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): March 31, 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
This Combined Form 8-K is separately filed by Central and South West
Corporation and Central Power and Light Company. Information contained herein
relating to an individual company is filed by such company on its own behalf.
Each company makes no representation as to information relating to the other
company.
ITEM 5. OTHER EVENTS
CENTRAL POWER AND LIGHT COMPANY (CPL) REGULATORY MATTERS
RECENT DEVELOPMENTS
OVERVIEW
On March 31, 1997, the Public Utility Commission of Texas (Texas
Commission) issued its final order (Final Order) in CPL's Rate Review Docket No.
14965. The Texas Commission's Final Order lowers the annual retail rates of CPL
by approximately $27 million, or approximately 3.5% in 1997, from CPL's existing
rate level prior to CPL's May 1996 implementation of bonded rates. The Texas
Commission also introduced a Glide Path Methodology whereby CPL's rates will be
reduced by an additional $16 million in 1998 and another $16 million in 1999. As
previously reported, CPL had originally sought to increase its annual retail
base rates by $71 million in this rate proceeding.
REVENUE REDUCTION
There are numerous factors that contribute to the difference between
the $71 million retail base rate increase that was originally requested by CPL
and the Texas Commission's final order of a $27 million retail base rate
reduction. These factors include the reduction of CPL's return on equity and the
disallowance of certain costs and expenses.
In its Final Order, the Texas Commission categorized $859 million of
CPL's investment in the South Texas Project Nuclear Generating Station (STP) as
Excess Cost Over Market (ECOM). The order reduced CPL's return on common equity
on the ECOM portion of CPL's investment in STP to 7.96% as compared with the
10.9% return on common equity approved for all other invested capital. However,
the Final Order also accelerated recovery of this investment.
A preliminary reconciliation between CPL's original filing and the
Texas Commission's Final Order and other information related to the order are
attached as Exhibit 99.1 and was released to the financial community in a letter
dated April 3, 1997.
APPEAL OF CPL 1997 RATE ORDER AND ESTIMATED FINANCIAL IMPACT OF CPL
RATE ORDER
CPL intends to file a motion for rehearing and will take other legal
steps, as appropriate, in response to the Texas Commission's Final Order. The
financial impact of this final order is currently being analyzed. If the Texas
Commission's Final Order is ultimately implemented, CPL and CSW could experience
a material adverse effect on their results of operations.
BACKGROUND
For further information and earlier developments related to CPL's
regulatory matters, reference is made to CSW's and CPL's 1996 Combined Annual
Report on Form 10-K and Combined Current Report on Form 8-K dated March 31, 1997
and filed April 2, 1997.
FORWARD LOOKING INFORMATION
This report, the attached letter to the financial community, and other
presentations made by CSW and CPL contain forward looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. Although CSW and
CPL 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.; 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
proceedings and 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; and
decommissioning costs associated with nuclear generating facilities.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized. The signature for each undersigned
registrant shall be deemed to relate only to matters having reference to such
registrant or its subsidiaries.
CENTRAL AND SOUTH WEST CORPORATION
Date: April 3, 1997
By: /S/ LAWRENCE B. CONNORS
Lawrence B. Connors
Controller
CENTRAL POWER AND LIGHT COMPANY
Date: April 3, 1997
By: /S/ R. RUSSELL DAVIS
R. Russell Davis
Controller
CSW
=========================================
CENTRAL AND SOUTH WEST CORPORATION
=========================================
1616 Woodall Rodgers Freeway
P.O. Box 660164 * Dallas, Texas 75266-0164
214-777-1277
Becky Hall
Director, Investor Relations
April 3, 1997
Dear Financial Community,
On March 31, 1997, the Public Utility Commission of Texas (PUCT) issued a Final
Order that lowered the retail base rates of Central Power and Light Company
(CPL) by approximately $27 million from the level existing prior to CPL placing
into effect higher bonded rates in May 1996. The PUCT also ordered CPL to lower
its rates by an additional $16 million in 1998 and another $16 million in 1999.
In addition, rate case expenses are currently scheduled for hearing on April 14,
1997 with a final order due no later than May 30, 1997.
The financial impact of the Final Order is currently being analyzed. We plan to
provide the financial impact of the rate order as soon as the effect has been
determined. The following information is based upon CPL's preliminary review of
the PUCT final order, PUCT staff's workpapers and CPL's understanding of
relevant underlying assumptions in those documents and materials.
REVENUE
I. RECONCILIATION FROM CPL FILING TO PUCT FINAL ORDER IMPACT
--------------
(millions)
CPL REQUESTED RETAIL BASE INCREASE $71.0
Return on Equity (12.25% to 10.9%) (30.0)
Deferred Accounting (straight line vs. mortgage) (14.0)
Depreciation Rate Reduction (11.0)
Affiliate Transactions (4.0)
Decommissioning (5.0)
Other 5.0
--------------
RETAIL BASE REVENUE IMPACT OF PROPOSAL FOR DECISION 12.0
--------------
IMPACT OF PUCT FINAL ORDER
ECOM ROE (10.9% to 7.96%) (17.6)
ECOM Amortization (change from 32 to 20 years) 16.8
Deferred Accounting Return (2.0)
Affiliate Transactions (18.1)
Consolidated Tax Savings (9.5)
Decommissioning (2.5)
Rate Case Expenses (1) (6.3)
DSM (6.4)
Other 1.3
--------------
NON-INTERRUPTIBLE RETAIL BASE REVENUE REDUCTION (32.3)
--------------
Interruptible Customers 1.7
Miscellaneous Revenue 3.5
--------------
TOTAL RETAIL BASE REVENUE REDUCTION $(27.1)
--------------
<PAGE>
REVENUE
II. RECONCILIATION OF ALJ PROPOSAL IMPACT
--------------
(millions)
ALJ Initial Proposal $(10)
Service Charges 5
Additional Transmission Charge for Interruptible
Customers 6
Rate Case Expense Surcharge 4
DSM Surcharge 8
Other (1)
--------------
ALJ Final Proposal $12
--------------
WEIGHTED
III. COST OF CAPITAL CALCULATION WEIGHTING COST COST
---------------------------------------
Non-ECOM
Long-Term Debt 46.81% 7.96% 3.73%
Preferred Stock 7.80% 5.89% 0.46%
Common Stock 45.39% 10.90% 4.94%
--------
Total 9.13%
--------
ECOM
Long-Term Debt 46.81% 7.96% 3.73%
Preferred Stock 7.80% 5.89% 0.46%
Common Stock 45.39% 7.96% 3.61%
--------
Total 7.80%
--------
Blended Rate
Long-Term Debt 46.81% 7.96% 3.73%
Preferred Stock 7.80% 5.89% 0.46%
Common Stock 45.39% 10.02% 4.54%
--------
Total 8.73%
--------
IV. GLIDE PATH CALCULATION (MILLIONS)
Annual Depreciation/Amortization Expenses $141.8
Pre-Tax Blended Rate of Return on Common Equity 11.43%
----------
Glide Path Before Income Tax $16.2
Tax Gross-up on Revenue 102.69%
Glide Path After Revenue Tax $16.6
Rounding (.2)
----------
PUCT Glide Path - 1998/1999 $16.4
----------
As previously reported, CPL intends to vigorously pursue all legal remedies.
CPL and CSW could experience a material adverse effect on results of operations
if the PUCT's final order is ultimately implemented.
This document contains forward-looking information intended to qualify for the
safe harbors from liability established by the Private Securities Litigation
Reform of 1995. Actual results may differ materially from such projected
information due to changes in the underlying assumptions. See Forward Looking
Information in the Combined Form 8-K dated March 31, 1997 and filed April 3,
1997.
Sincerely,
Becky Hall
