October 1997, CSW's board of directors adopted a risk management
resolution authorizing CSW to engage in currency, interest rate and energy spot
and forward transactions and related derivative transactions on behalf of CSW
with foreign and domestic parties as deemed appropriate by executive officers of
CSW. The risk management program is necessary to meet the growing demands of
CSW's customers for competitive prices and price stability, to enable CSW to
compete in a deregulated power industry, to manage the risks associated with
domestic and foreign investments and to take advantage of strategic investment
opportunities.
The U.S. Electric Operating Companies experience commodity price
exposures related to the purchase of fuel supplies for the generation of
electricity and for the purchase of power and energy from other generation
sources. Contracts that provide for the future delivery of these commodities can
be considered forward contracts which contain pricing and/or volume terms
designed to stabilize the cost of the commodity. Consequently, the U.S. Electric
Operating Companies manage their price exposure for the benefit of customers by
balancing their commodity purchases through a combination of long-term and
short-term (spot-market) agreements. In addition, SEEBOARD has entered into
contracts for differences to reduce exposure to fluctuations in the price of
electricity purchased from the United Kingdom's electricity power pool. This
pool was established at privatization of the United Kingdom's electric industry
for the bulk trading of electricity between generators and suppliers. At
December 31, 1997, the gross value of such contracts for differences amounted to
not more than 80% of any year's expected power purchases.
CSW has, at times, been exposed to currency and interest rate risks
which reflect the floating exchange rate that exists between the U.S. dollar and
the British pound since its purchase of SEEBOARD in 1995. CSW has utilized
certain risk management tools to manage adverse changes in exchange rates and to
facilitate financing transactions resulting from CSW's acquisition of SEEBOARD.
At the end of 1997, CSW had positions in two cross currency swap contracts. The
following table presents information relating to these contracts. The market
value represents the foreign exchange/interest rate terms inherent in the cross
currency swaps at current market pricing. CSW expects to hold these contracts to
maturity. At current exchange rates, this liability is included in long-term
debt on the balance sheet at a carrying value of approximately $425 million.
Expected Expected Cash
Cash Inflows Outflows
Contract Maturity (Maturity Value) (Market Value)
Date
- ------------------------------------------------------------------------
Cross currency swap August 1, 2001 $200 million $216.5 million
Cross currency swap August 1, 2006 $200 million $226.8 million
OTHER MATTERS
YEAR 2000
In 1996, a system-wide program to prepare CSW's computer systems and
applications for the year 2000 was initiated. CSW expects to incur internal
staff costs as well as consulting and other expenses related to infrastructure
and facilities enhancements necessary to prepare the systems for the year 2000.
Testing and conversion is expected to cost between $20 million and $21 million
over the next two years including both domestic and foreign operations. A
significant portion of these costs is likely to be covered through the
redeployment of existing resources. The major applications which pose the
greatest risk for CSW if implementation is not successful are the transmission
and distribution automation system; the time in use, demand and recorder
metering system for commercial and industrial customers; and the power billing
system. The potential problems related to these systems are electric service
interruptions to customers, interrupted revenue data gathering and poor customer
relations resulting from delayed billing, respectively. Costs related to the
year 2000 program will be expensed as incurred.
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ADOPTION OF RIGHTS PLAN
In September 1997, CSW's board of directors adopted a Rights Plan,
subject to SEC approval under the Holding Company Act. SEC approval was received
in December 1997, and on December 22, 1997, CSW executed the Rights Plan which
had been modified to permit the AEP Merger. The Rights Plan was initially
adopted and ultimately executed as part of the fiduciary responsibility of CSW's
board of directors and was not adopted because of any takeover offer or threat.
The intent of the Rights Plan is to assure fair and equal treatment for all of
CSW's stockholders in the event of a hostile takeover attempt and to encourage a
potential acquirer to negotiate with CSW's board of directors before attempting
a takeover to assure a fair price for all stockholders.
On January 6, 1998, CSW made a dividend distribution of one right for
each outstanding share of its common stock. Each right initially entitles the
holder to buy one-tenth of one share of CSW Common for $50. Prior to the date
upon which the rights become exercisable under the Rights Plan, CSW's
outstanding stock certificates will represent both the shares of common stock
and the rights, and the rights will trade only together with the shares.
Under the Rights Plan, a "triggering event" would occur ten days after
a person or group acquires or announces a tender or exchange offer to acquire
fifteen percent or more of CSW's outstanding common stock. Upon such a
"triggering event," the rights would become exercisable and trade independently
of CSW's common stock. After a person or group acquires fifteen percent or more
of CSW's outstanding common stock, each right (except those held by such
acquiring person or group, whose rights would become void), entitles the holder
to purchase, at the exercise price, CSW common shares having a current market
value of two times the exercise price. If CSW was acquired in a merger or other
business combination, each right would entitle the holder to purchase, at the
exercise price, common stock of the acquirer having a current market value of
two times the exercise price. In either case, after a triggering event occurs
but before an acquiring person becomes the owner of at least fifty percent of
CSW's outstanding common stock, CSW's board of directors may direct the exchange
of one share of CSW's common stock for each right then outstanding and not
exercised. The Rights Plan exempts the AEP Merger transaction. Therefore,
neither the execution of the AEP merger agreement nor consummation of the AEP
Merger caused, or will cause a "triggering event" or the rights to become
exercisable. See PROPOSED AEP MERGER for additional information on the proposed
merger.
CSW's board of directors may redeem the rights for a price of one cent
per right prior to the earlier of the rights becoming exercisable or the
expiration of the Rights Plan. The rights will expire ten years from the
effective date unless they are earlier redeemed or exchanged by CSW.
NEW ACCOUNTING STANDARDS
SFAS NO. 125
SFAS No. 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities using a
financial-components approach that focuses on control. An entity recognizes
assets it controls and derecognizes assets when control has been surrendered and
liabilities when they have been extinguished. A transfer of assets in which
control of the asset is surrendered is recorded as a sale. Control of an asset
is surrendered only when and if certain conditions are met. Likewise, a
liability is only extinguished under certain distinct conditions. The
Registrants adopted SFAS No. 125 effective January 1, 1997. Adoption of this
standard has not had a material adverse effect on the Registrants' results of
operations or financial condition.
CSW
2-28
<PAGE>
SFAS NO. 128
On March 3, 1997, the FASB issued SFAS No. 128, effective for financial
statements for periods ending after December 15, 1997. SFAS No. 128 will
simplify the computation of earnings per share for many companies by eliminating
calculation provisions which were required by the prior earnings per share
standard, Accounting Principles Board Opinion No. 15. CSW adopted SFAS No. 128
effective December 31, 1997. Adoption of SFAS No. 128 did not have a material
effect on its calculation of earnings per share.
SFAS NO. 130
This statement is effective for fiscal years beginning after December
15, 1997. The statement adds the requirement to present comprehensive income and
all of its components (revenues, expenses, gains and losses) in a full set of
financial statements, and this new statement must be displayed with the same
prominence given other financial statements. Comprehensive income is defined as
the change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. Though effective at the
beginning of 1998, comprehensive income is not required to be disclosed in
interim statements in the year adopted. CSW will adopt this statement beginning
with 1998 year-end financial statements.
SFAS NO. 131
This statement is effective for fiscal years beginning after December
15, 1997, and requires that certain information about operating segments be
presented in complete sets of financial statements. It also requires the
presentation of information regarding products and services, geographic areas in
which the entity operates, and concentrations of major customers.
The objective of this statement is to provide information about the
different types of business activities in which an entity engages and the
different economic environments in which it operates to help users of financial
statements better understand an entity's performance and prospects for future
cash flows and make more informed judgments about the enterprise as a whole.
An operating segment is a component of an enterprise that earns
revenues and incurs expenses, whose results are regularly reviewed by the chief
decision maker, and for which discrete financial information is available.
Separate information is required to be presented for any segment that is 10
percent or more of reported income, profit or loss, or assets of the combined
entity. CSW will adopt this statement beginning with 1998 year-end financial
statements.
CENTRAL AND SOUTH WEST CORPORATION'S RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
CSW's earnings decreased to $153 million in 1997 from $429 million in
1996. CSW's return on average common stock equity was 4.2% in 1997 compared to
12.1% in 1996. The primary reason for the lower earnings and return on average
common stock equity was the accrual of the one-time United Kingdom windfall
profits tax. The impact of CSW's final settlement of litigation with El Paso
contributed to the decline in earnings as well. Also contributing to the
decrease in earnings was the effect of both the PSO 1997 Rate Settlement
Agreement and the CPL 1997 Final Order. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for additional information on CSW's final settlement of litigation
with El Paso, the CPL 1997 Final Order and the PSO 1997 Rate Settlement
Agreement. See NOTE 17. EXTRAORDINARY ITEM for additional information on the
windfall profits tax. Further reducing earnings for 1997 were certain asset
write-offs predominately at the U.S. Electric Operating Companies. Partially
offsetting the lower earnings was the gain on the reacquisition of a portion of
the U.S. Electric Operating Companies' preferred stock and an adjustment to
CSW
2-29
<PAGE>
deferred tax balances of $15 million resulting from a 2% reduction in the United
Kingdom corporation tax rate. Further offsetting the decline in earnings was an
increase in non-fuel electric revenues. Significant items impacting 1997
earnings are listed below (in millions).
Earnings
Impact
-------------
United Kingdom Windfall Profits Tax $(176)
CPL 1997 Final Order (48)
Asset Write-offs and Reserves (48)
PSO 1997 Rate Settlement Agreement (27)
Settlement of Litigation with El Paso (23)
Gain on the Reacquisition of Preferred Stock 10
United Kingdom Deferred Tax Adjustment 15
In addition, several items that occurred in 1996 were not present in
1997. Prior to the sale of Transok in 1996, CSW realized $12 million of earnings
from Transok's operations. As a result of the sale, CSW also recorded an
after-tax gain of approximately $120 million in 1996. However, the U.S. Electric
Operating Companies and CSW Energy recorded charges totaling $102 million,
after-tax, for certain investments in the second quarter of 1996 which decreased
earnings. See NOTE 14. DISCONTINUED OPERATIONS for additional information
concerning the effects of the sale of Transok.
Operating revenues increased $113 million in 1997 compared to 1996.
The revenue variances are shown in the following table.
1997 REVENUE VARIANCES
INCREASE (DECREASE) FROM PRIOR YEAR, MILLIONS
U.S. Electric
CPL and WTU Transmission Revenues $56
KWH Sales, Growth and Usage 41
Fuel Revenue 23
CPL 1996 Fuel Agreement 18
Sales for Resale 12
CPL 1997 Final Order (45)
KWH Sales, Weather-Related (37)
PSO 1997 Rate Settlement Agreement (32)
Other Electric 37
----
73
United Kingdom 22
Other Diversified 18
----
$113
----
U.S. Electric revenues increased $73 million, or 2%, in 1997 compared
to 1996. Retail MWH sales increased 2.5% with increases in all customer classes.
U.S. Electric revenues increased primarily due to higher MWH sales resulting
from increased customer usage and new transmission access revenues at CPL and
WTU in accordance with FERC Order No. 888 and the Texas Commission's rule
regarding transmission access and pricing. The new transmission revenues had no
material effect on earnings because they were almost completely offset by a
corresponding amount of transmission expense. Revenues increased due in part to
the absence in 1997 of the revenue decrease in 1996 from the CPL 1996 Fuel
Agreement. An increase in fuel revenues, as discussed in fuel expense below,
also contributed to the higher revenues. Partially offsetting the revenue
increase was a decrease in weather-related demand due to milder weather in the
first nine months of 1997. Further offsetting the increase in U.S. Electric
revenues was the revenue decrease from both the CPL 1997 Final Order and the PSO
1997 Rate Settlement Agreement. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for additional information on the CPL 1997 Final Order and the PSO
1997 Rate Settlement Agreement. United Kingdom revenues increased $22 million,
CSW
2-30
<PAGE>
or 1%, in 1997 compared to 1996 due primarily to the effect of the exchange rate
movement between the British pound and the U.S. dollar, partially offset by a
reduction in the fossil fuel levy collected on behalf of the United Kingdom.
Other diversified revenues increased $18 million, or 31%, in 1997 compared to
1996 due primarily to increased revenues from CSW International, C3
Communications, CSW Credit and EnerShop.
During 1997 and 1996 the U.S. Electric Operating Companies generated
93% of their electric energy requirements. U.S. Electric fuel expense increased
$26 million to $1.3 billion in 1997 compared to 1996 due primarily to an
increase in natural gas fuel costs to $2.67 per MMbtu from $2.50 per MMbtu. Also
contributing to the increase was the absence in 1997 of a one-time reduction to
fuel expense of approximately $9 million recorded in the first quarter of 1996
related to the CPL 1996 Fuel Agreement. Partially offsetting these increases in
fuel expense was the effect of lower-cost coal. United Kingdom cost of sales
decreased approximately $40 million to $1.3 billion in 1997 compared to 1996 due
primarily to a reduction in the fossil fuel levy collected on behalf of the
United Kingdom government, which was partially offset by the effect of the
exchange rate movement between the British pound and the U.S. dollar.
Other operating expense increased $196 million to $981 million in 1997
compared to 1996 due in part to the absence in 1997 of a $27 million pension
adjustment recorded in the second quarter of 1996 at SEEBOARD which decreased
pension expense. The effect of the exchange rate movement between the British
pound and U.S. dollar also contributed to the increase in other operating
expense of SEEBOARD U.S.A. In addition, approximately $56 million in new
transmission access expense was recorded at CPL and WTU in 1997 related to FERC
Order No. 888 and the Texas Commission rules regarding transmission access and
pricing. Also increasing other operating expense were asset write-offs of
approximately $57 million including certain regulatory assets, capitalized
demand side management assets and obsolete inventories. In addition, the
settlement of litigation with El Paso increased other operating expense $35
million. Further contributing to the increase in other operating expense was the
$12 million impact of the CPL 1997 Final Order and the $4 million impact of the
PSO 1997 Rate Settlement Agreement. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for additional information on the CPL 1997 Final Order and the PSO
1997 Rate Settlement Agreement. Partially offsetting these increases were the
absence in 1997 of expenses recorded in 1996 related to inventory write-offs of
$10 million and CPL rate case adjustments of $15 million. Further offsetting the
increases were charges in 1996 associated with restructuring costs. Also
partially offsetting the increase in other operating expense was reduced pension
expense in 1997 resulting from changes made to the pension plan for CSW's
domestic employees. See NOTE 5. BENEFIT PLANS for additional information related
to the changes in the pension plan.
Depreciation and amortization expense increased $33 million, or 7%, in
1997 due primarily to the implementation of depreciation and amortization in
accordance with the CPL 1997 Final Order. As a result of that order, the
increase in depreciation due to the accelerated recovery of ECOM property was
offset in part by the implementation of lower depreciation rates. Taxes other
than income increased $17 million, or 10%, in 1997 compared to 1996 due
primarily to higher property taxes at CPL and the absence in 1997 of a CPL Texas
franchise tax refund and true-up in 1996. Income tax expense decreased $73
million to $151 million in 1997 due primarily to lower pre-tax income and a $15
million adjustment to deferred income tax balances resulting from a 2% reduction
in the United Kingdom corporation tax rate.
Other income and deductions increased to a gain of $32 million in
1997 from a loss of $61 million in 1996 due primarily to the absence in 1997 of
charges for certain investments recorded in the second quarter of 1996 of
approximately $84 million, after tax, at the U.S. Electric Operating Companies
and $18 million at CSW Energy. Long-term interest expense increased $8 million,
or 2%, in 1997 due primarily to interest expense resulting from a fourth quarter
1996 debt issuance by CSW Energy. Short-term and other interest expense
decreased $8 million to $86 million in 1997 when compared to 1996 due primarily
to lower levels of short-term borrowings. Distributions on newly-issued Trust
Preferred Securities increased interest and other charges by $17 million in
1997, which was partially offset by lower dividend requirements resulting from
CSW
2-31
<PAGE>
the related preferred stock reacquisitions at the U.S. Electric Operating
Companies. See NOTE 10. TRUST PREFERRED SECURITIES for additional information on
the new securities.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
CSW's earnings increased to $429 million in 1996 compared to $402
million in 1995. Although earnings increased, earnings per share decreased from
$2.10 in 1995 to $2.07 in 1996 due to the issuance of additional shares of
common stock during 1996. The return on average common stock equity was 12.1% in
1996 compared to 13.1% in 1995. U.S. Electric operations contributed
approximately 57% of total earnings in 1996 and approximately 105% of total
earnings in 1995. The lower percent for U.S. Electric operations is mostly
attributed to the gain on the sale of Transok, higher earnings from SEEBOARD
U.S.A. and the recording of charges at each of the U.S. Electric Operating
Companies for certain investments. SEEBOARD U.S.A. contributed 24% of total
earnings in 1996 as compared to 2% in 1995, reflecting a full year of earnings
in 1996 compared to only a partial quarter in 1995.
Earnings increased in 1996 compared to 1995 due primarily to the gain
from the sale of Transok, the additional earnings from SEEBOARD U.S.A., the
absence of charges in 1996 related to the termination of the proposed El Paso
Merger in June 1995 and the effect of the CPL 1995 Agreement. Also contributing
to the increase were higher non-fuel electric revenues resulting from increased
usage, customer growth and weather-related demand. Partially offsetting these
increases in earnings were the recording of charges by the U.S. Electric
Operating Companies in June 1996 associated with certain investments, write-offs
of certain equity investments and other project development costs for CSW
Energy, restructuring charges, the effect of the CPL 1996 Fuel Agreement, the
asset reserves for the pending CPL rate case and the absence in 1996 of
favorable tax adjustments made in 1995. Additional information related to the
reserves recorded in June 1996 is discussed below. For further discussion of
CPL's regulatory activities, see NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS.
Increased depreciation and amortization, increased other operating expense,
increased interest expense and the loss of Mirror CWIP earnings also reduced the
increase in earnings. Significant items impacting 1996 earnings are listed
below (in millions).
Earnings
Impact
------------
Gain on the Sale of Transok $120
Charges for Certain Investments (104)
CPL Pending Rate Case Write-offs (8)
CPL 1996 Fuel Agreement (7)
CSW
2-32
<PAGE>
Revenues increased approximately $2.0 billion or 64% in 1996 when
compared to 1995. The revenue variances are shown in the following table.
1996 REVENUE VARIANCES
INCREASE (DECREASE) FROM PRIOR YEAR, MILLIONS
U.S. Electric
Fuel Revenues $181
CPL 1995 Agreement 112
KWH Sales, Growth and Usage 83
KWH Sales, Weather-Related 21
WTU 1995 Stipulation and Agreement 21
Other Electric (35)
CPL 1996 Fuel Agreement (18)
------
365
United Kingdom 1,640
Other Diversified 7
------
$2,012
------
U.S. Electric revenues increased $365 million or 13% in 1996 compared
to 1995. Total U.S. Electric KWH sales increased 4.2%, with increases in sales
among all retail customer classes. Customer growth, increased usage and
weather-related demand contributed to the increased revenues along with higher
fuel revenues as discussed below. Also contributing to the increase was the
absence in 1996 of reserves for refunds recorded in 1995 in accordance with the
CPL 1995 Agreement and the WTU 1995 Stipulation and Agreement. KWH sales to
retail customers increased in 1996 as a result of customer growth, increased
customer usage and weather-related demand.
CSW's operating revenues also include approximately $1.8 billion from a
full year of revenues from SEEBOARD U.S.A. for 1996 compared to $208 million of
revenues for a partial quarter of operations in 1995. Other diversified revenues
increased 13% to $59 million in 1996 as compared to $52 million in 1995 due
primarily to increased revenues from CSW Energy projects, increased factoring
revenues at CSW Credit and new revenues from C3 Communications and EnerShop.
During 1996 and 1995 the U.S. Electric Operating Companies generated
93% and 95%, respectively, of their electric energy requirements. U.S. Electric
fuel expense increased 15% to approximately $1.1 billion in 1996 at the U.S.
Electric Operating Companies due primarily to an increase in the average unit
cost of fuel to $1.81 per MMbtu in 1996 from $1.58 per MMbtu in 1995, reflecting
higher natural gas prices. Partially offsetting this increase was a reduction in
the delivered cost of coal at the U.S. Electric Operating Companies resulting
from lower coal transportation costs and lower spot market coal prices. U.S.
Electric purchased power increased $36 million to $77 million in 1996 due
primarily to increased economy energy purchases at a higher cost per MWH. CSW's
operating expenses include $1.3 billion for cost of sales from a full year of
United Kingdom operations in 1996 compared to $158 million recorded in United
Kingdom cost of sales for a partial quarter of operations in 1995.
Other operating expenses in 1996 increased $228 million, or 41%, from
1995 due primarily to the addition in 1996 of a full year of operating expenses
from SEEBOARD U.S.A. as well as the absence in 1996 of reduced expenses in 1995
related to $28 million of regulatory assets established for previously expensed
restructuring charges and the reversal of rate case costs pursuant to the CPL
1995 Agreement. Also contributing to the increase was the recognition in 1995 of
a $13 million regulatory asset for previously recorded restructuring charges in
accordance with the WTU 1995 Stipulation and Agreement. Another factor
contributing to increased other operating expense was a CSW restructuring charge
recorded in 1996. A $42 million reserve for deferred merger and acquisition
costs was recorded in 1995 from the terminated El Paso merger. Maintenance
expense decreased $5 million to $150 million in 1996 from $155 million in 1995
due primarily to a $10 million decrease in maintenance expense at CPL resulting
from lower production and distribution maintenance costs. Partially offsetting
CSW
2-33
<PAGE>
this decrease was a $7 million increase in maintenance due to a write-down of
production inventory at the U.S. Electric Operating Companies in 1996.
Depreciation and amortization increased 31% to $464 million in 1996
from $353 million in 1995 due primarily to the addition of depreciable fixed
assets and the goodwill amortization related to the purchase of SEEBOARD, as
well as increases in depreciable fixed assets at the U.S. Electric Operating
Companies. Also contributing to the increase were the amortization of the
regulatory assets established in 1995 associated with the CPL 1995 Agreement and
the WTU 1995 Stipulation and Agreement along with accelerated amortization of
deferred Oklaunion plant costs in accordance with the WTU 1995 Stipulation and
Agreement.
Taxes, other than income increased 10% to $178 million in 1996 from
$162 million in 1995. The increase was due primarily to lower 1995 ad valorem
taxes resulting from revisions of prior year estimates recorded in 1995. Also
contributing to the increase were higher ad valorem and state franchise taxes at
SWEPCO in 1996. The higher ad valorem taxes resulted primarily from a higher
state assessed value in Louisiana and the addition of the HVdc tie in Texas. The
state franchise taxes increased due mainly to higher federal taxable income
associated with Texas franchise tax. Income taxes increased $132 million to $224
million during 1996 compared to 1995. During 1995, income taxes were lower
primarily due to adjustments relating to prior year taxes, as well as the tax
effect from both the CPL 1995 Agreement and the WTU 1995 Stipulation and
Agreement. Income taxes of $46 million were recorded for SEEBOARD U.S.A. from a
full year of operations in 1996 compared to $6 million for a partial quarter of
operations in 1995.
Other income and deductions decreased $160 million in 1996 when
compared to 1995 due primarily to charges recorded in June 1996 associated with
certain investments for plant sites, engineering studies and lignite reserves
for the U.S. Electric Operating Companies. See the table below for additional
detail on these charges. Other income and deductions was also lower as a result
of certain write-offs recorded by CSW Energy. In addition, CPL's Mirror CWIP
liability, which has now been fully amortized, contributed $41 million to income
in 1995.
Pre-tax effect Income tax Net income
on income benefit effect
--------------------------------------
(thousands)
CPL $(21,509) $5,940 $(15,569)
PSO (51,109) 15,401 (35,708)
SWEPCO (29,700) 7,885 (21,815)
WTU (14,949) 4,003 (10,946)
-------------------------------------
$(117,267) $33,229 $(84,038)
-------------------------------------
Interest on long-term debt increased $102 million or 46% during 1996
compared to 1995 due to higher levels of long-term debt outstanding related to
the SEEBOARD acquisition. CSW's 1996 embedded cost of long-term debt was
unchanged from 1995 at 7.2%. Interest on short-term debt decreased $7 million or
7% in 1996 compared to 1995 due to lower interest rates and lower levels of
short-term debt outstanding. CSW used a portion of the proceeds from the sale of
Transok to reduce short-term debt.
The $120 million gain on the sale of Transok as well as Transok's 1996
operations are shown separately in discontinued operations. Transok's earnings
for the first five months of 1996 were $12 million compared to $25 million from
a full year of operations for 1995. See NOTE 15. TRANSOK DISCONTINUED OPERATIONS
for information, including comparative statements of income, related to the sale
of Transok.
CSW
2-34
<PAGE>
CSW
CONSOLIDATED STATEMENTS OF INCOME
CENTRAL AND SOUTH WEST CORPORATION
- ------------------------------------------------------------------------
For the Years Ended December 31,
----------------------------
1997 1996 1995
------- ------- ------
($ in millions, except share amounts)
Operating Revenues
U.S. Electric $3,321 $3,248 $2,883
United Kingdom 1,870 1,848 208
Other diversified 77 59 52
------- ------- ------
5,268 5,155 3,143
------- ------- ------
Operating Expenses and Taxes
U.S. Electric fuel 1,177 1,151 1,004
U.S. Electric purchased power 89 77 41
United Kingdom cost of sales 1,291 1,331 158
Other operating 981 785 557
Maintenance 152 150 155
Depreciation and amortization 497 464 353
Taxes, other than income 195 178 162
Income taxes 151 224 92
------- ------- ------
4,533 4,360 2,522
------- ------- ------
Operating Income 735 795 621
------- ------- ------
Other Income and Deductions
Mirror CWIP liability amortization -- -- 41
U.S. Electric charges for investments
and plant development costs (3) (117) --
Other 29 16 56
Non-operating income taxes 6 40 2
------- ------- ------
32 (61) 99
------- ------- ------
Income Before Interest and Other Charges 767 734 720
------- ------- ------
Interest and Other Charges
Interest on long-term debt 333 325 223
Distributions on Trust Preferred
Securities 17 -- --
Interest on short-term debt and other 86 94 101
Preferred dividend requirements
of subsidiaries 12 18 19
Gain on reacquired preferred stock (10) -- --
------- ------- ------
438 437 343
------- ------- ------
Income from Continuing Operations 329 297 377
------- ------- ------
Discontinued Operations
Income from discontinued operations,
net of tax of $6 for 1996 and $13
for 1995 -- 12 25
Gain on the sale of discontinued
operations, net of tax of $72 -- 120 --
------- ------- ------
-- 132 25
------- ------- ------
Income Before Extraordinary Item 329 429 402
Extraordinary Item - United Kingdom
windfall profits tax (176) -- --
------- ------- ------
Net Income for Common Stock $153 $429 $402
======= ======= ======
Average Common Shares Outstanding 212.1 207.5 191.7
Basic and Diluted EPS from Continuing
Operations $1.55 $1.43 $1.97
Basic and Diluted EPS from Discontinued
Operations -- 0.64 0.13
------- ------- ------
Basic and Diluted EPS before
Extraordinary Item 1.55 2.07 2.10
Basic and Diluted EPS from
Extraordinary Item (0.83) -- --
------- ------- ------
Basic and Diluted EPS $0.72 $2.07 $2.10
======= ======= ======
Dividends Paid per Share of Common Stock $1.74 $1.74 $1.72
======= ======= ======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CSW
2-35
<PAGE>
CSW
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CENTRAL AND SOUTH WEST CORPORATION
- ---------------------------------------------------------------------------
For the Years Ended December 31,
--------------------------
1997 1996 1995
------- ------ ------
(millions)
Common Stock at Beginning of Year $740 $675 $667
Sale of Common Stock 3 65 8
------- ------ ------
Common Stock at End of Year 743 740 675
------- ------ ------
Paid-in Capital at Beginning of Year 1,022 610 561
Sale of Common Stock 17 412 49
------- ------ ------
Paid-in Capital at End of Year 1,039 1,022 610
------- ------ ------
Retained Earnings at Beginning of Year 1,963 1,893 1,824
Net income for common stock 153 429 402
Deduct: Common stock dividends 369 358 329
Deduct: Other 1 1 4
------- ------ ------
Retained Earnings at End of Year 1,746 1,963 1,893
------- ------ ------
Foreign Currency Translation and Other
at Beginning of Year 77 -- --
Net Change (49) 77 --
------- ------ ------
Foreign Currency Translation and Other
at End of Year 28 77 --
------- ------ ------
------- ------ ------
Total Stockholders' Equity $3,556 $3,802 $3,178
======= ====== ======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CSW
2-36
<PAGE>
CSW
CONSOLIDATED BALANCE SHEETS
CENTRAL AND SOUTH WEST CORPORATION
- ---------------------------------------------------------------------------
As of December 31,
-----------------
1997 1996
------- -------
(millions)
ASSETS
Fixed Assets
Electric
Production $5,824 $5,830
Transmission 1,558 1,538
Distribution 4,453 4,237
General 1,381 1,318
Construction work in progress 184 230
Nuclear fuel 196 184
------- -------
13,596 13,337
Other diversified 250 84
------- -------
13,846 13,421
Less - Accumulated depreciation and amortization 5,218 4,940
------- -------
8,628 8,481
------- -------
Current Assets
Cash and temporary cash investments 75 254
Accounts receivable 916 837
Materials and supplies, at average cost 172 185
Electric utility fuel inventory 65 102
Under-recovered fuel costs 84 46
Prepayments and other 78 85
------- -------
1,390 1,509
------- -------
Deferred Charges and Other Assets
Deferred plant costs 503 509
Mirror CWIP asset 285 299
Other non-utility investments 448 371
Securities available for sale 103 --
Income tax related regulatory assets, net 329 236
Goodwill 1,428 1,525
Other 337 402
------- -------
3,433 3,342
------- -------
$13,451 $13,332
======= =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CSW
2-37
<PAGE>
CSW
CONSOLIDATED BALANCE SHEETS
CENTRAL AND SOUTH WEST CORPORATION
- ----------------------------------------------------------------------
As of December 31,
----------------------
1997 1996
-------- --------
CAPITALIZATION AND LIABILITIES (millions)
Capitalization
Common stock: $3.50 par value
Authorized shares:
350.0 million shares
Issued and outstanding:
212.2 million shares
in 1997 and 211.5 million
shares in 1996 $ 743 $ 740
Paid-in capital 1,039 1,022
Retained earnings 1,746 1,963
Foreign currency translation and other 28 77
-------- --------
3,556 45% 3,802 47%
-------- --- --------- ---
Preferred Stock
Not subject to mandatory redemption 176 292
Subject to mandatory redemption 26 33
-------- ---------
202 2% 325 4%
Certain Subsidiary-obligated,
mandatorily redeemable preferred
securities of subsidiary trusts
holding solely Junior Subordinated
Debentures of such Subsidiaries 335 4% -- --%
Long-term debt 3,898 49% 4,024 49%
-------- --- --------- ---
Total Capitalization 7,991 100% 8,151 100%
-------- --- --------- ---
Current Liabilities
Long-term debt and preferred stock
due within twelve months 32 204
Short-term debt 721 364
Short-term debt - CSW Credit, Inc. 636 579
Loan notes 56 76
Accounts payable 558 630
Accrued taxes 171 324
Accrued interest 87 82
Other 238 166
-------- --------
2,499 2,425
-------- --------
Deferred Credits
Accumulated deferred income taxes 2,432 2,272
Investment tax credits 278 291
Other 251 193
-------- --------
2,961 2,756
-------- --------
$ 13,451 $ 13,332
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CSW
2-38
<PAGE>
CSW
CONSOLIDATED STATEMENTS OF CASH FLOWS
CENTRAL AND SOUTH WEST CORPORATION
- -----------------------------------------------------------------------------
For the Years Ended December 31,
----------------------------
1997 1996 1995
------- ------- ------
(millions)
OPERATING ACTIVITIES
Net income for common stock $153 $429 $402
Non-cash Items and Adjustments
Depreciation and amortization 529 521 425
Deferred income taxes and
investment tax credits 110 62 (11)
Preferred stock dividends 12 18 19
Gain on reacquired preferred stock (10) -- --
Mirror CWIP liability amortization -- -- (41)
Charges for investments and assets 53 147 --
Gain on sale of subsidiary -- (192) --
Changes in Assets and Liabilities
Accounts receivable (140) (86) (36)
Accounts payable 45 23 (32)
Accrued taxes (153) (14) 25
Fuel recovery (37) (89) 76
Other 164 56 (28)
------- ------- -----
726 875 799
------- ------- -----
INVESTING ACTIVITIES
Construction expenditures (507) (521) (474)
Acquisitions expenditures -- (1,394) (421)
CSW Energy/CSW International projects (382) (124) 109
Sale of National Grid assets -- 99 --
Cash proceeds from sale of subsidiary -- 690 --
Other (15) (36) (26)
------- ------- -----
(904) (1,286) (812)
------- ------- -----
FINANCING ACTIVITIES
Common stock sold 20 477 57
Proceeds from issuance of long-term debt -- 437 456
SEEBOARD acquisition financing -- 350 731
Reacquisition/Maturity of long-term debt (253) (239) (363)
Redemption of preferred stock (114) (1) (1)
Trust Preferred Securites Sold 323 -- --
Other financing activities (3) 67 --
Change in short-term debt 414 (395) (226)
Payment of dividends (383) (376) (348)
------- ------- -----
4 320 306
------- ------- -----
Effect of exchange rate changes on cash and
cash equivalents (5) (56) --
------- ------- -----
Net Change in Cash and Cash Equivalents (179) (147) 293
Cash and Cash Equivalents at Beginning of Year 254 401 108
======= ======= =====
Cash and Cash Equivalents at End of Year $75 $254 $401
======= ======= =====
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $396 $356 $301
======= ======= =====
Income taxes paid $301 $196 $77
======= ======= =====
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CSW
2-39
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
CSW is a registered holding company under the Holding Company Act
subject to regulation by the SEC. CSW's U.S. Electric Operating Companies are
also regulated by the SEC under the Holding Company Act.
The principal business of CSW's U.S. Electric Operating Companies is
the generation, transmission, and distribution of electric power and energy.
These companies are subject to regulation by the FERC under the Federal Power
Act and follow the Uniform System of Accounts prescribed by the FERC. They are
subject to further regulation with regard to rates and other matters by state
regulatory commissions as follows: CPL and WTU are subject to the Texas
Commission; PSO is subject to the Oklahoma Commission; and SWEPCO is subject to
the Arkansas Commission, Louisiana Commission, Oklahoma Commission and Texas
Commission.
The principal business of CSW's United Kingdom electric operating
subsidiary, SEEBOARD, is the distribution and supply of electric power and
energy in Southeast England. SEEBOARD is subject to rate regulation by the DGES.
In addition to electric utility operations, CSW has subsidiaries
involved in a variety of business activities. CSW Energy and CSW International
pursue cogeneration and other energy-related ventures; CSW Credit factors the
accounts receivable of affiliated and non-affiliated companies; C3
Communications pursues telecommunications projects; CSW Leasing has investments
in leveraged leases; EnerShop offers energy-management services and CSW Energy
Services will pursue retail energy markets outside of CSW's traditional service
territory.
The more significant accounting policies of the CSW System are
summarized below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CSW and
its subsidiary companies. The consolidated financial statements for CPL, PSO and
SWEPCO include their respective capital trusts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities along
with disclosure of contingent liabilities at the date of financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FIXED ASSETS AND DEPRECIATION
U.S. Electric fixed assets are stated at the original cost of
construction, which includes the cost of contracted services, direct labor,
materials, overhead items and allowances for borrowed and equity funds used
during construction. SEEBOARD's fixed assets are stated at their original fair
market value which existed on the date of acquisition plus the original cost of
property acquired or constructed since the acquisition, less disposals.
Provisions for depreciation of plant are computed using the
straight-line method, generally at individual rates applied to the various
classes of depreciable property. The annual average consolidated composite rates
of the Registrants are presented in the following table.
CSW
2-40
<PAGE>
CSW CPL PSO SWEPCO WTU
----- ------- ------- ---------- -------
1997 3.4% 3.0% 3.3% 3.2% 3.3%
1996 3.4% 2.9% 3.6% 3.2% 3.2%
1995 3.4% 2.9% 3.6% 3.2% 3.2%
CPL NUCLEAR DECOMMISSIONING OF STP
At the end of STP's service life, decommissioning is expected to be
accomplished using the decontamination method, which is one of the techniques
acceptable to the NRC. Using this method, the decontamination activities occur
as soon as possible after the end of plant operations. Contaminated equipment is
cleaned and removed to a permanent disposal location, and the site is generally
returned to its pre-plant state.
CPL's decommissioning costs are accrued and funded to an external trust
over the expected service life of the STP units. The existing NRC operating
licenses will allow the operation of STP Unit 1 until 2027 and Unit 2 until
2028. The accrual for decommissioning costs is an annual level cost based on the
estimated future cost to decommission STP, including escalations for expected
inflation to the expected time of decommissioning, and is net of expected
earnings on the trust fund.
CPL's portion of the costs of decommissioning STP were estimated to be
$258 million in 1995 dollars based on a site specific study completed in 1995.
CPL is recovering these decommissioning costs through rates based on the service
life of STP at a rate of $8.2 million per year. The $8.2 million annual cost of
decommissioning is reflected on the income statement in other operating expense.
Due to the fact that the funds are deposited with a trustee under the terms of
an irrevocable trust and because of the ongoing nature of the FASB project, as
described below, CPL believes it inappropriate to reflect the trust assets on
its financial statements. At December 31, 1997, the trust balance was $45.7
million.
The FASB is currently reviewing the utility industry's accounting
treatment of nuclear and certain other plant decommissioning costs. An exposure
draft regarding this matter was issued in February 1996. In November 1997 the
FASB abandoned all previous decisions on the scope of this project and began a
new project related to decommissioning and other environmental remediation
costs. It is not known at this time when any new pronouncement would result from
this project.
ELECTRIC REVENUES AND FUEL
The U.S. Electric Operating Companies record revenues based upon
cycle-billings. Electric service provided subsequent to billing dates through
the end of each calendar month are accrued for by estimating unbilled revenues
in accordance with industry standards.
CPL, SWEPCO and WTU recover retail fuel costs in Texas as a fixed
component of base rates whereby over-recoveries of fuel are payable to customers
and under-recoveries may be billed to customers after Texas Commission approval.
The cost of fuel is charged to expense as incurred, with resulting fuel
over-recoveries and under-recoveries recorded as regulatory assets and
liabilities. PSO recovers fuel costs in Oklahoma and SWEPCO recovers fuel costs
in Arkansas and Louisiana through automatic fuel recovery mechanisms. The
application of these mechanisms varies by jurisdiction. See ITEM 1.
BUSINESS-FUEL RECOVERY and NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS, for
further information about fuel recovery.
CPL, PSO and WTU recover fuel costs applicable to wholesale customers,
which are regulated by the FERC, through an automatic fuel adjustment clause.
SWEPCO recovers fuel costs applicable to wholesale customers through formula
rates.
CPL amortizes direct nuclear fuel costs to fuel expense on the basis of
a ratio of the estimated energy used in the core to the energy expected to be
derived from such fuel assembly over its life in the core. In addition to fuel
CSW
2-41
<PAGE>
amortization, CPL also records nuclear fuel expense as a result of other items,
including spent fuel disposal fees assessed on the basis of net MWHs sold from
STP and DOE special assessment fees for decontamination and decommissioning of
the enrichment facilities on the basis of prior usage of enrichment services.
ACCOUNTS RECEIVABLE
CSW Credit, as a wholly owned subsidiary of CSW, purchases, without
recourse, the billed and unbilled accounts receivable of the U.S. Electric
Operating Companies, certain non-affiliated public utility companies and, prior
to its sale by CSW in June 1996, Transok.
REGULATORY ASSETS AND LIABILITIES
For their regulated activities, the U.S. Electric Operating Companies
follow SFAS No. 71, which defines the criteria for establishing regulatory
assets and regulatory liabilities. Regulatory assets represent probable future
revenue to the company associated with certain costs which will be recovered
from customers through the ratemaking process. Regulatory liabilities represent
probable future refunds to customers. The regulatory assets are currently being
recovered in rates or are probable of being recovered in rates. The unamortized
asset balances are included in the table below.
<TABLE>
<CAPTION>
CSW CPL PSO SWEPCO WTU
--------------------------------------------------------------
(millions) (thousands)
----------------------------------------------------
AS OF DECEMBER 31, 1997
<S> <C> <C> <C> <C> <C>
Regulatory Assets
Deferred plant costs $503 $484,277 $ -- $ -- $18,637 (3)
Mirror CWIP asset 285 285,431 -- -- --
Income tax related
regulatory assets, net 329 390,149 -- -- --
Deferred restructuring and rate
case costs 36 24,049 (1) -- -- 12,369 (3)
Demand side management costs 10 9,669 -- -- --
OPEBs 3 -- 2,829 -- --
Under-recovered fuel costs 84 43,229 15,365 (2) 13,013 11,968
Loss on reacquired debt 166 84,070 16,882 39,873 24,710
Fuel settlement 16 -- -- 15,710 (5) --
Other 8 3,669 377 2,140 2,787
----------------------------------------------------------
$1,440 $1,324,543 $35,453 $70,736 $70,471
Regulatory Liabilities
Refunds due customers $64 $63,713 $ -- $ -- $366
Income tax related regulatory
liabilities, net -- -- 41,793 10,072 9,482
Other 1 1,205 -- -- --
----------------------------------------------------------
$65 $64,918 $41,793 $10,072 $9,848
----------------------------------------------------------
</TABLE>
CSW
2-42
<PAGE>
<TABLE>
<CAPTION>
CSW CPL PSO SWEPCO WTU
-------------------------------------------------------
(millions) (thousands)
---------------------------------------------
AS OF DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C>
Regulatory Assets
Deferred plant costs $509 $486,978 $ -- $ -- $22,365 (3)
Mirror CWIP asset 299 298,708 -- -- --
Income tax related regulatory
assets, net 236 335,226 -- -- --
Deferred restructuring and rate
case costs 46 30,965 (1) -- -- 14,973 (3)
Deferred storm costs 2 -- 2,448 (4) -- --
Demand side management costs 15 7,070 8,278 -- --
OPEBs 3 -- 3,325 -- --
Under-recovered fuel costs 47 26,298 2,651 (2) 9,120 8,961
Loss on reacquired debt 180 90,751 18,068 42,844 28,116
Fuel settlement 17 -- -- 17,414 (5)
Other 13 3,453 4,997 1,326 1,576
----------------------------------------------------
$1,367 $1,279,449 $39,767 $70,704 $75,991
Regulatory Liabilities
Refunds due customers $43 $43,266 $ -- $ -- $2
Income tax related regulatory
liabilities, net -- -- 46,007 36,106 16,918
Other 2 1,339 -- -- --
----------------------------------------------------
$45 $44,605 $46,007 $36,106 $16,920
----------------------------------------------------
(1) Earning no return, amortized by the end of 2000
(2) Earning no return, amortized over 12 month period, recalculated
semiannually
(3) Earning no return, amortized through 2002
(4) Earning no return, amortized by the end of 1997
(5) Earning no return, amortized by the end of 2006
</TABLE>
In accordance with orders of the Texas Commission, CPL and WTU deferred
carrying costs, as well as operating costs, depreciation and tax costs incurred
for STP and Oklaunion, respectively. These deferrals were for the period
beginning on the date when the plants began commercial operation until the date
the plants were included in rate base. CPL is amortizing and recovering these
deferred costs through rates over the life of the plant. WTU began amortizing
and recovering such costs over a seven year period beginning January 1, 1996. In
accordance with Texas Commission orders, CPL previously recorded a Mirror CWIP
asset, which is being amortized over the life of STP. For further information
regarding the deferred plant costs at CPL and WTU, reference is made to NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS. For additional information regarding
regulatory accounting, reference is made to NEW ACCOUNTING STANDARDS and
MD&A-RECENT DEVELOPMENTS AND TRENDS, REGULATORY ACCOUNTING.
SEEBOARD ACQUISITION
The acquisition of SEEBOARD was accounted for as a purchase
combination. An allocation of the purchase price has been performed and is
reflected in the consolidated financial statements. The goodwill is being
amortized on a straight-line basis over 40 years. The unamortized balance of the
SEEBOARD goodwill at December 31, 1997 was $1.4 billion. CSW continually
evaluates whether circumstances have occurred that indicate the remaining useful
life of goodwill may warrant revision or that the remaining balance of goodwill
may not be recoverable.
NATIONAL GRID ASSETS
Pursuant to a December 11, 1995 distribution by SEEBOARD, CSW (UK) plc,
as a shareholder of SEEBOARD, received approximately 32.5 million shares of
National Grid common stock. On February 2, 1996, all of these shares were sold
for approximately $99 million.
CSW
2-43
<PAGE>
FOREIGN CURRENCY TRANSLATION
The financial statements of SEEBOARD U.S.A., which are included in
CSW's consolidated financial statements, have been translated from British
pounds to U.S. dollars in accordance with SFAS No. 52. All balance sheet
accounts are translated at the exchange rate at the end of the period and all
income statement items are translated at the average exchange rate for the
applicable period. At December 31, 1997 the current exchange rate was
approximately (pound)1.00=$1.65, and the average exchange rate for the twelve
month period ended December 31, 1997 was approximately (pound)1.00=$1.58. At
December 31, 1996 the current exchange rate was approximately (pound)1.00=$1.71,
and the average exchange rate for the twelve month period ended December 31,
1996 was approximately (pound)1.00=$1.56. The average exchange rate for the
twelve month period ended December 31, 1995 was approximately (pound)1.00=$1.58.
All resulting translation adjustments are recorded directly to Foreign currency
translation and other on CSW's Consolidated Balance Sheets. Cash flow statement
items are translated at a combination of average, historical and current
exchange rates. The non-cash impact of the changes in exchange rates on cash and
cash equivalents, resulting from the translation of items at the different
exchange rates, is shown on CSW's Consolidated Statements of Cash Flows in
Effect of exchange rate changes on cash and cash equivalents.
STATEMENTS OF CASH FLOWS
Cash equivalents are considered to be highly liquid instruments with a
maturity of three months or less. Accordingly, temporary cash investments, which
for CSW subsidiaries includes receivables from affiliates, are considered cash
equivalents.
RISK MANAGEMENT
CSW has been exposed to currency and interest rate risks which reflect
the floating exchange rate that exists between the U.S. dollar and the British
pound since its purchase of SEEBOARD in 1995. CSW has utilized certain risk
management tools, including cross currency swaps, foreign currency futures and
foreign currency options, to manage adverse changes in exchange rates and to
facilitate financing transactions resulting from CSW's acquisition of SEEBOARD.
SEEBOARD has entered into contracts for differences to reduce exposure
to fluctuations in the price of electricity purchased from the United Kingdom's
electricity power pool. This pool was established at privatization of the United
Kingdom's electric industry for the bulk trading of electricity between
generators and suppliers.
CSW accounts for these transactions as hedge transactions and any gains
or losses associated with the risk management tools are recognized in the
financial statements at the time the hedge transactions are settled. CSW
believes its credit risk in these contracts is negligible. See MD&A, RISK
MANAGEMENT and NOTE 7. FINANCIAL INSTRUMENTS for additional information.
SECURITIES AVAILABLE FOR SALE
CSW accounts for its investments in equity securities in accordance
with SFAS No. 115. The investments have been designated as available for sale,
and as a result are stated at fair value. Unrealized holding gains and losses,
net of related taxes, are included within Foreign currency translation and other
on CSW's Consolidated Balance Sheets. Information related to these Securities
available for sale as of December 31, 1997 is presented in the following table.
Original Unrealized Holding Gains/
Cost (Losses) Fair Value
-------------------------------------------------
(millions)
Securities available for sale $110 $5 $(12) $103
CSW
2-44
<PAGE>
ACCOUNTING CHANGE
Effective January 1, 1997, CPL and WTU began utilizing the LIFO method
for the valuation of all fossil fuel inventories. Previously, CPL had used the
weighted average cost method and WTU had used the LIFO method for coal and the
weighted average cost method for other fuel inventories. PSO utilizes the LIFO
method. SWEPCO continues to utilize the weighted average cost method pending
approval of the Arkansas Commission to utilize the LIFO method. The change in
accounting did not affect the results of operations due to the regulatory
treatment of such costs.
RECLASSIFICATION
Certain financial statement items for prior years have been
reclassified to conform to the 1997 presentation. See NOTE 15. TRANSOK
DISCONTINUED OPERATIONS for information related to the classification of Transok
activities.
2. LITIGATION AND REGULATORY PROCEEDINGS
SETTLEMENT OF LITIGATION RELATED TO TERMINATION OF EL PASO MERGER
In May 1993, CSW entered into a merger agreement pursuant to which El
Paso would have emerged from bankruptcy as a wholly owned subsidiary of CSW. In
June 1995, following its notification that CSW was terminating the El Paso
Merger Agreement, El Paso filed suit against CSW seeking a $25 million
termination fee from CSW, as well as, unspecified damages for various contract
and tort claims. Subsequently, CSW filed suit against El Paso seeking a $25
million termination fee from El Paso and recovery of certain rate case expenses
incurred by CSW on behalf of El Paso.
The United States Bankruptcy Court for the Western District of Texas,
Austin Division, consolidated the El Paso suit and the CSW suit into one
adversary proceeding. On April 11, 1997, the court issued an interim order in
which it ruled that CSW owed El Paso a $25 million termination fee and reserved
judgment on certain disputed interest.
In July 1997, CSW and El Paso reached a settlement agreement that
resolved all of the pending litigation. Under the terms of the settlement
agreement, CSW and El Paso dismissed all pending claims in the litigation and
CSW paid $35 million to El Paso, various of its creditor groups under its plan
of reorganization, and its attorneys. CSW recorded a charge of $25 million in
the first quarter of 1997 following the court's interim order and recorded an
additional charge of $10 million in the second quarter of 1997 to fully
recognize the $35 million settlement amount. The bankruptcy court vacated the
interim order and approved the settlement agreement.
LITIGATION RELATED TO THE RIGHTS PLAN AND AEP MERGER
Two lawsuits have been filed in Delaware state court seeking to enjoin
the AEP Merger. CSW and each of its directors have been named as defendants in
both cases. The first suit alleges that the Rights Plan, approved by the CSW
Board of Directors on September 27, 1997 and which became effective after SEC
approval under the Holding Company Act on December 19, 1997, constitutes a
"poison pill" precluding acquisition offers and resulting in a heightened
fiduciary duty on the part of the CSW Board of Directors to pursue an
auction-type sales process to obtain the best value for CSW stockholders. The
second suit alleges that the AEP Merger is unfair to CSW stockholders in that it
does not recognize the underlying intrinsic value of CSW's assets and its future
profitability. The second suit also seeks an auction-type sale process. CSW
believes that both suits are without merit and intends to defend them
vigorously.
CPL RATE REVIEW - DOCKET NO. 14965
In November 1995, CPL filed with the Texas Commission a request to
increase its retail base rates by $71 million, and in May 1996, CPL placed a $70
million base rate increase into effect under bond, subject to refund based on
the receipt of a final order of the Texas Commission. On March 31, 1997, the
CSW
2-45
<PAGE>
Texas Commission issued the CPL 1997 Original Rate Order in CPL's rate review,
Docket No. 14965. Thereafter, CPL filed a motion for rehearing which requested
the reconsideration of numerous provisions of the order. Motions for rehearing
were also filed by other parties to the rate proceeding. In response to the
motions for rehearing, in June 1997, the Texas Commission made several
modifications to the CPL 1997 Original Rate Order and also agreed to rehear on
remand several other issues. CPL restored its rates in July 1997, with two
exceptions, to levels existing prior to the May 1996 implementation of bonded
rates. On August 21, 1997, after reconsidering the issues on remand, the Texas
Commission voted to issue a revised final order and on September 10, 1997, CPL
received a revised final order. CPL filed its second motion for rehearing on
September 30, 1997. The second motion for rehearing again requested
reconsideration of numerous issues in the rate case. On October 16, 1997 the
Texas Commission issued the CPL 1997 Final Order. The CPL 1997 Final Order
lowers the annual retail base rates of CPL by approximately $19 million, or
2.5%, from CPL's rate level existing prior to May 1996. The Texas Commission
also included a "Glide Path" rate methodology in the CPL 1997 Final Order
pursuant to which CPL's annual rates will be reduced by an additional $13
million in mid-1998 and another $13 million in mid-1999.
The CPL 1997 Original Rate Order established a separate docket, Docket
No. 17280, to consider the recoverability of $20 million of rate case expenses
incurred in the current rate case and in two prior dockets. CPL reached a
settlement with all parties to resolve Docket No. 17280 which provides for CPL
to recover $14 million out of the total $20 million of rate case expenses
originally requested. Approximately $8 million of the rate case expenses will be
recovered as an offset to the refund in the rate case, and the remaining $6
million of expenses will be surcharged to customers over three years. CPL
expensed the $6 million in foregone rate case expenses during the first quarter
of 1997.
CPL implemented bonded rates subject to refund in May 1996. On July 17,
1997, CPL restored its rates, with two exceptions, to levels existing prior to
the implementation of the bonded rates. The two exceptions are for industrial
interruptible rates and customer service charges for which the Texas Commission
approved the increases requested by CPL. On October 31, 1997, CPL filed with the
Texas Commission a proposed methodology for issuing an interim refund to
customers in December 1997. A second refund was made in March 1998. The
different components that were all incorporated into the December 1997 refund
made to customers, a breakdown of the December 1997 refund, as well as the March
1998 refund, including interest, is shown below (millions).
December 1997
Amount collected from customers under bond $81.7
Surcharge for rate case expenses (13.3)
Surcharge for fuel cost under-recovery (23.6)
------
Net refund to customers $44.8
------
March 1998 (estimated)
Remaining refund available $59.0
Surcharge for fuel cost under-recovery (34.3)
------
Net refund to customers $24.7
------
The following table details the financial impact of the CPL 1997 Final
Order as compared to the rates existing prior to CPL placing bonded rates into
effect. Although the entire impact has been recorded in CPL's 1997 results of
operations, the financial impact on its results of operations for 1996 and for
the year 1997 is shown below.
CSW
2-46
<PAGE>
1996
Retroactive 1997 Only
Impact Impact
----------- ---------
(millions)
Decrease in revenue $(20.7) $(24.2)
----------- ---------
Items included in decrease in revenue with
offsetting effect on expense:
Accelerated recovery of STP (ECOM) 13.3 20.0
Change in depreciation (7.5) (11.3)
Decommissioning 1.9 4.3
Other -- 6.8
----------- ---------
7.7 19.8
----------- ---------
Change in current year income before tax (28.4) (44.0)
Federal income taxes 9.5 14.8
----------- ---------
Impact on net income - all recorded in 1997 $(18.9) $(29.2)
----------- ---------
CPL appealed the CPL 1997 Final Order to the State District Court of
Travis County to challenge the resolution of several issues in the rate case.
The primary issues include: (i) the classification of $800 million of invested
capital in STP as ECOM which was also assigned a lower return on equity than
non-ECOM property, (ii) the Texas Commission's use of the "Glide Path" rate
reduction methodology to be applied to rates in mid-1998 and mid-1999, and (iii)
the $18 million of disallowed affiliate transactions from CSW Services. As part
of the appeal, CPL seeks a temporary injunction to prohibit the Texas Commission
from implementing the "Glide Path" rate reduction methodology, currently
scheduled to begin in May 1998. A hearing has been set for the temporary
injunction on April 3, 1998. Management is unable to predict how the final
resolution of these issues will ultimately affect CSW's and CPL's results of
operations and financial condition.
See MD&A - RATES AND REGULATORY MATTERS, CPL RATE REVIEW - DOCKET NO.
14965 for additional discussion of the CPL 1997 Final Order, including the
estimated ongoing financial impact of the final order and information regarding
the difference between the rates originally requested by CPL and those ordered
by the Texas Commission.
CPL 1995 AGREEMENT
On April 5, 1995, CPL reached an agreement in principle with other
parties to pending regulatory proceedings involving base rate, fuel and prudence
issues relating to an outage experienced at STP during 1993 and 1994. Under the
CPL 1995 Agreement, CPL provided customers a one-time base rate refund of $50
million. In addition, CPL refunded approximately $30 million in over-recovered
fuel costs through April 1995. Furthermore, CPL did not charge customers for
$62.25 million in replacement power costs and related interest primarily
associated with the 1993-1994 STP outage. The CPL 1995 Agreement did not result
in any ongoing change in base rate levels and provided that there would be no
new rate review requests filed prior to September 28, 1995. CPL also reduced its
fuel factors, effective in July 1995, by approximately $55 million on an annual
basis due to projections of lower fuel costs. The Texas Commission approved the
CPL 1995 Agreement on October 4, 1995. Details of the items in the CPL 1995
Agreement and the total 1995 earnings impact for CPL, including certain
accounting provisions, are set forth in the following table.
CSW
2-47
<PAGE>
Pre-tax After-tax
-------------------
(millions)
Base rate refund $(50.0) $(32.5)
Fuel disallowance (62.3) (40.5)
Wholesale fuel refund (3.2) (2.1)
Current flowback of excess deferred
federal income taxes 34.3 34.3
Capitalization of previously expensed
restructuring and rate case costs 27.6 17.9
Recognition of factoring income 16.1 10.5
Amortization, interest and other (6.6) (4.4)
CPL DEFERRED ACCOUNTING
By orders issued in 1989 and 1990, the Texas Commission authorized CPL
to defer certain STP Unit 1 and Unit 2 costs incurred between the commercial
operation dates of those units and the effective date of rates reflecting the
operation of those units. Upon appeal of the 1989 CPL order, and a related order
involving another utility, the Supreme Court of Texas in 1994 sustained deferred
accounting as an appropriate mechanism for the Texas Commission to use in
preserving the financial integrity of CPL, but remanded CPL's case to the Court
of Appeals to consider certain substantial evidence points of error not
previously decided by the Court of Appeals. On August 16, 1995, the Court of
Appeals rendered its opinion in the remand proceeding and affirmed the Texas
Commission's order in all respects.
By orders issued in October 1990 and December 1990, the Texas
Commission quantified the STP Unit 1 and Unit 2 deferred accounting costs and
authorized the inclusion of the amortization of the costs and associated return
in CPL's retail rates. These Texas Commission orders were appealed to the Travis
County District Court where the appeals are still pending. Language in the
Supreme Court of Texas' opinion in the appeal of the deferred accounting
authorization case suggests that the appropriateness of including deferred
accounting costs in rates charged to customers is dependent on a finding in the
first case in which the deferred STP costs are recovered through rates that the
deferral was actually necessary to preserve the utility's financial integrity.
If in the appeals of the October 1990 and December 1990 rate orders, the courts
decide that subsequent review under the financial integrity standard is required
and was not made in those orders, such rate orders would be remanded to the
Texas Commission for the purpose of entering findings applying the financial
integrity standard. Pending the ultimate resolution of CPL's deferred accounting
issues, CPL is unable to predict how its deferred accounting orders will
ultimately be resolved by the Texas Commission.
If CPL's deferred accounting matters are not favorably resolved, CSW
and CPL could experience a material adverse effect on their respective results
of operations and financial condition. While CPL's management is unable to
predict the ultimate outcome of these matters, management believes either that
CPL will receive approval of its deferred accounting amounts or that CPL will be
successful in renegotiation of its rate orders, so that there will be no
material adverse effect on CSW's or CPL's results of operation or financial
condition.
CPL FUEL PROCEEDING
In January 1998, CPL filed a request with the Texas Commission to
recover approximately $41.4 million in uncollected fuel and purchased power
costs and related interest from its retail customers and to increase the fuel
factors used to recover fuel costs incurred to provide service in the future.
The fuel surcharge will be subtracted from the remaining refund totaling
approximately $59.0 million that was ordered by the Texas Commission in CPL's
recent general rate case, Docket No. 14965. This net refund is being issued as a
one-time adjustment to customers' March 1998 bills. In the same filing with the
Texas Commission, CPL also requested permission to increase its fixed fuel
factors by approximately $23.4 million effective with March 1998 bills. The
primary cause of CPL's current fuel cost under-recovery and the need to increase
its current fuel factors is the unanticipated increase in the price of natural
gas.
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<PAGE>
In February 1998, stipulations were reached on both the fuel factor and
surcharge. The fuel factor increase is being reduced to $15.4 million, and the
fuel surcharge including interest is being reduced to $34.3 million. The
reductions are not a disallowance and will be considered as part of CPL's fuel
reconciliation filing to be made in December 1998.
CPL NUCLEAR INSURANCE CLAIMS
In 1994, CPL filed a claim under its NEIL I policy relating to the
1993-1994 outage at STP Units 1 and 2. NEIL denied CPL's claim in 1995. CPL
filed an action in April 1996 against both NEIL and Johnson & Higgins of Texas,
Inc., the former insurance broker for STP, seeking recovery under the policy and
other relief. Subsequently, CPL and NEIL agreed to dismiss all litigation
between them concerning CPL's claim for NEIL coverage, and they agreed to submit
their disputes over coverage to a non-binding, neutral evaluation process.
Hearings were held by the neutral evaluator in February 1997 and April 1997. On
April 22, 1997, the neutral evaluator made the recommendation that CPL's claim
was not covered by its NEIL I policy. CPL abided by this recommendation.
CPL INDUSTRIAL ROAD AND INDUSTRIAL METALS SITE
Three suits naming CPL and others as defendants relating to a
third-party owned and operated site in Corpus Christi, Texas formerly used for
commercial reclamation of used electrical transformers, lead acid batteries and
other scrap metals, were pending in federal and state court in Corpus Christi,
Texas. The plaintiffs' complaints sought damages for alleged property damage and
health impairment as a result of operations on the site and cleanup activities.
During 1997, these suits were settled with no material adverse effect on CSW's
or CPL's results of operation or financial condition.
CPL MUNICIPAL FRANCHISE FEE LITIGATION
In May 1996, the city of San Juan, Texas filed a purported class action
in Hidalgo County, Texas District Court on behalf of all cities served by CPL
based upon CPL's alleged underpayment of municipal franchise fees. The
plaintiff's petition asserts various contract and tort claims against CPL as
well as certain audit rights. The suit seeks unspecified damages and attorneys'
fees. CPL filed a counterclaim for any overpayment of franchise fees it may have
made as well as its attorneys' fees. CPL also filed a motion to transfer venue
to Nueces County, Texas, and a plea to the jurisdiction and pleas in abatement
asserting that the Texas Commission has primary jurisdiction over the claims. In
May 1996 and December 1996, respectively, the cities of Pharr, Texas and San
Benito, Texas filed individual suits making claims virtually identical to those
claimed by the city of San Juan. In January, 1997, CPL filed an original
petition at the Texas Commission requesting the Texas Commission to declare its
jurisdiction over CPL's collection and payment of municipal franchise fees.
In April 1997, the Texas Commission issued a declaratory order in which
it declined to assert jurisdiction over the claims of the City of San Juan. CPL
appealed the Texas Commission's decision to the Travis County, Texas District
Court. After the Texas Commission's order, the Hidalgo County court overruled
CPL's plea to the jurisdiction and plea in abatement. In July 1997, the Hidalgo
County court entered an order certifying the case as a class action. CPL
appealed this order to the Corpus Christi Court of Appeals. In February 1998,
the court of appeals' affirmed the trial court's order certifying the class. CPL
appealed the court of appeals ruling to the Texas Supreme Court.
Although CPL believes that it has substantial defenses to the cities'
claims and intends to defend itself against the cities' claims and pursue its
counterclaims vigorously, CPL cannot predict the outcome of these lawsuits.
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<PAGE>
CPL AND WTU TEXAS UTILITIES COMPLAINT (DOCKET NO. 17285)
A Proposal for Decision was received in February 1998 in a joint
CPL/WTU complaint at the Texas Commission that since January 1, 1997, Texas
Utilities was effectively double charging for transmission service within the
Electric Reliability Council of Texas. The Proposal recommends approval of a
CPL/WTU proposed offset of $15.5 million annually of payments to Texas Utilities
under FERC-approved transmission service agreements against amounts that CPL and
WTU would otherwise owe Texas Utilities pursuant to Texas Commission rules for
transmission service in ERCOT. The Texas Commission will consider the Proposal
in April 1998.
PSO RATE REVIEW
In July 1996, the Oklahoma Commission staff filed an application
seeking a review of PSO's earnings. In accordance with the established schedule,
PSO subsequently filed financial data, cost of service and rate design testimony
supporting both its current rates and an increase in annual depreciation expense
of $26 million. In July 1997, the Oklahoma Commission staff and other
intervenors to the proceeding filed their revenue requirements testimony. In its
filing, the Oklahoma Commission staff recommended a rate reduction of $76.8
million for PSO.
On October 15, 1997, PSO reached a stipulated agreement with parties to
settle the rate inquiry that was pending before the Oklahoma Commission. On
October 23, 1997, the Oklahoma Commission issued a final order approving the
agreement. The PSO 1997 Rate Settlement Agreement calls for PSO to lower its
retail base rates beginning with the December 1997 billing cycle by
approximately $35.9 million annually, or a 5.3 percent decrease below the
current level of retail rates. Part of the rate reduction includes a reduction
in annual depreciation expense of approximately $10.9 million. In addition, the
PSO 1997 Rate Settlement Agreement resulted in PSO making a one-time $29 million
refund to customers in December 1997.
The PSO 1997 Rate Settlement Agreement also calls for PSO to eliminate
or amortize before its next rate filing approximately $41 million in certain
deferred assets, approximately $26 million of which had been expensed in 1996.
The remaining $15 million of deferred assets, which included approximately $9
million of costs incurred for customer energy management incentive programs,
were written off in 1997. The following table represents the financial impact of
the PSO 1997 Rate Settlement Agreement on PSO's 1997 results of operations.
1997
Impact
------
(millions)
Decrease in revenue
Refund to customers $(29.0)
Change in rates (2.5)
------
(31.5)
------
Changes in expenses (offsetting impact
included in revenues)
Depreciation (6.3)
Rate case deferred costs 2.2
Income tax (10.2)
------
(14.3)
------
(17.2)
Write-off of deferred assets, net of tax (10.2)
------
$(27.4)
------
The PSO 1997 Rate Settlement Agreement resulted in a material adverse
effect on PSO's results of operations for 1997 that will have a continuing
impact because of the rate decrease. However, it reduced significant risks for
PSO related to this regulatory proceeding and should allow PSO's rates to remain
competitive for the foreseeable future.
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<PAGE>
See MD&A - RATES AND REGULATORY MATTERS, PSO 1997 RATE SETTLEMENT
AGREEMENT for additional discussion of the PSO 1997 Rate Settlement Agreement,
including the estimated ongoing financial impact of the agreement.
PSO PCB CASES
PSO has been named a defendant in petitions filed in state court in
Oklahoma in February and August, 1996. The petitions allege that the plaintiffs
suffered personal injury and fear future injury as a result of contamination by
PCBs from a transformer malfunction that occurred in April, 1982 at the Page
Belcher Federal Building in Tulsa. Each of the plaintiffs seeks actual and
punitive damages in excess of $10,000. As previously reported, other claims
arising from this incident have been settled and the suits dismissed. Management
believes that PSO has defenses to the remaining complaints and intends to defend
the suits vigorously. Management believes that the remaining claims are covered
by insurance. Management also believes that the ultimate resolution of the
remaining lawsuits will not have a material adverse effect on CSW's or PSO's
results of operations or financial condition.
PSO SAND SPRINGS/GRANDFIELD, OKLAHOMA SITES
In 1989, PSO found PCB contamination in a Sand Springs, Oklahoma PCB
storage facility. The EPA-approved cleanup began in 1994. In 1996, the EPA filed
a complaint against PSO alleging that PSO failed to comply with provisions of
the Toxic Substances Control Act. The EPA alleged improper disposal of PCBs at
the Sand Springs site due to the length of time between discovery of the
contamination and the actual cleanup at the site. The complaint also alleged
failure to date PCB articles at a Grandfield, Oklahoma site. The total proposed
penalty, which was accrued by PSO in 1996, was $479,000. PSO settled all claims
in the suit by March 1998. The settlement did not have a material adverse effect
on CSW's or PSO's results of operations or financial condition.
SWEPCO FUEL PROCEEDING
In April 1997, SWEPCO filed with the Texas Commission an application
concerning fuel cost under-recoveries and a possible fuel surcharge. The
application included a motion to either abate the requested interim surcharge
and consolidate the surcharge with a filed fuel reconciliation as discussed
below, or alternatively, implement an interim surcharge in the months of July
1997 through June 1998. The Texas Commission's Office of Policy Development, on
behalf of the Texas Commission, approved the consolidation. In addition, the
Texas Commission has waived the requirement for SWEPCO to file biannual
surcharge requests while this proceeding is pending, and has deferred the
implementation of any surcharge and interest until after final disposition.
In May 1997, SWEPCO filed with the Texas Commission an application to
reconcile fuel costs and implement a 12 month surcharge of fuel cost
under-recoveries. Because of the uncertainty as to when a surcharge may
commence, SWEPCO did not establish in its filing a proposed surcharge period or
a total surcharge amount which would reflect interest through the entire
surcharge period. However, SWEPCO indicated that it had an under-recovered Texas
jurisdictional fuel cost balance of approximately $16.8 million, including
interest through December 1996. Included in the $16.8 million balance are fuel
related litigation expenses of $5.0 million and an interest return of $2.0
million on the unamortized balance of a fuel contract termination payment.
On December 8, 1997, SWEPCO and the other parties to the above
consolidated proceedings before the Texas Commission filed a settlement on all
issues except for one issue which will be decided by the Texas Commission. The
outstanding issue concerns transmission equalization payments and whether they
should be included in fuel or base revenues. The settlement is subject to
approval by the Texas Commission. Of the $16.8 million in under-recovered fuel
costs as of December 31, 1996, the settlement would result in a decrease of the
under-recovered fuel costs, and the resulting surcharge recovery, by
approximately $6.0 million. This disallowance will not result in an increase to
fuel expense since the $5.0 million of litigation expense and the interest
return of $2.0 million included in the requested surcharge amount were
previously expensed. However, should SWEPCO not prevail on the outstanding
issue, SWEPCO would be required to reduce earnings by approximately $1.8
million. The settlement also provides that SWEPCO's fuel and fuel-related
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<PAGE>
expenses during the reconciliation period were reasonable and necessary and
would allow them to be reconciled as eligible fuel. Also, the settlement
provides that SWEPCO's actions in litigating and renegotiating certain fuel
contracts, together with the prices, terms and conditions of the renegotiated
contracts were prudent. The $6.0 million reduction is not associated with any
particular activity or issue within the fuel proceedings. SWEPCO cannot predict
whether approval of the settlement will be granted by the Texas Commission.
SWEPCO BURLINGTON NORTHERN TRANSPORTATION CONTRACT
In January 1995, a state district court in Bowie County, Texas entered
judgment in favor of SWEPCO against Burlington Northern in a lawsuit regarding
rates charged under two rail transportation contracts for delivery of coal to
SWEPCO's Welsh and Flint Creek power stations. The court awarded SWEPCO
approximately $72 million that would benefit customers, if collected,
representing damages for the period from April 27, 1989 through September 26,
1994, as well as post-judgment interest and attorneys' fees and granted certain
declaratory relief requested by SWEPCO. Burlington Northern appealed the state
district court's judgment to the Texarkana, Texas Court of Appeals and, in April
1996, that court reversed the judgment of the state district court. In October
1996, SWEPCO filed an application with the Supreme Court of Texas to grant a
writ of error to review and reverse the judgment of the Texarkana, Texas Court
of Appeals. In June 1997, the Supreme Court of Texas granted SWEPCO's
application for writ of error. Oral argument was held before the Supreme Court
of Texas in October 1997. On March 13, 1998, the Supreme Court of Texas affirmed
the judgment of the court of appeals.
SWEPCO LIGNITE MINING AGREEMENT LITIGATION
SWEPCO and CLECO are each a 50% owner of Dolet Hills Power Station Unit
1 and jointly own lignite reserves in the Dolet Hills area of northwestern
Louisiana. In 1982, SWEPCO and CLECO entered into a lignite mining agreement
with the DHMV, a partnership for the mining and delivery of lignite from a
portion of these reserves.
On April 15, 1997, SWEPCO and CLECO filed suit against DHMV and its
partners in the United States District Court for the Western District of
Louisiana seeking to enforce various obligations of DHMV to SWEPCO and CLECO
under the lignite mining agreement, including provisions relating to the quality
of the delivered lignite, pricing, and mine reclamation practices. On June 15,
1997, DHMV filed an answer denying the allegations in the suit and filed a
counterclaim asserting various contract-related claims against SWEPCO and CLECO.
SWEPCO and CLECO have denied the allegations in the counterclaims.
SWEPCO intends to vigorously prosecute the claims against DHMV and
defend against the counterclaims which DHMV has asserted. Although SWEPCO cannot
predict the ultimate outcome of this matter, management believes that the
resolution of this matter will not have a material adverse effect on SWEPCO's
results of operations or financial condition.
WTU FUEL PROCEEDINGS
In March 1997, WTU filed with the Texas Commission an Application for
Authority to Implement an increase in fuel factors of $4.2 million, or 4.2%, on
an annual basis. Additionally, WTU proposed to implement a fuel surcharge of
$13.3 million, including accumulated interest, over a twelve month period to
collect its under-recovered fuel costs. WTU requested authority to implement the
revised fuel factors with its May 1997 billings and to commence the surcharge
with its June 1997 billings. On April 14, 1997, an agreement in principle was
reached among the parties to settle this docket. Under the proposed settlement,
WTU agreed not to increase the fuel factors and to implement the $13.3 million
surcharge over the period from June 1997 through February 1999. The Texas
Commission approved the settlement in May 1997.
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<PAGE>
On December 31, 1997, WTU filed with the Texas Commission an
application to reconcile fuel costs and to request authorization to carry the
reconciled balance forward into the next reconciliation period. WTU did not seek
a surcharge of the reconciled balance in the December 31, 1997 filing.
During the reconciliation period of July 1, 1994 through June 30, 1997
WTU incurred approximately $418 million in eligible fuel and fuel-related
expenses to generate and purchase electricity. The Texas jurisdictional
allocation of such fuel and fuel-related expenses is approximately $292 million.
In March 1998, WTU filed with the Texas Commission an Application for
Authority to Implement an increase in fuel factors of $7.4 million, or 7.3%, on
an annual basis. Additionally, WTU proposed to implement a fuel surcharge of
$6.8 million, including accumulated interest, over a six month period to collect
its under-recovered fuel costs. WTU requested authority to implement the revised
fuel factors and to commence the surcharge with its June 1998 billings.
WTU 1995 STIPULATION AND AGREEMENT
The WTU 1995 Stipulation and Agreement which was approved by the Texas
Commission in October 1996 has affected WTU's results of operations for 1996 and
1997. Details of the items with significant earnings impact for 1995, including
certain accounting treatments, are set forth in the following table.
Pre-tax After-tax
------------------
(millions)
Refund to retail customers $(21.0) $(13.7)
Effect of retail rate reduction (2.4) (1.6)
Current flowback of property related excess
deferred federal income taxes 6.9 6.9
Five year flowback of non-property related
excess deferred federal income taxes 0.1 0.1
Capitalization and amortization of previously
expensed restructuring costs 12.7 8.2
Other amortization (0.2) (0.1)
Other one-time items 1.0 0.7
The WTU 1995 Stipulation and Agreement also eliminated several
significant risks that have been the subject of regulatory proceedings relating
to deferred accounting and rates and will enable WTU's rates to remain at
competitive levels for the foreseeable future.
OTHER
The Registrants are party to various other legal claims, actions and
complaints arising in the normal course of business. Management does not expect
disposition of these matters to have a material adverse effect on the
Registrants' results of operations or financial condition.
3. COMMITMENTS AND CONTINGENT LIABILITIES
CONSTRUCTION AND CAPITAL EXPENDITURES
It is estimated that CSW, including the U.S. Electric Operating
Companies, SEEBOARD and other diversified operations, will spend approximately
$569 million in capital expenditures (but excluding capital
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<PAGE>
that may be required for acquisitions) during 1998. Substantial commitments have
been made in connection with these programs.
CPL - $129 million PSO - $71 million SWEPCO - $95 million WTU - $36 million
FUEL AND RELATED COMMITMENTS
To supply a portion of their fuel requirements, the U.S. Electric
Operating Companies have entered into various commitments for the procurement of
fuel.
SWEPCO HENRY W. PIRKEY POWER PLANT
In connection with the South Hallsville lignite mining contract for its
Henry W. Pirkey Power Plant, SWEPCO has agreed, under certain conditions, to
assume the obligations of the mining contractor. As of December 31, 1997, the
maximum amount SWEPCO believes it could potentially assume is $67 million.
However, the maximum amount may vary as the mining contractor's need for funds
fluctuates. The contractor's actual obligation outstanding at December 31, 1997
was $59 million.
SWEPCO SOUTH HALLSVILLE LIGNITE MINE
As part of the process to receive a renewal of a Texas Railroad
Commission permit for lignite mining at the South Hallsville lignite mine and
expansion into the Marshall South Lignite Project area, SWEPCO has agreed to
provide guarantees of mine reclamation in the amount of $85 million. Since
SWEPCO uses self-bonding, the guarantee provides for SWEPCO to commit to use its
resources to complete the reclamation in the event the work is not completed by
the third party miner. The current cost to reclaim the mine is estimated to be
approximately $36 million.
OTHER COMMITMENTS AND CONTINGENCIES
CPL NUCLEAR INSURANCE
In connection with the licensing and operation of STP, the owners have
purchased nuclear property and liability insurance coverage as required by law,
and have executed indemnification agreements with the NRC in accordance with the
financial protection requirements of the Price-Anderson Act.
The Price-Anderson Act, a comprehensive statutory arrangement providing
limitations on nuclear liability and governmental indemnities, is in effect
until August 1, 2002. The limit of liability under the Price-Anderson Act for
licensees of nuclear power plants is $8.92 billion per incident, effective as of
December 1997. The owners of STP are insured for their share of this liability
through a combination of private insurance amounting to $200 million and a
mandatory industry-wide program for self-insurance totaling $8.72 billion. The
maximum amount that each licensee may be assessed under the industry-wide
program of self-insurance following a nuclear incident at an insured facility is
$75.5 million per reactor, which may be adjusted for inflation, plus a five
percent charge for legal expenses, but not more than $10 million per reactor for
each nuclear incident in any one year. CPL and each of the other STP owners are
subject to such assessments, which CPL and other owners have agreed will be
allocated on the basis of their respective ownership interests in STP.
For purposes of these assessments, STP has two licensed reactors.
The owners of STP currently maintain on-site decontamination liability
and property damage insurance in the amount of $2.75 billion provided by ANI and
NEIL. Policies of insurance issued by ANI and NEIL stipulate that policy
proceeds must be used first to pay decontamination and cleanup costs before
being used to cover direct losses to property. Under project agreements, CPL and
the other owners of STP will share the total cost of decontamination liability
and property insurance for STP, including premiums and assessments, on a pro
rata basis, according to each owner's respective ownership interest in STP.
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CPL purchased, for its own account, a NEIL I Business Interruption
and/or Extra Expense policy. This insurance will reimburse CPL for extra
expenses incurred for replacement generation or purchased power as the result of
a covered accident that shuts down production at one or both of the STP Units
for more than 23 consecutive weeks. In the event of an outage of STP Units 1 and
2 and the outage is the result of the same accident, such insurance will
reimburse CPL up to 80% of the recovery. The maximum amount recoverable for a
single unit outage is $118.6 million for both Unit 1 and 2. CPL is subject to an
additional assessment up to $1.8 million for the current policy year in the
event that insured losses at a nuclear facility covered under the NEIL I policy
exceeds the accumulated funds available under the policy. CPL renewed its
current NEIL I Business Interruption and/or Extra Expense policy September 15,
1997.
For further information relating to litigation associated with CPL
nuclear insurance claims, reference is made to NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS.
SWEPCO CAJUN ASSET PURCHASE PROPOSAL
Cajun filed a petition for reorganization under Chapter 11 of the
United States Bankruptcy Code on December 21, 1994 and is currently operating
under the supervision of the United States Bankruptcy Court for the Middle
District of Louisiana.
On March 18, 1998, SWEPCO, together with the Cajun Members Committee,
which currently represents 7 of the 12 Louisiana member distribution
cooperatives that are served by Cajun, filed the SWEPCO Plan in the bankruptcy
court. Under the SWEPCO Plan, a SWEPCO affiliate or subsidiary would acquire all
of the non-nuclear assets of Cajun, comprised of the two-unit Big Cajun I
natural gas-fired plant, the three-unit Big Cajun II coal-fired plant, and
related non-nuclear assets, for $940.5 million in cash, subject to adjustment
pursuant to terms of the asset purchase agreement proposed as part of the SWEPCO
plan. The SWEPCO Plan incorporates the terms of a settlement between the RUS,
Cajun Members Committee, Claiborne Electric Cooperative, Inc. and SWEPCO. In
addition, the SWEPCO Plan provides for SWEPCO and the Cajun member cooperatives
to enter into long-term power supply agreements which will provide the Cajun
member cooperatives with rate plan options and market access provisions designed
to ensure the long-term competitiveness of the cooperatives. Eight cooperatives
and CLECO, successor to Teche Electric Cooperative, already have agreed to
purchase power from SWEPCO if SWEPCO's plan is confirmed by the bankruptcy
court.
Entergy Texas is no longer a co-plan proponent with SWEPCO and the
Cajun Members Committee, as it had been under SWEPCO plans filed prior to the
January 15, 1998 plan. SWEPCO continues to work with Entergy Texas to resolve
its objection to the plan. The SWEPCO Plan filed March 18, 1998 replaces plans
filed previously by SWEPCO on January 15, 1998, October 26, 1996, September 30,
1996 and April 19, 1996. Two competing plans of reorganization for the
non-nuclear assets of Cajun have been filed with the bankruptcy court, each with
different purchase prices, rate paths and other provisions. Confirmation
hearings in Cajun's bankruptcy case are now scheduled through April 1998.
Consummation of the SWEPCO Plan is conditioned upon confirmation by the
bankruptcy court, and the receipt by SWEPCO and CSW of all requisite state and
federal regulatory approvals in addition to their board approvals. If the SWEPCO
Plan is confirmed, the $940.5 million required to consummate the acquisition of
Cajun's non-nuclear assets is expected to be financed through a combination of
external borrowings and internally generated funds with approximately 70% of the
external borrowings funded with non-recourse debt. There can be no assurance
that the SWEPCO Plan will be confirmed by the bankruptcy court or, if it is
confirmed, that it will be approved by federal and state regulators.
SWEPCO RENTAL AND LEASE COMMITMENTS
SWEPCO has entered into various financing arrangements primarily with
respect to coal transportation and related equipment, which are treated as
operating leases for rate-making purposes. At December 31, 1997, leased assets
of $45.7 million, less accumulated amortization of $39.0 million, were included
in Electric Utility Plant on the Consolidated Balance Sheets and at December 31,
1996, leased assets were $46.0 million, less accumulated amortization of $36.9
million.
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SWEPCO BILOXI, MISSISSIPPI MGP SITE
SWEPCO was notified by Mississippi Power in 1994 that it may be a PRP
at a MGP site in Biloxi, Mississippi, which was formerly owned and operated by a
predecessor of SWEPCO. Since then, SWEPCO has worked with Mississippi Power on
both the investigation of the extent of contamination on the site as well as on
the subsequent sampling of the site. The sampling results indicated
contamination at the property as well as the possibility of contamination of an
adjacent property. A risk assessment was submitted to the MDEQ, and the MDEQ
requested that a future residential exposure scenario be evaluated for
comparison with commercial and industrial exposure scenarios. However,
Mississippi Power and SWEPCO do not believe that cleanup to a residential
scenario is appropriate since this site has been industrial/commercial for more
than 100 years, and Mississippi Power plans to continue this type of usage.
Mississippi Power and SWEPCO also presented a report to the MDEQ demonstrating
that the ground water on the site was not potable, further demonstrating that
cleanup to residential standards is not necessary.
The MDEQ has not agreed to a non-residential future land use scenario
and has requested further testing. Following the additional testing and
resolution of whether cleanup must meet a residential usage scenario or a
commercial/industrial scenario, a feasibility study will be conducted to more
definitively evaluate remedial strategies for the property. The feasibility
study process will require public input prior to a final decision being made.
At the present time, SWEPCO has not had any further substantive
discussions with MDEQ regarding the ultimate resolution of this issue.
Therefore, a final range of cleanup costs is not yet determinable. SWEPCO has
incurred approximately $200,000 to date for its portion of the cleanup of this
site, and based on its preliminary estimates, anticipates that an additional $2
million may be incurred. Accordingly, SWEPCO has accrued $2 million for the
cleanup of the site.
SWEPCO VODA PETROLEUM SUPERFUND SITE
In April 1996, SWEPCO received correspondence from the EPA notifying
SWEPCO that it is a PRP to a cleanup action planned for the Voda Petroleum
Superfund Site located in Clarksville, Texas. SWEPCO is conducting a records
review to compile documentation relating to SWEPCO's past use of the Voda
Petroleum site. The proposed cleanup of the site is estimated by the EPA to cost
approximately $2 million and to take approximately twelve months to complete. An
option for over 30 PRPs to conduct the cleanup in lieu of EPA conducting the
cleanup is under consideration. Any SWEPCO liability associated with this
project is not expected to have a material adverse effect on its results of
operations or financial condition.
CSW ENERGY LOANS AND COMMITMENTS
CSW Energy has agreed to provide construction financing and other
credit support up to $235 million for the 330 MW Phillips Sweeny project. CSW
Energy obtained the funds for this project through CSW's short-term borrowing
program. Construction of this plant began in September 1996 and commenced
commercial operations in February 1998. At December 31, 1997, CSW Energy had
provided $163 million, including development, construction and financing, of the
total estimated $189 million in project costs. CSW Energy expects to obtain
permanent project financing in the second quarter of 1998 at which time the
project will return a significant portion of the investment and the short-term
borrowings will be repaid. In addition, CSW has provided letters of credit and
guarantees on behalf of other independent power projects totaling approximately
$27 million.
CSW INTERNATIONAL ENERTEK PROJECT
In July 1996, CSW International announced a joint venture with Alpek,
through a subsidiary, to build, own and operate a 109 MW, gas-fired cogeneration
project at Alpek's Petrocel industrial complex in Altamira, Tamaulipas, Mexico.
CSW International and Alpek each will have 50% ownership in the project,
Enertek, which will cost approximately $75 million. CSW International has agreed
to provide construction financing for the project of which $62 million had been
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funded at December 31, 1997. The Enertek project began operations in the first
quarter of 1998.
4. INCOME TAXES
CSW files a consolidated United States federal income tax return and
participates in a tax sharing agreement with its subsidiaries. Income tax
includes United States federal income taxes, applicable state income taxes and
SEEBOARD's United Kingdom corporation taxes. Total income taxes differ from the
amounts computed by applying the United States federal statutory income tax rate
to income before taxes for a number of reasons which are presented in the INCOME
TAX RATE RECONCILIATION table below. Information concerning income taxes,
including total income tax expense, the reconciliation between the United States
federal statutory tax rate and the effective tax rate and significant components
of deferred income taxes follow.
INCOME TAX EXPENSE CSW CPL PSO SWEPCO WTU
----------------------------------------------
1997 (millions) (thousands)
-------------------------------------
INCLUDED IN OPERATING
EXPENSES AND TAXES
Current (1) $47 $43,600 $14,543 $46,358 $11,765
Deferred (1) 117 35,263 8,498 (1,984) (954)
Deferred ITC (2) (13) (4,819) (2,278) (4,662) (1,321)
--------------------------------------------
151 74,044 20,763 39,712 9,490
INCLUDED IN OTHER
INCOME AND DEDUCTIONS
Current -- (4,271) (2,230) (1,962) (471)
Deferred (6) (779) (50) (260) --
--------------------------------------------
(6) (5,050) (2,280) (2,222) (471)
--------------------------------------------
$145 $68,994 $18,483 $37,490 $9,019
--------------------------------------------
1996
INCLUDED IN OPERATING
EXPENSES AND TAXES
Current (1) $118 $46,588 $26,152 $33,904 $6,953
Deferred (1) 120 57,416 14,190 10,696 9,706
Deferred ITC (2) (14) (5,553) (2,784) (4,730) (1,321)
--------------------------------------------
224 98,451 37,558 39,870 15,338
INCLUDED IN OTHER
INCOME AND DEDUCTIONS
Current (1) 639 (895) (973) (406)
Deferred (39) (5,940) (15,518) (7,847) (3,988)
--------------------------------------------
(40) (5,301) (16,413) (8,820) (4,394)
INCOME TAXES FOR
DISCONTINUED OPERATIONS
(includes $72 resulting
from the gain on the sale) 78 -- -- -- --
--------------------------------------------
$262 $93,150 $21,145 $31,050 $10,944
--------------------------------------------
1995
INCLUDED IN OPERATING
EXPENSES AND TAXES
Current (1) $105 $51,626 $37,687 $41,852 $4,892
Deferred 1 (30,025) 2,704 6,287 1,971
Deferred ITC (2) (14) (5,789) (2,789) (4,786) (1,321)
--------------------------------------------
92 15,812 37,602 43,353 5,542
INCLUDED IN OTHER
INCOME AND DEDUCTIONS
Current 2 129 (197) (721) 1,564
Deferred (4) -- -- -- --
--------------------------------------------
(2) 129 (197) (721) 1,564
INCOME TAXES FOR
DISCONTINUED OPERATIONS 13 -- -- -- --
--------------------------------------------
$103 $15,941 $37,405 $42,632 $7,106
--------------------------------------------
(1) Approximately $30 million, $49 million and $7 million of CSW's Current
Income Tax Expense was attributable to SEEBOARD U.S.A. operations and
was recognized as United Kingdom corporation tax expense for 1997,
1996 and 1995, respectively. In addition, approximately $7 million and
CSW
2-57
<PAGE>
$19 million of CSW's Deferred Income Tax Expense in 1997 and 1996,
respectively, was attributed to SEEBOARD U.S.A.
(2) ITC deferred in prior years are included in income over the lives of
the related properties.
INCOME TAX RATE CSW CPL PSO SWEPCO WTU
RECONCILIATION
-------------------------------------------------------
1997 ($ in millions) ($ in thousands)
-----------------------------------------
Income before taxes
attributable to:
Domestic operations $327
Foreign operations 147
----
Income before taxes $474 $197,465 $64,689 $130,392 $30,480
Tax at U.S. statutory rate $166 $69,113 $22,641 $45,637 $10,668
Differences
Amortization of ITC (13) (4,819) (2,278) (4,662) (1,321)
Mirror CWIP 5 4,647 -- -- --
Non-deductible goodwill
amortization 12 -- -- -- --
Tax credit on foreign
operations dividend (3) -- -- -- --
United Kingdom deferred
income tax adjustment (16) -- -- -- --
Adjustments (4) (1,361) (1,324) (633) (177)
Other (2) 1,414 (556) (2,852) (151)
-------------------------------------------------
$145 $68,994 $18,483 $37,490 $9,019
-------------------------------------------------
Effective tax rate 31% 35% 29% 29% 30%
1996
Income before taxes
attributable to:
Domestic operations $562
Foreign operations 146
----
Income before taxes $708 $240,201 $52,622 $97,605 $27,515
Tax at U.S. statutory rate $248 $84,070 $18,418 $34,162 $9,630
Differences
Amortization of ITC (14) (5,553) (2,784) (4,730) (1,321)
Mirror CWIP 5 4,584 -- -- --
Non-deductible goodwill
amortization 13 -- -- -- --
Tax credit on foreign
operations dividend (18) -- -- -- --
Adjustments 10 5,127 201 1,544 1,467
Other 18 4,922 5,310 74 1,168
-------------------------------------------------
$262 $93,150 $21,145 $31,050 $10,944
-------------------------------------------------
Effective tax rate 37% 39% 40% 32% 40%
1995
Income before taxes
attributable to:
Domestic operations $506
Foreign operations 13
----
Income before taxes $519 $222,388 $119,233 $159,675 $41,636
Tax at U.S. statutory rate $182 $77,836 $41,732 $55,886 $14,573
Differences
Amortization of ITC (14) (5,789) (2,789) (4,786) (1,321)
Mirror CWIP (11) (10,843) -- -- --
CPL 1995 Agreement (34) (34,289) -- -- --
WTU 1995 Stipulation and
Agreement (7) -- -- -- (6,859)
Adjustments (22) (13,462) (2,949) (2,783) 953
Other 9 2,488 1,411 (5,685) (240)
-------------------------------------------------
$103 $15,941 $37,405 $42,632 $7,106
-------------------------------------------------
Effective tax rate 20% 7% 31% 27% 17%
CSW
2-58
<PAGE>
<TABLE>
<CAPTION>
DEFERRED INCOME TAXES (1) CSW CPL PSO SWEPCO WTU
-------------------------------------------------
(millions) (thousands)
---------------------------------------
1997
<S> <C> <C> <C> <C> <C>
Deferred Income Tax Liabilities
Depreciable utility plant $1,920 $802,279 $291,547 $410,313 $144,690
Deferred plant costs 176 169,497 -- -- 6,523
Mirror CWIP asset 100 99,901 -- -- --
Income tax related regulatory
assets 211 149,834 10,539 38,603 12,284
Other 371 147,513 36,836 36,237 20,651
------------------------------------------------
2,778 1,369,024 338,922 485,153 184,148
Deferred Income Tax Assets
Income tax related regulatory
liability (123) (40,552) (26,704) (40,916) (14,969)
Unamortized ITC (100) (49,830) (15,920) (24,673) (9,771)
Alternative minimum tax
carryforward (27) (16,129) -- -- --
Other (76) (3,744) (35,188) (19,061) (9,859)
------------------------------------------------
(326) (110,255) (77,812) (84,650) (34,599)
------------------------------------------------
Net Accumulated Deferred Income
Taxes $2,452 $1,258,769 $261,110 $400,503 $149,549
------------------------------------------------
Net Accumulated Deferred Income
Taxes
Noncurrent $2,432 $1,237,387 $258,848 $395,909 $149,346
Current 20 21,382 2,262 4,594 203
------------------------------------------------
$2,452 $1,258,769 $261,110 $400,503 $149,549
------------------------------------------------
1996
Deferred Income Tax Liabilities
Depreciable utility plant $1,867 $791,693 $275,938 $389,575 $135,215
Deferred plant costs 178 170,442 -- -- 7,237
Mirror CWIP asset 105 104,548 -- -- --
Income tax related regulatory
assets 207 156,059 10,976 30,486 9,743
Other 307 72,798 35,626 38,875 26,055
------------------------------------------------
2,664 1,295,540 322,540 458,936 178,250
Deferred Income Tax Assets
Income tax related regulatory
liability (126) (39,202) (28,771) (42,533) (15,664)
Unamortized ITC (105) (51,517) (16,802) (26,394) (10,234)
Alternative minimum tax
carryforward (83) (16,129) -- -- --
Other (99) (19,331) (28,519) (13,295) (9,285)
------------------------------------------------
(413) (126,179) (74,092) (82,222) (35,183)
------------------------------------------------
Net Accumulated Deferred Income
Taxes $2,251 $1,169,361 $248,448 $376,714 $143,067
------------------------------------------------
Net Accumulated Deferred Income
Taxes
Noncurrent $2,272 $1,162,051 $251,007 $372,552 $144,146
Current (21) 7,310 (2,559) 4,162 (1,079)
------------------------------------------------
$2,251 $1,169,361 $248,448 $376,714 $143,067
------------------------------------------------
(1) In 1996, CSW generated $33 million of excess foreign tax credits
against which a full valuation allowance was established as of
December 31, 1996. In 1997, the valuation reserve was reduced to
$17 million due to lower levels of excess foreign tax credits.
Other than excess foreign tax credits, CSW did not have other
valuation allowances recorded against other deferred tax assets at
December 31, 1997 and 1996 due to a favorable earnings history.
</TABLE>
5. BENEFIT PLANS
PENSION PLANS
Prior to June 30, 1997, CSW maintained a tax qualified,
non-contributory defined benefit pension plan covering substantially all CSW
employees in the United States. Benefits were based on employees' years of
credited service, age at retirement, and final average annual earnings with an
offset for the participant's primary Social Security benefit. The CSW board of
CSW
2-59
<PAGE>
directors approved an amendment, effective July 1, 1997, which converted the
present value of accrued benefits under the existing pension plan into a cash
balance pension plan. Under the cash balance formula, each participant has an
account, for recordkeeping purposes only, to which credits are allocated
annually based on a percentage of the participant's pay. The applicable
percentage is determined by age and years of vested service the participant has
with CSW as of December 31 of each year.
The purpose of the plan change is to continue to provide retirement
income benefits which are competitive both within the utility industry as well
as with other companies within the United States.
As the plan sponsor, CSW will continue to reflect the costs of the
pension plan according to the provisions of SFAS No. 87 and allocate such costs
to each of the participating employers. As a result of the July 1, 1997
amendment, CSW realized a savings in 1997 of approximately $20 million in
pension expense and will also realize significant ongoing reductions in
operating and maintenance expense because of the change. The change to the
pension plan was applied retroactively to the beginning of 1997, so these
savings were recognized evenly throughout 1997 with a portion being capitalized.
The approximate amount of savings attributable to the U.S. Electric Operating
Companies for 1997 is as follows.
CPL-$4.7 million PSO-$3.6 million SWEPCO-$4.4 million WTU-$2.6 million
Pension plan assets consist primarily of common stocks and short-term
and intermediate-term fixed income investments.
The majority of SEEBOARD's employees joined a pension plan that is
administered for the United Kingdom's electricity industry. The assets of this
plan are held in a separate trustee-administered fund that is actuarially valued
every three years. SEEBOARD and its participating employees both contribute to
the plan. Subsequent to July 1, 1995, new employees were no longer able to
participate in that plan. Instead, two new pension plans were made available to
new employees, both of which are also separate trustee-administered plans.
Information about the two separate pension plans (the U.S. plan and the
non-U.S. plan), including: (i) pension plan net periodic costs and
contributions; (ii) pension plan participation; (iii) a reconciliation of the
funded status of the pension plan to the amounts recognized on the balance
sheets; and (iv) assumptions used in accounting for the pension plan follow.
CSW
2-60
<PAGE>
<TABLE>
<CAPTION>
NET PERIODIC NON-
PENSION PLAN COSTS CSW U.S. U.S.
AND CONTRIBUTIONS PLANS PLAN PLAN CPL PSO SWEPCO WTU
----------------------------------------------------------
(millions) (thousands)
------------------------------------
1997
<S> <C> <C> <C> <C> <C> <C> <C>
Net Periodic Pension Costs
Service cost $34 $20 $14 $4,602 $3,421 $4,260 $2,488
Interest cost on
projected benefit
obligation 137 65 72 15,085 11,214 13,965 8,156
Actual return on plan
assets (245) (163) (82) (38,031) (28,272) (35,206) (20,561)
Net amortization and
deferral 68 66 2 15,648 11,633 14,486 8,460
----------------------------------------------------------
$(6) $(12) $6 $(2,696) $(2,004) $(2,495) $(1,457)
----------------------------------------------------------
Pension Plan Contributions $6 $-- $6 $-- $-- $-- $--
1996
Net Periodic Pension Costs
Service cost $37 $23 $14 $5,367 $4,238 $4,891 $3,005
Interest cost on
projected benefit
obligation 136 69 67 16,233 12,817 14,793 9,089
Actual return on plan
assets (184) (110) (74) (26,033) (20,554) (23,723) (14,576)
Net amortization and
deferral 27 27 -- 6,509 5,139 5,932 3,645
----------------------------------------------------------
$16 $9 $7 $2,076 $1,640 $1,893 $1,163
----------------------------------------------------------
Pension Plan Contributions $35 $28 $7 $6,622 $5,228 $6,034 $3,708
1995
Net Periodic Pension Costs
Service cost $20 $20 $-- $4,699 $3,614 $4,220 $2,609
Interest cost on
projected benefit
obligation 64 64 -- 14,860 11,428 13,345 8,251
Actual return on plan
assets (117) (117) -- (27,137) (20,869) (24,370) (15,068)
Net amortization and
deferral 44 44 -- 10,136 7,795 9,102 5,628
----------------------------------------------------------
$11 $11 $-- $2,558 $1,968 $2,297 $1,420
----------------------------------------------------------
Pension Plan Contributions $29 $29 $-- $6,754 $5,195 $6,066 $3,751
</TABLE>
APPROXIMATE NUMBER NON-
OF PARTICIPANTS IN CSW U.S. U.S.
PLANS DURING 1997 PLANS PLAN PLAN CPL PSO SWEPCO WTU
--------------------------------------------------------
Active employees 10,100 7,200 2,900 1,800 1,300 1,700 1,000
Retirees 10,200 4,200 6,000 1,400 1,300 900 600
Terminated employees 6,800 2,000 4,800 400 400 200 200
CSW
2-61
<PAGE>
RECONCILIATION OF FUNDED 1997 1996
STATUS OF PLAN TO AMOUNTS 1997 1997 NON- 1996 1996 NON-
RECOGNIZED ON THE CSW CSW U.S. U.S. CSW U.S. U.S.
CONSOLIDATED BALANCE SHEETS PLANS PLAN PLANS PLANS PLAN PLAN
----------------------------------------------
(millions)
Actuarial present value of
Accumulated benefit obligation
for service rendered to date $1,860 $896 $964 $1,748 $781 $967
Additional benefit for future
salary levels 94 35 59 200 141 59
--------------------- --------------------
Projected benefit obligation 1,954 931 1,023 1,948 922 1,026
Plan assets, at fair value 2,290 1,109 1,181 2,077 991 1,086
--------------------- --------------------
Plan assets in excess of the
projected benefit obligation 336 178 158 129 69 60
Unrecognized net loss (86) 12 (98) 30 27 3
Unrecognized prior service cost (93) (88) (5) (12) (7) (5)
Unrecognized net obligation 16 11 4 16 12 4
--------------------- --------------------
Prepaid pension cost $173 $113 $59 $163 $101 $62
--------------------- --------------------
The vested portion of the accumulated benefit obligations for the
combined plans was $1.8 billion at December 31, 1997 and $1.7 billion for the
combined plans at December 31, 1996. The unrecognized net obligation for the
U.S. plan is being amortized over the average remaining service life of
employees or 15 years. Prepaid pension cost is included in Deferred Charges and
Other Assets on the balance sheets. No reconciliation of the funding status of
the plan for CPL, PSO, SWEPCO or WTU is presented because the plan is
administered for the CSW System as a whole and such information is unavailable
for the U.S. Electric Operating Companies individually.
In addition to the amounts shown in the above table, CSW has a
non-qualified excess benefit plan. This plan is available to all pension plan
participants who are entitled to receive a pension benefit from CSW which is in
excess of the limitations imposed on benefits by the Internal Revenue Code
through the qualified plan. CSW's net periodic cost for this non-qualified plan
for the years ended December 31, 1997, 1996 and 1995 was $3.7 million, $4.8
million and $2.4 million, respectively.
ASSUMPTIONS USED IN Long-Term
ACCOUNTING FOR Discount Compensation Return on
THE PENSION PLAN Rate Increase Plan Assets
--------------------------------------
1997 U.S. Plan 7.50% 5.46% 9.00%
Non-U.S. Plan 6.75% 4.75% 7.25%
1996 U.S. Plan 8.00% 5.46% 9.50%
Non-U.S. Plan 7.75% 5.75% 8.25%
1995 U.S. Plan 8.00% 5.46% 9.50%
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (U.S. COMPANIES ONLY)
CSW, including each of the U.S. Electric Operating Companies, adopted
SFAS No. 106 effective January 1, 1993. The transition obligation established at
adoption is being amortized over twenty years, with fifteen years remaining.
Prior to 1993, these benefits were accounted for on a pay-as-you-go basis.
Pursuant to an order by the Oklahoma Commission, PSO established a regulatory
asset of approximately $5 million in 1993 for the difference between the
pay-as-you-go basis and the costs determined under SFAS No. 106. PSO is
recovering the amortization of this regulatory asset over a ten year period.
Information about the non-pension postretirement benefit plan,
including: (i) net periodic postretirement benefit costs; (ii) a reconciliation
of the funded status of the postretirement benefit plan to the amounts
recognized on the balance sheets; and (iii) assumptions used in accounting for
the postretirement benefit plan follow.
CSW
2-62
<PAGE>
NET PERIODIC
POSTRETIREMENT
BENEFIT COSTS CSW CPL PSO SWEPCO WTU
-------------------------------------------
(millions) (thousands)
----------------------------------
1997
Service cost $ 8 $2,076 $1,694 $1,771 $1,120
Interest cost on APBO 18 5,663 4,794 4,190 2,564
Actual return on plan assets (22) (4,948) (6,707) (6,737) (2,266)
Amortization of transition
obligation 9 2,900 2,528 1,967 1,225
Net amortization and deferral 11 2,047 3,344 3,769 1,009
-----------------------------------------
$24 $7,738 $5,653 $4,960 $3,652
-----------------------------------------
1996
Service cost $8 $2,077 $1,705 $1,810 $1,111
Interest cost on APBO 19 5,887 5,018 4,321 2,602
Actual return on plan assets (7) (1,695) (2,236) (2,168) (766)
Amortization of transition
obligation 9 2,900 2,528 1,967 1,225
Net amortization and deferral (2) (560) (250) (100) (261)
-----------------------------------------
$27 $8,609 $6,765 $5,830 $3,911
-----------------------------------------
1995
Service cost $8 $2,123 $1,986 $1,803 $1,113
Interest cost on APBO 18 5,929 5,175 4,299 2,561
Actual return on plan assets (8) (1,948) (2,597) (2,466) (870)
Amortization of transition
obligation 9 2,900 2,528 1,967 1,225
Net amortization and deferral 2 238 631 679 96
-----------------------------------------
$29 $9,242 $7,723 $6,282 $4,125
-----------------------------------------
RECONCILIATION OF FUNDED
STATUS OF PLAN TO AMOUNTS
RECOGNIZED ON THE BALANCE SHEETS CSW CPL PSO SWEPCO WTU
-------------------------------------------
(millions) (thousands)
----------------------------------
1997
APBO
Retirees $158 $51,426 $43,732 $34,906 $21,607
Other fully eligible participants 24 5,449 5,707 6,559 3,184
Other active participants 59 16,116 11,995 12,749 7,725
----------------------------------------
Total 241 72,991 61,434 54,214 32,516
Plan assets at fair value (159) (44,168) (43,366) (39,630) (20,411)
----------------------------------------
APBO in excess of plan assets 82 28,823 18,068 14,584 12,105
Unrecognized transition obligation (135) (43,508) (37,928) (29,502) (18,372)
Unrecognized gain 53 15,443 19,018 14,715 6,503
----------------------------------------
Accrued/(Prepaid) Cost $-- $758 $(842) $(203) $236
----------------------------------------
1996
APBO
Retirees $163 $54,158 $45,736 $36,013 $22,880
Other fully eligible participants 18 4,281 3,789 5,302 2,398
Other active participants 55 14,871 12,534 12,694 7,857
----------------------------------------
Total 236 73,310 62,059 54,009 33,135
Plan assets at fair value (123) (34,566) (33,748) (30,028) (15,806)
----------------------------------------
APBO in excess of plan assets 113 38,744 28,311 23,981 17,329
Unrecognized transition obligation (144) (46,408) (40,456) (31,469) (19,597)
Unrecognized gain 32 8,723 11,569 7,527 2,662
----------------------------------------
Accrued/(Prepaid) Cost $1 $1,059 $(576) $39 $394
----------------------------------------
ASSUMPTIONS USED IN THE Discount Return on Tax Rate for
ACCOUNTING FOR SFAS NO. 106 Rate Plan Assets Taxable Trusts
----------------------------------------
1997 7.50% 9.00% 39.6%
1996 8.00% 9.50% 39.6%
1995 8.00% 9.50% 39.6%
Health care cost trend rates
1997 Average Rate of 7.0% grading down .50% per year to
an ultimate average rate of 5.00% in 2001.
1996 Average Rate of 9.0% grading down .75% per year to an ultimate
average rate of 5.25% in 2001.
1995 Average Rate of 10.25% grading down .75% per year to an ultimate
average rate of 5.75% in 2001.
Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the APBO and the aggregate of the service and
interest costs components on net postretirement benefits by the amounts
presented in the following table.
CSW CPL PSO SWEPCO WTU
-------------------------------------------
(millions)
APBO $25.1 $7.1 $5.7 $6.9 $3.2
Service and interest costs 3.6 0.9 0.7 1.0 0.5
HEALTH AND WELFARE PLANS
CSW provides medical, dental, group life insurance, dependent life
insurance, and accidental death and dismemberment insurance plans for
substantially all active CSW System employees in the United States. The total
contributions, recorded on a pay-as-you-go basis, for the years 1995 - 1997 are
listed in the following table.
CSW CPL PSO SWEPCO WTU
-----------------------------------------
(millions)
1997 $35.6 $9.0 $7.0 $8.3 $5.1
1996 28.4 7.0 5.5 6.5 4.0
1995 27.0 6.6 5.3 6.2 3.6
Employer provided health care benefits are not common in the United
Kingdom due to the country's national health care system. Accordingly, SEEBOARD
does not provide health care benefits to the majority of its employees.
6. JOINTLY OWNED ELECTRIC UTILITY PLANT
The U.S. Electric Operating Companies are parties to various joint
ownership agreements with other non-affiliated entities. Such agreements provide
for the joint ownership and operation of generating stations and related
facilities, whereby each participant bears its share of the project costs. At
December 31, 1997, the U.S. Electric Operating Companies had undivided interests
in five such generating stations and related facilities as shown in the
following table.
CPL SWEPCO SWEPCO SWEPCO CSW(1)
STP Flint Creek Pirkey Dolet Hills Oklaunion
Nuclear Coal Lignite Lignite Coal
Plant Plant Plant Plant Plant
----------------------------------------------------------
($ in millions)
Plant in service $2,336 $80 $437 $230 $398
Accumulated $517 $47 $176 $84 $122
depreciation
Plant capacity-MW 2,501 528 675 650 676
Participation 25.2% 50.0% 85.9% 40.2% 78.1%
Share of capacity-MW 630 264 580 262 528
CSW
2-64
<PAGE>
(1) CPL, PSO and WTU have joint ownership agreements with each other and
other non-affiliated entities. Such agreements provide for the joint
ownership and operation of Oklaunion Power Station. Each participant
provided financing for its share of the project, which was placed in
service in December 1986. CPL's 7.8%, PSO's 15.6% and WTU's 54.7%
ownership interest represents CSW's 78.1% participation in the plant.
The statements of income reflect CPL's, PSO's and WTU's respective
portions of the operating costs of Oklaunion Power Station. The total
investments, including AFUDC, in Oklaunion Power Station for CPL, PSO
and WTU were $37 million, $80 million and $281 million, respectively,
at December 31, 1997. Accumulated depreciation was $11 million, $32
million and $79 million for CPL, PSO and WTU, respectively, at
December 31, 1997.
7. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
following fair values of each class of financial instruments for which it is
practicable to estimate fair value. The fair value does not affect any of the
liabilities unless the issues are redeemed prior to their maturity dates.
CASH, TEMPORARY CASH INVESTMENTS, ACCOUNTS RECEIVABLE, OTHER FINANCIAL
INSTRUMENTS AND SHORT-TERM DEBT The fair value equals the carrying
amount as stated on the balance sheets due to the short maturity of
those instruments.
SECURITIES HELD FOR SALE
The fair values, which are based on quoted market prices, equal the
carrying amounts as stated on the balance sheet because the accounting treatment
prescribed under SFAS No. 115.
LONG-TERM DEBT
The fair value of long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
CSW for debt of the same remaining maturities.
TRUST PREFERRED SECURITIES
The fair value of the Trust Preferred Securities are based on quoted
market prices on the New York Stock Exchange.
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
The fair value of preferred stock subject to mandatory redemption is
estimated based on quoted market prices for the same or similar issues or on the
current rates offered to CSW for preferred stock with the same or similar
remaining redemption provisions.
LONG-TERM DEBT AND PREFERRED STOCK DUE WITHIN 12 MONTHS
The fair value of current maturities of long-term debt and preferred
stock due within 12 months are estimated based on quoted market prices for the
same or similar issues or on the current rates offered for long-term debt or
preferred stock with the same or similar remaining redemption provisions.
CSW
2-65
<PAGE>
CARRYING VALUE AND
ESTIMATED FAIR VALUE CSW CPL PSO SWEPCO WTU
--------------------------------------------------
(millions) (thousands)
----------------------------------------
LONG-TERM DEBT
1997 carrying amount $3,898 $1,302,266 $421,821 $547,751 $278,640
fair value 4,052 1,361,539 435,908 576,387 290,489
1996 carrying amount 4,024 1,323,054 420,301 597,151 275,070
fair value 4,065 1,346,306 420,863 605,853 275,355
TRUST PREFERRED SECURITIES
1997 carrying amount 335 150,000 75,000 110,000 --
fair value 344 153,375 78,000 112,750 --
PREFERRED STOCK SUBJECT TO
MANDATORY REDEMPTION
1997 carrying amount 26 -- -- 25,930 --
fair value 27 -- -- 26,809 --
1996 carrying amount 33 -- -- 32,464 --
fair value 34 -- -- 33,579 --
LONG-TERM DEBT AND
PREFERRED STOCK DUE WITHIN
12 MONTHS
1997 carrying amount 32 28,000 -- 3,555 --
fair value 32 28,000 -- 3,555 --
1996 carrying amount 204 200,000 -- 3,760 --
fair value 204 200,000 -- 3,760 --
CROSS-CURRENCY SWAPS AND SEEBOARD'S ELECTRICITY CONTRACTS FOR
DIFFERENCES
The fair value of cross currency swaps reflect third-party valuations
calculated using proprietary pricing models. Based on these valuations, CSW's
position in these cross currency swaps represented an unrealized loss of $43
million at December 31, 1997. This unrealized loss is offset by unrealized gains
related to the underlying transactions being hedged. CSW expects to hold these
contracts to maturity. The fair value of SEEBOARD's contracts for differences is
not determinable due to the absence of a trading market.
DERIVATIVE CONTRACTS NOTIONAL AMOUNTS Notional Fair
AND ESTIMATED FAIR VALUES Amount Value
----------------------
(millions)
CROSS CURRENCY SWAPS
Maturities: 2001 and 2006 $400 $443
CSW
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<PAGE>
8. LONG-TERM DEBT
The CSW System's long-term debt outstanding as of the end of the last
two years is presented in the following table.
Maturities Interest Rates December 31,
From To From To 1997 1996
- ----------------------------------------------------------------------
(millions)
Secured bonds
1998 2025 5.25% 7.75% $2,080 $2,108
Unsecured bonds
2001 2030 3.9%(1) 8.88% 1,353 1,384
Notes and Lease Obligations
1999 2003 5.54% 9.75% 641 724
Unamortized discount (10) (12)
Unamortized cost of
reacquired debt (166) (180)
---------------------
$3,898 $4,024
---------------------
(1) Variable rate
The mortgage indentures, as amended and supplemented, securing FMBs
issued by the U.S. Electric Operating Companies, constitute a direct first
mortgage lien on substantially all electric utility plant. The U.S. Electric
Operating Companies may offer additional FMBs, medium-term notes and other
securities subject to market conditions and other factors.
CSW's year end weighted average cost of long-term debt was 7.2% for
1995-1997. For additional information about the U.S. Electric Operating
Companies' long term debt, see their STATEMENTS OF CAPITALIZATION in the
FINANCIAL STATEMENTS.
ANNUAL REQUIREMENTS
Certain series of outstanding FMBs have annual sinking fund
requirements, which are generally 1% of the amount of each such series issued.
These requirements may be, and generally have been, satisfied by the application
of net expenditures for bondable property in an amount equal to 166-2/3% of the
annual requirements. Certain series of pollution control revenue bonds also have
sinking fund requirements. At December 31, 1997, the annual sinking fund
requirements and annual maturities (including sinking fund requirements) for all
long-term debt for the next five years are presented in the following table.
CSW CPL PSO SWEPCO WTU
- ----------------------------------------------------------------------
(millions) (thousands)
----------------------------------------------
Sinking Fund
Requirements
1998 $1 $360 $550 $145 $--
1999 1 360 300 595 --
2000 1 360 300 595 --
2001 1 -- 300 595 --
2002 1 -- -- 595 --
Annual
Maturities
1998 $31 $28,360 $550 $2,355 $--
1999 195 125,360 25,300 43,932 --
2000 208 100,360 20,300 47,807 40,000
2001 517 36,000 20,300 595 --
2002 181 115,000 30,000 595 35,000
CSW
2-67
<PAGE>
DIVIDENDS
At December 31, 1997, approximately $1.4 billion of CSW's subsidiary
companies' retained earnings were available for payment of cash dividends by
such subsidiaries to CSW. The mortgage indentures, as amended and supplemented,
at CPL and PSO contain certain restrictions on the use of their retained
earnings for cash dividends on their common stock. These restrictions do not
currently limit the ability of CSW to pay dividends to its shareholders. The
amounts of retained earnings available for dividends attributable to each of the
U.S. Electric Operating Companies at December 31, 1997 is as follows.
CPL-$747 million PSO-$137 million SWEPCO-$324 million WTU-$119 million
REACQUIRED LONG-TERM DEBT
During 1996 and 1995, the U.S. Electric Operating Companies reacquired
$205 million and $355 million of long-term debt, respectively, including
reacquisition premiums, prior to maturity. The premiums and related
reacquisition costs and discounts are included in long-term debt on the balance
sheets and are being amortized over periods consistent with their expected
ratemaking treatment. The remaining amortization periods for such items range
from 2 to 33 years. No long-term debt was reacquired prior to maturity during
1997.
Reference is made to MD&A, LIQUIDITY AND CAPITAL RESOURCES for further
information related to long-term debt, including new issues and reacquisitions
of long-term debt during 1997 as well as information related to the financing of
the SEEBOARD acquisition.
9. PREFERRED STOCK
The outstanding preferred stock of the U.S. Electric Operating
Companies as of the end of the last two years is presented in the following
table.
Current
Dividend Rate December 31, Redemption Price
From - To 1997 1996 From - To
--------------------------------------------------
(millions)
Not subject to mandatory redemption
1,352,900 shares 4.00% - 8.72% $19 $135 $102.75 - $109.00
1,600,000 shares auction 160 160 $100.00
Issuance expenses/premiums (3) (3)
------------
$176 $292
------------
Subject to mandatory redemption
340,000 shares 6.95% $27 $34 $102.32
To be redeemed within one year (1) (1)
------------
$26 $33
------------
Total authorized shares
6,405,000
All of the outstanding preferred stock is redeemable at the option of
the U.S. Electric Operating Companies upon 30 days notice at the current
redemption price per share. During 1997, 1996 and 1995, SWEPCO redeemed $1.2
million annually pursuant to its annual sinking fund requirement. In addition
during 1997, each of the U.S. Electric Operating Companies reacquired a
significant portion of its outstanding preferred stock. As a result of
differences between the dividend rates on the reacquired securities and
prevailing market rates, CSW realized an overall gain of approximately $10
million on the transactions. This gain is shown separately, as Gain on
reacquired preferred stock, on the Consolidated Statements of Income. The
following table shows the results of the tender offers of the U.S. Electric
Operating Companies' preferred stock.
CSW
2-68
<PAGE>
Shares Shares
Reacquired Remaining
--------------------------
CPL
Series 4.00% 57,952 42,048
Series 4.20% 57,524 17,476
Series 7.12% 260,000 --
Series 8.72% 500,000 --
PSO
Series 4.00% 53,260 44,640
Series 4.24% 91,931 8,069
SWEPCO
Series 4.28% 52,614 7,386
Series 4.65% 23,092 1,908
Series 5.00% 37,261 37,739
Series 6.95% 65,990 274,010
WTU
Series 4.40% 36,325 23,675
CPL
The dividends on CPL's $160 million auction and money market preferred
stocks are adjusted every 49 days, based on current market rates. The dividend
rates averaged 4.3%, 4.1% and 4.5% during 1997, 1996 and 1995, respectively.
SWEPCO
The minimum annual sinking fund requirement for SWEPCO's preferred
stock subject to mandatory redemption is $1.2 million for the years 1997 through
2001. This sinking fund retires 12,000 shares annually.
For additional information about the U.S. Electric Operating Companies'
preferred stock, see their STATEMENTS OF CAPITALIZATION in the FINANCIAL
STATEMENTS.
10. TRUST PREFERRED SECURITIES
The following Trust Preferred Securities issued by the wholly-owned
statutory business trusts of CPL, PSO and SWEPCO were outstanding at December
31, 1997. They are classified on the balance sheets as Certain Subsidiary (or
CPL/PSO/SWEPCO)-obligated, mandatorily redeemable preferred securities of
subsidiary trusts holding solely Junior Subordinated Debentures of such
Subsidiaries (or CPL/PSO/SWEPCO).
Amount Description of Underlying
Business Trust Security Units (millions) Debentures of Registrant
- ------------------------------------------------------------------------------
CPL Capital I 8.00%, Series A 6,000,000 $150 CPL, $154.6 million, 8.00%,
Series A
PSO Capital I 8.00%, Series A 3,000,000 75 PSO, $77.3 million, 8.00%,
Series A
SWEPCO Capital I 7.875%, Series A 4,400,000 110 SWEPCO, $113.4 million,
7.875%, Series A
---------- -----
13,400,000 $335
---------- -----
Each of the business trusts will be treated as a subsidiary of its
parent company. The only assets of the business trusts are the subordinated
debentures issued by their parent company as specified above. In addition to the
obligations under their subordinated debentures, each of the parent companies
has also agreed to a security obligation which represents a full and
unconditional guarantee of its capital trust's obligation.
CSW
2-69
<PAGE>
11. SHORT-TERM FINANCING
The CSW System uses short-term debt, primarily commercial paper, to
meet fluctuations in working capital requirements and other interim capital
needs. CSW has established a money pool to coordinate short-term borrowings for
certain subsidiaries and also incurs borrowings outside the money pool for other
subsidiaries. As of December 31, 1997, CSW had revolving credit facilities
totaling $1.4 billion to back up its commercial paper program. At December 31,
1997, CSW had $721 million outstanding in short-term borrowings. The maximum
amount of such short-term borrowings outstanding during the year, which had a
weighted average interest yield for the year of 5.8%, was $725 million during
December 1997.
CSW Credit, which does not participate in the money pool, issues
commercial paper on a stand-alone basis. At December 31, 1997, CSW Credit had a
$900 million revolving credit agreement that is secured by the assignment of its
receivables to back up its commercial paper program which had $637 million
outstanding. The maximum amount of such commercial paper outstanding during the
year, which had a weighted average interest yield for the year of 5.6%, was $890
million during September 1997.
12. COMMON STOCK
CSW adopted SFAS No. 128 during 1997. SFAS No. 128 requires the
computation of earnings per share on both a basic as well as a diluted basis.
CSW's basic earnings per share of common stock are computed by dividing net
income for common stock by the average number of common shares outstanding for
the respective periods. Diluted earnings per share reflect the potential
dilution that could occur if all options outstanding under CSW's stock incentive
plan were converted to common stock and then shared in the income for common
stock. CSW's basic and diluted earnings per share were the same for the years
1995 - 1997. CSW's dividends per common share reflect per share amounts paid for
each of the periods.
CSW can issue common stock, either through the purchase and reissuance
of shares from the open market or original issue shares, through the LTIP, a
stock option plan, PowerShare and ThriftPlus. Following the issuance of the CPL
1997 Original Rate Order and the decline in the market price of CSW's common
stock, which CSW believes is attributable in part to the CPL 1997 Original Rate
Order, the determination was made that it was appropriate for CSW to begin
funding these plans through open market purchases, effective April 1, 1997.
Prior to that time, CSW had issued $20 million in new common stock in 1997.
Information concerning common stock activity issued through the LTIP, the stock
option plan, PowerShare and ThriftPlus is presented in the following table.
1997 1996 1995
-------------------------------------------------------
Number of new shares
issued (millions) 0.8 2.9 2.3
Range of stock price for
new shares $21 1/4 - $25 5/8 $24 3/8 - $28 7/8 $22 5/8 - $28 3/8
New common stock
equity (millions) $20 $79 $57
During February 1996, CSW sold 15,525,000 shares of CSW Common in a
primary stock offering and received net proceeds of approximately $398 million.
These proceeds were used to repay a portion of indebtedness incurred during the
acquisition of SEEBOARD.
13. STOCK-BASED COMPENSATION PLANS
CSW has a key employee incentive plan. This plan is accounted for under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for this plan been determined consistent
with SFAS No. 123, pro forma calculations of CSW's and each of the U.S. Electric
CSW
2-70
<PAGE>
Operating Companies' net income for common stock and earnings per share as
required by SFAS No. 123 would not have changed significantly from amounts
reported.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
CSW may grant options for up to 4.0 million shares of CSW Common under
the stock option plan. Under the stock option plan, the option exercise price
equals the stock's market price on the date of grant. The grant vests over three
years, one-third on each of the three anniversary dates of the grant, and
expires 10 years after the original grant date. CSW has granted 2.8 million
shares through December 31, 1997.
A summary of the status of CSW's stock option plan at December 31,
1997, 1996 and 1995 and the changes during the years then ended is presented in
the following table.
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
(thousands) Exercise (thousands) Exercise (thousands) Exercise Price
Price Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,412 $26 1,564 $26 1,616 $26
Granted 694 21 70 27 -- --
Exercised -- 22 (147) 24 (23) 22
Canceled (204) 28 (75) 27 (29) 27
------ ----- ----
Outstanding at end of
year 1,902 24 1,412 26 1,564 26
Exercisable at end of
year 1,162 n/a 1,004 n/a 828 n/a
Weighted average fair
value of options $2.24 - $2.39
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997: (i) risk-free interest rate of 5.9%; (ii)
expected dividend rate of 6.5%; (iii) and expected volatility of 19%. The
expected life of the options granted did not materially impact the values
produced.
CSW
2-71
<PAGE>
14. BUSINESS SEGMENTS
CSW's business segments at December 31, 1997 included the U.S. Electric
operations (CPL, PSO, SWEPCO, WTU) and the United Kingdom Electric operations
(SEEBOARD U.S.A.). See NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES for a
discussion of the accounting for the SEEBOARD acquisition. Eight additional
non-utility companies are included with CSW in Corporate items and Other (CSW
Energy, CSW International, C3 Communications, CSW Credit, CSW Leasing, CSW
Services, EnerShop and CSW Energy Services). Gas Operations (Transok) were sold
on June 6, 1996. See NOTE 15. TRANSOK DISCONTINUED OPERATIONS for additional
information. CSW's business segment information is presented in the following
tables.
1997 1996 1995
-------- -------- --------
(millions)
OPERATING REVENUES
Electric Operations
United States $3,321 $3,248 $2,883
United Kingdom (1) 1,870 1,848 208
Corporate items and Other 77 59 52
-------- -------- --------
$5,268 $5,155 $3,143
-------- -------- --------
OPERATING INCOME
Electric Operations
United States $661 $768 $719
United Kingdom (1) 255 236 21
Corporate items and Other (30) 15 (27)
-------- -------- --------
Operating income before taxes 886 1,019 713
Income taxes (151) (224) (92)
-------- -------- --------
$735 $795 $621
-------- -------- --------
DEPRECIATION AND AMORTIZATION
Electric Operations
United States $389 $362 $335
United Kingdom (1) 92 88 7
Corporate items and Other 16 14 11
-------- -------- --------
$497 $464 $353
-------- -------- --------
IDENTIFIABLE ASSETS
Electric Operations
United States $9,172 $9,142 $9,278
United Kingdom (1) 2,931 3,061 2,821
Corporate items and Other 1,348 1,129 1,004
-------- -------- --------
13,451 13,332 13,103
Gas Operations (Discontinued) -- -- 766
-------- -------- --------
$13,451 $13,332 $13,869
-------- -------- --------
CAPITAL EXPENDITURES AND
ACQUISITIONS
Electric Operations
United States $346 $356 $398
United Kingdom (1), (2) 126 1,543 731
Corporate items and Other (3) 276 109 19
-------- -------- --------
748 2,008 1,148
Gas Operations (Discontinued) -- 23 66
-------- -------- --------
$748 $2,031 $1,214
-------- -------- --------
(1) Represents equity method of accounting for November 1995 (27.6%) and full
consolidation accounting for December 1995 (76.45%).
(2) Includes $1,394 million and $731 million in 1996 and 1995, respectively,
used to purchase SEEBOARD.
(3) Includes CSW Energy and CSW International equity investments.
CSW
2-72
<PAGE>
15. TRANSOK DISCONTINUED OPERATIONS
On June 6, 1996, CSW sold Transok to Tejas. Accordingly, the results of
operations for Transok have been reported as discontinued operations and prior
periods have been restated for consistency.
As a wholly owned subsidiary of CSW, Transok operated as an intrastate
natural gas gathering, transmission, marketing and processing company that
provided natural gas services to the U.S. Electric Operating Companies,
predominantly PSO, and to other gas customers throughout the United States.
CSW sold Transok to Tejas for approximately $890 million, consisting of
$690 million in cash and $200 million in existing long-term debt that remained
with Transok after the sale. A portion of the cash proceeds was used to repay
borrowings incurred related to the SEEBOARD acquisition and the remaining
proceeds were used to repay commercial paper borrowings. CSW recorded an after
tax gain on the sale of Transok of approximately $120 million in 1996.
Transok's operating results for 1996 and 1995 are summarized in the
following table (transactions with CSW have not been eliminated).
1996 1995
-------------------
Total revenue $362 $721
Operating income before income taxes 23 52
Earnings before income taxes 18 38
Income taxes (6) (13)
-------------------
Net income from discontinued operations $12 $25
-------------------
16. PROPOSED AEP MERGER
In December 1997, CSW and AEP entered into a definitive merger agreement
for a tax-free, stock-for stock transaction with AEP being the surviving
corporation. The transaction is subject to the approval of various state and
federal regulatory agencies. The shareholders of CSW will be asked to approve
the AEP Merger and the shareholders of AEP will be asked to approve the issuance
of shares of AEP common stock pursuant to the AEP Merger Agreement and to amend
AEP's certificate of incorporation to increase the number of authorized shares
of AEP common stock from 300 million shares to 600 million shares.
The proposed AEP Merger, with a targeted completion date in the first
half of 1999, is expected to be accounted for as a pooling of interests.
Upon completion of the AEP Merger, CSW common stockholders will
receive 0.6 shares of AEP common stock for each share of CSW common stock. At
that time, CSW common stockholders will own approximately 40% of the outstanding
common stock of AEP. Under the AEP Merger Agreement, there will be no changes
required with respect to the outstanding debt, preferred stock or Trust
Preferred Securities of CSW or its subsidiaries. The transaction must satisfy
many conditions, some of which may not be waived by the parties. There can be
no assurance that the AEP Merger will be consummated.
CSW
2-73
<PAGE>
17. EXTRAORDINARY ITEM
In the general election held in the United Kingdom on May 1, 1997, the
United Kingdom's Labour Party won control of the government with a considerable
majority. Prior to the general election, the Labour Party had announced that, if
elected, it would impose a windfall profits tax on certain industries in the
United Kingdom, including the privatized utilities, to fund a variety of social
improvement programs. On July 2, 1997, the one-time windfall profits tax was
introduced in the Labour Party's Budget and the legislation enacting the tax
subsequently was passed during the third quarter of 1997. Accordingly, during
the third quarter of 1997, SEEBOARD U.S.A. accrued, as an extraordinary item,
(pound)109.5 million (or $176 million when converted at (pound)1.00=$1.61) for a
one-time, windfall profits tax enacted by the United Kingdom government.
The windfall profits tax is payable in two equal installments, due
December 1, 1997 and December 1, 1998. The tax was charged at a rate of 23% on
the difference between nine times the average profits after tax for the four
years following flotation in 1990, and SEEBOARD's market capitalization
calculated as the number of shares issued at flotation multiplied by the
flotation price per share. On December 1, 1997, SEEBOARD made the first such
payment.
As enacted, the windfall profits tax is not tax deductible for United
Kingdom purposes. To date, no United States income tax benefit has been
recognized due to the uncertainty as to the impact on the use of foreign tax
credits. CSW continues to analyze the potential United States income tax benefit
from the use of foreign tax credits.
18. PRO FORMA INFORMATION (UNAUDITED)
CSW secured effective control of SEEBOARD in December 1995. The
unaudited pro forma information is presented in response to applicable
accounting rules relating to acquisition transactions. The pro forma information
gives effect to the acquisition of SEEBOARD accounted for under the purchase
method of accounting for the twelve months ended December 31, 1995 as if the
transaction had been consummated at the beginning of the period presented.
The unaudited pro forma information has been prepared in accordance
with United States generally accepted accounting principles. The pro forma
information in the following table is presented for illustrative purposes only
and is not necessarily indicative of the operating results that would have
occurred if the SEEBOARD acquisition had taken place at the beginning of the
period specified, nor is it necessarily indicative of future operating results.
The following pro forma information has been prepared reflecting the February
1996 issuance of CSW Common, and has been converted at an exchange rate of
(pound)1.00=$1.58 for the twelve months ended December 31, 1995.
1995
-----------------
(millions except EPS)
Operating Revenues $5,404
Operating Income 750
Net Income for Common Stock 445
EPS of Common Stock $2.15
CSW
2-74
<PAGE>
19. QUARTERLY INFORMATION (UNAUDITED)
The following unaudited quarterly information includes, in the opinion
of management, all adjustments necessary for a fair presentation of such
amounts. Information for quarterly periods is affected by seasonal variations in
sales, rate changes, timing of fuel expense recovery and other factors.
QUARTER ENDED 1997(1) 1996(2)
- -------------------------------------------------------------------------------
(millions, except EPS)
MARCH 31
Operating Revenues $1,278 $1,215
Operating Income 127 144
Income from Continuing Operations 25 43
Net Income for Common Stock 25 51
Basic and Diluted EPS from Continuing Operations $0.12 $0.22
Basic and Diluted EPS $0.12 $0.26
JUNE 30
Operating Revenues $1,184 $1,267
Operating Income 169 214
Income from Continuing Operations 83 11
Net Income for Common Stock 83 128
Basic and Diluted EPS from Continuing Operations $0.39 $0.05
Basic and Diluted EPS $0.39 $0.61
SEPTEMBER 30
Operating Revenues $1,477 $1,438
Operating Income 303 284
Income from Continuing Operations 196 190
Extraordinary Item (176) --
Net Income for Common Stock 20 190
Basic and Diluted EPS from Continuing Operations $0.93 $0.90
Basic and Diluted EPS from Extraordinary Item $(0.83) --
Basic and Diluted EPS $0.10 $0.90
DECEMBER 31
Operating Revenues $1,329 $1,235
Operating Income 136 153
Income from Continuing Operations 25 53
Net Income for Common Stock 25 60
Basic and Diluted EPS from Continuing Operations $0.11 $0.26
Basic and Diluted EPS $0.11 $0.28
TOTAL
Operating Revenues $5,268 $5,155
Operating Income 735 795
Income from Continuing Operations 329 297
Extraordinary Item (176) --
Net Income for Common Stock 153 429
Basic and Diluted EPS from Continuing Operations $1.55 $1.43
Basic and Diluted EPS from Extraordinary Item $(0.83) --
Basic and Diluted EPS $0.72 $2.07
(1) The first, second and third quarters of 1997 include the effect of certain
reclassifications to conform with the 1997 year end financial statement
presentation.
(2) In 1996, CSW EPS of Common Stock for the year do not sum to the total of
the individual quarters' EPS of Common Stock due to different levels of
average shares outstanding for the different periods.
CSW
2-75
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF CENTRAL AND SOUTH WEST
CORPORATION:
We have audited the accompanying consolidated balance sheets of Central
and South West Corporation (a Delaware corporation) and subsidiary companies as
of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows, for each of the three years ended
December 31, 1997. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of CSW UK Finance Company (1997 - which includes CSW Investments) and
CSW Investments (1996), which statements reflect total assets and total revenues
of 22 percent and 35 percent in 1997 and 23 percent and 36 percent in 1996,
respectively, of the consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us and our opinion, insofar as it
relates to the amounts included for those entities, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Central and South West Corporation and
subsidiary companies as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years ended December 31, 1997, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas
February 16, 1998
CSW
2-76
<PAGE>
AUDITOR'S REPORT TO THE MEMBERS OF CSW UK FINANCE COMPANY
We have audited the consolidated balance sheets of CSW UK Finance Company and
subsidiaries as of 31 December 1997 and the related consolidated statement of
earnings and statements of cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used in and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CSW UK Finance
Company and subsidiaries at 31 December 1997 and the result of their operations
and cash flows for the year then ended in conformity with generally accepted
accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations and shareholders' equity as of
and for the year ended 31 December 1997 to the extent summarised in Note 23 to
the consolidated financial statements.
KPMG Audit Plc
Chartered Accountants London, England
Registered Auditor 19 January 1998
CSW
2-77
<PAGE>
AUDITOR'S REPORT TO THE MEMBERS OF CSW INVESTMENTS
We have audited the consolidated balance sheets of CSW Investments and
subsidiaries as of 31 December 1996 and the related consolidated statement of
earnings and statements of cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used in and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CSW Investments and
subsidiaries at 31 December 1996 and the result of their operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations and shareholders' equity as of
and for the year ended 31 December 1996 to the extent summarised in the notes to
the consolidated financial statements.
KPMG Audit Plc
Chartered Accountants London, England
Registered Auditor 22 January 1997
CSW
2-78
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements of Central and South West
Corporation and subsidiary companies as well as other information contained in
this Annual Report. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and, in some cases, reflect amounts based on the best estimates and
judgments of management, giving due consideration to materiality. Financial
information contained elsewhere in this Annual Report is consistent with that in
the consolidated financial statements.
The consolidated financial statements have been audited by CSW's
independent public accountants who were given unrestricted access to all
financial records and related data, including minutes of all meetings of
stockholders, the board of directors and committees of the board. CSW and its
subsidiaries believe that representations made to the independent public
accountants during their audit were valid and appropriate. The reports of
independent public accountants are presented elsewhere in this report.
CSW, together with its subsidiary companies, maintains a system of
internal controls to provide reasonable assurance that transactions are executed
in accordance with management's authorization, that the consolidated financial
statements are prepared in accordance with generally accepted accounting
principles and that the assets of CSW and its subsidiaries are properly
safeguarded against unauthorized acquisition, use or disposition. The system
includes a documented organizational structure and division of responsibility,
established policies and procedures including a policy on ethical standards
which provides that the companies will maintain the highest legal and ethical
standards, and the careful selection, training and development of our employees.
Internal auditors continuously monitor the effectiveness of the
internal control system following standards established by the Institute of
Internal Auditors. Actions are taken by management to respond to deficiencies as
they are identified. The board, operating through its audit committee, which is
comprised entirely of directors who are not officers or employees of CSW or its
subsidiaries, provides oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of internal
controls, no internal control system can provide absolute assurance that errors
will not occur. However, management strives to maintain a balance, recognizing
that the cost of such a system should not exceed the benefits derived.
CSW and its subsidiaries believe that, in all material respects, its
system of internal controls over financial reporting and over safeguarding of
assets against unauthorized acquisition, use or disposition functioned
effectively as of December 31, 1997.
E. R. Brooks Glenn D. Rosilier Lawrence B. Connors
Chairman and Executive Vice President and Controller
Chief Executive Officer Chief Financial Officer
CSW
2-79
<PAGE>
CENTRAL POWER AND LIGHT
COMPANY
CPL
2-80
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for each of the five years ended
December 31 is provided to highlight significant trends in the financial
condition and results of operations for CPL. Certain financial statement items
for prior years have been reclassified to conform to the most recent period
presented.
---------------------------------------------------------
1997 1996 (1) 1995 1994 1993(2)
(thousands except ratios)
INCOME STATEMENT DATA
Revenues $1,376,282 $1,300,688 $1,073,469 $1,217,979 $1,223,528
Income before cumulative
effect of changes in 128,471 147,051 206,447 205,439 145,130
accounting principles
Net income for common 121,350 133,488 191,978 191,635 158,422
stock
BALANCE SHEET DATA
Assets 4,813,310 4,828,263 4,881,136 4,822,699 4,781,745
Long-term
obligations (3) 1,452,266 1,323,054 1,517,347 1,466,393 1,384,820
Capitalization ratios
Common stock equity 47% 48% 45% 45% 47%
Preferred stock 5 8 8 8 9
CPL-obligated, mandatorily
redeemable preferred
securities of subsidiary
trusts holding solely
Junior Subordinated
Debentures of CPL 5 -- -- -- --
Long-term debt 43 44 47 47 44
Ratio of earnings to fixed 2.48 2.86 2.63 3.24 2.69
charges (SEC Method) (4)
(1) Earnings in 1996 reflect a $15.6 million one-time charge, net of tax,
associated with certain investments for plant sites, engineering studies
and lignite reserves and the expiration in 1995 of Mirror CWIP liability
amortization income.
(2) Earnings in 1993 were significantly affected by restructuring charges, the
$27 million cumulative effect of changes in accounting principles and prior
year tax adjustments. CPL changed its method of accounting for unbilled
revenues in 1993.
(3) Long-term obligations includes long-term debt and Trust Preferred
Securities, and for 1993 preferred stock subject to mandatory redemption.
(4) Ratio of earnings to fixed charges for 1993 was calculated before
cumulative effect of change in accounting principles.
CPL
2-81
<PAGE>
CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS
Reference is made to CPL's Consolidated Financial Statements and
related Notes to Consolidated Financial Statements and Selected Financial Data.
The information contained therein should be read in conjunction with, and is
essential in understanding, the following discussion and analysis.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Net income for common stock decreased to $121.4 million, or 9%,
compared to $133.5 million in 1996. The major reason for the decrease was the
impact of the CPL 1997 Final Order. This decrease was partially offset by an
increase in other income and deductions of $19.4 million, primarily due to the
absence in 1997 of a one-time charge associated with certain investments for
plant sites, engineering studies and lignite reserves of $15.6 million, net of
tax, recorded in the second quarter of 1996. See NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS for more information related to the CPL 1997 Final Order.
Total electric operating revenues increased $75.6 million, or 5.8%, in
1997 compared to 1996 due primarily to a 3% increase in retail MWH sales
resulting from increased customers and demand as well as higher fuel related
revenue due to higher fuel costs, as discussed below. Another factor that
contributed to the increase was a $41.5 million increase in transmission
revenues as a result of the January 1997 implementation of open access tariffs
in accordance with FERC Order No. 888 and the Texas Commission rules regarding
transmission access and pricing, offset by a decrease related to provisions for
refunds in 1997 and 1996 associated with the CPL rate case. The impact on net
income of the increase in transmission access revenues was offset by a
corresponding increase in transmission expense.
Fuel expense increased $55.7 million, or 16%, during 1997 as compared
to 1996. The increase in fuel expense was due primarily to a 13% increase in the
average unit cost of fuel from $1.62 per MMbtu in 1996 to $1.83 per MMbtu in
1997. The increase in fuel costs reflects an increase in the spot market price
of natural gas partially offset by a decrease in the delivery cost of coal. Also
contributing to this increase was the absence in 1997 of a one-time $8.8 million
reduction in fuel expense recorded in the first quarter of 1996 in accordance
with the CPL 1996 Fuel Agreement. Purchased power expense decreased 5% from
$59.9 million in 1996 to $56.4 million in 1997 due primarily to decreased
economy energy purchases.
Other operating expense increased $52.1 million to $283.6 million in
1997 when compared to 1996. The increase is due primarily to an increase in
transmission operations expenses as a result of the January 1997 implementation
of open access tariffs in accordance with FERC Order No. 888 and the Texas
Commission rules regarding transmission access and pricing, the write-off of
previously deferred rate case expenses in accordance with the settlement in
principle of the rate case expense phase of CPL's Rate Review - Docket No. 14965
and the write-off of obsolete inventory of $3.8 million. The increase in other
operating expense was offset in part by reductions in pension expense, other
employee related expenses and the absence in 1997 of the write-off of a canceled
transmission project of $9.5 million. See NOTE 5. BENEFIT PLANS for additional
information related to changes in the pension plan. Maintenance expense
increased $6.7 million, or 12%, in 1997 as compared to 1996 due primarily to
higher steam and nuclear production and distribution overhead line expenses in
1997.
Depreciation and amortization expenses increased $18.5 million compared
to 1996 due primarily to the impact of the CPL 1997 Final Order. Taxes, other
than income increased approximately $8.8 million during 1997 as compared to 1996
due primarily to an increase in ad valorem and franchise taxes.
CPL
2-82
<PAGE>
Other income and deductions increased $19.4 million from a loss of
$11.1 million in 1996 to $8.2 million in 1997 due primarily to the absence in
1997 of the one-time charge associated with certain investments for plant sites,
engineering studies and lignite reserves of $15.6 million, net of tax, recorded
in 1996. Also contributing to this increase was additional interest income in
1997 due primarily to a higher level of short-term investments.
Interest and other charges increased $3.7 million in 1997 due primarily
to the new distributions on Trust Preferred Securities of $7.7 million. For
additional information on these new securities see NOTE 10. TRUST PREFERRED
SECURITIES. Partially offsetting this increase was a decrease of $5.3 million in
long-term debt expense due primarily to the maturity of CPL's $200 million,
Series BB, 6% FMBs in October 1997 and also refinancing activities in 1996.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Net income for common stock for 1996 decreased 30% to $133 million from
$192 million in 1995. The decrease was due primarily to the expiration of Mirror
CWIP liability amortization, the CPL 1996 Fuel Agreement, a charge in 1996
associated with certain investments for plant sites, engineering studies and
lignite reserves of $15.6 million, net of tax, and management's expectation of
the outcome of CPL's pending rate review . Partially offsetting the decline was
the absence of the net effect of the CPL 1995 Agreement. See NOTE 2. LITIGATION
AND REGULATORY PROCEEDINGS for additional information.
Electric operating revenues were $1.3 billion in 1996, an increase of
21% when compared to 1995 revenues of $1.1 billion. The increase was due
primarily to a $96.6 million increase in fuel revenues resulting primarily from
higher average unit fuel costs and purchased power as discussed below. The
increase was also attributable to a one-time $50 million base rate refund and a
$62.3 million disallowance of under-recovered fuel costs in 1995 as a result of
the CPL 1995 Agreement. KWH sales increased 6% resulting primarily from
increased customer and favorable weather-related demand as well as residential
and commercial customer growth.
Fuel expense increased $53.0 million, or 18%, during 1996 as compared
to 1995. The increase in fuel expense was due primarily to an 18% increase in
the average unit cost of fuel from $1.37 per MMbtu in 1995 to $1.62 per MMbtu in
1996. The fuel costs reflect an increase in the spot market price of natural gas
partially offset by a decrease in the delivered cost of coal and a one-time $9.6
million reduction in fuel expense as a result of the CPL 1996 Fuel Agreement.
Purchased power increased $39.9 million during 1996 when compared to the prior
year primarily as a result of increased economy energy purchases at a higher
cost per MWH. Also contributing to this increase were additional cogeneration
purchases in 1996.
Other operating expenses increased $22.5 million, or 11%, during 1996
when compared to 1995. This increase was due primarily to a $9.5 million
write-off associated with the cancellation of a transmission project, a $2.2
million write-off of demand side management assets as well as increased rate
case and decommissioning expenses, all associated with management's expectation
of the outcome of CPL's pending rate review. Also contributing to the increase
was the establishment of a regulatory asset for rate case costs previously
expensed and subsequent amortization of such regulatory asset pursuant to the
CPL 1995 Agreement. Further contributing to this increase were lower
employee-related costs in 1995. The overall restructuring charges increase of
$25.4 million during 1996 when compared to 1995 was due primarily to the
recognition of a $20.7 million regulatory asset established in accordance with
the CPL 1995 Agreement for previously recorded restructuring charges. In 1996,
the CSW System began implementation of organizational and executive changes
which were completed in 1997. CPL recorded its $4.6 million portion of the
estimated cost of the restructuring during 1996. Maintenance expenses decreased
$10.1 million or 16% during 1996 when compared to 1995 due primarily to lower
production and distribution maintenance. The decrease in production maintenance
was the result of fewer scheduled steam maintenance repair projects in 1996 as
well as lower nuclear maintenance due to fewer scheduled refueling outages in
CPL
2-83
<PAGE>
1996. The decrease in distribution maintenance was due primarily to lower tree
trimming expenses in 1996.
Depreciation and amortization increased $2.3 million, or 2%, during
1996 as compared to 1995 as a result of an increase in depreciable property and
the amortization of regulatory assets associated with the CPL 1995 Agreement.
Such increases were partially offset by a decrease in depreciation rates,
effective May 1996, in accordance with management's expectation of the outcome
of CPL's pending rate review. Taxes, other than income increased $8.1 million
during 1996 as compared to 1995 due primarily to lower 1995 ad valorem taxes
resulting from revisions of prior year estimates. Income taxes increased $82.6
million in 1996 as compared to 1995 due primarily to the accelerated flowback in
1995 of $34.3 million of unprotected excess deferred income taxes in accordance
with the CPL 1995 Agreement. This increase was also attributable to prior year
tax adjustments, higher pre-tax income, excluding the effects of the one-time
charge, as discussed below, and the permanent tax effect associated with the
expiration of the Mirror CWIP liability amortization, also discussed below.
Other income and deductions decreased $67.5 million in 1996 when
compared to 1995. Mirror CWIP liability amortization, which expired in 1995,
contributed $41.0 million to other income and deductions in 1995. Also, a
one-time charge in 1996 associated with certain investments for plant sites,
engineering studies and lignite reserves of approximately $15.6 million, net of
tax, contributed to this decline. Furthermore, other income and deductions
decreased in 1996 as a result of the recognition of previously deferred
factoring income in 1995 pursuant to the CPL 1995 Agreement. Interest on
long-term debt also decreased $5.8 million during 1996 when compared to 1995 as
a result of refinancing activity in 1995. Interest on short-term debt and other
decreased $1.4 million during 1996 when compared to 1995 primarily as a result
of lower levels of short-term debt outstanding at lower interest rates partially
offset by an increase in the amortization of debt issuance costs and AFUDC for
borrowed funds.
CPL
2-84
<PAGE>
CPL
CONSOLIDATED STATEMENTS OF INCOME
CENTRAL POWER AND LIGHT COMPANY
- -------------------------------------------------------------------------------
For the Years Ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(thousands)
Electric Operating Revenues
Residential $541,169 $528,916 $465,478
Commercial 400,412 388,008 355,238
Industrial 330,481 308,186 256,223
Sales for resale 70,461 72,164 52,081
Other 33,759 3,414 (55,551)
----------- ----------- -----------
1,376,282 1,300,688 1,073,469
----------- ----------- -----------
Operating Expenses and Taxes
Fuel 396,707 340,962 287,979
Purchased power 56,475 59,562 19,632
Other operating 283,640 231,501 209,021
Restructuring charges -- 4,628 (20,793)
Maintenance 59,791 53,077 63,201
Depreciation and amortization 171,349 152,831 150,508
Taxes, other than income 82,909 74,029 65,925
Income taxes 74,044 98,451 15,812
----------- ----------- -----------
1,124,915 1,015,041 791,285
----------- ----------- -----------
Operating Income 251,367 285,647 282,184
----------- ----------- -----------
Other Income and Deductions
Charges for investments and
plant development costs (2,060) (21,509) --
Allowance for equity funds
used during construction 1,724 427 442
Mirror CWIP liability amortization -- -- 41,000
Other 3,563 4,636 15,009
Non-operating income taxes 5,050 5,301 (129)
----------- ----------- -----------
8,277 (11,145) 56,322
----------- ----------- -----------
Income Before Interest Charges 259,644 274,502 338,506
----------- ----------- -----------
Interest Charges
Interest on long-term debt 105,081 110,375 116,205
Distributions on Trust
Preferred Securities 7,533 -- --
Interest on short-term debt and other 20,613 18,494 19,926
Allowance for borrowed funds
used during construction (2,054) (1,418) (4,072)
----------- ----------- -----------
131,173 127,451 132,059
----------- ----------- -----------
Net Income 128,471 147,051 206,447
Less: Preferred stock dividends 9,523 13,563 14,469
Gain on reacquired preferred stock 2,402 -- --
----------- ----------- -----------
Net Income for Common Stock $121,350 $133,488 $191,978
=========== =========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CPL
2-85
<PAGE>
CPL
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
CENTRAL POWER AND LIGHT COMPANY
- ----------------------------------------------------------------------------
For the Years Ended December 31,
------------------------------
1997 1996 1995
-------- -------- --------
(thousands)
Retained Earnings at Beginning of Year $868,932 $863,444 $857,466
Net income for common stock 121,350 133,488 191,978
Deduct: Common stock dividends 157,000 128,000 186,000
-------- -------- --------
Retained Earnings at End of Year $833,282 $868,932 $863,444
======== ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CPL
2-86
<PAGE>
CPL
CONSOLIDATED BALANCE SHEETS
CENTRAL POWER AND LIGHT COMPANY
- -------------------------------------------------------------------------------
As of December 31,
-----------------------
1997 1996
---------- ----------
(thousands)
ASSETS
Electric Utility Plant
Production $3,106,576 $3,102,929
Transmission 517,903 505,801
Distribution 1,021,759 956,928
General 295,974 271,347
Construction work in progress 77,390 95,336
Nuclear fuel 196,147 184,229
---------- ----------
5,215,749 5,116,570
Less - accumulated depreciation 1,845,730 1,697,552
---------- ----------
3,370,019 3,419,018
---------- ----------
Current Assets
Cash -- 3,299
Special deposits -- 113
Accounts receivable 61,311 53,038
Materials and supplies, at average cost 65,290 75,732
Fuel inventory 14,816 15,461
Under-recovered fuel costs 43,229 26,298
Prepayments 2,595 4,371
---------- ----------
187,241 178,312
---------- ----------
Deferred Charges and Other Assets
Deferred STP costs 484,277 486,978
Mirror CWIP asset 285,431 298,708
Income tax related regulatory assets, net 390,149 335,226
Other 96,193 110,021
---------- ----------
1,256,050 1,230,933
---------- ----------
$4,813,310 $4,828,263
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
CPL
2-87
<PAGE>
CPL
CONSOLIDATED BALANCE SHEETS
CENTRAL POWER AND LIGHT COMPANY
- --------------------------------------------------------------------------
As of December 31,
----------------------------
1997 1996
---------- ----------
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $25 par value
Authorized shares:
12,000,000
Issued and outstanding shares:
6,755,535 $ 168,888 $ 168,888
Paid-in capital 405,000 405,000
Retained earnings 833,282 868,932
---------- ----------
Total Common Stock Equity 1,407,170 47% 1,442,820 48%
---------- ---- ---------- ----
Preferred stock 163,204 5% 250,351 8%
CPL-obligated, mandatorily redeemable
preferred securities of subsidiary
trust holding solely Junior
Subordinated Debentures of CPL 150,000 5% -- --
Long-term debt 1,302,266 43% 1,323,054 44%
---------- ---- ---------- ----
Total Capitalization 3,022,640 100% 3,016,225 100%
---------- ---- ---------- ----
Current Liabilities
Long-term debt due within twelve months 28,000 200,000
Advances from affiliates 142,781 52,525
Accounts payable 84,160 69,941
Accrued taxes 13,558 64,207
Accumulated deferred income taxes 21,382 7,310
Accrued interest 28,379 31,566
Refund due customers 63,713 43,266
Other 14,551 19,048
---------- ----------
396,524 487,863
---------- ----------
Deferred Credits
Accumulated deferred income taxes 1,237,386 1,162,051
Investment tax credits 142,371 147,191
Other 14,389 14,933
---------- ----------
1,394,146 1,324,175
---------- ----------
$4,813,310 $4,828,263
========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CPL
2-88
<PAGE>
CPL
CONSOLIDATED STATEMENTS OF CASH FLOWS
CENTRAL POWER AND LIGHT COMPANY
- -------------------------------------------------------------------------------
For the Years Ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(thousands)
OPERATING ACTIVITIES
Net Income $128,471 $147,051 $206,447
Non-cash Items Included in Net Income
Depreciation and amortization 192,775 178,271 173,711
Deferred income taxes and
investment tax credits 29,666 45,923 (35,815)
Mirror CWIP liability amortization -- -- (41,000)
Establishment of regulatory assets -- -- (20,652)
Refund due customers 20,447 43,266 --
Charges for investments and assets 2,061 21,374 --
Inventory reserve 3,834 717 --
Changes in Assets and Liabilities
Accounts receivable (8,273) (7,852) (15,321)
Fuel inventory 645 11,011 (3,556)
Material and supplies 10,442 (4,620) (4,902)
Accrued interest (3,187) 1,176 (8,061)
Accounts payable 14,219 19,780 (35,101)
Accrued taxes (50,649) 2,593 2,228
Fuel recovery (16,931) (38,884) 66,712
Other deferred credits 2,701 (2,856) 2,022
Other 13,419 (6,672) 13,106
--------- --------- ---------
339,640 410,278 299,818
--------- --------- ---------
INVESTING ACTIVITIES
Construction expenditures (126,693) (136,901) (150,372)
Other 1,185 (3,257) (4,072)
--------- --------- ---------
(125,508) (140,158) (154,444)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 63,930 337,828
Retirement of long-term debt -- (231) --
Reacquisition of long-term debt (200,000) (67,720) (295,938)
Redemption of preferred stock (84,745) -- --
Proceeds from issuance of Trust
Preferred Securities 144,706 -- --
Change in advances from affiliates 90,256 (123,809) 15,014
Payment of dividends (167,648) (141,874) (200,037)
--------- --------- ---------
(217,431) (269,704) (143,133)
--------- --------- ---------
Net Change in Cash and Cash Equivalents (3,299) 416 2,241
Cash and Cash Equivalents at
Beginning of Year 3,299 2,883 642
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ -- $3,299 $2,883
========= ========= =========
SUPPLEMENTARY INFORMATION
Interest paid less amounts
capitalized (includes distributions
on Trust Preferred Securities) $116,782 $117,974 $115,845
========= ========= =========
Income taxes paid $61,509 $44,082 $37,151
========= ========= =========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CPL
2-89
<PAGE>
CPL
CONSOLIDATED STATEMENTS OF CAPITALIZATION
CENTRAL POWER AND LIGHT COMPANY
- -------------------------------------------------------------------------------
As of December 31,
-----------------------
1997 1996
---------- ----------
(thousands)
COMMON STOCK EQUITY $1,407,170 $1,442,820
---------- ----------
PREFERRED STOCK
Cumulative $100 Par Value, Authorized
3,035,000 shares
Current
Number of Shares Redemption
Series Outstanding Price
- -----------------------------------------------
Not Subject to Mandatory Redemption
4.00% 42,048 $105.75 4,205 10,000
4.20% 17,476 $103.75 1,748 7,500
7.12% -- -- -- 26,000
8.72% -- -- -- 50,000
Auction Money Market 750,000 $100.00 75,000 75,000
Auction Series A 425,000 $100.00 42,500 42,500
Auction Series B 425,000 $100.00 42,500 42,500
Issuance Expense (2,749) (3,149)
---------- ----------
163,204 250,351
---------- ----------
TRUST PREFERRED SECURITIES
CPL-obligated, mandatorily redeemable
preferred securities of subsidiary
trust holding solely Junior Subordinated
Debentures of CPL, 8.00%, due April 30, 2037 150,000 --
---------- ----------
LONG-TERM DEBT
First Mortgage Bonds
Series J, 6 5/8%, due January 1, 1998 28,000 28,000
Series L, 7%, due February 1, 2001 36,000 36,000
Series T, 7 1/2%, due December 15, 2014* (Matagorda) 111,700 111,700
Series AA, 7 1/2%, due March 1, 2020* (Matagorda) 50,000 50,000
Series BB, 6%, due October 1, 1997 -- 200,000
Series CC, 7 1/4%, due October 1, 2004 100,000 100,000
Series DD, 7 1/8%, due December 1, 1999 25,000 25,000
Series EE, 7 1/2%, due December 1, 2002 115,000 115,000
Series FF, 6 7/8%, due February 1, 2003 50,000 50,000
Series GG, 7 1/8%, due February 1, 2008 75,000 75,000
Series HH, 6%, due April 1, 2000 100,000 100,000
Series II, 7 1/2%, due April 1, 2023 100,000 100,000
Series JJ, 7 1/2%, due May 1, 1999 100,000 100,000
Series KK, 6 5/8%, due July 1, 2005 200,000 200,000
Installment Sales Agreements - PCRBs
Series 1993, 6%, due July 1, 2028 (Matagorda) 120,265 120,265
Series 1995, 6.10%, due July 1, 2028 (Matagorda) 100,635 100,635
Series 1995, variable rate, due
November 1, 2015 (Guadalupe) 40,890 40,890
Series 1996, 6 1/8%, due June 1, 2020 (Red River) 6,330 6,330
Series 1996,6 1/2%, due May 1, 2030 (Matagorda) 60,000 60,000
Unamortized Discount (4,484) (5,015)
Unamortized Costs of Reacquired Debt (84,070) (90,751)
Amount to be Redeemed Within One Year (28,000) (200,000)
---------- ----------
1,302,266 1,323,054
---------- ----------
TOTAL CAPITALIZATION $3,022,640 $3,016,225
========== ==========
*Obligations incurred in connection with the sale by public authorities
of tax-exempt PCRBs.
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CPL
2-90
<PAGE>
CENTRAL POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See CSW's NOTE 1.
2. LITIGATION AND REGULATORY PROCEEDINGS
See CSW's NOTE 2.
3. COMMITMENTS AND CONTINGENT LIABILITIES
See CSW's NOTE 3.
4. INCOME TAXES
See CSW's NOTE 4.
5. BENEFIT PLANS
See CSW's NOTE 5.
6. JOINTLY OWNED ELECTRIC UTILITY PLANT
See CSW's NOTE 6.
7. FINANCIAL INSTRUMENTS
See CSW's NOTE 7.
8. LONG-TERM DEBT
See CSW's NOTE 8.
9. PREFERRED STOCK
See CSW's NOTE 9.
10. TRUST PREFERRED SECURITIES
See CSW's NOTE 10.
11. SHORT-TERM FINANCING
See CSW's NOTE 11.
12. STOCK BASED COMPENSATION PLANS
See CSW's NOTE 13.
CPL
2-91
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF CENTRAL POWER AND LIGHT COMPANY:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Central Power and Light Company (a
Texas corporation and a wholly owned subsidiary of Central and South West
Corporation) and subsidiary company as of December 31, 1997 and 1996, and the
related consolidated statements of income, retained earnings and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of Central Power and Light Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Central
Power and Light Company and subsidiary company as of December 31, 1997 and 1996,
and the results of their operations and cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Exhibit 12 is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This exhibit has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
February 16, 1998
CPL
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<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements of Central Power and Light
Company and subsidiary company as well as other information contained in this
Annual Report. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and, in some cases, reflect amounts based on the best estimates and
judgments of management, giving due consideration to materiality. Financial
information contained elsewhere in this Annual Report is consistent with that in
the consolidated financial statements.
The consolidated financial statements have been audited by CPL's
independent public accountants who were given unrestricted access to all
financial records and related data, including minutes of all meetings of
shareholders, the board of directors and committees of the board. CPL and its
subsidiary company believe that representations made to the independent public
accountants during their audit were valid and appropriate. The report of
independent public accountants is presented elsewhere in this report.
CPL, together with its subsidiary company, maintains a system of
internal controls to provide reasonable assurance that transactions are executed
in accordance with management's authorization, that the consolidated financial
statements are prepared in accordance with generally accepted accounting
principles and that the assets of the companies are properly safeguarded against
unauthorized acquisition, use or disposition. The system includes a documented
organizational structure and division of responsibility, established policies
and procedures including a policy on ethical standards which provides that CPL
will maintain the highest legal and ethical standards, and the careful
selection, training and development of our employees.
Internal auditors continuously monitor the effectiveness of the
internal control system following standards established by the Institute of
Internal Auditors. Actions are taken by management to respond to deficiencies as
they are identified. The board, operating through its audit committee, which is
comprised entirely of directors who are not officers or employees of CPL or its
subsidiary company, provides oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of internal
controls, no internal control system can provide absolute assurance that errors
will not occur. However, management strives to maintain a balance, recognizing
that the cost of such a system should not exceed the benefits derived.
CPL and its subsidiary believe that, in all material respects, their
system of internal controls over financial reporting and over safeguarding of
assets against unauthorized acquisition, use or disposition functioned
effectively as of December 31, 1997.
J. Gonzalo Sandoval R. Russell Davis
General Manager/President - CPL Controller - CPL
CPL
2-93
<PAGE>
PUBLIC SERVICE COMPANY
OF OKLAHOMA
PSO
2-94
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for each of the five years ended
December 31 is provided to highlight significant trends in the financial
condition and results of operations for PSO. Certain financial statement items
for prior years have been reclassified to conform to the most recent period
presented.
---------------------------------------------------------
1997 1996 (1) 1995 1994 1993 (2)
(thousands, except ratios)
INCOME STATEMENT DATA
Revenues $ 712,690 $ 735,265 $ 690,823 $ 740,496 $ 707,536
Income before cumulative
effect of changes in
accounting principles 46,206 31,478 81,828 68,266 40,496
Net income for common
stock 50,053 30,662 81,012 67,450 45,903
BALANCE SHEET DATA
Assets 1,447,681 1,431,597 1,480,816 1,465,114 1,420,379
Long-term
obligations (3) 496,821 420,301 379,250 402,752 401,255
Capitalization ratios
Common stock equity 49% 52% 55% 52% 51%
Preferred stock -- 2 2 2 2
PSO-obligated, mandatorily
redeemable preferred
securities of subsidiary
trusts holding solely
Junior Subordinated
Debentures of PSO 8 -- -- -- --
Long-term debt 43 46 43 46 47
Ratio of earnings to fixed 2.68 2.45 4.32 4.03 2.78
charges (SEC Method) (4)
(1) Earnings in 1996 reflect a $35.7 million one-time charge, net of tax,
associated with certain investments for plant sites, engineering studies
and lignite reserves.
(2) Earnings in 1993 were significantly affected by restructuring charges, the
$6 million cumulative effect of changes in accounting principles and the
establishment of reserves for fuel and other properties.
(3) Long-term obligations includes long-term debt and Trust Preferred
Securities.
(4) Ratio of earnings to fixed charges for 1993 was calculated before
cumulative effect of changes in accounting principles.
PSO
2-95
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS
Reference is made to PSO's Consolidated Financial Statements and
related Notes to Consolidated Financial Statements and Selected Financial Data.
The information contained therein should be read in conjunction with, and is
essential to understanding, the following discussion and analysis.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Net income for common stock increased to $50.1 million for the year
ended 1997 from $30.7 million in 1996. The increase resulted primarily from the
absence in 1997 of a one-time charge for certain investments for plant sites,
engineering studies and lignite reserves of approximately $35.7 million, net of
tax, recorded in 1996 partially offset by the impact of recording the effects
associated with the outcome of the PSO 1997 Rate Settlement Agreement. See NOTE
2. LITIGATION AND REGULATORY PROCEEDINGS for additional information related to
the PSO 1997 Rate Settlement Agreement.
Electric operating revenues were $712.7 million during 1997, a 3%
decrease from $735.3 million for the same period in 1996. The decrease was due
primarily to a $29 million provision for rate refund established in September
and paid in December related to the PSO 1997 Rate Settlement Agreement.
Partially offsetting this decrease was an increase in transmission access and
wheeling revenues.
Fuel expense decreased $11.4 million during 1997 compared to 1996 due
primarily to a 4% reduction in generation. Also contributing to this decrease
was a decline in the average unit cost of fuel from $2.04 per MMbtu in 1996 to
$1.98 per MMbtu in 1997. The decline in the average unit cost of fuel was due
primarily to utilizing lower cost coal in place of higher cost spot market
natural gas. Partially offsetting the decrease in fuel expense was a decline in
the amount of under-recovered fuel costs in 1997 when compared to 1996.
Purchased power expenses increased 25% to $51.6 million in 1997 from $41.2
million in 1996 as a result of increased purchases of economy energy along with
increased cogeneration purchases in 1997.
Other operating expenses increased $14.7 million, or 12%, to $135.9
million in 1997 when compared to 1996. The increase was due primarily to the
write-off of previously capitalized demand side management energy efficiency
incentives of $9.6 million, the write-off of $2.2 million of rate case related
expenses, both associated with the aforementioned rate settlement agreement, as
well as the write-off of $0.8 million of obsolete inventory. Operating expenses
were also affected by a decrease in pension related expenses. See NOTE 5.
BENEFIT PLANS for additional information related to changes in the pension plan.
Maintenance expenses decreased 13% to $33.6 million in 1997 from $38.5 million
in 1996. The decrease was due primarily to a $3.2 million write-down of
production inventory in 1996 and lower tree management expenses in 1997.
Depreciation and amortization expense increased $3.8 million, or 5%,
during 1997 when compared to the prior year. This increase was due primarily to
the write-off of $5.8 million of regulatory assets resulting from the PSO 1997
Rate Settlement Agreement, as well as an increase in depreciable assets, offset
in part by a decrease in depreciation expense of $5.2 million also attributable
to the agreement. Taxes, other than income were $28.8 million in 1997, a 6%
increase from $27.2 million in 1996 as a result of higher ad valorem tax expense
in 1997. Operating income taxes were $20.8 million in 1997 compared to $37.6
million in 1996 due primarily to lower taxable operating income in 1997.
Other income and deductions increased $37.2 million in 1997 when
compared to 1996 primarily as a result of the absence in 1997 of a one-time
charge associated with certain investments for plant sites, engineering studies
and lignite reserves of $35.7 million, net of tax, recorded in 1996.
PSO
2-96
<PAGE>
Interest and other charges increased $2.5 million, or 7%, in 1997 when
compared to the same period in 1996 primarily due to the new distributions on
Trust Preferred Securities, partially offset by a decrease in short-term
interest expense as a result of a reduction of short-term debt outstanding
during 1997. For information on the new securities see NOTE 10. TRUST PREFERRED
SECURITIES.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Net income for common stock for 1996 was $30.7 million, a 62% decrease
from 1995 net income for common stock of $81 million. The decrease resulted
primarily from a one-time charge associated with certain investments for plant
sites, engineering studies and lignite reserves of approximately $35.7 million,
net of tax, and prior year tax adjustments recorded in 1995 offset in part by
increased non-fuel revenue.
Electric operating revenues increased 6% to $735.3 million during 1996
from $690.8 million during 1995. The increase was due primarily to increased
fuel revenues, as discussed below and a 6% increase in retail KWH sales
resulting from increased customer usage, as well as additional weather-related
demand.
Fuel expense for 1996 was $290.4 million, a 6% increase compared to
$273.5 million during 1995. The increase was due primarily to an increase in
average unit fuel costs from $1.73 per MMbtu in 1995 to $2.04 per MMbtu in 1996.
The increase in average unit fuel costs is attributable to an increase in the
spot market price of natural gas brought about by strong demand offset in part
by a decline in the delivered cost of coal resulting from lower transportation
charges as well as purchases of lower priced spot market coal. Offsetting these
factors in part was an under-recovery of fuel costs in 1996 compared to an
over-recovery in 1995, as well as decreased KWH generation. Purchased power
expense increased 75% to $41.2 million for 1996 from $23.6 million for 1995. The
increase was due primarily to increases in purchases of economy energy at a
higher cost per MWH.
Other operating expenses increased 4% to $121.2 million in 1996 from
$116.2 million in 1995 due primarily to the 1996 restructuring charges,
increased employee-related expenses and increased outside services expenses.
Maintenance expenses increased 9% to $38.5 million in 1996 from $35.4 million in
1995. The increase was due primarily to a $3.2 million write-down of production
inventory in 1996. Depreciation and amortization expense increased approximately
$9.8 million during 1996 when compared to the prior year due to increases in
depreciable property and completion in 1995 of the amortization of previously
expensed inventory and supply items that were credited through amortization to
cost of service.
Income tax expense for 1996 compared to 1995 was affected by prior year
tax adjustments recorded in 1995 offset in part by lower pre-tax income,
excluding the effects of a one-time charge associated with certain investments
as discussed below. Other income and deductions for 1996 decreased approximately
$39 million when compared to 1995 as a result of a one-time charge associated
with certain investments for plant sites, engineering studies and lignite
reserves of $35.7 million, net of tax. Other income and deductions were also
affected by the $2.7 million gain on the sale of non-utility fiber optic
telecommunication property in the first quarter of 1995.
PSO
2-97
<PAGE>
PSO
CONSOLIDATED STATEMENTS OF INCOME
PUBLIC SERVICE COMPANY OF OKLAHOMA
- ----------------------------------------------------------------------------
For the Years Ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(thousands)
Electric Operating Revenues
Residential $297,265 $299,550 $280,127
Commercial 226,525 221,985 210,875
Industrial 161,974 157,509 147,811
Sales for resale 30,896 39,285 34,273
Other (3,970) 16,936 17,737
--------- --------- ---------
712,690 735,265 690,823
--------- --------- ---------
Operating Expenses and Taxes
Fuel 278,976 290,408 273,533
Purchased power 51,619 41,194 23,584
Other operating 135,943 121,235 116,175
Maintenance 33,608 38,469 35,356
Depreciation and amortization 81,227 77,470 67,657
Taxes, other than income 28,778 27,194 25,147
Income taxes 20,763 37,558 37,602
--------- --------- ---------
630,914 633,528 579,054
--------- --------- ---------
Operating Income 81,776 101,737 111,769
--------- --------- ---------
Other Income and Deductions
Allowance for equity funds used
during construction 995 292 1,270
Charges for investments and plant
development costs (123) (51,109) --
Other (1,503) (1,107) 2,077
Non-operating income taxes 2,280 16,413 197
--------- --------- ---------
1,649 (35,511) 3,544
--------- --------- ---------
Income Before Interest Charges 83,425 66,226 115,313
--------- --------- ---------
Interest Charges
Interest on long-term debt 30,474 30,555 29,594
Interest on short-term debt and other 4,100 5,623 6,355
Distributions on Trust Preferred
Securities 3,967 -- --
Allowance for borrowed funds used
during construction (1,322) (1,430) (2,464)
--------- --------- ---------
37,219 34,748 33,485
--------- --------- ---------
Net Income 46,206 31,478 81,828
Less: Preferred stock dividends 364 816 816
Gain on reacquired preferred stock 4,211 -- --
--------- --------- ---------
Net Income for Common Stock $50,053 $30,662 $81,012
========= ========= =========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
PSO
2-98
<PAGE>
PSO
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
PUBLIC SERVICE COMPANY OF OKLAHOMA
- ----------------------------------------------------------------------------
For the Years Ended December 31,
------------------------------
1997 1996 1995
-------- -------- --------
(thousands)
Retained Earnings at Beginning of Year $145,943 $150,281 $124,269
Net income for common stock 50,053 30,662 81,012
Deduct: Common stock dividends 59,000 35,000 55,000
-------- -------- --------
Retained Earnings at End of Year $136,996 $145,943 $150,281
======== ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
PSO
2-99
<PAGE>
PSO
CONSOLIDATED BALANCE SHEETS
PUBLIC SERVICE COMPANY OF OKLAHOMA
- -------------------------------------------------------------------------------
As of December 31,
-----------------------
1997 1996
---------- ----------
(thousands)
ASSETS
Electric Utility Plant
Production $907,735 $902,813
Transmission 375,111 368,280
Distribution 818,806 773,590
General 197,264 186,252
Construction work in progress 40,992 59,241
---------- ----------
2,339,908 2,290,176
Less - Accumulated depreciation 1,031,322 987,283
---------- ----------
1,308,586 1,302,893
---------- ----------
Current Assets
Cash 2,171 1,479
Accounts receivable 34,974 11,069
Materials and supplies, at average cost 32,211 34,542
Fuel inventory, at LIFO cost 11,427 14,061
Accumulated deferred income taxes -- 2,558
Prepayments and other 3,366 2,991
---------- ----------
84,149 66,700
---------- ----------
Deferred Charges and Other Assets 54,946 62,004
---------- ----------
$1,447,681 $1,431,597
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
PSO
2-100
<PAGE>
PSO
CONSOLIDATED BALANCE SHEETS
PUBLIC SERVICE COMPANY OF OKLAHOMA
- -----------------------------------------------------------------------
As of December 31,
----------------------------
1997 1996
---------- ----------
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock:
$15 par value
Authorized shares:
11,000,000 shares
Issued 10,482,000 shares and
outstanding 9,013,000 shares $ 157,230 $ 157,230
Paid-in capital 180,000 180,000
Retained earnings 136,996 145,943
---------- ----------
Total Common Stock Equity 474,226 49% 483,173 52%
---------- ---- ---------- ----
Preferred stock 5,287 -- 19,826 2%
PSO-obligated, mandatorily redeemable
preferred securities of subsidiary
trust holding solely Junior
Subordinated Debentures of PSO 75,000 8% -- --
Long-term debt 421,821 43% 420,301 46%
---------- ---- ---------- ----
Total Capitalization 976,334 100% 923,300 100%
---------- ---- ---------- ----
Current Liabilities
Advances from affiliates 4,874 42,867
Payables to affiliates 29,011 27,425
Accounts payable 55,179 47,604
Payables to customers 18,837 14,329
Accrued taxes -- 12,306
Accumulated deferred income taxes 2,262 --
Accrued interest 9,090 9,193
Other 4,178 7,421
---------- ----------
123,431 161,145
---------- ----------
Deferred Credits
Accumulated deferred income taxes 258,848 251,007
Investment tax credits 41,160 43,438
Income tax related regulatory
liabilities, net 41,793 46,007
Other 6,115 6,700
---------- ----------
347,916 347,152
---------- ----------
$1,447,681 $1,431,597
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
PSO
2-101
<PAGE>
PSO
CONSOLIDATED STATEMENTS OF CASH FLOWS
PUBLIC SERVICE COMPANY OF OKLAHOMA
- -------------------------------------------------------------------------------
For the Years Ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(thousands)
OPERATING ACTIVITIES
Net Income $46,206 $31,478 $81,828
Non-cash Items Included in Net Income
Depreciation and amortization 85,459 83,424 73,218
Deferred income taxes and
investment tax credits 6,169 (4,112) (85)
Charges for investments and assets 12,803 50,854 --
Inventory reserve 838 3,150 --
Changes in Assets and Liabilities
Accounts receivable (23,905) 6,888 3,574
Other investments and property (5,682) (6,264) 2,196
Accounts payable 13,433 (5,878) (22,970)
Accrued taxes (12,306) (14,708) 9,658
Other deferred credits (585) 1,078 (3,193)
Other (776) (3,292) (338)
--------- --------- ---------
121,654 142,618 143,888
--------- --------- ---------
INVESTING ACTIVITIES
Construction expenditures (79,568) (83,509) (98,415)
Other (6,008) (8,596) (9,715)
--------- --------- ---------
(85,576) (92,105) (108,130)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 51,744 --
Retirement of long-term debt -- (25,000) --
Reacquisition of long-term debt -- (13,040) --
Reacquisition of preferred stock (10,329) -- --
Proceeds from issuance of Trust
Preferred Securities 72,450 -- --
Change in advances from affiliates (37,993) (27,643) 15,350
Payment of dividends (59,514) (35,839) (55,817)
--------- --------- ---------
(35,386) (49,778) (40,467)
--------- --------- ---------
Net Change in Cash and Cash Equivalents 692 735 (4,709)
Cash and Cash Equivalents at Beginning
of Year 1,479 744 5,453
--------- --------- ---------
Cash and Cash Equivalents at End of Year $2,171 $1,479 $744
========= ========= =========
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized
(includes distributions on Trust
Preferred Securities) $35,557 $32,488 $31,285
========= ========= =========
Income taxes paid $34,244 $30,353 $27,651
========= ========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
PSO
2-102
<PAGE>
PSO
CONSOLIDATED STATEMENTS OF CAPITALIZATION
PUBLIC SERVICE COMPANY OF OKLAHOMA
- -----------------------------------------------------------------------------
As of December 31,
-------------------
1997 1996
-------- --------
(thousands)
COMMON STOCK EQUITY $474,226 $483,173
-------- --------
PREFERRED STOCK
(Cumulative $100 Par Value, Authorized
700,000 shares, redeemable at the option
of PSO upon 30 days notice)
Number Current
of Shares Redemption
Series Outstanding Price
- -----------------------------------------
4.00% 44,640 $105.75 4,464 9,790
4.24% 8,069 $103.19 807 10,000
Premium 16 36
-------- --------
5,287 19,826
-------- --------
TRUST PREFERRED SECURITIES
PSO-obligated, mandatorily redeemable
preferred securities of subsidiary
trust holding solely Junior Subordinated
Debentures of PSO, 8.00%, due April 30, 2037 75,000 --
-------- --------
LONG-TERM DEBT
First Mortgage Bonds
Series K, 7 1/4%, due January 1, 1999 25,000 25,000
Series L, 7 3/8%, due March 1, 2002 30,000 30,000
Series S, 7 1/4%, due July 1, 2003 65,000 65,000
Series T, 7 3/8%, due December 1, 2004 50,000 50,000
Series U, 6 1/4%, due April 1, 2003 35,000 35,000
Series V, 7 3/8%, due April 1, 2023 100,000 100,000
Series W, 6 1/2%, due June 1, 2005 50,000 50,000
Medium-term Notes, 5.89%-6.43%, due
December 15, 2000-March 1, 2001 40,000 40,000
Installment sales agreement - PCRBs
Series A, 5.9%, due December 1, 2007 (OEFA) 34,700 34,700
Series 1996, 6.0%, due June 1, 2020 (Red River) 12,660 12,660
Unamortized discount (3,657) (3,991)
Unamortized costs of reacquired debt (16,882) (18,068)
-------- --------
421,821 420,301
-------- --------
TOTAL CAPITALIZATION $976,334 $923,300
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
PSO
2-103
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See CSW's NOTE 1.
2. LITIGATION AND REGULATORY PROCEEDINGS
See CSW's NOTE 2.
3. COMMITMENTS AND CONTINGENT LIABILITIES
See CSW's NOTE 3.
4. INCOME TAXES
See CSW's NOTE 4.
5. BENEFIT PLANS
See CSW's NOTE 5.
6. JOINTLY OWNED ELECTRIC UTILITY PLANT
See CSW's NOTE 6.
7. FINANCIAL INSTRUMENTS
See CSW's NOTE 7.
8. LONG-TERM DEBT
See CSW's NOTE 8.
9. PREFERRED STOCK
See CSW's NOTE 9.
10. TRUST PREFERRED SECURITIES
See CSW's NOTE 10.
11. SHORT-TERM FINANCING
See CSW's NOTE 11.
12. STOCK BASED COMPENSATION PLANS
See CSW's NOTE 13.
PSO
2-104
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF PUBLIC SERVICE COMPANY OF
OKLAHOMA:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Public Service Company of Oklahoma
(an Oklahoma corporation and a wholly owned subsidiary of Central and South West
Corporation) and subsidiary companies, as of December 31, 1997 and 1996, and the
related consolidated statements of income, retained earnings and cash flows, for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of Public Service Company of Oklahoma's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Public
Service Company of Oklahoma and subsidiary companies as of December 31, 1997 and
1996, and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Exhibit 12 is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This exhibit has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
February 16, 1998
PSO
2-105
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements of Public Service Company
of Oklahoma and its subsidiary companies as well as other information contained
in this Annual Report. The consolidated financial statements have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis and, in some cases, reflect amounts based on the best estimates
and judgments of management, giving due consideration to materiality. Financial
information contained elsewhere in this Annual Report is consistent with that in
the consolidated financial statements.
The consolidated financial statements have been audited by PSO's
independent public accountants who were given unrestricted access to all
financial records and related data, including minutes of all meetings of
shareholders, the board of directors and committees of the board. PSO and its
subsidiaries believe that representations made to the independent public
accountants during their audit were valid and appropriate. The report of
independent public accountants is presented elsewhere in this report.
PSO, together with its subsidiary companies, maintains a system of
internal controls to provide reasonable assurance that transactions are executed
in accordance with management's authorization, that the consolidated financial
statements are prepared in accordance with generally accepted accounting
principles and that the assets of the companies are properly safeguarded against
unauthorized acquisition, use or disposition. The system includes a documented
organizational structure and division of responsibility, established policies
and procedures including a policy on ethical standards which provides that PSO
will maintain the highest legal and ethical standards, and the careful
selection, training and development of our employees.
Internal auditors continuously monitor the effectiveness of the
internal control system following standards established by the Institute of
Internal Auditors. Actions are taken by management to respond to deficiencies as
they are identified. The board, operating through its audit committee, which is
comprised entirely of directors who are not officers or employees of PSO or its
subsidiaries, provides oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of internal
controls, no internal control system can provide absolute assurance that errors
will not occur. However, management strives to maintain a balance, recognizing
that the cost of such a system should not exceed the benefits derived.
PSO and its subsidiaries believe that, in all material respects, their
system of internal controls over financial reporting and over safeguarding of
assets against unauthorized acquisition, use or disposition functioned
effectively as of December 31, 1997.
T. D. Churchwell R. Russell Davis
President - PSO Controller - PSO
PSO
2-106
<PAGE>
SOUTHWESTERN ELECTRIC
POWER COMPANY
SWEPCO
2-107
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for each of the five years ended
December 31 is provided to highlight significant trends in the financial
condition and results of operations for SWEPCO. Certain financial statement
items for prior years have been reclassified to conform to the most recent
period presented.
--------------------------------------------------------
1997 1996 (1) 1995 1994 1993 (2)
(thousands, except ratios)
INCOME STATEMENT DATA
Revenues $ 939,869 $ 920,786 $ 836,705 $ 825,296 $ 837,192
Income before cumulative
effect of changes in 92,902 66,566 117,114 105,712 78,471
changes in accounting
principles
Net income for common
stock 92,254 63,503 113,870 102,351 78,514
BALANCE SHEET DATA
Assets 2,094,746 2,099,156 2,116,719 2,079,207 1,968,285
Long-term obligations(3) 683,681 629,615 632,579 630,661 638,093
Capitalization ratios
Common stock equity 51% 52% 51% 51% 50%
Preferred stock 2 4 4 4 4
SWEPCO-obligated, mandatorily
redeemable preferred
securities of subsidiary
trusts holding solely
Junior Subordinated
Debentures of SWEPCO 8 -- -- -- --
Long-term debt 39 44 45 45 46
Ratio of earnings to fix 3.46 2.81 3.80 3.70 3.27
(SEC Method) (4)
(1) Earnings in 1996 reflect a $21.8 million one-time charge, net of tax,
associated with certain investments for plant sites, engineering studies
and lignite reserves.
(2) Earnings in 1993 were significantly affected by restructuring charges, the
$3 million cumulative effect of changes in accounting principles and the
establishment of reserves for fuel properties.
(3) Long-term obligations includes long-term debt, preferred stock subject to
mandatory redemption and Trust Preferred Securities. (4) Ratio of earnings
to fixed charges for 1993 was calculated before cumulative effect of changes
in accounting principles.
SWEPCO
2-108
<PAGE>
SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS
Reference is made to SWEPCO's Consolidated Financial Statements and
related Notes to Consolidated Financial Statements and Selected Financial Data.
The information contained therein should be read in conjunction with, and is
essential in understanding, the following discussion and analysis.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 AND 1996
Net income for common stock increased 45% during 1997 to $92.3 million
from $63.5 million in 1996. The increase resulted primarily from the absence in
1997 of a one-time charge associated with certain investments for plant sites,
engineering studies and lignite reserves of $21.8 million, net of tax.
Electric operating revenues increased $19.1 million, or 2%, to $939.9
million in 1997 from $920.8 million in 1996. The increase was due primarily to
an increase in non-fuel revenue of $31.5 million, including $15.9 million in
non-fuel wholesale sales, as a result of increased retail customer usage and
customer growth, offset in part by a $12.4 million decrease in fuel revenue.
Fuel and purchased power expense decreased for 1997 when compared to
1996. Fuel expense decreased $6.1 million, or 2%, due primarily to a decrease in
average unit fuel costs from $1.76 per MMbtu in 1996 to $1.69 per MMbtu in 1997,
which resulted from lower coal transportation charges as well as purchases of
lower priced spot market coal. A decrease in natural gas generation because of
its relatively higher cost per MMbtu also contributed to the lower fuel expense
for 1997. Purchased power expenses decreased approximately $1.2 million, or 5%,
during 1997 when compared to 1996 due primarily to a decrease in economy energy
purchases.
Other operating expenses increased $15.6 million, or 11%, to $157.2
million during 1997 when compared to 1996. The increase is due primarily to
costs associated with a canceled transmission project of $10.2 million, the
write-off of previously capitalized energy efficiency incentives of $4.2 million
and the write-off of obsolete inventory of $1.2 million. Operating expenses were
also positively affected by a decrease in pension expenses. See NOTE 5. BENEFIT
PLANS for additional information related to changes in the pension plan.
Depreciation and amortization expense increased $3.7 million, or 4%, during 1997
when compared to 1996 due primarily to increases in depreciable plant. Taxes,
other than income, increased $5.6 million, or 11%, during 1997 when compared to
1996 due primarily to an increase in ad valorem taxes due to higher assessed
values and the expiration of a 10-year exemption on one of SWEPCO's power
plants.
Other income and deductions increased $25.2 million for 1997 compared
to 1996 due primarily to a one-time charge associated with certain investments
for plant sites, engineering studies and lignite reserves of $21.8 million, net
of tax, recorded in 1996, and a $1.1 million, net of tax, gain on the sale of
lignite properties recorded in 1997.
Interest expense on long-term debt decreased $3.6 million due to
retirement of long-term debt in 1997. Interest expense on short-term debt
decreased $2.6 million resulting from decreased short-term debt outstanding.
Offsetting these decreases were the distributions on newly-issued Trust
Preferred Securities of $5.6 million. See NOTE 10. TRUST PREFERRED SECURITIES
for additional information on the new securities.
SWEPCO
2-109
<PAGE>
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 AND 1995
Net income for common stock decreased 44% during 1996 to $63.5 million
from $113.9 million in 1995. The decrease resulted primarily from increased
other operating expenses and a one-time charge associated with certain
investments for plant sites, engineering studies and lignite reserves of $21.8
million, net of tax. Increased depreciation and amortization also contributed to
the decrease in net income for common stock.
Total electric operating revenues increased $84.1 million, or 10%, to
$920.8 million in 1996 due primarily to a $61 million increase in fuel revenues
and a $22 million increase in non-fuel revenues. The increase in fuel revenues
was due to higher average unit fuel cost as discussed below. The increase in
non-fuel revenues was primarily due to a 3% increase in retail KWH sales
resulting from increased customer demand.
Fuel expense increased 22% to $388.5 million due primarily to a 10%
increase in generation and an increase in the average unit cost of fuel from
$1.61 per MMbtu in 1995 to $1.76 per MMbtu in 1996. The increase in the average
unit cost of fuel is attributable to an increase in the spot market price of
natural gas offset in part by a decline in the delivered cost of coal resulting
from lower transportation charges as well as purchases of lower priced spot
market coal. Purchased power expense increased $8.1 million, or 42%, during 1996
when compared to 1995 due primarily to an increase in economy energy purchases
at higher cost per MWH.
Other operating expenses increased $20.3 million, or 17%, during 1996
when compared to 1995. The increase is due primarily to $4.6 million in
restructuring charges, an increase in outside services employed and a $3.0
million increase in factoring costs. The increase in factoring costs resulted
from an increase in accounts receivable factored and the correction in 1995 of
an error relating to a prior year, partially offset by a decrease in the average
interest rate associated with factored receivables. Also contributing to the
increase in other operating expense was the write-off of $3.6 million in
deferred SFAS 106 costs which SWEPCO began deferring in 1993 pursuant to an
order issued by the Arkansas Commission. The order allowed deferral of the
difference between OPEB costs recorded under SFAS 106 and OPEB costs paid to
retirees for up to five years. The order required such deferrals to be expensed
if at the end of five years amortization of such deferrals is not included in
rates. Depreciation and amortization expense increased $8.3 million, or 10%,
during 1996 when compared to 1995 due primarily to increases in depreciable
plant and the completion in 1995 of the amortization of previously expensed
inventory and supply items that were credited through amortization to cost of
service.
Taxes, other than income, increased $5.2 million, or 12%, during 1996
when compared to 1995 due primarily to an increase in ad valorem taxes and state
franchise taxes. The higher ad valorem taxes resulted primarily from a higher
state assessed value in Louisiana and the addition of an HVdc tie in Texas. The
state franchise taxes increased due mainly to higher federal taxable income
associated with Texas franchise tax. Income tax expense decreased approximately
$3.5 million in 1996 due primarily to lower pre-tax income partially offset by
prior year tax adjustments recorded in 1995.
Other income and deductions decreased $25.6 million during 1996 when
compared to 1995 due primarily to a one-time charge associated with certain
investments for plant sites, engineering studies and lignite reserves of $21.8
million, net of tax.
SWEPCO
2-110
<PAGE>
SWEPCO
CONSOLIDATED STATEMENTS OF INCOME
SOUTHWESTERN ELECTRIC POWER COMPANY
- ----------------------------------------------------------------------------
For the Years Ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(thousands)
Electric Operating Revenues
Residential $289,723 $290,020 $278,319
Commercial 192,115 189,954 177,135
Industrial 263,207 262,878 246,182
Sales for resale 146,916 134,836 94,638
Other 47,908 43,098 40,431
--------- --------- ---------
939,869 920,786 836,705
--------- --------- ---------
Operating Expenses and Taxes
Fuel 382,404 388,450 318,506
Purchased power 25,928 27,160 19,077
Other operating 157,188 141,542 121,248
Maintenance 44,038 43,742 43,320
Depreciation and amortization 95,228 91,566 83,272
Taxes, other than income 55,962 50,373 45,153
Income taxes 39,712 39,870 43,353
--------- --------- ---------
800,460 782,703 673,929
--------- --------- ---------
Operating Income 139,409 138,083 162,776
--------- --------- ---------
Other Income and Deductions
Charges for investments and plant
development costs (743) (29,700) --
Allowance for equity funds used
during construction 934 325 4,290
Other 1,616 (623) (543)
Non-operating income taxes 2,222 8,820 721
--------- --------- ---------
4,029 (21,178) 4,468
--------- --------- ---------
Income Before Interest Charges 143,438 116,905 167,244
--------- --------- ---------
Interest Charges
Interest on long-term debt 40,440 44,066 44,468
Distributions on Trust Preferred
Securities 5,582 -- --
Interest on short-term debt and other 5,736 8,381 10,706
Allowance for borrowed funds used
during construction (1,222) (2,098) (5,044)
--------- --------- ---------
50,536 50,349 50,130
--------- --------- ---------
Net Income 92,902 66,556 117,114
Less: Preferred stock dividends 2,467 3,053 3,244
Gain on reacquired preferred stock 1,819 -- --
--------- --------- ---------
Net Income for Common Stock $92,254 $63,503 $113,870
========= ========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
SWEPCO
2-111
<PAGE>
SWEPCO
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
SOUTHWESTERN ELECTRIC POWER COMPANY
- ---------------------------------------------------------------------------
For the Years Ended December 31,
----------------------------------
1997 1996 1995
--------- --------- --------
(thousands)
Retained Earnings at Beginning of Year $321,801 $302,334 $297,462
Net income for common stock 92,254 63,503 113,870
Gain/(loss) on reacquisition of
preferred stock (5) (36) 2
Deduct: Common stock dividends 90,000 44,000 109,000
--------- --------- --------
Retained Earnings at End of Year $324,050 $321,801 $302,334
========= ========= ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SWEPCO
2-112
<PAGE>
SWEPCO
CONSOLIDATED BALANCE SHEETS
SOUTHWESTERN ELECTRIC POWER COMPANY
- -------------------------------------------------------------------------------
As of December 31,
-----------------------
1997 1996
---------- ----------
(thousands)
ASSETS
Electric Utility Plant
Production $1,391,676 $1,407,134
Transmission 456,401 463,425
Distribution 870,378 844,503
General 311,323 283,878
Construction work in progress 51,665 45,374
---------- ----------
3,081,443 3,044,314
Less - Accumulated depreciation 1,225,865 1,192,356
---------- ----------
1,855,578 1,851,958
---------- ----------
Current Assets
Cash and temporary cash investments 2,298 1,879
Accounts receivable 81,507 68,140
Materials and supplies, at average cost 24,523 29,265
Fuel inventory 26,415 55,775
Under-recovered fuel costs 13,013 9,120
Prepayments and other 13,678 13,499
---------- ----------
161,434 177,678
---------- ----------
Deferred Charges and Other Assets 77,734 69,520
---------- ----------
$2,094,746 $2,099,156
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
SWEPCO
2-113
<PAGE>
SWEPCO
CONSOLIDATED BALANCE SHEETS
SOUTHWESTERN ELECTRIC POWER COMPANY
- -------------------------------------------------------------------------
As of December 31,
-----------------------------
1997 1996
---------- ----------
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock:
$18 par value
Authorized:
7,600,000 shares
Issued and outstanding:
7,536,640 shares $ 135,660 $ 135,660
Paid-in capital 245,000 245,000
Retained earnings 324,050 321,801
---------- ----------
Total Common Stock Equity 704,710 51% 702,461 52%
---------- ---- ---------- ----
Preferred stock
Not subject to mandatory redemption 4,709 16,032
Subject to mandatory redemption 25,930 32,464
---------- ----------
30,639 2% 48,496 4%
SWEPCO-obligated, mandatorily redeemable
preferred securities of subsidiary
trust holding solely Junior
Subordinated Debentures of SWEPCO 110,000 8% -- --%
Long-term debt 547,751 39% 597,151 44%
---------- ---- ---------- ----
Total Capitalization 1,393,100 100% 1,348,108 100%
---------- ---- ---------- ----
Current Liabilities
Long-term debt and preferred stock due
within twelve months 3,555 3,760
Advances from affiliates 25,175 57,495
Accounts payable 73,582 48,826
Payables to affiliates 63,583 68,708
Customer deposits 14,359 10,497
Accrued taxes 12,884 25,241
Accumulated deferred income taxes 4,594 4,162
Accrued interest 13,425 14,782
Other 9,551 27,449
---------- ----------
220,708 260,920
---------- ----------
Deferred Credits
Accumulated deferred income taxes 395,909 372,552
Investment tax credits 66,845 71,507
Income tax related regulatory
liabilities, net 10,072 36,106
Other 8,112 9,963
---------- ----------
480,938 490,128
---------- ----------
$2,094,746 $2,099,156
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
SWEPCO
2-114
<PAGE>
SWEPCO
CONSOLIDATED STATEMENTS OF CASH FLOWS
SOUTHWESTERN ELECTRIC POWER COMPANY
- -----------------------------------------------------------------------------
For the Years Ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(thousands)
OPERATING ACTIVITIES
Net Income $92,902 $66,556 $117,114
Non-cash Items Included in Net Income
Depreciation and amortization 100,015 101,204 93,624
Deferred income taxes and
investment tax credits (6,907) (1,881) 1,501
Charges for investments and assets 16,493 29,590 --
Inventory reserve 1,150 1,632 --
Changes in Assets and Liabilities
Accounts receivable (13,367) (13,512) (284)
Fuel inventory 29,360 17,501 (11,575)
Accounts payable 24,374 12,253 (3,303)
Payables to affiliates (5,125) 16,234 11,735
Accrued taxes (12,357) (27) 17,844
Other current liabilities (17,699) (3,076) (5,161)
Fuel recovery (3,893) (18,043) (3,277)
Other (4,458) (8,506) (4,706)
--------- --------- ---------
200,488 199,925 213,512
--------- --------- ---------
INVESTING ACTIVITIES
Construction expenditures (108,126) (92,737) (105,193)
Other (4,545) (7,510) (9,437)
--------- --------- ---------
(112,671) (100,247) (114,630)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from sale of long-term debt -- 79,346 --
Reacquisition of long-term debt -- (83,334) --
Redemption of preferred stock (16,043) (1,236) (1,198)
Proceeds from issuance of Trust
Preferred Securities 106,231 -- --
Retirement of long-term debt (52,600) (3,901) (3,600)
Change in advances from affiliates (32,320) (43,734) 19,360
Payment of dividends (92,666) (46,642) (113,038)
--------- --------- ---------
(87,398) (99,501) (98,476)
--------- --------- ---------
Net Change in Cash and Cash Equivalents 419 177 406
Cash and Cash Equivalents at Beginning
of Year 1,879 1,702 1,296
--------- --------- ---------
Cash and Cash Equivalents at End of Year $2,298 $1,879 $1,702
========= ========= =========
SUPPLEMENTARY INFORMATION
Interest paid less amounts
capitalized (includes distributions
on Trust Preferred Securities) $49,847 $53,231 $46,243
========= ========= =========
Income taxes paid $57,715 $35,549 $28,079
========= ========= =========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
SWEPCO
2-115
<PAGE>
SWEPCO
CONSOLIDATED STATEMENTS OF CAPITALIZATION
SOUTHWESTERN ELECTRIC POWER COMPANY
- -------------------------------------------------------------------------------
As of December 31,
-----------------------
1997 1996
---------- ----------
(thousands)
COMMON STOCK EQUITY $704,710 $702,461
---------- ----------
PREFERRED STOCK
Cumulative $100 Par Value, Authorized 1,860,000 shares
Current
Number of Shares Redemption
Series Outstanding Price
- ------------------------------------------------------
Not Subject to Mandatory Redemption
5.00% 37,749 $109.00 3,775 7,500
4.65% 1,908 $102.75 191 2,500
4.28% 7,386 $103.90 739 6,000
Premium 4 32
---------- ----------
4,709 16,032
---------- ----------
Subject to Mandatory Redemption
6.95% 274,010 $102.32 27,401 34,000
Issuance Expense (271) (336)
Amount to be redeemed within one year (1,200) (1,200)
---------- ----------
25,930 32,464
---------- ----------
30,639 48,496
---------- ----------
TRUST PREFERRED SECURITIES
SWEPCO-obligated, mandatorily redeemable
preferred securities of subsidiary
trust holding solely Junior Subordinated
Debentures of SWEPCO, 7.875%, due April 30, 2037 110,000 --
---------- ----------
LONG-TERM DEBT
First Mortgage Bonds
Series V, 7 3/4%, due June 1, 2004 40,000 40,000
Series W, 6 1/8%, due September 1, 1999 40,000 40,000
Series X, 7%, due September 1, 2007 90,000 90,000
Series Y, 6 5/8%, due February 1, 2003 55,000 55,000
Series Z, 7 1/4%, due July 1, 2023 45,000 45,000
Series AA, 5 1/4%, due April 1, 2000 45,000 45,000
Series BB, 6 7/8%, due October 1, 2025 80,000 80,000
1976 Series A, 6.20%, due November 1, 2006*
(Siloam Springs) 6,230 6,375
1976 Series B, 6.20%, due November 1, 2006*
(Siloam Springs) 1,000 1,000
Installment Sales Agreements - PCRBs
1978 Series A, 6%, due January 1, 2008 (Titus County) 14,420 14,420
1991 Series A, 8.2%, due August 1, 2011
(Titus County) 17,125 17,125
1991 Series B, 6.9%, due November 1, 2004
(Titus County) 12,290 12,290
Series 1992, 7.6%, due January 1, 2019 (DeSoto) 53,500 53,500
Series 1996, 6.1%, due April 1, 2018 (Sabine) 81,700 81,700
Bank Loan, Variable Rate, due June 15, 2000 -- 50,000
Railcar lease obligations 7,759 10,242
Unamortized discount and premium 955 903
Unamortized costs of reacquired debt (39,873) (42,844)
Amount to be redeemed within one year (2,355) (2,560)
---------- ----------
547,751 597,151
---------- ----------
TOTAL CAPITALIZATION $1,393,100 $1,348,108
========== ==========
*Obligations incurred in connection with the sale by public authorities of
tax-exempt PCRBs.
The accompanying notes to consolidated financial statements are an
integral part of these statements.
SWEPCO
2-116
<PAGE>
SOUTHWESTERN ELECTRIC POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See CSW's NOTE 1.
2. LITIGATION AND REGULATORY PROCEEDINGS
See CSW's NOTE 2.
3. COMMITMENTS AND CONTINGENT LIABILITIES
See CSW's NOTE 3.
4. INCOME TAXES
See CSW's NOTE 4.
5. BENEFIT PLANS
See CSW's NOTE 5.
6. JOINTLY OWNED ELECTRIC UTILITY PLANT
See CSW's NOTE 6.
7. FINANCIAL INSTRUMENTS
See CSW's NOTE 7.
8. LONG-TERM DEBT
See CSW's NOTE 8.
9. PREFERRED STOCK
See CSW's NOTE 9.
10. TRUST PREFERRED SECURITIES
See CSW's NOTE 10.
11. SHORT-TERM FINANCING
See CSW's NOTE 11.
12. STOCK BASED COMPENSATION PLANS
See CSW's NOTE 13.
SWEPCO
2-117
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF SOUTHWESTERN ELECTRIC POWER
COMPANY:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Southwestern Electric Power Company
(a Delaware corporation and a wholly owned subsidiary of Central and South West
Corporation) and subsidiary company as of December 31, 1997 and 1996, and the
related consolidated statements of income, retained earnings and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of Southwestern Electric Power Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Southwestern
Electric Power Company and subsidiary company as of December 31, 1997 and 1996,
and the results of their operations and cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Exhibit 12 is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This exhibit has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
February 16, 1998
SWEPCO
2-118
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements of Southwestern Electric
Power Company and its subsidiary company as well as other information contained
in this Annual Report. The consolidated financial statements have been prepared
in conformity with generally accepted accounting principles applied on a
consistent basis and, in some cases, reflect amounts based on the best estimates
and judgments of management, giving due consideration to materiality. Financial
information contained elsewhere in this Annual Report is consistent with that in
the financial statements.
The financial statements have been audited by SWEPCO's independent
public accountants who were given unrestricted access to all financial records
and related data, including minutes of all meetings of shareholders, the board
of directors and committees of the board. SWEPCO and its subsidiary believe that
representations made to the independent public accountants during their audit
were valid and appropriate. The report of independent public accountants is
presented elsewhere in this report.
SWEPCO, together with its subsidiary, maintains a system of internal
controls to provide reasonable assurance that transactions are executed in
accordance with management's authorization, that the consolidated financial
statements are prepared in accordance with generally accepted accounting
principles and that the assets of the companies are properly safeguarded against
unauthorized acquisition, use or disposition. The system includes a documented
organizational structure and division of responsibility, established policies
and procedures including a policy on ethical standards which provides that
SWEPCO will maintain the highest legal and ethical standards, and the careful
selection, training and development of our employees.
Internal auditors continuously monitor the effectiveness of the
internal control system following standards established by the Institute of
Internal Auditors. Actions are taken by management to respond to deficiencies as
they are identified. The board, operating through its audit committee, which is
comprised entirely of directors who are not officers or employees of SWEPCO or
its subsidiary provides oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of internal
controls, no internal control system can provide absolute assurance that errors
will not occur. However, management strives to maintain a balance, recognizing
that the cost of such a system should not exceed the benefits derived.
SWEPCO and its subsidiary believe that, in all material respects, their
system of internal controls over financial reporting and over safeguarding of
assets against unauthorized acquisition, use or disposition functioned
effectively as of December 31, 1997.
Michael D. Smith R. Russell Davis
President - SWEPCO Controller - SWEPCO
SWEPCO
2-119
<PAGE>
WEST TEXAS UTILITIES COMPANY
WTU
2-120
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for each of the five years ended
December 31 is provided to highlight significant trends in the financial
condition and results of operations for WTU. Certain financial statement items
for prior years have been reclassified to conform to the most recent period
presented.
---------------------------------------------------------
1997 1996 (1) 1995 1994 1993 (2)
(thousands, except ratios)
INCOME STATEMENT DATA
Revenues $397,778 $377,057 $319,835 $342,991 $345,445
Income before cumulative
effect of changes in
changes in accounting
principles 21,461 16,571 34,530 37,366 26,517
Net income for common 22,402 16,307 34,266 36,914 29,329
stock
BALANCE SHEET DATA
Assets 802,148 810,379 815,614 771,977 754,443
Long-term obligations 278,640 275,070 273,245 210,047 176,882
Capitalization ratios
Common stock equity 48% 48% 49% 56% 59%
Preferred stock -- 1 1 1 1
Long-term debt 52 51 50 43 40
Ratio of earnings to 2.21 2.05 2.63 3.37 2.79
fixed charges
(SEC Method) (3)
(1) Earnings in 1996 reflect a $10.9 million one-time charge, net of tax,
associated with certain investments for plant sites, engineering studies
and lignite reserves.
(2) Earnings in 1993 were significantly affected by restructuring charges and
the $4 million cumulative effect of changes in accounting principles.
(3) Ratio of earnings to fixed charges for 1993 was calculated before
cumulative effect of change in accounting principles.
WTU
2-121
<PAGE>
WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS
Reference is made to WTU's Financial Statements and related Notes to
Financial Statements and Selected Financial Data. The information contained
therein should be read in conjunction with, and is essential to understanding,
the following discussion and analysis.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 AND 1996
Net income for common stock increased 37% during 1997 to $22.4 million
from $16.3 million in 1996. The increase resulted primarily from the absence of
a one-time charge incurred in 1996 associated with certain investments for plant
sites, engineering studies, and lignite reserves of approximately $10.9 million,
net of tax, and the gain on reacquisition of preferred stock of $1.1 million
recognized in 1997.
Electric operating revenues increased $20.7 million, or 6%, in 1997
when compared to 1996. The increase was due primarily to a $16.0 million
increase in transmission revenues as a result of the January 1997 implementation
of open access tariffs in accordance with FERC Order No. 888 and the Texas
Commission rules regarding transmission access and pricing. Also contributing to
the increase was a 4% increase in total MWH sales. The impact on net income of
the transmission revenues was offset by a corresponding increase of $17.2
million in transmission expense related to these transmission activities. Also
contributing to the increase was $2.8 million in additional fuel revenues due to
higher purchased power expense as discussed below.
Fuel expense decreased $12.9 million, or 10%, for 1997 compared to 1996
due to lower-priced spot market coal and a 16% decrease in natural gas
generation. This decrease was also reflected by a decline in the average unit
cost of fuel to $1.98 per MMbtu in 1997 from $2.02 per MMbtu in 1996. Purchased
power expenses increased $18.7 million for 1997 as compared to 1996, primarily
as a result of additional economy purchases at a higher cost per MWH.
Other operating expense increased $26.7 million, or 40%, for 1997
compared to 1996 due primarily to a $17.2 million increase in transmission
expenses as a result of the Texas Commission rules regarding transmission access
and pricing. Also contributing to the increase was a $5.2 million write-off of
previously capitalized demand side management energy efficiency incentives and
the write-off of obsolete inventory for $1.5 million. Partially offsetting the
increase in other operating expense was a decrease in pension expense for 1997
compared to 1996. See NOTE 5. BENEFIT PLANS for additional information related
to changes in the pension plan. Depreciation and amortization increased $1.8
million, or 4.6%, as a result of an increase in depreciable plant. Taxes, other
than income increased $1.3 million due to changes in ad valorem, local
franchise, and gross receipt taxes. Income taxes decreased $5.8 million in 1997
compared to 1996 due primarily to lower taxable income in 1997 and timing
differences. Other income and deductions increased $11.4 million for 1997
compared to 1996 as a result of the absence in 1997 of a one-time charge
incurred in 1996 associated with certain investments for plant sites,
engineering studies, and lignite reserves of $10.9 million, net of tax.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Net income for common stock decreased 52% during 1996 to $16.3 million
from $34.2 million in 1995. The decrease resulted primarily from a one-time
charge associated with certain investments for plant sites, engineering studies
and lignite reserves of $10.9 million, net of tax.
Electric operating revenues increased $57.2 million in 1996 when
compared to the prior year. The increase was attributable primarily to an
increase in fuel revenues as well as a one-time $21 million base rate refund
WTU
2-122
<PAGE>
made pursuant to the WTU 1995 Stipulation and Agreement. Also contributing to
the variance was a $14.3 million increase in non-fuel revenues resulting from a
5% increase in KWH sales due to additional weather-related demand as well as
increased customer demand. Partially offsetting this increase in non-fuel
revenues was a $6.0 million reduction reflecting the lower rates implemented in
accordance with the WTU 1995 Stipulation and Agreement.
Fuel expense was $132.0 million in 1996, which represented an increase
of 7% when compared to 1995 fuel expense of $123.7 million. The increase was
primarily attributable to a 10% increase in average unit fuel costs from $1.83
per MMbtu in 1995 to $2.02 per MMbtu in 1996 due largely to higher spot gas
market prices. The increase was partially offset by lower coal costs resulting
from resolution of coal transportation litigation as well as purchases of lower
priced spot market coal. Purchased power expenses increased approximately $20.8
million during 1996 when compared with 1995, primarily as a result of increased
economy energy purchases at a higher cost per MWH.
Other operating expense increased $3.3 million during 1996 when
compared to 1995. The increase was primarily due to increased expenses
associated with regulatory activity, increased employee-related expenses,
increased expenses associated with accounts receivable factoring due to higher
revenues, and the amortization of a regulatory asset for rate case expenses in
accordance with the WTU 1995 Stipulation and Agreement. Depreciation and
amortization expense increased $6.5 million during 1996 when compared to the
prior year due primarily to the accelerated amortization of Oklaunion deferred
costs and amortization of a regulatory asset for restructuring costs, both in
accordance with the WTU 1995 Stipulation and Agreement. Also contributing to the
increase were additions to depreciable property. Income taxes increased
approximately $9.8 million when compared with 1995 due primarily to a reduction
of $6.9 million of deferred income taxes in accordance with the WTU 1995
Stipulation and Agreement recorded in 1995 and prior year tax adjustments
recorded in 1996. During 1996, the CSW System began implementation of
organizational and executive changes. Although implementation will not be
complete until early 1997, WTU recorded its portion of the estimated cost of the
implementation, $1.8 million, during 1996. In 1995, WTU established a $13.2
million regulatory asset for previously expensed restructuring costs in
accordance with the WTU 1995 Stipulation and Agreement
Other income and deductions decreased $9.8 million in 1996 due
primarily to a one-time charge associated with certain investments for plant
sites, engineering studies and lignite reserves of $10.9 million, net of tax.
WTU
2-123
<PAGE>
WTU
STATEMENTS OF INCOME
WEST TEXAS UTILITIES COMPANY
- ---------------------------------------------------------------------------
For the Years Ended December 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(thousands)
Electric Operating Revenues
Residential $124,578 $124,214 $114,269
Commercial 73,196 72,422 66,363
Industrial 56,928 52,375 51,443
Sales for resale 88,814 88,921 73,905
Other 54,262 39,125 13,855
--------- --------- ---------
397,778 377,057 319,835
--------- --------- ---------
Operating Expenses and Taxes
Fuel 119,158 132,034 123,723
Purchased power 50,493 31,803 10,998
Other operating 93,796 67,060 63,727
Restructuring charges -- 1,809 (13,582)
Maintenance 14,013 14,122 13,931
Depreciation and amortization 41,592 39,755 33,290
Taxes, other than income 24,669 23,402 22,720
Income taxes 9,490 15,338 5,542
--------- --------- ---------
353,211 325,323 260,349
--------- --------- ---------
Operating Income 44,567 51,734 59,486
--------- --------- ---------
Other Income and Deductions
Charges for investments and
plant development costs -- (14,949) --
Allowance for equity funds
used during construction 227 423 378
Other 766 210 1,101
Non-operating income taxes 471 4,394 (1,564)
--------- --------- ---------
1,464 (9,922) (85)
--------- --------- ---------
Income Before Interest Charges 46,031 41,812 59,401
--------- --------- ---------
Interest Charges
Interest on long-term debt 20,352 21,169 21,413
Interest on short-term debt
and other 4,911 4,925 4,111
Allowance for borrowed funds
used during construction (693) (853) (653)
--------- --------- ---------
24,570 25,241 24,871
--------- --------- ---------
Net Income 21,461 16,571 34,530
Less: Preferred stock dividends 144 264 264
Gain on Reaquired Preferred Stock 1,085 -- --
--------- --------- ---------
Net Income for Common Stock $22,402 $16,307 $34,266
========= ========= =========
The accompanying notes to financial statements are an integral part
of these statements.
WTU
2-124
<PAGE>
WTU
STATEMENTS OF RETAINED EARNINGS
WEST TEXAS UTILITIES COMPANY
- -----------------------------------------------------------------------------
For the Years Ended December 31,
------------------------------
1997 1996 1995
-------- -------- --------
(thousands)
Retained Earnings at Beginning of Year $123,077 $125,770 $132,504
Net income for common stock 22,402 16,307 34,266
Deduct: Common stock dividends 26,000 19,000 41,000
-------- -------- --------
Retained Earnings at End of Year $119,479 $123,077 $125,770
======== ======== ========
The accompanying notes to financial statements are an integral part of
these statements.
WTU
2-125
<PAGE>
WTU
BALANCE SHEETS
WEST TEXAS UTILITIES COMPANY
- -------------------------------------------------------------------------------
As of December 31,
-----------------------
1997 1996
---------- ----------
(thousands)
ASSETS
Electric Utility Plant
Production $417,849 $417,467
Transmission 208,905 200,688
Distribution 363,911 347,328
General 104,026 92,622
Construction work in progress 14,154 30,036
---------- ----------
1,108,845 1,088,141
Less - Accumulated depreciation 441,281 414,777
---------- ----------
667,564 673,364
---------- ----------
Current Assets
Cash 811 664
Receivables from affiliates 19,802 --
Accounts receivable 10,570 24,123
Materials and supplies, at average cost 14,246 15,966
Fuel inventory 12,471 16,674
Accumulated deferred income taxes -- 1,079
Under-recovered fuel costs 11,968 8,961
Prepayments and other 4,006 1,331
---------- ----------
73,874 68,798
---------- ----------
Deferred Charges and Other Assets
Deferred Oklaunion costs 18,637 22,365
Restructuring costs 8,966 10,854
Other 33,107 34,998
---------- ----------
60,710 68,217
---------- ----------
$802,148 $810,379
========== ==========
The accompanying notes to financial statements are an integral part
of these statements.
WTU
2-126
<PAGE>
WTU
BALANCE SHEETS
WEST TEXAS UTILITIES COMPANY
- ---------------------------------------------------------------------
As of December 31,
-------------------------
1997 1996
-------- --------
CAPITALIZATION AND LIABILITIES (thousands)
Capitalization
Common stock: $25 par value
Authorized: 7,800,000 shares
Issued and outstanding:
5,488,560 shares $137,214 $137,214
Paid-in capital 2,236 2,236
Retained earnings 119,479 123,077
-------- --------
Total Common Stock Equity 258,929 48% 262,527 48%
-------- ---- -------- ----
Preferred stock 2,483 --% 6,291 1%
Long-term debt 278,640 52% 275,070 51%
-------- ---- -------- ----
Total Capitalization 540,052 100% 543,888 100%
-------- ---- -------- ----
Current Liabilities
Advances from affiliates -- 14,833
Payables to affiliates 21,569 13,578
Accounts payable 15,419 19,669
Accrued taxes 11,375 13,463
Accumulated deferred income taxes 203 --
Accrued interest 4,525 5,403
Other 3,859 4,124
-------- --------
56,950 71,070
-------- --------
Deferred Credits
Accumulated deferred income taxes 149,346 144,146
Investment tax credits 27,918 29,239
Income tax related regulatory
liabilities, net 9,482 16,918
Other 18,400 5,118
-------- --------
205,146 195,421
-------- --------
$802,148 $810,379
======== ========
The accompanying notes to financial statements are an
integral part of these statements.
WTU
2-127
<PAGE>
WTU
STATEMENTS OF CASH FLOWS
WEST TEXAS UTILITIES COMPANY
- ------------------------------------------------------------------------------
For the Years Ended December 31,
--------------------------------
1997 1996 1995
-------- --------- ---------
(thousands)
OPERATING ACTIVITIES
Net Income $21,461 $16,571 $34,530
Non-cash Items Included in Net Income
Depreciation and amortization 43,138 41,342 34,382
Deferred income taxes and investment
tax credits (2,275) 4,397 650
Charges for investments and assets 5,296 14,905 --
Inventory Reserve 1,498 809 --
Regulatory asset established for
previously incurred restructuring
charges -- -- (13,213)
Changes in Assets and Liabilities
Accounts receivable 13,553 4,800 (5,758)
Fuel inventory 4,203 (2,848) 1,845
Accounts payable (4,182) 584 (4,922)
Payables to affiliates 7,991 5,334 3,697
Accrued taxes (2,088) 281 5,730
Fuel recovery (3,007) (11,917) 2,474
Refunds due customers -- (1,811) 1,812
Other deferred credits 13,284 (5,482) (1,039)
Other (3,626) 3,798 (6,848)
-------- --------- ---------
95,246 70,763 53,340
-------- --------- ---------
INVESTING ACTIVITIES
Construction expenditures (31,817) (42,453) (44,076)
Other 261 (1,795) (2,517)
-------- --------- ---------
(31,556) (44,248) (46,593)
-------- --------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt -- 43,256 118,376
Reacquisition of long-term debt -- (45,639) (59,082)
Redemption of preferred stock (2,724) -- --
Payment of dividends (26,184) (19,198) (41,330)
Change in advances from affiliates (14,833) (4,987) (26,495)
-------- --------- ---------
(43,741) (26,568) (8,531)
-------- --------- ---------
Net Change in Cash and Cash Equivalents 19,949 (53) (1,784)
Cash and Cash Equivalents at Beginning
of Year 664 717 2,501
-------- --------- ---------
Cash and Cash Equivalents at End of Year $20,613 $664 $717
======== ========= =========
SUPPLEMENTARY INFORMATION
Interest paid less amounts
capitalized $19,659 $20,248 $20,496
======== ========= =========
Income taxes paid $15,710 $6,295 $8,399
======== ========= =========
The accompanying notes to financial statements are an integral
part of these statements.
WTU
2-128
<PAGE>
WTU
Statements of Capitalization
West Texas Utilities Company
- ------------------------------------------------------------------------------
As of December 31,
-----------------------
1997 1996
-------- --------
(thousands)
COMMON STOCK EQUITY $258,929 $262,527
-------- --------
PREFERRED STOCK
Cumulative $100 Par Value, Authorized
810,000 shares
Number Current
of Shares Redemption
Series Outstanding Price
- ---------------------------------------------
4.40% 23,675 $107.00 2,368 6,000
Premium 115 291
-------- --------
2,483 6,291
-------- --------
LONG-TERM DEBT
First Mortgage Bonds
Series P, 7 3/4%, due June 1, 2007 25,000 25,000
Series Q, 6 7/8%, due October 1, 2002 35,000 35,000
Series R, 7%, due October 1, 2004 40,000 40,000
Series S, 6 1/8%, due February 1, 2004 40,000 40,000
Series T, 7 1/2%, due April 1, 2000 40,000 40,000
Series U, 6 3/8%, due October 1, 2005 80,000 80,000
Installment Sales Agreements - PCRBs
Series 1996, 6%, due June 1, 2020 (Red River) 44,310 44,310
Unamortized discount (960) (1,128)
Unamortized costs of reacquired debt (24,710) (28,112)
-------- --------
278,640 275,070
-------- --------
TOTAL CAPITALIZATION $540,052 $543,888
======== ========
The accompanying notes to financial statements are an integral part of
these statements.
WTU
2-129
<PAGE>
WEST TEXAS UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See CSW's NOTE 1.
2. LITIGATION AND REGULATORY PROCEEDINGS
See CSW's NOTE 2.
3. COMMITMENTS AND CONTINGENT LIABILITIES
See CSW's NOTE 3.
4. INCOME TAXES
See CSW's NOTE 4.
5. BENEFIT PLANS
See CSW's NOTE 5.
6. JOINTLY OWNED ELECTRIC UTILITY PLANT
See CSW's NOTE 6.
7. FINANCIAL INSTRUMENTS
See CSW's NOTE 7.
8. LONG-TERM DEBT
See CSW's NOTE 8.
9. PREFERRED STOCK
See CSW's NOTE 9.
10. SHORT-TERM FINANCING
See CSW's NOTE 11.
11. STOCK BASED COMPENSATION PLANS
See CSW's NOTE 13.
WTU
2-130
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF WEST TEXAS UTILITIES COMPANY:
We have audited the accompanying balance sheets and statements of
capitalization of West Texas Utilities Company (a Texas corporation and a wholly
owned subsidiary of Central and South West Corporation) as of December 31, 1997
and 1996, and the related statements of income, retained earnings and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of West Texas Utilities Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of West Texas Utilities Company
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Exhibit 12 is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This exhibit has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
February 16, 1998
WTU
2-131
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and objectivity of
the financial statements of West Texas Utilities Company as well as other
information contained in this Annual Report. The financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis and, in some cases, reflect amounts based on the best
estimates and judgments of management, giving due consideration to materiality.
Financial information contained elsewhere in this Annual Report is consistent
with that in the financial statements.
The financial statements have been audited by WTU's independent public
accountants who were given unrestricted access to all financial records and
related data, including minutes of all meetings of shareholders, the board of
directors and committees of the board. WTU believes that representations made to
the independent public accountants during their audit were valid and
appropriate. The report of independent public accountants is presented elsewhere
in this report.
WTU maintains a system of internal controls to provide reasonable
assurance that transactions are executed in accordance with management's
authorization, that the financial statements are prepared in accordance with
generally accepted accounting principles and that the assets of the companies
are properly safeguarded against unauthorized acquisition, use or disposition.
The system includes a documented organizational structure and division of
responsibility, established policies and procedures including a policy on
ethical standards which provides that WTU will maintain the highest legal and
ethical standards, and the careful selection, training and development of our
employees.
Internal auditors continuously monitor the effectiveness of the internal
control system following standards established by the Institute of Internal
Auditors. Actions are taken by management to respond to deficiencies as they are
identified. The board, operating through its audit committee, which is comprised
entirely of directors who are not officers or employees of WTU, provides
oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of internal controls,
no internal control system can provide absolute assurance that errors will not
occur. However, management strives to maintain a balance, recognizing that the
cost of such a system should not exceed the benefits derived.
WTU believes that, in all material respects, its system of internal
controls over financial reporting and over safeguarding of assets against
unauthorized acquisition, use or disposition functioned effectively as of
December 31, 1997.
Paul J. Brower R.Russell Davis
General Manager/President - WTU Controller - WTU
WTU
2-132
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
CSW None.
CPL None.
PSO None.
SWEPCO None.
WTU None.
2-133
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.
CSW has filed with the SEC its Joint Proxy Statement relating to its
1998 Annual Meeting of Stockholders. The information required by ITEM 10, other
than with respect to certain information regarding the executive officers of CSW
which is included in ITEM 1-BUSINESS, is hereby incorporated by reference herein
from the CSW MEETING - ADDITIONAL MATTERS of the Joint Proxy Statement.
(A) Directors of each of the U.S. Electric Operating Companies,
together with certain information with respect to each of them, are listed
below.
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
- --------------------------------------------------------------------------------
CPL
JOHN F. BRIMBERRY AGE - 65 1995
Chief Executive Officer Professional Insurance Agents, Inc.,
Victoria, Texas.
E. R. BROOKS AGE - 60 1991
Chairman and CEO of CSW since 1991. Director of CSW and each of its
subsidiaries. President of CSW from 1991 to 1997. Director of
Hubbell, Inc., Orange, Connecticut. Trustee of Baylor Health Care
Center, Dallas, Texas and Hardin-Simmons University, Abilene, Texas.
GLENN FILES AGE - 50 1996
Senior Vice President of CSW since 1996. President and CEO of WTU
from 1992 to 1996.
RUBEN M. GARCIA AGE - 66 1981
President and Chief Executive Officer of Modern Construction Inc.
and Modern Machine Shop, Inc., Laredo, Texas.
ALPHONSO R. JACKSON AGE - 51 1998
President of CSW-Texas since 1998. Vice President of CSW Energy,
Inc., from 1996 to 1997. President and CEO of The Housing Authority
of the City of Dallas, Texas, from 1989 to 1996. Director of Chase
Bank of Texas N.A., Dallas, Texas.
ROBERT A. McALLEN AGE - 63 1983
Robert A. McAllen, Insurance Agency, Weslaco, Texas.
PETE MORALES, JR. AGE - 57 1990
President of Morales Feed Lots, Inc., Devine, Texas.
3-1
<PAGE>
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
- --------------------------------------------------------------------------------
H. LEE RICHARDS AGE - 64 1987
Chairman of the Board of Hygeia Dairy Company, Harlingen, Texas.
J. GONZALO SANDOVAL AGE - 49 1992
President and General Manager of CPL since February 1998. General
Manager of CPL since 1996. Vice President, Operations and
Engineering of CPL from 1993 to 1996. Vice President, Regional
Operations of CPL from 1992 to 1993.
GERALD E. VAUGHN AGE - 55 1993
Vice President, Nuclear of CSW Services since 1994. Vice
President, Nuclear Affairs of CPL from 1993 to 1994. Vice
President for Shearon Harris Nuclear Plant from 1992 to 1993.
Chairman for the STPNOC since its formation in September 1997.
Each of the directors and executive officers of CPL is elected to hold
office until the first meeting of CPL's Board of Directors after the 1998 Annual
Meeting of Stockholders. CPL's 1998 Annual Meeting of Stockholders is presently
scheduled to be held on April 17, 1998. All outside directors have engaged in
their principal occupations listed above for a period of more than five years,
unless otherwise indicated.
PSO
E. R. BROOKS AGE - 60 1991
Chairman and CEO of CSW since 1991. Director of CSW and each of its
subsidiaries. President of CSW from 1991 to 1997. Director of
Hubbell, Inc., Orange, Connecticut. Trustee of Baylor Health Care
Center, Dallas, Texas and Hardin-Simmons University, Abilene, Texas.
T. D. CHURCHWELL AGE - 53 1996
President of PSO since 1996. Executive Vice President, Operations
and Engineering of WTU from 1995 to 1996. Executive Vice President
of WTU from 1993 to 1995. Vice President, Corporate Services of
CSW Services from 1991 to 1993.
HARRY A. CLARKE AGE - 69 1972
General Partner and President of HAC Investments, Afton, Oklahoma.
GLENN FILES AGE - 50 1996
Senior Vice President of CSW since 1996. President and CEO of WTU
from 1992 to 1996.
PAUL K. LACKEY, JR. AGE - 54 1992
Chief of Staff for the Governor of the State of Oklahoma, since 1997.
Secretary of Health and Human Services, Executive Director of the
Office of Juvenile Affairs, State of Oklahoma, from 1995 to 1997.
Consultant, Flint Industries, Inc., a construction, electronics
manufacturing, and environmental services company, Tulsa, Oklahoma
during a portion of 1995. President, Flint Industries, Inc., from
1986 to 1995. Advisory Director of Bank IV-Tulsa, Tulsa, Oklahoma.
3-2
<PAGE>
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
- --------------------------------------------------------------------------------
PAULA MARSHALL-CHAPMAN AGE - 44 1991
Chief Executive Officer of Bama Companies, a baked goods produce
company, Tulsa, Oklahoma.
WILLIAM R. McKAMEY AGE - 51 1993
General Manager of PSO since 1996. Vice President, Marketing
and Business Development of PSO from 1993 to 1996. Director of
Marketing and Business Development of CSW from 1992 to 1993.
DR. ROBERT B. TAYLOR, JR. AGE - 69 1975
Dentist, Okmulgee, Oklahoma.
Each of the directors and executive officers of PSO is elected to hold
office until the first meeting of PSO's Board of Directors after the 1998 Annual
Meeting of Stockholders. PSO's 1998 Annual Meeting of Stockholders is presently
scheduled to be held on April 22, 1998. All outside directors have engaged in
their principal occupations listed above for a period of more than five years,
unless otherwise indicated.
SWEPCO
E. R. BROOKS AGE - 60 1991
Chairman and CEO of CSW since 1991. Director of CSW and each of its
subsidiaries. President of CSW from 1991 to 1997. Director of
Hubbell, Inc., Orange, Connecticut. Trustee of Baylor Health Care
Center, Dallas, Texas and Hardin-Simmons University, Abilene, Texas.
JAMES E. DAVISON AGE - 60 1993
President and CEO of Davison Terminal Services, Inc. President and
CEO of Davison Motor Company, Inc. President and CEO of Davison
Insurance Company, Inc. All of the above entities are located in
Ruston, Louisiana. Director of Bank One, Louisiana, Baton Rouge,
Louisiana.
GLENN FILES AGE - 50 1996
Senior Vice President of CSW since 1996. President and CEO of WTU
from 1992 to 1996.
DR. FREDERICK E. JOYCE AGE - 63 1990
President of Chappell-Joyce Pathology Association, P.A., Texarkana,
Texas. President of Doctors Diagnostic Laboratory, Inc., Texarkana,
Texas. Director of State First National Bank, Texarkana, Arkansas.
Director of First Commercial Corporation, Little Rock, Arkansas.
JOHN M. LEWIS AGE - 58 1997
Chairman and Chief Executive Officer of The Bank of Fayetteville,
Fayetteville, Arkansas.
3-3
<PAGE>
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
- --------------------------------------------------------------------------------
KAREN C. MARTIN AGE - 37 1996
General Manager of SWEPCO since 1996. Director of Regulatory
Services at CSW from 1995 to 1996. Administrative Director of the
El Paso Transition Team at CSW from 1993 to 1995. Director of
Audits at SWEPCO from 1992 to 1993.
WILLIAM C. PEATROSS AGE - 54 1990
President and CEO of United Title of Louisiana, Inc. Director of
Deposit Guaranty Bank. Both entities are located in Shreveport,
Louisiana.
MAXINE P. SARPY AGE - 58 1996
Vice President and Office Manager for Sarpy Medical Clinic;
Shreveport, Louisiana.
MICHAEL D. SMITH AGE - 46 1996
President of SWEPCO since 1996. Vice President of Mergers and
Acquisitions at CSW from 1995 to 1996. Vice President of CSW
Corporate Services from 1993 to 1995. Controller of CSW from
1990 to 1993.
Each of the directors and executive officers of SWEPCO is elected to
hold office until the first meeting of SWEPCO's Board of Directors after the
1998 Annual Meeting of Stockholders. SWEPCO's 1998 Annual Meeting of
Stockholders is presently scheduled to be held on April 8, 1998. All outside
directors have engaged in their principal occupations listed above for a period
of more than five years, unless otherwise indicated.
WTU
E. R. BROOKS AGE - 60 1991
Chairman and CEO of CSW since 1991. Director of CSW and each of its
subsidiaries. President of CSW from 1991 to 1997. Director of
Hubbell, Inc., Orange, Connecticut. Trustee of Baylor Health Care
Center, Dallas, Texas and Hardin-Simmons University, Abilene, Texas.
PAUL J. BROWER AGE - 49 1991
President and General Manager of WTU since 1998. General Manager
of WTU since 1996. Vice President, Marketing and Business
Development of WTU from 1991 to 1996.
GLENN FILES AGE - 50 1996
Senior Vice President of CSW since 1996. President and CEO of WTU
from 1992 to 1996.
ALPHONSO R. JACKSON AGE - 51 1998
President of CSW-Texas since 1998. Vice President of CSW Energy,
Inc., from 1996 to 1997. President and CEO of The Housing
Authority of the City of Dallas, Texas, from 1989 to 1996. Director
of Chase Bank of Texas N.A., Dallas, Texas.
3-4
<PAGE>
Name, Age, Principal Year
Occupation, Business Experience First Became
and Other Directorships Director
- --------------------------------------------------------------------------------
TOMMY MORRIS AGE - 63 1976
President of The Tommy Morris Agency, an independent insurance
and investment agency, Abilene, Texas.
DIAN G. OWEN AGE - 58 1994
Corporate Executive/Founder of Owen Healthcare, Inc., hospital
pharmacy management company services, Abilene, Texas.
JAMES M. PARKER AGE - 67 1987
President and CEO of J. M. Parker and Associates, Inc., an
investment company, Abilene, Texas. Director of First Financial
Bankshares, Inc. and First National Bank of Abilene, Abilene, Texas.
F. L. STEPHENS AGE - 60 1980
Chairman and CEO of Town & Country Food Stores, Inc., San Angelo,
Texas.
Each of the directors and executive officers of WTU is elected to hold
office until the first meeting of WTU's Board of Directors after the 1998 Annual
Meeting of Stockholders. WTU's 1998 Annual Meeting of Stockholders is presently
scheduled to be held on March 31, 1998. All outside directors have engaged in
their principal occupations listed above for a period of more than five years,
unless otherwise indicated.
(B) The following is a list of officers who are not directors of the
registrants, together with certain information with respect to each of them:
Year First
Name, Age, Principal Elected to
Occupation, Business Experience Present Position
- --------------------------------------------------------------------------------
U.S. ELECTRIC OPERATING COMPANIES
WENDY G. HARGUS AGE - 40 1996
Treasurer of CSW, CPL, PSO, SWEPCO, WTU and CSW Services since
1996. Controller of CSW from 1993 to 1996. Director of Strategic
Planning during a portion of 1993 at CSW and Director of Investor
Relations at CSW from 1990 to 1993.
R. RUSSELL DAVIS AGE - 41 1994
Controller of CPL, WTU, SWEPCO and CSW Services since 1994.
Controller of PSO since 1993. Assistant Controller of CSW from
1992 to 1993.
CPL
BRENDA I. SNIDER AGE - 44 1996
Corporate Secretary of CPL since 1996. Manager of Planning and
Analysis at CPL since 1996. Senior Financial Consultant at CPL
from 1994 to 1996. Internal Business Consultant of Business
Development at CPL from 1991 to 1994.
3-5
<PAGE>
Year First
Name, Age, Principal Elected to
Occupation, Business Experience Present Position
- --------------------------------------------------------------------------------
PSO
LINA P. HOLM AGE - 57 1997
Corporate Secretary and Executive Secretary to the President of
PSO since 1997. Executive Secretary to the President and Assistant
Corporate Secretary of PSO from 1992 to 1997.
SWEPCO
MARILYN S. KIRKLAND AGE - 50 1995
Corporate Secretary of SWEPCO since 1995. Executive Administrator
since 1997. Senior executive secretary to the president, from
1992 to 1997.
WTU
MARTHA MURRAY AGE - 52 1992
Corporate Secretary of WTU since 1992. Previously a senior
secretary at WTU.
3-6
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
CASH AND OTHER FORMS OF COMPENSATION
CSW
Information required by ITEM 11 with respect to CSW is hereby
incorporated by reference herein from the CSW MEETING - ADDITIONAL MATTERS of
the Joint Proxy Statement.
The following table sets forth the aggregate cash and other
compensation for services rendered for the fiscal years of 1997, 1996 and 1995
for the President of each of the U.S. Electric Operating Companies and the Named
Executive Officers as defined below.
Because of the functional restructuring undertaken by CSW during 1996,
certain of the Executive Officers of the U.S. Electric Operating Companies,
Messrs. Files, Bremer, Zemanek and Verret, are not actually employed by any of
the U.S. Electric Operating Companies. Instead, they are employed by CSW
Services and manage CSW business units and perform policy-making functions that
are integral to the U.S. Electric Operating Companies. Therefore, these
individuals are included in the Summary Compensation Table as Named Executive
Officers due to the functional perspective regarding the management of the
companies. For additional information regarding the restructuring, see PART
II-MD&A.
U.S. ELECTRIC OPERATING COMPANIES
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- ------------------------ -------
CSW
Other CSW Securities
Annual Restricted Underlying All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Position Salary Bonus sation Award(s) SARs Payouts sation
At Registrant YEAR ($) ($)(1) ($)(2) ($)(1)(3) (#) ($) ($)(4)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Glenn Files, Senior 1997 374,999 143,099 8,534 -- 31,000 -- 23,757
Vice President of CSW 1996 331,135 44,860 66,415 153,750 -- -- 23,992
Electric Operations (2,5) 1995 266,223 85,048 19,144 -- -- -- 23,117
Richard H. Bremer, 1997 307,462 99,993 4,648 -- 26,000 -- 21,357
President of CSW Energy 1996 305,910 144,404 73,711 153,750 -- -- 21,742
Services business unit 1995 298,372 89,358 14,691 -- -- -- 21,706
(2,5)
Robert L. Zemanek, 1997 283,250 89,279 10,272 -- 24,000 -- 23,757
President of CSW Energy 1996 283,250 176,863 6,500 153,750 -- -- 23,992
Delivery business unit (5) 1995 276,270 91,436 9,192 -- -- -- 23,117
Richard P. Verret, 1997 251,230 83,390 2,083 -- 21,000 -- 7,953
President of CSW 1996 236,154 84,788 6,055 89,688 -- -- 7,590
Production (5)
M. Bruce Evans 1997 208,000 65,780 882 -- 14,000 -- 5,520
President of CPL (2,5) 1996 208,000 91,376 70,783 89,688 -- -- 4,500
T. D. Churchwell, 1997 192,500 53,672 2,167 -- 13,000 -- 6,398
President of PSO (2,5) 1996 192,500 24,097 79,730 38,438 -- -- 5,340
1995 180,400 40,388 9,206 -- -- -- 4,500
Michael D. Smith, 1997 190,923 64,306 945 -- 13,000 -- 6,419
President of SWEPCO (2,5) 1996 184,269 64,050 115,322 38,438 -- -- 5,340
Floyd W. Nickerson, 1997 160,769 40,293 1,806 -- 11,000 -- 6,661
President of WTU (2,5) 1996 147,692 36,384 69,665 38,438 -- -- 5,270
3-7
<PAGE>
(1) Amounts in this column are paid or awarded in a calendar year for
performance in a preceding year.
(2) The following are the perquisites and other personal benefits required to
be identified in respect of each Named Executive Officer.
1996 Relocation Reimbursements
- --------------------------------------------------------------
Glenn Files $25,662
Richard H. Bremer 34,117
M. Bruce Evans 32,537
T.D. Churchwell 38,955
Michael D. Smith 63,818
Floyd W. Nickerson 37,416
(3) Grants of restricted stock are administered by the Executive Compensation
Committee of the CSW Board of Directors, which has the authority to
determine the individuals to whom and the terms upon which restricted stock
grants, including the number of underlying shares, shall be made. The
awards reflected in this column all have four-year vesting periods with 25%
vesting on the first, second, third and fourth anniversary dates of the
award. Upon vesting, CSW Shares are re-issued without restrictions. The
individuals receive dividends and may vote shares of restricted stock, even
before they are vested. The amount reported in the table represents the
market value of the shares at the date of grant. As of December 31, 1997,
the aggregate restricted stock holdings of each of the Named Executive
Officers are presented in the following table.
Restricted Stock Held Market Value at
Name at December 31, 1997 December 31, 1997
- --------------------------------------------------------------------
Glenn Files 4,500 $121,781
Richard H. Bremer 4,500 121,781
Robert L. Zemanek 4,500 121,781
Richard P. Verret 2,625 71,039
M. Bruce Evans 2,625 71,039
T. D. Churchwell 1,125 30,445
Michael D. Smith 1,125 30,445
Floyd W. Nickerson 1,125 30,445
(4) Amounts shown in this column consist of: (i) the annual employer matching
payments to CSW's Retirement Savings Plan, (ii) premiums paid per
participant for personal liability insurance and (iii) average amounts of
premiums paid per participant in those years under CSW's memorial gift
program. Under this program, for certain executive officers, directors and
retired directors from the CSW System, CSW will make a donation in a
participant's name to up to three charitable organizations in an aggregate
of $500,000, payable by CSW upon such person's death. CSW maintains
corporate-owned life insurance policies to fund the program. The annual
premiums paid by CSW are based on pooled risks and averaged $15,803 per
participant for 1997, $16,402 for 1996 and $16,367 for 1995. In 1997, 1996
and 1995, Messrs. Bremer, Files and Zemanek participated.
(5) System Affiliations.
In the first quarter of 1998, the positions of President and General
Manager at both CPL and WTU were combined into one. These position's were
assumed by J. Gonzalo Sandoval for CPL and Paul J. Brower for WTU. Messrs.
Evans and Nickerson assumed other positions within the CSW System.
3-8
<PAGE>
Messrs. Files, Bremer, Zemanek and Verret assumed policy making functions
for each of the U.S. Electric Operating Companies in 1996. Messrs. Evans,
Smith and Nickerson assumed policy-making positions at the U.S. Electric
Operating Companies in 1996.
Messrs. Verret, Evans, Smith and Nickerson received no compensation from
any of the U.S. Electric Operating Companies in 1995.
</TABLE>
OPTION/SAR GRANTS
Shown below is information on grants of stock options made in 1997
pursuant to the CSW stock option plan to the Named Executive Officers. No stock
appreciation rights were granted in 1997.
<TABLE>
<CAPTION>
CSW OPTION/SAR GRANTS IN 1997(1)
Potential Realizable
Value at Assumed Annual
Rates of CSW Stock
Price Appreciation for
Individual Grants Option Terms(3)
- ---------------------------------------------------------------------------- ------------------
Number of CSW % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees In Base Price Expiration
Name Granted(#)(2) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ---- ------------- ----------- ------------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Glenn Files 31,000 4.5 20.750 5/23/2007 405,248 1,022,768
Richard H. Bremer 26,000 3.8 20.750 5/23/2007 339,885 857,805
Robert L. Zemanek 24,000 3.5 20.750 5/23/2007 313,740 791,820
Richard P. Verret 21,000 3.0 20.750 5/23/2007 274,523 692,843
M. Bruce Evans 14,000 2.0 20.750 5/23/2007 183,015 461,895
T. D. Churchwell 13,000 1.9 20.750 5/23/2007 169,943 428,903
Michael D. Smith 13,000 1.9 20.750 5/23/2007 169,943 428,903
Floyd W. Nickerson 11,000 1.6 20.750 5/23/2007 143,798 362,918
(1) The stock option plans are administered by the Executive Compensation
Committee of the Board, which has the authority to determine the
individuals to whom and the terms upon which option and SAR grants
shall be made.
(2) All options were granted on May 23, 1997, and are first exercisable 12
months after the grant date, with one-third of the shares becoming
exercisable at that time and with an additional one third of the
aggregate becoming exercisable on each of the next two anniversary
dates.
(3) The annual rates of appreciation of 5% and 10% are specifically
required by SEC disclosure rules and in no way guarantee that such
annual rates of appreciation will be achieved by CSW nor should this be
construed in any way to constitute any representation by CSW that such
growth will be achieved.
</TABLE>
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<PAGE>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Shown below is information regarding option/SAR exercises during 1997
and unexercised options/SARs at December 31, 1997 for the Named Executive
Officers.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of CSW
Securities Value of
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs
Name Acquired Value Year-End at Year-End
on Exercise Realized Exercisable/ Exercisable/
(#) ($) Unexercisable Unexercisable (1)
- -------------------------------------------------------------------------------
Glenn Files -- -- 23,653/31,000 5,593/195,688
Richard H. Bremer -- -- 28,332/26,000 3,915/164,125
Robert L. Zemanek -- -- 25,430/24,000 6,015/151,500
Richard P. Verret 100 1,081 13,325/21,000 14,889/132,563
M. Bruce Evans -- -- 8,928/14,000 9,810/88,375
T. D. Churchwell -- -- 9,268/13,000 5,763/82,063
Michael D. Smith -- -- 7,779/13,000 2,413/82,063
Floyd W. Nickerson -- -- 4,867/11,000 675/69,438
(1) Calculated based upon the difference between the closing price of CSW's
Shares on the New York Stock Exchange on December 31, 1997 ($27.0625 per
share) and the exercise price per share of the outstanding unexercisable
and exercisable options ($16.250, $20.750, $24.813 and $29.625, as
applicable).
LONG-TERM INCENTIVE PLAN-AWARDS IN 1997
The following table shows information concerning awards made to the
Named Executive Officers during 1997 under the CSW stock option plan.
Estimated
Future Payouts under
Number of Performance or Non-stock Price Based Plans
Shares, Units Other Period ----------------------------
or Other Until Maturation Threshold Target Maximum
Name Rights or Payout ($) ($) ($)
- --------------------------------------------------------------------------------
Glenn Files -- 2 years -- 225,000 337,500
Richard H. Bremer -- 2 years -- 183,546 275,319
Robert L. Zemanek -- 2 years -- 169,950 254,925
Richard P. Verret -- 2 years -- 150,000 225,000
M. Bruce Evans -- 2 years -- 90,667 136,001
T. D. Churchwell -- 2 years -- 63,258 94,887
Michael D. Smith -- 2 years -- 54,740 82,110
Floyd W. Nickerson -- 2 years -- 47,369 71,054
Payouts of these awards are contingent upon CSW's achieving a specified
level of total stockholder return, relative to the S&P Electric Index, for a
three-year period, or cycle, and exceeding a certain defined minimum threshold.
If the Named Executive Officer's employment is terminated during the performance
period for any reason other than death, total and permanent disability or
retirement, then the award is canceled. The CSW stock option plan contains a
provision accelerating awards upon a change in control of CSW. Except as
provided in the next sentence, if a change in control of CSW occurs, all options
become fully exercisable and all restrictions, terms and conditions applicable
to all restricted stock are deemed lapsed and satisfied and all
performance-based units are deemed to have been fully earned, as of the date of
the change in control. Awards which have been outstanding for less than six
months prior to the date the change in control occurs are not subject to
acceleration upon the occurrence of a change of control. The CSW stock option
3-10
<PAGE>
plan also contains provisions designed to prevent circumvention of the above
acceleration provisions through coerced termination of an employee prior to a
change in control.
RETIREMENT PLAN
CSW maintains the Retirement Plan for eligible employees, in addition,
CSW maintains the SERP, a non-qualified ERISA excess plan, that primarily
provides benefits that cannot be payable under the qualified Retirement Plan
because of maximum limitations imposed on such plans by the Internal Revenue
Code.
Through June 30, 1997, the Retirement Plan was structured as a
traditional, defined benefit final average pay plan. Effective, July 1, 1997,
the present value of accrued benefits under the Retirement Plan was converted to
a cash balance.
Under the cash balance formula, each participant has an account, for
recordkeeping purposes only, to which pay credits are allocated annually based
on a percentage of the participant's pay. As of July 1, 1997, the definition of
pay for the CSW Cash Balance Plan was expanded to include not only base pay but
also bonuses, overtime, and commissions. The applicable percentage is determined
by the age and years of vesting service the participant has with CSW and its
affiliates as of December 31 of each year (or termination date, if earlier). The
following table shows the Applicable Percentage used to determine credits at the
age and years of service indicated.
Sum of Age plus
YEARS OF SERVICE APPLICABLE PERCENTAGE
< 30 3.0%
30-39 3.5%
40-49 4.5%
50-59 5.5%
60-69 7.0%
70 or more 8.5%
As of December 31, 1997, the sum of age plus years of service of the
Named Executive Officers for the cash balance formula are as follows: Mr.
Files, 76; Mr. Bremer, 69; Mr. Zemanek, 73; Mr. Verret, 76; Mr. Evans, 60; Mr.
Churchwell, 72; Mr. Smith, 53; Mr. Nickerson, 58.
All balances in the accounts of participants earn a fixed rate of
interest which is also credited annually. The interest rate for a particular
year is the average rate of return of the 30-year Treasury Rate for November of
the prior year. For 1997, the interest rate was 6.48%. For 1998, the interest
rate is 6.11%. Interest continues to be credited as long as the participant's
balance remains in the plan.
At retirement or other termination of employment, an amount equal to
the vested balance (including qualified and SERP benefit) then credited to the
account is payable to the participant in the form of an immediate or deferred
lump-sum or annuity. Benefits (both from the CSW Cash Balance Plan and the SERP)
under the cash balance formula are not subject to reduction for Social Security
benefits or other offset amounts. The estimated annual benefit payable to each
of the Named Officers as a single life annuity at age 65 under the Retirement
Plan and the SERP is: Mr. Files, $272,378; Mr. Bremer, $213,333; Mr. Zemanek,
$243,305; Mr. Verret, $173,626; Mr. Evans, $185,905; Mr. Churchwell; $109,329;
Mr. Smith, $91,560; Mr. Nickerson, $139,609. These projections are based on the
following assumptions: (1) participant remains employed until age 65; (2) salary
used is base pay paid for calendar year 1997 assuming no future increases plus
bonus at 1997 target level; (3) interest credit at 6.11% for 1998 and future
years; (4) the conversion of the lump-sum cash balance to a single life annuity
at normal retirement age is based on an interest rate of 6.11% and the 1983
Group Annuity Mortality Table, which sets forth generally accepted life
expectancies.
3-11
<PAGE>
In addition, certain employees who were 50 or over and had completed at
least 10 years of service as of July 1, 1997, also continue to earn a benefit
using the prior pension formula. At commencement of benefits, the following
Named Officers have a choice of their accrued benefit using the cash balance
formula or their accrued benefit using the prior pension formula: Mr. Verret and
Mr. Churchwell. Once the participant selects either the earned benefit under the
cash balance formula or the earned benefit under the prior pension formula, the
other earned benefit is no longer available.
The table below shows the estimated combined benefits payable from both
the prior pension formula and the SERP based on retirement age of 65, the
average compensation shown, the years of credited service shown , continued
existence of the prior pension formula without substantial change and payment in
the form of a single life annuity.
ANNUAL BENEFITS AFTER
SPECIFIED YEARS OF CREDITED SERVICE
Average
Compensation 15 20 25 30 or More
-----------------------------------------------------------------------
$100,000 $ 25,050 $ 33,333 $ 41,667 $ 50,000
150,000 37,575 50,000 62,500 75,000
200,000 50,100 66,667 83,333 100,000
250,000 62,625 83,333 104,167 125,000
300,000 75,150 100,000 125,000 150,000
350,000 87,675 116,667 145,833 175,000
450,000 112,725 150,000 187,500 225,000
550,000 137,775 183,333 229,167 275,000
650,000 162,825 216,667 270,833 325,000
750,000 187,875 250,000 312,500 375,000
850,000 212,500 283,333 357,000 425,000
Benefits payable under the prior pension formula are based upon the
participant's years of credited service, age at retirement, and covered
compensation earned by the participant. The annual normal retirement benefit
payable under the prior pension formula and the SERP are based on 1.67 percent
of "Average Compensation" times the number of years of credited service (reduced
by no more than 50 percent of a participant's age 62 or later Social Security
benefit). "Average compensation" is covered compensation for the prior pension
formula and equals the average annual compensation, reported as salary in the
Summary Compensation Table, during the 36 consecutive months highest pay during
the 120 months prior to retirement.
Respective years of credited service and ages, as of December 31, 1997,
for the following officers who continue to earn a benefit under the prior
pension formula are: Mr. Verret, 25 and 51, Mr. Churchwell, 19 and 53.
The registrants have entered into change in control agreements with
certain individuals named in the Summary Compensation Table. The purpose of the
agreements is to assure the objective judgment, and to retain the loyalties of
these key individuals in the event CSW is faced with a potential change in
control. Consummation of the proposed AEP Merger will constitute a change in
control under these agreements, information related to the change in control
agreements is incorporated by reference herein from THE MERGER - CSW LONG-TERM
INCENTIVE PLAN and CHANGE IN CONTROL AGREEMENTS of the Joint Proxy Statement.
3-12
<PAGE>
MEETINGS AND COMPENSATION
Those directors who are not also officers of CPL, PSO, SWEPCO and WTU
receive annual directors' fees and a fee of $300 plus expenses for each board or
committee meeting attended, as described below. They are also eligible to
participate in a deferred compensation plan. Under this plan such directors may
elect to defer payment of annual directors' and meeting fees until they retire
from the board or as they otherwise direct. The number of board meetings and
annual directors' fees are presented in the following table.
CPL PSO SWEPCO WTU
----------------------------------------
Number of regular board meetings 4 4 4 4
Annual directors' fees $6,000 $6,000 $6,600 $6,000
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No person serving during 1997 as a member of the Executive Compensation
Committee of the Board of Directors of CSW served as an officer or employee of
any registrant during or prior to 1997. No person serving during 1997 as an
executive officer of the U.S. Electric Operating Companies serves or has served
on the compensation committee or as a director of another company whose
executive officers serve or has served as a member of the Executive Compensation
Committee of CSW or as a director of one of the U.S. Electric Operating
Companies.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
CSW
The information required by ITEM 12 is incorporated by reference herein
from THE CSW MEETING ADDITIONAL MATTERS of the Joint Proxy Statement.
U.S. ELECTRIC OPERATING COMPANIES
All of the outstanding shares of common stock of each of the U.S.
Electric Operating Companies, presented in the following table, is owned
beneficially and of record by CSW, 1616 Woodall Rodgers Freeway, Dallas, Texas
75202-1234.
Company Shares Par Value
- -------------------------------------------------------------
CPL 6,755,535 $25
PSO 9,013,000 15
SWEPCO 7,536,640 18
WTU 5,488,560 25
SECURITY OWNERSHIP OF MANAGEMENT
The following tables show securities beneficially owned as of December
31, 1997, by each director, the President and Executive Officers of each of the
U.S. Electric Operating Companies. Share amounts shown in this table include
options exercisable within 60 days after December 31, 1997, restricted stock,
CSW Shares credited to thrift plus accounts and all other CSW Shares
beneficially owned by the listed persons.
Each of the U.S. Electric Operating Companies has one or more series of
preferred stock outstanding. As of December 31, 1997, none of the individuals
listed in the following tables owned any shares of preferred stock of any U.S.
Electric Operating Company.
3-13
<PAGE>
BENEFICIAL OWNERSHIP AS OF DECEMBER 31, 1997
CSW Common
CPL Underlying
CSW Restricted Immediately
Name Common (1) Stock (2) (3) Exercisable Options (3)
- --------------------------------------------------------------------------------
John F. Brimberry 765 -- --
E. R. Brooks 131,529 12,225 65,175
M. Bruce Evans 12,574 2,625 8,928
Glenn Files 42,269 4,500 23,653
Ruben M. Garcia -- -- --
Robert A. McAllen 1,500 -- --
Pete Morales, Jr. -- -- --
H. Lee Richards 1,400 -- --
J. Gonzalo Sandoval 16,850 1,125 6,926
Gerald E. Vaughn 6,023 1,125 1,337
All of the above and other
officers as a group 223,958 22,725 112,742
PSO
E. R. Brooks 131,529 12,225 65,175
T. D. Churchwell 12,597 1,125 9,268
Harry A. Clarke -- -- --
Glenn Files 42,269 4,500 23,653
Paul K. Lackey, Jr. -- -- --
Paula Marshall-Chapman -- -- --
William R. McKamey 13,554 1,125 3,323
Dr. Robert B. Taylor, Jr. -- -- --
All of the above and other
officers as a group 210,428 20,100 108,142
SWEPCO
E. R. Brooks 131,529 12,225 65,175
James E. Davison -- -- --
Glenn Files 42,269 4,500 23,653
Dr. Frederick E. Joyce -- -- --
John M. Lewis -- -- --
Karen C. Martin 3,741 -- 2,005
William C. Peatross -- -- --
Maxine P. Sarpy 100 -- --
Michael D. Smith 10,176 1,125 7,779
All of the above and other
officers as a group 198,867 18,975 105,335
WTU
E. R. Brooks 131,529 12,225 65,175
Paul J. Brower 10,911 1,125 7,145
Glenn Files 42,269 4,500 23,653
Tommy Morris 2,000 -- --
Floyd W. Nickerson 6,403 1,125 4,867
Dian G. Owen 100 -- --
James M. Parker 5,000 -- --
F. L. Stephens 2,800 -- --
All of the above and other
officers as a group 214,142 20,100 107,563
(1) Beneficial ownership percentages are all less than one percent and
therefore are omitted.
(2) These individuals currently have voting power, but not investment power,
with respect to these shares.
(3) These shares are included in the CSW Common column.
3-14
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CSW
The information required by ITEM 13 is incorporated herein by reference
from THE CSW MEETING ADDITIONAL MATTERS of the Joint Proxy Statement.
U.S. ELECTRIC OPERATING COMPANIES
None.
3-15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT ON THIS FORM
10-K.
(1) FINANCIAL STATEMENTS.
Reports of Independent Public Accountants on the financial statements
for CSW and subsidiary companies, CPL, PSO, SWEPCO and WTU are listed
under ITEM 8 herein.
The financial statements filed as a part of this report for CSW and
subsidiary companies, CPL, PSO, SWEPCO and WTU are listed under ITEM 8
herein.
(2) EXHIBITS.
Exhibits for CSW, CPL, PSO, SWEPCO and WTU are listed in (C) INDEX TO
EXHIBITS below.
(B) REPORTS ON FORM 8-K.
CSW
ITEM 5. OTHER EVENTS and ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS,
dated December 22, 1997, reporting SEC approval of CSW's stockholders
rights plan, as amended.
CSW AND PSO
ITEM 5. OTHER EVENTS, dated October 15, 1997, reporting the PSO 1997
Rate Settlement Agreement.
CSW, CPL, PSO, SWEPCO AND WTU
ITEM 5. OTHER EVENTS and ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS,
dated December 22, 1997, reporting the proposed merger between CSW and
AEP.
4-1
<PAGE>
CSW
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
25, 1998. The signature of the undersigned registrant shall be deemed to relate
only to matters having reference to such registrant and any subsidiaries
thereof.
CENTRAL AND SOUTH WEST CORPORATION
By: Lawrence B. Connors
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 25, 1998. The signature
of each of the undersigned shall be deemed to relate only to matters having
reference to the above named registrant and any subsidiaries thereof.
SIGNATURE TITLE
E. R. Brooks Chairman, CEO and Director
(Principal Executive Officer)
Glenn D. Rosilier Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Lawrence B. Connors Controller
(Principal Accounting Officer)
*Molly Shi Boren Director
*Dr. Donald M. Carlton Director
*T. J. Ellis Director
*Joe H. Foy Director
*William R. Howell Director
*Dr. Robert W. Lawless Director
*James L. Powell Director
*Dr. Richard L. Sandor Director
*T. V. Shockley, III President, Chief Operating Officer and Director
*Lawrence B. Connors, by signing his name hereto, does sign this document on
behalf of the persons indicated above pursuant to a power of attorney duly
executed by each such person.
*By: Lawrence B. Connors
Attorney-in-Fact
4-2
<PAGE>
CPL
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
25, 1998. The signature of the undersigned registrant shall be deemed to relate
only to matters having reference to such registrant.
CENTRAL POWER AND LIGHT COMPANY
By: R. Russell Davis
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 25, 1998. The signature
of each of the undersigned shall be deemed to relate only to matters having
reference to the above named registrant.
SIGNATURE TITLE
J. Gonzalo Sandoval General Manager/President and Director
(Principal Executive Officer)
R. Russell Davis Controller
(Principal Accounting and Financial Officer)
*John F. Brimberry Director
*E. R. Brooks Director
*Glenn Files Director
*Ruben M. Garcia Director
*Alphonso R. Jackson Director
*Robert A. McAllen Director
*Pete Morales, Jr. Director
*H. Lee Richards Director
*Gerald E. Vaughn Director
*R. Russell Davis, by signing his name hereto, does sign this document on behalf
of the persons indicated above pursuant to a power of attorney duly executed by
each such person.
*By: R. Russell Davis
Attorney-in-Fact
4-3
<PAGE>
PSO
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
25, 1998. The signature of the undersigned registrant shall be deemed to relate
only to matters having reference to such registrant.
PUBLIC SERVICE COMPANY OF OKLAHOMA
By: R. Russell Davis
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 25, 1998. The signature
of each of the undersigned shall be deemed to relate only to matters having
reference to the above named registrant.
SIGNATURE TITLE
T. D. Churchwell President and Director
(Principal Executive Officer)
R. Russell Davis Controller
(Principal Accounting and Financial Officer)
*E. R. Brooks Director
*Harry A. Clarke Director
*Glenn Files Director
*Paul K. Lackey, Jr. Director
*Paula Marshall-Chapman Director
*William R. McKamey General Manager and Director
*Dr. Robert B. Taylor, Jr. Director
*R. Russell Davis, by signing his name hereto, does sign this document on behalf
of the persons indicated above pursuant to a power of attorney duly executed by
each such person.
*By: R. Russell Davis
Attorney-in-Fact
4-4
<PAGE>
SWEPCO
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
25, 1998. The signature of the undersigned registrant shall be deemed to relate
only to matters having reference to such registrant.
SOUTHWESTERN ELECTRIC POWER COMPANY
By: R. Russell Davis
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 25, 1998. The signature
of each of the undersigned shall be deemed to relate only to matters having
reference to the above named registrant.
SIGNATURE TITLE
Michael D. Smith President and Director
(Principal Executive Officer)
R. Russell Davis Controller
(Principal Accounting and Financial Officer)
*E. R. Brooks Director
*James E. Davison Director
*Glenn Files Director
*Dr. Frederick E. Joyce Director
*John M. Lewis Director
*Karen C. Martin General Manager and Director
*William C. Peatross Director
*Maxine P. Sarpy Director
*R. Russell Davis, by signing his name hereto, does sign this document on behalf
of the persons indicated above pursuant to a power of attorney duly executed by
each such person.
*By: R. Russell Davis
Attorney-in-Fact
4-5
<PAGE>
WTU
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
25, 1998. The signature of the undersigned registrant shall be deemed to relate
only to matters having reference to such registrant.
WEST TEXAS UTILITIES COMPANY
By: R. Russell Davis
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 25, 1998. The signature
of each of the undersigned shall be deemed to relate only to matters having
reference to the above named registrant.
SIGNATURE TITLE
Paul J. Brower General Manager/President and Director
(Principal Executive Officer)
R. Russell Davis Controller
(Principal Accounting and Financial Officer)
*E. R. Brooks Director
*Glenn Files Director
*Alphonso R. Jackson Director
*Tommy Morris Director
*Dian G. Owen Director
*James M. Parker Director
*F. L. Stephens Director
*R. Russell Davis, by signing his name hereto, does sign this document on behalf
of the persons indicated above pursuant to a power of attorney duly executed by
each such person.
*By: R. Russell Davis
Attorney-in-Fact
4-6
<PAGE>
(C) INDEX TO EXHIBITS.
The following exhibits indicated by an asterisk (*) preceding the
exhibit number are filed herewith. The balance of the exhibits have heretofore
been filed with the SEC, respectively, as the exhibits and in the file numbers
indicated and are incorporated herein by reference. The exhibits marked with a
plus (+) are management contracts or compensatory plans or arrangements required
to be filed herewith and required to be identified as such by ITEM 14. of Form
10-K. Reference is made to a duplicate list of exhibits being filed as a part of
this Form 10-K, which list, prepared in accordance with Item 102 of Regulation
S-T of the SEC, immediately precedes the exhibits being filed with this Form
10-K.
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
CSW AND SWEPCO
1 Plan of Reorganization for Cajun Electric Power Cooperative,
Inc. Submitted Jointly by The Members Committee, SWEPCO and
Gulf States Utilities Company (incorporated herein by reference
to CSW and SWEPCO's Form 8-K dated April 19, 1996).
2 Amended Plan of Reorganization for Cajun Electric Power
Cooperative, Inc. Submitted Jointly by the Members Committee,
SWEPCO and Entergy Texas, Inc. (incorporated herein by
reference to CSW and SWEPCO's Form 8-K dated September 30,
1996).
* 3 Amended and Restated Joint Plan of Reorganization for Cajun
Electric Power Cooperative, Inc. Submitted Jointly by the
Committee of Certain Members and Southwestern Electric Power
Company dated March 18, 1998.
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
CSW
1 Certificate of Amendment to Second Restated Certificate of
Incorporation of CSW (incorporated herein by reference to Item
10, Exhibit B-1.2 to the 1993 CSW annual report on Form U5S).
* 2 Bylaws of CSW, as amended.
CPL
3 Restated Articles of Incorporation Without Amendment, Articles
of Correction to Restated Articles of Incorporation Without
Amendment, Articles of Amendment to Restated Articles of
Incorporation, Statements of Registered Office and/or Agent
(3), and Articles of Amendment to the Articles of Incorporation
(incorporated herein by reference to Exhibit 3.1 to CPL's Form
10-Q for the quarterly period ended March 31, 1997).
4 Bylaws of CPL, as amended (incorporated herein by reference to
Exhibit 3.1 to CPL's Form 10-Q dated September 30, 1996, File
No. 0-346).
PSO
5 Restated Certificate of Incorporation of PSO (incorporated
herein by reference to Exhibit B-3.1 of CSW's 1996 Form U5S,
File No. 1-1443).
6 Bylaws of PSO, as amended (incorporated herein by reference to
Exhibit B-3.2 of CSW's 1996 Form U5S, File No. 1-1443).
SWEPCO
7 Restated Certificate of Incorporation, as amended through May
6, 1997, including Certificate of Amendment of Restated
Certificate of Incorporation (both incorporated herein by
reference to Exhibit 3.4 to SWEPCO's Form 10-Q dated March 31,
1997, File No. 1-3146).
8 Bylaws of SWEPCO, as amended (incorporated herein by reference
to Exhibit 3.3 to SWEPCO's Form 10-Q dated September 30, 1996,
File No. 1-3146).
4-7
<PAGE>
WTU
9 Restated Articles of Incorporation, as amended, and Articles of
Amendment to the Articles of Incorporation (both incorporated
herein by reference to Exhibit 3.5 to WTU's March 31, 1997 Form
10-Q, File No. 0-340).
10 Bylaws of WTU, as amended (incorporated herein by reference to
Exhibit 3.4 to WTU's Form 10-Q dated September 30, 1996, File
No. 0-340).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDER, INCLUDING
INDENTURES.
CSW
1 Rights Agreement dated as of December 22, 1997 between CSW and
Central and South West Services, Inc., as Rights Agent
(incorporated herein by reference to Exhibit 1 to CSW Form
8-A/A dated March 19, 1998, File No. 1-1443).
CPL
(a) Indenture of mortgage or deed of trust date November 1, 1943,
executed by CPL to the First National Bank of Chicago and
Robert L. Grinnell as trustee, as amended through October 1,
1977, (incorporated herein by reference to Exhibit 5.01 in File
No. 2-60712).
(b) Supplemental Indentures to the First Mortgage Indenture:
DATED FILE REFERENCE EXHIBIT
September 1, 1978 2-62271 2.02
December 15, 1984 Form U-1, No. 70-7003 17
July 1, 1985 2-98944 4 (b)
May 1, 1986 Form U-1, No. 70-7236 4
November 1, 1987 Form U-1, No. 70-7249 4
June 1, 1988 Form U-1, No. 70-7520 2
December 1, 1989 Form U-1, No. 70-7721 3
March 1, 1990 Form U-1, No. 70-7725 10
October 1, 1992 Form U-1, No. 70-8053 10 (a)
December 1, 1992 Form U-1, No. 70-8053 10 (b)
February 1, 1993 Form U-1, No. 70-8053 10 (c)
April 1, 1993 Form U-1, No. 70-8053 10 (d)
May 1, 1994 Form U-1, No. 70-8053 10 (e)
July 1, 1995 Form U-1, No. 70-8053 10 (f)
(c) CPL-obligated, mandatorily redeemable preferred securities of
subsidiary trust holding solely Junior Subordinated Debentures
of CPL:
2 Indenture, dated as of May 1, 1997, between CPL and the Bank of
New York, as Trustee (incorporated herein by reference to
Exhibit 4.1 of CPL's March 31, 1997 Form 10-Q, File No.
0-346).
3 First Supplemental Indenture, dated as of May 1, 1997, between
CPL and the Bank of New York, as Trustee (incorporated herein
by reference to Exhibit 4.2 of CPL's March 31, 1997 Form 10-Q,
File No. 0-346).
4 Amended and Restated Trust Agreement of CPL Capital I, dated as
of May 1, 1997, among CPL, as Depositor; the Bank of New York,
as Property Trustee; the Bank of New York (Delaware), as
Delaware Trustee; and the Administrative Trustee (incorporated
herein by reference to Exhibit 4.3 of CPL's March 31, 1997 Form
10-Q, File No. 0-346).
4-8
<PAGE>
5 Guarantee Agreement, dated as of May 1, 1997, delivered by CPL
for the benefit of the holders of CPL Capital I's Preferred
Securities (incorporated herein by reference to Exhibit 4.4 of
CPL's March 31, 1997 Form 10-Q, File No. 0-346).
6 Agreement as to Expenses and Liabilities, dated as of May 1,
1997, between CPL and CPL Capital I (incorporated herein by
reference to Exhibit 4.5 of CPL's March 31, 1997 Form 10-Q,
File No. 0-346).
PSO
(a) Indenture dated July 1, 1945, as amended, of PSO (incorporated
herein by reference to Exhibit 5.03 in Registration No.
2-60712).
(b) Supplemental Indentures to the First Mortgage Indenture:
DATED FILE REFERENCE EXHIBIT
June 1, 1979 2-64432 2.02
December 1, 1979 2-65871 2.02
March 1, 1983 Form U-1, No. 70-6822 2
May 1, 1986 Form U-1, No. 70-7234 3
July 1, 1992 Form S-3, No. 33-48650 4 (b)
December 1, 1992 Form S-3, No. 33-49143 4 (c)
April 1, 1993 Form S-3, No. 33-49575 4 (b)
June 1, 1993 Form 10-K, No. 0-343 4 (b)
February 1, 1996 Form 8-K, March 4, 1996, No. 0-343 4.01
February 1, 1996 Form 8-K, March 4, 1996, No. 0-343 4.02
February 1, 1996 Form 8-K, March 4, 1996, No. 0-343 4.03
(c) PSO-obligated, mandatorily redeemable preferred securities of
subsidiary trust holding solely Junior Subordinated Debentures
of PSO:
7 Indenture, dated as of May 1, 1997, between PSO and the Bank of
New York, as Trustee (incorporated herein by reference to
Exhibit 4.6 of PSO's March 31, 1997 Form 10-Q, File No.
0-343).
8 First Supplemental Indenture, dated as of May 1, 1997, between
PSO and the Bank of New York, as Trustee (incorporated herein
by reference to Exhibit 4.7 of PSO's March 31, 1997 Form 10-Q,
File No. 0-343).
9 Amended and Restated Trust Agreement of PSO Capital I, dated as
of May 1,1997, among PSO, as Depositor; the Bank of New York,
as Property Trustee; the Bank of New York (Delaware), as
Delaware Trustee; and the Administrative Trustee (incorporated
herein by reference to Exhibit 4.8 of PSO's March 31, 1997 Form
10-Q, File No. 0-343).
10 Guarantee Agreement, dated as of May 1, 1997, delivered by PSO
for the benefit of the holders of PSO Capital I's Preferred
Securities (incorporated herein by reference to Exhibit 4.9 of
PSO's March 31, 1997 Form 10-Q, File No. 0-343).
11 Agreement as to Expenses and Liabilities, dated as of May 1,
1997, between PSO and PSO Capital I (incorporated herein by
reference to Exhibit 4.10 of PSO's March 31, 1997 Form 10-Q,
File No. 0-343).
SWEPCO
(a) Indenture dated February 1, 1940, as amended through November
1, 1976, of SWEPCO (incorporated herein by reference to Exhibit
5.04 in Registration No. 2-60712).
(b) Supplemental Indentures to the First Mortgage Indenture:
4-9
<PAGE>
DATED FILE REFERENCE EXHIBIT
August 1, 1978 2-61943 2.02
January 1, 1980 2-66033 2.02
April 1, 1981 2-71126 2.02
May 1, 1982 2-77165 2.02
August 1, 1985 Form U-1, No. 70-7121 4
May 1, 1986 Form U-1, No. 70-7233 3
November 1, 1989 Form U-1, No. 70-7676 3
June 1, 1992 Form U-1, No. 70-7934 10
September 1, 1992 Form U-1, No. 72-8041 10 (b)
July 1, 1993 Form U-1, No. 70-8041 10 (c)
October 1, 1993 Form U-1, No. 70-8239 10 (a)
(c) SWEPCO-obligated, mandatorily redeemable preferred securities
of subsidiary trust holding solely Junior Subordinated
Debentures of SWEPCO:
12 Indenture, dated as of May 1, 1997, between SWEPCO and the Bank
of New York, as Trustee (incorporated herein by reference to
Exhibit 4.11 of SWEPCO's March 31, 1997 Form 10-Q, File No.
1-3146).
13 First Supplemental Indenture, dated as of May 1, 1997, between
SWEPCO and the Bank of New York, as Trustee (incorporated
herein by reference to Exhibit 4.12 of SWEPCO's March 31, 1997
Form 10-Q, File No. 1-3146).
14 Amended and Restated Trust Agreement of SWEPCO Capital I, dated
as of May 1, 1997, among SWEPCO, as Depositor; the Bank of New
York, as Property Trustee; the Bank of New York (Delaware), as
Delaware Trustee; and the Administrative Trustee (incorporated
herein by reference to Exhibit 4.13 of SWEPCO's March 31, 1997
Form 10-Q, File No. 1-3146).
15 Guarantee Agreement, dated as of May 1, 1997, delivered by
SWEPCO for the benefit of the holders of SWEPCO Capital I's
Preferred Securities (incorporated herein by reference to
Exhibit 4.14 of SWEPCO's March 31, 1997 Form 10-Q, File No.
1-3146).
16 Agreement as to Expenses and Liabilities, dated as of May 1,
1997 between SWEPCO and SWEPCO Capital I (incorporated herein
by reference to Exhibit 4.15 of SWEPCO's March 31, 1997 Form
10-Q, File No. 1-3146).
WTU
(a) Indenture dated August 1, 1943, as amended through July 1,
1973, of WTU, incorporated herein by reference to Exhibit 5.05
in File No. 2-60712.
4-10
<PAGE>
(b) Supplemental Indentures to the First Mortgage Indenture:
DATED FILE REFERENCE EXHIBIT
May 1, 1979 2-63931 2.02
November 15, 1981 2-74408 4.02
November 1, 1983 Form U-1, No. 70-6820 12
April 15, 1985 Form U-1, No. 70-6925 13
August 1, 1985 2-98843 4 (b)
May 1, 1986 Form U-1, No. 70-7237 4
December 1, 1989 Form U-1, No. 70-7719 3
June 1, 1992 Form U-1, No. 70-7936 10
October 1, 1992 Form U-1, No. 72-8057 10
February 1, 1994 Form U-1, No. 70-8265 10
March 1, 1995 Form U-1, No. 70-8057 10 (b)
October 1, 1995 Form U-1, No. 70-8057 10 (c)
(10) MATERIAL CONTRACTS.
CSW
* + 1 Change in Control Agreement between CSW and E. R. Brooks.
* + 2 Change in Control Agreement between CSW and Thomas V.
Shockley, III.
* + 3 Change in Control Agreement between CSW and Ferd. C. Meyer, Jr.
* + 4 Change in Control Agreement between CSW and Glenn D. Rosilier.
* + 5 Change in Control Agreement between CSW and Venita
McCellon-Allen.
* + 6 Change in Control Agreement between CSW and Thomas M. Hagan.
* + 7 Change in Control Agreement between CSW and Glenn Files.
* + 8 Change in Control Agreement between CSW and Robert L. Zemanek.
* + 9 Change in Control Agreement between CSW and Richard H. Bremer.
* + 10 Change in Control Agreement between CSW and Richard P. Verret.
* + 11 Change in Control Agreement between CSW and T. J. Ellis.
* + 12 Change in Control Agreement between CSW and Terry D. Dennis.
* + 13 Change in Control Agreement between CSW and Bruce Evans.
* + 14 Change in Control Agreement between CSW and Pete Churchwell.
* + 15 Change in Control Agreement between CSW and Michael D. Smith.
* + 16 Change in Control Agreement between CSW and Floyd Nickerson.
+ 17 Restricted Stock Plan for Central and South West Corporation
(incorporated herein by reference to Exhibit 10(a) to CSW's
1990 Form 10-K, File No. 1-1443).
+ 18 Central and South West System Special Executive Retirement
Plan (incorporated herein by reference to Exhibit 10(b) to
CSW's 1990 Form 10-K, File No. 1-1443).
+ 19 Executive Incentive Compensation Plan for Central and South
West System (incorporated herein by reference to Exhibit 10(c)
to the Corporation's 1990 Form 10-K, File No. 1-1443).
20 Central and South West Corporation Stock Option Plan
(incorporated herein by reference to Exhibit 10(d) to the
Corporation's 1990 Form 10-K, File No. 1-1443).
21 Central and South West Corporation Deferred Compensation Plan
for Directors (incorporated herein by reference to Exhibit
10(e) to the Corporation's 1990 Form 10-K, File No. 1-1443).
+ 22 Central and South West Corporation 1992 Long-Term Incentive
Plan (incorporated herein by reference to Appendix A to the
Central and South West Corporation Notice of 1992 Annual
Meeting of Shareholders and Proxy Statement).
4-11
<PAGE>
23 Agreement and Plan of Merger, dated as of December 21, 1997, by
and among American Electric Power Company, Inc.; a New York
Corporation, Augusta Acquisition Corporation, a Delaware
Corporation and a wholly-owned subsidiary of AEP; and Central
and South West Corporation, a Delaware Corporation
(incorporated herein by reference to the Joint Proxy Statement,
File No. 1-1443).
(12) STATEMENTS RE COMPUTATION OF RATIOS.
CPL, PSO, SWEPCO AND WTU
* 1 CPL's Statement re computation of Ratio of Earnings to Fixed
Charges for the five years ended December 31, 1997.
* 2 PSO's Statement re computation of Ratio of Earnings to Fixed
Charges for the five years ended December 31, 1997.
* 3 SWEPCO's Statement re computation of Ratio of Earnings to
Fixed Charges for the five years ended December 31, 1997.
* 4 WTU's Statement re computation of Ratio of Earnings to Fixed
Charges for the five years ended December 31, 1997.
* (13) ANNUAL REPORT TO SECURITY HOLDERS.
CSW's 1997 Financial Report.
* (21) SUBSIDIARIES OF THE REGISTRANT (CSW).
(23) CONSENT OF EXPERTS AND COUNSEL.
CSW, CPL, PSO
* 1 CSW's Consent of Independent Public Accountants.
* 2 CSW UK Finance Company Consent of Independent Public
Accountants.
* 3 CPL's Consent of Independent Public Accountants.
* 4 PSO's Consent of Independent Public Accountants.
(24) POWER OF ATTORNEY.
CSW
* 1 Power of Attorney.
* 2 Power of Attorney.
* 3 Power of Attorney.
* 4 Power of Attorney.
CPL
* 5 Power of Attorney.
* 6 Power of Attorney.
* 7 Power of Attorney.
PSO
* 8 Power of Attorney.
* 9 Power of Attorney.
* 10 Power of Attorney.
SWEPCO
* 11 Power of Attorney.
* 12 Power of Attorney.
* 13 Power of Attorney.
4-12
<PAGE>
WTU
* 14 Power of Attorney.
* 15 Power of Attorney.
* 16 Power of Attorney.
(27) FINANCIAL DATA SCHEDULES.
WTU
* 1 WTU's Financial Data Schedule
(D) INDEX TO FINANCIAL STATEMENT SCHEDULES.
OTHER SCHEDULES.
All other exhibits and schedules are omitted because of the absence of
the conditions under which they are required or because the required
information is included in the financial statements or related notes to
financial statements.
4-13
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF LOUISIANA
IN RE:
CASE NO. 94-11474
CAJUN ELECTRIC POWER
COOPERATIVE, INC., Chapter 11
DEBTOR. USDC NO. 94-CV-2763-B2
AMENDED AND RESTATED JOINT PLAN OF REORGANIZATION FOR
CAJUN ELECTRIC POWER COOPERATIVE, INC.
SUBMITTED JOINTLY BY THE COMMITTEE OF CERTAIN MEMBERS AND
SOUTHWESTERN ELECTRIC POWER COMPANY DATED MARCH 18, 1998
The Committee of Certain Members of Cajun Electric Power Cooperative
Inc. ("Committee of Certain Members") and Southwestern Electric Power Company
("SWEPCO")(collectively the "Proponents") hereby propose the following plan of
reorganization ("Plan") which provides for the liquidation of Cajun Electric
Power Cooperative, Inc., the debtor herein ("Debtor" or "Cajun"):
SUMMARY OF THE PLAN
The Proponents have joined together to present to the creditors of
Cajun and the Court a Plan that will resolve Cajun's bankruptcy through the
sale of Cajun's non-nuclear assets to a SWEPCO affiliate, and the voluntary
initiation of new power supply arrangements by and between a SWEPCO affiliate
and Cajun's former members. The Plan has the goal of offering competitive
wholesale rates to the Cajun member cooperatives ("Members"), while maximizing
value to the Cajun estate.
The Plan provides for the acquisition of Cajun's non-nuclear assets by
a subsidiary or affiliate of SWEPCO. The consideration paid under the Plan will
be $940.5 million (subject to adjustments as provided in the Asset Purchase
Agreement and this Plan). The Plan in addition, includes a settlement of a
variety of pending litigation involving the lien claims of the Rural Utilities
Service("RUS"). This Plan is the only plan which relies exclusively on the
execution of consensual agreements with the Members for the purchase of
wholesale power. In addition, the Plan incorporates the River Bend Settlement
negotiated among the Proponents and Entergy Gulf States, Inc. ("GSU"). The Plan
is the only plan that has the potential to harmonize the distinct perspectives
of the Members, the LPSC and the RUS. In short, the Proponents' Plan is the only
feasible plan that can be confirmed without years of litigation.
The distinguishing attribute of the Plan is that it produces
competitive wholesale rates to cooperatives serving over one million Louisiana
residents and maximizes the value of the Cajun estate. The cooperatives cannot
and will not remain viable at non-competitive rates, as evidenced by the
bankruptcy of Washington St. Tammany Electric Cooperative, Inc., the insolvency
and acquisition of Bossier Rural Electric Membership Corporation, the sale of
Teche Electric Cooperative, Inc. to Central Louisiana Electric Company, Inc.,
and the financial difficulties currently experienced by other cooperatives.
The Plan includes consensually negotiated average wholesale rates at a
competitive level, which would immediately provide significant rate relief to
Louisiana ratepayers while also maximizing the value of the estate. Any plan
that unilaterally proposes higher, non-competitive and non-consensual rates in
an effort to extract excessive value from Louisiana ratepayers would not provide
a permanent solution to the substantial rate disparity between cooperatives on
the one hand, and investor-owned and municipal utilities on the other hand.
The Plan provides for an enterprise (hereinafter "SWECO") to be formed
by SWEPCO as a wholly owned subsidiary or affiliate to acquire Cajun's
non-nuclear assets more specifically defined in the Asset Purchase Agreement
(hereinafter the "Acquired Assets"). Under the Plan, SWECO will purchase the
Acquired Assets for a price of $940.5 million (subject to adjustments as set
forth in the Asset Purchase Agreement and this Plan payable in cash (the
"Purchase Price") pursuant to the terms and conditions proposed in an Asset
Purchase Agreement.
<PAGE>
SWEPCO/Members Page 2
First Amended Joint Plan of Reorganization
The Asset Purchase Agreement that will be executed by SWECO shall be
substantially in the form of the Asset Purchase Agreement which is attached as
EXHIBIT 1 to the Plan. On the Effective Date of the Plan, the Members and SWECO
shall voluntarily enter into new Power Supply Agreements substantially in the
form of EXHIBIT 2 attached to the Plan, whereby pursuant to the terms and
conditions of the Power Supply Agreements, SWECO shall be obligated to supply
the Members, and the Members electing to enter into the Power Supply Agreements
shall be obligated to purchase all of their power requirements from SWECO. To
the extent that there are any conflicts between the terms of the Plan and the
Asset Purchase Agreement, the provisions of the Asset Purchase Agreement shall
control. Unless specifically provided otherwise in the Plan, the Plan generally
contemplates that any assets remaining in Cajun after the consummation of the
Asset Purchase Agreement and the River Bend Settlement will be (i) liquidated by
the Trustee with the proceeds of such liquidation distributed in accordance with
the Plan; or (ii) conveyed by the Trustee to the holder of the lien on such
assets. The Purchase Price, liquid assets and any proceeds of other assets
liquidated by the Trustee shall be distributed in accordance with the terms of
this Plan.
On August 26, 1996, Judge Frank J. Polozola signed an Order and
Judgment Approving Settlement by and among Cajun Electric Power Cooperative,
Inc., Entergy Gulf States, Inc., Entergy Corporation, and the Rural Utilities
Service of the Department of Agriculture (the "Order"). A true and correct copy
of the Order is attached as EXHIBIT 3 to the Plan. The settlement approved by
the Order (hereinafter the "River Bend Settlement"), among other things: puts an
end to years of expensive litigation among Cajun, GSU, and the RUS; provides for
the transfer of Cajun's River Bend Interest at the discretion of the RUS to a
bidder, the RUS or GSU; provides for the establishment of a Decommissioning
Trust Fund; and settles the claims of GSU that put at issue the Trustee's
ability to transfer Cajun's non-River Bend assets apart from the River Bend
assets and obligations and free and clear of all liens and encumbrances. The
Order provides that the settlement could be consummated independent of any plan
of reorganization. The Order has been affirmed by the United States Court of
Appeals for the Fifth Circuit and GSU has acquired Cajun's River Bend Interest
pursuant to the terms of the River Bend Settlement.
The Committee of Certain Members, SWEPCO and the RUS reached a
settlement of certain issues concerning the validity of the liens and security
interests of the RUS against the estate. The Amended and Restated Settlement
Agreement is attached hereto as EXHIBIT 4 and is incorporated in this Plan as if
fully set forth herein. Certain terms of the Amended and Restated Settlement
Agreement are effective without Court approval. The terms of paragraphs 4 and 7
require approval of the Court, and the Proponents seek approval of those terms
as part of this Plan. This Plan is contingent on approval of the Amended and
Restated Settlement Agreement.
TERMS OF THE PLAN
ARTICLE 1: DEFINITIONS
1.1 "ACQUIRED ASSETS" is defined in the Asset Purchase Agreement.
1.2 "ADMINISTRATIVE EXPENSE CLAIM" means any Claim constituting a cost
or expense of administration of Cajun's Chapter 11 case incurred on or after the
Petition Date of the kind described in Section 503(b) of the Bankruptcy Code,
including, without limitation, any fees or charges assessed against Cajun's
estate under Chapter 123 of title 28, United States Code, fees and expenses of
the Trustee and professionals employed by the Estate, costs and expenses of
preserving the Estate, taxes described in Section 503(b)(1)(B) of the Bankruptcy
Code, certain employee claims arising after the Petition Date, cure amounts for
executory contracts and unexpired leases assumed or assumed and assigned by the
Trustee under the Plan.
1.3 "ALLOWED ADMINISTRATIVE EXPENSE CLAIM" means any Administrative
Expense Claim which, after notice and hearing, is determined by Final Order of
the Court to be an Administrative Expense Claim entitled to payment in
accordance the Bankruptcy Code.
1.4 "ALLOWED CLAIM" means any Claim against the Debtor, (i) the proof
of which was filed on or before the Bar Date; or (ii) that was scheduled by the
Debtor as liquidated in amount and not disputed or contingent; and (iii) in
either case, a Claim to which no objection is timely filed or that is allowed by
a Final Order of the Court.
<PAGE>
SWEPCO/Members Page 3
First Amended Joint Plan of Reorganization
1.5 "ALLOWED CONVENIENCE CLAIM" means any Allowed Claim originally
scheduled by the Debtor in the amount of $20,000 or less.
1.6 "ALLOWED SECURED CLAIM" means any Allowed Claim to the extent of
the value of (i) a lien on the assets which are property of the estate, or (ii)
a right of set-off under Code Section 553.
1.7 "ALLOWED UNSECURED CLAIM" means any Allowed Claim to the extent it
is not secured either by a valid, enforceable and unavoidable lien on the
Debtor's assets or a right of set-off under Code Section 553.
1.8 "ASSET PURCHASE AGREEMENT" means the agreement by and between the
Trustee and SWECO providing for the sale of the Acquired Assets to SWECO
substantially in the form as attached hereto as EXHIBIT 1.
1.9 "AVOIDANCE ACTIONS" means all direct or derivative rights, claims
and causes of action which constitute property of the Estate, including but not
limited to claims under Code Sections 506, 510, 542, 543, 544, 545, 546, 547,
548, 549, 550, 551 and 553, and any state laws corresponding thereto.
1.10 "BAR DATE" means October 1, 1995, the date designated by the
Court in its Order dated August 21, 1995 as the last day for filing a proof of
Claim.
1.11 "BIG CAJUN II, UNIT 3 JOPOA" means that Joint Ownership
Participation and Operating Agreement by and between Debtor and GSU, dated as of
November 14, 1980.
1.12 "CAJUN" means Cajun Electric Power Cooperative, Inc., the debtor
in this Chapter 11 Case.
1.13 "CHAPTER 11 CASE" means this Chapter 11 case of Cajun (Case No.
94-11474; USDC No. 94-CV-2763-B2).
1.14 "CLAIM" means a claim as defined in Code Section 101(5) against
Cajun.
1.15 "CLAIMANT" means a person or entity who holds or asserts a Claim.
1.16 "CLASS 6 FUND" means a fund to be established by the Trustee for
distribution to holders of Class 6 Claims under section 6.3 hereof.
1.17 "CLECO" means Central Louisiana Electric Company, Inc., as
successor in interest to Teche Electric Cooperative, Inc.
1.18 "COBANK" means CoBank, N.A., formerly National Bank for
Cooperatives.
1.19 "COBANK CLASS E STOCK" means the Class E stock of CoBank owned by
Cajun.
1.20 "CODE SECTION" means a section of the United States Bankruptcy
Code, 11 U.S.C. '101 et seq., as in effect with respect to the Reorganization
Case.
1.21 "COMMITTEE OF CERTAIN MEMBERS" means the Committee of Certain
Members of Cajun Electric Power Cooperative, Inc., an unofficial committee
currently composed of the following seven Members: Beauregard Electric
Cooperative, Inc., Dixie Electric Membership Corporation, Jefferson Davis
Electric Cooperative, Inc., Northeast Louisiana Power Cooperative, Inc., South
Louisiana Electric Cooperative Association, Valley Electric Membership
Corporation and Washington-St. Tammany Electric Cooperative, Inc.
1.22 "CONFIRMATION DATE" means the date of entry by the Court or other
court of competent jurisdiction of the Confirmation Order.
1.23 "CONFIRMATION ORDER" means the order of the Court confirming this
Plan.
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SWEPCO/Members Page 4
First Amended Joint Plan of Reorganization
1.24 "COURT" means the United States District Court for the Middle
District of Louisiana, exercising its original bankruptcy jurisdiction pursuant
to 28 U.S.C. Section 1334, or the United State Bankruptcy Court for the Middle
District of Louisiana to the extent any proceeding was referred to it by said
District Court.
1.25 "DEBTOR" means Cajun Electric Power Cooperative, Inc., the debtor
in this Chapter 11 Case.
1.26 "DECOMMISSIONING TRUST FUND" means a segregated trust fund to be
established to satisfy obligations for Decommissioning Costs (as defined in the
River Bend Settlement).
1.27 "DISBURSEMENT ACCOUNTS" means that certain interest bearing
accounts to be established under the supervision of the Trustee pursuant to
section 6.4 hereof, into which the Purchase Price, Net Proceeds of Excluded
Assets, Net Proceeds of Avoidance Actions and the Class 6 Fund are deposited.
1.28 "DISPUTED CLAIM" means a Claim which is not an Allowed Claim.
1.29 "EFFECTIVE DATE" means a date selected by the Proponents for this
Plan to become effective, for documents to be executed to implement the
provisions of the Plan, and for the Acquired Assets to be transferred to SWECO
pursuant to the terms of the Asset Purchase Agreement which date shall be not
later than 90 days after the Confirmation Order becomes a Final Order and all
required conditions to closing set forth in the Asset Purchase Agreement and all
conditions to effectiveness specified herein are satisfied. As set forth in the
Asset Purchase Agreement, the Effective Date of the Plan shall be the same date
as the "Closing Date" of the Asset Purchase Agreement (as that term is defined
in the Asset Purchase Agreement), on which date the closing of the sale of the
Acquired Assets to SWECO and related transactions shall occur. The Effective
Date of the Plan shall occur on the same date as the Closing Date, but the
Effective Date of the Plan shall occur at the close of business on such date and
immediately after the closing of the sale of assets pursuant to the Plan.
1.30 "ESTATE" means the bankruptcy estate of the Debtor created by
Bankruptcy Code Section 541.
1.31 "EXCESS FUNDS" means (a) the funds contained in a certain
segregated account that are collected by Debtor pursuant to the Order Concerning
Use of Cash Collateral and Adequate Protection approved by the Court on February
13, 1995; (b) the funds contained in a certain segregated account (variously
referred to in Debtor's bankruptcy proceedings as the "Interest Escrow Account,"
the "Ratepayer Trust Fund," the "Debt Service Escrow Account," and the ALPSC
Escrow Account') that are collected pursuant to LPSC Order No. U-17735-F, as
amended by LPSC Order No. U-17735-H; and (c) all interest on the funds described
in (a) and (b) immediately preceding, less any sums necessary to fund the
Decommissioning Trust Fund as provided in the River Bend Settlement.
1.32 "EXCLUDED ASSETS" is defined in the Asset Purchase Agreement.
1.33 "FINAL ORDER" means an order or judgment (a) as to which the time
has expired within which a proceeding for review (whether by way of rehearing,
appeal, certiorari or otherwise) may be commenced, without any such proceeding
having been commenced, or (b) which, if such a review proceeding was timely
commenced, has been affirmed by the highest tribunal in which review was sought
or remains in effect without modification following termination of such
proceeding for review, and the time has expired within which any further
proceeding for review may be commenced.
1.34 "GSU" means Entergy Gulf States, Inc., a Texas corporation
formerly known as Gulf States Utilities Company.
1.35 "HIBERNIA" means Hibernia National Bank, acting as indenture
trustee for the Industrial Revenue Bonds (Cajun Electric Power Cooperative, Inc.
Project), Series 1982.
1.36 "INITIAL DISTRIBUTION DATE" shall mean a date no later than 30
days after the Effective Date when the initial payments on account of Allowed
Claims, as set forth in this Plan, shall be made.
1.37 "LPSC" means the Louisiana Public Service Commission.
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SWEPCO/Members Page 5
First Amended Joint Plan of Reorganization
1.38 "AMEMBER INTERESTS" means the Members' interests in Cajun as
evidenced by a Membership Certificate issued by Cajun to each Member pursuant to
Section 2 of Cajun's Bylaws.
1.39 "MEMBERS" means Beauregard Electric Cooperative, Inc., Claiborne
Electric Cooperative, Inc., CLECO, Concordia Electric Cooperative, Inc., Dixie
Electric Membership Corporation, Jefferson Davis Electric Cooperative, Inc.,
Northeast Louisiana Power Cooperative, Inc., Pointe Coupee Electric Membership
Corporation, South Louisiana Electric Cooperative Association, Southwest
Louisiana Electric Membership Corporation, Valley Electric Membership
Corporation and Washington-St. Tammany Electric Cooperative, Inc.
1.40 "NET PROCEEDS" means as to any Excluded Asset or Avoidance Action
the total gross proceeds less all reasonable and necessary costs associated with
the liquidation of such Excluded Asset or prosecution of such Avoidance Action.
1.41 "ORDINARY COURSE ADMINISTRATIVE EXPENSE CLAIMS" shall be limited
to Administrative Expense Claims incurred in the ordinary course of Cajun's
business and shall not include: (i) any post-petition obligations which are past
due or cure payments; (ii) any fees or expenses of the Trustee or "professional
persons" (as that term is used in Section 327 of the Bankruptcy Code) and any
expenses, compensation, or reimbursement requested pursuant to subsections
503(b)(2), (3), (4) or (5) of the Bankruptcy Code; (iii) any Taxes (including
income, sales, use, property or other Taxes) except for sales and use Taxes
incurred other than in the sale of Cajun's assets pursuant to the Asset Purchase
Agreement or the River Bend Settlement; (iv) any claims for breach of contract,
tort, or other actionable conduct; and (v) any post-petition obligations
incurred under executory contracts or unexpired leases which are rejected in
this Plan or prior to the Effective Date of the Plan.
1.42 "PETITION DATE" means December 21, 1994.
1.43 "PROPONENTS" means the Committee of Certain Members and SWEPCO.
1.44 "PRO RATA" means the factor of the amount of the Allowed Claim
multiplied by the fraction of the funds available for distribution to a class
divided by total Allowed Claims in a class plus reserves determined in
accordance with section 6.6 of the Plan for all Disputed Claims in a class.
1.45 "PURCHASE PRICE" is defined in the Asset Purchase Agreement.
1.46 "REPRESENTATIVE" means, with respect to any specified entity, the
officers, directors (or functional equivalent, if any), employees, agents,
attorneys, accountants, financial advisors, other representatives, subsidiaries,
affiliates or any person who controls any of these within the meaning of the
Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as
amended.
1.47 "RIVER BEND" means River Bend Nuclear Station Unit 1, a 936MW
nuclear generating facility located in St. Francisville, Louisiana, which was
co-owned by Cajun and GSU and which is now owned and operated by GSU.
1.48 "RIVER BEND JOA" means the River Bend Joint Operating Agreement
between GSU and Cajun.
1.49 "RIVER BEND SETTLEMENT" means the settlement between Cajun, GSU
and the RUS as currently defined in the Order and Judgment Approving Settlement
by and among Cajun Electric Power Cooperative, Inc., Entergy Gulf States, Inc.,
Entergy Corporation, and the Rural Utilities Service of the Department of
Agriculture, signed by the Honorable Frank J. Polozola on August 26, 1996, in
Civil Action No. 94 2763-B2 in the United States District Court for the Middle
District of Louisiana.
1.50 "RUS" means the United States of America, acting through the Rural
Utilities Service (formerly the Rural Electrification Administration), an agency
within the United States Department of Agriculture.
1.51 "RUS SETTLEMENT" means the settlement terms described in
paragraphs 4 and 7 of the Amended and Restated Settlement Agreement by and among
SWEPCO, the Committee of Certain members and the RUS, attached as Exhibit 4
hereto, and incorporated herein.
<PAGE>
SWEPCO/Members Page 6
First Amended Joint Plan of Reorganization
1.52 "SETTLEMENT AMOUNT" means the amount of $20.24 million payable to
the Class 6 Fund pursuant to the RUS Settlement.
1.53 "SUPPLY CONTRACTS" means the long term all-requirements contracts
between the Debtor and each of its Members.
1.54 "SWECO" means Southwestern Wholesale Electric Company, an entity
to be formed as a wholly owned subsidiary or affiliate by SWEPCO to acquire the
Acquired Assets.
1.55 "SWEPCO" means Southwestern Electric Power Company, a
Louisiana-based investor owned utility.
1.56 "TAXES" means all taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, inventory,
capital stock, license, withholding, payroll, employment, social security,
unemployment, excise, severance, stamp, occupation and property taxes, customs
duties, fees, assessments and charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign) and any interest and penalties
imposed with respect to the filing, obligation to file or failure to file any
return for such tax, and shall include any transferee liability in respect to
Taxes.
1.57 "TRUSTEE" means the Chapter 11 trustee appointed herein by the
Court, or any successor Trustee that may be subsequently appointed by the Court.
ARTICLE II: TREATMENT OF UNCLASSIFIED CLAIMS.
2.1 TREATMENT OF ADMINISTRATIVE CLAIMS.
(a) Each holder of an Allowed Administrative Expense Claim shall
receive, on account of such Administrative Expense Claim, cash in the amount of
such Allowed Administrative Expense Claim on the later of the Effective Date or
within ten days after the date the Administrative Expense Claim becomes an
Allowed Administrative Expense Claim, except to the extent any holder agrees to
a different treatment. An Administrative Expense Claim which is subject to the
Administrative Expense Claim Bar Date and the Supplemental Administrative Claim
Bar Date shall be paid only to the extent such claim is timely filed and allowed
as Administrative Expense Claim by the Court by Final Order. Notwithstanding the
foregoing, the Trustee and professionals employed at the expense of the Estate
and entities which may be entitled to reimbursement or the allowance of fees and
expenses from the Estate pursuant to subparagraphs (2) through (6) of Code
Section 503 (b) shall receive cash in the amount awarded to such professionals
and entities at such times and only in accordance with a Final Order entered
pursuant to Code Sections 330, 331 or Code Sections 503 (b) (2) through (6).
(b) (1) On the Effective Date, all real (immovable) property and
personal (movable) property Taxes with respect to the Acquired
Assets for the tax years occurring prior to the Effective
Date, which are Ordinary Course Administrative Expense Claims
and which have not already been paid in the ordinary course of
business, shall be paid in full in cash by the Trustee, except
to the extent that the holder agrees to a different treatment.
All immovable property and movable property Taxes with respect
to the Acquired Assets for the tax year in which the Effective
Date occurs, which are Ordinary Course Administrative Expense
Claims, shall be prorated through the Effective Date based on
the most current assessment information available from the
offices of the assessor and sheriff of the respective parishes
in which the Acquired Assets are located. Cajun's share of
such prorated Taxes shall be paid in cash on the Effective
Date by the Trustee, except to the extent the holder agrees to
a different treatment. All special assessments against the
Acquired Assets for utilities or otherwise, which are Ordinary
Course Administrative Expense Claims, shall be paid in full by
the Trustee in cash prior to or on the Effective Date, except
to the extent a holder agrees to a different treatment.
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SWEPCO/Members Page 7
First Amended Joint Plan of Reorganization
(2) All real (immovable) property and personal (movable)
property Taxes with respect to Excluded Assets, which are
Ordinary Course Administrative Expense Claims shall be paid
when due in cash in the ordinary course of business.
(3) All Taxes with respect to Acquired Assets or Excluded
Assets, which are Administrative Expense Claims, but which are
not Ordinary Course Administrative Expense Claims, and all
other Allowed Administrative Expense Claims which are not
Ordinary Course Administrative Expense Claims, and which are
therefore subject to the Administrative Expense Claim Bar Date
will be paid in cash only to the extent such claims are timely
filed and are Allowed as Administrative Expense Claims by the
Court by Final Order. Such Allowed Administrative Expense
Claims will be paid on the later of the Effective Date or ten
(10) days after the date such claims are Allowed by the Court
by Final Order, except to the extent a holder agrees to a
different treatment.
(4) For the tax year in which the Effective Date occurs, any
income Taxes which may be owing for that tax year shall be
deemed to be incurred by the Estate, for purposes of the
application of Code Section 503(b)(1)(B), to the extent that
such Taxes would be owed if the Effective Date was the date on
which the tax year closed for Cajun (the "Effective Date Tax
Year"). For the tax year in which the Petition Date occurred,
any income Tax which may be owing for that tax year shall be
deemed to be incurred by the Estate, for the purpose of Code
Section 503(b)(1)(B), to the extent such Taxes would be owed
if the Petition Date was the date on which the tax year began
for Cajun (the "Petition Date Tax Year"). Any unpaid Allowed
Administrative Expense Claim for income Taxes through and
including the Effective Date Tax Year shall be paid from the
Purchase Price.
(c) Ordinary Course Administrative Expense Claims shall be paid in the
ordinary course of business of Cajun as and when incurred and due. Any such
Ordinary Course Administrative Expense Claims incurred prior to the Effective
Date, and for which consideration has been provided to Cajun prior to the
Effective Date, but which are not yet due in the ordinary course of business on
the Effective Date, shall be paid by Cajun when due.
2.2 ADMINISTRATIVE EXPENSE CLAIM BAR DATES
(a) The Confirmation Order or a separate Court Order shall set a bar
date for the filing of Administrative Expense Claims arising prior to the
Confirmation Date (the "Administrative Expense Claim Bar Date"). Any
Administrative Expense Claims which are subject to the Administrative Expense
Claim Bar Date that are not filed on or prior to such bar date shall be
discharged under the Plan, but shall not be treated as an Administrative Expense
Claim or any other Claim for purposes of distribution under the Plan, whether or
not an objection is initiated.
(b) The Confirmation Order or a separate Court Order shall set a bar
date for the filing of Administrative Expense Claims arising subsequent to the
Confirmation Date, but prior to the Effective Date (the "Supplemental
Administrative Expense Claim Bar Date"). Such Administrative Expense Claims
filed pursuant to the Supplemental Administrative Expense Claim Bar Date may
only include Claims for the period between the Confirmation Date and the
Effective Date, and may not allege any Claims arising out of or from the period
prior to the Confirmation Date. Any Administrative Expense Claims which are
subject to the Supplemental Administrative Expense Claim Bar Date that are not
filed on or prior to such bar date shall be discharged under the Plan, but shall
not be treated as an Administrative Expense Claim or any other Claim for
purposes of distribution under the Plan, whether or not an objection is
initiated.
(c) This subsection and not subsections 2.2(a) and (b) shall apply to
income Taxes described in Code Section 503(b)(1)(B). The Confirmation Order or a
separate Court Order will set a bar date for the filing of Administrative
Expense Claims arising from income Taxes for the period beginning on the
Petition Date and ending on the Effective Date (the "Tax Administrative Expense
Claim Bar Date"). The Tax Administrative Expense Claim Bar Date shall be ninety
(90) days after the Effective Date, provided that such ninety (90) day period
shall not begin to run until Cajun shall file an appropriate tax return or, in
the case of the Petition Date Tax Year or the Effective Date Tax Year, until
Cajun shall provide the equivalent tax return information for such tax years.
The tax return for information for the purpose of determining federal income
Taxes shall be signed under penalty of perjury, shall include all information
that a corporate income tax return would contain, and shall be provided to the
<PAGE>
SWEPCO/Members Page 8
First Amended Joint Plan of Reorganization
Internal Revenue Service within a reasonable time after the Effective Date. Any
Administrative Expense Claim arising out of an income Tax claim described in
Code Section 503(b)(1)(B) subject to the Tax Administrative Expense Claim Bar
Date that is not filed on or prior to such bar date shall be discharged under
the Plan, but shall not be treated as an Administrative Expense Claim or any
other Claim for purposes of distribution under the Plan, whether or not an
objection is initiated. Any Administrative Expense Claim timely filed pursuant
to this subsection 2.2(c) on or prior to the Tax Administrative Expense Claim
Bar Date shall be allowed as filed unless an objection to such Administrative
Expense Claim is filed and served not later than 180 days after the filing of
the Administrative Expense Claim, and, after notice and a hearing conducted
pursuant to the Bankruptcy Code and Rules, the Court allows such claim in a
lesser amount.
2.3 TREATMENT OF PRE-PETITION, PRIORITY TAX CLAIMS. The Trustee shall
pay in cash on the Initial Distribution Date the full amount of each Allowed
Unsecured Claim entitled to priority under Code Section 507(a)(8) from the
Disbursement Accounts either, at the option of the Trustee: (a) on the latest of
(i) the Effective Date; (ii) within 60 days after the date on which such Claim
becomes an Allowed Claim; or (iii) such other time as is agreed upon by the
holder of such Claim and the Trustee; or (b) through deferred cash payments over
a period to not exceed six (6) years after the date of assessment of such Claim,
of a value as of the date such Claim becomes an Allowed Claim or such other time
as is agreed upon by the holder of such Claim and the Trustee. If the Trustee
opts to make deferred cash payments, such payments shall be made in equal annual
installments of principal, plus simple interest accruing from the date such
Claim becomes an allowed Claim at 6% per annum on the unpaid portion of the
Allowed Claim or such other rate as the Court may approve. The first such
payment shall be payable at the latest of (a) the Effective Date; (b) within 60
days after the date on which such Claim becomes an Allowed Claim; or (c) such
other time as is agreed upon by the holder of such Claim and the Trustee;
provided, however, that the Trustee shall have the right to prepay any such
Allowed Claim or any remaining balance of such Claim, in full or in part, at any
time on or after the Effective Date without premium or penalty. The foregoing
treatment is consistent with the requirements of Code Section 1129(a)(9)(C). In
no event shall SWECO or SWEPCO be liable for the payment of any Tax claim
allowed under Code Section 507(a)(8) whether such claims are payable in cash or
through deferred cash payments.
ARTICLE III: CLASSIFICATION OF CLAIMS AND INTERESTS.
Claims required to be classified under Code Section 1123(a)(1) and
Member Interests are classified as follows:
3.1 CLASS 1. ALL OTHER PRIORITY CLAIMS. All Allowed Unsecured Claims
entitled to priority under Code Section 507(a) (other than 507(a)(1) and (8))
shall be treated in Class 1. Class 1 is unimpaired.
3.2 CLASS 2. ALLOWED SECURED CLAIM OF RUS. Class 2 consists of the
Allowed Secured Claim of the RUS. Class 2 is impaired.
3.3 CLASS 3. ALLOWED SECURED CLAIM OF COBANK. Class 3 consists of the
Allowed Secured Claim of CoBank. Class 3 is impaired.
3.4 CLASS 4. ALLOWED SECURED CLAIM OF HIBERNIA. Class 4 consists of the
Allowed Secured Claim of Hibernia. Class 4 is impaired.
3.5 CLASS 5. ALLOWED OTHER SECURED CLAIMS. Class 5 consists of all
Allowed Secured Claims not otherwise classified above, if any. Each secured
claim will be treated as a separate class for purposes of voting and treatment
under the Plan. Class 5 is impaired.
3.6.1 CLASS 6(A). ALLOWED CONVENIENCE CLAIMS. The Allowed Convenience
Claims consist of all Claims listed by the Debtor's schedules as being in an
amount of $20,000 or less.
<PAGE>
SWEPCO/Members Page 9
First Amended Joint Plan of Reorganization
3.6.2 CLASS 6(B). ALLOWED UNSECURED CLAIMS. Class 6(b) consists of all
Allowed Unsecured Claims, not otherwise classified, including but not limited to
Members' claims,1 deficiency claims and claims arising from the rejection of
executory contracts. Class 6(b) is impaired.
3.7 CLASS 7. MEMBER INTERESTS. Class 7 consists of the interests of the
Members in the Debtor. Class 7 is impaired.
ARTICLE IV: CLASSES IMPAIRED BY THE PLAN.
Claimants in Class 1 are UNIMPAIRED under the Plan and, therefore, are
not being solicited to vote on the Plan pursuant to 11 U.S.C. Section 1126(f).
Claimants and holders of Member Interests in Classes 2, 3, 4, 5, 6, and 7 are
IMPAIRED under the Plan and are being solicited to accept or reject the Plan.
The Proponents, however, specifically reserve the right to contest (1)
the impaired or unimpaired status of a class under the Plan; and (2) whether any
ballots cast by holders of claims or interests in of such class should be
allowed to be counted for purposes of confirmation of the Plan.
ARTICLE V: TREATMENT OF CLASSIFIED CLAIMS.
5.1 CLASS 1. ALL OTHER PRIORITY CLAIMS. All Allowed Priority Claims
entitled to priority treatment under Code Section 507(a) (except Administrative
Expense Claims in Section 2.1) shall be paid in cash on the Initial Distribution
Date.
5.2 CLASS 2. ALLOWED SECURED CLAIM OF THE RUS. The claims of the RUS
include its contingent liability arising out of its guarantees of Cajun's
obligations arising from eight (8) promissory notes payable to First Interstate
Bank of Arizona, N.A., Trustee of Cooperative Utility Trust (Cajun Series)
("FIB"). FIB has filed proofs of claim totaling $982,648.00 constituting
non-priority, general unsecured claims (the "FIB Claims"). The RUS has made
payments to FIB pursuant to its guarantees of the FIB Claims and to the extent
that RUS has made payments pursuant to its guarantees, it is subrogated to the
FIB Claims. To the extent FIB has Claims which are not subrogated to RUS, unless
FIB and RUS agree otherwise, FIB will vote its unsubrogated Claim as a Unsecured
Claim in Class 6 and the amount of the RUS's Unsecured Claim will be reduced by
the amount of the unsubrogated FIB Claims. The Allowed Secured Claim of the RUS
shall be treated as follows:
(a) If the RUS Settlement is approved by separate order of the Court or
as part of the Confirmation Order, then in complete and full
satisfaction of the Allowed Secured Claim of the RUS, on the Initial
Distribution Date, the RUS will receive
(1) the Purchase Price less amounts necessary to pay all
Allowed Administrative Expense Claims, Allowed Ordinary Course
Administrative Expense Claims, Allowed Priority Tax Claims,
Allowed Other Priority Claims, the Allowed Secured Claim of
Hibernia, Allowed Other Secured Claims to the extent secured
by the Acquired Assets; and the Settlement Amount payable to
the Class 6 Fund; and
(2) all Excluded Assets (or the Net Proceeds thereof) not
otherwise subject to liens or interests securing Allowed Other
Secured Claims; and
(3) the RUS and the Committee of Certain Members have asserted
claims to Excess Funds. If a Final Order is entered in favor
of the Members, the funds, or a portion thereof, in accordance
with the terms of the Final Order will be disbursed to Members
or to the Members' constituents subject to the approval of the
LPSC. Alternatively, if a Final Order is entered in favor of
- --------
1 The Trustee or other parties may contend that a portion or all
of the Members' Allowed Unsecured Claims are subordinated to
other Allowed Unsecured Claims. If the subordination is
established by Final Order, some or all of the Members'
Allowed Unsecured Claims will be treated as subordinate to
Allowed Unsecured Claims not otherwise subject to
subordination.
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SWEPCO/Members Page 10
First Amended Joint Plan of Reorganization
the RUS, the funds or a portion thereof, in accordance with
the Final Order will be disbursed to the RUS as part of its
Allowed Secured Claim.
5.3 CLASS 3. ALLOWED SECURED CLAIM OF COBANK. CoBank filed a proof of
claim asserting a secured claim in the amount of $25,486,702.50 plus interest,
renewal fees, and expenses. In June 1983, pursuant to a Tax Benefit Transfer
Agreement, Cajun transferred federal income tax ownership of certain property to
the Clorox Company ("Clorox"). In July 1983, Cajun entered into a similar
transaction with Eastman Kodak Company ("Kodak"). These Tax Benefit Transfer
Agreements (the "TBT Agreements") require Cajun to issue and maintain for the
benefit of Clorox and Kodak, respectively, letters of credit in scheduled
amounts which were expected to be sufficient to reimburse Clorox and Kodak for
any losses of tax benefits caused by Cajun.
In connection with each TBT Agreement, Cajun and New Orleans Bank for
Cooperatives ("NOBC"), CoBank's predecessor, executed a Letter of Credit and
Reimbursement Agreement (collectively the "Letter of Credit Agreements") for
Cajun to reimburse CoBank if draws were made under the letter of credit issued
for the benefit of Clorox and Kodak. CoBank and its predecessor have twice
renewed the letter of credit. The amounts now available to be drawn by Clorox
and Kodak are $10,632,750.00 and $11,309,847.50, respectively (the "LC Debt").
The LC Debt is purportedly secured by a Supplemental Mortgage, a
Subordinated Mortgage, Security Agreement and Financing Statements as amended
and supplemented from time to time, an Act of Collateral Pledge dated January
23, 1988 and certain statutory liens. It is believed that this claim of CoBank
is largely contingent and matures only if a disqualifying event occurs under the
TBT Agreements or if the letter of credit is not renewed prior to its
expiration.
In a proof of claim, filed September 27, 1995 with the Court, CoBank
made a Claim for certain loan obligations owed it by Cajun, which Claim is
represented by the outstanding principal balances on four separate promissory
notes made by Cajun to CoBank, which notes were guaranteed by RUS. These notes
(collectively the "Incorporated Indebtedness") were incorporated into the
indebtedness owed RUS by Cajun pursuant to a certain Debt Restructure Agreement,
dated May 31, 1990, between RUS and Cajun. No distribution under the Plan shall
be made to CoBank, on account of the Incorporated Indebtedness, but all such
distributions shall be made to RUS. In addition, RUS shall have the sole right
to vote the Claims represented by the Incorporated Indebtedness as part of its
Class 2(a)(1) Allowed Secured Claim.
Under the Plan, liability for the contingent claims of CoBank shall be
assumed by SWECO on the Effective Date as and to the extent provided in the
Asset Purchase Agreement, and SWECO will execute with CoBank new Letter of
Credit Agreements to further evidence the purchaser's assumption. SWECO will
seek to structure the Asset Purchase Agreement in such a way as to avoid a
disqualifying event occurring under the TBT Agreements. However, in the event
that the sale of Cajun's assets to SWECO pursuant to the acquisition or the
implementation of the acquisition or the action or structure of the purchaser on
the Effective Date causes the indemnity obligation of Cajun to Kodak and/or
Clorox to mature and a subsequent draw on a letter of credit, SWECO will assume
the reimbursement obligation of the Estate to CoBank arising solely as a result
of an act or omission by SWECO (net of the existing cash collateral held by
CoBank). If such indemnity obligation so matures, CoBank shall apply all cash
collateral it then holds against the reimbursement obligation, and SWECO shall
immediately pay the balance of the reimbursement obligation to CoBank, and SWECO
shall be entitled to Cajun's rights to the future retirement payments made by
CoBank to retire the Class E Stock from time to time, together with any CoBank
patronage dividends, etc. until such time as SWECO has been paid in full its
reimbursement obligation with interest. Following payment to SWECO of any
reimbursement obligation, all future retirement payments and patronage dividends
shall be paid by CoBank directly to the RUS.
If it is determined that a triggering event occurred such that Cajun's
indemnity obligation to CoBank matures and constitutes an Administrative Expense
Claim of the Estate, then CoBank shall apply all cash collateral it then holds
against the indemnity obligation, and the Estate shall immediately pay the
balance of the indemnity obligation to CoBank. The Estate shall then be entitled
to Cajun's rights in the future retirement payments made by CoBank to retire the
Class E Stock from time to time, together with future patronage dividends,
proceeds, etc., and SWECO shall not assume Cajun's indemnity obligation.
Subsequent to the Effective Date, if no disqualifying event has
occurred under the tax benefit transfer agreements on or prior to the Effective
Date, the contingent claims of CoBank shall continue to be secured by existing
and future CoBank Class E Stock, proceeds thereof and related collateral
(including patronage dividends, accumulated cash accounts, CoBank Class E Stock,
retirements and the proceeds thereof) ("CoBank Collateral") as more fully
described in the Pledge Agreement to be entered into between CoBank and the
<PAGE>
SWEPCO/Members Page 11
First Amended Joint Plan of Reorganization
owners and beneficial owners of such collateral, and CoBank's liens on CoBank
Collateral and its proceeds shall not be discharged or otherwise released or
extinguished by confirmation of the Plan, but shall be retained by CoBank
following the Effective Date. In addition, on the Effective Date, CoBank shall
be entitled to charge the existing cash collateral account it holds for all
unpaid letter of credit fees from the Petition Date through the Effective Date,
and SWECO shall pay all letter of credit fees thereafter. CoBank shall also be
entitled to charge the existing cash collateral account $250,000 for
reimbursement of a portion of its legal fees and expenses incurred since the
inception of the chapter 11 case. On the Effective Date, however, CoBank shall
be deemed to have released any other mortgage or lien on Cajun or reorganized
Cajun's assets securing CoBank's claims, except for the CoBank Collateral.
Accordingly, on and after the Effective Date, CoBank shall have no interest in
any other assets, including, but not limited to, the Acquired Assets and the
sales proceeds thereof.
In addition, on and after the Effective Date of the Plan, to the extent
that the sum of 75% of the face amount of the Class E Stock and the amount of
all funds accumulated in the cash account held by CoBank from time to time
(calculated quarterly) exceeds 110% of the then aggregate amount of the
indemnity obligation assumed by SWECO, the excess shall be paid by CoBank to the
RUS.
If, the RUS, the holder of the CoBank Class E Stock designated
by the Plan is not an "eligible borrower" of CoBank, then CoBank shall issue
replacement Participation Certificates with the only difference from the CoBank
Class E Stock being the right to vote. Nothing contained in the Plan is intended
to extinguish or reduce any rights of CoBank against RUS on any RUS guarantee,
nor any continuing obligations of RUS to make timely payments on such
guarantees, and such claims and obligations as between RUS and CoBank shall
survive confirmation of the Plan.
To the extent any inconsistencies exist between (a) Section 3.11 of the
Asset Purchase Agreement and/or any other provisions of the Asset Purchase
Agreement and (b) this Section 5.3, Section 5.3 of this Plan shall control the
treatment of CoBank's Allowed Secured Claim.
5.4 CLASS 4. ALLOWED SECURED CLAIM OF HIBERNIA. The Allowed Secured
Claim of Hibernia representing the Industrial Development bonds, secured by the
Debtor's current headquarters, building and land, shall, unless Hibernia Bank
agrees otherwise, be paid in full in cash totaling the amount of its Allowed
Secured Claim on the later of (a) the Effective Date or (b) if an objection to
such claim has been filed, within ten days of the date on which an order
allowing such Claim becomes a Final Order. Hibernia shall retain its rights,
liens and security interests until its Allowed Secured Claim is paid in full.
The contingencies contained in previous orders of the Court, upon the occurrence
of which Hibernia would be required to return the funds previously paid to it
are eliminated. Therefore, Hibernia will unconditionally retain the funds that
have been paid to it and its claim will be $900,000 (minus any amounts applied
to principal when Hibernia received the payment pursuant to the June 19, 1997
Order, and any future principal payments received) plus, as allowed, interest,
fees, expenses and premiums and other amounts to Hibernia pursuant to the terms
of the agreements governing these obligations.
5.5 CLASS 5. ALLOWED OTHER SECURED CLAIMS. Each holder of an Allowed
Other Secured Claim shall, at the Trustee's option: (a) be paid, on the Initial
Distribution Date, on account of its Allowed Secured Claim, cash totaling the
amount of such Allowed Secured Claim; (b) be paid, on account of its Allowed
Secured Claim, the Net Proceeds of the sale of any property which is subject to
the lien or interest securing said Allowed Claim, which sales shall be made in
accordance with Code Section 1129(a)(2)(A)(ii); or (c) receive the property
which is subject to the lien or interest securing said Allowed Claim in full
satisfaction of the Allowed Claim of such holder. In the event of option (b)
above, such amount shall be paid on the last to occur of (1) the Effective Date,
(2) within ten (10) days after the date on which an order allowing such Allowed
Other Secured Claim becomes a Final Order, or (3) within ten (10) days after
closing of a sale of the property which is subject to the liens securing said
Allowed Claim. In the event of option (c) above, the property which is subject
to the liens securing said Allowed Other Secured Claim shall be transferred on
the later of (1) the Effective Date, or (2) as soon as practicable after the
date on which an order allowing such Secured Claim becomes a Final Order. Any
such property transferred to holders of Allowed Other Secured Claims under this
paragraph shall be transferred either by abandonment of such property by the
Trustee under Code Section 554 or by transfer of such property "as-is,
where-is," without representation or warranty by Debtor or the Trustee, at the
Trustee's sole option and discretion.
5.6 CLASS 6(A) AND 6(B). ALLOWED UNSECURED CLAIMS AND ALLOWED
CONVENIENCE CLAIMS. In full and complete satisfaction of all Allowed Convenience
Claims and Allowed Unsecured Claims, holders of such Claims will be paid a Pro
<PAGE>
SWEPCO/Members Page 12
First Amended Joint Plan of Reorganization
Rata share of the Class 6 Fund. If the RUS Settlement is approved by
Final Order or as part of the Confirmation Order, the RUS shall waive its right
to distribution from the Class 6 Fund on account of its Allowed Unsecured Claim,
and the members of the Committee of Certain Members shall waive their right to
distribution on account of their Allowed Unsecured Claims. If, after payment in
full of Allowed Unsecured Claims and Allowed Convenience Claims under the Plan
(other than the deficiency claim of the RUS), funds remain from the liquidation
of assets and from successful avoidance actions, the RUS, as the sole remaining
holder of an Allowed Unsecured Claim, will receive such remaining funds until
its unsecured claim is paid in full.
5.7 CLASS 7. MEMBER INTERESTS. The interests of the Members in the
Debtor shall be canceled as of the Effective Date.
ARTICLE VI: MEANS FOR IMPLEMENTING PLAN.
6.1 CONSUMMATION OF THE RIVER BEND SETTLEMENT. The River Bend
Settlement shall be consummated pursuant to the Order and Judgment Approving
Settlement by and among Cajun Electric Power Cooperative, Inc., Entergy Gulf
States, Inc., Entergy Corporation and the Rural Utilities Service of the
Department of Agriculture dated August 26, 1996 (the "Order"). The Order
provides that the River Bend Settlement may be consummated independent of any
plan of reorganization.
6.2 SALE OF ACQUIRED ASSETS TO SWECO. On the Effective Date, SWECO
shall purchase the Acquired Assets and the Acquired Assets shall be transferred
to SWECO pursuant to the terms and conditions of the Asset Purchase Agreement, a
copy of which is attached hereto as EXHIBIT 1 and incorporated herein for all
purposes. The Purchase Price shall be deposited in the Disbursement Accounts. On
the Effective Date, unless otherwise specifically provided in this Plan, the
Acquired Assets shall be transferred by the Trustee to SWECO free and clear of
all liens, claims and interests. The Trustee shall be deemed to have entered
into the Asset Purchase Agreement as of the date of the Confirmation Order.
6.3 CLASS 6 FUND. The Class 6 Fund shall be established and deposited
in one of the Disbursement Accounts for purposes of establishing a fund
available for Pro Rata distribution to Class 6. The amount of the Class 6 Fund
shall be the Settlement Amount of $20,240,000 plus all Net Proceeds from
Avoidance Actions.
6.4 DISBURSEMENT ACCOUNTS. On or prior to the Effective Date, the
Trustee shall set up one or more interest bearing accounts to be designated as
the Disbursement Accounts, which account or accounts shall comply with Code
Section 345 except as otherwise ordered by the Court. Except as otherwise
provided in the Plan, the Purchase Price and all Net Proceeds from the sale or
other disposition of Excluded Assets and Avoidance Actions shall be deposited in
the Disbursement Accounts with all valid liens and interests attaching to said
Net Proceeds.
6.5 CLAIMS OBJECTION DEADLINE. Each Claim as to which a proof of claim
has been filed prior to the Bar Date or that is listed as undisputed, liquidated
and non-contingent in the schedules filed by the Debtor shall be allowed without
order of the Court unless an objection thereto is filed and served in accordance
with Bankruptcy Rule 3007 no later than 180 days after the Confirmation Date or
180 days after such Claim is first filed, whichever is later.
6.6 DISPUTED OR UNDETERMINED CLAIMS AND RESERVES THEREFOR.
(1) No payments or distributions shall be made with respect to all
or any portion of a Claim which does not constitute an Allowed
Claim. The Trustee shall reserve funds for the payment of
those Claims which are to receive distributions under the Plan
and which, as of the date of any distribution, do not
constitute an Allowed Claim. Such reserve shall be made by
retaining an amount equal to the distribution such claim would
have received from such distribution based on the lesser of
(i) the amount of the Claim, or (ii) the amount in which the
Claim shall be estimated by the Court pursuant to Code Section
502(c) for the purpose of allowance, which amount shall be the
maximum amount in which such Claim may ultimately become an
Allowed Claim.
(2) In order to pay any Administrative Expense Claim for federal
income Taxes that may be Allowed and payable under this Plan,
the Trustee shall reserve the amount of $20 million until the
allowed Administrative Expense Claim, if any, for the Estate's
federal income Tax(es) is paid in full (the "Income Tax
<PAGE>
SWEPCO/Members Page 13
First Amended Joint Plan of Reorganization
Reserve Fund"). Upon the establishment of the Income Tax
Reserve Fund, the Trustee may distribute the remainder of the
Purchase Price, in accordance with the provisions of this Plan
and shall be absolved and released from any personal liability
for the Estate's federal income Taxes; notwithstanding the
foregoing, the Trustee shall be obligated under this Plan to
distribute to the United States of America through the
Internal Revenue Service (the "IRS") any amounts necessary
from the Income Tax Reserve Fund to satisfy any Allowed
Administrative Expense Claim for the Estate's federal income
Taxes. In the event the Allowed Administrative Expense Claim
for the Estate's federal income Taxes exceeds the Income Tax
Reserve Fund, the governmental entities, the RUS and the IRS,
will resolve any issues regarding disgorgement of funds
between themselves, in accordance with the terms of this
paragraph. If the allowed Administrative Expense Claim for the
Estate's federal income Taxes is less than the Income Tax
Reserve Fund, then, after payment of the allowed
Administrative Expense Claim for federal income taxes in full,
the remainder of the Income Tax Reserve Fund shall be
distributed in accordance with the provisions of this Plan. In
the event the Allowed Administrative Expense Claim for the
Estate's federal income Taxes exceeds the Income Tax Reserve
Fund, the RUS shall disgorge part of the funds distributed to
it pursuant to this Plan sufficient to pay any remaining
amounts due to the IRS in order to satisfy the allowed
Administrative Expense Claim for the Estate's federal income
Taxes in full. In the event that this subsection 6.6(2) is
complied with and a $20 million reserve fund is established,
then, in no event shall the IRS be entitled to disgorgement
of, nor shall the Trustee be required to recover by
disgorgement, any funds distributed to creditors other than
the RUS under this Plan in order to satisfy the Allowed
Administrative Expense Claim for the Estate's federal income
Taxes.
6.7 IMPLEMENTATION. Pursuant to Code Section 1142(b) and Bankruptcy
Rule 7070, the Trustee shall execute or deliver any and all documents or
instruments, or to perform any other act necessary to implement or consummate
this Plan. If the Trustee refuses to comply with such direction, the Court may
direct the Trustee's compliance with the Plan, or direct the U.S. Trustee to
appoint a new trustee to implement and consummate this Plan.
ARTICLE VII: EXECUTORY CONTRACTS.
7.1 SUPPLY CONTRACTS. On the Effective Date, SWECO and the Members who
have consensually agreed to do so, shall execute new power supply agreements to
replace and supersede the Supply Contracts with the Debtor substantially in the
form attached hereto as EXHIBIT 2. Any power supply agreements between the
Debtor and those Members who have not agreed to enter into new power supply
agreements as set forth above, shall be neither assumed nor rejected, but shall
remain in effect and subject to any collateral assignments to the RUS, to the
extent of applicable state and federal law:
7.2 RIVER BEND JOA. Cajun shall be deemed to have rejected the River
Bend JOA.
7.3 BIG CAJUN II, UNIT 3 JOPOA. The Big Cajun II, Unit 3 JOPOA will be
assumed by the Trustee and assigned to SWECO on the Effective Date.
7.4 ALL OTHER EXECUTORY CONTRACTS. On the Effective Date, the Trustee
shall be deemed to reject all other executory contracts of the Debtor, except as
may expressly be otherwise set forth in the Asset Purchase Agreement, and for
executory contracts identified on a list of assumed executory contracts which
has been filed by SWEPCO with the Court. The contracts so identified shall be
deemed assumed as of the Effective Date. All payments necessary to cure any
defaults on contracts to be assumed and assigned to SWECO, shall be paid as
Administrative Expense Claims under Section 2.1 on the Initial Distribution
Date.
ARTICLE VIII: MISCELLANEOUS PROVISIONS.
8.1 VOTING. All of the classes (except Class 1) are eligible to vote on
the Plan.
<PAGE>
SWEPCO/Members Page 14
First Amended Joint Plan of Reorganization
8.2 CRAMDOWN. In the event any class of creditors that is impaired does
not accept the Plan as provided in Code Section 1129(a)(8)(A), the Proponents
request that the Court confirm the Plan pursuant to Code Section 1129(b).
8.3 MODIFICATIONS OF THE PLAN. The Proponents may jointly modify the
Plan in accordance with Code Section 1127.
8.4 U.S. TRUSTEE FEES. All fees payable by the Debtor pursuant to 28
U.S.C. Section 1930 have been paid or shall be paid as of the Effective Date by
the Trustee.
8.5 RELEASE. In consideration for agreements made by each of the
parties set forth herein in connection with the terms and conditions of the
Plan, the Trustee shall, on the Effective Date, release and discharge all direct
or derivative rights, claims and causes of action which constitute property of
the Estate, including but not limited to claims under Code Sections 506, 510,
542, 543, 544, 545, 546, 547, 548, 549, 550, 551 and 553, and any state laws
corresponding thereto, arising prior to the Effective Date, against (i) SWEPCO,
SWECO, Central and South West Corporation, and their respective current and
former Representatives, and, (ii) if the RUS Settlement is approved by Final
Order or as part of the Confirmation Order, the RUS and its respective current
and former Representatives.
8.6 SETOFFS. Subject to the limitations provided in Code Section 553,
all parties retain their rights of setoff or recoupment pursuant to applicable
law. Neither the failure to set off the Estate's claim nor the allowance of any
Claim hereunder shall constitute a waiver or release by the Estate of any such
claim that the Estate may have against the holder, nor shall it constitute a bar
by res judicata and/or collateral estoppel to the assertions of Claims, either
prepetition or postpetition, by the Estate as the case may be.
8.7 SURRENDER OF INSTRUMENTS AND RELEASE OF LIENS. Each claimant who is
to receive distributions under the Plan in satisfaction of a Claim shall not
receive such distributions until such claimant executes a release of any lien(s)
(in recordable form if appropriate) and delivers the same to the Trustee. Any
such claimant that fails to surrender such instrument or satisfactorily explain
its non-availability or to execute such release of liens shall be deemed to have
no further Claim and shall not participate in any distribution under the Plan.
8.8 CONDITIONS TO EFFECTIVENESS. This Plan shall not become effective
and the Effective Date will not occur until the following conditions have been
met or shall have been waived in writing by SWEPCO:
(a) All conditions specified in Article VI: "Conditions to the
Acquisition" in the Asset Purchase Agreement;
(b) Judgment(s) that are Final Order(s) shall have been
entered determining that GSU has no liability to
Burlington Northern and Santa Fe Railway Co.,
American Commercial Marine Service Company, Triton
Coal Company or Western Fuels Association relating to
any obligations, contractual or otherwise, owed or
contracted for by Cajun to or with such entities;
(c) No order or judgment shall have been entered in favor
of any entity determining that GSU has liability to
such entity relating to any obligations, contractual
or otherwise, owed or contracted for by Cajun to or
with such entity; and
(d) Court approval in the confirmation Order or by separate
Order of the RUS Settlement.
8.9 FEES AND EXPENSES. Pursuant to Code Section 1123(a)(4), fees for
services, costs and expenses incurred in connection with Cajun's bankruptcy case
or in connection with the Plan and incident to Cajun's bankruptcy case,
including, but not limited to the reasonable fees, costs and expenses of secured
creditors, parties to unexpired leases or executory contracts to be assumed, and
indenture trustees shall be subject to approval of the Court.
<PAGE>
SWEPCO/Members Page 15
First Amended Joint Plan of Reorganization
ARTICLE IX: RESERVATION OF RIGHTS AND PROPERTY.
9.1 CAUSES OF ACTION. Except for claims expressly settled or released
pursuant to this Plan, and claims set forth in the following sentence, the
Trustee shall retain all causes of action it may have under state or federal law
including the United States Bankruptcy Code, and the Trustee in his discretion
shall be authorized to prosecute (or not prosecute) any such actions as fully
and completely as if the same were being prosecuted by a trustee in bankruptcy.
The Trustee shall be provided with a litigation fund to pay fees and expenses in
pursuing such causes of action in the amount of $150,000 from the purchase
price, and such amount shall be reserved as an anticipated administrative
expense. All claims and causes of action of the estate of any nature or kind,
known or unknown, asserted or unasserted which arise from or relate to the
assets purchased by and conveyed to SWECO, shall on the Effective Date be deemed
assigned and conveyed to SWECO.
9.2 VESTING OF PROPERTY IN TRUSTEE AND SWECO. On the Effective Date,
all of the property of the Estate that is not sold to SWECO, if any, or
otherwise liquidated shall be vested in the Trustee, free and clear of all
Claims and interests of creditors except as provided for in the Plan, and the
Trustee at his election shall be entitled to liquidate such assets without
further order of the Court pursuant to Code Section 1141(b) or transfer them to
any lienholder in full satisfaction of the secured claim on such assets. Upon
the completion of the liquidation of the assets or re-vesting in the Trustee, if
any, the Trustee shall cause and implement the dissolution of Cajun under
Louisiana law. All assets conveyed to SWECO (i.e. the Acquired Assets) shall be
conveyed free and clear of all liens, claims, interests and encumbrances,
whether lien claims or otherwise, unless otherwise specifically authorized by
this Plan. The conveyance to SWECO shall further be free and clear of any claims
of successorship liability, and SWECO shall have no successor liability as a
result of its purchase of the Acquired Assets, or as a result of any provisions
of this Plan or of the Asset Purchase Agreement.
ARTICLE X. REQUIRED APPROVALS.
The effectiveness of the Plan and the obligations of the Proponents
hereunder are subject to regulatory approvals by Final Order and all other
conditions as set forth in the Asset Purchase Agreement. The boards of directors
of the Proponents reserve the right to approve all final closing documents.
ARTICLE XI. RETENTION OF JURISDICTION.
After confirmation of the Plan, the Court shall retain jurisdiction for
the following purposes:
(1) For the classification of Claims and for the re-examination of
any Claims that have been allowed for purposes of voting, and
the determination of such objections as may be filed to
Claims. The failure to object to or to examine any Claim for
the purpose of voting shall not be deemed to be a waiver of
the right to object to, or re-examine the Claim in whole or in
part;
(2) For determination of all questions and disputes regarding
title to the assets of the estate, determination of all causes
of action, controversies, disputes, or conflicts, whether or
not subject to action pending as of the date the Confirmation
Order is entered, between the Trustee and any other party,
including but not limited to, any rights of the Trustee to
prosecute Avoidance Actions, and to recover money or assets
pursuant to the provisions of the Bankruptcy Code;
(3) For the correction of any defect, the curing of any omission,
or the reconciliation of any inconsistency in this Plan or the
Confirmation Order as may be necessary to carry out the
purposes and intent of this Plan;
(4) To consider any matters brought before the Court by an
interested party necessary to carry out the terms, conditions
and intent of this Plan;
(5) For the modification of this Plan after confirmation pursuant
to the Bankruptcy Rules and the Bankruptcy Code;
<PAGE>
SWEPCO/Members Page 16
First Amended Joint Plan of Reorganization
(6) To enforce and interpret the terms and conditions of this
Plan;
(7) To enter any order, including injunctions, necessary to
enforce the title, rights and powers of the Debtor and to
impose such limitations, restrictions, terms and conditions of
such title, rights, and powers as this Court may deem
necessary;
(8) To determine whether a default has occurred under the Plan or
the Asset Purchase Agreement, and make such orders as the
Court deems necessary to enforce the provisions of the Plan or
the Asset Purchase Agreement; and
(9) To enter an order concluding and terminating this case.
Respectfully submitted on this 18th day of March, 1998.
<PAGE>
Respectfully submitted on this 18th day of March, 1998.
COMMITTEE OF CERTAIN MEMBERS OF
CAJUN ELECTRIC
By: Bobby S. Gilliam
Bobby S. Gilliam
Louisiana State Bar No. 6227
Wilkinson, Carmody & Gilliam
400 Travis Street, Suite 1700
Shreveport, La 71101
Telephone: 318/221-4196
Facsimile: 318/221-3705
By: Henry J. Kaim
Henry J. Kaim
Texas State Bar No. 11075400
Edward L. Ripley
Texas State Bar No. 16935950
Patricia Baron Tomasco
Texas State Bar No. 01797600
SHEINFELD, MALEY & KAY, P.C.
3700 First City Tower
1001 Fannin Street, Suite 3700
Houston, Texas 77002-6797
Telephone: (713) 658-8881
Fascimile: (713) 658-9756
ATTORNEYS FOR SOUTHWESTERN
ELECTRIC POWER COMPANY
<PAGE>
COMMITTEE OF CERTAIN MEMBERS
OF CAJUN ELECTRIC
By: Melanie Rovner Cohen, Attorney
Melanie Rovner Cohen, Attorney
Melanie Rovner Cohen
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606
312-715-4000
COMMITTEE OF CERTAIN MEMBERS OF
CAJUN ELECTRIC
By: John M. Sharp
John M. Sharp, Local Counsel
John M. Sharp (Bar No. 19149)
A Professional Law Corporation
14481 Old Hammond Highway,
Suite 2
Baton Rouge, LA 70816
504-273-8510
<PAGE>
SWEPCO/Members Page 18
First Amended Joint Plan of Reorganization
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a copy of the Amended and Restated
Joint Plan of Reorganization has been served, via Federal Express, on this 18th
day of March, 1998, to all parties on the attached distribution list.
Henry J. Kaim
Henry J. Kaim
SHEINFELD, MALEY & KAY, P.C.
3700 First City Tower
1001 Fannin Street, Suite 3800
Houston, Texas 77002-6797
<PAGE>
PARTIES RECEIVING SERVICE OF
SWEPCO PLAN/DISCLOSURE STATEMENT
Ralph Mabey, Trustee NRG Energy, Inc./Zeigler Coal Holding
c/o Lon A. Jenkins Company
LeBoeuf Lamb Green & MacRae c/o Brad Axelrod
1000 Kearns Building Jones, Walker, Waechter, Potevent, Carrere
136 South Main Street & Denegre
Salt Lake City, UT 84101 8555 United Plaza, Fifth Floor
Baton Rouge, LA 70809-7000
Ralph Mabey, Trustee Southern Electric International, Inc.
c/o David S. Rubin c/o J. Robert Stoll
Kantrow, Spaht, Weaver & Blitzer Mayer, Brown & Platt
City Plaza - Suite 300 190 South La Salle Street
445 North Boulevard Chicago, IL 60603
Baton Rouge, LA 70821
Ralph Mabey, Trustee Southern Electric International, Inc.
c/o Keith A. Lord c/o Matt J. Farley
Wasserstein Perella & Co., Inc. Deutsch, Kerrigan & Stiles, L.L.P.
31 West 52nd Street, 26th Floor 755 Magazine Street
New York, NY 10019 New Orleans, LA 70130
Cajun Electric Power Enron Capital & Trade Resources Corp.
Cooperative, Inc. c/o Alfredo R. Perez
10719 Airline Highway Bracewell & Patterson LLP
P.O. Box 15540 711 Louisiana Street, Suite 2900
Baton Rouge, LA 70895 Houston, TX 77002
NRG Energy, Inc./Zeigler Coal Enron Capital & Trade Resources Corp.
Holding c/o J. Kenton Parsons
c/o Michael A. Rosenthal Roedel, Parsons, Hill & Kock
Gibson, Dunn & Crutcher 3440 Jefferson Highway, Suite 301
1717 Main Street, Suite 5400 Baton Rouge, LA 70809
Dallas, TX 75201
<PAGE>
Southwestern Electric Power Rural Utilities Service
Company c/o Frances M. Toole
c/o Bobby S. Gilliam United States Department of Justice
Wilson, Carmody & Gilliam Civil Division, Commercial Litigation
400 Travis Street Branch
1700 Beck Building P.O. Box 81100
P.O. Box 1707 Washington, DC 20044
Shreveport, LA 71166
Milanie Cohen Louisiana Public Service Commission
Altheimer & Gray c/o Michael R. Fontham
10 South Wacker Drive Stone, Pigman, Walther, Wittman &
Chicago, Illinois 60606 Hutchinson LLP
546 Carondolet Street
New Orleans, LA 70130
Gulf States Utilities Securities and Exchange Commission
c/o Tom F. Phillips, Esq. Document Control
Taylor, Porter, Brooks & Stop 1-4, Room 1004
Phillips, LLP 450 5th Street, N.W.
451 Florida Street, 8th Floor Washington, DC 20549
Baton Rouge, LA 70801
Official Unsecured Creditors' John Lee, Esq.
Committee Securities and Exchange Commission
c/o Gerald M. Amero 500 W. Madison
One Monument Place Chicago, IL 60661
Portland, ME 04104
Official Unsecured Creditors' Office of the United States Trustee
Committee Attn: Janice Taylor
Breazeale, Sachse & Wilson LLP Texaco Center, Suite 2110
One American Plaza 400 Poydras Street
23rd Floor New Orleans, LA 70130
Baton Rouge, LA 70825
Rural Utilities Service James R. Lackie
c/o Frances M. Toole Kean, Miller, Hawthorne, D'Armond,
United States Department of McCowan & Jarman, L.L.P.
Justice One American Place
Civil Division, Commercial 22nd Floor
Litigation Baton Rouge, Louisiana 70825
1100 L Street, N.W., Room 10102
Washington, DC 20005
<PAGE>
John David Ziober James B. Supple, Esq.
Shockey & Ziober Biggs, Trowbridge, Supple & Cremaldi
5551 Corporate Boulevard Lawless Building
Suite 3-A 200 Willow Street
Baton Rouge, Louisiana 70808 Franklin, Louisiana 70538-0565
Steve McDonnell John W. Hutchison, Esq.
Central and South West Voorhies & Labbe', A P.L.C
Corporation 700 St. John Street
1616 Woodall Rodgers Freeway Lafayette, Louisiana 70501
Dallas, Texas 75266
Ronald M. Martin Jack L. Smith
Holland & Hart Holland & Hart, LLP
90 S. Cascade, Suite 1000 555 Seventeenth Street, Suite 3200
Colorado Springs, CO 80903 Denver, Colorado 80202
Janet M. Weiss Carl H. Hanchey, Esq.
Gibson, Dunn & Crutcher Jones, Tete, Nolen, Hanchey, Swift &
200 Park Avenue Spears, L.L.P.
47th Floor First Federal Building
New York, NY 10016 1135 Lakeshore Drive, 6th Floor
Lake Charles, Louisiana 70601
Edna Latchem William N. Knight, Esq.
Thibaut, Thibaut, Bacot, 906 North Lake Arthur Avenue
Latchem & Vogt, L.L.P. Jennings, Louisiana 70546
7809 Jefferson Highway,
Building G
Baton Rouge, LA 70809
R. Patrick Vance E. Rudolph McIntyre, Esq.
Jones, Walker McIntyre, McIntyre & McIntyre
207 St. Charles Avenue 810 Pine Street
New Orleans, LA 70130 Winnsboro, Louisiana 71295
Patrick E. Henry, Esq. James M. Funderburk, Esq.
Shaw, Weaver & Henry, L.L.C. Duval, Funderburk, Sundbery & Lovell
522 East Main Street 101 Wilson Avenue
Homer, Louisiana 71040 Houma, Louisiana 70364
V. Russell Purvis, Esq. James J. Davidson, III, Esq.
Smith, Taliaferro, Seibert & Davidson, Meaux, Sonnier, McElligott &
Purvis Swift
407 Mound Street 810 South Buchanan Street
Jonesville, Louisiana 71343 Lafayette, Louisiana 70501
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Henry C. Gahagan, Jr., Esq.
Gahagan & Conlay
727 Second Street
Natchitoches, Louisiana 71457
Nicholas F. LaRocca, Jr., Esq.
Nicholas F. LaRocca, Jr., Ltd.
607 Brashear Avenue
Morgan City, Louisiana 70380
Clint Pierson, Esq.
Talley, Anthony, Hughes & Knight
4565 LaSalle Street, Suite 300
Acadian Bank Building
Mandeville, Louisiana 70471
Tom Brice
Southwestern Electric Power Company
416 Travis Street
Shreveport, LA 71101
Judah L. Rose
9300 Lee Highway
Fairfax, Virginia 22031-1207
Mike Smith
Central and South West Corporation
1616 Woodall Rogers Freeway, 7th Floor
Dallas, TX 75202
Mike Rico
Central and South West Corporation
1616 Woodall Rogers Freeway, 7th Floor
Dallas, TX 75202
Stephen J. Baron
Kennedy & Associates
35 Glenlake Parkway, Suite 475
Atlanta, Georgia 30328
770/395-1288
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Steve Tick
Sullivan & Tick
7445 East Peakview Avenue
Englewood Colorado 80111
303/740-9775
Mike Yokell
Hagler Bailley
1881 9th Street, Suite 201
Boulder, CO 80302
303/449-5515
Raymond Shapiro
Blank, Rome, Comiskey & McCauley
1200 Four Penn Center Plaza
Philadelphia, PA 19103
215/569-5500
Patrick Johnson, Jr.
Lemle & Kelleher, L.L.P.
Pan-American Life Center, 21st Floor
601 Poydras Street
New Orleans, LA 70130-6097
(504) 584-9417
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DRAFT OF MARCH 17, 1998
ASSET PURCHASE AGREEMENT
AMONG
SOUTHWESTERN WHOLESALE ELECTRIC COMPANY
RALPH R. MABEY,
AS CHAPTER 11 TRUSTEE OF CAJUN ELECTRIC POWER
COOPERATIVE, INC.
AND
AS TO SECTION 7.4 OF THE AGREEMENT ONLY,
SOUTHWESTERN ELECTRIC POWER COMPANY
DATED AS OF ___________, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Defined Terms.................................................1
SECTION 1.2 Interpretation................................................1
SECTION 1.3 Conflict With Plan or Other Transaction Documents.............2
SECTION 1.4 Legal Representation of Parties...............................2
ARTICLE II
THE ACQUISITION
SECTION 2.1 Assets to be Conveyed Free and Clear of Encumbrances..........3
SECTION 2.2 Purchase Price for Acquired Assets............................3
SECTION 2.3 Purchase Price Adjustment for Asset Impairment................3
SECTION 2.4 Other Purchase Price Adjustments. ...........................5
SECTION 2.5 Prorations....................................................5
SECTION 2.6 Liabilities Assumed by SWECO..................................6
SECTION 2.7 Payment of Initial Cash Payment for Acquired Assets...........6
SECTION 2.8 Allocation of Purchase Price..................................6
SECTION 2.9 Further Assurances............................................6
SECTION 2.10 Closing.......................................................7
ARTICLE III
COVENANTS
SECTION 3.1 Access; Due Diligence.........................................7
SECTION 3.2 Conduct of Business...........................................8
SECTION 3.3 Cooperation in Consummation of the Plan and Related Matters..10
SECTION 3.4 Sales Taxes..................................................10
SECTION 3.5 Teche-CLECO Transfer.........................................10
SECTION 3.6 Treatment of Executory Contracts and Unexpired Leases and
Post-Petition Contracts......................................11
SECTION 3.7 Filings, Consents and Approvals..............................12
SECTION 3.8 Employee Matters.............................................13
SECTION 3.9 Notice of Actions and Proceedings............................13
SECTION 3.10 Bankruptcy Filings...........................................13
SECTION 3.11 Safe Harbor Leases...........................................13
SECTION 3.12 Cooperation as to Tax Matters; Proration.....................13
ii
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ARTICLE IV
STATEMENTS AS TO THE EXISTENCE OR NON-EXISTENCE
OF CERTAIN FACTS, CONDITIONS OR EVENTS RELATING TO DEBTOR
SECTION 4.1 Organization and Good Standing...............................14
SECTION 4.2 Authorization of Agreement...................................14
SECTION 4.3 No Violation.................................................14
SECTION 4.4 Ownership of Acquired Assets.................................15
SECTION 4.5 Financial Condition..........................................15
SECTION 4.6 Absence of Undisclosed Liabilities...........................16
SECTION 4.7 Real Property................................................16
SECTION 4.8 Tangible Personal Property...................................16
SECTION 4.9 Intellectual Property Rights.................................16
SECTION 4.10 Employee Benefit Plans.......................................17
SECTION 4.11 Litigation...................................................17
SECTION 4.12 Contracts....................................................17
SECTION 4.13 Compliance with Law; Permits.................................18
SECTION 4.14 Labor and Employment Matters.................................18
SECTION 4.15 Environmental Matters........................................18
ARTICLE V
REPRESENTATIONS OF SWECO
SECTION 5.1 Organization. ..............................................20
SECTION 5.2 Authorization of Agreement...................................20
SECTION 5.3 Approvals....................................................21
SECTION 5.4 No Violation.................................................21
SECTION 5.5 Litigation...................................................21
ARTICLE VI
CONDITIONS TO THE ACQUISITION
SECTION 6.1 Conditions to the Obligations of Each Party..................21
SECTION 6.2 Conditions to the Obligation of SWECO to Consummate the
Acquisition..................................................22
SECTION 6.3 Conditions to the Obligation of the Trustee to Consummate
the Acquisition..............................................26
iii
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ARTICLE VII
Page
AMENDMENT, TERMINATION, EXPENSE
REIMBURSEMENT,LIQUIDATED DAMAGES
SECTION 7.1 Amendment....................................................27
SECTION 7.2 Termination..................................................27
SECTION 7.3 Effect of Termination........................................28
SECTION 7.4 Trustee's Liquidated Damages for SWECO Breach................28
SECTION 7.5 Reimbursement of SWECO's Expenses............................28
SECTION 7.6 SWECO's Liquidated Damages for Trustee Breach................29
SECTION 7.7 First Priority Expenses......................................29
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Expenses.....................................................30
SECTION 8.2 Entire Agreement, Disclosures in Writing.....................30
SECTION 8.3 Counterparts.................................................30
SECTION 8.4 Headings.....................................................30
SECTION 8.5 Notices......................................................30
SECTION 8.6 Governing Law................................................31
SECTION 8.7 No Third-Party Beneficiaries.................................32
SECTION 8.8 Non-Survival of Certain Statements and Representations.......32
SECTION 8.9 Binding, Effect, Assignment..................................32
SECTION 8.10 Further Assurances...........................................32
SECTION 8.11 Waivers and Amendments: Non-Contractual Remedies.............32
SECTION 8.12 No Personal Liability of Trustee.............................32
SECTION 8.13 Obligations of Trustee Subject to Court Approval.............32
iv
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APPENDIX
A Definitions
SCHEDULES
2.4 Coincident Peak Demand
3.6(c) List of Assumed and Assigned Contracts
4.5 Cajun Financial Statements
4.7 List of Real Property
4.8 List of Tangible Personal Property
4.10 List of ERISA Plans
4.11 List of Certain Litigation
4.12 List of Material Contracts
4.13 List of Permits
4.14 Exceptions Regarding Labor and Employment Matters
v
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (including Schedules and Exhibits, this
"Agreement"), dated as of _____________, 1998, is by and among Southwestern
Wholesale Electric Company, a Delaware corporation ("SWECO"), Ralph R. Mabey, as
Chapter 11 Trustee of Cajun Electric Power Cooperative, Inc. (in such capacity,
the "Trustee"), and, solely for purposes of Section 7.4, Southwestern Electric
Power Company, a Delaware corporation ("SWEPCO").
W I T N E S S E T H:
A. Cajun Electric Power Cooperative, Inc. ("Cajun" or the "Debtor") is
the debtor in Chapter 11 case number 94-11474 (the "Case") pending before the
United States Bankruptcy Court for the Middle District of Louisiana;
B. On August 23, 1995, the Trustee was duly appointed as the Chapter 11
trustee of the Debtor in the Case and, on August 30, 1995, the Trustee was duly
qualified to act as the Chapter 11 trustee of the Debtor in the Case; and
C. SWECO, a wholly-owned subsidiary of Central and South West
Corporation, a Delaware corporation ("CSW"), desires to purchase, and the
Trustee desires to cause the Debtor to sell, subject to approval of the Court
(as hereinafter defined), certain assets owned by the Debtor and in connection
therewith SWECO and the Trustee agree to consummate or cause to be consummated
certain other related transactions (such purchase and sale and related
transactions being referred to hereinafter as the "Acquisition") on the terms
and conditions set forth below and otherwise pursuant to the Plan of
Reorganization for the Debtor, dated October 28, 1996, proposed by SWEPCO,
Entergy Gulf States Utilities, Inc. and a committee comprised of certain members
of the Debtor (as it may hereafter be amended or supplemented from time to time,
the "Plan"),
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements. representations and warranties herein contained, and
subject to the conditions hereinafter set forth, the Parties hereto, intending
to be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINED TERMS. Terms that are defined in Appendix A shall
have the respective meanings ascribed to them therein when such terms are used
in this Agreement and the other Transaction Documents, unless a clear contrary
intent appears herein or therein.
SECTION 1.2 INTERPRETATION. In this Agreement and the other Transaction
Documents, unless a clear contrary intention appears herein or therein:
<PAGE>
(a) the singular includes the plural and vice versa;
(b) reference to any Person includes such Person's successors
and assigns unless such Person is a Party hereto in which case such reference
shall include such Person's successors and assigns only if such successors and
assigns are permitted by this Agreement, and reference to a Person in a
particular capacity excludes such Person in any other capacity or individually;
(c) reference to any gender includes each other gender;
(d) reference to any agreement (including this Agreement),
document or instrument means such agreement, document or instrument as amended
or modified and in effect from time to time in accordance with the terms
thereof;
(e) reference to any Law means such Law as amended, modified,
codified or reenacted, in whole or in part, and in effect from time to time, and
shall include any rules and regulations promulgated thereunder by the
Governmental Authority having jurisdiction thereunder to adopt such rules and
regulations;
(f) reference to any Article, Section, Appendix or Schedule,
unless qualified by reference to some other document or instrument, means such
Article or Section of this Agreement or such Appendix or Schedule to this
Agreement, as the case may be, and references in any such Article or Section or
in any definition contained in Appendix A hereto to any clause means such clause
of such Article, Section or definition;
(g) "hereunder", "hereof", "hereto" and words of similar import
shall be deemed references to this Agreement as a whole and not to any
particular Article or Section hereof;
(h) "includes" and "including" are not limiting:
(i) "or" is not exclusive; and
(j) relative to the determination of any period of time, "from"
means "from and including", "to" means "to but excluding" and "through" means
"through and including".
SECTION 1.3 CONFLICT WITH PLAN OR OTHER TRANSACTION DOCUMENTS. If there
is any conflict between this Agreement and the Plan or any other Transaction
Document, this Agreement and the Plan or such other Transaction Document, as the
case may be, shall be interpreted and construed, if possible, so as to avoid or
minimize such conflict. To the extent (and only to such extent) of such
conflict, this Agreement shall prevail and control, except that if there is any
inconsistency between Section 3.11 of this Agreement or any other provision of
this Agreement and Section 5.3 of the Plan, then Section 5.3 of the Plan shall
prevail and control.
2
<PAGE>
SECTION 1.4 LEGAL REPRESENTATION OF PARTIES. This Agreement was
negotiated by the Parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring this Agreement to be
construed or interpreted against any Party shall not apply to any construction
or interpretation hereof.
ARTICLE II
THE ACQUISITION
SECTION 2.1 ASSETS TO BE CONVEYED FREE AND CLEAR OF ENCUMBRANCES. On the
terms and subject to the conditions set forth in this Agreement, on the Closing
Date, the Trustee shall cause the Debtor to convey, transfer, assign, sell and
deliver to SWECO, and SWECO shall acquire, accept and purchase, all of the
Acquired Assets, free and clear of all Encumbrances other than Permitted
Encumbrances; PROVIDED, HOWEVER, that any of the Acquired Assets may, at SWECO's
sole election, be transferred to and acquired by a designee or designees of
SWECO. The Confirmation Order shall provide that the Acquired Assets will be
transferred by the Debtor to SWECO (or, as appropriate, such designee or
designees) on the Closing Date free and clear of all Encumbrances other than
Permitted Encumbrances pursuant to Bankruptcy Code sections 363(f) and 1123 and
that SWECO is purchasing the Acquired Assets in good faith and in exchange for
fair consideration and reasonably equivalent value. The Debtor is not selling,
and SWECO is not purchasing, any of the Excluded Assets pursuant to this
Agreement.
SECTION 2.2 PURCHASE PRICE FOR ACQUIRED ASSETS. Subject to the
adjustments provided in Sections 2.3 and 2.4, the purchase price for the
Acquired Assets (as so adjusted, the "Purchase Price") shall be equal to the sum
of (i) Nine Hundred Thirty-Three Million Five Hundred Thousand Dollars
($933,500,000) payable in cash by SWECO to the Trustee on the Closing Date and
(ii) the lesser of (a) Seven Million Dollars ($7,000,000) and (b) the allowed
amount of unsecured claims (excluding administrative and priority claims)
described and listed in paragraph I.B.2.a. of SWEPCO's Supplemental Disclosure
Statement dated November 12, 1996.
SECTION 2.3 PURCHASE PRICE ADJUSTMENT FOR ASSET IMPAIRMENT
(a) If, during the period from the date hereof through the
Closing, (i) there shall occur any actual or constructive loss, destruction or
damage affecting any of the Acquired Assets or (ii) any of the Core Article IV
Representations shall be untrue and incorrect when made (the occurrence of any
event referred to in the foregoing clauses (i) and (ii) being referred to as an
"Impairment"), then, subject to the other terms and conditions hereof, the
purchase price for the Acquired Assets shall be reduced by the amount (the
"Impaired Asset Adjustment Amount") by which the net economic loss or diminution
in value (on the basis of fair market value) to each Acquired Asset as to which
there has been an Impairment or Impairments (an "Impaired Asset") or the
diminution in the value of the Business resulting or expected to result from the
Impairment, determined after giving effect to any replacements, repairs or
renovations thereof to the extent effected prior to the Closing and any related
insurance proceeds, net of costs of collection, held for transfer to SWECO as
part of the Acquired Assets, exceeds Two Million Five Hundred Thousand Dollars
3
<PAGE>
($2,500,000) in the aggregate. SWECO shall notify the Trustee of any Impairment
known to SWECO by a written notice delivered at least ten (10) Business Days
prior to Closing or, if an Impairment occurs thereafter, on or before the
Closing Date (any such notification of a proposed Impaired Asset Adjustment
Amount is referred to as an "Impaired Asset Notice"). The Impaired Asset Notice
shall include SWECO's good faith estimate of the Impaired Asset Adjustment
Amount. The Impaired Asset Adjustment Amount shall be determined by the mutual
agreement of SWECO and the Trustee or, failing such agreement, by the dispute
resolution procedure specified in Section 2.3(b). Notwithstanding the foregoing,
if the Impaired Asset Adjustment Amount shall exceed Twenty Million Dollars
($20,000,000), the Trustee (if the Impairment does not constitute or result from
a breach by the Trustee of the provisions of this Agreement) and SWECO shall
each have the right to terminate this Agreement pursuant to Section 7.2(b). If
the Impaired Asset Adjustment Amount does not exceed Twenty Million Dollars
($20,000,000), neither Party hereto shall have, in the absence of a breach of
this Agreement by the other Party other than any such breach giving rise to an
Impairment, any right to terminate this Agreement. If the Impaired Asset
Adjustment Amount does not exceed $2,500,000, then the purchase price for the
Acquired Assets shall not be reduced.
(b) If the Trustee and SWECO (or their respective
Representatives) are unable to resolve any disagreement with respect to the
Impaired Asset Adjustment Amount within five (5) Business Days following receipt
by the Trustee of the Impaired Asset Notice then:
(i) The matter(s) in dispute shall be immediately
referred to an independent third party, valuation expert qualified to
value the matter(s) in dispute (a "Valuation Expert") (A) selected by
the Trustee and SWECO mutually within five (5) Business Days following
receipt by the Trustee of the Impaired Asset Notice or (B) if the
Trustee and SWECO fail so to select a Valuation Expert within such
period, designated as promptly as practicable thereafter by the Court,
which designation shall be final and binding on the Parties, without
right of appeal or other review.
(ii) The Valuation Expert shall, as promptly as
practicable, determine the Impaired Asset Adjustment Amount, which
valuation shall be final and binding on the Parties, without right of
appeal or other review.
(iii) If the Valuation Expert fails to make such
determination prior to the Closing Date and SWECO's estimate of the
Impaired Asset Adjustment Amount is less than Five Million Dollars
($5,000,000), the Parties shall, subject to the terms and conditions of
this Agreement, consummate the Closing of the Transactions
(notwithstanding such dispute and referral to the Valuation Expert). At
such Closing, SWECO shall deliver to the Trustee a report that sets
forth in reasonable detail its estimate of the Impaired Assets
Adjustment Amount, as determined by it in good faith and the basis
therefor, and shall pay to the Trustee the disputed portion of the
Impaired Asset Adjustment Amount, and the Trustee shall place such
amount in an escrow account established by Order of the Court pending
final determination of the Impaired Asset Adjustment Amount.
4
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(iv) If SWECO's estimate of the Impaired Asset
Adjustment Amount is more than Five Million Dollars ($5,000,000) and
neither Party shall have elected to exercise any right it may have to
terminate this Agreement, then the Closing of the Transactions shall be
deferred pending final determination of the Impaired Asset Adjustment
Amount.
(v) Any amount paid into escrow pursuant to clause
(iii) shall, upon final determination of the Impaired Asset Adjustment
Amount, be retained by the Trustee or paid to SWECO as their interests
may appear based on such determination.
SECTION 2.4 OTHER PURCHASE PRICE ADJUSTMENTS.
(a) If the Coincident Peak Demand (as set forth on Schedule
2.4) of the Members that enter into New Power Supply Contracts on or prior to
the Closing Date totals less than 1,538.5 megawatts, then, subject to Section
6.2(d) (v), the purchase price for the Acquired Assets may be reduced, at
SWECO's option, by an amount equal to the product obtained by multiplying (i)
the difference in the number of megawatts between the Coincident Peak Demand (as
set forth on Schedule 2.4) of the Members that have entered into a New Power
Supply Contract and 1,538.5 megawatts, by (ii) an amount, not to exceed,
$325,000 per megawatt, selected by SWECO. If SWECO elects to exercise such
option, it shall deliver a notice to that effect to the Trustee prior to the
Closing Date, which notice shall set forth the amount of the reduction per
megawatt and the total amount of the reduction.
(b) If the Closing Date Yield is below 6.26% or above 7.06%,
then the purchase price for the Acquired Assets shall be subject to the
following adjustments:
(i) if the Closing Date Yield is less than 6.26%,
then such purchase price shall be increased by an amount equal to the
product obtained by multiplying the number of Basis Points by which the
Closing Date Yield is less than 6.26% by $700,000; and
(ii) if the Closing Date Yield is greater than 7.06%,
then such purchase price shall be reduced by an amount equal to the
product obtained by multiplying the number of Basis Points by which the
Closing Date Yield exceeds 7.06% by $700,000.
SECTION 2.5 PRORATIONS.
(a) All of the items, including those listed below, relating to
the Business and the operation of the Acquired Assets that would normally be
prorated between a buyer and a seller in accordance with custom and usage
applicable to contracts for the purchase and sale of commercial assets in the
State of Louisiana shall be prorated as of the Closing Date between the Debtor,
which shall be liable to the extent such items relate to any time period to and
including the Closing Date, and SWECO, which shall be liable to the extent such
items relate to periods subsequent to the Closing Date:
5
<PAGE>
(i) personal property, real estate, occupancy and
water taxes, assessments and other charges of Governmental Authorities,
if any, on or with respect to ownership or operation of the Acquired
Assets;
(ii) rents and other lease payments, taxes and other
items payable by the Debtor under any of the Assumed and Assigned
Contracts,
(iii) any permit, license or registration fees with
respect to any Permits that are being assigned or transferred hereunder;
and
(iv) sewer rents and charges for water, telephone,
electricity and other utilities.
(b) If actual taxes, fees and other amounts to be prorated are
not available at the Closing Date, then the proration shall be based upon the
actual taxes, fees and other amounts for the preceding year (or appropriate
period) for which actual taxes, fees and other amounts are available and such
taxes, fees and other amounts shall be reprorated upon the request of either
Party made within 60 days of the date that the actual amounts become available.
The Parties shall furnish each other with such documents and other records as
may be reasonably requested in order to confirm all adjustment and proration
calculations made pursuant to this Section 2.5.
(c) The amount of all salaries, wages, vacation credits and
payroll taxes which under generally accepted accounting principles would be
accrued as a liability on the balance sheet of Debtor as of the close of
business on the Closing Date shall be paid by the Debtor.
SECTION 2.6 LIABILITIES ASSUMED BY SWECO. As further consideration for
consummation of the Transactions, at the Closing, SWECO shall assume and agree
to pay thereafter when due and discharge the Assumed Liabilities. SWECO shall
not assume or be liable for any Liabilities of the Debtor other than the Assumed
Liabilities. Except as to the Assumed Liabilities, SWECO is not a successor to
Cajun, and none of SWEPCO, SWECO, SWECO's Representatives or their Affiliates
shall have any liability, as transferee or otherwise, for claims against Cajun
(whether or not currently known) as a result of SWECO's purchase of the Acquired
Assets or the consummation of the Transactions hereunder, and the Confirmation
Order shall so provide.
SECTION 2.7 PAYMENT OF INITIAL CASH PAYMENT FOR ACQUIRED ASSETS. At the
Closing, SWECO shall pay the Purchase Price to the Trustee by wire transfer to
an account designated by the Trustee by notice given to SWECO not less than five
(5) Business Days prior to the Closing Date.
SECTION 2.8 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated to the Acquired Assets in accordance with Section 1060 of the Tax
Code. The Parties shall negotiate in good faith the value of each of the
Acquired Assets and the resulting allocation of the Purchase Price among the
Acquired Assets. SWECO and the Trustee each agrees to file (or to cause to be
filed) Internal Revenue Service Form 8594, and all federal, state, local and
foreign Tax Returns, in accordance with such agreed allocation and not to take a
position in any Tax Return, tax proceeding or tax audit which is inconsistent
6
<PAGE>
with such allocation. SWECO and the Trustee each agrees to provide the other
promptly with any other information required to complete Form 8594.
SECTION 2.9 FURTHER ASSURANCES. From time to time after the Closing, the
Trustee or the Debtor shall execute and deliver or shall cause to be executed
and delivered to SWECO or its designee such instruments of sale, transfer,
conveyance, assignment and delivery, consents, assurances, powers of attorney
and other instruments as may be reasonably requested by SWECO in order to vest
in SWECO or its designee all right, title and interest of the Debtor in and to
the Acquired Assets and otherwise in order to carry out the purpose and intent
of this Agreement and the other Transaction Documents.
SECTION 2.10 CLOSING. The closing of the Transactions (the "Closing")
shall, unless another date, time or place is mutually agreed to in writing by
the Parties, take place at the offices of Wilkinson, Carmody & Gilliam, 400
Travis Street, Shreveport, Louisiana at 10:00 a.m., local time, on the Closing
Date.
ARTICLE III
COVENANTS
SECTION 3.1 ACCESS; DUE DILIGENCE
(a) From the date hereof to the Closing Date and subject to the
confidentiality obligations of the Debtor or the Trustee under the Scheduled
Contracts (from which obligations the Trustee shall use all reasonable efforts
to be relieved so that the access contemplated to be given to SWECO and SWECO's
Representatives hereunder may be given by the Trustee and the Trustee's
Representatives to the fullest extent permitted hereunder), the Trustee shall
(i) provide SWECO and SWECO's Representatives with reasonable access to the
Trustee's Representatives and all properties, offices and other facilities of
the Debtor, including all Books and Records, during normal business hours (and,
with the Trustee's consent, which shall not be withheld unreasonably, during
non-business hours) and in a manner not unreasonably disruptive to the operation
of the Business, (ii) use reasonable efforts to provide SWECO and SWECO's
Representatives reasonable access to the Debtor's outside auditors and their
work papers and (iii) furnish promptly to SWECO all financial and operating data
and other information regarding the Business and the Acquired Assets that SWECO
may from time to time reasonably request. Without limiting the generality of the
foregoing, the Trustee shall provide SWECO and its Representatives reasonable
access to the Debtor's Real Property and Leaseholds for such inspection,
examination and other assessment as SWECO deems necessary in order to determine
whether the statements contained in Section 4.13 are true and correct SWECO
agrees to exercise the foregoing rights in conformity with any applicable legal
requirements.
(b) In addition to the access and information rights provided
by Section 3.1(a), SWECO and SWECO's Representatives shall have, at its own risk
and expense, reasonable access to enter the Real Property and Leaseholds during
normal business hours and, with the Trustee's consent (which shall not be
7
<PAGE>
withheld unreasonably), during non-business hours, to investigate, inspect,
audit, study and test, including the examination of soil, groundwater and all
other physical features in a manner not unreasonably disruptive to the operation
of the Business. The existence of this right shall in no manner obligate SWECO
to perform part or all of any investigation whatsoever.
(c) From and after the Confirmation Date, SWECO may designate
two of its Representatives as Transition Managers to monitor the Debtor's
operations and activities during the period from the Confirmation Date to the
Effective Date. During that period, the Transition Managers and their
Representatives shall be given access to the Debtor's personnel, properties,
offices and other facilities and Books and Records, shall be informed of and
invited to attend management and staff meetings, shall be provided all written,
non-privileged information distributed to the Trustee and his staff or to
management of the Debtor, and shall be provided, without cost, office space in
the Debtor's headquarters facility and reasonably necessary clerical support.
(d) The Trustee acknowledges that, prior to the date hereof,
the opportunity for SWEPCO, SWECO and their Representatives to undertake and
complete the investigations, inquiries and other due diligence customary for
comparable transactions (collectively, the "Due Diligence Investigation") has
been limited. SWECO agrees to initiate and complete its Due Diligence
Investigation as promptly as practicable and the Trustee agrees to provide, or
use all reasonable efforts to cause the Debtor to provide, to SWEPCO, SWECO and
their Representatives information in their possession or control that is
responsive to any Due Diligence Investigation requests made by SWEPCO, SWECO and
their Representatives as promptly as practicable.
SECTION 3.2 CONDUCT OF BUSINESS
(a) From the date hereof to the Closing Date, except as
permitted by the prior written consent of SWECO (i) the Business shall be
conducted only in, and the Debtor shall not take any action in connection with
the conduct of the Business except in, the ordinary course of business and in a
manner consistent with Prudent Utility Practice, (ii) the Trustee shall use, and
shall cause the Debtor to use, reasonable efforts (A) to preserve the Business
substantially intact, (B) to maintain the Acquired Assets in due repair, order
and condition (subject to ordinary wear and tear) in accordance with Prudent
Utility Practice, (C) to comply with all material Laws applicable to the
Business (subject to the Trustee taking or omitting to take any actions, which
action or omission is asserted by a Governmental Authority to be a violation of
any Law and the application of which to the Trustee, the Debtor, the Business or
the Transactions is being or will be contested by the Trustee in good faith in
appropriate proceedings), (D) to keep available the services of employees whose
continuing employment in connection with the Business is necessary to the
conduct of the Business (subject to any steps the Trustee may take in
consultation with SWECO in an effort to minimize employee severance costs);
PROVIDED, HOWEVER, that nothing herein shall be deemed to affect SWECO's right,
in its sole discretion, to determine whether any employee will be employed by
SWECO after the Closing Date, (E) to preserve the present relationships of the
Business with customers, including the Members, and suppliers and other Persons
with which the Business has significant business relations (excluding any such
customers, other than the Members, or suppliers that are not parties to
Contracts with the Debtor that constitute Assumed and Assigned Contracts), and
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(F) to prepare and file timely all filings necessary or desirable to obtain new
or additional Permits under applicable Law or to renew or extend existing
Permits which are otherwise due to terminate or expire and for transfer or
reissue of such Permits to SWECO or its designee or otherwise to amend or modify
such Permits to reflect the Acquisition pursuant to applicable Law. By way of
amplification and not limitation, except as specifically contemplated by this
Agreement, the Trustee shall not, and shall cause the Debtor not to, between the
date of this Agreement and the Closing Date, directly or indirectly, do, or
propose or agree to do, any of the following without the prior written consent
of SWECO:
(i) sell, assign, pledge, dispose of or encumber any
of the Acquired Assets, except for the sale in the ordinary course of
business of any tangible personal property that has been retired from
operation as a result of the acquisition of a replacement asset of equal
or greater value or utility that will be transferred to SWECO at the
Closing as an Acquired Asset;
(ii) fail to comply with all material requirements of,
and otherwise to maintain Permits required under, applicable Law or fail
to defend or initiate any material proceeding before any Governmental
Authority that is necessary to protect the Acquired Assets or to ensure
the continued, uninterrupted operation of the Business, including the
timely prosecution of any material Permit application or renewal;
(iii) fail (A) to maintain an inventory of coal
consistent with past practices so that the quality and quantity of coal
existing as of the Closing Date shall not be materially less than that
existing on October 30, 1996, (B) to maintain inventory levels of fuel
oil or other inventory, spare parts, material and other supplies of a
quality and quantity required under Prudent Utility Practice in
connection with the conduct of the Business, (C) to make capital
expenditures consistent with Prudent Utility Practice, (D) to maintain
the Acquired Assets in due repair, order and condition in accordance
with Prudent Utility Practice or (E) to maintain insurance for the
Acquired Assets consistent with Prudent Utility Practice;
(iv) fail to comply with or perform all of the
Debtor's obligations under any Assumed and Assigned Contract or Assigned
Post-Petition Contract (except for defaults that are capable of being
cured through the payment on the Closing Date of cure payments under
Bankruptcy Code section 365(b)(1) or defaults of the kind specified in
Bankruptcy Code section 365(e)(1));
(v) terminate, replace, amend or otherwise modify (A)
any Assumed and Assigned Contract or Assigned Post-Petition Contract, or
waive any of the obligations of the parties (other than the Debtor) to
any such Contract or the Debtor's rights under any such Contract or (B)
any other Material Contract (whether a Material Contract before or after
giving effect to such termination, replacement, amendment or other
modification); PROVIDED, HOWEVER, that, at any time prior to the
Confirmation Date, any Contract that is not a Collective Bargaining
Agreement and that at the time in question has not yet been designated
as (1) an Assumed and Assigned Contract, (2) an Assigned Post-Petition
Contract or (3) a Rejected Contract, as the case may be, pursuant to
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Section 3.6, may be terminated, replaced, amended or otherwise modified
if the Trustee shall have provided written notice to SWECO of the action
proposed to be taken at least ten (10) Business Days prior to the
effectiveness of any such action and SWECO, prior to the expiration of
such period, shall not have designated such Contract as an Assumed and
Assigned Contract or an Assigned Post-Petition Contract, as the case may
be, pursuant to Section 3.6, in the case of (1) and (2);
(vi) enter into any Post-Petition Contract that
relates to the Business, and would be a Material Contract, unless the
Trustee shall have used all reasonable efforts to negotiate a provision
to be included in such Post-Petition Contract that would permit the
assignment thereof to SWECO at the Closing in accordance with
Section 3.6;
(vii) enter into any Post-Petition Contract that
constitutes a Collective Bargaining Agreement or otherwise relates to
labor or employee benefits, other than as permitted pursuant to Section
3.8; or
(viii) depart from the normal and customary trade,
discount and credit policies of the Debtor, except in the ordinary
course of business and consistent with past practice.
(b) If the Trustee intends to take any action (or cause the
Debtor to take any action) or omit to take any action (or permit the Debtor to
omit to take any action) which action or omission, pursuant to Section 3.2(a),
requires the prior written consent of SWECO, then the Trustee shall, as soon as
practicable, inform the Transition Managers of the proposed action or omission
and a proposed reasonable time frame for obtaining the required written consent.
With respect to any such proposed action or omission, the Trustee or his
designated Representatives and the Transition Managers shall use their
reasonable efforts to resolve any disputes regarding the proposed action or
omission so that the necessary written consent to the proposed action can be
provided or withheld by SWECO within the appropriate time frame. If, however,
the Transition Managers inform the Trustee or his designated Representative that
SWECO will not consent to the proposed action or omission, the Trustee and SWECO
will submit the matter to the Court for resolution. The Trustee shall request
the Court not to approve the proposed action or omission unless the Court finds
that, regardless of the benefit that may be conferred on the Cajun Estate
thereby, the Trustee has established that such proposed action or omission would
not have a Material Adverse Effect or a material adverse effect on the
confirmability of the Plan or the benefits of the Plan or the Transactions to
SWECO.
SECTION 3.3 COOPERATION IN CONSUMMATION OF THE PLAN AND RELATED MATTERS.
The Trustee, subject to its fiduciary duties under the Bankruptcy Code, and
SWECO each will fully cooperate with the other in the consummation of the Plan
and in connection with any litigation or proceeding already instituted or which
may be instituted hereafter against or by such Party relating to the Plan or
which may affect the consummation of the Plan or satisfaction of the conditions
precedent to consummation of the Acquisition (other than litigation between the
Parties arising out of the Transactions). The Trustee and SWECO agree to use
their reasonable efforts to (a) obtain the Required Regulatory Approvals as
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promptly as practicable and in any case prior to the Outside Date; and (b) to
consummate the Acquisition within a reasonable time period thereafter and in any
case prior to the Outside Date.
SECTION 3.4 SALES TAXES. To the extent that the sale of the Acquired
Assets is subject under applicable Law to sales, transfer, use, stamp or similar
Taxes that are not exempt under Bankruptcy Code section 1146, such Taxes shall
be paid by SWECO.
SECTION 3.5 TECHE-CLECO TRANSFER. The Trustee and SWECO acknowledge that
CLECO has acquired Teche and that a New Power Supply Contract, to be effective
on the Effective Date, may be entered into directly by CLECO and SWECO.
SECTION 3.6 TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES AND
POST-PETITION CONTRACTS.
(a) It is a condition precedent to SWECO's obligation to
consummate the Acquisition that Members whose Coincident Peak Demand (as set
forth in Schedule 2.4), when added together, equals or exceeds 1,000 megawatts
shall have executed and delivered New Power Supply Contracts in form and
substance satisfactory to SWECO. The Existing Power Supply Contract of each
Member that executes and delivers a New Power Supply Contract shall be
terminated as of the Effective Date. If a Member fails to execute and deliver a
New Power Supply Contract, then the Existing Power Supply Contract of that
Member shall be neither assumed nor rejected; instead, such Existing Power
Supply Contract shall be treated as provided in Section 7.1 of the Plan.
(b) SWECO shall not be obligated under any current or future
collective bargaining agreements entered into or negotiated by Cajun, the Debtor
or the Trustee. However, if and when SWECO hires a majority of Cajun's employees
in units appropriate for collective bargaining, then SWECO will recognize those
unions representing those employees and negotiate in good faith with
representatives of those unions.
(c) Schedule 3.6(c) lists the Contracts that are to be assumed
by the Trustee and assigned to SWECO or its designee on the Closing Date under
the Plan pursuant to Bankruptcy Code sections 365 and 1123 (Contracts that are
so listed are collectively referred to as the "Assumed and Assigned Contracts").
The Trustee shall seek authorization by the Court, either pursuant to the
Confirmation Order or an Order of the Court obtained by separate motion filed by
the Trustee of the assumption and assignment of each of the Assumed and Assigned
Contracts that has not theretofore been assumed by Order of the Court under
Bankruptcy Code section 365.
(d) Each Member entitled to preference shall execute a Contract
with SPA for the sale and purchase of SPA Hydro Peaking Power (as such term is
defined in the New Power Supply Contracts). The amount of SPA Hydro Peaking
Power purchased by each Member shall be allocated by the SPA in accordance with
applicable law. SWEPCO shall act as the Scheduling Agent of the SPA Hydro
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Peaking Power for such Members pursuant to Section 3.2 of the New Power Supply
Contracts.
(e) Subject to the treatment of the River Bend JOPOA under the
Plan, all executory contracts or unexpired leases, other than the Hydro
Contract, to which the Debtor was a party on the Petition Date or which have
been identified on Schedule 4.12 as a Post-Petition Contract and, in each case,
that have not been designated as Assumed and Assigned Contracts shall be
rejected by the Trustee, effective on the Closing Date, under the Plan pursuant
to Bankruptcy Code sections 365 and 1123. The Trustee shall use all reasonable
efforts to obtain an Order or Orders of the Court on or prior to the Closing
Date making such findings and determinations regarding such executory contracts
and unexpired leases (collectively, the "Rejected Contracts") as SWECO may
reasonably request.
(f) All cure payments which may be required to be made pursuant
to Bankruptcy Code section 365(b)(1) under any Assumed and Assigned Contracts,
and all other amounts that have become due and owing prior to the Closing under
any Assumed and Assigned Contract shall be made by the Debtor on the Closing
Date in accordance with the Plan. SWECO shall not be responsible for any cure
payments required to be made under Bankruptcy Code section 365(b)(1) in
connection with the assumption of an Assumed and Assigned Contract or that
otherwise are due and owing under an Assumed and Assigned Contract prior to the
Closing. If a dispute exists on the Closing Date as to the amount required to be
paid to any party to an Assumed and Assigned Contract under Bankruptcy Code
section 365(b)(1) in order for such Assumed and Assigned Contract to be assumed,
pending a determination by the Court after the Closing Date of the actual amount
owing, an appropriate reserve shall be maintained by the Debtor or the Trustee
to cover any additional amount that the Court ultimately may determine to be due
to such party in connection with such assumption. SWECO shall not assume or be
liable in any respect for any Liability of the Debtor under any Rejected
Contract. Following assignment by the Trustee to SWECO or its designee of an
Assumed and Assigned Contract on the Closing Date, SWECO or such designee shall
be responsible, as assignee of the Debtor, for the performance under such
Assumed and Assigned Contract of all obligations of the Debtor that first arise
after the Closing. SWECO shall have no Liability under any unexpired lease or
executory contract except for Assumed and Assigned Contracts that are designated
by SWECO in accordance with the applicable terms of this Section 3.6 and shall
have no Liability under an Assumed and Assigned Contract other than the
performance of obligations arising after the Closing Date.
(g) On or prior to the Confirmation Date, SWECO shall specify
in writing those Post-Petition Contracts that shall be assigned to SWECO on the
Closing Date (other than Post-Petition contracts entered into prior to the date
of this Agreement which have been identified in Schedule 4.12 as a Post-Petition
Contract) and all such Post-Petition Contracts (other than those as to which the
consent of the other party thereto is required in order for such Post-Petition
Contract to be assigned to SWECO or its designee and such party has withheld
such consent) shall be assigned to SWECO on the Closing Date (collectively, the
"Assigned Post-Petition Contracts"). SWECO shall have no liability for any
amounts that become due from the Debtor under an Assigned Post-Petition Contract
prior to the Closing.
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SECTION 3.7 FILINGS, CONSENTS AND APPROVALS. From and after the
Confirmation Date until the Closing Date, each of the Trustee and SWECO shall
file or cause to be filed any and all petitions, applications, declarations, or
other pleadings as may be necessary or desirable to obtain, and thereafter shall
use all reasonable efforts to obtain, the Required Regulatory Approvals in a
timely manner. During this period, each Party shall consult with the other as to
the appropriate time of filing, shall cooperate with each other as to the
preparation of such notifications and the substance of such filings and shall
use its reasonable efforts to make such filings at the agreed upon time and to
respond promptly to any requests made to it for additional information by any
Governmental Authority. The Trustee, in cooperation with SWECO, shall take all
reasonable actions necessary or desirable to obtain all Governmental Approvals
required to be obtained by the Trustee and to give all notices to, and make all
filings with, any Governmental Authorities and third parties necessary to
authorize, approve or permit the consummation of the Transactions in accordance
with the Plan and the terms of the Transaction Documents. The Trustee, in
cooperation with SWECO, shall take all reasonable actions necessary or desirable
to obtain the consents of third parties to the assignment of the Assumed and
Assigned Contracts required by the provisions thereof.
SECTION 3.8 EMPLOYEE MATTERS
(a) All Employee Benefit Plans shall be terminated on or before
the Closing Date. SWECO shall have no obligation to establish, contribute to or
maintain any Employee Benefit Plan or maintain any particular level of benefits
(it being agreed and acknowledged that no such plan will be transferred to or
assumed by SWECO under section 4204 of ERISA or otherwise), unless expressly
agreed by SWECO under the applicable provisions of (i) any collective bargaining
agreement that SWECO may negotiate with any employee bargaining agent, or (ii)
any employment contract or the terms and conditions of employment that SWECO may
assume or establish. SWECO shall in no event assume or have any liability for
any employee severance costs or employee-related Liabilities of the Debtor or
any other liabilities (including withdrawal liabilities) related, in any way, to
any Employee Benefit Plan.
(b) Subject to the provisions of any collective bargaining
agreement SWECO may negotiate pursuant to Section 3.6(b), SWECO and its
Affiliates shall have no obligation to hire any employees of the Debtor. Subject
to such provisions, SWECO shall have the right to establish the terms and
conditions of employment at any of the facilities, offices or operations
included in the Acquired Assets and to offer employment on such terms and
conditions.
SECTION 3.9. NOTICE OF ACTIONS AND PROCEEDINGS. From and after the date
here of until the Closing Date, the Trustee shall promptly notify SWECO of any
written notice received by the Trustee with respect to Actions commenced or, to
its knowledge, threatened involving or affecting the Debtor or the Business or
which could have a Material Adverse Effect.
SECTION 3.10 BANKRUPTCY FILINGS. From and after the Confirmation Date
until the Closing Date, the Trustee shall deliver to SWECO (a) copies of all
pleadings, motions, notices, statements, schedules, applications, reports and
other papers that the Trustee files in the Case within a reasonable time after
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filing, but with respect to any such papers that relate, in whole or in part, to
this Agreement, the Plan, the Transactions, or SWECO, SWEPCO or its or their
Representatives, the Trustee shall use all reasonable efforts to provide such
prior notice as may be reasonable under the circumstances before the filing of
such papers and (b) copies of all other pleadings, motions, notices, statements,
schedules, applications, reports and other papers filed in the Case.
SECTION 3.11 SAFE HARBOR LEASES. Reference is made to Section 5.3 of the
Plan regarding certain arrangements relating to certain Tax Benefit Transfer
Agreements, CoBank and related matters. The Trustee shall cooperate, and shall
cause the Debtor to cooperate, in effectuating such arrangements.
SECTION 3.12 COOPERATION AS TO TAX MATTERS; PRORATION.
(a) The Trustee shall cooperate, and shall cause the Debtor to
cooperate, with SWECO, and the Trustee shall keep and shall cause the Debtor to
keep SWECO fully apprised of all meetings, correspondence and other
communications with the IRS (and any state or local taxing authorities) relating
to the liability of the Debtor for Taxes for any period ending before, on or
including the Closing Date.
(b) All real property and personal property Taxes with respect
to the Acquired Assets for the tax years occurring prior to the Closing Date
shall be paid in full by the Trustee prior to or at the Closing. All real
property and personal property Taxes with respect to the Acquired Assets for the
tax year in which the Closing Date occurs shall be prorated through the Closing
Date based on the most current assessment information available from the offices
of the assessor and sheriff of the respective parishes in which the Acquired
Assets are located. All special assessments against the Acquired Assets for
utilities or otherwise shall be paid in full by the Trustee prior to or at the
Closing.
ARTICLE IV
STATEMENTS AS TO THE EXISTENCE OR NON-EXISTENCE OF
CERTAIN FACTS, CONDITIONS OR EVENTS RELATING TO DEBTOR
All of the obligations of SWECO and SWEPCO under this Agreement are
subject to the condition that each of the statements set forth below in this
Article IV shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date.
SECTION 4.1 ORGANIZATION AND GOOD STANDING. The Debtor is a cooperative
association duly organized, validly existing and in good standing under the Laws
of the State of Louisiana, with full power to carry on the Business as it is now
conducted and to own, lease or operate the Acquired Assets and the Excluded
Assets. The Debtor is qualified to do business and is in good standing in each
jurisdiction in which the nature of the Business or the character of the
Debtor's properties makes such qualification necessary.
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SECTION 4.2 AUTHORIZATION OF AGREEMENT. Subject to Section 8.13, the
Trustee has all requisite power and authority to enter into this Agreement and
the Transaction Documents and to consummate the Transactions. Subject to Section
8.13, this Agreement and all other agreements and instruments to be executed by
the Trustee in connection herewith have been (or upon execution will have been)
duly executed and delivered by the Trustee, have been effectively authorized by
all necessary action, and constitute (or upon execution will constitute) legal,
valid and binding obligations of the Trustee enforceable against the Trustee and
the Cajun Estate in accordance with their respective terms.
SECTION 4.3 NO VIOLATION. Assuming the termination or expiration of any
applicable waiting periods imposed by the HSR Act and receipt of all Required
Regulatory Approvals, neither the execution and delivery by the Trustee of this
Agreement or any Transaction Document nor the performance by the Trustee of his
obligations hereunder or thereunder will (a) violate or breach the terms of or
cause a default under (i) any applicable Law or Order, (ii) the Organizational
Documents or (iii) any Assumed and Assigned Contract (except as the terms of any
such Assumed and Assigned Contract have been invalidated or modified pursuant to
applicable bankruptcy law or an order of the Court), (b) result in the creation
or imposition of any Encumbrance on any of the Acquired Assets other than a
Permitted Encumbrance, (c) result in the cancellation, forfeiture, revocation,
suspension or adverse modification of any Permit owned or held by the Debtor and
necessary for the operation of the Business or (d), with the passage of time,
the giving of notice or the taking of any action by a third party, have any of
the effects set forth in clause (a), (b) or (c) of this Section, except in any
such case for any matters described in this Section that could not reasonably be
expected to have a Material Adverse Effect or a material adverse effect on the
confirmability of the Plan or the benefits of the Plan or the Transactions to
SWECO.
SECTION 4.4 OWNERSHIP OF ACQUIRED ASSETS. The Debtor has defensible
title to all of the Acquired Assets (other than the Transmission Assets and the
Pipeline Assets, as to which it has such title or interest as is sufficient to
enable the Debtor to conduct the Business as currently conducted without
material interference, and other than any Acquired Assets that (a) are the
subject of leases or (b) are not, individually or in the aggregate, material to
the Debtor) free and clear of Encumbrances other than Permitted Encumbrances.
The Debtor holds under valid lease agreements, each of which is an Assumed and
Assigned Contract, all real and personal properties included in the Acquired
Assets that are subject to leases, and enjoys peaceful and undisturbed
possession of such properties under such leases, other than any properties that,
individually or in the aggregate, are not material to the Debtor or the
Business. The Debtor has not received any written notice of any adverse claim to
the title to any properties included in the Acquired Assets or with respect to
any lease under which any Acquired Assets are held by it, other than any claims
that, individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect on the Business. Upon transfer to SWECO or its
designee on the Closing Date of ownership of the Acquired Assets that are owned
by the Debtor, SWECO or such designee will acquire good and marketable title to
the Acquired Assets (including the Assumed and Assigned Contracts and the
Assigned Post-Petition Contracts but other than the Transmission Assets and the
Pipeline Assets, as to which SWECO will acquire all of the Debtor's right, title
and interest therein), free and clear of all Encumbrances other than Permitted
Encumbrances (subject, in the case of Assigned Post-Petition Contracts, to any
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required consent of the other parties to such Contracts). The Acquired Assets,
taken as a whole, constitute all the properties, assets and rights relating to
or used or held for use in connection with the business and operations of the
Debtor since (date of last financial statement), other than (i) inventory sold,
cash disposed of, accounts receivables collected, contracts fully performed, and
property or assets replaced by equivalent or superior properties or assets, in
each case in the ordinary course of business, and (ii) the Excluded Assets.
SECTION 4.5 FINANCIAL CONDITION. The Trustee has furnished to SWECO the
financial statements or reports listed in Schedule 4.5 (the "Cajun Financial
Statements"). The Cajun Financial Statements: (a) were prepared from and in
accordance with the books and records of the Debtor; (b) except as may be
indicated in the notes thereto, were prepared in accordance with GAAP (subject,
in the case of unaudited statements or reports, to the absence of any footnote
disclosures and to year-end audit adjustments required by GAAP which consist
solely of normal, recurring adjustments), and (c) fairly present the financial
position, results of operations and cash flows of the Debtor, all in conformity
with GAAP, as of the dates thereof and for the periods covered thereby. Since
the date of the latest balance sheet contained in the Cajun Financial
Statements, except as set forth in Schedule 4.5, the Business has been conducted
only in the ordinary course and there has not been any action taken by the
Debtor which would violate the provisions of Section 3.2 hereof had it been in
effect during such period or any Material Adverse Effect.
SECTION 4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities
set forth on the latest balance sheet included in the Cajun Financial Statements
and liabilities incurred in the ordinary course of business since that date
which, in the aggregate, are not material, there are no liabilities or
obligations of any nature, accrued, absolute, contingent or otherwise, whether
due or to become due, which relate to the Business or which would be Assumed
Liabilities. Following the Closing, no claimants shall have any recourse to
SWECO, any Affiliate of SWECO or any Acquired Assets except in respect of the
Assumed Liabilities.
SECTION 4.7 REAL PROPERTY. Schedule 4.7 sets forth a legally adequate
description of each principal parcel of Real Property and a list of all
Contracts with respect to its Leasehold interests. The Debtor has made available
to SWECO (a) all deeds, title insurance policies, surveys, mortgages and other
Contracts granting or relating to the Debtor's ownership of such Real Property
and (b) all Contracts with respect to its Leasehold interests.
Except as set forth in Schedule 4.7:
(i) the Real Property described in Schedule 4.7 constitutes all
of the Real Property necessary for the continued conduct by SWECO on the
Closing Date of the Business as presently conducted;
(ii) the Debtor enjoys peaceful and undisturbed possession of
the improvements located on the Real Property described in Schedule 4.7
and of all real property subject to its Leasehold interests; and
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(iii) all of the buildings, fixtures and other improvements
located on the Real Property described in Schedule 4.7 are in good
operating condition and repair, ordinary wear and tear excepted, and the
operation thereof as presently conducted is not in violation in any
material respect of any applicable building codes, zoning ordinance or
other Law.
SECTION 4.8 TANGIBLE PERSONAL PROPERTY. Schedule 4.8 sets forth a
listing of machinery, equipment, spare parts, furniture, fixtures, supplies and
other tangible personalty which on the date hereof is carried on the Books and
Records of the Debtor with a net book value of One Hundred Thousand Dollars
($100,000) or more. Except for any such property that is sold prior to the
Closing as permitted under Section 3.2 and for Excluded Assets, all such
property will be included in the Acquired Assets transferred to SWECO at the
Closing. Except as otherwise disclosed in Schedule 4.8, all tangible personal
property and fixtures included in the Acquired Assets are (a) structurally sound
with no material defects, (b) in good working order and free from any material
defects or otherwise suitable for the use for which they are intended (ordinary
wear and tear excepted) and (c) adequate and sufficient for the operation of the
Business as presently conducted.
SECTION 4.9 INTELLECTUAL PROPERTY RIGHTS. There are no Intellectual
Property Rights held by the Debtor that are material to the conduct of the
Business as it is presently conducted.
SECTION 4.10 EMPLOYEE BENEFIT PLANS
(a) Except as set forth in Schedule 4.10, there is no Employee
Benefit Plan. Unless expressly identified as such on Schedule 4.10, no Employee
Benefit Plan is an ERISA Multiemployer Plan. In the event of a partial or
complete withdrawal from any ERISA Multiemployer Plan as of the Closing Date,
the Debtor would not be subject to any withdrawal liability under Title IV of
ERISA. The Acquired Assets are not subject to a lien in favor of the Pension
Benefit Guaranty Corporation under Section 4068 of ERISA.
(b) The Debtor has made available to SWECO true and correct
copies of each Employee Benefit Plan set forth in Schedule 4.10 and its summary
plan description (if such description is required under Section 102 of ERISA).
SECTION 4.11 LITIGATION. Except for adversary proceedings and other
matters pending in the Case and appearing on the docket of the clerk of the
Court with respect to the Case or which are described in Schedule 4.11, there
are no claims, disputes or Actions of any nature before or by any Governmental
Authority or arbitral authority pending or, to the knowledge of the Trustee and
the Debtor, threatened, or any unsatisfied judgments, awards or settlements, in
each case against the Debtor or the Trustee, the Business or any of the
directors, officers, or employees of the Debtor in connection with the Business.
SECTION 4.12 CONTRACTS
(a) Schedule 4.12 sets forth a true and correct list of each
Existing Power Supply Contract and each other Contract under which the Debtor
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sells power, including all power marketing Contracts, and a true and correct
list of each other Material Contract, including Collective Bargaining
Agreements, fuel and transportation Contracts and Post-Petition Contracts (all
such Contracts being herein called the "Scheduled Contracts"). The Debtor has
made available to SWECO a true and correct copy of each Scheduled Contract.
(b) Except as set forth in Schedule 4.12:
(i) subject to the Debtor's assumption under
Bankruptcy Code section 365, each Scheduled Contract is a valid and
binding agreement of the Debtor enforceable in accordance with its terms
(except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditor rights
generally and by equitable principles) and the Debtor does not have any
knowledge that any of the Scheduled Contracts is not a valid and binding
agreement of the other parties thereto enforceable in accordance with
its terms (except as aforesaid); and
(ii) the Debtor has fulfilled all material obligations
required pursuant to each Scheduled Contract to have been performed by
the Debtor on its part prior to the date hereof, the Debtor will
fulfill, when due, all of the Debtor's obligations under the Scheduled
Contracts which are to be performed prior to the Closing Date and the
Debtor does not have any knowledge that the other parties to the
Scheduled Contracts have failed to perform their material obligations
under the Scheduled Contracts.
SECTION 4.13 COMPLIANCE WITH LAW; PERMITS. The Business of the Debtor as
presently conducted does not violate any Law in any material respect. The Debtor
is in possession of all Permits from all Governmental Authorities, including all
certificates of public convenience and necessity and rate authorizations
required by the FERC and the LPSC and all Permits required by applicable Law
relating to any of the operations currently being conducted at or on any of the
Real Property described on Schedule 4.6, as are necessary to carry on its
Business as currently conducted, except for any such Permits that (a) are listed
in Schedule 4.13 or (b) the failure to possess which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
To the extent such Permits are transferable, the Trustee shall fully cooperate
in the transfer thereof so as to permit SWECO to continue to have the use and
benefit thereof and the rights granted thereby after the Closing shall have
occurred. To the extent such Permits are not transferable, the Trustee shall
fully cooperate with and assist SWECO in applying for and obtaining such
Permits.
SECTION 4.14 LABOR AND EMPLOYMENT MATTERS. Except as set forth in
Schedule 4.14, there is no (a) unfair labor practice or unlawful employment
practice charge or complaint against the Debtor pending before any federal,
state or local agency, or any basis for any such complaint; (b) pending labor
strike or other material labor dispute; (c) pending labor grievance; (d) pending
petition or question of representation respecting the employees of the Debtor;
(e) pending arbitration proceedings arising out of or under any Collective
Bargaining Agreement to which the Debtor is a party; or (f) any pending or, to
the knowledge of the Trustee or the Debtor, threatened claim against the Debtor
regarding the terms and conditions of employment or discharge or dismissal of
any employee or the failure to hire any individual employee and there is no
basis for any such claim.
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SECTION 4.15 ENVIRONMENTAL MATTERS
(a) (i) Debtor has not engaged in or allowed any
operation or activity upon, or any use or occupancy of, any Real
Property or any Leasehold for the purpose of or in any way involving the
handling, manufacture, treatment, storage, use, generation, release,
discharge, processing, recycling, refining, dumping or disposal of any
Hazardous Materials on, under, in or about such Real Property or
Leasehold, or transported or arranged for transport of any Hazardous
Materials to, from or across such Real Property or Leasehold, in each
case which constitutes or otherwise causes a material violation of or
for which remediation or other corrective action is or may be required
under any Environmental Law,
(ii) no Hazardous Materials have been used,
manufactured, produced, constructed, deposited, disposed of, stored or
otherwise located on, under, in or about any Real Property or any
Leasehold, in a manner or condition which constitutes or otherwise
causes a material violation of or for which remediation or other
corrective action is or may be required under any Environmental Law;
(iii) no Hazardous Materials have migrated, or due to
their location or condition are threatening to migrate, from any Real
Property or any Leasehold on, under, in or about other properties, and
no Hazardous Materials have migrated, or due to their location or
condition are threatening to migrate, from other properties on, under,
in or about any Real Property or any Leasehold, in a manner or condition
which constitutes or otherwise causes a [material] violation of or for
which investigation, remediation or other corrective action is or may be
required under any Environmental Law;
(iv) no underground improvement, including any
treatment, sump, or storage tank or water, gas or oil well, has been
installed or located on any Real Property or any Leasehold, in a manner
or condition which constitutes or otherwise causes a material violation
of any Environmental Law; and
(v) neither the Debtor or the Trustee nor any
Representative thereof has received any written notice or other written
communication concerning (A) any violation or alleged violation of
Environmental Laws arising out of the conduct of the Business (except
for any such violations which have been corrected to the satisfaction of
the appropriate authority); (B) any alleged liability for environmental
damages, third party injury or property damages (including property
rights or usage) arising from a failure to comply with Environmental
Laws in any material respect and relating to any Real Property or
Leasehold or arising out of the conduct of the Business; or (C) any
alleged liability for the presence or suspected presence, or Release or
suspected Release of Hazardous Materials on any Real Property,
Leasehold, or other property used or held for use in connection with the
Business or any property upon which waste generated through the conduct
of the Business has been disposed or otherwise has become located. No
directive, citation, notice, writ, injunction, decree, order or judgment
relating to the foregoing is outstanding, and the Debtor is not in
default in any material respect with respect to any currently existing
and effective directive, citation, notice, writ, injunction, order or
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decree arising pursuant to Environmental Laws and relating to the
conduct of the Business or governing the possession or use of any Real
Property or any Leasehold known to or served upon the Debtor by any
court, arbitrator or Governmental Authority. There is no lawsuit, claim,
proceeding, citation, directive, summons or investigation pending or, to
the knowledge of the Debtor and the Trustee, threatened pursuant to
Environmental Laws concerning or against the Debtor relating to the
ownership, use, occupation, maintenance or operation of any Real
Property or any Leasehold by any Person, or relating to any alleged
violation of any applicable Environmental Laws relating to any Real
Property or any Leasehold or arising out of the conduct of the Business
or the suspected presence of any Hazardous Materials on any Real
Property, Leasehold or other property used or held for use in connection
with the Business or any property upon which waste generated through the
conduct of the Business has been disposed or otherwise has become
located.
(b) The Debtor has been and remains in compliance in all
material respects with the terms and conditions of each Permit issued to it in
connection with Environmental Laws by any Governmental Authority with respect to
its activity on any Real Property or Leasehold. The Debtor maintains and has
maintained at all times all Permits required pursuant to Environmental Laws for
the Business or with respect to any Real Property or Leasehold. Immediately
prior to the Closing, each such Permit will be in full force and effect and
shall not be subject to any pending or threatened suspension, termination or
other modification by any Governmental Authority.
(c) The Debtor has timely prepared and made all necessary or
desirable filings, reports, plans, applications, renewals, modifications and
other disclosures and maintains and has maintained at all times all Books and
Records required under any Environmental Law or with respect to any Real
Property or Leasehold.
(d) The Debtor is in compliance in all material respects with
all Environmental Laws in each jurisdiction in which any Real Property or
Leasehold is located or in which it conducts the Business.
(e) There has been no exposure of any Person or property to any
Hazardous Materials in connection with the Business or any Real Property or
Leasehold which exposure could reasonably be expected to give rise to or
otherwise form the basis for a claim for damages or compensation.
(f) The Debtor has made available to SWECO copies of all
claims, complaints, material reports or other material documents in its files
relating to Environmental Laws that relate to the conduct of the Business or any
Real Property or Leasehold.
(g) Nothing in this Section 4.15 relates to River Bend and any
Environmental Liabilities associated therewith.
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ARTICLE V
REPRESENTATIONS OF SWECO
Subject to Sections 7.4 and 8.8, SWECO represents and warrants to the
Trustee as follows:
SECTION 5.1 ORGANIZATION. SWECO is a corporation duly incorporated,
validly existing and in good standing under the Laws of the State of Delaware
with all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now conducted.
SECTION 5.2 AUTHORIZATION OF AGREEMENT. SWECO has all requisite
corporate power and authority to execute and deliver this Agreement and each
Transaction Document, to perform its obligations hereunder and thereunder and to
consummate the Transactions contemplated hereby or thereby. The execution and
delivery by SWECO of this Agreement and each Transaction Document and the
performance of its obligations hereunder and thereunder have been duly and
validly authorized by all requisite corporate action on the part of SWECO. This
Agreement has been duly executed and delivered by SWECO and (assuming due
authorization, execution and delivery hereof by the other party hereto)
constitutes a legal, valid and binding obligation of SWECO, enforceable against
SWECO in accordance with its terms, except as the same may be limited by
bankruptcy, reorganization, insolvency, moratorium and other laws affecting
creditors rights generally and by legal principles of general applicability
governing the application and availability of equitable remedies.
SECTION 5.3 APPROVALS. Except for the Required Regulatory Approvals and
for those Laws and Orders noncompliance with which could not reasonably be
expected to have a material adverse effect on the ability of SWECO to perform
its obligations under this Agreement, no waiting period imposed by and no Permit
or Order of, any Governmental Authority is required under any Law or Order
applicable to SWECO to permit SWECO to execute, deliver or perform this
Agreement or any Transaction Document.
SECTION 5.4 NO VIOLATION. Assuming termination or expiration of any
applicable waiting periods imposed by the HSR Act and receipt of all Required
Regulatory Approvals, neither the execution and delivery by SWECO of this
Agreement or any Transaction Document nor the performance by SWECO of its
obligations hereunder or thereunder will (a) violate or breach the terms of or
cause a default under (i) any Law or Order applicable to SWECO, (ii) the
certificate of incorporation or bylaws of SWECO or (iii) any contract or
agreement to which SWECO is a party or by which it or any of its properties or
assets is bound or (b), with the passage of time, the giving of notice or the
taking of any action by a third party, have any of the effects set forth in
clause (a) of this Section, except in any such case for any matters described in
this Section that could not reasonably be expected to have a material adverse
effect upon the ability of SWECO to perform its obligations under this
Agreement.
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SECTION 5.5 LITIGATION. There are no Actions pending, or, to the
knowledge of SWECO, threatened against SWECO or any of its assets, at law or in
equity, in any court or before or by any Governmental Authority that could
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement or the ability of SWECO to perform its
obligations under this Agreement.
SECTION 5.6 SWEPCO'S AGREEMENT. The agreements contained in Section 7.4
of this Agreement have been duly authorized by SWEPCO and constitute legal,
valid and binding obligations of SWEPCO enforceable against SWEPCO in accordance
with their terms except as enforceability may be limited by bankruptcy,
reorganization, insolvency, moratorium, and other laws affecting creditors
rights generally and by general equitable principles.
ARTICLE VI
CONDITIONS TO THE ACQUISITION
SECTION 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations
of each Party to this Agreement to effect the transactions contemplated hereby
to occur at the Closing shall be subject to the satisfaction or, to the extent
permitted by Law, waiver by each Party of each of the following conditions:
(a) All requirements of any applicable Law or Order necessary
for the valid consummation of the transactions contemplated herein to occur at
the Closing shall have been fulfilled, and all filings required to be made with
any Governmental Authority under any applicable Law or Order and all Permits and
Orders required to be obtained from any Governmental Authority or court under
any applicable Law or Order, in each case, in order to permit the Trustee or
SWECO to consummate the transactions contemplated hereby to occur at the Closing
shall have been made or obtained (other than any requirement the nonfulfillment
of which and any Permit or Order the nonreceipt of which could not reasonably be
expected to have a Material Adverse Effect on the Trustee, the Debtor or SWECO
and other than the Required Regulatory Approvals referred to in Section 6.2(g)
which are subject to the satisfaction of (or waiver by) SWECO only).
(b) No Order of any nature issued by any court of competent
jurisdiction that (i) prohibits consummation of all or any part of the
Transactions or (ii) materially and adversely affects the validity,
enforceability or binding effect of any Transaction Document shall be in effect.
SECTION 6.2 CONDITIONS TO THE OBLIGATION OF SWECO TO CONSUMMATE THE
ACQUISITION. The obligations of SWECO to effect the transactions contemplated
hereby to occur at the Closing shall be subject to the satisfaction or, to the
extent permitted by Law, waiver by SWECO of each of the following conditions:
(a) STATEMENTS AND COVENANTS OF THE TRUSTEE. Except to the
extent contemplated by Section 2.3, each of the Article IV Statements shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date, and each of the covenants and agreements of the Trustee
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to be performed after the date hereof and prior to the Closing or such shorter
period as specifically set forth in a particular covenant or agreement shall
have been duly performed by the prescribed date or for the duration of the
prescribed time period.
(b) PERMITS. All Permits required for the conduct of the
Business as presently conducted or in connection with any Real Property or
Leasehold shall have been transferred or reissued to SWECO or its designee or
otherwise amended or modified to reflect the Acquisition pursuant to applicable
Law.
(c) NO PROCEEDINGS OR ORDERS. There shall not be any action or
proceeding pending or threatened (including any investigation) by any
Governmental Authority to restrain, enjoin or invalidate the transactions
contemplated herein or to compel SWECO or any of its Affiliates to divest any
material assets, which would, in the judgment of the Board of Directors of
SWECO, made in good faith and based upon the advice of counsel, involve expense
or lapse of time or result in a reconfiguration of the business of SWECO or any
of its Affiliates which expense, lapse of time or result would be materially
adverse to the interests of SWECO or any such Affiliate, and there shall be no
Order of any nature in effect issued by any court or Governmental Authority of
competent jurisdiction that would require the divesture of SWECO or any of its
Affiliates of any of the Acquired Assets.
(d) ADDITIONAL CLOSING DOCUMENTS. SWECO shall have received at
the Closing the following documents, each dated the Closing Date (or such
earlier date as SWECO may agree):
(i) bills of sale and assignments, in form and
substance reasonably satisfactory to counsel for SWECO, covering the
items of personal property included in the Acquired Assets to be
transferred or assigned to SWECO at the Closing;
(ii) general warranty deeds, acts of sale in authentic
form or similar forms of conveyance in proper statutory form for
recording duly executed and acknowledged by the Debtor covering the Real
Property to be conveyed to SWECO pursuant to this Agreement;
(iii) such further instruments of sale, transfer,
conveyance, assignment or delivery covering the Acquired Assets or any
part thereof as SWECO may reasonably require to assure the full and
effective sale, transfer, conveyance, assignment and delivery to it of
the Acquired Assets;
(iv) title insurance policies (which shall be at the
expense of SWECO) issued by title insurance companies reasonably
acceptable to SWECO under an ALTA Standard Form B policy insuring good
and marketable title of SWECO in and to the Real Property (other than
that involving the Transmission Assets and the Pipeline), subject only
to Permitted Encumbrances and such other exceptions as are generally
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contained in such ALTA Standard Form B Policy, for such amounts as may
be reasonably specified by SWECO;
(v) New Power Supply Contracts in form and substance
satisfactory to SWECO executed and delivered by Members having
Coincident Peak Demands (as set forth in Schedule 2.4) which, when added
together, equals or exceeds 1,000 megawatts, each duly executed and
delivered by the applicable Member, together with (A) evidence of such
Member's valid existence, (B) evidence of such Member's due
authorization of the execution, delivery and performance of such
Member's New Power Supply Contract, (C) opinions of counsel to such
Member (who shall be satisfactory to SWECO) with respect to the valid
existence of such Member, the due authorization, execution and delivery
by such Member of such Member's New Power Supply Contract, and that such
Member's New Power Supply Contract constitutes such Member's legal,
valid and binding obligation and is enforceable against such Member in
accordance with its terms and (D) such other matters as SWECO may
reasonably request from such Member;
(vi) any documents required to effect the arrangements
contemplated by Section 5.3 of the Plan, which shall be in form
satisfactory to SWECO and shall have been duly executed and delivered by
CoBank or other appropriate party; and
(vii) such other documents as may be specified herein,
the Transaction Documents or in the Plan or as SWECO may reasonably
request.
(e) NO ADVERSE CHANGES; OTHER CONDITIONS.
(i) Between the Confirmation Date and the Closing Date
there shall not have occurred any damage, destruction or loss of any of
the Acquired Assets, whether or not covered by insurance, which has had
or could reasonably be expected to have a Material Adverse Effect (other
than an Impaired Asset for which the Purchase Price will be adjusted
pursuant to Section 2.3) nor shall there have occurred any other event
or condition or any change from the information available to SWECO on
the date hereof which has had or which could reasonably be expected to
have a Material Adverse Effect.
(ii) No replacement, addition or other modification to
any equipment or process used to conduct the Business which would have a
Material Adverse Effect will be necessary to comply with any additional
or different requirements which, as of the Closing Date, are existing or
proposed under any Permit or Environmental Law but which will not become
effective or otherwise applicable until after the Closing Date.
(iii) Between the Confirmation Date and the Closing
Date, SWECO shall have received information regarding each Member's
condition (financial and other), business, operations and prospects
satisfactory to SWECO and there shall have occurred no adverse change
therein.
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(iv) On the Closing Date, SWECO shall have determined
that:
(A) the Debtor has coal and other fuel oil
inventory, spare parts, materials and other supplies of a
quality and a quantity to continue to operate the Business in
accordance with Prudent Utility Practice and the quantity and
quality of the coal shall not be materially less than that
existing on the date hereof; and
(B) the Debtor has all the sulfur dioxide
allowances attributable to the Acquired Assets under applicable
Environmental Law.
(f) THE PLAN.
(i) The Bar Date Order, the Disclosure Statement Order
and the Ballot and Solicitation Order, in form and substance reasonably
satisfactory to SWECO, shall have been entered and shall not have been
modified, amended, dissolved, revoked or rescinded in any material
respect detrimental to SWECO.
(ii) The Plan shall not have been amended,
supplemented or modified in any respect other than as permitted by its
terms.
(iii) The Confirmation Order, which shall comply with
Sections 2.1 and 2.4 and shall otherwise be in form and substance
reasonably satisfactory to SWECO, shall have been entered, shall remain
in effect without any modification or amendment thereto and shall have
become a Final Order.
(iv) The Orders referred to in Section 3.6(c) and (e)
shall have been entered and shall not have been modified, amended,
dissolved, revoked or rescinded.
(v) All conditions precedent to the consummation of
the Plan on the Effective Date (other than the satisfaction or waiver of
the conditions to the obligations of SWECO set forth in Section 6.2 or
the Trustee set forth in Section 6.3) shall have been satisfied or
waived as provided therein.
(vi) The Trustee shall have complied in all material
respects with the Bankruptcy Code, the Bankruptcy Rules and all
applicable orders of the Court entered in the Case.
(vii) The Plan shall be substantially consummated on
the Effective Date thereof simultaneously with the Closing hereunder.
(g) REQUIRED REGULATORY APPROVALS; CONSENTS. Each Required
Regulatory Approval shall have been received in form and substance satisfactory
to SWECO on or prior to the Closing Date, shall be in full force and effect and
shall not be subject to rehearing or appeal on the Closing Date. To the extent
required pursuant to the provisions of an Assigned and Assumed Contract or by
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applicable law, the Trustee shall have obtained consents to the assignment of
the Assumed and Assigned Contracts to SWECO (or shall have entered into other
arrangements satisfactory to SWECO) and such consents shall not contain any
conditions, requirements, or limitations (other than those contained in the
underlying contract) determined by SWECO to be unacceptable.
(h) OPINION OF COUNSEL. SWECO shall have received from the
Trustee an opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel to the
Trustee, that the Confirmation Order has been entered and that no notice of
appeal has been timely filed, or the Confirmation Order otherwise constitutes a
Final Order, as of the Closing Date.
(i) SIMULTANEOUS CLOSING. The Excluded Transmission Assets
shall have been transferred to GSU pursuant to the terms of the Plan and,
subject to the terms and conditions set forth in this Agreement, the closing of
the other Transactions contemplated to be consummated at the Closing shall have
occurred simultaneously.
(j) EXERCISE OF RIGHTS UNDER LIENS. None of the Acquired Assets
shall have been sold, assigned, transferred or delivered to any Person through
the enforcement of any Lien.
(k) NO EMPLOYEE-RELATED LIABILITIES. SWECO shall not be
responsible for any employee related Liabilities of Cajun incurred on or prior
to the Closing Date, including those relating to Employee Benefit Plans,
post-retirement benefits, severance, accrued vacation or sick leave, COBRA
coverage, failure to hire Liability, withdrawal Liability (complete or partial)
under any retirement program and liabilities occasioned by the dismissal or
layoff of any employees or under equal employment or civil rights Laws,
including those Laws regarding discrimination based on sex, race, national
origin, religion, age, veteran's status or disability. The Debtor shall have
complied with all its obligations, if any, under the WARN Act.
(l) FUEL, TRANSMISSION AND TRANSPORTATION ARRANGEMENTS. SWECO
shall have entered into such transmission, interconnection and interchange
arrangements satisfactory to SWECO as may be reasonably necessary for the
transmission of power generated by SWECO or purchased by SWECO for sale in a
manner no less favorable to SWECO than the current arrangements of the Debtors.
(m) NO OTHER LIABILITIES. SWECO shall not be liable for any
other claims or Liabilities of Cajun, other than the Assumed Liabilities, that
have arisen prior to the Closing Date, including any and all claims or
Liabilities with respect to River Bend.
SECTION 6.3 CONDITIONS TO THE OBLIGATION OF THE TRUSTEE TO CONSUMMATE
THE ACQUISITION. The obligation of the Trustee to consummate the Acquisition and
the other Transactions to be consummated at the Closing as contemplated by this
Agreement shall be subject to the satisfaction or waiver in writing by the
Trustee on or prior to the Closing Date of each of the following conditions:
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(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of SWECO contained in this Agreement shall be true and correct in
all material respects as of the date hereof, and as of the Closing Date, with
the same effect as though such representations and warranties had been made on
and as of such dates (except representations and warranties that are made as of
a specific date need be true and correct only as of such date), and each of the
covenants and agreements of SWECO to be performed after the date hereof and
prior to the Closing Date shall have been duly performed by the prescribed date
or for the duration of the prescribed time period, in all material respects.
(b) ENTRY OF ORDERS; CONSUMMATION OF THE PLAN. The Bar Date
Order, the Disclosure Statement Order and the Ballot and Solicitation Order, in
form and substance reasonably satisfactory to the Trustee, shall have been
entered and shall not have been modified, amended, dissolved, revoked or
rescinded in any material respect detrimental to the Cajun Estate and the
Confirmation Order, in form and substance reasonably satisfactory to the
Trustee, shall have been entered, shall remain in effect without any
modification or amendment thereto and shall have become a Final Order.
(c) CERTAIN CLOSING DELIVERIES.
(i) OTHER AGREEMENTS. The relevant parties shall have
entered into all agreements necessary to consummate the Plan, in form
and substance reasonably satisfactory to the Trustee.
(ii) OTHER DOCUMENTS. The Trustee shall have received
from SWECO any other documents required to be delivered by SWECO to the
Trustee pursuant to the provisions of this Agreement, the Transaction
Documents or the Plan in form and substance reasonably satisfactory to
the Trustee.
ARTICLE VII
AMENDMENT, TERMINATION, EXPENSE REIMBURSEMENT,
LIQUIDATED DAMAGES
SECTION 7.1 AMENDMENT. Subject to any Bankruptcy Court approval
requirement that may be applicable, this Agreement may be amended by the written
agreement (and only by the written agreement) of the Trustee and SWECO at any
time prior to the Closing Date.
SECTION 7.2 TERMINATION. This Agreement may be terminated prior to the
Closing as follows (the actual date on which this Agreement is terminated being
referred to herein as the "Termination Date").
(a) at any time on or prior to the Closing Date, by mutual
written consent of the Trustee and SWECO;
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(b) at any time after final determination of the Impaired Asset
Adjustment Amount, by either the Trustee (if the Impairment does not constitute
or result from a breach of the Trustee of its obligations under this Agreement)
or SWECO if such amount exceeds Twenty Million Dollars ($20,000,000);
(c) at the election of the Trustee, if any one or more of the
conditions to the obligations of the Trustee to close as set forth in Section
6.1 or 6.3 has not been fulfilled by July 1, 1999 (the "Outside Date");
(d) at the election of SWECO, if any one or more of the
conditions to the obligations of SWECO to close as set forth in Section 6.1 or
6.2 has not been fulfilled by the Outside Date;
(e) at the election of SWECO, if any of the following shall
occur;
(i) approval by the Court of an Alternative Plan;
(ii) confirmation of a plan of reorganization that
does not accomplish the Acquisition;
(iii) entry of an order of the Court authorizing the
sale of all or a substantial part of the assets of Cajun (in one or more
related transactions and pursuant to any form of transaction) to a
Person other than SWECO or another designated affiliate of SWEPCO (other
than the Excluded Transmission Assets pursuant to the GSU Settlement);
(iv) dismissal or conversion to Chapter 7 of the Case;
or
(v) the Court shall not have signed the Confirmation
Order by July 1, 1998; and
(f) by either SWECO or the Trustee if the Closing has not
occurred on or before the Outside Date, time being of the essence.
(g) by either SWECO or the Trustee if any Governmental
Authority of competent jurisdiction shall have issued an Order or taken any
other action restraining, enjoining or otherwise prohibiting the Transaction
(which the party seeking to terminate this Agreement shall have used all
reasonable efforts to have lifted or reversed) and such Order shall have become
final and nonappealable.
SECTION 7.3 EFFECT OF TERMINATION. If this Agreement is terminated and
the Transactions are not consummated, this Agreement shall become void and of no
further force and effect, except that any such termination shall be without
prejudice to the rights and obligations of the parties hereto under Sections
7.4, 7.5 and 7.6.
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SECTION 7.4 TRUSTEE'S LIQUIDATED DAMAGES FOR SWECO BREACH. If this
Agreement is terminated solely as a result of a breach by SWECO of its
obligations under this Agreement, then the Trustee shall be entitled to payment
of the SWECO Termination Fee. SWEPCO agrees to pay the SWECO Termination Fee to
the Trustee if SWECO does not promptly pay the SWECO Termination Fee if and when
the SWECO Termination Fee is payable under this Section 7.4. Payment of the
SWECO Termination Fee shall (a) be full consideration for the Trustee's efforts
and expenses in connection with this Agreement, the Plan. the other Transaction
Documents and all Transactions contemplated hereby and thereby, and (b)
constitute liquidated and agreed damages in respect of this Agreement and the
Transactions, and SWECO, SWEPCO and their respective Affiliates shall have no
further liability to the Trustee, the Cajun Estate or to any Claimant. The
Trustee agrees that it is impossible to determine accurately the amount of all
of the damages that the Cajun Estate would incur by virtue of a breach by SWECO
of its obligations to proceed with the Transactions, and agrees that the sole
and exclusive remedy for any such breach shall be for the Trustee to receive
payment of the SWECO Termination Fee. Except as provided in this Section 7.4,
the Trustee shall have no right or remedy against SWECO, SWEPCO or their
respective Affiliates at law or in equity by reason of a breach by SWECO of its
obligations under this Agreement. The Trustee agrees and acknowledges that he
has no recourse to the Affiliates, officers, directors, shareholders, employees,
or agents of SWEPCO or SWECO with respect to the obligations of SWEPCO and SWECO
hereunder, and the Trustee agrees not to assert any claim hereunder against any
Person other than SWEPCO or SWECO.
SECTION 7.5 REIMBURSEMENT OF SWECO'S EXPENSES. The Trustee hereby
acknowledges and agrees that SWECO has incurred and is continuing to incur
substantial expenses, including the fees and expenses of legal counsel and
financial advisors in connection with investigating the business and operations
of the Debtor and in preparing this Agreement, the Transaction Documents and
other various documentation, and that the Debtor has derived and will continue
to derive benefit from such expenditures by SWECO. In recognition of such
expenditures and to induce SWECO to continue to incur such expenses in
connection with the Acquisition, subject to Sections 7.6 and 8.12, the Trustee
shall cause the Debtor to pay SWECO up to Seven Million Five Hundred Thousand
Dollars ($7,500,000) in respect of the Reimbursable Expenses if (a) the Plan is
confirmed, and (b) the Acquisition is not consummated for any reason other than
a material default by SWECO of its obligations under this Agreement that results
in the SWECO Termination Fee being payable under Section 7.4 (a "Reimbursable
Termination"). SWECO shall be entitled to the payment of such Reimbursable
Expenses upon demand, subject to reasonable substantiation. Funds from the Cajun
Estate shall not be paid to SWECO or SWEPCO for payments made by SWEPCO to
reimburse the Committee of Certain Members (or the members thereof) with respect
to bankruptcy and litigation expenses.
SECTION 7.6 SWECO'S LIQUIDATED DAMAGES FOR TRUSTEE BREACH
(a) The Trustee agrees that, in the event of a Reimbursable
Termination that results from a breach by the Trustee of its obligations under
this Agreement after entry of the Confirmation Order, then, subject to Section
8.12, the Trustee shall, upon demand, pay, or cause the Debtor to pay, to SWECO
or such other Person as SWECO shall designate, the Trustee Termination Fee.
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Neither (i) a failure of the Article IV Representations to be true and correct
nor (ii) a failure of any condition specified in Section 6.1 or Section 6.2 to
be satisfied prior to the Outside Date (other than part of Section 6.2 that
relates to the Trustee's performance of his covenants hereunder) shall
constitute such a default for purposes of this Section 7.6. If the Trustee
Termination Fee is paid by the Trustee, then no Reimbursable Expenses shall be
payable.
(b) Payment of the Trustee Termination Fee shall (i) be full
consideration for SWECO's, SWEPCO's and their respective Affiliates' efforts and
expenses in connection with this Agreement, the Plan, the other Transaction
Documents and all Transactions contemplated hereby and thereby, including the
substantial due diligence efforts of SWECO, SWEPCO or their Affiliates and their
Representatives, and (ii) constitute liquidated and agreed damages in respect of
this Agreement and the Transactions, and the Trustee (on behalf of the Cajun
Estate) shall have no further liability to SWECO, SWEPCO or their respective
Affiliates. SWECO agrees that it is impossible to determine accurately the
amount of all of the damages that it would incur by virtue of a breach by the
Trustee of his obligations under this Agreement, and agrees that its sole and
exclusive remedy for any such breach shall be to receive payment of the Trustee
Termination Fee. Except as provided in this Section 7.6 and in Sections 6.2, 7.2
and 8.8, SWECO shall have no right or remedy against the Trustee, at law or in
equity, by reason of a breach by the Trustee of his obligations under this
Agreement.
SECTION 7.7 FIRST PRIORITY EXPENSES. The Reimbursable Expenses and the
Trustee Termination Fee shall constitute first priority administrative expenses
of the Debtor pursuant to section 503(b) of the Bankruptcy Code and shall be
paid upon the entry of any Order of the Court directing payment by the Trustee
of such amounts. From and after the Outside Date, until payment in full of the
Reimbursable Expenses and the Trustee Termination Fee, interest shall accrue on
any unpaid portion of the Reimbursable Expenses or Trustee Termination Fee, as
the case may be, at a rate per annum equal to the prime commercial lending rate
announced from time to time by The Chase Manhattan Bank, N.A.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 EXPENSES. Except as otherwise provided herein, the parties
hereto shall bear their own respective costs and expenses (including all
compensation and expenses of counsel, financial advisors, consultants, actuaries
and independent accountants) incurred in connection with the preparation and
execution of this Agreement and the Transaction Documents and consummation of
the Transactions.
SECTION 8.2 ENTIRE AGREEMENT, DISCLOSURES IN WRITING. Except as
otherwise contemplated herein, this Agreement, together with the Appendices and
Schedules hereto, and the Transaction Documents constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede all prior
and contemporaneous agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof
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SECTION 8.3 COUNTERPARTS. This Agreement and any amendments hereto may
be executed in one or more counterparts, each of which will be deemed to be an
original by the party executing such counterpart, but all of which shall be
considered one and the same instrument.
SECTION 8.4 HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement.
SECTION 8.5 NOTICES. All notices hereunder shall be deemed given if in
writing and delivered or sent by facsimile, courier or by registered or
certified mail (return receipt requested) to the following addresses or
facsimile numbers (or at such other addresses or facsimile numbers as shall be
specified by like notice):
(a) if to the Trustee, to:
The Honorable Ralph R. Mabey
c/o LeBoeuf Lamb, Greene & MacRae, L.L.P.
1000 Kearns Building
136 South Main Street
Salt Lake City, Utah 84101
Telephone (801) 321-6721
Facsimile (801) 359-3256
With a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1000 Kearns Building
136 South Main Street
Salt Lake City, Utah 84101
Attention: Lon Jenkins, Esq.
Telephone: (801) 321-6721
Facsimile: (801) 359-8256
and to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
633 Seventeenth Street
Suite 2800
Denver, Colorado 80202
Attention: Thomas J. Moore, Esq.
Telephone: (303) 291-2600
Facsimile: (303) 297-0422
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if to SWECO, to:
Southwestern Wholesale Electric Power Company
428 Travis Street
Shreveport, Louisiana 71101
Attention: Michael D. Smith
Telephone: (318) 673-3395
Facsimile: (318) 673-3681
With a copy to:
Central and Southwest Corporation
1616 Woodall Rogers Freeway
Dallas, Texas 75202
Attention: F. C. Meyer, Esq.
General Counsel
Telephone: (214) 777-1096
Facsimile: (214) 777-1528
Any, notice given by delivery, mail or courier shall be effective when received.
Any notice given by facsimile shall be effective upon oral or machine
confirmation of transmission.
SECTION 8.6 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the Laws of the State of Louisiana applicable to
agreements made and to be performed entirely within such state (without regard
to conflict of laws provisions of Louisiana law that would result in the
application of the laws of another jurisdiction) and, to the extent applicable,
the Bankruptcy Code.
SECTION 8.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns, and nothing herein
express or implied shall give or be construed to give to any other Person any
legal or equitable rights hereunder.
SECTION 8.8 NON-SURVIVAL OF CERTAIN STATEMENTS AND REPRESENTATIONS. The
statements contained in Article IV and the representations of SWECO set forth in
this Agreement shall not survive the Closing.
SECTION 8.9 BINDING, EFFECT, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors and
permitted assigns, including any Person appointed for or in connection with any
chapter 11 case involving the Debtor in any subsequent case under the Bankruptcy
Code in which the Debtor may be a debtor. Except as provided in the preceding
sentence and in Section 2.1, this Agreement and the rights and remedies
hereunder are not assignable by the Trustee or SWECO, except that SWECO may
assign its rights and remedies hereunder to any one or more of its Affiliates.
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SECTION 8.10 FURTHER ASSURANCES. The Trustee, on the one hand, and
SWECO, on the other, agree, to the extent necessary (and only to such extent),
on or any time after the Closing Date, to execute and deliver, or to cause to be
executed and delivered, all such instruments, and to take all such actions, as
the other may reasonably request in order to effectuate the intent and purpose
of, and to otherwise carry out the terms of, this Agreement.
SECTION 8.11 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES. This
Agreement may be amended, superseded, canceled, renewed or extended, and the
terms and conditions hereof may be waived, only by a written instrument signed
by the parties or, in the case of a waiver, the party waiving compliance. Except
as otherwise provided herein, no delay on the part of any party in exercising
any right, power or privilege hereunder, nor any single or partial exercise of
any such right, power or privilege hereunder, shall preclude any other or
further exercise thereof or the exercise of any other such right, power or
privilege hereunder. The rights and remedies herein provided are cumulative and,
except as otherwise provided herein, are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity.
SECTION 8.12 NO PERSONAL LIABILITY OF TRUSTEE. Notwithstanding anything
herein to the contrary, the Trustee shall have no personal liability for any of
his obligations under this Agreement, including under Section 7.5 and Section
7.6, all of which the Trustee has undertaken for and on behalf of the Cajun
Estate and all liability for which will be the sole responsibility of the Cajun
Estate.
SECTION 8.13 OBLIGATIONS OF TRUSTEE SUBJECT TO COURT APPROVAL. SWECO and
SWEPCO agree and acknowledge that the Trustee's obligations hereunder are
subject to the approval of the Court in the Case, as and to the extent required
by the applicable provisions of the Bankruptcy Code.
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of
the parties hereto by their respective duly appointed representatives thereunder
duly authorized as of the date first above written.
SOUTHWESTERN WHOLESALE
ELECTRIC COMPANY
By:
Name:
Title:
Ralph R. Mabey, as Chapter 11 Trustee for
Cajun Electric Power Cooperative, Inc.,
subject to Section 8.12
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As to Section 7.4 only:
SOUTHWESTERN ELECTRIC POWER
COMPANY
By:
Name:
Title:
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APPENDIX A
DEFINITIONS
"ACQUIRED ASSETS" shall mean any and all assets owned by the Debtor or
in which the Debtor has rights or privileges, of every type and description,
real, personal and mixed, tangible, choate or inchoate, known or unknown, fixed
or unfixed, accrued, absolute, contingent or otherwise, wheresoever located, and
whether or not specifically referred to in this Agreement, excluding only the
Excluded Assets, but including the following:
(i) Big Cajun I;
(ii) Big Cajun II, Units I and 2;
(iii) the Debtor's 58% undivided ownership interest in Big
Cajun II, Unit 3;
(iv) the Debtor's 86% undivided interest in Big Cajun II common
facilities;
(v) the Energy Control Center;
(vi) the 37,500 sq. ft. headquarters building in Baton Rouge,
Louisiana situated on approximately 5.5 acres of land, together with all
servitudes, easements, rights of way and other real property rights
related thereto;
(vii) approximately 4,200 acres of agricultural land near
Coushatta, Louisiana, together with all servitudes, easements, rights of
way and other real property rights related thereto;
(viii) the 540 MW General Electric turbine generator;
(ix) the Pipeline System, together with all servitudes,
easements, rights of way and other real property rights related thereto;
(x) all railcars owned by the Debtor or in which the debtor has
an interest, including 836 steel rotary dump railcars;
(xi) all annual Phase II sulfur dioxide allowances attributable
to the other Acquired Assets under applicable Environmental Laws;
(xii) all of the Assumed and Assigned Contracts and the
Assigned Post-Petition Contracts, including all of the Leaseholds,
transmission/interconnection contracts, and the other power sales
contracts that SWECO designates as Assumed and Assigned Contracts or
Assigned Post-Petition Contracts pursuant to Section 3.6;
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(xiii) all other office furniture, furnishings, machinery,
equipment, supplies and computer hardware and software owned by the
Debtor or in which the Debtor has an interest that are not Excluded
Assets;
(xiv) all coal, fuel oil and other inventories, material, spare
parts and other supplies owned by the Debtor or in which the Debtor has
an interest that are not Excluded Assets;
(xv) the Big Cajun II Solid Waste Closure Fund;
(xvi) all motor vehicles owned by the Debtor or in which the
Debtor has an interest that are not Excluded Assets;
(xvii) all of the Designated Transmission Assets and all other
substations, through buses, and microwave stations owned by the Debtor
or in which the Debtor has an interest, and all servitudes, easements,
rights of way and other real property rights related thereto, other than
any Excluded Transmission Assets;
(xviii) all Real Property not otherwise specifically referred
to in the foregoing clauses (i) through (xvii);
(xix) the proceeds of any insurance or condemnation award
resulting from any casualty to or condemnation of an Acquired Asset
occurring prior to the Closing Date which are not applied to the payment
of the cost of restoration of such Acquired Asset; and
(xx) all other assets and properties, except Excluded Assets,
listed in Schedule 4.7 and 4.8.
"ACQUISITION" shall have the meaning set forth in the recitals to this
Agreement.
"ACTION" shall mean any civil, criminal, or administrative action, suit,
arbitration, charge, petition, complaint, inquiry, litigation, proceeding or
investigation by or before any Governmental Authority or Arbitral Authority,
including any class actions or investigations.
"AFFILIATE" shall mean, with respect to any Person, any other Person
controlling, controlled by; or under common control with such Person. For
purposes of this definition, "CONTROL" shall mean the power to direct, or cause
the direction of, the management or policies of any Person, whether through
ownership of securities, by contract or otherwise.
"AGREEMENT" shall mean this Agreement and the Appendices and Schedules
hereto.
"ARTICLE IV STATEMENTS" shall mean the statements set forth in Article IV.
"ASSIGNED POST-PETITION CONTRACTS" shall have the meaning set forth in
Section 3.6(g).
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"ASSUMED AND ASSIGNED CONTRACTS" shall have the meaning set forth in
Section 3.6(c).
"ASSUMED LIABILITIES" shall mean (i) the obligations of the Debtor under
any Assumed and Assigned Contracts or Assigned Post-Petition Contracts that
first arise on or after the Closing Date (excluding any amounts that are
required to be paid in order to assume any of such Contracts pursuant to
Bankruptcy Code sections 365 and 1123 or that otherwise are due and owing under
any such Contracts prior to the Closing) and (ii) any obligations of the Debtor
that are assumed by SWECO under Section 3.11.
"BALLOT AND SOLICITATION ORDER" shall mean the order to be entered by the
Court, approving the procedures for the solicitation of acceptances and
rejections of the Plan and the form of ballots related thereto.
"BANKRUPTCY CODE" shall mean title 11 of the United States Code, " 101, et
M., as amended and in effect on the Petition Date.
"BANKRUPTCY RULES" shall mean the Federal Rules of Bankruptcy Procedure as
promulgated by the United States Supreme Court under section 2075, title 28,
United States Code. and any local rules of the Court.
"BAR DATE ORDER" shall mean an order of the Court establishing a bar date
for the filing of certain administrative expense claims under Bankruptcy Code
section 503(b) against the Debtor.
"BASIS POINT" shall mean one one-hundredth of one percent (1/100 of 1%).
"BIG CAJUN I" shall mean Big Cajun I, Units 1 and 2, which are natural
gas-fired electric generating facilities located in New Roads, Louisiana, owned
100% by Cajun, both of which were recertified to a capacity of net 110MW in
1995, and all related switchyards, machinery, equipment, tools, spare parts,
supplies, fuel oil in storage, other items in inventory, docking facilities,
Transferable Permits and other personal and Real Property, including all
servitudes, easements. rights of way and other real property rights related
thereto.
"BIG CAJUN II" shall mean Big Cajun II, Units I and 2 and Big Cajun II,
Unit 3.
"BIG CAJUN II JOPOA" shall mean the Joint Ownership Participation and
Operating Agreement dated November 14, 1980 between the Debtor and GSU related
to Big Cajun II, Unit 3.
"BIG CAJUN II SOLID WASTE CLOSURE FUND" shall mean the funds held in
account No. 98-0005-01-1 maintained at Hibernia National Bank in Baton Rouge,
Louisiana.
"BIG CAJUN II, UNITS I AND 2" shall mean Big Cajun II, Units 1 and 2, which
are coal-fired electric (generating facilities located in New Roads, Louisiana,
owned 100% by Cajun, each of which is rated at a capacity of net 575MW and all
related machinery, equipment, switchyards, coal inventory. fuel oil in storage,
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other items in inventory, docking facilities, tools, spare parts, supplies,
Transferable Permits and other personal and Real Property, including all
servitudes, easements. rights of way and other real property fights related
thereto.
"BIG CAJUN II, UNIT 3" shall mean Big Cajun II, Unit 3, a coal-fired
electric generating facility, located in New Roads, Louisiana, in which the
Debtor owns a 58% undivided interest and GSU owns a 42% undivided interest and
which is operated by the Debtor and rated at a capacity of net 40%TW (with the
Debtor's share being 313MW), and all related machinery, equipment, standards,
coal inventory, fuel oil in storage, other items in inventory, docking
facilities, tools, spare parts., supplies, Transferable Permits and other
personal and Real Property, including all servitudes. easements, rights of way
and other real property rights related thereto.
"BOOKS AND RECORDS" shall mean all books and records (or true and complete
copies thereof) of this Debtor, including all computerized books and records,
including all such books and records relating to the purchase or sale of power,
materials, supplies and services or dealings with customers and all records and
other documentation relating to Environmental Laws and Environmental
Liabilities.
"BUSINESS" shall mean the business and operations of Cajun currently
conducted by the Trustee with the Acquired Assets.
"BUSINESS DAY" shall mean any day excluding Saturday, Sunday and any day
which is a legal holiday under the Laws of the State of Texas, Louisiana or New
York or is a day on which banking institutions located in any such state are
authorized or required by Law or other government action to close.
"CAJUN" shall have the meaning set forth in the recitals to this Agreement.
"CAJUN ESTATE" A shall mean the bankruptcy estate of the Debtor created
under Bankruptcy Code section 541(a) upon commencement of the Case.
"CAJUN FINANCIAL STATEMENTS" shall have the meaning set forth in Section
4.5.
"CAJUN RIVER BEND INTEREST" shall mean the undivided 30% interest of the
Debtor in River Bend
"CASE" shall have the meaning set forth in the recitals to this Agreement.
"CLAIMANTS" shall mean the holders of claims against, or equity interests
in, the Debtor.
"CLECO" shall mean Central Louisiana Electric Company, Inc., a Louisiana
corporation.
"CLOSING" shall have the meaning set forth in Section 2.8.
"CLOSING DATE" shall mean the Effective Date.
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"CLOSING DATE YIELD" means the yield to maturity implied by (i) the yields
reported in Bloomberg Business News, as of the close of business on the Business
Day immediately preceding the Closing Date, for actively traded U.S. Treasury
securities having a constant maturity of ten (10) years, or (ii) if such yields
are not reported as of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported, for the
latest day for which such yields have been so reported as of the Business Day
immediately preceding the Closing Date, in U.S. Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for actively traded
U.S. Treasury securities having a constant maturity of ten (10) years.
"COBANK" shall mean CoBank ACB, formerly the National Bank for
Cooperatives.
"COBANK CLASS E STOCK" shall mean the Class E stock of CoBank owned by the
Debtor.
"COBANK LETTERS OF CREDIT" shall mean the letter of credit issued by CoBank
for the account of the Debtor and for the benefit of The Clorox Company dated
June 30, 1983, as renewed or replaced from time to time, and the letter of
credit issued by CoBank for the account of the Debtor and for the benefit of
Eastman Kodak Company dated July 7, 1983, as renewed or replaced from time to
time.
"COBANK PATRONAGE DIVIDENDS" shall mean the patronage dividends payable by
CoBank to the Debtor and held by CoBank immediately prior to the Closing.
"COBANK REIMBURSEMENT AGREEMENT" shall mean the separate Letter of Credit
Reimbursement Agreements dated June 30, 1983 and July 7, 1983, respectively, as
amended, executed and delivered by the Debtor in favor of CoBank and any other
similar agreement that governs the CoBank Letters of Credit then outstanding.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985.
"COINCIDENT PEAK DEMAND" shall mean, with respect to each Member, the
amount set forth opposite such Member's name in Schedule 2.4.
"COLLECTIVE BARGAINING AGREEMENTS" shall mean all collective bargaining
agreements to which the Debtor is a party, including: (i) the Collective
Bargaining Agreement dated April 1, 1995 between the Debtor and the United
Steelworkers of America, (ii) the Collective Bargaining Agreement dated April 1,
1995 between the Debtor and the International Brotherhood of Electrical Workers,
and (iii) the Collective Bargaining Agreement dated December 1, 1994 between the
Debtor and the International Brotherhood of Electrical Workers.
"CONFIRMATION DATE" shall mean the date on which the Confirmation Order is
entered on the docket for the Case by the clerk of the Court.
"CONFIRMATION HEARING" shall mean the hearing on confirmation of the Plan.
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"CONFIRMATION ORDER" shall mean the order to be entered by the Court,
confirming the Plan in accordance with section 1129 of the Bankruptcy Code.
"CONTRACTS" shall mean all contracts, agreements, indentures, notes, bonds,
loans, instruments. leases, sub-leases, deeds of trust, conditional sales
contracts, mortgages, franchises, licenses. commitments or other binding
agreements, understandings and other arrangements, express or implied.
"CORE ARTICLE IV STATEMENTS" means the Article IV Statements set forth in
Sections 4.4, 4.5 (as to the last two sentences thereof), 4.7 (as to the last
sentence thereof), 4.8, 4.12, and 4.15.
"COURT" shall mean the United States District Court for the Middle District
of Louisiana having jurisdiction over the Case and, to the extent of any
references under section 157, title 28, United States Code, the unit of such
District Court constituted under section 15 1, title 28, United States Code.
"CREDITORS" shall mean any Person that holds a claim against the Debtor (i)
that arose at the time of or before the commencement of the Case or (ii) of a
kind specified in section 502(g), 502(h) or 502(i) of the Bankruptcy Code.
"DEBTOR" shall have the meaning set forth in the recitals to this
Agreement.
"DESIGNATED TRANSMISSION ASSETS" shall mean the Transmission Assets
consisting of those interconnecting transmission facilities that are necessary
to effect the sale by SWECO of capacity and associated energy at wholesale,
excluding any Excluded Transmission Assets.
"DIRECTORS AND OFFICERS TRUST FUND" shall mean the directors and officers
trust fund maintained at City National Bank and relating to the Debtor's
retained Liability under its directors and officers liability insurance policy.
"DISCLOSURE STATEMENT" shall mean the Disclosure Statement, including all
exhibits and schedules thereto, relating to the Plan filed by SWEPCO with the
Court pursuant to section 1125 of the Bankruptcy Code.
"DISCLOSURE STATEMENT ORDER" shall mean the order to be entered by the
Court, approving the Disclosure Statement pursuant to section 1125 of the
Bankruptcy Code and establishing the procedure and method of providing notice of
the hearing on confirmation of the Plan.
"DOLLARS" and "$" shall mean lawful currency of the United States of
America.
"DUE DILIGENCE INVESTIGATION" shall have the meaning set forth in Section
3.1(c).
"EFFECTIVE DATE" shall mean the Effective Date of the Plan, which shall be
the earlier of (i) a Business Day after the Confirmation Date selected by SWECO
and the Trustee; or (ii) ten (10) Business Days after the date on which the
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conditions precedent to the effectiveness of the Plan have been fulfilled or
waived by the Trustee and SWECO as set forth in the Plan.
"EMPLOYEE BENEFIT PLAN" shall mean each ERISA Plan and each other pension,
profit sharing, retirement, bonus, deferred compensation, stock option, stock
purchase, fringe benefit, severance pay or insurance plan for officers or
employees (as well as any other policy or practice that provides health,
welfare, or post-retirement benefits to officers or employees), which currently
is established, maintained, contributed to or legally obligated to be
contributed to (i) by the Debtor or (ii) any current or former ERISA Affiliate.
"ENCUMBRANCE" shall mean any Lien, claim, option, leasehold interest, right
of way, option, restriction or other right of any third party of any kind or any
nature whatsoever.
"ENERGY CONTROL CENTER" shall mean the operations control center located in
New Roads, Louisiana, and all related personal and Real Property, including all
servitudes, easements, rights of way and other real property rights related
thereto.
"ENVIRONMENT" shall mean any indoor or outdoor ambient air, surface water,
ground water, drinking water, building surface, material surface, land surface
or subsurface strata or natural resources.
"ENVIRONMENTAL LAWS" shall mean any United States federal, state or local
Law relating or applicable to pollution or protection of the Environment,
including any of the foregoing relating or applicable to emissions, discharges,
spills, Releases or threatened Releases of any Hazardous Materials into the
Environment, the investigation, removal, remediation or other cleanup or
corrective action for Hazardous Materials, interference with the use of property
caused by or resulting from Hazardous Materials or human or natural resource
exposure to any Hazardous Materials, or otherwise relating to the manufacture,
generation, processing, distribution, use, treatment. storage, disposal,
recycling, transport or handling of any Hazardous Materials, including the
Comprehensive Environmental Response, Compensation and Liability Act (42 U S C,
Section 960 1, et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901, et seq.), the Clean Air Act (42 U.S.C. Section 7401, et seq.), the
Federal Water Pollution Control Act (13 U S C Section 12-1, et seq.), the Safe
Drinking Water Act (42 U.S.C. Section 300, et seq.), the Toxic Substances
Control Act (15 U.S.C. Section 2601, et seq.), the Hazardous Materials
Transportation Act (49 U.S.C.Section 180 1, et seq.), and all regulations issued
under such statutes, and all analogous and similar state statutes and
regulations issued thereunder, and all obligations, duties, and requirements
arising from or related to Hazardous Materials under common law (including
nuisance and trespass).
"ENVIRONMENTAL LIABILITIES" shall mean any known or reasonably expected
liability or obligation under any Environmental Law, including liability for
investigatory costs, oversight costs, remediation and cleanup costs,
governmental or private response costs and cost recovery actions, natural
resource damages, property damages, personal injuries, expenditures for process
or operational changes necessary to remedy violations of any Environmental Law,
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consequential economic damages, administrative, civil or criminal penalties or
forfeitures, and attorneys' fees or other costs of defending an Action asserting
liability under any Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" shall mean any corporation or trade or business
(including a sole proprietorship, partnership, trust, estate or corporation)
that is a member of any group of organizations described in section 414(b), (c),
(m) or (o) of the Tax Code and the regulations issued thereunder of which the
Debtor is a member.
"ERISA MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined in
section 3(37) or 4001(a)(1)) of ERISA.
"EWG" shall mean an "exempt wholesale generator" under Section 32 of the
Public Utility Holding Company Act of 1935.
"EXCLUDED ASSETS" shall mean (i) the Cajun River Bend Interest and all
assets related thereto; (ii) cash and cash equivalents of the Debtor on the
Closing Date, whether such cash or cash equivalents are held by the Debtor or by
a third party, including (A) the cash collateral account established for the
benefit of the RUS pursuant to the cash collateral stipulations entered into
between the RUS and the Debtor or the Trustee, as applicable, on and after the
Petition Date; (B) the River Bend decommissioning fund maintained at Hibernia;
(C) the River Bend low level waste fund maintained by GSU; and (D) the Board
Escrow Fund maintained at Hibernia, but excluding the Big Cajun II Solid Waste
Closure Fund; (iii) all of the Debtor's accounts receivable existing immediately
prior to the Closing (iv) the insurance claims of the Debtor relating to
loss, destruction or other damage to any of the Acquired Assets prior to the
Closing Date that results in an adjustment to the Purchase Price pursuant to
Section 2.3(a); (v) the Rejected Contracts; (vi) the Excluded Transmission
Assets; (vii) any and all directors and officers liability insurance policies
and rights with respect thereto, including the Directors and Officers Trust
Fund; (viii) the Debtor's membership in the U.S. Southwestern Power Pool; (ix)
the capital term certificates issued by the Natural Rural Utilities Cooperative
Finance Corporation to the Debtor, and all related dividends or credits; (x)
the Debtor's investment in Western Fuels Association, Inc. as and to the extent
it exists on the Closing Date; and (xi) the CoBank Class E Stock and the CoBank
Partronage Dividends, subject to the pledge thereon to secure the SHL Indemnity
Obligations assumed by SWECO pursuant to Section 5.3 of the Plan.
"EXCLUDED TRANSMISSION ASSETS" shall mean the 500KV Transmission Assets,
together with the related through bus facilities located in certain substations
and the revenue metering facilities affixed to the high-voltage side of the
through bus facilities situated in certain substations.
"EXISTING POWER SUPPLY CONTRACTS" shall mean those long-term wholesale
power contracts between the Debtor and the Members, nine of which expire in the
year 2026 and three of which expire in the year 2021.
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"FERC" A shall mean the Federal Energy Regulatory Commission.
"FINAL ORDER" shall mean (i) an order of the Court as to which the time to
appeal, petition for certiorari or move for reargument or rehearing has expired
and as to which no appeal, petition for certiorari or other proceedings for
reargument or rehearing shall then be pending, or (ii) if an appeal, writ of
certiorari, reargument or rehearing thereof has been filed or sought, such order
of the Court shall have been affirmed by the highest court to which such order
was appealed, or certiorari shall have been denied or reargument or rehearing
shall have been denied or resulted in no modification of such order, and the
time to take any further appeal, petition for certiorari or move for reargument
or rehearing shall have expired, PROVIDED, HOWEVER, that the possibility that a
motion under Rule 59 or Rule 60 of the Federal Rules of Civil Procedure, or any
analogous Bankruptcy Rule, may be filed with respect to such order shall not
cause such order not to be a Final Order.
"500KV TRANSMISSION ASSETS" shall mean the 29 miles of 500 KV transmission
near Big Cajun II known as 500KV line number 745 and line number 746.
"FTC" shall mean the Federal Trade Commission.
"GAAP" shall mean generally accepted accounting principles in effect in the
United States, consistently applied.
"GOVERNMENTAL APPROVALS" shall mean the consents, approvals, authorizations
and other requirements prescribed by any Law, including the Required Regulatory
Approvals, which must be obtained or satisfied by Cajun, the Trustee or SWECO
and which are necessary for the execution and performance by the Trustee or
SWECO of this Agreement and the Transaction Documents or for the consummation of
any of the Transactions in accordance with the terms of the Transaction
Documents.
"GOVERNMENTAL AUTHORITY" shall mean any domestic or foreign federal, state
or local court, department, legislative body, commission, council, board or
other administrative or governmental Person.
"GSU" shall mean Entergy Gulf States Utilities, Inc., a Texas corporation
formerly known as Gulf States Utilities, Inc.
"GSU SETTLEMENT" shall mean the proposed settlement between the Cajun
Estate and GSU settling all mutual claims relating to River Bend and all other
disputes and claims between the Cajun Estate and GSU.
"HAZARDOUS MATERIALS" shall mean any substance: (i) that is defined as
"hazardous waste," "hazardous substance," "hazardous material," "extremely
hazardous substance," "toxic substance," "pollutant", "contaminant" or "solid
waste" under any Environmental Law; (ii) that is toxic, explosive, corrosive,
flammable, infectious, reactive, radioactive, carcinogenic, mutagenic or
otherwise hazardous and is regulated by any Governmental Authority; (iii) that
is or contains oil, petroleum products, natural gas or liquefied natural gas; or
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<PAGE>
(iv) that contains PCBS, asbestos, radon gas or urea formaldehyde foam
insulation.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"HYDRO CONTRACT" shall mean the contract between the Debtor and the
Southwestern Power Administrator, designated No. DE-PM75-945WO0244, pursuant to
which the Debtor is purchasing hydroelectric capacity and associated energy.
"IMPAIRED ASSETS" shall have the meaning set forth in Section 2.3(a).
"IMPAIRED ASSET NOTICE" shall have the meaning set forth in Section 2.3(a).
"IMPAIRED ASSETS ADJUSTMENT AMOUNT" shall have the meaning set forth in
Section 2.3(a).
"IMPAIRMENT" shall have the meaning set forth in Section 2.3(a).
"INTELLECTUAL PROPERTY RIGHTS" shall mean, collectively, any and all
patents, trademarks, service marks, copyrights, trade names, know how, technical
information and data, trade secrets and other proprietary information or
intellectual property rights.
"IRS" shall mean the Internal Revenue Service.
"LAW" shall mean any statute, law (including common law), rule, regulation,
ordinance, order, decree, ruling, permit, authorization, action, restriction,
requirement or policy of any Governmental Authority (each as may be in effect
from time to time).
"LEASEHOLD" means a lease of Real Property that is included in the Acquired
Assets, including any space use agreement, license or other right to use or
occupy.
"LIABILITY" shall mean any debt, liability or obligation, whether accrued,
contingent, disputed, undisputed, secured, unsecured, liquidated, unliquidated,
matured or unmatured, including (i) those arising under (a) any Law or Order,
(b) any Employee Benefit Plan or (c) any Contract; (ii) all Environmental
Liabilities; (iii) liabilities for Taxes and interest, penalties or other
charges payable with respect to any such Liability and (iv) all tort
liabilities.
"LIEN" shall mean a charge against or interest in property to secure
payment of a debt or performance of a liability, whether granted voluntarily or
involuntarily, including any security interest, pledge, mortgage or charge.
"LPSC" shall mean the Louisiana Public Service Commission.
"MATERIAL ADVERSE EFFECT" shall mean any condition, change or event that,
individually or in the aggregate, could reasonably be expected to materially and
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adversely affect the Acquired Assets, the Retained Assets or the business,
operations, financial condition or prospects of SWECO or Cajun.
"MATERIAL CONTRACTS" shall mean any Contract (i) the term of which could
reasonably be expected to extend beyond the Closing, (ii) involves aggregate
future consideration of One Hundred Thousand Dollars ($100,000) or more or (iii)
is otherwise material to the Business.
"MEMBERS" shall mean the following 12 distribution cooperatives who are
members of Cajun BeaureLyard Electric Cooperative, Inc., Claiborne Electric
Cooperative, Inc., Concordia Electric Cooperative, Inc., Dixie Electric
Membership Corp., Jefferson Davis Electric Cooperative, Inc., Northeast
Louisiana Power Cooperative, Inc., Pointe Coupee Electric Membership
Cooperative, South Louisiana Electric Cooperative Association, Southwest
Louisiana Electric Membership Corp., Teche, Valley Electric Membership Corp.,
and Washington St. Tammany Electric Cooperative, Inc.
"NEW POWER SUPPLY CONTRACT" shall mean a long-term wholesale power purchase
agreement, in form and substance acceptable to SWECO and to take effect on the
Closing Date, between SWECO and a Member pursuant to which SWECO will provide,
subject to certain limitations, the applicable Member with a supply of power
sufficient to fulfill certain of such Member's respective capacity and energy
requirements.
"NON-CORE ARTICLE IV STATEMENTS" shall mean those Article IV Statements
that are not Core Article IV Representations.
"138KV TRANSMISSION ASSETS" shall mean the assets associated with the 24
miles of 138KV transmission in the Lake Charles, Louisiana area, including all
related through buses, substations and other transmission assets owned by the
Debtor, regardless of voltage level or classification, other than the 500 KV
Transmission Assets.
"ORDER" shall mean any order, writ, judgment, injunction, decree,
determination or award of a Governmental Authority.
"ORGANIZATIONAL DOCUMENTS" shall mean the articles of incorporation,
by-laws and other organizational documents of the Debtor.
"OUTSIDE DATE" shall have the meaning set forth in Section 7.2(c).
"PARTY" shall mean Cajun, the Trustee, SWECO or SWEPCO and any
Representative of such Party, as the context may require or allow.
"PCB" shall mean polychlorinated biphenyl.
"PERMITS" shall mean all permits, licenses, certificates, franchises and
other authorizations, consents and approvals of any Governmental Authority.
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"PERMITTED ENCUMBRANCES" shall mean Permitted Liens and such zoning
restrictions, covenants, easements, rights of way, licenses, profits,
restrictions or other Encumbrances (other than Liens) on Real Property or minor
irregularities in the title thereto as do not impair the use thereof in the
operation of the Business as it is presently conducted by the Debtor and is
presently contemplated by the Debtor to be conducted in the future or the value
thereof to the Debtor in the conduct of the Business as it is presently
conducted by the Debtor.
"PERMITTED LIENS" shall mean the Lien on the CoBank Collateral referred to
in Section 5.3 of the Plan, the Lien of Hibernia National Bank on the
headquarters building and related land in Baton Rouge, Louisiana and the other
rights, liens and security interest of Hibernia National Bank referred to in
Section 5.4 of the Plan, and any Liability owing by Cajun to SWEPCO or any
affiliate thereof.
"PERSON" shall mean any natural person, corporation, partnership, firm,
joint venture, association, joint-stock, trust, unincorporated organization,
governmental or regulatory body or other entity.
"PETITION DATE" shall mean December 21, 1994, the date on which the Debtor
commenced the Case in the Court.
"PETROLEUM PRODUCTS" shall mean petroleum, gasoline, oil, fuel oil, diesel
fuel and petroleum solvents or derivatives.
"PIPELINE ASSETS" shall mean the 17.5 mile gas pipeline system, together
with all servitudes, easements, rights of way and other real property rights
related thereto.
"PLAN" shall have the meaning set forth in the recitals to this Agreement.
"POST-PETITION CONTRACTS" shall mean any Contracts entered into by Cajun or
the Trustee on or after the Petition Date.
"PRUDENT UTILITY PRACTICE" or "PUP" shall mean, at any time, any of the
practices, methods and acts engaged in or approved by a significant portion of
the electric utility industry prior to such time, having due regard for, among
other things, manufacturers' recommendations and warranties, requirements, of
Governmental Authorities and the requirements of this Agreement.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.2.
"REAL PROPERTY" shall mean real property and interests in real property,
including buildings, structures and improvements (including construction in
progress) located thereon, fixtures contained therein and appurtenances thereto,
together with all servitudes, easements, rights of way and other real property
rights related thereto, owned by the Debtor or in which the Debtor has an
interest other than any real property or interests in real property relating to
River Bend.
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<PAGE>
"REIMBURSABLE EXPENSES" shall mean all reasonable expenses or obligations
of SWECO, SWEPCO, or any of their Affiliates or advisors (including the fees and
expenses of legal, accounting and financial advisors to such Persons, and all
engineers, rate consultants and other professionals retained by any of such
Persons) incurred on or after July 1, 1996 in connection with the investigation
of the business of Cajun, negotiations with Cajun and its creditors, Members and
other constituencies in the Case, this Agreement, the Plan, the Disclosure
Statement, and financing commitments, and related fees and expenses, and the
preparation of documentation relating to the financing of the Acquisition and
the other documents contemplated hereby and thereby, and all other acts taken in
furtherance of obtaining confirmation and substantial consummation of the Plan
and the Acquisition. Reimbursable Expenses shall not include any payments made
by SWEPCO to reimburse the Committee of Certain Members (or the members of such
Committee) for bankruptcy and litigation expenses.
"REIMBURSABLE TERMINATION" shall have the meaning set forth in Section 7.5.
"REJECTED CONTRACTS" shall have the meaning set forth in Section 3.6(e).
"RELEASE" shall mean any spilling, leaking, leaching, pumping, pouring,
emitting, emptying, placing, discharging, injecting, escaping, dumping or
disposing of a substance into the Environment, whether intentional or
unintentional.
"REPRESENTATIVES" shall mean, with respect to any Party, the directors (or
functional equivalent. if any), officers, employees, representatives or agents
of such Party or its Affiliates and its accountants, legal counsel, financial
advisors and technical advisors, as the context may require or allow.
"REQUIRED REGULATORY APPROVALS" shall mean the following required consents,
approvals or other authorizations of the indicated or otherwise applicable
Governmental Authorities, which shall be issued in a final order, no longer
subject to rehearing or appeal, and in a form and substance satisfactory to
SWECO:
(i) at SWECO's election, either (a) of the SEC for SWEPCO or an
Affiliate of SWEPCO to acquire stock of SWECO and for SWECO to acquire
the Acquired Assets (unless the SEC concurs that an exemption is
available under Section 9(b) of PUHCA), and for SWECO to issue
securities to SWEPCO and SWECO's lenders, or (b) a determination by FERC
that SWECO is an EWG (both before and after giving effect to the
Acquisition);
(ii) if SWECO is determined to be an EWG, of the SEC of the
issuance of securities by SWEPCO or Central and South West Corporation
or an Affiliate thereof to finance the Acquisition and, if such
financing involves a guarantee by SWEPCO or Central and South West
Corporation or an Affiliate thereof of securities issued by SWECO, the
approval of the SEC of such guarantee; PROVIDED, HOWEVER, that SWECO and
its Affiliates may rely on existing SEC authority to finance the
acquisition depending upon circumstances existing at the time of
consummation;
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<PAGE>
(iii) under the HSR Act for SWECO to acquire the Acquired
Assets;
(iv) of FERC of the rates, terms and conditions under which
SWECO will provide capacity and energy to the Members and other
purchasers under the New Power Supply Contracts, one or more Assumed and
Assigned Contracts, and new power sale or purchase contracts or similar
agreements, including, at SWECO's election, either (a) a finding that
the cost of the Acquired Assets reflected in the rates in the New Power
Supply Contracts is prudent, and the rates therein are just and
reasonable, or (b) that SWECO is authorized to enter into the New Power
Supply Contracts as market-based, negotiated rate contracts;
(v) of FERC or the LPSC, or both, as applicable, for SWECO's
financing of the Acquisition;
(vi) of FERC of the tariff for the provision of transmission
services by SWECO;
(vii) of FERC for the acquisition by SWECO of any Acquired
Assets over which FERC would have jurisdiction under the Federal Power
Act;
(viii) of the LPSC for the Members' obligations under and in
connection with the New Power Supply Contracts, including the charges
for demand, variable overhead and maintenance and fuel thereunder and
other charges, fees and other amounts payable thereunder, the recovery
from the Members' ratepayers of such obligations, and of the New Power
Supply Contracts and finding that (1) the terms and conditions thereof
are prudent, (2) the cost of the Acquired Assets reflected in the New
Power Supply Contracts is prudent, and (3) the rates thereunder are just
and reasonable;
(ix) if SWECO is an EWG, of the LPSC for the Acquired Assets to
be "eligible facilities" within the meaning of section 32(c) of the
PUHCA;
(x) of the assignment of the Hydro Contract to the Members that
execute and deliver New Power Supply Contracts;
(xi) of the Commissioner, Office of Conservation of the
Louisiana Department of Natural Resources, of the acquisition and
operation by SWECO of the Pipeline System; and
(xii) any and all other consents, approvals and other
authorizations of any Governmental Authority required under any
applicable law in connection with the execution and delivery of the
Transaction Documents, the consummation of the Transactions and the
operation of the Business by SWECO and GSU after the Closing Date.
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<PAGE>
"RIVER BEND" shall mean River Bend Nuclear Station Unit 1, a net 936MW
nuclear electric generating facility located in St. Francisville, Louisiana,
owned 30% by the Debtor and 70% by GSU and operated by an affiliate of GSU.
"RIVER BEND JOPOA" shall mean the Joint Ownership Participation and
Operating Agreement between the Debtor and GSU relating to River Bend and dated
August 20, 1979, as amended.
"RUS" shall mean the Rural Utilities Services, an agency of the United
States Government.
"SCHEDULED CONTRACTS" shall have the meaning set forth in Section 4.11.
"SEC" shall mean the Securities and Exchange Commission.
"SHL INDEMNITY OBLIGATION" shall mean the indemnity obligations relating to
the CoBank Letters of Credit and the CoBank Reimbursement Agreement assumed by
SWECO as set forth in Section 3.11.
"SPA" shall mean the Southwestern Power Administration.
"SWECO TERMINATION FEE" shall mean Twenty Million Dollars ($20,000,000).
"TAX CODE" shall mean the Internal Revenue Code of 1986.
"TAXES" shall mean all taxes, charges, fees, imposts, levies or other
assessments, including all net income, gross receipts, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, and property taxes, customs duties, fees,
assessments and charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign) and any interest and penalties imposed with
respect to the filing, obligation to file or failure to file any Tax Return, and
shall include any transferee liability in respect of Taxes.
"TAX RETURN" shall mean all returns, declarations, reports, claims for
refund, estimates, information returns, statements or other similar documents
relating to Taxes, including any schedule attached thereto, and including any
amendment thereof.
"TECHE" shall mean Teche Electric Cooperative, Inc.
"TERMINATION DATE" shall have the meaning set forth in Section 7.2.
"TRANSACTION DOCUMENTS" shall mean the contracts, agreements, documents and
instruments contemplated to be entered into by the terms of this Agreement and
the Plan.
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<PAGE>
"TRANSACTIONS" shall mean the Acquisition and related transactions
contemplated by this Agreement and the Transaction Documents.
"TRANSFERABLE PERMITS" shall mean Permits that are transferable to SWECO in
accordance with their terms or as to which any consent required to transfer such
Permits to SWECO at the Closing shall have been obtained.
"TRANSITION MANAGERS" shall mean the two individuals appointed by SWECO
pursuant to Section 3.1(b).
"TRANSMISSION ASSETS" shall mean the 500KV Transmission Assets and the
138KV Transmission Assets.
"TRUSTEE" shall have the meaning set forth in the preamble of this
Agreement.
"TRUSTEE-MODIFIED CONTRACTS" shall have the meaning set forth in Section
3.2(a)(v).
"TRUSTEE TERMINATION FEE" shall mean Twenty Million Dollars ($20,000,000).
"TRUSTEE'S REPRESENTATIVES" shall mean the Representatives of the Trustee.
"VALUATION EXPERT" shall have the meaning set forth in Section 2.3(b).
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<PAGE>
SCHEDULE 2.2
COINCIDENT PEAK DEMAND
MEMBER KILOWATTS
Beauregard Electric Cooperative 139,043
Claiborne Electric Cooperative 72,647
Concordia Electric Cooperative 27,837
Dixie Electric Membership Corp 332,843
Jefferson Davis Electric Corp 38,553
Northeast Louisiana Power Coop 43,751
Pointe Coupee Electric Membership Corp 35,319
South Louisiana Electric Coop 79,252
Southwest LA Electric Membership Corp 422,802
Teche Electric Cooperative 42,621
Valley Electric Membership Corp 109,391
Washington-St. Tammany Electric Coop 194,505
-----------
Total 1,538,564
2.2-1
<PAGE>
SCHEDULES 4.5-4.14
[TO BE PROVIDED BY TRUSTEE]
<PAGE>
SCHEDULE 3.6(C)
EXECUTORY CONTRACTS TO BE
ASSUMED AND ASSIGNED TO SWECO
1. AES Power, Inc. Interchange Agreement
2. Alabama Electric Cooperative Interchange Agreement
3. Arkansas Electric Cooperative Interchange Agreement
4. Associated Electric Cooperative Interchange Agreement
5. Central Louisiana Electric Company Interconnection Agreement
6. Citizen's Power & Light Corp. Interchange Agreement
7. Duke Power Company Economy Energy Interchange Agreement
8. Duke Power Company Short Term Power Agreement
9. East Kentucky Power Cooperative Interchange Agreement
10. ENRON Power Marketing Interchange Agreement
11. Florida Municipal Power Agency Interchange Agreement
12. Florida Power Corporation Economy Energy Agreement
13. Florida Power & Light Company Economic Energy Agreement
14. Gulf States Utilities Company (Entergy) Interconnection Agreement
15. Jacksonville Electric Authority Interchange and Economic Energy Agreement
16. City of Lafayette Interchange Agreement
17. LG&E Power Marketing, Inc. Interchange Agreement
18. InterCoast Power Marketing Co. Interchange Agreement
19. Louisiana Power & Light Company (Entergy) Interchange Agreement
20. Preamble to Louisiana Power & Light (Entergy) Settlement Agreement
<PAGE>
21. Mississippi Power & Light Company (Entergy) Interconnection Agreement
22. Municipal Energy Agency of Mississippi (MEAM) Interchange Agreement
23. Mississippi Energy Agency of Mississippi (MEAM) Power Sale Agreement
24. NorAm Energy Services Interchange Agreement
25. Oglethorpe Power Corp. Interchange Agreement
26. Orlando Utilities Commission Interchange Agreement
27. Rainbow Energy Marketing Corp. Interchange Agreement
28. Santee Cooper Interchange Agreement
29. South Carolina Public Service Authority Interchange Agreement
30. Seminole Electric Interchange Agreement
31. City Utilities of Springfield Interchange Agreement
32. City of Tallahassee Interchange Agreement
33. Sonat Power Marketing, Inc. Interchange Agreement
34. South Mississippi Electric Power Association (SMEPA) Interchange and Power
Sales Agreement
35. Southern Company Services, Inc. Interchange Agreement
36. Southern Illinois Power Cooperative Interchange Agreement
37. Hydro Contract
38. Southwestern Electric Power Company Interchange Agreement
39. Tennessee Valley Authority Interchange Agreement
40. Western Farmers Electric Cooperative Interchange Agreement
41. Western Systems Power Pool, Pool Agreement
2
<PAGE>
42. Western Power Services, Inc. Interchange Agreement
43. Vitol Gas and Electric, L.L.C. Interchange Agreement
44. Acadian Gas Pipeline Co. Interruptible Agreement
45. Bridgeline Gas Distribution Co. Interruptible Agreement
46. Bridgeline Gas Distribution Co. Pipeline Maintenance Agreement
47. Excel Resources Interruptible Agreement
48. The Clorox Company Tax Benefit Transfer Agreement
49. Eastman Kodak Company Tax Benefit Transfer Agreement
50. All Miscellaneous Tower Agreements
51. All Cajun Land Leases with Cajun as Lessor
52. The Land Lease between Cajun and M.A. Patout and Son Ltd. for the Patout
Substation in Iberia Parish, La.
53. The Land Lease between Cajun and the State of Louisiana for coal dock on the
Mississippi River at Big Cajun II
54. The Equipment Storage Agreement with General Electric for storage of Big
Cajun III steam turbine and generator components
55. All Executory Insurance Policies or Contracts of Cajun
56. Any additional contracts as may be identified by SWECO after the date of
this Agreement and noticed to the Trustee as contracts to be assumed
57. Joint Ownership Participation and Operating Agreement by and between Cajun
Electric Power Cooperative Inc. and Gulf States Utilities Inc. (now known as
Entergy Gulf States Inc.) dated as of November 14, 1980.
3
<PAGE>
POWER SUPPLY AND SERVICE AGREEMENT
BETWEEN
SOUTHWESTERN WHOLESALE ELECTRIC COMPANY
AND
______________ ELECTRIC MEMBERSHIP COOPERATIVE
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS 4
1.1 Additional Investment 4
1.2 Agreement 4
1.3 Ancillary Services 4
1.4 Benchmark Year 4
1.5 Billing Month 5
1.6 CLECO Contract 5
1.7 Common Facilities 5
1.8 Contract Year 5
1.9 Depreciated Book Value 6
1.10 Economic Power 6
1.11 Effective Date 6
1.12 Excess Requirements 6
1.13 Extraordinary Load 7
1.14 FERC 7
1.15 Good Utility Practice 7
1.16 Group 8
1.17 Group Load 9
1.18 Initial Facilities 9
1.19 LPSC 9
1.20 Maximum Point of Delivery Demand 9
1.21 MEAM Contract 10
1.22 Member Base Supply 10
1.23 MEMBER Hydro and MEMBER Hydro Energy 13
1.24 MEMBER Load 13
1.25 MEMBER Share 14
1.26 Other Resources 14
1.27 Parties 14
1.28 Party 14
1.29 Point of Delivery 15
1.30 Power Sales Contract 15
1.31 Project Capacity 15
1.32 Project Capacity Energy 16
1.33 Qualifying Facility 16
1.34 Separately Metered Load 16
1.35 SMEPA Contract 17
1.36 Specific Facilities 17
i
<PAGE>
PAGE
1.37 Supplemental Supply 17
1.38 Third-Party Supplier 18
1.39 Transmission Service Agreement(s) 18
1.40 Transmission Supplier 18
ARTICLE II TERMS AND CONDITIONS OF POWER SUPPLY SERVICE 19
2.1 General Obligations 19
2.2 MEMBER Base Supply 20
2.3 Supplemental Supply 21
2.4 Power Supplied from Qualifying Facilities and Other Resources 26
2.5 Maintenance of Member Base Supply Requirement 27
ARTICLE III SCHEDULING SERVICES 28
3.1 Control Area and Ancillary Services 28
3.2 SWECO Transmission and Ancillary Services 29
3.3 Scheduling Services for MEMBER Hydro 30
3.4 Scheduling Services for Other Resources 32
ARTICLE IV BILLING CREDITS FOR MEMBER HYDRO AND OTHER RESOURCES 32
4.1 MEMBER Hydro 32
4.2 Capacity and Energy Credits for MEMBER Hydro and Other Resources 33
ARTICLE V TRANSMISSION SERVICE 34
5.1 Transmission Service 34
5.2 Transmission and Distribution Service Costs 35
ARTICLE VI MEMBER FACILITIES CHARGES 36
6.1 Responsibility for and Permitted Uses of Specific Facilities 36
6.2 Additional Investments for Common Facilities 37
6.3 Responsibilities for Common Facilities 37
6.4 Additional Investments for Common Facilities 37
6.5 Facilities 37
6.6 Abondonment of Specific Facilities 39
6.7 Option to Purchase Specific Facilities 39
ii
<PAGE>
PAGE
ARTICLE VII POINTS OF DELIVERY 40
7.1 Delivery Points 40
7.2 Changes in Points of Delivery 40
7.3 New Points of Delivery 41
7.4 Notice of Point of Delivery Abandonment 42
7.5 SWECO or Transmission Supplier Facilities 42
ARTICLE VIII OPERATING RESPONSIBILITIES 44
8.1 Operating Responsibilities of MEMBER and SWECO 44
8.2 Power Factor 45
8.3 Emergency Load Relief 45
8.4 Coordination of Temporary Transfer of Load 46
8.5 Extended Outage 47
8.6 Qualifying Facility 50
ARTICLE IX METERING 53
9.1 Meter Reading 53
9.2 Billing Meters and Associated Instrument Transformers 53
9.3 Meter Tests 54
9.4 Meter Accuracy 55
9.5 Meter Adjustments 55
ARTICLE X BILLINGS AND PAYMENTS 56
10.1 Compensation 56
10.2 Fuel and Economic Power Costs 58
10.3 Audits of Cost Records 58
10.4 Economic Development and Incentive Rates 58
10.5 Payment by MEMBER to SWECO 60
ARTICLE XI ADDITIONAL PROVISIONS 61
11.1 Planning 61
11.2 Technical Committee 62
11.3 Responsibility for Electricity 63
11.4 Continuity of Service 63
11.5 Right of Access 65
11.6 Hold Harmless Provisions 65
11.7 Right of First Refusal in Case of Proposed Sale, Merger or
Consolidation 66
11.8 Acquisition of Facilities to Serve Retail Customers Formerly
Served by Other Suppliers 68
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<PAGE>
PAGE
11.9 Extraordinary Load 69
11.10 Competitive Territory Credits 70
11.11 SWECO Covenants 73
11.12 MEMBER Covenants 74
ARTICLE XII DEFAULT 75
12.1 Default Defined 75
12.2 Notice of Default 75
12.3 Remedies for Default 75
ARTICLE XIII GENERAL PROVISIONS 76
13.1 Governing Law 76
13.2 Notice 76
13.3 Successors and Assigns 77
(a) Permitted Assignments by SWECO 77
(b) Permitted Assignments by MEMBERS 78
(c) Other Assignment 79
(d) Effect of Assignments 80
13.4 Rules of Construction 80
13.5 Effective Date of Agreement 81
13.6 Term 81
13.7 Counterparts 82
13.8 Amendments 82
13.9 Further Assurances 82
13.10 Schedules 83
13.11 Severability of Contract Provisions 83
13.12 Severability of MEMBER Contracts 83
13.13 Computation of Time 84
13.14 Limitation 84
13.15 Waivers 84
13.16 Regulation 84
13.17 Reasonableness of Rates - Pre-Established Rate Contract 85
13.18 Rounding 85
13.19 Survivorship of Obligations 86
13.20 Force Majeure 86
13.21 Authority of MEMBER 89
13.22 Warranties 89
iv
<PAGE>
PAGE
SCHEDULE A RATES AND CHARGES FOR MEMBER BASE SUPPLY
SERVICE 91
SCHEDULE A-1 ECONOMIC DEVELOPMENT RIDER 111
SCHEDULE A-2 ECONOMIC DEVELOPMENT CREDITS RIDER 117
SCHEDULE A-3 RATES AND CHARGES FOR EXISTING INCENTIVE LOAD
CUSTOMERS 119
SCHEDULE B RATES AND CHARGES FOR SUPPLEMENTAL SERVICE 135
SCHEDULE C SOUTHWESTERN ELECTRIC WHOLESALE COMPANY MEMBER
HYDRO ALLOCATION 143
SCHEDULE D SPECIFIC FACILITIES AT POINTS OF DELIVERY 144
SCHEDULE E DATA TO BE SUPPLIED WITH MONTHLY BILLING
TO ENABLE VERIFICATION 154
v
<PAGE>
POWER SUPPLY AND SERVICE AGREEMENT
BETWEEN
SOUTHWESTERN WHOLESALE ELECTRIC COMPANY
AND
______________ ELECTRIC MEMBERSHIP COOPERATIVE
THIS AGREEMENT, is made and entered into this _______ day of
___________, 1997, by and between Southwestern Wholesale Electric Company, a
Delaware corporation engaged in the business of generating and transmitting
electricity in, among other places, certain parts of the state of Louisiana, and
having its principal office and place of business at 428 Travis Street,
Shreveport, Louisiana (hereinafter referred to as SWECO), and _____________
Electric Cooperative, Inc., an electric membership cooperative existing under
the laws of the State of Louisiana and having its principal office and place of
business in ______________________, Louisiana (hereinafter referred to as
MEMBER).
WITNESSETH:
WHEREAS, MEMBER, together with eleven other electric membership
cooperative corporations doing business in the State of Louisiana, was formerly
a member of Cajun Electric Power Cooperative, Inc. (Cajun), a generation and
<PAGE>
transmission cooperative formed to provide an economical supply of electric
capacity and energy for the benefit of its members;
WHEREAS, on December 21, 1994, Cajun filed a voluntary petition for
reorganization in the United States Bankruptcy Court;
WHEREAS, pursuant to a plan of reorganization submitted by SWECO and
certain former members of Cajun and confirmed in such bankruptcy proceeding,
SWECO has acquired certain electric generating plants and related facilities
formerly owned by Cajun for the purpose, among others, of supplying electric
capacity and energy to MEMBER and such former Cajun members;
WHEREAS, SWECO has financed the acquisition of such facilities in whole
or in part through loans, and may in the future obtain additional loans,
evidenced by debt securities that are or may be secured by the revenues SWECO
shall be entitled to collect from MEMBER under this Agreement;
WHEREAS, MEMBER must purchase electric power and energy
in order to serve its retail customers;
WHEREAS, in order to secure a portion of such power and energy, MEMBER
has entered into a Power Sales Contract with the United States of America acting
through the Secretary, Department of Energy, as represented by the Administrator
of the Southwestern Power Administration (SPA), which, among other things,
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entitles MEMBER to purchase, for the benefit and use of its retail customers,
hydroelectric capacity and associated energy (SPA Hydro Peaking Power) in
accordance with such Power Sales Contract and, at MEMBER's option, also to
purchase SPA Supplemental Peaking Energy as such energy is available from time
to time as determined by SPA; WHEREAS, MEMBER has determined that the power and
energy that SWECO is willing to sell to MEMBER pursuant to the terms and
conditions set forth in this Agreement represent an economical and reliable
power supply resource suitable for use in serving MEMBER's retail customer loads
and that the interests of MEMBER's retail customers will be well served by
MEMBER's purchasing such power and energy; and
WHEREAS, SWECO and MEMBER desire to enter into this Power Supply and
Service Agreement under which SWECO shall sell to MEMBER and MEMBER shall
purchase from SWECO power and energy in accordance with and subject to the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the Parties hereto mutually
contract and agree as follows:
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ARTICLE I
DEFINITIONS
The following terms used herein shall have the respective meanings set
forth below:
1.1 ADDITIONAL INVESTMENT.
Additional Investment means the total installed cost of transmission,
distribution, and communication facilities owned by SWECO that are
necessary to provide service to MEMBER Load or Group Load and that are
installed after the Effective Date.
1.2 AGREEMENT.
Agreement means this Power Supply and Service Agreement.
1.3 ANCILLARY SERVICES.
Ancillary Services shall have the meaning given that term by the FERC
in its Order No. 888 issued April 24, 1996 in FERC Docket Nos.
RM95-8-000 and RM94-7-000, as modified by FERC's Order No. 888-A issued
March 4, 1997, and FERC's Order No. 888-B issued November 25, 1997, in
such proceeding.
1.4 BENCHMARK YEAR.
Benchmark Year means the Contract Year in which the Group Load plus
the contract demand of CLECO first equals or exceeds the sum of 1,270 mW
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and an amount (in mW) equal to the sum of Member Hydro capacity for all
Group Members.
1.5 BILLING MONTH.
Billing Month shall be a calendar month.
1.6 CLECO.
CLECO means Central Louisiana Electric Company.
1.6 CLECO CONTRACT.
CLECO Contract means that certain Power Supply Agreement dated
________ between CLECO and SWECO.
1.7 COMMON FACILITIES.
Common Facilities means certain communication, transmission and
distribution facilities owned by SWECO and listed on Schedule E to this
Agreement, as such Schedule E may be from time to time supplemented or
revised, that are not specifically necessary to provide service to
distinct MEMBER Load but are reasonably required to provide service
hereunder to Group Load for the term of this Agreement. SWECO shall, in
its sole discretion, determine if any such asset owned by SWECO is a
Common Facility.
1.8 CONTRACT YEAR.
Contract Year means the 12-month period beginning on January 1 and
extending through December 31 of any calendar year, except that the
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first Contract Year shall begin on the Effective Date and end on
December 31, 1999.
1.9 DEPRECIATED BOOK VALUE.
Depreciated Book Value means the original book cost of electric plant
net of accumulated depreciation determined using FERC depreciation
rates.
1.10 ECONOMIC POWER
Economic Power means the costs incurred in the Billing Month for
capacity or energy purchased over a period of twelve months or less
where the total cost of the purchase is less than SWECO's total avoided
variable cost.
1.11 EFFECTIVE DATE.
The Effective Date shall be the date assigned by the FERC when
accepting this Agreement for filing for the effectiveness of this
Agreement as a FERC rate schedule.
1.12 EXCESS REQUIREMENTS.
Excess Requirements means the capacity and energy required by MEMBER
to serve MEMBER Load in excess of the capacity and energy provided by
SWECO to MEMBER as MEMBER Base Supply and provided from MEMBER Hydro.
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1.13 EXTRAORDINARY LOAD.
Extraordinary Load means the load of any single retail customer not
previously served by MEMBER that is equal to or exceeds five mW that is
to be served by MEMBER pursuant to Section 11.9 of this Agreement.
Extraordinary Load shall not be counted as MEMBER Load.
1.14 FERC.
FERC means the Federal Energy Regulatory Commission or any successor
regulatory agency having jurisdiction over this Agreement.
1.15 GOOD UTILITY PRACTICE.
Good Utility Practice means any of the practices, methods or acts
engaged in or approved by significant portion of the electric utility
industry during the relevant time period, or any of the practices,
methods and acts that in the exercise of reasonable judgment in light of
the facts known at the time a decision was made, could have been
expected to accomplish the desired result at reasonable cost consistent
with reliability, safety, expedition and the requirements of
governmental agencies having jurisdiction. Good Utility Practice is not
intended to be limited to the optimum practice, method or act to the
exclusion of all others, but rather to be a spectrum of acceptable
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practices, methods or acts. Good Utility Practice shall include, but not
be limited to, conformance with the applicable reliability criteria,
standards and operating guides of the Southwest Power Pool ("SPP") and
the North American Electric Reliability Council, or successor
organizations that may exist in the future and of which SWECO is then a
member in effect at the time a decision is made or an action is taken or
not taken.
1.16 GROUP
Group means all of the following:
Beauregard Electric Cooperative, Inc.
Claiborne Electric Cooperative, Inc.
Dixie Electric Membership Corporation
Jefferson Davis Electric Cooperative, Inc.
Northeast Louisiana Power Cooperative, Inc.
South Louisiana Electric Cooperative Association
Valley Electric Membership Corporation
Washington-St. Tammany Electric Corp. Inc.
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1.17 GROUP LOAD.
Group Load means the maximum coincidental 60-minute integrated peak
demand incurred by the Group in any Contract Year during the term of
this Agreement to serve their retail loads at all Points of Delivery
other than Extraordinary Load or any Separately Metered Load.
1.18 INITIAL FACILITIES.
Initial Facilities means the Specific Facilities and Common Facilities
owned by SWECO as of the Effective Date.
1.19 LPSC.
LPSC means the Louisiana Public Service Commission.
1.20 MAXIMUM POINT OF DELIVERY DEMAND.
Maximum Point of Delivery Demand shall be the maximum non-coincident
60-minute demand, measured in kW, experienced at any Point of Delivery
during a Billing Month.
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1.21 MEAM CONTRACT.
MEAM Contract means that certain Power Sales Contract dated _________
between the Municipal Energy Agency of Mississippi and Cajun Electric
Power Cooperative, Inc. that is to be assumed by SWECO under the Plan of
Reorganization submitted to the Bankruptcy Court by SWECO and certain
members of the Group.
1.22 MEMBER BASE SUPPLY
MEMBER Base Supply shall consist of a monthly capacity component and
an annual energy component. The respective obligations of MEMBER and
SWECO to purchase and to provide MEMBER Base Supply are stated in
Section 2.2 of this Agreement.
In each Contract Year through and including the Benchmark Year, the
monthly capacity component for any calendar month, measured in
kilowatts, shall be equal to the sum of the MEMBER's Maximum Point of
Delivery Demands at the MEMBER's Points of Delivery for such month less
the sum of the following amounts:
1. capacity associated with MEMBER Hydro for the Contract
Year to serve load at such Point of Delivery;
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2. Extraordinary Load served from MEMBER'S Points of Delivery during
the Billing Month; and
3. any Separately Metered Load.
Beginning in the Contract Year following the Benchmark Year, the
monthly capacity component of MEMBER Base Supply for any Billing Month,
measured in kilowatts, shall be the lesser of (a) the highest monthly
capacity component of MEMBER Base Supply established for the MEMBER's
Points of Delivery in the aggregate during the Benchmark Year or (b) the
sum of MEMBER's Maximum Point of Delivery Demands at the MEMBER'S Points
of Delivery for such month less the following amounts:
1. capacity associated with MEMBER Hydro for the Contract Year;
2. Extraordinary Load served from MEMBER Points of Delivery during the
Billing Month; and
3. any Separately Metered Load.
For the Benchmark Year and Contract Years prior to the Benchmark Year,
the energy component of the MEMBER Base Supply in any Contract Year,
measured in kilowatt-hours, shall be the energy required each hour to
supply the Member Load at the MEMBER Points of Delivery not supplied
from MEMBER Hydro (adjusted for losses in delivery). For any Contract
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Year following the Benchmark Year, the energy component of the MEMBER
Base Supply, measured in kilowatt-hours, shall be the energy required
each hour to supply the Member Load at the MEMBER'S Points of Delivery
not supplied from MEMBER Hydro (adjusted for losses in delivery) up to
an amount equal to the MEMBER Share of Project Capacity Energy in such
hour. In no event shall SWECO be obligated in any Contract Year
following the Benchmark Year to supply more than 7,350,000,000
kilowatt-hours of Project Capacity Energy to the Group for the purpose
of furnishing the energy component of MEMBER Base Supply under this
Agreement or similar agreements between SWECO and other Group members.
However, in addition to MEMBER's MEMBER Share of Project Capacity
Energy, SWECO shall make available to MEMBER in any hour kilowatt-hours
of Project Capacity Energy that is not used by other Group members
during such hour as long as the annual limit on SWECO's obligation to
supply Project Capacity Energy to all Group members is not exceeded.
SWECO shall notify MEMBER within a reasonable time after Project
Capacity Energy furnished to the Group by SWECO to meet its obligation
to furnish MEMBER Base Supply under this Agreement and such agreements
with other Group members exceeds 6,500,000,000 kilowatt-hours in any
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consecutive twelve-month period. MEMBER agrees that it will thereafter
join SWECO and other Group members taking MEMBER Base Supply from SWECO
promptly to negotiate in good faith alternative limits on SWECO's
obligation to furnish the energy component of MEMBER Base Supply so that
SWECO's obligation to furnish such energy component to all Group members
does not exceed 7,350,000,000 kilowatt-hours in any Contract Year and
that Project Capacity Energy is fairly distributed among the Group
members. In the event that in any hour more than one Group member
requires Project Capacity Energy in excess of such Group member's MEMBER
Share the available Project Capacity Energy not used by other Group
members shall be allocated among the Group members requiring such excess
energy in proportion to their respective MEMBER Shares.
1.23 MEMBER HYDRO AND MEMBER HYDRO ENERGY
MEMBER Hydro means in any Contract Year the amount of capacity (in mW)
available for the account of Member under the Power Sales Contract as
shown on Schedule C. MEMBER Hydro Energy means in any Billing Month the
amount of energy (in kWh) available from Member Hydro in such Billing
Month.
1.24 MEMBER LOAD.
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MEMBER Load means the aggregate amount of capacity and energy required
by the MEMBER to serve its retail customers in any hour during the term
of this Agreement at all MEMBER Points of Delivery other than
Extraordinary Load or Separately Metered Load.
1.25 MEMBER SHARE.
MEMBER Share is the ratio of the sum of MEMBER Load (in mW) served at
the MEMBER's Points of Delivery in the hour in which the Group Load was
established in the immediately preceding Contract Year (or in the
Benchmark Year if specified) to the total Group Load served at all
Points of Delivery.
1.26 OTHER RESOURCES.
Other Resources means power supply resources acquired by MEMBER during
the term of this Agreement to meet Excess Requirements as further
described in Section 2.4 (not including capacity and energy purchased
from a Qualifying Facility in accordance with a statutory obligation to
make such purchase and subject to compliance with the provisions of
Section 8.6 of this Agreement).
1.27 PARTIES.
Parties mean SWECO and MEMBER collectively.
1.28 PARTY.
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Party means either SWECO or MEMBER individually.
1.29 POINT OF DELIVERY.
Point of Delivery means any point listed on Schedule D hereto, as such
exhibit may be amended from time to time, at which any member of the
Group receives capacity and energy pursuant to this Agreement or other
power supply and service agreements with SWECO entered into in
connection with the resolution of the Cajun reorganization proceedings.
1.30 POWER SALES CONTRACT.
Power Sales Contract means the MEMBER's contract with SPA providing
for the purchase by MEMBER from the SPA of firm hydroelectric capacity
(SPA Hydro Peaking Power) and associated energy and, at MEMBER'S option,
also to purchase SPA Supplemental Peaking Energy, at times when SPA
determines that such energy is available.
1.31 PROJECT CAPACITY.
The Project Capacity means that portion of the aggregate rated
generating capability (in mW) of Big Cajun I (Unit 1 and Unit 2) and Big
Cajun II (Unit 1, Unit 2, and 58% of Unit 3) and any firm resource
acquired by SWECO after the Effective Date that shall be adequate in the
aggregate to enable SWECO to serve a portion of Group Load that does not
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exceed the sum of the capacity components of MEMBER Base Supply for all
members of the Group in Contract Years following the Benchmark Year.
1.32 PROJECT CAPACITY ENERGY.
Project Capacity Energy means for any period the energy output of the
Project Capacity during such period (adjusted for losses in delivery)
plus energy purchased by SWECO in such period (adjusted for losses in
delivery) to replace energy output from Project Capacity to serve MEMBER
Base Supply under this Agreement and similar agreements between SWECO
and the other Group members.
1.33 QUALIFYING FACILITY
Qualifying Facility means a facility certified to be a Qualifying
Facility under subpart (B) of Part 292 of the FERC's Regulations under
Section 201 of the Public Utility Regulatory Policies Act of 1978
(PURPA) and as further defined and discussed in Section 8.6.
1.34 SEPARATELY METERED LOAD
Separately Metered Load means any retail load served by MEMBER that
SWECO and MEMBER have agreed shall not be billed under Schedule A or
Schedule B to this Agreement, including without limitation retail load
MEMBER serves with Other Resources pursuant to Section 11.8 of this
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Agreement, or with capacity and energy supplied by SWECO and billed by
SWECO to MEMBER under Schedule A-3 to this Agreement.
1.35 SMEPA CONTRACT
SMEPA Contract means that certain Power Sales Contract dated ________
between the South Mississippi Electric Power Association and Cajun
Electric Power Cooperative, Inc. that is to be assumed by SWECO under
the Plan of Reorganization submitted to the Bankruptcy Court by SWECO
and certain members of the Group.
1.36 SPECIFIC FACILITIES
Specific Facilities means the transmission and distribution facilities
and any telecommunications facilities that are necessary to provide
service under this Agreement to a distinct Point of Delivery that are
owned by SWECO and located between a point of interconnection with a
Transmission Supplier and a Point of Delivery to MEMBER.
1.37 SUPPLEMENTAL SUPPLY
Supplemental Supply means capacity and energy provided to MEMBER by
SWECO under this Agreement to serve MEMBER's Excess Requirements.
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1.38 THIRD-PARTY SUPPLIER
Third-Party Supplier means any supplier of power or energy to MEMBER
other than SWECO.
1.39 TRANSMISSION SERVICE AGREEMENT(S)
Transmission Service Agreement(s) means any or all of the agreements
between SWECO and any Transmission Supplier relating to transmission
service and Ancillary Services needed by SWECO to perform its
obligations to MEMBER under this Agreement.
1.40 TRANSMISSION SUPPLIER
Transmission Supplier means SWECO or any one or more of Entergy
(specifically including the systems of Louisiana Power & Light (LP&L)
and Gulf States Utilities (GSU)), Central Louisiana Electric Company
(CLECO), Southwestern Electric Power Company (SWEPCO), or any other
owner or operator of a transmission facility that SWECO needs to perform
its obligations to MEMBER under this Agreement, their successors in
interest and assigns.
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ARTICLE II
TERMS AND CONDITIONS OF POWER SUPPLY SERVICE
2.1 GENERAL OBLIGATIONS
The MEMBER's obligation and agreement to purchase MEMBER Base Supply
and any Supplemental Supply MEMBER elects to take from SWECO is intended
to give full effect to SWECO's rights hereunder to serve the MEMBER Load
and future normal load growth in MEMBER's service territory. MEMBER
agrees that SWECO's rights to serve MEMBER Load are the essential
consideration and inducement for SWECO to acquire the Project Capacity.
MEMBER shall exercise continuing good faith efforts to retain its
existing customers and to obtain new customers, thereby increasing
MEMBER Load, and to maintain MEMBER Load at a level at least equal to
the MEMBER Base Supply obligation.
The Parties recognize that they must obtain approvals of certain
regulatory agencies in order to perform this Agreement. Without limiting
the foregoing, the MEMBER must obtain the approval of the LPSC to enter
into and perform MEMBER's obligations under this Agreement and SWECO
must obtain all regulatory approvals from the LPSC and the FERC needed
for SWECO lawfully to perform its obligations under the Agreement. Each
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Party agrees to cooperate with the other Party so as to secure the
necessary approvals.
SWECO shall operate and maintain the Project Capacity and
transmission, distribution and general electric plant that SWECO owns or
controls to fulfill SWECO's contract obligations to the members of the
GROUP and SWECO's obligations under the CLECO Contract, the MEAM
Contract and the SMEPA Contract in a least-cost manner in accordance
with Good Utility Practice. SWECO shall use the Project Capacity to
furnish to members of the Group the energy associated with their
respective entitlements to Member Base Supply and to furnish the energy
that SWECO is obligated to furnish under the CLECO Contract, the MEAM
Contract and the SMEPA Contract. SWECO shall make no distinction between
Group members, CLECO, MEAM or SMEPA in calculating the cost of
furnishing such energy except in the case the SMEPA Contract, which
provides that energy shall be furnished from a specific generating unit.
2.2 MEMBER BASE SUPPLY
SWECO agrees to sell to MEMBER, and MEMBER agrees to purchase from
SWECO, the MEMBER Base Supply. SWECO shall supply the MEMBER Base Supply
at rates and charges determined in accordance with Schedule A and, if
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and to the extent applicable, Schedules A-1, A-2 and A-3 to this
Agreement, and any other provision of this Agreement relating to rates
and charges for service. SWECO shall use the generating capability
acquired from the Cajun estate to provide the MEMBER Base Supply, and to
fulfill SWECO's obligations under the CLECO Contract, the MEAM Contract
and the SMEPA Contract, before using such generating capability to make
sales to other purchasers.
2.3 SUPPLEMENTAL SUPPLY
SWECO agrees to make available to MEMBER Supplemental Supply
beginning as of the first day of the first Contract Year if MEMBER
elects to take Supplemental Supply (which election must be made in
writing delivered to SWECO no later than the earlier of (1) the date
that is six months prior to the first day of the first Contract Year in
which MEMBER expects to have Excess Requirements or (2) July 1, 1999).
Subject to MEMBER's option to limit its obligation to take Supplemental
Supply described below, Supplemental Supply shall consist of capacity
and energy in excess of MEMBER Base Supply, MEMBER Hydro, and any
capacity and energy provided by a Qualifying Facility in accordance with
Section 8.6 that in the aggregate shall be adequate to meet MEMBER's
full requirements for electricity needed to serve MEMBER Load. If MEMBER
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exercises its right to contract for Supplemental Supply from SWECO,
SWECO shall supply such capacity and energy at rates and charges
determined in accordance with Schedule B to this Agreement and subject
to all other applicable terms and conditions set forth in this
Agreement.
In the event that MEMBER has elected to take Supplemental Supply in
accordance with this Section 2.3 and SWECO thereafter gives MEMBER
notice of its intention to construct or purchase additional capacity in
order to provide Supplemental Supply and that SWECO expects the cost of
such additional capacity will exceed $400/kW, MEMBER shall have the
option to limit its obligation to take Supplemental Supply service from
SWECO to such capacity and associated energy furnished as Supplemental
Supply in the Contract Year immediately preceding the Contract Year in
which such option, if exercised, becomes effective. Any such notice to
MEMBER shall state (1) the estimated cost to construct or purchase
additional capacity, (2) the amount of capacity that SWECO is planning
to add to its power supply resources, (3) the revised rates SWECO would
propose to charge MEMBER for Supplemental Supply, and (4) the date
("rate change effective date") on which SWECO would propose to place the
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revised rates in effect. The rate change effective date shall be the
first day of the Contract Year in which the new capacity is expected to
be needed to furnish Supplemental Supply. Such notice to MEMBER shall be
given in writing at least twelve months prior to the rate change
effective date stated in the notice. MEMBER shall notify SWECO no later
than six months after receipt of SWECO's notice whether MEMBER will
elect to limit its Supplemental Supply obligation or to pay the revised
rates for Supplemental Supply.
In the event MEMBER elects to limit the amount of Supplemental Supply
MEMBER will purchase from SWECO, MEMBER and SWECO shall execute and
deliver an amendment to this Agreement that, INTER ALIA, shall provide
that (1) the limit on MEMBER's obligation to take Supplemental Supply
from SWECO shall be effective as of the rate change effective date
stated in the notice given by SWECO to MEMBER, (2) that SWECO's
obligation to provide Supplemental Supply to MEMBER shall not exceed the
average of the four highest monthly values for MEMBER's Supplemental
Total Billing Demands (as determined by applying Step 1 of Section 1.3
of Schedule B of this Agreement) in the Contract Year immediately
preceding the Contract Year in which the limit on MEMBER's obligation to
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purchase Supplemental Supply becomes effective (Fixed Amount), (3) that
SWECO shall provide and MEMBER shall purchase its capacity requirements
in excess of Member Base Supply as Supplemental Supply an amount up to
but not exceeding the Fixed Amount from SWECO in each Billing Month
throughout the remaining term of this Agreement, and (4) that the demand
charges that shall apply to such capacity purchases shall continue to be
the Schedule B demand charges in effect as of the time of the MEMBER's
election to limit its obligation to take Supplemental Supply from SWECO
and (5) SWECO shall provide and MEMBER may purchase energy associated
with the Fixed Amount of Supplemental Supply an amount based on a load
factor to be mutually agreed upon by the Parties between 30 and 60
percent (%). If MEMBER elects to limit its Supplemental Supply
obligation, it may purchase Other Resources to meet its needs for
capacity and energy after it has used all of its Member Base Supply and
the Fixed Amount up to the agreed upon load factor.
If MEMBER elects not to limit its Supplemental Supply obligation,
SWECO shall be obligated to continue to provide Supplemental Supply to
MEMBER as originally contemplated at the time of the MEMBER's initial
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election to take Supplemental Supply except that the rates set forth in
Schedule B to this Agreement shall be revised in the manner indicated in
SWECO's notice to MEMBER or as MEMBER and SWECO may otherwise agree.
Nothing provided for in this Section 2.3 shall affect in any way the
obligation of the MEMBER to purchase MEMBER Base Supply or the
obligation of SWECO to provide MEMBER's Base Supply through Contract
Year 25.
In the event that MEMBER enters into an amendment to this Agreement in
accordance with the third paragraph of this Section 2.3 to limit SWECO's
obligations to furnish Supplemental Supply, SWECO will nevertheless
furnish MEMBER with all notices contemplated by the second paragraph of
this Section 2.3, and MEMBER shall have the right to respond to any such
notice no later than six months after receipt thereof by requesting that
SWECO suspend the amended limit on SWECO's obligation to furnish
Supplemental Supply and agree to furnish additional amounts of
Supplemental Supply to MEMBER. SWECO shall no later than eight months
after the date the notice was sent respond to any such request by
agreeing either to (1) furnish all or part of such additional amounts of
Supplemental Supply under this Agreement if such additional amounts can
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be made available from the additional power supply resources referenced
in the notice without adversely affecting the other members of the Group
or (2) negotiate with MEMBER a new power supply agreement under which
the additional capacity and energy sought by MEMBER can be made
available. In the event that SWECO determines that additional
Supplemental Supply can be furnished to MEMBER without adversely
affecting any other Group member, then all Supplemental Supply furnished
to MEMBER shall be priced at the increased rate referenced in the
notice.
2.4 POWER SUPPLIED FROM QUALIFYING FACILITIES AND OTHER RESOURCES
Subject to the provisions of Section 8.6 of this Agreement, MEMBER may
purchase capacity and energy from a Qualifying Facility to comply with
any obligation of MEMBER under federal law to make such purchase.
Subject to the provisions of this Section 2.4, MEMBER may otherwise
purchase capacity and energy from any Third-Party Supplier as needed to
meet its Excess Requirements if the MEMBER has elected not to purchase
Supplemental Supply from SWECO, either initially or by exercising its
option to limit MEMBER's Supplemental Supply obligations pursuant to
Section 2.3.
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Any capacity the MEMBER purchases from a Qualifying Facility or other
Third-Party Supplier to meet its Excess Requirements must be backed-up
by reserve capacity sufficient to meet the reserve criteria established
by the Southwest Power Pool, or its successor in function. The MEMBER
shall coordinate with SWECO, as control area operator, the planning and
scheduling in accordance with Good Utility Practice of deliveries of
power and energy from such Other Resources to the MEMBER's Points of
Delivery.
Unless MEMBER has elected to take Supplemental Supply, SWECO shall
have no obligation to supply the MEMBER's Excess Requirements.
2.5 MAINTENANCE OF MEMBER BASE SUPPLY REQUIREMENT
MEMBER recognizes and agrees that MEMBER's obligation to purchase its
MEMBER Base Supply from SWECO was a material and substantial inducement
for SWECO to enter into this Agreement and to acquire the Project
Capacity. Except as permitted by Section 2.4, the MEMBER covenants and
agrees that it will not directly or indirectly acquire, own, operate or
lease any interest in any generating facility, finance, operate or
maintain disbursed diesel generation, fuel cells or any other generating
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facility or technology, or acquire any right to any portion of the
output of a generating facility or contract to purchase any electric
power for the purpose of supplying MEMBER Load or Group Load that SWECO
has the right or obligation to serve under this Agreement, or under
similar agreements with other Group members. Nothing in this Section 2.5
shall be construed to prevent MEMBER from owning or operating for
reliability purposes any electric generating equipment used by MEMBER in
emergency conditions to supply energy needed at its offices, to operate
MEMBER's communications equipment or to back up battery supply used to
operate other MEMBER facilities. Nothing in this Section 2.5 shall be
construed to prevent any retail customer of MEMBER from owning or
operating for reliability purposes any electric generating equipment and
using such generation as back-up supply during times when MEMBER cannot
supply such retail customer's electricity requirements.
ARTICLE III
SCHEDULING SERVICES
3.1 CONTROL AREA AND ANCILLARY SERVICES
MEMBER Load at all of the Points of Delivery listed in Schedule D
shall be electronically transferred into the SWECO load control area on
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the Effective Date. Unless the Parties otherwise agree, MEMBER Load
shall be operated in the SWECO control area throughout the term of this
Agreement. SWECO will provide to MEMBER or acquire on MEMBER's behalf
from other Transmission Suppliers, all necessary control area and
Ancillary Services needed to serve the MEMBER Load in accordance with
Good Utility Practice. SWECO shall purchase from other Transmission
Suppliers only those control area and Ancillary Services that SWECO
cannot provide from SWECO controlled generating capacity used to furnish
the MEMBER Base Supply and Supplemental Supply purchased by MEMBER under
this Agreement. As between SWECO and MEMBER, SWECO shall bear and pay
for any penalties or other charges imposed by a Transmission Supplier as
a result of SWECO's scheduling and dispatch of capacity and energy
furnished by SWECO to MEMBER as MEMBER Base Supply or Supplemental
Supply under this Agreement.
3.2 SWECO TRANSMISSION AND ANCILLARY SERVICES
SWECO shall bear the cost of the following operations and services:
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(a) the operation of SWECO's control area, including the costs of
SWECO's energy management system and other control equipment and
related labor costs; and (b) the following Ancillary Services provided
by SWECO from SWECO controlled generating capacity used to furnish the
MEMBER Base Supply and Supplemental Supply purchased by MEMBER under
this Agreement:
(1) Regulation and Frequency Response Service;
(2) Energy Imbalance Service;
(3) Operating Reserve--Spinning Reserve Service; and
(4) Operating Reserve--Supplemental Reserve Service.
Notwithstanding the foregoing MEMBER shall purchase from SWECO and pay
SWECO for Ancillary Services provided by SWECO in respect of MEMBER's
use of Other Resources and the output of Qualifying Facilities pursuant
to Section 8.6 of this Agreement in accordance with SWECO's applicable
FERC rate schedule.
3.3 SCHEDULING SERVICES FOR MEMBER HYDRO
MEMBER hereby designates SWECO as its duly authorized agent through
which all transactions with SPA under the Power Sales Contract between
MEMBER and SPA shall be conducted. SWECO shall be, and hereby is,
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authorized and directed to accept and receive from SPA, for the account
of MEMBER, SPA Hydro Peaking Power and SPA Supplemental Peaking Energy;
to prepare and to submit, and to receive and accept, all accounting
statements and a copy of all bills; and to act for and on behalf of
MEMBER as to all matters pertaining to scheduling, receipt and delivery
of the SPA Hydro Peaking Power and SPA Supplemental Peaking Energy with
the same force and effect as if MEMBER were acting through its duly
authorized officials. To the maximum extent practicable in keeping with
Good Utility Practice SWECO shall utilize for MEMBER's benefit all SPA
Supplemental Peaking Energy available to MEMBER.
The scheduling provisions of this Section 3.3 are subject to the terms
and conditions of Member's Power Sales Contract with SPA and to SPA's
recognition and acceptance of the designation and appointment of SWECO
as MEMBER's agent under the MEMBER's Power Sales Contract with SPA for
the purposes described above and to SPA's agreement to furnish SWECO a
copy of each energy accounting statement, notice and bill furnished by
SPA to MEMBER pursuant to the provisions of such Power Sales Contract.
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3.4 SCHEDULING SERVICES FOR OTHER RESOURCES
The delivery of power and energy obtained by MEMBER
from Other Resources shall be scheduled and dispatched by SWECO as
necessary to assure system reliability pursuant to SWECO's Open Access
Transmission Tariff filed with the FERC. SWECO may schedule and use such
capacity and energy to meet SWECO's system requirements, including
service to MEMBER Load, in an efficient manner and in accordance with
Good Utility Practice. In scheduling Member's Other Resources SWECO
shall make no adverse distinction between such sources of power and
sources used by SWECO to supply Member. SWECO shall not be obligated to
schedule any resource in a manner that would impair the reliability of
the SWECO control area or be inconsistent with the MEMBER's obligation
under Section 2.5.
ARTICLE IV
BILLING CREDITS FOR MEMBER HYDRO AND OTHER RESOURCES
4.1 MEMBER HYDRO
A portion of the capacity and energy requirements of MEMBER shall be
supplied from MEMBER Hydro. MEMBER hereby agrees that it will not
terminate its Power Sales Contract with SPA without first providing
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reasonable notice to and consulting with SWECO with respect to such
termination.
MEMBER hereby agrees that it will give SWECO reasonable prior notice
regarding any changes in its contract arrangements with SPA regarding
MEMBER Hydro, and that the MEMBER Hydro shall be limited to the rights
to hydroelectric capacity and associated energy shown on Schedule C, as
it may be revised from time to time. The Parties agree that SWECO shall
have no obligation under this Agreement to replace MEMBER Hydro listed
on Schedule C independent of SWECO's obligation to provide the MEMBER
Base Supply and any obligation of SWECO to provide Supplemental Supply
pursuant to Section 2.3 of this Agreement.
4.2 CAPACITY AND ENERGY CREDITS FOR MEMBER HYDRO AND OTHER RESOURCES.
MEMBER shall receive credits on each monthly bill determined in
accordance with Schedules A and B in respect of capacity and energy
supplied from MEMBER Hydro as shown on Schedule C, as it may be revised
from time to time, to which MEMBER shall be entitled and from permitted
Other Resources scheduled by MEMBER to serve MEMBER Load.
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ARTICLE V
TRANSMISSION SERVICE
5.1 TRANSMISSION SERVICE
SWECO shall make arrangements for, and as the designated agent for all
Members of the Group, shall enter into all agreements with Transmission
Suppliers necessary to obtain from the Transmission Suppliers, the
transmission and Ancillary Services needed by SWECO to fulfill its
obligations to MEMBER under this Agreement. Unless SWECO and MEMBER
otherwise agree, SWECO shall arrange for firm point-to-point or network
integration transmission service.
MEMBER will coordinate with SWECO as needed to assure compliance with
the terms and conditions of any Transmission Service Agreement. SWECO
shall use its best efforts diligently to obtain all necessary
Transmission Service Agreements with any Transmission Supplier and all
required regulatory approvals relating thereto. MEMBER agrees to support
such efforts.
In its dealings with Transmission Suppliers, SWECO shall vigorously
advocate the interests of MEMBER, and shall coordinate with the
Technical Committee to be established pursuant to Section 11.2 of this
Agreement as to matters involving Transmission or Ancillary Service
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expenses that will be borne by MEMBER or quality of service. SWECO shall
invite a MEMBER representative of the Technical Committee to accompany
SWECO at any meeting with a Transmission Supplier involving any such
matter.
5.2 TRANSMISSION AND DISTRIBUTION SERVICE COSTS
To the extent practicable SWECO shall separate the
transmission and Ancillary Services costs that SWECO pays to the
Transmission Suppliers in any month to serve the Group Load among costs
related to such services taken to serve Group Load at delivery voltages
of less than 69 Kv, costs related to such services taken to serve Group
Load at a delivery voltage of 69 Kv, and costs related to such services
taken to serve Group Load at delivery voltages higher than 69 Kv. Such
costs shall be grouped by voltage level and then allocated and charged
to MEMBER based on the ratio of the Maximum Point of Delivery Demand
determined separately for each MEMBER Point of Delivery during the
Billing Month to which such costs relate to the sum of the Maximum Point
of Delivery Demands at all Points of Delivery served during such Billing
Month in the same delivery voltage group.
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ARTICLE VI
MEMBER FACILITIES CHARGES
6.1 RESPONSIBILITY FOR AND PERMITTED USES OF SPECIFIC FACILITIES.
SWECO shall be responsible for installing, owning, operating, and
maintaining the Specific Facilities for MEMBER that are listed on
Schedule D to this Agreement. Upon reasonable request, SWECO shall allow
MEMBER to use such Specific Facilities in connection with MEMBER's
protective relaying schemes. Any permitted use of such facilities shall
be in accordance with Good Utility Practice and shall be subject to
SWECO's prior written approval of MEMBER's equipment installation.
Nothing in this Article VI shall be construed to prohibit MEMBER from
installing, owning, operating and maintaining transmission or
telecommunications facilities that are necessary to MEMBER's receipt of
service hereunder at a Point of Delivery.
6.2 ADDITIONAL INVESTMENTS FOR SPECIFIC FACILITIES
The Parties will amend Schedule D from time to time to list any
Additional Investments for Specific Facilities installed to serve MEMBER
Load. The Parties shall amend Schedule D within 30 days after the end of
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each Contract Year to list Additional Investments for Specific
Facilities totaling less than $100,000 made during such Contract Year.
The Parties shall amend Schedule D within 30 days after the in-service
date of Specific Facilities after Additional Investments for Specific
Facilities made during any Contract Year exceed $100,000.
6.3 RESPONSIBILITIES FOR COMMON FACILITIES
SWECO shall be responsible for installing, owning, operating, and
maintaining the Common Facilities listed on Schedule D of this
Agreement.
6.4 ADDITIONAL INVESTMENTS FOR COMMON FACILITIES
The Parties will amend Schedule D from time to time to
list any Additional Investments for Common Facilities. The Parties shall
amend Schedule D within 30 days after the end of each calendar year to
list Additional Investments for Common Facilities totaling less than
$100,000 made during any Contract Year. The Parties shall amend Schedule
D within 30 days after the in-service date of such Common Facilities
after Additional Investments for Common Facilities made during any
Contract Year exceed $100,000.
6.5 FACILITIES
MEMBER shall pay SWECO a monthly facilities charge for Specific
Facilities and Common Facilities in accordance with Article X and
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Schedule A. Such monthly facilities charge shall be the sum of (a) 1/12
of the annual charge to MEMBER for Initial Facilities plus (b) the
product of 1.75% times the Additional Investments for Specific
Facilities, as listed on Schedule D of this Agreement (as it is revised
from time to time pursuant to Sections 6.2 and 6.4 of this Agreement)
plus (c) the product of 1.75% times the MEMBER Share times the
Additional Investments for Common Facilities, as listed on Schedule D of
this Agreement (as so revised); provided however that MEMBER may elect
to maintain the Specific Facilities and any such Additional Investments.
If MEMBER so elects, then the carrying charge rate set forth in Schedule
D shall be 1.25% and not 1.75%. (Any such agreement that MEMBER shall
maintain such facilities shall be memorialized in writing and shall
contain reasonable terms relating to MEMBER's maintenance duties and
obligations.) The annual charge to MEMBER in any Contract Year for
Initial Facilities shall be as shown on Schedule D. In the event that
such Specific Facilities are deemed to serve more than one Group member,
the investment associated with such Specific Facilities shall be
allocated among such Group members.
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6.6 ABANDONMENT OF SPECIFIC FACILITIES
In the event MEMBER abandons or transfers load from a Point of
Delivery owned by a Transmission Supplier, MEMBER shall pay SWECO an
amount sufficient to pay any and all abandonment charges due under the
relevant Transmission Service Agreements. In the event MEMBER abandons a
Point of Delivery or other Specific Facilities owned by SWECO, MEMBER
shall purchase said facilities from SWECO at Depreciated Book Value.
MEMBER shall remove or otherwise disconnect said abandoned facilities
from the applicable SWECO or Transmission Supplier system.
6.7 OPTION TO PURCHASE SPECIFIC FACILITIES
MEMBER shall have the option to purchase from SWECO
within 180 days following the termination of this Agreement in
accordance with its terms any Specific Facilities being used by SWECO at
the termination date to serve MEMBER Load. The MEMBER shall pay SWECO
for such Specific Facilities the depreciated book value of SWECO's
Additional Investment in such Specific Facilities. The initial specific
facilities will have a depreciated book value of zero at the termination
date.
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ARTICLE VII
POINTS OF DELIVERY
7.1 DELIVERY POINTS
SWECO shall furnish the electric capacity and deliver the energy
purchased by the MEMBER from SWECO under this Agreement to the MEMBER at
the Point(s) of Delivery. Title and risk of loss of such energy shall
pass from SWECO to the MEMBER at such Points of Delivery.
7.2 CHANGES IN POINTS OF DELIVERY.
Whenever MEMBER seeks the establishment of a new Point of Delivery, or
to change the capacity of, or the voltage at, an existing Point of
Delivery, or to abandon a Point of Delivery on the Transmission System
of SWECO or a Transmission Supplier, MEMBER shall notify SWECO, in
writing, of the change desired, as far in advance as is practical, but
at least 30 days in advance of the time at which SWECO must give notice
of the change to any Transmission Supplier under the terms of any
relevant Transmission Service Agreement. Such notice shall provide the
information needed by SWECO to request a change in Points of Delivery
under the terms of any relevant Transmission Service Agreement.
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Subject to the conditions set forth in Section 7.5 below, SWECO shall
use its best efforts to effect a requested change in an existing Point
of Delivery or to furnish a new Point of Delivery at an available
standard distribution or transmission voltage. In no event shall SWECO
be obligated to seek a change in an existing Point of Delivery or to
establish a new Point of Delivery that would violate Good Utility
Practice.
In the event that a Transmission Supplier does not agree to establish
a requested new Point of Delivery or to make a requested change to an
existing Point of Delivery, SWECO shall request that the Transmission
Supplier file with the FERC an unexecuted service agreement or
unexecuted service agreement amendment setting forth the terms on which
the Transmission Supplier is willing to provide the requested service to
MEMBER Load. SWECO and MEMBER shall cooperate in seeking FERC review of
any Transmission Supplier's refusal to provide requested service.
7.3 NEW POINTS OF DELIVERY
If MEMBER desires to establish a new Point of Delivery on the
transmission system of SWECO or a Transmission Supplier, MEMBER shall so
notify SWECO. Such notice shall be given in accordance with the
requirements of Section 7.2 of this Agreement. MEMBER and SWECO shall
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enter into a written delivery point agreement for each new Point of
Delivery containing, among other things, the location of the new Point
of Delivery, capacity required, and a description of the facilities to
be installed. Such delivery point agreement shall be subject to approval
by SWECO or the appropriate Transmission Supplier and obtaining any
required regulatory approval. SWECO shall not unreasonably withhold any
such approval.
7.4 NOTICE OF POINT OF DELIVERY ABANDONMENT
Whenever MEMBER desires to abandon a Point of
Delivery, MEMBER shall notify SWECO of such abandonment, in writing, as
far in advance of the proposed abandonment date as is practical, but not
less than the notice required for abandonment, if any, as specified in
the relevant Transmission Service Agreements. Any Point of Delivery
abandonment shall be subject to the abandonment charges provided for in
Sections 6.7 and 6.8 of this Agreement.
7.5 SWECO OR TRANSMISSION SUPPLIER FACILITIES
If a change requested by MEMBER pursuant to Section 7.2 or Section 7.3
is mutually agreeable to SWECO and the relevant Transmission Supplier,
SWECO shall furnish MEMBER a written construction schedule within 30
days after said construction schedule is received by SWECO from the
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Transmission Supplier. To the extent such change in service or
additional service would require investment by a Transmission Supplier
in additional transmission or distribution facilities, SWECO shall not
be obligated to provide service to the new or changed Point of Delivery
until the relevant Transmission Service Agreement has been amended and
such amendment becomes effective and any required construction is
completed. In the event SWECO, the Transmission Supplier or other agency
for coordinating the use of transmission facilities determines that a
request for a new or changed Point of Delivery is not feasible, SWECO
shall consult with MEMBER for the purpose of suggesting a feasible
alternative to the request made by MEMBER and a representative of MEMBER
shall be invited by SWECO to participate in any meeting with such
Transmission Supplier or other agency. From time to time, SWECO or
another Transmission Supplier may convert its line operating voltages to
higher voltages. MEMBER shall be required to accept any such change to a
higher voltage at any Point of Delivery in accordance with the terms and
conditions, if any, of the applicable Transmission Service Agreements.
SWECO shall give notice to MEMBER of such changes at least 24 months in
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advance of any such change in SWECO facilities initiated by SWECO or
within 15 days after receipt of any such notice from Transmission
Supplier, as the case may be. In negotiating the Transmission Service
Agreements, SWECO shall endeavor to obligate the Transmission Supplier
to give SWECO at least 24 months' prior written notice of the
Transmission Supplier's intention to convert its transmission line
operating voltages to higher voltages.
ARTICLE VIII
OPERATING RESPONSIBILITIES
8.1 OPERATING RESPONSIBILITIES OF MEMBER AND SWECO
MEMBER and SWECO each shall exercise reasonable diligence to use and
provide any service furnished under this Agreement to secure the
efficiency of their respective apparatus and systems in keeping with
Good Utility Practice in the area, shall coordinate their respective
systems' relaying and fusing and with those of the Transmission
Suppliers so as to preclude unnecessary interruptions, shall maintain
their respective lines at all times in a safe operating condition in
accordance with Good Utility Practice, shall operate their respective
facilities in a manner designed not to interfere with the service to
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customers of the other Party, and shall coordinate maintenance
activities which may adversely affect the operation of their respective
facilities.
8.2 POWER FACTOR
The amounts that SWECO bills MEMBER for service under this Agreement
shall be adjusted to reflect adjustments, charges, fees or penalties
relating to power factor charged SWECO by a Transmission Supplier
relating to service provided hereunder. Such billing adjustments shall
be made by individual Points of Delivery. SWECO agrees to provide MEMBER
information concerning charges, fees or penalties that are imposed by a
Transmission Supplier and will attempt to notify MEMBER when MEMBER is
approaching a potential penalty power factor level. SWECO will also
notify MEMBER if and when SWECO becomes aware that MEMBER is operating
its facilities in a manner that violates power factor requirements
imposed under any applicable Transmission Service Agreement. However,
SWECO shall have no obligation to provide reactive power to remedy a
MEMBER's failure to maintain the power factor levels required by a
Transmission Supplier.
8.3 EMERGENCY LOAD RELIEF
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SWECO shall develop a load relief plan to comply with contingent
situations that may arise in the region. MEMBER shall participate in
SWECO's load relief plan, pro rata, on a non-discriminatory basis.
8.4 COORDINATION OF TEMPORARY TRANSFER OF LOAD
To the extent permitted under any applicable Transmission Service
Agreement, MEMBER may temporarily transfer load from one Delivery Point
to another as necessary to facilitate the safe, reliable and economic
provision of service to its retail customers while system maintenance
activities are being conducted or to respond to system emergencies. Such
transfers shall not exceed the physical capacity or constraints of the
SWECO facilities or of any Transmission Supplier's system. MEMBER shall
notify SWECO's system dispatcher of any proposed transfer as far in
advance as is practical and shall coordinate any such transfer with
SWECO's system dispatcher to assure compliance with Good Utility
Practice. Such notice shall state, among other things, the duration of
the expected transfer, the Points of Delivery involved in the proposed
load transfer and the amount of said load to be transferred. After the
load has been transferred back to the original Point of Delivery, the
MEMBER shall provide SWECO with written verification of the exact
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duration of the transfer. Any additional costs of transmission incurred
due to the temporary transfer shall be borne by the MEMBER. Monthly
billing will be adjusted as necessary to avoid duplicative billing for
demand charges.
8.5 EXTENDED OUTAGE
During any outage of all or any part of the Project Capacity (whether
or not the cause of such outage is a force majeure event), the Member
shall pay the charges described in Schedule A for MEMBER Base Supply
provided under this Agreement. In the event that any of the Project
Capacity is out of service for more than 60 consecutive days for any
reason (whether or not the result of force majeure), the demand charges
payable by MEMBER for MEMBER Base Supply in accordance with Schedule A
shall be reduced by the difference (net of any abatement from the Rate
Fund described in Schedule A) between the cost of replacement power (in
mills per kWh) purchased to cover the outage after the sixtieth
consecutive day of outage and charged MEMBER in accordance with Schedule
A and the sum of energy and fuel costs (in mills per kWh) charged MEMBER
for energy provided from operating Project Capacity and Economic Power
(as defined in Schedule A) in the Billing Month times the amount of such
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replacement energy delivered to serve MEMBER Load in the Billing Month;
provided, however, that the demand charges payable by MEMBER for the
Billing Month shall not be less than an amount sufficient when added to
demand charges payable by other Group members for such Billing Month to
pay SWECO's debt service requirements relating to Project Capacity and
other assets acquired by SWECO from the Cajun estate for such Billing
Month. Such reductions in demand charges will be determined utilizing a
twenty-five (25) year debt amortization schedule and in a manner that
results in all Group members paying the same reduced demand rate. For
purposes of this Section 8.5, the amount of replacement energy deemed to
be delivered to MEMBER Load in any Billing Month shall be equal to a
fraction of the replacement energy delivered to serve Group Load in the
Billing Month that has as its numerator total energy deliveries to the
MEMBER's Points of Delivery and as its denominator total energy
deliveries to all Group Points of Delivery. Because the effect of Rate
Fund reductions on MEMBER billings will not be calculated and applied
until after the close of any Contract Year, monthly billing adjustments
made to take account of Extended Outages shall be tentatively determined
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without reference to Rate Fund applications and shall be recalculated at
the time Rate Fund allocations for the Contract Year are determined.
In the event of an outage of Project Capacity that persists beyond 60
consecutive days, SWECO shall have the option to reduce its obligation
to serve MEMBER Load by an amount not to exceed the MEMBER Share of the
outaged capacity divided by .85. To exercise such option SWECO must
notify MEMBER in writing no later than 59 days following the first day
of any outage of Project Capacity of the amount by which SWECO has
elected to reduce its obligation to serve MEMBER Load. The indicated
reduction in SWECO's obligation shall take effect on the earlier of (x)
the date on which SWECO calls debt securities equal to its Depreciated
Book Value in the outaged Project Capacity that is the basis of the
reduction in SWECO's obligation or (y) a date that is 18 months after
the date on which such outage began, and the amount of capacity by which
SWECO's obligation to serve MEMBER Base Supply is reduced shall become
part of MEMBER's Excess Requirements. MEMBER may not use Other Resources
to serve that part of MEMBER Load that is equal to the reduction in
SWECO's MEMBER Base Supply obligation until the reduction in SWECO's
MEMBER Base Supply obligation to such MEMBER takes effect. Beginning
with the effective date of such reduction in SWECO's MEMBER Base Supply
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Obligation, the calculation of the demand ratchet under Schedule A,
Section 1.3, Step 3 (2) shall exclude the amount of kilowatts, if any,
that exceed the reduced MEMBER Base Supply Obligation. If SWECO elects
to reduce its obligation to serve MEMBER load, SWECO shall provide a
credit on MEMBER billing determined by the product of the energy rate
under Schedule A and the amount of replacement energy delivered to serve
MEMBER load in the Billing Month.
8.6 QUALIFYING FACILITY
MEMBER shall notify SWECO of the proposed connection to any part of
MEMBER's transmission or distribution facilities of any Qualifying
Facility (as determined under Subpart B of Part 292 of the FERC's
regulations under Section 201 of the Public Utility Regulatory Policies
Act of 1978 (PURPA)). The Qualifying Facility must agree to operate
under the criteria for non-utility generation established by the
Southwest Power Pool or its successor in function.
MEMBER shall give SWECO as much notice as possible, but not less than
90 days' notice, of its intention to connect its system to a Qualifying
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Facility and shall give SWECO reasonable notice prior to the initial
energizing or start-up testing of the Qualifying Facility so as to allow
SWECO to have a representative present at such test. In addition, MEMBER
shall secure approval from SWECO and the appropriate Transmission
Supplier of any interconnection facilities so that adequate safety and
metering provisions can be made prior to such interconnection.
MEMBER shall supply, at no cost to SWECO, the metering equipment
required to determine the amount of capacity and energy supplied to
MEMBER by the Qualifying Facility. The metering equipment must be
compatible with the existing translation equipment of SWECO or the
Transmission Supplier as appropriate. SWECO or the Transmission Supplier
shall approve the compatibility of the metering equipment before the
equipment is installed. MEMBER shall make its metering data available to
SWECO.
SWECO's approval of such facilities shall not be construed as
confirming or endorsing the design, or as a warranty of safety,
durability or reliability, of any facility or equipment. It will be
MEMBER's sole responsibility to meet or comply with all permits, license
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agreements, fees, rules, regulations, ordinances, inspection, or other
requirements that may be imposed.
If, during the billing month, MEMBER purchases power from a Qualifying
Facility, SWECO will credit MEMBER's charges for the current billing
month in an amount equal to the capacity- and energy-related
compensation SWECO would have been required to pay such Qualifying
Facility for such power, in accordance with the rules of the LPSC, had
such Qualifying Facility elected to require SWECO to purchase its
output. In turn, SWECO will bill MEMBER in such month at the otherwise
applicable rates under this Agreement for the sum of capacity and energy
delivered from any such Qualifying Facility and from SWECO's system in
accordance with Article X and Schedules A and B.
In the alternative, if MEMBER and the Qualifying Facility so agree,
SWECO will execute a contract with the Qualifying Facility for the
purchase of capacity and energy at SWECO's avoided cost, in accordance
with the rules of the LPSC. All other provisions of this Section 8.6
shall apply to the transaction (including particularly those related to
billing) without regard to whether SWECO or MEMBER executes the contract
for purchase of the energy generated by the Qualifying Facility. Any
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capacity and energy purchased by SWECO directly from a Qualifying
Facility shall not be considered Project Capacity.
ARTICLE IX
METERING
9.1 METER READING
The Parties shall cause meters to be read monthly at times agreed
upon. Metering records shall be available at all reasonable times to
authorized representatives and employees of the Parties.
9.2 BILLING METERS AND ASSOCIATED INSTRUMENT TRANSFORMERS
SWECO shall be responsible for the purchase,
installation, ownership, operation and maintenance of the billing meters
and associated instrument transformers at all the existing and new
Points of Delivery to MEMBER. SWECO's records of data collected from
such meters shall be available at all reasonable times to the duly
authorized representatives of MEMBER. If necessary to accommodate a
specific installation at a location other than the physical Points of
Delivery, losses may be added to the actual meter readings to create the
equivalent readings that would have been obtained if the meters were
installed at the physical Points of Delivery.
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SWECO's investments in billing meters and associated instrument
transformers after the Effective Date of the Agreement shall be listed
as Additional Investments on Schedule D to this Agreement. Upon
reasonable request, SWECO shall make available for MEMBER's use SWECO's
instrument transformers located at MEMBER's Points of Delivery for
purposes of installing check meters or for load research purposes.
MEMBER's use of such instrument transformers shall be subject to SWECO's
prior approval of MEMBER's equipment installation, which approval shall
not be unreasonably withheld
9.3 METER TESTS
SWECO shall test and calibrate meters used in connection with service
provided hereunder by reference to accurate standards at intervals of
approximately every twenty-four (24) months or at other intervals
mutually agreed to by the Parties. If SWECO finds a meter is not
registering accurately, SWECO shall restore the meter to an accurate
condition or substitute in its place an accurate meter. SWECO shall bear
the expense of all such routine tests.
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9.4 METER ACCURACY
SWECO and MEMBER shall have the right to request that a special test
of metering equipment be made at any time. If any test made at MEMBER's
request discloses that the metering equipment tested is registering
within plus or minus one percent accuracy, MEMBER shall bear the expense
thereof. The expense of all other such tests shall be borne by SWECO.
9.5 METER ADJUSTMENTS
The results of all meter tests and calibrations shall be open to
examination by MEMBER. Any meter tested and found to be within plus or
minus one percent accuracy shall be considered to be accurate. In the
event that SWECO determines that, as the result of a test of any meter,
a meter is not accurate within the limits of plus or minus one percent
accuracy, SWECO shall estimate the amount of electrical usage upon which
MEMBER's bill should have been rendered. Such estimate shall be based on
all known pertinent facts (which will be developed jointly by SWECO and
MEMBER) and shall be made for service provided from the date of the last
previous test of the metering equipment found to be in error, but in no
event shall such estimate be made for electrical use prior to the twelve
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(12) Billing Months immediately preceding the date on which the
inaccuracy was discovered. To adjust for the difference between metered
electrical usage upon which billing amounts were determined and
estimated electrical usage upon which MEMBER should have been billed,
SWECO will make appropriate adjustments (upward or downward) during the
next Billing Month to correct for such metering errors. Such adjustment
shall be the difference between the amount billed and the estimated
amount which should have been billed to account for such past metering
errors. If the meter in error has not been in service for twelve (12)
full preceding Billing Months, or if the meter inaccuracy can be
determined to have begun less than twelve (12) months prior to the date
on which the inaccuracy was discovered, then the estimated amount to be
refunded or credited by SWECO or paid by MEMBER shall reflect these
factors.
ARTICLE X
BILLINGS AND PAYMENTS
10.1 COMPENSATION
The rates, charges, and fees used to determine the amounts that MEMBER
shall pay to SWECO each month during the term of this Agreement for
service hereunder shall be determined in accordance with the rate
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schedules attached hereto, including without limitation Schedules A,
A-1, A-2, A-3, and B to this Agreement, and any other provision of this
Agreement relating to rates and charges for service. SWECO may make
adjustments to any bill for a period of up to one year after the date of
the original bill in order to reflect differences in charges resulting
from SWECO's receipt of more accurate data. SWECO may make additional
adjustments to bills to the extent such additional adjustments are
required to reflect the final resolution of any claim, action, or
proceeding that affects data contained in an original bill and that is
formally initiated by or noticed to SWECO prior to the end of the period
provided for in Section 10.3 for auditing SWECO's fuel costs. SWECO
shall provide notice of any such claim, action, or proceeding promptly
upon learning of same. SWECO shall furnish bills that separately state
the charges by individual Point of Delivery. SWECO shall also provide to
a designated representative of the MEMBER the information listed on
Schedule F with each monthly bill in order that such representative may
verify that the bill has been properly computed.
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10.2 FUEL AND ECONOMIC POWER COSTS
Fuel and Economic Power costs incurred by SWECO to serve MEMBER Load
shall be calculated monthly in accordance with the Fuel Cost Provisions
of Schedules A and B to this Agreement.
10.3 AUDITS OF COST RECORDS
Within three years following any calendar year for which service was
provided pursuant to this Tariff, and subject to any confidentiality
agreement between SWECO and any supplier of goods or services, MEMBER,
acting through the designated representative referred to in Section
10.1, shall have the right to audit SWECO's records of fuel and Economic
Power costs, MEMBER Hydro costs, and charges paid to Transmission
Suppliers at the offices where such records are maintained during normal
business hours; provided that appropriate notice shall have been given
prior to any audit and provided that the audit shall be limited to those
portions of such records that relate to service under this Agreement for
such calendar year. The costs of any such audit shall be borne by the
MEMBER.
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10.4 ECONOMIC DEVELOPMENT AND INCENTIVE RATES
SWECO shall sell to MEMBER power and energy needed to
serve qualifying economic development and incentive
loads as follows:
(a) For the economic development and incentive loads in respect of
which MEMBER has made a formal written commitment of reduced rates
(based on Cajun incentive tariffs) as of the Effective Date and that are
listed on Schedule F to this Agreement, SWECO shall provide electric
service to MEMBER at the rates set forth in either Schedule A or
Schedule A-3. On or before the Effective Date, MEMBER shall determine
which rate option is best and elect for each retail load being served at
the Effective Date with power and energy purchased from Cajun at LPSC
approved incentive rates on file with the LPSC on March 31, 1997 (which
are the Cajun Riders JCIC, LPI, VLP and EEDS and the Cotton Gins Rider
that are described in Schedule A-3) whether to be billed under Schedule
A or Schedule A-3 to this Agreement. Any loads greater than 10 mW in
respect of which MEMBER has made a formal written offer of reduced rates
(based on Cajun rate VLP) shall be deemed to be Separately Metered Load
that SWECO shall supply to MEMBER in accordance with the rates and terms
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set forth in Schedule A-3 that are applicable to VLP customers and shall
not be counted as MEMBER Load.
If MEMBER elects Schedule A-3 for certain incentive loads, such
Schedule A-3 rates shall be applicable only during the remaining term of
the original incentive load contracts as referenced in Schedule A-3 and
thereafter such incentive loads shall be billed in accordance with
Schedule A.
(b) For economic development and incentive loads that are first served
by MEMBER after the Effective Date of this Agreement, SWECO shall
provide electric service to MEMBER at the applicable rates, terms and
conditions set forth in Schedules A-1 and A-2 to this Agreement.
10.5 PAYMENT BY MEMBER TO SWECO
MEMBER shall make payment to SWECO for electric service billed under
this Agreement in a manner that will assure that collected funds are
available to SWECO within twenty (20) days from the date said bills are
mailed. No dispute in regard to billing shall delay payment. Payment
shall be made to SWECO by check or by electronic transfer of funds to
the bank and account as indicated on the bill. All payments for service
not electronically transferred hereunder shall be mailed to SWECO's
address.
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Unpaid amounts shall be subject to a late payment charge equal to one
percent (1%) per month; provided, however, that such late payment charge
shall not exceed the maximum charge which may be collected under the
applicable provisions of Louisiana law. If MEMBER makes collected funds
available to SWECO sooner than 15 days after the date a bill is mailed,
MEMBER's account shall be credited with the product of .0001369863 and
the amount paid early for each day sooner than 15 days after the date a
bill is mailed that such amount is available to SWECO in collected
funds.
The payment of that portion of any bill that MEMBER may be
contesting shall not be construed as waiving MEMBER's right to recover
the contested portion.
ARTICLE XI
ADDITIONAL PROVISIONS
11.1 PLANNING
In order to keep SWECO advised of MEMBER's future requirements so that
SWECO may make provision for such requirements in its long-range system
plans, MEMBER shall cooperate with SWECO in its system planning and
shall provide SWECO prior to the earlier of (1) the time specified in
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the appropriate Transmission Service Agreements, or (2) June 1 of each
Contract Year, a forecast of MEMBER's anticipated load requirements in,
or proposed to be placed in, SWECO's load control area for each of the
next ten Contract Years or the remaining Contract Years if fewer than
ten. MEMBER shall also advise SWECO of its maximum load requirements at
each existing Point of Delivery, and its anticipated need for additional
Point(s) of Delivery for each such Contract Year.
11.2 TECHNICAL COMMITTEE
As soon after the Effective Date as possible, SWECO and the members of
the Group shall establish a Technical Committee consisting of
representatives of SWECO and of each member of the Group. The Technical
Committee shall meet as often as reasonably required to keep the Group
informed of SWECO's planning decisions and operating procedures. SWECO
shall entertain suggestions and advice from the Technical Committee in
respect of SWECO's obligations under this Agreement; however, such
suggestions and advice from the Technical Committee shall not be binding
upon SWECO, but shall be advisory only.
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11.3 RESPONSIBILITY FOR ELECTRICITY
MEMBER assumes all responsibility for electricity on its side of each
Point of Delivery and SWECO assumes all responsibility for electricity
present on electric facilities owned by SWECO. It is also understood and
agreed that neither SWECO nor MEMBER assumes any responsibility with
respect to the construction, installation, insulation, maintenance or
operation of the systems of the other or any part thereof and neither
SWECO nor MEMBER shall, in any event, be liable for damage or injury to
any person or property whatsoever arising, accruing or resulting from,
in any manner, the receipt, transmission, control, use, application or
distribution by the other Party of said electricity. Both SWECO and
MEMBER shall use reasonable diligence in maintaining their respective
lines and equipment in proper and serviceable condition, and shall take
reasonable steps and precautions for maintaining the services agreed to
be performed and received under this Agreement.
11.4 CONTINUITY OF SERVICE
SWECO shall endeavor at all times to provide in an uninterrupted
fashion the service contemplated by this Agreement in keeping with Good
Utility Practice. In no event, however, shall SWECO be liable to MEMBER
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for losses or damages arising from failure, interruption or suspension
of service resulting from SWECO's operations conducted in accordance
with Good Utility Practice, or any interruption or suspension of
transmission or ancillary service by any Transmission Supplier or any
other failure of any Transmission Supplier to provide service unless
such interruption, suspension or failure of transmission or ancillary
service is a result of SWECO's failure to discharge one or more of its
obligations under this Agreement. SWECO reserves the right to suspend
service pursuant to Good Utility Practice without any liability on its
part at such times and for such periods and in such manner as it may
deem advisable including, without limitation, suspensions for the
purpose of making necessary adjustments to, changes in, or repairs on,
its lines, substations and facilities, and suspensions in cases where,
in its opinion, the continuance of service to MEMBER would endanger
persons or property. SWECO shall use its best efforts to provide MEMBER
with reasonable notice in the event of a suspension of service. Monthly
billing will be adjusted as necessary to avoid duplicative billing
related to load shifts made by MEMBER to respond to any such suspension
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of service. Any additional costs of transmission incurred due to load
shifts made at the request of SWECO shall be borne by SWECO.
11.5 RIGHT OF ACCESS
Each Party shall give all necessary permission to the other Party to
enable the agents of the other Party to carry out this Agreement, and
shall give the other Party the right to enter its premises by the other
Party's fully authorized agents and employees at all reasonable times
for the purposes of reading or checking meters; for inspecting, testing,
repairing, renewing or exchanging any or all of the other Party's
equipment; or for performing any other work incident to rendering the
services covered by this Agreement. Except as otherwise agreed by the
Parties or in emergencies, whenever the agent of one Party enters the
premises of the other Party, such agent shall be accompanied by
personnel of the Party owning such premises. It is agreed, however, that
neither Party hereto assumes the duty of inspecting the equipment,
lines, or other facilities of the other.
11.6 HOLD HARMLESS PROVISIONS
Each Party shall indemnify and hold harmless the other Party from and
against any and all legal and other expenses, claims, costs, losses,
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suits or judgments for damages to any person or destruction of any
property arising in any manner directly or indirectly by reason of the
sole negligence or willful misconduct of such Party's authorized
representatives.
TO THE FULLEST EXTENT PERMITTED BY LAW, NEITHER PARTY SHALL BE LIABLE
TO THE OTHER PARTY, FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE,
EXEMPLARY, MULTIPLE, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT
LIMITATION, LIABILITY BASED UPON OR DAMAGES FOR LOSS OF PROFITS) WITH
RESPECT TO ANY CLAIM ARISING OUT OF THIS AGREEMENT WHETHER BASED ON
CONTRACT, TORT (INCLUDING THE NEGLIGENCE OR THE SOLE NEGLIGENCE OF A
PARTY) OR OTHERWISE.
For purposes of this Section 11.6 the term Party shall mean SWECO or
MEMBER and their respective officers, directors, employees and
independent contractors.
11.7 RIGHT OF FIRST REFUSAL IN CASE OF PROPOSED SALE, MERGER OR
CONSOLIDATION.
In the event MEMBER receives an offer to sell, merge, consolidate or
otherwise transfer all or substantially all of the assets of MEMBER,
MEMBER shall first offer to sell such assets to SWECO, or any of its
affiliates, on the same terms and conditions as are received from any
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other party unless the offering party is a member of the Group that is a
rural electric cooperative that is purchasing from SWECO the capacity
and energy required to meet such party's MEMBER Load under a Power
Supply and Service Agreement with SWECO having terms similar to the
terms of this Agreement and such party's offer includes an obligation to
assume MEMBER's obligation to SWECO under this Agreement. After SWECO
receives written notification of said offer and of MEMBER's agreement or
desire to sell, SWECO shall have 120 days to notify MEMBER of SWECO's
agreement to purchase MEMBER's assets on the same terms and conditions,
or on more favorable terms and conditions than those that were submitted
by the offering party. During the 120-day notification period, MEMBER
shall not enter into any memorandum of understanding, contract or other
agreement with the third party without specifically noting therein that
said agreement is subject to this right of first refusal. In the event
SWECO or any of its affiliates notify MEMBER during the 120-day period
that it desires to purchase MEMBER's assets, the Parties will proceed,
with due diligence, to complete the transaction; provided, however, that
SWECO's right to purchase MEMBER's assets shall be subject to
obligations relating to disposition of MEMBER's assets that MEMBER may
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have under its by-laws in effect on January 1, 1997 that continue in
effect as of the date on which the MEMBER first receives an offer from
the third party to sell, merge, consolidate or otherwise transfer the
MEMBER's assets. In the event SWECO does not respond within 120 days or
notifies MEMBER during such period of its election not to submit an
offer, MEMBER shall be free to sell, merge, consolidate or otherwise
transfer its assets to the third party.
MEMBER specifically agrees to abide by the terms of this provision and
acknowledges that in the event of noncompliance with any terms of this
provision, any contract, agreement or transfer of assets to a third
party shall be null and void, without force and effect and subject to
any and all remedies pursuant to applicable law.
11.8 ACQUISITION OF FACILITIES TO SERVE RETAIL CUSTOMERS FORMERLY SERVED BY
OTHER SUPPLIERS.
In the sole event that the MEMBER determines to purchase or otherwise
acquire facilities for the provision of electrical service to a customer
or customers not served by MEMBER on the Effective Date and if it is
necessary in order to consummate the transaction for the MEMBER to
assume an existing power purchase agreement from the seller of the
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acquired facilities or execute a new power purchase agreement with such
seller, MEMBER shall have the right to purchase power under the MEMBER's
agreement with the seller solely to serve the electric load of customers
being served in the new service territory. Any electric load so served
shall not be counted as MEMBER Load while so served, and if served
through a Point of Delivery shall be separately metered at MEMBER's sole
expense.
After the expiration of the primary term of any such agreement, MEMBER
shall purchase from SWECO the power and energy needed to serve the new
customer or customers if MEMBER would otherwise have been obligated to
purchase such power and energy from SWECO under this Agreement and, in
such event, MEMBER hereby renounces any right to extend the primary term
of any agreement assumed or entered into by MEMBER in accordance with
this Section 11.8.
11.9 EXTRAORDINARY LOAD
SWECO and MEMBER shall cooperate to facilitate the attraction of
Extraordinary Load to SWECO's control area. MEMBER shall keep SWECO
informed regarding any proposals to potential Extraordinary Load
customers. In the event any such potential Extraordinary Load customer
rejects such proposal and MEMBER demonstrates to SWECO's reasonable
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satisfaction that, unless such potential Extraordinary Load customer is
offered a lower price for electricity than MEMBER can offer based on its
costs incurred under this Agreement, or under other power supply
arrangements that SWECO is willing to offer to MEMBER, SWECO shall have
no obligation to serve such Extraordinary Load, which shall not become
part of MEMBER Load, and MEMBER shall have the right to purchase from a
Third-Party Supplier the capacity and energy needed to serve such
Extraordinary Load. Such right to purchase from a Third-Party Supplier
shall be subject to SWECO's right of first refusal to furnish the
capacity and energy MEMBER requires in order to serve such Extraordinary
Load. If served through a Point of Delivery, such Extraordinary Load
shall be separately metered at MEMBER's sole expense.
11.10 COMPETITIVE TERRITORY CREDITS
The MEMBER shall use all reasonable efforts to oppose any activities
by any municipality or any other entity that threatens to reduce MEMBER
Load or cause SWECO to sustain loss or impair SWECO's ability to recover
the costs it has incurred to provide service under this Agreement.
Nothing in this Section 11.10 shall, however, require MEMBER to take any
action that is in conflict with MEMBER's obligations under any agreement
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between MEMBER and a political subdivision of the State of Louisiana
that is in force and effect as of November 1, 1997, so long as such
Agreement remains in effect. The MEMBER acknowledges and recognizes that
SWECO has made a substantial investment and incurred substantial costs
to enable it to serve MEMBER load.
In the event that a political subdivision, as defined by the Louisiana
Constitution in effect on the Effective Date, that serves electric
utility customers in a geographic area that is contiguous to the
geographic area in which MEMBER provides electric utility service, poses
a significant competitive threat to MEMBER because such political
subdivision either (a) has offered to provide electric utility service
at lower cost (after considering the value of services or subsidies that
such political subdivision has offered to MEMBER's electric utility
customers) or (b) has taken or initiated official action, or Member and
SWECO in good faith believe such action is likely, to annex any part of
the geographic area in which MEMBER serves retail customers or to
condemn any member facilities:
(1) SWECO shall establish a separate fund
("Territory and Cooperative Defense Fund") to be
available to Member to assist Member and other
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members of the Group to defend against
condemnation, hostile takeover, and annexation
efforts. On the first day of Contract Year one,
SWECO shall deposit $900,000 in the "Territory
and Cooperative Defense Fund" to be available to
qualifying Members during Contract Year one (1)
through five (5). Beginning on the first day of
Contract Year Six, such fund shall be reduced to
an amount equal to the lesser of $500,000 or the
actual balance in the fund at the end Contract
Year 5. Such fund shall continue to be
available until the earlier of the exhaustion of
the fund or the end of Contract Year 25. Any
amount remaining in the fund at the end of
Contract Year 25 shall revert to SWECO.
(2) Beginning in Year 6, and for each Contract Year
through the end of Contract Year 25, SWECO shall
establish a separate fund of up to $500,000 per
year ("Contingent Fund"). The Contingent Fund
shall be available to all qualifying Members of
the Group in order to assist such Members in
defending against the condemnation and
annexation efforts described in this section,
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but shall not be available to defend hostile
takeover activities of Third Parties.
For each of the Territory and Cooperative Defense Fund and the
Contingent Fund, a qualifying Member is entitled to utilize up to the
full amount of each fund for the purposes specified, unless more than
one qualifying Member is entitled to participate in such fund, in which
case Member shall be entitled to its pro rata share of such fund, which
pro rata share shall be determined by the ratio of the MEMBER's Member
Share to sum of the Member Shares of the qualifying Members.
11.11 SWECO COVENANTS
In addition to its other obligations under this Agreement, SWECO
specifically warrants and covenants to MEMBER that it will (a) maintain
its status as a validly existing corporate entity in good standing with
full power and authority to carry out its business as contemplated by
this Agreement; and (b) pay all principal and interest SWECO accrues,
and comply with all other covenants and obligations, under any financing
documents executed by SWECO to finance its acquisition of the Project
Capacity.
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11.12 MEMBER COVENANTS
In addition to its other obligations under this Agreement, MEMBER
specifically warrants and covenants to SWECO that MEMBER will: (a)
maintain its status as a validly existing corporate or other legal
entity in good standing with full power and authority to carry on its
business as it is now conducted; (b) pay all principal and interest it
accrues, and comply with all other covenants and obligations, under any
financing documents executed by MEMBER; (c) establish and maintain, to
the extent permitted by all regulatory bodies having jurisdiction
thereof, rates and collect charges for retail service based thereon
sufficient to pay all indebtedness and all expenses of MEMBER, including
but not limited to all payments due and owed to SWECO pursuant to this
Agreement; and (d) oppose and not allow any substantial part of its
electric distribution system to be sold, transferred or leased, or any
of its customers to be served by others except as is specifically
authorized by this Agreement or required by law.
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ARTICLE XII
DEFAULT
12.1 DEFAULT DEFINED
As used in this ARTICLE XII, "default" shall mean the failure of
MEMBER or SWECO to make any payment, perform any obligation in the time
and/or manner required by this Agreement or otherwise breach any
covenant or warranty contained herein, except where such failure to
discharge obligations (other than the payment of money) is the result of
Force Majeure (as defined in Section 13.20 of this Agreement).
12.2 NOTICE OF DEFAULT
Upon failure of a Party hereto to make a payment or to perform an
obligation required hereunder, the other Party shall give written notice
of such default to the Party in default. The Party in default shall have
twenty (20) days within which to cure such default and, if cured within
such time, the default specified in such notice shall cease to exist.
12.3 REMEDIES FOR DEFAULT
If a default is not cured as provided in Section 12.2, the Party not
in default may resort to all remedies available at law or in equity,
including the initiation of a proceeding at the FERC to terminate
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service. If it is necessary for SWECO to institute legal proceedings or
retain an attorney in attempting to collect a delinquent bill, MEMBER
will also pay and be responsible for all interest provided for in
Section 10.3 and all expenses and costs of collection, including
reasonable attorneys' fees, incurred by SWECO.
ARTICLE XIII
GENERAL PROVISIONS
13.1 GOVERNING LAW
The validity, interpretation and performance of this Agreement and
each of its provisions shall be governed by the laws of the State of
Louisiana, except as to matters that are governed by federal law.
13.2 NOTICE
Any notice, request, demand, or statement, which may be given to or
made upon a Party hereto by the other Party hereto under any of the
provisions of this Agreement, shall be in writing unless it is
specifically provided otherwise herein, and shall be treated as duly
delivered when the same is either (1) personally delivered to the
President of SWECO or the General Manager of MEMBER, or (2) deposited in
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the United States mail, by certified mail, postage prepaid, or (3)
delivered by facsimile transmission, and properly addressed to the party
to be served, as follows:
If the notice is to SWECO:
President
Southwestern Wholesale Electric Company
P. O. Box 21106
Shreveport, Louisiana 71156
FAX (318) 221-____
If the notice is to MEMBER:
General Manager
"CO-OP"
"Address"
___________, Louisiana
FAX ( ) ___-____
The names, titles, addresses and fax telephone numbers of either party
in this section may be changed by written notification to the other
party.
13.3 SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and inure to the benefit of SWECO
and MEMBER and their respective successors and assigns.
(a) PERMITTED ASSIGNMENTS BY SWECO
The MEMBER acknowledges that SWECO's lenders will advance funds in
reliance on this Agreement and similar agreements between SWECO and
other Group members and that such agreements will secure SWECO's
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obligations to repay its lenders. The Parties specifically agree that
SWECO, without further consent or approval, may assign, transfer,
mortgage and/or pledge or otherwise use this Agreement in order to
secure financing and/or refinancing of SWECO, or any of its successors
and assigns, and further to allow enforcement, by assignees, receivers
or trustees and/or creditors to this Agreement. In this regard, it is
further acknowledged and agreed that SWECO, or any of its successors
and/or assigns, is hereby authorized and permitted, without further
approval, to sell, transfer, merge or consolidate all or substantially
all of its assets with any other party or entity and to assign this
Agreement in the event of such sale, transfer, merger or consolidation.
(b) PERMITTED ASSIGNMENTS BY MEMBERS
MEMBER, without the approval of SWECO, may assign, transfer, mortgage
or pledge this Agreement to create a security interest for the benefit
of the United States of America, acting through the administrator of the
Rural Utilities Services (the "Administrator"). Thereafter, the
Administrator, without the approval of SWECO, may (1) cause this
Agreement to be sold, assigned, transferred or otherwise disposed of to
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a third party pursuant to the terms governing such security interest, or
(2) if the Administrator first acquires this Agreement pursuant to 7
U.S.C. ' 907, sell, assign, transfer or otherwise dispose of this
Agreement to a third party; provided, however, that in either case (a)
MEMBER is in default of its obligations to the Administrator that are
secured by such security interest and the Administrator has given SWECO
notice of such default; and (b) the Administrator has given SWECO thirty
(30) days prior notice of its intention to sell, assign, transfer or
otherwise dispose of this Agreement indicating the identity of the
third-party assignee or purchaser. In addition, MEMBER, without the
approval of SWECO, may assign, transfer, mortgage or pledge this
Agreement to create a security interest for the benefit of any lender
other than the Administrator.
(c) OTHER ASSIGNMENT
Except as otherwise provided in this Section 13.3, neither Party shall
assign its interest in or delegate its duties under this Agreement in
whole or in part without the prior written consent of the other Party.
Such consent shall not be unreasonably withheld.
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(d) EFFECT OF ASSIGNMENTS
No assignment, sale, transfer, merger or consolidation shall in any
way relieve or discharge any Party of its obligations under this
Agreement or impose additional obligations or burdens on the other Party
unless specifically so agreed in writing by the other Party.
13.4 RULES OF CONSTRUCTION
(a) The descriptive headings of the various articles and sections of
this Agreement have been inserted for convenience of reference only and
shall in no way modify, expand, or restrict any of the terms and
provisions hereof.
(b) Wherever the term "including" is used in this Agreement and the
Schedules attached hereto, such term shall not be construed as limiting
the generality of any statement, clause, phrase or term.
(c) The terms defined in this Agreement and the Schedules attached
hereto shall include the plural as well as the singular and the singular
as well as the plural.
(d) The language used in this Agreement is the product of both
Parties' efforts, and each Party hereby irrevocably waives the benefit
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of any rule of contract construction that disfavors the drafter of a
contract or the drafter of specific words in a contract.
13.5 EFFECTIVE DATE OF AGREEMENT
This Agreement and all obligations hereunder are expressly conditioned
upon (i) acceptance for filing by the FERC by a final, nonappealable
order, without change, modification, or refund conditions; (ii) receipt
of a final, nonappealable order of the LPSC approving MEMBER's execution
of this Agreement as prudent; and (iii) upon the granting of all other
necessary regulatory approvals and authorizations required by law. SWECO
shall file this Agreement with the FERC and request that the Agreement
become effective as of the Effective Date. This Agreement shall become
effective on the date specified by the FERC in such order accepting this
Agreement for filing.
13.6 TERM
Unless terminated sooner in accordance with Article XII of this
agreement, the provisions of this Agreement shall continue in effect
from the first day of the month in which the Effective Date occurs
through and including December 31 of the twenty-fifth Contract Year.
SWECO and MEMBER shall negotiate in good faith to execute a separate
agreement three years prior to the such termination date, to establish
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the ownership, operation, and maintenance of the Common Facilities
listed in Schedule E to this Agreement that will be in-service at the
projected termination date.
13.7 COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
13.8 AMENDMENTS
This Agreement may be amended only by a written Agreement executed by
both Parties. The Agreements by and between SWECO and each of the Group
members are separate contracts, and any amendment to a contract shall
only be binding and enforceable upon SWECO and the Group member that are
parties thereto and said amendment shall not require the amendment of
other agreements between SWECO and other Group members.
13.9 FURTHER ASSURANCES
Each Party will execute such further documents and instruments and
take such further actions as may be reasonably requested by the other
Party in order to carry out and perform this Agreement in accordance
with its terms.
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13.10 SCHEDULES
Schedules referred to herein and attached hereto are made a part
hereof for all purposes.
13.11 SEVERABILITY OF CONTRACT PROVISIONS
In the event any material term, covenant or condition of this
Agreement, or any amendment hereto shall be held invalid, illegal or
unenforceable as to any Party by any court or regulatory authority
having jurisdiction, all remaining provisions of this Agreement not
affected by such judgment or order shall continue in full force and
effect. The Parties shall conduct good faith negotiations and use best
efforts in reaching a mutually acceptable written Agreement to replace
deleted provision(s) that will most nearly accomplish the purpose and
intent of the said deleted provision(s).
13.12 SEVERABILITY OF MEMBER CONTRACTS
If a power supply and service agreement between SWECO and any other
member of the Group is held invalid, illegal or unenforceable by any
court or regulatory authority having jurisdiction or in the event that
any MEMBER contract is rejected, canceled or terminated for any reason
whatsoever, this Agreement shall nevertheless remain in full force and
effect.
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13.13 COMPUTATION OF TIME
In computing any period of time, prescribed or allowed by this
Agreement (other than the beginning and ending dates of a billing
month), the day of the act, event, or default from which the designated
period of time begins to run shall not be included. The last day of the
period so computed shall be included unless it is a Saturday, Sunday, or
legal holiday, in which event the period shall run until the end of the
next business day which is neither a Saturday, Sunday, nor legal
holiday.
13.14 LIMITATION
This Agreement is not intended to and shall not create rights of any
character whatsoever in favor of any person, corporation, association,
or entity other than the Parties to this Agreement, and the obligations
herein assumed are solely for the use and benefit of the Parties to this
Agreement, their successors in interest, or assigns.
13.15 WAIVERS
A waiver by a Party of a default by the other Party shall not be
deemed a waiver of any other or subsequent default.
13.16 REGULATION
This Agreement is subject to approval by the regulatory authorities
having jurisdiction. This Agreement is also subject to applicable
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federal, state, and local laws, ordinances, rules, and regulations.
Nothing herein contained shall be construed as a waiver of any right to
question or contest any such law, ordinance, rule, regulation or
asserted regulatory jurisdiction.
13.17 REASONABLENESS OF RATES - PRE-ESTABLISHED RATE CONTRACT
This Agreement reflects negotiated, "market based"
rates and a pricing regime established by the Parties that takes into
account the MEMBER's present and projected needs for electric capacity
and energy, the costs of the power supply resources that SWECO shall
acquire as contemplated by this Agreement and the power supply
alternatives available to MEMBER. The parties agree that the rates and
other pricing modalities established hereunder are just and reasonable
and take into account specific benefits expected to be achieved by the
Parties by this Agreement and not otherwise available to the Parties.
13.18 ROUNDING
Whenever the provisions of this Agreement require the use of kilowatts
or kilowatt-hours, the actual kilowatt or kilowatt-hour figure involved
shall be adjusted by rounding upward to the next full kilowatt or
kilowatt-hour if the actual figure is 0.5 kilowatt or kilowatt-hour, or
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higher, or downward to the last full kilowatt or kilowatt-hour if the
actual figure is less than 0.5 kilowatt or kilowatt-hour.
13.19 SURVIVORSHIP OF OBLIGATIONS
The termination or cancellation of this Agreement shall not discharge
any Party from any obligation it owes to the other Party under this
Agreement by reason of any transaction, loss, cost, damage, expense or
liability which shall occur or arise prior to such termination. It is
the intention of the Parties that any such obligation owed (whether the
same shall be known or unknown as of the termination or cancellation of
this Agreement) shall survive the termination or cancellation of this
Agreement. The Parties also intend that the indemnification and
limitation of liability provisions contained in ARTICLE XI hereof shall
remain operative and in full force and effect, regardless of any
termination or cancellation of this Agreement, except with respect to
actions or events occurring or arising after such termination or
cancellation is effective.
13.20 FORCE MAJEURE
Except as specifically otherwise provided in this Agreement, neither
Party shall be liable to the other Party for failure to perform its
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obligations under this Agreement (other than an obligation to pay money)
when such failure is attributable solely to Force Majeure. Force Majeure
shall mean any cause beyond the reasonable control of either Party,
including, without limitation, failure, or imminent threat of failure,
of facilities or equipment, flood, freeze, earthquake, storm, fire,
lightning, other acts of God, epidemic, war, acts of a public enemy,
riot, civil disturbance or disobedience, strike, lockout, work
stoppages, other industrial disturbance or dispute, labor or material
shortage, sabotage, restraint by court order or other public authority,
and action or non-action by, or failure or inability to obtain the
necessary authorizations or approvals from, any governmental agency or
authority, which by the exercise of due diligence such Party could not
reasonably have been expected to avoid and by exercise of due diligence
it could not overcome. Nothing contained herein shall be construed so as
to require the Parties to settle any strike, lockout, work stoppage or
any industrial disturbance or dispute in which it may be involved, or to
seek review of or take an appeal from any administrative or judicial
action.
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Neither the sale by SWECO to the MEMBER of electric capacity and
associated energy under this Agreement, nor any other provision of this
Agreement, shall constitute either (i) a sale, lease, transfer,
dedication or conveyance of an ownership interest in or to any asset of
SWECO or (ii) an entitlement to the electric capacity or associated
energy from any specific SWECO asset. SWECO shall have the sole
authority, which it may exercise in its discretion, to manage, control
and operate all SWECO resources, subject to SWECO's obligations to
provide electric capacity and associated energy to the MEMBER pursuant
to this Agreement.
In the event of an interruption of service, SWECO and the MEMBER shall
use all due diligence to restore their respective systems to enable the
delivery and receipt of electric capacity and energy. In the event of a
power shortage, or an adverse condition or disturbance, SWECO may,
without incurring liability, take such emergency action as, in the
judgment of SWECO, may be necessary; provided that SWECO in determining
the action to be taken shall make no adverse distinction against MEMBER
Load. Such emergency action may include, but shall not be limited to,
reduction or interruption of the supply of electricity to some Points of
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Delivery in order to compensate for an emergency condition on the system
of SWECO, or on any other directly or indirectly interconnected system.
13.21 AUTHORITY OF MEMBER
MEMBER represents and warrants that by resolutions duly adopted at a
properly called and noticed meeting of MEMBER's Board of Directors at
which a quorum was present and otherwise, MEMBER has taken all necessary
corporate action required by MEMBER's Articles of Incorporation and
Bylaws to be taken to authorize MEMBER's execution, delivery and
performance of this Agreement and that this Agreement constitutes a
valid and legally binding obligation of MEMBER. MEMBER will provide
SWECO with copies of such resolutions.
13.22 WARRANTIES
THE PARTIES HAVE EXECUTED THIS AGREEMENT IN RELIANCE SOLELY ON THE
EXPRESS WARRANTIES AND COVENANTS CONTAINED HEREIN. THE PARTIES EXPRESSLY
DISCLAIM AND NEGATE ANY AND ALL OTHER REPRESENTATIONS OR WARRANTIES,
EXPRESSED OR IMPLIED, INCLUDING ANY REPRESENTATION OR WARRANTY OF (1)
MERCHANTABILITY, (2) CONFORMITY TO MODELS OR SAMPLES, AND (3) FITNESS
FOR A PARTICULAR PURPOSE.
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IN WITNESS WHEREOF, SWECO and MEMBER have caused this Agreement to be
executed in multiple copies in their names by their respective duly authorized
officials as of the date and year first above written.
SOUTHWESTERN WHOLESALE ELECTRIC
COMPANY
By: _____________________________
ATTEST:
- ---------------------------
MEMBER COOPERATIVE ASSOCIATION
By: _____________________________
General Manager
ATTEST:
- ------------------------
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SCHEDULE A
RATES AND CHARGES FOR MEMBER BASE SUPPLY SERVICE
1.1 For MEMBER Base Supply SWECO shall bill MEMBER each month a Demand
Charge, an Energy Charge, and a Fuel Cost Charge and all other charges
and credits contemplated by this Agreement to be applicable to MEMBER
Base Supply Service, including without limitation the Rate Fund Credits,
Wheeling Charges and Facilities Charges described in this Schedule A.
1.2 The Demand Charge for MEMBER Base Supply at a Point of Delivery shall be
equal to the Demand Rate shown below times the Kilowatts of Billing
Demand associated with MEMBER Base Supply, subject to adjustment in
accordance with Section 8.5 for extended outages.
1.3 To determine the Kilowatts of Billing Demand that are associated with
MEMBER Base Supply furnished by SWECO to a Point of Delivery during a
Billing Month, SWECO shall perform the following calculations:
Step 1: SWECO shall separately determine (for each hour of the
Billing Month being analyzed) MEMBER's total demand for
power at each MEMBER Point of Delivery by reference to
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actual metered values, including without limitation metered
amounts of the kilowatts of capacity supplied by any
Qualifying Facility to serve Member Load located behind a
Point of Delivery (Total Demand).
Step 2: SWECO shall subtract from Total Demand (for each hour of
the Billing Month being analyzed) the sum of (a) the
kilowatts of MEMBER Hydro (after adjustment for losses in
delivery) available for delivery to the Point of Delivery
during the Billing Month plus (b) the kilowatts of any
Extraordinary Load (after adjustment for losses in delivery)
served during the hour being analyzed plus (c) the kilowatts
of any Separately Metered Load of MEMBER occurring during
such hour plus (d) the kilowatts associated with capacity
scheduled for delivery from Other Resources (after
adjustment for losses in delivery) and allocated to the
MEMBER's Points of Delivery in proportion to the ratio of
the Maximum Point of Delivery Demand in the Billing Month at
the Point of Delivery to the sum of the Maximum Point of
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Delivery Demands for all MEMBER's Points of Delivery
(Adjusted Total Demand). The MEMBER Hydro available for
delivery to the Point of Delivery shall be equal to the
amount of MEMBER Hydro available in the current Contract
Year times the ratio of (x) the highest Maximum Point of
Delivery Demand established for the Point of Delivery in the
immediately preceding Contract Year and (y) the sum of the
highest Maximum Point of Delivery Demands established for
all MEMBER'S Points of Delivery in such Contract Year.
Step 3: The Kilowatts of Demand associated with MEMBER Base
Supply furnished to the Point of Delivery during the current
Billing Month shall be the higher of the following measures:
(1) the highest hourly Adjusted Total Demand at the Point of
Delivery determined in Step 2 for any hour in the Billing
Month; or (2) 70% of the highest hourly Adjusted Total
Demand at the Point of Delivery established during any hour
of the immediately preceding months of June, July, August or
September.
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Step 4: If the Billing Month for which a bill is being prepared
occurs in the Benchmark Year or any Contract Year prior to
the Benchmark Year, the total Kilowatts of Billing Demand
associated with MEMBER Base Supply for the current Billing
Month shall be the sum of the Kilowatts of Demand determined
in accordance with Steps 1-3 for all MEMBER Points of
Delivery. If the Billing Month for which a bill is being
prepared occurs in any Contract Year after the Benchmark
Year, the Demand Charge for MEMBER Base Supply shall be
equal to the product of the Demand Rate shown below and the
lesser of (a) the sum of the Kilowatts of Demand determined
for the current Billing Month in accordance with Steps 1-3
for all MEMBER Points of Delivery or (b) the highest
Kilowatts of Demand established for all MEMBER Points of
Delivery determined in accordance with Steps 1-4 in any
Billing Month of the Benchmark Year plus any load billed to
MEMBER under Schedule A-3 of this Agreement in such Billing
Month.
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Step 5: If clause (b) of Step 4 is used to determine Demand Charges
for MEMBER Base Supply for the Billing Month and if
requested by MEMBER, SWECO will allocate the aggregate
Demand Charges to MEMBER so determined among MEMBER's Points
of Delivery in the proportion that Adjusted Total Demand at
a Point of Delivery bears to the sum of the Adjusted Total
Demands at all MEMBER's Points of Delivery.
1.4 DEMAND RATE
A.SCHEDULE OF DEMAND RATES
The Demand Rate shall be $5.99 per kilowatt from the Effective
Date through December 31, 1999.
The Demand Rate shall be $6.24 per kilowatt from January 1, 2000
through December 31, 2000.
The Demand Rate shall be $6.51 per kilowatt from January 1, 2001
through December 31, 2001.
The Demand Rate shall be $6.73 per kilowatt from January 1, 2002
through December 31, 2002.
The Demand Rate shall be $6.93 per kilowatt from January 1, 2003
through December 31, 2003.
The Demand Rate shall be $7.31 per kilowatt from January 1, 2004
through December 31, 2004.
The Demand Rate shall be $7.51 per kilowatt from January 1, 2005
through December 31, 2005.
The Demand Rate shall be $7.71 per kilowatt from January 1, 2006
through December 31, 2006.
The Demand Rate shall be $7.92 per kilowatt from January 1, 2007
through December 31, 2007.
The Demand Rate shall be $8.12 per kilowatt from January 1, 2008
through December 31, 2008.
The Demand Rate shall be $8.55 per kilowatt from January 1, 2009
through December 31, 2009.
The Demand Rate shall be $8.75 per kilowatt from January 1, 2010
through December 31, 2010.
The Demand Rate shall be $8.94 per kilowatt from January 1, 2011
through December 31, 2011.
The Demand Rate shall be $8.74 per kilowatt from January 1, 2012
through December 31, 2012.
The Demand Rate shall be $8.66 per kilowatt from January 1, 2013
through December 31, 2013.
The Demand Rate shall be $8.82 per kilowatt from January 1, 2014
through December 31, 2014.
The Demand Rate shall be $8.72 per kilowatt from January 1, 2015
through December 31, 2015.
The Demand Rate shall be $8.59 per kilowatt from January 1, 2016
through December 31, 2016.
The Demand Rate shall be $8.46 per kilowatt from January 1, 2017
through December 31, 2017.
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The Demand Rate shall be $8.31 per kilowatt from January 1, 2018
through December 31, 2018.
The Demand Rate shall be $8.13 per kilowatt from January 1, 2019
through December 31, 2019.
The Demand Rate shall be $7.94 per kilowatt from January 1, 2020
through December 31, 2020.
The Demand Rate shall be $7.73 per kilowatt from January 1, 2021
through December 31, 2021.
The Demand Rate shall be $7.50 per kilowatt from January 1, 2022
through December 31, 2022.
The Demand Rate shall be $7.26 per kilowatt from January 1, 2023
until termination of the Agreement.
B. ADJUSTMENT TO DEMAND RATES.
The foregoing Demand Rates shall be subject to increase to account for
the cost of plant additions required to comply with new or changed legal
requirements first imposed after the Effective Date, including but not
limited to plant additions required to comply with:
a. environmental legislation or regulation enacted
or promulgated after the Effective Date, as
provided in Section 1.8 of this Schedule A, or
b. or occupational safety and health laws or
regulations enacted or promulgated after the
Effective Date,
but not for any penalties, fines costs or expenses imposed on SWECO as a
result of SWECO's noncompliance, breach or violation of any
environmental or occupational safety and health law or regulation or
other laws, rules, regulations or ordinances.
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C. COSTS COVERED BY STATED BASE RATES.
Except as provided otherwise in Section 1.3 of this Schedule A, the
Parties intend that the following costs shall be deemed to be recovered
by the Demand Rate (DR) and the Energy Rate (ER):
a. plant site coal handling operations and maintenance expenses;
b. reserve capacity (whether owned or purchased from third parties)
required to be provided by SWECO under this Agreement;
c. the initial planned heat rate upgrades to the plants acquired
from the Cajun estate;
d. any and all ad valorem taxes assessed on the capital improvements
referenced in Section 1.6(b)(iii)(C) that were identified prior
to MEMBER's execution of this Agreement, except such taxes on
rail cars included in such capital improvements.
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1.5 The Energy Charge shall be equal to the Energy Rate times the sum of the
kilowatt-hours metered at the MEMBER Points of Delivery that are
associated with the energy component of MEMBER Base Supply for the
Billing Month. The Energy Rate shall be $0.0033 per kilowatt-hour for
Contract Years 1 through 5 and shall be $0.003 per kilowatt-hour for
Contract Years 6 through 25. To determine the kilowatt-hours that are
associated with the Energy component of MEMBER Base Supply for the
Billing Month, SWECO shall perform the following calculations:
Step 1: SWECO shall separately determine for each MEMBER
Point of Delivery the total kilowatt-hours metered at such
Point of Delivery during the Billing Month plus the kilowatt
hours of energy delivered to serve Member Load from a
Qualifying Facility located behind such POD and subtract
from such total kilowatt-hours the kilowatt-hours associated
with (a) Extraordinary Load, (b) separately metered load
that is billed under Schedule A-3 of this Agreement and (c)
any Separately Metered Load of MEMBER. The net amount is
referred to below as Total Energy.
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Step 2: SWECO shall sum the kilowatt-hours of energy scheduled to
all MEMBER Points of Delivery during the Billing Month from
MEMBER Hydro Energy and from permitted Other Resources.
Step 3: SWECO shall adjust the amount determined in Step 2 to
take account of losses in delivery to the MEMBER's Points of
Delivery and shall allocate the adjusted amount to each
MEMBER Point of Delivery in the proportion the
kilowatt-hours metered at such Point of Delivery bears to
the sum of the kilowatt-hours metered at all MEMBER Points
of Delivery for the Billing Month.
Step 4: For each MEMBER Point of Delivery, SWECO shall subtract
the amount determined in Step 3 from the Total Energy
determined for such Point of Delivery in Step 1.
Step 5: If the Billing Month occurs in the Benchmark Year or a
Contract Year that precedes the Benchmark Year, the
kilowatt-hours associated with the energy component of
MEMBER Base Supply for the Billing Month shall be the amount
(in kilowatt-hours) determined in Step 4. If the Billing
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Month occurs in a Contract Year after the Benchmark Year,
the kilowatt-hours associated with the energy component of
MEMBER Base Supply for the Billing Month shall be an amount
(in kilowatt-hours) equal to the lesser of (x) the amount
determined in Step 4 or (y) the Point of Delivery allocation
which is equal to: 1) the MEMBER Share of Project Capacity
Energy for all hours of the Billing Month; 2) plus any
Project Capacity Energy in excess of its MEMBER Share
provided to MEMBER in accordance with Section 1.21 of this
Agreement; and 3) for purposes of clause (y) above Project
Capacity Energy shall be allocated to the Point of Delivery
in the manner described in Step 3.
COMPETITIVE TERRITORY CREDITS
In any Billing Month in which Member qualifies for use of the funds
specified in Section 11.10 of this Agreement, the Member may elect to
receive a credit on its next monthly bill equal to the amount determined
in accordance with Section 11.10.
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1.6 The monthly Fuel Cost Charge (FCC) shall be equal to the Fuel Cost Rate
(FCR) times the monthly sum of the kilowatt-hours determined in Step 5
described in Section 1.5 of this Schedule A. The FCR shall be an amount
computed monthly in accordance with the following formula:
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FCR = F.C.-N.M.C.+E.P.+ R.P.C.-S.E.
KWH
Definitions:
F.C. = the total costs incurred in the Billing Month for
fuel consumed in Project Capacity generating plants
N.M.C.= the average fuel costs incurred in the Billing
Month associated with the use by SWECO of Project
Capacity generating plants to generate energy for
sale to purchasers that are not Group members after
deducting the fuel costs associated with sales
under the SMEPA Contract
E.P. = the costs incurred in the Billing Month for power
or energy purchased over a period of twelve months
or less where the total cost of the purchase is
less than SWECO's total avoided variable cost, and
where SWECO has available Project Capacity adequate
to generate the amount of energy that is purchased
R.P.C.= the cost of replacement power permitted by Section
8.5 of this Agreement to be passed through to
MEMBER
S.E. = the fuel costs incurred by SWECO in the Billing
Month to generate energy using the Project Capacity
generating plants to furnish Supplemental Supply or
to supply energy to serve loads billed pursuant to
Schedule A-3 to this Agreement or similar
agreements with other Group members
KWH = the sum for the Billing Month of the
kilowatt-hours determined in Step 5 described in
Section 1.5 of this Schedule A and in Schedule A to
all other agreements between SWECO and other Group
members for all Group Points of Delivery less the
kilowatt-hours of energy supplied in such Billing
Month to the Points of Delivery from Qualifying
Facilities
For purposes of the foregoing formula, the Parties agree that fuel costs
include (a) all costs that are properly chargeable to Account 501 of the
FERC's Uniform System of Accounts for Public Utilities and a reasonable
return on and return over ten years of, and all operating and
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maintenance expenses associated with, any capital investment made by
SWECO in fuel-related facilities that in advance of SWECO's commitment
of capital all members of the Group have agreed can be expected to
provide a net benefit to the Group and (b) any such capital related
costs associated with investments in fuel-related facilities identified
prior to the date of execution of this Agreement that by executing this
Agreement MEMBER agrees should be made.
Notwithstanding the foregoing sentence, however, the Parties further
agree that: (1) during any period in which the fuel-related facilities
identified prior to the date of execution of this Agreement are not used
to the benefit of the Group, and as a result MEMBER would experience
increased coal costs, the cost of such facilities will not be included
in fuel costs, but SWECO shall have the sole right of redress against
any third party arising from such circumstances; and (2) fuel costs
shall not include costs of compliance with laws and regulations in
effect on January 1, 1998 that limit emissions of sulfur dioxide.
The FCC for any Billing Month shall be estimated by applying the most
current previous Billing Month's actual FCR available. Any difference
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between the estimated FCC and the actual FCC shall be billed or credited
to the MEMBER on the first bill rendered after the actual FCR for such
Billing Month has been determined. The FCR shall be calculated to the
nearest $0.00001 and when applied the result will be rounded to the
nearest cent.
1.7 On the date of execution of this Agreement, MEMBER shall, in relation to
MEMBER Base Supply service, elect either to: (1) pay the FCC determined
in accordance with the FCR formula described in paragraph 1.6 above
beginning on the Effective Date; (2) to pay an adjusted FCC determined
in accordance with the FCR formula described in paragraph 1.6 above but
assuming that all coal-fired Project Capacity has a heat rate of 10,600
when determining the fuel costs associated with coal burned in such
coal-fired Project Capacity; or (3) to pay the fuel costs determined by
using the following fixed fuel factors for such service beginning on the
Effective Date and ending on December 31, 2008, unless in Contract Year
5 MEMBER elects to pay the FCC determined in accordance with clause (1)
or clause (2) for Contract Years 6 through 10.
CONTRACT YEAR FIXED FUEL FACTOR
1998-99 $ 0.01677
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2000 0.01638
2001 0.01582
2002 0.01539
2003 0.01505
2004 0.01424
2005 0.01387
2006 0.01352
2007 0.01316
2008 0.01282
Such election shall be made effective beginning on the Effective Date.
On or before the first day of June in Contract Years 5, 10, 15 and 20,
SWECO shall inform MEMBER of the fixed fuel factors that would apply to
billings for MEMBER Base Supply service provided in the five-year
periods beginning on the first day of Contract Years 6, 11, 16 and 21,
respectively. On or before the first day of September in Contract Years
5, 10, 15, and 20, MEMBER shall advise SWECO of MEMBER's election to pay
for fuel costs for the subsequent five-year period based on either: (a)
fixed fuel factors; or (b) a monthly FCR determined in accordance with
paragraph 1.6 above with reference to actual heat rates; or (c) a
monthly FCR determined in accordance with paragraph 1.6 above based on
an assumed heat rate for coal-fired Project Capacity of 10,600. In the
event MEMBER makes an initial election pursuant to this Section 1.7 to
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pay the fixed fuel factors listed above, MEMBER may not elect to pay for
fuel using the fixed fuel factors offered in Contract Year 5 for
application in the five Contract Years beginning with Contract Year 6.
1.8 OTHER CHARGES.
MEMBER and SWECO agree that the demand rates set forth in this Schedule
A reflect all ad valorem taxes that apply to the Project Capacity as of
January 1, 1998. MEMBER and SWECO further agree that none of the rates
described in this Schedule A makes provision for the potential effects
of new or additional sales, excise, or other applicable taxes (excluding
income taxes), fees and charges incurred in accordance with federal,
state or local law other than increases in ad valorem taxes associated
with assets purchased by SWECO from the Cajun estate resulting from the
change in ownership. For purposes of this Agreement, "new or additional
sales, excise or other applicable taxes and fees and charges" shall be
construed to mean any such taxes, fees and charges enacted after the
date hereof or that are increased after the date hereof for any reason
other than the nature or identity of the new owner of the Cajun assets.
Any expense incurred by SWECO as the result of the imposition of any
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such new or additional taxes shall be appropriately allocated to and
paid by MEMBER and other members of the Group.
1.9 ENVIRONMENTAL LEGISLATION.
Except as provided under Section 1.4 of this Schedule A, MEMBER and
SWECO agree that the rates contained in this Agreement make no provision
for the potential effects of new environmental control legislation or
the additional costs of providing electric service to MEMBER resulting
from any such legislation. Any such costs resulting from such
legislation shall be appropriately allocated to and paid by MEMBER.
1.10 RATE FUND CREDITS.
SWECO will establish an interest bearing Rate Fund to be used beginning
in Contract Year Six to ameliorate unanticipated fuel costs. SWECO shall
establish the Rate Fund by depositing $12,240,000 in an interest bearing
account on or before the last business day of Contract Year Six. No
later than the end of the first quarter of each of Contract Years Seven
through Twenty-five and the end of the first quarter of the calendar
year following Contract Year Twenty-five, SWECO will determine whether
the average cost of MEMBER Base Supply to the Group members that elected
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to pay the FCC determined in accordance with the FCR formula set forth
in Section 1.6 of this Schedule A exceeded 40 mills per kWh for the
immediately preceding Contract Year (taking into account the effect on
such average costs of Group Hydro deliveries to all such Group members).
The Rate Fund, including accumulated interest, will be used (to the
extent of remaining funds) to return to each Group member that elected
to pay the FCC determined in accordance with the FCR formula set forth
in Section 1.6 of this Schedule A an amount per kWh of MEMBER Base
Supply energy delivered by SWECO in the preceding Contract Year equal to
the amount charged all such Group members for MEMBER Base Supply service
that exceeded 40 mills/kWh on average (taking into account the effect on
such average costs of Group Hydro deliveries to such Group members). The
Rate Fund will be so applied to billings for Contract Year Six through
Twenty-five or until depleted if the Rate Fund is depleted before the
end of Contract Year Twenty-five. Any such credit to which MEMBER is
entitled in respect of Contract Years Seven through Twenty-five shall be
applied in equal dollar amounts to bills for the Billing Months of May
through August in the year in which such credit is determined. Any
credit relating to service during the last Contract Year shall be paid
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to MEMBER no later than April 30 of the following calendar year. Any
amounts remaining in the Rate Fund after application, if any, of the
Rate Fund to reduce amounts billed in Contract Year Twenty-five shall be
returned to SWECO for its sole use and benefit.
1.11 WHEELING CHARGE.
Each monthly bill to MEMBER shall reflect adjustments, charges, fees or
penalties relating to transmission and Ancillary Services charged SWECO
by a Transmission Supplier in connection with service to the MEMBER
Points of Delivery in accordance with Sections 5.2 and 8.2 of this
Agreement. Such Transmission Supplier costs shall be allocated to
individual MEMBER Points of Delivery in accordance with Section 5.2.
SWECO agrees to provide MEMBER information concerning any such charges,
fees or penalties imposed by a Transmission Supplier. Charges for
services provided to MEMBER under SWECO's Open Access Transmission
Tariff shall be billed to MEMBER separately.
1.12 FACILITIES CHARGE.
In addition to the other charges contemplated by this Schedule A MEMBER
shall also pay to SWECO each month a Facilities Charge determined in
accordance with Article VI of this Agreement.
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1.13 CREDIT FOR LOAD SERVED BY QUALIFYING FACILITY
SWECO shall provide any credits due MEMBER during the Billing Month for
capacity and energy provided to MEMBER by a qualifying Facility that
contracts directly with MEMBER in accordance with Section 8.6 of this
Agreement. Such credit shall be equal to the capacity and energy related
compensation SWECO would have been required by pay such Qualifying
Facility for such capacity and energy, in accordance with the rules of
the LPSC, had such Qualifying Facility elected to require SWECO to
purchase its output.
1.14 ECONOMIC DEVELOPMENT RIDER CREDITS
SWECO shall credit MEMBER's bill each month for any credits available in
accordance with Schedule A-1 or A-2 of this Agreement.
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SCHEDULE A-1
ECONOMIC DEVELOPMENT RIDER
AVAILABILITY
This Rider is available to MEMBER in connection with the sale by SWECO
to MEMBER of wholesale electricity pursuant to this Agreement to the extent used
by MEMBER to serve any retail customer (Customer) that meets the requirements of
this Rider. Otherwise, all provisions of this Agreement will apply to the
provision of power and energy to MEMBER needed to serve such Customer except as
modified herein. SWECO shall accept new applications for this Rider as long as
service to the new or additional load to which a new application relates would
not cause Group Load to exceed Project Capacity. SWECO reserves the right to
accept a new application for this Rider that would result in Group Load
exceeding Project Capacity if SWECO determines that so doing would be mutually
beneficial to SWECO and MEMBER.
To qualify for use of the Rider the Customer must meet all of the
following requirements:
1) The load of the Customer that qualifies for use of this Rider
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must be a new load of a new Customer of at least 300 kW or an
additional load of an existing Customer of at least 300 kW.
2) Businesses and industries eligible for service under this
Rider must fall within one of the following categories;
* Industries manufacturing a product for sale or resale;
* Regional warehousing and distributing facilities;
* Scientific and industrial research and development facilities;
* Corporate relocations to MEMBER's service area in which the
Corporation takes electric service in its own name;
* Petroleum and chemical refineries, pipeline pumping and pipeline
compressor loads;
* Process and storage industries;
* Agricultural-related industries;
* Mining industries;
* Any other category of industry which SWECO and MEMBER agree
should be eligible for electric service under this Rider; and
* Governmental agencies (including correctional institutions).
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3) Service under this Rider is available only if MEMBER has a
contract for electric service with a new Customer for a new load
that has an initial term of at least five years or a contract
for electric service with an existing customer (whose qualifying
load is an additional load) that has a remaining term of at
least five years and that in either case such contract requires
at least thirty (30) days advance notice to cancel after such
contract term has expired.
4) Prior to service being rendered under this Rider, MEMBER must
furnish SWECO a copy of MEMBER's contract with Customer and a
written statement from Customer confirming that this Rider was
an important contributing factor in Customer's decision to open
a new facility or expand an existing facility.
5) This Rider is not available to additional load from Customers
that have begun construction or installation of equipment prior
to the effective date of this Rider.
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6) Resumption of service to load that has been inactive 12 months
or more that meets the requirements of this Rider is eligible.
DEFINITION OF BASE PERIOD
The Base Period shall be the 12 months immediately preceding the month
that service is requested under this Rider, or as mutually agreed upon by the
SWECO and MEMBER.
DETERMINATION OF MONTHLY BASE DEMAND THRESHOLD
The Monthly Base Demand Threshold for an existing Customer that adds
load that is eligible for credit under this Rider shall be the kilowatts of
Metered Demand for the month of the Base Period that corresponds to the Billing
Month; provided, however, that the kilowatts of Billing Demand for any month of
the Base Period may be adjusted as mutually agreed upon by SWECO and MEMBER to
reflect the Customer's normalized load profile. The Monthly Base Demand
Threshold for a new Customer's new load shall be zero.
DETERMINATION OF ECONOMIC DEVELOPMENT DEMAND CREDIT
The credit for Economic Development Demand subject to the provisions of
this Rider shall be applied in each Billing Month in which the Customer's
metered demand above the Monthly Base Demand Threshold exceeds 300 kW. In any
month in which MEMBER qualifies for such credit, the credit shall be applied to
all demand above the Monthly Base Demand Threshold. The credit shall be applied
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to the coincident demand impact of the MEMBER's Customer's additional or new
load on MEMBER's Point of Delivery and such demand impact shall be subject to
verification by SWECO personnel.
ECONOMIC DEVELOPMENT DEMAND CHARGE CREDIT FACTORS DEMAND CREDIT
Year 1-First 12 monthly billing periods 50%
Year 2-Next 12 monthly billing periods 40%
Year 3-Next 12 monthly billing periods 30%
Year 4-Next 12 monthly billing periods 20%
Year 5-Next 12 monthly billing periods 10%
SPECIAL TERMS AND CONDITIONS
Customer load will be disqualified from this Rider if the Kilowatts of
Billing Demand for 12 consecutive months is below the corresponding Monthly Base
Demand Threshold.
MEMBER shall be responsible for the costs of providing the necessary
metering and related telecommunications equipment and will send to SWECO by
facsimile or other electronic transfer hourly load data required for billing
purposes no later than the third business day following the end of the Billing
Month to which such data relate.
SWECO and MEMBER will develop standard coincidence factors and load
profiles in lieu of real-time load data for given load categories to apply to
loads ranging from 300 kW to 1000 kW. For loads served under this Schedule A-1
that exceed 1000 kW, MEMBER shall furnish real-time metering at the retail
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customer's premises and related telecommunications equipment that will be
adequate to assure to SWECO its reliable real-time access to metered measurement
of the Customer's hourly use of electricity.
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SCHEDULE A-2
ECONOMIC DEVELOPMENT CREDITS RIDER
AVAILABILITY
This rider is available to MEMBER in connection with sales by SWECO to
Member of wholesale electricity pursuant to this Agreement when such electricity
is used by MEMBER to serve any retail customer under purchase incentive
arrangements by which MEMBER offers to the retail customer qualifying credits to
encourage economic development.
QUALIFICATIONS
Subject to the conditions set forth below, SWECO will match any energy
credits given by MEMBER for new loads or additions to existing loads of at least
100 kW and that increase employment by at least 26 permanent full-time jobs or
the equivalent number of full-time and part-time jobs.. SWECO will make such
credits available to MEMBER if it has contracted with an all-requirements
customer to add a new or expanded load of at least 100 kW, and the customer's
new or additional load is 100 kW or more in at least 8 months out of 12, and the
customer maintains increased employment of at least 26 full-time permanent jobs.
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The energy credit shall be provided only for the months in which the customer's
new or expanded load is equal to or greater than 100 kW.
APPLICATION AND TERM OF ENERGY CREDIT
For qualifying loads, SWECO will match energy credits given by MEMBER up
to $0.00126/kWh. For new loads, the energy credit will be applied to the total
amount of energy supplied. For qualifying existing customers, the energy credit
will be applied to energy sales in excess of the energy sales in the
corresponding month of the base year, where the base year is defined to be the
twelve calendar months immediately preceding application for service under this
Rider. The matching energy credit will be applied to all qualifying loads for a
period of up to 5 years for up to 10,000,000 kWh annually per customer.
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SCHEDULE A-3
RATES AND CHARGES FOR EXISTING INCENTIVE LOAD CUSTOMERS
A. Experimental Economic Development Service (EEDS) - Existing
1.1 EEDS Rate - Subject to the election of Member, SWECO shall
charge the EEDS rates set forth in this section to MEMBER for
MEMBER'S customers which qualified under Cajun's EEDS rate as of
the Effective Date of this Agreement and which do not receive
any other special rates.
1.2 Existing EEDS Customers
The Members of the Group with existing EEDS customers are listed
below:
Member EEDS Customer Beginning Termination
Cooperative Customer Number Date Date
- -------------------------------------------------------------
Beauregard Union BEC00000 7/97 6/04
Resources
Beauregard Southern BEC00000 3/96 2/04
Wood
Claiborne ConAgra CLA00000 5/92 4/00
Claiborne Wilamette CLA00000 4/96 3/04
Claiborne Wilamette 8DC00000 10/98 9/06
Jeff Davis Shell 0DC00000 12/90 11/98
Jeff Davis Nottie JDC00000 3/98 ?/05
Jeff Davis Global JDC00000 4/98 3/05
Northeast Midvalley NEL00000 8/90 7/98
SLECA La. SLE00000 5/92 2/00
Interstate
Gas
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SLECA Global Plus SLE00000 1/92 12/98
SLECA Weatherford SLE00000 2/93 1/00
SLEMCO Liberty Rice SLM00000 5/95 4/02
1.3 Demand Charge - The demand rate for service to EEDS customers will depend on
the number of years the EEDS customer has been receiving service under this
Schedule A-3 or the previous Cajun EEDS rate as shown above.
Demand Rate for
YEAR OF EXISTING EEDS CUSTOMER CONTRACT
(Dollars Per KW Month)
--------------- ---------------------------------- -------------
Year 8 and
Years Year 5 Year 6 Year 7 Thereafter
--------------- ---------------------------------- -------------
Above 69 kV $4.00 $5.00 $6.00 $7.00 Demand
Charge as
Specified
in Schedule A
At 69 kV $4.25 $5.25 $6.25 $7.25
Below 69 kV $4.50 $5.50 $6.50 $7.50
The EEDS demand rate will be applied at each Point of Delivery which services
one or more EEDS customers as follows: In the months of June, July, August, and
September, for each EEDS customer the applicable EEDS demand rate will be
applied to the higher of (1) 1,000 kW or (2) the EEDS customer's contribution to
the Maximum Point of Delivery Demand during the hours of 1:00 p.m. to 9:00 p.m.
Central Time in such Billing Month.
In all other months, for each EEDS customer the applicable EEDS demand rate
will be applied to 80% of the average of the kW's for which the EEDS customer
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was billed during each of the most recent June, July, August, and September.
1.4 Energy Charge - The energy charge per kWh for existing EEDS
customer contracts will be as shown below.
Existing EEDS Contract Year 1 Year78 and Thereafter
-------------------------------------------------------------
$.006 Energy Charge Specified in
Schedule A
1.5 Fuel Charge - The fuel charge per kWh for existing EEDS customer contracts
shall be as shown below.
Existing EEDS Contract Year 1-7 Year 8 and Thereafter
-------------------------------------------------------------
$.016 Fuel Cost as Determined Under
Schedule A
1.6 Other Charges - During the existing term of the contract for the EEDS
customer, no other charges will be included in calculating the delivered cost to
the EEDS customer. All other charges specified in Schedule A of this Agreement
will apply for year 8 and afterwards.
1.7 Other Provisions - SWECO shall not be obligated to provide special rates to
the EEDS customers served under this Schedule A-3 upon the termination, at the
end of the seventh year, of the existing EEDS customer contract.
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B. Large Power Incentive Service (LPI) - Existing
1.1 LPI Rate - Subject to the election of MEMBER, SWECO shall
charge the LPI rates set forth in this section to MEMBER for
MEMBER'S customers which qualified under Cajun's LPI rate as of
the Effective Date of this Agreement and which do not receive
any other special rates.
1.2 LPI Existing Customers
The Members of the Group with existing LPI customers are shown
below.
MEMBER COOPERATIVE LPI CUSTOMER CUSTOMER NUMBER
--------------------------------------------------------------
Claiborne Lamamco Drilling LCLA000005
SLECA McDermotte W LSLE000001
SLECA McDermotte E LSLE000008
1.3 Application - The LPI rate applies only to wholesale power and energy that
will be resold to individual "all-requirements" customers which has contracted
with MEMBER at the Effective Date of this Agreement for a load equal to or
greater than 5,000 kW and whose actual load is 5,000 kW or more in at least
eight (8) months out of twelve (12). The LPI rate will be implemented only in
those months in which the LPI customer load is equal to or greater than 5,000
kW.
1.4 Demand Charge - The monthly demand rate for LPI customers will be equal
to the demand rate as shown below.
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$7.80 per kilowatt (kW) of billing demand for power delivered above 69 kV.
$8.25 per kilowatt (kW) of billing demand for power delivered at 69 kV.
$8.95 per kilowatt (kW) of billing demand for power delivered below 69 kV.
The billing demand at each Point of Delivery shall be the following:
1. During the billing months of June, July, August, and
September, the kilowatts consumed during Maximum Point of
Delivery Demand during the hours of 1:00 p.m. and 9:00
p.m. Central Time; and
2. For all other months, eighty percent (80%) of the average of the most
recent June, July, August, and September billing demands.
1.5 Energy Charge - The energy charge will be $.006 per kilowatt-hour (kWh).
1.6 Fuel Charge - The fuel charge will be $.016 per kilowatt-hour (kWh).
1.7 Other Charges - While this section is available for LPI customers, no other
charges will be included in calculating the delivered cost to the customer. All
other charges specified in Schedule A of this Agreement will be assessed after
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the expiration date provided for in Section 1.8 below.
1.8 Other Provisions - SWECO shall provide special rates to the LPI customers
served under this Schedule A-3 through 12/31/1999 and thereafter on a year to
year basis at SWECO's discretion. SWECO shall provide not less than one year
written notice of termination of LPI service to MEMBER.
C. Jobs Creation Incentive Credit (JCIC) - Existing
1.1 JCIC Rate - Subject to the election of MEMBER, SWECO shall charge
the JCIC rates set forth in this section to MEMBER for MEMBER'S customers which
qualified under Cajun's JCIC rate as of the Effective Date of this Agreement and
which do not receive any other special rates.
1.2 Availability - The JCIC rate is available to the Members of the Group which
had customers enrolled under the Cajun JCIC rider as of the Effective Date of
the Agreement. SWECO will provide a credit as noted in the table below for the
amount of energy supplied to each respective JCIC customer contracting with
MEMBER. The JCIC credit is subject to MEMBER offering energy credits equal to
the JCIC credit to the JCIC customer.
The Members of the Group, their JCIC customers and the amount of the JCIC credit
are listed below.
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Member Customer Start Termination Credit Amt
Cooperative Customer Number Date Date (4/kWh)
- -------------------------------------------------------------------------------
Claiborne McDonalds JCLA000002 9/93 8/99 .00126
Claiborne Temple Island JCLA000003 8/95 7/01 .00126
Claiborne ConAgra JCLA000001 3/92 2/98 .00126
Claiborne McDonalds #2 JCLA000004 11/96 10/99 .00126
Dixie Winn Dixie JCIX000002 11/93 10/99 .00426
Dixie KMART JCIX000003 4/95 3/01 .00426
Dixie Cal-Maine JCIX000001 8/92 7/98 .00126
SLECA Rainbow JSLE000017 1/95 12/00 .00126
SLECA Oil & Gas JSLE000024 3/94 2/00 .00126
SLECA La Com Mtn JSLE000011 1/92 12/97 .00063
SLECA Ryans JSLE000013 5/92 4/98 .00126
SLECA Walmart JSLE000023 11/94 10/00 .00126
SLECA Surgery Center JSLE000031 5/96 4/92 .00126
SLECA Copelands JSLE000032 6/96 5/02 .00426
SLECA Chet Morrison JSLE000016 10/93 9/99 .00426
SLECA Tomahawk JSLE000026 9/96 8/02 .00126
SLECA Service Marine JSLE000030 6/96 5/02 .00426
Teche AM Oil Divers JTEC000006 10/95 9/01 .00126
Teche Chart Coastal JTEC000007 10/95 9/01 .00426
Teche Southern Magic JTEC000004 9/91 8/97 .00063
Valley Campti JVEM000004 1/92 12/97 .00063
Valley Trus Joint JVEM000005 1/93 12/98 .00126
Valley Timberland 6/92 5/98 .00126
1.3 Demand Charge - The monthly demand rate for JCIC customers will be equal to
the demand rate as shown below.
$7.80 per kilowatt (kW) of billing demand for power delivered above 69 kV.
$8.25 per kilowatt (kW) of billing demand for power delivered at 69 kV.
$8.95 per kilowatt (kW) of billing demand for power delivered below 69 kV.
The billing demand at each Point of Delivery shall be the following:
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1. During the billing months of June, July, August, and
September, the kilowatts consumed during Maximum Point of
Delivery Demand during the hours of 1:00 p.m. and 9:00
p.m. Central Time; and
2.For all other months, eighty percent (80%) of the average of the most
recent June, July, August, and September billing demands.
1.4 Energy Charge - The JCIC credit will be applied to the following energy
charges. For each delivery point, the energy charge before applying the JCIC
credit shall be the sum of energy charges billed under Blocks 1 and 2 as
described below.
Block 1: For an amount of energy delivered which is less than
or equal to the product of the delivery point actual
monthly peak demand and the factor 300 kWh/kW, the rate
shall be:
$.00998 per kWh delivered above 69 kV.
$.01058 per kWh delivered at 69 kV.
$.01183 per kWh delivered below 69 kV.
Block 2: For all energy delivered above the quantity specified in
Block 1, above, the rate shall be $.00936 per kWh delivered.
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1.5 Fuel Charge - The fuel charge will be $.016 per kilowatt-hour (kWh).
1.6 Other Charges - During the existing term of the contract for the JCIC
customer, no other charges will be included in calculating the delivered cost to
the JCIC customer. All other charges specified in Schedule A of this Agreement
will be assessed after the initial contract period.
1.7 Other Provisions - SWECO shall not be obligated to provide special rates to
the JCIC customers served under this Schedule A-3 upon the termination of the
existing JCIC customer contract.
D. Very Large Power Incentive (VLP) - Existing
1.1 VLP Rate - Subject to the election of MEMBER, SWECO shall charge the VLP
rates set forth in this section to MEMBER or MEMBER'S customers which qualified
under Cajun's VLP rate as of the Effective Date of this Agreement and which do
not receive any other special rates.
1.2 Availability - The VLP Rate only applies to wholesale power that will be
resold by the MEMBER to customers whose load is at least 10,000 kW and no more
than 100,000 kW. Additionally, service under this section is available only to
customer whose load factors are at least 50%. For a customer to receive
interruptible service under this section, SWECO must have supervisory control
over the customer's delivery point. If a customer contracts for interruptible
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power, a minimum interruptible load of 7,000 kW shall be required. THE ONLY
QUALIFIED CUSTOMER AS OF THE EFFECTIVE DATE OF THIS AGREEMENT IS MG INDUSTRIES,
WHICH IS A BEAUREGARD CUSTOMER.
1.3 Customer Charge - $500 per month
1.4 Demand Charge - The monthly demand charges are as follows:
Firm Service: $7.15 per kW of billing demand.
Interruptible Subject to 60 minutes notice: $5.50 per kW of
interruptible billing demand.
Interruptible Subject to 5 minutes notice: $2.50 per kW of interruptible
billing demand.
FIRM SERVICE
The firm billing demand shall be the actual kilowatts (kW) consumed by the
retail customer during the sixty (60) minutes of maximum use during the month
less the 5-minute and 60-minute interruptible billings demands, but shall be:
1. no less than 80% of the customer's contracted firm demand;
2. no less than 80% of the maximum firm billing demand in the preceding 11
months; and
3. no less than 10,000 kW minus the 5-minute and 60-minute interruptible billing
demands.
INTERRUPTIBLE
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For retail customers that contract for firm demand, the 5-minute and 60-minute
interruptible billing demands shall be equal to the respective 5-minute and
60-minute contract demands specified in the contract for service. For retail
customers that do not contract for firm demand all demand shall be subject to
interruption. In this case, the interruptible billing demand shall be determined
as follows: If the retail customer contracts only for 5-minute interruptible
demand or only for 60-minute interruptible demand, then the interruptible
billing demand shall be the highest of the actual kilowatts consumed by the
retail customer during the sixty (60) minutes of maximum use during the current
month or the previous eleven (11) months, but in no case shall be less than the
contract amount.
If the retail customer contracts for both 5-minute interruptible demand and
60-minute interruptible demand, the 60-minute interruptible demand shall be
equal to the contract 60-minute interruptible demand. The 5-minute interruptible
demand shall be the highest of the actual kilowatts consumed by the retail
customer during the sixty (60) minutes of maximum use during the current month
or the previous eleven (11) months less the 60-minute interruptible demand, but
in no case shall be less than the contract 5-minute interruptible demand.
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INTERRUPTION
Interruptions shall be requested by SWECO as it deems necessary for any
justifiable reason, including, but not limited to, maintaining service to firm
loads, maintaining service integrity in the area, or other situations when
reduction in load on the MEMBER system is required. In order to ensure
interruptibility of interruptible loads, SWECO will have supervisory control
over the breakers serving the customer's interruptible loads.
Loads with five-minute interruption notice will be notified of the need to
reduce the load by SWECO dispatchers. If the load is not reduced to the required
level within the time required, which can be as short as five minutes, SWECO
will interrupt the entire load. For loads with 60-minute notification, SWECO
dispatchers shall notify the retail customer and the MEMBER when possible, at
least one hour prior to the time at which the load reduction must take place.
SWECO shall also give notification of the firm demand which the customer can use
and the approximate length of the interruption. If the customer does not reduce
its load to the required demand level in the time required, the customer's
entire load will be interrupted.
Notwithstanding the above, at the time interruptible customer is notified of the
need to interrupt, the customer may request that service be continued through
SWECO's purchase of power on the market. If SWECO is able to provide such power,
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the full cost of obtaining such power, including opportunity costs, shall be
substituted for the fuel cost in the charge for that block of power. SWECO shall
make all reasonable efforts to comply with such request; however, the final
determination as to whether it is able to comply with such request will be at
SWECO's sole discretion. Upon return to normal system conditions, as determined
by SWECO dispatchers, customers previously notified of the interruption will be
notified of permissible restoration of full service. Interruptions initiated by
SWECO will be limited to a maximum of 50 hours per week and 600 hours per year.
Notwithstanding any of the above, in the event of a system emergency beyond the
control of SWECO and the MEMBER, service may be interrupted with less than the
required notice and for periods longer than those maximum listed above. SWECO
will make all efforts necessary to return service to normal as quickly as
possible.
1.5 Delivery Voltage Adjustment - An additional $.70 per kW per month
of billing demand (firm and interruptible) for delivery voltage below 69 kV.
1.6 Energy Charge - The energy charge will be $.006 per kWh.
1.7 Fuel Charge - The fuel charge will be $.016 per kilowatt-hour (kWh).
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1.8 Other Charges - During the existing term of the contract for the VLP
customer, no other charges will be included in calculating the delivered cost to
the VLP customer. All other charges specified in Schedule A of this Agreement
will be assessed after the initial contract period.
1.9 Other Provisions - SWECO shall not be obligated to provide special rates to
the VLP customers served under this Schedule A-3 upon the termination of the
existing VLP customer contract.
E. Cotton Gins - Existing
1.1 Cotton Gin Ratchet - Subject to the election of MEMBER, SWECO shall utilize
the ratchet provisions set forth in this section for MEMBER'S customers which
qualified under Cajun's Cotton Gin Rider as of the Effective Date of this
Agreement and which do not receive any other special rates.
1.2 Availability - This rider is available to all MEMBERS with cotton gins on
their systems, who properly executed the Implementation Agreement and
Application(s) while under the Cajun rider.
1.3 Qualifications - The operating season for the cotton gin will start after
August 31 in any Contract Year and will end no later than December 31 of such
Contract Year.
1.4 Determination of Billing Demand - All kW and kWh used by the cotton gin will
be billed according to the rates set forth in Schedule A. However, the kilowatts
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used by the cotton gin in September will not be utilized in the calculation of
the ratchet under Schedule A. The metered demand of the cotton gin at the time
of the Maximum Point of Delivery Demand for September shall be subtracted from
the September Maximum Point of Delivery Demand, with the result used as the
value for the Billing Month of September in the Schedule A calculation of the
ratchet. 1.5 Other Provisions - SWECO shall apply the ratchet provisions of this
section to MEMBERS with cotton gins served under this Schedule A-3 through
12/31/1999 and thereafter on a year to year basis at SWECO's discretion. SWECO
shall provide not less than one year written notice of termination of cotton gin
service to MEMBER.
F. Off-Peak Rider - Existing
1.1 Off-Peak Billing - Subject to the election of MEMBER, SWECO
shall make available the off-peak billing provisions of this section to
MEMBER for MEMBER'S off-peak customers existing as of the Effective Date of
this Agreement and which do not receive any other special rates.
1.2 Qualifications - Each qualifying off-peak load will be measured using
time-of-use metering and MEMBER shall be responsible for all costs of
owning, operating and maintaining necessary metering.
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1.3 Existing Off-Peak Customers - The list of customers is to be provided and
such list could result in some modification of Section F of this Schedule
A-3.
1.4 Demand Charge - The demand rate for service to off-peak customers under
this section shall be as follows: $7.80 per kilowatt (kW) of billing demand
for power delivered above 69 kV.
$8.25 per kilowatt (kW) of billing demand for power delivered at 69 kV.
$8.95 per kilowatt (kW) of billing demand for power delivered below 69 kV.
During any Billing Month, the demand rate will be applied to the Maximum
Point of Delivery Demand established between the hours of 1:00 p.m. to
9:00 p.m. Central Time. The demand charge will not be applied to kilowatts
of usage between the hours of 9:00 p.m. to 1:00 p.m. Central Time.
1.5 Other Charges - The off-peak customers will be charged for fuel, energy
charges and other applicable charges provided for under Schedule A of this
Agreement.
1.6 Other Provisions - SWECO shall not be obligated to provide special rates to
off-peak customers served under this Schedule A-3 after the initial term of
any existing agreements between the MEMBER and the off-peak customers.
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SCHEDULE B
RATES AND CHARGES FOR SUPPLEMENTAL SERVICE
1.1 For Supplemental Supply SWECO provides to MEMBER under this Agreement SWECO
shall bill MEMBER in any Billing Month a Demand Charge, an Energy Charge,
and a Supplemental Supply Fuel Cost Charge.
1.2 The Demand Charge for Supplemental Supply shall be equal to the Demand Rate
shown below times the Kilowatts of Demand associated with Supplemental
Supply.
1.3 To determine the Kilowatts of Demand associated with Supplemental Supply
provided to MEMBER during a Billing Month, SWECO shall perform the
following calculations:
Step 1: SWECO shall refer to the calculations performed under Schedule A to
this Agreement for the Billing Month and subtract from the amount
determined in accordance with clause (a) of Step 4 of Section 1.3
of such Schedule A the amount determined pursuant to clause (b) of
such Step 4.
Step 2: The Kilowatts of Billing Demand associated with Supplemental Supply
furnished by SWECO to MEMBER during the current Billing Month shall
be the higher of the following measures: (1) the Kilowatts of
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Demand determined in Step 1 of this Section 1.3 for the Billing
Month; or (2) 70% of the highest Kilowatts of Demand for
Supplemental Supply determined in accordance with such Step 1 for
any of the immediately preceding months of June, July, August or
September.
Step 3: If requested by MEMBER, the Demand Charges for Supplemental Supply
shall be allocated to each of MEMBER's Points of Delivery in the
same proportion that Demand Charges for MEMBER Base Supply are
allocated to each Point of Delivery pursuant to Step 5 described in
Section 1.3 of Schedule A to this Agreement.
1.4 DEMAND RATE
The Demand Rate shall be $5.99 per kilowatt from the Effective Date
through December 31, 1999.
The Demand Rate shall be $6.24 per kilowatt from January 1, 2000 through
December 31, 2000.
The Demand Rate shall be $6.51 per kilowatt from January 1, 2001 through
December 31, 2001.
The Demand Rate shall be $6.73 per kilowatt from January 1, 2002
through December 31, 2002.
The Demand Rate shall be $6.93 per kilowatt from January 1, 2003 through
December 31, 2003.
The Demand Rate shall be $7.31 per kilowatt from January 1, 2004 through
December 31, 2004.
The Demand Rate shall be $7.51 per kilowatt from January 1, 2005
through December 31, 2005.
The Demand Rate shall be $7.71 per kilowatt from January 1, 2006 through
December 31, 2006.
The Demand Rate shall be $7.92 per kilowatt from January 1, 2007 through
December 31, 2007.
The Demand Rate shall be $8.12 per kilowatt from January 1, 2008
through December 31, 2008.
The Demand Rate shall be $8.55 per kilowatt from January 1, 2009 through
December 31, 2009.
The Demand Rate shall be $8.75 per kilowatt from January 1, 2010 through
December 31, 2010.
The Demand Rate shall be $8.94 per kilowatt from January 1, 2011
through December 31, 2011.
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The Demand Rate shall be $8.74 per kilowatt from January 1, 2012
through December 31, 2012.
The Demand Rate shall be $8.66 per kilowatt from January 1, 2013 through
December 31, 2013.
The Demand Rate shall be $8.82 per kilowatt from January 1, 2014 through
December 31, 2014.
The Demand Rate shall be $8.72 per kilowatt from January 1, 2015 through
December 31, 2015.
The Demand Rate shall be $8.59 per kilowatt from January 1, 2016 through
December 31, 2016.
The Demand Rate shall be $8.46 per kilowatt from January 1, 2017 through
December 31, 2017.
The Demand Rate shall be $8.31 per kilowatt from January 1, 2018 through
December 31, 2018.
The Demand Rate shall be $8.13 per kilowatt from January 1, 2019 through
December 31, 2019.
The Demand Rate shall be $7.94 per kilowatt from January 1, 2020 through
December 31, 2020.
The Demand Rate shall be $7.73 per kilowatt from January 1, 2021 through
December 31, 2021.
The Demand Rate shall be $7.50 per kilowatt from January 1, 2022 through
December 31, 2022.
The Demand Rate shall be $7.26 per kilowatt from January 1, 2023 until
termination of the Agreement.
The foregoing demand rates shall be subject to increase to account for the
cost of: 1) the foregoing demand rates shall be subject to increase to
account for the cost of plant additions required to comply with new or
changed legal requirements first imposed after the Effective Date,
including but not limited to plant additions required to comply with: a)
environmental legislation or regulation enacted or promulgated after the
Effective Date, as provided in Section 1.8 of this Schedule A, or b)
occupational safety and health laws or regulations enacted or promulgated
after the Effective Date, but not for any penalties, fines, costs or
expenses imposed on SWECO as a result of SWECO's noncompliance, breach or
violation of any environmental or occupational safety and health law or
regulation or other laws, rules, regulations or ordinances; 2) additional
capacity constructed or purchased by SWECO to provide Supplemental Supply
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to serve Group Load that exceeds $400 per kW of installed or purchased
capacity (such cost to include the cost of transmission to the boundary of
a Transmission Supplier). The demand rate adjustments made to reflect the
cost of such additional capacity shall be made as set forth in the notice
given MEMBER pursuant to Section 2.3 of this Agreement.
1.5 The monthly Energy Charge shall be equal to the Energy Rate times the sum
of the Supplemental Supply kilowatt-hours provided to MEMBER during the
Billing Month determined separately for each MEMBER Point of Delivery. The
Supplemental Supply kilowatt-hours for a Point of Delivery shall be the
difference between the amount determined for such Point of Delivery by
applying Step 4 under Section 1.5 of Schedule A and the amount determined
for such Point of Delivery by applying Step 5 of Section 1.5 of Schedule A.
The Energy Rate shall be $0.003 per kilowatt-hour.
1.6 The monthly Supplemental Supply Fuel Cost Charge (SSFCC) shall be equal to
the Supplemental Supply Fuel Cost Rate (SSFCR) times the sum for the
Billing Month of the kilowatt-hours of Supplemental Supply determined in
accordance with Section 1.5 of this Schedule B. The SSFCR shall be an
amount computed monthly in accordance with the following formula to reflect
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the fuel and purchased power cost incurred by SWECO in the Billing Month to
provide Supplemental Supply to Group Load:
SSFCR = F.C. + P.P.C. + E.P. - N.M.C.
KWH
Definitions:
F.C. = the costs incurred in the Billing Month for fuel consumed
in generating plants that are used to provide Supplemental
Supply to Group members
P.P.C. = the costs incurred in the Billing Month for purchased
power (excluding identifiable capacity charges) required
to provide Supplemental Service to Group Load that is not
Economic Power (E.P.)
E.P. = the costs incurred in the Billing Month for power and
energy purchased over a period of twelve months or less
where the total cost of the purchase is less than SWECO's
total avoided variable cost, and where SWECO has available
generating capability adequate to generate the amount of
energy that is purchased
N.M.C. = the fuel costs incurred in the Billing Month associated
with energy sales made to Non-Members from generating
units that are also used to provide Supplemental Supply
to Group members or to supply loads billed under Schedule
A-3 to this Agreement or similar agreements with other
Group members
KWH = the sum for the Billing Month of the kilowatt-hours
determined in paragraph 1.5 of this Schedule B and in all
other agreements between SWECO and other Group members for
all Group Points of Delivery less the kilowatt-hours of
energy supplied in such Billing Month to the Points of
Delivery from Qualifying Facilities.
For purposes of the foregoing formula, fuel costs shall include all costs
that are properly chargeable to Account 501 of the FERC's Uniform System of
Accounts for Public Utilities and a reasonable return on and return over
ten years of, and all operating and maintenance expenses associated with,
139
<PAGE>
any capital investment made by SWECO in fuel-related facilities that in
advance of SWECO's commitment of capital all members of the Group that
receive Supplemental Supply have agreed can be expected to provide a net
benefit to such Group members and any cost of operating or maintaining such
capital investment. The current billing month's SSFCC shall be estimated by
applying the most current previous month's actual SSFCR available. Any
difference between the estimated SSFCC and the actual SSFCC shall be billed
or credited to the MEMBER on the first bill rendered after the actual SSFCR
for such preceding Billing Month has been determined. The SSFCR shall be
calculated to the nearest $0.00001 and when applied the result will be
rounded to the nearest cent.
1.6 OTHER CHARGES.
MEMBER and SWECO agree that the demand rates set forth in this Schedule B
reflect all ad valorem taxes that apply to the Project Capacity as of
January 1, 1998. MEMBER and SWECO further agree that none of the rates
described in this Schedule B makes provision for the potential effects of
new or additional sales, excise, and other applicable taxes (excluding
income taxes), fees and charges incurred in accordance with federal, state
or local law other than increases in ad valorem taxes associated with
140
<PAGE>
assets purchased by SWECO from the Cajun estate resulting from the change
in ownership. Any expense incurred by SWECO as the result of the imposition
of any such new or additional taxes shall be appropriately allocated to and
paid by MEMBER and other members of the Group.
1.7 ENVIRONMENTAL LEGISLATION.
Except as provided under Section 1.4 of this Schedule B, MEMBER and SWECO
agree that the rates for Supplemental Supply contained in this Agreement
make no provision for the potential effects of new environmental control
legislation or the additional costs of providing electric service to MEMBER
resulting from any such legislation. Any such costs resulting from such
legislation shall be appropriately allocated to and paid by MEMBER.
1.8 WHEELING CHARGE.
Each monthly bill to MEMBER shall reflect adjustments, charges, fees or
penalties relating to transmission and Ancillary Services charged SWECO by
a Transmission Supplier in connection with service to the MEMBER Points of
Delivery in accordance with Sections 5.2 and 8.2 of this Agreement. Such
Transmission Supplier costs shall be allocated to individual MEMBER Points
of Delivery in accordance with Section 5.2. SWECO agrees to provide MEMBER
141
<PAGE>
information concerning any such charges, fees or penalties imposed by a
Transmission Supplier. Charges for services provided to MEMBER under
SWECO's Open Access Transmission Tariff shall be billed to MEMBER
separately.
142
<PAGE>
SCHEDULE C
SOUTHWESTERN ELECTRIC WHOLESALE COMPANY
MEMBER HYDRO ALLOCATION
Member Load Member Member
HYDRO DEMAND ALLOCATION 1996 kW* Share** Hydro
Beauregard Electric Cooperative, Inc. 1,391,749 0.0907 8,290
Claiborne Electric Cooperative, Inc. 915,356 0.0596 5,447
Concordia Electric Cooperative, Inc. 344,869 0.0225 2,057
Dixie Electric Membership Corporation 3,185,301 0.2075 18,966
Jefferson Davis Electric Cooperative, Inc. 421,085 0.0274 2,504
Northeast Louisiana Power Cooperative, Inc. 541,846 0.0353 3,226
Pointe Coupee Electric Membership Corporation 430,729 0.0281 2,568
South Louisiana Electric Cooperative Association 942,164 0.0614 5,612
Southwest Louisiana Electric Membership
Corporation 3,810,506 0.2483 22,695
Teche Electric Cooperative, Inc. 434,706 0.0283 2,587
Valley Electric Membership Corporation 1,199,480 0.0781 7,138
Washington - St. Tammany Electric
Cooperative, Inc. 1,731,466 0.1128 10,310
--------------------------
ALL COOPERATIVES 15,349,257 1.0000 91,400
===========================
Group Load 15,349,257
Group Hydro 91,400
* January - December 1996 Actual Data
** At the time of the hydro allocation.
143
<PAGE>
WORK IN PROCESS 718197
SCHEDULE D
SPECIFIC FACILITIES AT POINTS OF DELIVERY
BEAUREGARD ELECTRIC COOPERATIVE, INC.
<TABLE>
<CAPTION>
Assigned Annual Initial Annual Additional
Delivery Initial Facilities Additional Facilities
NAME/LOCATION POINT NUMBER VOLTAGE INVESTMENT CHARGE INVESTMENT CHARGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sugartown 1014 34.5 $ - $ - $ - $ -
Moss Bluff 1022 69 1,523,565 319,949 - -
Merryvilie 1034 34.5 - - - -
Oakdale 1044 13.2 - - - -
Sulpher 1052 69 127,015 26,673 - -
DeRidder West 1054 13.2 4,533 952 - -
Serpent 1062 69 68,200 14,322 - -
Oberlin 1074 13.2 - - - -
Anacoco 1084 13.2 - - - -
Elizabeth 1094 34.5 - - - -
Sugartown East 1114 34.5 - - - -
DeRidder 69 Bulk 1124 69 1,415,935 297,346 - -
New Llano 1134 69 - - - -
Dequincy 69 1144 69 17,884 3,756 - -
MGI EEDS* 4,271 897 - -
Shell Pipeline EEDS* 7,711 1,619 - -
---------------------------------------------------
Total $ 3,169,114 $ 665,514 $ - $ -
===================================================
*Specific facilities behind a point of delivery.
</TABLE>
144
<PAGE>
WORK IN PROCESS 7/8/97
SCHEDULE D
SPECIFIC FACILITIES AT POINTS OF DELIVERY
CLAIBORNE ELECTRIC COOPERATIVE, INC.
<TABLE>
<CAPTION>
Assigned Annual Initial Annual Additional
Delivery Initial Facilities Additional Facilities
NAME/LOCATION POINT NUMBER VOLTAGE INVESTMENT CHARGE INVESTMENT CHARGE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Farmervilie 3023 34.5 $ - $ - $ - $ -
Shongaloo 3043 13.8 - - - -
Dubberly 3053 13.8 - - - -
Bernice 3063 34.5 - - - -
Grambling 3073 13.8 - - - -
Point 3083 34.5 - - - -
Cross Roads 3093 34.5 - - - -
Pine Hill 3113 34.5 - - - -
Marion Bulk 3123 115 224,887 47,226 - -
Mount Union 3133 34.5 - - - -
Minden Bulk 3143 69 900,931 189,196 - -
Ruston East 3153 115 485,747 102,007 - -
Trussell's Crossing 3173 115 - - - -
Williamette Industries EEDS* 5,424 1,139 - -
Conagra EEDS* 6,950 1,460 - -
Mandeville EEDS* 19,268 4,046 - -
----------------------------------------------
Total $ 1,643,207 $ 345,074 $ - $ -
===============================================
*Specific facilities behind a point of delivery.
</TABLE>
145
<PAGE>
WORK IN PROCESS 7/8/97
SCHEDULE D
SPECIFIC FACILITIES AT POINTS OF DELIVERY
DIXIE ELECTRIC MEMBERSHIP CORPORATION
<TABLE>
<CAPTION>
Assigned Annual Initial Annual Additional
Delivery Initial Facilities Additional Facilities
NAME/LOCATION POINT NUMBER VOLTAGE INVESTMENT CHARGE INVESTMENT CHARGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Zachary 5012 69 $ - $ - $ - $ -
Clinton 5022 69 5,976 1,255 - -
French Settlement 5023 230 388,374 81,559 - -
Elm Park 5032 69 4,999 1,050 - -
Flannery Road 5042 69 7,927 1,665 - -
Terrell Road 5052 69 398,964 83,782 - -
Coly 69 5062 69 11,432 2,401 - -
Vignes 5072 69 - - - -
Darlington* - - - -
Dyer* 3,484 732 - -
Greenwell* 3,484 732 - -
Indian Mound* 3,484 732 - -
Wallcrossing* 3,484 732 - -
Fancy Point* 15,230 3,198 - -
---------------------------------------------------
Total $ 846,838 $ 177,838 $ - $ -
====================================================
* These appear to be points which are no longer served but have investment.
</TABLE>
146
<PAGE>
WORK IN PROCESS 7/8/97
SCHEDULE D
SPECIFIC FACILITIES AT POINTS OF DELIVERY
JEFFERSON DAVIS ELECTRIC COOPERATIVE, INC.
<TABLE>
<CAPTION>
Assigned Annual Initial Annual Additional
Delivery Initial Facilities Additional Facilities
NAME/LOCATION POINT NUMBER VOLTAGE INVESTMENT CHARGE INVESTMENT CHARGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Compton 6032 69 $ 5,684 $ 1,194 $ - $ -
Holly 6052 69 5,684 1,194 - -
Klondike 6072 69 5,671 1,191 - -
Robbie 6082 69 7,895 1,658 - -
Chalkley 6092 69 2,472,509 519,227 - -
Potter 6102 69 109,225 22,937 - -
Derouen 6112 69 81,545 17,124 - -
Tupper 6122 69 78,428 16,470 - -
Creole* 1,154,131 242,368 - -
Andruscove* 1,114 234 - -
Transmission Line Connecting - - - -
Chalkley and Creole 580,226 121,847 - -
---------------------------------------------------
Total $ 4,502,112 $ 945,444 $ - $ -
===================================================
* These appear to be points which are no longer served but have investment.
</TABLE>
147
<PAGE>
WORK IN PROCESS 7/8/97
SCHEDULE D
SPECIFIC FACILITIES AT POINTS OF DELIVERY
NORTHEAST LOUISIANA POWER COOPERATIVE, INC.
<TABLE>
<CAPTION>
Assigned Annual Initial Annual Additional
Delivery Initial Facilities Additional Facilities
NAME/LOCATION POINT NUMBER VOLTAGE INVESTMENT CHARGE INVESTMENT CHARGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Delhi 7013 13.2 $ 11,214 $ 2,361 $ - $ -
Oak Grove 7033 13.2 - - - -
Lone Cedar 7043 13.2 - - - -
Darnell 7053 13.2 - - - -
Crowville 7073 13.2 - - - -
Como 7083 34.5 - - - -
Chickasaw 7093 115 151,973 31,914 - -
Gilbert 7103 115 380,899 79,989 - -
Log Cabin 7113 115 542,894 114,008 - -
Archibald 7123 34.5 398 84 - -
Midvall EEDS* $ 7,936 1,667 - -
---------------------------------------------------
Total $ 1,095,341 $ 230,023 $ - $ -
===================================================
specific facilities behind a point of delivery.
</TABLE>
148
<PAGE>
WORK IN PROCESS 7/8/97
SCHEDULE D
SPECIFIC FACILITIES AT POINTS OF DELIVERY
SOUTH LOUISIANA ELECTRIC COOPERATIVE ASSOCIATION
<TABLE>
<CAPTION>
Assigned Annual Initial Annual Additional
Delivery Initial Facilities Additional Facilities
NAME/LOCATION POINT NUMBER VOLTAGE INVESTMENT CHARGE INVESTMENT CHARGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bayou Ramos Bulk 9014 138 $ 189,194 $ 39,731 $ - $ -
Gheens 9033 13.2 89,569 18,809 - -
Greenwood 9073 115 374,254 78,593 - -
Ashland 9093 115 523,578 109,951 - -
Landry 9103 115 1,301,700 273,357 - -
Bayou L'Ourse 9113 115 448,805 94,249 - -
Gemoeo EEDS* 1,111 233 - -
Lig EEDS* 4,590 964 - -
---------------------------------------------------
Total $ 2,932,801 $ 615,887 $ - $ -
===================================================
*Specific facilities behind a point of delivery.
</TABLE>
149
<PAGE>
WORK IN PROCESS 7/8/97
SCHEDULE D
SPECIFIC FACILITIES AT POINTS OF DELIVERY
VALLEY ELECTRIC MEMBERSHIP CORPORATION
<TABLE>
<CAPTION>
Assigned Annual Initial Annual Additional
Delivery Initial Facilities Additional Facilities
NAME/LOCATION POINT NUMBER VOLTAGE INVESTMENT CHARGE INVESTMENT CHARGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Campti 12013 34.5 $ - $ - $ - $ -
Colfax 12014 13.2 50,461 10,597 - -
Robson Road 12015 69 17,239 3,620 - -
Mansfield 12024 34.5 - - - -
Gahagan 12034 34.5 - - - -
Carroll 12044 34.5 - - - -
Grand Ecore 12073 34.5 - - - -
Creston 12074 34.5 - - - -
Verda 12083 13.2 - - - -
Derry 12084 34.5 - - - -
Cane River Bulk 12093 115 316,605 66,487 - -
Provencal 12103 115 135,660 28,489 - -
Powhatan 12104 34.5 - - - -
Kurthwood 12124 34.5 - - - -
Red Oak 12154 34.5 - - - -
East Leesville Bulk 12174 69 1,780,282 373,859
Many Bulk 12204 69 1,587,854 333,449 - -
--------------------------------------------------
Total $ 3,888,101 $ 816,501 $ - $ -
===================================================
</TABLE>
150
<PAGE>
WORK IN PROCESS 7/8/97
SCHEDULE D
SPECIFIC FACILITIES AT POINTS OF DELIVERY
WASHINGTON - ST. TAMMANY ELECTRIC COOPERATIVE, INC.
<TABLE>
<CAPTION>
Assigned Annual Initial Annual Additional
Delivery Initial Facilities Additional Facilities
NAME/LOCATION POINT NUMBER VOLTAGE INVESTMENT CHARGE INVESTMENT CHARGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Blond 13014 34.5 $ 5,976 $ 1,255 $ - $ -
Pine Cliff 13023 69 1,142,838 239,996 - -
Mandeville 13136 34.5 78,758 16,539 - -
Talisheek 13043 69 1,418,892 297,967 - -
French Branch 13083 69 1,821,078 382,426 - -
----------------------------------------------------
Total $ 4,467,542 $ 938,183 $ - $ -
=====================================================
</TABLE>
151
<PAGE>
WORK IN PROCESS 7/8/97
SCHEDULE D
SPECIFIC FACILITIES AT POINTS OF DELIVERY
SPECIFIC PER ABOVE $ 31,488,531
SPECIFIC ERROR (66,650)
SPECIFIC PER TOM $ 31,421,881
SPECIFIC $ 6,612,591
COMMON 345,450
CWIP 552,766
--------------
TOTAL $ 7,510,829
==============
INITIAL AMOUNT
SPECIFIC ERROR
TOTAL FACILITIES
CALCULATED CHARGE
TOTAL x 1.75% x 12
INITIAL CHARGE
FACTOR
152
<PAGE>
WORK IN PROCESS 7/8/97
SCHEDULE D
COMMON FACILITIES
<TABLE>
<CAPTION>
Member Annual Initial Addition Annual Additional
Member Load Member Assigned Facilities Common Common Facilities
1996 kW* Share** Common Charge Investment Charge
<S> <C> <C> <C> <C> <C> <C>
Beauregard Electric Cooperative, Inc. 1,391,749 0.0907 $ 149,202 $ 31,332 $ - $ -
Claiborne Electric Cooperative, Inc. 915,356 0.0596 98,042 20,589 - -
Concordia Electric Cooperative, Inc. 344,869 0.0225 37,013 7,773 - -
Dixie Electric Membership Corporation 3,185,301 0.2075 341,338 71,681 - -
Jefferson Davis Electric Cooperative, Inc. 241,085 0.0274 45,073 9,465 - -
Northeast Louisiana Power Cooperative, Inc. 541,846 0.0353 58,069 12,194 - -
Pointe Coupee Electric Membership Corporation 430,729 0.0281 46,225 9,707 - -
South Louisiana Electric Cooperative Association 942,164 0.0614 101,003 21,211 - -
Southwest Louisiana Electric Membership Corporation 3,810,506 0.2483 408,454 85,775 - -
Teche Electric Cooperative, Inc. 434,706 0.0283 46,554 9,776 - -
Valley Electric Membership Corporation 1,199,480 0.0781 128,475 26,980 - -
Washington - St. Tammany Electric Cooperative, Inc. 1,731,466 0.1128 185,556 38,967 - -
-----------------------------------------------------------------------
ALL COOPERATIVES 15,349,257 1.0000 $1,645,004 $ 345,450 $ - $ -
========================================================================
* January - December 1996 Actual Data
** At the time of the facilities allocation
</TABLE>
CONSTRUCTION WORK IN PROCESS FACILITIES
<TABLE>
<CAPTION>
Member Annual Initial Addition Annual Additional
Assigned Facilities CWIP CWIP Facilities
CWIP** Charge Investment Charge
<S> <C> <C> <C> <C>
Beauregard Electric Cooperative, Inc. $ 47,552 $ 9,986 $ - $ -
Claiborne Electric Cooperative, Inc. 1,035,305 217,414 - -
Concordia Electric Cooperative, Inc. - - - -
Dixie Electric Membership Corporation 1,304,479 273,941 - -
Jefferson Davis Electric Cooperative, Inc.
Northeast Louisiana Power Cooperative, Inc. 38,354 8,054 - -
Pointe Coupee Electric Membership Corporation 181,369 38,087 - -
South Louisiana Electric Cooperative Association 25,269 5,306 - -
Southwest Louisiana Electric Membership Corporation - - - -
Teche Electric Cooperative, Inc. - - - -
Valley Electric Membership Corporation - - - -
Washington - St. Tammany Electric Cooperative, Inc. -
-------------------------------------------------------
ALL COOPERATIVES $ 2,632,328 $552,788 $ - $ -
=======================================================
*** Specific by Cooperative
</TABLE>
153
<PAGE>
SCHEDULE E
DATA TO BE SUPPLIED WITH MONTHLY BILLING
TO ENABLE VERIFICATION
1.Point to Point Demand Allocation.
2.Point to Point Energy Allocation
3.Transmission Charge Summary-Grouped by Delivery Voltage
4.Facility Charge Summary-Initial and Additional Specific and Common
5.Separately Metered Load Summary-Customers Billed Under Schedule A-4
6.Monthly Fuel and Purchased Energy Cost Calculations
7.Summary Incentive Load Credits-Credits from Schedules A-1 and A-2
8.Detailed Billing for Each Point of Delivery
154
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE MIDDLE DISTRICT OF LOUISIANA
IN RE: CIVIL ACITON
NO. 94-2763-B2
CAJUN ELECTRIC POWER
COOPERATIVE, INC. BANKRUPTCY CASE
NO. 94-11474
Debtor.
Chapter 11
Federal Tax Id. No.: 72-0655799
ORDER AND JUDGEMENT APPROVING SETTLEMENT BY AND AMONG
CAJUN ELECTRIC POWER COOPERATIVE, INC., ENTERGY
GULF STATES, INC., ENTERGY CORPORATION, AND THE
RURAL UTILITIES SERVICE OF THE DEPARTMENT OF AGRICULTURE
This matter coming to be heard on the Motion (the "Motion") of Ralph R.
Mabey, Chapter 11 Trustee (the "Trustee") pursuant to Rule 9019 of the Federal
Rules of Bankruptcy Procedure to approve a settlement between Cajun Electric
Power Cooperative, Inc. ("Cajun"or the "Debtor") and Entergy Gulf States, Inc.
formerly known as Gulf States Utilities Company ("GSU"), in accordance with the
terms set forth in the Settlement Term Sheet, dated May 2, 1996, executed by the
Trustee, GSU, and Entergy Corporation ( "Entergy" ) and recommended for
adoption by the Rural Utilities Service of the United States Department of
Agriculture (the "RUS") ("Settlement Term Sheet," a copy of which is attached
hereto as Exhibit A), the Motion, and this order (the "Settlement");
Upon consideration of the Motion, due and proper notice having been
provided thereof to parties entitled thereto, and on the basis of the record of
this case, including the evidence presented at the hearing on the Motion to
approve the Settlement, the litigation involving the parties described in the
<PAGE>
Motion and attachments thereto (and the Court having taken judicial notice of
litigation pending before it), and the Court's oral Finding of Fact and
Conclusions of law on the record on August 26, 1996, which are incorporated
herein by reference and a transcript of which shall be filed by the Trustee as
soon as practicable, and pursuant to SUBSECTION 11 USC 105(a) and 363(b) and
Federal Rule of Bankruptcy Procedure Rule 9019(a);
The Court having considered all objections not withdrawn (the
"Objections") to approve the Settlement and to this Order and Judgement
(hereinafter, the "Order") ;
The Court is of the opinion that the Motion is meritorious; accordingly,
IT IS ORDERED, ADJUDGED AND DECREED THAT:
1. The relief requested in the Motion is granted.
2. The Settlement is approved.
3. All Objections are denied with prejudice.
4. The Settlement as approved includes, but is not, limited to:
a. A global settlement of all disputes between GSU and Cajun
which will result in a reciprocal dismissal with prejudice of all-claims and
counterclaims and a general release of any liability of any kind rising out of
<PAGE>
the transactions or occurrences upon which the presently litigated matters are
based;
b. A global settlement of all disputes between GSU and RUS which
will result in a dismissal with prejudice of all pending litigated matters in
which the RUS has intervened and a judgment in favor of RUS on GSU's
subordination complaint against the RUS;
c. A settlement of certain disputes between RUS and Cajun
including all matters related to the River Bend nuclear power facility ("River
Bend") including a release and waiver of all claims and causes of action,
whether known or uknown, by Cajun against RUS for equitable subordination, all
claims and causes of action by Cajun against RUS for "lender liability,"
alleging waiver of deficiency judgment rights under Louisiana 13:4108.1.
5. The Settlement as approved does not resolve claims between RUS and
Cajun not involving River Bend unless dealt with in the Settlement.
6. The terms and provisions of the Settlement which are intended to apply
prior to the closing of the Settlement (the"Consummation Date") shall be
binding, effective, and enforceable against each of the Trustee, GSU, Entergy
and the RUS as of the date hereof. The terms and provisions of the Settlement
which are intended to apply on and after the Consummation Date shall be binding,
effective and enforceable against each of the Trustee, GSU, Entergy and RUS as
of the Consummation Date.
<PAGE>
7. The Trustee is authorized to set aside in a decommissioning trust fund
or other appropriate vehicle the sum of $125,000,000 in 1995 dollars. When the
Trustee acts pursuant to this authorization, he shall transfer the funds in
Cajun's existing decommissioning trust fund and will use funds on hand to make
up the difference. The funds on hand used to make up the difference, which may
be funds subject to the Order Concerning Use of Cash Collateral to Substitute
Cajun's "1996 Budget" for all references in said Order to Cajun's "1995 Budget"
(Docket No. 1536), will be transferred free and clear of any lien, claim or
other interest asserted by any party. Moreover, the transfer of these funds
shall not result in a transfer of any party's lien on, claim against, or other
interest in these funds to other assets of Cajun or its estate, and shall not
create rights or claims in any party against any other party or against the
assets of Cajun or its estate. The transfer of these funds is a necessary and
proper expense of Cajun's estate, and no party shall thereafter assert any
rights, except as granted herein, relating to these funds including any claims
that the funds were cash collateral, were not property of the estate, were
subject to refund or repayment, were subject to actual or constructive trust, or
were subject to an equitable lien. This prohibition on the assertion of rights
is not a ruling on, and shall not preclude the assertion of, claims that other
funds not transferred into the decommissioning trust fund or other appropriate
vehicle are cash collateral, are not property of the estate, are subject to
refund or repayment, are subject to actual or
<PAGE>
constructive trust, or are subject to an equitable lien, except insofar as such
claims relate to or rely on the transfer of the funds into the decommissioning
trust fund or other appropriate vehicle. The funding of the trust fund, together
with the transfer of the Cajun River Bend Interest (the "Cajun River Bend
Interest" as that term is defined in the Term Sheet) will absolve Cajun, its
member cooperatives, and any successor to assets, other than the Cajun River
Bend Interest, now owned by Cajun (but not others who may succeed to the
ownership of the Cajun River Bend Interest) of all responsibility for River Bend
Decommissioning Costs (as that term is defined in the Term Sheet).
8. The Trustee is authorized without the necessity of any further order
or approval of this Court, to transfer all assets as provided in the Settlement,
including but not limited to the Cajun River Bend Interest, Cajun's interest in
River Bend fuel and spare parts (under the option provided for in the Term
Sheet), Tranmission lines 745 and 746 (provided, as required by the Term Sheet,
that Entergy's Network Service Tariff and its Transmission Service Tariff,
under which Cajun receives service, makes the continued ownership of the
Transmission Line or Lines by Cajun or the transferee of its generating assets
unnecessary for Cajun or its transferee's provision of current or future
services by reason of the benefits provided under the new tariffs), and any
other assets required by the Settlement, free and clear of any lien or other
interest asserted by any party.
<PAGE>
9. RUS is authorized to receive from GSU and Cajun Cajun's share of all
cash payments resulting from the litigation presently being conducted against
General Electric in connection with claims alleging River Bend design defects.
Cajun's share of all payments in kind and other non-cash consideration received
or promised as a result of the litigation shall be paid to the owner of the
Cajun River Bend Interest at the time such payments in kind or other non-cash
consideration become due. All of such transfers and payments shall be free and
clear of any lien or other interest asserted by any party.
10. The Trustee is authorized and directed, without the necessity of any
further order or approval of this Court, to take any and all actions necessary
or appropriate to implement, effectuate, and consummate the Settlement and any
transactions contemplated thereby or by this Order, including, without
limitation, the issuance, execution and delivery of any document, certificate,
agreement or instrument, the filing of any pleading, and the transfer or other
disposition of any assets. No action or approval of the Board of Directors of
Cajun shall be required with respect to the implementation and consummation of
the Settlement.
11. Without limiting the generality of the foregoing, between the date
hereof and until and including the Consummation Date:
a. the Trustee, and GSU, Entergy, and RUS, as necessary, shall
undertake any and all such actions as are necessary or
<PAGE>
appropriate to cause the Consummation Date to occur no later
than June 1, 1997;
b. the Trustee shall cause Cajun to cease prosecution of all of
its objections to any and all relief sought by GSU or Entergy,
or any of their affiliates, in any regulatory or
administrative proceeding in which approval of the merger of
Entergy and GSU is sought, including any related appellate
proceedings to the extent that Cajun's objection to such relief
is intended to be settled or resolved on or prior to the
Consummation Date in accordance with the terms of the
Settlement;
c. the Trustee, with the intervention of GSU, if required, shall
cause to be stayed all civil actions and regulatory and
administrative proceedings, other than proceedings which are
the subject of paragraph 9(b) of this Order, which are pending
between Cajun, on the one hand, and GSU or Entergy, on the
other hand, including any related appellate proceedings, and
which are intended to be settled or resolved on the
Consummation Date in accordance with the terms of the
Settlement;
d. the Trustee, and RUS, GSU, and Entergy, as necessary or
appropriate, shall undertake such actions as are necessary or
appropriate to cause the disposition of the Cajun River Bend
<PAGE>
Interest on the Consummation Date in the manner provided in
Section 1 of the Settlement Term Sheet, and will cooperate to
effect, at the option of RUS, the disposition of the Cajun
River Bend Interest before the Consummation Date subject to
consent of the parties and further court order as provided in
paragraph 13 below;
e. the Trustee and GSU, jointly or singly, shall undertake to
obtain all regulatory approvals reasonably considered to be
required to implement, consumate, and effectuate the Settlement
(the "Regulatory Approvals"); and
f. the Trustee, GSU, Entergy, and RUS shall undertake all such
other necessary or appropriate actions as are intended to occur
prior to the Consummation Date in accordance with the terms and
provisions of the Settlement Term Sheet.
12. As soon as practicable after the conditions precedent to the closing
of the Settlement, as contained in the Settlement Term Sheet, shall have been
satisified or waived by the affected party or parties, the Trustee, GSU, Entergy
and the RUS shall cause the closing of the Settlement to occur.
13. The preliminary injunction in the Service Water Litigation will be
continued in full force and effect until the Consummation Date, as set forth in
Section 3 (b) of the Settlement Term Sheet.
<PAGE>
14. If the Consummation Date has not occurred by the close of business on
June 1, 1997, the Trustee, GSU, Entergy and the RUS may by agreement continue to
undertake to implement, effectuate and consummate the Settlement. However, in
the absence of an agreement, any of the parties may move the Court to order the
extension of the Consummation Date upon hearing and finding that the Settlement
will likely be effectuated within a reasonable time upon the terms set forth in
the Settlement Term Sheet and that such extension is in the best interest of the
estate.
15. The Settlement may not be modified by any Plan of Reorganization in
this bankruptcy case except as may be agreed to by the Trustee, GSU and the RUS.
The terms of the Settlement shall be binding upon any successors to the parties
thereto, including, without limitation, any purchaser of Cajun or Cajun's
assets.
16. RUS is now authorized to seek a purchaser for the Cajun River Bend
Interest (as defined in the Motion and the Settlement Term Sheet). In the event
that a purchase offer that is acceptable to RUS is received prior to the closing
of the Settlement or to the receipt by the parties of all regulatory approvals
required by the Settlement, the Trustee, with the consent of RUS and GSU, may
submit a motion for early approval of the sale of the Cajun River Bend Interest
on terms that protect the interests of the parties to the Settlement under the
Settlement Term Sheet.
17. Each of the actions taken, documents executed, and payments and
transfers of assets made pursuant to provisions of the Settlement and Order
shall be valid, binding and enforceable and not preferential,fraudulent or an
<PAGE>
otherwise avoidable transfer under the Bankruptcy Code or under applicable law
of the United States or any state, province or other jurisdiction, and will, to
the fullest extent permitted by the Bankruptcy Code, vest in the transferee good
title to such property, free and clear of all liens, claims, and encumbrances,
except as otherwise provided in the Settlement, and shall not be subject to
modification in any Plan of Reorganization in this bankruptcy case, except as
agreed by the parties receiving the benefit under this Settlement.
18. The record of the hearing to approve the Settlement is closed.
19. This Order shall be effective according to its terms upon the entry
thereof.
20. This is a final order and immediately subject to appeal.
Baton Rouge, Louisiana, this 26TH day of AUGUST , 1996.
FRANK J. POLOZOLA
UNITED STATES DISTRICT JUDGE
David S.Rubin
Ralph R Mabry
Tom Phillips
Brian Jackson
Office of the U.S. Trustee
<PAGE>
EXHIBIT A
<PAGE>
SETTLEMENT TERM SHEET
WHEREAS Cajun Electric Power Cooperative, Inc.(Cajun)operating through
its Chapter 11 Trustee Ralph R. Mabey (Trustee), Rural Utilities Service of the
United States Department of Agriculture (RUS) and Gulf States Utilities (GSU)
desire to resolve longstanding disputes and disagreements respecting various
issues including operation and ownership of Cajun's undivided thirty per cent
interest in the River Bend nuclear facility (the Cajun River Bend Interest), the
Trustee and GSU desire to establish mutually favorable business relationships
and Trustee, RUS and GSU desire to arrange for the transfer of certain specified
assets, the Trustee, RUS and GSU agree to the terms and Provisions set forth
herein (the"Settlement"), recognizing that various of the components of these
terms and provisions may reqire approvals of regulatory agencies to complete and
may require more formal documentation to be executed at a closing of the
Settlement in order to give full effect to the intentions of the parties set
forth herein:
1. Disposition of River Bend
(a) On or before the closing of the Settlement, Cajun will set aside in a
decommissioning trust fund or other appropriate vehicle the sum of
$125,000,000 in 1995 dollars. This fund will be made up of Cajun's new
contribution, and the amount in Cajun's existing decommissioning trust
fund (the "Trust Fund"). The establishment of the Trust Fund, together
with the transfer of the Cajun River Bend Interest as provided herein
will absolve Cajun and any successor to assets, other than the Cajun
River Bend Interest, now owned by Cajun (but not others who may succeed
to the ownership of the Cajun River Bend Interest) of all
responsibility for River Bend Decommissioning Costs as defined below.
"Decommissioning" means al1 actions taken to render the River Bend
nuclear power plant permanently inactive, inoperable and free of
radioactive materials. The term decommissioning is intended to be
comprehensive and include, without limitation, the entombment,
decontamination, dismantlement, removal and disposal of structures,
systems and components of the River Bend nuclear power plant in order
to permanently cease the nuclear generation of electric energy,
including all actions necessary to bring the plant site to "greenfield"
status and any other item included in a study accepted and approved by
regulatory authorities of competent jurisdiction as a basis for the
termination of operations under the license to own or operate River
Bend. The term also includes preparation for decommissioning, such as
engineering and other planning activities, and all associated
<PAGE>
activities to be performed after the actual dismantlement occurs, such
as physical security and radiation monitoring. The term also includes
activities associated with spent fuel storage, disposal, transfer,
transportation and removal of low leve waste storage as well as Cajun's
future obligations with respect to decontamination and decommissioning
of DOE's uranium enrichment facilities. Also included is the
preparation of studies and supporting documentation required by
regulatory authorities.
The foregoing specification is not intended to form a basis for
excluding any action or cost-legitimately part of decommissioning and
returning the site to "greenfield" status because of the failure to
separately identify or to fall witin a category specifically
identified.
"Decommissioning Costs" means the funds expended to perform
Decomissioning. The term includes expenditures whether they are
treated as capital items or expense items for regulatory, financial,
or tax accounting purposes.
(b) The Trust Fund may be used only for the prudent expenditure of
Decommissioning Costs for the Cajun River Bend Interest. If, upon the
completion of Decommissioning of the River Bend plant, the Trust Fund,
and such additional amounts as have been added to it as a result of
the investment and management of funds included therein, is not
exhausted by the prudent expenditure of Decommisioning Costs for the
Cajun River Bend Interest, the remainder will be remitted to RUS.
(c) Upon the transfer of the Cajun River Bend Interest, Cajun shall
deliver title thereto free and clear of all liens and encumbrances
except those agreed to by the purchaser. In the event the Cajun River
Bend Interest is transferred to RUS, its liens and encumbrances on the
Cajun River Bend Interest shall be merged with the title which it
obtains. In the event the Cajun River Bend Interest is transferred to
any other person, RUS will release all of its liens and encumbrances
on the Cajun River Bend Interest. The foregoing releases by RUS shall
not be construed as a waiver or release of the portion of RUS's claim
against Cajun which remain unsatisfied by the transfers of title for
which provision is made herein. Notwithstanding RUS's release of
liens on the Cajun River Bend Interest or the merger of title if the
Cajun River Bend Interest is transferred to RUS, the amount of RUS's
claims against Cajun shall be reduced only to the extent of RUS's
receipt of proceeds from the sale of the Cajun River Bend Interest.
<PAGE>
If the Cajun River Bend Interest is transferred to GSU under paragraph
l(f) below, the amount of RUS's claims against Cajun shall not be
reduced on account of the transfer of the Cajun River Bend Interest.
The parties hereto agree that any disposition of the Cajun River Bend
Interest under the Settlement shall be considered commercially
reasonable.
(d) In the sole discretion of RUS, the Cajun River Bend Interest will be
transferred under one of the two options or subparagraph (f) set
forth below.
In connection with such transfers, Cajun will satisfy the obligation
to fund the Trust Fund required by paragraph l(a) and GSU will make
available to all prospective purchasers records, personnel and
facilities such that prospective purchasers can conduct an appropriate
due diligence evaluation before making their bid. GSU may subject the
examination of personnel, records and facilities to reasonable
confidentiality and business requirements. RUS shall have substantial
flexibility in exercising its discretion to arrange for the transfer
of the Cajun River Bend Interest. In furtherance of that end, RUS's
flexibility shall include, but shall not be limited to, negotiating
with and selecting a prospective purchaser, being permitted to
establish a reserve price which must be met before consummating a sale
at auction, not being required to accept the highest bid received at
an auction and taking title to the Cajun River Bend Interest itself
for subsequent reconveyance.
Option 1
The Cajun River Bend Interest and Cajun's interest in River Bend fuel
and spare parts will be sold, with net proceeds remitted to RUS. The
purchaser will become obligated to fully comply with the Cajun NRC
license requirements, all other applicable laws and regulations and
the provisions of the River Bend JOPOA, as amended in the respects
described in Exhibit No. 1, commencing with the date of the transfer
of the Cajun River Bend Interest. The Big Cajun No. 2, Coal Unit #3
JOPOA will also be similarly amended, as may be required. All of
Cajun's interest and obligations under the River Bend JOPOA, the NRC
license and any recorded documents of transfer between GSU and Cajun
relating to River Bend will be canceled and terminated as to Cajun
and, subject to the provisions in this paragraph, will be assumed by
the purchaser. As used herein, the obligations under the River Bend
JOPOA for which a successor shall be obligated shall be limited to
obligations for operations commencing with the c1osing of the
Settlement and for fuel and spare parts purchased only after the
<PAGE>
closing of the Settlement and shall not include unfulfilled or unpaid
obligations which Cajun incurred while it was still the owner. GSU
may elect to become a bidder if RUS elects to conduct an auction under
this option.
Option 2
The Cajun River Bend Interest and Cajun's interest in River Bend fuel
and spare parts will be transferred to RUS which will become obligated
to fully comply with the Cajun NRC license requirements, all other
applicable laws and regulations and the provisions of the River Bend
JOPOA, as amended in the respects described in Exhibit No. 1,
commencing with the date of its succession to the Cajun River Bend
Interest. The Big Cajun No. 2, Coal Unit #3 JOPOA will also be
similarly amended, as may be required. All of Cajun's interest and
obligations under the River Bend JOPOA, the NRC license and any
recorded domments of transfer between GSU and Cajun relating to River
Bend will be canceled and terminated as to Cajun and will be assumed
by RUS. As used herein, the obligations under the River Bend JOPOA
for which RUS shall be obligated shall be limited to obligations for
operations commencing with the closing of the Settlement and for fuel
and spare parts purchased only after the closing of the Settlement and
shall not include unfulfilled or unpaid obligations which Cajun
incurred while it was still the owner.
(e) RUS will receive from GSU and Cajun Cajun's share of all cash payments
resulting from the litigation presently being conducted against
General Electric in connection with claims alleging River Bend design
defects. Cajun's share of all payments in kind and other non-cash
consideration received or promised as a result of the litigation will
be payable to the owner of the Cajun river Bend Interest at the time
such payments in kind or other non-cash consideration become due.
The same allocation shall be made between RUS and a transferee of the
Cajun River Bend Interest of refunds or other benefit related to the
payment by Cajun to the U.S. Government to fund the decontaminating
and decommissioning of DOE's uranium enrichment facilities.
(f) In the event that no offer is accepted by RUS under Option 1 above and
in the further event that RUS elects not to become the transferee of
the Cajun River Bend Interest, together with Cajun's interest in River
<PAGE>
Bend fuel and spare parts, will be transferred to GSU with no payment
by GSU to Cajun's estate or to RUS.
2. Transmission and Certain Other Issues
(a) Pursuant to existing FERC decisions, the claim due GSU for past
transmission services under the CTOC credits and QTF Dockets amounts
to $55,000,000 (the "Liquidated Transmission Debt"). The Liquidated
Transmission Debt consists of S32,000,000 due under the QTF Docket and
$23,000,000 due under the CTOC Credits Docket. GSU waives its right to
collect the Liquidated Transmission Debt from Cajun.
(b) Cajun or Cajun's transferee or transferees of its generation assets
will receive transmission services under Entergy's Network Service
Tariff Entergy's Transmission Service Tariff as of the later of (i)
twelve months from the date of the Settlement or (ii) the date of the
closing of the Settlement. Neither GSU nor Entergy will oppose the
entitlement of Cajun or such transferee to service thereunder or its
effectiveness at such date.
(c) All previous transmission agreements existing between Cajun and
Entergy, GSU, LP&L or MP&L will terminated upon the commencement of
services described in paragraph 2(b) hereinabove. Cajun will use its
best efforts to obtain agreement from its distribution co-ops to be
bound by the terms and provisions of Entergy's Network Service Tariff,
during the time they receive service over facilities to which such
tariff is applicable.
(d) Cajun or its transferee under a plan of reorganization will retain
ownership of its BC1 and BC2 Switchyards and its Through Bus
facilities. Cajun will transfer to GSU its ownership of each of
Transmission lines 745 and 746 (provided that Entergy's Network
Service tariff and its Transmission Service tarff, under which Cajun
receives service under subparagraph 2(b) above, make the continued
ownership of the Transmission line or lines by Cajun or by the
transferee of its generating assets unnecessary for Cajun or its
transferee's provision of current or future services by reason of the
benefits provided under the new tariffs), as of the later of (i)
twelve months from the date of the Settlement or (ii) the date of the
closing of the Settlement. Unleae Transmission lines 745 and 746 are
not transferred to GSU as set forth herein, Cajun will pay RUS an
amount equal to the amount by which NRG Energy, Inc. and Zeigler Coal
Holding Company reduce the amount of their bid for the purchase of
<PAGE>
Cajun's assets as a result of the transfer of Transmission lines 745
and 746 pursuant to the Settlement and RUS will release its liens on
Transmission lines 745 and 746 upon such payment by Cajun.
3. Settlement of all Claims and Disputes
(a) Any and all claims of any nature or kind, whether or not now pending in
Court, whether known or unknown, whether founded in law, equity or
otherwise, whether or not already asserted for any and all acts or
omissions between Cajun and GSU or Entergy, and between RUS and GSU or
Entergy, will be dismissed with prejudice and released and satisfied in
full, including, but not limited to, all claims for the River Bend
litigation, the fraud and breach of contract case, the antitrust case,
the nullity case and the service water litigation, and any claims of
equitable subordination of RUS's rights, all pending cases before any
regulatory agency or on appeal from any regulatory agency (such as the
transmission cases before FERC, the merger appeals before FERC, the SEC
and NRC and any and all other matters pending before any regulatory
agency) and any and all other claims or disputes between the parties of
any nature whatsoever, whether or not in litigation. (The foregoing
does not include resolution of claims of RUS against Cajun that are not
specifically identified as resolved in this paragraph.) Judgment will
be rendered in favor of RUS in GSU's adversary proceeding asserting
claims of equitable subordination of RUS's rights. Any and all claims
Cajun may have against RUS for equitable subordination, whether known
or unknown, will be released. Cajun will use its best efforts to
obtain a waiver of all claims held by its members against GSU or
Entergy under the nullity case, and against RUS.
(b) The preliminary injunction issued by the U.S. District Court in the
service water litigation between GSU and Cajun shall continue in full
force and effect until the closing of the Settlement and upon such
date, all funds paid and to be paid into the Registry of the Court
pursuant to said injunction shall be paid over to GSU, together with
all interest earned thereon.
4. Approvals
The Settlement is subject to the approval of (1) all regulatory agencies
having jurisdiction over the subject matter; (2) the bankruptcy court; (3)
the Entergy Board of Directors; (4) the United States of America on behalf
of RUS.
The parties intend to give effect to an to close the Settlement irrespective
of the confirmation or lack of Confirmation of a plan of reorganization of
<PAGE>
Cajun. The parties will use their best efforts promptly to obtain all
required approvals and to close the Settlement. The structure of the
Settlement may be modified based upon tax or regulatory advice received by a
party provided the modification does not adversely affect another party.
The Settlement shall close no later than June 1, 1997, unless the parties
otherwise agree.
This Settlement is dated as of May 1, 1996.
Seen and Agreed this 9th day of May, 1996
Ralph R. Mabey
Cajun Electric Power Cooperative, Inc.
through its Chapter ll Trustee,
Ralph R. Mabey
Seen and Agreed this 26th day of April, 1996
Michael G. Thompson
Entergy Corporation and Gulf States Utilities
by Michael G. Thompson
Senior Vice President & General Counsel
Recommended for Adoption by Rural Utilities Senice this 2nd day of May, 1996.
Larry A. Belluzzo
Program Advisor
<PAGE>
EXHIBIT NO. 1
RIVER BEND JOPOA - AMENDMENT CONSIDERATIONS
New owner(s) of River Bend may wish to amend the JOPOA as follows:
a. Section 1.6 ADMINISTRATIVE GENERAL CHARGES
Section 1.6 should be revised to specifically spell out defintion and
method of calculating GSU's A&G "add ons."
b. Section 4.2 GSU ACCEPTS APPOINTMENT OF AGENT
Needs a mutual agreeable definition of "Good Utility Practice."
c. Section 6.5 "DAMAGE OR DESTRUCTION"
Needs better definition as to a minority owner's right NOT to take part in
any major capital addition whether it is part of a replacement of damaged
equipment or expansion of capacity.
d. Section 8.5.1. METHOD OF BILLING AND PAYMENT
The current section has been mofidied by mutual agreement as follows:
1. The right to include a contingency amount to the estimated bill has
been dropped.
2. The current estimated monthly bill with a two month true up. Both
sides have agreed to use prime rate for interest either charged or
credited. These changes should be carried to a new owner.
c. ARTICLE 10 - DEFAULT: DEFAULTING
Party should have input in advance as to where the power is being sold and
the price for the power being sold. Also the power should be able to be
sold for a 6 to 9 month period. Current sale period is 90 days which can
limit value received.
A non-defaulting party which pays a defaulting party's costs should have
protection.
f. BUDGET REVIEW AND INPUT - The Current JOPOA
Does not contain any language on budget formulation or forecasts. We
suggest a new section calling for the owners to jointly review the budget
formation process and forecast process. This would prevent
misunderstanding over the plant's needs.
Provide minority owner with adequate and reasonable safeguards against
excessive expenditures.
Parties should have access to additional information on fuel and
transportation costs.
<PAGE>
March _ 1998
PRIVILEGED SETTLEMENT NEGOTIATIONS
Mr. Larry A. Belluzzo VIA FAX
Rural Utilities Service - USDA
14th and Independence S. W.
Room 4031- S
Washington, D.C. 20250
Re: Cajun Electric Power Cooperative, Inc. ("Cajun")
Dear Mr. Belluzzo:
When executed by the Rural Utilities Service ("RUS") in the space provided
below, this letter shall evidence the agreement between Southwestern Electric
Power Company ("SWEPCO") and the RUS with respect to the treatment of the claim
of the RUS under the Plan of Reorganization filed by SWEPCO and the Committee of
Certain Members of Cajun Electric Power Cooperative, Inc. ("Cajun") as modified
(the "Joint Plan").
Negotiations between SWEPCO and the RUS have now progressed to a stage
where the RUS has reached an agreement with SWEPCO on the terms on which the RUS
will withdraw iti objection to the Joint Plan, vote for the Joint Plan, and the
RUS and SWEPCO will take certain other affirmative actions regarding the Joint
Plan all as more particularly set forth herein.
Now therefore, for and in consideration of the mutual benefits received by
the RUS and SWEPCO, the RUS and SWEPCO agree as follows:
1. SWEPCO shall increase the "Purchase Price" under its Asset Purchase
Agreement to Nine Hundred Thirty-three Million Five Hundred Thousand and No/100
($933,500,000) cash, subject to adjustments as provided in Section 2.3 and 2.4
of the Asset Purchase Agreement. There will be no reduction in purchase price
if SWEPCO fails to sign the three cooperatives that have not yet agreed to sign
power supply agreements with SWEPCO.
2. SWEPCO shall amend the Asset Purchase Agreement to pay to Cajun, as
additional purchase price, an amount not to exceed $7 million, equal to the
allowed amount of usecured claims (not administrative or priority claims)
described and listed in paragraph I.B.2.a of SWEPCO'S Supplemental Disclosure
Statement, dated November 12, 1996. These funds will be the first funds paid by
the estate to the RUS on its secured claim. On the Effective Date, the estate
will place these funds in a separate account for distribution to the RUS, solely
<PAGE>
Mr. Larry A. Belluzzo
Page 2
March _, 1998
for the use of the RUS as set forth herein. On the Effective Date, the RUS will,
outside the Joint Plan, use the additional purchase price funds to pay, on or
before the fourteenth day after confirmation of the Joint Plan, the allowed,
unsecured claims (not administrative or priority claims) described in paragraph
I.B.2.a of SWEPCO'S Supplemental Disclosure Statement. Upon such payment the
claims, and any obligations of SWEPCO to purchase them, shall be satisfied and
extinguished without further distribution from the estate.
3. SWEPCO shall amend the definition of "Excluded Assets" and SUBSECTION 3.11
of its Asset Purchase Agreement such that Cobank Class E Stock and patronage
dividends will be Excluded Assets and will be treated on a similar basis as the
Enron and Trustee Asset Purchase Agreements.
4. SWEPCO shall eliminate any condition in its Asset Purchase Agreement to
SWEPCO'S closing due to the failure of SWEPCO to obtain acceptable fuel
transportation contracts.
5. SWEPCO'S performance of its obligations hereunder and under the Asset
Purchase Agreement will be subject to all the existing rights and satisfaction
of all other conditions precedent in the Joint Plan and the Asset Purchase
Agreement as well as the following:
(a) All nine (9) of the Louisiana electric distribution cooperatives that
constitute the members of Cajun (including CLECO, the successor to Teche)
that have signed term agreements, continue to agree to enter into new
twenty-five year contracts with SWEPCO or a SWEPCO affiliate on terms and
conditions mutually acceptable to SWEPCO and such members;
6. The Joint Plan shall be conditioned on approval of the Amended and Restated
Settlement Agreement. However, in the event that the Trustee's Plan of
Reorganization, which is presently conditioned on a similar settlement agreement
by the RUS with the Trustee, is amended such that the Trustee's Plan is not
conditioned on approval of the Trustee's settlement agreement with the RUS, then
the Joint Plan maybe similarly amended to eliminate the condition of approval of
the Amended and Restated Settlement Agreement.
7. SWEPCO agrees, either through the Amended and Restated Settlement Agreement
filed by SWEPCO and the RUS or by amendments to the Joint plan, to provide for
the treatment of the RUS's claim as secured by all the assets upon which the RUS
claims a lien. The RUS and SWEPCO shall modify the Amended and Restated
Settlement Agreement to allow a fund of $20.24 million from the purchase price,
plus any recoveries from avoidance actions, to be available to unsecured
creditors other than the RUS; and any surplus to be returned to the RUS on its
<PAGE>
Mr, Larry A. Belluzzo
Page 3
March _, 1998
unsecured claim. The Trustee shall be limited to the amount of $150,000 from the
Purchase Price, for fees and expenses incurred in pursuing avoidance actions.
8. The RUS shall use its best efforts to obtain Bankruptcy Court approval (and
appellate approvals) of the Amended and Restated Settlement Agreement, including
but not limited to providing necessary witnesses and documents, and assisting in
the prosecution of the case seeking approval of the Amended and Restated
Settlement Agreement.
9. The Amended and Restated Settlement Agreement will include a provision that
will allow the parties by mutual agreement thereto to further amend the
agreement in the event a modification is necessary to cure any impediments to
approval of the settlement or confirmation of the Joint Plan announced or ruled
upon by the Bankruptcy Court.
10. The RUS will use its best efforts to encourage the Trustee to support the
Amended and Restated Settlement Agreement.
11. The RUS shall use its best efforts to contact the general manager of those
three cooperatives who have not yet agreed to sign power supply agreements with
SWEPCO, and encourage them to negotiate power supply agreements with SWEPCO.
12. Since the RUS is consenting to the entry by the Members to power supply
agreements with SWEPCO under the Joint Plan on the Effective Date of the Joint
Plan, SWEPCO shall withdraw its opposition to the relief sought by the RUS in
Adversary 1066 pertaining to the requirement of RUS consent. However, nothing
herein precludes or waives the right of SWEPCO to assert any and all defenses in
Adversary 1066 to causes of action pertaining to the requirement of Cajun's (or
the Trustee's) consent to the entry into power supply agreements by the Members.
13. On or before March 23, 1998, the RUS will file a Motion with the Bankruptcy
Court seeking to change its vote on the Joint Plan from a rejection to an
acceptance of the Joint Plan, and on approval will so change their vote.
14. On or before March 23, 1998, the RUS will withdraw all of its objections to
the Joint Plan, and will modify its appeal presently before Federal District
Judge Polozola to dismiss any relief seeking to disqualify the Joint Plan. The
RUS will not object to or vote against the Joint Plan in the future solely
because of any increase in purchase price or other consideration paid by any
other plan.
<PAGE>
Mr. Larry A. Belluzzo
Page 4
March _, 1998
15. On or before March 23, 1998, or as soon thereafter as possible, the RUS
will announce to the Bankruptcy Court that it supports the Joint Plan, will vote
to accept the Joint Plan, and will withdraw all objections to the Joint Plan.
16. The RUS will not take any action that directly or indirectly hinders,
impedes or delays confirmation of the Joint Plan. The RUS may however vote for
other plans of reorganization, and state a preference for other plans of
reorganization.
17. The RUS will not express a preference for any other plan, unless such plan
provides more than $10 million in net value to the RUS according to RUS
calculations (as opposed to gross purchase price), than does the Joint Plan.
18. One business day after the RUS files its Motion to Change its Vote, and its
withdrawal of objections to the Joint Plan, SWEPCO will withdraw any opposition
to the relief sought by the Trustee and the RUS in adversary 1073 pertaining to
the interest escrow fund.
19. Upon execution of this letter agreement by both parties hereto, the terms
and conditions hereof shall constitute the binding obligations of each and may
not be amended or modified except in writing executed by each. Both parties
agree to proceed with their respective obligations hereunder in good faith and
in reliance upon the agreed to terms and conditions hereof.
This offer shall expire unless accepted in writing and delivered to SWEPCO
on or before noon central time on March 17, 1998.
Very truly yours,
Southwestern Electric Power Company
By:
Name:
Title:
AGREED:
Rural Utilities Service
<PAGE>
Mr. Law A. Belluzzo
Page 5
March _, 1998
By:
Larry A. Belluzzo
<PAGE>
AMENDED AND RESTATED SETTLEMENT AGREEMENT
Southwestern Electric Power Company ("SWEPCO"), the Committee of Certain
Members of Cajun Electric ("Committee") Claiborne Electric Cooperative Inc.
("Claiborne") and the Rural Utilities Service of the United States Department of
Agriculture ("RUS") have previously entered an Amended Settlement Agreement
dated October 31, 1997. This agreement amends, supersedes and restates such
settlement agreement.
WHEREAS, SWEPCO and the Committee assert that the Cajun bankruptcy
estate holds a number of potential lien avoidance actions against RUS whereby
RUS's lien would be avoided on certain assets of Cajun and would otherwise
reduce the amount of the RUS allowed secured claim; and
WHEREAS, RUS denies that any of its liens on Cajun's assets could be
avoided by Cajun's estate; and
WHEREAS, RUS asserts claims against Cajun totaling in excess of $4.1
billion and asserts unsecured deficiency claims likely totaling in excess of $3
billion; and
WHEREAS, RUS's unsecured deficiency claims against Cajun represent most
of Cajun's unsecured debt such that any avoidance of liens by the Cajun estate
for the benefit of unsecured creditors will in large part be for the benefit of
RUS as a general unsecured creditor; and
WHEREAS, the Trustee and RUS have entered into a settlement agreement
that deals with the settlement of the estate's avoidance actions against the
RUS's liens; and
WHEREAS, SWEPCO, Claiborne and the Committee have indicated an
intention to object to such settlement agreement; and
<PAGE>
WHEREAS, SWEPCO has filed a plan along with the Committee whereby SWEPCO
proposes to purchase the assets of the Cajun estate for up to $940.5 million;
and
WHEREAS, the RUS has filed an objection to the Joint Plan alleging,
among other things, that SWEPCO may not use alleged cash collateral under the
Joint Plan without the RUS's consent; and
WHEREAS, the RUS, SWEPCO, Claiborne and the Committee desire to avoid
litigation over potential lien avoidance actions and cash collateral disputes
and the cost thereof; and
WHEREAS, in consideration of the mutual promises, conditions and
covenants contained herein, the RUS, SWEPCO, Claiborne and the Committee desire
to settle the disputes among them pertaining to the perfection of the liens of
the RUS and the ability of SWEPCO to use cash collateral under the Joint Plan;
NOW, THEREFORE, the RUS, SWEPCO, Claiborne and the Committee agree to
the terms and provisions set forth below:
1. DEFINITIONS. As used in this Agreement, the following defined
terms shall have the following meanings:
"Agreement" means this Settlement Agreement.
"Approval Order" means the Order of the Court approving each of paragraphs
4 and 7 of this Agreement.
"Cajun" means Cajun Electric Power Cooperative, Inc.
"Court" means the United States Bankruptcy Court for the Middle District of
Louisiana or the United States District Court for the Middle District of
Louisiana, as appropriate.
<PAGE>
"Joint Plan" shall mean the Joint Plan of Reorganization filed by SWEPCO,
the Committee and by Entergy Gulf States, Inc. as amended, modified or
supplemented.
"RUS" means the Rural Utilities Service of the United States Department of
Agriculture.
"Settlement Amount" means $20.24 million to be provided for the benefit of
unsecured creditors from the purchase price under the Joint Plan, plus any funds
constituting recoveries from avoidance actions by the estate.
"Trustee" means Ralph R. Mabey or his successor as Chapter 11 Trustee of
Cajun Electric Power Cooperative, Inc.
2. RUS SETTLEMENT WITH THE TRUSTEE. SWEPCO, Claiborne and the Committee
agree not to file objections to the Motion by Ralph R. Mabey, Chapter 11 Trustee
Seeking Order Approving Settlement between the Trustee and the Rural Utilities
Service pursuant to Federal Rule of Bankruptcy Procedure 9019 filed on November
26, 1996.
3. PERFECTION OF RUS' LIENS. SWEPCO, Claiborne and the Committee agree
not to file, and to withdraw if already filed, any objections to the perfection
of the liens asserted by the RUS.
4. ALLOWED SECURED CLAIM. The RUS shall be deemed under the Joint Plan,
without taking further steps, to have as against Cajun and its estate, a fully
perfected security interest in all Cajun assets and proceeds thereof as to which
it is a party to a security agreement, mortgage or pledge (subject only to any
other prior interest held by a third-party not involving a claim of Cajun or its
estate).
<PAGE>
5. RATE ESCROW FUND. The Rate Escrow Fund (held by Cajun and currently
in the amount of approximately $42 million and growing) shall be deemed property
of the estate, subject to any final non-appealable orders of any court of
competent jurisdiction.
6. RUS CONSENT TO USE OF CASH COLLATERAL. The RUS consents to the use of
cash collateral under the Joint Plan for payment of administrative and priority
expenses through the Effective Date of the Joint Plan, or any other plan
proposed by the Committee or SWEPCO which provides equivalent value to the RUS.
7. TRANSFER OF FUNDS FOR THE BENEFIT OF UNSECURED CREDITORS. The RUS
consents to the transfer on the Effective Date of the Joint Plan, from the
proceeds of the sale of assets securing RUS's claims, $20.24 million to
unsecured creditors in Classes 6 (a) and (b) under the Joint Plan. The RUS
agrees that, as to the Settlement Amount, RUS shall not be entitled to receive
any distributions on account of any of its claims whether secured, unsecured, or
administrative in nature. If, after payment in full of allowed unsecured claims
under the Joint Plan (other than the deficiency claim of the RUS), funds remain
from the liquidation of assets and from successful avoidance actions, the RUS,
as the sole remaining holder of a general unsecured claim, will receive such
remaining funds.
8. WITHDRAWAL OF OBJECTIONS TO JOINT PLAN. The RUS shall withdraw all
objections to the Joint Plan, including those based on the use of cash or cash
collateral to pay administrative or priority expenses without RUS consent.
<PAGE>
9. CONDITIONS.
(a) Paragraphs 4 and 7 become effective only after the occurrence
of the following conditions: (i) the Approval Order being entered by the Court,
(ii) confirmation of the Joint Plan by the Court and (iii) the Joint Plan
becoming effective.
(b) All paragraphs other than 4 and 7 of this Agreement shall
become effective upon execution, and shall remain effective irrespective of
whether the Court approves paragraphs 4 and 7.
10. REPRESENTATION AND WARRANTY OF SWEPCO, CLAIBORNE AND THE COMMITTEE.
SWEPCO, Claiborne and the Committee represent and warrant as of the date this
Agreement is executed that they have all the requisite power and authority to
execute and deliver this Agreement and the other documents necessary to
consummate this Agreement and to perform their obligations hereunder and
thereunder.
11. REPRESENTATION AND WARRANTY OF RUS. RUS represents and warrants as
of the date this Agreement is executed that it has all requisite power and
authority to execute and deliver this Agreement and any other documents
necessary to consummate this Agreement and perform its obligations hereunder and
thereunder.
12. TERMINATION.
(a) The obligations of the parties under paragraphs 4 and 7 shall
terminate and be of no further force and effect, and the parties shall be
released therefrom, if any of the conditions set forth in paragraph 9 are not
met.
<PAGE>
13. MISCELLANEOUS.
a. Notices. All notices, requests and other communications to
parties hereunder shall be in writing and delivered by certified mail, return
receipt requested, by Federal Express or by facsimile and shall be given to such
parties at the following respective addresses: If to RUS: With a copy to:
Larry A. Belluzzo Brendan Collins
Program Advisor Civil Division
Financial Services Staff Department of Justice
Rural Utilities Service-USDA P.O. Box 875, Ben Franklin Station
14th and Independence, S.W. 550 11th Street, N.W.
Room 4031-S Washington, D.C. 20044-0875
Washington, D.C. 20250
If to the SWEPCO: With copies to:
Tom Brice Henry Kaim
Central and South West Corporation Sheinfeld, Maley & Kay, P.C.
SWEPCO 3700 First City Tower
416 Travis Street 1001 Fannin, Suite 3700
Shreveport, LA 71101 Houston, Texas 77002
If to the Committee: With copies to:
Henry Locklar Melanie Cohen
Dixie Electric Cooperative Altheimer & Gray
P.O. Box 15659 10 S. Wacker Drive, Suite 4000
Baton Rouge, LA 70895 Chicago, IL 60606-7482
and
John M. Sharp
14481 Old Hammond Highway, Suite 2
Baton Rouge, LA 70816
If to Claiborne: With Copies to:
Jerry Williams Patrick Henry
P.O. Box 719 P.O. Box 239
Homer, LA 71040 Homer, LA 71040
<PAGE>
14. BENEFIT OF AGREEMENT. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns, including without limitations any successors or assigns under the Joint
Plan.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
agreed to by the parties hereto relating to the subject matter hereof, and may
not be amended, altered or modified, except by a writing executed by a duly
authorized representative of each of the parties hereto. This Agreement shall in
no event be construed or deemed to be evidence of any admission on the part of
any party of any liability or wrongdoing.
16. HEADINGS. The headings herein are inserted for convenience of
reference only and shall not affect the construction or interpretation thereof.
17. COUNTERPARTS AND MULTIPLE ORIGINALS. This Agreement may be executed
in any number of counterparts, and/or originals, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were on
the same instrument.
18. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with Louisiana law except to the extent federal law is applicable, in
which case, this Agreement shall be governed and construed in accordance with
federal law.
19. COURT JURISDICTION. The Court shall have jurisdiction to resolve all
disputes concerning the interpretation and enforcement of this Agreement and any
other documents executed in conjunction with this Agreement and to enforce this
Agreement.
<PAGE>
Signed and Agreed this 18th day of March, 1998.
LARRY A BELLUZZO
- ----------------------------------------------
Rural Utilities Service of the United States
Department of Agriculture
by Larry A. Belluzzo, Program Advisor
MICHAEL D. SMITH
- ----------------------------------------------
Southwestern Electric Power Company
JOHN M. SHARP
- ----------------------------------------------
Committee of Certain Members of Cajun Electric
PATRICK HENRY
- ----------------------------------------------
Claiborne Electric Cooperative Inc.
<PAGE>
March 18, 1998
PRIVILEGED SETTLEMENT NEGOTIATIONS
Mr. Larry A. Belluzzo VIA FAX
Rural Utilities Service - USDA
14th and Independence S.W.
Room 4031 - S
Washington, D.C. 20250
Re: Cajun Electric Power Cooperative, Inc. ("Cajun")
Dear Mr. Belluzzo:
When executed by the Rural Utilities Service ("RUS") in the space provided
below, this letter shall evidence the agreement between Southwestern Electric
Power Company ("SWEPCO") and the RUS with respect to the treatment of the claim
of the RUS under the Plan of Reorganization filed by SWEPCO and the Committee of
Certain Members of Cajun Electric Power Cooperative, Inc. ("Cajun") as modified
(the "Joint Plan").
Negotiations between SWEPCO and the RUS have now progressed to a stage
where the RUS has reached an agreement with SWEPCO on the terms on which the RUS
will withdraw its objection to the Joint Plan, vote for the Joint Plan, and the
RUS and SWEPCO will take certain other affirmative actions regarding the Joint
Plan all as more particularly set forth herein.
Now therefore, for and in consideration of the mutual benefits received by
the RUS and SWEPCO, the RUS and SWEPCO agree as follows:
1. SWEPCO shall increase the "Purchase Price" under its Asset Purchase
Agreement to Nine Hundred Thirty-three Million Five Hundred Thousand and No/100
($933,500,000) cash, subject to adjustments as provided in Section 2.3 and 2.4
of the Asset Purchase Agreement. There will be no reduction in purchase price
if SWEPCO fails to sign the three cooperatives that have not yet agreed to sign
power supply agreements with SWEPCO.
2. SWEPCO shall amend the Asset Purchase Agreement to pay to Cajun, as
additional purchase price, an amount not to exceed $7 million, equal to the
allowed amount of unsecured claims (not administrative or priority claims)
described and listed in paragraph I.B.2.a of SWEPCO's Supplemental Disclosure
Statement, dated November 12, 1996. These funds will be the first funds paid by
th estate to the RUS on its secured claim. On the Effective Date, the estate
will place these funds in a separate account for distribution to the RUS, solely
for the use of the RUS as set forth herein. On the Effective Date, the RUS
<PAGE>
will, outside the Joint Plan, use the additional purchase price funds to pay, on
or before the fourteenth day after confirmation of the Joint Plan, the allowed,
unsecured claims (not administrative or priority claims) described in paragraph
I.B.2.a of SWEPCO's Supplemental Disclosure Statement. Upon such payment the
claims, and any obligations of SWEPCO to purchase them, shall be satisfied and
extinguished without further distribution from the estate.
3. SWEPCO shall amend the definition of "Excluded Assets" and Section 3.11 of
its Asset Purchase Agreement such that Cobank Class E Stock and patronage
dividends will be Excluded Assets and will be treated on a similar basis as the
Enron and Trustee Asset Purchase Agreements.
4. SWEPCO shall eliminate any condition in its Asset Purchase Agreement to
SWEPCO's closing due to the failure of SWEPCO to obtain acceptable fuel
transportation contracts.
5. SWEPCO's performance of its obligations hereunder and under the Asset
Purchase Agreement will be subject to all the existing rights and satisfaction
of all other conditions precedent in the Joint Plan and the Asset Purchase
Agreement as well as the following:
(a) All nine (9) of the Louisiana electric distribution cooperatives that
constitute the members of Cajun (including CLECO, the successor to Teche)
that have signed term agreements, continue to agree to enter into new
twenty-five year contracts with SWEPCO or a SWEPCO affiliate on terms and
conditions mutually acceptable to SWEPCO and such members;
6. The Joint Plan shall be conditioned on approval of the Amended and Restated
Settlement Agreement. However, in the event that the Trustee's Plan of
Reorganization, which is presently conditioned on a similar settlement agreement
by the RUS with the Trustee, is amended such that the Trustee's Plan is not
conditioned on approval of the Trustee's settlement agreement with the RUS, then
the Joint Plan may be similarly amended to eliminate the condition of approval
of the Amended and Restated Settlement Agreement.
7. SWEPCO agrees, either through the Amended and Restated Settlement Agreement
filed by SWEPCO and the RUS or by amendments to the Joint plan, to provide for
the treatment of the RUS's claim as secured by all the assets upon which the RUS
claims a lien. The RUS and SWEPCO shall modify the Amended and Restated
Settlement Agreement to allow a fund of $20.24 million from the purchase price,
plus any recoveries from avoidance actions, to be available to unsecured
creditors other than the RUS; and any surplus to be returned to the RUS on its
unsecured claim. The Trustee shall be limited to the amount of $150,000 from
<PAGE>
the Purchase Price, for fees and expenses incurred in pursuing avoidance
actions.
8. The RUS shall use its best efforts to obtain Bankruptcy Court approval (and
appellate approvals) of the Amended and Restated Settlement Agreement, including
but not limited to providing necessary witnesses and documents, and assisting in
the prosecution of the case seeking approval of the Amended and Restated
Settlement Agreement.
9. The Amended and Restated Settlement Agreement will include a provision that
will allow the parties by mutual agreement thereto to further amend the
agreement in the event a modification is necessary to cure any impediments to
approval of the settlement or confirmation of the Joint Plan announced or ruled
upon by the Bankruptcy Court.
10. The RUS will use its best efforts to encourage the Trustee to support the
Amended and Restated Settlement Agreement.
11. The RUS shall use its best efforts to contact the general manager of those
three cooperatives who have not yet agreed to sign power supply agreements with
SWEPCO, and encourage them to negotiate power supply agreements with SWEPCO.
12. Since the RUS is consenting to the entry by the Members to power supply
agreements with SWEPCO under the Joint Plan, on the Effectice Date of the Joint
Plan, SWEPCO shall withdraw its opposition to the relief sought by the RUS in
Adversary 1066 pertaining to the requirement of RUS consent. However, nothing
herein precludes or waives the right of SWEPCO to assert any and all defenses in
Adversary 1066 to causes of action pertaining to the requirements of Cajun's (or
the Trustee's) consent to the entry into power supply agreements by the Members.
13. On or before March 25, 1998, if the Board of Directors approvals discussed
in paragraph 18 have been obtained, the RUS will file a Motion with the
Bankruptcy Court seeking to change its vote on the Joint Plan from a rejection
to an acceptance of the Joint Plan, and on approval will so change their vote.
14. On or before March 25, 1998, if the Board of Director approvals discussed
in paragraph 18 have been obtained, the RUS will withdraw all of its objections
to the Joint Plan, and will modify its appeal presently before Federal District
Judge Polozola, to dismiss any relief seeking to disqualify the Joint Plan. The
RUS will not object to or vote against the Joint Plan in the future solely
because of any increase in purchase price or other consideration paid by any
other plan.
<PAGE>
15. On or before March 25, 1998, or as soon thereafter as possible, if the
Board of Director approvals discussed in paragraph 18 have been obtained, the
RUS will announce to the Bankruptcy Court that it supports the Joint Plan, will
vote to accept the Joint Plan, and will withdraw all objections to the Joint
Plan.
16. The RUS, if the Board of Director approvals discussed in paragraph 18 have
been obtained, will not take any action that directly or indirectly hinders,
impedes or delays confirmation of the Joint Plan. The RUS may however vote for
other plans of reorganization, and state a preference for other plans of
reorganization.
17. The RUS will not express a preference for any other plan, unless such plan
provides more than $10 million in net value to the RUS according to RUS
calculations (as opposed to gross purchase price), than does the Joint Plan.
18. On or before March 25, SWEPCO and the Members Committee, and Claiborne will
withdraw any opposition to the relief sought by the Trustee and the RUS in
adversary 1073 pertaining to the interest escrow fund. Such withdrawal shall be
subject to approval of the Board of Directors of each of the members of the
Committee of Certain Members and Claiborne, where required, and such withdrawal
shall not require SWEPCO, any member of the Members Committee nor Claiborne to
violate any Order of the Bankruptcy Court, the Louisiana Public Service
Commission or any other Court of competent jurisdiction which is unstayed
pertaining to the interest escrow funds. Furthermore such withdrawal shall not
waive rights of the ultimate consumer rate payers to the interest escrow funds,
if any.
19. Upon execution of this letter agreement by both parties hereto, the terms
and conditions hereof shall constitute the binding obligations of each and may
not be amended or modified except in writing executed by each. Both parties
agree to proceed with their respective obligations hereunder in good faith and
in reliance upon the agreed to terms and conditions hereof.
This offer shall expire unless accepted in writing and delivered to SWEPCO
on or before noon central time on March 18, 1998.
Very truly your,
Southwestern Electric Power Company
CENTRAL AND SOUTH WEST CORPORATION
BYLAWS
Revised effective
January 21, 1998
<PAGE>
CENTRAL AND SOUTH WEST CORPORATION
BYLAWS
ARTICLE I
STOCK AND TRANSFERS
SECTION 1. Each holder of fully paid stock shall be entitled to a
certificate or certificates of stock stating the number of shares owned by such
holder. All certificates shall at the time of their issuance be signed by the
Chairman, the Vice Chairman, if any, the President, or a Vice President and also
by the Treasurer, the Secretary, an Assistant Treasurer or an Assistant
Secretary, shall be countersigned by a Transfer Agent, and shall be
authenticated and registered by a Registrar, provided that in case any officer,
Transfer Agent or Registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, Transfer Agent
or Registrar before such certificate is issued, it may be issued with the same
effect as if such officer, Transfer Agent or Registrar had not ceased to be such
at the date of its issue. The Board of Directors shall appoint one or more
Transfer Agents, none of whom shall be the Corporation or any officer or
employee thereof, and one or more Registrars, each of which Registrars shall be
a bank or trust company. If a certificate is countersigned manually by either a
Transfer Agent or a Registrar, any other signature on the certificate may be a
facsimile.
<PAGE>
SECTION 2. Shares of stock shall be transferable only on the books of the
Corporation and, except as otherwise required by law, shall be transferred only
upon proper endorsement and surrender of the certificates theretofore issued
therefor. If an outstanding certificate of stock shall be lost, stolen or
destroyed, there shall be issued to the holder thereof a new certificate upon
production of evidence satisfactory to the Board of Directors of such loss,
theft or destruction and upon furnishing to the Corporation, the Transfer Agents
and the Registrars a bond of indemnity deemed sufficient by the Board of
Directors against claims on account of such alleged loss, theft or destruction
or on account of the issuance of such new certificate.
ARTICLE II
STOCKHOLDERS
SECTION 1. A meeting of the stockholders shall be held on the third
Thursday in April of each year or on such other day as may, in any year, be
specified by the Board of Directors. Each such annual meeting shall be held at
such place and hour as may be fixed by the Board of Directors.
SECTION 2. Special meeting of the stockholders may be called by the
Chairman, by the Board of Directors, by a majority of the Directors individually
or by the holders of not less than one-third of the total outstanding shares of
stock of the Corporation. Each special meeting of the stockholders shall be held
<PAGE>
at such place, date and hour as may be fixed by the person or persons calling
the meeting.
SECTION 3. Written notice stating the place, date and hour of each meeting
of the stockholders, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given not less than ten or more than
fifty days before the date of the meeting except as otherwise required by law,
either personally or by mail, to each stockholder of record entitled to vote at
such meeting.
SECTION 4. At all meetings of the stockholders a majority of the
outstanding shares of stock, excluding such shares as may be owned by the
Corporation, represented in person or by proxy, shall constitute a quorum for
the transaction of business, but the stockholders represented at a meeting,
though less than a quorum, may adjourn the meeting to some other day or SINE
DIE. If a quorum is present the affirmative vote of a majority of the shares of
stock represented at the meeting shall be the act of the stockholders, unless
the vote of a greater number is required by law or the Second Restated
Certificate of Incorporation.
SECTION 5. At every meeting of the stockholders, each share of stock shall
entitle the holder of record on the date fixed by the Board of Directors to one
vote upon each matter voted upon. In the election of directors of the
Corporation, the principle of cumulative voting shall not apply. Votes may in
all cases be cast by duly authorized proxy, but no stockholder shall be entitled
<PAGE>
to designate more than three persons as proxies to vote shares held by him.
SECTION 6. At least ten days before each meeting of the stockholders the
Secretary shall prepare a complete list, in alphabetical order, of all the
stockholders of the Corporation entitled to vote at the meeting, showing the
address of each and the number of shares registered in the name of each. Such
list shall be open to the examination of any stockholders, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten days prior to the meeting, at a place specified in the notice of the
meeting, within the city where the meeting is to be held, or at the place where
the meeting is to be held.
SECTION 7. For the purpose of determining stockholders entitled to notice
of or to vote at a meeting of stockholders or an adjournment thereof, or to
receive payment of a dividend or other distribution or allotment of rights, or
in order to make a determination of stockholders for any other proper purpose,
the Board of Directors may fix, in advance, a record date which shall be not
more than sixty days nor less than ten days before the date of such meeting,
except as otherwise required by law.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. (a) At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the term for
<PAGE>
which they are elected, and until their successors have been duly elected and
qualified; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance with
the Delaware General Corporation Law. The directors of the Corporation shall be
divided into three classes as nearly equal in size as is practicable, hereby
designated Class I, Class II and Class III. The term of office of the initial
Class I directors shall expire at the next succeeding annual meeting of
stockholders, the term of office of the initial Class II directors shall expire
at the second succeeding annual meeting of stockholders and the term of office
of the initial Class III directors shall expire at the third succeeding annual
meeting of the stockholders. For the purposes hereof, the initial Class I, Class
II and Class III directors shall be those directors elected at the April 19,
1990 annual meeting and designated as members of such Class. At each annual
meeting after the April 19, 1990 annual meeting, directors to replace those of a
Class whose terms expire at such annual meeting shall be elected to hold office
until the third succeeding annual meeting and until their respective successors
shall have been duly elected and shall qualify. If the number of directors is
hereafter changed, any newly created directorships or decrease in directorships
shall be so apportioned among the classes as to make all classes as nearly equal
in number as is practicable.
<PAGE>
(b) Any director may be removed from office only for cause and only by the
affirmative vote of the holders of eighty percent (80%) of the voting power of
the outstanding shares of Common Stock.
(c) The number of directors constituting the entire Board of Directors
shall be not less than nine nor more than fifteen as may be fixed from time to
time by resolution adopted by a majority of the entire Board of Directors;
provided, however, that no decrease in the number of directors constituting the
entire Board of Directors shall shorten the term of any incumbent director. A
majority of the entire Board of Directors may adopt a resolution at any time to
increase the number of directors to not more than fifteen and, by vote of a
majority of the Board of Directors, elect a new director or directors to fill
any such newly created directorship. Any such new director shall hold office
until the next annual meeting of stockholders and until his successor shall have
been duly elected and qualified.
(d) Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of Directors,
although less than a quorum, at any meeting of the Board of Directors. A person
so elected by the Board of Directors to fill a vacancy shall be elected to hold
office until the next succeeding annual meeting of stockholders of the
Corporation and until his or her successor shall have been duly elected an
qualified.
<PAGE>
SECTION 2. Except with respect to those persons who were serving as
directors of the Corporation on October 12, 1987, and who at that time were 60
years of age or over (all of whom shall be eligible for election as directors
until they, respectively, attain the age of 72 years), the Board of Directors
shall not elect nor propose for election by the stockholders of the Corporation
(a) any non-employee of the Corporation who has attained the age of 70 or who
will have attained that age on or before the date of his election by the Board
or proposed election by the stockholders, or (b) any employee of the Corporation
or any of its subsidiaries (other than a past or present Chief Executive Officer
of the Corporation) whose service as such employee has terminated or will in
normal course terminate on or before the date of his election by the Board or
proposed election by the stockholders. Any person who, under the foregoing
provisions of this Section 2, would be eligible for election as a director after
age 70 shall, should he elect to withdraw himself from consideration for such
election, be entitled to the retirement benefits he would have been entitled to
receive had he served as a director until age 72 and the commencement of such
benefits shall, in that event, be accelerated to age 70 or such later date as
such election may be made. The term "retirement benefits" as used herein shall
include but not be limited to deferred compensation payable under any
compensation plan of the Corporation for the benefit of its directors.
<PAGE>
The term of any director who is an employee of the Corporation or any of
its subsidiaries shall expire concurrently with the termination of service of
that director as such an employee.
SECTION 3. A regular meeting of the Board of Directors shall be held
immediately or as soon as practicable after the election of Directors in each
year, provided a quorum for such meeting can be obtained. Thereafter regular
meetings of the Board shall be held on such dates and at such hour and place as
to each meeting as the Board by resolution determines. Notice of every regular
meeting of the Board, except the first meeting after the election of Directors
in each year, stating the date, hour and place at which such meeting will be
held, shall be given to each Director personally, by telephone, by telegraph or
by mail, at least seven days before the day of such meeting.
SECTION 4. Special meetings of the Board of Directors may be called by the
Chairman, by the President, the Vice Chairman, if any, or a Vice President, when
acting in the Chairman's stead, or by any two Directors. Notice of every special
meeting of the Board, stating the time and place at which it will be held, shall
be given to each Director personally, by telephone, by telegraph or by mail, at
least four days before the day of such meeting.
SECTION 5. Notice to a Director of any meeting may be waived in writing by
such Director, either before or after the meeting, and shall be deemed to have
been waived by his attendance at the meeting.
<PAGE>
SECTION 6. A majority of the number of Directors fixed by these Bylaws
shall constitute a quorum for the transaction of business at any meeting of the
Board, but a lesser number may adjourn the meeting from time to time until a
quorum is obtained, or may adjourn SINE DIE. Except as otherwise provided in the
Second Restated Certificate of Incorporation of the Corporation, at every
meeting of the Board of Directors at which a quorum is present a majority vote
of the Directors present shall be decisive of all questions before the meeting.
No Director may participate in meetings of the Board or committees thereof by
means of conference telephone or similar communications equipment except upon
prior notice to such Director from the Chairman, or in the case of a meeting of
a committee, from the chairman thereof, and, in the case of a meeting of the
Board, unanimous approval of the Directors present.
SECTION 7. Directors who are not officers of the Corporation or an
affiliate shall receive annual retainers and fees for attending meetings of the
Board or committees of the Board in such amounts as the Executive Compensation
Committee of this Board shall from time to time set. No retainers or attendance
fees shall be paid to Directors who are also officers of the Corporation or an
affiliate. All Directors shall be reimbursed by the Corporation for their out of
pocket traveling and other expenses incurred in connection with attending
meetings of the Board or committees of the Board. Nothing therein contained
<PAGE>
shall be construed to preclude any Director from serving the Corporation in any
other capacity and receiving compensation therefor, including such compensation
as may be specified by the Board of Directors for services as a member of any
committee of the Board.
ARTICLE IV
COMMITTEES
SECTION 1. The Board of Directors may from time to time establish, by
resolution passed by a majority of the whole Board, standing or special
committees, each consisting of two or more directors. Each committee shall have
those duties and powers, permitted by law, as the Board may determine. Except
for the Chairman of the Corporation, no committee member shall also be an
officer or employee of the Corporation or any of its subsidiaries. The whole
Board shall appoint the committee members and chairmen, and determine the duties
and powers of each committee, annually, upon recommendation of the Chairman of
the Corporation, after the conclusion of the Corporation's Annual Stockholders'
Meeting.
SECTION 2. Meetings of a committee may be called by the chairman of the
committee, by any two members of the committee or by the Chairman. Notice of
each committee meeting, stating the date, hour and place at which it will be
held, shall be given to each member of the committee personally, by telephone,
by telegraph or by mail, at least four days before the day of such meeting. A
majority of the members of a committee shall constitute a quorum for the
transaction of business at any meeting thereof, but a lesser number may adjourn
<PAGE>
the meeting from time to time until a quorum is obtained, or may adjourn SINE
DIE. A majority vote of those present at a meeting of a committee at which a
quorum is present shall be decisive of all questions before the meeting.
SECTION 3. In the absence or disqualification of any member of a committee,
the remaining member or members present at a meeting and not disqualified from
voting, whether or not constituting a quorum, may appoint another Director to
act at such meeting in the place of such absent or disqualified member.
SECTION 4. Notice to a Director of any committee meeting may be waived in
writing by such Director, either before or after the meeting, and shall be
deemed to have been waived by his attendance at the meeting.
SECTION 5. The Board of Directors may delegate to the Chairman authority to
establish Committees, designate their powers, and appoint committee members and
chairmen.
ARTICLE V
OFFICERS
SECTION 1. There shall be elected by the Board of Directors at its first
meeting after the election of Directors in each year, a Chairman, a President, a
Secretary, a Controller, a Treasurer, and a General Counsel. There may be
elected by the Board one or more Vice Chairmen and Vice Presidents, including
Executive Vice Presidents, as the Board may decide upon; a Chief Financial
Officer; and one or more Assistant Vice Presidents, Assistant Secretaries,
<PAGE>
Assistant Controllers or Assistant Treasurers. The Board may also provide for
and elect or appoint, at any time such other officers and prescribe for each of
them such duties as in its judgment may be desirable for the conduct of the
business and affairs of the Corporation. The Board shall approve the
compensation of the chief executive, the operating, the administrative, and the
financial and legal officers of the Corporation. The Chairman and the Chief
Executive Officer shall be, and any other officers may, but shall not be
required to be, Directors of the Corporation. Any two or more offices, except
those of Chief Executive Officer and Secretary, may be held by the same person.
All officers shall hold their respective offices until the first meeting of the
Board of Directors after the next succeeding annual election of Directors and
until their respective successors shall have been elected and qualified, or
until their earlier resignation or removal. Any officer may be removed from
office by the Board of Directors whenever in its judgment the best interests of
the Corporation will be served thereby. Such removal, however, shall be without
prejudice to the contract rights, if any, of the persons so removed. Election of
an officer shall not of itself create contract rights.
SECTION 2. The Chairman shall be the chief executive officer of the
Corporation and shall have general authority over all its affairs and over all
its other officers, agents and employees. The Chairman shall, when present,
preside at all meetings of the stockholders and of the Board of Directors, and
<PAGE>
may attend any meeting of any committee of the Board whether or not a member,
except that attendance at an audit committee meeting may be only upon invitation
of that committee. The Chairman shall sign all papers and documents as may be
necessary or appropriate and shall have such other powers and duties as usually
devolve upon the chief executive officer of a corporation, and such further
powers and duties as may be prescribed by the Board of Directors. The Chairman
shall have authority to appoint, remove or discharge any agent or employee or
any officer not elected or appointed by the Board of Directors and, when the
Board is not in session, to suspend the authority of any officer elected or
appointed by the Board, subject to the pleasure of the Board at its next
meeting.
SECTION 3. Any officer not required by these bylaws to be elected under
Section 1 above, including but not limited to Vice Chairmen, Vice President and
a Chief Financial Officer, shall have such specific powers and duties, and such
authority over the affairs of the Corporation, as may be prescribed by the Board
or the Chairman. Said officers shall report to the Chairman or such other
officer as the Board or Chairman may designate.
SECTION 4. The General Counsel shall be responsible for the supervision of
the legal affairs of the Corporation and in connection therewith shall have such
specific powers and duties as shall be delegated by the Chairman. The General
Counsel shall report to the Chairman.
<PAGE>
SECTION 5. The Controller shall be responsible for the installation and
supervision of all accounting records of the Corporation, preparation and
interpretation of the financial statements and reports of the Corporation,
maintenance of appropriate and adequate records of authorized appropriations,
determination that all sums expended pursuant to such appropriations are
properly accounted for, and shall ascertain that all financial transactions are
properly executed and recorded, and shall have such specific powers and duties
as shall be delegated by the Chairman or the Chief Financial Officer, if any.
The Controller may be required to give bond to the Corporation for the faithful
discharge of his or her duties in such form and in such amount and with such
surety as shall be determined by the Board of Directors. The Controller shall
report to the Chairman or such other officer as the Board may designate.
SECTION 6. The Secretary shall attend all meetings of the stockholders and
of the Board of Directors, shall keep a true and faithful record thereof, and
shall have the custody and care of the corporate seal, records, minute books and
stock books of the Corporation. Except as may be otherwise required by law, the
Secretary shall sign and issue all notices required for meetings of stockholders
and of the Board of Directors. Whenever requested by the requisite number of
stockholders or Directors, the Secretary shall give notice, in the name of the
stockholders or Directors making the request, of a meeting of the stockholders
<PAGE>
or of the Board of Directors, as the case may be. He or she shall sign all
documents and papers to which his or her signature may be necessary or
appropriate, shall affix and attest the seal of the Corporation to all
instruments requiring the seal, and shall have such other powers and duties as
are commonly incidental to the office of the secretary of a corporation or as
may be prescribed by the Board of Directors, the Chairman or the General
Counsel. He or she shall report to the General Counsel.
SECTION 7. The Treasurer shall have charge of and be responsible for the
collection, receipt, custody and disbursement of the funds of the Corporation,
and shall deposit its funds in the name of the Corporation in such banks, trust
companies or other depositories as the Board of Directors may direct. Such funds
shall be subject to withdrawal only upon checks or drafts signed or
authenticated in such manner as may be designated from time to time by
resolution of the Board of Directors. The Treasurer shall have the custody of
such books and papers as in the practical business operations of the Corporation
shall be convenient or as shall be placed in his custody by order of the Board
of Directors. The Treasurer shall have such other powers and duties as are
commonly incidental to the office of treasurer of a corporation or as may be
prescribed by the Board of Directors, the Chairman or the Vice Chairmen or the
Chief Financial Officer, if any. Securities owned by the Corporation shall be in
the custody of the Treasurer or of such other officers, agents or depositories
as may be designated by the Board of Directors. The Treasurer may be required to
<PAGE>
give bond to the Corporation for the faithful discharge of his or her duties in
such form and in such amount and with such surety as shall be determined by the
Board of Directors. The Treasurer shall report to the Chairman or such other
officer as the Board may designate.
SECTION 8. In case of the absence or disability of any officer hereinabove
provided, the next succeeding senior officer shall exercise the powers and
duties of such absent or disabled officer.
ARTICLE VI
INDEMNIFICATION
Each person who is or was or had agreed to become a Director or officer of
the Corporation, or each such person who is or was serving or had agreed to
serve at the request of the Board of Directors or an officer of the Corporation
as an employee or agent of the Corporation or as a Director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate of such
person), shall be indemnified (including, without limitation, the advancement of
expenses and payment of all loss, liability and expenses) by the Corporation to
the full extent permitted by the General Corporation Law of the State of
Delaware or any other applicable laws as presently in effect or as may hereafter
be amended (but in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
<PAGE>
said laws permitted the Corporation to provide prior to such amendment);
provided however, that no person shall be indemnified for amounts paid in
settlement unless the terms and conditions of such settlement have been
consented to by the Corporation and provided further, that no indemnification
for employees or agents of the Corporation (other than Directors and officers)
will be made without the express authorization of the Corporation's Board of
Directors.
ARTICLE VII
MISCELLANEOUS
SECTION 1. No debts shall be contracted by or on behalf of the Corporation,
except for current expenses incurred in the ordinary course of business, unless
authorized or approved by the Board of Directors, or by the Chairman, the Vice
Chairman, if any, the President or Vice President when acting pursuant to
authority or approval granted by the Board.
SECTION 2. Any and all shares of stock of any corporation owned by the
Corporation and any and all voting trust certificates owned by the Corporation
calling for or representing shares of stock of any corporation may be voted at
any meeting of the stockholders of such corporation or at any meeting of the
holders of such certificates, as the case may be, by the Chairman, the Vice
Chairman, if any, the President or any Vice President and the Secretary or any
Assistant Secretary, in person or by proxy, upon any question which may be
presented at such meeting, and such officers may, on behalf of the Corporation,
<PAGE>
waive any notice required to be given of the calling of such meeting and consent
to the holding of such meeting without notice or to the taking of action without
a meeting; provided, however, that if any question to be voted upon relates to
business of a special or extraordinary nature which has not previously been
approved by the Board of Directors of the Corporation, such officers shall vote
or act only in accordance with authorization by the Board of Directors.
SECTION 3. The fiscal year of the Corporation shall be the calendar year.
ARTICLE VIII
AMENDMENT OF BYLAWS
These Bylaws may be altered, amended or repealed by the Board of Directors
at any regular or special meeting of the Board, or by the stockholders, as
provided by law.
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and E. R. BROOKS ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 4 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to
such taxes), including any Excise Tax imposed on any Gross-up
Payment, Executive retains an amount of the Gross-up Payment
equal to the Excise Tax imposed upon the Payments. The Company
and Executive shall make an initial determination as to whether
a Gross-up Payment is required and the amount of any such
Gross-up Payment. Executive shall notify the Company immediately
in writing of any claim by the Internal Revenue Service which,
if successful, would require the Company to make a Gross-up
Payment (or a Gross-up Payment in excess of that, if any,
initially determined by the Company and Executive) within five
days of the receipt of such claim. The Company shall notify
Executive in writing at least five days prior to the due date of
any response required with respect to such claim if it plans to
contest the claim. If the Company decides to contest such claim,
Executive shall cooperate fully with the Company in such action;
provided, however, the Company shall bear and pay directly or
indirectly all costs and expenses (including additional interest
and penalties) incurred in connection with such action and shall
indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of the
Company's action. If, as a result of the Company's action with
respect to a claim, Executive receives a refund of any amount
paid by the Company with respect to such claim, Executive shall
promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is \
November 1, 1996. The term of this Agreement shall be
for a period of three years after such effective date.
Further, beginning on the day immediately following
such effective date and continuing on each subsequent
day, the term of this Agreement shall be extended
automatically one day, so that at no time shall the
term of this Agreement be less than three years, until
such time as the Company shall give written notice to
Executive that no such automatic extension shall occur
and then this Agreement shall terminate as of the last
day of the applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to
enforce or interpret any provision contained herein,
the Company, to the fullest extent permitted by
applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred
in such litigation and hereby agree (i) to pay in full
all such fees and disbursements and (ii) to pay
prejudgment interest on any money judgment obtained by
Executive from the earliest date that payment to
him/her should have been made under this Agreement
until such judgment shall have been paid in full, which
interest shall be calculated at the prime or base rate
of interest announced by Mellon Bank (or any successor
thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime
or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent
permitted by applicable law, hereby indemnifies
Executive for his reasonable attorneys' fees and
disbursements incurred in such arbitration and hereby
agrees to pay in full all such fees and disbursements.
If any controversy regarding this Agreement is
submitted to arbitration, Executive and the Company
agree that the arbitrator's decision shall be final and
legally binding on both parties. The arbitration
provisions of this Paragraph shall be governed by the
provisions of the Federal Arbitration Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable
or arrangements made under any provision of this
Agreement, and, except as provided in Paragraph 3
hereof, the obtaining of any other employment shall in
no event effect any reduction of the Company's
obligations to make (or cause to be made) the payments
and arrangements required to be made under this
Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established
by the Company, releasing the Company, its
shareholders, partners, officers, directors, employees
and agents from any and all claims and from any and all
causes of action of any kind or character, including
but not limited to all claims or causes of action
arising out of Executive's employment with the Company
or the termination of such employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 30TH day of DECEMBER, 1996.
"EXECUTIVE"
E. R. BROOKS
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: T. V. SHOCKLEY, III
NAME: THOMAS V. SHOCKLEY, III
TITLE: EXECUTIVE VICE PRESIDENT
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and THOMAS V. SHOCKLEY, III ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 4 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the _____ day of _____________, 1996.
"EXECUTIVE"
T. V. SHOCKLEY, III
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME:
TITLE:
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and FERD C. MEYER, JR. ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 4 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of NOVEMBER, 1996.
"EXECUTIVE"
FERD C. MEYER
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and GLENN D. ROSILIER ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 4 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of DECEMBER, 1996.
"EXECUTIVE"
GLENN D. ROSILIER
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the "Company"),
and VENITA MCCELLON-ALLEN ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 4 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 19TH day of NOVEMBER, 1996.
"EXECUTIVE"
VENITA MCCELLON-ALLEN
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and THOMAS M. HAGAN ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 4 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 19TH day of NOVEMBER, 1996.
"EXECUTIVE"
THOMAS HAGAN
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the "Company"),
and GLENN FILES ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 4 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of DECEMBER, 1996.
"EXECUTIVE"
GLENN FILES
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and ROBERT L. ZEMANEK ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 3 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of DECEMBER, 1996.
"EXECUTIVE"
R. L. ZEMANEK
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and RICHARD H. BREMER ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 3 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 27TH day of NOVEMBER, 1996.
"EXECUTIVE"
RICHARD H. BREMER
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and RICHARD P. VERRET ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 3 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of DECEMBER, 1996.
"EXECUTIVE"
R. P. VERRET
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and T. J. ELLIS ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "FIRST EMPLOYMENT DATE" shall mean September 1, 1958
being the date from which Executive's employment rights
with Central and South West Corporation shall be deemed
to commence.
(i) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (i)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(j) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(k) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(l) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(m) "SEVERANCE AMOUNT" shall mean an amount equal to 3 times
Executive's Compensation.
(n) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
<PAGE>
(o) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties, (ii) willful
and continued failure to perform his duties, (iii)
willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(p) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(q) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and, where applicable, his
<PAGE>
eligible dependents for up to thirty-six months following
the date of his Covered Termination. Such benefit rights
shall apply only to those Welfare Benefit Coverages which
the Company has in effect from time to time for active
employees. Welfare Benefit Coverage(s) shall immediately
end upon Executive's obtainment of new employment and
eligibility for similar Welfare Benefit Coverage(s) (with
Executive being obligated hereunder to promptly report
such eligibility to the Company). If Executive is
eligible for retiree medical coverage as of the date of
his Covered Termination, Executive shall receive earned
retiree benefits as long as Executive continues to pay
the required premiums for such benefits. Notwithstanding
the foregoing, if any of the Welfare Benefit Coverages
cannot be continued during a period when Executive is not
an employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such refund to the
<PAGE>
Company. If the Company fails to timely notify Executive whether
it will contest such claim or the Company determines not to
contest such claim, then the Company shall immediately pay to
Executive the portion of such claim, if any, which it has not
previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 5TH day of DECEMBER, 1996.
"EXECUTIVE"
T. J. ELLIS
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and MICHAEL D. SMITH ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 2 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of DECEMBER, 1996.
"EXECUTIVE"
MICHAEL D. SMITH
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the "Company"),
and Pete Churchwell ("Executive"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "Board") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. Definitions.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "Involuntary
Termination" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 2 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "Voluntary Termination" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of DECEMBER, 1996.
"EXECUTIVE"
T. D. CHURCHWELL
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the "Company"),
and BRUCE EVANS ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 2 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of DECEMBER, 1996.
"EXECUTIVE"
BRUCE EVANS
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the
"Company"), and TERRY D. DENNIS ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (h)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 3 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of DECEMBER, 1996.
"EXECUTIVE"
TERRY DENNIS
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
CHANGE IN CONTROL AGREEMENT
AGREEMENT between CENTRAL AND SOUTH WEST CORPORATION (the "Company"),
and FLOYD NICKERSON ("EXECUTIVE"),
W I T N E S S E T H:
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his/her continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "CHANGE IN DUTIES" shall mean the occurrence, within
three years after the date upon which a Change in Control
occurs, of any one or more of the following:
(i) A significant reduction in the duties or
responsibilities of Executive from those
applicable to him/her immediately prior to the
date on which a Change of Control occurs;
(ii) A reduction in Executive's total remuneration
(including salary, bonus, qualified retirement
benefits, nonqualified retirement benefits,
welfare benefits and any other employee benefits)
from that provided to him/her immediately prior to
the date on which a Change of Control occurs;
(iii) A change in the location of Executive's principal
place of employment by the Company by more than 35
miles from the location where he was principally
employed immediately prior to the date on which a
Change of Control occurs; or
(iv) A failure by the Company to provide directors and
officers liability insurance covering Executive
comparable to that
<PAGE>
provided to him/her immediately prior to the date
on which a Change of Control occurs.
(b) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or
gains ownership or control (including, without
limitation, power to vote) of 25% or more of the
outstanding shares of the Company's voting stock
(based upon voting power); or
(ii) A period of twenty-four consecutive months during
which two-thirds of the individuals who are
directors of the Company at the beginning of such
period cease to be directors of the Company for
any reason; or
(iii) The Closing of any merger, acquisition, or
consolidation following which the shareholders of
the Company own less than 75% of the surviving
entity; or
(iv) The Closing of a sale or disposition (other than
to a subsidiary) of more than 85% of the Company's
assets.
(c) "CLOSING" shall mean a meeting at which all documents
necessary to consummate a transaction are executed and
delivered; provided that a transaction shall not be
considered Closed for purposes of this Agreement until
all conditions precedent to the consummation of the
transaction, including but not limited to, all required
regulatory approvals, have been fulfilled.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of (i) or (ii),
where:
(i) equals the Executive's annual salary plus Target
Bonus immediately prior to the date on which a
Change of Control occurs; and
(ii) equals the Executive's annual salary plus Target
Bonus at the time of his Covered Termination.
<PAGE>
(f) "COVERED TERMINATION" shall mean an Involuntary
Termination within three years after the date upon which
a Change of Control occurs or a Voluntary Termination
during the thirteenth month after the date upon which a
Change of Control occurs.
(g) "DCP" shall mean the Central and South West Corporation
Executive Deferred Compensation Plan, as amended from
time to time.
(h) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii)
of this subparagraph (e)); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date
upon which Executive receives notice of a Change
in Duties;
(iii) provided, however, the term "INVOLUNTARY
TERMINATION" shall not include a Termination for
Cause or any termination as a result of death,
disability under circumstances entitling Executive
to benefits under the Company's long-term
disability plan, or Retirement.
(i) "PENSION PLAN" shall mean the Central and South West
System Pension Plan, as amended from time to time.
(j) "RETIREMENT" shall mean Executive's termination of
employment on or after the date he reaches age
sixty-five.
(k) "SERP" shall mean the Central and South West System
Special Executive Retirement Plan, as amended from time
to time.
(l) "SEVERANCE AMOUNT" shall mean an amount equal to 2 times
Executive's Compensation.
(m) "TARGET BONUS" shall mean Executive's target incentive
opportunity under the Central and South West Corporation
Annual Incentive Plan in effect for the year with respect
to which such award is being determined, if any, or for
the last year in which such a plan was in effect,
expressed as a dollar amount based upon Executive's
annual salary for the year of such determination.
(n) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its
subsidiaries) by reason of Executive's (i) gross
negligence in the performance of his duties,
<PAGE>
(ii) willful and continued failure to perform his duties,
(iii) willful engagement in conduct which is materially
injurous to the Company or its subsidiaries (monetarily
or otherwise) or (iv) conviction of a felony or a
misdemeanor involving moral turpitude.
(o) "VOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which results
from a resignation by Executive; provided, however, the
term "VOLUNTARY TERMINATION" shall not include an
Involuntary Termination, a Termination for Cause, or any
termination as a result of death, disability under
circumstances entitling Executive to benefits under the
Company's long-term disability plan, or Retirement.
(p) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental and life insurance coverages provided by the
Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto)
during the period of his employment to the best of his ability
and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties
as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or
any subsidiary thereof or successor thereto shall be subject to a
Covered Termination, then Executive shall be entitled to receive,
as additional compensation for services rendered to the Company
(including its subsidiaries), the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
(b) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
unreduced projected supplemental monthly benefit at age
sixty-two under the SERP if Executive has attained age
fifty-five or older as of the date of his Covered
Termination, or to Executive's accrued supplemental
monthly benefit under the SERP, plus three years of
Credited Service (as such term is defined in the SERP) if
Executive has not attained age fifty-five as of the date
of his Covered Termination.
(c) A lump sum cash payment Actuarially Equivalent (as such
term is defined in the Pension Plan) to Executive's
projected normal retirement benefit under the DCP.
(d) If Executive is not eligible for retiree medical coverage
as of the date of his Covered Termination, Executive
shall be entitled to continue the Welfare Benefit
Coverages for himself/herself and,
<PAGE>
where applicable, his eligible dependents for up to
thirty-six months following the date of his Covered
Termination. Such benefit rights shall apply only to
those Welfare Benefit Coverages which the Company has in
effect from time to time for active employees. Welfare
Benefit Coverage(s) shall immediately end upon
Executive's obtainment of new employment and eligibility
for similar Welfare Benefit Coverage(s) (with Executive
being obligated hereunder to promptly report such
eligibility to the Company). If Executive is eligible for
retiree medical coverage as of the date of his Covered
Termination, Executive shall receive earned retiree
benefits as long as Executive continues to pay the
required premiums for such benefits. Notwithstanding the
foregoing, if any of the Welfare Benefit Coverages cannot
be continued during a period when Executive is not an
employee of the Company, the Company shall pay to
Executive a lump sum cash payment in amount equal to the
economic value of such benefit.
(e) Executive shall be entitled to receive reimbursements for
out-placement services in connection with obtaining new
employment incurred within twelve months of the date of
his Covered Termination, up to a maximum amount equal to
15% of his annual salary as of the date of his Covered
Termination.
(f) Executive shall have the option to purchase his company
vehicle for an amount equal to its depreciated book value
as of the date of his Covered Termination.
(g) If Executive relocates his primary residence in
connection with obtaining new employment and such
relocation occurs within thirty-six months of the date of
his Covered Termination, upon providing documentation of
such relocation acceptable to the Company, Executive
shall be entitled to receive a lump sum cash payment in
an amount equal to 25% of his annual salary on the date
of his Covered Termination.
(h) The Company shall cause the SERP and DCP to be amended to
reflect the severance benefits payable pursuant to this
Paragraph. Further, any severance benefits paid pursuant
to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining
benefits under the Company's qualified retirement plans
and shall be subject to any required tax withholding.
(i) Notwithstanding anything to the contrary in this
Agreement, upon a Change of Control, Executive shall be
entitled to receive the benefits provided under the
Central and South West Corporation 1992 Long-Term
Incentive Plan or any subsequent similar plan that may be
implemented in the future.
<PAGE>
(j) Executive shall be entitled to continued access, for the
remainder of the calendar year in which a Covered
Termination occurs, to the financial planning services
available to executive employees of the Company at the
time of the Change of Control upon which such Covered
Termination is based.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3 hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such
payment should have been made under such paragraph until such
payment is made, which interest shall be calculated at the prime
or base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh, PA, and
shall change when and as any such change in such prime or base
rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding
anything to the contrary in the Agreement, in the event that any
payment or distribution by the Company to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an
amount such that after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed on any Gross-up Payment,
Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments. The Company and Executive
shall make an initial determination as to whether a Gross-up
Payment is required and the amount of any such Gross-up Payment.
Executive shall notify the Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up
Payment in excess of that, if any, initially determined by the
Company and Executive) within five days of the receipt of such
claim. The Company shall notify Executive in writing at least
five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If the
Company decides to contest such claim, Executive shall cooperate
fully with the Company in such action; provided, however, the
Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of the Company's action. If, as a
result of the Company's action with respect to a claim, Executive
receives a refund of any amount paid by the Company with respect
to such claim, Executive shall promptly pay such
<PAGE>
refund to the Company. If the Company fails to timely notify
Executive whether it will contest such claim or the Company
determines not to contest such claim, then the Company shall
immediately pay to Executive the portion of such claim, if any,
which it has not previously paid to Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is
November 1, 1996. The term of this Agreement shall be for
a period of three years after such effective date.
Further, beginning on the day immediately following such
effective date and continuing on each subsequent day, the
term of this Agreement shall be extended automatically
one day, so that at no time shall the term of this
Agreement be less than three years, until such time as
the Company shall give written notice to Executive that
no such automatic extension shall occur and then this
Agreement shall terminate as of the last day of the
applicable three-year term.
(b) INDEMNIFICATION. If Executive shall obtain an money
judgment or otherwise prevail with respect to any
litigation brought by Executive or the Company to enforce
or interpret any provision contained herein, the Company,
to the fullest extent permitted by applicable law, hereby
indemnifies Executive for his reasonable attorneys' fees
and disbursements incurred in such litigation and hereby
agree (i) to pay in full all such fees and disbursements
and (ii) to pay prejudgment interest on any money
judgment obtained by Executive from the earliest date
that payment to him/her should have been made under this
Agreement until such judgment shall have been paid in
full, which interest shall be calculated at the prime or
base rate of interest announced by Mellon Bank (or any
successor thereto) at its principal office in Pittsburgh,
PA, and shall change when and as any such change in such
prime or base rate shall be announced by such bank.
Notwithstanding the foregoing, in lieu of litigation to
enforce or interpret any provision of this Agreement,
Executive may request by written notice to the Company
that any controversy regarding the enforcement or
interpretation of any provision contained herein be
submitted to arbitration pursuant to the labor
arbitration rules of the American Arbitration
Association. The Company, to the fullest extent permitted
by applicable law, hereby indemnifies Executive for his
reasonable attorneys' fees and disbursements incurred in
such arbitration and hereby agrees to pay in full all
such fees and disbursements. If any controversy regarding
this Agreement is submitted to arbitration, Executive and
the Company agree that the arbitrator's decision shall be
final and legally binding on both parties. The
arbitration provisions of this Paragraph shall be
governed by the provisions of the Federal Arbitration
Act.
<PAGE>
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive
the amounts and to make the arrangements provided herein
shall be absolute and unconditional and shall not be
affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment,
defense or other right which the Company (including its
subsidiaries) may have against him/her or anyone else.
All amounts payable by the Company (including its
subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to sign an
agreement not to compete with the Company or to seek
other employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement,
and, except as provided in Paragraph 3 hereof, the
obtaining of any other employment shall in no event
effect any reduction of the Company's obligations to make
(or cause to be made) the payments and arrangements
required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of
the Company, by merger or otherwise. This Agreement shall
also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to
full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of
this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason
of applicable law shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other
jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement
or the rights hereunder, except by will or the laws of
descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In
the case of Executive, such notices or communications
shall be effectively delivered if hand delivered to
Executive at his principal place of employment or if sent
by registered or certified mail to Executive at the last
address he has filed with the Company. In the case of the
Company, such notices or communications shall be
effectively delivered if sent by registered or certified
mail to the Company at its principal executive offices.
<PAGE>
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Texas. Further, Executive agrees that any legal
proceeding to enforce the provisions of this Agreement
shall be brought in Dallas, Dallas County, Texas, and
hereby waives his right to any pleas regarding subject
matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, unless such requirement is
waived by the Board in its sole discretion, Executive
shall first execute a release, in the form established by
the Company, releasing the Company, its shareholders,
partners, officers, directors, employees and agents from
any and all claims and from any and all causes of action
of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's
employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the
obligations of the Company hereunder will constitute full
settlement of all claims that Executive might otherwise
assert against the Company on account of his termination
of employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company
(including its subsidiaries), and no such obligation
shall create a trust or be deemed to be secured by any
pledge or encumbrance on any property of the Company
(including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. The Agreement shall not be
deemed to constitute a contract of employment, nor shall
any provision hereof affect (i) the right of the Company
(or its subsidiaries) to discharge Executive at will or
(ii) the terms and conditions of any other agreement
between the Company and Executive except as provided
herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words
used in the singular shall include the plural and the
plural shall include the singular. The masculine gender
where appearing herein shall be deemed to include the
feminine gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 20TH day of DECEMBER, 1996.
"EXECUTIVE"
FLOYD NICKERSON
"COMPANY"
CENTRAL AND SOUTH WEST CORPORATION
BY: E. R. BROOKS
NAME: E. R. BROOKS
TITLE: CHAIRMAN, PRESIDENT AND CEO
<TABLE>
<CAPTION>
EXHIBIT 12.1
Central Power and Light Company
Ratio of Earnings to Fixed Charges
For Years Ended December 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Operating income $251,367 $285,647 $282,184 $256,251 $190,079
Adjustments:
Income taxes 39,329 47,227 51,755 51,329 (18,954)
Provision for deferred
income taxes 34,484 51,476 (30,025) 26,659 90,520
Deferred investment tax credits (4,819) (5,553) (5,789) (5,789) (5,806)
Charges for investments and plant
development costs, net of tax (1,281) (15,569) -- -- --
Other income and deductions 7,834 3,997 14,880 1,272 1,663
Allowance for borrowed and equity
funds used during construction 3,778 1,845 4,514 3,689 2,618
Mirror CWIP amortization -- -- 41,000 68,000 75,702
-------- -------- -------- -------- --------
Earnings $330,692 $369,070 $358,519 $401,411 $335,822
======== ======== ======== ======== ========
Fixed charges:
Interest on long-term debt $105,081 $110,375 $116,205 $111,408 $112,939
Interest on short-term debt and other 20,613 18,494 19,926 12,365 11,993
Distributions on Trust Preferred
Securities 7,533 -- -- -- --
-------- -------- -------- -------- --------
Fixed charges $133,227 $128,869 $136,131 $123,773 $124,932
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.48 2.86 2.63 3.24 2.69(1)
(1) The ratio of earnings to fixed charges for 1993 was calculated before
cumulative effect of change in accounting principles.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12.2
Public Service Company of Oklahoma
Consolidated Ratio of Earnings to Fixed Charges
For Years Ended December 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Operating income $81,776 $101,737 $111,769 $98,258 $72,156
Adjustments:
Income taxes 12,313 25,257 37,490 27,954 13,554
Provision for deferred
income taxes 8,448 (1,328) 2,704 7,779 9,537
Deferred investment tax credits (2,278) (2,784) (2,789) (2,789) (2,838)
Charges for investments and plant
development costs, net of tax (75) (35,708) -- -- --
Other income and deductions 729 (95) 2,274 933 531
Allowance for borrowed and equity
funds used during construction 2,317 1,722 3,734 2,513 1,948
Interest portion of financing
leases -- -- -- 17
-------- -------- -------- -------- --------
Earnings $103,230 $88,801 $155,182 $134,648 $94,905
======== ======== ======== ======== ========
Fixed charges:
Interest on long-term debt $30,474 $30,555 $29,594 $29,594 $31,410
Interest on short-term debt and other 4,100 5,623 6,355 3,844 2,729
Distributions on Trust Preferred
Securities 3,967 -- -- -- --
Interest portion of financing leases -- -- -- -- 17
-------- -------- -------- -------- --------
Fixed charges $38,541 $36,178 $35,949 $33,438 $34,156
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.68 2.45 4.32 4.03 2.78(1)
(1) The ratio of earnings to fixed charges for 1993 was calculated before
cumulative effect of changes in accounting principles.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12.3
Southwestern Electric Power Company
Ratio of Earnings to Fixed Charges
For Years Ended December 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Operating income $139,409 $138,083 $162,776 $145,922 $118,057
Adjustments:
Income taxes 44,396 32,931 41,131 20,623 37,108
Provision for deferred
income taxes (2,244) 2,849 6,287 22,248 (648)
Deferred investment tax credits (4,662) (4,730) (4,786) (4,278) (5,193)
Charges for investments and plant
development costs, net of tax (483) (21,815) -- -- --
Other income and deductions 3,578 312 178 4,656 3,658
Allowance for borrowed and equity
funds used during construction 2,156 2,423 9,334 6,097 2,580
Interest portion of financing
leases 1,194 1,514 1,896 2,562 2,534
-------- -------- -------- -------- --------
Earnings $183,344 $151,567 $216,816 $197,830 $158,096
======== ======== ======== ======== ========
Fixed charges:
Interest on long-term debt $40,440 $44,066 $44,468 $43,395 $ 40,958
Distributions on Trust Preferred
Securities 5,582 -- -- -- --
Interest on short-term debt and other 5,736 8,381 10,706 7,568 4,866
Interest portion of financing leases 1,194 1,514 1,896 2,562 2,534
-------- -------- -------- -------- --------
Fixed charges $52,952 $53,961 $57,070 $53,525 $ 48,358
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 3.46 2.81 3.80 3.70 3.27(1)
(1) The ratio of earnings to fixed charges for 1993 was calculated before
cumulative effect of change in accounting principles.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12.4
West Texas Utilities Company
Ratio of Earnings to Fixed Charges
For Years Ended December 31
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Operating income $44,567 $51,734 $59,486 $54,763 $46,576
Adjustments:
Income taxes 11,294 6,547 6,456 7,900 10,869
Provision for deferred
income taxes (954) 5,718 1,971 8,377 3,593
Deferred investment tax credits (1,321) (1,321) (1,321) (1,321) (1,321)
Charges for investments and plant
development costs, net of tax -- (10,946) -- -- --
Other income and deductions 1,237 601 (463) 4,210 1,907
Allowance for borrowed and equity
funds used during construction 920 1,276 1,031 474 247
-------- -------- -------- -------- --------
Earnings $55,743 $53,609 $67,160 $74,403 $61,871
======== ======== ======== ======== ========
Fixed charges:
Interest on long-term debt 20,352 $21,169 $21,413 $18,547 $19,225
Interest on short-term debt and other 4,911 4,925 4,111 3,534 2,988
-------- -------- -------- -------- --------
Fixed charges $25,263 $26,094 $25,524 $22,081 $22,213
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 2.21 2.05 2.63 3.37 2.79(1)
(1) The ratio of earnings to fixed charges for 1993 was calculated before
cumulative effect of change in accounting principles.
</TABLE>
CSW
===============================================================================
Central and South West Corporation
-------------------------------------------------------------------------------
1997 FINANCIAL REPORT
<PAGE>
TABLE OF CONTENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations 1
Consolidated Statements of Income 30
Consolidated Statements of Stockholders' Equity 31
Consolidated Balance Sheets 32
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 35
Report of Independent Public Accountants 66
Report of Management 69
Glossary of Terms 70
FORWARD LOOKING INFORMATION
This report made by CSW and its subsidiaries contains forward looking statements
within the meaning of Section 21E of the Exchange Act. Although CSW and each of
its subsidiaries believe that, in making any such statements, their expectations
are based on reasonable assumptions, any such statements may be influenced by
factors that could cause actual outcomes and results to be materially different
from those projected. Important factors that could cause actual results to
differ materially from those in the forward looking statements include, but are
not limited to: the impact of general economic changes in the U.S. and in
countries in which CSW either currently has made or in the future may make
investments; the impact of deregulation on the U.S. electric utility business;
increased competition and electric utility industry restructuring in the U.S.;
the impact of the AEP Merger or other merger and acquisition activity; federal
and state regulatory developments and changes in law which may have a
substantial adverse impact on the value of CSW System assets; timing and
adequacy of rate relief; adverse changes in electric load and customer growth;
climatic changes or unexpected changes in weather patterns; changing fuel
prices, generating plant and distribution facility performance; decommissioning
costs associated with nuclear generating facilities; uncertainties in foreign
operations and foreign laws affecting CSW's investments in those countries; the
effects of retail competition in the natural gas and electricity distribution
and supply businesses in the United Kingdom; and the timing and success of
efforts to develop domestic and international power projects. In the non-utility
area, the aforementioned factors would also apply, and, in addition, would
include, but are not limited to: the ability to compete effectively in new
areas, including telecommunications, power marketing and brokering, and other
energy related services, as well as evolving federal and state regulatory
legislation and policies that may adversely affect those industries generally or
the CSW System's business in areas in which it operates.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Reference is made to CSW's Consolidated Financial Statements and related
Notes to Consolidated Financial Statements and Selected Financial Data. The
information contained therein should be read in conjunction with, and is
essential in understanding, the following discussion and analysis.
OVERVIEW
The electric utility industry is changing rapidly as it is becoming more
competitive. In anticipation of increasing competition and fundamental changes
in the industry, CSW's management is implementing a strategic plan designed to
help position CSW to be competitive in this rapidly changing environment and is
developing an emerging global energy business.
CSW has undertaken key initiatives in the implementation of this overall
strategy and is determining new directions for the corporation's future. One of
these new directions is the proposed merger between AEP and CSW that was
announced in December 1997. CSW would become a subsidiary of AEP in the proposed
merger. The proposed merger would join two companies which are low cost
providers of electricity and would achieve greater economies of scale than
either company could achieve on its own. In 1997, CSW International doubled its
investment in a Brazilian electric distribution utility and made other
investments in Latin America. CSW continues to pursue the acquisition of the
non-nuclear generating assets of Cajun, a Louisiana member electric cooperative.
C3 Communications' joint venture limited partnership, ChoiceCom, has entered the
local telephone markets in the Texas cities of Austin, Corpus Christi and San
Antonio and plans to enter the markets of Dallas and Houston offering a variety
of telecommunications services. These events are discussed below and elsewhere
in this report.
CSW believes that, compared to other electric utilities, the CSW System is
well positioned to capitalize on the opportunities and challenges of an
increasingly deregulated and competitive market for the generation, transmission
and distribution of electricity (The foregoing statement constitutes a forward
looking statement within the meaning of Section 21E of the Exchange Act. Actual
results may differ materially from such projected information due to changes in
the underlying assumptions. See FORWARD LOOKING INFORMATION). The CSW System
benefits from economies of scale by virtue of its size and is a reliable and
relatively low-cost provider of electric power. Specifically, CSW seeks
competitive advantages through its diverse and stable customer base, competitive
prices for electricity, diversified fuel mix, extensive transmission
interconnections, diversity of regulation and financial flexibility. See RECENT
DEVELOPMENTS AND TRENDS for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Overview of Operating, Investing and Financing Activities
Net cash provided by operating activities decreased $149 million during
1997 compared to 1996. The decrease was primarily attributable to the December
1997 payment of $88 million on the first installment of the windfall profits tax
imposed on SEEBOARD in the United Kingdom. In addition, increased factored
accounts receivable purchases at CSW Credit, federal and state income tax
payments for the gain on CSW's 1996 sale of Transok which totaled approximately
$122 million (after being offset in part by the utilization of Alternative
Minimum Tax credits that CSW had previously generated), and a $35 million
payment related to the settlement of litigation between CSW and El Paso all
contributed to the decrease. Offsetting part of the decrease, the U.S. Electric
Operating Companies realized greater fuel recovery during 1997 compared to 1996.
1
<PAGE>
Net cash used in investing activities was $904 million in 1997 compared to
$1.3 billion in 1996. There were no acquisition expenditures during 1997 while
$1.4 billion in SEEBOARD acquisition expenditures were made during 1996.
However, during 1996, CSW received $690 million in cash on the sale of Transok
and $99 million on the sale of the National Grid shares. During 1997, while
CSW's total construction expenditures decreased $14 million compared to 1996, a
combined total of approximately $294 million was invested by CSW Energy and CSW
International in 1997 on several projects compared to $124 million in 1996. In
addition, during 1997, CSW Energy made its final payment on the Ft. Lupton
cogeneration project which was more than offset by the reduction of CSW Energy's
equity investment in the Orange cogeneration project when permanent external
financing was obtained on the project.
Net cash flows from financing activities decreased substantially during
1997 compared to 1996. During 1996, CSW incurred substantial debt to finance the
acquisition of SEEBOARD. In addition, CSW sold approximately 15.5 million shares
of common stock and received net proceeds of approximately $398 million in a
primary public offering in 1996, the proceeds of which were subsequently used to
repay a portion of the debt incurred in connection with the SEEBOARD
acquisition. CSW Energy also issued $200 million in Senior Notes during 1996.
During 1997, CSW made changes in its common stock plans and stopped issuing
original shares through these plans. Consequently, $20 million in new common
stock was issued pursuant to these plans in 1997 compared to $79 million in
1996. CPL's $200 million Series BB, 6% FMBs also matured in 1997. However,
offsetting a portion of the decrease, the business trusts of CPL, PSO and SWEPCO
received cash proceeds of approximately $323 million from the issuance of Trust
Preferred Securities during 1997. These proceeds were used primarily to redeem
preferred stock and repay short-term debt of the companies.
The non-cash impacts of exchange rate differences on the translation of
foreign currency denominated assets and liabilities were recorded on a separate
line on the cash flow statement in accordance with accounting guidelines.
Internally Generated Funds
Internally generated funds, which consist of cash flows from operating
activities less common and preferred stock dividends, should meet most of the
capital requirements of the CSW System. However, CSW's strategic initiatives,
including expanding CSW's core electric utility and non-utility businesses
through acquisitions or otherwise, may require additional capital from external
sources. For a description of certain restrictions on CSW's ability to raise
capital from external sources, see PROPOSED AEP MERGER. Productive investment of
net funds from operations in excess of capital expenditures and dividend
payments is necessary to enhance the long-term value of CSW for its investors.
CSW is continually evaluating the best use of these funds. CSW's internally
generated funds totaled $343 million, $499 million and $451 million for 1997,
1996 and 1995, respectively.
Capital Expenditures
The CSW System's need for capital results primarily from its construction
of facilities to provide reliable electric service to its customers, and the
historical capital requirements of the CSW System have been primarily for the
construction of electric utility plant. However, current projected capital
expenditures are expected to be primarily for existing distribution systems and
for various non-utility investments. The U.S. Electric Operating Companies
maintain a continuing construction program, the nature and extent of which is
based upon current and estimated future demands upon the system. Planned
construction expenditures for the U.S. Electric Operating Companies for the next
three years are primarily to improve and expand distribution facilities and will
be funded primarily through internally generated funds. These improvements will
be required to meet the anticipated needs of new customers and the growth in the
requirements of existing customers.
CSW regularly evaluates its capital spending policies and generally seeks
to fund only those projects and investments that management believes will offer
satisfactory returns in the current environment. Consistent with this strategy,
2
<PAGE>
the CSW System is likely to continue to make additional investments in
energy-related and non-utility businesses and will continue to search for
electric utility companies or other electric utility properties to acquire.
Primary sources of capital for these expenditures are long-term debt, trust
preferred securities and preferred stock issued by the U.S. Electric Operating
Companies, long-term and short-term debt issued by CSW, as well as internally
generated funds. Historically, the issuance of common stock by CSW has also been
a source of capital. CSW Energy and CSW International typically use various
forms of non-recourse project financing to provide a portion of the capital
required for their respective projects as well as utilizing long-term debt for
other investments. Although CSW and each of the U.S. Electric Operating
Companies expect to fund the majority of their respective capital expenditures
for their existing utility systems through internally generated funds, for any
significant investment or acquisition, additional funds from the capital markets
may be required. For a description of certain restrictions on CSW's ability to
raise capital from external sources, including through the issuance of common
stock, see PROPOSED AEP MERGER.
The historical and estimated capital expenditures for the CSW System are
shown in the table below. The amounts include construction expenditures for the
U.S. Electric Operating Companies and, for SEEBOARD and CSW's other diversified
operations, construction expenditures and net equity investments. It does not
include the $2.1 billion used to acquire SEEBOARD during 1995 and 1996. The
majority of the capital expenditures for the U.S. Electric Operating Companies
for 1995 through 1997 were spent on distribution facilities. It is anticipated
that the majority of the estimated capital expenditures for 1998 through 2000
will be for distribution facilities as well. For a description of certain
restrictions on CSW's ability to make capital expenditures, including through
the issuance of common stock, see PROPOSED AEP MERGER (The table and statements
below contain forward looking information within the meaning of Section 21E of
the Exchange Act. Actual results may differ materially from such projected
information due to changes in the underlying assumptions. See FORWARD LOOKING
INFORMATION).
Estimated
1995 1996 1997 1998 1999 2000
-------------------------- -------------------------
(millions including AFUDC)
Capital Expenditures $495 $644 $760 $569 $586 $595
Estimated Capital Expenditures for 1998-2000 do not include expenditures for
acquisition-type investments.
Although CSW does not believe that the U.S. Electric Operating Companies
will require substantial additions of generating capacity over the next several
years, the U.S. Electric system's internal resource plan presently anticipates
that any additional capacity needs will come from a variety of sources including
power purchases. Refer to Integrated Resource Plan for additional information
regarding the U.S. Electric System's capacity needs.
Inflation
Annual inflation rates, as measured by the U.S. Consumer Price Index, have
averaged approximately 2.4% during the three years ended December 31, 1997. CSW
believes that inflation, at this level, does not materially affect CSW's results
of operations or financial position. However, under existing regulatory
practice, only the historical cost of plant is recoverable from customers. As a
result, cash flows designed to provide recovery of historical plant costs may
not be adequate to replace plant in future years.
Financial Structure, Shelf Registrations and Credit Ratings As of December
31, 1997, the capitalization ratios of CSW were 45% common
stock equity, 2% preferred stock, 4% Trust Preferred Securities and 49%
long-term debt. CSW is committed to maintaining financial flexibility through a
strong capital structure and favorable securities ratings in order to access
capital markets opportunistically or when required. CSW continually monitors the
capital markets for opportunities to lower its cost of capital through
refinancing activities. CSW's estimated embedded cost of long-term debt for 1997
was 7.2%.
3
<PAGE>
CSW can issue common stock, either through the purchase and reissuance of
shares from the open market or original issue shares, to fund its LTIP, stock
option plan, PowerShare plan and ThriftPlus plan. Following the issuance of the
CPL 1997 Original Rate Order and the decline in the market price of CSW Common,
which CSW believes was attributable in part to the CPL 1997 Original Rate Order,
the determination was made that it was appropriate for CSW to begin funding
these plans through open market purchases, effective April 1, 1997. Prior to
that time, CSW had issued $20 million in new common stock in 1997. CPL has shelf
registration statements on file for the issuance of up to $60 million of FMBs
and up to $75 million of preferred stock, and PSO has a shelf registration
statement on file for the issuance of up to $35 million of Senior Notes. For a
description of certain restrictions on CSW's ability to raise capital from
external sources, see PROPOSED AEP MERGER.
The current securities ratings for CSW and each of the U. S. Electric
Operating Companies is presented in the following table, including the
securities rating on the Trust Preferred Securities issued by CPL Capital I, PSO
Capital I and SWEPCO Capital I.
Moody's Duff & Phelps Standard & Poor's
------------------------------------------
CPL
First mortgage bonds A3 A A
Senior unsecured Baa1 A- A-
Preferred stock baa1 BBB+ A-
Trust preferred (CPL Capital I) baa1 BBB+ A-
Junior subordinated deferrable
interest debentures Baa2 -- --
PSO
First mortgage bonds A1 AA- AA-
Senior unsecured A2 A+ A
Preferred stock a3 A+ A
Trust preferred (PSO Capital I) a2 A+ A
Junior subordinated deferrable
interest debentures A3 -- --
SWEPCO
First mortgage bonds Aa3 AA AA-
Senior unsecured A1 AA- A
Preferred stock a1 AA- A
Trust preferred (SWEPCO Capital I) aa3 AA- A
Junior subordinated deferrable
interest debentures A2 -- --
WTU
First mortgage bonds A2 A+ A
Senior unsecured A3 -- A-
Preferred stock a3 A A-
CSW
Commercial paper P-2 D-2 A-2
These securities ratings may be revised or withdrawn at any time, and each
rating should be evaluated independently of any other rating.
Long-Term Financing
On April 24, 1997, PSO's business trust, PSO Capital I, sold to
underwriters in a negotiated offering $75 million, 8.00% Series A, Trust
Originated Preferred Securities due April 30, 2037. The proceeds from the sale
of these securities were used by PSO to repay short-term debt, to reimburse
PSO's treasury for the cost of reacquiring approximately $14.5 million of 4.00%
Series and 4.24% Series preferred stock, to provide working capital and for
other general corporate purposes. Settlement of the transaction occurred on May
2, 1997. PSO Capital I is treated as a subsidiary of PSO whose only assets are
the approximately $77.3 million principal subordinated debentures issued by PSO.
4
<PAGE>
In addition to PSO's obligation under the subordinated debentures, PSO has also
agreed to a security obligation which represents a full and unconditional
guarantee of PSO Capital I's trust obligations.
On April 30, 1997, SWEPCO's business trust, SWEPCO Capital I, sold to
underwriters in a negotiated offering $110 million, 7.875% Series A, Trust
Preferred Securities due April 30, 2037. The proceeds from the sale of these
securities were used by SWEPCO to repay short-term debt, to reimburse SWEPCO's
treasury for the cost of reacquiring approximately $15.5 million of 4.28%
Series, 4.65% Series, 5.00% Series and 6.95% Series preferred stock, to provide
working capital and for other general corporate purposes. Settlement of the
transaction occurred on May 8, 1997. SWEPCO Capital I is treated as a subsidiary
of SWEPCO whose only assets are the approximately $113.4 million principal
subordinated debentures issued by SWEPCO. In addition to SWEPCO's obligation
under the subordinated debentures, SWEPCO has also agreed to a security
obligation which represents a full and unconditional guarantee of SWEPCO Capital
I's trust obligations.
On May 8, 1997, CPL's business trust, CPL Capital I, sold to underwriters
in a negotiated offering $150 million, 8.00% Series A, Cumulative Quarterly
Income Preferred Securities due April 30, 2037. The proceeds from the sale of
these securities were used by CPL to repay short-term debt, to reimburse CPL's
treasury for the cost of reacquiring approximately $87.5 million of 4.00%
Series, 4.20% Series, 7.12% Series and 8.72% Series preferred stock, to provide
working capital and for other general corporate purposes. Settlement of the
transaction occurred on May 14, 1997. CPL Capital I is treated as a subsidiary
of CPL whose only assets are the approximately $154.6 million principal
subordinated debentures issued by CPL. In addition to CPL's obligation under the
subordinated debentures, CPL has also agreed to a security obligation which
represents a full and unconditional guarantee of CPL Capital I's trust
obligations.
In March 1997, an affiliate of Orange Cogeneration Limited Partnership, an
entity that is 50% indirectly owned by CSW Energy and accounted for by the
equity method of accounting, issued $110 million, 8.175% Senior Secured Bonds,
due 2022. The bonds are unconditionally guaranteed by Orange Cogeneration
Limited Partnership. Concurrently, $53.2 million was distributed to CSW Energy
representing its equity investment in the Orange Cogeneration project.
Short-Term Financing and Accounts Receivable Factoring The CSW System uses
short-term debt, primarily commercial paper, to meet
fluctuations in working capital requirements and other interim capital needs.
CSW has established a system money pool to coordinate short-term borrowings for
certain of its subsidiaries, primarily the U.S. Electric Operating Companies. In
addition, CSW also incurs borrowings for other subsidiaries that are not
included in the money pool. As of December 31, 1997, CSW had a revolving credit
facility totaling $1.4 billion to back up its commercial paper program. At
December 31, 1997 CSW had $721 million outstanding in short-term borrowings. The
maximum amount of short-term borrowings outstanding during the year, which had a
weighted average interest yield for the year of 5.8%, was $725 million during
December 1997.
CSW Credit purchases, without recourse, the accounts receivable of the
U.S. Electric Operating Companies and certain non-affiliated electric companies.
The sale of accounts receivable provides the U.S. Electric Operating Companies
with cash immediately, thereby reducing working capital needs and revenue
requirements. In addition, CSW Credit's capital structure contains greater
leverage than that of the U.S. Electric Operating Companies, so CSW's cost of
capital is lowered. CSW Credit issues commercial paper to meet its financing
needs. At December 31, 1997, CSW Credit had a $900 million revolving credit
agreement, secured by the assignment of its receivables, to back up its
commercial paper program, which had $637 million outstanding. The maximum amount
of such commercial paper outstanding during the year, which had a weighted
average interest yield of 5.6%, was $890 million during September 1997.
5
<PAGE>
CSW has recently made several finance-related filings with the SEC under
the Holding Company Act which, if approved, would increase CSW's financial
flexibility. In the first filing, CSW requested authority to repurchase up to
ten percent of its outstanding common stock as of June 30, 1997, from its stock
and employee benefit plans (pursuant to the terms and conditions of such plans)
from time to time through December 31, 2002, and to utilize its short-term
borrowing program, including funds borrowed through its commercial paper
program, to finance its repurchase in the open market of up to twenty percent of
its outstanding common stock as of June 30, 1997. No decision regarding this
application has been made by the SEC. Such authority would increase CSW's
flexibility to adjust its capital structure. The second filing requests
authority through December 31, 2002 for CSW, the U.S. Electric Operating
Companies and CSW Services to finance ongoing business, repay short-term debt
and finance the potential repurchase of outstanding securities. CSW has
requested authority to issue common stock, while the U.S. Electric Operating
Companies and CSW Services have requested authority to issue common stock,
preferred stock and debt. Such authority would give CSW the flexibility to take
advantage of favorable market conditions for routine financings. The SEC issued
an order on December 30, 1997 granting the requested authority. The third filing
requests an increase in the authorized short-term borrowing capacity for CSW and
certain of its subsidiaries. The SEC has not issued an order with respect to
this application. For a description of certain restrictions on CSW's ability to
repurchase common stock and to raise capital from external sources, see PROPOSED
AEP MERGER.
CSW Energy and CSW International
In October 1996, CSW Energy issued $200 million, 6.875% Senior Notes due
2001. The proceeds from the notes were for the acquisition, development and
construction of electric generation assets in the United States and to make
affiliate loans to CSW International.
CSW Energy has authority from the SEC to expend up to $250 million for
general development activities related to qualifying facilities and independent
power facilities. CSW Energy may seek specific authority to spend additional
amounts on certain projects subject to limitations contained in the AEP merger
agreement. See NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES, for a discussion
of CSW's investments and commitments in CSW Energy projects at December 31,
1997.
In January 1997, CSW received authority from the SEC under the Holding
Company Act to spend an amount up to 100% of consolidated retained earnings on
EWG or FUCO investments. This represents an increase in authority previously
granted under the Holding Company Act. However, the amount of any such
expenditures is subject to the terms of the AEP merger agreement. As of December
31, 1997, CSW had invested an amount equal to 49% of consolidated retained
earnings, as defined by rule 53 of the Holding Company Act, on EWG and FUCO
investments. For a description of certain restrictions on the ability of CSW and
its subsidiaries to make capital expenditures in respect of qualifying
facilities and independent power facilities and to make EWG and FUCO
investments, see PROPOSED AEP MERGER.
RECENT DEVELOPMENTS AND TRENDS
CSW Strategic Responses
CSW has, from time to time considered, and expects to consider in the
future, various strategies designed to enhance CSW's competitive position and to
increase its ability to anticipate and adapt to changes in the electric utility
industry. These strategies may include business combinations with other
companies, internal restructurings involving the complete or partial separation
of CSW's generation, transmission and distribution businesses, acquisitions or
dispositions of assets or lines of business, and additions to or reductions of
franchised service territories. CSW may from time to time engage in discussions,
either internally or with third parties, regarding one or more of these
potential strategies. Those discussions may be subject to confidentiality
agreements and CSW's policy is generally not to comment on such activities. No
assurances can be given that any potential transaction of the type described
above may actually occur, or, if one does occur, the ultimate effect thereof on
6
<PAGE>
CSW's results or operations, financial condition or competitive position (The
foregoing statement constitutes a forward looking statement within the meaning
of Section 21E of the Exchange Act. Actual results may differ materially from
such projected information due to changes in the underlying assumptions. See
FORWARD LOOKING INFORMATION).
AEP Merger
In December 1997, AEP and CSW announced that their boards of directors
approved a definitive merger agreement. If the merger is completed, the combined
company will be a diversified electric utility serving more than 4.6 million
customers in 11 states and approximately 4 million customers outside the United
States. On January 19, 1998, CSW announced a corporate realignment to more
effectively position itself for competition and to better align itself with AEP
related to the proposed merger of the two companies. The transaction must
receive regulatory approval from federal and state authorities and must satisfy
a number of other conditions, some of which, such as CSW and AEP shareholder
approval, may not be waived by the parties. There can be no assurance that the
AEP Merger will be consummated, and if it is, the timing of such consummation or
the effect of any regulatory conditions that may be imposed on such
consummation. See PROPOSED AEP MERGER.
Competition and Industry Challenges
Competitive forces at work in the electric utility industry are impacting
the CSW System and electric utilities generally. Increased competition facing
electric utilities is driven by complex economic, political and technological
factors. These factors have resulted in legislative and regulatory initiatives
that are likely to result in even greater competition at both the wholesale and
retail levels in the future. As competition in the industry increases, the U.S.
Electric Operating Companies will have the opportunity to seek new customers and
at the same time be at risk of losing customers to other competitors.
Additionally, the U.S. Electric Operating Companies will continue to compete
with suppliers of alternative forms of energy, such as natural gas, fuel oil and
coal, some of which may be cheaper than electricity. In the United Kingdom, the
franchised electricity supply business is scheduled to open to full competition
on a phased-in basis on September 1, 1998. As a result, SEEBOARD will be able to
seek customers while risking the loss of existing customers to other
competitors. As a whole, the CSW U.S. Electric System believes that, overall,
its prices for electricity and the quality and reliability of its service
currently place it in a position to compete effectively in the energy
marketplace (The foregoing statement constitutes a forward looking statement
within the meaning of Section 21E of the Exchange Act. Actual results may differ
materially from such projected information due to changes in the underlying
assumptions. See FORWARD LOOKING INFORMATION). See RATES AND REGULATORY MATTERS
for a discussion of several current issues impacting the CSW System.
Electric industry restructuring and the development of competition in the
generation and sale of electric power requires resolution of several important
issues, including, but not limited to: (i) who will bear the costs of prudent
utility investments or past commitments incurred under traditional
cost-of-service regulation that will be uneconomic in a competitive environment,
sometimes referred to as stranded costs; (ii) whether all customers have access
to the benefits of competition; (iii) how, and by whom, the rules of competition
will be established; (iv) what the impact of deregulation will be on
conservation, environmental protection and other regulator-imposed programs; and
(v) how transmission system reliability will be ensured. The degree of risk to
CSW associated with various federal and state restructuring proposals aimed at
resolving any or all of these issues will vary depending on many factors,
including the proposals' competitive position and treatment of stranded utility
investment resulting from such requirements. Although CSW believes it is in a
position to compete effectively in a deregulated, more competitive marketplace,
if stranded costs are not recovered from customers, then CSW may be required by
existing accounting standards to recognize potentially significant losses from
unrecovered stranded costs, especially with respect to STP (The foregoing
statement constitutes a forward looking statement within the meaning of Section
21E of the Exchange Act. Actual results may differ materially from such
projected information due to changes in the underlying assumptions. See FORWARD
LOOKING INFORMATION). See Regulatory Accounting for additional information.
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At the federal level, several bills were introduced in Congress during the
1997 legislative session which provided for restructuring and/or deregulating
the electric utility industry. However, no such bills were enacted into law. In
1998, the United States Senate has progressed further in its consideration of
comprehensive energy restructuring legislation than the United States House of
Representatives. However, in the United States Senate, differences must be
resolved between those who favor legislation to repeal the Holding Company Act
and those who support repeal only in the context of comprehensive legislation.
Prospects for repeal of the Holding Company Act in 1998 are unclear.
While a majority of the states, including the four states in which the
U.S. Electric Operating Companies operate, have considered deregulation that
requires some form of retail competition, several states have enacted actual
legislation mandating retail competition including Oklahoma in which PSO
operates. CSW cannot predict when and if it will be subject to one or more of
these legislative initiatives, nor can it predict the scope or effect of such
legislation on its results of operations or financial condition. For additional
information related to such state initiatives, see Industry Restructuring
Initiatives in Texas, Louisiana, Oklahoma and Arkansas.
Wholesale Electric Competition in the United States
The Energy Policy Act, which was enacted in 1992, significantly altered
the way in which electric utilities compete. The Energy Policy Act created
exemptions from regulation under the Holding Company Act and permits utilities,
including registered utility holding companies and non-utility companies, to own
EWGs. EWGs are a relatively new category of non-utility wholesale power
producers that are free from most federal and state regulation, including
restrictions under the Holding Company Act. These provisions enable broader
participation in wholesale power markets by reducing regulatory hurdles to such
participation. The Energy Policy Act also allows the FERC, on a case-by-case
basis and with certain restrictions, to order wholesale transmission access and
to order electric utilities to enlarge their transmission systems. A FERC order
requiring a transmitting utility to provide wholesale transmission service must
include provisions generally that permit the utility to recover from the FERC
applicant all of the costs incurred in connection with the transmission services
and any enlargement of the transmission system and associated services.
Wholesale energy markets, including the market for wholesale electric power,
have been increasingly competitive since enactment of the Energy Policy Act. The
U.S. Electric Operating Companies must compete in the wholesale energy markets
with other public utilities, cogenerators, qualifying facilities, EWGs and
others for sales of electric power. While CSW believes that the Energy Policy
Act will continue to make the wholesale markets more competitive, CSW is unable
to predict whether the Energy Policy Act will adversely impact the U.S. Electric
Operating Companies.
FERC Orders 888 and 889
The FERC issued Order No. 888 in 1996, which is the final comparable open
access transmission service rule. The provisions of FERC Order No. 888 provide
for comparable transmission service between utilities and their transmission
customers by requiring utilities to take transmission service under their open
access tariffs for wholesale sales and purchases and by requiring utilities to
rely on the same transmission information that their transmission customers rely
on to make wholesale purchases and sales.
In addition, the Texas Commission adopted a rule governing transmission
access and pricing for ERCOT in 1996. The pricing method adopted by the Texas
Commission is a hybrid combination of an ERCOT-wide postage stamp rate covering
70% of total ERCOT transmission costs and a distance-sensitive component which
recovers the remaining 30% of ERCOT's transmission costs. CPL and WTU began
recording transmission revenues and expenses in accordance with the Texas
Commission's rule on January 1, 1997.
FERC Order No. 888 requires holding companies to offer single system
transmission rates. The transmission rates of the U. S. Electric Operating
Companies are under the exclusive jurisdiction of the FERC while the
transmission rates of most of the transmitting utilities in ERCOT are under the
exclusive jurisdiction of the Texas Commission. Because the two commissions have
different approaches to defining and implementing comparable open access
transmission service, Order No. 888 granted the U. S. Electric Operating
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Companies an exemption permitting them an opportunity to propose a solution that
provides comparability to all wholesale users. On November 1, 1996, the U. S.
Electric Operating Companies filed a system-wide tariff to comply with Order No.
888 and, on December 31, 1996, the FERC accepted for filing the system-wide
tariff which became effective on January 1, 1997, subject to refund and to the
issuance of further orders.
On December 10, 1997 the FERC issued an order regarding the U. S. Electric
Operating Companies' proposed system-wide tariff filed on November 1, 1996. The
FERC's order accepted the proposed tariff subject to several modifications,
including revisions to provide for system-wide transmission service under a
single system rate. The U. S. Electric Operating Companies filed the required
compliance tariff on February 9, 1998 and are waiting for FERC's acceptance of
the revised tariff.
In 1996, the FERC issued Order No. 889 requiring transmitting utilities to
establish and operate an OASIS for the dissemination of information regarding
available transfer capability for their respective transmission systems. The
OASIS is an on-line information system that provides the same information about
the utility's transmission system to all transmission customers. The U.S.
Electric Operating Companies utilize, and participate in the OASIS systems for
ERCOT and SPP. Order No. 889 also created standards of conduct requiring
utilities to conduct any wholesale power sales business separately from their
transmission operations. The standards of conduct are designed to ensure that
utilities and their affiliates, as sellers of power, do not have preferential
access to information about wholesale transmission prices and availability.
Retail Electric Competition in the United States
Increased competition in the utility industry has resulted in increased
pressure to stabilize or reduce rates. The retail regulatory environment is
beginning to shift from traditional rate base regulation to incentive
regulation. Incentive rate and performance-based plans encourage efficiencies
and increased productivity while permitting utilities to share in the results.
Retail wheeling, a major legislative initiative which would require utilities to
"wheel" or move power from third parties to their own retail customers, is
evolving gradually. Most states either have introduced legislation or are
investigating the issue, and several states have already passed legislation
which mandates retail choice by a certain date.
CSW believes that retail competition would not be in the best interests of
CSW's security holders unless CSW receives fair recovery of the full amounts
previously invested to finance power plants. These investments, which were
reasonably incurred, were made by the U.S. Electric Operating Companies to meet
their obligation to serve the public interest, necessity and convenience. This
obligation has existed for nearly a century and remains in force under current
law. CSW intends to strongly oppose attempts to impose retail competition
without just compensation for the risks and investments CSW undertook to serve
the public's demand for electricity. For additional information related to
retail wheeling in the United States, see Holding Company Act and Legislative
Update and Industry Restructuring Initiatives in Texas, Louisiana, Oklahoma and
Arkansas.
Industry Restructuring Initiatives in Texas, Louisiana, Oklahoma and
Arkansas
Several initiatives regarding restructuring the electric utility industry
have recently been undertaken in the four states in which the U.S. Electric
Operating Companies operate. Legislation was enacted in Oklahoma while
legislative activity in Texas, Louisiana and Arkansas stopped short of any such
definitive action.
In April 1997, the Oklahoma Legislature enacted legislation dealing with
industry restructuring in Oklahoma, which provides for retail competition by
July 1, 2002. The legislation directs the Oklahoma Commission to study all
relevant issues relating to restructuring and develop a framework for a
restructured industry. The legislation divides the study of restructuring issues
by the Oklahoma Commission into four parts: (i) independent system operator
issues; (ii) technical issues; (iii) financial issues; and (iv) consumer issues.
At the end of each of these studies, the Oklahoma Commission must provide
reports along with legislative recommendations. The legislation directs the
Oklahoma Tax Commission to study the impact of electric utility restructuring on
state tax revenues and the existing tax structure, consider the establishment of
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a uniform consumption tax, and report to the Oklahoma Legislature by December
31, 1998. The legislation prohibits the establishment of retail competition
until a uniform tax policy is established. The legislation also creates a Joint
Electric Utility Task Force, a 14-member panel composed of an equal number of
representatives from the Oklahoma United States House of Representatives and the
Oklahoma Senate. The duties of this task force include the oversight and
direction of the studies by the Oklahoma Commission and the Oklahoma Tax
Commission. Management is unable to predict the outcome of these studies or
their ultimate impact on CSW's results of operations and financial.
In March 1997, the Arkansas Legislature passed a resolution directing
interim legislative committees to study competition in the electric power
industry in Arkansas. The study began in October 1997, and the committees will
continue to hold hearings throughout 1998. Also, the Arkansas Commission has
initiated a series of generic restructuring dockets. The Arkansas Commission
will provide a report to the Arkansas Legislature by October 1998. In Louisiana,
a special legislative committee created by the Louisiana Senate is studying the
impact of retail competition on the state of Louisiana. The committee is
scheduled to issue a report before the next regular session of the Louisiana
Legislature. The Louisiana Commission has also opened a proceeding to study
restructuring and retail competition. In Texas, the Texas Lieutenant Governor
appointed a Senate interim committee to study retail competition and
restructuring. The committee is holding a series of hearings and is scheduled to
issue a report by September 1998. Management cannot predict the outcome of the
studies in Arkansas, Louisiana and Texas or their ultimate impact on CSW's
results of operations and financial condition.
Industry Restructuring in Texas
Amendments to PURA, the legal foundation of electric regulation in Texas,
became effective on September 1, 1995. Among other things, the amendments
deregulate the wholesale bulk power market in ERCOT, permit pricing flexibility
for utilities facing competitive challenges, provide for a market-driven
integrated resource planning process and mandate comparable open access
transmission service.
PURA also required that the Texas Commission adopt a rule on comparable
open transmission access by March 1, 1996. In conjunction with this rulemaking
proceeding (Project No. 14045), the chairman of the Texas Commission issued a
proposal on September 6, 1995, for the purpose of maximizing competition in the
ERCOT wholesale bulk power market. The proposal calls for the functional
unbundling of integrated utilities where distribution entities could purchase
their power requirements from any generator or set of generators in ERCOT. Those
generators which are currently regulated would be deregulated after provisions
are in place to recover stranded costs. The proposal was assigned a separate
proceeding (Project No. 15000), and after a series of workshops and technical
conferences conducted during 1996, the Texas Commission submitted a final Scope
of Competition report to the Texas Legislature in January 1997. The final report
contains numerous recommendations to the Texas Legislature including requests
for additional regulatory authority or clarification of existing authority
including to certificate electric service resellers, the authority to adopt
consumer protection and universal service standards, the authority to determine
and allocate stranded costs to all customers, the authority to promote
unbundling, the authority to allow alternative forms of regulation, increased
authority to address mergers, authority to correct market power abuses,
authority over the ERCOT ISO and authority to permit alternative methods for
fuel cost recovery. In addition, the final report offers the Texas Legislature
four restructuring options. Option 1 maintains the regulatory status quo; Option
2 would permit utilities to voluntarily offer retail access; Option 3 would
provide for full wholesale competition; and Option 4 would provide for full
retail competition. The report's final recommendation is for the Texas
Legislature to direct the Texas Commission to prepare for full retail
competition using a careful and deliberate approach on a timetable to be
established by the Texas Legislature, but with no retail access before the year
2000. The Texas legislature considered but did not pass any of these proposals
in the 1997 legislative session.
On February 7, 1996, the Texas Commission adopted a rule governing
transmission access and pricing (Project No. 14045). The pricing method adopted
by the Texas Commission is a hybrid combination of an ERCOT-wide postage stamp
rate covering 70% of total ERCOT transmission costs and a distance-sensitive
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component referred to as a vector-absolute megawatt mile which recovers the
remaining 30% of ERCOT transmission costs. The open access tariffs filed with
the FERC on February 9, 1996 did not reflect Project No. 14045 pricing. However,
on November 1, 1996, CSW filed tariffs with the FERC in accordance with FERC
Order 888 that conform to the Texas Commission's rule. See FERC Orders 888 and
889 for additional information regarding the transmission pricing rules
prescribed by FERC.
By statute the Texas Commission was required to submit a report to the
1997 Texas Legislature on "methods or procedures for quantifying the magnitude
of stranded investment, procedures for allocating costs, and the acceptable
methods of recovering stranded costs." The Texas Commission initiated Project
No. 15001 to collect information to prepare the required report. In response to
the Texas Commission's order in Project 15001, CPL, SWEPCO, and WTU each filed
information on estimates of potential stranded costs. While the filings for CPL
included estimates of significant potential stranded costs, no significant
potential stranded costs were identified in the filings for SWEPCO or WTU. In
January 1998, the Texas Commission requested updated information on CPL's
stranded costs for a report that the Texas Commission is preparing for the
Senate interim committee on restructuring. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for a discussion of the potential impact of potential stranded costs
relating to CPL.
The Texas Commission's Project 15002, "Scope of Competition Report," is a
report that the Texas Commission is required to present to the Texas Legislature
in each odd-numbered year detailing the scope of competition in the electric
markets and the impact of competition and industry restructuring on customers.
In addition, the report is required to include the Texas Commission's
recommendations to the Texas Legislature for further legislation. In June 1996,
CPL, SWEPCO and WTU each filed information for the Texas Commission's report.
Texas Independent System Operator Plan
In June 1996, CSW, including CPL and WTU, and more than 20 other parties,
including other investor-owned utilities, municipal power companies, electric
cooperatives, independent power producers and power marketers, filed plans to
create an ISO to manage the ERCOT power grid. The filing marks a major step
towards implementing the Texas Commission's overall strategy to create the
competitive wholesale electric market that was mandated by the Texas Legislature
in 1995. The Texas Commission approved the ISO in August 1996. Such approval
made Texas the first state in the nation to adopt a plan for a regional ISO and
a regional competitive wholesale bulk power market.
Integrated Resource Plan
In January 1997, CPL, WTU, and SWEPCO filed with the Texas Commission a
joint integrated resource plan outlining the companies' future electric needs
over a 10-year forecast horizon and the manner in which the companies propose to
meet those needs. In July 1997 the Texas Commission issued an Interim Order on
the Preliminary Plan which adopted a settlement agreement that had been reached
with all the parties in the case. The Interim Order approved the load forecast
and individual resource needs for each of the companies, as well as the request
for proposal documents to be used to procure future resource needs. The Interim
Order also approved the targeted purchase goal amounts for renewable and energy
efficiency programs, which will result in renewable and energy efficiency
programs being included in the companies' resource mix. The targeted purchase
goals were developed in response to customer input obtained through the
deliberative polling process conducted at each operating company in the summer
of 1996. A separate phase of the Integrated Resource Plan was created to address
the value of interruptible resources at CPL. That phase is expected to be
completed in March 1998. The Interim Order also required that a green pricing
tariff be filed which would allow customers who are interested in acquiring a
greater portion of their personal consumption from environmentally beneficial
generation to exercise that choice. A green pricing tariff was approved for use
in San Angelo, Texas in October 1996. A system-wide filing is expected in
mid-1998.
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Holding Company Act and Legislative Update
The Holding Company Act generally has been construed to limit the
operations of a registered holding company to a single integrated public utility
system, plus such additional businesses as are functionally related to such
system. Among other things, the Holding Company Act requires CSW and its
subsidiaries to seek prior SEC approval before effecting mergers and
acquisitions or pursuing other types of non-utility initiatives. Such pervasive
regulation may impede or delay CSW's efforts to achieve its strategic and
operating objectives. Consequently, CSW continues to support efforts to repeal
or modify this legislation.
In 1995, the SEC issued a report to the United States Congress advocating
repeal of the Holding Company Act, either on a conditional and transitional
basis or immediate and outright repeal. The basis for the SEC's recommendation
for repeal is that the Holding Company Act is anachronistic and duplicative of
other federal and state regulatory regimes that have developed over the past
sixty years. Following the SEC's report, there were several bills introduced in
both the United States Senate and House of Representatives in 1996 which would
have repealed the Holding Company Act on a conditional and transitional basis
and transferred its oversight functions to the FERC and the states. Another bill
was introduced into the United States House of Representatives that, in addition
to repealing the Holding Company Act, would have repealed PURPA, which among
other things, requires investor owned utilities to purchase power at their
avoided cost from qualifying facilities. Although none of these bills were
enacted into law, they may suggest the form of future legislation.
In January 1997, a bill was introduced in the United States Senate
providing for comprehensive electric utility industry restructuring and for
retail choice by December 2003, repeal of the Holding Company Act one year after
the bill is enacted, as well as repeal of the requirement that electric
utilities purchase power at their avoided cost from qualifying facilities under
PURPA. Under this bill, many of the oversight functions performed by the SEC
under the Holding Company Act would be shifted to the FERC and the states. In
addition, a bill was reintroduced in the United States House of Representatives
providing for choice of electricity suppliers at the retail level by the year
2000. Under this bill, which is substantially similar to the United States
Senate bill, the application of the Holding Company Act to a particular holding
company system would be eliminated after each state served by the electric
utility companies in that system made a determination that retail competition
existed in that state.
No legislation was enacted in 1997.
In February 1997, the SEC adopted Rule 58 allowing a holding company
registered under the Holding Company Act or any of its subsidiaries, to acquire,
without prior SEC approval, the securities of any energy-related company subject
to certain limits. Under the new rule, investment in energy-related company
securities without prior SEC approval is limited to the greater of (i) $50
million and (ii) 15% of the consolidated capitalization of the registered
holding company as reported on its most recent Form 10-Q or Form 10-K as filed
with the SEC. Rule 58 does not exempt the acquisition by a registered holding
company of the securities of an electric utility company or a gas utility
company, which remains subject to the SEC's prior approval as does the issuance
of securities for the purpose of making such exempt investments.
In 1998, the United States Senate has progressed further in its
consideration of comprehensive energy restructuring legislation than the United
States House of Representatives. However, in the United States Senate,
differences must be resolved between those who favor legislation to repeal the
Holding Company Act and those who support repeal only in the context of
comprehensive legislation. Prospects for repeal of the Holding Company Act in
1998 are unclear.
Regulatory Accounting
Consistent with industry practice and the provisions of SFAS No. 71, which
allows for the recognition and recovery of regulatory assets, the U.S. Electric
Operating Companies have recognized significant regulatory assets and
liabilities. Management believes that the U.S. Electric Operating Companies
currently meet the criteria for following SFAS No. 71. However, in the event the
U.S. Electric Operating Companies or some portion of their business no longer
meets the criteria for following SFAS No. 71 due to deregulation or for other
reasons, a write-off of regulatory assets and liabilities would be required,
absent a means of recovering such assets or settling such liabilities in a
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continuing regulated segment of the business. For additional information
regarding regulatory accounting, reference is made to NEW ACCOUNTING STANDARDS
and NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PSO Union Negotiations
As previously reported, PSO and its Local Union 1002 of the IBEW have been
engaged in contract renewal negotiations. The underlying agreement expired in
September 1996 and, to date, the parties have been unable to reach an agreement.
In December 1996, PSO implemented portions of its final proposal after declaring
an impasse. The principal issue of disagreement involves PSO's need for
flexibility in a deregulated environment.
In April 1997, Oklahoma's governor signed into law an electric industry
restructuring bill. The new law mandates the implementation of retail
competition to begin on July 1, 2002. PSO believes that the new law also broke
the impasse in the contract negotiations and has resumed negotiations with the
union. At this time, PSO cannot predict the outcome of this matter. However, PSO
believes that, even in the event of a strike, its operations would continue
without a significant disruption and that a strike would not have a material
adverse effect on CSW's results of operations or financial condition (The
foregoing statement constitutes a forward looking statement within the meaning
of Section 21E of the Exchange Act. Actual results may differ materially from
such projected information due to changes in the underlying assumptions. See
FORWARD LOOKING INFORMATION).
Impact of Competition and Industry Restructuring Initiatives
CSW is unable to predict the ultimate outcome or impact of competitive
forces on the electric utility industry in the United States, and in the United
Kingdom or on the CSW System. As the electricity markets become more
competitive, however, theprincipal factor determining success is likely to be
price, and to a lesser extent reliability, availability of capacity, and
customer service. CSW cannot predict the form or effect of any federal or state
electric utility restructuring initiatives at this time. Federal and/or state
electric utility restructuring may cause impairment of significant recorded
assets, material reductions of profit margins, and/or increased costs of
capital. No assurance can be made that such events would not have a material
adverse effect on CSW's results of operations, financial condition or
competitive position (The foregoing statement constitutes a forward looking
statement within the meaning of Section 21E of the Exchange Act. Actual results
may differ materially from such projected information due to changes in the
underlying assumptions. See FORWARD LOOKING INFORMATION).
RATES AND REGULATORY MATTERS
CPL Rate Review - Docket No. 14965
In November 1995, CPL filed with the Texas Commission a request to
increase its retail base rates by $71 million, and in May 1996, CPL placed a $70
million base rate increase into effect under bond, subject to refund based on
the receipt of the CPL 1997 Original Rate Order of the Texas Commission. On
March 31, 1997, the Texas Commission issued a rate order in CPL's rate review,
Docket No. 14965. Thereafter, CPL filed a motion for rehearing which requested
the reconsideration of numerous provisions of the order. Motions for rehearing
were also filed by other parties to the rate proceeding. In response to the
motions for rehearing, in June 1997, the Texas Commission made several
modifications to the CPL 1997 Original Rate Order and also agreed to rehear on
remand several other issues. CPL restored its rates in July 1997, with two
exceptions, to levels existing prior to the May 1996 implementation of bonded
rates. On August 21, 1997, after reconsidering the issues on remand, the Texas
Commission voted to issue a revised final order and on September 10, 1997, CPL
received a revised final order. CPL filed its second motion for rehearing on
September 30, 1997. The second motion for rehearing again requested
reconsideration of numerous issues in the rate case. On October 16, 1997, the
Texas Commission issued the CPL 1997 Final Order. The CPL 1997 Final Order
lowers the annual retail base rates of CPL by approximately $19 million, or
2.5%, from CPL's rate level existing prior to May 1996. The Texas Commission
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also included a "Glide Path" rate methodology in the CPL 1997 Final Order
pursuant to which CPL's annual rates will be reduced by an additional $13
million in mid-1998 and another $13 million in mid-1999.
There are numerous contributing factors to the difference between the $71
million retail base rate increase originally requested by CPL and the $19
million retail base rate reduction included in the CPL 1997 Final Order. The CPL
1997 Final Order decreased CPL's requested return on equity of 12.25% on its
retail rate base to a 10.9% return on equity for all non-ECOM invested capital,
which results in a $30 million decrease in CPL's rate request. The CPL 1997
Final Order provides for the disallowance of approximately $18 million of
affiliate transactions. In addition, the CPL 1997 Final Order denied CPL's
request to use straight line amortization for CPL's deferred accounting costs.
Instead, the CPL 1997 Final Order requires CPL to continue to use the mortgage
amortization method to amortize its deferred accounting costs, resulting in a
reduction of $14 million from CPL's rate request. The CPL 1997 Final Order also
decreased depreciation by $17.4 million from CPL's rate request.
Another major provision of the CPL 1997 Final Order was the Texas
Commission's categorization of $800 million of CPL's investment in STP as ECOM.
The term ECOM has been used to refer to the amount of costs that potentially
would become "stranded" if retail competition were mandated and prices were set
in the market, rather than the price being determined by current regulatory
standards of reasonable and necessary cost of providing service. The CPL 1997
Final Order reduced CPL's equity return on the ECOM portion of CPL's investment
in STP to 7.96%, compared to the 10.9% return on common equity approved for all
other invested capital, resulting in a $15.9 million decrease in CPL's rate
request. At the same time, the CPL 1997 Final Order accelerated the recovery of
the $800 million designated as ECOM to 20 years from the remaining 32-year life
of STP.
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The following table contains details of the estimate of the financial
impact of the CPL 1997 Final Order.
1997 1998 1999
---------------------------------
(millions)
Decrease in revenue $(24.2) $(28.7) $(41.9)
Items included in decrease in revenue
with an offsetting effect on
expense:
Recovery of STP (ECOM) 20.0 20.0 20.0
Change in depreciation (11.3) (11.3) (11.3)
Decommissioning 4.3 4.3 4.3
Other 6.8 2.1 2.1
--------- --------- ---------
19.8 15.1 15.1
--------- --------- ---------
Change in current year (44.0) (43.8) (57.0)
income before tax
Federal income taxes 14.8 14.8 19.3
--------- --------- ---------
Current year impact on net (29.2) (29.0) (37.7)
income
--------- --------- ---------
1996 effect (18.9) -- --
--------- --------- ---------
Estimated impact on net income $(48.1) $(29.0) $(37.7)
--------- --------- ---------
CPL appealed the CPL 1997 Final Order to the State District Court of
Travis County to challenge the resolution of several issues in the rate case.
The primary issues include: (i) the classification of $800 million of invested
capital in STP as ECOM which was also assigned a lower return on equity than
non-ECOM property, (ii) the Texas Commission's use of the "Glide Path" rate
reduction methodology to be applied to rates in mid-1998 and mid-1999, and (iii)
the $18 million of disallowed affiliate transactions from CSW Services. As part
of the appeal, CPL seeks a temporary injunction to prohibit the Texas Commission
from implementing the "Glide Path" rate reduction methodology, currently
scheduled to begin in May 1998. A hearing has been set for the temporary
injunction on April 3, 1998. Management is unable to predict how the final
resolution of these issues will ultimately affect CSW's results of operations
and financial condition.
CPL currently accounts for the economic effects of regulation in
accordance with SFAS No. 71. Pursuant to the provisions of SFAS No. 71, CPL had
recorded approximately $1.3 billion of regulatory-related assets at December 31,
1997. The application of SFAS No. 71 is conditioned upon CPL's rates being set
based on the cost of providing service. In the event management concludes that
as a result of changes in regulation, legislation, the competitive environment,
or other factors, including the CPL 1997 Final Order, CPL no longer meets the
criteria for following SFAS No. 71, a write-off of regulatory assets would be
required. In addition, CSW could experience, depending on the timing and amount
of any write-off, a material adverse effect on its results of operations and
financial condition.
The foregoing discussion of CPL Rate Review - Docket No. 14965 constitutes
forward looking information within the meaning of Section 21E of the Exchange
Act. Actual results may differ materially from such projected information. See
FORWARD LOOKING INFORMATION. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
for additional information on the CPL 1997 Final Order.
PSO 1997 Rate Settlement Agreement
In July 1996, the Oklahoma Commission staff filed an application seeking a
review of PSO's earnings. In accordance with the established schedule, PSO
subsequently filed financial data, cost of service and rate design testimony
supporting both its current rates and an increase in annual depreciation expense
of $26 million. In July 1997, the Oklahoma Commission staff and other
intervenors to the proceeding filed their revenue requirements testimony. In its
filing, the Oklahoma Commission staff recommended a rate reduction of $76.8
million for PSO.
On October 15, 1997, PSO reached a stipulated agreement with parties to
settle the rate inquiry that was pending before the Oklahoma Commission. On
October 23, 1997, the Oklahoma Commission issued a final order approving the
agreement. The following table represents the financial impact of the PSO 1997
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Rate Settlement Agreement on PSO's 1997 results of operations and also an
estimate of its ongoing annual impact on net income in successive years.
1997 Ongoing Annual
Impact Impact
----------- ------------
(millions)
Decrease in revenue
Refund to customers $(29.0) $--
Change in rates (2.5) (35.9)
----------- ------------
(31.5) (35.9)
----------- ------------
Changes in expenses (offsetting impact
included in revenues)
Depreciation (6.3) (10.9)
Rate case deferred costs 2.2 --
Income tax (10.2) (8.8)
----------- ------------
(14.3) (19.7)
----------- ------------
(17.2) (16.2)
Write-off of deferred assets, net of tax (10.2) --
----------- ------------
$(27.4) $(16.2)
----------- ------------
The PSO 1997 Rate Settlement Agreement resulted in a material adverse
effect on PSO's results of operations for 1997 that will have a continuing
material adverse effect on its results of operations because of the rate
decrease. However, it also reduced significant risks for PSO related to this
regulatory proceeding and will enable PSO's rates to remain competitive for the
foreseeable future.
The foregoing discussion of PSO 1997 Rate Settlement Agreement constitutes
forward looking information within the meaning of Section 21E of the Exchange
Act. Actual results may differ materially from such projected information. See
FORWARD LOOKING INFORMATION. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
for additional information on the PSO 1997 Rate Settlement Agreement.
SWEPCO Louisiana Rate Review
In December 1997, the Louisiana Commission announced it would review
SWEPCO's rates and service. In 1993, the Louisiana Commission issued an order
initiating a review of the rates of all investor-owned utilities in the state.
Since that time, each of the other investor-owned utilities in Louisiana have
been reviewed. SWEPCO's last rate activity was an $8.2 million rate decrease,
initiated by SWEPCO and approved for its small and large industrial customers in
January 1988. Prior to that, SWEPCO's last rate increase was in 1985.
The Louisiana Commission has requested bids from consultants to perform a
review of SWEPCO's rates and charges and to review SWEPCO's quality of service.
The Louisiana Commission plans to select consultants during the second quarter
of 1998 and a timeline for the review will be determined shortly thereafter.
Management cannot predict the outcome of this review.
SEEBOARD Recent Regulatory Actions
Following the phased-in opening of the United Kingdom domestic and small
business electricity market to competition in September 1998, customers will be
able to choose their electricity supplier. SEEBOARD will compete for customers
in its own area as well as throughout the rest of the United Kingdom. The DGES
has allowed some of the system development costs associated with the
introduction of competition to be recovered by the regional electricity
companies through a charge to all customers over the next five years. The DGES
has also announced price restraints which set a maximum amount that existing
electricity supply companies can charge their domestic and small business
customers over the first two years following the introduction of competition,
taking into account its view of future electricity purchase costs. For SEEBOARD,
this proposal reduces prices in real terms by 6% for the regulatory year ending
March 31, 1999 and a further 3% for the following regulatory year ending March
31, 2000.
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Other
Reference is made to NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for
information regarding fuel proceedings at CPL, SWEPCO and WTU.
PROPOSED AEP MERGER
On December 22, 1997, CSW and AEP announced that their boards of directors
had approved a definitive merger agreement for a tax-free, stock-for-stock
transaction creating a company with a total market capitalization of
approximately $28.1 billion ($16.5 billion in equity; $11.6 billion in debt and
preferred stock). CSW expects the combination to be accounted for as a pooling
of interests. The transaction must satisfy many conditions, some of which may
not be waived by the parties. There can be no assurance that the AEP Merger will
be consummated.
This combination is expected to create one of the nation's preeminent
diversified electric utilities serving more than 4.6 million customers in 11
states and approximately 4 million customers outside the United States. Both
companies have low-cost generation and offer their customers in every state
prices below the national average. Over the last two years, both CSW and AEP
have ranked among the top five electric utilities in customer satisfaction in
the ACSI.
Under the merger agreement, each common share of CSW will be converted
into 0.6 shares of AEP common stock. Based upon AEP's closing price immediately
prior to the merger announcement, this represented a premium of 20% over the CSW
closing price. AEP will issue approximately $6.6 billion in stock to CSW
stockholders to complete the transaction. CSW stockholders will own
approximately 40% of the combined company. Both companies anticipate continuing
their current dividend policies until the close of the transaction.
Under the merger agreement, there will be no changes required with respect
to the public debt issues, the outstanding preferred stock or the Trust
Preferred Securities of CSW or its subsidiaries.
The companies anticipate net savings related to the merger of
approximately $2 billion over a 10-year period from the elimination of
duplication in corporate and administrative programs, greater efficiencies in
operations and business processes, increased purchasing efficiencies, and the
combination of the two workforces. At the same time, the companies will continue
their commitment to high quality, reliable service. Job reductions related to
the merger are expected to be approximately 1,050 out of a total domestic
workforce of approximately 25,000. The combined company will use a combination
of growth, reduced hiring and attrition to minimize the need for employee
separations. Organizational and staffing recommendations will be made by
transition teams of employees from both companies.
The electric systems of AEP and CSW will operate on an integrated and
coordinated basis as required by the Holding Company Act. Any fuel savings
resulting from the coordinated operation of the combined company will be passed
on to customers.
The merger agreement contains covenants and agreements that restrict the
manner in which the parties may operate their respective businesses until the
time of closing of the merger. In particular, without the prior written consent
of AEP, CSW may not engage in a number of activities that could affect its
sources and uses of funds. Pending closing of the merger, CSW's and its
subsidiaries' strategic investment activity, capital expenditures and non-fuel
operating and maintenance expenditures are restricted to specific agreed upon
projects or agreed upon amounts. In addition, prior to consummation of the
merger CSW and its subsidiaries are restricted from (i) issuing shares of common
stock other than pursuant to employee benefit plans, (ii) issuing shares of
preferred stock or similar securities other than to refinance existing
obligations or to fund permitted investment or capital expenditures and (iii)
incurring indebtedness other than pursuant to existing credit facilities, in the
ordinary course of business or to fund permitted projects or capital
expenditures. These restrictions are not expected to limit the ability of CSW
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and its subsidiaries to make investments and expenditures in amounts previously
budgeted.
The merger is conditioned, among other things, upon the approval of CSW
stockholders and several state and federal regulatory agencies. AEP shareholders
must authorize additional common stock and approve a new common stock issuance
to be used in the exchange for CSW common stock. The companies anticipate that
regulatory approvals can be obtained in 12 to 18 months from the date of
announcement. See NOTE 16. PROPOSED AEP MERGER.
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OTHER MERGER AND ACQUISITION ACTIVITIES
Settlement of Litigation Related to Termination of El Paso Merger In July
1997, CSW and El Paso reached a settlement agreement that resolved
all of the pending litigation resulting from the termination of the proposed
merger. Under the terms of the settlement agreement, CSW and El Paso agreed to
dismiss all pending claims in the litigation and give a mutual release from any
potential claims related to the El Paso Merger Agreement or the pending
litigation, and CSW paid $35 million to El Paso, various of its creditor groups
under its plan of reorganization, and its attorneys. CSW recorded a charge of
$25 million in the first quarter of 1997 following the court's interim order and
recorded an additional charge of $10 million in the second quarter of 1997 to
fully recognize the $35 million settlement amount. The bankruptcy court vacated
the interim order and approved the settlement agreement. See NOTE 2. LITIGATION
AND REGULATORY PROCEEDINGS.
SWEPCO Cajun Asset Purchase Proposal
On March 18, 1998, SWEPCO, together with the Cajun Members Committee,
which currently represents 7 of the 12 Louisiana member distribution
cooperatives that are served by Cajun, filed the SWEPCO Plan in the bankruptcy
court. Under the SWEPCO Plan, a SWEPCO affiliate or subsidiary would acquire all
of the non-nuclear assets of Cajun, comprised of the two-unit Big Cajun I
natural gas-fired plant, the three-unit Big Cajun II coal-fired plant, and
related non-nuclear assets, for $940.5 million in cash, subject to adjustment
pursuant to terms of the asset purchase agreement proposed as part of the SWEPCO
Plan. The SWEPCO Plan incorporates the terms of a settlement between the RUS,
the Cajun Members Committee, Claiborne Electric Cooperative, Inc. and SWEPCO.
The SWEPCO Plan filed March 18, 1998 replaces plans filed previously by
SWEPCO on January 15, 1998, October 26, 1996, September 30, 1996 and April 19,
1996. Two competing plans of reorganization for the non-nuclear assets of Cajun
have been filed with the bankruptcy court, each with different purchase prices,
rate paths and other provisions. Confirmation hearings in Cajun's bankruptcy
case are now scheduled through April 1998. Consummation of the SWEPCO Plan is
conditioned upon confirmation by the bankruptcy court, and the receipt by SWEPCO
and CSW of all requisite state and federal regulatory approvals in addition to
their board approvals. If the SWEPCO Plan is confirmed, the $940.5 million
required to consummate the acquisition of Cajun's non-nuclear assets is expected
to be financed through a combination of external borrowings and internally
generated funds with approximately 70% of the external borrowings funded with
non-recourse debt. There can be no assurance that the SWEPCO Plan will be
confirmed by the bankruptcy court or, if it is confirmed, that it will be
approved by federal and state regulators. For additional information regarding
the SWEPCO Cajun asset purchase proposal see NOTE 3. COMMITMENTS AND CONTINGENT
LIABILITIES.
OTHER INITIATIVES
As described in OVERVIEW, a vital part of CSW's future strategy involves
initiatives that are outside of the traditional United States electric utility
industry due to increasing competition and fundamental changes in this industry.
In addition, lower anticipated growth rates in CSW's core United States electric
utility business combined with the aforementioned industry factors have resulted
in CSW pursuing other initiatives. These initiatives have taken a variety of
forms; however, they are all consistent with the overall plan for CSW to develop
a global energy business. CSW has restrictions on the amounts it may spend under
the AEP merger agreement. While CSW believes that such initiatives are necessary
to maintain its competitiveness and to supplement its growth in the future, the
Holding Company Act may impede or delay its ability to successfully pursue such
initiatives (The foregoing statement constitutes a forward looking statement
within the meaning of Section 21E of the Exchange Act. Actual results may differ
materially from such projected information due to changes in the underlying
assumptions. See FORWARD LOOKING INFORMATION). See RECENT DEVELOPMENTS AND
TRENDS.
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CSW Energy and CSW International
CSW Energy presently owns interests in six operating power projects
totaling 978 MW which are located in Colorado, Florida and Texas. In addition to
these projects, CSW Energy has other projects in various stages of development.
In August 1997, an affiliate of CSW Energy sold 50% of its 100% interest in the
Sweeny Cogeneration project. CSW Energy provided the $56.5 million non-recourse
financing for the sale which is expected to be repaid from project distributions
or proceeds from sale, as defined in the sales agreements. Construction of the
330 MW electricity generating facility was completed in early 1998 with a
commercial operation date of February 1, 1998. CSW Energy did not recognize a
gain or loss on this transaction.
CSW International was organized to pursue investment opportunities in EWGs
and FUCOs. CSW International currently holds investments in the United Kingdom,
Mexico and Latin America. CSW International acquired a minority interest in
Vale, a Brazilian electric utility company, for an initial investment of
approximately $40 million in December 1996. In 1997, CSW International made
additional equity investments of approximately $150 million in Latin America.
The $190 million used to make the equity investments was funded through loans to
CSW International by CSW Energy. CSW Energy obtained the funds from its $200
million Senior Note issuance in October 1996. CSW International continues to
seek to expand into other countries in Latin America, Europe, and Asia that meet
its investment criteria and the investment criteria contained in the AEP merger
agreement.
C3 Communications
C3 Communications has two active business units; its Utility Automation
Division and a telecommunications partnership, ChoiceCom.
C3 Communications' Utility Automation Division performs consulting,
implementation and integration of utility meter automation products and services
for traditional utility companies and, as competition markets open, in states
like California, for energy service providers. C3 Communications offers clients
innovative meter-based competitive data services including automated meter
reading; hourly, daily and monthly delivery of consumption data; advanced load
profiling data; aggregation reports for customers with multiple accounts and
operational services like outage and tamper detection and real-time-pricing and
time-of use data.
ChoiceCom offers telecommunications services including local telephone
service, long distance and long-haul data transmission services. ChoiceCom began
offering local telephone service in August, 1997, in Austin, Corpus Christi and
San Antonio, Texas with an emphasis on the business customer. ChoiceCom also
installed state-of-the-art Lucent 5ESS(R) switches in those three cities. In
January 1998, ChoiceCom began offering telephone service in Dallas and Houston
with plans to install Lucent 5ESS(R) switches in both cities by the end of the
year. With the addition of Dallas and Houston, ChoiceCom's expected 5-year
capital budget has increased to $210 million from $104 million. The partnership
has grown to about 150 employees during its first year of operation.
In November 1997, the parties amended the ChoiceCom Limited Partnership
Agreement to provide that CSW hold 100% of the economic interest in ChoiceCom
and 60% of the voting interest. ICG Communications, Inc. holds the remaining 40%
voting interest in ChoiceCom, and has an option to acquire a 50% economic
interest in ChoiceCom. In the event that its option terminates without being
exercised, ICG Communications, Inc. will be bound by a non-compete agreement in
CSW's service territory.
EnerShop
EnerShop currently provides energy services to customers in Texas which
help reduce customers' operating costs through increased energy efficiencies and
improved equipment operations. EnerShop utilizes the skills of local trade
allies in offering services that include energy and facility analysis; project
management; engineering design, equipment procurement and construction; and
performance monitoring.
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Other Ventures
CSW Energy Services will spearhead CSW's competitive efforts in the retail
electricity markets of states outside of CSW's historical service territories.
CSW Energy Services will seek to secure electricity supply business in the
markets which soon will have retail competition, and will enable CSW to extend
its business reach and name recognition beyond CSW's traditional customer base.
In March 1998, CSW Energy Services signed its first major supply contract in
California. The CSW Services Business Ventures group pursues energy projects
related to the business activities of the U.S. Electric Operating Companies.
Projects for these groups include staffing services for electric utility nuclear
power plants, energy management systems, electric substation automation software
and electric vehicles. In June 1997, the FERC approved the request of CSW Power
Marketing to sell power and energy at market-based rates in the wholesale
market. CSW has temporarily suspended this initiative in light of the AEP Merger
since AEP is already pursuing this initiative.
SOUTH TEXAS PROJECT
CPL owns 25.2% of STP, a two-unit nuclear power plant which is located
near Bay City, Texas. HL&P owns 30.8%, San Antonio owns 28.0%, and Austin owns
16.0% of STP. STP Unit 1 was placed in service in August 1988, and STP Unit 2
was placed in service in June 1989.
STP Unit 1 and Unit 2 were removed from service during 1997 for scheduled
refueling outages which lasted 24 days and 18 days, respectively. For the year
1997, Unit 1 and Unit 2 operated at net capacity factors of 90.1% and 91.0%,
respectively.
In September 1997, STPNOC was formed to replace HL&P as the STP Project
Manager. Each of the four STP co-owners are represented on the STPNOC board of
directors. The CPL representative has been elected as the initial chairman of
the board of directors. On October 1, 1997, all HL&P employees assigned to STP
were transferred from HL&P to STPNOC. On November 17, 1997, HL&P was removed as
STP Project Manager, and STPNOC became the operator of the plant. CSW believes
the formation of STPNOC is in its best interest.
The establishment of STPNOC provides the following advantages: (i) allows
the management and work force to focus exclusively on the safe, reliable and
efficient operation of the STP units; (ii) removes most of the possibility of
disputes between the four owners over the operation of the facility; (iii)
removes dissension concerning the potential liability of HL&P who was acting as
the project manager; and (iv) allows the management of the facility to tailor a
total compensation package for the STP work force which best suits that work
force and its needs. In addition, the formation and operation of STPNOC is
expected to result in a decrease in costs allocable to CPL related to its
investment in STP (The foregoing statement constitutes a forward looking
statement within the meaning of Section 21E of the Exchange Act. Actual results
may differ materially from such projected information due to changes in the
underlying assumptions. See FORWARD LOOKING INFORMATION).
For additional information regarding STP and the accounting for the
decommissioning of STP, see NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
and NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS.
ENVIRONMENTAL MATTERS
The operations of the CSW System, like those of other utility systems,
generally involve the use and disposal of substances subject to environmental
laws. CERCLA, the federal "Superfund" law, addresses the cleanup of sites
contaminated by hazardous substances. Superfund requires that PRPs fund remedial
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actions regardless of fault or the legality of past disposal activities. PRPs
include owners and operators of contaminated sites and transporters and/or
generators of hazardous substances. Many states have similar laws. Legally, any
one PRP can be held responsible for the entire cost of a cleanup. Usually,
however, cleanup costs are allocated among PRPs.
The U.S. Electric Operating Companies are subject to various pending
claims alleging that they are PRPs under federal or state remedial laws for
investigating and cleaning up contaminated property. CSW believes that
resolution of these claims, individually or in the aggregate, will not have a
material adverse effect on CSW's results of operations or financial condition.
Although the reasons for this expectation differ from site to site, factors that
are the basis for the expectation for specific sites include the volume and/or
type of waste allegedly contributed by the U.S. Electric Operating Company, the
estimated amount of costs allocated to the U.S. Electric Operating Company and
the participation of other parties (The foregoing statements constitute forward
looking statements within the meaning of Section 21E of the Exchange Act. Actual
results may differ materially from such projected information due to changes in
the underlying assumptions. See FORWARD LOOKING INFORMATION). See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS and NOTE 3. COMMITMENTS AND CONTINGENT
LIABILITIES for additional discussion regarding environmental matters.
The EPA recently promulgated revised, more stringent ambient air quality
standards for ozone and particulates. While these standards do not mandate
emission levels for facilities such as electricity generating power plants, they
may result in more areas being designated as non-attainment for these two
pollutants. States will be required to develop strategies to achieve compliance
in these areas, strategies that may include lower emission levels for
electricity generating power plants, possibly including facilities within the
CSW System. The impact, if any, on CSW or the U.S. Electric Operating Companies
cannot yet be determined, but the impact could be significant.
At the Kyoto Conference on Global Warming held in December 1997, U.S.
representatives agreed to a treaty which could require new limitations on
"greenhouse gases" from power plants. CSW and the U.S. Electric Operating
companies could be affected if this treaty is approved by the United States
Congress in its present form. The impact, if any, on CSW or the U.S. Electric
Operating Companies cannot yet be determined, but the impact could be
significant.
RISK MANAGEMENT
In October 1997, CSW's board of directors adopted a risk management
resolution authorizing CSW to engage in currency, interest rate and energy spot
and forward transactions and related derivative transactions on behalf of CSW
with foreign and domestic parties as deemed appropriate by executive officers of
CSW. The risk management program is necessary to meet the growing demands of
CSW's customers for competitive prices and price stability, to enable CSW to
compete in a deregulated power industry, to manage the risks associated with
domestic and foreign investments and to take advantage of strategic investment
opportunities.
The U.S. Electric Operating Companies experience commodity price exposures
related to the purchase of fuel supplies for the generation of electricity and
for the purchase of power and energy from other generation sources. Contracts
that provide for the future delivery of these commodities can be considered
forward contracts which contain pricing and/or volume terms designed to
stabilize the cost of the commodity. Consequently, the U.S. Electric Operating
Companies manage their price exposure for the benefit of customers by balancing
their commodity purchases through a combination of long-term and short-term
(spot-market) agreements. In addition, SEEBOARD has entered into contracts for
differences to reduce exposure to fluctuations in the price of electricity
purchased from the United Kingdom's electricity power pool. This pool was
established at privatization of the United Kingdom's electric industry for the
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bulk trading of electricity between generators and suppliers. At December 31,
1997, the gross value of such contracts for differences amounted to not more
than 80% of any year's expected power purchases.
CSW has, at times, been exposed to currency and interest rate risks which
reflect the floating exchange rate that exists between the U.S. dollar and the
British pound since its purchase of SEEBOARD in 1995. CSW has utilized certain
risk management tools to manage adverse changes in exchange rates and to
facilitate financing transactions resulting from CSW's acquisition of SEEBOARD.
At the end of 1997, CSW had positions in two cross currency swap contracts. The
following table presents information relating to these contracts. The market
value represents the foreign exchange/interest rate terms inherent in the cross
currency swaps at current market pricing. CSW expects to hold these contracts to
maturity. At current exchange rates, this liability is included in long-term
debt on the balance sheet at a carrying value of approximately $425 million.
Expected Expected
Cash Inflows Cash Outflows
Contract Maturity Date (Maturity Value) (Market Value)
-----------------------------------------------------------------------------
Cross currency swap August 1, 2001 $200 million $216.5 million
Cross currency swap August 1, 2006 $200 million $226.8 million
OTHER MATTERS
Year 2000
In 1996, a system-wide program to prepare CSW's computer systems and
applications for the year 2000 was initiated. CSW expects to incur internal
staff costs as well as consulting and other expenses related to infrastructure
and facilities enhancements necessary to prepare the systems for the year 2000.
Testing and conversion is expected to cost between $20 million and $21 million
over the next two years including both domestic and foreign operations. A
significant portion of these costs is likely to be covered through the
redeployment of existing resources. The major applications which pose the
greatest risk for CSW if implementation is not successful are the transmission
and distribution automation system; the time in use, demand and recorder
metering system for commercial and industrial customers; and the power billing
system. The potential problems related to these systems are electric service
interruptions to customers, interrupted revenue data gathering and poor customer
relations resulting from delayed billing, respectively. Costs related to the
year 2000 program will be expensed as incurred.
Adoption of Rights Plan
In September 1997, CSW's board of directors adopted a Rights Plan, subject
to SEC approval under the Holding Company Act. SEC approval was received in
December 1997, and on December 22, 1997, CSW executed the Rights Plan which had
been modified to permit the AEP Merger. The Rights Plan was initially adopted
and ultimately executed as part of the fiduciary responsibility of CSW's board
of directors and was not adopted because of any takeover offer or threat. The
intent of the Rights Plan is to assure fair and equal treatment for all of CSW's
stockholders in the event of a hostile takeover attempt and to encourage a
potential acquirer to negotiate with CSW's board of directors before attempting
a takeover to assure a fair price for all stockholders.
On January 6, 1998, CSW made a dividend distribution of one right for each
outstanding share of its common stock. Each right initially entitles the holder
to buy one-tenth of one share of CSW Common for $50. Prior to the date upon
which the rights become exercisable under the Rights Plan, CSW's outstanding
stock certificates will represent both the shares of common stock and the
rights, and the rights will trade only together with the shares.
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Under the Rights Plan, a "triggering event" would occur ten days after a
person or group acquires or announces a tender or exchange offer to acquire
fifteen percent or more of CSW's outstanding common stock. Upon such a
"triggering event," the rights would become exercisable and trade independently
of CSW's common stock. After a person or group acquires fifteen percent or more
of CSW's outstanding common stock, each right (except those held by such
acquiring person or group, whose rights would become void), entitles the holder
to purchase, at the exercise price, CSW common shares having a current market
value of two times the exercise price. If CSW was acquired in a merger or other
business combination, each right would entitle the holder to purchase, at the
exercise price, common stock of the acquirer having a current market value of
two times the exercise price. In either case, after a triggering event occurs
but before an acquiring person becomes the owner of at least fifty percent of
CSW's outstanding common stock, CSW's board of directors may direct the exchange
of one share of CSW's common stock for each right then outstanding and not
exercised. The Rights Plan exempts the AEP Merger transaction. Therefore,
neither the execution of the AEP merger agreement nor consummation of the AEP
Merger caused, or will cause a "triggering event" or the rights to become
exercisable. See PROPOSED AEP MERGER for additional information on the proposed
merger.
CSW's board of directors may redeem the rights for a price of one cent per
right prior to the earlier of the rights becoming exercisable or the expiration
of the Rights Plan. The rights will expire ten years from the effective date
unless they are earlier redeemed or exchanged by CSW.
NEW ACCOUNTING STANDARDS
SFAS No. 125
SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities using a
financial-components approach that focuses on control. An entity recognizes
assets it controls and derecognizes assets when control has been surrendered and
liabilities when they have been extinguished. A transfer of assets in which
control of the asset is surrendered is recorded as a sale. Control of an asset
is surrendered only when and if certain conditions are met. Likewise, a
liability is only extinguished under certain distinct conditions. CSW adopted
SFAS No. 125 effective January 1, 1997. Adoption of this standard has not had a
material adverse effect on CSW's results of operations or financial condition.
SFAS No. 128
On March 3, 1997, the FASB issued SFAS No. 128, effective for financial
statements for periods ending after December 15, 1997. SFAS No. 128 will
simplify the computation of earnings per share for many companies by eliminating
calculation provisions which were required by the prior earnings per share
standard, Accounting Principles Board Opinion No. 15. CSW adopted SFAS No. 128
effective December 31, 1997. Adoption of SFAS No. 128 did not have a material
effect on its calculation of earnings per share.
SFAS No. 130
This statement is effective for fiscal years beginning after December 15,
1997. The statement adds the requirement to present comprehensive income and all
of its components (revenues, expenses, gains and losses) in a full set of
financial statements, and this new statement must be displayed with the same
prominence given other financial statements. Comprehensive income is defined as
the change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. Though effective at the
beginning of 1998, comprehensive income is not required to be disclosed in
interim statements in the year adopted. CSW will adopt this statement beginning
with 1998 year-end financial statements.
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SFAS No. 131
This statement is effective for fiscal years beginning after December 15,
1997, and requires that certain information about operating segments be
presented in complete sets of financial statements. It also requires the
presentation of information regarding products and services, geographic areas in
which the entity operates, and concentrations of major customers.
The objective of this statement is to provide information about the
different types of business activities in which an entity engages and the
different economic environments in which it operates to help users of financial
statements better understand an entity's performance and prospects for future
cash flows and make more informed judgments about the enterprise as a whole.
An operating segment is a component of an enterprise that earns revenues
and incurs expenses, whose results are regularly reviewed by the chief decision
maker, and for which discrete financial information is available. Separate
information is required to be presented for any segment that is 10 percent or
more of reported income, profit or loss, or assets of the combined entity. CSW
will adopt this statement beginning with 1998 year-end financial statements.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
CSW's earnings decreased to $153 million in 1997 from $429 million in
1996. CSW's return on average common stock equity was 4.2% in 1997 compared to
12.1% in 1996. The primary reason for the lower earnings and return on average
common stock equity was the accrual of the one-time United Kingdom windfall
profits tax. The impact of CSW's final settlement of litigation with El Paso
contributed to the decline in earnings as well. Also contributing to the
decrease in earnings was the effect of both the PSO 1997 Rate Settlement
Agreement and the CPL 1997 Final Order. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for additional information on CSW's final settlement of litigation
with El Paso, the CPL 1997 Final Order and the PSO 1997 Rate Settlement
Agreement. See NOTE 17. EXTRAORDINARY ITEM for additional information on the
windfall profits tax. Further reducing earnings for 1997 were certain asset
write-offs predominately at the U.S. Electric Operating Companies. Partially
offsetting the lower earnings was the gain on the reacquisition of a portion of
the U.S. Electric Operating Companies' preferred stock and an adjustment to
deferred tax balances of $15 million resulting from a 2% reduction in the United
Kingdom corporation tax rate. Further offsetting the decline in earnings was an
increase in non-fuel electric revenues. Significant items impacting 1997
earnings are listed below (in millions).
Earnings
Impact
---------
United Kingdom Windfall Profits Tax $(176)
CPL 1997 Final Order (48)
Asset Write-offs and Reserves (48)
PSO 1997 Rate Settlement Agreement (27)
Settlement of Litigation with El Paso (23)
Gain on the Reacquisition of Preferred Stock 10
United Kingdom Deferred Tax Adjustment 15
In addition, several items that occurred in 1996 were not present in 1997.
Prior to the sale of Transok in 1996, CSW realized $12 million of earnings from
Transok's operations. As a result of the sale, CSW also recorded an after-tax
gain of approximately $120 million in 1996. However, the U.S. Electric Operating
Companies and CSW Energy recorded charges totaling $102 million, after-tax, for
certain investments in the second quarter of 1996 which decreased earnings. See
25
<PAGE>
NOTE 14. DISCONTINUED OPERATIONS for additional information concerning the
effects of the sale of Transok.
Operating revenues increased $113 million in 1997 compared to 1996. The
revenue variances are shown in the following table.
1997 REVENUE VARIANCES
Increase (decrease) from prior year,
millions
U.S. Electric
CPL and WTU Transmission Revenues $56
KWH Sales, Growth and Usage 41
Fuel Revenue 23
CPL 1996 Fuel Agreement 18
Sales for Resale 12
CPL 1997 Final Order (45)
KWH Sales, Weather-Related (37)
PSO 1997 Rate Settlement Agreement (32)
Other Electric 37
--------
73
United Kingdom 22
Other Diversified 18
--------
$113
--------
U.S. Electric revenues increased $73 million, or 2%, in 1997 compared to
1996. Retail MWH sales increased 2.5% with increases in all customer classes.
U.S. Electric revenues increased primarily due to higher MWH sales resulting
from increased customer usage and new transmission access revenues at CPL and
WTU in accordance with FERC Order No. 888 and the Texas Commission's rule
regarding transmission access and pricing. The new transmission revenues had no
material effect on earnings because they were almost completely offset by a
corresponding amount of transmission expense. Revenues increased due in part to
the absence in 1997 of the revenue decrease in 1996 from the CPL 1996 Fuel
Agreement. An increase in fuel revenues, as discussed in fuel expense below,
also contributed to the higher revenues. Partially offsetting the revenue
increase was a decrease in weather-related demand due to milder weather in the
first nine months of 1997. Further offsetting the increase in U.S. Electric
revenues was the revenue decrease from both the CPL 1997 Final Order and the PSO
1997 Rate Settlement Agreement. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for additional information on the CPL 1997 Final Order and the PSO
1997 Rate Settlement Agreement. United Kingdom revenues increased $22 million,
or 1%, in 1997 compared to 1996 due primarily to the effect of the exchange rate
movement between the British pound and the U.S. dollar, partially offset by a
reduction in the fossil fuel levy collected on behalf of the United Kingdom.
Other diversified revenues increased $18 million, or 31%, in 1997 compared to
1996 due primarily to increased revenues from CSW International, C3
Communications, CSW Credit and EnerShop.
During 1997 and 1996 the U.S. Electric Operating Companies generated 93%
of their electric energy requirements. U.S. Electric fuel expense increased $26
million to $1.3 billion in 1997 compared to 1996 due primarily to an increase in
natural gas fuel costs to $2.67 per MMbtu from $2.50 per MMbtu. Also
contributing to the increase was the absence in 1997 of a one-time reduction to
fuel expense of approximately $9 million recorded in the first quarter of 1996
related to the CPL 1996 Fuel Agreement. Partially offsetting these increases in
fuel expense was the effect of lower-cost coal. United Kingdom cost of sales
decreased approximately $40 million to $1.3 billion in 1997 compared to 1996 due
primarily to a reduction in the fossil fuel levy collected on behalf of the
United Kingdom government, which was partially offset by the effect of the
exchange rate movement between the British pound and the U.S. dollar.
Other operating expense increased $196 million to $981 million in 1997
compared to 1996 due in part to the absence in 1997 of a $27 million pension
adjustment recorded in the second quarter of 1996 at SEEBOARD which decreased
26
<PAGE>
pension expense. The effect of the exchange rate movement between the British
pound and U.S. dollar also contributed to the increase in other operating
expense of SEEBOARD U.S.A. In addition, approximately $56 million in new
transmission access expense was recorded at CPL and WTU in 1997 related to FERC
Order No. 888 and the Texas Commission rules regarding transmission access and
pricing. Also increasing other operating expense were asset write-offs of
approximately $57 million including certain regulatory assets, capitalized
demand side management assets and obsolete inventories. In addition, the
settlement of litigation with El Paso increased other operating expense $35
million. Further contributing to the increase in other operating expense was the
$12 million impact of the CPL 1997 Final Order and the $4 million impact of the
PSO 1997 Rate Settlement Agreement. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS for additional information on the CPL 1997 Final Order and the PSO
1997 Rate Settlement Agreement. Partially offsetting these increases were the
absence in 1997 of expenses recorded in 1996 related to inventory write-offs of
$10 million and CPL rate case adjustments of $15 million. Further offsetting the
increases were charges in 1996 associated with restructuring costs. Also
partially offsetting the increase in other operating expense was reduced pension
expense in 1997 resulting from changes made to the pension plan for CSW's
domestic employees. See NOTE 5. BENEFIT PLANS for additional information related
to the changes in the pension plan.
Depreciation and amortization expense increased $33 million, or 7%, in
1997 due primarily to the implementation of depreciation and amortization in
accordance with the CPL 1997 Final Order. As a result of that order, the
increase in depreciation due to the accelerated recovery of ECOM property was
offset in part by the implementation of lower depreciation rates. Taxes other
than income increased $17 million, or 10%, in 1997 compared to 1996 due
primarily to higher property taxes at CPL and the absence in 1997 of a CPL Texas
franchise tax refund and true-up in 1996. Income tax expense decreased $73
million to $151 million in 1997 due primarily to lower pre-tax income and a $15
million adjustment to deferred income tax balances resulting from a 2% reduction
in the United Kingdom corporation tax rate.
Other income and deductions increased to a gain of $32 million in 1997
from a loss of $61 million in 1996 due primarily to the absence in 1997 of
charges for certain investments recorded in the second quarter of 1996 of
approximately $84 million, after tax, at the U.S. Electric Operating Companies
and $18 million at CSW Energy. Long-term interest expense increased $8 million,
or 2%, in 1997 due primarily to interest expense resulting from a fourth quarter
1996 debt issuance by CSW Energy. Short-term and other interest expense
decreased $8 million to $86 million in 1997 when compared to 1996 due primarily
to lower levels of short-term borrowings. Distributions on newly-issued Trust
Preferred Securities increased interest and other charges by $17 million in
1997, which was partially offset by lower dividend requirements resulting from
the related preferred stock reacquisitions at the U.S. Electric Operating
Companies. See NOTE 10. TRUST PREFERRED SECURITIES for additional information on
the new securities.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
CSW's earnings increased to $429 million in 1996 compared to $402 million
in 1995. Although earnings increased, earnings per share decreased from $2.10 in
1995 to $2.07 in 1996 due to the issuance of additional shares of common stock
during 1996. The return on average common stock equity was 12.1% in 1996
compared to 13.1% in 1995. U.S. Electric operations contributed approximately
57% of total earnings in 1996 and approximately 105% of total earnings in 1995.
The lower percent for U.S. Electric operations is mostly attributed to the gain
on the sale of Transok, higher earnings from SEEBOARD U.S.A. and the recording
of charges at each of the U.S. Electric Operating Companies for certain
investments. SEEBOARD U.S.A. contributed 24% of total earnings in 1996 as
compared to 2% in 1995, reflecting a full year of earnings in 1996 compared to
only a partial quarter in 1995.
Earnings increased in 1996 compared to 1995 due primarily to the gain from
the sale of Transok, the additional earnings from SEEBOARD U.S.A., the absence
of charges in 1996 related to the termination of the proposed El Paso Merger in
27
<PAGE>
June 1995 and the effect of the CPL 1995 Agreement. Also contributing to the
increase were higher non-fuel electric revenues resulting from increased usage,
customer growth and weather-related demand. Partially offsetting these increases
in earnings were the recording of charges by the U.S. Electric Operating
Companies in June 1996 associated with certain investments, write-offs of
certain equity investments and other project development costs for CSW Energy,
restructuring charges, the effect of the CPL 1996 Fuel Agreement, the asset
reserves for the pending CPL rate case and the absence in 1996 of favorable tax
adjustments made in 1995. Additional information related to the reserves
recorded in June 1996 is discussed below. For further discussion of CPL's
regulatory activities, see NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS.
Increased depreciation and amortization, increased other operating expense,
increased interest expense and the loss of Mirror CWIP earnings also reduced the
increase in earnings. Significant items impacting 1996 earnings are listed below
(in millions).
Earnings
Impact
--------
Gain on the Sale of Transok $120
Charges for Certain Investments (104)
CPL Pending Rate Case Write-offs (8)
CPL 1996 Fuel Agreement (7)
Revenues increased approximately $2.0 billion or 64% in 1996 when compared
to 1995. The revenue variances are shown in the following table.
1996 REVENUE VARIANCES
Increase (decrease) from prior year,
millions
U.S. Electric
Fuel Revenues $181
CPL 1995 Agreement 112
KWH Sales, Growth and Usage 83
KWH Sales, Weather-Related 21
WTU 1995 Stipulation and Agreement 21
Other Electric (35)
CPL 1996 Fuel Agreement (18)
--------
365
United Kingdom 1,640
Other Diversified 7
--------
$2,012
--------
U.S. Electric revenues increased $365 million or 13% in 1996 compared to
1995. Total U.S. Electric KWH sales increased 4.2%, with increases in sales
among all retail customer classes. Customer growth, increased usage and
weather-related demand contributed to the increased revenues along with higher
fuel revenues as discussed below. Also contributing to the increase was the
absence in 1996 of reserves for refunds recorded in 1995 in accordance with the
CPL 1995 Agreement and the WTU 1995 Stipulation and Agreement. KWH sales to
retail customers increased in 1996 as a result of customer growth, increased
customer usage and weather-related demand.
CSW's operating revenues also include approximately $1.8 billion from a
full year of revenues from SEEBOARD U.S.A. for 1996 compared to $208 million of
revenues for a partial quarter of operations in 1995. Other diversified revenues
increased 13% to $59 million in 1996 as compared to $52 million in 1995 due
primarily to increased revenues from CSW Energy projects, increased factoring
revenues at CSW Credit and new revenues from C3 Communications and EnerShop.
During 1996 and 1995 the U.S. Electric Operating Companies generated 93%
and 95%, respectively, of their electric energy requirements. U.S. Electric fuel
expense increased 15% to approximately $1.1 billion in 1996 at the U.S. Electric
28
<PAGE>
Operating Companies due primarily to an increase in the average unit cost of
fuel to $1.81 per MMbtu in 1996 from $1.58 per MMbtu in 1995, reflecting higher
natural gas prices. Partially offsetting this increase was a reduction in the
delivered cost of coal at the U.S. Electric Operating Companies resulting from
lower coal transportation costs and lower spot market coal prices. U.S. Electric
purchased power increased $36 million to $77 million in 1996 due primarily to
increased economy energy purchases at a higher cost per MWH. CSW's operating
expenses include $1.3 billion for cost of sales from a full year of United
Kingdom operations in 1996 compared to $158 million recorded in United Kingdom
cost of sales for a partial quarter of operations in 1995.
Other operating expenses in 1996 increased $228 million, or 41%, from 1995
due primarily to the addition in 1996 of a full year of operating expenses from
SEEBOARD U.S.A. as well as the absence in 1996 of reduced expenses in 1995
related to $28 million of regulatory assets established for previously expensed
restructuring charges and the reversal of rate case costs pursuant to the CPL
1995 Agreement. Also contributing to the increase was the recognition in 1995 of
a $13 million regulatory asset for previously recorded restructuring charges in
accordance with the WTU 1995 Stipulation and Agreement. Another factor
contributing to increased other operating expense was a CSW restructuring charge
recorded in 1996. A $42 million reserve for deferred merger and acquisition
costs was recorded in 1995 from the terminated El Paso merger. Maintenance
expense decreased $5 million to $150 million in 1996 from $155 million in 1995
due primarily to a $10 million decrease in maintenance expense at CPL resulting
from lower production and distribution maintenance costs. Partially offsetting
this decrease was a $7 million increase in maintenance expense due to a
write-down of production and distribution inventories at the U.S. Electric
Operating Companies in 1996.
Depreciation and amortization increased 31% to $464 million in 1996 from
$353 million in 1995 due primarily to the addition of depreciable fixed assets
and the goodwill amortization related to the purchase of SEEBOARD, as well as
increases in depreciable fixed assets at the U.S. Electric Operating Companies.
Also contributing to the increase were the amortization of the regulatory assets
established in 1995 associated with the CPL 1995 Agreement and the WTU 1995
Stipulation and Agreement along with accelerated amortization of deferred
Oklaunion plant costs in accordance with the WTU 1995 Stipulation and Agreement.
Taxes, other than income increased 10% to $178 million in 1996 from $162
million in 1995. The increase was due primarily to lower 1995 ad valorem taxes
resulting from revisions of prior year estimates recorded in 1995. Also
contributing to the increase were higher ad valorem and state franchise taxes at
SWEPCO in 1996. The higher ad valorem taxes resulted primarily from a higher
state assessed value in Louisiana and the addition of the HVdc tie in Texas. The
state franchise taxes increased due mainly to higher federal taxable income
associated with Texas franchise tax. Income taxes increased $132 million to $224
million during 1996 compared to 1995. During 1995, income taxes were lower
primarily due to adjustments relating to prior year taxes, as well as the tax
effect from both the CPL 1995 Agreement and the WTU 1995 Stipulation and
Agreement. Income taxes of $46 million were recorded for SEEBOARD U.S.A. from a
full year of operations in 1996 compared to $6 million for a partial quarter of
operations in 1995.
29
<PAGE>
Other income and deductions decreased $160 million in 1996 when compared
to 1995 due primarily to charges recorded in June 1996 associated with certain
investments for plant sites, engineering studies and lignite reserves for the
U.S. Electric Operating Companies. See the table below for additional detail on
these charges. Other income and deductions was also lower as a result of certain
write-offs recorded by CSW Energy. In addition, CPL's Mirror CWIP liability,
which has now been fully amortized, contributed $41 million to income in 1995.
Pre-tax
effect on Income tax Net Income
income benefit Effect
-----------------------------------
(thousands)
CPL $(21,509) $5,940 $(15,569)
PSO (51,109) 15,401 (35,708)
SWEPCO (29,700) 7,885 (21,815)
WTU (14,949) 4,003 (10,946)
-----------------------------------
$(117,267) $33,229 $(84,038)
-----------------------------------
Interest on long-term debt increased $102 million or 46% during 1996
compared to 1995 due to higher levels of long-term debt outstanding related to
the SEEBOARD acquisition. CSW's 1996 embedded cost of long-term debt was
unchanged from 1995 at 7.2%. Interest on short-term debt decreased $7 million or
7% in 1996 compared to 1995 due to lower interest rates and lower levels of
short-term debt outstanding. CSW used a portion of the proceeds from the sale of
Transok to reduce short-term debt.
The $120 million gain on the sale of Transok as well as Transok's 1996
operations are shown separately in discontinued operations. Transok's earnings
for the first five months of 1996 were $12 million compared to $25 million from
a full year of operations for 1995. See NOTE 15. TRANSOK DISCONTINUED OPERATIONS
for information, including comparative statements of income, related to the sale
of Transok.
30
<PAGE>
<PAGE>
CSW
CONSOLIDATED STATEMENTS OF INCOME
CENTRAL AND SOUTH WEST CORPORATION
- ------------------------------------------------------------------------
For the Years Ended December 31,
----------------------------
1997 1996 1995
------- ------- ------
($ in millions, except share amounts)
Operating Revenues
U.S. Electric $3,321 $3,248 $2,883
United Kingdom 1,870 1,848 208
Other diversified 77 59 52
------- ------- ------
5,268 5,155 3,143
------- ------- ------
Operating Expenses and Taxes
U.S. Electric fuel 1,177 1,151 1,004
U.S. Electric purchased power 89 77 41
United Kingdom cost of sales 1,291 1,331 158
Other operating 981 785 557
Maintenance 152 150 155
Depreciation and amortization 497 464 353
Taxes, other than income 195 178 162
Income taxes 151 224 92
------- ------- ------
4,533 4,360 2,522
------- ------- ------
Operating Income 735 795 621
------- ------- ------
Other Income and Deductions
Mirror CWIP liability amortization -- -- 41
U.S. Electric charges for investments
and plant development costs (3) (117) --
Other 29 16 56
Non-operating income taxes 6 40 2
------- ------- ------
32 (61) 99
------- ------- ------
Income Before Interest and Other Charges 767 734 720
------- ------- ------
Interest and Other Charges
Interest on long-term debt 333 325 223
Distributions on Trust Preferred
Securities 17 -- --
Interest on short-term debt and other 86 94 101
Preferred dividend requirements
of subsidiaries 12 18 19
Gain on reacquired preferred stock (10) -- --
------- ------- ------
438 437 343
------- ------- ------
Income from Continuing Operations 329 297 377
------- ------- ------
Discontinued Operations
Income from discontinued operations,
net of tax of $6 for 1996 and $13
for 1995 -- 12 25
Gain on the sale of discontinued
operations, net of tax of $72 -- 120 --
------- ------- ------
-- 132 25
------- ------- ------
Income Before Extraordinary Item 329 429 402
Extraordinary Item - United Kingdom
windfall profits tax (176) -- --
------- ------- ------
Net Income for Common Stock $153 $429 $402
======= ======= ======
Average Common Shares Outstanding 212.1 207.5 191.7
Basic and Diluted EPS from Continuing
Operations $1.55 $1.43 $1.97
Basic and Diluted EPS from Discontinued
Operations -- 0.64 0.13
------- ------- ------
Basic and Diluted EPS before
Extraordinary Item 1.55 2.07 2.10
Basic and Diluted EPS from
Extraordinary Item (0.83) -- --
------- ------- ------
Basic and Diluted EPS $0.72 $2.07 $2.10
======= ======= ======
Dividends Paid per Share of Common Stock $1.74 $1.74 $1.72
======= ======= ======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
31
<PAGE>
CSW
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CENTRAL AND SOUTH WEST CORPORATION
- ---------------------------------------------------------------------------
For the Years Ended December 31,
--------------------------
1997 1996 1995
------- ------ ------
(millions)
Common Stock at Beginning of Year $740 $675 $667
Sale of Common Stock 3 65 8
------- ------ ------
Common Stock at End of Year 743 740 675
------- ------ ------
Paid-in Capital at Beginning of Year 1,022 610 561
Sale of Common Stock 17 412 49
------- ------ ------
Paid-in Capital at End of Year 1,039 1,022 610
------- ------ ------
Retained Earnings at Beginning of Year 1,963 1,893 1,824
Net income for common stock 153 429 402
Deduct: Common stock dividends 369 358 329
Deduct: Other 1 1 4
------- ------ ------
Retained Earnings at End of Year 1,746 1,963 1,893
------- ------ ------
Foreign Currency Translation and Other
at Beginning of Year 77 -- --
Net Change (49) 77 --
------- ------ ------
Foreign Currency Translation and Other
at End of Year 28 77 --
------- ------ ------
------- ------ ------
Total Stockholders' Equity $3,556 $3,802 $3,178
======= ====== ======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
32
<PAGE>
CSW
CONSOLIDATED BALANCE SHEETS
CENTRAL AND SOUTH WEST CORPORATION
- ---------------------------------------------------------------------------
As of December 31,
-----------------
1997 1996
------- -------
(millions)
ASSETS
Fixed Assets
Electric
Production $5,824 $5,830
Transmission 1,558 1,538
Distribution 4,453 4,237
General 1,381 1,318
Construction work in progress 184 230
Nuclear fuel 196 184
------- -------
13,596 13,337
Other diversified 250 84
------- -------
13,846 13,421
Less - Accumulated depreciation and amortization 5,218 4,940
------- -------
8,628 8,481
------- -------
Current Assets
Cash and temporary cash investments 75 254
Accounts receivable 916 837
Materials and supplies, at average cost 172 185
Electric utility fuel inventory 65 102
Under-recovered fuel costs 84 46
Prepayments and other 78 85
------- -------
1,390 1,509
------- -------
Deferred Charges and Other Assets
Deferred plant costs 503 509
Mirror CWIP asset 285 299
Other non-utility investments 448 371
Securities available for sale 103 --
Income tax related regulatory assets, net 329 236
Goodwill 1,428 1,525
Other 337 402
------- -------
3,433 3,342
------- -------
$13,451 $13,332
======= =======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
33
<PAGE>
CSW
CONSOLIDATED BALANCE SHEETS
CENTRAL AND SOUTH WEST CORPORATION
- ----------------------------------------------------------------------
As of December 31,
----------------------
1997 1996
-------- --------
CAPITALIZATION AND LIABILITIES (millions)
Capitalization
Common stock: $3.50 par value
Authorized shares:
350.0 million shares
Issued and outstanding:
212.2 million shares
in 1997 and 211.5 million
shares in 1996 $ 743 $ 740
Paid-in capital 1,039 1,022
Retained earnings 1,746 1,963
Foreign currency translation and other 28 77
-------- --------
3,556 45% 3,802 47%
-------- --- --------- ---
Preferred Stock
Not subject to mandatory redemption 176 292
Subject to mandatory redemption 26 33
-------- ---------
202 2% 325 4%
Certain Subsidiary-obligated,
mandatorily redeemable preferred
securities of subsidiary trusts
holding solely Junior Subordinated
Debentures of such Subsidiaries 335 4% -- --%
Long-term debt 3,898 49% 4,024 49%
-------- --- --------- ---
Total Capitalization 7,991 100% 8,151 100%
-------- --- --------- ---
Current Liabilities
Long-term debt and preferred stock
due within twelve months 32 204
Short-term debt 721 364
Short-term debt - CSW Credit, Inc. 636 579
Loan notes 56 76
Accounts payable 558 630
Accrued taxes 171 324
Accrued interest 87 82
Other 238 166
-------- --------
2,499 2,425
-------- --------
Deferred Credits
Accumulated deferred income taxes 2,432 2,272
Investment tax credits 278 291
Other 251 193
-------- --------
2,961 2,756
-------- --------
$ 13,451 $ 13,332
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
34
<PAGE>
CSW
CONSOLIDATED STATEMENTS OF CASH FLOWS
CENTRAL AND SOUTH WEST CORPORATION
- -----------------------------------------------------------------------------
For the Years Ended December 31,
----------------------------
1997 1996 1995
------- ------- ------
(millions)
OPERATING ACTIVITIES
Net income for common stock $153 $429 $402
Non-cash Items and Adjustments
Depreciation and amortization 529 521 425
Deferred income taxes and
investment tax credits 110 62 (11)
Preferred stock dividends 12 18 19
Gain on reacquired preferred stock (10) -- --
Mirror CWIP liability amortization -- -- (41)
Charges for investments and assets 53 147 --
Gain on sale of subsidiary -- (192) --
Changes in Assets and Liabilities
Accounts receivable (140) (86) (36)
Accounts payable 45 23 (32)
Accrued taxes (153) (14) 25
Fuel recovery (37) (89) 76
Other 164 56 (28)
------- ------- -----
726 875 799
------- ------- -----
INVESTING ACTIVITIES
Construction expenditures (507) (521) (474)
Acquisitions expenditures -- (1,394) (421)
CSW Energy/CSW International projects (382) (124) 109
Sale of National Grid assets -- 99 --
Cash proceeds from sale of subsidiary -- 690 --
Other (15) (36) (26)
------- ------- -----
(904) (1,286) (812)
------- ------- -----
FINANCING ACTIVITIES
Common stock sold 20 477 57
Proceeds from issuance of long-term debt -- 437 456
SEEBOARD acquisition financing -- 350 731
Reacquisition/Maturity of long-term debt (253) (239) (363)
Redemption of preferred stock (114) (1) (1)
Trust Preferred Securites Sold 323 -- --
Other financing activities (3) 67 --
Change in short-term debt 414 (395) (226)
Payment of dividends (383) (376) (348)
------- ------- -----
4 320 306
------- ------- -----
Effect of exchange rate changes on cash and
cash equivalents (5) (56) --
------- ------- -----
Net Change in Cash and Cash Equivalents (179) (147) 293
Cash and Cash Equivalents at Beginning of Year 254 401 108
======= ======= =====
Cash and Cash Equivalents at End of Year $75 $254 $401
======= ======= =====
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $396 $356 $301
======= ======= =====
Income taxes paid $301 $196 $77
======= ======= =====
The accompanying notes to consolidated financial statements are an
integral part of these statements.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
CSW is a registered holding company under the Holding Company Act subject
to regulation by the SEC. CSW's U.S. Electric Operating Companies are also
regulated by the SEC under the Holding Company Act.
The principal business of CSW's U.S. Electric Operating Companies is the
generation, transmission, and distribution of electric power and energy. These
companies are subject to regulation by the FERC under the Federal Power Act and
follow the Uniform System of Accounts prescribed by the FERC. They are subject
to further regulation with regard to rates and other matters by state regulatory
commissions as follows: CPL and WTU are subject to the Texas Commission; PSO is
subject to the Oklahoma Commission; and SWEPCO is subject to the Arkansas
Commission, Louisiana Commission, Oklahoma Commission and Texas Commission.
The principal business of CSW's United Kingdom electric operating
subsidiary, SEEBOARD, is the distribution and supply of electric power and
energy in Southeast England. SEEBOARD is subject to rate regulation by the DGES.
In addition to electric utility operations, CSW has subsidiaries involved
in a variety of business activities. CSW Energy and CSW International pursue
cogeneration and other energy-related ventures; CSW Credit factors the accounts
receivable of affiliated and non-affiliated companies; C3 Communications pursues
telecommunications projects; CSW Leasing has investments in leveraged leases;
EnerShop offers energy-management services and CSW Energy Services will pursue
retail energy markets outside of CSW's traditional service territory.
The more significant accounting policies of the CSW System are summarized
below.
Principles of Consolidation
The consolidated financial statements include the accounts of CSW and its
subsidiary companies.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities along
with disclosure of contingent liabilities at the date of financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fixed Assets and Depreciation
U.S. Electric fixed assets are stated at the original cost of
construction, which includes the cost of contracted services, direct labor,
materials, overhead items and allowances for borrowed and equity funds used
during construction. SEEBOARD's fixed assets are stated at their original fair
market value which existed on the date of acquisition plus the original cost of
property acquired or constructed since the acquisition, less disposals.
Provisions for depreciation of plant are computed using the straight-line
method, generally at individual rates applied to the various classes of
depreciable property. CSW's annual average consolidated composite rates were
3.4% for the years 1995-1997.
CPL Nuclear Decommissioning of STP
At the end of STP's service life, decommissioning is expected to be
accomplished using the decontamination method, which is one of the techniques
acceptable to the NRC. Using this method, the decontamination activities occur
36
<PAGE>
as soon as possible after the end of plant operations. Contaminated equipment is
cleaned and removed to a permanent disposal location, and the site is generally
returned to its pre-plant state.
CPL's decommissioning costs are accrued and funded to an external trust
over the expected service life of the STP units. The existing NRC operating
licenses will allow the operation of STP Unit 1 until 2027 and Unit 2 until
2028. The accrual for decommissioning costs is an annual level cost based on the
estimated future cost to decommission STP, including escalations for expected
inflation to the expected time of decommissioning, and is net of expected
earnings on the trust fund.
CPL's portion of the costs of decommissioning STP were estimated to be
$258 million in 1995 dollars based on a site specific study completed in 1995.
CPL is recovering these decommissioning costs through rates based on the service
life of STP at a rate of $8.2 million per year. The $8.2 million annual cost of
decommissioning is reflected on the income statement in other operating expense.
Due to the fact that the funds are deposited with a trustee under the terms of
an irrevocable trust and because of the ongoing nature of the FASB project, as
described below, management believes it inappropriate to reflect the trust
assets on CSW's financial statements. At December 31, 1997, the trust balance
was $45.7 million.
The FASB is currently reviewing the utility industry's accounting
treatment of nuclear and certain other plant decommissioning costs. An exposure
draft regarding this matter was issued in February 1996. In November 1997 the
FASB abandoned all previous decisions on the scope of this project and began a
new project related to decommissioning and other environmental remediation
costs. It is not known at this time when any new pronouncement would result from
this project.
Electric Revenues and Fuel
The U.S. Electric Operating Companies record revenues based upon
cycle-billings. Electric service provided subsequent to billing dates through
the end of each calendar month are accrued for by estimating unbilled revenues
in accordance with industry standards.
CPL, SWEPCO and WTU recover retail fuel costs in Texas as a fixed
component of base rates whereby over-recoveries of fuel are payable to customers
and under-recoveries may be billed to customers after Texas Commission approval.
The cost of fuel is charged to expense as incurred, with resulting fuel
over-recoveries and under-recoveries recorded as regulatory assets and
liabilities. PSO recovers fuel costs in Oklahoma and SWEPCO recovers fuel costs
in Arkansas and Louisiana through automatic fuel recovery mechanisms. The
application of these mechanisms varies by jurisdiction. See NOTE 2. LITIGATION
AND REGULATORY PROCEEDINGS, for further information about fuel recovery.
CPL, PSO and WTU recover fuel costs applicable to wholesale customers,
which are regulated by the FERC, through an automatic fuel adjustment clause.
SWEPCO recovers fuel costs applicable to wholesale customers through formula
rates.
CPL amortizes direct nuclear fuel costs to fuel expense on the basis of a
ratio of the estimated energy used in the core to the energy expected to be
derived from such fuel assembly over its life in the core. In addition to fuel
amortization, CPL also records nuclear fuel expense as a result of other items,
including spent fuel disposal fees assessed on the basis of net MWHs sold from
STP and DOE special assessment fees for decontamination and decommissioning of
the enrichment facilities on the basis of prior usage of enrichment services.
Accounts Receivable
CSW Credit, as a wholly owned subsidiary of CSW, purchases, without
recourse, the billed and unbilled accounts receivable of the U.S. Electric
Operating Companies, certain non-affiliated public utility companies and, prior
to its sale by CSW in June 1996, Transok.
37
<PAGE>
Regulatory Assets and Liabilities
For their regulated activities, the U.S. Electric Operating Companies
follow SFAS No. 71, which defines the criteria for establishing regulatory
assets and regulatory liabilities. Regulatory assets represent probable future
revenue to the company associated with certain costs which will be recovered
from customers through the ratemaking process. Regulatory liabilities represent
probable future refunds to customers. The regulatory assets are currently being
recovered in rates or are probable of being recovered in rates. The unamortized
asset balances are included in the table below.
<PAGE>
1997 1996
-------- ---------
As of December 31, (millions)
Regulatory Assets
Deferred plant costs (1) $503 $509
Mirror CWIP asset 285 299
Income tax related regulatory
assets, net 329 236
Deferred restructuring and rate
case costs (2) 36 46
Deferred storm costs (3) -- 2
OPEBs 3 3
Demand side management costs 10 15
Under-recovered fuel costs (4) 84 47
Loss on reacquired debt 166 180
Fuel settlement (5) 16 17
Other 8 13
-------- ---------
$1,440 $1,367
Regulatory Liabilities
Refunds due customers $64 $43
Other 1 2
-------- ---------
$65 $45
-------- ---------
(1) $19 in 1997 and $22 in 1996 earning no return, amortized through 2002
(2) $24 in 1997 and $31 in 1996 earning no return, amortized by the end
of 2000; $12 in 1997 and $15 in 1996 earning no return, amortized
through 2002
(3) Item earning no return, amortized by the end of 1997 (4) $15 in 1997
and $3 in 1996 earning no return, amortized over 12 month period,
recalculated semiannually
(5) Item earning no return, amortized by the end of 2006
In accordance with orders of the Texas Commission, CPL and WTU deferred carrying
costs, as well as operating costs, depreciation and tax costs incurred for STP
and Oklaunion, respectively. These deferrals were for the period beginning on
the date when the plants began commercial operation until the date the plants
were included in rate base. CPL is amortizing and recovering these deferred
costs through rates over the life of the plant. WTU began amortizing and
recovering such costs over a seven year period beginning January 1, 1996. In
accordance with Texas Commission orders, CPL previously recorded a Mirror CWIP
asset, which is being amortized over the life of STP. For further information
regarding the deferred plant costs at CPL and WTU, reference is made to NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS. For additional information regarding
regulatory accounting, reference is made to NEW ACCOUNTING STANDARDS and
MD&A-RECENT DEVELOPMENTS AND TRENDS, Regulatory Accounting.
SEEBOARD Acquisition
The acquisition of SEEBOARD was accounted for as a purchase combination.
An allocation of the purchase price has been performed and is reflected in the
consolidated financial statements. The goodwill is being amortized on a
straight-line basis over 40 years. The unamortized balance of the SEEBOARD
goodwill at December 31, 1997 was $1.4 billion. CSW continually evaluates
whether circumstances have occurred that indicate the remaining useful life of
goodwill may warrant revision or that the remaining balance of goodwill may not
be recoverable.
38
<PAGE>
National Grid Assets
Pursuant to a December 11, 1995 distribution by SEEBOARD, CSW (UK) plc, as
a shareholder of SEEBOARD, received approximately 32.5 million shares of
National Grid common stock. On February 2, 1996, all of these shares were sold
for approximately $99 million.
Foreign Currency Translation
The financial statements of SEEBOARD U.S.A., which are included
in CSW's consolidated financial statements, have been translated from British
pounds to U.S. dollars in accordance with SFAS No. 52. All balance sheet
accounts are translated at the exchange rate at the end of the period and all
income statement items are translated at the average exchange rate for the
applicable period. At December 31, 1997 the current exchange rate was
approximately (pound)1.00=$1.65, and the average exchange rate for the twelve
month period ended December 31, 1997 was approximately (pound)1.00=$1.58. At
December 31, 1996 the current exchange rate was approximately (pound)1.00=$1.71,
and the average exchange rate for the twelve month period ended December 31,
1996 was approximately (pound)1.00=$1.56. The average exchange rate for the
twelve month period ended December 31, 1995 was approximately (pound)1.00=$1.58.
All resulting translation adjustments are recorded directly to Foreign currency
translation and other on CSW's Consolidated Balance Sheets. Cash flow statement
items are translated at a combination of average, historical and current
exchange rates. The non-cash impact of the changes in exchange rates on cash and
cash equivalents, resulting from the translation of items at the different
exchange rates, is shown on CSW's Consolidated Statements of Cash Flows in
Effect of exchange rate changes on cash and cash equivalents.
Statements of Cash Flows
Cash equivalents are considered to be highly liquid instruments with a
maturity of three months or less. Accordingly, temporary cash investments are
considered cash equivalents.
Risk Management
CSW has been exposed to currency and interest rate risks which reflect the
floating exchange rate that exists between the U.S. dollar and the British pound
since its purchase of SEEBOARD in 1995. CSW has utilized certain risk management
tools, including cross currency swaps, foreign currency futures and foreign
currency options, to manage adverse changes in exchange rates and to facilitate
financing transactions resulting from CSW's acquisition of SEEBOARD.
SEEBOARD has entered into contracts for differences to reduce exposure to
fluctuations in the price of electricity purchased from the United Kingdom's
electricity power pool. This pool was established at privatization of the United
Kingdom's electric industry for the bulk trading of electricity between
generators and suppliers.
CSW accounts for these transactions as hedge transactions and any gains or
losses associated with the risk management tools are recognized in the financial
statements at the time the hedge transactions are settled. CSW believes its
credit risk in these contracts is negligible. See MD&A, RISK MANAGEMENT and NOTE
7. FINANCIAL INSTRUMENTS for additional information.
Securities Available for Sale
CSW accounts for its investments in equity securities in accordance with
SFAS No. 115. The investments have been designated as available for sale, and as
a result are stated at fair value. Unrealized holding gains and losses, net of
related taxes, are included within Foreign currency translation and other on
CSW's Consolidated Balance Sheets. Information related to these Securities
available for sale as of December 31, 1997 is presented in the following table.
39
<PAGE>
Original Unrealized
Cost Holding Gains/(Losses) Fair Value
-----------------------------------------------
(millions)
Securities available for sale $110 $5 $(12) $103
Accounting Change
Effective January 1, 1997, CPL and WTU began utilizing the LIFO method for
the valuation of all fossil fuel inventories. Previously, CPL had used the
weighted average cost method and WTU had used the LIFO method for coal and the
weighted average cost method for other fuel inventories. PSO utilizes the LIFO
method. SWEPCO continues to utilize the weighted average cost method pending
approval of the Arkansas Commission to utilize the LIFO method. The change in
accounting did not affect the results of operations due to the regulatory
treatment of such costs.
Reclassification
Certain financial statement items for prior years have been reclassified
to conform to the 1997 presentation. See NOTE 15. TRANSOK DISCONTINUED
OPERATIONS for information related to the classification of Transok activities.
2. LITIGATION AND REGULATORY PROCEEDINGS
Settlement of Litigation Related to Termination of El Paso Merger
In May 1993, CSW entered into a merger agreement pursuant to which El Paso
would have emerged from bankruptcy as a wholly owned subsidiary of CSW. In June
1995, following its notification that CSW was terminating the El Paso Merger
Agreement, El Paso filed suit against CSW seeking a $25 million termination fee
from CSW, as well as, unspecified damages for various contract and tort claims.
Subsequently, CSW filed suit against El Paso seeking a $25 million termination
fee from El Paso and recovery of certain rate case expenses incurred by CSW on
behalf of El Paso.
The United States Bankruptcy Court for the Western District of Texas,
Austin Division, consolidated the El Paso suit and the CSW suit into one
adversary proceeding. On April 11, 1997, the court issued an interim order in
which it ruled that CSW owed El Paso a $25 million termination fee and reserved
judgment on certain disputed interest.
In July 1997, CSW and El Paso reached a settlement agreement that resolved
all of the pending litigation. Under the terms of the settlement agreement, CSW
and El Paso dismissed all pending claims in the litigation and CSW paid $35
million to El Paso, various of its creditor groups under its plan of
reorganization, and its attorneys. CSW recorded a charge of $25 million in the
first quarter of 1997 following the court's interim order and recorded an
additional charge of $10 million in the second quarter of 1997 to fully
recognize the $35 million settlement amount. The bankruptcy court vacated the
interim order and approved the settlement agreement.
Litigation Related to the Rights Plan and AEP Merger
Two lawsuits have been filed in Delaware state court seeking to enjoin the
AEP Merger. CSW and each of its directors have been named as defendants in both
cases. The first suit alleges that the Rights Plan, approved by the CSW Board of
Directors on September 27, 1997 and which became effective after SEC approval
under the Holding Company Act on December 19, 1997, constitutes a "poison pill"
precluding acquisition offers and resulting in a heightened fiduciary duty on
the part of the CSW Board of Directors to pursue an auction-type sales process
to obtain the best value for CSW stockholders. The second suit alleges that the
AEP Merger is unfair to CSW stockholders in that it does not recognize the
underlying intrinsic value of CSW's assets and its future profitability. The
second suit also seeks an auction-type sale process. CSW believes that both
suits are without merit and intends to defend them vigorously.
40
<PAGE>
CPL Rate Review - Docket No. 14965
In November 1995, CPL filed with the Texas Commission a request to
increase its retail base rates by $71 million, and in May 1996, CPL placed a $70
million base rate increase into effect under bond, subject to refund based on
the receipt of a final order of the Texas Commission. On March 31, 1997, the
Texas Commission issued the CPL 1997 Original Rate Order in CPL's rate review,
Docket No. 14965. Thereafter, CPL filed a motion for rehearing which requested
the reconsideration of numerous provisions of the order. Motions for rehearing
were also filed by other parties to the rate proceeding. In response to the
motions for rehearing, in June 1997, the Texas Commission made several
modifications to the CPL 1997 Original Rate Order and also agreed to rehear on
remand several other issues. CPL restored its rates in July 1997, with two
exceptions, to levels existing prior to the May 1996 implementation of bonded
rates. On August 21, 1997, after reconsidering the issues on remand, the Texas
Commission voted to issue a revised final order and on September 10, 1997, CPL
received a revised final order. CPL filed its second motion for rehearing on
September 30, 1997. The second motion for rehearing again requested
reconsideration of numerous issues in the rate case. On October 16, 1997 the
Texas Commission issued the CPL 1997 Final Order. The CPL 1997 Final Order
lowers the annual retail base rates of CPL by approximately $19 million, or
2.5%, from CPL's rate level existing prior to May 1996. The Texas Commission
also included a "Glide Path" rate methodology in the CPL 1997 Final Order
pursuant to which CPL's annual rates will be reduced by an additional $13
million in mid-1998 and another $13 million in mid-1999.
The CPL 1997 Original Rate Order established a separate docket, Docket No.
17280, to consider the recoverability of $20 million of rate case expenses
incurred in the current rate case and in two prior dockets. CPL reached a
settlement with all parties to resolve Docket No. 17280 which provides for CPL
to recover $14 million out of the total $20 million of rate case expenses
originally requested. Approximately $8 million of the rate case expenses will be
recovered as an offset to the refund in the rate case, and the remaining $6
million of expenses will be surcharged to customers over three years. CPL
expensed the $6 million in foregone rate case expenses during the first quarter
of 1997.
CPL implemented bonded rates subject to refund in May 1996. On July 17,
1997, CPL restored its rates, with two exceptions, to levels existing prior to
the implementation of the bonded rates. The two exceptions are for industrial
interruptible rates and customer service charges for which the Texas Commission
approved the increases requested by CPL. On October 31, 1997, CPL filed with the
Texas Commission a proposed methodology for issuing an interim refund to
customers in December 1997. A second refund was made in March 1998. The
different components that were all incorporated into the December 1997 refund
made to customers, a breakdown of the December 1997 refund, as well as the March
1998 refund, including interest, is shown below (millions).
December 1997
Amount collected from customers under bond $81.7
Surcharge for rate case expenses (13.3)
Surcharge for fuel cost under-recovery (23.6)
---------
Net refund to customers $44.8
---------
March 1998 (estimated)
Remaining refund available $59.0
Anticipated surcharge for fuel
cost under-recovery (34.3)
---------
Net refund to customers $24.7
---------
The following table details the financial impact of the CPL 1997 Final
Order as compared to the rates existing prior to CPL placing bonded rates into
effect. Although the entire impact has been recorded in CSW's 1997 results of
operations, the financial impact on its results of operations for 1996 and for
the year 1997 is shown below.
41
<PAGE>
1996
Retroactive 1997 Only
Impact Impact
---------- ----------
(millions)
Decrease in revenue $(20.7) $(24.2)
---------- ----------
Items included in decrease in
revenue with offsetting effect
on expense:
Accelerated recovery of STP (ECOM) 13.3 20.0
Change in depreciation (7.5) (11.3)
Decommissioning 1.9 4.3
Other -- 6.8
---------- ----------
7.7 19.8
---------- ----------
Change in current year income before (28.4) (44.0)
tax
Federal income taxes 9.5 14.8
---------- ----------
Impact on net income - all
recorded in 1997 $(18.9) $(29.2)
---------- ----------
CPL appealed the CPL 1997 Final Order to the State District Court of
Travis County to challenge the resolution of several issues in the rate case.
The primary issues include: (i) the classification of $800 million of invested
capital in STP as ECOM which was also assigned a lower return on equity than
non-ECOM property, (ii) the Texas Commission's use of the "Glide Path" rate
reduction methodology to be applied to rates in mid-1998 and mid-1999, and (iii)
the $18 million of disallowed affiliate transactions from CSW Services. As part
of the appeal, CPL seeks a temporary injunction to prohibit the Texas Commission
from implementing the "Glide Path" rate reduction methodology, currently
scheduled to begin in May 1998. A hearing has been set for the temporary
injunction on April 3, 1998. Management is unable to predict how the final
resolution of these issues will ultimately affect CSW's results of operations
and financial condition.
See MD&A - RATES AND REGULATORY MATTERS, CPL Rate Review - Docket No.
14965 for additional discussion of the CPL 1997 Final Order, including the
estimated ongoing financial impact of the final order and information regarding
the difference between the rates originally requested by CPL and those ordered
by the Texas Commission.
CPL 1995 Agreement
On April 5, 1995, CPL reached an agreement in principle with other parties
to pending regulatory proceedings involving base rate, fuel and prudence issues
relating to an outage experienced at STP during 1993 and 1994. Under the CPL
1995 Agreement, CPL provided customers a one-time base rate refund of $50
million. In addition, CPL refunded approximately $30 million in over-recovered
fuel costs through April 1995. Furthermore, CPL did not charge customers for
$62.25 million in replacement power costs and related interest primarily
associated with the 1993-1994 STP outage. The CPL 1995 Agreement did not result
in any ongoing change in base rate levels and provided that there would be no
new rate review requests filed prior to September 28, 1995. CPL also reduced its
fuel factors, effective in July 1995, by approximately $55 million on an annual
basis due to projections of lower fuel costs. The Texas Commission approved the
CPL 1995 Agreement on October 4, 1995. Details of the items in the CPL 1995
Agreement and the total 1995 earnings impact, including certain accounting
provisions, are set forth in the following table.
42
<PAGE>
Pre-tax After-tax
------------------
(millions)
Base rate refund $(50.0) $(32.5)
Fuel disallowance (62.3) (40.5)
Wholesale fuel refund (3.2) (2.1)
Current flowback of excess deferred
federal income taxes 34.3 34.3
Capitalization of previously expensed
restructuring and rate case costs 27.6 17.9
Recognition of factoring income 16.1 10.5
Amortization, interest and other (6.6) (4.4)
CPL Deferred Accounting
By orders issued in 1989 and 1990, the Texas Commission authorized CPL to
defer certain STP Unit 1 and Unit 2 costs incurred between the commercial
operation dates of those units and the effective date of rates reflecting the
operation of those units. Upon appeal of the 1989 CPL order, and a related order
involving another utility, the Supreme Court of Texas in 1994 sustained deferred
accounting as an appropriate mechanism for the Texas Commission to use in
preserving the financial integrity of CPL, but remanded CPL's case to the Court
of Appeals to consider certain substantial evidence points of error not
previously decided by the Court of Appeals. On August 16, 1995, the Court of
Appeals rendered its opinion in the remand proceeding and affirmed the Texas
Commission's order in all respects.
By orders issued in October 1990 and December 1990, the Texas Commission
quantified the STP Unit 1 and Unit 2 deferred accounting costs and authorized
the inclusion of the amortization of the costs and associated return in CPL's
retail rates. These Texas Commission orders were appealed to the Travis County
District Court where the appeals are still pending. Language in the Supreme
Court of Texas' opinion in the appeal of the deferred accounting authorization
case suggests that the appropriateness of including deferred accounting costs in
rates charged to customers is dependent on a finding in the first case in which
the deferred STP costs are recovered through rates that the deferral was
actually necessary to preserve the utility's financial integrity. If in the
appeals of the October 1990 and December 1990 rate orders, the courts decide
that subsequent review under the financial integrity standard is required and
was not made in those orders, such rate orders would be remanded to the Texas
Commission for the purpose of entering findings applying the financial integrity
standard. Pending the ultimate resolution of CPL's deferred accounting issues,
CPL is unable to predict how its deferred accounting orders will ultimately be
resolved by the Texas Commission.
If CPL's deferred accounting matters are not favorably resolved, CSW could
experience a material adverse effect on its results of operations and financial
condition. While CPL's management is unable to predict the ultimate outcome of
these matters, management believes either that CPL will receive approval of its
deferred accounting amounts or that CPL will be successful in renegotiation of
its rate orders, so that there will be no material adverse effect on CSW's
results of operation or financial condition.
CPL Fuel Proceeding
In January 1998, CPL filed a request with the Texas Commission to recover
approximately $41.4 million in uncollected fuel and purchased power costs and
related interest from its retail customers and to increase the fuel factors used
to recover fuel costs incurred to provide service in the future. The fuel
surcharge will be subtracted from the remaining base rate refund totaling
approximately $59.0 million that was ordered by the Texas Commission in CPL's
recent general rate case, Docket No. 14965. This net refund is being issued as a
one-time adjustment to customers' March 1998 bills. In the same filing with the
Texas Commission, CPL also requested permission to increase its fixed fuel
factors by approximately $23.4 million effective with March 1998 bills. The
primary cause of CPL's current fuel cost under-recovery and the need to increase
its current fuel factors is the unanticipated increase in the price of natural
gas.
43
<PAGE>
In February 1998, stipulations were reached on both the fuel factor and
surcharge. The fuel factor increase is being reduced to $15.4 million, and the
fuel surcharge including interest is being reduced to $34.3 million. The
reductions are not a disallowance and will be considered as part of CPL's fuel
reconciliation filing to be made in December 1998.
CPL Nuclear Insurance Claims
In 1994, CPL filed a claim under its NEIL I policy relating to the
1993-1994 outage at STP Units 1 and 2. NEIL denied CPL's claim in 1995. CPL
filed an action in April 1996 against both NEIL and Johnson & Higgins of Texas,
Inc., the former insurance broker for STP, seeking recovery under the policy and
other relief. Subsequently, CPL and NEIL agreed to dismiss all litigation
between them concerning CPL's claim for NEIL coverage, and they agreed to submit
their disputes over coverage to a non-binding, neutral evaluation process.
Hearings were held by the neutral evaluator in February 1997 and April 1997. On
April 22, 1997, the neutral evaluator made the recommendation that CPL's claim
was not covered by its NEIL I policy. CPL abided by this recommendation.
CPL Industrial Road and Industrial Metals Site
Three suits naming CPL and others as defendants relating to a third-party
owned and operated site in Corpus Christi, Texas formerly used for commercial
reclamation of used electrical transformers, lead acid batteries and other scrap
metals, were pending in federal and state court in Corpus Christi, Texas. The
plaintiffs' complaints sought damages for alleged property damage and health
impairment as a result of operations on the site and cleanup activities. During
1997, these suits were settled with no material adverse effect on CSW's results
of operation or financial condition.
CPL Municipal Franchise Fee Litigation
In May 1996, the city of San Juan, Texas filed a purported class action in
Hidalgo County, Texas District Court on behalf of all cities served by CPL based
upon CPL's alleged underpayment of municipal franchise fees. The plaintiff's
petition asserts various contract and tort claims against CPL as well as certain
audit rights. The suit seeks unspecified damages and attorneys' fees. CPL filed
a counterclaim for any overpayment of franchise fees it may have made as well as
its attorneys' fees. CPL also filed a motion to transfer venue to Nueces County,
Texas, and a plea to the jurisdiction and pleas in abatement asserting that the
Texas Commission has primary jurisdiction over the claims. In May 1996 and
December 1996, respectively, the cities of Pharr, Texas and San Benito, Texas
filed individual suits making claims virtually identical to those claimed by the
city of San Juan. In January, 1997, CPL filed an original petition at the Texas
Commission requesting the Texas Commission to declare its jurisdiction over
CPL's collection and payment of municipal franchise fees.
In April 1997, the Texas Commission issued a declaratory order in which it
declined to assert jurisdiction over the claims of the City of San Juan. CPL
appealed the Texas Commission's decision to the Travis County, Texas District
Court. After the Texas Commission's order, the Hidalgo County court overruled
CPL's plea to the jurisdiction and plea in abatement. In July 1997, the Hidalgo
County court entered an order certifying the case as a class action. CPL
appealed this order to the Corpus Christi Court of Appeals. In February 1998,
the court of appeals' affirmed the trial court's order certifying the class. CPL
appealed the court of appeals ruling to the Texas Supreme Court.
Although CPL believes that it has substantial defenses to the cities'
claims and intends to defend itself against the cities' claims and pursue its
counterclaims vigorously, management cannot predict the outcome of these
lawsuits.
44
<PAGE>
CPL and WTU Texas Utilities Complaint (Docket No. 17285)
A Proposal for Decision was received in February 1998 in a joint CPL/WTU
complaint at the Texas Commission that since January 1, 1997, Texas Utilities
was effectively double charging for transmission service within the Electric
Reliability Council of Texas. The Proposal recommends approval of a CPL/WTU
proposed offset of $15.5 million annually of payments to Texas Utilities under
FERC-approved transmission service agreements against amounts that CPL and WTU
would otherwise owe Texas Utilities pursuant to Texas Commission rules for
transmission service in ERCOT. The Texas Commission will consider the Proposal
in April 1998.
PSO Rate Review
In July 1996, the Oklahoma Commission staff filed an application seeking a
review of PSO's earnings. In accordance with the established schedule, PSO
subsequently filed financial data, cost of service and rate design testimony
supporting both its current rates and an increase in annual depreciation expense
of $26 million. In July 1997, the Oklahoma Commission staff and other
intervenors to the proceeding filed their revenue requirements testimony. In its
filing, the Oklahoma Commission staff recommended a rate reduction of $76.8
million for PSO.
On October 15, 1997, PSO reached a stipulated agreement with parties to
settle the rate inquiry that was pending before the Oklahoma Commission. On
October 23, 1997, the Oklahoma Commission issued a final order approving the
agreement. The PSO 1997 Rate Settlement Agreement calls for PSO to lower its
retail base rates beginning with the December 1997 billing cycle by
approximately $35.9 million annually, or a 5.3 percent decrease below the
current level of retail rates. Part of the rate reduction includes a reduction
in annual depreciation expense of approximately $10.9 million. In addition, the
PSO 1997 Rate Settlement Agreement resulted in PSO making a one-time $29 million
refund to customers in December 1997.
The PSO 1997 Rate Settlement Agreement also calls for PSO to eliminate or
amortize before its next rate filing approximately $41 million in certain
deferred assets, approximately $26 million of which had been expensed in 1996.
The remaining $15 million of deferred assets, which included approximately $9
million of costs incurred for customer energy management incentive programs,
were written off in 1997. The following table represents the financial impact of
the PSO 1997 Rate Settlement Agreement on CSW's 1997 results of operations.
1997
Impact
----------
(millions)
Decrease in revenues
Refund to customers $(29.0)
Change in rates (2.5)
----------
(31.5)
----------
Changes in expenses (offsetting
impact included in revenues)
Depreciation (6.3)
Rate case deferred costs 2.2
Income tax (10.2)
----------
(14.3)
----------
(17.2)
Write-off of deferred assets, net of (10.2)
tax
----------
$(27.4)
----------
The PSO 1997 Rate Settlement Agreement resulted in an adverse effect on
CSW's results of operations for 1997 that will have a continuing impact because
of the rate decrease. However, it reduced significant risks for PSO related to
this regulatory proceeding and should allow PSO's rates to remain competitive
for the foreseeable future.
45
<PAGE>
See MD&A - RATES AND REGULATORY MATTERS, PSO 1997 Rate Settlement
Agreement for additional discussion of the PSO 1997 Rate Settlement Agreement,
including the estimated ongoing financial impact of the agreement.
PSO PCB Cases
PSO has been named a defendant in petitions filed in state court in
Oklahoma in February and August, 1996. The petitions allege that the plaintiffs
suffered personal injury and fear future injury as a result of contamination by
PCBs from a transformer malfunction that occurred in April, 1982 at the Page
Belcher Federal Building in Tulsa. Each of the plaintiffs seeks actual and
punitive damages in excess of $10,000. As previously reported, other claims
arising from this incident have been settled and the suits dismissed. Management
believes that PSO has defenses to the remaining complaints and intends to defend
the suits vigorously. Management believes that the remaining claims are covered
by insurance. Management also believes that the ultimate resolution of the
remaining lawsuits will not have a material adverse effect on CSW's results of
operations or financial condition.
PSO Sand Springs/Grandfield, Oklahoma Sites
In 1989, PSO found PCB contamination in a Sand Springs, Oklahoma PCB
storage facility. The EPA-approved cleanup began in 1994. In 1996, the EPA filed
a complaint against PSO alleging that PSO failed to comply with provisions of
the Toxic Substances Control Act. The EPA alleged improper disposal of PCBs at
the Sand Springs site due to the length of time between discovery of the
contamination and the actual cleanup at the site. The complaint also alleged
failure to date PCB articles at a Grandfield, Oklahoma site. The total proposed
penalty, which was accrued by PSO in 1996, was $479,000. PSO settled all claims
in the suit by March 1998. The settlement did not have a material adverse effect
on CSW's results of operations or financial condition.
SWEPCO Fuel Proceeding
In April 1997, SWEPCO filed with the Texas Commission an application
concerning fuel cost under-recoveries and a possible fuel surcharge. The
application included a motion to either abate the requested interim surcharge
and consolidate the surcharge with a filed fuel reconciliation as discussed
below, or alternatively, implement an interim surcharge in the months of July
1997 through June 1998. The Texas Commission's Office of Policy Development, on
behalf of the Texas Commission, approved the consolidation. In addition, the
Texas Commission has waived the requirement for SWEPCO to file biannual
surcharge requests while this proceeding is pending, and has deferred the
implementation of any surcharge and interest until after final disposition.
In May 1997, SWEPCO filed with the Texas Commission an application to
reconcile fuel costs and implement a 12 month surcharge of fuel cost
under-recoveries. Because of the uncertainty as to when a surcharge may
commence, SWEPCO did not establish in its filing a proposed surcharge period or
a total surcharge amount which would reflect interest through the entire
surcharge period. However, SWEPCO indicated that it had an under-recovered Texas
jurisdictional fuel cost balance of approximately $16.8 million, including
interest through December 1996. Included in the $16.8 million balance are fuel
related litigation expenses of $5.0 million and an interest return of $2.0
million on the unamortized balance of a fuel contract termination payment.
On December 8, 1997, SWEPCO and the other parties to the above
consolidated proceedings before the Texas Commission filed a settlement on all
issues except for one issue which will be decided by the Texas Commission. The
outstanding issue concerns transmission equalization payments and whether they
should be included in fuel or base revenues. The settlement is subject to
approval by the Texas Commission. Of the $16.8 million in under-recovered fuel
costs as of December 31, 1996, the settlement would result in a decrease of the
under-recovered fuel costs, and the resulting surcharge recovery, by
approximately $6.0 million. This disallowance will not result in an increase to
fuel expense since the $5.0 million of litigation expense and the interest
return of $2.0 million included in the requested surcharge amount were
previously expensed. However, should SWEPCO not prevail on the outstanding
issue, SWEPCO would be required to reduce earnings by approximately $1.8
million. The settlement also provides that SWEPCO's fuel and fuel-related
46
<PAGE>
expenses during the reconciliation period were reasonable and necessary and
would allow them to be reconciled as eligible fuel. Also, the settlement
provides that SWEPCO's actions in litigating and renegotiating certain fuel
contracts, together with the prices, terms and conditions of the renegotiated
contracts were prudent. The $6.0 million reduction is not associated with any
particular activity or issue within the fuel proceedings. Management cannot
predict whether approval of the settlement will be granted by the Texas
Commission.
SWEPCO Burlington Northern Transportation Contract
In January 1995, a state district court in Bowie County, Texas entered
judgment in favor of SWEPCO against Burlington Northern in a lawsuit regarding
rates charged under two rail transportation contracts for delivery of coal to
SWEPCO's Welsh and Flint Creek power stations. The court awarded SWEPCO
approximately $72 million that would benefit customers, if collected,
representing damages for the period from April 27, 1989 through September 26,
1994, as well as post-judgment interest and attorneys' fees and granted certain
declaratory relief requested by SWEPCO. Burlington Northern appealed the state
district court's judgment to the Texarkana, Texas Court of Appeals and, in April
1996, that court reversed the judgment of the state district court. In October
1996, SWEPCO filed an application with the Supreme Court of Texas to grant a
writ of error to review and reverse the judgment of the Texarkana, Texas Court
of Appeals. In June 1997, the Supreme Court of Texas granted SWEPCO's
application for writ of error. Oral argument was held before the Supreme Court
of Texas in October 1997. On March 13, 1998, the Supreme Court of Texas affirmed
the judgment of the court of appeals.
SWEPCO Lignite Mining Agreement Litigation
SWEPCO and CLECO are each a 50% owner of Dolet Hills Power Station Unit 1
and jointly own lignite reserves in the Dolet Hills area of northwestern
Louisiana. In 1982, SWEPCO and CLECO entered into a lignite mining agreement
with the DHMV, a partnership for the mining and delivery of lignite from a
portion of these reserves.
On April 15, 1997, SWEPCO and CLECO filed suit against DHMV and its
partners in the United States District Court for the Western District of
Louisiana seeking to enforce various obligations of DHMV to SWEPCO and CLECO
under the lignite mining agreement, including provisions relating to the quality
of the delivered lignite, pricing, and mine reclamation practices. On June 15,
1997, DHMV filed an answer denying the allegations in the suit and filed a
counterclaim asserting various contract-related claims against SWEPCO and CLECO.
SWEPCO and CLECO have denied the allegations in the counterclaims.
SWEPCO intends to vigorously prosecute the claims against DHMV and defend
against the counterclaims which DHMV has asserted. Although management cannot
predict the ultimate outcome of this matter, management believes that the
resolution of this matter will not have a material adverse effect on CSW's
results of operations or financial condition.
WTU Fuel Proceedings
In March 1997, WTU filed with the Texas Commission an Application for
Authority to Implement an increase in fuel factors of $4.2 million, or 4.2%, on
an annual basis. Additionally, WTU proposed to implement a fuel surcharge of
$13.3 million, including accumulated interest, over a twelve month period to
collect its under-recovered fuel costs. WTU requested authority to implement the
revised fuel factors with its May 1997 billings and to commence the surcharge
with its June 1997 billings. On April 14, 1997, an agreement in principle was
reached among the parties to settle this docket. Under the proposed settlement,
WTU agreed not to increase the fuel factors and to implement the $13.3 million
surcharge over the period from June 1997 through February 1999. The Texas
Commission approved the settlement in May 1997.
On December 31, 1997, WTU filed with the Texas Commission an application
to reconcile fuel costs and to request authorization to carry the reconciled
balance forward into the next reconciliation period. WTU did not seek a
surcharge of the reconciled balance in the December 31, 1997 filing.
47
<PAGE>
During the reconciliation period of July 1, 1994 through June 30, 1997 WTU
incurred approximately $418 million in eligible fuel and fuel-related expenses
to generate and purchase electricity. The Texas jurisdictional allocation of
such fuel and fuel-related expenses is approximately $292 million.
In March 1998, WTU filed with the Texas Commission an Application for
Authority to Implement an increase in fuel factors of $7.4 million, or 7.3%, on
an annual basis. Additionally, WTU proposed to implement a fuel surcharge of
$6.8 million, including accumulated interest, over a six month period to collect
its under-recovered fuel costs. WTU requested authority to implement the revised
fuel factors and to commence the surcharge with its June 1998 billings.
WTU 1995 Stipulation and Agreement
The WTU 1995 Stipulation and Agreement which was approved by the Texas
Commission in October 1996 has affected WTU's results of operations for 1996 and
1997. Details of the items with significant earnings impact for 1995, including
certain accounting treatments, are set forth in the following table.
Pre-ta After-tax
----------------
(millions)
Refund to retail customers $(21.0)$(13.7)
Effect of retail rate reduction (2.4) (1.6)
Current flowback of property related excess
deferred federal income taxes 6.9 6.9
Five year flowback of non-property related
excess deferred federal income taxes 0.1 0.1
Capitalization and amortization of
previously expensed restructuring costs 12.7 8.2
Other amortization (0.2) (0.1)
Other one-time items 1.0 0.7
The WTU 1995 Stipulation and Agreement also eliminated several significant
risks that have been the subject of regulatory proceedings relating to deferred
accounting and rates and will enable WTU's rates to remain at competitive levels
for the foreseeable future.
Other
CSW is party to various other legal claims, actions and complaints arising
in the normal course of business. Management does not expect disposition of
these matters to have a material adverse effect on CSW's results of operations
or financial condition.
3. COMMITMENTS AND CONTINGENT LIABILITIES
Construction and Capital Expenditures
It is estimated that CSW, including the U.S. Electric Operating Companies,
SEEBOARD and other diversified operations, will spend approximately $569 million
in capital expenditures (but excluding capital that may be required for
acquisitions) during 1998. Substantial commitments have been made in connection
with these programs.
Fuel and Related Commitments
To supply a portion of their fuel requirements, the U.S. Electric
Operating Companies have entered into various commitments for the procurement of
fuel.
48
<PAGE>
SWEPCO Henry W. Pirkey Power Plant
In connection with the South Hallsville lignite mining contract for its
Henry W. Pirkey Power Plant, SWEPCO has agreed, under certain conditions, to
assume the obligations of the mining contractor. As of December 31, 1997, the
maximum amount SWEPCO believes it could potentially assume is $67 million.
However, the maximum amount may vary as the mining contractor's need for funds
fluctuates. The contractor's actual obligation outstanding at December 31, 1997
was $59 million.
SWEPCO South Hallsville Lignite Mine
As part of the process to receive a renewal of a Texas Railroad Commission
permit for lignite mining at the South Hallsville lignite mine and expansion
into the Marshall South Lignite Project area, SWEPCO has agreed to provide
guarantees of mine reclamation in the amount of $85 million. Since SWEPCO uses
self-bonding, the guarantee provides for SWEPCO to commit to use its resources
to complete the reclamation in the event the work is not completed by the third
party miner. The current cost to reclaim the mine is estimated to be
approximately $36 million.
Other Commitments and Contingencies
CPL Nuclear Insurance
In connection with the licensing and operation of STP, the owners have
purchased nuclear property and liability insurance coverage as required by law,
and have executed indemnification agreements with the NRC in accordance with the
financial protection requirements of the Price-Anderson Act.
The Price-Anderson Act, a comprehensive statutory arrangement providing
limitations on nuclear liability and governmental indemnities, is in effect
until August 1, 2002. The limit of liability under the Price-Anderson Act for
licensees of nuclear power plants is $8.92 billion per incident, effective as of
December 1997. The owners of STP are insured for their share of this liability
through a combination of private insurance amounting to $200 million and a
mandatory industry-wide program for self-insurance totaling $8.72 billion. The
maximum amount that each licensee may be assessed under the industry-wide
program of self-insurance following a nuclear incident at an insured facility is
$75.5 million per reactor, which may be adjusted for inflation, plus a five
percent charge for legal expenses, but not more than $10 million per reactor for
each nuclear incident in any one year. CPL and each of the other STP owners are
subject to such assessments, which CPL and other owners have agreed will be
allocated on the basis of their respective ownership interests in STP. For
purposes of these assessments, STP has two licensed reactors.
The owners of STP currently maintain on-site decontamination liability and
property damage insurance in the amount of $2.75 billion provided by ANI and
NEIL. Policies of insurance issued by ANI and NEIL stipulate that policy
proceeds must be used first to pay decontamination and cleanup costs before
being used to cover direct losses to property. Under project agreements, CPL and
the other owners of STP will share the total cost of decontamination liability
and property insurance for STP, including premiums and assessments, on a pro
rata basis, according to each owner's respective ownership interest in STP.
CPL purchased, for its own account, a NEIL I Business Interruption and/or
Extra Expense policy. This insurance will reimburse CPL for extra expenses
incurred for replacement generation or purchased power as the result of a
covered accident that shuts down production at one or both of the STP Units for
more than 23 consecutive weeks. In the event of an outage of STP Units 1 and 2
and the outage is the result of the same accident, such insurance will reimburse
CPL up to 80% of the recovery. The maximum amount recoverable for a single unit
outage is $118.6 million for both Unit 1 and 2. CPL is subject to an additional
assessment up to $1.8 million for the current policy year in the event that
insured losses at a nuclear facility covered under the NEIL I policy exceeds the
accumulated funds available under the policy. CPL renewed its current NEIL I
Business Interruption and/or Extra Expense policy September 15, 1997.
49
<PAGE>
For further information relating to litigation associated with CPL nuclear
insurance claims, reference is made to NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS.
SWEPCO Cajun Asset Purchase Proposal
Cajun filed a petition for reorganization under Chapter 11 of the United
States Bankruptcy Code on December 21, 1994 and is currently operating under the
supervision of the United States Bankruptcy Court for the Middle District of
Louisiana.
On March 18, 1998, SWEPCO, together with the Cajun Members Committee,
which currently represents 7 of the 12 Louisiana member distribution
cooperatives that are served by Cajun, filed the SWEPCO Plan in the bankruptcy
court. Under the SWEPCO Plan, a SWEPCO affiliate or subsidiary would acquire all
of the non-nuclear assets of Cajun, comprised of the two-unit Big Cajun I
natural gas-fired plant, the three-unit Big Cajun II coal-fired plant, and
related non-nuclear assets, for $940.5 million in cash, subject to adjustment
pursuant to terms of the asset purchase agreement proposed as part of the SWEPCO
plan. The SWEPCO Plan incorporates the terms of a settlement between the RUS,
Cajun Members Committee, Claiborne Electric Cooperative, Inc. and SWEPCO. In
addition, the SWEPCO Plan provides for SWEPCO and the Cajun member cooperatives
to enter into long-term power supply agreements which will provide the Cajun
member cooperatives with rate plan options and market access provisions designed
to ensure the long-term competitiveness of the cooperatives. Eight cooperatives
and CLECO, successor to Teche Electric Cooperative, already have agreed to
purchase power from SWEPCO if SWEPCO's plan is confirmed by the bankruptcy
court.
Entergy Texas is no longer a co-plan proponent with SWEPCO and the Cajun
Members Committee, as it had been under SWEPCO plans filed prior to the January
15, 1998 plan. SWEPCO continues to work with Entergy Texas to resolve its
objection to the plan. The SWEPCO Plan filed March 18, 1998 replaces plans filed
previously by SWEPCO on January 15, 1998, October 26, 1996, September 30, 1996
and April 19, 1996. Two competing plans of reorganization for the non-nuclear
assets of Cajun have been filed with the bankruptcy court, each with different
purchase prices, rate paths and other provisions. Confirmation hearings in
Cajun's bankruptcy case are now scheduled through April 1998. Consummation of
the SWEPCO Plan is conditioned upon confirmation by the bankruptcy court, and
the receipt by SWEPCO and CSW of all requisite state and federal regulatory
approvals in addition to their board approvals. If the SWEPCO Plan is confirmed,
the $940.5 million required to consummate the acquisition of Cajun's non-nuclear
assets is expected to be financed through a combination of external borrowings
and internally generated funds with approximately 70% of the external borrowings
funded with non-recourse debt. There can be no assurance that the SWEPCO Plan
will be confirmed by the bankruptcy court or, if it is confirmed, that it will
be approved by federal and state regulators.
SWEPCO Rental and Lease Commitments
SWEPCO has entered into various financing arrangements primarily with
respect to coal transportation and related equipment, which are treated as
operating leases for rate-making purposes. At December 31, 1997, leased assets
of $45.7 million, less accumulated amortization of $39.0 million, were included
in Electric Utility Plant on the Consolidated Balance Sheets and at December 31,
1996, leased assets were $46.0 million, less accumulated amortization of $36.9
million.
SWEPCO Biloxi, Mississippi MGP Site
SWEPCO was notified by Mississippi Power in 1994 that it may be a PRP at a
MGP site in Biloxi, Mississippi, which was formerly owned and operated by a
predecessor of SWEPCO. Since then, SWEPCO has worked with Mississippi Power on
both the investigation of the extent of contamination on the site as well as on
the subsequent sampling of the site. The sampling results indicated
contamination at the property as well as the possibility of contamination of an
adjacent property. A risk assessment was submitted to the MDEQ, and the MDEQ
requested that a future residential exposure scenario be evaluated for
comparison with commercial and industrial exposure scenarios. However,
Mississippi Power and SWEPCO do not believe that cleanup to a residential
50
<PAGE>
scenario is appropriate since this site has been industrial/commercial for more
than 100 years, and Mississippi Power plans to continue this type of usage.
Mississippi Power and SWEPCO also presented a report to the MDEQ demonstrating
that the ground water on the site was not potable, further demonstrating that
cleanup to residential standards is not necessary.
The MDEQ has not agreed to a non-residential future land use scenario and
has requested further testing. Following the additional testing and resolution
of whether cleanup must meet a residential usage scenario or a
commercial/industrial scenario, a feasibility study will be conducted to more
definitively evaluate remedial strategies for the property. The feasibility
study process will require public input prior to a final decision being made.
At the present time, SWEPCO has not had any further substantive
discussions with MDEQ regarding the ultimate resolution of this issue.
Therefore, a final range of cleanup costs is not yet determinable. SWEPCO has
incurred approximately $200,000 to date for its portion of the cleanup of this
site, and based on its preliminary estimates, anticipates that an additional $2
million may be incurred. Accordingly, SWEPCO has accrued $2 million for the
cleanup of the site.
SWEPCO Voda Petroleum Superfund Site
In April 1996, SWEPCO received correspondence from the EPA notifying
SWEPCO that it is a PRP to a cleanup action planned for the Voda Petroleum
Superfund Site located in Clarksville, Texas. SWEPCO is conducting a records
review to compile documentation relating to SWEPCO's past use of the Voda
Petroleum site. The proposed cleanup of the site is estimated by the EPA to cost
approximately $2 million and to take approximately twelve months to complete. An
option for over 30 PRPs to conduct the cleanup in lieu of EPA conducting the
cleanup is under consideration. Any liability associated with this project is
not expected to have a material adverse effect on CSW's results of operations or
financial condition.
CSW Energy Loans and Commitments
CSW Energy has agreed to provide construction financing and other credit
support up to $235 million for the 330 MW Phillips Sweeny project. CSW Energy
obtained the funds for this project through CSW's short-term borrowing program.
Construction of this plant began in September 1996 and commenced commercial
operations in February 1998. At December 31, 1997, CSW Energy had provided $163
million, including development, construction and financing, of the total
estimated $189 million in project costs. CSW Energy expects to obtain permanent
project financing in the second quarter of 1998 at which time the project will
return a significant portion of the investment and the short-term borrowings
will be repaid. In addition, CSW has provided letters of credit and guarantees
on behalf of other independent power projects totaling approximately $27
million.
CSW International Enertek Project
In July 1996, CSW International announced a joint venture with Alpek,
through a subsidiary, to build, own and operate a 109 MW, gas-fired cogeneration
project at Alpek's Petrocel industrial complex in Altamira, Tamaulipas, Mexico.
CSW International and Alpek each will have 50% ownership in the project,
Enertek, which will cost approximately $75 million. CSW International has agreed
to provide construction financing for the project of which $62 million had been
funded at December 31, 1997. The Enertek project began operations in the first
quarter of 1998.
4. INCOME TAXES
CSW files a consolidated United States federal income tax return and
participates in a tax sharing agreement with its subsidiaries. Income tax
includes United States federal income taxes, applicable state income taxes and
SEEBOARD's United Kingdom corporation taxes. Total income taxes differ from the
amounts computed by applying the United States federal statutory income tax rate
to income before taxes for a number of reasons which are presented in the INCOME
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<PAGE>
TAX RATE RECONCILIATION table below. Information concerning income taxes,
including total income tax expense, the reconciliation between the United States
federal statutory tax rate and the effective tax rate and significant components
of deferred income taxes follow.
INCOME TAX EXPENSE 1997 1996 1995
------------------------------
(millions)
Included in Operating Expenses
and Taxes
Current (1) $47 $118 $105
Deferred (1) 117 120 1
Deferred ITC (2) (13) (14) (14)
--------- --------- --------
151 224 92
Included in Other Income and
Deductions
Current -- (1) 2
Deferred (6) (39) (4)
--------- --------- --------
(6) (40) (2)
Income Taxes for Discontinued
Operations
(includes $72 resulting from -- 78 13
the gain on the sale
of Transok for 1996)
--------- --------- --------
--------- --------- --------
$145 $262 $103
--------- --------- --------
(1)Approximately $30 million, $49 million and $7 million of CSW's Current
Income Tax Expense was attributable to SEEBOARD U.S.A. and was recognized
as United Kingdom corporation tax expense for 1997, 1996 and 1995,
respectively. In addition, approximately $7 million and $19 million of
CSW's Deferred Income Tax Expense in 1997 and 1996, respectively, was
attributed to SEEBOARD U.S.A.
(2)ITC deferred in prior years are included in income over the lives of the
related properties.
INCOME TAX RATE RECONCILIATION 1997 1996 1995
--------------------------
($ in millions)
Income before taxes attributable to:
Domestic operations $327 $562 $506
Foreign operations 147 146 13
------- -------- -------
Income before taxes $474 $708 $519
Tax at U.S. statutory rate $166 $248 $182
Differences
Amortization of ITC (13) (14) (14)
Mirror CWIP 5 5 (11)
Non-deductible goodwill
amortization 12 13 --
Tax credit on foreign
operations dividend (3) (18) --
United Kingdom deferred
income tax adjustment (16) -- --
CPL 1995 Agreement -- -- (34)
WTU 1995 Stipulation and
Agreement -- -- (7)
Adjustments (4) 10 (22)
Other (2) 18 9
------- ------- -------
$145 $262 $103
------- ------- -------
Effective tax rate 31% 37% 20%
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<PAGE>
DEFERRED INCOME TAXES (1) 1997 1996
--------------------
(millions)
Deferred Income Tax Liabilities
Depreciable utility plant $1,920 $1,867
Deferred plant costs 176 178
Mirror CWIP asset 100 105
Income tax related regulatory
assets 211 207
Other 371 307
--------- ---------
2,778 2,664
Deferred Income Tax Assets
Income tax related regulatory (123) (126)
liability
Unamortized ITC (100) (105)
Alternative minimum tax carryforward (27) (83)
Other (76) (99)
--------- ---------
(326) (413)
--------- ---------
Net Accumulated Deferred Income $2,452 $2,251
Taxes
--------- ---------
Net Accumulated Deferred Income
Taxes
Noncurrent $2,432 $2,272
Current 20 (21)
--------- ---------
$2,452 $2,251
--------- ---------
(1)In 1996, CSW generated $33 million of excess foreign tax credits
against which a full valuation allowance was established as of December
31, 1996. In 1997, the valuation reserve was reduced to $17 million due
to lower levels of excess foreign tax credits. Other than excess foreign
tax credits, CSW did not have other valuation allowances recorded
against other deferred tax assets at December 31, 1997 and 1996 due to a
favorable earnings history.
5. BENEFIT PLANS
Pension Plans
Prior to June 30, 1997, CSW maintained a tax qualified, non-contributory
defined benefit pension plan covering substantially all CSW employees in the
United States. Benefits were based on employees' years of credited service, age
at retirement, and final average annual earnings with an offset for the
participant's primary Social Security benefit. The CSW board of directors
approved an amendment, effective July 1, 1997, which converted the present value
of accrued benefits under the existing pension plan into a cash balance pension
plan. Under the cash balance formula, each participant has an account, for
recordkeeping purposes only, to which credits are allocated annually based on a
percentage of the participant's pay. The applicable percentage is determined by
age and years of vested service the participant has with CSW as of December 31
of each year.
The purpose of the plan change is to continue to provide retirement income
benefits which are competitive both within the utility industry as well as with
other companies within the United States.
As the plan sponsor, CSW will continue to reflect the costs of the pension
plan according to the provisions of SFAS No. 87 and allocate such costs to each
of the participating employers. As a result of the July 1, 1997 amendment, CSW
realized a savings in 1997 of approximately $20 million in pension expense and
will also realize significant ongoing reductions in operating and maintenance
expense because of the change. The change to the pension plan was applied
retroactively to the beginning of 1997, so these savings were recognized evenly
throughout 1997 with a portion being capitalized.
Pension plan assets consist primarily of common stocks and short-term and
intermediate-term fixed income investments.
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The majority of SEEBOARD's employees joined a pension plan that is
administered for the United Kingdom's electricity industry. The assets of this
plan are held in a separate trustee-administered fund that is actuarially valued
every three years. SEEBOARD and its participating employees both contribute to
the plan. Subsequent to July 1, 1995, new employees were no longer able to
participate in that plan. Instead, two new pension plans were made available to
new employees, both of which are also separate trustee-administered plans.
Information about the two separate pension plans (the U.S. plan and the
non-U.S. plan), including: (i) pension plan net periodic costs and
contributions; (ii) pension plan participation; (iii) a reconciliation of the
funded status of the pension plan to the amounts recognized on the balance
sheets; and (iv) assumptions used in accounting for the pension plan follow.
NET PERIODIC PENSION 1997 1996 1995
PLAN COSTS AND 1997 1997 NON- 1996 1996 NON- U.S.
CONTRIBUTIONS CSW U.S. U.S. CSW U.S. U.S. PLAN
PLANS PLAN PLAN PLANS PLAN PLAN ONLY
-------------------------------------------------------
(millions)
Net Periodic Pension
Costs
Service cost $34 $20 $14 $37 $23 $14 $20
Interest cost on
projected benefit
obligation 137 65 72 136 69 67 64
Actual return on
plan assets (245) (163) (82) (184) (110) (74) (117)
Net amortization
and deferral 68 66 2 27 27 -- 44
--------------------- ------------------------- ------
$(6) $(12) $6 $16 $9 $7 $11
--------------------- ------------------------- ------
Pension Plan Contributions $6 $-- $6 $35 $28 $7 $29
APPROXIMATE NUMBER NON-
OF PARTICIPANTS IN CSW U.S. U.S.
PLANS DURING 1997 PLANS PLAN PLAN
-------------------------
Active employees 10,100 7,200 2,900
Retirees 10,200 4,200 6,000
Terminated employees 6,800 2,000 4,800
RECONCILIATION OF FUNDED 1997 1996
STATUS OF PLAN TO AMOUNTS 1997 1997 NON- 1996 1996 NON-
RECOGNIZED ON THE CSW CSW U.S. U.S. CSW U.S. U.S.
CONSOLIDATED BALANCE SHEETS PLANS PLAN PLAN PLANS PLAN PLAN
--------------------------------------------------
(millions)
Actuarial present value of
Accumulated benefit
obligation for service
rendered to date $1,860 $896 $964 $1,748 $781 $967
Additional benefit for
future salary levels 94 35 59 200 141 59
----------------------- -----------------------
Projected benefit obligation 1,954 931 1,023 1,948 922 1,026
Plan assets, at fair value 2,290 1,109 1,181 2,077 991 1,086
------------------------- -----------------------
Plan assets in excess of the
projected benefit obligation 336 178 158 129 69 60
Unrecognized net loss (86) 12 (98) 30 27 3
Unrecognized prior service cost (93) (88) (5) (12) (7) (5)
Unrecognized net obligation 16 11 4 16 12 4
------------------------- -----------------------
Prepaid pension cost $173 $113 $59 $163 $101 $62
------------------------- -----------------------
The vested portion of the accumulated benefit obligations for the combined
plans was $1.8 billion at December 31, 1997 and $1.7 billion for the combined
plans at December 31, 1996. The unrecognized net obligation for the U.S. plan is
54
<PAGE>
being amortized over the average remaining service life of employees or 15
years. Prepaid pension cost is included in Deferred Charges and Other Assets on
the balance sheets.
In addition to the amounts shown in the above table, CSW has a
non-qualified excess benefit plan. This plan is available to all pension plan
participants who are entitled to receive a pension benefit from CSW which is in
excess of the limitations imposed on benefits by the Internal Revenue Code
through the qualified plan. CSW's net periodic cost for this non-qualified plan
for the years ended December 31, 1997, 1996 and 1995 was $3.7 million, $4.8
million and $2.4 million, respectively.
ASSUMPTIONS USED IN Long-Term
ACCOUNTING FOR THE Compensation
PENSION PLAN Plan Return on
Discount Rate Increase Assets
------------------------------------
1997 U.S. Plan 7.50% 5.46% 9.00%
Non-U.S. Plan 6.75% 4.75% 7.25%
1996 U.S. Plan 8.00% 5.46% 9.50%
Non-U.S. Plan 7.75% 5.75% 8.25%
1995 U.S. Plan 8.00% 5.46% 9.50%
Postretirement Benefits Other Than Pensions (U.S. Companies Only)
CSW, including each of the U.S. Electric Operating Companies, adopted SFAS
No. 106 effective January 1, 1993. The transition obligation established at
adoption is being amortized over twenty years, with fifteen years remaining.
Prior to 1993, these benefits were accounted for on a pay-as-you-go basis.
Pursuant to an order by the Oklahoma Commission, PSO established a regulatory
asset of approximately $5 million in 1993 for the difference between the
pay-as-you-go basis and the costs determined under SFAS No. 106. PSO is
recovering the amortization of this regulatory asset over a ten year period.
Information about the non-pension postretirement benefit plan, including:
(i) net periodic postretirement benefit costs; (ii) a reconciliation of the
funded status of the postretirement benefit plan to the amounts recognized on
the balance sheets; and (iii) assumptions used in accounting for the
postretirement benefit plan follow.
NET PERIODIC POSTRETIREMENT
BENEFIT COSTS 1997 1996 1995
------------------------------
(millions)
Service cost $ 8 $8 $8
Interest cost on APBO 18 19 18
Actual return on plan
assets (22) (7) (8)
Amortization of
transition obligation 9 9 9
Net amortization and
deferral 11 (2) 2
-------- -------- ---------
$24 $27 $29
-------- -------- ---------
55
<PAGE>
RECONCILIATION OF FUNDED
STATUS OF PLAN TO AMOUNTS
RECOGNIZED ON THE BALANCE SHEETS 1997 1996
-------------------
(millions)
APBO
Retirees $158 $163
Other fully eligible participants 24 18
Other active participants 59 55
-------- --------
Total 241 236
Plan assets at fair value (159) (123)
-------- --------
APBO in excess of plan assets 82 113
Unrecognized transition obligation (135) (144)
Unrecognized gain 53 32
-------- --------
Accrued Cost $-- $1
-------- --------
ASSUMPTIONS USED IN THE Return on Tax Rate
ACCOUNTING FOR SFAS NO. 106 Discount Plan for
Rate Assets Taxable Trusts
-------------------------------------
1997 7.50% 9.00% 39.6%
1996 8.00% 9.50% 39.6%
1995 8.00% 9.50% 39.6%
Health care cost trend rates
1997 Average Rate of 7.0% grading down .50% per year to an
ultimate average rate of 5.00% in 2001.
1996 Average Rate of 9.0% grading down .75% per year to an
ultimate average rate of 5.25% in 2001.
1995 Average Rate of 10.25% grading down .75% per year to an
ultimate average rate of 5.75% in 2001.
Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the APBO by approximately $25.2 million and
the aggregate of the service and interest costs components on net postretirement
benefits by approximately $3.6 million.
Health and Welfare Plans
CSW provides medical, dental, group life insurance, dependent life
insurance, and accidental death and dismemberment insurance plans for
substantially all active CSW System employees in the United States. The total
contributions, recorded on a pay-as-you-go basis, for the years ended December
31, 1997, 1996, and 1995 were $35.6 million, $28.4 million and $27.0 million,
respectively. Employer provided health care benefits are not common in the
United Kingdom due to the country's national health care system. Accordingly,
SEEBOARD does not provide health care benefits to the majority of its employees.
6. JOINTLY OWNED ELECTRIC UTILITY PLANT
The U.S. Electric Operating Companies are parties to various joint
ownership agreements with other non-affiliated entities. Such agreements provide
for the joint ownership and operation of generating stations and related
facilities, whereby each participant bears its share of the project costs. At
December 31, 1997, the U.S. Electric Operating Companies had undivided interests
in five such generating stations and related facilities as shown in the
following table.
CPL SWEPCO SWEPCO SWEPCO CSW(1)
STP Flint Creek Pirkey Dolet Hills Oklaunion
Nuclear Coal Lignite Lignite Coal
Plant Plant Plant Plant Plant
----------------------------------------------------------
($ in millions)
Plant in service $2,336 $80 $437 $230 $398
Accumulated $517 $47 $176 $84 $122
depreciation
Plant capacity-MW 2,501 528 675 650 676
Participation 25.2% 50.0% 85.9% 40.2% 78.1%
Share of capacity-MW 630 264 580 262 528
56
<PAGE>
7. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the following
fair values of each class of financial instruments for which it is practicable
to estimate fair value. The fair value does not affect any of the liabilities
unless the issues are redeemed prior to their maturity dates.
Cash, temporary cash investments, accounts receivable, other financial
instruments and short-term debt The fair value equals the carrying amount
as stated on the balance sheets
due to the short maturity of those instruments.
Securities held for sale
The fair values, which are based on quoted market prices, equal the
carrying amounts as stated on the balance sheet because the accounting treatment
prescribed under SFAS No. 115.
Long-term debt
The fair value of long-term debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to CSW for
debt of the same remaining maturities.
Trust Preferred Securities
The fair value of the Trust Preferred Securities are based on quoted
market prices on the New York Stock Exchange.
Preferred stock subject to mandatory redemption
The fair value of preferred stock subject to mandatory redemption is
estimated based on quoted market prices for the same or similar issues or on the
current rates offered to CSW for preferred stock with the same or similar
remaining redemption provisions.
Long-term debt and preferred stock due within 12 months The fair value of
current maturities of long-term debt and preferred stock
due within 12 months are estimated based on quoted market prices for the same or
similar issues or on the current rates offered for long-term debt or preferred
stock with the same or similar remaining redemption provisions.
CARRYING VALUE AND ESTIMATED FAIR VALUE 1997 1996
-------------------
(millions)
Long-term debt
Carrying amount $3,898 $4,024
Fair value 4,052 4,065
Trust Preferred Securities
Carrying amount 335 --
Fair value 344 --
Preferred stock subject to mandatory redemption
Carrying amount 26 33
Fair value 27 34
Long-term debt and preferred stock
due within 12 months
Carrying amount 32 204
Fair value 32 204
57
<PAGE>
Cross-currency swaps and SEEBOARD's electricity contracts for differences
The fair value of cross currency swaps reflect third-party valuations
calculated using proprietary pricing models. Based on these valuations, CSW's
position in these cross currency swaps represented an unrealized loss of $43
million at December 31, 1997. This unrealized loss is offset by unrealized gains
related to the underlying transactions being hedged. CSW expects to hold these
contracts to maturity. The fair value of SEEBOARD's contracts for differences is
not determinable due to the absence of a trading market.
DERIVATIVE CONTRACTS NOTIONAL AMOUNTS Notional Fair
AND ESTIMATED FAIR VALUES Amount Value
----------------------
(millions)
CROSS CURRENCY SWAPS
Maturities: 2001 and 2006 $400 $443
8. LONG-TERM DEBT
The CSW System's long-term debt outstanding as of the end of the last two
years is presented in the following table.
Maturities Interest Rates December 31,
From To From To 1997 1996
- ----------------------------------------------------------------------
(millions)
Secured bonds
1998 2025 5.25% 7.75% $2,080 $2,108
Unsecured bonds
2001 2030 3.9%(1) 8.88% 1,353 1,384
Notes and Lease Obligations
1999 2003 5.54% 9.75% 641 724
Unamortized discount (10) (12)
Unamortized cost of
reacquired debt (166) (180)
---------------------
$3,898 $4,024
---------------------
(1) Variable rate
The mortgage indentures, as amended and supplemented, securing FMBs issued
by the U.S. Electric Operating Companies, constitute a direct first mortgage
lien on substantially all electric utility plant. The U.S. Electric Operating
Companies may offer additional FMBs, medium-term notes and other securities
subject to market conditions and other factors.
CSW's year end weighted average cost of long-term debt was 7.2% for
1995-1997.
Annual Requirements
Certain series of outstanding FMBs have annual sinking fund requirements,
which are generally 1% of the amount of each such series issued. These
requirements may be, and generally have been, satisfied by the application of
net expenditures for bondable property in an amount equal to 166-2/3% of the
annual requirements. Certain series of pollution control revenue bonds also have
sinking fund requirements. At December 31, 1997, the annual sinking fund
requirements and annual maturities (including sinking fund requirements) for all
long-term debt for the next five years are presented in the following table.
58
<PAGE>
Sinking Fund Annual
Requirements Maturities
------------- ------------
(millions)
1998 $1 $31
1999 1 195
2000 1 208
2001 1 517
2002 1 181
Dividends
At December 31, 1997, approximately $1.4 billion of CSW's subsidiary
companies' retained earnings were available for payment of cash dividends by
such subsidiaries to CSW. The mortgage indentures, as amended and supplemented,
at CPL and PSO contain certain restrictions on the use of their retained
earnings for cash dividends on their common stock. These restrictions do not
currently limit the ability of CSW to pay dividends to its shareholders.
Reacquired Long-term Debt
During 1996 and 1995, the U.S. Electric Operating Companies reacquired
$205 million and $355 million of long-term debt, respectively, including
reacquisition premiums, prior to maturity. The premiums and related
reacquisition costs and discounts are included in long-term debt on the balance
sheets and are being amortized over periods consistent with their expected
ratemaking treatment. The remaining amortization periods for such items range
from 2 to 33 years. No long-term debt was reacquired prior to maturity during
1997.
Reference is made to MD&A, LIQUIDITY AND CAPITAL RESOURCES for further
information related to long-term debt, including new issues and reacquisitions
of long-term debt during 1997 as well as information related to the financing of
the SEEBOARD acquisition.
9. PREFERRED STOCK
The outstanding preferred stock of the U.S. Electric Operating Companies
as of the end of the last two years is presented in the following table.
Current
Dividend Rate December 31, Redemption Price
From - To 1997 1996 From - To
--------------------------------------------------
(millions)
Not subject to mandatory redemption
1,352,900 shares 4.00% - 8.72% $19 $135 $102.75 - $109.00
1,600,000 shares auction 160 160 $100.00
Issuance expenses/premiums (3) (3)
------------
$176 $292
------------
Subject to mandatory redemption
340,000 shares 6.95% $27 $34 $102.32
To be redeemed within one year (1) (1)
------------
$26 $33
------------
Total authorized shares
6,405,000
All of the outstanding preferred stock is redeemable at the option of the
U.S. Electric Operating Companies upon 30 days notice at the current redemption
price per share. During 1997, 1996 and 1995, SWEPCO redeemed $1.2 million
annually pursuant to its annual sinking fund requirement. In addition during
1997, each of the U.S. Electric Operating Companies reacquired a significant
portion of its outstanding preferred stock. As a result of differences between
the dividend rates on the reacquired securities and prevailing market rates, CSW
realized an overall gain of approximately $10 million on the transactions. This
59
<PAGE>
gain is shown separately, as Gain on reacquired preferred stock, on the
Consolidated Statements of Income. The following table shows the results of the
tender offers of the U.S. Electric Operating Companies' preferred stock.
Shares Shares
Reacquired Remaining
--------------------------
CPL
Series 4.00% 57,952 42,048
Series 4.20% 57,524 17,476
Series 7.12% 260,000 --
Series 8.72% 500,000 --
PSO
Series 4.00% 53,260 44,640
Series 4.24% 91,931 8,069
SWEPCO
Series 4.28% 52,614 7,386
Series 4.65% 23,092 1,908
Series 5.00% 37,261 37,739
Series 6.95% 65,990 274,010
WTU
Series 4.40% 36,325 23,675
The dividends on CPL's $160 million auction and money market preferred
stocks are adjusted every 49 days, based on current market rates. The dividend
rates averaged 4.3%, 4.1% and 4.5% during 1997, 1996 and 1995, respectively. The
minimum annual sinking fund requirement for SWEPCO's preferred stock subject to
mandatory redemption is $1.2 million for the years 1997 through 2001. This
sinking fund retires 12,000 shares annually.
10. TRUST PREFERRED SECURITIES
The following Trust Preferred Securities issued by the wholly-owned
statutory business trusts of CPL, PSO and SWEPCO were outstanding at December
31, 1997. They are classified on the balance sheet as Certain
Subsidiary-obligated, mandatorily redeemable preferred securities of subsidiary
trusts holding solely Junior Subordinated Debentures of such Subsidiaries.
Amount Description of Underlying
Business Trust Security Units (millions) Debentures of Registrant
- ------------------------------------------------------------------------------
CPL Capital I 8.00%, Series A 6,000,000 $150 CPL, $154.6 million, 8.00%,
Series A
PSO Capital I 8.00%, Series A 3,000,000 75 PSO, $77.3 million, 8.00%,
Series A
SWEPCO CapitalI 7.875%, Series A 4,400,000 110 SWEPCO, $113.4 million,
7.875%, Series A
---------- -----
13,400,000 $335
---------- -----
Each of the business trusts will be treated as a subsidiary of its parent
company. The only assets of the business trusts are the subordinated debentures
issued by their parent company as specified above. In addition to the
obligations under their subordinated debentures, each of the parent companies
has also agreed to a security obligation which represents a full and
unconditional guarantee of its capital trust's obligation.
11. SHORT-TERM FINANCING
The CSW System uses short-term debt, primarily commercial paper, to meet
fluctuations in working capital requirements and other interim capital needs.
CSW has established a money pool to coordinate short-term borrowings for certain
60
<PAGE>
subsidiaries and also incurs borrowings outside the money pool for other
subsidiaries. As of December 31, 1997, CSW had revolving credit facilities
totaling $1.4 billion to back up its commercial paper program. At December 31,
1997, CSW had $721 million outstanding in short-term borrowings. The maximum
amount of such short-term borrowings outstanding during the year, which had a
weighted average interest yield for the year of 5.8%, was $725 million during
December 1997.
CSW Credit, which does not participate in the money pool, issues
commercial paper on a stand-alone basis. At December 31, 1997, CSW Credit had a
$900 million revolving credit agreement that is secured by the assignment of its
receivables to back up its commercial paper program which had $637 million
outstanding. The maximum amount of such commercial paper outstanding during the
year, which had a weighted average interest yield for the year of 5.6%, was $890
million during September 1997.
12. COMMON STOCK
CSW adopted SFAS No. 128 during 1997. SFAS No. 128 requires the
computation of earnings per share on both a basic as well as a diluted basis.
CSW's basic earnings per share of common stock are computed by dividing net
income for common stock by the average number of common shares outstanding for
the respective periods. Diluted earnings per share reflect the potential
dilution that could occur if all options outstanding under CSW's stock incentive
plan were converted to common stock and then shared in the income for common
stock. CSW's basic and diluted earnings per share were the same for the years
1995 - 1997. CSW's dividends per common share reflect per share amounts paid for
each of the periods.
CSW can issue common stock, either through the purchase and reissuance of
shares from the open market or original issue shares, through the LTIP, a stock
option plan, PowerShare and ThriftPlus. Following the issuance of the CPL 1997
Original Rate Order and the decline in the market price of CSW's common stock,
which CSW believes is attributable in part to the CPL 1997 Original Rate Order,
the determination was made that it was appropriate for CSW to begin funding
these plans through open market purchases, effective April 1, 1997. Prior to
that time, CSW had issued $20 million in new common stock in 1997. Information
concerning common stock activity issued through the LTIP, the stock option plan,
PowerShare and ThriftPlus is presented in the following table.
1997 1996 1995
-------------------------------------------------------
Number of new shares
issued (millions) 0.8 2.9 2.3
Range of stock price for
new shares $21 1/4 - $25 5/8 $24 3/8 - $28 7/8 $22 5/8 - $28 3/8
New common stock
equity (millions) $20 $79 $57
During February 1996, CSW sold 15,525,000 shares of CSW Common in a
primary stock offering and received net proceeds of approximately $398 million.
These proceeds were used to repay a portion of indebtedness incurred during the
acquisition of SEEBOARD.
13. STOCK-BASED COMPENSATION PLANS
CSW has a key employee incentive plan. This plan is accounted for under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for this plan been determined consistent
with SFAS No. 123, pro forma calculations of CSW's net income for common stock
and earnings per share as required by SFAS No. 123 would not have changed
significantly from amounts reported.
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<PAGE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
CSW may grant options for up to 4.0 million shares of CSW Common under the
stock option plan. Under the stock option plan, the option exercise price equals
the stock's market price on the date of grant. The grant vests over three years,
one-third on each of the three anniversary dates of the grant, and expires 10
years after the original grant date. CSW has granted 2.8 million shares through
December 31, 1997.
A summary of the status of CSW's stock option plan at December 31, 1997,
1996 and 1995 and the changes during the years then ended is presented in the
following table.
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
(thousands) Exercise (thousands) Exercise (thousands) Exercise Price
Price Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,412 $26 1,564 $26 1,616 $26
Granted 694 21 70 27 -- --
Exercised -- 22 (147) 24 (23) 22
Canceled (204) 28 (75) 27 (29) 27
------ ----- ----
Outstanding at end of
year 1,902 24 1,412 26 1,564 26
Exercisable at end of
year 1,162 n/a 1,004 n/a 828 n/a
Weighted average fair
value of options $2.24 - $2.39
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997: (i) risk-free interest rate of 5.9%; (ii)
expected dividend rate of 6.5%; (iii) and expected volatility of 19%. The
expected life of the options granted did not materially impact the values
produced.
14. BUSINESS SEGMENTS
CSW's business segments at December 31, 1997 included the U.S. Electric
operations (CPL, PSO, SWEPCO, WTU) and the United Kingdom Electric operations
(SEEBOARD U.S.A.). See NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES for a
discussion of the accounting for the SEEBOARD acquisition. Eight additional
non-utility companies are included with CSW in Corporate items and Other (CSW
Energy, CSW International, C3 Communications, CSW Credit, CSW Leasing, CSW
Services, EnerShop and CSW Energy Services). Gas Operations (Transok) were sold
on June 6, 1996. See NOTE 15. TRANSOK DISCONTINUED OPERATIONS for additional
information. CSW's business segment information is presented in the following
tables.
62
<PAGE>
1997 1996 1995
-------- -------- --------
(millions)
OPERATING REVENUES
Electric Operations
United States $3,321 $3,248 $2,883
United Kingdom (1) 1,870 1,848 208
Corporate items and Other 77 59 52
-------- -------- --------
$5,268 $5,155 $3,143
-------- -------- --------
OPERATING INCOME
Electric Operations
United States $661 $768 $719
United Kingdom (1) 255 236 21
Corporate items and Other (30) 15 (27)
-------- -------- --------
Operating income before taxes 886 1,019 713
Income taxes (151) (224) (92)
-------- -------- --------
$735 $795 $621
-------- -------- --------
DEPRECIATION AND AMORTIZATION
Electric Operations
United States $389 $362 $335
United Kingdom (1) 92 88 7
Corporate items and Other 16 14 11
-------- -------- --------
$497 $464 $353
-------- -------- --------
IDENTIFIABLE ASSETS
Electric Operations
United States $9,172 $9,142 $9,278
United Kingdom (1) 2,931 3,061 2,821
Corporate items and Other 1,348 1,129 1,004
-------- -------- --------
13,451 13,332 13,103
Gas Operations (Discontinued) -- -- 766
-------- -------- --------
$13,451 $13,332 $13,869
-------- -------- --------
CAPITAL EXPENDITURES AND
ACQUISITIONS
Electric Operations
United States $346 $356 $398
United Kingdom (1), (2) 126 1,543 731
Corporate items and Other (3) 276 109 19
-------- -------- --------
748 2,008 1,148
Gas Operations (Discontinued) -- 23 66
-------- -------- --------
$748 $2,031 $1,214
-------- -------- --------
(1) Represents equity method of accounting for November 1995 (27.6%) and full
consolidation accounting for December 1995 (76.45%).
(2) Includes $1,394 million and $731 million in 1996 and 1995, respectively,
used to purchase SEEBOARD.
(3) Includes CSW Energy and CSW International equity investments.
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<PAGE>
15. TRANSOK DISCONTINUED OPERATIONS
On June 6, 1996, CSW sold Transok to Tejas. Accordingly, the results of
operations for Transok have been reported as discontinued operations and prior
periods have been restated for consistency.
As a wholly owned subsidiary of CSW, Transok operated as an intrastate
natural gas gathering, transmission, marketing and processing company that
provided natural gas services to the U.S. Electric Operating Companies,
predominantly PSO, and to other gas customers throughout the United States.
CSW sold Transok to Tejas for approximately $890 million, consisting of
$690 million in cash and $200 million in existing long-term debt that remained
with Transok after the sale. A portion of the cash proceeds was used to repay
borrowings incurred related to the SEEBOARD acquisition and the remaining
proceeds were used to repay commercial paper borrowings. CSW recorded an after
tax gain on the sale of Transok of approximately $120 million in 1996.
Transok's operating results for 1996 and 1995 are summarized in the
following table (transactions with CSW have not been eliminated).
1996 1995
-------------------
Total revenue $362 $721
Operating income before income taxes 23 52
Earnings before income taxes 18 38
Income taxes (6) (13)
-------------------
Net income from discontinued operations $12 $25
-------------------
16. PROPOSED AEP MERGER
In December 1997, CSW and AEP entered into a definitive merger agreement
for a tax-free, stock-for stock transaction with AEP being the surviving
corporation. The transaction is subject to the approval of various state and
federal regulatory agencies. The shareholders of CSW will be asked to approve
the AEP Merger and the shareholders of AEP will be asked to approve the issuance
of shares of AEP common stock pursuant to the AEP Merger Agreement and to amend
AEP's certificate of incorporation to increase the number of authorized shares
of AEP common stock from 300 million shares to 600 million shares.
The proposed AEP Merger, with a targeted completion date in the first half
of 1999, is expected to be accounted for as a pooling of interests.
Upon completion of the AEP Merger, CSW common stockholders will
receive 0.6 shares of AEP common stock for each share of CSW common stock. At
that time, CSW common stockholders will own approximately 40% of the outstanding
common stock of AEP. Under the AEP Merger Agreement, there will be no changes
required with respect to the outstanding debt, preferred stock or Trust
Preferred Securities of CSW or its subsidiaries. The transaction must satisfy
many conditions, some of which may not be waived by the parties. There can be no
assurance that the AEP Merger will be consummated.
17. EXTRAORDINARY ITEM
In the general election held in the United Kingdom on May 1, 1997, the
United Kingdom's Labour Party won control of the government with a considerable
majority. Prior to the general election, the Labour Party had announced that, if
elected, it would impose a windfall profits tax on certain industries in the
United Kingdom, including the privatized utilities, to fund a variety of social
64
<PAGE>
improvement programs. On July 2, 1997, the one-time windfall profits tax was
introduced in the Labour Party's Budget and the legislation enacting the tax
subsequently was passed during the third quarter of 1997. Accordingly, during
the third quarter of 1997, SEEBOARD U.S.A. accrued, as an extraordinary item,
(pound)109.5 million (or $176 million when converted at (pound)1.00=$1.61) for a
one-time, windfall profits tax enacted by the United Kingdom government.
The windfall profits tax is payable in two equal installments, due
December 1, 1997 and December 1, 1998. The tax was charged at a rate of 23% on
the difference between nine times the average profits after tax for the four
years following flotation in 1990, and SEEBOARD's market capitalization
calculated as the number of shares issued at flotation multiplied by the
flotation price per share. On December 1, 1997, SEEBOARD made the first such
payment.
As enacted, the windfall profits tax is not tax deductible for United
Kingdom purposes. To date, no United States income tax benefit has been
recognized due to the uncertainty as to the impact on the use of foreign tax
credits. CSW continues to analyze the potential United States income tax benefit
from the use of foreign tax credits.
18. PRO FORMA INFORMATION (UNAUDITED)
CSW secured effective control of SEEBOARD in December 1995. The unaudited
pro forma information is presented in response to applicable accounting rules
relating to acquisition transactions. The pro forma information gives effect to
the acquisition of SEEBOARD accounted for under the purchase method of
accounting for the twelve months ended December 31, 1995 as if the transaction
had been consummated at the beginning of the period presented.
The unaudited pro forma information has been prepared in accordance with
United States generally accepted accounting principles. The pro forma
information in the following table is presented for illustrative purposes only
and is not necessarily indicative of the operating results that would have
occurred if the SEEBOARD acquisition had taken place at the beginning of the
period specified, nor is it necessarily indicative of future operating results.
The following pro forma information has been prepared reflecting the February
1996 issuance of CSW Common, and has been converted at an exchange rate of
(pound)1.00=$1.58 for the twelve months ended December 31, 1995.
1995
-----------
(millions except EPS)
Operating Revenues $5,404
Operating Income 750
Net Income for Common Stock 445
EPS of Common Stock $2.15
19. QUARTERLY INFORMATION (UNAUDITED)
The following unaudited quarterly information includes, in the opinion of
management, all adjustments necessary for a fair presentation of such amounts.
Information for quarterly periods is affected by seasonal variations in sales,
rate changes, timing of fuel expense recovery and other factors.
65
<PAGE>
QUARTER ENDED 1997(1) 1996(2)
- -------------------------------------------------------------------------------
(millions, except EPS)
MARCH 31
Operating Revenues $1,278 $1,215
Operating Income 127 144
Income from Continuing Operations 25 43
Net Income for Common Stock 25 51
Basic and Diluted EPS from Continuing Operations $0.12 $0.22
Basic and Diluted EPS $0.12 $0.26
JUNE 30
Operating Revenues $1,184 $1,267
Operating Income 169 214
Income from Continuing Operations 83 11
Net Income for Common Stock 83 128
Basic and Diluted EPS from Continuing Operations $0.39 $0.05
Basic and Diluted EPS $0.39 $0.61
SEPTEMBER 30
Operating Revenues $1,477 $1,438
Operating Income 303 284
Income from Continuing Operations 196 190
Extraordinary Item (176) --
Net Income for Common Stock 20 190
Basic and Diluted EPS from Continuing Operations $0.93 $0.90
Basic and Diluted EPS from Extraordinary Item $(0.83) --
Basic and Diluted EPS $0.10 $0.90
DECEMBER 31
Operating Revenues $1,329 $1,235
Operating Income 136 153
Income from Continuing Operations 25 53
Net Income for Common Stock 25 60
Basic and Diluted EPS from Continuing Operations $0.11 $0.26
Basic and Diluted EPS $0.11 $0.28
TOTAL
Operating Revenues $5,268 $5,155
Operating Income 735 795
Income from Continuing Operations 329 297
Extraordinary Item (176) --
Net Income for Common Stock 153 429
Basic and Diluted EPS from Continuing Operations $1.55 $1.43
Basic and Diluted EPS from Extraordinary Item $(0.83) --
Basic and Diluted EPS $0.72 $2.07
(1) The first, second and third quarters of 1997 include the effect of certain
reclassifications to conform with the 1997 year end financial statement
presentation.
(2) In 1996, CSW EPS of Common Stock for the year do not sum to the total of
the individual quarters' EPS of Common Stock due to different levels of
average shares outstanding for the different periods.
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Central and South West
Corporation:
We have audited the accompanying consolidated balance sheets of Central
and South West Corporation (a Delaware corporation) and subsidiary companies as
of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows, for each of the three years ended
December 31, 1997. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of CSW Finance Company (1997 - which includes CSW Investments) and
CSW Investments (1996), which statements reflect total assets and total revenues
of 22 percent and 35 percent in 1997 and 23 percent and 36 percent in 1996,
respectively, of the consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us and our opinion, insofar as it
relates to the amounts included for those entities, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Central and South West Corporation and subsidiary
companies as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years ended December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Dallas, Texas
February 16, 1998
67
<PAGE>
AUDITOR'S REPORT TO THE MEMBERS OF CSW UK FINANCE COMPANY
We have audited the consolidated balance sheets of CSW UK Finance Company and
subsidiaries as of 31 December 1997 and the related consolidated statement of
earnings and statements of cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used in and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CSW UK Finance
Company and subsidiaries at 31 December 1997 and the result of their operations
and cash flows for the year then ended in conformity with generally accepted
accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations and shareholders' equity as of
and for the year ended 31 December 1997 to the extent summarised in Note 23 to
the consolidated financial statements.
KPMG Audit Plc
Chartered Accountants London, England
Registered Auditor 19 January 1998
68
<PAGE>
AUDITOR'S REPORT TO THE MEMBERS OF CSW INVESTMENTS
We have audited the consolidated balance sheets of CSW Investments and
subsidiaries as of 31 December 1996 and the related consolidated statement of
earnings and statements of cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used in and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CSW Investments and
subsidiaries at 31 December 1996 and the result of their operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations and shareholders' equity as of
and for the year ended 31 December 1996 to the extent summarised in the notes to
the consolidated financial statements.
KPMG Audit Plc
Chartered Accountants London, England
Registered Auditor 22 January 1997
69
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation, integrity and objectivity
of the consolidated financial statements of Central and South West Corporation
and subsidiary companies as well as other information contained in this Annual
Report. The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis and,
in some cases, reflect amounts based on the best estimates and judgments of
management, giving due consideration to materiality. Financial information
contained elsewhere in this Annual Report is consistent with that in the
consolidated financial statements.
The consolidated financial statements have been audited by CSW's
independent public accountants who were given unrestricted access to all
financial records and related data, including minutes of all meetings of
stockholders, the board of directors and committees of the board. CSW and its
subsidiaries believe that representations made to the independent public
accountants during their audit were valid and appropriate. The reports of
independent public accountants are presented elsewhere in this report.
CSW, together with its subsidiary companies, maintains a system of
internal controls to provide reasonable assurance that transactions are executed
in accordance with management's authorization, that the consolidated financial
statements are prepared in accordance with generally accepted accounting
principles and that the assets of CSW and its subsidiaries are properly
safeguarded against unauthorized acquisition, use or disposition. The system
includes a documented organizational structure and division of responsibility,
established policies and procedures including a policy on ethical standards
which provides that the companies will maintain the highest legal and ethical
standards, and the careful selection, training and development of our employees.
Internal auditors continuously monitor the effectiveness of the internal
control system following standards established by the Institute of Internal
Auditors. Actions are taken by management to respond to deficiencies as they are
identified. The board, operating through its audit committee, which is comprised
entirely of directors who are not officers or employees of CSW or its
subsidiaries, provides oversight to the financial reporting process.
Due to the inherent limitations in the effectiveness of internal controls,
no internal control system can provide absolute assurance that errors will not
occur. However, management strives to maintain a balance, recognizing that the
cost of such a system should not exceed the benefits derived.
CSW and its subsidiaries believe that, in all material respects, its
system of internal controls over financial reporting and over safeguarding of
assets against unauthorized acquisition, use or disposition functioned
effectively as of December 31, 1997.
E. R. Brooks Glenn D. Rosilier Lawrence B. Connors
Chairman and Executive Vice President and Controller
Chief Executive Officer Chief Financial Officer
70
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Financial Report are
defined below:
Abbreviation or Acronym Definition
ACSI.......................American Customer Satisfaction Index(TM) (Survey
conducted by the University of Michigan
Business School and the American Society of Quality
Control)
AEP........................American Electric Power Company, Inc.
AEP Merger.................Proposed Merger between AEP and CSW where CSW would
become a wholly owned subsidiary of AEP
APBO.......................Accumulated Postretirement Benefit Obligation
AFUDC......................Allowance for funds used during construction
Alpek......................Alpek S.A. de C.V.
ANI........................American Nuclear Insurance
Arkansas Commission........Arkansas Public Service Commission
Btu........................British thermal unit
Burlington Northern........Burlington Northern Railroad Company
C3 Communications..........C3 Communications, Inc., Austin, Texas (formerly CSW
Communications, Inc.)
CAAA.......................Clean Air Act/Clean Air Act Amendments
Cajun......................Cajun Electric Power Cooperative, Inc.
CERCLA.....................Comprehensive Environmental Response, Compensation
and Liability Act of 1980
ChoiceCom..................CSW/ICG ChoiceCom, L.P., a joint venture between C3
Communications and ICG Communications, Inc.
CLECO......................Central Louisiana Electric Company, Inc.
Court of Appeals...........Court of Appeals, Third District of Texas, Austin,
Texas
CPL........................Central Power and Light Company, Corpus Christi,
Texas
CPL 1997 Final Order.......Final orders received from the Texas Commission in
CPL's rate case Docket No. 14965, including both the
order received on September 10, 1997 and the revised
order received on October 16, 1997
CPL 1997 Original Rate
Order....................Final order issued on March 31, 1997 by the Texas
Commission in CPL's rate case Docket No. 14965
CPL 1995 Agreement.........Settlement agreement filed by CPL with the Texas
Commission to settle certain CPL regulatory matters
CPL 1996 Fuel Agreement....Fuel settlement agreement entered into by CPL and
other parties
CSW........................Central and South West Corporation, Dallas, Texas
CSW Common.................CSW common stock, $3.50 par value per share
CSW Credit.................CSW Credit, Inc., Dallas, Texas
CSW Energy.................CSW Energy, Inc., Dallas, Texas
CSW Energy Services........CSW Energy Services, Inc., Dallas, Texas
CSW International..........CSW International, Inc., Dallas, Texas
CSW Investments............CSW Investments, an unlimited company organized in
the United Kingdom through which CSW International
owns SEEBOARD
CSW Leasing................CSW Leasing, Inc., Dallas, Texas
CSW Power Marketing........CSW Power Marketing, Inc., Dallas, Texas
CSW Services...............Central and South West Services, Inc., Dallas, Texas
and Tulsa, Oklahoma
CSW System.................CSW and its subsidiaries
CSW UK Finance Company.....CSW Finco, an unlimited company organized in the
United Kingdom through which CSW International owns
CSW Investments
CSW U.S. Electric System...CSW and the U.S. Electric Operating Companies
CWIP.......................Construction work in progress
DGES.......................Director General Electricity Supply
DHMV.......................Dolet Hills Mining Venture
DOE........................United States Department of Energy
ECOM.......................Excess cost over market
El Paso....................El Paso Electric Company
El Paso Merger Agreement...Agreement and Plan of Merger between El Paso and CSW,
dated as of May 3, 1993, as amended
Energy Policy Act..........National Energy Policy Act of 1992
EnerShop...................EnerShopSM Inc., Dallas, Texas
Entergy Texas..............Entergy Texas Utilities Company
EPA........................United States Environmental Protection Agency
EPS........................Earnings per share of common stock
ERCOT......................Electric Reliability Council of Texas
71
<PAGE>
GLOSSARY OF TERMS (continued)
The following abbreviations or acronyms used in this Financial Report are
defined below:
Abbreviation or Acronym Definition
ERISA......................Employee Retirement Income Security Act of 1974, as
amended
Exchange Act...............Securities Exchange Act of 1934, as amended
EWG........................Exempt Wholesale Generator
FASB.......................Financial Accounting Standards Board
FCC........................Federal Communications Commission
FERC.......................Federal Energy Regulatory Commission
FMB........................First mortgage bond
FUCO.......................Foreign utility company as defined by the Holding
Company Act
Guadalupe..................Guadalupe-Blanco River Authority pollution control
revenue bond issuing authority
HL&P.......................Houston Lighting & Power Company
Holding Company Act........Public Utility Holding Company Act of 1935, as
amended
HVdc.......................High-voltage direct-current
IBEW.......................International Brotherhood of Electrical Workers
ISO........................Independent system operator
ITC........................Investment tax credit
KW.........................Kilowatt
LIFO.......................Last-in first-out (inventory accounting method)
Louisiana Commission.......Louisiana Public Service Commission
LTIP.......................Long-Term Incentive Plan
MD&A.......................Management's Discussion and Analysis of Financial
Condition and Results of Operations
MDEQ.......................Mississippi Department of Environmental Quality
MGP........................Manufactured gas plant or coal gasification plant
Mirror CWIP................Mirror construction work in progress
Mississippi Power..........Mississippi Power Company
MMbtu......................Million Btu
MW.........................Megawatt
MWH........................Megawatt-hour
National Grid..............National Grid Group plc
NEIL.......................Nuclear Electric Insurance Limited
NRC........................Nuclear Regulatory Commission
OASIS......................Open access same time information system
Oklahoma Commission........Corporation Commission of the State of Oklahoma
Oklaunion..................Oklaunion Power Station Unit No. 1
OPEB.......................Other postretirement benefits (other than pension)
PCB........................Polychlorinated biphenyl
PowerShare.................CSW's PowerShareSM Dividend Reinvestment and Stock
Purchase Plan
PRP........................Potentially responsible party
PSO........................Public Service Company of Oklahoma, Tulsa, Oklahoma
PSO 1997 Rate Settlement
Agreement................Joint stipulation agreement reached by PSO and other
parties to settle PSO's rate inquiry
PURA.......................Public Utility Regulatory Act of Texas (including
amendments to the law)
PURPA......................Public Utility Regulatory Policies Act of 1978
RCRA.......................Federal Resource Conservation and Recovery Act of
1976
Retirement Plan............CSW's tax-qualified Cash Balance Retirement Plan
Rights Plan................Stockholders Rights Agreement between CSW and CSW
Services, as Rights Agent
RUS........................Rural Utilities Service of the federal government
SEC........................United States Securities and Exchange Commission
SEEBOARD...................SEEBOARD plc., Crawley, West Sussex, United Kingdom
SEEBOARD U.S.A.............CSW's investment in SEEBOARD consolidated and
converted to U.S. Generally Accepted Accounting
Principles
SFAS.......................Statement of Financial Accounting Standards
SFAS No. 52................Foreign Currency Translation
SFAS No. 71................Accounting for the Effects of Certain Types of
Regulation
SFAS No. 87................Employers' Accounting for Pensions
SFAS No. 106...............Employers' Accounting for Postemployment Benefits
SFAS No. 115...............Accounting for Certain Investments in Debt and Equity
Securities
SFAS No. 123...............Accounting for Stock-Based Compensation
<PAGE>
GLOSSARY OF TERMS (continued)
The following abbreviations or acronyms used in this Financial Report are
defined below:
Abbreviation or Acronym Definition
SFAS No. 125...............Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities
SFAS No. 128...............Earnings Per Share
SFAS No. 130...............Reporting Comprehensive Income
SFAS No. 131...............Disclosure about Segments of an Enterprise and
Related Information
SPP........................Southwest Power Pool
STP........................South Texas Project nuclear electric generating
station
STPNOC.....................STP Nuclear Operating Company, a non-profit Texas
corporation, jointly owned by CPL, HL&P, City of
Austin, and City of San Antonio
SWEPCO.....................Southwestern Electric Power Company, Shreveport,
Louisiana
SWEPCO Plan................The plan of reorganization for Cajun filed by the
Members Committee and SWEPCO on January 15, 1998 with
the U.S. Bankruptcy Court for the Middle District of
Louisiana
Tejas......................Tejas Gas Corporation
Texas Commission...........Public Utility Commission of Texas
Transok....................Transok, Inc. and subsidiaries, Tulsa, Oklahoma
Trust Preferred
Securities...............Collective term for securities issued by business
trusts of CPL, PSO and SWEPCO classified on the
balance sheet as "Certain Subsidiary-obligated,
mandatorily redeemable preferred securities of
subsidiary trusts holding solely Junior Subordinated
Debentures of such Subsidiaries"
Union Pacific..............Union Pacific Railroad Company
U.S. Electric or U.S.
Electric Operating
Companies...............CPL, PSO, SWEPCO and WTU
Vale.......................Empresa De Electricidade Vale Paranapanema S/A
WTU........................West Texas Utilities Company, Abilene, Texas
WTU 1995 Stipulation and
Agreement................Stipulation and Agreement to settle certain WTU
regulatory matters
EXHIBIT 21
Central And South West Corporation
Subsidiaries of the Registrant
As of December 31, 1997
Company Name
Business Conducted State or Jurisdiction
Under Same Name of Incorporation/Formation
- -------------------------------------------------------------------------------
Central Power and Light Company Texas
539 North Carancahua Street
Corpus Christi, Texas 78401-2802
CPL Capital I Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
Public Service Company of Oklahoma Oklahoma
212 East 6th Street
Tulsa, Oklahoma 74119-1212
PSO Capital I Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
Southwestern Electric Power Company Delaware
428 Travis Street
Shreveport, Louisiana 71156-0001
SWEPCO Capital I Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
West Texas Utilities Company Texas
301 Cypress Street
Abilene, Texas 79601-5820
SEEBOARD, plc United Kingdom
Registered Office
Forest Gate, Brighton Road
Crawley, West Sussex RH11 9BH
Central and South West Services, Inc. Texas
2 West Second Street
Tulsa, Oklahoma 74103-3102
and
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
C3 Communications, Inc. Delaware
1705 South Capital of Texas Highway - Suite 400
Austin, Texas 78746
CSW Credit, Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
CSW Energy, Inc. Texas
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
CSW Energy Services, Inc. Texas
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
<PAGE>
Company Name
Business Conducted State or Jurisdiction
Under Same Name of Incorporation/Formation
- -------------------------------------------------------------------------------
CSW International, Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
CSW Leasing, Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
EnerShop Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202-1234
EXHIBIT 23.1
Consent of Independent Public Accountants
To the Stockholders and Board of Directors of
Central and South West Corporation:
As independent public accountants, we hereby consent to the
incorporation of our report dated February 16, 1998, included in this Form 10-K,
into Central and South West Corporation's previously filed registration
statements on Form S-8 (File Nos. 2-70746, 33-12992, 33-49301, 33-63027 and
33-64233) and on Form S-3 (File No. 33-50193 and 333-00911).
Arthur Andersen LLP
Dallas, Texas
March 25, 1998
EXHIBIT 23.2
Consent of Independent Public Accountants
The Board of Directors
CSW UK Finance Company:
We consent to the incorporation by reference in the registration
statements on Form S-8 (Nos. 2-70746, 33-12992, 33-49301, 33-63027 and 33-64233)
and on Form S-3 (Nos. 33-50193 and 333-00911) of Central and South West
Corporation of our report dated 19 January 1998, with respect to the
consolidated balance sheet of CSW UK Finance Company as of 31 December 1997, and
the related consolidated statements of earnings and cashflows for the year then
ended, which report appears in the 31 December 1997, annual report on Form 10-K
of Central and South West Corporation.
KPMG Audit Plc London, England
Chartered Accountants 25 March 1998
Registered Auditors
EXHIBIT 23.3
Consent of Independent Public Accountants
To the Stockholders and Board of Directors of
Central Power and Light Company:
As independent public accountants, we hereby consent to the
incorporation of our report dated February 16, 1998, included in this Form 10-K,
into Central Power and Light Company's previously filed registration statement
on Form S-3 (File Nos. 33-49577 and 33-52759).
Arthur Andersen LLP
Dallas, Texas
March 25, 1998
EXHIBIT 23.4
Consent of Independent Public Accountants
To the Stockholders and Board of Directors of
Public Service Company of Oklahoma:
As independent public accountants, we hereby consent to the
incorporation of our report dated February 16, 1998, included in this Form 10-K,
into Public Service Company of Oklahoma's previously filed registration
statement on Form S-3 (File No. 333-00973).
Arthur Andersen LLP
Dallas, Texas
March 25, 1998
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned, as Chairman and Chief Executive Officer of Central and South
West Corporation (the "Corporation"), hereby makes, constitutes and appoints
Glenn D. Rosilier and Lawrence B. Connors and each of them severally, his true
and lawful attorneys-in-fact and agents, each with full power and authority
(acting alone and without the others) to execute in the name and on behalf of
the undersigned, in any and all capacities, the Corporation's Annual Report on
Form 10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
E. R. Brooks
Chairman & Chief Executive Officer
Subscribed and sworn to before me this 21st day of January, 1998.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned, as Executive Vice President and Chief Financial Officer of
Central and South West Corporation (the "Corporation"), hereby makes,
constitutes and appoints E. R. Brooks and Lawrence B. Connors, and each of them
severally, his true and lawful attorneys-in-fact and agents, each with full
power and authority (acting alone and without the others) to execute in the name
and on behalf of the undersigned, in any and all capacities, the Corporation's
Annual Report on Form 10-K for 1997 and any and all amendments thereto, to be
filed under the Securities Exchange Act of 1934, as amended, and any other
documents and instruments incidental thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, hereby granting to such attorneys-in-fact, and agents,
and each of them, full power and authority of substitution and revocation in the
premises and full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorneys-in-fact and agents, or
any of them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
Glenn D. Rosilier
Executive Vice President and
Chief Financial Officer
Subscribed and sworn to before me this 21st day of January, 1998.
Donna M. Sigmond
Notary Public
My Commission Expires:
11-09-01
EXHIBIT 24.3
POWER OF ATTORNEY
The undersigned, as Controller of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks and Glenn D.
Rosilier, and each of them severally, his true and lawful attorney-in-fact and
agents, each with full power and authority (acting alone and without the other)
to execute in the name and on behalf of the undersigned, in any and all
capacities, the Corporation's Annual Report on Form 10-K for 1997 and any and
all amendments thereto, to be filed under the Securities Exchange Act of 1934,
as amended, and any other documents and instruments incidental thereto, and to
file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, hereby granting to such
attorney-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorney-in-fact and agent, or any of them, may do or cause to be done by virtue
of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
Lawrence B. Connors
Controller
Subscribed and sworn to before me this 21st day of January, 1998.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks, Glenn D.
Rosilier and Lawrence B. Connors, and each of them severally, her true and
lawful attorneys-in-fact and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Corporation's Annual Report on Form
10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
Molly Shi Boren
Director
Subscribed and sworn to before me this 21st day of January, 1998.
Judy A. Hall
Notary Public
My Commission Expires:
7-20-1999
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks, Glenn D.
Rosilier and Lawrence B. Connors, and each of them severally, his true and
lawful attorneys-in-fact and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Corporation's Annual Report on Form
10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
Dr. Donald M. Carlton
Director
Subscribed and sworn to before me this 21st day of January, 1998.
Carolyn Stephens
Notary Public
My Commission Expires:
10-25-01
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks, Glenn D.
Rosilier and Lawrence B. Connors, and each of them severally, his true and
lawful attorneys-in-fact and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Corporation's Annual Report on Form
10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
T. J. Ellis
Director
Subscribed and sworn to before me this 21st day of January, 1998.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks, Glenn D.
Rosilier and Lawrence B. Connors, and each of them severally, his true and
lawful attorneys-in-fact and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Corporation's Annual Report on Form
10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
Joe H. Foy
Director
Subscribed and sworn to before me this 21st day of January, 1998.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks, Glenn D.
Rosilier and Lawrence B. Connors, and each of them severally, his true and
lawful attorneys-in-fact and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Corporation's Annual Report on Form
10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
William R. Howell
Director
Subscribed and sworn to before me this 21st day of January, 1998.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks, Glenn D.
Rosilier and Lawrence B. Connors, and each of them severally, his true and
lawful attorneys-in-fact and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Corporation's Annual Report on Form
10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
Dr. Robert W. Lawless
Director
Subscribed and sworn to before me this 21st day of January, 1998.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks, Glenn D.
Rosilier and Lawrence B. Connors, and each of them severally, his true and
lawful attorneys-in-fact and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Corporation's Annual Report on Form
10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
James L. Powell
Director
Subscribed and sworn to before me this 21st day of January, 1998.
Kristi Broncy
Notary Public
My Commission Expires:
1-5-2002
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks, Glenn D.
Rosilier and Lawrence B. Connors, and each of them severally, his true and
lawful attorneys-in-fact and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Corporation's Annual Report on Form
10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
Dr. Richard L. Sandor
Director
Subscribed and sworn to before me this 21st day of January, 1998.
Marilyn K Grace
Notary Public
My Commission Expires:
5/28/01
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
The undersigned, as a director of Central and South West Corporation (the
"Corporation"), hereby makes, constitutes and appoints E. R. Brooks, Glenn D.
Rosilier and Lawrence B. Connors, and each of them severally, his true and
lawful attorneys-in-fact and agents, each with full power and authority (acting
alone and without the others) to execute in the name and on behalf of the
undersigned, in any and all capacities, the Corporation's Annual Report on Form
10-K for 1997 and any and all amendments thereto, to be filed under the
Securities Exchange Act of 1934, as amended, and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to such attorneys-in-fact, and agents, and each of
them, full power and authority of substitution and revocation in the premises
and full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person and hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 21st
day of January, 1998.
Thomas V. Shockley III
President, Chief Operating Officer
and Director
Subscribed and sworn to before me this 21st day of January, 1998.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
EXHIBIT 24.5
POWER OF ATTORNEY
The undersigned, as President of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints R. Russell Davis his true and
lawful attorney-in-fact and agent, with full power and authority to execute in
the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorney-in-fact,
and agent, full power and authority of substitution and revocation in the
premises and full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorney-in-fact and agent, may do
or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
J. Gonzalo Sandoval
General Manager/President and Director
Subscribed and sworn to before me this 2nd day of March, 1998 by J. Gonzalo
Sandoval.
Alice G. Crisp
Notary Public
My Commission Expires:
8-3-98
EXHIBIT 24.6
POWER OF ATTORNEY
The undersigned, as Controller of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval his true
and lawful attorney-in-fact and agent, with full power and authority to execute
in the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorney-in-fact,
and agent, full power and authority of substitution and revocation in the
premises and full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorney-in-fact and agent, may do
or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
R. Russell Davis
Controller
Subscribed and sworn to before me this 2nd day of March, 1998, by R. Russell
Davis.
Kit Hill
Notary Public
My Commission Expires:
6-14-2001
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
John F. Brimberry
Director
Subscribed and sworn to before me this 2nd day of March, 1998 by John F.
Brimberry.
Martha Robinson
Notary Public
My Commission Expires:
May 9, 2001
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
E. R. Brooks
Director
Subscribed and sworn to before me this 2nd day of March, 1998 by E. R. Brooks.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
Glenn Files
Director
Subscribed and sworn to before me this 2nd day of March, 1998 by Glenn Files.
L. J. Jimmerson
Notary Public
My Commission Expires:
May 11, 2000
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
Ruben M. Garcia
Director
Subscribed and sworn to before me this 2nd day of March, 1998 by Ruben M.
Garcia.
Phyillis A. Pego
Notary Public
My Commission Expires:
12-29-2001
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
Alphonso R. Jackson
Director
Subscribed and sworn to before me this 2nd day of March, 1998 by Robert A.
McAllen.
L. Charlene Camp
Notary Public
My Commission Expires:
4/03/99
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
Robert A. McAllen
Director
Subscribed and sworn to before me this 2nd day of March, 1998 by Robert A.
McAllen.
Oneida M. Lorenzana
Notary Public
My Commission Expires:
03-06-00
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
Pete J. Morales, Jr.
Director
Subscribed and sworn to before me this 2nd day of March, 1998 by Pete J.
Morales, Jr.
Lucy Nixon
Notary Public
My Commission Expires:
6-12-99
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
H. Lee Richards
Director
Subscribed and sworn to before me this 2nd day of March, 1998 by H. Lee
Richards.
C. J. Winter
Notary Public
My Commission Expires:
12-22-99
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
The undersigned, as a director of Central Power and Light Company (the
"Company"), hereby makes, constitutes and appoints J. Gonzalo Sandoval and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 2nd day
of March, 1998.
Gerald E. Vaughn
Director
Subscribed and sworn to before me this 2nd day of March, 1998 by Gerald E.
Vaughn.
Imelda V. Perez
Notary Public
My Commission Expires:
February 2, 2001
EXHIBIT 24.8
POWER OF ATTORNEY
The undersigned, as President of Public Service Company of Oklahoma (the
"Company"), hereby makes, constitutes and appoints R. Russell Davis his true and
lawful attorney-in-fact and agent, with full power and authority to execute in
the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorney-in-fact,
and agents, full power and authority of substitution and revocation in the
premises and full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorney-in-fact and agents, may
do or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 28th
day of January, 1998.
T. D. Churchwell
President and Director
Subscribed and sworn to before me this 28th day of January, 1998 by T. D.
Churchwell.
Lina P. Holm
Notary Public
My Commission Expires:
January 28, 1999
EXHIBIT 24.9
POWER OF ATTORNEY
The undersigned, as Controller of Public Service Company of Oklahoma (the
"Company"), hereby makes, constitutes and appoints T. D. Churchwell his true and
lawful attorney-in-fact and agent, with full power and authority to execute in
the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorney-in-fact,
and agent, full power and authority of substitution and revocation in the
premises and full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorney-in-fact and agent, may do
or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 28th
day of January, 1998.
R. Russell Davis
Controller
Subscribed and sworn to before me this 28th day of January, 1998 by
R. Russell Davis.
Kit Hill
Notary Public
My Commission Expires:
6-14-2001
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of Oklahoma (the
"Company"), hereby makes, constitutes and appoints T. D. Churchwell and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 28th
day of January, 1998.
E. R. Brooks
Director
Subscribed and sworn to before me this 28th day of January, 1998 by
E. R. Brooks.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
<PAGE>
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of Oklahoma (the
"Company"), hereby makes, constitutes and appoints T. D. Churchwell and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 28th
day of January, 1998.
Harry A. Clarke
Director
Subscribed and sworn to before me this 28th day of January, 1998 by
Harry A. Clarke.
Lina P. Holm
Notary Public
My Commission Expires:
January 29, 1999
<PAGE>
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of Oklahoma (the
"Company"), hereby makes, constitutes and appoints T. D. Churchwell and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 28th
day of January, 1998.
Glenn Files
Director
Subscribed and sworn to before me this 28th day of January, 1998 by Glenn Files.
Lina P. Holm
Notary Public
My Commission Expires:
January 29, 1999
<PAGE>
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of Oklahoma (the
"Company"), hereby makes, constitutes and appoints T. D. Churchwell and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 28th
day of January, 1998.
Paul K. Lackey, Jr.
Director
Subscribed and sworn to before me this 28th day of January, 1998 by Paul K.
Lackey, Jr.
Lina P. Holm
Notary Public
My Commission Expires:
January 29, 1999
<PAGE>
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of Oklahoma (the
"Company"), hereby makes, constitutes and appoints T. D. Churchwell and R.
Russell Davis, and each of them severally, her true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 28th
day of January, 1998.
Paula Marshall-Chapman
Director
Subscribed and sworn to before me this 28th day of January, 1998 by Paula
Marshall-Chapman.
Barbara Masterson
Notary Public
My Commission Expires:
March 8, 1998
<PAGE>
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of Oklahoma (the
"Company"), hereby makes, constitutes and appoints T. D. Churchwell and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 28th
day of January, 1998.
William R. McKamey
General Manager and Director
Subscribed and sworn to before me this 28th day of January, 1998 by William R.
McKamey.
Lina P. Holm
Notary Public
My Commission Expires:
January 29, 1999
<PAGE>
EXHIBIT 24.10
POWER OF ATTORNEY
The undersigned, as a director of Public Service Company of Oklahoma (the
"Company"), hereby makes, constitutes and appoints T. D. Churchwell and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 28th
day of January, 1998.
Robert B. Taylor, Jr.
Director
Subscribed and sworn to before me this 28th day of January, 1998 by Robert B.
Taylor, Jr.
Lina P. Holm
Notary Public
My Commission Expires:
January 29, 1999
EXHIBIT 24.11
POWER OF ATTORNEY
The undersigned, as President of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints R. Russell Davis his true and
lawful attorney-in-fact and agent, with full power and authority to execute in
the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorney-in-fact,
and agent, full power and authority of substitution and revocation in the
premises and full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorney-in-fact and agent, may do
or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
Michael D. Smith
President and Director
Subscribed and sworn to before me this 22nd day of January, 1998 by
Michael D. Smith.
Judith W. Culver
Notary Public
My Commission Expires:
Commission is for Life
EXHIBIT 24.12
POWER OF ATTORNEY
The undersigned, as Controller of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints Michael D. Smith his true and
lawful attorney-in-fact and agent, with full power and authority to execute in
the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorney-in-fact,
and agent, full power and authority of substitution and revocation in the
premises and full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully for
all intents and purposes as the undersigned might or could do in person and
hereby ratifying and confirming all that such attorney-in-fact and agent, may do
or cause to be done by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
R. Russell Davis
Controller
Subscribed and sworn to before me this 22nd day of January, 1998 by
R. Russell Davis.
Kit Hill
Notary Public
My Commission Expires:
6-14-2001
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints Michael D. Smith and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
E. R. Brooks
Director
Subscribed and sworn to before me this 22nd day of January, 1998 by
E. R. Brooks.
Judy A. Hall
Notary Public
My Commission Expires:
July 20, 1999
<PAGE>
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints Michael D. Smith and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
James E. Davison
Director
Subscribed and sworn to before me this 22nd day of January, 1998 by James
E. Davison.
Judith W. Culver
Notary Public
My Commission Expires:
Commission is for Life
<PAGE>
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints Michael D. Smith and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
Glenn Files
Director
Subscribed and sworn to before me this 22nd day of January, 1998 by Glenn Files.
Judith W. Culver
Notary Public
My Commission Expires:
Commission is for Life
<PAGE>
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints Michael D. Smith and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
F. E. Joyce, M.D.
Director
Subscribed and sworn to before me this 22nd day of January, 1998 by Dr.
Frederick E. Joyce.
Judith W. Culver
Notary Public
My Commission Expires:
Commission is for Life
<PAGE>
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints Michael D. Smith and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
John M. Lewis
Director
Subscribed and sworn to before me this 22nd day of January, 1998 by
James M. Lewis.
Linda Carmack Catron
Notary Public
My Commission Expires:
May 1, 2001
<PAGE>
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints Michael D. Smith and R.
Russell Davis, and each of them severally, her true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
Karen Martin
General Manager and Director
Subscribed and sworn to before me this 22nd day of January, 1998 by Karen
Martin.
Judith W. Culver
Notary Public
My Commission Expires:
Commission is for Life
<PAGE>
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints Michael D. Smith and R.
Russell Davis, and each of them severally, his true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
William C. Peatross
Director
Subscribed and sworn to before me this 22nd day of January, 1998 by
William C. Peatross.
Judith W. Culver
Notary Public
My Commission Expires:
Commission is for Life
<PAGE>
EXHIBIT 24.13
POWER OF ATTORNEY
The undersigned, as a director of Southwestern Electric Power Company (the
"Company"), hereby makes, constitutes and appoints Michael D. Smith and R.
Russell Davis, and each of them severally, her true and lawful attorneys-in-fact
and agents, each with full power and authority (acting alone and without the
others) to execute in the name and on behalf of the undersigned, in any and all
capacities, the Company's Annual Report on Form 10-K for 1997 and any and all
amendments thereto, to be filed under the Securities Exchange Act of 1934, as
amended, and any other documents and instruments incidental thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to such
attorneys-in-fact, and agents, and each of them, full power and authority of
substitution and revocation in the premises and full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as the undersigned
might or could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 22nd
day of January, 1998.
Maxine P. Sarpy
Director
Subscribed and sworn to before me this 22nd day of January, 1998 by
Maxine P. Sarpy.
Judith W. Culver
Notary Public
My Commission Expires:
Commission is for Life
EXHIBIT 24.14
POWER OF ATTORNEY
The undersigned, as President of West Texas Utilities Company (the "Company"),
hereby makes, constitutes and appoints R. Russell Davis his true and lawful
attorney-in-fact and agent, with full power and authority to execute in the name
and on behalf of the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1997 and any and all amendments thereto, to be
filed under the Securities Exchange Act of 1934, as amended, and any other
documents and instruments incidental thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, hereby granting to such attorney-in-fact, and agent,
full power and authority of substitution and revocation in the premises and full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and hereby ratifying and
confirming all that such attorney-in-fact and agent, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 27th
day of January, 1998.
Paul J. Brower
General Manager/President and Director
Subscribed and sworn to before me this 27th day of January, 1998 by
Paul J. Brower.
Martha Murray
Notary Public
My Commission Expires:
11-19-00
EXHIBIT 24.15
POWER OF ATTORNEY
The undersigned, as Controller of West Texas Utilities Company (the "Company"),
hereby makes, constitutes and appoints Paul J. Brower his true and lawful
attorney-in-fact and agent, with full power and authority to execute in the name
and on behalf of the undersigned, in any and all capacities, the Company's
Annual Report on Form 10-K for 1997 and any and all amendments thereto, to be
filed under the Securities Exchange Act of 1934, as amended, and any other
documents and instruments incidental thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, hereby granting to such attorney-in-fact, and agent,
full power and authority of substitution and revocation in the premises and full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for all intents and
purposes as the undersigned might or could do in person and hereby ratifying and
confirming all that such attorney-in-fact and agent, may do or cause to be done
by virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 27th
day of January, 1998.
R. Russell Davis
Controller
Subscribed and sworn to before me this 27th day of January, 1998 by
R. Russell Davis.
Kit Hill
Notary Public
My Commission Expires:
6-14-2001
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities Company (the "Company"),
hereby makes, constitutes and appoints Paul J. Brower and R. Russell Davis, and
each of them severally, his true and lawful attorneys-in-fact and agents, each
with full power and authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorneys-in-fact,
and agents, and each of them, full power and authority of substitution and
revocation in the premises and full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the undersigned might or
could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 27th
day of January, 1998.
E. R. Brooks
Director
Subscribed and sworn to before me this 27th day of January, 1998 by
E. R. Brooks.
Martha Murray
Notary Public
My Commission Expires:
11-19-00
<PAGE>
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities Company (the "Company"),
hereby makes, constitutes and appoints Paul J. Brower and R. Russell Davis, and
each of them severally, his true and lawful attorneys-in-fact and agents, each
with full power and authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorneys-in-fact,
and agents, and each of them, full power and authority of substitution and
revocation in the premises and full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the undersigned might or
could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 27th
day of January, 1998.
Glenn Files
Director
Subscribed and sworn to before me this 27th day of January, 1998 by Glenn Files.
Martha Murray
Notary Public
My Commission Expires:
11-19-00
<PAGE>
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities Company (the "Company"),
hereby makes, constitutes and appoints Paul J. Brower and R. Russell Davis, and
each of them severally, his true and lawful attorneys-in-fact and agents, each
with full power and authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorneys-in-fact,
and agents, and each of them, full power and authority of substitution and
revocation in the premises and full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the undersigned might or
could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 27th
day of January, 1998.
Alphonso Jackson
Director
Subscribed and sworn to before me this 27th day of January, 1998 by Tommy
Morris.
Martha Murray
Notary Public
My Commission Expires:
11-19-00
<PAGE>
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities Company (the "Company"),
hereby makes, constitutes and appoints Paul J. Brower and R. Russell Davis, and
each of them severally, his true and lawful attorneys-in-fact and agents, each
with full power and authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorneys-in-fact,
and agents, and each of them, full power and authority of substitution and
revocation in the premises and full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the undersigned might or
could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 27th
day of January, 1998.
Tommy Morris
Director
Subscribed and sworn to before me this 27th day of January, 1998 by Tommy
Morris.
Martha Murray
Notary Public
My Commission Expires:
11-19-00
<PAGE>
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities Company (the "Company"),
hereby makes, constitutes and appoints Paul J. Brower and R. Russell Davis, and
each of them severally, her true and lawful attorneys-in-fact and agents, each
with full power and authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorneys-in-fact,
and agents, and each of them, full power and authority of substitution and
revocation in the premises and full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the undersigned might or
could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 27th
day of January, 1998.
Dian G. Owen
Director
Subscribed and sworn to before me this 27th day of January, 1998 by
Dian G. Owen.
Martha Murray
Notary Public
My Commission Expires:
11-19-00
<PAGE>
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities Company (the "Company"),
hereby makes, constitutes and appoints Paul J. Brower and R. Russell Davis, and
each of them severally, his true and lawful attorneys-in-fact and agents, each
with full power and authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorneys-in-fact,
and agents, and each of them, full power and authority of substitution and
revocation in the premises and full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the undersigned might or
could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 27th
day of January, 1998.
James Parker
Director
Subscribed and sworn to before me this 27th day of January, 1998 by James
Parker.
Martha Murray
Notary Public
My Commission Expires:
11-19-00
<PAGE>
EXHIBIT 24.16
POWER OF ATTORNEY
The undersigned, as a director of West Texas Utilities Company (the "Company"),
hereby makes, constitutes and appoints Paul J. Brower and R. Russell Davis, and
each of them severally, his true and lawful attorneys-in-fact and agents, each
with full power and authority (acting alone and without the others) to execute
in the name and on behalf of the undersigned, in any and all capacities, the
Company's Annual Report on Form 10-K for 1997 and any and all amendments
thereto, to be filed under the Securities Exchange Act of 1934, as amended, and
any other documents and instruments incidental thereto, and to file the same,
with all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to such attorneys-in-fact,
and agents, and each of them, full power and authority of substitution and
revocation in the premises and full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as the undersigned might or
could do in person and hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue of this Power of Attorney.
IN WITNESS WHEREOF, I have hereunto executed this Power of Attorney this 27th
day of January, 1998.
F. L. Stephens
Director
Subscribed and sworn to before me this 27th day of January, 1998 by
F. L. Stephens.
Martha Murray
Notary Public
My Commission Expires:
11-19-00
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000105860
<NAME> WEST TEXAS UTILITIES COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<TOTAL-ASSETS> 802,148
<COMMON> 137,214
<CAPITAL-SURPLUS-PAID-IN> 2,236
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 258,929
0
2,483
<LONG-TERM-DEBT-NET> 278,640
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0
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<INCOME-TAX-EXPENSE> 9,490
<OTHER-OPERATING-EXPENSES> 343,721
<TOTAL-OPERATING-EXPENSES> 353,211
<OPERATING-INCOME-LOSS> 44,567
<OTHER-INCOME-NET> 1,464
<INCOME-BEFORE-INTEREST-EXPEN> 46,031
<TOTAL-INTEREST-EXPENSE> 24,570
<NET-INCOME> 21,461
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<EARNINGS-AVAILABLE-FOR-COMM> 22,402
<COMMON-STOCK-DIVIDENDS> 26,000
<TOTAL-INTEREST-ON-BONDS> 20,352
<CASH-FLOW-OPERATIONS> 95,246
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