UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Public Utility Holding Act of 1935
File No. 70-7218; 70-8037
Report Date: October 1, 1999 to December 31, 1999
In the Matter of:
Central and South West Corporation
CSW Credit, Inc.
1. CSW Credit, Inc. (Credit) hereby files a balance sheet as of December
31, 1999, statements of income for the three and twelve month periods ended
December 31, 1999, and notes to the financial statements as Exhibit 1 attached
hereto.
2. Credit hereby states that pursuant to the exemption set forth in Rule
52 of the Public Utility Holding Company Act of 1935, it will no longer provide
information duplicative of the information contained in Form U-6B-2. Credit will
submit Form U-6B-2 quarterly in accordance with the requirements of Rule 52(c).
Such information will no longer be included with this report.
3. Credit hereby files as Exhibit 2 attached hereto the earnings coverage
for Credit's indebtedness for the period from October 1, 1999 through December
31, 1999 and Credit's capital structure at December 31, 1999. Credit hereby
files as Exhibit 3 attached hereto the twelve month average of outstanding
accounts receivable, twelve month average of accounts receivable purchases from
non-affiliated companies, and bad debt write-offs related to non-affiliated
companies during said period as of the end of each month.
4. With respect to affiliated companies, Central Power and Light Company
(CPL), Public Service Company of Oklahoma (PSO), Southwestern Electric Power
Company (SWEPCO), and West Texas Utilities Company (WTU), Credit hereby
certifies that the allowed returns on common equity for the period from October
1, 1999 through December 31, 1999 were unchanged in respect to retail
calculations for all regulatory jurisdictions except for the Arkansas and
Louisiana regions of SWEPCO from the previous certificate of notification. The
change in the retail rate for SWEPCO will subsequently effect the wholesale
rates for all companies. Credit also hereby files the discount calculation for
affiliated companies, an analysis of the allowed returns on common equity and
the factoring expense savings for affiliated companies as shown in Exhibits 4, 5
and 6, respectively, attached hereto.
<PAGE>
5. With respect to Reliant Energy HL&P, formerly known as Houston Lighting
& Power Company, Credit had a twelve month average of outstanding receivable
balances for the period ending December 31, 1999 of $448,465,000. During the
quarter ended December 31, 1999 the daily maximum balance relating to the
purchase of accounts receivable from Reliant Energy HL&P was $554,170,197.
6. Credit hereby certifies it was in compliance with the terms of the
temporary relief as defined in the order issued on March 11, 1997 as shown in
Exhibit 3 attached hereto.
7. Credit hereby files as Exhibit 7 attached hereto the calculation, by
month, of the CPL finder fee attributable to the factoring of Reliant Energy
HL&P receivables by Credit.
8. Credit hereby files as Exhibits 8a (Louisiana) and 8b (Arkansas)
attached hereto a copy of state regulatory commission decision or analysis,
issued during the period October 1, 1999 through December 31, 1999, addressing
the effect of the factoring of CSW System accounts receivable rates which was
issued during the period October 1, 1999 through December 31, 1999.
9. Credit hereby files as Exhibit 9 attached hereto a copy of the audited
annual financial statements for the year ended December 31, 1998.
10. Credit hereby files as Exhibit 10 attached hereto a copy of the
accounting system procedures and chart of accounts of Credit as maintained by
Central and South West Services, Inc.
11. Said transactions have been carried out in accordance with the terms
and conditions of, and for the purpose represented in, the Form U-1
Application-Declaration of Central and South West Corporation (CSW) and Credit,
in File No. 70-7218, and in accordance with the terms and conditions of the
Commission's orders dated July 31, 1986, May 8, 1988, December 27, 1989, August
30, 1990, December 21, 1990, December 24, 1991, December 9, 1992, December 21,
1993, December 16, 1994, and March 11, 1997, permitting said
Application-Declaration to become effective, and the Form U-1
Application-Declaration of CSW, Central Power and Light Company and Credit, in
File No. 70-8037, and in accordance with the terms and conditions of the
Commission's orders dated December 8, 1992 and December 29, 1992, permitting
said Application-Declaration to become effective.
<PAGE>
SIGNATURE
As requested by order of the Securities and Exchange Commission pursuant to the
Public Utility Holding Company Act of 1935, Central and South West Corporation
has duly caused this report to be signed on the 11th day of February 2000.
By : /s/ Lawrence B. Connors
-------------------------------------
Lawrence B. Connors
Controller
CSW Credit, Inc.
Central and South West Corporation
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75266-0164
Telephone (214) 777-1000
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Transmission
Number Exhibit Method
- ------- -------- ------------
1 Unaudited balance sheet as of December 31, 1999, Electronic
unaudited statements of income for the three and
twelve month periods ended December 31, 1999, and
unaudited notes to the financial statements.
2 Earnings coverage for the period from October 1, 1999 Electronic
through December 31 , 1999 and capital structure at
December 31, 1999.
3 Twelve month average as of the end of each month of Electronic
outstanding accounts receivable of affiliated and
non-affiliated companies, twelve month average as
of the end of each month of accounts receivable
purchases from non-affiliated companies, and bad
debt write-offs related to non-affiliated companies
during the period October 1, 1999 through December 31, 1999.
4 Discount calculation for affiliated companies for the Electronic
three months ended December 31, 1999.
5 Analysis of the allowed returns on common equity for Electronic
affiliated companies at December 31, 1999.
6 Factoring expense savings for the affiliated companies Electronic
for the three months ended December 31, 1999.
7 Calculation, by month, of CPL finder fee attributable Electronic
to factoring of Reliant Energy HL&P receivables
during the period October 1, 1999 through December 31,
1999.
8 Copy of any state regulatory commission decision or Electronic
analysis addressing the effect of the factoring
of CSW System accounts receivable rates issued during
the period October 1, 1999 through December 31, 1999.
9 Copy of audited annual financial statements for the Electronic
year ended December 31, 1998.
10 Copy of the accounting system procedures and chart of Electronic
accounts of Credit as maintained by Central and South
West Services, Inc.
EXHIBIT 1
Page 1 of 5
CSW CREDIT, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1999
(Thousands, Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 107,671
Accounts receivable, net of allowance for
doubtful accounts of $ 10,769 715,996
-----------
Total current assets 823,667
-----------
OTHER ASSETS:
Deferred income taxes 5,177
Other 3,406
-----------
Total other assets 8,583
-----------
Total assets $ 832,250
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt $ 754,287
Deferred credits 14,518
Accounts payable-affiliated 4,021
Unearned revenue 3,238
Other liabilities 771
-----------
Total current liabilities 776,835
-----------
STOCKHOLDER'S EQUITY:
Common stock, no par; authorized 1,000 shares;
Issued and outstanding 246 shares 1
Paid-in capital 55,414
-----------
Total stockholder's equity 55,415
-----------
Total liabilities and stockholder's equity $ 832,250
===========
The accompanying notes to the financial statements are an integral
part of these statements.
<PAGE>
EXHIBIT 1
Page 2 of 5
CSW CREDIT, INC.
STATEMENTS OF INCOME
FOR THE PERIODS ENDED DECEMBER 31
(Thousands, Unaudited)
Three Months Ended Twelve Months Ended
1999 1998 1999 1998
---------- ---------- ---------- ----------
REVENUES $ 22,938 $ 21,987 $ 89,473 $ 84,784
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Interest 11,795 11,050 41,710 42,658
Provision for bad debts 5,812 5,230 26,022 21,382
Credit line fees 422 246 1,241 881
General and administrative 488 315 1,960 1,491
---------- ---------- ---------- ----------
18,517 16,841 70,933 66,412
---------- ---------- ---------- ----------
OPERATING INCOME 4,421 5,146 18,540 18,372
---------- ---------- ---------- ----------
OTHER INCOME AND DEDUCTIONS:
Interest income 199 3 209 6
Tax benefit of parent
company loss 27 124 311 323
---------- ---------- ---------- ----------
226 127 520 329
---------- ---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME TAXES 4,647 5,273 19,060 18,701
---------- ---------- ---------- ----------
FEDERAL INCOME TAXES:
Current 1,835 1,991 6,801 8,148
Deferred (218) (189) (239) (1,716)
---------- ---------- ---------- ----------
1,617 1,802 6,562 6,432
---------- ---------- ---------- ----------
NET INCOME $ 3,030 $ 3,471 $ 12,498 $ 12,269
========== ========== ========== ==========
The accompanying notes to the financial statements are an integral
part of these statements.
<PAGE>
EXHIBIT 1
Page 3 of 5
CSW CREDIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
CSW Credit, Inc. (Company) is a wholly owned subsidiary of Central and South
West Corporation (CSW or Parent Company), whose primary business is to purchase,
without recourse, the accounts receivable of certain CSW subsidiary companies
and non-affiliated companies. Revenue from affiliated companies for the quarters
ended December 31, 1999 and 1998 were $8.5 million and $8.4 million
respectively. Significant accounting policies are summarized below:
Revenue recognition
Revenues are generally recorded for the difference between the face amount of
the receivables purchased and the purchase price.
Allowance for doubtful accounts
The Company maintains an allowance for doubtful accounts at a level which
reflects the amount of receivables not reasonably expected to be collected. The
allowance is determined principally on the basis of collection experience.
Receivables are written off when they are determined to be uncollectable.
Federal income taxes
The Company, together with affiliated companies, files a consolidated Federal
income tax return and participates in a tax sharing agreement with the other
members of the CSW System. Federal income tax expense resulted in an effective
rate of 33% for the quarters ended December 31, 1999 and 1998.
Deferred income taxes resulted primarily from the differences between book and
tax deductions for bad debt expense. The Company also recognizes the tax benefit
of operating losses allocated by the Parent Company to CSW Credit. The Internal
Revenue Code provides for tax deductions for bad debts when they are charged
off.
Cash and Cash Equivalents
Cash equivalents are considered to be highly liquid debt instruments purchased
with a maturity of three months or less. Accordingly, the Company's temporary
cash investments are considered cash equivalents.
<PAGE>
EXHIBIT 1
Page 4 of 5
Related party transactions
Central and South West Services, Inc., a wholly owned subsidiary of CSW,
provides administrative services to the Company and is reimbursed for the cost
of such services. These services were provided at a cost of $330,000 and
$261,000 for the quarters ended December 31, 1999 and 1998.
Use of estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, revenue, and expenses
reported in the accompanying financial statements. The estimates and assumptions
used in the accompanying financial statements are based upon management's
evaluation of the relevant facts and circumstances as of the date of the
financial statements. Actual results could differ from those estimates.
Reclassification
Certain financial statement items have been reclassified to conform to the 1999
presentation.
Basis of Accounting
These financial statements were prepared using the accrual method of accounting.
2. REGULATION:
The Company is subject to regulation by the Securities and Exchange Commission
(SEC) under the Public Utility Holding Company Act of 1935, as amended. The SEC
has approved the Company's method of calculating the discount associated with
the purchase of CSW subsidiary companies' accounts receivable.
3. SHORT-TERM DEBT:
The Company issues commercial paper that is secured by the assignment of its
receivables. The weighted average interest rate for the quarters ended December
31, 1999 and 1998 was 5.76% and 5.39% respectively. At December 31, 1999, the
Company had a revolving credit agreement aggregating $1.2 billion to back up its
commercial paper program. At December 31, 1999, there were no borrowings under
the revolving credit agreement. At December 31, 1999 and 1998, the amounts of
commercial paper outstanding were approximately $754 million and $749 million,
respectively.
4. RELIANT ENERGY HL&P:
The Company entered into an agreement with Reliant Energy HL&P (formerly
Houston Lighting & Power Company) to purchase substantially all of its utility
receivables. During the quarters ended December 31, 1999 and 1998, the Company
had average Reliant Energy HL&P receivable balances of $450,101,000 and
$480,527,000, respectively.
<PAGE>
EXHIBIT 1
Page 5 of 5
Prior to March 11, 1997, the Company was subject to a SEC restriction (50%
Restriction) which required the average amount of non-affiliated accounts
receivable outstanding to be less than the average amount of affiliated accounts
receivable outstanding for the previous twelve calendar months. The Company
received SEC authority to sell excess Reliant Energy HL&P receivables to third
parties in order to maintain the Company's compliance with the 50% Restriction.
On March 11, 1997, the SEC issued an order granting the Company temporary relief
from the 50% Restriction. Under the order, the Company may purchase up to $450
million in receivables from Reliant Energy HL&P and up to $100 million from
other non-affiliated utility companies, based on a twelve-month rolling average.
This relief has been granted through December 31, 2000. At December 31, 1999,
the Company was in compliance with the provisions set forth by the SEC under the
terms of the temporary relief.
5. UNEARNED INCOME AND DEFERRED CREDITS:
When receivables are factored, a discount rate is applied. A portion of the
discount rate is related to the carrying cost of the receivables, which
approximates the related cost of administration and handling. This rate is
applied when the receivables are initially factored. To appropriately match the
revenue received for the carrying of the receivables to their associated costs,
a part of this income is deferred until the costs are recognized. In addition to
the carrying cost component, an agency fee is applied to receivables. The agency
revenue is also deferred, and is shown as deferred credits on the balance sheet.
6. FINANCIAL INSTRUMENTS:
Cash, cash equivalents, and short-term debt
The fair value equals the carrying amount as stated on the balance sheets
because of the short maturity of those instruments.
EXHIBIT 2
CSW CREDIT, INC.
EARNINGS COVERAGE
(Thousands, except ratios)
1999
October November December
Net Income $1,183 $908 $939
Income Taxes 622 489 505
Tax Benefit of Parent
Company Loss (27) 0 0
Interest Expense/
Credit Line Fees 4,458 3,809 3,950
---------- ----------- -------------
Earnings $6,236 $5,206 $5,394
========== =========== =============
Interest Expense/
Credit Line Fees $4,458 $3,809 $3,950
Ratio of Earnings
To Fixed Charges 1.40 1.37 1.37
CAPITAL STRUCTURE
DECEMBER 31, 1999
(Thousands)
Short-term Debt $754,287 93.2%
Common Equity 55,415 6.8%
---------- -----------
Total $809,702 100%
========== ===========
EXHIBIT 3
Page 1 of 2
CSW CREDIT, INC.
AVERAGE MONTHLY ACCOUNTS RECEIVABLE BALANCES
USING 50% RESTRICTION
(Thousands)
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
October 31, 1999 November 30, 1999 December 31, 1999
---------------- ----------------- ------------------
AFFILIATES
- ------------------
CPL $ 136,946 $ 138,527 $ 138,656
PSO 78,969 78,072 78,293
SWEPCO 98,480 97,314 97,228
WTU 46,352 45,588 44,266
---------------- ----------------- ------------------
Total Affiliates: $ 360,747 $ 359,501 $ 358,443
================ ================= ==================
NON-AFFILIATES
- -----------------------
Texas - New Mexico
Power $ 55,695 $ 56,619 $ 57,333
Reliant Energy HL&P 453,748 450,358 448,465
---------------- ----------------- ------------------
$ 509,443 $ 506,977 $ 505,798
---------------- ----------------- ------------------
Reliant Energy HL&P Receivables
sold to Third parties 0 0 0
---------------- ----------------- ------------------
Total Non-Affiliates: $ 509,443 $ 506,977 $ 505,798
================ ================= ==================
Over/(Under) 50%
Restriction $ 148,696 $ 147,476 $ 147,355
================ ================= ==================
AVERAGE MONTHLY ACCOUNTS RECEIVABLE PURCHASES
USING TEMPORARY RELIEF PROVISIONS
(Thousands)
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
October 31, 1999 November 30, 1999 December 31, 1999
---------------- ----------------- ------------------
OTHER NON-AFFILIATES:
Texas - New Mexico
Power $ 45,585 $ 44,556 $ 43,158
Temporary Relief
Provision 100,000 100,000 100,000
---------------- ----------------- ------------------
Over/(Under) Temporary
Relief Provision $ (54,415) $ (55,444) $ (56,842)
================ ================= ==================
Reliant Energy HL&P $ 365,432 $ 365,470 $ 363,529
- -------------------
Temporary Relief
Provision 450,000 450,000 450,000
---------------- ----------------- ------------------
Over/(Under) Temporary Relief
Provision $ (84,568) $ (84,530) $ (86,471)
================ ================= ==================
<PAGE>
EXHIBIT 3
Page 2 of 2
CSW CREDIT, INC.
BAD DEBT WRITE-OFFS
(Thousands)
October 31, 1999 November 30, 1999 December 31, 1999
---------------- ----------------- -----------------
NON-AFFILIATES
- ----------------------
Texas - New Mexico Power $ 280 $ 309 $ (97)
Reliant Energy HL&P 892 1,001 1,119
---------------- ----------------- -----------------
Total Non-Affiliates: $1,172 $1,310 $1,022
================ ================= =================
EXHIBIT 4
Page 1 of 4
CENTRAL POWER AND LIGHT COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 1999
Retail Wholesale
-------- ---------
Weighted Cost of Capital (Annualized) 0.063574 0.064287
Average Days Outstanding 38.09 25.94
-------- ---------
Weighted Cost of Capital (Average
Days Outstanding) 0.006632 0.004566
Collection Experience Factor 0.004517 0.000000
gency Fee Rate 0.020000 0.020000
-------- ---------
Total Discount Factor 0.031149 0.024566
======== =========
ASSUMPTIONS
INTEREST RATE 5.7667%
RETAIL ROCE 10.9000%
WHOLESALE ROCE 11.7841%
TAX RATE 38.0000%
DEBT RATIO 95.0000%
EQUITY RATIO 5.0000%
<PAGE>
EXHIBIT 4
Page 2 of 4
PUBLIC SERVICE COMPANY OF OKLAHOMA
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 1999
Retail Wholesale
-------- --------
Weighted Cost of Capital (Annualized) 0.063654 0.064287
Average Days Outstanding 41.00 32.11
-------- --------
Weighted Cost of Capital (Average
Days Outstanding) 0.007149 0.005652
Collection Experience Factor 0.002252 0.000000
Agency Fee Rate 0.020000 0.020000
-------- --------
Total Discount Factor 0.029401 0.025652
======== ========
ASSUMPTIONS
INTEREST RATE 5.7667%
RETAIL ROCE 11.0000%
WHOLESALE ROCE 11.7841%
TAX RATE 38.0000%
DEBT RATIO 95.0000%
EQUITY RATIO 5.0000%
<PAGE>
EXHIBIT 4
Page 3 of 4
SOUTHWESTERN ELECTRIC POWER COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 1999
Arkansas Louisiana Texas Wholesale
-------- --------- --------- ---------
Weighted Cost of Capital (Annualized) 0.064754 0.065702 0.067445 0.064287
Average Days Outstanding 42.95 45.65 41.58 24.40
--------- --------- --------- ---------
Weighted Cost of Capital
(Average Days Outstanding) 0.007626 0.008216 0.007686 0.004294
Collection Experience Factor 0.003838 0.003223 0.003393 0.000000
Agency Fee Rate 0.020000 0.020000 0.020000 0.020000
--------- --------- --------- ---------
Total Discount Factor 0.031464 0.031439 0.031079 0.024294
========= ========= ========= =========
ASSUMPTIONS
INTEREST RATE 5.7667% 5.7667% 5.7667%
ROCE 12.3641% 13.5391% 15.7000% 11.7841%
TAX RATE 38.0000% 38.0000% 38.0000%
DEBT RATIO 95.0000% 95.0000% 95.0000%
EQUITY RATIO 5.0000% 5.0000% 5.0000%
<PAGE>
EXHIBIT 4
Page 4 of 4
WEST TEXAS UTILITIES COMPANY
DISCOUNT CALCULATION
THREE MONTHS ENDED DECEMBER 31, 1999
Retail Wholesale
-------- ---------
Weighted Cost of Capital (Annualized) 0.063956 0.064287
Average Days Outstanding 47.69 29.31
-------- ---------
Weighted Cost of Capital
(Average Days Outstanding) 0.008356 0.005159
Collection Experience Factor 0.003335 0.000000
Agency Fee Rate 0.020000 0.020000
-------- ---------
Total Discount Factor 0.031691 0.025159
======== =========
ASSUMPTIONS
INTEREST RATE 5.7667%
RETAIL ROCE 11.3750%
WHOLESALE ROCE 11.7841%
TAX RATE 38.0000%
DEBT RATIO 95.0000%
EQUITY RATIO 5.0000%
EXHIBIT 5
CSW CREDIT, INC.
ALLOWED RETURNS ON COMMON EQUITY
THREE MONTHS ENDED DECEMBER 31, 1999
ALLOWED
RETURN
---------
CPL
- RETAIL 10.900%
- WHOLESALE 11.784%
PSO
- RETAIL 11.000%
- WHOLESALE 11.784%
SWEPCO
- ARKANSAS 12.364%
- LOUISIANA 13.539%
- TEXAS 15.700%
- WHOLESALE 11.784%
WTU
- RETAIL 11.375%
- WHOLESALE 11.784%
EXHIBIT 6
CSW CREDIT, INC.
AFFILIATED COMPANIES
FACTORING EXPENSE SAVINGS
THREE MONTHS ENDED DECEMBER 31, 1999
(Thousands)
20% 5%
EQUITY EQUITY SAVINGS
-------- --------- -----------
CPL $2,984 $2,327 $657
PSO 1,712 1,333 379
SWEPCO 2,119 1,539 580
WTU 812 623 189
-------- --------- -----------
TOTAL $7,627 $5,822 $1,805
======== ========= ===========
EXHIBIT 7
Page 1 of 3
CSW CREDIT, INC.
FACTORING OF RELIANT ENERGY HL&P RECEIVABLES
CALCULATION OF CPL FINDER FEE
Reliant
Energy HL&P
Receivables Finder Fee Finder Fee
Date Balance Rate Amount
------------- --------------- ------------- -------------
1 October 1999 $554,170,196.93 0.000038 $21,058
2 October 1999 554,170,196.93 0.000038 21,058
3 October 1999 554,170,196.93 0.000038 21,058
4 October 1999 552,675,206.40 0.000038 21,002
5 October 1999 527,827,319.99 0.000038 20,057
6 October 1999 544,529,619.64 0.000038 20,692
7 October 1999 540,292,228.59 0.000038 20,531
8 October 1999 543,379,555.21 0.000038 20,648
9 October 1999 543,379,555.21 0.000038 20,648
10 October 1999 543,379,555.21 0.000038 20,648
11 October 1999 543,379,555.21 0.000038 20,648
12 October 1999 534,715,163.21 0.000038 20,319
13 October 1999 541,350,137.64 0.000037 20,030
14 October 1999 522,191,905.19 0.000037 19,321
15 October 1999 516,563,279.39 0.000037 19,113
16 October 1999 516,563,279.39 0.000037 19,113
17 October 1999 516,563,279.39 0.000037 19,113
18 October 1999 516,325,835.86 0.000037 19,104
19 October 1999 501,520,627.27 0.000037 18,556
20 October 1999 495,484,028.79 0.000037 18,333
21 October 1999 485,935,232.53 0.000037 17,980
22 October 1999 468,933,525.23 0.000037 17,351
23 October 1999 468,933,525.23 0.000037 17,351
24 October 1999 468,933,525.23 0.000037 17,351
25 October 1999 469,492,691.52 0.000037 17,371
26 October 1999 455,111,699.76 0.000037 16,839
27 October 1999 448,656,042.32 0.000037 16,600
28 October 1999 446,676,701.32 0.000037 16,527
29 October 1999 451,868,790.50 0.000037 16,719
30 October 1999 451,868,790.50 0.000037 16,719
31 October 1999 451,868,790.50 0.000037 16,719
-------------
October 1999 $ 588,580
=============
<PAGE>
EXHIBIT 7
Page 2 of 3
CSW CREDIT, INC.
FACTORING OF RELIANT ENERGY HL&P RECEIVABLES
CALCULATION OF CPL FINDER FEE
Reliant
Energy HL&P
Receivables Finder Fee Finder Fee
Date Balance Rate Amount
--------------- --------------- -------------- ---------------
1 November 1999 $449,859,409.84 0.000037 $16,645
2 November 1999 436,519,762.65 0.000037 16,151
3 November 1999 438,469,754.80 0.000037 16,223
4 November 1999 443,170,226.98 0.000037 16,397
5 November 1999 449,471,370.39 0.000037 16,630
6 November 1999 449,471,370.39 0.000037 16,630
7 November 1999 449,471,370.39 0.000037 16,630
8 November 1999 446,916,977.93 0.000037 16,536
9 November 1999 442,725,189.49 0.000037 16,381
10 November 1999 450,008,091.81 0.000037 16,650
11 November 1999 450,008,091.81 0.000037 16,650
12 November 1999 456,839,075.76 0.000037 16,903
13 November 1999 456,839,075.76 0.000037 16,903
14 November 1999 456,839,075.76 0.000037 16,903
15 November 1999 456,132,549.05 0.000037 16,877
16 November 1999 438,684,047.11 0.000037 16,231
17 November 1999 442,810,484.63 0.000037 16,384
18 November 1999 448,662,647.05 0.000037 16,601
19 November 1999 445,071,892.79 0.000037 16,468
20 November 1999 445,071,892.79 0.000037 16,468
21 November 1999 445,071,892.79 0.000037 16,468
22 November 1999 425,242,991.85 0.000037 15,734
23 November 1999 418,577,810.90 0.000037 15,487
24 November 1999 414,502,654.34 0.000037 15,337
25 November 1999 414,502,654.34 0.000037 15,337
26 November 1999 414,502,654.34 0.000037 15,337
27 November 1999 414,502,654.34 0.000037 15,337
28 November 1999 414,502,654.34 0.000037 15,337
29 November 1999 409,380,054.96 0.000037 15,147
30 November 1999 400,274,069.65 0.000036 14,410
---------------
November 1999 $ 485,192
===============
<PAGE>
EXHIBIT 7
Page 3 of 3
CSW CREDIT, INC.
FACTORING OF RELIANT ENERGY HL&P RECEIVABLES
CALCULATION OF CPL FINDER FEE
Reliant
Energy HL&P
Receivables Finder Fee Finder Fee
Date Balance Rate Amount
----------------- ---------------- -------------- --------------
1 December 1999 $397,795,510.64 0.000036 $14,321
2 December 1999 399,091,417.06 0.000036 14,367
3 December 1999 388,690,195.32 0.000036 13,993
4 December 1999 388,690,195.32 0.000036 13,993
5 December 1999 388,690,195.32 0.000036 13,993
6 December 1999 407,690,716.74 0.000036 14,677
7 December 1999 408,110,321.98 0.000037 15,100
8 December 1999 415,113,256.08 0.000037 15,359
9 December1999 409,629,500.82 0.000037 15,156
10 December 1999 418,335,330.18 0.000036 15,060
11 December 1999 418,335,330.18 0.000036 15,060
12 December 1999 418,335,330.18 0.000036 15,060
13 December 1999 422,956,216.50 0.000037 15,649
14 December 1999 421,636,353.46 0.000036 15,179
15 December 1999 421,914,461.21 0.000037 15,611
16 December 1999 421,869,483.92 0.000036 15,187
17 December 1999 421,658,010.72 0.000036 15,180
18 December 1999 421,658,010.72 0.000036 15,180
19 December 1999 421,658,010.72 0.000036 15,180
20 December 1999 407,173,904.13 0.000036 14,658
21 December 1999 398,146,913.45 0.000036 14,333
22 December 1999 402,085,650.26 0.000036 14,475
23 December 1999 394,437,812.19 0.000036 14,200
24 December 1999 394,437,812.19 0.000036 14,200
25 December 1999 394,437,812.19 0.000036 14,200
26 December 1999 394,437,812.19 0.000036 14,200
27 December 1999 394,437,812.19 0.000036 14,200
28 December 1999 398,128,970.61 0.000036 14,333
29 December 1999 391,057,313.67 0.000036 14,078
30 December 1999 393,136,931.17 0.000036 14,153
31 December 1999 393,136,931.17 0.000036 14,153
--------------
December 1999 $ 454,487
==============
EXHIBIT 8a
BEFORE THE
LOUISIANA PUBLIC SERVICE COMMISSION
Ex Parte
DOCKET NO. U-23029
In Re: An investigation into the rates and services of Southwestern Electric
Power Company in Louisiana
PROPOSED STIPULATION AND SETTLEMENT
Southwestern Electric Power Company ("SWEPCO") and the staff of Louisiana Public
Service Commission ("Commission"), after substantial discovery and negotiations,
have reached an agreement and stipulation to present to the commission to
resolve the above-captioned docket. The stipulation and agreement of SWEPCO and
the Commission staff, subject to the approval of the Commission, is on the
following terms and conditions:
1. SWEPCO's Louisiana retail jurisdictional revenues will be reduced by $11
million annually. The retail jurisdictional cost of service study which
supports this revenue reduction is attached hereto as Attachment I.
2. SWEPCO's return on common equity is established at 11.1%.
3. SWEPCO's will be allowed to include in its rate base and recovery
amortization of the regulatory assets that are set forth in Attachment II.
4. SWEPCO will agree not to seek to implement a base rate increase for two years
from the effective date of this settlement subject to the force majuere
provisions set forth in Attachment III.
5. SWEPCO's existing production depreciation rates will remain in place.
SWEPCO's Louisiana depreciation rates for transmission, general and
distribution plant will be modified as set forth in Attachment IV.
6. The allocation of the rate reduction will be as set forth in attachment V,
attached hereto and made a part hereof. The new rates will be designed to
recover the revenue by class as set forth in attachment V and as is more
particularly set forth in the testimony of Ms. Nancy Napolitano.
7. The parties will seek to obtain a final order from the Commission in
November, 1999. In the event the Commission approves the settlement the new
rates will
<PAGE>
become effective with SWEPCO's first billing cycle for the December, 1999,
revenue month.
8. In Docket No. U-23327, this Commission issued an order dated September 16,
1999, determining and ordering that the merger between American Electric
Power Company, Inc. And Central and South West Corporation, the parent
company of SWEPCO, is in the public interest and complies with all the
provisions of the Commission" General Orders regarding transfer of ownership
and control, subject to the conditions set forth in the order. In the event
the proposed American Electric Power Company, Inc. and Central and South West
Corporation is not closed, and therefore the stipulations and conditions set
forth in the merger order are not applicable to SWEPCO, then SWEPCO agrees to
negotiate with the Commission in good faith so as to establish a rate
monitoring program within the next six months after the time is determined
that the merger will not be completed.
BEFORE THE
ARKANSAS PUBLIC SERVICE COMMISSION
IN THE MATTER OF THE MOTION OF THE )
GENERAL STAFF OF THE ARKANSAS )
PUBLIC SERVICE COMMISSION TO ) DOCKET NO. 98-339-U
ESTABLISH A DOCKET TO DETERMINE )
THE REASONABLENESS OF THE RATES OF )
SOUTHWESTERN ELECTRIC POWER COMPANY )
STIPULATION AND SETTLEMENT AGREEMENT
On December 3, 1998, the Arkansas Public Service Commission General Staff
("Staff") and Southwestern Electric Power Company ("SWEPCO" or "Company") filed
a Joint Request for Protective Order for Cost of Service Software, thereby
establishing this docket pursuant to an ongoing Staff review of the utility's
operations. On December 4, 1998, the Commission issued Order No. 1 granting the
Joint request to protect from public disclosure the software owned by Management
Applications Consulting, Inc. and used by SWEPCO in preparation of its cost of
service studies.
On April 29, 1999, Order No. 2 granted the Petition to Intervene filed by
Tyson Foods, Inc. ("Tyson") on April 16, 1999. On May 5, 1999, the Attorney
General's ("AG") office filed a notice of its intent to be an active party in
this docket.
On May 24, 1999, the Staff filed a Motion for a Show Cause Order. In its
motion, Staff requested:
a. That the rates of the Company be reduced in the amount of $7,808,960
to reflect the recovery of an Arkansas retail revenue requirement of
$175,814,167.
b. That the Company be required to prepare and file within sixty (60) days a
cost of service study based on the twelve-month period ending June 30,
1998.
<PAGE>
c. That the Commission issue an order directing SWEPCO to show cause why its
present rates should not be reduced.
In support of its Motion and based upon its analysis of the Company's
financial performance for the twelve months ending June 30, 1998, Staff filed,
on May 24, 1999, the prepared testimonies and exhibits of its witnesses Franklin
D. Ellis, Bill Dennis, Mark Witkowski, James E. Neely, L.A. Richmond, J. Bret
Franks, and Patti J. Kelly.
Commission Order No. 3, issued on June 4, 1999, directed SWEPCO to show
cause why its present rates should not be reduced by $7,808,960 and required
the Company to file, by July 23, 1999, a cost of service study, based on the
twelve-month period ending June 30, 1998, including appropriate testimony in
support thereof and rebuttal testimony to Staff's May 24, 1999 prepared
testimony. The Order provided that Staff shall file appropriate
rebuttal/surrebuttal testimony by August 12, 1999, and set the matter for a
hearing on August 24, 1999. Errata Order No. 4 amended Order No. 3, so as to
include the filing of responsive intervenor testimony by August 12, 1999. Order
No. 5 entered on July 20, 1999, changed the procedural schedule to July 30,
1999 for testimonies and exhibits in either support of the anticipated
Settlement Agreement or the respective positions of the parties; August 19,
1999 for rebuttal testimony; and August 30, 1999 for the public hearing.
After reviewing Staff's testimony and exhibits, the parties began
discussions in an effort to resolve their differences. During the course of
those discussions, SWEPCO provided the Staff with additional information for
review and consideration. After evaluating the additional information, three of
the parties, namely the AG, SWEPCO, and the Staff (collectively referred to as
the "Settling parties") were able to reach agreement. Accordingly, the Settling
<PAGE>
Parties state that this Stipulation and Settlement Agreement ("Agreement" or
"Stipulation") is in the public interest and recommend it to the Commission as
follows:
1. GENERAL
In light of the recent passage of Act 1556 of 1999, coupled with the
Staff's investigation of SWEPCO's rates, the overall objective of this
Agreement is to establish reasonable rates and to lay the groundwork for
SWEPCO's transition to a competitive market. To meet this overall
objective, the Agreement reflects a reduction in SWEPCO's revenue
requirement, and the unbundling of the fuel revenue requirement from base
rates to provide an intermediate step toward preparing and educating
customers for the upcoming customer choice and unbundled tariffs. The cost
of service reflects equal class rates of return and removes subsidies at
the Customer Class level. Rates are designed to send appropriate pricing
signals while minimizing customer impacts through a phase-in plan. The
Settling Parties believe the following Agreement accomplishes these
objectives and, as a whole, is in the public interest.
2. REVENUE REQUIREMENT
SWEPCO's Arkansas Retail Revenue Requirement is agreed to be:
Base Rate Revenue Requirement $ 98,508,372
Fuel Cost Recovery (1) 65,038,305
------------
Total Rate Schedule Revenue Requirement $163,546,677
Other Revenues 14,826,608
------------
Total Arkansas Retail Revenue Requirement $178,373,285
The agreed upon Arkansas Retail Revenue Requirement results in an Arkansas
Retail Revenue Excess of $5,355,609. SWEPCO's Arkansas Retail Revenue
Requirement and corresponding Revenue Excess are supported by the
- ---------------
(1) SWEPCO's Fuel Cost is to be collected through Staff's proposed Energy Cost
Recovery Rider ("Rider ECR"), Attachemnt VIII to the Agreement.
<PAGE>
cost-of-service study (Settlement COS") presented as Attachment I of the
Stipulation. Attachment II of the Stipulation present the Company's
"Non-fuel" Arkansas Retail Revenue Requirement ("Settlement Non-fuel
COS"). All Arkansas retail fuel costs, an equal amounts of revenues, and
the test year level of margins received from affiliated and non-affiliated
off-system sales transactions were removed from the Settlement COS to
arrive at the Settlement Non-fuel COS.
While the agreed upon revenue requirement reflects a negotiated
settlement of all issues, the Settling Parties agree that the Arkansas
Retail Revenue Requirement was arrived at by adjusting Staff's Revenue
Requirement presented in its Prepared Exhibit FDE-1 to reflect the
following:
a. Arkansas jurisdictional Other Operating Revenues were increased to
reflect the stipulated change in miscellaneous service fees and
charges, as identified in Attachment III. The miscellaneous service
fees and charges will be moved toward the cost incurred by the
Company to provide the service.
b. Rate Base was adjusted to correct an error in Staff's case. Staff
had adjusted plant-in-service for plant retirements and net removal
costs to occur during the pro forma year, but did not make the
corresponding adjustment to accumulated depreciation.
c. Property Tax Expense was increased to reflect the aforementioned
change to rate base.
d. The amount of O & M Expense disallowed as a result of Staff's review
of expense vouchers was revised. The Company provided additional
information to support the inclusion of certain expenses disallowed
in Staff's filing.
<PAGE>
e. Based upon additional information provided by the Company, Staff's
initial adjustment to Distribution O & M Expense was increased based
on actual maintenance projects underway in the pro forma year.
f. Bad Debt Expense was revised to be specific to the Arkansas
jurisdiction, instead of the Total Company basis reflected in
Staff's filing, resulting in a change to the revenue conversion
factor.
g. The depreciation expense contained in the Settlement COS is based on
the depreciation parameters and rates in Attachment IV. These
depreciation rates reflect the recommended rates and parameters
contained in the Prepared Testimony of J. Bret Franks filed on May
24, 1999, refined to incorporate (1) separate retirement dates for
each unit of production plant, rather than the plant by location
retirement dates, and (2) actual interim retirement ratios (IRR) for
Coal and Lignite Production Accounts 312 and 314, rather than Gas
and Oil IRRs. Each of these revisions reflects a more specific basis
for rate determination than reflected in Staff's filing.
h. The overall rate of return used in the settlement cost of service is
6.82%. This rate is based on the capital structure and cost rates
reflected in Staff witness Mark Witkowski's Exhibit MW-17 filed on
May 24, 1999, revised to reflect the upper end of Staff's
recommended range on equity of 10.25%-10.75%.
i. Income Tax Expense was adjusted to reflect the aforementioned
changes.
3. COST OF SERVICE
The purpose of the Customer Class Cost of Service Study is to
distribute the Total Company Revenue Requirement to the Customer Classes
<PAGE>
and to the underlying Rate Schedules in order to determine their separate
revenue requirements. Rates of return were equalized at the Customer
Class level in order to send appropriate price signals and rate schedule
revenue requirements were adjusted to minimize customer impact.
While the agreed upon Customer Class Cost of Service Study reflects
a negotiated settlement of all customer class cost of service issues, the
Settling Parties agree that the Customer Class Cost of Service Study
(Attachment V) was arrived at by adjusting Staff's Customer Class Cost of
Service Study presented in its Prepared Exhibit FDE-1 to reflect the
following:
a. In view of some particular costs included in customer information
and customer service accounts 907 through 916, and as part of the
overall settlement of this docket, accounts 907 through 916 were
allocated 50% on the basis of number of customers and 50% on the
number of kilowatt hours.
b. Rate Schedules were adjusted so that no Rate Schedule within the
Customer Classes receiving a reduction would receive a rate
increase. Rate schedules within a Rate Class receiving a decrease,
that under attachment V show an increase, will receive no increase.
The remaining rate Schedules within each Customer Class were
adjusted to reflect the same average reduction or increase as the
Customer Class.2 See Attachment VI.
c. The Basic Residential Service Rate will be maintained and the three
separate electric end-use rate schedules will be consolidated into
one rate for Residential Electric End-Use because of the similarity
of their usage characteristics.
- ---------------
2 To the extent that a rate schedule is differentiated between voltage levels,
the average reduction would be applied at the total rate schedule level.
<PAGE>
4. PHASE-IN OF EQUAL RATES OF RETURN
The Settling Parties agree that the rates of return by class should
be equalized and that equal rates of return will be phased in as necessary
over a two-year period. The increases to the Lighting Class will be phased
in with half of the increase becoming effective with the compliance
tariffs and the remainder of the increase becoming effective in one year.
The increases to the Lighting Class will be made concurrently with the
decreases to the Commercial/Small Industrial, Large Industrial, and
Municipal classes; the Residential Class decrease will all occur in the
first year. See Attachment VI. The concurrent adjustments allow for the
recovery of the stipulated Total Arkansas Retail Revenue Requirement in
each year, therefore, there will be no need to accrue carrying charges.
5. RATE DESIGN
In order to reduce administration of tariffs and better reflect current
usage, the Company will implement tariff changes that simplify, consolidate,
and/or eliminate customer classes. The rate design agreed to by the Settling
Parties is as follows:
a. Residential Class
There will be two residential rate schedules - Basic Residential Service
and Residential Electric End-Use. Both residential rate schedules will
include a seasonal differential and the End-Use rate will include a
declining block structure. The customer charge will reflect the current
charge of $6.88. The Rider to Residential Service for Controlled Service
to Water Heaters will be closed to new customers.
<PAGE>
b. Low-Load Factor-Time of Use and Large Lighting and Power-Time of Use
The Load-Load Factor - Time of Use rate schedule will be eliminated and
its single customer will be moved to the Lighting and Power - Time of
Use rate schedule. The Large Lighting and Power - Time of Use rate
schedule will also be eliminated. There are no customers taking service
under this rate schedule and thus there will be no revenue or cost impact
of the elimination of this schedule. Consistent with the provisions
of the tariff, the Experimental Economic Development Rider will be
closed, however existing contracts will be honored through the date of
Retail Open Access.
c. Lighting Classes
For all lighting classes, in order to provide consistent pricing and to
simplify the lighting tariffs, several seldom-used lighting options will
no longer be available. The Private Lighting and Area Lighting rate
schedules will be closed to new customers and a new dusk to dawn lighting
service will be introduced.
d. Other Tariffs and Service Regulations
Certain miscellaneous fees and charges in the Charges Related to Customer
Activity rate schedule will be changed to more closely reflect the current
costs of providing those services as shown in Attachment III. The Charges
for Special or Additional Facilities schedule will be modified and a new
rate based on current costs will be charged for new customer contracts.
The language for Underground Electric Distribution Service Agreement
(Attachment VII) will be amended to simplify and clarify the tariff.
<PAGE>
6. ENERGY COST RECOVERY RIDER
The Company's energy cost will be recovered through the Energy Cost
Recovery Rider, ("Rider ECR"), Attachment VIII of the Agreement. The initial
Energy Cost Rate will be determined using data for the twelve-month period ended
December 31, 1998. The Energy Cost Rate will also reflect the estimated
over/under recovery balance associated with SWEPCO's current energy adjustment
rider. The initial redetermination filing, as required under Rider ECR, will
reflect a true-up adjustment for the estimated over/under recovery balance
associated with SWEPCO's current energy adjustment rider. Since the Company's
energy cost will be recovered through Rider ECR, the Company's Rate Schedule No.
27, the Fuel Adjustment Rider, will be eliminated.
Treatment of Non-Affiliated Sales Margins:
In consideration of incorporating a fixed minimum level of off-system
sales margins in the energy cost recovery rider, and in recognition of the
differences in off-system sales margins pre and post merger and the treatment
afforded off-system sales revenues as the result of the American Electric Power
("AEP") merger in other jurisdictions, incremental margins from sales will be
shared between customers and shareholders as described in a. and b. and as shown
in the tables below. Off-system sales margins are defined as margins from sales
transactions to non-affiliated utilities made under the Central & South West
("CSW") Joint Operating Agreement pre-merger, and under the AEP System
Integration Agreement post-merger. The customers' share of off-system sales
margins will be reflected in the calculation of the Energy Cost Recovery Rider.
<PAGE>
a. Pre-merger, the minimum or base off-system sales margin to be included in
the Energy Cost Recovery Rider and credited to customers on an annual
basis is $583,539. For any off-system sales margins allocated to SWEPCO's
Arkansas retail jurisdiction between $583,539 and $758,600, 100% of such
margins shall be credited to retail customers. For any off-system sales
margins allocated to SWEPCO's Arkansas retail jurisdiction between
$758,600 and $1,167,078, 85% of such margins shall be credited to retail
customers and 15% of such margins shall be retained by shareholders.
For any off-system sales margins allocated to SWEPCO's Arkansas retail
jurisdiction above $1,167,078, 50% of such margins shall be credited to
customers and 50% of such margins shall be retained by the shareholders.
PRE-MERGER
Threshold Level Threshold Level
Base Off-System for 15% Sharing for 50% Sharing
Sales Margin in by Shareholders by Shareholders
Company the Test Year in Off-System Sales Off-System Sales
------- --------------- ---------------- ----------------
SWEPCO $583,539 $758,600 $1,167,078
b. Post-merger, the minimum or base off-system sales margin to be include
in the Energy Cost Recovery Rider and credited to customers on an annual
basis is $758,600. Any proration would be consistent with the effective
date of the merger. For any off-system sales margins allocated to SWEPCO's
Arkansas retail jurisdiction between $758,600 and $1,167,078, 85% of
such margins shall be credited to retail customers and 15% of such margins
<PAGE>
shall be retained by shareholders. For any off-system sales margins
allocated in SWEPCO's Arkansas retail jurisdiction above $1,167,078, 50%
of such margins shall be credited to customers and 50% of such margins
shall be retained by the shareholders.
POST-MERGER
Threshold Level Threshold Level
for 15% Sharing for 50% Sharing
Base Off-System by Shareholders by Shareholders
Company Sales Margin in Off-System Sales Off-System Sales
------- ------------ ----------- ----------------
SWEPCO $758,600 $758,600 $1,167,078
Treatment of Affiliated Sales Margins
Margins allocated to SWEPCO's Arkansas retail jurisdiction resulting from
energy sales transactions with affiliated electric operating companies will be
reflected in the calculation of the Energy Cost Recovery Rider.
Margins allocated to SWEPCO's Arkansas retail jurisdiction resulting from
capacity sales will be reflected in the calculation of Energy Cost Recovery
Rider.
7. COMPLIANCE COST OF SERVICE
As soon as practicable, but no later than thirty (30) days after
Commission approval of the Agreement, SWEPCO will file compliance tariffs
designed to recover the Arkansas Retail Revenue Requirement detailed in Section
2 of the Agreement. The new base rates in the compliance filing will be
developed using the billing determinants, as set forth in Attachment IX of the
Agreement.
<PAGE>
8. ACT OF 1556 OF 1999 PROVISIONS
Contingent upon adoption or approval of this Agreement in whole, without
modification or amendment by the Arkansas Public Service Commission, SWEPCO will
not seek to recover stranded costs as defined in ss.23-19-102(36) related to
electric generation pursuant to ss.23-19-304 of Act 1556 of 1999.
Nothing in this Settlement will preclude SWEPCO from seeking to recover
transition costs in accordance with ss.23-19-304 of Act 1556 of 1999.
The cost of service study supporting the settlement revenue requirement
shall be used as the basis for unbundling SWEPCO's rates pursuant to
ss.23-19-205(a) of Act 1556 of 1999.
9. RIGHTS OF PARTIES
This Agreement is expressly contingent upon its approval by the Commission
without modification. The various provisions of the Agreement are interdependent
and unseverable. The Settling Parties will cooperate fully in seeking acceptance
and approval by the Commission of the Agreement and will support its approval in
all respects without modification in any further proceedings which may be
ordered by the Commission.
In the event the Commission does not accept, adopt, and approve this
Agreement in its entirety and without modification, the Settling Parties agree
that this Agreement shall be void and of no effect. However, in that event, the
Settling Parties agree (a) no party shall be bound by any of the provisions or
agreements herein contained; (b) all parties shall be deemed to have reserved
all their respective rights and remedies in this proceeding; and (c) no party
<PAGE>
shall introduce this Agreement or any writings, discussions, negotiations, or
other communications of any type related to this Agreement in any proceeding.
WHEREFORE, premises considered, it is requested that the Commission review
and approve this Stipulation and Settlement Agreement entered this 30th day of
July, 1999.
Respectively submitted,
GENERAL STAFF OF THE ARKANSAS
PUBLIC SERVICE COMMISSION
By: /s/ Susan D'Auteuil
Susan D'Auteuil
General Staff Attorney
1000 Center Street
P.O. Box 400
Little Rock, Arkansas 72203
(501) 682-5878
SOUTHWESTERN ELECTRIC POWER COMPANY
By: /s/ David R. Matthews
David R. Matthews
Matthews, Campbell, Rhoads, McClure & Thompson
119 South Second Street
Rogers, AR 72756-4525
(501) 636-0875
<PAGE>
ATTORNEY GENERAL OF
THE STATE OF ARKANSAS
By: /s/ M. Shawn McMurray
M. Shawn McMurray
Sr. Asst. Attorney General
323 Center Street, Suite 200
Little Rock, AR 72201
(501) 682-2007
CERTIFICATE OF SERVICE
I certify that a copy of the foregoing pleading has been delivered to the
following parties of record by hand-delivery, facsimile, or first-class mail,
postage prepaid, this 30th day of July, 1999.
M. Shawn McMurray
Sr. Asst. Attorney General
323 Center Street, Suite 200
Little Rock, AR 72201
Herbert C. Rule III
Stephen Joiner
ROSE LAW FIRM
120 East Fourth Street
Little Rock, AR 72201-2893
David Matthews
MATTHEWS, CAMPBELL, RHOADS,
MCCLURE & THOMPSON, P.A.
119 South Second Street
Rogers, AR 72756
/s/ Susan E. D'Auteuil
Susan E. D'Auteuil
EXHIBIT 9
Page 1 of 9
CSW CREDIT, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
EXHIBIT 9
Page 2 of 9
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of CSW Credit, Inc.:
We have audited the accompanying balance sheets of CSW Credit, Inc. (a Delaware
corporation and wholly owned subsidiary of Central and South West Corporation)
as of December 31, 1998 and 1997, and the related statements of income,
stockholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company'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 CSW Credit, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas
February 12, 1999
<PAGE>
EXHIBIT 9
Page 3 of 9
CSW CREDIT, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Thousands)
1998 1997
-------------- --------------
REVENUES $ 84,784 $ 77,703
-------------- --------------
OPERATING EXPENSES:
Interest 42,658 38,976
Provision for bad debts 21,382 21,074
Credit line fees 881 858
General and administrative 1,491 78
-------------- --------------
66,412 60,986
-------------- --------------
OPERATING INCOME 18,372 16,717
-------------- --------------
OTHER INCOME AND DEDUCTIONS:
Interest income 6 63
Tax benefit of parent company loss 323 326
-------------- --------------
329 389
-------------- --------------
INCOME BEFORE FEDERAL INCOME TAXES 18,701 17,106
-------------- --------------
FEDERAL INCOME TAXES:
Current 8,148 6,563
Deferred (1,716) (690)
-------------- --------------
6,432 5,873
-------------- --------------
NET INCOME $ 12,269 $ 11,233
============== ==============
The accompanying notes to the financial statements are
an integral part of these statements.
<PAGE>
EXHIBIT 9
Page 4 of 9
CSW CREDIT, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Thousands)
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 59 $ 51
Accounts receivable, net of allowance for
doubtful accounts of $ 10,085 and $ 5,183
as of December 31, 1998 and 1997,
respectively. 834,355 706,197
----------- -----------
Total current assets 834,414 706,248
OTHER ASSETS:
Deferred income taxes 4,937 3,346
Other 2,829 4,456
----------- -----------
Total other assets 7,766 7,802
----------- -----------
Total assets $ 842,180 $ 714,050
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt $ 748,729 $ 636,550
Deferred credits 17,134 14,310
Accounts payable - affiliated 6,008 3,454
Unearned revenue 4,408 4,576
Other liabilities 944 986
----------- -----------
Total current liabilities 777,223 659,876
STOCKHOLDER'S EQUITY:
Common stock, no par; authorized 1,000 shares;
issued and outstanding 259 and 247 shares
as of December 31, 1998 and 1997,
respectively 1 1
Paid-in capital 64,956 54,173
----------- -----------
Total stockholder's equity 64,957 54,174
----------- -----------
Total liabilities and stockholder's equity $ 842,180 $ 714,050
=========== ===========
The accompanying notes to the financial statements are
an integral part of these statements.
<PAGE>
EXHIBIT 9
Page 5 of 9
CSW CREDIT, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Thousands)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ 1 $ 31,775 - $ 31,776
Capital contributions - 22,398 - 22,398
Net income - - 11,233 11,233
Common stock dividends - - (11,233) (11,233)
----------- ----------- ------------ -------------
BALANCE DECEMBER 31, 1997 1 54,173 - 54,174
Capital contributions - 10,783 - 10,783
Net income - - 12,269 12,269
Common stock dividends - - (12,269) (12,269)
----------- ----------- ------------ -------------
BALANCE DECEMBER 31, 1998 $ 1 $ 64,956 $ - $ 64,957
=========== =========== ============ =============
</TABLE>
The accompanying notes to the financial statements are
an integral part of these statements.
<PAGE>
EXHIBIT 9
Page 6 of 9
CSW CREDIT, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(Thousands)
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,269 $ 11,233
Adjustments to reconcile net income to net cash
provided by operating activities-
Changes in assets and liabilities-
Accounts Receivable (128,158) (91,106)
Deferred income taxes (1,591) (690)
Other assets 1,627 (831)
Deferred credits 2,824 1,044
Accounts payable - affiliated 2,554 1,758
Unearned revenue (168) 1,197
Other liabilities 7 (895)
------------- -------------
Net cash used in operating activities (110,636) (78,290)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt 112,179 57,250
Capital contributions 10,783 22,398
Payment of dividends (12,318) (10,123)
------------- -------------
Net cash provided by financing
activities 110,644 69,525
------------- -------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 8 (8,765)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 51 8,816
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 59 $ 51
============= =============
SUPPLEMENTARY INFORMATION:
Interest paid $ 43,253 $ 39,834
============= =============
Income taxes paid $ 6,576 $ 7,976
============= =============
The accompanying notes to the financial statements are
an integral part of these statements.
<PAGE>
EXHIBIT 9
Page 7 of 9
CSW CREDIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
CSW Credit, Inc. (the "Company") is a wholly owned subsidiary of Central and
South West Corporation (CSW or the Parent Company), whose primary business is to
purchase, without recourse, the accounts receivable of certain CSW subsidiary
companies and non-affiliated companies. Revenue from affiliated companies in
1998 and 1997 were $33.5 million and $33.9 million, respectively. Significant
accounting policies are summarized below:
Revenue recognition
Revenues are generally recorded for the difference between the face amount of
the receivables purchased and the purchase price.
Allowance for doubtful accounts
The Company maintains an allowance for doubtful accounts at a level which
reflects the amount of receivables not reasonably expected to be collected. The
allowance is determined principally on the basis of collection experience.
Receivables are written off when they are determined to be uncollectable.
Federal income taxes
The Company, together with affiliated companies, files a consolidated Federal
income tax return and participates in a tax sharing agreement with the other
members of the CSW system. Federal income tax expense resulted in effective
rates of 33% for both 1998 and 1997.
Deferred income taxes resulted primarily from the differences between book and
tax deductions for bad debt expense. The company also recognizes the tax benefit
of operating losses allocated by the parent company to CSW Credit. The Internal
Revenue Code provides for tax deductions for bad debts when they are charged
off. As a result of a favorable earnings history, the Company did not record any
valuation allowance against deferred tax assets at December 31, 1998 and 1997.
Cash and Cash Equivalents
Cash equivalents are considered to be highly liquid debt instruments purchased
with a maturity of three months or less. Accordingly, the Company's temporary
cash investments are considered cash equivalents.
<PAGE>
EXHIBIT 9
Page 8 of 9
Related party transactions
Central and South West Services, Inc., a wholly owned subsidiary of CSW,
provides administrative services to the Company and is reimbursed for the cost
of such services. These services were provided at a cost of $871 thousand and
$1.2 million in 1998 and 1997, respectively.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, revenue, and expenses
reported in the accompanying financial statements. The estimates and assumptions
used in the accompanying financial statements are based upon management's
evaluation of the relevant facts and circumstances as of the date of financial
statements. Actual results realized may differ from these estimates.
Reclassification
Certain financial statement items have been reclassified to conform to the 1998
presentation.
Basis of Accounting
These financial statements were prepared using the accrual method of accounting.
2. REGULATION:
The Company is subject to regulation by the Securities and Exchange Commission
(SEC) under the Public Utility Holding Company Act of 1935, as amended. The SEC
has approved the Company's method of calculating the discount associated with
the purchase of CSW subsidiary companies' accounts receivable.
3. SHORT-TERM DEBT:
The Company issues commercial paper that is secured by the assignment of its
receivables. The weighted average interest rate for 1998 and 1997 was 5.6%. At
December 31, 1998, the Company had a revolving credit agreement aggregating one
billion dollars to back up its commercial paper program. The revolving credit
agreement expires June 27, 1999 and has a fee of .075% on the commitment. At
December 31, 1998, there were no borrowings under the revolving credit
agreement. At December 31, 1998 and 1997, the amounts of commercial paper
outstanding were approximately $749 million and $637 million.
<PAGE>
EXHIBIT 9
Page 9 of 9
4. Houston Lighting & Power Company:
The Company entered into an agreement with Houston Lighting & Power Company
(HLP) to purchase substantially all of its utility receivables. During the
twelve months ended December 31, 1998 and 1997, the Company had average HLP
receivables of $439,793,000 and $383,396,000, respectively.
Prior to March 11, 1997, the Company was subject to a SEC restriction (50%
Restriction) which required the average amount of non-affiliated accounts
receivable outstanding to be less than the average amount of affiliated accounts
receivable outstanding for the previous twelve calendar months. The Company
received SEC authority to sell excess HLP receivables to third parties in order
to maintain the Company's compliance with the 50% Restriction.
On March 11, 1997, the SEC issued an order granting the Company temporary relief
from the 50% Restriction. The SEC restriction limits the twelve-month rolling
average of HLP receivables to $450 million and $100 million for other
non-affiliated companies. This relief has been granted through December 31,
2000. At December 31, 1998, the Company was in compliance with the provisions
set forth by the SEC under the terms of the temporary relief.
5. UNEARNED INCOME AND DEFERRED CREDITS:
When receivables are factored, a discount rate is applied. A portion of this
rate is related to the carrying cost of the receivables, which approximates the
related cost of administration and handling. This rate is applied when the
receivables are initially factored. To appropriately match the revenue received
for the carrying of the receivables to their associated costs, a part of this
income is deferred until the costs are recognized. In addition to the carrying
cost component, an agency fee is applied to receivables. The agency revenue is
also deferred, and is shown as deferred credits on the balance sheet.
6. FINANCIAL INSTRUMENTS:
Cash, cash equivalents, and short-term debt
The fair value equals the carrying amount as stated on the balance sheets
because of the short maturity of those instruments.
EXHIBIT 10
Page 1 of 10
CSW CREDIT, INC.
CHART OF ACCOUNTS
Standard Accounts - Quick Reference
BALANCE SHEET ACCOUNTS (1310-2820)
Description Account Number
Assets
Cash 1310.XXXX
Cash 1310.0100
Temporary Cash Investments 1360.XXXX
Temporary Investments 1360.0100
Notes Receivable 1410.XXXX
Interest Receivable 1410.5000
Due From Broker 1410.7100
Other Accounts Receivable 1430.XXXX
Accounts Receivable 1430.4700
Factored Unbilled Accounts Receivable 1430.4900
Accumulated Provision for Uncollectable Accounts - Credit 1440.XXXX
Allowance for Bad Debt 1440.0100
Accounts Receivable from Associated Companies 1460.XXXX
A/R - Associated Companies 1460.1000
A/R - Allocated Corp Federal Income Tax 1460.6000
Prepayments 1650.XXXX
Prepayments Credit Line Fees 1650.0200
Prepayments Interest 1650.0300
Prepayments Taxes 1650.6200
Liabilities
Common Stock Issued 2010.XXXX
Common Stock 2010.0000
Miscellaneous Paid-in Capital 2110.XXXX
Paid-in Capital 2110.0000
Appropriated Retained Earnings 2150.XXXX
Retained Earnings 2150.0100
Notes Payable 2310.XXXX
Commercial Paper 2310.0100
Notes Payable to Associated Companies 2330.XXXX
Accounts Payable to Associated Companies 2340.XXXX
Accounts Payable - CSW 2340.1000
Accounts Payable - Associated 2340.4900
Accounts Payable - CSWS 2340.9900
Taxes Accrued 2360.XXXX
Accrued Taxes Payable 2360.0100
Accrued Franchise Tax Payable 2360.0300
Interest Accrued 2370.XXXX
Credit Line Fees Payable 2370.8801
Dividends Declared 2380.XXXX
Accrued Dividend Payable - CSW 2380.0100
Other Deferred Credits 2530.XXXX
Deferred Credits 2530.0100
Unearned Revenue 2530.0200
Accumulated Deferred Income Taxes - Other Property 2820.XXXX
Deferred Federal Income Taxes 2820.0200
<PAGE>
EXHIBIT 10
Page 2 of 10
CSW CREDIT, INC.
CHART OF ACCOUNTS
Standard Accounts - Quick Reference
INCOME STATEMENT ACCOUNTS (4081-9302)
Description Account Number
Revenues
Miscellaneous Nonoperating Income 4210.XXXX
Interest Income 4210.0100
Miscellaneous Income 4210.9000
Miscellaneous Service Revenues 4510.XXXX
Rating Fee Revenue 4510.0100
Unearned Revenue 4510.0200
IPA/Analysis Fee Revenue 4510.0300
Bad Debt Revenue 4510.0400
Agency Fee Revenue 4510.0500
Carrying Cost Revenue 4510.0600
Credit Line Fee Revenue 4510.0700
Expenses
Taxes Other than Income Taxes - Utility Operating Income 4081.XXXX
Franchise Tax Expense 4081.0000
Income Taxes - Utility Operating Income 4091.XXXX
Income Tax Expense 4091.0000
Deferred Income Tax Expense 4100.XXXX
Income Tax Expense 4100.0000
Other Deductions 4265.XXXX
Allocated Corp Federal Income Taxes 4265.7000
Other Interest Expense 4310.XXXX
Interest Expense 4310.0100
Interest Expense - Bank of New York 4310.0200
Uncollectable Accounts 9040.XXXX
Bad Debt Expense 9040.0100
Office Supplies and Expenses 9210.XXXX
IPA/Analysis Fee Expense 9210.2400
Outside Services Employed 9230.XXXX
Outside Services - Legal 9230.7420
Miscellaneous General Expenses 9302.XXXX
Credit Line Expense 9302.1000
Rating Fee Expense 9302.1900
Miscellaneous General Expense 9302.9000
Business Normalization Expense 9302.9100
CSWS Allocations 9302.9900
<PAGE>
EXHIBIT 10
Page 3 of 10
CSW CREDIT, INC.
ACCOUNTING SYSTEM PROCEDURES
INTRODUCTION
CSW Credit, Inc. (Credit), a wholly owned subsidiary of Central and South West
Corporation (CSW), was formed for the purpose of providing a low-cost financing
source for utilities through factoring utility accounts receivable
(receivables). Credit purchases receivables at a discount enabling its customers
to collect their money the same day they deliver its utility service.
Each company selling (factoring) its receivables to Credit has executed a
"Purchase Agreement" and an "Agency Agreement" which outlines how the basic
transactions take place. The Purchase Agreement and Agency Agreement may be
terminated by either party upon 30 days written notice to the other party.
Credit's affiliated customers are Central Power and Light Company (CPL), Public
Service Company of Oklahoma (PSO), Southwestern Electric Power Company (SWEPCO)
and West Texas Utilities Company (WTU). Credit's non-affiliated customers are
Houston Lighting and Power Company (HLP) and Texas-New Mexico Power Company
(TNP). The affiliate and non-affiliate customers are individually known as
"Seller" and collectively known as "Sellers."
Credit is authorized to purchase, without recourse, certain receivables arising
from the sale and delivery of electricity, gas and other related services in the
Seller's ordinary course of business. The price Credit pays the Seller for the
receivables is the dollar amount of receivables less a discount (purchase
price). The determination of the discount is based upon Credit's cost of
financing, the Seller's collection experience and an agency fee.
The Seller has agreed through the Agency Agreement to service, administer and
collect such receivables on behalf of Credit. As long as the Seller acts as the
agent, Credit agrees to pay the Seller an agent collection fee. Payment of the
agent collection fee shall be made simultaneously with collections, by deducting
the fee from funds owed to Credit for receivables collected.
The data received from the Seller must be accurate and timely received. Any
delays or inaccurate information affects the cash exchanged between the Seller
and Credit; therefore, it is critical to Credit's operation that the Seller
provide accurate and timely information. The Seller has also agreed to maintain
individual customer records that support the factored receivables and the
collection of those receivables. These records are available to Credit for
examination and analysis.
The following procedures outline the transactions that take place and the
accounting for these transactions. The detailed sections describe procedures for
Credit as performed by Central and South West Services (CSWS), CSWS
Treasury-Cash Management (CSWS Cash Management), CSWS Accounting, CSWS
Regulatory Reporting and the Sellers. As required by Securities Exchange
Commission (SEC) Order, Credit utilizes the excess capacity of CSWS employees to
handle its operations.
<PAGE>
EXHIBIT 10
Page 4 of 10
INITIAL TRANSACTION
The initial transaction between Credit and the Seller is based on the
receivables and allowance for bad debts recorded on the Seller's books at an
agreed upon date. The amount of receivables purchased by Credit is determined by
applying the carrying cost portion and agency fee portion of the discount rate
factor to the balance of receivables less the balance of the allowance for bad
debts. Credit will remit the net transaction amount to the Seller on the initial
transaction date by wire transfer. Credit records on its books the amount of
gross receivables and the allowance for bad debts.
DAILY TRANSACTIONS
Information Received From Sellers
Automated Billings
These are the amounts of gross receivables billed by the Seller each day. This
information is provided by state jurisdiction and further broken down by retail
and wholesale designation. The information is provided the morning after the
actual billing date. The discounts and purchase price are calculated and
verified with the Seller.
Automated Collections
These amounts include all collections of receivables and billing adjustments
that change the amounts due from customers. This information is provided by
state jurisdiction and further broken down by retail and wholesale designation.
The information is provided the morning after the collections are processed. The
collections are subtracted from the purchase price to determine the net cash
transaction for the day and the balance of purchased receivables.
Manual Billings
Some of the large wholesale customers served are not billed on an automated
system. Therefore, it is necessary for the Seller to report these "manual
billings" separately to Credit. These transactions are reported to Credit the
day after they occur. These transactions are summarized with the automated
billings before a purchase price is determined.
Manual Collections
For accounts that are manually billed, collections are reported to Credit as
they occur. These amounts are combined with the automated collections to
determine the net cash transaction and the balance of purchased receivables.
Unbilled Revenues & Estimated Billings Sold
Unbilled revenues represent receivables created by the delivery of electricity
to customers which the customer is legally obligated to pay, and is recorded on
the customer's meter but has not yet been billed by the Seller. Credit purchases
both billed and unbilled receivables as stipulated in the Purchase Agreement.
<PAGE>
EXHIBIT 10
Page 5 of 10
Credit's approach to purchasing unbilled revenues is to purchase on a daily
basis a portion of all billing cycles for an upcoming month. When the actual
cycle billing occurs, an adjustment is made to that day's transaction for the
difference between the amount previously purchased for that cycle and the actual
billing. Estimates of unbilled revenues are based upon the Seller's projected
billings and historical cycle billings adjusted for any known changes.
Other Manual Adjustments
Other manual adjustments are periodically necessary to correct previous
transactions. These adjustments are timely reported to Credit. These amounts are
included with the items discussed above in the determination of the purchase
price and the net cash transaction for the current day's transaction.
Daily Procedures Performed by CSWS Cash Management
Determination of Face Amount Purchased
The dollar amount of receivables purchased by Credit from the Seller is known as
the "face amount purchased." The face amount purchased consists of the Seller's
daily cycle billings plus daily unbilled revenues minus unbilled revenues
previously purchased for the current day's billing cycle.
Determination of Discount Rate
The purchase price Credit pays to the Seller is the face amount purchased,
reduced by the discount rate. The discount taken compensates Credit for costs
associated with financing and recovering receivables purchased without recourse.
Three components determine the discount rate:
- - carrying cost component
- - collection experience component
- - agency fee component
Each of these components is described below.
Carrying Cost Component
The carrying cost component compensates Credit for its cost of carrying the
receivables it purchases. For purposes of calculating this portion of the
discount, Credit assumes certain debt and equity ratios for each Seller,
currently as follows:
Seller Debt Equity
------ ---- ------
Affiliated Companies 95% 5%
TNP 100% 0%
HLP 80% 20%
The calculation of this component consists of three factors:
- - Debt factor - Compensates Credit for its interest cost in obtaining funding
from external sources. The calculation consists of multiplying the daily
interest cost incurred by Credit by the appropriate debt ratios.
<PAGE>
EXHIBIT 10
Page 6 of 10
- - Equity factor - Provides a return to Credit for the equity that is provided
by CSW. The calculation consists of multiplying the allowed return on equity
by the appropriate equity ratios and then dividing by the tax effect (1 - tax
rate) to allow for income taxes. The return on equity that the SEC allows for
the purchase of retail receivables is based on the allowed equity returns of
the Seller as approved by its respective state commission. For affiliated
wholesale receivables, the SEC allows Credit a return on equity equal to the
weighted average retail returns on equity for the affiliate companies.
- - Average days outstanding factor - Average days outstanding are computed for
each state jurisdiction and further broken down by retail and wholesale
designation. The average days outstanding is calculated and reset monthly on
the fifth business day by dividing the average daily balance of outstanding
receivables by average receivables purchased per day, based on the previous
month's transactions.
The carrying cost component is determined by adding the debt factor and the
equity factor to determine the overall annual carrying cost charge. This annual
carrying cost charge is divided by 365, except HLP which is 360, to get a daily
rate which is then multiplied by the average days outstanding factor to
determine the carrying cost component.
Collection Experience Component
The collection experience component compensates Credit for uncollectable
receivables and is calculated and reset monthly on the fifth business day. The
component is calculated by dividing the net amount of receivables charged-off
over the last 12 months by the amount of receivables purchased for the same time
period. The net amount of receivables charged-off is the dollar amount
charged-off as uncollectable less any recoveries previously charged-off plus an
excess of 90-day past due receivables (90-day surcharge). The 90-day surcharge
penalizes the Seller's failure to charge-off a receivable by adding excessive
aged accounts to the collection experience factoring rate.
Agency Fee Component
The agency fee component provides Credit with additional protection from
excessive charge-offs. At the time receivables are purchased, 2% of the face
amount purchased is withheld from the Seller until collection. Upon collection
of the receivables, Credit returns the 2% held back to the Seller. If the
Seller's net charge-offs become excessive, the portion of the net monthly
charge-off that exceeds the charge-off limit will be withheld for 12 months. The
charge-off limit is 1% of the sum of the last 12 months' collections divided by
12.
Daily Transactions Summary
The face amount purchased from the Seller is multiplied by the discount rate to
get the discount amount. The total discount amount is subtracted from the total
face amount purchased resulting in the price Credit pays the Seller for the
receivables. The amount collected from the customers is subtracted from the
purchase price to get the net cash transaction for the day.
<PAGE>
EXHIBIT 10
Page 7 of 10
The amount billed, purchase price, amount collected and net cash transactions
are confirmed with the Seller. The net cash transactions are then authorized to
be wire transferred between the bank accounts of the Seller and Credit. Cash
transactions are netted to avoid multiple daily wires between Credit and the
Seller.
OTHER TRANSACTIONS
Determination of Carrying Cost Variance Payment
On the fifth business day of each month, the charges assessed the Seller are
adjusted through the Carrying Cost Variance Payment. At month-end Credit
calculates the carrying cost revenue that is recognized for the current month
and compares it to the incurred service fee. The service fee is calculated by
multiplying the daily outstanding receivables balances by the daily financing
rate incurred by Credit.
If the carrying cost revenue recognized is greater than the service fee, Credit
owes the Seller the excess carrying cost revenue collected. If the carrying cost
revenue recognized is less than the service fee, the Seller owes Credit
additional carrying cost revenue. This transaction takes place on the fifth
business day of each month along with the change to the average days outstanding
factor and the collection experience component.
MONTHLY ACCOUNTING
Monthly accounting for Credit is done by CSWS Accounting. Accounting is based on
information received primarily from CSWS Cash Management.
Information From CSWS Cash Management
Monthly Summary of Daily Factoring Transactions
These summaries include daily gross receivables purchased, the purchase price,
discounts, collections and the daily receivables balance for each Seller by
state jurisdiction and further broken down by retail and wholesale designation.
Also included are cash transactions.
Allocation Factors
CSWS Cash Management also calculates allocation factors based on average
receivables balances for each Seller during the month by state jurisdiction and
further broken down by retail and wholesale designation as a percentage of the
total of all balances held by Credit. Allocation factors are used to allocate
interest expense, interest income, legal fees and other transactions not
allocable to a specific Seller.
Unearned Revenues
The discount factor applied to receivables includes a carrying cost for an
assumed number of days until collection (average days outstanding). A part of
the carrying cost associated with receivables factored toward month-end will not
be actually incurred by Credit until the following month. This creates a
mismatch between current month carrying cost revenues and carrying cost
expenses. Therefore, Credit defers a portion of the carrying cost discount as
unearned discount revenues.
<PAGE>
EXHIBIT 10
Page 8 of 10
The calculation of unearned discount revenues is done at the end of the month by
CSWS Cash Management for each Seller and provided to CSWS Accounting. This
information is also provided to the Seller, which recognizes the amount as
prepaid factoring costs.
Bad Debt Write-offs and Collections
Pursuant to the Agency Agreement, the Seller uses its best efforts in processing
and collecting factored receivables as an agent for Credit. The Seller is
empowered, as necessary, to employ collection agencies or other third parties to
collect delinquent receivables.
Each month, the Seller recommends to Credit the amount of retail and wholesale
receivables by state jurisdiction to be written-off as uncollectable. Also, each
month any amounts collected on accounts previously written-off are reported by
the Seller. The amount recovered is netted against the gross write-offs for the
month when determining the collection experience component and when booking bad
debts.
Explanation of any Manual Adjustments
At the end of the month, CSWS Cash Management provides CSWS Accounting with
copies of all pertinent information explaining any unusual manual adjustments
made during the month.
Summary of Cash Transactions
These summaries include all daily cash receipts and disbursements along with
daily balances that have been verified to the bank balances. These summaries
provide additional information on actual cash receipts and disbursements for the
preparation of any necessary journals.
Interest and Other Accruals
CSWS Cash Management calculates and provides to CSWS Accounting the amount of
interest expense, credit line fees, prepaid interest, interest income and any
other costs associated with short-term borrowings and investments to be recorded
during the month.
Capitalization Balances
Daily balances of short-term borrowings and CSW equity are maintained by CSWS
Cash Management. This information is used to ensure that stipulated equity
requirements are being met and all related equity transactions are properly
recorded on the accounting records.
Miscellaneous Cash Items
CSWS Cash Management provides details on any change in cash procedures that
affect transactions that should be reflected in the monthly financial
statements.
Information From Other Sources
Although most of the information needed monthly by CSWS Accounting is provided
by CSWS Cash Management, some information is obtained from other sources as
necessary. Two primary examples are the service billings from CSWS provided by
CSWS Accounting, and the franchise tax and income tax information, including
accruals, estimates and payments provided by the CSWS Tax Department.
<PAGE>
EXHIBIT 10
Page 9 of 10
Preparation of Monthly Summary and Journal Entries
Each month CSWS Accounting prepares all journal entries from the information
received and enters all journal entries into the general ledger system.
Recurring journal entries are listed below.
Journal Journal Entry
Entry Description
00001 CPL Monthly Activity
00002 PSO Monthly Activity
00003 SWEPCO Monthly Activity
00004 WTU Monthly Activity
00006 TNP Monthly Activity
00007 HLP Sale/Repurchase
00008 HLP Monthly Activity
00009 Bad Debt Write-Offs
00010 Record Net Equity
00011 Short-Term Debt and Commercial Paper
00012 Short-Term Interest Expense
00013 Temporary Investment Income
00014 CSWS Billing
00015 Accrue Unearned Revenue
00016 Investments/Acquisitions
00017 Allocate Credit Line Fees to Expense
00018 Record Tax Accrual
00019 Record Tax Payment
00020 Record Dividend Payment to CSW
00021 Record Dividend Accrual
00022 Allocate Income Tax Expense
00023 CSWS Invoice Payment
00024 Record Rating Agency Fees
00025 Allocate Franchise Tax Expense
00026 Record Billing for Franchise Tax
00027 Record Payment of Credit Line Fees
00028 Accrual of SWEPCO Late Billing
00029 Accrual of Carrying Costs Variance Payment
00030 2% Bad Debt Write-offs Prior Month
<PAGE>
EXHIBIT 10
Page 10 of 10
Other non-recurring journal entries are prepared as necessary.
After journal entries have been entered into the general ledger system, a trial
balance is generated and reviewed by CSWS Accounting and CSWS Cash Management.
Discrepancies, if any, are generally resolved during the review and adjusting or
correcting journal entries are prepared and entered by CSWS Accounting.
QUARTERLY REPORTING
CSWS Regulatory Reporting prepares all internal and external financial reports
for Credit based on final trial balance information received from CSWS
Accounting. Pursuant to the 1935 Act, Rule 24, a filing is made with the SEC on
behalf of Credit within 45 days after the close of the calendar quarter.
ANNUAL REPORTING
Each year the financial records of Credit are reviewed by an independent
accounting firm. An annual report for Credit is then issued and distributed to
certain Sellers, the SEC and certain financial institutions.
