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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 31, 1994
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, TX 75202
(214) 777-1000
0-346 Central Power and Light Company 74-0550600
(A Texas Corporation)
539 North Carancahua Street
Corpus Christi, TX 78401-2802
(512) 881-5300
This combined Form 8-K is separately filed by Central
and South West Corporation and Central Power and Light
Company. Information contained herein relating to any
individual company is filed by such company and Central and
South West Corporation on its own behalf. Each other
company makes no representation as to information relating
to the other companies.
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ITEM 5. OTHER EVENTS
CENTRAL POWER AND LIGHT COMPANY (CPL) RATE CASE
Central and South West Corporation (CSW) and CPL
Background Information
As previously reported, several cities in CPL's service
territory, the Public Utility Commission of Texas (Texas
Commission) General Counsel and others initiated actions in
late 1993 and early 1994 which, if approved by the Texas
Commission, would lower CPL's rates by an amount ranging
from $16 million to $214 million. The requests for a review
of CPL's rates arose out of an unscheduled outage at the two
unit South Texas Nuclear Project (STP) nuclear generating
station which began in February 1993. CPL owns 25.2% of
STP. STP units 1 and 2 returned to service in late February
1994 and late May 1994, respectively. The STP outage did
not affect CPL's ability to meet customer demand because of
existing capacity and CPL's purchase of additional energy.
Pursuant to a scheduling and procedural settlement agreement
among the parties challenging CPL's rates, which was
approved by a Texas Commission administrative law judge on
April 1, 1994, CPL submitted a rate filing package on July
1, 1994 to the Texas Commission justifying its current base
rate structure. In that filing, CPL stated that it had a
$111 million retail revenue deficiency and would be
justified in seeking a base rate increase, but asked that
its rates remain for now at the same levels agreed to in the
settlement of its last two rate cases in 1990 and 1991. As
part of the 1990 and 1991 settlements, CPL agreed to freeze
base rates from January 1, 1991 through 1994, subject to
certain force majeure events including double digit
inflation, major tax increases, extraordinary increases in
operating expenses or serious declines in operating
revenues. On October 31, 1994, CPL filed rebuttal testimony
that revised its revenue deficiency to approximately $103
million. CPL continues to maintain that its rates are
reasonable and that its earnings are within established
regulatory guidelines.
For additional background information related to CPL's rate
cases, see CSW's and CPL's Annual Reports on Form 10-K for
the year ended December 31, 1993 and Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1994 and June 30,
1994.
Recent Developments
In October 1994, several parties to CPL's base rate case
filed testimony with the Texas Commission recommending
reductions in CPL's base rates. Among the parties that
filed testimony were the Office of Public Utility Counsel
which recommended an annual $100 million retail rate
reduction, and several cities in CPL's service territory
which recommended an annual $75 million retail rate
reduction and the write off of $219 million of CPL's Mirror
CWIP asset.
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Filing by Texas Commission Staff
In October, 1994, the Texas Commission staff (Staff) filed
testimony recommending an annual reduction in retail rates
of $99.6 million resulting from a combination of proposed
rate base and cost-of-service reductions. Certain elements
of the Staff's proposal are described below.
The Staff recommended a rate base disallowance of $407
million, or approximately 17 percent of CPL's investment in
STP, based upon the Staff's calculation of historical
performance for STP compared to a peer group of other
nuclear facilities. The Staff's proposed reduction in rate
base would result in a reduction in base rates of
approximately $70 million, including depreciation expense
that would not be recovered in rates. The Staff conceded in
its testimony, however, that because it did not have the
information available, its proposed $407 million STP rate
base reduction does not appropriately account for the
effects of either accumulated depreciation or deferred taxes
since STP commenced operation. CPL estimates that applying
accumulated depreciation and deferred taxes would reduce the
Staff's proposed STP rate base reduction by approximately
$113 million and would increase revenue requirements by $16
million.
In its testimony, the Staff argued that its proposed STP
rate base reduction was a performance-based penalty that
could be temporary in nature and would not have to result in
a permanent disallowance. The Staff indicated that, in the
future, CPL could seek recovery in rates of the proposed STP
rate base disallowance, subject to the performance of STP.
There are no Texas Commission precedents addressing the
removal of a nuclear plant from rate base as a performance
penalty and CPL filed rebuttal testimony taking strong
exception to the plant performance standard the Staff has
proposed.
A comparison of the Staff's recommendation for a base rate
reduction, compared to CPL's claimed rate deficiency is
provided below:
(millions)
CPL revenue deficiency $111.0
STP disallowance (1) (70.0)
Mirror CWIP adjustment (2) (38.0)
Change in rate of return (3) (21.0)
Other rate base items (4) (17.0)
Federal income taxes (5) (29.0)
Depreciation (6) (13.0)
Miscellaneous (22.6)
Staff recommended revenue reduction $(99.6)
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(1) Represents the impact of $407 million or approximately
17% STP disallowance due to a lower capacity factor than
other nuclear plants in the peer group, as discussed above.
CPL estimates that applying accumulated depreciation and
deferred taxes would reduce the Staff's proposed STP rate
base reduction by approximately $113 million and would
increase revenue requirements by $16 million.
(2) Represents the effect of lower Mirror CWIP allowed in
rate base as recommended by the Staff and the associated
reduction in cost of service.
(3) Reflects a 12.2% return on equity compared to the 13.0%
return on equity requested by CPL in its rate filing. CPL's
current base rates provide for a 13.0% allowed rate of
return on equity.
(4) Principally additions made after end of test year.
(5) Represents principally the tax consequences of the other
differences specified in the above table.
(6) Proposed new depreciation rates and depreciation related
to post-test year adjustments, net of depreciation on the
proposed disallowance of STP plant.
Rate Case Procedural Matters
CPL prepared rebuttal testimony that was filed with the
Texas Commission October 31, 1994, when hearings in the rate
case began. After hearings in the rate case have concluded,
the administrative law judge for the case will issue a
recommended order for consideration by the Texas Commission.
Testimony filed by parties to the rate case, including the
Staff, is not binding on either the administrative law judge
or the Texas Commission. CPL expects the Texas Commission
to issue its final order in the rate case in the spring of
1995.
Other Information
CPL strongly believes that 100 percent of its investment in
both units of STP belong in rate base. This belief is based
on, among other factors, Units 1 and 2 providing electrical
output at or near a 100 percent level since April and June
1994, respectively. In addition, the long-term benefits
nuclear generation provides to customers further supports
their inclusion in rate base. Furthermore there are no
Texas Commission precedents addressing the removal of a
nuclear plant from rate base as a performance penalty.
Assuming both units of STP are included in rate base, CPL
believes it is not collecting excessive revenues, notwithstanding
that market rates of return on common equity are generally
lower today than they were in 1990, when CPL's base rates
were last set.
Management of CSW and CPL cannot predict the ultimate
outcome of these rate proceedings, although management
believes that their ultimate resolution will not have a
material adverse effect on CPL's or CSW's continuing
consolidated results of operations or financial condition.
However, if CPL ultimately is unsuccessful in maintaining
rates at their current level, CPL and CSW could experience
a material adverse effect on their results of operations and
financial condition.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized. The signature for each undersigned registrant
shall be deemed to relate only to matters having reference
to such registrant or its subsidiaries.
CENTRAL AND SOUTH WEST CORPORATION
Date: October 31, 1994
By: WENDY G. HARGUS
Wendy G. Hargus
Controller
CENTRAL POWER AND LIGHT COMPANY
Date: October 31, 1994
By: R. RUSSELL DAVIS
R. Russell Davis
Controller
