UNITED STATES
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): September 10, 1997
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
1-1443 Central and South West Corporation 51-0007707
(A Delaware Corporation)
1616 Woodall Rodgers Freeway
Dallas, TX 75202-1234
(214) 777-1000
0-346 Central Power and Light Company 74-0550600
(A Texas Corporation)
539 North Carancahua Street
Corpus Christi, TX 78401-2802
(512) 881-5300
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GLOSSARY OF TERMS
The following abbreviations or acronyms used in this text are defined below:
Abbreviation or Acronym Definition
CPL.....................................Central Power and Light Company,
Corpus Christi, Texas
CPL 1997 Final Order....................Final rate order received on
September 10, 1997 from the Texas
Commission
CPL 1997 Original Rate Order............Rate order issued on March 31, 1997 by
the Texas Commission
CSW.....................................Central and South West Corporation,
Dallas, Texas
CSWS....................................Central and South West Services, Dallas,
Texas and Tulsa, Oklahoma
ECOM....................................Excess cost over market
IRS.....................................Internal Revenue Service
SFAS No. 71.............................Statement of Financial Accounting
Standards No. 71 - Accounting for the
Effects of Certain Types of Regulation
STP.....................................South Texas Project nuclear electric
generating station, jointly owned by
CPL, Houston Lighting & Power Company,
City of Austin, and City of San Antonio
Texas Commission........................Public Utility Commission of Texas
FORWARD LOOKING INFORMATION
This report and other presentations made by CSW and its subsidiaries contain
forward looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934. Although CSW and each of its subsidiaries believe that, in
making any such statements, its expectations are based on reasonable
assumptions, any such statements may be influenced by factors that could cause
actual outcomes and results to be materially different from those projected.
Important factors that could cause actual results to differ materially from
those in the forward looking statements include, but are not limited to: the
impact of general economic changes in the U.S. and in countries in which CSW
either currently has made or in the future may make investments; the impact of
deregulation on the U.S. electric utility business; increased competition and
electric utility industry restructuring in the U.S.; federal and state
regulatory developments and changes in law which may have a substantial adverse
impact on the value of CSW System assets; timing and adequacy of rate relief;
adverse changes in electric load and customer growth; climatic changes or
unexpected changes in weather patterns; changing fuel prices, generating plant
and distribution facility performance; decommissioning costs associated with
nuclear generating facilities; uncertainties in foreign operations and foreign
laws affecting CSW's investments in those countries; the effects of retail
competition in the natural gas and electricity distribution and supply
businesses in the United Kingdom; and the timing and success of efforts to
develop domestic and international power projects. In the non-utility area, the
aforementioned factors would also apply, and, in addition, would include: the
ability to compete effectively in new areas, including telecommunications, power
marketing and brokering, and other energy related services, as well as evolving
federal and state regulatory legislation and policies that may adversely affect
those industries generally or the CSW System's business in areas in which it
operates.
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ITEM 5. OTHER EVENTS
CENTRAL POWER AND LIGHT COMPANY RATE REVIEW - DOCKET NO. 14965
Background
As previously reported, in November 1995, CPL, a wholly owned subsidiary of CSW,
filed with the Texas Commission a request to increase its retail base rates by
$71 million, and in May 1996, CPL placed a $70 million base rate increase into
effect under bond, subject to refund based on the receipt of a final order of
the Texas Commission. On March 31, 1997, the Texas Commission issued the CPL
1997 Original Rate Order in CPL's Rate Review, Docket No. 14965. Thereafter, CPL
filed a motion for rehearing which requested the reconsideration of numerous
provisions of the order. Motions for rehearing were also filed by other parties
to the rate proceeding. In response to the motions for rehearing, in June 1997,
the Texas Commission made several modifications to the CPL 1997 Original Rate
Order and also agreed to rehear on remand several other issues. As described in
Implementation of New Rates, CPL restored its rates in July 1997, with two
exceptions, to levels existing prior to the May 1996 implementation of bonded
rates. On August 21, 1997, after reconsidering the issues on remand, the Texas
Commission voted to issue a revised final order which was received by CPL on
September 10, 1997.
For additional background information regarding the CPL rate review, reference
is made to CSW's and CPL's Combined Form 10-K for the year ended December 31,
1996 and their Combined Forms 10-Q for the quarters ended March 31, 1997 and
June 30, 1997.
CPL 1997 Final Order
The 1997 CPL Final Order includes many of the provisions of the CPL 1997
Original Rate Order, but it also includes certain revisions. A summary of the
significant provisions of the CPL 1997 Final Order follows.
The CPL 1997 Final Order lowers the annual retail base rates of CPL by
approximately $19 million, or 2.5%, from CPL's existing rate level prior to May
1996. The Texas Commission also included a "Glide Path" rate methodology in the
CPL 1997 Final Order whereby CPL's annual rates will be reduced by an additional
$13 million in mid-1998 and another $13 million in mid-1999.
In the CPL 1997 Final Order, the Texas Commission categorized $800 million of
CPL's investment in STP as ECOM. The CPL 1997 Final Order states that CPL's
allowed return on equity for its non-ECOM invested capital is 10.9%, and its
allowed return on equity for the ECOM portion of CPL's investment in STP is
7.96%. Previously, the allowed return on equity for all of CPL's invested
capital was 12.25%. At the same time, the recovery period of the portion of STP
designated as ECOM is accelerated to twenty years from the remaining thirty-two
year life of STP.
Also included in the CPL 1997 Final Order is the recovery of approximately $8
million of nuclear decommissioning expenses related to STP, a $4 million
increase from CPL's previous rates. The disallowance of approximately $18
million of affiliate transactions from CSWS, another CSW wholly owned
subsidiary, is included in the CPL 1997 Final Order as well. As previously
reported, two settlement agreements relating to potential tax normalization
violations were upheld in the CPL 1997 Final Order. The CPL 1997 Final Order
requires that CPL request a private letter ruling from the IRS regarding another
potential tax normalization violation. If the IRS determines that the issue is
not a tax normalization violation, CPL's rates would be reduced by an additional
$1.3 million annually, and the collected revenues associated with that rate
reduction would be refunded to the appropriate customers.
CPL will likely appeal the CPL 1997 Final Order to challenge the resolution of
several issues from the rehearing process. The primary issues include: (i) the
classification of $800 million of invested capital in STP as ECOM which was also
assigned a lower return on equity than non-ECOM property, (ii) the Texas
Commission's use of the "Glide Path" rate reduction methodology to be applied to
rates in mid-1998 and mid-1999, and (iii) the $18 million of disallowed
affiliate transactions from CSWS. Management is unable to predict how the final
resolution of these issues will affect CSW's and CPL's results of operations and
financial condition.
Estimated Financial Impact
The following table contains details of management's most recent estimate of the
financial impact of the CPL 1997 Final Order as compared to CPL's pre-bonded
rate levels.
1997 1998 1999
----------- ----------- ------------
(millions)
Decrease in revenue $(20.9) $(28.7) $(41.9)
----------- ----------- ------------
Items included in Decrease in revenue with an
offsetting effect on expense:
Accelerated recovery of STP (ECOM) (40.0) (40.0) (40.0)
Change in depreciation/amortization 25.4 25.4 25.4
Decommissioning (4.3) (4.3) (4.3)
Other (4.7) (2.6) (2.6)
----------- ----------- ------------
(23.6) (21.5) (21.5)
----------- ----------- ------------
Change in current year income before tax (44.5) (50.2) (63.4)
Federal income taxes 14.7 16.8 21.2
----------- ----------- ------------
Current year impact on net income (29.8) (33.4) (42.2)
1996 effect (17.7) -- --
----------- ----------- ------------
Estimated impact on net income $(47.5) $(33.4) $(42.2)
----------- ----------- ------------
Portions of the foregoing discussion of the Estimated Financial Impact
constitute forward looking information. Actual results may differ materially
from such projected information.
Implementation of New Rates
As previously stated, CPL implemented bonded rates subject to refund in May
1996. On July 17, 1997, CPL restored its rates, with two exceptions, to levels
existing prior to the implementation of the bonded rates. The two exceptions are
for industrial interruptible rates and customer service charges for which the
Texas Commission approved the increases requested by CPL. Based upon the CPL
1997 Final Order, CPL's refund obligation through August 1997, including
interest, is approximately $105 million. The payment of the refund will be
coordinated with the recovery of a portion of the rate case expenses which
resulted from the settlement agreements in CPL's earlier rate case expense
proceeding and also the fuel surcharge related to the outcome of CPL's fuel
proceeding completed in the first quarter of 1997. CPL will file a plan of
refund with the Texas Commission to establish the exact terms of the refund.
Accounting Policies
CPL currently accounts for the economic effects of regulation in accordance with
SFAS No. 71. Pursuant to the provisions of SFAS No. 71, CPL had recorded
approximately $1.2 billion of regulatory related assets at December 31, 1996.
The application of SFAS No. 71 is conditioned upon CPL's rates being set based
on the cost of providing service. In the event management concludes that as a
result of changes in regulation, legislation, the competitive environment, or
other factors, including the CPL 1997 Final Order, CPL no longer meets the
criteria for following SFAS No. 71, a write-off of regulatory assets would be
required. In addition, CPL would be required to determine any impairment to
carrying costs of plant investments. If CPL no longer met the criteria for
following SFAS No. 71 and a write-off of regulatory assets was required, CPL and
CSW could experience, depending on the timing and amount of any write-off, a
material adverse effect on their results of operations and financial condition.
Portions of the foregoing discussion of Accounting Policies constitute forward
looking information. Actual results may differ materially from such projected
information.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CENTRAL AND SOUTH WEST CORPORATION
Date: September 24, 1997
By: /s/ Lawrence B. Connors
Lawrence B. Connors
Controller
CENTRAL POWER AND LIGHT COMPANY
Date: September 24, 1997
By: /s/ R. Russell Davis
R. Russell Davis
Controller
