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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 10, 1994
CENTRAL POWER AND LIGHT COMPANY
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of incorporation)
0-346 74-0550600
(Commission File Number) (IRS Employer Identification No.)
539 N. Carancahua, Corpus Christi, Texas, 78401
(Address of principal executive offices) (zip code)
(512) 881-5300
(Registrant's telephone number, including area code)
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Item 5. Other Events
SOUTH TEXAS PROJECT (STP) OUTAGE
Central Power and Light Company (Company) owns 25.2% of STP,
a two unit nuclear power plant. In February 1993, Units 1
and 2 of STP were shut down by Houston Lighting and Power
Company (HLP), the Project Manager, in an unscheduled outage
resulting from mechanical problems relating to two auxiliary
feedwater pumps. HLP determined that the units would not be
restarted until the equipment failures had been corrected
and the Nuclear Regulatory Commission (NRC) briefed on the
causes of these failures and the corrective actions that
were taken. The NRC formalized that commitment in a
confirmatory action letter, and sent an Augmented Inspection
Team to STP to review the matter. In March 1993 the NRC
began a diagnostic evaluation of STP. Conducted
infrequently, diagnostic evaluations are broad-based
evaluations of overall plant operations and are intended to
review the strengths and weaknesses of the licensee's
performance and to identify the root cause of performance
problems. During and subsequent to the June 1993 completion
of the evaluation, the NRC supplemented its confirmatory
action letter to identify additional issues to be resolved
and verified by the NRC before restart of STP. Such issues
included the need to reduce backlogs of engineering and
maintenance work and to simplify work processes which placed
excessive burdens on operating and other plant personnel.
The report also identified the need to strengthen management
communications, oversight and teamwork as well as the
capability to identify and correct the root causes of
problems.
The NRC announced in June 1993 that STP was placed on its
"watch list" of plants with "weaknesses that warrant
increased NRC attention." Plants on the watch list are
subject to closer NRC oversight. STP will remain on the
NRC's watch list until both units return to service and a
period of good performance is demonstrated.
During the outage, the necessary improvements have been made
by HLP to address the issues in the confirmatory action
letter, as supplemented. On February 15, 1994, the NRC
agreed that the confirmatory action letter issues had been
resolved with respect to Unit 1, and that it supported HLP's
recommendation that Unit 1 was ready to restart. Unit 1
restarted in late February 1994 and operated at low power
for three days. The Project Manager then shut down Unit 1
due to a problem with a steam generator feedwater valve and
a steam generator tube leak. The Project Manager expects to
make the necessary repairs and restart Unit 1 in late March
1994, although additional delays may occur.
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While many of the corrective actions taken are common to
both units, HLP must demonstrate to the NRC that these
issues are also resolved with respect to Unit 2 before it is
restarted. HLP estimates that Unit 2 will restart during
the second quarter of 1994 after the completion of
refueling, which began in March 1993 but was delayed in
order to focus on the issues discussed above. The outage
has not affected the Company's ability to meet customer
demands because of existing capacity and the Company'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. The Company has paid its portion (25.2%)
of the cost of fines.
The Company's share of increased non-fuel operation and
maintenance costs in 1993, related to the outage at STP,
necessary to affect the needed improvements were
approximately $29 million, and were expensed as incurred.
Included in these expenses were detailed inspections of both
units' steam generators, and the acceleration of certain
maintenance activities from 1994 to 1993. This acceleration
is expected to eliminate the need for any planned outages
for either unit in 1994. The 1994 budgeted STP non-fuel
operation and maintenance expenses are expected to be
significantly lower than the 1993 actual expenses; but even
though lower, they are expected to be sufficient to continue
enhancements that will result in improved long-term
performance of STP.
Pursuant to the substantive rules of the Public Utility
Commission of Texas (Texas Commission), the Company
generally is allowed to recover its fuel costs through a
fixed fuel factor. These fuel factors are in the nature of
temporary rates, and the Company's collection of revenues by
such fuel factors is subject to adjustment at the time of a
fuel reconciliation proceeding before the Texas Commission.
The difference between fuel revenues billed and fuel expense
incurred is recorded as an addition to or a reduction of
revenues, with a corresponding entry to unrecovered fuel
cost or other liabilities, as appropriate. Any fuel costs,
(not limited to under- or over- recoveries) which the Texas
Commission determines as unreasonable in a reconciliation
proceeding are not recoverable from customers.
During the outage, the Company'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
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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, the Company had an
over-recovered fuel balance of $5.2 million, exclusive of
interest. At January 31, 1994, the Company'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. The Company 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 Company could experience a
material adverse effect on its results of operations in the
year of disallowance. The Company is required by Texas
Commission rules to file a reconciliation of its fuel costs
by May 1, 1994; however, the Texas Commission Staff is
proposing a revised filing deadline that would not require
the Company to file before the fourth quarter of 1994.
In July 1993, the Company filed a fuel surcharge petition,
which is separate from a fuel reconciliation proceeding with
the Texas Commission to comply with the mandatory provisions
of the Texas Commission's fuel rules. The petition requested
approval of a customer surcharge to recover under-recovered
fuel and purchased power costs resulting from the STP
outage, increased natural gas costs and other factors. The
petition also requested that the Texas Commission postpone
consideration of the surcharge until the STP outage
concluded or at the time fuel costs are next reconciled as
discussed above. In August 1993, a Texas Commission
Administrative Law Judge granted the Company's request to
postpone consideration of the surcharge. In January 1994,
the Company updated its fuel surcharge petition to reflect
amounts of under-recovery through November 1993. Likewise,
the Company requested and was granted postponement of the
updated petition until the STP outage concluded or at the
time fuel costs are next reconciled.
Management believes that the operating outage at STP will
not have a material effect on its financial condition or on
its results of operations.
See the Company's Annual Report on Form 10-K for the year
ended December 31, 1992, and Quarterly Reports on Form 10-Q
for the periods ended March 31, 1993, June 30, 1993, and
September 30, 1993 for additional information relating to
STP and the outage.
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RATE CASE FILINGS
During December 1993 and January 1994, several cities
(Cities) in the Company's service territory exercised their
rights to require the Company to file rate cases to
determine if its rates are fair, just and reasonable. The
Cities, together, account for approximately 40% of the
Company's base revenues. The governing bodies of these
Cities have original jurisdiction over rates only within
their incorporated limits. The Cities have ordered the
Company to file rate cases by various dates from February 17
through March 18, 1994, with hearings scheduled in February
and March 1994.
The Cities have informed the Company that this rate review
was precipitated by the outage at STP leading the Cities to
question whether STP should continue to be included in the
Company's rate base. Further, the Cities question whether
the Company 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 the Company's rate base, resulting in a
reduction of total base revenues of $106.5 million. The
consultant did not recommend a reduction in revenues
relating to STP Unit 1, nor did it suggest a revenue
reduction for its contention that the Company'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.
The Company contends that both units of STP belong in rate
base because of the long-term benefits nuclear generation
provides to customers. The Company 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. The
Company 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 the Company
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 the Company to reduce rates by $73
million, if applied on a total company basis. These Cities'
revenues represent approximately 20% of the Company'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. The Company has appealed these orders
to the Texas Commission seeking the actions necessary to
stay their effectiveness. The Company cannot predict if
other cities acting in their capacity as regulatory
authorities will initiate similar proceedings.
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In December 1993, a complaint was filed at the Texas
Commission by a customer of the Company who takes service
outside of municipal limits, where the Texas Commission has
original jurisdictional. The complaint seeks a review of
the Company's rates due to the outage at STP. The Texas
Commission has docketed the proceeding, but has taken no
other action in the matter. In March 1994, the Office of
Public Utility Counsel and General Counsel
petitioned the Texas Commission to review the Company's
rates. Any rate orders which might ultimately be entered as
a result of these filings would affect customers served by
the Company 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
Company's results of operations or financial condition.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
CENTRAL POWER AND LIGHT COMPANY
Date: March 10, 1994
By: DAVID P. SARTIN
David P. Sartin
Controller, Secretary and
Chief Accounting Officer
