FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER 1-1443
CENTRAL AND SOUTH WEST CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0007707
(State of incorporation) (IRS Employer Identification No.)
1616 Woodall Rodgers Freeway, Dallas, Texas 75202
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: 214/777-1000
________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $3.50 par value New York Stock Exchange
Midwest Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K[X] .
Aggregate market value of the Common Stock of the Corporation at January 31,
1994 held by nonaffiliates was approximately $5.6 billion. Number of shares of
Common Stock outstanding at January 31, 1994: 188,408,496.
DOCUMENTS INCORPORATED BY REFERENCE
Notice of Annual Meeting and Proxy Statement of Central and South West
Corporation dated March 9, 1994 are incorporated into Part III hereof.
TABLE OF CONTENTS
PAGE
GLOSSARY OF TERMS................................................... 3
PART I
ITEM 1. BUSINESS
General.................................................... 5
Regulation and Rates....................................... 8
Nuclear....................................................11
Utility Operations.........................................13
Consolidated Operating Statistics..........................16
Construction and Financing.................................17
Fuel Supply................................................18
Environmental Matters......................................20
Non-Utility Operations.....................................24
ITEM 2. PROPERTIES.................................................28
ITEM 3. LEGAL PROCEEDINGS..........................................30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........31
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................32
ITEM 6. SELECTED FINANCIAL DATA....................................33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................76
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.........76
ITEM 11. EXECUTIVE COMPENSATION.....................................76
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................76
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............76
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K................................................77
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this text are defined below:
Abbreviation or Acronym Definition
AFUDC .................. Allowance for funds used during construction
APBO.................... Accumulated Postretirement Benefit Obligations
APS..................... Arizona Public Service Company
Arkansas Commission..... Arkansas Public Service Commission
Austin.................. City of Austin, Texas
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
Bcf..................... Billion cubic feet
BIP..................... Business Improvement Plan
Btu..................... British thermal unit
CERCLA.................. Comprehensive Environmental Response, Compensation and
Liability Act of 1980
Cities.................. Several cities in CPL's service territory
Confirmation Date....... December 8, 1993, the confirmation date for the
Modified Plan
Corporation or CSW...... Central and South West Corporation, Dallas, Texas
Court of Appeals........ Court of Appeals, Third District of Texas, Austin,
Texas
CPL..................... Central Power and Light Company, Corpus Christi, Texas
CSF..................... Customer Supplied Fuel Program
CSW Common.............. CSW common stock, $3.50 par value per share
CSW Credit.............. CSW Credit, Inc., Dallas, Texas
CSWE.................... CSW Energy, Inc., Dallas, Texas
CSW Leasing............. CSW Leasing, Inc., Dallas, Texas
CSW System.............. CSW and its subsidiaries
CSWS.................... Central and South West Services, Inc., Dallas, Texas
CWIP.................... Construction work in progress
DET..................... Diagnostic Evaluation Team
District Court.......... State District Courts of Travis County, Texas
DOE..................... United States Department of Energy
Effective Date.......... The effective date of the Modified Plan
El Paso................. El Paso Electric Company
El Paso Common.......... El Paso common stock, no par value
Electric Operating
Companies............. CPL, PSO, SWEPCO and WTU
EMF..................... Electric and magnetic fields
Energy Policy Act....... National Energy Policy Act of 1992
EPA..................... United States Environmental Protection Agency
EPS..................... Earnings per share
EWG..................... Exempt Wholesale Generators
FERC.................... Federal Energy Regulatory Commission
FMB..................... First Mortgage Bond
FUSER................... Fuel Supply Electricity Rider
HLP..................... Houston Lighting & Power Company
Holding Company Act..... Public Utility Holding Company Act of 1935, as amended
IBEW.................... International Brotherhood of Electrical Workers
IGER.................... Industrial Gas/Electricity Rider
KWH..................... Kilowatt-hour
Louisiana Commission.... Louisiana Public Service Commission
Merger.................. The proposed merger whereby El Paso would become a
wholly owned subsidiary of the Corporation
Merger Agreement........ Agreement and Plan of Merger between El Paso and CSW,
dated as of May 8, 1993, as amended
MGP..................... Manufactured gas plant
Mirror CWIP............. Mirror Construction Work in Progress
MMcf/d.................. Million cubic feet of gas per day
Modified Plan........... Modified Third Amended Plan of Reorganization
MTN..................... Medium-term note
MW...................... Megawatt
New Mexico Commission... New Mexico Public Utility Commission
Notes................... Notes to Consolidated Financial Statements
NRC..................... Nuclear Regulatory Commission
Oklahoma Commission..... Corporation Commission of the State of Oklahoma
Oklaunion............... Oklaunion Power Station Unit No. 1
Operating Companies..... CPL, PSO, SWEPCO, WTU, and Transok
OPUC.................... Office of Public Utility Counsel
Palo Verde.............. Palo Verde Nuclear Generating Station
PCB..................... Polychlorinated biphenyl
PCRB.................... Pollution Control Revenue Bond
Project Manager......... HLP, the Project Manager for STP
PRP..................... Potentially responsible party
PSO..................... Public Service Company of Oklahoma, Tulsa, Oklahoma
RCRA.................... Federal Resource Conservation and Recovery Act of 1976.
San Antonio............. City of San Antonio, Texas
SEC..................... Securities and Exchange Commission
SFAS.................... Statement of Financial Accounting Standards
SPS..................... Southwestern Public Service Company
STP..................... South Texas Project nuclear electric generating station
STP Unit 1 Order........ October 1990 Texas Commission STP Unit 1 Final Order
STP Unit 2 Order........ December 1990 Texas Commission STP Unit 2 Final Order
SWEPCO.................. Southwestern Electric Power Company, Shreveport,
Louisiana
Texas Commission........ Public Utility Commission of Texas
TEX/CON................. TEX/CON Oil and Gas Company
TEX/CON Assets.......... Gas gathering, transmission, processing and marketing
assets of TEX/CON Oil and Gas Company
TIEC.................... Texas Industrial Energy Consumers
TNRCC................... Texas Natural Resource Conservation Commission,
formerly the Texas Water Commission
TSA..................... Texas State Agencies
Transok................. Transok, Inc., Tulsa, Oklahoma
USI..................... Utility Services, Inc.
Westinghouse............ Westinghouse Electric Corporation
WTU..................... West Texas Utilities Company, Abilene, Texas
PART I
ITEM 1. BUSINESS.
GENERAL
CSW, incorporated under the laws of Delaware in 1925, is a registered
holding company under the Holding Company Act and owns all of the outstanding
shares of common stock of the Operating Companies, CSWS, CSW Credit, and CSWE.
In addition, CSW owns 80% of the outstanding shares of common stock of CSW
Leasing. The corporate predecessors of CSW and the Electric Operating Companies
date back to the 19th century.
The Electric Operating Companies are public utility companies engaged
in generating, purchasing, transmitting, distributing and selling electricity.
CPL and WTU operate in portions of south and central west Texas,
respectively; PSO operates in portions of eastern and southwestern Oklahoma; and
SWEPCO operates in portions of northeastern Texas, northwestern Louisiana and
western Arkansas. Transok is an intrastate natural gas gathering, transmission,
processing, storage and marketing company which transports for and sells natural
gas to PSO and for the other Electric Operating Companies, as well as
processing, transporting and selling natural gas to and for nonaffiliates. CSWS
performs, at cost, various accounting, engineering, tax, legal, financial,
electronic data processing, centralized economic dispatching of electric power
and other services for the CSW System. CSW Credit, purchases accounts
receivable of the Operating Companies and unaffiliated electric and gas
utilities. CSWE pursues cogeneration projects and other energy ventures. CSW
Leasing, invests in leveraged leases.
At December 31, 1993 the Electric Operating Companies' service areas
were as follows:
SERVICE AREA
ESTIMATED APPROXIMATE
COMPANY POPULATION SQUARE MILES
CPL 1,945,000 44,000
PSO 1,019,000 30,000
SWEPCO 899,000 25,000
WTU 409,000 53,000
------------------------------------------
CSW SYSTEM 4,272,000 152,000
------------------------------------------
At December 31, 1993, the Electric Operating Companies supplied
electric service to approximately 1,633,000 retail customers. In addition, they
supplied, at wholesale, all or a portion of the electric energy requirements of
8 municipalities and 26 rural electric cooperatives. The largest cities served
by the Electric Operating Companies at retail are: Corpus Christi, Abilene,
Laredo, San Angelo and Longview in Texas; Tulsa and Lawton in Oklahoma;
Shreveport and Bossier City in Louisiana; and Texarkana in Arkansas and Texas.
In 1993, the CSW System companies contributed the following
percentages to aggregate operating revenues, operating income and net income
for common stock.
TOTAL
CPL PSO SWEPCO WTU ELECTRIC TOK OTHER TOTAL
- --------------------------------------------------------------------------------
OPERATING REVENUES 33% 19% 22% 9% 83% 16% 1% 100%
OPERATING INCOME 41% 16% 25% 10% 92% 6% 2% 100%
NET INCOME FOR COMMON STOCK 51% 15% 25% 10% 101% 6% (7)% 100%
The relative contributions of the CSW System companies to the aggregate
operating revenues, operating income and net income for common stock differ
somewhat from year to year due to variations in weather, fuel costs reflected in
charges to customers, timing and amount of rate changes, amounts of CWIP
included in rate base and other factors including changes in business conditions
and the operating status for non-utility business. In 1993, approximately 63%
of the CSW System's electric revenues were earned in Texas, 23% in Oklahoma, 8%
in Louisiana and 6% in Arkansas.
Proposed Acquisition of El Paso Electric Company
In May 1993, the Corporation entered into a Merger Agreement pursuant to
which El Paso would emerge from bankruptcy as a wholly owned subsidiary of the
Corporation. El Paso is an electric utility company headquartered in El Paso,
Texas, engaged principally in the generation and distribution of electricity to
approximately 262,000 retail customers in west Texas and southern New Mexico.
El Paso also sells electricity under contract to wholesale customers in such
diverse locations as southern California and Mexico. El Paso had filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code on
January 8, 1992.
On July 30, 1993, El Paso filed the Modified Plan and a related proposed
form of Disclosure Statement providing for the acquisition of El Paso by the
Corporation. On November 15, 1993, all voting classes of creditors and
shareholders of El Paso voted to approve the Modified Plan. On December 8,
1993, the Bankruptcy Court confirmed the Modified Plan.
Under the Modified Plan, the total value of the Corporation's offer to
acquire El Paso is approximately $2.2 billion. The Modified Plan generally
provides that El Paso creditors and shareholders will receive shares of CSW
Common, cash and/or securities of El Paso, or will have their claims cured and
reinstated. Under the Modified Plan, claims of secured creditors generally will
be paid in full with debt securities of reorganized El Paso, and unsecured
creditors generally will receive a combination of debt securities of reorganized
El Paso and CSW Common equal to 95.5 percent of their claims, except for small
trade creditors that will be paid in full with cash. El Paso's preferred
shareholders will receive preferred shares of reorganized El Paso, CSW Common or
cash. Options to purchase El Paso Common will be converted into options to
purchase a proportionate number of shares of CSW Common. In addition, under the
Modified Plan unsecured creditors (i) accrue interest on their claims from their
respective motion filing dates through and payable on the Confirmation Date, and
(ii) thereafter, will be paid interest on a quarterly basis through the
Effective Date.
Based on information provided by El Paso, 35,544,330 shares of El Paso
Common were outstanding as of the Confirmation Date. Pursuant to the Modified
Plan, El Paso's common shareholders will receive between $3.00 and $4.50 (plus
certain dividends) per share of El Paso Common to be paid in CSW Common as
described below. Each share of El Paso Common will be converted on the
Effective Date into the number of shares of CSW Common with a value (based on a
value of $29.4583 per share of CSW Common) equal to the sum of (i) $3.00 per
share of El Paso Common outstanding on the Confirmation Date, (ii) any proceeds
received by El Paso prior to the Effective Date from certain contingent claims
(based on a value of CSW Common equal to the closing price on the New York Stock
Exchange on the day such proceeds are received by El Paso), and (iii) the
dividends that would be deemed to have been paid on the amounts described in
items (i) and (ii) above from the Confirmation Date or the date upon which such
contingent claims are converted into cash, as the case may be, through and
including the Effective Date, as well as dividends that would have been paid on
such dividends; provided, however, that the sum of (i) and (ii) above will not
exceed $4.50 multiplied by the number of shares of El Paso Common outstanding on
the Confirmation Date. If $4.50 per share of El Paso Common has not been
realized under items (i) and (ii) above and any of the contingent claims are
remaining on the Effective Date, a liquidation trust will be established
pursuant to the Modified Plan and El Paso's rights in those contingent claims
will be assigned to the trust. Proceeds resulting from disposition of the
assets in the liquidation trust, if any, will be distributed pro rata to the
holders of El Paso Common up to $4.50 per share under items (i) and (ii) above,
with any net proceeds thereafter to be returned to El Paso.
The aggregate number of shares of CSW Common to be issued pursuant to the
Modified Plan in respect of claims and interests thereunder cannot be determined
at this time, except as described above, due to certain contingencies. Those
contingencies include the future price of CSW Common, future dividend rates on
CSW Common, the amount of CSW Common that will be issued to creditors and
preferred stockholders of El Paso, and the timing of the Effective Date. While
the total number of shares of CSW Common to be issued cannot be
determined at this time, the total value of such shares is projected to be
approximately $770 million based on the anticipated Effective Date in early
1995.
The Merger is subject to numerous conditions set forth in the Merger
Agreement, including but not limited to (i) the receipt of all required
regulatory approvals and third party consents, (ii) the absence of a material
adverse effect or facts or circumstances that could result in a material adverse
effect on El Paso or the prospects for the business of El Paso or the
Corporation, (iii) transfer to El Paso of good and marketable title to El Paso's
share of Palo Verde, (iv) performance by El Paso, the Corporation and the
Corporation's acquisition subsidiary, CSW Sub, Inc. in all material respects of
all covenants contained in the Merger Agreement and (v) the occurrence of the
Effective Date. Required regulatory approvals and filings in connection with
the Merger include approvals of the FERC, the SEC, the Texas Commission, the New
Mexico Commission, the NRC, and filings with the Department of Justice and the
Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976. The status of the regulatory approval process is discussed below. The
Corporation believes the Merger will be completed within the next 18 months.
The Merger Agreement also provides that the Corporation and El Paso have
the right to terminate the Merger Agreement under specified circumstances
including without limitation, (i) the filing of a stand-alone rate plan by El
Paso, (ii) the failure of the Effective Date to occur within 24 months of the
Confirmation Date, or (iii) the entering of any order denying any of the
required regulatory approvals. 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 the Corporation if El Paso terminates
the Merger Agreement and subsequently consummates a Merger with another party.
The Corporation 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.
On January 10, 1994, the Corporation and El Paso filed a joint
application with the Texas Commission requesting a determination that the Merger
is consistent with the public interest. As a part of the application, the
Corporation proposed a three-step rate settlement plan, contingent upon the
Texas Commission's approval of the Merger, that seeks to limit El Paso's
proposed $41.4 million initial base rate increase for Texas customers, discussed
below, to $25 million. In addition, the filing proposes to reduce El Paso's
fixed fuel factors by $12.8 million and refund $16.4 million from a one-time
fuel reconciliation. As a result of the proposed annual reductions in fuel
cost, El Paso's rates would not increase during the first year of the settlement
plan. The settlement plan also provides for a three-year freeze on additional
base rate increases; a limitation on the frequency of base rate increases
following the rate freeze period through 2001 to not more than once every other
year (i.e., 1997, 1999, and 2001), and a limitation on the amount of the 1997,
1999 and 2001 base rate increases to an amount not to exceed eight percent of
total revenues.
On January 10, 1994, El Paso separately filed with the Texas Commission
for a base rate increase, exclusive of fuel, of approximately $41.4 million.
The proposed rate increase represents what El Paso believes is supported under
Texas law and prior Texas Commission orders, adjusted to reflect its proposed
acquisition by the Corporation. If the Texas Commission were to approve El
Paso's request, the net effect would be to raise rates significantly higher than
those proposed in the settlement plan.
The Corporation cannot predict at this time whether the settlement plan
will be adopted by the Texas Commission as proposed, or whether the Merger will
be found to be consistent with the public interest. The Corporation and El Paso
have requested that the Texas Commission schedule hearings on the proposed
Merger so that a final order can be issued by mid February 1995. The
Corporation can give no assurances, however, on the nature or timing of the
Texas Commission's consideration of the Merger.
On November 4, 1993, CSWS, as agent for the Electric Operating Companies,
and El Paso, filed an application with the FERC under the Federal Power Act
seeking an order of the FERC and requiring SPS to provide firm and non-firm
transmission services in connection with the transfers of power between PSO and
El Paso in connection with the post-Merger coordinated operations of the
Electric Operating Companies and El Paso. The intent of the transmission
services is to meet the requirement of the Holding Company Act that the Electric
Operating Companies and El Paso be physically interconnected or capable of
physical interconnection and economic operation as a single interconnected and
coordinated electric system. SPS has subsequently requested that the
application be dismissed or, in the alternative, be set for hearing.
On January 10, 1994, as supplemented on January 13, 1994, CSWS, on behalf
of the Electric Operating Companies, and El Paso filed a joint application with
the FERC requesting approval by the FERC of the Merger. CSWS and El Paso have
requested expedited consideration of the joint application, but the Corporation
cannot predict at this time when the FERC will issue a decision on the joint
application.
On January 10, 1994, the Corporation filed with the SEC an application
under the Holding Company Act seeking authorization of (i) the Merger, (ii) the
issuance of securities by the Corporation and El Paso in connection with the
Modified Plan and Merger and certain related transactions, and (iii) to engage
in certain hedging transactions in connection with the Merger.
On January 13, 1994, APS, as operating agent for Palo Verde, joined by El
Paso, filed a request with the NRC (i) for consent to the indirect transfer of
El Paso's interest in the operating licenses for Palo Verde Units 1, 2, and 3
that will occur as a result of the Merger, and (ii) to amend the operating
licenses for Units 2 and 3 to delete provisions of those licenses related to El
Paso's sale and leaseback transactions involving those units. The request to
the NRC specifies that the proposed amendments to the operating licenses and
consent become effective on the Effective Date, but the Corporation cannot
predict at this time whether and when the approvals and consent will be granted.
On March 14, 1994, the Corporation and El Paso filed an application with
the New Mexico Commission seeking approval of their pending Merger. The
Corporation, in conjunction with El Paso, plans to seek approval of rate relief
in New Mexico and the issuance of securities in connection with the Merger at a
later date.
The Corporation is vigorously pursuing the receipt of all regulatory
approvals required in order to consummate the Merger. The Corporation can give
no assurances, however, as to whether the required regulatory approvals will be
received, and if they are received, the timing of the receipt.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Proposed El Paso Merger, for further information.
REGULATION AND RATES
Regulation
The CSW System is subject to the jurisdiction of the SEC under the
Holding Company Act with respect to the issuance, acquisition and sale of
securities; acquisition and sale of certain assets or any interest in any
business; and, accounting practices and other matters. The Holding Company Act
generally limits the operations of a registered holding company to a single
integrated public utility system, plus such additional businesses as are
functionally related to such system.
The Electric Operating Companies have been classified as public
utilities under the Federal Power Act and accordingly the FERC has jurisdiction
in certain respects over their electric utility facilities and operations,
wholesale rates, and in certain other matters.
The Electric Operating Companies are subject to the jurisdiction of
various state commissions as to rates, accounting matters, standards of service
and, in some cases, issuance of securities, certification of facilities and
extensions and division of service territories.
National Energy Policy Act of 1992
Enacted in 1992, the Energy Policy Act allows the FERC, on a case-by-
case basis and with certain restrictions, to order wholesale transmission access
and to order electric utilities to enlarge their transmission systems. The
Energy Policy Act does, however, prohibit FERC-ordered retail wheeling,
including "sham" wholesale transactions. Further, under the Energy Policy Act a
FERC transmission order requiring a transmitting utility to provide wholesale
transmission service must include provisions generally that permit the utility
to recover from the FERC applicant all of the costs incurred in connection with
the transmission services, any enlargement of the transmission system and
associated services.
In addition, the Energy Policy Act revised the Holding Company Act to
permit utilities, including registered holding companies, and non-utilities to
form EWGs. An EWG is a new category of non-utility wholesale power producer
that is free from most federal and state regulation, including the principal
restrictions of the Holding Company Act. These provisions enable broader
participation in wholesale power markets by reducing regulatory hurdles to such
participation.
Rates
The retail rates of the Electric Operating Companies are subject to
regulation in Arkansas by the Arkansas Commission, in Louisiana by the Louisiana
Commission and in Oklahoma by the Oklahoma Commission. The Texas Commission has
original jurisdiction over retail rates in the unincorporated areas of Texas.
The governing bodies of incorporated municipalities have such jurisdiction over
rates within their incorporated limits. Municipalities may elect, and some have
elected, to surrender this jurisdiction to the Texas Commission. The Texas
Commission has appellate jurisdiction over rates set by incorporated
municipalities.
In March 1993, the Oklahoma Commission issued an interim order approving
an Administrative Law Judge's report recommending that PSO be allowed an interim
increase in prices of $10.1 million on an annual basis, subject to refund. In
December 1993, the Oklahoma Commission issued an order unanimously approving a
joint stipulation between PSO, the Oklahoma Commission Staff, and the Office of
the Attorney General of the State of Oklahoma, as recommended by the
Administrative Law Judge. The order allows PSO an increase in retail prices of
$14.4 million on an annual basis, which represents an approximate $4.3 million
increase above that authorized by the March 1993 interim order. In January
1994, the Oklahoma Commission issued an order unanimously approving PSO's price
schedules effecting the $14.4 million price increase. The new prices became
effective beginning with the billing month of February 1994. PSO agreed that it
will not file another retail price increase application until after June 30,
1995.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS and ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION and RESULTS OF OPERATIONS - Recent Developments and Trends -
CPL Cities' Rate Case and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -
NOTE 10, Litigation and Regulatory Proceedings, for further information with
respect to rate proceedings, including CPL's and WTU's deferred accounting
matters and CPL's rate case and fuel reconciliation proceedings.
Fuel Recovery
Electric utilities in Texas, including CPL, SWEPCO and WTU, are not
allowed to make automatic adjustments to recover changes in fuel costs from
retail customers. A utility is allowed to recover its known or reasonably
predictable fuel costs through a fixed fuel factor. The Texas Commission has
established new procedures that became effective May 1, 1993, subject to certain
transition rules, whereby each utility under its jurisdiction may petition to
revise its fuel factor every six months according to a specified schedule. Fuel
factors may also be revised in the case of emergencies or in a general rate
proceeding. Under the revised procedures a utility will remain subject to the
prior rules until after its first fuel reconciliation or in some instances a
general rate proceeding including a fuel reconciliation. Management does not
believe the new rules substantially change the manner in which the Electric
Operating Companies will recover retail fuel costs in Texas. Fuel factors are
in the nature of temporary rates and the utility's collection of revenues by
such factors is subject to adjustments at the time of a fuel reconciliation.
Under the new procedures, at the utility's semi-annual adjustment date, a
utility will be required to petition the Texas Commission for a surcharge or to
make a refund when it has materially under-or over-collected its fuel costs and
projects that it will continue to materially under-or over-collect. Material
under-or over-collections including interest are defined as four percent of the
most recent Texas Commission adopted annual estimated fuel cost for the utility.
A utility does not have to revise its fuel factor when requesting a surcharge or
refund. An interim emergency fuel factor order must be issued by the Texas
Commission within 30 days after such petition is filed by the utility. Final
reconciliation of fuel costs is made through a reconciliation proceeding, which
may contain a maximum of three years and a minimum of one year of reconcilable
data, and must be filed with the Texas Commission no later than six months after
the end of the period to be reconciled. In addition, a utility must include a
reconciliation of fuel costs in any general rate proceeding regardless of the
time since its last fuel reconciliation proceeding. Any fuel costs which are
determined unreasonably incurred in a reconciliation proceeding must be refunded
to customers.
All KWH sales to PSO's retail customers for 1993, except for FUSER and
CSF customers, discussed below, were made under rates which include a fuel cost
adjustment clause. Oklahoma law requires that an examination of PSO's retail
fuel cost adjustment clause be performed annually by the Oklahoma Commission.
The fuel cost adjustment is computed for each month on the basis of the average
cost of fuel consumed in the month. The amount of any difference in such cost
over or under a base rate is applied on a KWH basis and reflected in adjustments
to customers' bills during the second month subsequent to the month in which the
difference occurred.
The FUSER program, for qualified commercial and industrial customers,
and the CSF program, for qualified wholesale customers, were developed to allow
program participants to purchase natural gas directly from suppliers, at
negotiated prices, to be delivered to and burned in PSO's gas-fired power
plants, resulting in reduced prices because of the low cost spot gas fuel
provided. Under the programs, participants could deliver sufficient quantities
of natural gas to meet 70% of their generation requirements with the remaining
30% met with PSO-supplied coal. The FUSER program replaced the IGER program in
1991. These programs were similar except IGER customers delivered sufficient
quantities of natural gas to meet 100% of their generation requirements. The
FUSER and CSF programs resulted in lower electric costs to all classes of PSO's
customers. The FUSER program was canceled effective October 1, 1993 because
changing market and supply conditions eliminated the economic viability of the
program. The CSF program remains in place although no customers participated in
the program during 1993.
SWEPCO's retail rates currently in effect in Louisiana are adjusted
based on SWEPCO's cost of fuel in accordance with a fuel cost adjustment which
is applied to each billing month based on the second previous month's average
cost of fuel. Provision for any over- or under-recovery of fuel costs is
allowed under an automatic fuel clause. Under SWEPCO's fuel adjustment rider
currently in effect in Arkansas, the fuel cost adjustment is applied for each
billing month on a basis which permits SWEPCO to recover the level of fuel cost
experienced two months earlier.
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 50-month
period were approximately $559 million. SWEPCO's net under-recovery for the
reconciliation period was approximately $900,000. This is SWEPCO's first
reconciliation proceeding under the Texas Commission's current fuel rule.
All of the Electric Operating Companies' contracts with their wholesale
customers contain FERC approved fuel-adjustment provisions that permit them to
automatically pass actual fuel costs through to their customers.
In the event that the Electric Operating Companies do not recover all of
their fuel costs under these procedures, such event could have an adverse effect
on the Corporation's consolidated results of operations.
On April 15, 1991, TIEC filed suit in the District Court challenging the
Texas Commission's final order on SWEPCO's fuel reconciliation proceeding. In
the Texas Commission's order, SWEPCO was allowed to recover $12 million of a
claimed $14 million fuel cost under-recovery and related interest. On January
5, 1994, after TIEC unsuccessfully pursued intermediate appeals, the Texas
Supreme Court rejected TIEC's subsequent request for an appeal and that decision
in now final.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, for a discussion of CPL's upcoming fuel
reconciliation proceeding.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS AND ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA - NOTE 10, Litigation and Regulatory Proceedings, for further information
relating to regulation and rates.
See ITEM 1. BUSINESS -- NUCLEAR, for information relating to
nuclear regulation.
See ITEM 1. BUSINESS -- ENVIRONMENTAL MATTERS, for information relating
to environmental regulation.
NUCLEAR
Introduction
CPL owns 25.2% of STP, a two-unit nuclear power plant which is located
near Bay City, Texas. In addition, HLP, the Project Manager, owns 30.8%; San
Antonio owns 28.0%; and Austin owns 16.0%. STP Unit 1 was placed in service in
August 1988 and STP Unit 2 was placed in service in June 1989.
Units 1 and 2 of STP were shut down in early February 1993 in an
unscheduled outage resulting from mechanical problems relating to two auxiliary
feed water pumps. HLP determined that the units would not be restarted until
the equipment failures had been corrected and the NRC briefed of the causes of
these failures and the corrective actions that were taken. The NRC formalized
that commitment in a confirmatory action letter. The NRC has been working with
the Project Manager and a diagnostic evaluation of STP was completed in May
1993. In June 1993, the NRC's DET issued a report which identified a number of
areas requiring improvement at STP. After review of the DET report, 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 tighter NRC oversight than plants that are not on the list.
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 made the necessary repairs and restarted Unit 1
in late March 1994. The Project Manager estimates that Unit 2 will restart
during the second quarter of 1994.
Westinghouse Litigation
CPL and the other owners of STP are plaintiffs in a lawsuit filed
October 1990 in the District Court in Matagorda County, Texas against
Westinghouse, seeking damages and other relief. The suit alleges that
Westinghouse supplied STP with defective steam generator tubes that are
susceptible to stress corrosion cracking. Westinghouse filed an answer to the
suit in March 1992, denying the plaintiffs' allegations. The suit is currently
in the discovery phase.
Inspections during the current STP outage have detected early signs of
stress corrosion cracking in tubes at STP Unit 1, but the resulting remedial
measures to date have not resulted in a material expense to CPL. Management
believes that any additional problems would develop gradually and could be
monitored by the operators of STP. An accurate estimate of the costs of
remedying any such problem currently is unavailable due to many uncertainties,
including among other things, the timing of repairs, which may coincide with
scheduled outages, and the recoverability of amounts from Westinghouse and any
insurers. Management believes that the ultimate resolution of this matter will
not have a materialadverse effect on the Corporation's consolidated results of
operations.
Other
The ownership of a nuclear generating unit exposes CPL and indirectly
the Corporation to significant special risks. Under the Atomic Energy Act of
1954 and Energy Reorganization Act of 1974, operation of nuclear plants is
intensively regulated by the NRC, which has broad power to impose licensing and
safety-related requirements. Along with other federal and state agencies, the
NRC also has extensive regulations pertaining to the environmental aspects of
nuclear reactors. The NRC has the authority to impose fines and/or shut down a
unit until compliance is achieved, depending upon its assessment of the severity
of the situation.
The high degree of regulatory monitoring and controls to assure safe
operation could cause the STP units to be out of service for long periods of
time. Outages are also necessary approximately every 18 months for refueling.
Because STP's fuel costs are lower than any other CPL units, CPL's average fuel
costs are expected to be higher whenever an STP unit is down or operates below
the prior period's average capacity.
Risks of substantial liability arise from the operation of nuclear-
fueled generating units and from the use, handling, disposal and possible
radioactive emissions associated with nuclear fuel. While CPL carries
insurance, the availability, amount and coverage thereof is limited and may
become more limited in the future. The available insurance may not cover all
types or amounts of loss or expense which may be experienced in connection with
the ownership of STP.
The Price-Anderson Act, a comprehensive statutory arrangement providing
limitations on nuclear liability and governmental indemnities is in effect until
August 1, 2002. Revisions enacted in early 1994 changed the previously reported
limit of liability under the Price-Anderson Act, for licensees of nuclear power
plants, to $9.4 billion per incident. The owners of STP are insured for their
share of the liability through a combination of private insurance amounting to
$200 million and mandatory industrywide program for self-insurance totaling $9.2
billion. The maximum amount that each licensee may be assessed under the
industry-wide program of self-insurance following a nuclear incident at an
insured facility is $79.3 million (which amount may be adjusted for inflation)
for each licensed reactor, but not more than $10 million per reactor for each
nuclear incident in any one year. CPL and each of the other STP owners are
subject to such assessments, which CPL and the other owners have agreed will be
borne on the basis of their respective ownership interests of STP. For purposes
of these assessments, STP has two licensed reactors.
See ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 11,
Commitments and Contingent Liabilities - Nuclear Insurance, for further
information.
The Corporation would be subject to more of the special risks associated
with nuclear power generation upon the consummation of the pending Merger with
El Paso. After the Merger the Corporation will own a substantial interest in
the Palo Verde nuclear power plant in Arizona.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, for information regarding the proposed Merger with El
Paso and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Note 10,
Litigation and Regulatory Proceedings, for information regarding the outage at
STP.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, for further information relating to STP.
See ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 10,
Litigation and Regulatory Proceedings, for information relating to the STP final
rate orders, the STP - related rate and fuel reconciliation proceedings and
deferred accounting.
See ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 11,
Commitments and Contingent Liabilities, for information relating to nuclear
insurance.
UTILITY OPERATIONS
Peak Loads and System Capabilities of the Electric Operating Companies
The following table sets forth for the last three years the net CSW
System capability (including the net amounts of contracted purchases and
contracted sales) at the time of peak demand, the maximum coincident CSW System
demand on a one-hour integrated basis (exclusive of sales to other electric
utilities) and the respective amounts and percentages of peak demand generated
by the Electric Operating Companies and net purchases and sales:
1993 1992 1991
- -------------------------------------------------------------------------------
NET SYSTEM CAPABILITY (MW) 12,242(1) 13,041(1) 13,623
MAXIMUM COINCIDENT SYSTEM DEMAND (MW) 11,464 10,606 10,203
INCREASE (DECREASE) IN PEAK DEMAND OVER PRIOR
PERIOD 8.1% 3.9% (1.9)%
GENERATION AT TIME OF PEAK (MW) 10,624 10,426 10,339
PERCENT OF PEAK DEMAND GENERATED 92.7% 98.3% 101.3%
NET PURCHASES (SALES) AT TIME OF PEAK (MW) 840 180 (136)
PERCENT OF NET PURCHASES (SALES) AT TIME OF PEAK 7.3% 1.7% (1.3)%
DATE OF MAXIMUM COINCIDENT SYSTEM DEMAND AUGUST 18 AUGUST 10 AUGUST 1
(1) CSW's 1993 and 1992 net system capability at the time of peak
demand was less than 1991 net system capability due to unit
outages.
The Electric Operating Companies exchange power on an emergency or
economy basis with various neighboring systems and engage in economy
interchanges with the other Electric Operating Companies in the CSW System. In
addition, they contract with certain systems for the purchase or sale of power
on system and unit capacity bases.
The CSW System operates on an interstate basis to facilitate exchanges
of power. PSO and WTU are interconnected through the 200,000 KW North HVDC Tie.
In August 1992, SWEPCO and CPL entered into an agreement with HLP and Texas
Utilities Electric Company to construct and operate an East Texas HVDC
transmission interconnection which will facilitate exchanges of power for the
CSW System. This interconnection will consist of a back-to-back HVDC converter
station and 16 miles of 345 kilovolt transmission line connecting transmission
substations at SWEPCO's Welsh Power Plant and Texas Utilities Electric
Company's Monticello Power Plant. In March 1993, an application for a
Certificate of Convenience and Necessity for the transmission interconnection
was approved by the Texas Commission. This 600,000 KW project is scheduled to
be completed in 1995.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Competition and Industry Challenges, for a
discussion of certain tariffs recently filed at FERC.
Competition
The Electric Operating Companies generally have the exclusive right, or
coextensive right with a limited number of other suppliers, to sell electric
power at retail within their service areas. They compete in their service areas
with suppliers of alternative forms of energy, such as natural gas, fuel oil and
coal, some of which may be cheaper than electricity. The Corporation believes
that the rates of the Electric Operating Companies, the quality and reliability
of their service and the relatively inelastic demand for electricity for certain
end uses place them in a favorable competitive position in current retail
markets.
Wholesale energy markets, including the market for wholesale electric
power, are extremely competitive, even more so after the enactment of the Energy
Policy Act. See "National Energy Policy Act of 1992" above. The Electric
Operating Companies compete with other public utilities, cogenerators and others
for sales of electric power at wholesale.
Many competitive forces currently are at work in the electric utility
industry. Various legislative and regulatory bodies are considering many issues
that could affect future industry structure, including the extent of any
deregulation of the electric utility industry or of any access to an electric
utility's transmission system to make retail sales of power, the pricing of
transmission service on an electric utility's transmission system, and the
construction and operation of new generation capacity. The Corporation is
unable to predict the ultimate outcome or impact of these issues or the impact
of further changes in the electric utility industry on the Corporation. To the
extent that consumers of electric power approach electric power as a fungible
commodity and are accorded more choices in the future for their power supplies,
the principal factor determining success in retail and wholesale markets
probably would be price, and to a lesser extent, reliability, availability of
capacity, and customer service.
The Corporation believes that, compared to other electric utilities on a
national and a regional scale, the CSW System is well positioned to meet future
competition. The Corporation benefits from economies of scale and scope by
virtue of its size and is a relatively low-cost producer of electric power.
Moreover, the Corporation is taking steps to enhance its marketing and customer
service, reduce costs, improve and standardize business practices, and grow
through strategic acquisitions, in order to position itself for increased
competition in the future.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Competition and Industry Challenges and
Restructuring, for further information.
Seasonality
Sales of electricity by the Electric Operating Companies tend to
increase during warmer summer months and, to a lesser extent, cooler winter
months, because of higher demand for power for cooling and heating purposes.
Franchises
The Electric Operating Companies hold franchises to provide electric
service in various municipalities in their service areas. These franchises have
varying provisions and expiration dates, including in some cases, termination
and buy-out provisions. The Corporation considers the Electric Operating
Companies' franchises to be adequate for the conduct of their business.
Employees
At December 31, 1993, the CSW System had 8,707 employees. Of such
employees 1,442 in the CSW System belong to a labor union, the IBEW, under
collective bargaining agreements with PSO and SWEPCO. The Corporation has
announced an early retirement program, for which 722 employees, or approximately
8 percent of the CSW System work force, are eligible, and is in the early stages
of restructuring its operations. Of the employees offered the early retirement
package, 611 accepted the offer system-wide.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Restructuring, for further information.
Executive Officers of the Registrant
Name Age Present Position
E. R. Brooks 56 Chairman, President and Chief Executive
Officer, Director
Harry D. Mattison 57 Executive Vice President of Central and South
West Corporation and President and Chief
Executive Officer of Central and South West
Electric, Director
T. V. Shockley III 49 Executive Vice President of Central and South
West Corporation and Chief Executive Officer
of Central and South West Enterprises,
Director
Ferd. C. Meyer, Jr. 54 Senior Vice President and General Counsel
Glenn D. Rosilier 46 Senior Vice President and Chief Financial
Officer
Frederic L. Frawley 51 Corporate Secretary and Senior Attorney
Stephen J. McDonnell 43 Treasurer
Wendy G. Hargus 36 Controller
Each of the executive officers of the Corporation is elected to hold
office until the first meeting of the Corporation's Board of Directors after the
next annual meeting of shareholders scheduled to be held April 21, 1994. Each
of the executive officers listed in the table above has been employed by the
Corporation or an affiliate of CSW in an executive or managerial capacity for
more than the last five years.
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED ELECTRIC OPERATING STATISTICS
1993 1992 1991
- ----------------------------------------------------------------------
KILOWATT-HOUR SALES (MILLIONS)
RESIDENTIAL 15,903 14,593 15,236
COMMERCIAL 12,966 12,370 12,512
INDUSTRIAL 18,205 17,257 16,739
OTHER RETAIL 1,434 1,363 1,346
- ----------------------------------------------------------------------
SALES TO RETAIL CUSTOMERS 48,508 45,583 45,833
SALES FOR RESALE 5,852 6,262 5,942
- ----------------------------------------------------------------------
TOTAL 54,360 51,845 51,775
- ----------------------------------------------------------------------
NUMBER OF ELECTRIC CUSTOMERS AT END
OF PERIOD (THOUSANDS)
RESIDENTIAL 1,396 1,366 1,346
COMMERCIAL 201 196 194
INDUSTRIAL 24 25 25
OTHER 12 12 12
- ----------------------------------------------------------------------
TOTAL 1,633 1,599 1,577
- ----------------------------------------------------------------------
RESIDENTIAL SALES AVERAGES
KWH PER CUSTOMER 11,541 10,786 11,413
REVENUE PER CUSTOMER(a) $842 $773 $810
REVENUE PER KWH(a)(cents) 7.29 7.17 7.10
REVENUE PER KWH ON TOTAL SALES (a)(cents) 5.62 5.38 5.41
FUEL COST DATA (a)
AVERAGE BTU PER NET KWH 10,391 10,482 10,461
COST PER MILLION BTU $2.11 $1.92 $1.87
COST PER KWH GENERATED(cents) 2.09 2.01 1.96
COST AS A PERCENTAGE OF REVENUE 39.6% 37.1% 36.9%
(a) These statistics reflect the outage at STP as well as FUSER and CSF.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - STP, for further information.
CONSTRUCTION AND FINANCING
CONSTRUCTION
The CSW System carries on a continuing construction program, the nature
and extent of which is based upon current and estimated future loads of the
system. The estimated total capital expenditures (including AFUDC) of the
Operating Companies and CSWS for the years 1994-1996 are as follows:
CONSTRUCTION 1994 1995 1996 TOTAL
- -------------------------------------------------------------
(MILLIONS)
GENERATION $ 78 $ 61 $ 53 $ 192
TRANSMISSION 133 76 101 310
DISTRIBUTION 153 147 155 455
FUEL 2 8 21 31
TRANSOK 55 70 70 195
OTHER 114 104 87 305
- -------------------------------------------------------------
TOTAL (a)(b) $535 $466 $487 $1,488
(a) Includes AFUDC in the following amounts: 1994 - $12 million; 1995 - $12
million; 1996 - $14 million.
(b) Assumes 100 percent of given resources to be constructed will be
constructed with capital resources of the Corporation or its subsidiaries.
Information in the foregoing table is subject to change as a result of
change in the underlying assumptions from numerous factors, including the rate
of load growth, escalation of construction costs, changes in lead times in
manufacturing, inflation, the availability and pricing of alternatives to
construction, and nuclear, environmental and other regulation, delays from
regulatory hearings, the adequacy of rate relief and the availability of
necessary external capital. Changes in these and other factors could cause
each respective Operating Company to defer or accelerate construction or to
sell or buy more power, which would affect its cash position, revenues and
income to an extent that cannot now be reliably predicted.
The Corporation continues to study ways to reduce or meet future
increases in customer demand, including without limitation demand-side
management programs, new and efficient electric technologies, construction of
various types and sizes of generation facilities, increasing the availability
or efficiency of existing generation facilities, reducing transmission and
distribution losses, and where feasible and economical, acquisition of reliable
long-term capacity from other suppliers. The public utility commissions in
some of the jurisdictions served by the Electric Operating Companies may
consider on a case-by-case basis mechanisms whereby costs of demand-side
management programs, and a return on the related investment are recoverable
from ratepayers, either on a current basis or through deferral to a base rate
case.
The CSW System facilities plan indicates that the Corporation will not
require substantial additions of generating capacity until the year 2001 or
beyond.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources, Capital
Expenditures, for additional information with respect to construction
expenditures.
FINANCING
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Liquidity and Capital Resources, for information
relating to financing.
FUEL SUPPLY
General
The CSW System's present net dependable capabilities (summer rating) are
set forth under ITEM 2, PROPERTIES. Additional fuel supply data is set forth in
the tables presented below.
AGGREGATE
CAPABILITY GENERATION
1993 (MW) 1993 (KWH)
- --------------------------------------------------------------
NATURAL GAS 8,803
COAL AND LIGNITE 4,702 NATURAL GAS 46%
NUCLEAR 630 COAL 44%
OIL 36 LIGNITE 9%
HYDRO 6 NUCLEAR 1%
- --------------------------------------------------------------
TOTAL 14,177 TOTAL 100%
Coal and Lignite
The Electric Operating Companies purchase coal from a number of
suppliers. In 1993, approximately 60% of the Electric Operating Companies'
total coal purchases were supplied under long-term contract with the balance
procured on the spot market. The coal for the CSW System plants comes from
Wyoming or Colorado mines which are located between 1,000 and 1,500 rail miles
from the plants involved, except for a small amount obtained from Oklahoma
mines.
CPL's two coal-fired electric generating plants, Coleto Creek and
jointly owned Oklaunion, are both primarily supplied by single long-term coal
purchase agreements. At Coleto Creek, a long-term agreement expiring in 1999
provided approximately 56% of the coal requirements of the plant for 1993.
CPL's purchase obligation in the agreement for 1994 is for approximately 60% of
Coleto Creek's requirements and 25% for 1995 through expiration. The balance of
the Coleto Creek requirements are currently being procured on the spot market
and it is anticipated that this will continue until the expiration of the
agreement in 1999.
The long-term coal supply for Oklaunion, a CSW System unit jointly owned
by three of the Electric Operating Companies, and two nonaffiliated companies,
is provided under a contract expiring in 2006. Approximately 65% of the total
Oklaunion coal requirements were supplied under the contract with the balance
procured on the spot market. In December 1993, a settlement was reached with
Exxon regarding disputes over certain provisions of this long-term coal
contract. The settlement is expected to result in lower fuel costs at
Oklaunion.
PSO has a contract substantially covering the coal supply for PSO's
Northeastern Station coal units through 2007. Approximately 86% of the 1993
requirements were obtained under this contract with the remainder furnished on
the spot market.
SWEPCO has a long term fuel supply contract for its Welsh plant and its
50% owned Flint Creek plant. Approximately 86% of the total 1993 Flint Creek
coal requirements and 100% of the total Welsh coal requirements were supplied
under long-term contracts with the remainder obtained on the spot market.
SWEPCO has acquired lignite leases covering an aggregate of about 27,000
acres near the Pirkey power plant. In addition, 25,000 acres are jointly leased
in equal portions by SWEPCO and Central Louisiana Electric Company in the Dolet
Hills area of Louisiana near the Dolet Hills power plant. The acreage under
lease in these areas is believed to contain sufficient reserves to cover the
anticipated lignite requirements for the estimated useful lives of these lignite
plants.
Natural Gas
The Electric Operating Companies purchase their gas from a number of
suppliers operating in and around their service territories. In 1993,
approximately 32% of the Electric Operating Companies' total gas purchases were
made under long-term contracts with major pipeline companies, approximately 15%
were made under long-term contracts from producers directly at the wellhead and
approximately 53% came from short-term contracts and spot purchases.
CPL's primary gas supplies are those provided under long-term agreements
with Corpus Christi Gas Marketing, L.P., Enron Corporation and Oryx Pipeline
Company or their affiliates. Approximately 57% of CPL's natural gas
requirements for 1993 were met through purchases pursuant to long-term contracts
with the balance procured on the spot market.
Transok acts as an agent for PSO with respect to purchases of natural
gas supplies. Transok also transports natural gas to PSO power stations.
Approximately 55% of PSO's gas requirements in 1993 were supplied through long-
term contracts with the balance provided under contracts on the spot market.
Approximately 13% of SWEPCO's gas consumption during 1993 was provided
under a long-term contract, which was terminated in January 1994, with the
balance procured on the spot market.
WTU's primary firm contract gas supplier is Lone Star Gas Company,
pursuant to a contract which expires in 2000. The Lone Star contract allows WTU
considerable flexibility to purchase gas from other sources. Approximately 26%
of WTU's gas requirements in 1993 were supplied through contracts with the
balance procured on the spot market.
Nuclear Fuel
The nuclear fuel cycle entails several steps, including purchase of
uranium concentrate, conversion of uranium concentrate to uranium hexafluoride,
enrichment of uranium hexafluoride into the isotope U235 and fabrication of the
enriched uranium into fuel rods and fuel assemblies. Fuel requirements for STP
are being handled by a committee comprised of representatives of all
participants in STP.
CPL and the other STP participants have entered into contracts with
suppliers for uranium concentrate sufficient for the operation of both STP units
through 1996. Enrichment contracts have been secured for a 30-year period for
each unit. Contracts have been secured for conversion services for both units
through 1996. Also, fuel fabrication services have been contracted for the
initial cores and 16 years of operation of each unit. CPL believes it will be
able to obtain adequate supplies of nuclear fuel components and services
required for the life of STP.
The nuclear power industry faces uncertainties with respect to the cost
and availability of long-term arrangements for disposal of spent nuclear fuel
and other radioactive waste. Disposal costs for low-level radioactive waste
that results from normal operation of nuclear units have increased significantly
in recent years and are expected to continue to rise, but adequate storage and
disposal facilities are expected to be available for STP.
CPL and the other STP participants have entered into a waste disposal
contract for spent fuel with the DOE. Under this contract, the DOE is required
to take possession of all spent fuel from the STP units by 1998. The DOE has
had difficulties in formulating and implementing its strategy for high-level
waste disposal and for any compensation to utilities if the DOE is unable to
accept such waste on schedule.
Until the federal government begins receiving such material in
accordance with the Nuclear Waste Policy Act and DOE contracts, operating
nuclear generating plants will need to retain high-level wastes and spent fuel
on-site or make some other provisions for their storage. STP has on-site
storage facilities with the capability to store up to 40 years of spent fuel
discharged from each unit. Under NRC regulations, spent fuel from STP may be
stored under a general license provided that the licensee notifies the NRC, uses
only NRC-certified casks for storage, and stores the spent fuel under conditions
specified in the cask's certificate of compliance.
Governmental Regulation
The price and availability of each of the foregoing fuel types are
significantly affected by governmental regulation. Any inability in the future
to obtain adequate fuel supplies or adoption of additional regulatory measures
restricting the use of such fuels for the generation of electricity might affect
the CSW System's ability to meet economically the needs of its customers and
could require the Electric Operating Companies to supplement or replace, prior
to normal retirement, existing generating capability with units using other
fuels. This would be impossible to accomplish quickly, would require
substantial additional expenditures for construction and could have a
significant adverse effect on CSW's financial position and consolidated results
of operations.
Fuel Costs
Additional fuel cost data for the CSW System appears under CONSOLIDATED
OPERATING STATISTICS. For 1993, total average cost of fuel per million Btu was
$2.11. Average costs by fuel type and company follow:
1993 AVERAGE 1993 AVERAGE
COST PER COST PER
FUEL TYPE MILLION Btu COMPANY MILLION Btu
- -----------------------------------------------------------------
NATURAL GAS $2.49 CPL(1) $2.17
COAL 1.93 PSO 2.38
LIGNITE 1.27 SWEPCO 1.94
NUCLEAR(1) .57 WTU 1.91
(1) Data is affected by the outage at STP.
CSW is unable to predict with precision the future cost of fuel.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Fuel Settlements, for further information.
ENVIRONMENTAL MATTERS
The Electric Operating Companies are subject to regulation with respect
to air and water quality and solid waste standards, along with other
environmental matters, by various Federal, state and local authorities. These
authorities have continuing jurisdiction in most cases to require modifications
in the Electric Operating Companies' facilities and operations. Changes in
environmental statutes or regulations could require substantial additional
expenditures to modify the Electric Operating Companies' facilities and
operations and could have a significant adverse effect on CSW's consolidated
results of operations. None of the Electric Operating Companies is a party to
material litigation or administrative proceedings with respect to environmental
matters, with the possible exception of the matters described below. Violations
of environmental statutes or regulations can result in fines and other costs.
Air Quality
Air quality standards and emission limitations are subject to the
jurisdiction of state regulatory authorities in each state in which the CSW
System operates, with oversight by the EPA. In accordance with regulations of
these state authorities, permits are required for all generating units on which
construction is commenced or which are substantially modified after the
effective date of the applicable regulations. None of the Electric Operating
Companies has received notice from any federal or state government agency
alleging that it currently is subject to an enforcement action for a material
violation of existing federal or state air quality and emission regulations.
In November 1990, the United States Congress passed the Clean Air Act
Amendments of 1990, which place restrictions on the emission of sulfur dioxide
and nitrogen oxides from gas-, coal- and lignite-fired generating plants.
Beginning in the year 2000, the Electric Operating Companies will be required to
hold allowances in order to emit sulfur dioxide. The right to emit sulfur
dioxide from existing generating plants has been established based on
historical operating conditions. These rights will be controlled through an
allowance program. The Corporation, based on the CSW System facilities plan,
believes that the Electric Operating Companies' allowances are adequate to meet
their needs at least through 2008. Public and private markets are developing
for trading of excess allowances. The Corporation presently has no intention of
engaging in trading of allowances, by may seek to do so in the future if market
conditions warrant.
The facilities plan presently includes projected coal- and lignite-fired
generating plants for which the System has invested approximately $140 million
in prior years for plant sites, engineering studies and lignite reserves. In
1993, as part of an analysis of its facilities plan, the Corporation rejected
certain lignite leases and wrote down its lignite related investment by
approximately $14 million. Should future plans exclude these plants for
environmental or other reasons, the Corporation would evaluate the probability
of recovery of these investments and record appropriate reserves.
Water Quality
State regulatory authorities in each state in which the CSW System
operates and the EPA have jurisdiction over all waste water discharges into
state waters. The state regulatory authorities have jurisdiction for
establishing water quality standards and issuing waste control permits covering
discharges which might affect the quality of state waters. The EPA has
jurisdiction over "point source" discharges through the National Pollutant
Discharge Elimination System provisions of the Clean Water Act. None of the
Electric Operating Companies has received notice from any federal or state
government agency alleging that it currently is subject to an enforcement action
for a material violation of existing federal or state wastewater discharge
regulations.
Solid Waste Disposal
The RCRA and the Arkansas, Louisiana, Oklahoma and Texas solid waste
rules provide for comprehensive control of all solid wastes from generation to
final disposal. The appropriate state regulatory authorities in the states in
which the CSW System operates have received authorization from the EPA to
administer the RCRA solid waste control program for their respective states.
None of the Electric Operating Companies has received notice from any federal or
state government agency alleging that it currently is subject to an enforcement
action for a material violation of existing federal or state solid waste
regulations.
CERCLA and Related Matters
Under CERCLA, owners or operators of contaminated sites, and
transporters and/or generators of hazardous substances can be held liable for
the cleanup of hazardous substance disposal sites. Similar liabilities for
hazardous substance disposal can arise under applicable state law. The
Corporation's subsidiaries incur significant costs for the handling,
transportation, storage and disposal of hazardous and non-hazardous waste
materials. Unit costs for waste classified as hazardous exceed by a substantial
margin unit costs for waste classified as non-hazardous waste.
The Electric Operating Companies, like other electric utilities, produce
combustion and other generation by-products, such as sludge, slag, low-level
radioactive waste and spent nuclear fuel. The Electric Operating Companies own
distribution poles treated with creosote or related substances. The EPA
currently exempts coal combustion by-products from regulation as hazardous
wastes. Distribution poles treated with creosote or similar substances are not
expected to exhibit characteristics that would cause them to be hazardous waste.
In connection with their operations, the Electric Operating Companies also have
used asbestos, PCBs and other materials classified as hazardous waste. If
additional by-products or other materials generated or used by companies in the
CSW System were reclassified as hazardous wastes, or other new laws or
regulations concerning hazardous wastes or other materials were put in effect,
CSW System disposal and remedial costs could increase materially. In 1993, the
EPA issued new regulations which did not reclassify coal combustion by-products
as hazardous. The EPA is now expected to issue new regulations stating whether
certain other materials will be classified as hazardous.
In November 1985, the Texas Attorney General brought suit against CPL
under the Texas Solid Waste Disposal Act and Chapter 26 of the Texas Water Code.
This suit alleged that CPL was one of the parties responsible for lead and PCB
contamination at the Industrial Road and Industrial Metals site in Corpus
Christi, Texas and, therefore, should share the responsibility for cleanup of
the site. The site was used by several metal salvage companies for the salvage
of various materials allegedly purchased from various entities including CPL and
other utilities. Pursuant to an agreement with the State of Texas, and under
the direction and supervision of the Texas Water Commission, now the TNRCC, CPL
engaged independent contractors to design and implement a closure plan for the
site which was approved by the Texas Water Commission. The closure of the site
was conducted and completed under the direction and supervision of the Texas
Water Commission by Southwest Construction Managers, Inc., an independent
contractor specializing in waste site closure and waste management facilities.
The Closure Certification Report was submitted to the Texas Water Commission in
December 1990, and was given final approval by the Texas Water Commission in
August 1991. Total expenses incurred by CPL for cleanup through December 1993
have been approximately $2 million. No additional material costs to CPL are
anticipated.
Three additional lawsuits relating to this site, naming CPL as one of
the defendants, are pending and discovery continues. The first was filed in
December 1990 and is currently pending in the U.S. District Court, Southern
District, Nueces County. This suit was filed by multiple plaintiffs residing in
a neighborhood near the Industrial Metals site who now allege response costs
under CERCLA and property damages in excess of $100 million for lead
contamination allegedly resulting from closure of the site. In November 1992, a
similar suit with multiple plaintiffs, was filed in the 117th Judicial District
Court, Nueces County. This suit alleges property damage and response costs
under CERCLA in excess of $1 million for lead and PCB contamination allegedly
resulting from the closure of the site. A third lawsuit was filed in March 1993
in the 94th Judicial District Court in Nueces County. The suit was filed by
multiple parties alleging that the closure of the site caused a wrongful
diversion of surface water under the Texas Water Code, resulting in flooding to
their property. They claim actual damages of approximately $162,000, plus
mental anguish and attorneys' fees. CPL was recently granted summary judgment
on a fourth suit arising from the site that was filed in the spring of 1993 in
the 37th Judicial District Court in Bexar County. This suit was filed against
CPL and other defendants by a widow alleging that her husband's death was caused
by exposure to PCBs at the site where he was employed 20 years ago for a two
week period. An appeal is possible, but the limitation period for that appeal
does not begin to run until CPL is severed from the suit still pending against
other defendants. Although management cannot predict the outcome of these
proceedings, based on the defenses that management believes are available to
CPL, management believes that the ultimate resolution of these matters will not
have a material adverse effect on the Corporation's consolidated results of
operations.
In late 1987, SWEPCO and WTU signed an administrative order with the EPA
in coordination with several other companies, for removal of PCB articles and
materials stored at the now defunct EPA-permitted Rose Chemical PCB Disposal
site in Missouri. The EPA issued an administrative order for site remediation
in 1992 and SWEPCO and WTU, along with the other parties, are complying with the
order. SWEPCO and WTU are also PRP's at the B&B Salvage site. This site,
located in Missouri, received scrap metal from the Rose Chemical firm. The B&B
site has been remediated and SWEPCO's and WTU's share of cleaning up this site
and the Rose Chemical site is not expected to have a material effect on the
Corporation's consolidated results of operations.
PSO has received notice from the EPA that it is a PRP under CERCLA
legislation and may be required to share in the reimbursement of cleanup costs
for the Compass Industries Superfund site which has been remediated. PSO's
degree of responsibility, if any, as a de minimis party appears to be
insignificant and management believes the ultimate resolution of this matter
will not have a material adverse effect on the Corporation's consolidated
results of operations.
PSO has been identified by the Arkansas Department of Pollution Control
and Ecology as a PRP at the USI site in Pine Bluff, Arkansas. The Arkansas
Department of Pollution Control and Ecology asked PSO to provide it with
information in 1993 regarding any transactions between USI and PSO since 1973
that involved hazardous substances. Based on a review of its records, PSO's
environmentally related transactions with USI were limited to USI's provision of
oil recycling services to PSO at property owned by PSO, not at the USI site. As
a result, PSO's degree of responsibility, if any, at the USI site appears to be
insignificant.
SWEPCO owns a suspected former MGP site in Marshall, Texas. SWEPCO has
notified by the TNRCC that evidence of contamination has been found at the site.
As a result of sampling conducted at the end of 1993 and early in 1994, SWEPCO
is evaluating the extent, if any, to which contamination has impacted soil,
groundwater and other conditions in the area. A final range of cleanup costs
has not yet been determined, but, based on a preliminary estimate, SWEPCO
accrued in 1993 approximately $2 million as a liability for this site. As more
information is obtained about the site, and SWEPCO discusses the site with the
TNRCC, the preliminary estimate may change. Other PRPs have been notified of
the contamination, and SWEPCO intends to seek their cooperation and contribution
to the cleanup, if a cleanup is required.
SWEPCO also owns a suspected former MGP site in Texarkana. The EPA
ordered an initial investigation of this site, as well as one in Shreveport,
Louisiana, that is no longer owned by a potential predecessor of SWEPCO. The
contractors who performed the investigations of these two sites recommended to
the EPA that no further action be taken at this time. Management does not
expect this matter to have a material effect on the Corporation's consolidated
results of operations.
Other Environmental
From time to time the Corporation is made aware of various other
environmental issues or is a party to various other legal claims, actions,
complaints or other proceedings related to environmental matters. Management
does not expect disposition of any such environmental proceedings to have a
material adverse effect on the Corporation's consolidated results of
operations. See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Environmental and Note 10, Litigation and
Regulatory Proceedings, for certain other information relating to environmental
matters.
NON-UTILITY OPERATIONS
Transok
Transok, a wholly owned subsidiary of the Corporation, is an intrastate
natural gas gathering, transmission, processing, storage and marketing company
located in Tulsa, Oklahoma. Transok, incorporated in Oklahoma in 1955, was
acquired by the Corporation in 1961 to supply natural gas to PSO's power
stations. While Transok's operations in recent years have included the
marketing and transportation of natural gas for third parties, it functions
within the CSW System to insure the reliable and economic supply of gas to the
Electric Operating Companies and CSWE. Transok currently conducts certain of
its operations through its subsidiaries, which own a significant portion of its
consolidated assets.
Transok provides a variety of services to the Electric Operating
Companies including acquiring and delivering natural gas to meet certain of
their power generation needs. Transok's largest customer is PSO. The contract
between PSO and Transok provides (1) for the transportation of PSO's natural gas
fuel supply through Transok's pipeline system and (2) for Transok to act as
PSO's supply administrator in acquiring natural gas and negotiating and
administering supply contracts. PSO pays Transok for such services at cost,
including a return on equity equal to that allowed PSO. The contract expires on
January 1, 2003, but continues for five-year terms thereafter unless either
party provides two-year's notice of cancellation. Under the contract, PSO has
the right to require delivery of up to 440 MMcf/d of natural gas through
Transok's pipeline system. Effective January 1, 1998, PSO may adjust the
transportation capacity available to it under the contract based on its
projected needs. Delivery of natural gas to PSO is currently about 73 Bcf
annually and is projected to grow.
During 1993, Transok acquired from SWEPCO three pipelines totaling 70
miles that serve SWEPCO generating stations. In addition, Transok completed the
construction of a 3,000 foot pipeline that serves SWEPCO's Pirkey plant. During
1993, Transok and WTU finalized the transfer from WTU to Transok of a twenty-
five mile pipeline serving WTU's San Angelo plant. Transok also constructed a
15-mile pipeline for WTU to serve WTU's Oak Creek plant. Transok is currently
reviewing ways to expand the scope of services it provides to the CSW System.
Transok's operations consist of four primary functions: transportation,
processing, storage and marketing.
Natural Gas Transportation
Transok provides natural gas suppliers and shippers with pipeline
interconnects for access to the Electric Operating Companies and other end-users
throughout the United States. Transok's pipeline system consists of
approximately 6,400 miles of pipeline which include approximately 3,900 miles of
gathering lines in Oklahoma, 300 miles in Louisiana and 200 miles in Texas. In
the pipeline system, 99 compressor stations with 169,388 horsepower provide both
gathering and transmission line compression. Transok offers low-pressure
gathering to make its gathering systems more attractive to natural gas producers
and shippers. Transok's pipeline facilities are located in the major natural
gas producing basins in Oklahoma, including the Anadarko and Arkoma basins, and
in the major Louisiana corridor of pipelines transporting natural gas to the
northeast from the Gulf Coast and mid-continent areas. The Transok pipeline
system has numerous connections with major interstate pipelines through which
natural gas is transported to markets throughout the United States. In 1993,
the Transok pipeline system had a throughput of 490.3 Bcf of natural gas.
Transok transports more than 70 Bcf per year of natural gas for PSO and
provides administrative services to PSO to manage its supply of natural gas.
Transok has been active in the development of joint gas purchase arrangements
with its other CSW affiliates as well. Transok's access to diverse natural gas
markets combined with the natural gas fuel needs of the Electric Operating
Companies allow for natural gas opportunities at high load factors, serving to
reduce the cost of the natural gas fuel for the CSW System.
Natural Gas Processing
Transok also owns and operates eight natural gas processing plants for
the production of natural gas liquids. The plants have an aggregate capacity of
466 MMcf/d. Transok is the second largest natural gas processor in Oklahoma and
ranks among the largest twenty natural gas liquids producers nationwide. In
1993, Transok's plants produced 355.8 million gallons of natural gas liquids
with sales revenue of $105.1 million.
Natural Gas Storage
Transok owns and operates an underground natural gas storage reservoir in
Oklahoma with an aggregate storage capacity of approximately 26 billion cubic
feet. Operational capabilities include injection into storage at a rate of 130
MMcf/d and a withdrawal rate in excess of 210 MMcf/d. In 1993, FERC issued an
order approving market-based storage rates for Transok which enables it to sell
storage services to interstate customers at negotiated fees based on the value
of those services in the competitive marketplace. Transok's gas storage field
also allows Transok to offer peaking services, accommodate volume swings on its
pipeline system, and support the natural gas requirements of the Electric
Operating Companies.
Natural Gas Marketing
In 1989, Transok began its natural gas marketing program and sold 26 Bcf
to a variety of markets including local distribution companies, end-users and
other pipelines. In 1993, Transok's natural gas sales volumes increased to 277
Bcf with a sales revenue of $559.6 million. Off-system sales of natural gas
accounted for 110 Bcf of the natural gas sold in 1993. This increase is the
result of pipeline acquisition activities combined with new customers. Transok
operates several natural gas supply acquisition pools, which provide Transok
with a stable supply of natural gas at market sensitive prices, allowing Transok
to meet long-term natural gas supply needs. In 1992, Transok developed
additional marketing services. Transok offers no-notice peaking supply service
to provide customers immediate natural gas flow and delivery into connected
interstate pipelines. Transok also offers pipeline balancing services and
warranty performance contracts. In addition, Transok customers and producers
have the opportunity to elect a fixed sales or purchase price. These fixed
price transactions can be hedged against unanticipated fluctuations in market
prices through positions taken in the natural gas futures market on the New York
Mercantile Exchange. Transok hedges physical positions, but does not engage in
more speculative hedging activities.
In 1992, FERC Order 636 went into effect to deregulate the natural gas
industry and increase competition. Although Transok was not directly affected
by Order 636, Transok has developed tariff services, flexible contracts and
other natural gas related services in order to meet customers' needs and take
advantage of new competitive opportunities.
Services for CSWE
Transok provides natural gas fuel acquisition services to CSWE. Transok
helps CSWE to acquire natural gas supply and transportation capacity in the
development stage of CSWE's non-utility electric generation projects. Transok
has proposed providing to CSWE additional fuel management services.
Other Matters
During 1993, Transok acquired the NGC Anadarko Gathering System which
included a gas processing plant and approximately 330 miles of gathering
facilities with connection to approximately 300 natural gas wells. Transok also
entered into a long-term lease arrangement with Palo Duro Pipeline Company
whereby Transok assumed full operational control of the assets and business of
approximately 350 miles of transmission and gathering lines in the Texas
Panhandle, including a direct connection to WTU's Oak Creek plant.
During 1992, Transok acquired from Reliance Gas Pipeline Company
interests in eleven gas gathering systems consisting of approximately 330 miles
of gathering lines. In addition, Transok purchased from Conoco its two-thirds
interest, the remaining interest in a jointly owned processing plant.
In 1991, Transok acquired the gas gathering, transmission, processing and
marketing assets of TEX/CON, a wholly owned subsidiary of BP Exploration, Inc.,
for approximately $247.4 million. The TEX/CON Assets included 2,678 miles of
gas gathering and transmission pipelines, 45 interconnections with interstate
pipeline companies, five gas processing plants and a one-third interest in
another processing plant, and the natural gas marketing business of TEX/CON.
The acquisition of the TEX/CON Assets was accomplished by the merger of
Lear Petroleum Company, a wholly-owned subsidiary of TEX/CON, into Transok
Acquisition Company, a wholly owned Transok subsidiary. As a result of the
merger, Lear's four subsidiaries became indirect, wholly owned operating
subsidiaries of Transok and changed their names as follows to reflect Transok's
ownership: Transok Gas Company, Transok Gas Processing Company, Transok Gas
Transmission Company and Transok Gas Gathering Company. The TEX/CON Assets are
owned 55% by Transok Gas Transmission Company, 11% by Transok Gas Company, 24%
by Transok Gas Gathering Company, and 10% by Transok Gas Processing Company.
Transok continues to own directly the assets it owned and operated prior to the
acquisition.
Transok also completed the construction of an eight inch pipeline from a
pipeline owned by Valero Energy Company into one of WTU's power stations. The
line is one of three serving the plant and was built to provide WTU with
additional fuel source flexibility and as conduit to deliver gas purchased under
a contract with Mobil Corporation.
Regulation
As a subsidiary of the Corporation, Transok is subject to regulation
under the Holding Company Act. The Holding Company Act, among other things,
requires that regulated companies seek prior SEC approval before entering into
certain transactions including the acquisition or issuance of securities.
Transok's pipelines are considered gathering systems or intrastate
pipelines. Transok is therefore exempt from regulation by the FERC under the
Natural Gas Act. However, Transok's rates for transporting gas in interstate
commerce are subject to FERC regulation under the Natural Gas Policy Act of
1978. The FERC approves Transok's rates for transportation of gas in interstate
commerce on Transok's transmission pipelines in Oklahoma and Louisiana and the
Texas Railroad Commission approves the rates for such transportation on
transmission pipelines in Texas. The FERC also has given Transok approval to
charge market-based rates for storage of gas using Transok's storage facility in
Oklahoma. The FERC has also granted approval for Transok to provide firm
natural gas transportation service. Firm transportation allows Transok to
charge a reservation fee, which is owed by the shipper whether or not it
utilizes the reserved capacity and a commodity fee, which is owed by the shipper
based on actual volumes transported, in exchange for the firm obligation to
accept and deliver an amount of gas equal to the amount of capacity reserved by
the shipper.
While Transok is not subject to direct regulation by any state public
utility commission, the costs that result from transactions with its affiliated
electric utilities are subject to review by the state commissions regulating
such electric utilities and are required to meet standards for affiliate
transactions to be recoverable by electric utilities.
CSW Energy
CSWE was reactivated in 1990 for the purpose of developing business
opportunities primarily in the area of independent power and cogeneration.
This wholly-owned subsidiary of the Corporation is authorized to develop
various non-utility generation projects and to own and operate such projects,
subject to further regulatory approvals.
CSWE has an interest in two facilities which have achieved commercial
operation. The 40-megawatt facility at Oildale, California, has a 23-year
agreement to supply steam to Witco Corporation's oil refinery and to sell
electricity to Pacific Gas and Electric Company. The project has experienced
several ongoing mechanical problems which have caused the project to be in
default of certain provisions of its loan agreement. CSWE, which has a
potential reimbursement liability of $3 million in connection with a letter of
credit with this project, has received a default notice from the third party
lender. The second project, which began commercial operation on January 17,
1994, is a 68-megawatt, gas fired plant in Brush, Colorado. The project
provides steam and hot water for a 15-acre greenhouse and sells electricity to
Public Service Company of Colorado.
Two other plants are expected to be completed during 1994. CSWE's 50-
percent owned Ft. Lupton facility, a 272-megawatt gas-fired plant in Fort
Lupton, Colorado, will provide steam and hot water for a 20 acre greenhouse and
will sell electricity to Public Service Company of Colorado. The other facility
is CSWE's 50-percent owned Mulberry facility, a 117-megawatt gas-fired
cogeneration plant in Polk County, Florida. This facility will provide steam
for a thermal host and will sell electricity to Florida Power Company and Tampa
Electric Company. The CSW System is providing engineering, procurement and
construction management services for the Mulberry project. CSWE's operating and
maintenance division will operate this project.
In late 1993, construction commenced on a 103-megawatt, gas-fired plant
in Florida that will provide thermal energy to an orange juice processor and
will sell electricity to Florida Power Company. In addition, construction will
begin on a 148-megawatt plant near Sacramento, California, which will have an
ethanol plant as thermal host and will supply electricity to the Sacramento
Municipal Utility District.
In addition to these projects, CSWE has another ten projects totaling
more than 3,000 megawatts in various stages of development, mostly in
affiliation with other developers. All of these projects are subject to further
negotiations and regulatory approvals.
As a result of their participation in these projects, CSWE has
contractual commitments to provide certain services and support. These
commitments provide that the potential maximum liability of CSWE will be limited
to the fixed price of such contracts, currently aggregating $175 million.
Management believes the likelihood of material liabilities under these contracts
is remote.
The following table sets forth information about the six cogeneration projects
CSWE is currently operating or bringing to operation:
<TABLE>
<CAPTION>
Capacity Capital Commercial Ownership CSWE
Project Location (in MW) Cost (in millions) Fuel Operation Date Interest Role
<S> <C> <C> <C> <C> <C> <C> <C>
Oildale Oildale, CA 40 $ 30 Gas July 1991 50% OS
Brush II Brush, CO 68 $ 97 Gas January 1994 48.25% OS
Thermo Ft. Lupton, CO 272 $ 226* Gas June 1994* 50% OS
Mulberry Polk County, FL 117 $ 148* Gas August 1994* 50% D,E,OS,O
Orange Cogen Polk County, FL 103 $ 110* Gas June 1995* 50% D,OS,O
Sacramento
Municipal
Utility
District Sacramento, CA 148 $ 148* Gas March 1996* --** D,OS,O
* estimated
** CSWE will construct and operate the facility for five years after commercial
operation, at which time SMUD will purchase the facility from CSWE.
D=Development; E=Engineering, procurement and construction;
OS=Owner Support; O=Operations and maintenance.
</TABLE>
ITEM 2. PROPERTIES.
Facilities
At December 31, 1993, the Electric Operating Companies owned electric
generating plants (or portions thereof in the cases of the jointly owned plants)
with the following net dependable capabilities (summer rating), substantially
all of which were steam electric and which were located in the cities indicated:
Net Dependable
Type of Fuel Capability
Plant Name and Location Primary/Secondary (MW) (b)
- -----------------------------------------------------------------------------
Barney M. Davis Gas/Oil (a) 339
Corpus Christi, Texas Gas/Oil 340
Coleto Creek Coal 604
Goliad, Texas
Lon C. Hill Gas/Oil (a) 549
Corpus Christi, Texas
Nueces Bay Gas/Oil (a) 512
Corpus Christi, Texas
Victoria Gas/Oil (a) 258
Victoria, Texas
La Palma Gas/Oil 47
San Benito, Texas Gas/Oil (a) 156
E. S. Joslin Gas/Oil (a) 252
Point Comfort, Texas
J. L. Bates Gas/Oil (a) 182
Mission, Texas
Laredo Gas/Oil (a) 66
Laredo, Texas Gas/Oil 106
Eagle Pass Hydro 6
Eagle Pass, Texas
Oklaunion Coal 529
Vernon, Texas
STP Nuclear 630
Bay City, Texas
Comanche Gas 258
Lawton, Oklahoma Oil 4
Northeastern
Oologah, Oklahoma
Units 1 & 2 Gas 632
Units 3 & 4 Coal/Gas 924
Other Oil 4
Riverside Gas/Oil (a) 457
Jenks, Oklahoma Gas/Oil (a) 465
Oil 3
(Continued) Net Dependable
Type of Fuel Capability
Plant Name and Location Primary/Secondary (MW) (b)
- ----------------------------------------------------------------------------
Southwestern Gas/Oil (a) 315
Washita, Oklahoma Gas 160
Oil 2
Tulsa Oil 8
Tulsa, Oklahoma
Weleetka Gas 151
Weleetka, Oklahoma Oil 4
Arsenal Hill Gas 113
Shreveport, Louisiana
Lieberman Gas 56
Mooringsport, Louisiana Gas/Oil (a) 220
Knox Lee Gas 157
Longview, Texas Gas/Oil (a) 344
Lone Star Gas/Oil 50
Lone Star, Texas
Wilkes Gas/Oil 177
Jefferson, Texas Gas 702
Welsh Coal 1,584
Cason, Texas
Flint Creek Coal 240
Gentry, Arkansas
Henry W. Pirkey Lignite 559
Hallsville, Texas
Dolet Hills Lignite 262
Mansfield, Texas
Abilene Gas/Oil (a) 18
Abilene, Texas
Paint Creek Gas/Oil (a) 237
Haskell, Texas
Lake Pauline Gas/Oil (a) 46
Quanah, Texas
Oak Creek Gas/Oil (a) 87
Bronte, Texas
San Angelo Gas/Oil (a) 103
San Angelo Gas 22
San Angelo, Texas
(Continued) Net Dependable
Type of Fuel Capability
Plant Name and Location Primary/Secondary (MW) (b)
- ----------------------------------------------------------------------------
Rio Pecos Gas/Oil (a) 136
Rio Pecos Gas 4
Girvin, Texas
Fort Phantom Gas/Oil 362
Abilene, Texas
Presidio Oil 2
Presidio, Texas
Ft. Stockton Gas 5
Ft. Stockton, Texas
Vernon Oil/Gas 9
Vernon, Texas ------
13,458
======
(a) For extended periods of operation, oil can be used only in combination with
gas. Use of oil in facilities primarily designed to burn gas results in
increased maintenance expense and a reduction of approximately 15% in
capability.
(b) Data reflects only the Corporation's portion of plants which are jointly
owned with non affiliates. Does not include 719 MW in long-term storage.
All of the generating plants described above are located on land owned
by the Electric Operating Companies of the Corporation or jointly with other
participants in jointly owned plants. The Electric Operating Companies'
electric transmission and distribution facilities are for the most part located
over or under highways, streets and other public places or property owned by
others, for which permits, grants, easements or licenses (which the Corporation
believes to be satisfactory, but without examination of underlying land titles)
have been obtained. The principal plants and properties of the Electric
Operating Companies' are subject to lien of the first mortgage indenture under
which the Electric Operating Companies' bonds are issued.
Non-utility
See ITEM 1. BUSINESS - Transok and CSWE for a description of properties
used in non-utility operations.
ITEM 3. LEGAL PROCEEDINGS.
See ITEM 1. BUSINESS -- REGULATION AND RATES; ITEM 7. - MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS; and
ITEM 8, - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA - NOTE 10, Litigation and
Regulatory Proceedings, for information relating to legal and regulatory
proceedings.
See ITEM 1. BUSINESS - STP and ITEM 8. - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA - NOTE 10, Litigation and Regulatory Proceedings, for
information as to pending legal proceedings relating to STP.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, for information
related to fuel settlements.
See ITEM 1. BUSINESS -- ENVIRONMENTAL MATTERS and ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Recent Developments and Trends, for information relating to environmental
proceedings.
GENERAL
The Corporation is party to various other legal claims, actions and
complaints arising in the normal course of business. Management does not expect
disposition of these matters to have a material adverse effect on the
Corporation's consolidated results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Common Stock Price Range and Dividends Paid per Share
- ------------------------------------------------------------------------
1993 1992
------------------------------ ------------------------------
Market Price Dividends Market Price Dividends
High Low Paid High Low Paid
First Quarter $33 1/4 $28 5/8 40.5(cents) $27 1/4 $25 38.5(cents)
Second Quarter 34 1/4 28 3/4 40.5 28 3/8 24 1/4 38.5
Third Quarter 33 7/8 32 1/4 40.5 30 28 38.5
Fourth Quarter 33 28 1/4 40.5 29 3/4 27 38.5
All common stock data have been adjusted to reflect the two-for-one common stock
split, effected by a 100% stock dividend paid on March 6, 1992, to shareholders
of record on February 10, 1992.
Common Stock Listing
The Corporation's common stock is traded under the ticker symbol CSR and
listed on the New York and Midwest stock exchanges.
Common Stock Dividends
Dividends of 40.5 cents a share were paid in each quarter of 1993. All
dividends paid by the Corporation represent taxable income to shareholders for
federal income tax purposes.
The Corporation's board of directors in January 1994 increased the
quarterly dividend to 42.5 cents per share, payable on February 28, 1994, to
shareholders of record on February 8, 1994. The increase marked the 43rd
consecutive year of higher dividends paid by the Corporation. The Corporation
is one of only four companies listed on the New York Stock Exchange to have such
an uninterrupted record of dividend increases.
Traditionally, the Corporation's board of directors has declared
dividends to be payable on the last business day of February, May, August, and
November.
Shareholders
The approximate number of record holders of the Corporation's common
stock as of December 31, 1993 was 70,000.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data for each of the five years ended
December 31 are provided to highlight significant trends in the financial
condition and results of operations for the Corporation.
1993 1992 1991 1990 1989
(millions except per share amounts and ratios)
Operating Revenues $ 3,687 $3,289 $3,047 $2,744 $2,549
Net Income 327 404 401 386 337
Preferred Stock Dividends 19 22 26 30 31
Net Income for Common Stock 308 382 375 356 306
Total Assets 10,623 9,829 9,396 9,074 8,347
Common Stock Equity 2,930 2,927 2,834 2,743 2,647
Preferred Stock
Not Subject to Mandatory
Redemption 292 292 292 291 291
Subject to Mandatory Redemption 58 75 97 103 106
Long-term Debt 2,749 2,647 2,518 2,513 2,537
Capitalization Ratios
Common Stock Equity 48.6% 49.3% 49.4% 48.5% 47.4%
Preferred Stock 5.8 6.2 6.8 7.0 7.1
Long-term Debt 45.6 44.5 43.8 44.5 45.5
Earnings per Share of Common Stock $1.63 $2.03 $1.99 $1.89 $1.63
Dividends Paid per Share of
Common Stock $1.62 $1.54 $1.46 $1.38 $1.30
All common stock data have been adjusted to reflect the two-for-one common stock
split, effected by a 100% stock dividend paid on March 6, 1992, to shareholders
of record on February 10, 1992.
The Corporation changed its method of accounting for unbilled revenues in 1993.
Pro forma amounts, assuming that the change in accounting for unbilled revenues
had been adopted retroactively are not materially different from amounts
previously reported for prior years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Reference is made to the Corporation's Financial Statements and related
Notes and Selected Financial Data. The information contained therein should be
read in conjunction with, and is essential in understanding, the following
discussion and analysis.
Overview
The electric utility industry is changing rapidly and becoming more
competitive. Several years ago, in anticipation of increasing competition and
fundamental changes in the industry, the Corporation's management developed a
four-part strategic plan. This plan is designed to help position the
Corporation to be competitive in the rapidly changing environment that the CSW
System currently faces. The four-part strategy is:
Enhance the Corporation's core electric utility business.
Expand the Corporation's core electric utility business.
Expand the Corporation's non-utility business.
Pursue financial initiatives.
Since the introduction of CSW's strategic plan in 1990, the Corporation
has undertaken initiatives in each of these areas that are important steps in
the implementation of the overall strategy. These initiatives were marked by
three events in 1993 that were extraordinary in nature and are discussed below
as well as other sections of this report. Such events include the proposed
acquisition of El Paso Electric Company and the reorganization of the
Corporation's core business. In addition, the Corporation has faced some
operational challenges during the past year with the outage at STP.
Proposed El Paso Merger
The Corporation and El Paso have entered into a Merger Agreement under
which El Paso would emerge from bankruptcy protection as a wholly owned
subsidiary of the Corporation. 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 the Corporation's
offer to acquire El Paso is approximately $2.2 billion. The aggregate number
of shares of CSW Common to be issued pursuant to the Modified Plan 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 Modified Plan. While the total number of shares of CSW
Common ultimately to be issued cannot be determined, the value of the shares
issued is expected to be approximately $770 million based on the anticipated
effective date of early 1995. 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. The Corporation has requested
authority from the SEC under the Holding Company Act to engage in certain
hedging strategies designed to minimize potential dilution. The Corporation
has also requested authorization to hedge the interest rates to be borne by
certain of the debt securities to be issued pursuant to the Modified Plan,
which calls for the interest rates to be set at or about the Effective Date.
There can be no assurances, however, when or if the SEC will authorize the
Corporation to engage in hedging transactions.
Completion of the Merger is subject to various conditions, including
receipt of necessary regulatory approvals. The Corporation and El Paso have
initiated the process of seeking regulatory approvals, but there can be no
assurances as to when, on what terms or whether the required approvals will be
received. The effectiveness and success of the merger is also dependent upon
certain assumptions. The financial assumptions underlying the Modified Plan
assume, among other things, that El Paso will secure regulatory approvals
necessary to implement acceptable rate treatment. Other contingencies which
could impact the success of the merger include the risk of competition in
serving key portions of El Paso's service area, financial risk arising out of
changes in interest rates and the price of CSW Common, regulatory risk
principally related to approval of the Merger and El Paso's request for a rate
increase, and operating risk associated with the ownership of an interest in
the Palo Verde nuclear facility.
See ITEM 1. BUSINESS - GENERAL - Proposed Acquisition of El Paso
Company, for additional information related to the proposed El Paso merger.
STP
In February 1993, Units 1 and 2 of STP were shut down by 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 NRC
was briefed on the causes of these failures and the corrective actions that
were taken. The NRC formalized that commitment in a confirmatory action
letter, which was supplemented after subsequent NRC inspections.
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 restarted Unit 1 in late
March 1994.
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. The outage has not affected CPL's ability to meet
customer demands because of existing capacity and CPL's ability to purchase
additional energy from affiliates and nonaffiliates.
As discussed below under "Results of Operations," the outage resulted in
an additional $29 million of operating, maintenance and other costs. CPL is
expected to continue to experience increased STP-related operations and
maintenance costs but at level significantly lower than 1993 expenses.
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 STP 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 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, the Corporation could experience a material adverse effect on
its consolidated results of operations in the year of any disallowance. CPL is
required by the Texas Commission's 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.
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 Note 10. Litigation and Regulatory Proceedings of the Notes for
additional information related to STP.
See ITEM 1. BUSINESS - NUCLEAR, for additional information related to
the STP outage.
Restructuring
The Corporation recently announced a management 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 the
restructuring is to enable the Electric Operating Companies to focus on and be
accountable for serving customers.
The initial phase of the restructuring will involve certain changes at
the Corporation's service company, CSWS. CSWS will be realigned into two
primary units-Operation Services and Production Services. Operation Services
will provide administrative services that can be performed centrally to benefit
the CSW System. Production Services will focus on consolidated fuel and
generation planning for the Electric Operating Companies and also provide
engineering and other support for CSWE. Certain aspects of the restructuring
may be subject to SEC approval.
To implement its restructuring program, the Corporation will consolidate
and centralize its operation services and production services. The Corporation
is expected to reduce the size of its work force and incur costs associated
with an early retirement program, severance package and relocation. An early
retirement program was offered to 722 eligible employees, with 611 accepting.
Since the restructuring is not expected to be completed until the end of 1994,
it is not possible at this time to predict the number of employees who will be
granted severance packages or be relocated. The total cost of the
restructuring is estimated to be $97 million before taxes, and was expensed in
1993.
The severance and relocation costs will be paid from general corporate
funds in 1994 and early retirement costs from pension and postretirement
benefit plan trusts. Savings from the restructuring are expected to begin in
the second half of 1994. By the end of 1995, initial costs should be fully
recovered through operations and maintenance cost savings.
The Corporation established a Business Improvement Plan in 1991 to
identify, analyze and implement the best business practices as part of its
efforts to align the CSW System strategically to meet competitive forces. The
BIP program will be incorporated as part of the reorganization. Any additional
costs are expected to be offset by future savings from the benefits provided
through the implementation of BIP recommendations.
Results of Operations
Overview Of Results
The Corporation's earnings declined to $308 million or $1.63 per share
in 1993 as compared to $382 million or $2.03 per share in 1992 and $375 million
or $1.99 per share in 1991. The return on average common stock equity was
10.6% in 1993 compared to 13.5% in 1992 and 13.6% in 1991. Electric operations
contributed approximately 100% of total earnings in 1993, 95% in 1992, and 96%
in 1991.
Earnings in 1993 were below 1992 levels due to additional costs
primarily associated with the outage at STP; higher benefit costs as a result
of the adoption of SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pension; higher taxes other than income as a result of
school funding tax increases in Texas; and the increase in the Federal tax rate
from 34% to 35%. These items were partially offset by higher kilowatt-hour
sales due to 1993 weather which was more favorable than weather in 1992.
In addition, earnings in 1993 were significantly affected by items
described below:
(millions, after-tax)
- ----------------------------------------------------------------
Restructuring charges $(63)
Recognition of unbilled revenues 49
Early adoption of SFAS No. 112, Employers'
Accounting for Postemployment Benefits (9)
Adoption of SFAS No. 109, Accounting for
Income Taxes 6
Establishment of reserves for fuel and
other properties (11)
Prior year tax adjustments (18)
The increase in earnings in 1992 over 1991 was primarily the result of
positive economic growth in the service territories of the Electric Operating
Companies, as well as lower expenses, taxes and interest charges which combined
to more than offset the effect of mild weather in 1992.
Operating Revenues
Revenues increased 12.1% in 1993, 7.9% in 1992 and 11.0% in 1991 from
the previous years due to the following items:
Revenue Increase (Decrease)
From Prior Year
1993 1992 1991
- -----------------------------------------------------------------
(millions)
Base rate changes $ 8 $ -- $127
Fuel costs 168 -- 8
Natural gas 107 255 110
KWH sales 93 (25) 81
Other 22 12 (23)
---- ---- ----
$398 $242 $303
==== ==== ====
Base revenue increased slightly in 1993 due primarily to the rate
increase granted to PSO. As part of a stipulated agreement reflecting its
recent rate increase, PSO agreed that it will not file for an increase in base
rates until after June 30, 1995. In general, the Electric Operating Companies
currently have no plans to file for increases in base rates in the near future.
As part of stipulated agreements, CPL has 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. CPL may file
for increases in base rates, which would be effective after December 31, 1994,
subject to certain limitations. During December 1993 and January 1994, several
Cities in CPL's service territory exercised their rights to require CPL to file
rate cases to determine if CPL's rates are fair, just and reasonable.
For additional information on these proceedings and others, see Note 10,
Litigation and Regulatory Proceedings.
Higher fuel costs resulted from increased generation due to higher KWH
sales and a higher unit cost of fuel, primarily due to higher natural gas
prices and the need to replace nuclear fuel with higher cost fuels during the
STP outage.
Revenues from natural gas increased 22% in 1993 due primarily to an
increase in sales volumes and to a lesser extent an increase in sales prices.
Transok continued to increase volumes and revenue on gathering, transportation,
and sales of natural gas and natural gas liquids. A portion of this increase
is attributable to the acquisition of the NGC Anadarko Gathering System in
1993. Revenue increases in 1993 from the sale of natural gas liquids and
increases in sales volumes are primarily attributable to acquisitions.
Revenues from natural gas increased 106% in 1992 due to the acquisition of gas
gathering systems from Reliance Pipeline Company. In 1991, increases were due
to the acquisition of the gas gathering, transmission and marketing business of
TEX/CON Oil & Gas Company, and the remaining interest in the Western Anadarko
Gas Gathering System.
The percentage changes in KWH sales for the three years were as follows:
KWH Sales Increase (Decrease)
From Prior Year
1993 1992 1991
- -----------------------------------------------------------------
Residential 9.0% (4.2)% 2.5%
Commercial 4.8 (1.1) 1.6
Industrial 5.5 3.1 4.8
Sales for resale (6.6) 5.4 7.5
Total sales 4.9 0.1 3.5
KWH sales to retail customers increased in 1993 from 1992 as a result of
more normal 1993 weather compared to the mild weather experienced in 1992.
Also contributing to the increase in 1993 was an increase in customers due to
the acquisition by SWEPCO of a neighboring electric cooperative. The increase
in 1991 was due primarily to increased usage per customer, which was mainly
weather-related. The continued increases in industrial sales over the last
three years reflect the increased marketing efforts by the Electric Operating
Companies and the continued improvement in the economy throughout their service
areas. Sales for resale decreased in 1993 because plants in the CSW System
were producing power to replace the power normally produced at STP and
increased in 1992 due to increased marketing efforts.
The Electric Operating Companies have maintained competitive rates in an
increasingly competitive marketplace. Efforts have increased at each of the
Electric Operating Companies to attract new customers while efficiently serving
all customers. Economic conditions in the service areas of the Electric
Operating Companies are expected to continue to improve in 1994.
Fuel and Purchased Power Expense
During 1993, the Electric Operating Companies generated 91% of their
electric energy requirements. During 1992 and 1991, they generated 94% and
96%, respectively. Total fuel and purchased power expense increased 17% in
1993, and was unchanged in 1992. In 1993, the reduction in electric energy
requirements generated by the Electric Operating Companies described above and
the increase in purchased power expense was due primarily to the need to
replace nuclear power during the STP outage.
The average unit cost of fuel per million Btu was $2.11 in 1993, $1.92
in 1992, and $1.87 in 1991. The increases in unit fuel costs are attributable
to higher gas costs as well as the need to replace lower cost nuclear fuel with
coal and gas during the STP outage. The expected restart of STP Unit 1 in the
first quarter of 1994, and the anticipated restart of Unit 2 during the second
quarter of 1994 and settlements with fuel suppliers achieved by SWEPCO and WTU
should contribute to lower fuel costs in 1994.
Gas Purchased for Resale
Gas purchased for resale increased 29% in 1993 and 171% in 1992 due to
the increased pipeline capacity that resulted from Transok's acquisitions and
an increase in off-system sales.
Other Operating and Maintenance Expenses and Taxes
Other operating and maintenance expenses increased in 1993. CPL
incurred $29 million in additional non-fuel costs associated with the STP
outage. Other increases included $16 million from expenses associated with
SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions; $17 million in lignite and other property reserves; $15 million in
increases in corporate expenditures; and $15 million in
additional administrative and general expenses including higher medical costs,
pension costs, and legal expenses.
Federal income taxes were lower in 1993 than 1992 due to lower pre-tax
income offset in part by tax adjustments and the increase in the corporate tax
rate from 34% to 35% effective retroactive to January 1, 1993. Taxes other
than Federal increased in 1993 and 1992 due to school funding tax increases in
Texas.
Annual inflation rates, as measured by the national Consumer Price
Index, have averaged about 3.3% during the three years ended December 31, 1993.
Management believes that inflation, at these levels, does not materially affect
the Corporation's consolidated results of operations or financial position.
However, under existing regulatory practice, only the historical cost of plant
is recoverable from customers. As a result, cash flows designed to provide
recovery of historical plant costs may not be adequate to replace plant in
future years.
Mirror CWIP Amortization
In 1990, CPL deferred carrying costs for STP Units 1 and 2 and
established a corresponding liability to customers recorded in Mirror CWIP
liability and other. CPL is amortizing this Mirror CWIP liability in declining
amounts over a five year period, including non-cash earnings of $76 million in
1993, $83 million in 1992 and $97 million in 1991, with $68 million and $41
million remaining for 1994 and 1995, respectively.
Interest Expense
Interest expense on long-term debt decreased in 1993 due to continued
refinancings, lowering the Corporation's embedded cost of long-term debt from
8.3% in 1992 to 7.8% in 1993. Interest expense on long-term debt increased in
1992 primarily due to the issuance of $140 million in medium-term notes by
Transok which was partially offset by the refinancing of higher cost long-term
debt. Short-term interest expense increased in 1993 due to increased
borrowings attributable to the expansion of CSW Credit's business, interim
financing of CSWE's projects, and the financing of various corporate
initiatives, partially offset by lower interest rates. Short-term interest
expense decreased in 1992 due to lower rates.
Cumulative Effect of Changes in Accounting Principles
In 1993, the Corporation implemented SFAS No. 112, Employers' Accounting
for Postemployment Benefits, SFAS No. 109, Accounting for Income Taxes and
changed the method of accounting for unbilled revenues. These changes are
presented as a net $46 million cumulative effect of changes in accounting
principles.
Liquidity and Capital Resources
Overview
The historical capital requirements of the CSW System have primarily
been for the construction of electric utility plant. Large capital
expenditures for the construction of new generating capacity are not planned
through the end of this decade. Accordingly, internally generated funds should
meet most of the capital requirements of the Electric Operating Companies.
However, the Corporation's strategic initiatives may require additional
capital. Primary sources of capital are long-term debt and preferred stock
issued by the Electric Operating Companies, common stock issued by the
Corporation and internally generated funds. In addition, the non-electric
subsidiaries used new sources of capital in 1993 including a private medium-
term note program at Transok and various forms of non-recourse financing at
CSWE. The Corporation, in order to strengthen its capital structure and
support growth from time to time, may decide to issue additional shares of its
common stock.
Productive investment of net funds from operations in excess of capital
expenditures and dividend payments are necessary to enhance the long-term value
of the Corporation for its investors. The Corporation is continually
evaluating the best use of these funds. The Corporation is required to obtain
authorization from various regulatory bodies in order to invest in any
additional business activities.
Capital Expenditures
Capital expenditures totaled $508 million in 1993. Based on projections
of growth in peak demand, the CSW System will not require significant
additional generating capability through the end of this decade. Planned
construction expenditures for the Electric Operating Companies for the next
three years are primarily to improve and expand transmission and distribution
facilities. These improvements will be required to meet the needs of new
customers and the growth in the requirements of existing customers. Capital
expenditures without regard to capital required for acquisitions by CSW or its
subsidiaries, if any, are expected to be $535 million, $466 million, and $487
million during 1994, 1995, and 1996, respectively. Approximately 13% of the
total for the three -year period is for expected expansion of Transok's gas
pipeline system.
The CSW System facilities plan presently includes projected coal- and
lignite-fired generating plants for which the CSW System has invested
approximately $140 million in prior years for plant sites, engineering studies
and lignite reserves. In 1993, as part of an analysis of its facilities plan,
the Corporation rejected certain lignite leases and wrote down its lignite
related investment by approximately $14 million. Should future plans exclude
these plants for environmental or other reasons, the Corporation would evaluate
the probability of recovery of these investments and record appropriate
reserves.
Long-Term Financing
During 1993 and the first two months of 1994, the majority of the CSW
System's long-term financing consisted of refinancing high cost debt with lower
cost debt, summarized as follows:
Debt Issued Debt Reacquired
Security Amount Rate Maturity Security Amount Rate Maturity
(millions) (millions)
CPL FMB (1) $25 7 1/8% 1999 FMB (1) $25 8 3/4% 2000
FMB (1) 115 7 1/2 2002 FMB (1) 40 9 3/8 2004
FMB (1) 75 8 7/8 2008
FMB (3) 50 6 7/8 2003 FMB 46 8 2003
FMB 75 7 1/8 2008 FMB 75 8 1/4 2007
FMB 100 6 2000 FMB 150 9 3/4 1998
FMB (3) 100 7 1/2 2023
PCRB 120 6 2028 PCRB 70 10 1/8 2014
PCRB 50 9 3/4 2015
PSO FMB (3) 35 6 1/4 2003 FMB 31 8 1/4 2004
FMB 100 7 3/8 2023 FMB 100 9 2016
FMB 50 6 1/2 2005 FMB 50 8 3/4 2005
SWEPCO PCRB (1) 54 7.6 2019 PCRB (1) 54 10 2013
FMB (3) 55 6 5/8 2003 FMB 51 8.85 2016
FMB (3) 45 7 1/4 2023 FMB 42 9 1/8 2019
FMB (3) 45 5 1/4 2000 FMB 20 7 1997
FMB 23 7 1/2 2001
FMB (4) 80 6 7/8 2025
WTU FMB (2)(3) 40 6 1/8 2004 FMB 23 7 7/8 2003
FMB (2) 12 7 1/4 1999
TRANSOK MTN (4) 60 6.6-7 3/4 2002-
2023
(1) Reacquisition occurred in 1993 with proceeds from the issuance of
FMBs in 1992. The funds held for these reacquisitions were
reflected on the December 31, 1992 consolidated balance sheet in
special deposits.
(2) Issuance and reacquisition occurred in 1994 and are not reflected on
the December 31, 1993 consolidated balance sheet.
(3) The proceeds remaining after the reacquisition of debt were used for
general corporate purposes.
(4) Proceeds were used to repay short-term debt.
The 1993 refinancings lowered the CSW System's embedded cost of long-
term debt from 8.3% in 1992, to 7.8% in 1993. The CSW System continually
monitors the capital markets for opportunities to lower its cost of capital
through refinancing.
Certain Electric Operating Companies have filed shelf registration
statements with the SEC for the sale of first mortgage bonds. CPL and WTU
currently have $360 and $60 million remaining under their respective shelf
registration statements.
In 1993, Transok sold an aggregate of $60 million of medium-term notes,
completing its $200 million private medium-term note program. Proceeds from the
sale of these notes were used primarily to repay interim financings provided by
the Corporation for acquisitions by Transok in 1991.
The Electric Operating Companies and Transok may issue additional debt
securities, subject to market conditions and other factors, to refund debt, to
meet capital expenditure needs, and for other general corporate purposes.
The Corporation is considering acquiring other electric utility
companies or other electric utility properties. For any major acquisition,
additional funds from the capital markets, including the issuance of common
stock in underwritten public offerings, in the acquisition transaction itself,
or otherwise, may be required.
In connection with the proposed El Paso acquisition CSW plans to issue
new shares of CSW Common. As discussed above, the aggregate number of shares of
CSW Common to be issued pursuant to the Modified Plan cannot be determined at
this time. The total value of such shares is projected to be approximately $770
million.
In 1993, the Corporation modified its PowerShare dividend reinvestment
plan. The new plan is available to all CSW shareholders, employees, eligible
retirees, its utility customers and other residents of the four states where the
Electric Operating Companies operate. Plan participants are able to make
optional cash payments and reinvest all or any portion of their dividends in CSW
common shares. Based on the experience of similar plans, the Corporation
expects that 1 to 5 percent of its customers will participate, providing an
estimated $25 to $50 million of new common stock equity a year.
The Corporation strives to maintain a strong capital structure and
credit ratings for each company in the CSW System to provide the flexibility to
pursue other business endeavors, the ability to obtain required funds from the
capital markets, and the ability to react to changing economic and financial
conditions.
Short-term Debt
Short-term debt, except for CSW Credit, is used primarily to meet
fluctuations in working capital requirements and other interim capital needs.
The primary source of short-term borrowings is the issuance of the Corporation's
commercial paper, of which $769 million was outstanding at December 31, 1993.
Bank lines of credit aggregating $797 million at year end were maintained by the
Corporation to back up its commercial paper program. Strategic goals include
high ratings on commercial paper and adequate bank lines of credit to provide
maximum flexibility.
The maximum amount of consolidated short-term debt outstanding in 1993
was $1,465 million in September which represented 24% of total capitalization at
December 31, 1993. The average amount of short-term debt outstanding during
1993 was $1,219 million, of which $683 million was attributable to CSW Credit.
The weighted average cost of short-term debt was 3.4% in 1993. Short-term debt
outstanding increased due to increases at CSW Credit due to the addition of a
significant customer, the interim funding of certain CSWE construction projects
and continued expenditures for new corporate initiatives.
CSW Energy
At December 31, 1993, the Corporation had loaned $209 million to CSWE on
an interim basis for the purpose of developing and constructing cogeneration
facilities. Repayment of these amounts to the Corporation is expected to be
through funds obtained from third party non-recourse project financing. In
late February 1994, CSWE closed permanent project financing for its 50% owned
Mulberry facility, which is described below, and repaid $94 million of the
interim financing provided by the Corporation. In addition to the amounts
already expended in 1993 for the development of projects, CSWE has authority
from the SEC to expend up to $102 million on future projects.
CSW Credit
CSW Credit purchases without recourse the accounts receivable of the
Operating Companies and certain non-affiliated electric companies. CSW Credit's
capital structure contains greater leverage than that of the Operating
Companies, consequently lowering the Corporation's cost of capital.
CSW Credit issues commercial paper, secured by the assignment of its
receivables, to meet its financing needs. CSW Credit maintains a revolving
credit agreement which aggregated $960 million at December 31, 1993 to back up
its commercial paper program.
Recent Developments and Trends
Competition and Industry Challenges
The Corporation's business has been, and will continue to be affected by
various challenges that confront the electric utility industry generally. The
CSW System currently faces competition for power sales in the wholesale market.
In the future, the Corporation may face similar competition for retail sales
from other utilities, independent power producers or alternative sources of
electricity or other energy. To date, the CSW System has been successful in
meeting the competition.
In 1993, PSO and SWEPCO filed with the FERC tariffs under which they
make generally available firm and non-firm transmission services for other
electric utilities on the combined PSO and SWEPCO transmission systems in the
Southwest Power Pool. The FERC accepted the tariffs for filing on November 4,
1993. The tariffs will expose the CSW System to some additional risk of loss of
load or reduced revenue resulting from competition with alternative suppliers of
electric power.
Other industry-wide issues confronting the Corporation and its
subsidiaries include current and proposed stringent nuclear, environmental and
other regulation and deregulation. In addition, the Corporation and its
subsidiaries are continuing to manage costs and rates and focus on new
initiatives, including non-utility initiatives, in order to maintain its
financial strength and reach its financial targets.
Holding Company Act
The Holding Company Act generally limits the operations of a registered
holding company to a single integrated public utility system, plus such
additional businesses as are functionally related to such system. Among other
things, the Holding Company Act requires the Corporation and its subsidiaries to
seek prior SEC approval before effecting mergers and acquisitions or pursuing
other types of initiatives. Pervasive regulation under the Holding Company Act
may impede or delay the Corporation's efforts to achieve its strategic and
operating objectives, including its pursuit of non-utility initiatives. The
Corporation is continuing its efforts to modify the Holding Company Act in order
to provide the flexibility to compete within the changing environment.
Litigation and Regulatory Proceedings
PSO had been named a defendant in complaints filed in federal and state
courts in Oklahoma alleging, among other things, that some of the plaintiffs and
the property of other plaintiffs were contaminated with PCBs and other toxic by-
products following certain incidents, including transformer malfunctions. To
date, complaints representing approximately $735 million (including compensatory
and punitive damages) of claims have been dismissed, certain of which resulted
from settlements among the parties. The settlements did not have a significant
effect on the Corporation's consolidated results of operations. Remaining
complaints currently total approximately $396 million, of which approximately
one-third represents punitive damages. Although management cannot predict the
outcome of these proceedings, it believes that PSO has defenses to these
complaints and intends to pursue them vigorously. Moreover, management has
reason to believe that PSO's insurance may cover some of the claims. Management
also believes that the ultimate resolution of these cases will not have a
material adverse effect on the Corporation's consolidated results of operations.
Four pending lawsuits, naming CPL as one of the defendants, allege that
property damage and health impairment affects residents near the Industrial Road
and Industrial Metals site in Corpus Christi, Texas. This site was used by
several metal salvage companies for the salvage of various materials purchased
from electric utilities. Although management cannot predict the outcome of
these proceedings, based on the defenses that management believes are available
to CPL, management believes that the ultimate resolution of the pending lawsuits
will not have a material adverse effect on the Corporation's consolidated
results of operations.
CPL Fuel Reconciliation
In March 1994, the Texas Commission issued an order, supporting the
Texas Commission staff's recommendation, which requires CPL to file its fuel
reconciliation in the fourth quarter of 1994.
Reference is made to Note 10, Litigation and Regulatory Proceedings, for
additional information relating to CPL's fuel reconciliation.
CPL Rate Cases
During December 1993 and January 1994, several Cities in CPL's service
territory exercised their rights to require CPL to file rate cases to determine
if CPL's rates are fair, just and reasonable. The Cities have informed 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 CPL's rate base. 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.
In February and March 1994, most of the Cities passed resolutions
ordering CPL to reduce rates by amounts ranging from $73 million to $137
million, if applied on a total company basis. The rate reductions are based on
removal of a portion of STP costs from base rates. The orders only
affect the rates of customers who take service within these Cities' limits. CPL
has appealed some of these actions, and intends to timely appeal the others to
the Texas Commission, which has authority to stay their effectiveness.
Similar challenges to CPL's rates have been filed with the Texas
Commission by OPUC, the Texas Commission General Counsel, and affected customers
(collectively Customer Cases). In its complaint, OPUC has alleged CPL is
overearning by amounts ranging from $16 million to $214 million, if applied on a
total company basis, based on a range of returns on common equity, removal of
the investment in STP Unit 2 from rate base and certain other matters. The
Texas Commission has exclusive original jurisdiction over the rates and services
of CPL in the areas outside municipal limits of cities who retain original
jurisdiction.
An administrative law judge has consolidated the Cities appeals with the
Customer Cases filed at the Texas Commission and established a procedural
schedule which has set a hearing on interim rates to be held in April 1994, and
is designed to allow for a Texas Commission final order in the consolidated
proceeding to be issued in September 1994. CPL has appealed to the Texas
Commission those portions of the administrative law judge's order concerning the
schedule that would lead to a final determination by the Texas Commission in
September 1994. The parties are currently negotiating certain procedural
matters.
It is CPL's position that the Texas Commission lacks legal authority to
implement interim rates in the Customer Cases. CPL also contends, with respect
to the Cities appeals, that by failing to review all of CPL's costs and
revenues, the Cities did not determine CPL's just and reasonable level of rates.
CPL intends to request the Texas Commission to stay the city rate ordinances,
or, in the alternative, to set interim rates at CPL's current level of rates in
those cities that have taken action. The Texas Commission has legal authority
to take such action to effect uniform systemwide rates for CPL.
CPL contends that both units of STP belong in rate base because of the
long-term benefits nuclear generation provide to customers and the fact that STP
Unit 1 has returned to service and STP Unit 2 should soon return to service.
There are no Texas Commission precedents addressing the removal of a nuclear
plant from rate base. CPL's base rates were last set in 1990. Based on
inclusion of both units of STP in rate base, CPL believes it is not collecting
excessive revenues, even when considering market rates of return on common
equity that are generally lower than they were in 1990 when base rates were last
set.
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.
Reference is made to Note 10, Litigation and Regulatory Proceedings, for
additional information relating to litigation and regulatory proceedings during
1993 involving the Electric Operating Companies.
Reference is made to Note 10, Litigation and Regulatory Proceedings, for
additional information related to the CPL rate case.
See ITEM 1. BUSINESS - REGULATION AND RATES - Rates, for additional
information related to the CPL Cities rate cases.
Consolidated Taxes
The Texas Commission has historically allowed recovery in rates an
income tax component based on the Federal income tax incurred by a utility as if
it were a stand-alone company. However, in two recent rate determinations, the
Texas Commission reduced another Texas utility's tax losses and other items.
The Texas Supreme Court has agreed to review the decision of a court of appeals
which determined that the Texas Public Utility Regulatory Act requires the Texas
Commission to reduce rates by the tax benefit of losses of an unregulated
affiliate.
The Corporation believes that Federal income taxes should be determined
on a stand-alone basis for ratemaking purposes. Presently, this issue does not
have a significant effect on the Corporation.
Environmental
The operations of the CSW System, like those of other utility systems,
generally involve the use and disposal of substances subject to environmental
laws. CERCLA, the federal "Superfund" law, addresses the cleanup of sites
contaminated by hazardous substances. Superfund requires that PRPs fund
remedial actions regardless of fault or the legality of post disposal
activities. Many states have similar laws. Theoretically, any one PRP can be
held responsible for the entire cost of a cleanup. Typically, however, cleanup
costs are allocated among PRPs.
The Electric Operating Companies have been named as responsible parties
under federal or state remedial laws thirteen times, and have resolved seven of
those claims without a material adverse effect on the Corporation. The
Corporation does not anticipate that resolution of the remaining six claims,
individually or in the aggregate, will have a material adverse effect on it.
Although the reasons for this expectation differ from site to site, factors that
are the basis for the expectation for specific sites are the volume and/or type
of waste allegedly contributed by the Electric Operating Company, the estimated
amount of costs allocated to the Electric Operating Company and the
participation of other parties.
Contaminated former MGPs are a type of site which utilities, and others,
may have to remediate in the future under Superfund or other federal or state
remedial programs. Gas was manufactured at MGPs from the mid-1800's to the mid-
1900's. In some cases, utilities and others have faced potential liability for
MGPs because they, or their alleged predecessors, owned or operated the plants.
In other cases, utilities or others may have been subjected to such liability
for MGPs because they acquired MGP sites after gas production ceased. SWEPCO is
investigating contamination at a suspected MGP in Marshall, Texas. Although it
has not been determined whether a cleanup will be required at this site,
preliminary estimates of potential response costs indicate that such costs would
not be material to the Corporation. As more information is obtained about the
site, and SWEPCO discusses the site with the TNRCC, the preliminary estimates
may change. If a cleanup is required, SWEPCO intends to seek contribution from
other PRPs.
Under the Clean Air Amendments of 1990, beginning in the year 2000 the
Electric Operating Companies will be required to hold allowances in order to
emit sulfur dioxide. The Corporation believes, based on the CSW System
facilities plan, that its allowances are adequate to meet the needs of the
Electric Operating Companies at least through 2008. These amendments also
direct the EPA to issue regulations governing nitrogen oxide emissions.
Currently the Corporation anticipates spending $15 million on continuous
emission monitoring equipment from 1993 through 1995. In addition, these
amendments require government studies to determine what controls, if any, should
be imposed on utilities to control air toxic emissions. The impact that the
nitrogen oxide emission regulations, and the air toxics study, will have on the
Electric Operating Companies cannot be determined at this time.
Research is ongoing whether exposure to EMFs may result in adverse
health effects or damage to the environment. Although a few of the studies to
date have suggested certain associations between EMFs and some types of adverse
health effects, the research to date has not established a cause-and-effect
relationship between EMFs and adverse health effects. The Corporation cannot
predict the impact on the CSW System or the electric utility industry if further
investigations or proceedings were to establish that the present electricity
delivery system is contributing to increased risk or incidence of health
problems.
See ITEM 1. BUSINESS - ENVIRONMENTAL MATTERS, for additional
information related to environmental matters.
Fuel Settlements
During December 1993, two major disputes involving litigation with long-
term contract coal suppliers were settled. One dispute related to a coal supply
contract between WTU and Exxon Coal USA, Inc. and the other to a coal supply
contract between SWEPCO and Amax Coal Company. In each case, the prior contract
was replaced with a new or amended and restated coal supply agreement. Both
settlements are expected to result in reduced fuel costs both now and in the
future.
In January 1994, SWEPCO entered into a settlement with Delhi Gas
Pipeline Co. of litigation between the parties regarding a gas supply contract.
The settlement provided for termination of the existing gas supply contract,
which otherwise would have expired in March 1995, and a new four-year gas supply
contract between the parties. The settlement is expected to result in a
reduction of SWEPCO's gas costs now and in the future.
The benefit of these settlements will be passed through to customers of
WTU and SWEPCO through fuel cost adjustment mechanisms.
Non-Utility Initiatives
Transok
Transok is an intrastate natural gas gathering, transmission, marketing
and processing company that provides natural gas services to CSW System
companies, predominately PSO, and to non-affiliated gas customers throughout the
United States. Transok's natural gas facilities are located in Oklahoma,
Louisiana and Texas. It operates gas processing plants and markets natural gas
liquids produced from those plants to various markets.
In 1993, Transok completed the purchase of the NGC Anadarko Gathering
System, which included a processing plant and approximately 350 miles of
gathering facilities. Transok also completed a new pipeline connecting the 125-
megawatt San Angelo power station owned by WTU to Northern Natural Gas Company.
The 34-mile connection will create an opportunity to reduce WTU's fuel costs and
improve its reliability by offering easier access to competitively priced
interstate gas, especially in times of peak usage.
Transok also began building a 41-mile pipeline in Oklahoma, to connect
its Wynnewood line to its Comanche processing plant. When completed in 1994 it
will serve PSO by alleviating constraints on other Transok pipeline facilities.
CSW Energy
CSWE was reactivated in 1990 for the purpose of developing business
opportunities primarily in the area of independent power and cogeneration. This
wholly-owned subsidiary of the Corporation is authorized to develop various non-
utility generation projects and to own and operate such projects, subject to
further regulatory approvals.
At December 31, 1993, CSWE had made equity investments of $28 million
and currently intends to make additional equity investments of $30 million in
1994.
CSWE has an interest in two facilities which have achieved commercial
operation. One of these projects has experienced operational difficulties that
have impeded cash flows from the project. See ITEM 1. BUSINESS - Non-Utility,
for further discussion of the Oildale project.
Two other plants are expected to be completed during 1994. CSWE's 50-
percent owned Ft. Lupton facility, a 272-megawatt gas-fired plant in Fort
Lupton, Colorado, will provide steam and hot water for a 20 acre greenhouse and
will sell electricity to Public Service Company of Colorado. The other facility
is CSWE's 50-percent owned Mulberry facility, a 117-megawatt gas-fired
cogeneration plant in Polk County, Florida. This facility will provide steam
for a thermal host and will sell electricity to Florida Power Corporation and
Tampa Electric Company. The CSW System is providing engineering, procurement
and construction management services for the Mulberry project. CSWE's operating
and maintenance division will operate this project.
In late 1993, construction commenced on a 102-megawatt, gas-fired plant
in Florida that will provide thermal energy to an orange juice processor and
will sell electricity to Florida Power Corporation. In addition, construction
will begin on a 148-megawatt plant near Sacramento, California, which will have
an ethanol plant as thermal host and will supply electricity to the Sacramento
Municipal Utility District.
In addition to these projects, CSWE has another ten projects totaling
more than 3,000 megawatts in various stages of development, mostly in
affiliation with other developers. All of these projects are subject to further
negotiations and regulatory approvals.
Mexico
In 1993, CSW continued its Mexico initiative that began in 1992. The
Corporation's goal is to participate in providing the country's future
electricity needs. Mexico is projecting growth in electricity requirements of
more than 5.5% per year over the next decade. The geographical location of the
CSW System offers opportunities to provide bulk power sales to Mexico. In
addition, the Corporation intends to participate in the development of
transmission facilities, independent power projects and cogeneration in Mexico.
Recent changes in Mexican statutes and regulations now permit participation in
such ventures. The opening of an office in Mexico City allows CSW greater
access to key Mexican industrial and governmental officials, permitting the
Corporation to more readily evaluate opportunities as they become available.
The passage of the North American Free Trade Agreement in 1993 should enhance
the potential for the Corporation to become far more active in the Mexican
electric power market.
Other Initiatives
To meet its strategic goals the Corporation will continue to search for
possible electric utilities to acquire and will continue evaluating
opportunities to pursue functionally related non-utility businesses. The
Corporation is, for example, exploring opportunities in telecommunications,
energy, the environment, and other technologies. Furthermore, the Corporation
has broken ground for the most comprehensive renewable energy project in the
Southwest, encompassing photovoltaics, wind turbines, rooftop solar panels, and
innovative solar-dish Stirling engines.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Statements of Income
Central and South West Corporation
For the Years Ended December 31
1993 1992 1991
Operating Revenues (millions except per share amounts)
Electric
Residential $ 1,160 $ 1,046 $ 1,081
Commercial 832 773 778
Industrial 736 659 632
Sales for resale 179 177 173
Other 148 135 139
Gas and other 632 499 244
------- ------- -------
3,687 3,289 3,047
------- ------- -------
Operating Expenses and Taxes
Fuel and purchased power 1,209 1,035 1,035
Gas purchased for resale 396 306 113
Other operating 679 562 531
Restructuring charges 97 - -
Maintenance 197 170 181
Depreciation and amortization 330 311 291
Taxes, other than Federal income 197 175 163
Federal income taxes 125 142 167
------- ------- -------
3,230 2,701 2,481
------- ------- -------
Operating Income 457 588 566
------- ------- -------
Other Income and Deductions
Mirror CWIP liability amortization 76 83 97
Other 17 (1) 8
------- ------- -------
93 82 105
------- ------- -------
Income Before Interest Charges 550 670 671
------- ------- -------
Interest Charges
Interest on long-term debt 219 230 224
Interest on short-term debt and other 50 36 46
------- ------- -------
269 266 270
------- ------- -------
Income before Cumulative Effect of Changes
in Accounting Principles 281 404 401
Cumulative Effect of Changes in Accounting
Principles 46 - -
------- ------- -------
Net Income 327 404 401
Preferred Stock Dividends 19 22 26
------- ------- -------
Net Income for Common Stock $ 308 $ 382 $ 375
======= ======= =======
Average Common Shares Outstanding 188.4 188.3 188.3
Earnings per Share of Common Stock before
Cumulative Effect of Changes in
Accounting Principles $ 1.39 $ 2.03 $ 1.99
Cumulative Effect of Changes in
Accounting Principles $ .24 $ - $ -
Earnings per Share of Common Stock $ 1.63 $ 2.03 $ 1.99
Dividends Paid per Share of Common
Stock $ 1.62 $ 1.54 $ 1.46
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Consolidated Statements of Retained Earnings
Central and South West Corporation
For the Years Ended December 31
1993 1992 1991
(millions)
Retained Earnings at Beginning of Year $ 1,751 $ 1,659 $ 1,570
Net income for common stock 308 382 375
Deduct: Common stock dividends 306 290 275
Preferred stock redemption costs -- -- 11
------- ------- -------
Retained Earnings at End of Year $ 1,753 $ 1,751 $ 1,659
======= ======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Consolidated Statements of Cash Flow
Central and South West Corporation
For the Years Ended December 31
1993 1992 1991
(millions)
Operating Activities
Net income $ 327 $ 404 $ 401
Non-cash items included in net income
Depreciation and amortization 366 351 326
Deferred income taxes and investment
tax credits 94 71 62
Mirror CWIP liability amortization (76) (83) (97)
Restructuring charges 97 -- --
Cumulative effect of changes in
accounting principles (46) -- --
Changes in assets and liabilities
Accounts receivable (64) (52) (46)
Unrecovered fuel cost (63) (4) 16
Accounts payable 27 53 54
Accrued taxes 45 (41) 10
Other (13) (13) (22)
------- ------- -------
694 686 704
------- ------- -------
Investing Activities
Capital expenditures (508) (422) (322)
Acquisitions (106) (27) (261)
Non-affiliated accounts receivable
purchases (314) 11 3
CSW Energy projects (127) (37) --
Other (14) (8) (8)
------- ------- -------
(1,069) (483) (588)
------- ------- -------
Financing Activities
Proceeds from issuances of long-term
debt 904 1,009 30
Retirement of long-term debt (50) (4) (11)
Reacquisition of long-term debt (987) (652) (30)
Special deposits for reacquistion of
long-term debt 199 (199) --
Redemption of preferred stock (17) (13) (13)
Change in short-term debt and other 603 19 225
Payment of dividends (325) (312) (301)
------- ------- -------
327 (152) (100)
------- ------- -------
Net Change in Cash and Cash Equivalents (48) 51 16
Cash and Cash Equivalents at Beginning
of Year 110 59 43
------- ------- -------
Cash and Cash Equivalents at End of Year $ 62 $ 110 $ 59
======= ======= =======
Supplementary Information
Interest paid less amounts capitalized $ 260 $ 268 $ 271
======= ======= =======
Income taxes paid $ 53 $ 108 $ 129
======= ======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Consolidated Balance Sheets
Central and South West Corporation
As of December 31
1993 1992
(millions)
ASSETS
Plant
Electric utility
Production $ 5,775 $ 5,756
Transmission 1,228 1,177
Distribution 2,362 2,182
General 709 628
Construction work in progress 371 264
Nuclear fuel 160 153
Gas 752 666
------- -------
11,357 10,826
Less-Accumulated depreciation 3,550 3,265
------- -------
7,807 7,561
------- -------
Current Assets
Cash and temporary cash investments 62 110
Special deposits 2 206
Accounts receivable 813 435
Materials and supplies, at average cost 149 144
Fuel inventory, substantially at
average cost 102 136
Gas inventory/products for resale,
substantially at LIFO 28 10
Unrecovered fuel cost 70 7
Prepayments and other 53 33
------- -------
1,279 1,081
------- -------
Deferred Charges and Other Assets
Deferred plant costs 518 519
Mirror CWIP assets 332 342
Other non-utility investments 253 135
Income tax regulatory assets 182 --
Other 252 191
------- -------
1,537 1,187
------- -------
$ 10,623 $ 9,829
======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Central and South West Corporation
As of December 31
1993 1992
(millions)
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock, $3.50 par value, authorized
350,000,000 shares in 1993 and 1992;
issued and outstanding 188,405,000 shares in
1993 and 188,371,000 shares in 1992. $ 659 $ 659
Paid-in capital 518 517
Retained earnings 1,753 1,751
-------- --------
Total Common Stock Equity 2,930 2,927
Preferred stock
Not subject to mandatory redemption 292 292
Subject to mandatory redemption 58 75
Long-term debt 2,749 2,647
-------- --------
Total Capitalization 6,029 5,941
-------- --------
Current Liabilities
Long-term debt/preferred stock due within
twelve months 26 246
Short-term debt 769 483
Short-term debt - CSW Credit 641 326
Accounts payable 306 279
Accrued taxes 98 53
Accrued interest 55 59
Accrued restructuring charges 97 --
Other 168 116
-------- --------
2,160 1,562
-------- --------
Deferred Credits
Income taxes 1,935 1,660
Investment tax credits 335 350
Mirror CWIP liability and other 164 316
-------- --------
2,434 2,326
-------- --------
$ 10,623 $ 9,829
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Public Utility Regulation
Central and South West Corporation is subject to regulation by the
Securities and Exchange Commission as a registered holding company under
the Public Utility Holding Company Act of 1935. CSW's Operating
Companies are also regulated by the SEC under the Holding Company Act.
The Corporation's four Electric Operating Companies-Central Power and
Light Company, Public Service Company of Oklahoma, Southwestern Electric
Power Company, and West Texas Utilities Company-are subject to regulation
by the Federal Energy Regulatory Commission. The Electric Operating
Companies are subject to further regulation for rates and other matters
by state regulatory commissions.
CSW Credit, Inc.
A wholly-owned subsidiary of the Corporation, CSW Credit, purchases,
without recourse, the billed and unbilled accounts receivable of the
Electric Operating Companies, Transok and certain nonaffiliated
companies.
The more significant accounting policies of the Corporation and its
subsidiaries are summarized below.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its subsidiary companies. All significant intercompany
items and transactions have been eliminated.
Plant
Electric utility plant is stated at the original cost of construction,
which includes the cost of contracted services, direct labor, materials,
overhead items and allowances for borrowed and equity funds used during
construction. Gas plant acquisitions are stated at fair market value
based on the purchase price while other gas plant is stated at original
cost of construction, which includes the cost of contracted services,
direct labor, materials, overhead items and capitalized interest.
Depreciation
Provisions for depreciation of plant are computed using the straight-line
method, generally at individual rates applied to the various classes of
depreciable property. The annual consolidated composite rates averaged
3.2% for 1993, 1992 and 1991.
Nuclear Decommissioning
CPL's portion of the estimated costs of decommissioning STP is $85
million in 1986 dollars based on a site specific study completed in 1986.
CPL will continue to review and update this cost estimate and a new study
will be completed in 1994. CPL is recovering decommissioning costs
through its rates over the 38-year life of STP. The $4 million annual
cost of decommissioning is reflected in the income statement as other
operating expense. The funds received from customers applicable to
decommissioning are paid to an irrevocable external trust and as such are
not reflected on the Corporation's consolidated balance sheets. At
December 31, 1993, the trust balance was approximately $15 million.
At the end of STP's 38-year life, decommissioning will be accomplished
using the decontamination method, which is one of three techniques
acceptable by the NRC. Using this method the decontamination activities
occur as soon as possible after the end of plant operation. Contaminated
equipment is cleaned or removed to a permanent disposal location and the
site is generally returned to its pre-plant state.
Electric Revenues and Fuel
Prior to January 1, 1993, electric revenues were recorded at the time
billings were made to customers on a cycle-billing basis. Electric
service provided subsequent to billing dates through the end of each
calendar month became part of operating revenues of the next month. To
conform to general industry standards, the Electric Operating Companies
changed their method of accounting to accrue for estimated unbilled
revenues. The effect of this change on 1993 net income was an increase
of $49 million ($0.26 per share), net of taxes of $26 million. If this
change in accounting method was applied retroactively, the effect on
consolidated net income for 1992 and 1991 would have been immaterial.
This adjustment was recorded in 1993 as a cumulative effect of change in
accounting principle.
The Electric Operating Companies recover actual fuel costs through fuel
recovery mechanisms. The application of these mechanisms varies by
jurisdiction. Fuel costs regulated by Oklahoma, Louisiana, Arkansas and
FERC are adjusted automatically. Fuel costs in Texas are recovered as a
fixed component of rates whereby over-recoveries of fuel are payable to
customers and under-recoveries may be billed to customers after Texas
Commission approval. See Note 10, Litigation and Regulatory Proceedings,
for further information about fuel recovery.
Deferred Plant Costs
In accordance with orders of the Texas Commission, WTU and CPL deferred
operating, depreciation and tax costs incurred for Oklaunion Power
Station Unit 1 and STP, respectively, subsequent to their commercial
operation dates until retail rates which included Oklaunion and STP in
rate base became effective. The deferred costs are being amortized and
recovered through rates over the lives of the respective plants. See
Note 10, Litigation and Regulatory Proceedings, for further discussion of
WTU's and CPL's deferred accounting proceedings.
Statements of Cash Flows
Cash equivalents are considered to be highly liquid debt instruments
purchased with a maturity of three months or less. Accordingly,
temporary cash investments are considered cash equivalents.
Accounting Changes
Effective January 1, 1993, the Corporation adopted SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions and
SFAS No. 112, Employers' Accounting for Postemployment Benefits (See Note
8, Benefit Plans). The Corporation also adopted SFAS No. 109, Accounting
for Income Taxes (See Note 2, Federal Income Taxes). In addition, the
Electric Operating Companies also changed their method of accounting for
unbilled revenues (See Note 1, Summary of Significant Accounting
Policies, Electric Revenues and Fuel).
The adoption of SFAS No. 106 resulted in an increase in 1993 operating
expenses of $16 million. The adoption of SFAS No. 109, SFAS No. 112 and
the change in accounting for unbilled revenues are presented as
cumulative effect of changes in accounting principles as shown below:
Pre-Tax Tax Net Income EPS
Effect Effect Effect Effect
-------------------------------------------------------
(millions, except EPS)
SFAS No. 109 $ - $ 6 $ 6 $0.03
SFAS No. 112 (13) 4 (9) (0.05)
Unbilled revenue 75 (26) 49 0.26
Total $62 $(16) $46 $0.24
Pro forma amounts, assuming that the change in accounting for
unbilled revenues had been adopted retroactively, are not
materially different from amounts previously reported for prior
years.
Reclassification
Certain financial statement items for prior years have been reclassified
to conform to the 1993 presentation.
2. Federal Income Taxes
The Corporation adopted the provisions of SFAS No. 109 effective January
1, 1993. The net effect on the Corporation's earnings was a one-time
adjustment to increase net income by $6 million ($0.03 per share). This
adjustment was recorded as a cumulative effect of change in accounting
principle. The benefit was attributable to the reduction in deferred
taxes associated with the Corporation's non-utility operations previously
recorded at rates higher than current rates.
For utility operations, there is no effect of SFAS No. 109 on the
Corporation's earnings. As a result of this change, the Corporation
recognized additional accumulated deferred income taxes, from its utility
operations, and corresponding regulatory assets and liabilities to
ratepayers in amounts equal to future revenues or the reduction in future
revenues required when the income tax temporary differences reverse and
are recovered or settled in rates. As a result of a favorable earnings
history, the Corporation did not record any valuation allowance against
deferred tax assets at December 31, 1993.
The Corporation files a consolidated Federal income tax return and
participates in a tax sharing agreement.
Components of income taxes are as follows:
1993 1992 1991
---------------------------------------------------------------------
Included in Operating Expenses and Taxes (millions)
Current $ 28 $ 64 $105
Deferred 112 95 77
Deferred investment tax credits (ITC) (15) (17) (15)
--- --- ---
125 142 167
--- --- ---
Included in Other Income and Deductions
Current (3) (7) (5)
Deferred (5) 7 (4)
--- --- ---
(8) - (9)
--- --- ---
Tax effects of cumulative effect of changes
in Accounting Principles 14 - -
--- --- ---
14 - -
--- --- ---
$131 $142 $158
=== === ===
Total income taxes differ from the amounts computed by applying the
statutory income tax rates to income before taxes. The reasons for the
differences are as follows:
1993 % 1992 % 1991 %
(dollars in millions)
Tax at statutory rates $160 35 $186 34 $190 34
Differences
Amortization of ITC (15) (3) (15) (3) (14) (3)
Mirror CWIP (23) (5) (25) (4) (29) (5)
Benefit of tax settlements - - (10) (2) - -
Prior period adjustments 18 4 - - - -
Cumulative effect of change in
method of accounting for
income taxes (8) (2) - - - -
Other (1) - 6 1 11 2
--- -- --- -- --- --
$131 29 $142 26 $158 28
=== == === == === ==
Investment tax credits deferred in prior years are included in income
over the lives of the related properties.
The significant components of the net deferred income tax liability
are as follows:
December 31, January 1,
1993 1993
Deferred Tax Liabilities: (millions)
Property related book\tax
basis differences $1,547 $1,396
Mirror CWIP asset 116 116
Deferred plant costs 181 177
Income tax related regulatory assets 239 232
Other 234 227
----- -----
Total Deferred Tax Liabilities 2,317 2,148
----- -----
Deferred Tax Assets:
Income tax related regulatory liabilities (177) (203)
Mirror CWIP liability (38) (63)
Alternative minimum tax carryforward (68) (52)
Other (105) (88)
----- -----
Total deferred tax assets (388) (406)
----- -----
Net accumulated deferred income taxes -
total 1,929 1,742
===== =====
Net accumulated deferred income taxes -
noncurrent 1,935 1,790
Net accumulated deferred income taxes -
current (6) (48)
----- -----
Net accumulated deferred income taxes -
total $1,929 $1,742
===== =====
3. Long-Term Debt
The long-term debt of the Operating Companies outstanding as of the end
of the last two years was as follows:
Maturities Interest Rates December 31
From To From To 1993 1992
(millions)
First mortgage bonds
1994 1998 5 1/4% 9 3/4% $ 253 $ 423
1999 2003 5 1/4 8 656 475
2004 2008 6 .2 8 3/4 478 509
2014 2018 7 1/2 9 3/4 144 349
2019 2023 7 1/4 9 3/8 503 312
2024 2028 6 7/8 6 7/8 80 --
Pollution control bonds
2004 2008 5 .9 7 1/8 104 105
2009 2013 8 .2 8 .2 17 17
2014 2018 7 7/8 10 1/8 274 344
2019 2023 7 .6 7 .6 54 54
2024 2028 6 .0 6 .0 120 --
Notes and lease obligations
1995 2023 3 .16 9 3/4 273 216
Unamortized discount (22) (28)
Unamortized costs of reaquired debt (185) (129)
----- -----
$2,749 $2,647
===== =====
The mortgage indentures, as amended and supplemented, securing first
mortgage bonds issued by the Electric Operating Companies, constitute a
direct first mortgage lien on substantially all electric utility plant.
The Electric Operating Companies and Transok may offer additional first
mortgage bonds and medium-term notes subject to market conditions and
other factors.
Annual Requirements
Certain series of outstanding first mortgage bonds have annual sinking
fund requirements which are generally 1% of the amount of each such
series issued. These requirements may be, and have generally been,
satisfied by the application of net expenditures for bondable property in
an amount equal to 166-2/3% of the annual requirements.
At December 31, 1993, the annual sinking fund requirements average
approximately $5 million for the next five years and the annual
maturities of long-term debt are below $36 million except in 1997 when
the maturities are $258 million.
Dividends
The mortgage indentures, as amended and supplemented, contain certain
restrictions on the use of retained earnings for cash dividends on their
common stocks. These restrictions do not limit the ability of the
Corporation to pay dividends to its shareholders. At December 31, 1993,
$1,131 million of the subsidiaries' retained earnings were available for
the payment of cash dividends to the Corporation.
Reacquired Long-term Debt
During 1993, 1992 and 1991, the Electric Operating Companies reacquired
$987 million, $652 million and $30 million of long-term debt,
respectively, including reacquisition premiums, prior to maturity. The
premiums and related reacquisition costs are included in long-term debt
on the consolidated balance sheets and are being amortized over 5 to 35
years, consistent with its ratemaking treatment. Reference is made to
Management's Discussion and Analysis of Financial Condition and Results
of Operations, Liquidity and Capital Resources, for more information on
reacquired long-term debt.
The weighted average cost of long-term debt was 7.8% for 1993, 8.3% for
1992 and 9.0% for 1991.
4. Preferred Stock
The outstanding preferred stock of the Electric Operating Companies as of
the end of the last two years was as follows:
1993 Current
Shares Dividend Rate December 31 Redemption
Outstanding From To 1993 1992 Prices
(millions) From To
- ------------------------------------------------------------------------------
Not subject to mandatory redemption
592,900 4% 5% $ 59 $ 59 $102.75 $109.00
760,000 7.12 8.72 76 76 101.00 102.91
1,600,000 auction 160 160 100.00 100.00
Issuance expenses and unamortized
redemption costs (3) (3)
--- ---
$292 $292
=== ===
Subject to mandatory redemption
364,000 6.95% 6.95% $ 37 $ 47 $104.64 $104.64
223,750 10.05 10.05 22 29 104.76 104.76
Issuance expenses and unamortized
redemption costs (1) (1)
--- ---
$ 58 $ 75
=== ===
The outstanding preferred stock not subject to mandatory redemption is
redeemable at the option of the Electric Operating Companies upon 30 days
notice at the current redemption price per share. CPL's auction
preferred stock totaling $160 million may also be redeemed at par on any
dividend payment date. The CSW System's authorized number of shares of
preferred stock totaled 6.4 million at December 31, 1993 and 1992.
Redemption prices of certain preferred stock decline at specified
intervals in future periods. The preferred stock issues subject to
mandatory redemption are refundable at various times during the period
1994 through 1998.
The minimum annual sinking fund requirements of the preferred stock are
$9 million in 1994 and average $5 million in each of the years from 1995
through 1998.
The dividends on CPL's $160 million auction preferred stock are adjusted
every 49 days, based on current market rates. The dividend rates
averaged 2.72%, 3.59% and 5.48% during 1993, 1992 and 1991.
During 1993, 1992 and 1991, the Electric Operating Companies redeemed $17
million, $13 million and $13 million, respectively, of preferred stock,
including redemption premiums.
5. Common Stock
On March 6, 1992, the Corporation effected a two-for-one split of the
Corporation's common stock by means of a 100% stock dividend paid to
shareholders of record on February 10, 1992. All references to number of
shares outstanding, to per share information in the Consolidated
Financial Statements, and to the notes thereto have been adjusted to
reflect the stock split on a retroactive basis.
The Corporation has a restricted stock plan and a stock option plan.
Under the stock option plan, 2,707,000 shares of common stock are
available for grant and 491,000 shares are reserved for exercise of
options which were outstanding at December 31, 1993.
6. Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate fair value.
Cash and temporary cash investments
The carrying amount approximates fair value because of the short maturity
of those instruments.
Short-term investments
The carrying amount approximates fair value because of the short maturity
of those instruments. Short-term investments are classified in accounts
receivable on the consolidated balance sheets.
Short-term debt
The carrying amount approximates fair value because of the short maturity
of those instruments.
Long-term debt
The fair value of the CSW System's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current
rates offered to the Corporation for debt of the same remaining
maturities.
Preferred stock subject to mandatory redemption
The fair value of the Electric Operating Companies' preferred stock
subject to mandatory redemption is estimated based on quoted market
prices for the same or similar issues or on the current rates offered to
the Corporation for preferred stock with the same or similar remaining
redemption provisions.
The estimated fair values of the Corporation's financial instruments are
as follows:
1993 1992
Carrying Fair Carrying Fair
Amount Value Amount Value
(millions)
Cash and temporary cash
investments $ 62 $ 62 $ 110 $ 110
Short-term investments 13 13 30 30
Short-term debt 1,436 1,436 1,055 1,055
Long-term debt 2,749 2,947 2,647 2,772
Preferred stock subject to mandatory
redemption 58 61 75 77
The fair value does not affect the Corporation's liabilities unless the
issues are redeemed prior to their maturity dates.
7. Short-Term Financing
The CSW System has established a money pool to coordinate short-term
borrowings and to make borrowings outside the money pool through the
Corporation's issuance of commercial paper. At December 31, 1993, the
CSW System had bank lines of credit aggregating $797 million to back up
its commercial paper program.
CSW Credit, which does not participate in the money pool, issues
commercial paper that is secured by the assignment of its receivables.
CSW Credit maintains a revolving credit agreement which aggregated $960
million at December 31, 1993, to back up its commercial paper program.
8. Benefit Plans
Defined Benefit Pension Plan
The Corporation maintains a tax qualified, non-contributory defined
benefit pension plan covering substantially all of the CSW System
employees. Participants in the plan during 1993 included approximately
8,300 active employees, 3,600 retirees and beneficiaries and 900
terminated employees with vested benefits. Benefits are based on
employees' years of credited service, age at retirement, and final
average annual earnings with an offset for theparticipant's primary
Social Security benefit. The Corporation's funding policy
is based on actuarially determined contributions, taking into account
amounts which are deductible for income tax purposes and minimum
contributions required by the Employee Retirement Income Security Act of
1974, as amended. Contributions to the plan for the years ended December
31, 1993, 1992 and 1991 were $32 million, $29 million, and $22 million,
respectively. Pension plan assets consist primarily of common stocks and
short-term and intermediate-term fixed income investments.
The components of net periodic pension cost and the assumptions used in
accounting for pensions are as follows:
1993 1992 1991
------------------------------------------------------------------
(millions)
Net Periodic Pension Cost
Service cost $20 $18 $15
Interest cost on projected
benefit obligation 56 50 43
Actual return on plan assets (68) (43) (95)
Net amortization and deferral - (20) 44
--- --- ---
$ 8 $ 5 $ 7
=== === ===
Assumptions
Discount Rate 7.75% 8.50% 8.50%
Long-term salary increase 5.46 5.96 5.96
Return on plan assets 9.50 9.50 9.50
A reconciliation of the funded status of the plan to the amounts
recognized on the consolidated balance sheets is shown below:
December 31,
1993 1992
-------------------------------------------------------------
(millions)
Plan assets, at fair value $790 $721
Actuarial present value of
Accumulated benefit obligation
for service rendered to date 649 549
Additional benefit for future
salary levels 133 122
Projected benefit obligation 782 671
Plan assets in excess of projected
benefit obligation 8 50
Unrecognized net gain 62 (5)
Unrecognized prior service cost (8) (8)
Unrecognized net obligation 17 18
---- ----
Prepaid pension cost $ 79 $ 55
==== ====
The vested portion of the accumulated benefit obligations at December 31,
1993 and 1992, was $586 million and $499 million, respectively. The
unrecognized net obligation is being amortized over the average remaining
service life of employees, 17 years. Prepaid pension cost is included in
other deferred charges on the consolidated balance sheets.
In addition to the amounts shown in the above table, the Corporation has a
non-qualified excess benefit plan. This plan is available to all pension
plan participants who are entitled to receive a pension benefit from the
Corporation which is in excess of the limitations imposed on benefits by
the Internal Revenue Code through the qualified plan. The Corporation's
net periodic cost for this non-qualified plan was $1.8 million in 1993 and
$0.5 million for each of the prior two years.
Postretirement Benefits Other Than Pensions
The Corporation adopted SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, January 1, 1993. The
adoption resulted in an increase in operating expenses of $16 million for
1993. The Corporation's accumulated postretirement benefit obligation was
$207 million. The transition obligation was $180 million and is being
amortized over twenty years. In prior years, the Corporation accounted
for these benefits on a pay-as-you-go basis. Expenses for 1992 and 1991
were $10 million and $8 million, respectively. The Corporation's funding
policy is based on actuarially determined contributions
taking into account amounts which are deductible for income tax purposes.
Contributions for 1993 were approximately $31 million.
The Texas Commission approved a rule allowing full recovery of costs
related to SFAS No. 106 with the amortization of the transition obligation
over a period of twenty years, provided the costs are funded and recovery
is allowed in a rate case. The rule requires all amounts received in
rates to be held in an external trust. The Arkansas Commission approved a
rule allowing full recovery of costs related to SFAS No. 106 with
amortization of the transition obligation over a period of twenty years.
The Louisiana Commission voted to remain on a pay-as-you-go basis.
Pursuant to an order of the Oklahoma Commission, the Corporation
has deferred a portion of the difference between pay-as-you-go benefit
costs and the benefits costs determined under SFAS No. 106, and
established a regulatory asset of $5 million in anticipation of future
recovery through rates.
The components of net periodic postretirement benefit cost and the
assumptions used in accounting for postretirement benefits are as follows:
1993
------------------------------------------------------------------
(millions)
Net Periodic Postretirement Benefit Cost
Service cost $ 8
Interest cost on accumulated
postretirement benefit obligation 17
Actual return on plan assets (1)
Amortization of transition obligation 9
Net amortization and deferral (2)
--
$31
==
A reconciliation of the funded status of the plan to the amounts
recognized on the consolidated balance sheets is shown below:
December 31, January 1,
1993 1993
- -------------------------------------------------------------------------
Accumulated Postretirement
Benefit Obligation (dollars in millions)
Retirees $146 $121
Other fully eligible participants 30 35
Other active participants 64 51
--- ---
Total APBO 240 207
Plan assets at fair value (51) (27)
--- ---
APBO in excess of plan assets 189 180
Unrecognized transition obligation (171) (180)
Unrecognized gain or (loss) (18) -
--- ---
(Accrued)/Prepaid Cost $ - $ -
=== ===
Assumptions
Discount rate 7.75% 8.50%
Return on plan assets 9.00% 9.00%
Tax rates for taxable trusts 39.60% 31.00%
Health Care Cost Trend Rate Assumptions
Pre-65 Participants: 1993 Rate of 12.50% grading down .75% per year to
an ultimate rate of 6.5% in 2001.
Post-65 Participants: 1993 Rate of 12.00% grading down .75% per year to
an ultimate rate of 6.0% in 2001.
Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the APBO as of December 31, 1993 by $28
million and increase the aggregate of the service and interest cost
components of net postretirement benefits by $4 million.
Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, Employers' Accounting for Postemployment Benefits. This statement
requires the accrual method of accounting for certain types of
postemployment benefits provided to former or inactive employees after
employment, but before retirement. This new standard requires that the
expected costs of these benefits be accrued during the period employees
render service to qualify for benefits. The most significant costs for
the Corporation are the continued medical and salary benefits during
long-term disability. Effective January 1, 1993, the Corporation adopted
SFAS No. 112 and the effect of the change on 1993 income was $9 million
($0.05 per share), net of taxes of $4 million, reflected
in cumulative effect of changes in accounting principles. In 1992 and
1991, while recording these expenses on a pay-as-you-go basis, the
Corporation incurred expenses of $0.7 million and $0.9 million,
respectively.
Restructuring Charges
The Corporation recently announced an early retirement program as a part
of the corporate restructuring efforts in order to streamline operations
and reduce future costs. It is anticipated that this restructuring will
affect employee benefit costs incurred by the Corporation in future
periods. Due to the timing of the implementation of the program, many
variables regarding specific costs cannot be identified until mid-1994.
As a result, no adjustments have been made to the employee benefit cost
data presented above.
9. Jointly Owned Electric Utility Plant
The Electric Operating Companies are parties to various joint ownership
agreements with other non-affiliated entities. Such agreements provide
for the joint ownership and operation of generating stations and related
facilities, whereby each participant bears its share of the project
costs. At December 31, 1993, the companies have undivided interests in
five such generating stations and related facilities as shown below:
CPL SWEPCO SWEPCO SWEPCO CSW
South Flint Pirkey Dolet System
Texas Creek Lignite Hills Oklaunion
Nuclear Coal Plant Lignite Coal
Plant Plant Plant Plant
- ----------------------------------------------------------------------
(dollars in millions)
Plant in service $2,340 $78 $429 $225 $398
Accumulated
depreciation $318 $37 $121 $55 $ 80
Plant capacity--mw 2,500 480 650 650 676
Participation 25.2% 50.0% 85.9% 40.2% 78.1%
Share of capacity--mw 630 240 559 262 528
10. Litigation and Regulatory Proceedings
CPL
Introduction
CPL owns 25.2% of STP, a two-unit nuclear power plant which is located
near Bay City, Texas. In addition to CPL, HLP, the Project Manager, owns
30.8%, San Antonio owns 28.0%, and Austin owns 16.0%. STP Unit 1 was
placed in service in August 1988 and STP Unit 2 was placed in service in
June 1989.
Final Orders
In October 1990, the Texas Commission issued the STP Unit 1 Order which
fully implemented a stipulated agreement filed in February 1990 to
resolve dockets then pending before the Texas Commission. In December
1990, the Texas Commission issued the STP Unit 2 Order which fully
implemented a stipulated agreement to resolve all issues regarding CPL's
investment in STP Unit 2.
The STP Unit 1 Order allowed CPL to increase retail base rates by $144
million. This base rate increase made permanent a $105 million interim
base rate increase placed into effect in March 1990 and a $39 million
interim base rate increase placed into effect in September 1989. The STP
Unit 2 Order provided for a retail base rate increase of $120 million
effective January 1, 1991. The STP Unit 1 Order also provided for the
deferral of operating expenses and carrying costs on STP Unit 2. A prior
Texas Commission order (see "Deferred Accounting" below) had authorized
deferral of STP Unit 1 costs. Such costs are being recovered through
rates over the remaining life of STP. Also, the STP Unit 1 Order
authorized use of Mirror CWIP, pursuant to which CPL recognized carrying
costs as deferred costs, and established a corresponding liability to
customers recorded in Mirror CWIP liability and other deferred credits on
the balance sheets. In compliance with the order, carrying costs
collected through rates during periods when CWIP was included in rate
base were recognized as a loan from customers. The loan is being repaid
through lower rates from 1991 through 1995, which approximates the length
of time during which the carrying costs were collected from customers.
The Mirror CWIP liability is being reduced by the recognition of non-cash
income during the period 1991 through 1995.
The STP Unit 1 and 2 Orders resolved all issues pertaining to the
reasonable original costs of STP and the appropriate amount to be
included in rate base. Pursuant to the Texas Commission orders, the
original cost of CPL's total investment in STP is included in rate base.
As part of the stipulated agreement, CPL has 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. CPL may file for increases in base rates, which
would be effective after 1994 and subject to certain limitations. The
fuel portion of customers' bills is subject to adjustments following the
normal review and approval by the Texas Commission.
The stipulated agreements, as discussed above, were entered into by CPL,
the Texas Commission Staff and a majority of intervenors including major
cities in CPL's service territory and major industrial customers. These
intervenors represent a significant majority of CPL's customers. CPL and
the TSA reached agreements, which were subsequently approved by the Texas
Commission Staff and other signatories, whereby TSA agreed not to oppose
the stipulated agreements in any respect, except with regard to deferred
accounting and rate design issues in the STP Unit 1 Order. OPUC and a
coalition of low-income customers declined to enter into the stipulated
agreements.
In January 1991, the TSA, OPUC and the coalition of low-income customers
filed appeals of the STP Unit 1 Order in District Court requesting
reversal of the deferred accounting for STP Unit 2 and other aspects of
that order. In March 1991, the TSA, OPUC and the coalition of low-
income customers filed appeals of the STP Unit 2 Order in the District
Court requesting reversal of that order. These appeals are pending
before the District Court. If these orders are ultimately reversed on
appeal, the stipulated agreements would be nullified and the Corporation
could experience a significant adverse effect on its consolidated results
of operations. However, the parties to the stipulated agreement, should
it be nullified, are bound to renegotiate and try to reach a revised
agreement that would achieve the same results. Management believes that
the STP Unit 1 and 2 Orders will be upheld.
Deferred Accounting
CPL was granted deferred accounting for STP Unit 1 and 2 costs by Texas
Commission orders. These orders allowed CPL to defer post-in-service
operating and maintenance costs, including taxes and depreciation, and
carrying costs until these costs were reflected in retail rates.
Deferred accounting had an immediate positive effect on net income in the
years allowed, but cash earnings were not increased until rates went into
effect reflecting STP in service (see "STP Final Orders" above). The
total deferrals for the periods affected were approximately $492 million
with an after-tax net income effect of approximately $325 million. This
total deferral included approximately $270 million of pre-tax debt
carrying costs. Pursuant to the STP Unit 1 and 2 Orders, CPL's retail
rates include recovery of all STP Unit 1 and 2 deferrals over the
remaining life of the plant.
In July 1989, OPUC and the TSA filed appeals of the Texas Commission's
final order in District Court requesting reversal of deferred accounting
for STP Unit 1. In September 1990, the District Court issued a judgment
affirming the Texas Commission's order for STP Unit 1, which was
subsequently appealed to the Court of Appeals by OPUC and the TSA. The
hearing of CPL's STP Unit 1 deferred accounting order was combined by the
Court of Appeals with similar appeals of HLP deferred accounting orders.
In September 1992, the Court of Appeals issued a decision that allows CPL
to include STP Unit 1 deferred post-in-service operating and maintenance
costs in rate base. However, the Court of Appeals held that deferred
post-in-service carrying costs could not be included in rate base,
thereby prohibiting CPL from earning a return on such costs.
After the Court of Appeals' denial of each party's motion for rehearing
of the decision, CPL and the Texas Commission in December 1992 filed
Applications for Writ of Error petitioning the Supreme Court of Texas to
review the September 1992 decision denying rate base treatment of
deferred post-in-service carrying costs by the Court of Appeals.
Additionally, the TSA and OPUC filed Applications for Writ of Error
petitioning the Supreme Court of Texas to reverse the Court of Appeal's
decision, challenging generally the legality of deferred accounting for
or rate base treatment of any deferred costs. In May 1993, the Supreme
Court of Texas granted CPL's application for writ of error. CPL's case
was consolidated with the deferred accounting cases of El Paso and HLP.
Oral arguments were heard in September 1993 and the Supreme Court's
decision is pending.
If CPL's orders granting deferred accounting were ultimately reversed and
not favorably revised, the Corporation could experience a material
adverse effect on its results of operations. While management cannot
predict the ultimate outcome of the deferred accounting appeal,
management believes CPL will successfully receive approval of its
deferred accounting orders or will be successful in renegotiation of its
rate orders, so that there will be no material adverse effect on the
Corporation's continuing consolidated results of operations.
Outage
In February 1993, Units 1 and 2 of STP were shut down by 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 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.
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 CPL's ability to
meet customer demands because of existing capacity and 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
costs 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 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 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 or other current 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 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, the Corporation could experience a material adverse effect on
its consolidated results of operations in the year of any disallowance.
CPL is required by the Texas Commission's 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 has concluded or at the time fuel costs
are next reconciled as discussed above. In August 1993, a Texas
Commission Administrative Law Judge granted 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 has 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.
Rate Case Filings
During December 1993 and January 1994, several Cities in CPL's service
territory exercised their rights to require CPL to file rate cases to
determine if CPL's 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 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 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 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 CPL's 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 intends to appeal these
orders to the Texas Commission and seek the actions necessary to stay
their effectiveness. CPL cannot predict if other cities acting in their
capacity as regulatory authorities will initiate similar proceedings.
In December 1993, a complaint was filed at the Texas Commission by a CPL
customer who takes service outside of municipal limits, where the Texas
Commission has original jurisdiction. The complaint seeks a review of
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.
Subsequently, the OPUC 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
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.
Westinghouse Litigation
CPL and other owners of STP are plaintiffs in a lawsuit filed in October
1990 in the District Court in Matagorda County, Texas against
Westinghouse, seeking damages and other relief. The suit alleges that
Westinghouse supplied STP with defective steam generator tubes that are
susceptible to stress corrosion cracking. Westinghouse filed an answer
to the suit in March 1992, denying the plaintiff's allegations. The suit
is currently in the discovery phase.
Inspections during the current STP outage have detected early signs of
stress corrosion cracking in tubes at STP Unit 1, but the resulting
remedial measures to date have not resulted in a material expense to CPL.
Management believes additional problems would develop gradually and could
be monitored by the Project Manager of STP. An accurate estimate of the
costs of remedying any further problems currently is unavailable due to
many uncertainties, including among other things, the timing of repairs,
which may coincide with scheduled outages, and the recoverability of
amounts from Westinghouse and any insurers. Management believes that the
ultimate resolution of this matter will not have a material adverse
effect on the Corporation's results of operations.
PSO
In January 1994, the Oklahoma Commission issued an order unanimously
approving a joint stipulation between PSO, the Oklahoma Commission Staff,
and the Office of the Attorney General of the State of Oklahoma, as
recommended by an Administrative Law Judge. The order allows PSO an
increase in retail rates of $14.4 million on an annual basis which
represents a $4.3 million increase above those authorized by a March 1993
interim order. The revised rates were implemented in February 1994.
Among other things, PSO has agreed that it will not file another retail
rate increase application until after June 30, 1995.
PSO has been named defendant in complaints file in Federal and state
courts of Oklahoma and Texas in 1984 through January 1994 by gas
suppliers alleging claims arising out of certain gas purchase contracts.
Cases currently pending seek approximately $34 million in actual damages,
together with claims for punitive damages 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 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 the Corporation's consolidated results of operations.
PSO has been named defendant in complaints filed in Federal and state
courts of Oklahoma in 1984, 1985, 1986 and 1993. The complaints allege,
among other things, that some of the plaintiffs and the property of other
plaintiffs were contaminated with PCBs and other toxic by-products
following certain incidents, including transformer malfunctions in April
1982, December 1983 and May 1984. To date, complaints representing
approximately $735 million (including compensatory and punitive damages)
of claims have been dismissed, certain of which resulted from settlements
among the parties. The settlements did not have a significant effect on
the Corporation's consolidated results of operations. Remaining
complaints currently total approximately $396 million, of which
approximately one-third is for punitive damages. Discovery with regard
to the remaining complaints continues. 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 the Corporation's
consolidated results of operations.
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 seek damages in an unspecified
amount. PSO and the defendant carrier have filed motions for summary
judgment on certain dispositive issues in the litigation. The motions
have been fully briefed and argued and the parties are awaiting the
Court's order. In December 1993, PSO amended its suit against the
defendant carrier seeking damages and declaratory relief under Federal
and state anti-trust laws. Although management cannot predict the
outcome, management believes that PSO's interpretation and performance of
the contract have been proper and intends to vigorously pursue this case.
Management also believes that the ultimate resolution of the case will
not have a material adverse effect on the Corporation's consolidated
results of operations.
SWEPCO
In April 1991, TIEC filed suit in the Travis County District Court
challenging the Texas Commission's final order on SWEPCO's fuel
reconciliation proceeding in Docket 8900. The District Court upheld the
order, a decision which TIEC challenged on appeal. On January 5, 1994,
the Texas Supreme Court rejected TIEC's latest request for an appeal and
the decision is now final.
WTU
WTU received approval from the Texas Commission in September 1987 to
defer operating expenses and carrying costs associated with Oklaunion
incurred subsequent to its December 1986 commercial operation date until
December 1987 when retail rates including Oklaunion in WTU's rate base
became effective. The deferred costs are being recovered and amortized
over the life of the plant. In November 1987, OPUC filed an appeal in
District Court of the Texas Commission's final order requesting that WTU
not be allowed to defer any costs associated with Oklaunion. In October
1988, the District Court affirmed the final order of the Texas
Commission. In December 1988, OPUC filed an appeal of the District Court
order with the Court of Appeals. In September 1990, the Court of Appeals
upheld the District Court's affirmation of the Texas Commission's final
order and in October 1990, OPUC filed a motion for rehearing of the Court
of Appeal's decision, which was denied in November 1990. The Supreme
Court granted OPUC's application for writ of error in WTU's deferred
accounting case. Oral arguments were heard in September 1993 and the
Supreme Court's decision is pending.
On October 2, 1992, the District Court heard the remanded appeals of the
final rate order of the Texas Commission in WTU's 1987 rate case. The
District Court affirmed WTU's rate order in all material respects with
the exception of the inclusion of deferred carrying costs in rate base
for Oklaunion. The District Court's decision allowed WTU to include
Oklaunion deferred post-in-service operating and maintenance costs in
rate base. While the 1992 District Court decision permits deferred post-
in-service carrying costs to be amortized and recovered in WTU's cost of
service, it does not permit WTU to include these costs in rate base,
thereby prohibiting WTU from earning a return on these costs. On April
16, 1993, WTU filed an appeal of the District Court's decision with the
Third Court of Appeals. Oral arguments for the appeal were heard
December 1, 1993, and the case is pending a decision by the Third Court
of Appeals. No assurance can be given as to the ultimate outcome of this
matter, which is related to but separate from WTU's deferred accounting
case.
Currently, WTU has recorded approximately $32 million of Oklaunion
deferred costs, of which $25 million are carrying costs. Management
believes that no write-off of deferred carrying costs is necessary under
the District Court's decisions.
Management believes that WTU's deferred accounting treatment is within
the Texas Commission's statutory authority and should ultimately be
sustained on appeal. However, no assurance can be given as to the
outcome of any rate proceedings involving this matter. While management
cannot predict the ultimate outcome of the deferred accounting appeals,
management believes that WTU's deferred accounting matter will not result
in a material adverse effect on the Corporation's consolidated results of
operations.
OTHER
The Corporation is party to various other legal claims, actions and
complaints arising in the normal course of business. Management does not
expect disposition of these matters to have a material adverse effect on
the Corporation's consolidated results of operations.
11. Commitments and Contingent Liabilities
It is estimated that the CSW System will spend approximately $535
million in capital expenditures during 1994. Substantial commitments
have been made in connection with this capital expenditure program.
To supply a portion of the fuel requirements of the CSW System, the
subsidiary companies have entered into various commitments for the
procurement of fuel.
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 December 31, 1993, the
maximum amount SWEPCO would have to assume was $76.3 million. The
maximum amount may vary as the mining contractor's need for funds
fluctuates. The contractor's actual obligation outstanding at December
31, 1993 was $66.3 million.
Nuclear Insurance
In connection with the licensing and operation of STP, the owners have
purchased the maximum limits of nuclear liability insurance, as required
by law, and have executed indemnification agreements with the Nuclear
Regulatory Commission, in accordance with the financial protection
requirements of the Price-Anderson Act.
The Price-Anderson Act, a comprehensive statutory arrangement providing
limitations on nuclear liability and governmental indemnities, is in
effect until August 1, 2002. The limit of liability under the Price-
Anderson Act for licensees of nuclear power plants is $7.8 billion per
incident. The owners of STP are insured for their share of this
liability through a combination of private insurance amounting to $200
million and a mandatory industry-wide program for self-insurance totaling
$7.6 billion. The maximum amount that each licensee may be assessed
under the industry-wide program of self-insurance following a nuclear
incident at an insured facility is $66.15 million (which amount may be
adjusted for inflation) for each licensed reactor, but not more than $10
million per reactor for each nuclear incident in any one year. CPL and
each of the other STP owners are subject to such assessments, which CPL
and other owners have agreed will be borne on the basis of their
respective ownership interests in STP. For purposes of these
assessments, STP has two licensed reactors.
The owners of STP currently maintain on-site property damage insurance
in the amount of $2.7 billion provided by American Nuclear Insurers and
Nuclear Electric Insurance Limited. Policies of insurance issued by
American Nuclear Insurers and Nuclear Electric Insurance Limited
stipulate that policy proceeds must be used first to pay decontamination
and clean-up costs, before being used to cover direct losses to property.
CPL and the other owners of STP have entered into an agreement that
provides for the total cost of decontamination liability and property
insurance for STP (including premiums and assessments) to be shared pro
rata based upon each owner's respective ownership interests in STP.
CSW Energy
Through various wholly-owned subsidiaries, CSWE is involved in six
different cogeneration projects classified as qualifying facilities under
the Public Utility Regulatory Policies Act of 1978 and the rules and
regulations promulgated thereunder by the FERC. CSWE finances its
development efforts and equity investments primarily through borrowings
from the Corporation. These borrowings are intended to be repaid with
proceeds from non-recourse project financing from independent third party
financial institutions.
As a result of its participation in the projects, CSWE has contractual
commitments to provide certain services and support. Each of the
contracts provides, among other things, that the potential maximum
liability of the CSWE subsidiaries will be limited to the fixed price of
such contracts, currently aggregating approximately $175 million. The
Corporation has direct or indirect responsibility for these amounts.
12. Business Segments
The Corporation's business segments include electric utility
operations (CPL, PSO, SWEPCO, WTU), and gas operations (Transok). Five
non-utility companies are included in corporate items (CSWE, CSW Credit,
CSW Leasing, CSWS and the Corporation).
The Corporation's business segment information follows:
1993 1992 1991
(millions)
Operating Revenues
Electric $3,055 $2,790 $2,803
Gas 603 496 241
Corporate items and other 29 3 3
----- ----- -----
$3,687 $3,289 $3,047
===== ===== =====
Operating Income
Electric $ 553 $ 689 $ 692
Gas 17 40 34
Corporate items and other 12 1 7
------ ----- -----
Total operating income before taxes 582 730 733
------ ----- -----
Income taxes 125 142 167
------ ----- -----
$ 457 $ 588 $ 566
====== ===== =====
Depreciation
Electric $ 296 $ 284 $ 276
Gas 29 22 12
Corporate items and other 5 5 3
------ ----- -----
$ 330 $ 311 $ 291
====== ===== =====
Identifiable Assets
Electric $ 8,927 $8,575 $8,321
Gas 691 674 585
Corporate items and other 1,005 580 490
------ ----- -----
$10,623 $9,829 $9,396
====== ===== =====
Capital expenditures and acquisitions
Electric $ 481 $ 325 $ 276
Gas 88 101 300
Corporate items and other 45 23 7
------ ----- -----
$ 614 $ 449 $ 583
====== ===== =====
13. Quarterly Information (Unaudited)
The following unaudited quarterly information includes, in the opinion
of management, all adjustments necessary for a fair presentation of such
amounts.
Earnings
Operatin Operating Net per Share
Revenues Income Income of Common
Quarter Ended (millions) Stock
-------------------------------------------------------------------
1993
-------------------------------------------------------------------
March 31-Reported $817 $102 $ 57 $.28
Adjustment (7) (5) 35 .19
----- --- --- ---
March 31 - Restated 810 97 92 .47
----- --- --- ---
June 30-Reported 859 121 73 .36
Adjustment 35 23 23 .12
----- --- --- ---
June 30 - Restated 894 144 96 .48
----- --- --- ---
September 30-Reported 1,139 218 180 .93
Adjustment 1 1 1 --
----- --- --- ---
September 30 - Restated 1,140 219 181 .93
----- --- --- ---
December 31-Reported 872 16 17 .06
Adjustment (29) (19) (59) (.31)
----- --- --- ---
December 31 - Restated 843 (3) (42) (.25)
----- --- --- ----
$3,687 $457 $327 $1.63
===== === === ====
1992
-------------------------------------------------------------------
March 31 $685 $109 $ 63 $.30
June 30 763 126 79 .39
September 30 989 222 175 .91
December 31 852 131 87 .43
----- --- --- ----
$3,289 $588 $404 $2.03
===== === === ====
Quarterly information has been restated to reflect the change
in accounting for unbilled revenues and the adoption of SFAS No. 112,
Employers' Accounting For Postemployment Benefits. These changes were
made in December 1993, but are effective January 1, 1993.
Information for quarterly periods is affected by seasonal variations in
sales, rate changes, timing of fuel expense recovery and other factors.
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Central and South West
Corporation:
We have audited the accompanying consolidated balance sheets of Central and
South West Corporation (a Delaware corporation) and subsidiary companies as of
December 31, 1993 and 1992, and the related consolidated statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Central and South West
Corporation and subsidiary companies as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
In 1993, as discussed in Note 1, Central and South West Corporation and
subsidiary companies changed their methods of accounting for unbilled revenues,
postretirement benefits other than pensions, income taxes and postemployment
benefits.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The supplemental schedules V, VI, IX and X are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules and exhibit have been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, fairly state
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
Dallas, Texas
February 25, 1994
Report of Management
Management is responsible for the preparation, integrity and objectivity of the
consolidated financial statements of Central and South West Corporation and
subsidiary companies as well as all other information contained in this Annual
Report. The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis and,
in some cases, reflect amounts based on the best estimates and judgments of
management, giving due consideration to materiality. Financial information
contained elsewhere in the Annual Report is consistent with that in the
consolidated financial statements.
The Corporation, together with its subsidiary companies, maintains an adequate
system of internal controls to provide reasonable assurance that transactions
are executed in accordance with management's authorization, that the
consolidated financial statements are prepared in accordance with generally
accepted accounting principles and that the assets of the companies are properly
safeguarded. The system of internal controls is documented, evaluated and
tested by the Corporation's internal auditors on a continuing basis. Due to the
inherent limitations of the effectiveness of internal controls, no internal
control system can provide absolute assurance that errors will not occur.
However, management strives to maintain a balance, recognizing that the cost of
such a system should not exceed the benefits derived. No material internal
control weaknesses have been reported to management.
Arthur Andersen & Co. was engaged to audit the consolidated financial statements
of the Corporation and subsidiary companies and issue its reports thereon.
Their audits were conducted in accordance with generally accepted auditing
standards. Such standards require an examination of selected transactions and
other procedures sufficient to provide reasonable assurance that the
consolidated financial statements are not misleading and do not contain material
errors. The Report of Independent Public Accountants does not limit the
responsibility of management for information contained in the consolidated
financial statements and elsewhere in the Annual Report.
E. R. Brooks
Chairman, President and Chief Executive Officer
Glenn D. Rosilier
Senior Vice President and Chief Financial Officer
Wendy G. Hargus
Controller
Report of Audit Committee
The Audit Committee of the board of directors is composed of seven outside
directors. The members of the Audit Committee are: Arthur E. Rasmussen,
Chairman, Glenn Biggs, Molly Shi Boren, Robert W. Lawless, Jr., J. C. Templeton,
Thomas B. Walker, Jr. and Lloyd D. Ward. The Committee held three meetings
during 1993.
The Committee oversees the Corporation's financial reporting process on behalf
of the board of directors. In fulfilling its responsibility, the Committee
recommends to the board of directors, subject to shareholder approval, the
selection of the Corporation's independent public accountants. The Committee
discusses with the internal auditors and the independent public accountants the
overall scope and specific plans for their respective audits. The Committee
also discusses the Corporation's consolidated financial statements and the
adequacy of internal controls. The Committee meets regularly with the
Corporation's internal auditors and independent public accountants to discuss
the results of their audits, their evaluations of internal controls and the
overall quality of the Corporation's financial reporting. The meetings are
designed to facilitate any private communication with the Committee desired by
the internal auditors or independent public accountants.
Arthur E. Rasmussen
Chairman, Audit Committee
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Corporation has filed with the SEC its Notice of Annual Meeting of
Shareholders and Proxy Statement Relating to its 1994 Annual Meeting of
Shareholders. The information required by ITEM 10, other than with respect to
certain information regarding the executive officers of the Corporation which is
included in ITEM 1, BUSINESS - Executive Officers of the Registrant, is hereby
incorporated by reference to pages 2-7 of such Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by ITEM 11 is hereby incorporated by reference
to pages 10-13 of the Corporation's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by ITEM 12 is hereby incorporated by reference
to page 5 of the Corporation's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by ITEM 13 is hereby incorporated by reference
to pages 4-7 of the Corporation's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Financial Statements (Included under ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA): Page
Referenced
1993
10-K
Central and South West Corporation and Subsidiary Companies:
Report of Independent Public Accountants. 73
Consolidated Statements of Income for the years ended 48
December 31, 1993, 1992 and 1991.
Consolidated Statements of Retained Earnings for the years ended 49
December 31, 1993, 1992 and 1991.
Consolidated Balance Sheets as of 51 - 52
December 31, 1993 and 1992.
Consolidated Statements of Cash Flows for the years ended 50
December 31, 1993, 1992 and 1991.
Notes to Consolidated Financial Statements. 53 - 72
(b) Reports on Form 8-K:
The Corporation filed a current report on Form 8-K dated December 29,
1993, reporting ITEM 5. "Other Events" relating to the proposed merger with El
Paso.
The Corporation filed a current report on Form 8-K dated March 10, 1994,
reporting ITEM 5. "Other Events" relating to the STP Outage and the Cities rate
case at CPL.
(c) Management Contracts, Compensatory Plans or Arrangements:
The management contracts, compensatory plans or arrangements required to
be filed as exhibits to this Form 10-K are listed in 10(a)-10(f) in item (d)
Exhibits below.
(d) Exhibits: Page
Referenced
Central and South West Corporation: 1993
8-K
2. (a) Agreement and Plan of Merger Among El Paso Electric ---
Company, Central and South West Corporation and CSW Sub, Inc.
Dated as of May 3, 1993 as Amended May 18, 1993,
(Incorporated herein by reference to Exhibit 2.1 to the
Corporation's Form 8-K dated December 29, 1993, File No. 1-1443).
2. (b) Second Amendment Dated as of August 26, 1993 to ---
Agreement and Plan of Merger Among El Paso Electric Company,
Central and South West Corporation and CSW Sub, Inc.
Dated as of May 3, 1993 as amended on May 18, 1993,
(Incorporated herein by reference to Exhibit 2.2 to the
Corporation's Form 8-K dated December 29, 1993, File No. 1-1443).
2. (c) Third Amendment Dated as of December 1, 1993 to ---
Agreement and Plan of Merger Among El Paso Electric Company,
Central and South West Corporation and CSW Sub, Inc.
Dated as of May 3, 1993 as amended on May 18, 1993 and August
26, 1993, (Incorporated herein by reference to Exhibit 2.3 to
the Corporation's Form 8-K dated December 29, 1993,
File No. 1-1443).
2. (d) Modified Third Amended Plan of Reorganization of El ---
Paso Electric Company Providing for the Acquisition of El Paso
Electric Company by Central and South West Corporation as
corrected December 6, 1993, and confirmed by the Bankrupt Court,
(Incorporated herein by reference to Exhibit 2.4 to the
Corporation's Form 8-K dated December 29, 1993, File No. 1-1443).
2. (e) Order and Judgement Confirming El Paso Electric
Company's Third Amended Plan of Reorganization, as Modified,
Under Chapter 11 of the United States Bankruptcy Code and
Granting Related Relief, (Incorporated herein by reference to
Exhibit 2.5 to the Corporation's Form 8-K dated December 29,
1993, File No. 1-1443).
10-K
3. (a) Second Restated Certificate of Incorporation of the ---
Corporation, as amended (Incorporated herein by reference to
Exhibit 3(a) to the Corporation's 1990 Form 10-K File
No. 1-1443).
3. (b) Bylaws, of the Corporation, as amended (Incorporated
herein by reference to Exhibit 3(b) to the Corporation's 1990
Form 10-K File No. 1-1443).
10. (a) Restricted Stock Plan for Central and South West ---
Corporation (Incorporated herein by reference to Exhibit 10(a)
to the Corporation's 1990 Form 10-K File No. 1-1443).
10. (b) Central and South West System Special Executive ---
Retirement Plan (Incorporated herein by reference to Exhibit
10(b) to the Corporation's 1990 Form 10-K File No. 1-1443).
(d) Exhibits: Page
Referenced
Central and South West Corporation and Subsidiary Companies:
1993
10-K
10. (c) Executive Incentive Compensation Plan for Central ---
and South West System (Incorporated herein by reference to
Exhibit 10(c) to the Corporation's 1990 Form 10-K File No.
1-1443).
10. (d) Central and South West Corporation Stock Option Plan ---
(Incorporated herein by reference to Exhibit 10(d) to the
Corporation's 1990 Form 10-K File No. 1-1443).
10. (e) Central and South West Corporation Deferred ---
Compensation Plan for Directors (Incorporated herein by
reference to Exhibit 10(e) to the Corporation's
1990 Form 10-K File No. 1-1443).
10. (f) Central and South West Corporation 1992 Long-Term ---
Incentive Plan (Incorporated herein by reference to Appendix A
to the Central and South West Corporation Notice of 1992 Annual
Meeting of Shareholders and Proxy Statement).
V. Property, Plant and Equipment for the years ended 81
December 31, 1993, 1992, and 1991.
VI. Accumulated Depreciation, Depletion and Amortization of 82
Property, Plant and Equipment for the years ended December 31,
1993, 1992 and 1991.
IX. Short-Term Borrowings for the years ended December 31, 83
1993, 1992 and 1991.
X. Supplementary Income Statement Information for the years 84
ended December 31, 1993, 1992 and 1991.
18. Letter re: Change in Accounting Principle. 85
21. Subsidiaries of the Registrant. 86
23. Consent of Independent Accountants. 87
All other exhibits and schedules are omitted because of the absence of
the conditions under which they are required or because the required information
is included in the consolidated financial statements and related notes to
consolidated financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 17,
1994.
CENTRAL AND SOUTH WEST CORPORATION
By: Wendy G. Hargus
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 17, 1994.
Signature Title
E. R. Brooks Chairman, President and Chief Executive
Officer and Director
(Principal executive officer)
Glenn D. Rosilier Senior Vice President and Chief Financial Officer
(Principal financial officer)
Wendy G. Hargus Controller
(Principal accounting officer)
T. J. Barlow Director
Glenn Biggs Director
Molly Shi Boren Director
Joe H. Foy Director
Robert W. Lawless Director
Harry D. Mattison Executive Vice President and Director
James L. Powell Director
Arthur E. Rasmussen Director
Thomas V. Shockley III Executive Vice President and Director
J. C. Templeton Director
Thomas B. Walker, Jr. Director
Lloyd D. Ward Director
SCHEDULE V
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31
Column A Column B Column C Column D Column E Column F
- --------------------------------------------------------------------------------
Balance Other
Beginning Additions Retirements Changes Balance
Classification of Year at Cost at Cost Add/(Deduct) End of Year
- --------------------------------------------------------------------------------
(Millions)
Year 1993
- --------------
Plant:
Electric
Production $5,756 $30 $(12) $ 1 $5,775
Transmission 1,177 54 (4) 1 1,228
Distribution 2,182 188 (23) 15 2,362
General 628 91 (15) 5 709
CWIP 264 135 --- (28) 371
Nuclear fuel 153 7 --- --- 160
Gas 666 88 (2) --- 752
--------------------------------------------------------
$10,826 $593 $(56) $(6) $11,357
========================================================
Year 1992
- --------------
Plant:
Electric
Production $5,712 $53 $(9) $--- $5,756
Transmission 1,152 30 (3) (2) 1,177
Distribution 2,084 122 (25) 1 2,182
General 593 47 (11) (1) 628
CWIP 159 105 --- --- 264
Nuclear fuel 137 16 --- --- 153
Gas 587 84 (5) --- 666
--------------------------------------------------------
$10,424 $457 $(53) $(2) $10,826
========================================================
Year 1991
- --------------
Plant:
Electric
Production $5,667 $50 $(5) $--- $5,712
Transmission 1,112 43 (3) --- 1,152
Distribution 1,970 135 (21) --- 2,084
General 556 49 (10) (2) 593
CWIP 148 11 --- --- 159
Nuclear fuel 133 4 --- --- 137
Gas 305 283 (1) --- 587
-------------------------------------------------------
$9,891 $575 $(40) $(2) $10,424
=======================================================
SCHEDULE VI
<TABLE>
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions Charged to Other
Balance Costs and Expenses Changes Balance
Beginning Depreciation/ Other Add/ End of
Classification of Year Amortization Accounts Retirements(*) (Deduct) Year
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Year 1993
- ---------------
Plant:
Electric
Production $1,702 $158 $7 $(13) $(1) $1,853
Transmission 405 32 --- (6) --- 431
Distribution 716 84 --- (35) 8 773
General 210 24 16 (15) 3 238
Nuclear fuel 72 --- 1 --- --- 73
Gas 160 23 1 (2) --- 182
-------------------------------------------------------------------
$3,265 $321 $25 $(71) $10 $3,550
===================================================================
Year 1992
- ---------------
Plant:
Electric
Production $1,542 $157 $8 $(5) $--- $1,702
Transmission 379 31 --- (5) --- 405
Distribution 669 80 --- (33) --- 716
General 189 20 11 (10) --- 210
Nuclear fuel 51 --- 21 --- --- 72
Gas 144 21 --- (5) --- 160
-------------------------------------------------------------------
$2,974 $309 $40 $(58) $--- $3,265
===================================================================
Year 1991
- ----------------
Plant:
Electric
Production $1,384 $156 $8 $(5) $(1) $1,542
Transmission 355 30 --- (6) --- 379
Distribution 623 76 --- (30) --- 669
General 170 18 10 (9) --- 189
Nuclear fuel 33 --- 18 --- --- 51
Gas 134 11 --- (1) --- 144
-------------------------------------------------------------------
$2,699 $291 $36 $(51) $(1) $2,974
===================================================================
(*) Retirements are at original cost, net of removal costs and salvage.
</TABLE>
SCHEDULE IX
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31
Column A Column B Column C Column D Column E Column F
Maximum Average Weighted
Category of Balance Weighted amount amount average
aggregate at end average outstanding outstanding interest
short-term of interest at any during rate during
Year borrowings period rate month-end the period the period
- -----------------------------------------------------------------------------
(Millions)
1993 Commercial $1,410 3.35% $1,403 $1,219 3.35%
Paper
1992 Commercial $805 4.00%
Paper
$809 $706 4.00%
Notes Payable $4 4.20%
to Banks
1991 Commercial $787 6.20%
Paper
$791 $597 6.20%
Notes Payable $4 6.40%
to Banks
SCHEDULE X
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31
1993 1992 1991
(Millions)
Real estate and personal property taxes $115 $100 $94
State and municipal gross receipts 34 31 30
Payroll taxes 23 21 19
State income taxes 7 7 10
Franchise taxes 14 12 5
State utility commission assessments 1 3 3
Other taxes 3 1 2
--------------------
$197 $175 $163
====================
The amounts of taxes, depreciation and maintenance charged to accounts
other than income and expense accounts were not significant. Rents, royalties,
advertising and research and development costs during these years were not
significant.
INDEX TO EXHIBITS
Exhibit Transmission
Number Exhibit Method
18 Letter re: Change in Accounting Principle. Electronic
21 Subsidiaries of the Registrant. Electronic
23 Consent of Independent Public Accountants. Electronic
EXHIBIT 18
LETTER RE: CHANGE IN ACCOUNTING PRINCIPLE
Re: Central and South West Corporation
Form 10-K Report for the year ended December 31, 1993
Ladies and Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling
for a letter from a registrant's independent accountants whenever there has been
a change in accounting principle or practice.
Prior to January 1, 1993, electric revenues were recorded at the time
billings were made to customers on a cycle-billing basis. Electric service
provided subsequent to billing dates through the end of each calendar month
became part of operating revenues of the next month. To conform to industry
standards the Company changed its method of accounting to accrue for estimated
unbilled revenues for electricity used by customers, but not yet billed.
A complete coordinated set of financial and reporting standards for
determining the preferability of accounting principles among acceptable
alternative principles has not been established by the accounting profession.
Thus, we cannot make an objective determination of whether the change in
accounting described in the preceding paragraph is to a preferable method.
However, we have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective basis, and our
opinion stated below is based on our determination made in this manner.
We are of the opinion that the Corporation's change in method of
accounting is to an acceptable alternative method of accounting, which, based
upon the reasons stated for the change and our discussions with management, is
also preferable under the circumstances in this particular case. In arriving at
this opinion, we have relied on the business judgment and business planning of
your management.
Very truly yours,
ARTHUR ANDERSEN & CO.
EXHIBIT 21
CENTRAL AND SOUTH WEST CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1993
Company Name State of Incorporation
Business Conducted Under Same Name
Central Power and Light Company Texas
539 North Carancahua Street
Corpus Christi, Texas 78401-2802
Public Service Company of Oklahoma Oklahoma
212 East 6th Stre212 East 6th Street
Tulsa, Oklahoma 74119-1212
Southwestern Electric Power Company Delaware
428 Travis Stree428 Travis Street
Shreveport, Louisiana 71156-0001
West Texas Utilities Company Texas
301 Cypress Street
Abi301 Cypress Street
Abilene, Texas 79601-5820
Transok, Inc. Oklahoma
600 South Main
Tulsa, Oklahoma 74101
Central and South West Services, Inc. Texas
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
CSW Credit, Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
CSW Energy, Inc. Texas
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
CSW Leasing, Inc. Delaware
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Central and South West Corporation:
As independent public accountants, we hereby consent to the incorporation
of our reports dated February 25, 1994, included in, and incorporated by
reference in this Form 10-K, into Central and South West Corporation's
previously filed registration statements on Form S-8 (File Nos. 2-70746, 33-
12992 and 33-49301) and on Form S-3 (File No. 33-50193).
Arthur Andersen & Co.
Dallas, Texas
March 30, 1994
