<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 10, 1994
CENTRAL AND SOUTH WEST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
1-1443 51-0007707
(Commission File Number) (IRS Employer Identification No.)
1616 Woodall Rodgers Freeway, Dallas, TX 75202
(Address of principal executive offices) (zip code)
(214) 777-1000
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
SOUTH TEXAS PROJECT (STP) OUTAGE
Central Power and Light Company (CPL) owns 25.2% of STP, a
two unit nuclear power plant. In February 1993, Units 1 and
2 of STP were shut down by Houston Lighting and Power
Company (HLP), the Project Manager, in an unscheduled outage
resulting from mechanical problems relating to two auxiliary
feedwater pumps. HLP determined that the units would not be
restarted until the equipment failures had been corrected
and the Nuclear Regulatory Commission (NRC) briefed on the
causes of these failures and the corrective actions that
were taken. The NRC formalized that commitment in a
confirmatory action letter, and sent an Augmented Inspection
Team to STP to review the matter. In March 1993 the NRC
began a diagnostic evaluation of STP. Conducted
infrequently, diagnostic evaluations are broad-based
evaluations of overall plant operations and are intended to
review the strengths and weaknesses of the licensee's
performance and to identify the root cause of performance
problems. During and subsequent to the June 1993 completion
of the evaluation, the NRC supplemented its confirmatory
action letter to identify additional issues to be resolved
and verified by the NRC before restart of STP. Such issues
included the need to reduce backlogs of engineering and
maintenance work and to simplify work processes which placed
excessive burdens on operating and other plant personnel.
The report also identified the need to strengthen management
communications, oversight and teamwork as well as the
capability to identify and correct the root causes of
problems.
The NRC announced in June 1993 that STP was placed on its
"watch list" of plants with "weaknesses that warrant
increased NRC attention." Plants on the watch list are
subject to closer NRC oversight. STP will remain on the
NRC's watch list until both units return to service and a
period of good performance is demonstrated.
During the outage, the necessary improvements have been made
by HLP to address the issues in the confirmatory action
letter, as supplemented. On February 15, 1994, the NRC
agreed that the confirmatory action letter issues had been
resolved with respect to Unit 1, and that it supported HLP's
recommendation that Unit 1 was ready to restart. Unit 1
restarted in late February 1994 and operated at low power
for three days. The Project Manager then shut down Unit 1
due to a problem with a steam generator feedwater valve and
a steam generator tube leak. The Project Manager expects to
make the necessary repairs and restart Unit 1 in late March
1994, although additional delays may occur.
<PAGE>
While many of the corrective actions taken are common to
both units, HLP must demonstrate to the NRC that these
issues are also resolved with respect to Unit 2 before it is
restarted. HLP estimates that Unit 2 will restart during
the second quarter of 1994 after the completion of
refueling, which began in March 1993 but was delayed in
order to focus on the issues discussed above. The outage
has not affected the CPL's ability to meet customer demands
because of existing capacity and the CPL's ability to
purchase additional energy from affiliates and non
affiliates.
During 1993, the NRC imposed a total of $500,000 in fines
against HLP in connection with violations of NRC
requirements that occurred prior to the February 1993 shut
down. No fines have been imposed for activities subsequent
to the shut down. CPL has paid its portion (25.2%) of the
cost of fines.
CPL's share of increased non-fuel operation and maintenance
costs in 1993, related to the outage at STP, necessary to
affect the needed improvements were approximately $29
million, and were expensed as incurred. Included in these
expenses were detailed inspections of both units' steam
generators, and the acceleration of certain maintenance
activities from 1994 to 1993. This acceleration is expected
to eliminate the need for any planned outages for either
unit in 1994. The 1994 budgeted STP non-fuel operation and
maintenance expenses are expected to be significantly lower
than the 1993 actual expenses; but even though lower, they
are expected to be sufficient to continue enhancements that
will result in improved long-term performance of STP.
Pursuant to the substantive rules of the Public Utility
Commission of Texas (Texas Commission), CPL generally is
allowed to recover its fuel costs through a fixed fuel
factor. These fuel factors are in the nature of temporary
rates, and CPL's collection of revenues by such fuel factors
is subject to adjustment at the time of a fuel
reconciliation proceeding before the Texas Commission. The
difference between fuel revenues billed and fuel expense
incurred is recorded as an addition to or a reduction of
revenues, with a corresponding entry to unrecovered fuel
cost or other liabilities, as appropriate. Any fuel costs,
(not limited to under- or over- recoveries) which the Texas
Commission determines as unreasonable in a reconciliation
proceeding are not recoverable from customers.
During the outage, CPL's fuel and purchased power costs have
been, and are expected to continue to be, increased as the
power normally generated by STP must be 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
<PAGE>
balance of $5.2 million, exclusive of interest. At January
31, 1994, CPL's under-recovered fuel balance was $55.7
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. If a significant portion of fuel costs
were disallowed by the Texas Commission, Central and South
West Corporation (Corporation) could experience a material
adverse effect on its results of operations in the year of
disallowance. CPL is required by Texas Commission rules to
file a reconciliation of its fuel costs by May 1, 1994;
however, the Texas Commission Staff is proposing a revised
filing deadline that would not require CPL to file before
the fourth quarter of 1994.
In July 1993, CPL filed a fuel surcharge petition, which is
separate from a fuel reconciliation proceeding with the
Texas Commission to comply with the mandatory provisions of
the Texas Commission's fuel rules. The petition requested
approval of a customer surcharge to recover under-recovered
fuel and purchased power costs resulting from the STP
outage, increased natural gas costs and other factors. The
petition also requested that the Texas Commission postpone
consideration of the surcharge until the STP outage
concluded or at the time fuel costs are next reconciled as
discussed above. In August 1993, a Texas Commission
Administrative Law Judge granted the CPL's request to
postpone consideration of the surcharge. In January 1994,
CPL updated its fuel surcharge petition to reflect amounts
of under-recovery through November 1993. Likewise, CPL
requested and was granted postponement of the updated
petition until the STP outage concluded or at the time fuel
costs are next reconciled.
Management believes that the operating outage at STP will
not have a material effect on the Corporation's financial
condition or on its consolidated results of operations.
See the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992, and Quarterly Reports on Form
10-Q for the periods ended March 31, 1993, June 30, 1993,
and September 30, 1993 for additional information relating
to STP and the outage.
<PAGE>
RATE CASE FILINGS
During December 1993 and January 1994, several cities
(Cities) in CPL's service territory exercised their rights
to require CPL to file rate cases to determine if its rates
are fair, just and reasonable. The Cities, together,
account for approximately 40% of CPL's base revenues. The
governing bodies of these Cities have original jurisdiction
over rates only within their incorporated limits. The
Cities have ordered the CPL to file rate cases by various
dates from February 17 through March 18, 1994, with hearings
scheduled in February and March 1994.
The Cities have informed the CPL that this rate review was
precipitated by the outage at STP leading the Cities to
question whether STP should continue to be included in the
CPL's rate base. Further, the Cities question whether CPL
is earning an excessive return on equity. In February 1994,
a consultant for the Cities filed its report with the
Cities. The consultant recommends that STP Unit 2 be
removed from CPL's rate base, resulting in a reduction of
total base revenues of $106.5 million. The consultant did
not recommend a reduction in revenues relating to STP Unit
1, nor did it suggest a revenue reduction for its contention
that CPL's earnings have been excessive, but it suggests
that those issues be reserved for future proceedings if
circumstances warrant action. Furthermore, the consultant
made no recommendations concerning STP operation and
maintenance expenses.
CPL contends that both units of STP belong in rate base
because of the long-term benefits nuclear generation
provides to customers. CPL is not aware of any Texas
Commission precedent directly supporting the removal of a
nuclear plant from rate base because of outages of the
duration experienced by Unit 1 and expected for Unit 2. CPL
also believes that its return on equity is below the level
specified for the rate freeze period in accordance with the
stipulated agreement entered into by CPL and parties to its
last rate order, including the Cities. This rate order does
not restrict the Cities from exercising their original
jurisdiction over rates during the rate freeze period. The
Texas Commission has appellate jurisdiction over rates set
by municipalities.
In February and early March 1994, some of the Cities passed
resolutions ordering CPL to reduce rates by $73 million, if
applied on a total company basis. These Cities' revenues
represent approximately 20% of CPL's total base revenues.
The orders only affect the rates of customers who take
service within these Cities' limits. The orders call for
rates to be reduced in April unless, on appeal, the Texas
Commission takes action which would stay their
effectiveness. CPL has appealed these orders to the Texas
Commission seeking the actions necessary to stay their
effectiveness. CPL cannot predict if other cities acting in
their capacity as regulatory authorities will initiate
similar proceedings.
<PAGE>
In December 1993, a complaint was filed at the Texas
Commission by a customer of the CPL who takes service
outside of municipal limits, where the Texas Commission has
original jurisdictional. The complaint seeks a review of
the CPL's rates due to the outage at STP. The Texas
Commission has docketed the proceeding, but has taken no
other action in the matter. In March 1994, the Office of
Public Utility Counsel and General Counsel
petitioned the Texas Commission to review CPL's rates. Any
rate orders which might ultimately be entered as a result of
these filings would affect customers served by the CPL in
all areas where individual city regulatory authorities do
not have original jurisdiction.
Management cannot predict the ultimate outcome of these rate
filings, although management believes that their ultimate
resolution will not have a material adverse effect on the
Corporation's consolidated results of operations or
financial condition.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
CENTRAL AND SOUTH WEST CORPORATION
Date: March 10, 1994
By: WENDY G. HARGUS
Wendy G. Hargus
Controller
