SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1994
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, TX 75202-1234
(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
0-343 Public Service Company of Oklahoma 73-0410895
(An Oklahoma Corporation)
212 East 6th Street
Tulsa, OK 74119-1212
(918) 599-2000
1-3146 Southwestern Electric Power Company 72-0323455
(A Delaware Corporation)
428 Travis Street
Shreveport, LA 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
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 (or for such shorter period that the registrants were
required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
Common Stock Outstanding at October 31, 1994 Shares
Central and South West Corporation 189,969,760
Central Power and Light Company 6,755,535
Public Service Company of Oklahoma 9,013,000
Southwestern Electric Power Company 7,536,640
West Texas Utilities Company 5,488,560
This combined Form 10-Q 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 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.
<PAGE> 2
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1994
Page
Number
GLOSSARY OF TERMS 3
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements. (Unaudited)
Central and South West Corporation and Subsidiary Companies
Consolidated Statements of Income 6
Consolidated Balance Sheets 7 - 8
Consolidated Statements of Cash Flows 9
Results of Operations 10 - 11
Central Power and Light Company
Statements of Income 13
Balance Sheets 14 - 15
Statements of Cash Flows 16
Results of Operations 17 - 19
Public Service Company of Oklahoma
Consolidated Statements of Income 21
Consolidated Balance Sheets 22 - 23
Consolidated Statements of Cash Flows 24
Results of Operations 25 - 26
Southwestern Electric Power Company
Statements of Income 28
Balance Sheets 29 - 30
Statements of Cash Flows 31
Results of Operations 32 - 33
West Texas Utilities Company
Statements of Income 35
Balance Sheets 36 - 37
Statements of Cash Flows 38
Results of Operations 39 - 40
Notes to Financial Statements 41 - 50
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations. 51 - 54
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 55 - 56
Item 2. Changes in Securities. Inapplicable
Item 3. Defaults Upon Senior Securities. Inapplicable
Item 4. Submission of Matters to a Vote of Security-Holders. Inapplicable
Item 5. Other Information. 56 - 61
Item 6. Exhibits and Reports on Form 8-K. 62, 64 - 68
Signatures. 63
<PAGE> 3
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this text are defined below:
Abbreviation or Acronym Definition
APS............... Arizona Public Service Company
Bankruptcy Court.. United States Bankruptcy Court for the Western
District of Texas, Austin Division,
before which the El Paso bankruptcy
reorganization proceeding, Case No.
92-10148-FM, is pending
BREMCO............ Bossier Rural Electric Membership Corporation
Btu............... British thermal unit
Cimmaron.......... Cimmaron Chemical Company
Cities............ Several cities in CPL's service territory
CPL............... Central Power and Light Company, Corpus
Christi, Texas
CSW............... Central and South West Corporation, Dallas,
Texas
CSW Common........ Central and South West Corporation common
stock, $3.50 par value per share
CSWE.............. CSW Energy, Inc., Dallas, Texas
CSWS.............. Central and South West Services, Inc., Tulsa,
Oklahoma
CSW System........ Central and South West Corporation and its
subsidiaries
CWIP.............. Construction work in progress
Effective Date.... The effective date of the Modified Plan
Electric Operating
Companies...... CPL, PSO, SWEPCO and WTU
El Paso........... El Paso Electric Company
El Paso Common.... El Paso common stock, no par value
EPA............... Environmental Protection Agency
ERCOT............. Electric Reliability Council of Texas
FPA............... Federal Power Act
FERC.............. Federal Energy Regulatory Commission
FUSER............. Fuel Supply Electricity Rider
HLP............... Houston Lighting & Power Company
Kv................ Kilovolt
Kwh............... Kilowatt-hour
Las Cruces........ City of Las Cruces, New Mexico
Merger............ The proposed merger whereby El Paso would
become a wholly owned subsidiary of CSW
Merger Agreement.. Agreement and Plan of Merger between El Paso
and CSW, dated as of May 8, 1993, as amended
Modified Plan..... Modified Third Amended Plan of Reorganization
Mw................ Megawatt
NEIL.............. Nuclear Electric Insurance Limited
New Mexico
Commission........ New Mexico Public Utility Commission
NRC............... Nuclear Regulatory Commission
O&M............... Operations and Maintenance
Oklahoma
Commission........ Corporation Commission of the State of
Oklahoma
Oklaunion......... Oklaunion Power Station Unit No. 1
OPEB.............. Other post employment benefits
OPUC.............. Office of Public Utility Counsel
Palo Verde........ Palo Verde Nuclear Generating Station
PCB............... Polychlorinated biphenyl
PRP............... Potentially Responsible Party
PSO............... Public Service Company of Oklahoma, Tulsa,
Oklahoma
Rate Order........ 1987 Texas Commission Final Order
SEC............... Securities and Exchange Commission
SFAS.............. Statement of Financial Accounting Standards
SPS............... Southwestern Public Service Company
Staff............. Staff of the Texas Commission
STP............... South Texas Project nuclear electric
generating station
SWEPCO............ Southwestern Electric Power Company,
Shreveport, Louisiana
Texas Commission.. Public Utility Commission of Texas
TIEC.............. Texas Industrial Energy Consumers
TNRCC............. Texas Natural Resource Conservation Commission
Transok........... Transok, Inc. and subsidiaries, Tulsa,
Oklahoma
WTU............... West Texas Utilities Company, Abilene, Texas
<PAGE> 4
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
<PAGE> 5
CENTRAL AND SOUTH WEST CORPORATION
AND SUBSIDIARY COMPANIES
<PAGE> 6
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(restated) (restated)
(Millions, except per share amounts)
OPERATING REVENUES $ 1,070 $ 1,140 $ 2,828 $ 2,844
OPERATING EXPENSES AND TAXES
Fuel and purchased power 338 389 918 924
Gas purchased for resale 53 83 223 293
Other operating 170 169 505 503
Maintenance 39 44 125 133
Depreciation and amortization 89 85 265 242
Taxes, other than Federal income 53 55 153 144
Federal income taxes 89 96 150 145
831 921 2,339 2,384
OPERATING INCOME 239 219 489 460
OTHER INCOME AND DEDUCTIONS
Mirror CWIP liability amortization 17 19 51 57
Other 10 12 20 11
27 31 71 68
INCOME BEFORE INTEREST CHARGES 266 250 560 528
INTEREST CHARGES
Interest on long-term debt 56 53 164 165
Interest on short-term debt and other 21 16 52 40
77 69 216 205
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 189 181 344 323
Cumulative effect of changes in
accounting principles - - - 46
NET INCOME 189 181 344 369
Preferred stock dividends 5 5 14 14
NET INCOME FOR COMMON STOCK $ 184 $ 176 $ 330 $ 355
AVERAGE COMMON SHARES OUTSTANDING 189.6 188.4 189.1 188.4
EARNINGS PER SHARE OF COMMON STOCK
BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES $ 0.97 $ 0.93 $ 1.75 $ 1.64
CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES - - - .24
EARNINGS PER SHARE OF COMMON STOCK $ 0.97 $ 0.93 $ 1.75 $ 1.88
DIVIDENDS PAID PER SHARE OF COMMON
STOCK $ 0.425 $ 0.405 $ 1.275 $ 1.215
The accompanying notes to consolidated financial statements as they relate
to CSW are an integral part of these statements.
<PAGE> 7
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Millions)
ASSETS
PLANT
Electric Utility
Production $ 5,794 $ 5,775
Transmission 1,355 1,228
Distribution 2,480 2,362
General 756 709
Construction work in progress 352 371
Nuclear fuel 161 160
Gas 800 752
11,698 11,357
Less - Accumulated depreciation 3,792 3,550
7,906 7,807
CURRENT ASSETS
Cash and temporary cash investments 34 62
Accounts receivable 937 813
Materials and supplies, at average cost 154 149
Fuel inventory, substantially at average cost 91 102
Gas inventory/products for resale 24 28
Unrecovered fuel cost 74 70
Prepayments and other 79 55
1,393 1,279
DEFERRED CHARGES AND OTHER ASSETS
Deferred plant costs 516 518
Mirror CWIP asset 324 332
Other non-utility investments 333 253
Income tax related regulatory assets 209 182
Other 295 252
1,677 1,537
$ 10,976 $ 10,623
The accompanying notes to consolidated financial statements as they relate
to CSW are an integral part of these statements.
<PAGE> 8
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Millions)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $3.50 par value, authorized
350,000,000 shares in 1994 and 1993, issued
and outstanding 189,901,114 shares in 1994
and 188,404,546 shares in 1993 $ 665 $ 659
Paid-in capital 547 518
Retained earnings 1,841 1,753
Total Common Stock Equity 3,053 2,930
Preferred stock
Not subject to mandatory redemption 292 292
Subject to mandatory redemption 35 58
Long-term debt 2,886 2,749
Total Capitalization 6,266 6,029
CURRENT LIABILITIES
Long-term debt/preferred stock due within
twelve months 11 26
Short-term debt 739 769
Short-term debt - CSW Credit, Inc. 808 641
Accounts payable 244 306
Accrued taxes 177 98
Accrued interest 70 55
Accrued restructuring charges 42 97
Other 157 168
2,248 2,160
DEFERRED CREDITS
Income taxes 2,040 1,935
Investment tax credits 324 335
Mirror CWIP liability and other 98 164
2,462 2,434
$ 10,976 $ 10,623
The accompanying notes to consolidated financial statements as they relate
to CSW are an integral part of these statements.
<PAGE> 9
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1994 1993
(restated)
(Millions)
OPERATING ACTIVITIES
Net Income $ 344 $ 369
Non-cash Items Included in Net Income
Depreciation and amortization 298 272
Deferred income taxes and investment tax credits 49 104
Cumulative effect of changes in accounting principles - (46)
Mirror CWIP liability amortization (51) (57)
Changes in Assets and Liabilities
Accounts receivable (57) (138)
Unrecovered fuel costs/fuel refunds due customers 13 (60)
Accrued restructuring charges (28) -
Accounts payable (72) 20
Accrued taxes 79 81
Other (45) 82
530 627
INVESTING ACTIVITIES
Capital expenditures and acquisitions (414) (406)
Non-affiliated accounts receivable purchases (124) (443)
CSWE projects (25) (141)
Other (10) (9)
(573) (999)
FINANCING ACTIVITIES
Common stock sold 35 -
Proceeds from issuance of long-term debt 147 780
Redemption of preferred stock (33) (17)
Retirement of long-term debt (2) (50)
Reacquisition of long-term debt (14) (922)
Change in short-term debt 137 562
Special deposits for reacquisition of long-term debt - 199
Payment of dividends (255) (242)
15 310
NET CHANGE IN CASH AND CASH EQUIVALENTS (28) (62)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 62 110
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34 $ 48
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $ 194 $ 200
Income taxes paid $ 40 $ 6
The accompanying notes to consolidated financial statements as they relate
to CSW are an integral part of these statements.
<PAGE> 10
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
Set forth below is information concerning the consolidated
results of operations for CSW for the three month and nine month
periods ending September 30, 1994. For information concerning the
results of operations for each of the Electric Operating Companies,
see the discussions below under the heading RESULTS OF OPERATIONS
following the financial statements of each of the Electric Operating
Companies.
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1993
Net Income for Common Stock. Net income for common stock
increased 5% during the third quarter of 1994 to $184 million from
$176 million in 1993. Earnings per share increased to $0.97 from
$0.93. The increase in earnings was the result of a 3.3% increase in
kilowatt hour sales due primarily to more favorable weather in 1994
and customer growth.
Operating Revenues. Operating revenues decreased $70 million or
6% during the third quarter of 1994 when compared to the third quarter
of 1993. This decrease was due to lower fuel revenue resulting from
decreased fuel expense, partially offset by increased base revenue.
Fuel and Purchased Power. Total fuel and purchased power expense
decreased $51 million or 13% in the third quarter of 1994, compared to
1993. Total fuel expense decreased $48 million due primarily to
increased generation by STP. The composite unit cost of fuel
decreased to $1.74 per million Btu from $2.15 per million Btu,
reflecting lower gas and coal prices and increased use of less
expensive nuclear fuel. Purchased power decreased $3 million or 21%
in the third quarter of 1994 as compared to the prior period due to
increased generation from STP Units 1 and 2 which provided power that
had been purchased during the third quarter of 1993 when STP was out
of service.
Gas Purchased for Resale. Gas purchased for resale decreased $30
million or 36%. This decrease was due to a lower average cost of gas.
Maintenance. Maintenance decreased $5 million or 11% due to
lower levels of maintenance activity at the Electric Operating
Companies and due to a lower level of maintenance associated with STP.
Expenditures for maintenance at STP were lower than expenditures
during the same period in 1993 but are expected to remain at higher
levels than before the STP outage.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Net Income for Common Stock. Net income for common stock
decreased $25 million or 7% for the nine months ended September 30,
1994 as compared to the nine months ended September 30, 1993.
Earnings per share decreased to $1.75 in 1994 as compared to $1.88 for
1993. This decrease is due primarily to the effect of recording
several accounting changes in the first quarter of 1993 which
increased earnings by $46 million. On an operating basis, net income
increased $21 million or 7% due primarily to a 5.7% increase in Kwh
sales in 1994 over 1993 levels.
Gas Purchased for Resale. Gas purchased for resale decreased $70
million or 24%. This decrease was due to a lower average cost of gas
and lower levels of gas purchases.
<PAGE> 11
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS (continued)
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (continued)
Depreciation and Amortization. Depreciation and amortization
increased $23 million or 10% due to increased levels of depreciable
property resulting from the addition of transmission and distribution
capital assets at the Electric Operating Companies and the
construction of additional pipeline by Transok. Capital expenditures
in 1995 are expected to be lower than 1994, which should result in a
lower rate of growth in depreciation and amortization expense.
Taxes, Other than Federal Income. Taxes, other than Federal
income increased $9 million or 6%, primarily as a result of increasing
ad valorem taxes, partially offset by a state franchise tax refund
applicable to prior years' taxes.
Other Income. Other income increased $9 million or 82% due
primarily to an income statement reclassification of amortization of a
subsidiary's investment from other income to amortization.
Interest on Short-Term Debt. Interest on short-term debt
increased $12 million or 30% due to increased corporate borrowing to
fund CSWE and other corporate initiatives and increases in short-term
interest rates. Average short-term borrowing rates have increased
approximately 2% since the beginning of 1994.
Cumulative Effect of Changes in Accounting Principles.
Accounting changes in 1993 include the adoption of SFAS No. 109,
Accounting for Income Taxes, and SFAS No. 112, Employers' Accounting
for Postemployment Benefits. The Electric Operating Companies also
changed their method of accounting for unbilled revenues. These
accounting changes had a cumulative effect of increasing net income by
$46 million for the nine months ended September 30, 1993.
<PAGE> 12
CENTRAL POWER AND LIGHT COMPANY
<PAGE> 13
CENTRAL POWER AND LIGHT COMPANY
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(restated) (restated)
(Thousands)
ELECTRIC OPERATING REVENUES $364,044 $387,190 $960,442 $941,497
OPERATING EXPENSES AND TAXES
Fuel 94,015 112,301 260,091 265,198
Purchased power 9,834 20,655 39,682 51,502
Other operating 58,510 55,515 168,191 160,642
Maintenance 15,050 18,431 52,778 56,488
Depreciation and amortization 35,455 33,398 104,695 98,375
Taxes, other than Federal income 18,811 18,976 60,128 55,551
Federal income taxes 36,307 39,476 66,802 58,965
267,982 298,752 752,367 746,721
OPERATING INCOME 96,062 88,438 208,075 194,776
OTHER INCOME AND DEDUCTIONS
Allowance for equity funds used
during construction 492 315 468 380
Mirror CWIP liability amortization 17,000 18,926 51,000 56,777
Other (40) (249) 1,350 482
17,452 18,992 52,818 57,639
INCOME BEFORE INTEREST CHARGES 113,514 107,430 260,893 252,415
INTEREST CHARGES
Interest on long-term debt 28,567 27,219 83,199 86,204
Interest on short-term debt
and other 2,830 2,957 9,218 8,990
Allowance for borrowed funds used
during construction (760) (358) (1,857) (915)
30,637 29,818 90,560 94,279
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 82,877 77,612 170,333 158,136
Cumulative Effect of Changes in
Accounting Principles - - - 27,715
NET INCOME 82,877 77,612 170,333 185,851
Preferred stock dividends 3,385 3,461 10,484 10,494
NET INCOME FOR COMMON STOCK $ 79,492 $ 74,151 $159,849 $175,357
The accompanying notes to financial statements as they relate
to CPL are an integral part of these statements.
<PAGE> 14
CENTRAL POWER AND LIGHT COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Thousands)
ASSETS
ELECTRIC UTILITY PLANT
Production $3,066,065 $3,061,911
Transmission 446,944 351,584
Distribution 815,931 765,266
General 216,801 209,170
Construction work in progress 112,683 168,421
Nuclear fuel 160,662 160,326
4,819,086 4,716,678
Less - Accumulated depreciation
and amortization 1,362,978 1,263,372
3,456,108 3,453,306
CURRENT ASSETS
Cash and temporary cash investments 503 2,435
Accounts receivable 9,081 23,850
Materials and supplies, at average cost 64,598 64,359
Fuel inventory, at average cost 24,344 16,934
Accumulated deferred income taxes - 4,831
Unrecovered fuel costs 74,816 52,959
Prepayments and other 4,933 4,222
178,275 169,590
DEFERRED CHARGES AND OTHER ASSETS
Deferred STP costs 489,187 489,773
Mirror CWIP asset 324,330 331,845
Income tax related regulatory assets 286,389 226,597
Other 70,083 70,634
1,169,989 1,158,849
$4,804,372 $4,781,745
The accompanying notes to financial statements as they relate
to CPL are an integral part of these statements.
<PAGE> 15
CENTRAL POWER AND LIGHT COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $25 par value, authorized
12,000,000 shares; issued and
outstanding 6,755,535 shares $ 168,888 $ 168,888
Paid-in capital 405,000 405,000
Retained earnings 943,680 850,307
Total Common Stock Equity 1,517,568 1,424,195
Preferred stock
Not subject to mandatory redemption 250,351 250,351
Subject to mandatory redemption - 22,021
Long-term debt 1,465,017 1,362,799
TOTAL CAPITALIZATION 3,232,936 3,059,366
CURRENT LIABILITIES
Long-term debt and preferred stock
due within twelve months 492 3,928
Advances from affiliates 30,303 171,165
Accounts payable 59,597 79,604
Accrued taxes 68,066 33,769
Accrued interest 39,293 24,683
Accrued restructuring charges 12,641 29,365
Accumulated deferred income taxes 5,721 -
Other 31,876 28,020
247,989 370,534
DEFERRED CREDITS
Income taxes 1,099,405 1,057,453
Investment tax credits 159,980 164,322
Mirror CWIP liability and other 64,062 130,070
1,323,447 1,351,845
$4,804,372 $4,781,745
The accompanying notes to financial statements as they relate
to CPL are an integral part of these statements.
<PAGE> 16
CENTRAL POWER AND LIGHT COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1994 1993
(restated)
(Thousands)
OPERATING ACTIVITIES
Net Income $170,333 $185,851
Non-cash Items Included in Net Income
Depreciation and amortization 124,829 105,231
Deferred income taxes and
investment tax credits 28,370 77,598
Mirror CWIP liability amortization (51,000) (56,777)
Cumulative effect of changes in
accounting principles - (27,295)
Changes in Assets and Liabilities
Accounts receivable 14,769 6,984
Fuel inventory (7,410) 14,908
Accounts payable (13,712) 14,829
Accrued taxes 34,297 (1,693)
Unrecovered fuel costs (21,857) (55,232)
Accrued restructuring charges (8,637) -
Other (3,031) (27,885)
266,951 236,519
INVESTING ACTIVITIES
Construction expenditures (121,636) (97,939)
Other (1,857) (915)
(123,493) (98,854)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 99,190 441,131
Retirement of long-term debt (459) -
Reacquisition of long-term debt (618) (574,207)
Retirement of preferred stock (27,021) (6,577)
Special deposits for reacquisition of
long-term debt - 145,482
Change in advances from affiliates (140,862) (30,230)
Payment of dividends (75,620) (115,806)
(145,390) (140,207)
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,932) (2,542)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,435 3,666
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 503 $ 1,124
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $ 71,543 $ 87,607
Income taxes paid/(refunded) $ 2,547 $ (5,870)
The accompanying notes to financial statements as they relate
to CPL are an integral part of these statements.
<PAGE> 17
CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1993
Net Income for Common Stock. Net income for common stock
increased 7.2% during the third quarter of 1994 to $79.5 million from
$74.2 million in the same quarter of 1993. The increase was due
primarily to increased base revenues and decreased STP maintenance
expenses. Partially offsetting the effects of the above items were
decreased unbilled revenues, additional depreciation and amortization
and a decline in Mirror CWIP liability amortization. Unbilled
revenues represent electricity used by customers but not yet billed.
Electric Operating Revenues. Total operating revenues for the
third quarter of 1994 decreased $23.1 million or 6.0% from the same
period last year. The decrease reflects a $7.2 million decrease in
unbilled revenues and a decrease in fuel-related revenues of $28.9
million, offset in part by an increase in base revenue of $5.8
million. Fuel-related revenues were down because of the decline in
the average unit cost of fuel and purchased power costs, as discussed
below. Total Kwh sales were up 8.5%, which reflected growth in retail
sales of 6.3% and a 49.9% increase in lower margin sales for resale.
A 5.4% increase in residential sales and a 9.5% increase in commercial
sales reflected continued customer growth and warmer summer weather.
Industrial sales were up 5.2% primarily as a result of increased
demand in the petrochemical and petroleum industries.
Fuel. The 16.3% decrease in fuel expense is attributable to the
lower average unit cost of fuel, including increased use of nuclear
fuel. The average unit cost for the third quarter of 1994 was $1.67
per million Btu, down from $2.22 per million Btu for the same period
last year. The decline in the average unit fuel costs reflects the
lower unit cost of nuclear fuel since STP Units 1 and 2 restarted and
reached the 100 percent output level in April and June of 1994,
respectively. STP Units 1 and 2 had not operated at full capacity
since February 1993 as discussed in Note 2 of the Notes to Financial
Statements.
Purchased Power. Purchased power decreased $10.8 million for the
third quarter of 1994 when compared to the same quarter of 1993. This
was a result of increased nuclear generation at STP that replaced
purchases.
Other Operating. Other operating expenses increased $3.0 million
for the third quarter of 1994 when compared to the same quarter of 1993.
This was due primarily to an increase in administrative and general
expenses.
Maintenance. Maintenance expense decreased $3.4 million for the
third quarter of 1994 when compared to the same quarter of 1993, due
primarily to a decrease in maintenance activities at STP. The decline
reflects the higher maintenance expense in 1993 associated with the
STP outage, as discussed in Note 2 of the Notes to Financial
Statements. Maintenance expense at STP, while lower than 1993, is
expected to remain higher than the levels incurred prior to the STP
outage.
Depreciation and Amortization. Depreciation and amortization
increased $2.1 million due primarily to the addition of transmission
and distribution capital assets and to a decline in amortization
credits related to power plant inventory.
Federal Income Taxes. The decrease in Federal income taxes is
due primarily to prior year tax adjustments.
<PAGE> 18
CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS (continued)
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1993 (continued)
Mirror CWIP Liability Amortization. This amortization has
decreased from the same period in 1993 because CPL is amortizing its
Mirror CWIP liability, in declining amounts, over the years 1991
through 1995.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Net Income for Common Stock. Net income for common stock
decreased 8.8% during the first nine months of 1994 to $159.8 million
from $175.4 million in the same period of 1993. The decline was due
primarily to the restatement of 1993 earnings to reflect a $27.7
million increase in 1993 net income attributable to the cumulative
effect of changes in accounting principles. Increased administrative
and general expenses, additional depreciation and amortization, higher
ad valorem taxes, and a decline in Mirror CWIP liability amortization
also contributed to the decline.
Electric Operating Revenues. Total operating revenues for the
first nine months of 1994 increased $18.9 million or 2.0% over the
same period last year. The increase reflects greater base revenues of
$34.1 million. Total Kwh sales were up 9.3%, reflecting growth in
retail sales of 7.8% and a 39.1% increase in lower margin sales for
resale. A 7.3% increase in residential sales and a 5.8% increase in
commercial sales resulted from continued customer growth and warmer
spring and summer weather. Industrial sales were up 9.8% as a result
of higher demand in the petrochemical and petroleum industries.
Decreased fuel-related revenues of $15.1 million partially offset the
increase. Fuel-related revenues were down because of the decline in
the average unit cost of fuel and purchased power costs, as discussed
below.
Fuel. The 1.9% decrease in fuel expense is attributable to the
lower average unit cost of fuel. The average unit cost for the first
nine months of 1994 was $1.88 per million Btu down from $2.17 per
million Btu for the same period last year. The decline in the average
unit fuel cost reflects the lower unit cost of nuclear fuel since STP
Units 1 and 2 restarted and reached the 100 percent output level in
April and June of 1994, respectively. STP Units 1 and 2 had not
operated at full capacity since February 1993 as discussed in Note 2
of the Notes to Financial Statements.
Purchased Power. Purchased power decreased $11.8 million for the
first nine months of 1994 when compared to the same period last year.
This was a result of increased nuclear generation at STP that replaced
purchases.
Other Operating. Other operating expenses increased $7.5 million
for the first nine months of 1994 when compared to the same period
last year. This was due primarily to an increase in administrative
and general expenses.
Depreciation and Amortization. Depreciation and amortization
increased $6.3 million due primarily to the addition of transmission
and distribution capital assets and to a decline in amortization
credits related to power plant inventory.
Taxes, Other than Federal Income. Taxes, other than Federal
income increased $4.6 million primarily as a result of increased ad
valorem taxes, partially offset by a state franchise tax refund
applicable to prior years' taxes.
<PAGE> 19
CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS (continued)
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(continued)
Federal Income Taxes. The increase in Federal income taxes is
due primarily to the increase in pre-tax income.
Mirror CWIP Liability Amortization. This amortization has
decreased from the same period in 1993 because CPL is amortizing its
Mirror CWIP liability, in declining amounts, over the years 1991
through 1995.
Interest Charges. Total interest expense decreased $3.7 million
or 3.9% due primarily to CPL's refinancing of higher cost long-term
debt with lower cost debt.
Cumulative Effect of Changes in Accounting Principles.
Accounting changes in 1993 include the adoption of SFAS No. 109,
Accounting for Income Taxes, and SFAS No. 112, Employers' Accounting
for Postemployment Benefits. CPL also changed its method of
accounting for unbilled revenues. These accounting changes had a
cumulative effect of increasing net income by approximately $27.3
million for the nine months ended September 30, 1993.
<PAGE> 20
PUBLIC SERVICE COMPANY OF OKLAHOMA
<PAGE> 21
PUBLIC SERVICE COMPANY OF OKLAHOMA
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(restated) (restated)
(Thousands)
ELECTRIC OPERATING REVENUES $246,378 $242,871 $578,517 $549,218
OPERATING EXPENSES AND TAXES
Fuel 105,258 100,376 246,805 227,521
Purchased power 5,256 7,255 28,093 22,482
Other operating 32,881 28,560 92,696 88,050
Maintenance 10,275 10,884 27,719 30,423
Depreciation and amortization 15,679 18,302 46,686 45,547
Taxes, other than Federal income 10,384 10,971 24,971 23,289
Federal income taxes 19,449 20,302 28,115 29,438
199,182 196,650 495,085 466,750
OPERATING INCOME 47,196 46,221 83,432 82,468
OTHER INCOME AND DEDUCTIONS
Allowance for equity funds used
during construction 151 84 390 489
Other 411 179 519 312
562 263 909 801
INCOME BEFORE INTEREST CHARGES 47,758 46,484 84,341 83,269
INTEREST CHARGES
Interest on long-term debt 7,399 7,411 22,196 24,011
Interest on short-term debt
and other 759 692 2,972 2,017
Allowance for borrowed funds used
during construction (403) (260) (1,063) (895)
7,755 7,843 24,105 25,133
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 40,003 38,641 60,236 58,136
Cumulative Effect of Changes in
Accounting Principles - - - 6,223
NET INCOME 40,003 38,641 60,236 64,359
Preferred stock dividends 204 204 612 612
NET INCOME FOR COMMON STOCK $ 39,799 $ 38,437 $ 59,624 $ 63,747
The accompanying notes to consolidated financial statements as they relate
to PSO are an integral part of these statements.
<PAGE> 22
PUBLIC SERVICE COMPANY OF OKLAHOMA
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Thousands)
ASSETS
ELECTRIC UTILITY PLANT
Production $ 898,754 $ 895,315
Transmission 344,416 335,405
Distribution 648,314 626,519
General 149,754 143,834
Construction work in progress 78,828 51,931
2,120,066 2,053,004
Less - Accumulated depreciation 846,726 806,066
1,273,340 1,246,938
CURRENT ASSETS
Cash and temporary cash investments 5,595 2,429
Accounts receivable 20,999 36,612
Materials and supplies, at average cost 37,421 38,212
Fuel inventory, at LIFO cost 12,945 21,273
Accumulated deferred income taxes 10,212 -
Prepayments 12,752 2,755
99,924 101,281
DEFERRED CHARGES AND OTHER ASSETS 68,848 72,160
$1,442,112 $1,420,379
The accompanying notes to consolidated financial statements as they relate
to PSO are an integral part of these statements.
<PAGE> 23
PUBLIC SERVICE COMPANY OF OKLAHOMA
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $15 par value, authorized
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 130,443 97,819
Total Common Stock Equity 467,673 435,049
Preferred stock 19,826 19,826
Long-term debt 402,378 401,255
TOTAL CAPITALIZATION 889,877 856,130
CURRENT LIABILITIES
Advances from affiliates 10,355 31,744
Payables to affiliates 22,694 18,218
Accounts payable 35,238 55,606
Payables to customers 24,395 13,932
Accrued taxes 39,429 15,191
Accrued interest 10,406 5,382
Accumulated deferred income taxes - 3,633
Accrued restructuring charges 10,253 24,995
Other 22,027 37,303
174,797 206,004
DEFERRED CREDITS
Income taxes 279,493 260,490
Investment tax credits 49,708 51,800
Income tax related regulatory liabilities 19,749 21,178
Other 28,488 24,777
377,438 358,245
$1,442,112 $1,420,379
The accompanying notes to consolidated financial statements as they relate
to PSO are an integral part of these statements.
<PAGE> 24
PUBLIC SERVICE COMPANY OF OKLAHOMA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1994 1993
(restated)
(Thousands)
OPERATING ACTIVITIES
Net Income $ 60,236 $ 64,358
Non-cash Items Included in Net Income
Depreciation and amortization 50,471 50,102
Deferred income taxes and
investment tax credits 1,637 11,352
Cumulative effect of changes in
accounting principles - (6,223)
Allowance for equity funds used
during construction (390) (489)
Changes in Assets and Liabilities
Accounts receivable 15,613 (448)
Materials and supplies 9,119 14,049
Accounts payable 4,812 (456)
Accrued taxes 24,238 22,645
Accrued restructuring charges (6,449) -
Other (18,300) (10,030)
140,987 144,860
INVESTING ACTIVITIES
Construction expenditures (86,360) (66,252)
Allowance for borrowed funds used during
construction (1,063) (895)
Other (1,397) (3,036)
(88,820) (70,183)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - 181,194
Reacquisition of long-term debt - (189,685)
Retirement of long-term debt - (10,000)
Changes in advances from affiliates (21,389) (5,290)
Payment of dividends (27,612) (21,612)
(49,001) (45,393)
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,166 29,284
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,429 815
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,595 $ 30,099
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $ 17,906 $ 27,397
Income taxes paid $ 10,106 $ 2,761
The accompanying notes to consolidated financial statements as they relate
to PSO are an integral part of these statements.
<PAGE> 25
PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1993
Net Income for Common Stock. Net income for common stock for
the third quarter of 1994 was $39.8 million, an increase of
approximately $1.4 million or 4% from the same period of 1993. The
increase was due primarily to increased revenues and a decrease in
depreciation and amortization expenses which are discussed below.
Electric Operating Revenues. Revenues increased approximately
$3.5 million or 1% for the third quarter of 1994 when compared to the
same period of 1993 due primarily to increased fuel recovery and
increased unbilled revenues. Unbilled revenues represent electricity
used by customers, but not yet billed. PSO recovers its monthly fuel
and purchased power expenses currently in its revenues, and therefore
the net increase in these costs resulted in higher revenues. Also
affecting revenues was an increase in sales for resale to other
electric utilities due to increased market place demand offset in
part by a 1% decrease in retail Kwh sales as a result of decreased
weather related demand.
Fuel. Fuel expense increased approximately $4.9 million or 5%
primarily as a result of an over-recovery of fuel costs from
customers, which was previously recorded as deferred fuel expense and
an 11% increase in Kwh generation. Kwh generation was affected by
the decrease in power purchases as discussed below. Also
contributing to the increase was the termination, effective October
1, 1993, of customers participating in the FUSER program, which
previously allowed direct purchases of gas by certain classes of
customers. See "ITEM 1. BUSINESS -- REGULATION AND RATES" in PSO's
1993 Annual Report on Form 10-K for additional information relating
to the FUSER program. These increases were partially offset by a
reduction in unit fuel costs. The average unit fuel cost for the
quarter was $1.88 per million Btu, a decrease of approximately 22%
from the same period last year. The decrease in per unit fuel costs
reflects lower costs for natural gas and coal. See Part II - OTHER
INFORMATION - Item 1. Legal Proceedings for additional information
related to coal transportation.
Purchased Power. The decrease in purchased power expense of
approximately $2 million or 28% is primarily a result of decreased
purchases of economy energy.
Other Operating. Other operating expenses increased
approximately $4.3 million or 15% due primarily to additional
restructuring expenses due to changes in the original estimated cost,
and increased employee benefit expenses.
Depreciation and Amortization. The decrease in depreciation and
amortization expense of $2.6 million or 14% is due primarily to a
change in the procedure of allocating annual depreciation on a
monthly basis offset in part by an increase in depreciable property.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Net Income for Common Stock. Net income for common stock for
the nine months ended September 30, 1994 was $59.6 million, a
decrease of $4.1 million or 7% from the same period of 1993. The
decrease was due primarily to the restatement of 1993 earnings to
reflect a $6.2 million increase in 1993 net income due to the
cumulative effect of changes in accounting principles.
<PAGE> 26
PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS (continued)
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(continued)
Electric Operating Revenues. Revenues increased approximately
$29.3 million or 5% for the nine months ended September 30, 1994 when
compared to the same period of 1993. The increase reflected an
interim increase in retail prices effective in April 1993 and the
permanent increase in retail prices effective with the billing month
of February 1994. Kwh sales increased 6% as a result of increased
sales for resale to other electric utilities due to increased market
place demand, and lower unit fuel as described below. PSO recovers
its monthly fuel and purchased power expenses currently in its
revenues and therefore the increase in these costs as discussed below
resulted in higher revenues.
Fuel. Fuel expense increased approximately $19.3
million or 9% primarily as a result of the termination, effective
October 1, 1993, of customers participating in the FUSER program.
Fuel expense was also affected by increased Kwh generation, and an
over-recovery of fuel costs from customers, which was previously
recorded as deferred fuel expense, offset in part by a reduction in
average unit fuel costs. Kwh generation increased approximately 18%.
The average unit fuel cost for the nine months ended September 30,
1994 was $1.91 per million Btu, a decrease of approximately 17% from
the same period last year. The decrease in per unit fuel costs
reflects the reversal of prior years accruals for potential
liabilities related to coal transportation, as well as lower costs
for natural gas and coal. See Part II - OTHER INFORMATION - Item 1.
Legal Proceedings for additional information related to coal
transportation.
Purchased Power. The increase in purchased power expense of
approximately $5.6 million or 25% is primarily a result of additional
economy energy purchases in 1994.
Other Operating. Other operating expenses increased
approximately $4.6 million or 5% as a result of additional
restructuring expenses, due to changes in the original estimated cost
and increased employee benefit expenses.
Maintenance. Maintenance expenses decreased approximately $2.7
million or 9% due primarily to decreased power station boiler plant
maintenance activities and decreased tree trimming and overhead lines
maintenance activities.
Depreciation and Amortization. The increase in depreciation and
amortization expense of $1.1 million or 3% is due primarily to an
increase in depreciable property.
Federal Income Taxes. Federal Income tax expense decreased
approximately $1.3 million or 4% primarily as a result of decreased
pre-tax income.
Interest Charges. Interest charges for 1994 decreased
approximately $1 million or 4% as a result of the refinancing in 1993
of higher cost debt. This decrease is offset in part by increases in
short-term borrowings.
Cumulative Effect of Changes in Accounting Principles.
Accounting changes in 1993 include the adoption of SFAS No. 109,
Accounting for Income Taxes, and SFAS No. 112, Employers' Accounting
for Postemployment Benefits. PSO also changed its method of
accounting for unbilled revenues. These accounting changes had a
cumulative effect of increasing net income by approximately $6.2
million for the nine months ended September 30, 1993.
<PAGE> 27
SOUTHWESTERN ELECTRIC POWER COMPANY
<PAGE> 28
SOUTHWESTERN ELECTRIC POWER COMPANY
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(restated) (restated)
(Thousands)
ELECTRIC OPERATING REVENUES $245,331 $276,594 $647,524 $645,420
OPERATING EXPENSES AND TAXES
Fuel 93,229 116,374 267,732 274,283
Purchased power 6,893 4,793 15,502 9,883
Other operating 29,431 29,804 86,862 87,754
Maintenance 9,846 10,739 29,777 32,526
Depreciation and amortization 20,077 18,363 59,717 55,361
Taxes, other than Federal income 13,265 14,611 38,969 37,496
Federal income taxes 19,286 23,271 34,022 33,571
192,027 217,955 532,581 530,874
OPERATING INCOME 53,304 58,639 114,943 114,546
OTHER INCOME AND DEDUCTIONS
Allowance for equity funds used during
construction 789 358 2,193 986
Other 510 112 1,877 411
1,299 470 4,070 1,397
INCOME BEFORE INTEREST CHARGES 54,603 59,109 119,013 115,943
INTEREST CHARGES
Interest on long-term debt 10,978 9,673 32,691 30,090
Interest on short-term debt
and other 2,234 1,406 5,368 4,163
Allowance for borrowed funds used during
construction (463) (323) (1,288) (890)
12,749 10,756 36,771 33,363
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 41,854 48,353 82,242 82,580
Cumulative Effect of Changes in
Accounting Principles - - - 3,405
NET INCOME 41,854 48,353 82,242 85,985
Preferred stock dividends 840 840 2,521 2,521
NET INCOME FOR COMMON STOCK $ 41,014 $ 47,513 $ 79,721 $ 83,464
The accompanying notes to financial statements as they relate
to SWEPCO are an integral part of these statements.
<PAGE> 29
SOUTHWESTERN ELECTRIC POWER COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Thousands)
ASSETS
ELECTRIC UTILITY PLANT
Production $1,401,336 $1,392,058
Transmission 371,004 350,625
Distribution 712,079 678,788
General 211,252 188,193
Construction work in progress 132,873 126,258
2,828,544 2,735,922
Less - Accumulated depreciation
and amortization 1,005,789 947,792
1,822,755 1,788,130
CURRENT ASSETS
Cash and temporary cash investments 6,362 6,723
Accounts receivable 70,413 24,363
Materials and supplies, at average cost 25,853 25,218
Fuel inventory, at average cost 37,777 49,487
Accumulated deferred income taxes 13,770 3,912
Prepayments and other 14,442 14,965
168,617 124,668
DEFERRED CHARGES AND OTHER ASSETS 55,568 55,487
$2,046,940 $1,968,285
The accompanying notes to financial statements as they relate
to SWEPCO are an integral part of these statements.
<PAGE> 30
SOUTHWESTERN ELECTRIC POWER COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Thousands)
CAPITALIZATION AND LIABILITIES
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 297,831 265,071
Total Common Stock Equity 678,491 645,731
Preferred stock
Not subject to mandatory redemption 16,032 16,032
Subject to mandatory redemption 34,828 36,028
Long-term debt 594,935 602,065
TOTAL CAPITALIZATION 1,324,286 1,299,856
CURRENT LIABILITIES
Long-term debt and preferred stock
due within twelve months 9,467 5,028
Advances from affiliates 5,150 27,864
Accounts payable 53,937 41,598
Fuel refund due customers 11,144 2,358
Customer deposits 13,860 14,244
Accrued taxes 59,918 27,340
Accrued interest 13,304 17,354
Accrued restructuring charges 10,943 25,203
Other 18,225 30,499
195,948 191,488
DEFERRED CREDITS
Income taxes 351,971 332,522
Investment tax credits 82,150 85,301
Income tax related regulatory liabilities 47,937 52,828
Other 44,648 6,290
526,706 476,941
$2,046,940 $1,968,285
The accompanying notes to financial statements as they relate
to SWEPCO are an integral part of these statements.
<PAGE> 31
SOUTHWESTERN ELECTRIC POWER COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1994 1993
(restated)
(Thousands)
OPERATING ACTIVITIES
Net Income $ 82,242 $85,985
Non-cash Items Included in Net Income
Depreciation and amortization 66,860 71,642
Deferred income taxes and
investment tax credits 1,549 6,683
Cumulative effect of changes in
accounting principles - (3,405)
Allowance for equity funds used during
construction (2,193) (986)
Changes in Assets and Liabilities
Accounts receivable (46,050) 2,619
Fuel inventory 11,710 21,796
Accounts payable 12,339 20,350
Accrued taxes 32,578 38,658
Unrecovered fuel/Fuel refund due customers 8,786 (2,500)
Accrued restructuring charges (6,666) -
Other 14,355 2,458
175,510 243,300
INVESTING ACTIVITIES
Construction expenditures (94,715) (127,312)
Allowance for borrowed funds used during
construction (1,288) (890)
Other (3,160) (2,989)
(99,163) (131,191)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - 98,168
Change in advances from affiliates (22,714) (20,014)
Retirement of long-term debt (1,559) (39,497)
Reacquisition of long-term debt (1,713) (154,960)
Redemption of preferred stock (1,200) -
Special deposits for reacquisition of
long-term debt - 53,500
Payment of dividends (49,522) (47,549)
(76,708) (110,352)
NET CHANGE IN CASH AND CASH EQUIVALENTS (361) 1,757
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,723 1,059
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,362 $ 2,816
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $ 39,141 $ 37,655
Income taxes paid $ 13,030 $ 2,784
The accompanying notes to financial statements as they relate
to SWEPCO are an integral part of these statements.
<PAGE> 32
SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1993
Net Income for Common Stock. Net income for common stock
decreased 13% to approximately $41 million for the third quarter of
1994 as compared to the same period of 1993. The decrease was due
primarily to a reduction in base revenue.
Electric Operating Revenues. Operating revenues decreased
approximately $31.3 million or 11% due primarily to decreased fuel
revenues and a decrease in unbilled revenues. Unbilled revenues
represent electricity used by customers but not yet billed. Also
affecting revenues was a decrease in sales for resale to other
electric utilities due to decreased market place demand.
Fuel. Fuel expense decreased approximately $23.1 million or 20%
due primarily to a 9% decrease in generation and a decrease in the
average unit fuel cost per million Btu from $1.98 in 1993 to $1.74
in 1994. This decrease was due primarily to the settlement of
litigation with fuel suppliers and lower natural gas prices.
Purchased Power. Purchased power expense increased by
approximately $2.1 million in the third quarter of 1994 as compared
to the corresponding period in 1993 due to purchases under a
contract negotiated with Cajun Electric Power Cooperative, Inc. in
conjunction with SWEPCO's acquisition of BREMCO and purchases from
affiliated companies.
Depreciation and Amortization. Depreciation and amortization
expense increased 9% or approximately $1.7 million due primarily to
increases in depreciable plant.
Taxes, Other than Federal Income. The approximately $1.3
million decrease in taxes, other than Federal income was due
primarily to decreased ad valorem taxes.
Federal Income Taxes. Federal income taxes decreased
approximately $4.0 million or 17% as a result of lower pre-tax
income.
Interest on Long-Term Debt. Interest expense on long-term debt
increased approximately $1.3 million, or 13% due to an increase in
long-term debt outstanding.
Interest on Short-Term Debt and Other. Interest expense on
short-term debt and other increased due primarily to an accrual
pursuant to the terms of a settlement agreement before the Texas
Commission in connection with SWEPCO's current fuel reconciliation.
This accrual reflects interest expense on over-recovered fuel
revenues.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Net Income for Common Stock. Net income for common stock
decreased 4% for the nine months ended September 30, 1994 as
compared to the same period of 1993. This decrease was due primarily
to a restatement of 1993 results to reflect a $3.4 million increase
in 1993 net income due to the cumulative effect of changes in
accounting principles.
Electric Operating Revenues. Operating revenues increased
approximately $2.1 million due primarily to increased unbilled
revenues and an increase in sales for resale resulting from
increased market demand. Operating revenues also increased due to
the July 1993 acquisition of BREMCO.
<PAGE> 33
SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS (continued)
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(continued)
Fuel. Fuel expense decreased approximately $6.5 million or 2%
due primarily to a decrease in the average unit cost of fuel from
$1.95 per million Btu in 1993 to $1.79 per million Btu in 1994
partially offset by a 6% increase in generation. The decrease in
the average unit fuel cost was due primarily to the settlement of
litigation with fuel suppliers and lower natural gas prices.
Purchased Power. Purchased power expense increased
approximately $5.6 million as compared to the first nine months of
1993 due to purchases under a contract negotiated with Cajun
Electric Power Cooperative, Inc. in conjunction with SWEPCO's
acquisition of BREMCO and purchases from affiliated companies.
Maintenance. Maintenance decreased approximately $2.7 million
as compared to the first nine months of 1993 due primarily to a
reduction in electric plant maintenance. Maintenance in 1993 was
higher due primarily to the accrual for potential liability related
to the clean up of manufactured gas plant sites.
Taxes, Other than Federal Income. Taxes, other than Federal
income, increased approximately $1.5 million in 1994 compared to the
same period in 1993 due primarily to an increase in ad valorem
taxes.
Interest on Long-Term Debt. Interest expense on long-term debt
increased 9% or $2.6 million due primarily to an increase in long-
term debt outstanding.
Interest on Short-Term Debt and Other. Interest expense on
short-term debt and other increased due primarily to an accrual
pursuant to the terms of a settlement agreement before the Texas
Commission in connection with SWEPCO's current fuel reconciliation.
Cumulative Effect of Changes in Accounting Principles.
Accounting changes in 1993 include the adoption of SFAS 112,
Employers' Accounting for Postemployment Benefits. SWEPCO also
changed its method of accounting for unbilled revenues. These
accounting changes had a cumulative effect of increasing net income
by $3.4 million for the nine months ended September 30, 1993.
<PAGE> 34
WEST TEXAS UTILITIES COMPANY
<PAGE> 35
WEST TEXAS UTILITIES COMPANY
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(restated) (restated)
(Thousands)
ELECTRIC OPERATING REVENUES $ 109,348 $ 109,897 $ 275,683 $ 269,979
OPERATING EXPENSES AND TAXES
Fuel 32,609 41,695 103,337 103,549
Purchased power 2,386 1,343 4,424 6,273
Other operating 17,603 15,928 50,939 46,996
Maintenance 3,679 3,038 11,465 9,510
Depreciation and amortization 7,904 7,674 23,561 22,699
Taxes, other than Federal income 5,773 6,002 16,933 17,007
Federal income taxes 11,407 10,045 15,592 16,173
81,361 85,725 226,251 222,207
OPERATING INCOME 27,987 24,172 49,432 47,772
OTHER INCOME AND DEDUCTIONS
Allowance for equity used during
construction 67 11 70 39
Other 609 743 1,708 1,548
676 754 1,778 1,587
INCOME BEFORE INTEREST CHARGES 28,663 24,926 51,210 49,359
INTEREST CHARGES
Interest on long-term debt 4,744 4,802 13,871 14,428
Interest on short-term debt
and other 746 683 2,532 2,327
Allowance for borrowed funds used
during construction (98) (49) (202) (91)
5,392 5,436 16,201 16,664
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 23,271 19,490 35,009 32,695
Cumulative effect of changes in
accounting principles - - - 3,779
NET INCOME 23,271 19,490 35,009 36,474
Preferred stock dividends 84 151 386 816
NET INCOME FOR COMMON STOCK $ 23,187 $ 19,339 $ 34,623 $ 35,658
The accompanying notes to financial statements as they relate
to WTU are an integral part of these statements.
<PAGE> 36
WEST TEXAS UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Thousands)
ASSETS
ELECTRIC UTILITY PLANT
Production $ 428,093 $ 425,340
Transmission 192,412 190,300
Distribution 303,299 291,509
General 72,318 69,780
Construction work in progress 21,935 14,385
1,018,057 991,314
Less - Accumulated depreciation 358,262 337,888
659,795 653,426
CURRENT ASSETS
Cash and temporary cash investments 1,727 706
Accounts receivable 23,670 24,497
Materials and supplies, at average cost 15,414 14,451
Fuel inventory, at average cost 15,924 14,661
Accumulated deferred income taxes 6,643 1,222
Prepayments and other 1,005 450
64,383 55,987
DEFERRED CHARGES AND OTHER ASSETS
Deferred Oklaunion costs 27,119 27,735
Other 17,727 17,295
44,846 45,030
$ 769,024 $ 754,443
The accompanying notes to financial statements as they relate
to WTU are an integral part of these statements.
<PAGE> 37
WEST TEXAS UTILITIES COMPANY
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1994 1993
(Thousands)
CAPITALIZATION AND LIABILITIES
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 141,214 126,642
Total Common Stock Equity 280,664 266,092
Preferred stock 6,291 6,291
Long-term debt 218,128 176,882
TOTAL CAPITALIZATION 505,083 449,265
CURRENT LIABILITIES
Long-term debt and/or preferred stock
due within twelve months 650 17,298
Advances from affiliates 14,761 11,784
Accounts payable 19,664 51,041
Accrued taxes 18,713 14,620
Accrued interest 6,396 4,128
Accrued restructuring charges 8,139 15,250
Other 2,186 1,979
70,509 116,100
DEFERRED CREDITS
Income taxes 144,781 134,595
Income tax related regulatory liabilities 10,069 10,545
Investment tax credits 32,212 33,203
Other 6,370 10,735
193,432 189,078
$ 769,024 $ 754,443
The accompanying notes to financial statements as they relate
to WTU are an integral part of these statements.
<PAGE> 38
WEST TEXAS UTILITIES COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1994 1993
(restated)
(Thousands)
OPERATING ACTIVITIES
Net Income $ 35,009 $ 36,474
Non-cash Items Included in Net Income
Depreciation and amortization 24,925 23,860
Deferred income taxes and
investment tax credits 3,298 2,758
Cumulative effect of changes in
accounting principles - (3,779)
Changes in Assets and Liabilities
Accounts receivable 827 (1,155)
Accounts payable (31,087) (5,927)
Accrued taxes 4,093 8,209
Unrecovered fuel costs (72) (446)
Accrued restructuring charges (3,282) -
Other (6,842) (2,083)
26,869 57,911
INVESTING ACTIVITIES
Construction expenditures (29,844) (22,802)
Other (1,054) (629)
(30,898) (23,431)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 39,354 (77)
Reacquisition of long-term debt (12,127) (650)
Retirement of preferred stock (4,700) (10,000)
Change in advances from affiliates 2,977 (4,543)
Payment of dividends (20,454) (14,665)
5,050 (29,935)
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,021 4,545
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 706 1,744
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,727 $ 6,289
SUPPLEMENTARY INFORMATION
Interest paid less amounts capitalized $ 11,511 $ 10,999
Income taxes paid $ 12,720 $ 933
The accompanying notes to financial statements as they relate
to WTU are an integral part of these statements.
<PAGE> 39
WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1994 AND 1993.
Net Income for Common Stock. Net income for common stock for
the third quarter of 1994 was $23.2 million, an increase of
approximately 20% from the equivalent 1993 quarter. This increase
was due primarily to increased base revenue, partially offset by
higher operating expenses.
Electric Operating Revenues. Electric operating revenues
decreased $0.5 million or approximately 1% in the third quarter of
1994 when compared to the third quarter of 1993. This decrease was
attributable primarily to a decrease in fuel revenues and a 5%
decrease in total Kwh sales. Partially offsetting such decreases
were an increase in unbilled revenues, and a 4% increase in
higher margin retail sales due primarily to warmer weather in 1994.
Unbilled revenues represent electricity used by customers but not yet
billed.
Fuel. Fuel expense decreased $9.1 million or 22% for the third
quarter of 1994 due primarily to an 11% decrease in generation and a
decrease in average unit fuel costs from $1.92 per million Btu in
1993 to $1.65 per million Btu in 1994.
Purchased Power. Purchased power increased $1.0 million, or
78%, primarily as a result of additional economy purchases in the
third quarter of 1994 when compared to the third quarter of 1993.
Other Operating. Other operating expenses increased $1.7
million or approximately 11% in the third quarter of 1994 due
primarily to increased restructuring charges due to changes in the
original estimated cost.
Federal Income Taxes. The increase of $1.4 million or 14% in
Federal income taxes in the third quarter of 1994 was due primarily
to higher pre-tax income.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993.
Net Income for Common Stock. Net income for common stock
decreased $1.0 million or approximately 3% in the first nine months
of 1994. This decrease was due primarily to the restatement of 1993
earnings to reflect a $3.8 million increase in 1993 net income due to
the cumulative effect of changes in accounting principles. Increased
O&M expenses in 1994, partially offset by an increase in base revenue
in 1994, contributed to the decline.
Electric Operating Revenues. Electric operating revenues
increased $5.7 million or approximately 2% in the first nine months
of 1994 when compared to the equivalent period of 1993. The increase
was attributable primarily to an increase in retail Kwh sales as a
result of a warmer weather pattern in 1994 than in 1993, and an
increase in the number of retail customers, and an increase in unbilled
revenues. These increases were partially offset by a decrease in
off-system sales and an increase in unbilled revenues.
Purchased Power. Purchased power decreased $1.8 million or 30%
due primarily to a decline in economy purchases in 1994 when compared
to the first nine months of 1993.
Other Operating. Other operating expenses increased
$3.9 million or 8% for the nine months ended September 1994 compared
to the same period for 1993. This increase was due primarily to
higher production, system control, and load dispatching expenses
combined with increased restructuring charges.
Maintenance. Maintenance expense increased $2 million, or
approximately 21%, due primarily to increased boiler and electric
plant maintenance expenses.
<PAGE> 40
WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS (continued)
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (continued)
Cumulative Effect of Changes in Accounting Principles. WTU
implemented a number of accounting changes in 1993 which included
SFAS No. 112, Employers' Accounting for Postemployment Benefits. WTU
also changed its method of accounting for unbilled revenues. These
accounting changes had a cumulative effect of increasing net income
by approximately $3.8 million for the nine months ended September 30,
1993.
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF PREPARATION
CSW, CPL, PSO, SWEPCO and WTU
The condensed CSW, CPL, PSO, SWEPCO and WTU financial statements
included herein have been prepared by each registrant pursuant to the
rules and regulations of the SEC. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
each registrant believes that the disclosures are adequate to make
the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in each
registrant's Annual Report on Form 10-K for the year ended December
31, 1993 and the Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1994 and June 30, 1994.
The unaudited financial information furnished herewith reflects
all adjustments (consisting only of normal recurring adjustments,
except for the 1993 cumulative effect of changes in accounting
principles discussed below) which are, in the opinion of management
of such registrant, necessary for a fair statement of the results of
operations for the interim periods. Information for quarterly
periods is affected by seasonal variations in sales, rate changes,
timing of fuel expense recovery and other factors.
Certain financial statement items for 1993 have been
reclassified or restated to conform to the 1994 presentation.
Pursuant to changes in accounting principles made in December 1993,
but effective January 1, 1993, each registrant has restated 1993
third quarter and year-to-date information to reflect the change in
its method of accounting for unbilled revenues and restated 1993 year-
to-date information for the adoption of SFAS No. 109, Accounting for
Income Taxes and SFAS No. 112, Employers' Accounting for
Postemployment Benefits. The effect of restating net income for the
quarter ended and nine months ended September 30, 1993 is as follows:
Earnings
Operating Operating Net per Share
Revenues Income Income of Common
(millions) Stock
Period Ending September 30, 1993
CSW
Quarter - Reported $1,139 $218 $180 $0.93
Adjustment 1 1 1 -
Quarter - Restated $1,140 $219 $181 $0.93
Nine Months - Reported $2,815 $441 $310 $1.57
Adjustment 29 19 59 0.31
Nine Months - Restated $2,844 $460 $369 $1.88
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (continued)
Electric
Operating Operating Net
Revenues Income Income
(thousands)
Period Ending September 30, 1993
CPL
Quarter - Reported $383,087 $85,916 $75,510
Adjustment 4,103 2,522 2,102
Quarter - Restated $387,190 $88,438 $77,612
Nine Months - Reported $922,860 $182,662 $146,442
Adjustment 18,637 12,114 39,409
Nine Months - Restated $941,497 $194,776 $185,851
PSO
Quarter - Reported $249,096 $50,038 $42,458
Adjustment (6,225) (3,817) (3,817)
Quarter - Restated $242,871 $46,221 $38,641
Nine Months - Reported $547,737 $81,560 $56,916
Adjustment 1,481 908 7,443
Nine Months - Restated $549,218 $82,468 $64,359
SWEPCO
Quarter - Reported $272,825 $56,189 $45,903
Adjustment 3,769 2,450 2,450
Quarter - Restated $276,594 $58,639 $48,353
Nine Months - Reported $639,513 $110,706 $78,740
Adjustment 5,907 3,840 7,245
Nine Months - Restated $645,420 $114,546 $85,985
WTU
Quarter - Reported $110,976 $24,874 $20,192
Adjustment (1,079) (702) (702)
Quarter - Restated $109,897 $24,172 $19,490
Nine Months - Reported $267,288 $46,023 $30,946
Adjustment 2,691 1,749 5,528
Nine Months - Restated $269,979 $47,772 $36,474
2. LITIGATION AND REGULATORY PROCEEDINGS
CSW, CPL, PSO, SWEPCO and WTU
See each registrant's Annual Report on Form 10-K for the year
ended December 31, 1993 and the Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1994 and June 30, 1994, for additional
discussion of litigation and regulatory proceedings. Reference is
also made to Part II. Item 1. Legal Proceedings for additional
discussion of litigation and regulatory proceedings.
CSW and CPL
Reference is made to CPL's and CSW'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, for a
discussion of regulatory and other issues involving STP in various
stages of appeal.
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (continued)
STP Outage
CSW and CPL
CPL owns 25.2% of STP, a two-unit nuclear power plant. As a
result of an unscheduled outage, STP Unit 1 was out of service from
February 1993 to February 1994 and Unit 2 was out of service from
February 1993 to May 1994. Since each unit returned to service, they
have operated substantially at or near 100 percent of capacity.
STP Unit 1 operated at a capacity factor of 96.1% during the
third quarter of 1994. On September 20, 1994, STP Unit 1 experienced
an outage when a steam generator feedwater pump automatically tripped
the unit as a result of a failed speed sensor. STP Unit 1 returned
to service on September 22, 1994. STP Unit 2 provided continuous
service for the third quarter of 1994 and achieved a capacity factor
of 98.7%.
In June 1993, the NRC placed STP on its "watch list" of plants
with "weakness that warrant increased NRC attention." Plants on the
watch list are subject to closer NRC oversight. On June 24, 1994,
the NRC reviewed the status of STP and observed that conditions at
STP were improving. The NRC noted that management has established
better communications with workers, including faster correction of
problems found by workers. A dual unit plant will remain on the
watch list until both units have returned to service and have
demonstrated a period of good performance. CPL's management believes
that the first reasonable opportunity for STP to be removed from the
watch list will be the NRC's plant review meeting in January 1995.
NRC Notice of Violation
On October 27, 1994, the NRC staff advised HLP, the STP project
manager, that it proposes to fine HLP $100,000 for what the NRC
believes was discrimination against a contractor employee at STP who
brought complaints of possible safety problems to the NRC's
attention. These actions result from the findings of an NRC
investigation of alleged violations of STP security and work process
procedures in 1992. The incident cited by the NRC is the subject of
a contested hearing that is scheduled to be held in the spring of
1995 before a United States Department of Labor judge. Until the
Department of Labor issues a final decision in this matter, the NRC
is not requiring HLP to respond to its notice of violation.
Insurance Claim
On August 28, 1994, CPL filed a business interruption and extra
expense insurance claim related to the extended outage at STP Units 1
and 2. A consultant retained by CPL to evaluate the outage concluded
that the outage was initiated by an accidental equipment failure.
CPL has filed a claim for $11.8 million related to the STP Unit 1
outage and $12.3 million for STP Unit 2. NEIL, the insurance
carrier, is currently reviewing the claim. CPL management is unable
to predict the ultimate outcome of this matter. Any recovery CPL
receives for its insurance claims could be applied against the
portion of its under-recovered fuel balance related to the STP
outage. See CPL Fuel Costs and Reconciliation below.
See CPL Rate Cases below for a discussion of rate proceedings in
which the rate treatment of STP is at issue as well as the fuel
reconciliation of increased fuel costs arising out of the STP outage
and proceedings relating to the recovery of such costs. See CSW's
and CPL's Annual Report on Form 10-K for the year ended December 31,
1993 and the Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994 and June 30, 1994 for additional information related
to STP operations and the STP outage.
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS (continued)
CPL Rate Cases
CSW and CPL
Background Information
As previously reported, several Cities, the 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
base rates. The requests for a review of CPL's rates arose out of the
unscheduled outage at STP which began in February 1993. 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 which recommended an annual
$75 million retail rate reduction and the write off of $219 million
of CPL's Mirror CWIP asset.
Filing by Texas Commission Staff
In October, 1994, the 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% 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.
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS (continued)
In its testimony, the Staff argued that its proposed STP rate
base reduction was a historical performance-based disallowance 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 disallowance 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)
reduction
(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
substantially 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
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (continued)
are no Texas Commission precedents addressing the removal of a
nuclear plant from rate base as a performance disallowance. 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 and 1991, 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.
CPL Fuel Costs and Reconciliation
CSW and CPL
During the STP outage, CPL's fuel and purchased power costs were
increased as the power normally generated by STP was replaced through
sources with higher costs. It is unclear how the Texas Commission
will address the reasonableness of higher costs associated with the
outage. At January 31, 1993, before the start of the STP outage, CPL
had an over-recovered fuel balance of $5.2 million, exclusive of
interest. At September 30, 1994, CPL's under-recovered fuel balance
was $74.8 million, exclusive of interest. This under-recovery of
fuel costs, while due primarily to the STP outage, was also affected
by changes in fuel prices and timing differences. CPL cannot
accurately estimate the amount of any future under- or over-
recoveries due to the unpredictable nature of the above factors.
Although there is the potential for disallowance of fuel-related
costs, such determination cannot be made until fuel costs are
reconciled with the Texas Commission. CPL is preparing a fuel
reconciliation filing to be made with the Texas Commission on
November 15, 1994 in accordance with a Texas Commission Order. It is
anticipated that in the filing, which will seek to reconcile the cost
of fuel through June 30, 1994, CPL will seek recovery of $79.3
million, including interest of $1.4 million.
CPL cannot predict what action the Texas Commission will take
concerning the fuel reconciliation filing. If a significant portion
of fuel costs were disallowed by the Texas Commission, CPL and CSW
could experience a material adverse effect on their results of
operations in the year of disallowance. However, any disallowance
would not be expected to materially affect CPL's or CSW's financial
condition.
CPL Prudence Inquiry
CSW and CPL
Pursuant to a Texas Commission order, CPL was required to
present certain information concerning the prudence of management
activities at STP relating to the STP outage. Testimony filed on
CPL's behalf stated that the cause of the STP outage was the result
of an accidental equipment failure rather than imprudent management
activities at STP. Based on this information, CPL will seek full recovery
in its fuel reconciliation case of incremental energy costs related
to the STP outage.
Pursuant to a Texas Commission order, CPL was required to
reconstruct its production costs assuming STP was available 100% of
the time during the actual outage. Testimony filed on CPL's behalf
stated that it is unrealistic to expect any generating unit to
operate all the time. The testimony provided calculations of interim
STP replacement power cost estimates for availability factor
scenarios at (i) 100% average availability, (ii) 77% average
availability and (iii) 65% average availability. The availability
factor assumptions were used to determine the amount of generation
that STP would have been expected to provide during the outage
period, including adjustments for scheduled refueling outages. CPL
expects to provide final net STP replacement power cost estimates for
the outage period in supplemental testimony to be filed by December
30, 1994. Interim STP net replacement power costs for the entire
outage period were estimated to be (i) $102.6 million at 100% average
availability, (ii) $80.3 million at 77% average availability and
(iii) $67.5 million at 65% average availability.
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (continued)
CPL Deferred Accounting
CSW and CPL
For information relating to deferred accounting for CPL, see
CSW's and CPL's Annual Report on Form 10-K for the year ended
December 31, 1993 and Form 10-Q for the quarter ended June 30, 1994.
On October 6, 1994, the Texas Supreme Court denied a motion for
rehearing of CPL's deferred accounting matter filed by the State of
Texas.
PSO Rate Case
CSW and PSO
In March 1993, the Oklahoma Commission issued an order allowing
PSO an interim increase in retail prices of $10.1 million on an
annual basis, subject to refund. In December 1993, the Oklahoma
Commission issued an order allowing PSO a permanent increase in
retail prices of $14.4 million on an annual basis which became
effective with the billing month of February 1994.
An order issued by the Oklahoma Commission in 1991 required that
the level of gas transportation and fuel management fees permitted
for recovery through the fuel adjustment clause be reviewed in the
aforementioned price proceeding. This portion of the price review
was bifurcated and is expected to be heard during the first quarter
of 1995. In March 1994, PSO filed testimony requesting that gas
transportation and fuel management fees up to $35 million annually be
included in the fuel adjustment clause. In September 1994, the
Oklahoma Commission Staff filed testimony recommending that gas
transportation and fuel management fees of $28.2 million on an
annual basis be included in base rates. Until a new level is
established, PSO is permitted to include all gas transportation and
fuel management fees in the fuel adjustment clause up to $30.6
million on an annual basis.
SWEPCO Fuel Costs and Reconciliation
CSW and SWEPCO
On March 17, 1994, SWEPCO filed a petition with the Texas
Commission to reconcile fuel costs for the period November 1989
through December 1993. Total Texas jurisdictional fuel expenses
subject to reconciliation for this period is approximately $559
million. SWEPCO's net under-recovery for the reconciliation period
is approximately $0.9 million.
This under-recovered balance includes $0.5 million of
reconciled, but unrecovered fuel and interest carried forward from
SWEPCO's last fuel reconciliation, $4.1 million of currently over-
recovered fuel, $1.2 million of interest due SWEPCO on prior under-
recovered fuel balances, and a $3.3 million recovery of litigation
and settlement negotiation costs associated with SWEPCO's
renegotiation of a coal supply agreement.
On September 2, 1994, SWEPCO, the General Counsel of the Texas
Commission and TIEC entered a joint stipulation which resolved all
but one issue in the case. As part of the stipulation, SWEPCO
agreed to a $3.2 million disallowance from reconcilable fuel for the
historical period. OPUC was not a party to the stipulation, but did
not oppose it.
The remaining issue to be addressed at hearing was the recovery
of $3.3 million of litigation and settlement negotiation costs. A
hearing on this issue was held on September 14, 1994. Briefs were
filed on September 28, 1994 and reply briefs were filed on October 5,
1994. An order is expected from the administrative law judge in the
case prior to the end of 1994, but Texas Commission action by the end
of the year is uncertain.
This litigation and settlement costs have been recognized as
expense in SWEPCO's financial statements, so recovery of these
expenses would have a positive impact on earnings.
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (continued)
WTU Deferred Accounting
CSW and WTU
On October 24, 1994, the Texas Supreme Court issued a mandate
remanding WTU's deferred accounting case to the Texas Commission. No
schedule has been established for the proceedings on remand at the
Texas Commission. In the remanded proceeding, the Texas Commission must
determine if the deferral of Oklaunion costs is necessary for WTU's
financial integrity. Management believes that WTU's deferred
accounting will be ultimately sustained by the Texas Commission on
the basis of the financial integrity standard set forth by the
Supreme Court. However, no assurance can be given as to the outcome
of the remanded proceeding.
Management also believes that in the appeal of WTU's rate case
that is still pending before the Court of Appeals, the court
will be bound by the Supreme Court of Texas' ruling on the legal
question of the Texas Commission's authority to authorize deferred
accounting and to include deferred costs (including carrying costs)
in rate base. However, it is likely that the WTU rate case will
still be remanded to the Texas Commission because the Supreme Court
also ruled that before the deferred amounts are included in rate base,
the Texas Commission must evaluate the extent to which the deferred
costs were actually necessary to preserve financial integrity. Additionally,
appellants in the rate case appeal have asserted other challenges to
the Rate Order, and, while WTU believes these challenges are without
merit, no assurance can be given as to the outcome of the appeal with
respect to these matters.
For additional information on WTU's deferred accounting
proceedings see CSW and WTU's Annual Report on Form 10-K for the year
ended December 31, 1993 and CSW's and WTU's quarterly report on Form
10-Q for the quarter ended June 30, 1994.
WTU Rate Proceedings
CSW and WTU
On August 25, 1994, WTU filed a petition with the Texas
Commission instituting a review of WTU's rates and proposing an
interim rate reduction. On September 23, 1994, the Texas Commission
issued an order directing WTU to implement an interim rate reduction
of 3.25% or approximately $5.7 million in annual retail revenues,
effective October 1, 1994.
In a pretrial conference, the parties agreed to a consolidation
of WTU's rate case with its fuel reconciliation proceeding. The
rate filing package is scheduled to be filed with the Texas
Commission no later than February 28, 1995 and will be based on a
test year ending June 30, 1994.
All parties to the rate proceeding except the City of San
Angelo, Texas have stipulated to and adopted an ordinance providing
for a surcharge or refund for periods after October 1, 1994 to the
extent that final rates exceed or fall short of interim rates.
Although the City of San Angelo has not provided for such a "true-up"
of rates, WTU appealed the City of San Angelo's ordinance to the
Texas Commission in order to implement such a true-up mechanism in
San Angelo.
As described above, WTU's fuel reconciliation proceeding filed
June 30, 1994 has been consolidated with its current rate proceeding.
The original reconciliation period of January 1, 1991 through
February 28, 1994 has been extended through June 30, 1994, in order
to include costs incurred through the end of the test year for the
consolidated rate proceeding. Total fuel and purchased power costs
of approximately $300 million incurred during the reconciliation
period are now at issue in the reconciliation proceeding. WTU has
taken the position that during the extended reconciliation period, it
has under-recovered its fuel and purchased power costs by
approximately $5.2 million including interest. WTU, however, does
not intend to seek a surcharge of this under-recovered fuel balance
or a change to the fuel factors currently in effect.
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS (continued)
WTU anticipates that hearings in the consolidated rate
proceeding will be held in mid-1995 and that the Texas Commission
will issue an order in the third or fourth quarter of 1995. WTU and
CSW's management cannot predict the ultimate outcome of WTU's
consolidated rate and fuel reconciliation proceeding, but believes
that the ultimate resolution of these matters will not have a
material adverse effect on WTU or CSW's results of operations or
financial condition.
3. DIVIDENDS
CSW, CPL, PSO, SWEPCO and WTU
The subsidiary companies' mortgage indentures, as amended and
supplemented, contain certain restrictions on the use of their
retained earnings for cash dividends on their common stock. These
restrictions do not limit the ability of CSW to pay dividends to its
shareholders. At September 30, 1994, $904 million of the subsidiary
companies' retained earnings were available for payment of cash
dividends by CSW to its shareholders. At September 30, 1994, the
amount of retained earnings available for payment of cash dividends
to CSW by the Electric Operating Companies is as follows:
Retained Earnings
Available for Dividends
Company (millions)
CPL $211
PSO 130
SWEPCO 298
WTU 141
4. EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK
CSW
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. Dividends per common share
reflect per share amounts paid during the periods.
5. COMMITMENTS AND CONTINGENT LIABILITIES
CSWE Projects
CSW
CSWE has provided construction services to the Mulberry
cogeneration facility through a wholly owned subsidiary, CSW
Development I, Inc. The project achieved commercial operation in
August 1994 and added 117 Mws of on-line capacity of which CSWE owns
50%. CSWE's maximum potential liability under the fixed price
contract is $83 million and will decrease to zero over the next two
years as contractual standards are met. Additionally, CSW
Development-I, Inc. has entered into a fixed price contract to
construct the Mulberry thermal host facility. The maximum potential
liability under this fixed price contract is $14 million. The
thermal host facility is expected to be completed by the first
quarter of 1995. CSWE has provided additional guarantees to the
project totaling approximately $35.2 million.
CSWE has entered into a purchase agreement on the Fort Lupton
project to provide $79.5 million of equity upon the occurrence of
certain events. As of September 30, 1994, $38.5 million has been
paid. In addition, CSWE has committed approximately $102 million of
construction financing at September 30, 1994. Phase I of the Fort
Lupton project, representing 122 Mws, achieved commercial operation
in June 1994. Phase II of the project commenced operations in July
1994 bringing total on-line capacity of the project to 272 Mws of
which CSWE owns a 50% interest. CSWE expects to syndicate the entire
construction loan to third party lenders in late 1994 or early 1995.
CSWE has provided two letters of credit to the project totaling $7
million.
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (continued)
CSWE has committed to provide up to $125 million of construction
financing to the Orange cogeneration project of which CSWE owns a 50%
interest. Of this total, CSWE has provided $54 million at September
30, 1994. CSWE expects to obtain third party permanent financing for
this project in 1995.
In November 1994, CSWE transferred its 50% interest in the 40 Mw
Oildale cogeneration facility to a non-affiliated third party,
Oildale Holdings, Inc. The Oildale project, which was financed with
third-party non-recourse project financing, had been in default of
certain provisions of its loan agreement since December 1993. Under
the terms of the project transfer, CSWE contributed $3 million in
equity in exchange for the return of a letter of credit in the same
amount in favor of a third party lender. CSWE had reserved for this
liability in 1993, therefore, this transaction has no material
adverse effect on 1994 results of operations or financial condition.
In addition, CSWE has posted security deposits and other
security instruments of approximately $9 million on six additional
projects in various stages of development, construction and
operation.
Henry W. Pirkey Power Plant
CSW and SWEPCO
In connection with the 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 September 30,
1994, the maximum SWEPCO would have to assume is $75.5 million. The
maximum amount may vary as the mining contractor's need for funds
fluctuates. The contractor's actual obligation outstanding as of
September 30, 1994 is approximately $63.3 million.
6. ACCOUNTING CHANGES
CSW, CPL, PSO, SWEPCO and WTU
Effective January 1, 1993 each registrant adopted SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions, SFAS No. 112, Employers' Accounting for Postemployment
Benefits and SFAS No. 109, Accounting for Income Taxes. In addition,
the Electric Operating Companies also changed their method of
accounting for unbilled revenues.
<PAGE> 51
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
CSW, CPL, PSO, SWEPCO and WTU
Reference is made to Management's Discussion and Analysis of
Financial Condition and Results of Operations included in each
registrant's 1993 Annual Report on Form 10-K and each registrant's
Quarterly Report on Form 10-Q for the quarters ended March 31 and
June 30, 1994. Reference is also made to each registrant's unaudited
Financial Statements and related Notes to Financial Statements
included herein. The information included therein should be read in
conjunction with, and is essential in understanding, the following
discussion and analysis.
Capital Requirements, Liquidity and Financing
CSW, CPL, PSO, SWEPCO and WTU
Construction and Capital Expenditures
Construction expenditures for the CSW System for the first nine
months of 1994 were $414 million. These construction expenditures
were primarily for improvements to existing production, transmission
and distribution facilities, including CPL's 345 Kv
transmission line between Lon C. Hill and Coleto Creek power
stations, as well as an extension by Transok of existing gas
transportation lines. The improvements are required to meet the
needs of new customers and to satisfy the changing requirements of
existing customers. The CSW System anticipates that the majority of
all funds required for construction for the remainder of the year
will be provided from internal sources.
Short-Term Financing
The CSW System uses short-term debt to meet fluctuations in
working capital requirements and other interim capital needs. The
registrants, together with other members of the CSW System, have
established a money pool to coordinate short-term borrowings through
the issuance of CSW's commercial paper.
Long-Term Financing
The CSW System is committed to maintaining financial flexibility
by maintaining a strong capital structure and favorable securities
ratings which help to assure future access to capital markets when
required. CSW, in order to strengthen its capital structure and
support growth from time to time, may issue additional shares of its
common stock. At September 30, 1994 the capitalization ratios of
each of the registrants were as follows:
Company Common Preferred Long Term
Equity Stock Debt
CSW 49% 5% 46%
CPL 47% 8% 45%
PSO 53% 2% 45%
SWEPCO 51% 4% 45%
WTU 56% 1% 43%
CSW and PSO
During the third quarter of 1994 Standard & Poor's Corporation
lowered its credit ratings of PSO's senior secured debt from AA- to
A+ and preferred stock from A+ to A. Management believes that this
reduction will not have a material adverse effect on CSW and PSO's
consolidated results of operations or financial condition.
<PAGE> 52
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
CSW and SWEPCO
On November 1, 1994, SWEPCO redeemed its remaining $3.7 million
of Series U, 9 1/8% First Mortgage Bonds, due November 1, 2019. The
funds required for this transaction were provided by short-term
borrowing and internal sources. Redemption premiums are included in
long-term debt on the balance sheets and are being amortized over 5-
30 years, in accordance with the anticipated regulatory treatment.
CSW and WTU
During the third quarter of 1994 Standard & Poor's Corporation
lowered its credit ratings of WTU's senior secured debt from AA- to
A+ and preferred stock from A+ to A. Management believes that this
reduction will not have a material adverse effect on CSW and WTU's
results of operations or financial condition.
In October and November WTU reacquired $7.8 million aggregate
amount of its Series O, 9 1/4% First Mortgage Bonds, due December 1,
2019. The funds required for these transactions were provided by
short-term borrowings and internal sources. The premiums and
reacquisition costs of reacquired long-term debt are included in
long-term debt on the balance sheets and are being amortized over 10
to 30 years in accordance with the anticipated regulatory treatment.
RESTRUCTURING
CSW, CPL, PSO, SWEPCO and WTU
As previously reported, each registrant has undertaken a
restructuring and early retirement program designed to consolidate
and restructure its operations in order to meet the challenges of the
changing electric utility industry and to compete effectively in the
years ahead. The underlying goal of restructuring is to enable the
Electric Operating Companies to focus on and be accountable for
serving the customer. The restructuring costs were initially
estimated to be $97 million and were expensed in 1993. Approximately
$6 million in additional costs have been expensed in 1994, bringing
the total to approximately $103 million. Approximately $75 million
of the restructuring costs will be paid from general corporate funds
with the remaining $28 million representing the present value of
enhanced benefit amounts to be paid from the benefit plan trusts to
participants over future years in accordance with the early
retirement program. These costs will be funded from general
corporate funds to the benefit plan trusts over future years. The
allocation of the expenses and payments among the registrants is
shown below. The restructuring is expected to be substantially
completed in 1994. In November 1994, an application was filed with
the SEC seeking approval of certain aspects of the restructuring.
Restructuring Costs (Millions)
Employee Pension and OPEB Provisions Relating to
Termination Costs Relating to Employees That Will
Payments Employees Not Be Terminated Total
CSW $10 $45 $48 $103
CPL 3 15 15 33
PSO 3 12 12 27
SWEPCO 1 12 11 24
WTU 1 7 9 17
<PAGE> 53
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Restructuring Payments (Millions)
Amount to be Paid From Present Value of Future
General Corporate Funds Payments From Benefit Trust Total
CSW $75 $28 $103
CPL 25 8 33
PSO 10 17 27
SWEPCO 17 7 24
WTU 13 4 17
Each registrant expects to realize a number of benefits from the
restructuring. Beginning in 1994 and continuing into the future,
increased efficiencies and synergies are expected to be realized with
the elimination of previously duplicated functions. This leads to
enhanced communication and efficiency, which should translate into a
reduction in the rate of growth in O&M costs. All restructuring
costs are expected to be recovered within 18-24 months after
implementation of the restructuring changes, with reductions in the
rate of growth of O&M costs continuing thereafter.
A number of assumptions and judgments are built into these
expected benefits. These assumptions may become inaccurate as a
result of other costs and circumstances which are beyond each
registrant's control. If projections of future O&M costs are too
low, the restructuring should mitigate any future increases in cost
of service but may not result in any net O&M reduction overall. It
is also assumed that staffing will be adequate at the new levels.
The reductions in staff will increase the need for automation, with
resulting increases in capital and maintenance costs.
REGULATORY MATTERS
CSW, CPL, PSO, SWEPCO and WTU
Reference is made to Note 2 of the Notes to Financial Statements
for a discussion of each of the Electric Operating Companies
regulatory matters.
PROPOSED EL PASO MERGER
CSW
CSW and El Paso have entered into a Merger Agreement pursuant to
which El Paso would merge with a subsidiary of CSW and emerge from
bankruptcy protection as a wholly owned subsidiary of CSW. All
classes of El Paso's creditors and shareholders have approved the
Modified Plan, which sets forth the consideration to be paid in
connection with the Merger. The total value of CSW's offer to
acquire El Paso is approximately $2.1 billion. The aggregate number
of shares of CSW Common to be issued in connection with the
Merger cannot be determined at this time due to certain
contingencies, including the future price of CSW Common, future
dividend rates on CSW Common and the timing of the Effective Date of
the Merger. While the total number of shares of CSW Common
ultimately to be issued cannot be determined, the value of the shares
to be issued to El Paso stakeholders is expected to be approximately
$569 million based on an anticipated Effective Date in the first half
of 1995. In addition, CSW expects to make payments in cash of
approximately $335 million in connection with the consummation of the
Merger, a portion of which will be funded by cash in the El Paso
estate and an estimated $200 million of which is expected to be
funded from other internal or external sources which may include the
issuance of CSW Common or debt securities. Depending on the number
of shares issued and the outcome of other matters discussed below,
existing holders of CSW Common may experience short-term dilution in
earnings. As of September 30, 1994, the price per share of CSW Common
had declined by approximately 33% since May 3, 1993, the date of the
Merger Agreement. Because the number of shares of CSW Common to be
issued to the creditor group and the interest rates at which debt
securities are to be issued to the creditor group in connection with
the Merger are to be set on or about the Effective Date, changes in the
price of CSW Common and the level of interest rates will affect the
economic impact of the proposed acquisition to CSW.
<PAGE> 54
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Completion of the Merger is subject to various conditions,
including receipt of necessary regulatory approvals on terms
consistent with the Merger Agreement, receipt of a satisfactory rate
order from the Texas Commission and satisfactory approval of the
Merger from the New Mexico Commission, absence of a material adverse
effect on El Paso or CSW or any fact or circumstance which may
reasonably be expected to give rise to such an effect on El Paso,
absence of any governmental enactment or order which would have a
material adverse effect on El Paso, CSW or the prospects for the
business of CSW or reorganized El Paso, and other conditions.
The financial assumptions underlying the Modified Plan assume,
among other things, that El Paso will be allowed to increase its
rates to Texas retail customers and obtain regulatory treatment of
assets and certain costs and tax matters in a manner that will
provide for adequate rates for El Paso in the future. The financial
assumptions also assume that El Paso's franchise with Las Cruces,
which expired March 18, 1994, is either renegotiated or extended on
essentially the same terms and conditions or, if not renegotiated or
extended, that El Paso has the legal right and authority under New
Mexico state law to continue providing electric service within Las
Cruces. El Paso has continued to provide electric service to
customers within Las Cruces and states that it expects and intends to
continue to do so.
On September 12, 1994, CSW delivered a letter to El Paso
advising El Paso that the municipalization efforts in Las Cruces and
other matters, including (i) the potential loss of other customers in
El Paso's service area, including the Holloman Air Force Base and the
White Sands Missile Range in New Mexico, (ii) cracking in steam
generator tubes at Palo Verde, (iii) intense political and regulatory
opposition to the Merger, and (iv) a new "comparable transmission
service" standard being imposed on the Merger by the FERC, place the
completion of the Merger in jeopardy. CSW's September 12 letter
further advised El Paso that the foregoing matters, individually and
cumulatively, constitute a material adverse effect or failure of
other closing conditions under the Merger Agreement which, unless
timely resolved in accordance with the Merger Agreement, will
preclude closing of the proposed Merger.
See Item 5. OTHER INFORMATION IN PART II - OTHER INFORMATION
PROPOSED EL PASO MERGER for additional information.
As previously disclosed in CSW's Annual Report on Form 10-K for
the year ended December 31, 1993, the Merger Agreement provides that
CSW and El Paso have the right to terminate the Merger Agreement
under specified circumstances. In the event the Merger Agreement is
terminated, a termination fee is payable in limited circumstances.
El Paso is required to pay a termination fee of $50 million to CSW if
El Paso terminates the Merger Agreement under certain circumstances
and subsequently consummates a merger with another party. CSW and El
Paso would be required to pay a $25 million termination fee to the
other party in the case of termination based upon a material breach
of the Merger Agreement or failure to approve an extension of time
permitted to consummate the Merger under specified circumstances. If
the Merger Agreement is terminated for any reason, whether or not any
termination fee is payable, CSW would be required, in most cases to
recognize as an expense certain amounts including (i) costs associated
with the Merger deferred until completion of the transaction, which
amounted to approximately $30 million at September 30, 1994, and which
are expected to increase at the rate of approximately $2 million per
month; (ii) interest costs CSW has agreed to pay on behalf of El Paso
in the amount of approximately $7.5 million at September 30, 1994,
and increasing thereafter; and (iii) a portion of fees and expenses,
including legal costs, of certain El Paso creditors which are
currently estimated to be approximately $2.5 million. Management is
unable to predict the ultimate outcome of the proposed Merger. In
the event that recognition of any or all of these expenses is required,
it could have a material adverse impact on CSW's results of operations
in the period they are recognized, but would not be expected to have a
material adverse impact on CSW's continuing operations or financial
condition.
RESULTS OF OPERATIONS
CSW, CPL, PSO, SWEPCO and WTU
Reference is made to ITEM 1. Financial Statements in PART I -
FINANCIAL INFORMATION for a discussion of Results of Operations.
<PAGE> 55
PART II - OTHER INFORMATION
For background and earlier developments relating to Part II
information reference is made to each registrant's 1993 Annual Report
on Form 10-K and Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1994 and June 30, 1994.
Item 1. Legal Proceedings.
Cimmaron Litigation
CSW
CSW and its wholly owned subsidiary, CSWE, have been named co-
defendants in a lawsuit filed by Cimmaron in the 125th District Court
of Houston, Harris County, Texas. Cimmaron alleges that CSW and CSWE
breached commitments to participate with Cimmaron in the failed
BioTech Cogeneration Project located in Colorado. Cimmaron claims
breach of contract, fraud and negligent misrepresentation with
alleged damages totaling $250 million. Trial has been set for April
10, 1995. CSW and CSWE have answered the suit and are in the
beginning stages of pre-trial discovery. Management of CSW cannot
predict the outcome of this litigation, but believes that CSW and
CSWE have defenses to these complaints and are pursuing them
vigorously.
CPL
Toxic Substances Control Act Inspection
CSW and CPL
On October 1, 1994, CPL received a complaint order from the EPA
regarding alleged violations observed during a 1992 EPA Toxic
Substances Control Act inspection. The proposed penalty was $90,750.
CPL has filed a response with the EPA requesting a hearing and
reduced penalties.
Gas Supplier Claims
CSW and PSO
PSO has been named defendant in complaints filed in Federal and
state courts of Oklahoma and Texas in 1984 through September 1994 by
gas suppliers alleging claims arising out of certain gas purchase
contracts. Cases currently pending seek approximately $32 million in
actual damages, together with claims for punitive damage which, in
compliance with pleading code requirements, are alleged to be in
excess of $10,000. The plaintiffs seek relief through the filing
dates as well as attorney fees. As a result of settlements among the
parties, certain plaintiffs dismissed their claims with prejudice to
further action. The settlements did not have a significant effect on
CSW's or PSO's consolidated results of operations. The remaining
suits are in the preliminary stages. Management cannot predict the
outcome of these proceedings. However, management believes that PSO
has defenses to these complaints and intends to pursue them
vigorously. Management also believes that the ultimate resolution of
the remaining complaints will not have a material adverse effect on
PSO's or CSW's consolidated results of operations or financial
condition.
Coal Transportation Contract
CSW and PSO
In June 1992, PSO filed suit in Federal District Court in Tulsa,
Oklahoma against a rail carrier seeking declaratory relief under a
long-term contract for the transportation of coal. In July 1992, the
defendant carrier asserted counterclaims against PSO alleging that
PSO breached the contract. The counterclaims sought damages in an
unspecified amount. In December 1993, PSO amended its suit against
the defendant carrier seeking damages and declaratory relief under
Federal and state anti-trust laws. PSO and the defendant carrier
filed motions for summary judgment on certain dispositive issues in
the litigation. In March 1994, the court issued an order granting
PSO's motions for summary judgment and denying the defendant's
motion. It was not necessary for the court to decide the Federal and
state
<PAGE> 56
PART II - OTHER INFORMATION (continued)
anti-trust claims raised by PSO. Judgment was rendered in favor of
PSO by the United States District Court in May 1994. In June 1994,
the defendant rail carrier appealed this judgment to the United
States Court of Appeals for the Tenth Circuit. This appeal is now
pending.
In May 1994, in a related arbitration, an arbitration panel made
an award favorable to PSO concerning basic transportation rates under
the coal transportation contract described above, and concerning the
contract mechanism for adjustment of future transportation rates.
These arbitrated issues were not involved in the related lawsuit
described above. The defendant rail carrier has filed an action to
vacate the arbitration award in the District Court for Dallas County,
Texas. PSO removed this action to the United States District Court
for the Northern District of Texas, and filed a motion to either
dismiss this action or have it transferred to the United States
District Court for the Northern District of Oklahoma. The defendant
rail carrier moved to remand the action to state court. In September
1994, the United States District Court for the Northern District of
Texas denied the rail carrier's motion to remand, and granted PSO's
motion to transfer the action to the United States District Court
for the Northern District of Oklahoma. Separately, PSO has filed an
action to confirm the arbitration award in the United States District
Court for the Northern District of Oklahoma, and the defendant rail
carrier has filed a motion to dismiss this confirmation action.
Other Legal Claims and Proceedings
CSW, CPL, PSO, SWEPCO and WTU
The CSW System is party to various other legal claims and
proceedings 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.
Item 5. Other Information.
Proposed El Paso Merger
CSW
As previously announced, CSW has entered into a Merger Agreement
pursuant to which El Paso would emerge from bankruptcy as a wholly
owned subsidiary of CSW. Various regulatory approvals and other
conditions must be obtained or met on terms satisfactory to CSW
before it will consummate the Merger. Background information on the
proposed El Paso merger is contained in CSW's Annual Report on Form
10-K dated December 31, 1993 and CSW's Quarterly Reports on Form 10-Q
dated March 31, 1994 and June 30, 1994. Subsequent developments are
set forth below.
On June 14, 1994, Las Cruces filed a motion with the Bankruptcy
Court to lift the automatic stay imposed by the bankruptcy filing to
allow it to (i) commence action against El Paso for failure to pay
franchise fees after expiration of the franchise in March 1994; (ii)
enter El Paso's property to conduct an appraisal of the electric
distribution system and any suitability studies; (iii) give notice of
intent to file a condemnation action; and (iv) commence state court
condemnation proceedings against El Paso to condemn El Paso's
distribution system within Las Cruces' city limits.
On June 29 and July 1, 1994, El Paso and CSW filed responses
opposing the Las Cruces motion. On August 1, 1994, CSW filed an
amended response to the Las Cruces motion which states that the
threat or actual commencement of condemnation proceedings by Las
Cruces or the elimination of El Paso's service to Las Cruces by
condemnation or otherwise may constitute an El Paso Material Adverse
Effect, the absence of which is a condition of CSW's obligation to
consummate the Merger. The existence of an El Paso Material Adverse
Effect would preclude consummation of the Merger and the Modified
Plan, unless CSW waives this condition in writing. CSW's amended
response concludes that Las Cruces' intention to file a condemnation
proceeding creates a situation that must be favorably resolved before
the closing of the Merger.
<PAGE> 57
PART II - OTHER INFORMATION (continued)
By letter dated August 5, 1994, El Paso protested CSW's filing
of the amended response and asserted its disagreement with CSW's
position regarding Las Cruces. In addition, El Paso asserted that
CSW's filing of the amended response over El Paso's objection was
contrary to the terms of the Merger Agreement.
On August 22, 1994, Las Cruces entered into a wholesale full
requirements power contract with SPS to supply power to a municipal
utility proposed to be established by Las Cruces. On August 30,
1994, voters in Las Cruces approved by a two-to-one margin a
referendum authorizing Las Cruces to proceed with efforts to acquire
from El Paso, through negotiated purchase or eminent domain, the
electric utility system of El Paso within Las Cruces, including
certain distribution, substation and associated transmission
facilities.
On September 12, 1994, CSW delivered a response to El Paso's
August 5 letter. In its September 12 letter, CSW reiterated its
position that Las Cruces is a material element of CSW's bargain with
El Paso and advised El Paso that the municipalization efforts in Las
Cruces and other matters, including (i) the potential loss of other
customers in El Paso's service area, including the Holloman Air Force
Base and the White Sands Missile Range in New Mexico, (ii) cracking
in steam generator tubes at Palo Verde, (iii) intense political and
regulatory opposition to the Merger, and (iv) a new "comparable
transmission service" standard being imposed on the Merger by the
FERC, place the completion of the Merger in jeopardy. CSW's
September 12 letter further advised El Paso that the foregoing
matters, individually and cumulatively, constitute a material adverse
effect or failure of other closing conditions under the Merger
Agreement which, unless timely resolved in accordance with the Merger
Agreement, will preclude closing of the proposed Merger.
Since CSW's September 12 letter, CSW has exchanged letters with
El Paso and others regarding the interpretation of the Merger
Agreement and the legal significance of the matters cited by CSW in
its September 12 letter. These letters are summarized below.
On September 14, 1994, CSW filed a second amended response to
Las Cruces' motion to lift the stay in bankruptcy. In its second
amended response, CSW stated that, whether or not the stay is
modified or maintained, the intent and plan of Las Cruces to file a
condemnation proceeding creates a situation that must be timely and
favorably resolved by El Paso before the consummation of the Merger.
Nevertheless, because El Paso believes that maintenance of the stay
is in the best interests of the Merger and the El Paso estate, and
because El Paso believes it is in a better position to resolve the
Las Cruces dispute with the stay in place, CSW supported the
maintenance of the stay as a means of avoiding disruption pending
resolution of the Las Cruces dispute.
By letter dated September 16, 1994, El Paso took issue with the
positions set forth by CSW in its September 12 letter and asserted
that CSW's September 12 letter had inflicted irreparable harm on El
Paso and the Merger process.
On September 20, 1994, following a hearing on the June 14, 1994
motion of Las Cruces discussed above, the El Paso bankruptcy judge
indicated orally that, effective January 1, 1995, he would lift that
stay on certain actions against El Paso and would allow Las Cruces to
pursue condemnation proceedings against El Paso with respect to the
El Paso electric distribution system within Las Cruces. El Paso has
filed a motion seeking clarification of such oral ruling as to
whether Las Cruces may take immediate possession of the El Paso
distribution system under the New Mexico condemnation statutes. The
Bankruptcy Court has not, as of the date of this writing, issued a
written order with respect to the lifting of the stay, nor acted on
El Paso's clarification motion.
By letter dated September 23, 1994 El Paso requested CSW's
consent to meet with the City of Las Cruces to discuss the
possibility of a resolution of El Paso's dispute with Las Cruces.
<PAGE> 58
PART II - OTHER INFORMATION (continued)
By letter dated October 3, 1994, CSW responded to El Paso's
September 16 letter and reaffirmed the positions set forth in its
September 12 letter. In addition, CSW consented to El Paso's meeting
with Las Cruces but advised El Paso that CSW would not participate
directly in negotiations between Las Cruces and El Paso.
By letter dated October 7, 1994, CSW's New Mexico regulatory
counsel set forth CSW's disagreement with El Paso's New Mexico
regulatory counsel's evaluation of the situation.
By letter dated October 5, 1994, counsel to the El Paso
unsecured creditors committee, with the concurrence of certain other
creditor groups, advised CSW that the committee disagreed with
certain positions set forth in CSW's September 12 letter to El Paso.
By letter dated October 27, 1994, CSW responded to and stated its
disagreement with various statements set forth in the unsecured
creditors committee's letter.
By letter dated October 5, 1994, El Paso's New Mexico regulatory
counsel asserted that CSW's September 12 letter had "adversely
affected proceedings in the New Mexico Commission" relating to the
Merger and that the letter "is being widely interpreted as a
statement from CSW that the merger will not close." In addition, the
letter asserted that New Mexico regulators appear reluctant to
proceed with the Merger case because the merger appears uncertain and
speculative." By letter dated October 7, 1994, CSW's New Mexico
regulatory counsel set forth CSW's disagreement with El Paso's New
Mexico regulatory counsel's evaluation of the situation. On October 12,
1994, a hearing examiner held a prehearing conference covering scheduling
and other matters. On October 14, 1994, CSW filed a Statement of Position
and Request for Procedural Schedule in the New Mexico proceeding. El Paso
filed a separate position statement after advising CSW, by letter dated
October 14, 1994, that CSW's statement of position did not "state a
sufficiently clear and strong commitment by CSW to closing the
merger." By letter dated October 25, 1994, CSW's New Mexico
regulatory counsel stated that the filing by El Paso of a separate
position statement "impairs our ability to obtain necessary
regulatory approvals from the New Mexico Commission on a timely basis
by implying that there are severe problems in the relationship
between El Paso and CSW" and "the lack of a favorable resolution of
Las Cruces municipalization efforts continues to not only prevent the
closing of the merger, but is also hindering our ability to obtain
New Mexico regulatory approvals."
By letter dated October 18, 1994, El Paso reasserted its
position that the Merger Agreement does not condition CSW's
obligation to consummate the Merger on a favorable resolution of the
Las Cruces situation and again requested CSW's consent to meet with
Las Cruces.
By letter dated October 27, 1994, CSW reaffirmed the positions
taken in its September 12 and October 3 letters, including CSW's
consent of El Paso's meeting with Las Cruces and CSW's willingness to
discuss with El Paso possible resolutions of the Las Cruces
situation.
On October 11, 1994, the Bankruptcy Court granted an application
by El Paso to employ litigation counsel to advise El Paso as to
ongoing activities with CSW and to assist El Paso as to the best
means of preserving its rights. On October 28, 1994, CSW filed a
response to El Paso's application, in which CSW stated, among other
things, that the hiring and future use of litigation counsel may be
incongruous with the goal of consummating the Merger.
CSW continues to use its best efforts to obtain required
regulatory approvals and to consummate the Merger. At the same time,
however, CSW continues to monitor contingencies which may preclude
the consummation of the Merger such as the potential loss of
significant portions of El Paso's service area, including Las Cruces
and two military installations, Holloman Air Force Base and White
Sands Missile Range, regulatory risks principally related to approval
of the Merger and El Paso's request for a rate increase in Texas as
well as the effects of the conditions imposed by Federal or state
regulatory agencies on the approval of the Merger, and operating
risks associated with the ownership of an interest in Palo Verde.
<PAGE> 59
PART II - OTHER INFORMATION (continued)
Texas Commission Application
As previously reported, El Paso filed for a base rate increase
of approximately $41.4 million with the Texas Commission on January
10, 1994 and CSW proposed a settlement of the rate proceeding that
would limit such base rate increase to $25 million. On June 23,
1994, the El Paso City Council voted to reduce El Paso's rates $15.7
million following a recommendation from the City of El Paso's Public
Utility Regulatory Board. The City of El Paso's decision has been
appealed to the Texas Commission and consolidated with the rate case
pending before that commission.
On June 24, 1994, the Staff filed testimony in the case before
the Texas Commission recommending an increase in base rates of $17.1
million, and taking the position that the proposed Merger is not in
the public interest because of the possible cost increases to CSW's
subsidiaries, which the Staff attributed to increased financial risk
associated with the proposed acquisition of El Paso. This
recommendation was revised to $21.5 million in October 1994. The
Staff also took the position that the proposed purchase price is too
high by $300 to $500 million and that it disagreed with the estimates
of the Merger-related savings presented by CSW and El Paso in the
case. Hearings at the Texas Commission began on July 20, 1994 and
were completed in early November 1994. The administrative law judges
are expected to issue an examiner's report by early January 1995,
with a decision on the merits from the Texas Commission expected in
late February 1995. At this time it is not possible to predict
either the level of rates the Texas Commission will order or whether
the Texas Commission will find the proposed Merger to be in the
public interest.
Effective July 16, 1994, El Paso implemented under bond, a base
rate increase of approximately $25 million annually, subject to
refund depending on the outcome of the rate case, for its Texas
jurisdictional customers. The increase in rates is authorized by
applicable statute and regulation. Because of the current
uncertainty as to the final outcome of the proceeding, El Paso has
stated that it is deferring the recognition of the revenues resulting
from the increased rates.
New Mexico Commission Application
On October 27, 1994, the hearing examiner assigned to hear CSW
and El Paso's merger application before the New Mexico Commission
issued an order amending the procedural schedule to provide for
hearings beginning February 13, 1995. This revised schedule would
allow in the issuance of a final order by the New Mexico Commission
in June 1995.
FERC Applications
On August 1, 1994, the FERC issued orders in two proceedings
that relate to the Merger. In an order issued under section 211 of
the FPA, the FERC preliminarily found that "a final order requiring
SPS to provide the transmission service requested by the Applicants
would comply with the statutory standards, once reliability concerns
have been met." The FERC's order rejects assertions made by SPS that
the FERC has no authority under section 211 to order transmission
service where the purpose of the service is to allow coordination of
merging utilities' operations. The order directed SPS to perform
studies so that the FERC can determine whether provision of the
requested transmission service will unreasonably impair reliability.
Such studies and supplemental pleadings analyzing the studies, were
filed with the FERC in early October and November 1994. If, after
reviewing the studies and comments filed by SPS, CSWS and El Paso,
the FERC concludes that reliability will not be unreasonably
impaired, the FERC will issue a further "proposed order" requiring El
Paso, CSWS and SPS to negotiate the rates, terms and conditions on
which the requested transmission service will be provided.
The FERC also issued an order under section 203 of the FPA in
which the FERC ruled that it will require merging utilities to offer
transmission service to others on a basis that is comparable to their
own uses of their transmission systems. On August 10, 1994, CSW and
El Paso notified the FERC that they
<PAGE> 60
PART II - OTHER INFORMATION (continued)
will accept, as a condition to the FERC's approval of CSW's
acquisition of El Paso, the requirement to amend their non-ERCOT
transmission tariffs to offer "comparable service." On August 31,
1994, CSW and El Paso filed with the FERC a request for rehearing
that, among other things, asks the FERC to reconsider the imposition
of the comparable service requirement. On August 31, 1994, CSW and
El Paso also filed the form of transmission tariffs they would
propose to file with the FERC in order to meet the comparable service
requirement if the requirement is upheld and the Merger is
consummated.
The FERC has not yet determined what "comparable service" is.
However, the FERC said it will hold hearings to establish what uses
PSO, SWEPCO and El Paso make of their own systems. The hearings also
will examine likely costs and benefits of the Merger and determine
whether the Merger is consistent with the public interest. The FERC
has instructed one of its administrative law judges to issue an
initial decision by April 14, 1995. A FERC administrative law judge
established a procedural schedule whereby hearings begin January 3,
1995, and the judge's initial decision is expected to be issued by
March 24, 1995.
In agreeing to accept, as a condition to the Merger, the
requirement that comparable service be provided over CSW's and El
Paso's non-ERCOT transmission facilities, both CSW and El Paso do not
intend to waive or otherwise prejudice any of their rights, including
but not limited to the right to seek rehearing of the order or any
other order the FERC later enters in these proceedings. In addition,
both CSW and El Paso do not intend to waive or otherwise prejudice
their right under the FPA to seek judicial review of the order or any
subsequent order or orders, if and to the extent CSW and El Paso deem
such action necessary or advisable.
Palo Verde
The operating agent of Palo Verde, APS, discovered axial
cracking in steam generator tubes in Unit 2 following a tube rupture
in March 1993. APS began an ongoing examination and analysis of the
tubes in each of the two steam generators in each unit of Palo Verde
and, as a result, has identified axial cracking in Unit 3 and another
more common type of cracking in the steam generator tubes of all
three units. APS has indicated that it believes the axial cracking
in Units 2 and 3 is due to the susceptibility of tube materials to a
combination of deposits on the tubes and the relatively high
temperatures at which all three units at Palo Verde are designed to
operate. According to statements by APS and El Paso, the form of the
degradation experienced in the steam generators is uncommon in the
nuclear industry. APS has stated that it believes it can retard
further tube degradation to acceptable levels by remedial actions,
which include chemically cleaning the steam generators and performing
analyses and adjustments that will allow the units to be operated at
lower temperatures without appreciably reducing their power output.
These analyses and adjustments have been performed on all three units
with Units 2 and 3 operating at 100% of capability and Unit 1
operating at 98% of capability. The remedial actions have been
completed on Units 2 and 3 and, except for chemical cleaning, are
complete on Unit 1. El Paso has stated that it is incurring
increased maintenance costs related to the mid-cycle inspections of
the steam generator tubes and the remedial actions being undertaken
to retard tube degradation. El Paso also incurs additional costs for
fuel and/or purchased power during periods in which one or more units
are removed from service every 6 months for inspections. In its
September 12, 1994 letter to El Paso, CSW stated that the
significance of the tube cracking problems will have to be determined
before CSW will close the Merger.
Other
El Paso is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended, and in accordance
therewith files reports and other information with the SEC. For
additional information concerning El Paso, see El Paso's Quarterly
Reports on Form 10-Q dated March 31, 1994, June 30, 1994 and
September 30, 1994 and the documents referenced therein and its
Annual Report on Form 10-K dated December 31, 1993 and the documents
referenced therein.
<PAGE> 61
PART II - OTHER INFORMATION (continued)
Environmental Matters
Ash Creek Mining Company
PSO
In August 1994, PSO received approval from the Wyoming
Department of Environmental Quality to begin reclamation of a coal
mine owned by Ash Creek Mining Company, a wholly owned subsidiary of
PSO, in Sheridan, Wyoming. PSO's subsidiary recorded a $3 million
liability in 1993 for the estimated reclamation costs. Actual
reclamation work is expected to commence in early 1995, with
completion estimated in late 1996. Surveillance monitoring will
continue ten years subsequent to final reclamantion.
PCB Storage Facilities
PSO
PSO investigated and identified PCB contamination at one of its
PCB storage facilities. PSO made proper notification to the EPA of
the contamination that was caused by spills prior to PCB spill
regulations. PSO negotiated a remediation plan with the EPA.
Implementation of the remediation plan is expected to cost
approximately $150,000.
Sol Lynn Superfund Site
CSW and CPL
The Sol Lynn salvage yard was declared a superfund site by the
EPA after it was found to contain a number of contaminants including
PCBs. Gulf States Utilities Company remediated the site for
approximately $2 million and is trying to recover a portion of the
remediation costs from PRPs, including CPL. CPL believes its
liability is extremely limited and is negotiating with Gulf States
Utilities Company to determine its share, if any, of remediation
costs.
Rochester Substation Spill
WTU
As previously reported, in September 1992, an automobile crashed
into WTU's 69 Kv substation in Rochester, Texas and struck a
transformer containing 1,500 gallons of 25 parts per million PCB oil.
WTU responded promptly and coordinated clean up efforts with state
officials. In December 1993, WTU contracted with a consulting firm
to ascertain the impact of the spill on the area ground water and to
help determine WTU's effectiveness in the clean up effort. The
consultant's report, dated June 30, 1994, concluded that the site had
been properly cleaned up with no residual impact to the subsurface
geology at the site, and WTU has requested the TNRCC to close this
matter.
Board of Directors Appointment
WTU
On October 25, 1994, Dian Graves Owen was appointed to serve as
a member of the WTU board of directors.
<PAGE> 62
PART II - OTHER INFORMATION (continued)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(12) Computation of Ratio of Earnings to Fixed Charges
CPL - (Exhibit 12.1)
PSO - (Exhibit 12.3)
SWEPCO - (Exhibit 12.4)
WTU - (Exhibit 12.5)
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
CPL - (Exhibit 12.2)
(27) Financial Data Schedules
CSW - (Exhibit 27.1)
CPL - (Exhibit 27.2)
PSO - (Exhibit 27.3)
SWEPCO - (Exhibit 27.4)
WTU - (Exhibit 27.5)
(b) Reports on Form 8-K:
CSW
CSW filed a Current Report on Form 8-K, dated July 5,
1994, Item 5. Other Events, reporting the rulings by the
Supreme Court of Texas in the deferred accounting cases of CPL
and WTU.
CSW filed a Current Report on Form 8-K, dated September
14, 1994, Item 5. Other Events, reporting developments in the
proposed El Paso Merger.
CSW filed a Current Report on Form 8-K, dated October 31,
1994, Item 5. Other Events, reporting developments in CPL's
rate case.
CPL
CPL filed a Current Report on Form 8-K, dated July 5, 1994,
Item 5. Other Events, reporting the ruling by the Supreme Court
of Texas in CPL's deferred accounting case.
CPL filed a Current Report on Form 8-K, dated October 31,
1994, Item 5. Other Events, reporting developments in CPL's
rate case.
WTU
WTU filed a Current Report on Form 8-K, dated July 5,
1994, Item 5. Other Events, reporting the ruling by the
Supreme Court of Texas in WTU's deferred accounting case.
<PAGE> 63
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act
of 1934, each registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto 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: November 14, 1994 WENDY G. HARGUS
Wendy G. Hargus
Controller and Chief Accounting Officer
(Principal Accounting Officer)
CENTRAL POWER AND LIGHT COMPANY
PUBLIC SERVICE COMPANY OF OKLAHOMA
SOUTHWESTERN ELECTRIC POWER COMPANY
WEST TEXAS UTILITIES COMPANY
Date: November 14, 1994 R. RUSSELL DAVIS
R. Russell Davis
Controller and Chief Accounting Officer
(Principal Accounting Officer)
<PAGE> 64
EXHIBIT 12.1
CENTRAL POWER AND LIGHT COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994
(Thousands Except Ratio)
(Unaudited)
Operating Income $203,378
Adjustments:
Federal income taxes 36,551
Provision for deferred Federal income taxes 41,437
Deferred investment tax credits (5,789)
Other income and deductions 867
Allowance for borrowed and equity funds
used during construction 3,648
Mirror CWIP amortization 69,925
Earnings $350,017
Fixed Charges:
Interest on long-term debt $109,935
Interest on short-term debt and other 12,221
Fixed Charges $122,156
Ratio of Earnings to Fixed Charges 2.87
<PAGE> 65
EXHIBIT 12.2
CENTRAL POWER AND LIGHT COMPANY
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994
(Thousands Except Ratio)
(Unaudited)
Operating Income $203,378
Adjustments:
Federal income taxes 36,551
Provision for deferred Federal income taxes 41,437
Deferred investment tax credits (5,789)
Other income and deductions 867
Allowance for borrowed and equity funds
used during construction 3,648
Mirror CWIP amortization 69,925
Earnings $350,017
Fixed Charges:
Interest on long-term debt $109,935
Interest on short-term debt and other 12,221
Preferred stock dividend requirements 20,428
Fixed Charges and Preferred Requirements $142,584
Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends 2.45
<PAGE> 66
EXHIBIT 12.3
PUBLIC SERVICE COMPANY OF OKLAHOMA (CONSOLIDATED)
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994
(Thousands Except Ratio)
(Unaudited)
Operating Income $73,120
Adjustments:
Federal and state income taxes 22,422
Provision for deferred Federal
and state income taxes (225)
Deferred investment tax credits (2,790)
Other income and deductions 738
Allowance for borrowed and equity funds
used during construction 2,017
Earnings $95,282
Fixed Charges:
Interest on long-term debt $29,595
Amortization of debt issuance cost 1,568
Other interest 2,116
Fixed Charges $33,279
Ratio of Earnings to Fixed Charges 2.86
<PAGE> 67
EXHIBIT 12.4
SOUTHWESTERN ELECTRIC POWER COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994
(Thousands except Ratio)
(Unaudited)
Operating Income $118,455
Adjustments:
Federal and state income taxes 38,616
Provision for deferred Federal and
state income taxes (7,915)
Deferred investment tax credits (4,892)
Other income and deductions 793
Allowance for borrowed and equity funds
used during construction 4,186
Interest portion of financing leases 2,022
Earnings $151,265
Fixed Charges:
Interest on long-term debt $43,558
Amortization of debt issuance cost 3,547
Other interest 2,524
Interest portion of financing leases 2,022
Fixed Charges $51,651
Ratio of Earnings to Fixed Charges 2.93
<PAGE> 68
EXHIBIT 12.5
WEST TEXAS UTILITIES COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1994
(Thousands Except Ratio)
(Unaudited)
Operating Income $48,236
Adjustments:
Federal income taxes 9,350
Provision for deferred Federal income taxes 4,134
Deferred investment tax credits (1,321)
Other income and deductions 2,067
Allowance for borrowed and equity funds
used during construction 389
Earnings $62,855
Fixed Charges:
Interest on long-term debt $18,668
Interest on short-term debt and other 3,193
Fixed Charges $21,861
Ratio of Earnings to Fixed Charges 2.88
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NTRAL POWER AND LIGHT COMPANY
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3,385 3,461 10,484 10,494 0
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<COMMON-STOCK-DIVIDENDS> 35,000 35,000 65,000 105,000 0
<TOTAL-INTEREST-ON-BONDS> 28,567 27,219 83,199 86,204 0
<CASH-FLOW-OPERATIONS> 176,530 129,358 266,951 236,519 0
<EPS-PRIMARY> .42 .40 .85 .93 0
<EPS-DILUTED> 0 0 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<SUBSIDIARY>
<NAME> PUBLIC SERVICE COMPANY OF OKLAHOMA
<NUMBER> 004
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> QTR-3 QTR-3 9-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993 DEC-31-1994 DEC-31-1993 DEC-31-1993
<PERIOD-START> JUL-01-1994 JUL-01-1993 JAN-01-1994 JAN-01-1993 JAN-01-1993
<PERIOD-END> SEP-30-1994 SEP-30-1993 SEP-30-1994 SEP-30-1993 DEC-31-1993
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,273,340 0 1,273,340 0 1,246,938
<OTHER-PROPERTY-AND-INVEST> 7,958 0 7,958 0 6,933
<TOTAL-CURRENT-ASSETS> 99,924 0 99,924 0 101,281
<TOTAL-DEFERRED-CHARGES> 29,134 0 29,134 0 24,919
<OTHER-ASSETS> 31,756 0 31,756 0 40,308
<TOTAL-ASSETS> 1,442,112 0 1,442,112 0 1,420,379
<COMMON> 157,230 0 157,230 0 157,230
<CAPITAL-SURPLUS-PAID-IN> 180,000 0 180,000 0 180,000
<RETAINED-EARNINGS> 130,443 0 130,443 0 97,819
<TOTAL-COMMON-STOCKHOLDERS-EQ> 467,673 0 467,673 0 435,049
0 0 0 0 0
19,826 0 19,826 0 19,826
<LONG-TERM-DEBT-NET> 402,378 0 402,378 0 401,255
<SHORT-TERM-NOTES> 10,355 0 10,355 0 31,744
<LONG-TERM-NOTES-PAYABLE> 0 0 0 0 0
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<LONG-TERM-DEBT-CURRENT-PORT> 0 0 0 0 0
0 0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0 0 0
<LEASES-CURRENT> 0 0 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 541,880 0 541,880 0 532,505
<TOT-CAPITALIZATION-AND-LIAB> 1,442,112 0 1,442,112 0 1,420,379
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<OTHER-OPERATING-EXPENSES> 176,796 171,783 461,524 433,404 0
<TOTAL-OPERATING-EXPENSES> 199,182 196,650 495,085 466,750 0
<OPERATING-INCOME-LOSS> 47,196 46,221 83,432 82,468 0
<OTHER-INCOME-NET> 562 263 909 7,024 0
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<TOTAL-INTEREST-EXPENSE> 7,755 7,843 24,105 25,133 0
<NET-INCOME> 40,003 38,641 60,236 64,359 0
204 204 612 612 0
<EARNINGS-AVAILABLE-FOR-COMM> 39,799 38,437 59,624 63,747 0
<COMMON-STOCK-DIVIDENDS> 15,000 15,000 27,000 21,000 0
<TOTAL-INTEREST-ON-BONDS> 7,399 7,411 22,196 24,011 0
<CASH-FLOW-OPERATIONS> 86,221 87,190 140,987 144,860 0
<EPS-PRIMARY> .21 .21 .32 .34 0
<EPS-DILUTED> 0 0 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<SUBSIDIARY>
<NAME> SOUTHWESTERN ELECTRIC POWER COMPANY
<NUMBER> 005
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> QTR-3 QTR-3 9-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993 DEC-31-1994 DEC-31-1993 DEC-31-1993
<PERIOD-START> JUL-01-1994 JUL-01-1993 JAN-01-1994 JAN-01-1993 JAN-01-1993
<PERIOD-END> SEP-30-1994 SEP-30-1993 SEP-30-1994 SEP-30-1993 DEC-31-1993
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,822,755 0 1,822,755 0 1,788,130
<OTHER-PROPERTY-AND-INVEST> 2,765 0 2,765 0 2,915
<TOTAL-CURRENT-ASSETS> 168,617 0 168,617 0 124,668
<TOTAL-DEFERRED-CHARGES> 37,610 0 37,610 0 46,933
<OTHER-ASSETS> 15,193 0 15,193 0 5,639
<TOTAL-ASSETS> 2,046,940 0 2,046,940 0 1,968,285
<COMMON> 135,660 0 135,660 0 135,660
<CAPITAL-SURPLUS-PAID-IN> 245,000 0 245,000 0 245,000
<RETAINED-EARNINGS> 297,831 0 297,831 0 265,071
<TOTAL-COMMON-STOCKHOLDERS-EQ> 678,491 0 678,491 0 645,731
34,828 0 34,828 0 36,028
16,032 0 16,032 0 16,032
<LONG-TERM-DEBT-NET> 530,745 0 530,745 0 534,613
<SHORT-TERM-NOTES> 0 0 0 0 0
<LONG-TERM-NOTES-PAYABLE> 50,000 0 50,000 0 50,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 4,342 0 4,342 0 645
1,200 0 1,200 0 1,200
<CAPITAL-LEASE-OBLIGATIONS> 14,190 0 14,190 0 17,452
<LEASES-CURRENT> 3,925 0 3,925 0 3,183
<OTHER-ITEMS-CAPITAL-AND-LIAB> 713,187 0 713,187 0 663,401
<TOT-CAPITALIZATION-AND-LIAB> 2,046,940 0 2,046,940 0 1,968,285
<GROSS-OPERATING-REVENUE> 245,331 276,594 647,524 645,420 0
<INCOME-TAX-EXPENSE> 19,776 23,921 36,095 35,517 0
<OTHER-OPERATING-EXPENSES> 172,251 194,034 496,486 495,357 0
<TOTAL-OPERATING-EXPENSES> 192,027 217,955 532,581 530,874 0
<OPERATING-INCOME-LOSS> 53,304 58,639 114,943 114,546 0
<OTHER-INCOME-NET> 1,299 470 4,070 4,802 0
<INCOME-BEFORE-INTEREST-EXPEN> 54,603 59,109 119,013 119,348 0
<TOTAL-INTEREST-EXPENSE> 12,749 10,756 36,771 33,363 0
<NET-INCOME> 41,854 48,353 82,242 85,985 0
840 840 2,521 2,521 0
<EARNINGS-AVAILABLE-FOR-COMM> 41,014 47,513 79,721 83,464 0
<COMMON-STOCK-DIVIDENDS> 30,000 25,000 47,000 45,000 0
<TOTAL-INTEREST-ON-BONDS> 10,978 9,673 32,691 30,090 0
<CASH-FLOW-OPERATIONS> 58,563 134,391 175,510 243,300 0
<EPS-PRIMARY> .22 .25 .42 .44 0
<EPS-DILUTED> 0 0 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<SUBSIDIARY>
<NAME> WEST TEXAS UTILITIES COMPANY
<NUMBER> 006
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> QTR-3 QTR-3 9-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993 DEC-31-1994 DEC-31-1993 DEC-31-1993
<PERIOD-START> JUL-01-1994 JUL-01-1993 JAN-01-1994 JAN-01-1993 JAN-01-1993
<PERIOD-END> SEP-30-1994 SEP-30-1993 SEP-30-1994 SEP-30-1993 SEP-30-1993
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 659,795 0 659,795 0 653,426
<OTHER-PROPERTY-AND-INVEST> 833 0 833 0 1,091
<TOTAL-CURRENT-ASSETS> 64,383 0 64,383 0 55,987
<TOTAL-DEFERRED-CHARGES> 27,119 0 27,119 0 27,735
<OTHER-ASSETS> 16,894 0 16,894 0 16,204
<TOTAL-ASSETS> 769,024 0 769,024 0 754,443
<COMMON> 137,214 0 137,214 0 137,214
<CAPITAL-SURPLUS-PAID-IN> 2,236 0 2,236 0 2,236
<RETAINED-EARNINGS> 141,214 0 141,214 0 126,642
<TOTAL-COMMON-STOCKHOLDERS-EQ> 280,664 0 280,664 0 266,092
0 0 0 0 0
6,291 0 6,291 0 6,291
<LONG-TERM-DEBT-NET> 218,128 0 218,128 0 176,882
<SHORT-TERM-NOTES> 14,761 0 14,761 0 11,784
<LONG-TERM-NOTES-PAYABLE> 0 0 0 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 650 0 650 0 17,298
0 0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0 0 0
<LEASES-CURRENT> 0 0 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 248,530 0 248,530 0 276,096
<TOT-CAPITALIZATION-AND-LIAB> 769,024 0 769,024 0 754,443
<GROSS-OPERATING-REVENUE> 109,348 109,897 275,683 269,979 0
<INCOME-TAX-EXPENSE> 11,407 10,045 15,592 16,173 0
<OTHER-OPERATING-EXPENSES> 69,954 75,680 210,659 206,034 0
<TOTAL-OPERATING-EXPENSES> 81,361 85,725 226,251 222,207 0
<OPERATING-INCOME-LOSS> 27,987 24,172 49,432 47,772 0
<OTHER-INCOME-NET> 676 754 1,778 1,587 0
<INCOME-BEFORE-INTEREST-EXPEN> 28,663 24,926 51,210 49,359 0
<TOTAL-INTEREST-EXPENSE> 5,392 5,436 16,201 16,664 0
<NET-INCOME> 23,271 19,490 35,009 36,474 0
84 151 386 816 0
<EARNINGS-AVAILABLE-FOR-COMM> 23,187 19,339 34,623 35,658 0
<COMMON-STOCK-DIVIDENDS> 10,000 8,000 20,000 14,000 0
<TOTAL-INTEREST-ON-BONDS> 4,744 4,802 13,871 14,428 0
<CASH-FLOW-OPERATIONS> 30,272 44,211 26,869 57,911 0
<EPS-PRIMARY> .12 .10 .18 .19 0
<EPS-DILUTED> 0 0 0 0 0
</TABLE>
