File No. 70-8809
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM U-1 APPLICATION-DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
CENTRAL AND SOUTH WEST CORPORATION
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75202
CSW ENERGY, INC.
1616 Woodall Rodgers Freeway
P.O. Box 660789
Dallas, Texas 75202
CSW INTERNATIONAL, INC.
1616 Woodall Rodgers Freeway
P.O. Box 660789
Dallas, Texas 75202
(Names of companies filing this statement and
addresses of principal executive offices)
CENTRAL AND SOUTH WEST CORPORATION
(Name of top registered holding company parent)
Wendy G. Hargus
Treasurer
Central and South West Corporation
1616 Woodall Rodgers Freeway
P.O. Box 660164
Dallas, Texas 75202
Terry D. Dennis
President
CSW Energy, Inc.
1616 Woodall Rodgers Freeway
P.O. Box 660789
Dallas, Texas 75202
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Terry D. Dennis
President
CSW International, Inc.
1616 Woodall Rodgers Freeway
P.O. Box 660789
Dallas, Texas 75202
Joris M. Hogan
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, NY 10005-1413
(Names and addresses of agents for service)
Respectfully request that copies be sent to:
Edwin F. Feo
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street
30th Floor
Los Angeles, CA 90017
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Central and South West Corporation, a Delaware corporation
("CSW") and a registered holding company under the Public Utility Holding
Company Act of 1935, as amended (the "Act"), CSW Energy, Inc., a Texas
corporation and wholly-owned nonutility subsidiary of CSW ("Energy"), and CSW
International, Inc., a Delaware corporation and wholly-owned nonutility
subsidiary of CSW ("CSWI"), hereby file this Amendment No. 3 to the Form U-1
Application-Declaration (the "Application- Declaration") in this File No.
70-8809 for the purposes of amending Items 3, 5 and 6 thereof and restating the
Application- Declaration, as so amended, in its entirety. In all other respects,
the Application-Declaration as previously filed will remain the same.
The Application-Declaration is hereby amended and
restated in its entirety as follows:
Item 1. Description of Proposed Transaction.
(1) History and Nature of Request. CSW is a registered holding
company under the Act. Since 1990, CSW, directly or through its wholly-owned
subsidiary, Energy, has engaged in development activities to conduct preliminary
studies of, to investigate, to research, to develop, to consult with respect to,
and to agree to construct (such construction subject to further Commission
authorization), "qualifying facilities" ("QFs") as defined under the Public
Utility Regulatory Policies Act of 1978, as amended, and independent power
facilities, including exempt wholesale generators, as defined in
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Section 32(a) of the Act ("EWGs"). Since 1994, CSW, directly or through its
wholly-owned subsidiary, CSWI, has engaged in development and investment
activities with respect to EWGs and foreign utility companies, as defined in
Section 33(a) of the Act ("FUCOs" and, collectively with EWGs, the "Exempt
Projects"), and is authorized to provide design, construction, engineering,
operation, maintenance, management, administration, employment, tax, accounting,
economic, financial, fuel, environmental, communications, energy conservation,
demand side management, overhead efficiency, utility performance and electronic
data processing services and software development and support services in
connection therewith to Exempt Projects and (except for operation) to foreign
electric utility enterprises that are not Exempt Projects.
CSW is presently authorized under the terms of orders and
supplemental orders issued under File Nos. 70-7758, 70-8205 and 70-8423
(collectively, the "Financing Orders") to finance the operations of CSW, Energy,
CSWI and their respective subsidiaries by issuing and selling debt and equity
securities and by issuing guarantees of the securities of certain subsidiaries.
CSW's authorization under the Financing Orders may be summarized as follows:
(a) File No. 70-7758. Pursuant to an order of the
Commission dated September 28, 1990 (HCAR No. 25162) and
supplemental orders dated November 22, 1991 (HCAR No. 25414),
December 31, 1992 (HCAR No. 25728) and November 28, 1995 (HCAR
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No. 26417) with respect to File No. 70-7758, CSW and Energy obtained
authorization, among other things, to (i) spend up to $250 million to conduct
preliminary studies of, to investigate, to research, to develop, to consult with
respect to, and to agree to construct (such construction subject to further
Commission authorization), QFs and independent power facilities, including EWGs;
and (ii) finance such activities through capital contributions, open account
advances and loans in an aggregate amount not to exceed $250 million. Such
authorization expires on December 31, 2000.
(b) File No. 70-8205. Pursuant to an order of the Commission
dated August 6, 1993 (HCAR No. 25866) and a supplemental order dated November
28, 1995 (HCAR No. 26416), CSW and Energy obtained authorization, among other
things, from time to time to issue letters of credit, bid bonds or guarantees
(collectively, the "CSWE Guarantees") in connection with the development of QFs
and independent power facilities, including EWGs, in an aggregate amount not to
exceed $75 million. Such authorization expires on December 31, 2000.
(c) File No. 70-8423. CSW and Energy received
authority of the Commission by order dated November 3, 1994 (HCAR
No. 26156) and a supplemental order dated September 27, 1995
(HCAR No. 26383), among other things, (i) to organize CSWI and
certain other subsidiaries meeting certain specifications set
forth in the application-declaration in File No. 70-8423 (the
"Project Parents") to invest in Exempt Projects in an amount up
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to 50% of CSW's "consolidated retained earnings" as determined in accordance
with Rule 53(a)(1)(ii) under the Act for such investments for which there is
recourse to CSW and up to $3 billion for such investments for which there is not
recourse to CSW, (ii) to fund such investments from time to time through
issuances by CSW, CSWI and/or Project Parents of stock, partnership interests,
promissory notes, commercial paper or other debt or equity securities and (iii)
for CSW to provide guarantees of, and to arrange for letters of credit, bid
bonds or similar credit support arrangements (collectively, the "CSWI
Guarantees"; and together with the CSWE Guarantees, collectively, the
"Guarantees") concerning CSWI's or Project Parents' activities permitted under
such order and supplemental order. In addition, the order and supplemental order
in such file authorize CSW, directly or through CSWI or their respective
subsidiaries, to provide design, construction, engineering, operation,
maintenance, management, administration, employment, tax, accounting, economic,
financial, fuel, environmental, communications, energy conservation, demand side
management, overhead efficiency, utility performance and electronic data
processing services and software development and support services in connection
therewith to Exempt Projects and (except for operation) to foreign electric
utility enterprises that are not Exempt Projects. Such authorization expires on
December 31, 1997.
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Under the terms of each of the Financing Orders, CSW may use
the proceeds of common stock sales and borrowings, among other things, to
finance the acquisition of the securities of or otherwise invest in one or more
Exempt Projects, and may issue Guarantees in respect of the securities of such
Exempt Projects; provided, that the sum of the Guarantees at any time
outstanding and the net proceeds of common stock sales and borrowings by CSW
that may at any time be used by CSW to fund investments in Exempt Projects
(whether directly or indirectly through Energy, CSWI or Project Parents) shall
not, when added to CSW's "aggregate investment," as defined in Rule 53(a) under
the Act, in all such entities, exceed 50% of CSW's "consolidated retained
earnings." The term "consolidated retained earnings," also defined in Rule
53(a), is the average of consolidated retained earnings for the previous four
quarters, as reported in CSW's Annual Report on Form 10-K and Quarterly Reports
on Form 10-Q. CSW's "consolidated retained earnings" as of June 30, 1996 were
approximately $1.883 billion.
(2) Description of Exempt Projects Presently Owned or Under
Investigation by CSW. CSW's "aggregate investment" (as defined under Rule 53(a)
of the Act) as of August 15, 1996 was approximately $852.1 million in Exempt
Projects, or about 45% of CSW's "consolidated retained earnings" as of June 30,
1996, which were approximately $1.883 billion. Additional funds required to
purchase the securities of and/or finance construction costs of the facilities
owned by these entities have been obtained from
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lenders on a non-recourse basis; that is, from loans that are secured solely by
the assets and revenues of a particular Exempt Project or the Project Parent
that holds the ownership interest in such Exempt Project and for which the
lender does not have recourse to CSW or any associate company (other than
another Exempt Project or a Project Parent), except to the extent of any
presently effective Guarantees, which are included in CSW's "aggregate
investment" for purposes of Rule 53(a). CSW's present holdings of Exempt
Projects are as follows:
(a) SEEBOARD plc ("SEEBOARD"). On November 6,
1995, CSW, indirectly through CSW (UK) plc ("CSW UK"), announced its intention
to commence an offer in the United Kingdom to acquire all of the outstanding
share capital of SEEBOARD for an aggregate purchase price of approximately $2.52
billion, which was reduced by approximately $400 million to approximately $2.12
billion to reflect the distribution by SEEBOARD to its shareholders, including
CSW UK, of SEEBOARD's ownership interest in The National Grid Group plc, which
occurred effective December 11, 1995. On January 10, 1996, CSW UK announced that
all conditions necessary to consummate the offer for SEEBOARD had been satisfied
or waived, and that such offer had been declared wholly unconditional in all
respects. As of April 30, 1996, CSW UK had acquired shares representing 100% of
the outstanding share capital of SEEBOARD.
SEEBOARD, which is a FUCO, serves approximately
2 million customers in England. SEEBOARD's distribution
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territory covers approximately 3,000 square miles and extends from the outlying
areas of London to the English Channel. It was one of the 12 regional
electricity companies created in 1990 by the British government as part of the
privatization of the electric utility industry in England and Wales. SEEBOARD is
primarily a distribution and supply company, purchasing most of its electricity
requirements from third-party generators.
As of August 15, 1996, having acquired 100% of the outstanding
share capital of SEEBOARD, CSW had contributed approximately $829 million of the
purchase price of SEEBOARD, and had an "aggregate investment" (as defined under
Rule 53(a) of the Act) in SEEBOARD of approximately $829 million. CSW initially
obtained such funds through borrowings under an $850 million credit agreement
(the "CSW Credit Agreement"). On February 27, 1996, CSW sold 15,525,000 shares
of CSW common stock and received approximately $398 million in net proceeds,
which CSW used on February 28, 1996 to repay a portion of the indebtedness
incurred by CSW to finance the acquisition of SEEBOARD. On June 6, 1996, CSW
completed the sale of Transok, Inc. and on June 13, 1996, used a portion of the
net proceeds from such sale to repay in full the remaining indebtedness
outstanding under the CSW Credit Agreement. The remaining funds needed to
consummate the acquisition -- approximately $1.29 billion -- have been obtained
by CSW UK from capital contributions or loans by its sole shareholder, CSW
Investments, which arranged a credit facility (the "CSW Investments Credit
Facility") for that purpose. CSW
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Investments is a company organized under the laws of the United Kingdom and is
an indirect, wholly-owned subsidiary of CSWI. The CSW Investments Credit
Facility is neither guaranteed by, nor otherwise provides for recourse to, CSW,
CSWI or any of CSW's operating utility subsidiaries. As of August 15, 1996, CSW
Investments had borrowed approximately $1.27 billion under the CSW Investments
Credit Facility solely to fund CSW's investment in SEEBOARD. As of September 3,
1996, CSW UK transferred all of the share capital of SEEBOARD to SEEBOARD Group
plc, also a wholly-owned indirect subsidiary of CSW, to allow CSW to enjoy
certain tax benefits that had accrued to CSW UK.1 CSW Investments anticipates
that amounts borrowed under the CSW Investments Credit Facility, or amounts
borrowed in the capital markets in order to refinance indebtedness under the CSW
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1 CSW holds its interest in SEEBOARD indirectly through several Project Parents.
CSW owns 100% of the outstanding share capital of CSWI. CSWI owns 100% of the
outstanding share capital of each of CSW International Two, Inc., a Delaware
corporation ("CSWI 2"), and CSW International Three, Inc., a Delaware
corporation ("CSWI 3"). CSWI 2 owns 99.9% of the outstanding share capital of
CSW Investments, and CSWI 3 owns the remaining 0.1% of the outstanding share
capital of CSW Investments. CSW Investments owns 100% of the outstanding share
capital of each of CSW UK and SEEBOARD Group plc. Prior to September 3, 1996,
CSW UK owned all of the outstanding share capital of SEEBOARD.
As the result of a recent restructuring, SEEBOARD Group plc
owns 100% of the outstanding share capital of SEEBOARD. On September 3, 1996,
CSW Investments restructured its indirect ownership of SEEBOARD, such that 100%
of the outstanding share capital of SEEBOARD was transferred from CSW UK to
SEEBOARD Group plc. This transaction took CSW UK out of the chain of ownership
of SEEBOARD and made available certain tax attributes of CSW UK. CSW is seeking
a third party to acquire CSW UK, and such tax attributes will be sold to such
third party along with the outstanding share capital of CSW UK.
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Investments Credit Facility, will be repaid through dividends and other amounts
received, indirectly through SEEBOARD Group plc, from SEEBOARD. Giving effect to
the financing arrangements described above, CSW's "aggregate investment" (as
defined under Rule 53(a) of the Act) in SEEBOARD is expected to remain
approximately $829 million.
When CSW decided to acquire SEEBOARD, CSW anticipated that
SEEBOARD would make an immediate contribution to CSW's earnings per share.
Results for the first and second quarters of 1996 have been consistent with
CSW's expectations. CSW's earnings for the first quarter of 1996 were $51
million, or 26 cents per share, up from $39 million, or 20 cents per share, for
the first quarter of 1995, and CSW's earnings for the second quarter of 1996
were $128 million, or 61 cents per share, up from $103 million, or 54 cents per
share, for the second quarter of 1995. Along with higher kilowatt sales
resulting from increased usage and weather-related demand experienced by the
Operating Subsidiaries, the increase was due primarily to the addition of
earnings from SEEBOARD. In addition to providing CSW with a relatively stable
source of income in the future, the SEEBOARD acquisition is particularly
attractive to CSW for other reasons. First, CSW believes that it will add value
to its investment in SEEBOARD's shares, primarily through implementation of cost
savings measures. Under the British regulatory system, the benefits of these
cost savings will accrue primarily to CSW, as SEEBOARD's shareholder. Second,
CSW, through SEEBOARD, will
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compete as a power marketer in a market in which retail customers with a minimum
annual peak demand of 100 kilowatts or more can choose their electricity
supplier. The experience that CSW will gain in operating a utility in such a
competitive environment is expected to be highly valuable to CSW in the United
States. Finally, CSW's purchase of SEEBOARD is the first in a series of
anticipated events that will lead to a rationalization, possibly through further
consolidations, of the electricity sector in the United Kingdom, a process that
in itself could produce attractive returns for investors. By acquiring SEEBOARD,
CSW has achieved early entry into that market and therefore believes that it is
positioned to earn an attractive return on its investment. CSW projects returns
of ["P"] % on CSW's investment in SEEBOARD for the years 1996 through 1999.
These returns are commensurate with the risk associated with a distribution
system and demonstrate strong, solid earnings and steady cash flows. These
returns are expected to contribute to the financial strength of the CSW system
for many years to come.
SEEBOARD has been among the most profitable and successful of
the regional electricity companies of the United Kingdom. Among the 12 regional
electricity companies in England and Wales that resulted from the privatization
of the sector by the British Government in 1990, SEEBOARD has achieved amongst
the lowest overall customer tariffs and highest overall returns for its
shareholders. Since privatization, not only has SEEBOARD provided the greatest
return to shareholders of all the 12
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regional electricity companies in the U.K., but at the time of its acquisition
by CSW, SEEBOARD had outperformed all the other privatized water, gas and
telecommunication utilities. It also holds the highest ratings for customer
service, as measured by the U.K. Office of Electricity Regulation, and has a
highly regarded management team which, since privatization, has led SEEBOARD to
five years of steady growth in earnings and dividends. By these measures, with
SEEBOARD, CSW believes it acquired the highest rated and best performing
regional electricity company in the United Kingdom.
(b) CSW, indirectly through a wholly-owned
Mexican subsidiary of CSWI, and Alpek, S.A. de C.V., a company organized under
the laws of the United Mexican States ("Alpek"), are developing jointly a
project near Altamira, in the state of Tamaulipas, Mexico (the "Altamira
Project"), which will be an Exempt Project. Alpek is a subsidiary of Grupo Alfa,
a large Mexican company with business interests in petrochemicals, food, steel,
telecommunications and other areas. The project is a nominal 105 megawatt
gas-fired cogeneration facility that will serve an expanding industrial park.
The project will be expandable to 400 megawatts. Most of the customers for
electricity and steam are either Alpek affiliates or Alpek joint venture
partners that are located either in the industrial park or some distance away in
Monterrey, Mexico. Long-term contracts are presently in place for all the
necessary steam production and for approximately 20% of the electricity
production, with another
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60% of the electricity production having been committed to be purchased under
letters of intent. In each case, such purchases will be made, for the most part,
in U.S. dollars or dollar- indexed pesos. Contract negotiations have also been
completed with the Mexican gas entity, Pemex Gas y Petroquimica Basica, for the
long-term supply of natural gas to the project and with the electric company,
Comision Federal de Electricidad, for a backup supply and the transportation of
electricity. The Altamira Project is expected to begin construction during the
third quarter of 1996 and completion is anticipated to be in early 1998. CSW is
expected to provide financing for the construction of the Altamira Project until
third party financing is secured. Alpek has guaranteed to CSW the repayment of
50% of such financing provided by CSW. CSW's expenditures in the Altamira
Project as of August 15, 1996 were approximately $2.9 million. However, assuming
for purposes of this Application-Declaration that the agreement by Alpek to
guarantee 50% of the financing to be supplied by CSW until third party financing
is secured does not reduce CSW's "aggregate investment", then during the
construction period, CSW's "aggregate investment" in the Altamira Project is
ultimately expected to be approximately $85 million.
(c) Energy, with its partners, Northwest Power
Enterprises, Inc., and KLT Power Generation, Inc., are developing jointly
projects in the Pacific Northwest of the United States. In connection with such
development activities, an EWG application has been filed with and approved by
the Federal
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Energy Regulatory Commission ("FERC") for the Northwest Regional
Power Facility.
The Northwest Regional Power Facility is an 838 megawatt
gas-fired EWG project located in Creston, Washington. The project is in the last
stage of approval from the Washington State Energy Facility Site Evaluation
Council to obtain a permit to construct. Power sales activity is expected to
escalate upon approval.
Energy is also investigating two additional projects, which
may qualify as EWGs, for development in the Pacific Northwest. The Everett Delta
Project is a 238 megawatt project located in Everett, Washington designed to
provide electric power to the Snohomish Public Utility District and others while
providing thermal energy to a paper recycling facility. The Starbuck Project is
a 244 megawatt peaking-type combustion turbine project to be located near
Starbuck, Washington. CSW's "aggregate investment" (as defined under Rule 53(a)
of the Act) as of August 15, 1996 with respect to the Northwest Regional Power
Facility was approximately $5 million. CSW's anticipated "aggregate investment"
in the projects presently under consideration by Energy and its joint venture
partners in the Pacific Northwest is expected to be approximately $175 million
with the placement of equity expected to occur between 1997 and 2000.
(d) CSWI, indirectly through a Project Parent,
has entered into a letter of intent with a Brazilian company to
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acquire, directly or indirectly, an ownership interest in Exempt Projects
located in Brazil. Assuming the transactions in such letter of intent are
consummated, CSW's "aggregate investment" (as defined under Rule 53(a) of the
Act) in such Exempt Projects is expected to be approximately $100 million. CSW's
expenditures on these projects as of August 15, 1996 were approximately $1.8
million.
(e) On May 17, 1995, Energy, through its wholly-
owned subsidiary Newgulf Power Venture, Inc., a Delaware corporation ("Newgulf
Power"), purchased an 85 megawatt electric generating facility located in
Wharton County, Texas (the "Newgulf Project"). The electric generating facility
was originally operated by an unaffiliated third party owner as a topping-cycle
cogeneration facility that qualified as a QF and provided steam to a sulfur mine
operated by the former owner. The sulfur mine has been closed and no longer
requires a steam supply from the facility. Energy modified the generating assets
to operate in a combined cycle mode and the Newgulf Project was deemed ready for
commercial operation on September 1, 1996. Newgulf Power filed and the FERC
approved an application for determination of its status as an EWG in connection
with its ownership and operation of the Newgulf Project. Energy anticipates
operating the Newgulf Project during the remaining warm-weather months of 1996.
Energy's "aggregate investment" (as defined under Rule 53(a) of the Act) in the
Newgulf Project as of August 15, 1996 was approximately $15 million. Energy
expects
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its ultimate "aggregate investment" in the Newgulf Project to be approximately
$17 million by the end of the third quarter of 1996.
(f) CSW Power Marketing, Inc., a Delaware
corporation and a wholly-owned subsidiary of CSW ("Power Marketing"), filed and
the FERC approved an application for a determination of its status as an EWG.
Power Marketing will conduct business activities such as power marketing, power
brokering and fuel delivery and brokering activities. CSW's "aggregate
investment" (as defined under Rule 53(a) of the Act) in Power Marketing as of
August 15, 1996 was less than $200,000. CSW's "aggregate investment" (as defined
under Rule 53(a) of the Act) in Power Marketing is expected to be approximately
$25 million.
(g) Anticipated Investments in Exempt Projects.
As of August 15, 1996, CSW had an "aggregate investment" (as defined under Rule
53(a) of the Act) in Exempt Projects of approximately $852.1 million. Giving
effect to the additional expected investments and the assumptions being made for
such investments described above, CSW's "aggregate investment" (as defined under
Rule 53(a) of the Act) in Exempt Projects is expected to increase to at least
$1.231 billion by the year 2001, summarized as follows:
Approximate Approximate
8/15/96 Anticipated
Project Type Investment Investment
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SEEBOARD FUCO $829 million $829 million
Alpek Project FUCO $2.9 million $85 million
Northwest Regional
Power Facility EWG $5 million $175 million
Brazil Project FUCO $0 million $100 million
Newgulf Project EWG $15 million $17 million
Power Marketing EWG $.2 million $25 million
Total $852.1 million $1.231 billion
(3) Risk Profile of CSW's Investments in Exempt Projects.
Investments in independent power production facilities and foreign utility
systems involve a variety of risks that are not necessarily present in the
traditional, regulated, electric utility industry. The Applicants have
established comprehensive procedures to identify and address (i.e., limit and/or
mitigate) these risks.
(a) The Project Review Process. Every potential
project investment opportunity developed by Energy or CSWI is subjected to a
series of formal reviews to ensure the project's soundness. The process begins
with a consideration of Energy's and CSWI's strategic plans which survey
independent power opportunities domestically and throughout the world and
provides a variety of tools to assist in the evaluation of risks. These plans,
which are updated periodically, lead to the identification of projects and
countries where Energy or CSWI intends to pursue project development efforts.
The plans also lead to the development of budgeted levels of expenditure on
foreign development activities. Before CSW makes any investment in a foreign
country, an analysis of that opportunity, including the
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specific country risk, is presented first to the executive management group at
Energy or CSWI, as the case may be, then to the board of directors of Energy or
CSWI, as the case may be, and finally to CSW's board of directors. The analysis
includes a review of the political and economic stability of the particular
country, the government's commitment to private power, the legal and regulatory
framework for private investment in electricity facilities and whether local
business practices will support long-term investment of private capital. The
board of directors of both CSW and either Energy or CSWI (as the case may be)
must approve investments in any foreign country. This careful planning and
budgeting process helps to mitigate an important risk of the independent power
business: the expenditure of development funds without a realistic expectation
of success in terms of both making investments in projects and in obtaining
appropriate levels of non-recourse financing on commercially reasonable terms.
Once development of a project is undertaken, milestones are
established to ensure that continuing expenditures on development are producing
acceptable results. In addition, project teams are required to identify the
major technical, financial, commercial and legal risks associated with their
particular project and whether and how those risks have been mitigated. The
members of the project team are responsible for the due diligence investigation
of those risks that have been identified and must present their findings to an
officer of
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Energy or CSWI, as the case may be, with functional oversight over the relevant
risk factor subject matter.
Finally, every project is subjected to increasing levels of
management review. Depending on the amount of CSW's anticipated financial
exposure to a particular project, the proposed investment must be approved
successively by the entire executive management group of Energy or CSWI (as the
case may be), the board of directors of Energy or CSWI (as the case may be), and
finally, by the board of directors of CSW.
Significantly, the final project review process is to a large
extent replicated by the lenders who agree to provide construction or permanent
debt financing on a non-recourse basis, since repayment of that debt will depend
solely upon the success of the project. Project debt maturities are often
long-term (e.g., 15 or more years), meaning that the lenders' exposure to the
risks of a project extends for many years after closing or completion of
construction. Typically, project debt documents require the establishment of
plant overhaul, debt service and other funded reserves, all of which are
designed to preserve the asset and protect the financial performance of the
project against interruptions in revenues and other contingencies. Energy's and
CSWI's success in arranging appropriate levels of non-recourse financing for its
QF and Exempt Project investments in effect serves as a validation of the
project review process described above.
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(b) Risk Mitigation of Independent Power
Projects. Each of Energy and CSWI carefully evaluates the potential risks of an
independent power project or foreign utility system before CSW's funds are
committed.
(i) Operating risks. Each of Energy and
CSWI has focused its project development efforts on projects that use fuel
technologies with which the CSW System has existing competencies in coal, gas or
oil generation. Due diligence of operating assumptions is carried out by
Energy's and CSWI's engineers with experience in the technology being evaluated
and by outside technical consultants. The risk of changes in the price of fuel
is typically passed through to the purchaser of electricity under the negotiated
terms of a long-term power sales agreement. Other operating risks can be covered
by equipment warranties and by casualty, business interruption and other forms
of insurance. Further, in addition to such operating risks subject to mitigation
prior to an investment, when Energy, CSWI or one of its affiliates is
responsible for managing the day-to-day operations of Exempt Projects in which
it holds an ownership interest, its ability to address and correct problems that
may arise during operation is far greater than would be the case if operating
control were in the hands of a third party.
(ii) Construction risks. Construction risks
are typically addressed under fixed-price contracts with milestones and
performance guarantees (e.g., guaranteed heat rates, availability factors),
backed by appropriate levels of
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liquidated damages. The credit-worthiness and "track record" of the construction
contractor is a very important consideration in this regard. In those cases
where Energy or CSWI, as the case may be, or its respective subsidiary serves as
its own general construction contractor, it looks to pre-negotiated cost and
damage provisions from sub-contractors, including, without limitation, equipment
vendors, to protect against performance shortfalls, cost overruns and schedule
delays.
(iii) Commercial risks. Many independent
power projects rely on the "off-take" commitment of a single power purchaser,
usually the local utility company, to eliminate all or most of the risk of
variation in revenues. In such cases, Energy or CSWI, as the case may be, makes
an assessment of the credit-worthiness of the power purchaser over the life of
the project and/or seeks to have a contingency plan in the event of off-take
defaults.
In competitive power markets outside the United States,
long-term off-take contracts are not always available and electricity prices may
be determined by supply and demand. Energy and CSWI conduct extensive
investigations of the electricity markets in these environments to ensure the
viability of long-term demand. Further, Energy and CSWI seek projects that will
be capable of producing electricity at or below long-run marginal costs in the
region, thus providing that the project will be a competitive supplier.
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(iv) Financial risks. Energy and CSWI
address the financial risks of their respective projects in a variety of ways.
First and foremost, Energy and CSWI seek to secure the maximum amount of
permanent debt financing for such projects that is available at reasonable cost
and that is, by its express terms, non-recourse to CSW or any associate company
(other than other Exempt Projects or Project Parents). This means that the
non-recourse debt of each project or foreign utility system is secured solely by
its assets and revenues, and creditors have no ability to seek repayment upon
default from CSW. The amount of such non-recourse debt applicable to Exempt
Projects owned directly or indirectly by CSW as of August 15, 1996, was
approximately $1.27 billion. This method of financing ensures that CSW's
exposure to any independent power project is limited to the amount of its equity
commitment and that CSW's domestic public utility subsidiaries (the "Operating
Companies") and their customers bear no risk of a project's failure or financial
distress. From time to time, CSW may agree to provide Guarantees in connection
with Exempt Project financings, but these financial supports are carefully
monitored and treated as a part of CSW's equity commitment for regulatory
reporting and internal control purposes. To date, CSW has never been called upon
to fund its obligation under any such Guarantee issued with respect to an
investment in an Exempt Project.
In addition to the non-recourse nature of the great majority
of project debt financing, project debt is carefully
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structured to meet, or match, the characteristics of the particular project. For
example, when the value of a project depends on a long-term, fixed-price,
off-take contract (i.e., a power purchase contract), the project debt is
typically designed to be of a similar term, with scheduled debt payments usually
covered by fixed charges (usually the capacity payment component in the
contract). On the other hand, where there is no long-term, fixed source of
revenue, the percentage of non-recourse debt financing is typically smaller, so
that financial risk is not increased by excessive debt levels. Thus, while
Energy's and CSWI's projects with long-term off-take contracts have debt
capitalization levels in the 70% to 80% range, Energy's and CSWI's other
projects are anticipated to be leveraged at levels similar to those of United
States regulated utilities, in the 45% to 55% range.
Another financing risk is the potential variability of
interest rates. This risk is addressed, in part, by borrowing, to the extent
possible, on a long-term, fixed-rate basis. After contractual terms for a
project have been agreed but before financial closing, Energy and CSWI are also
exposed to interest rate variability. This risk can be (and will be, upon
approval of the finance department of Energy or CSWI, as the case may be, as
described in the next sentence) mitigated by purchasing financial instruments
which provide hedges against interest rate volatility. The finance department of
Energy or CSWI, as the case may be, is responsible for reviewing, analyzing and
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<PAGE>
comparing the costs of such financial instruments and the perceived interest
rate risk, for approving the purchase of such financial instruments when the
cost of the perceived risk exceeds the costs associated with the financial
instrument and for monitoring the use of these instruments to ensure they are
used properly.
(v) Foreign currency exchange risk. There
are several ways in which Energy and CSWI have addressed the foreign currency
exchange risk element, depending on the status of the host country. In countries
which do not have a history of stability in the management of their exchange
policy, part or all of the revenue from a project is payable in or indexed to
hard currency (almost invariably United States dollars), as is presently
contemplated to be the case with the Altamira Project. In addition, back-up
guarantees or other undertakings by the central government may be available to
ensure that the United States dollar payments due under an off-take contract are
actually made available by the central bank or ministry of finance.
In some countries, the source of revenues can be tied in other
ways to the United States dollar. For example, the capacity charge element of
revenues derived by an Exempt Project may be tied to the cost of new capacity
measured in United States dollars. In addition, an Exempt Project's revenue may
be expressed in a unit of account (i.e., a national monetary unit)
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which adjusts for any inflation of the local currency, thereby protecting the
project against depreciation of the currency.
In other cases (SEEBOARD, for example), the non-recourse
project debt is borrowed in the same currency as the project's revenues, thereby
ensuring a match between debt service obligations and operating income. In
addition, in more developed countries, long-term currency swaps are available to
provide further hedging for the equity component of the investment.
(vi) Legal risks. Legal risks are addressed
by careful review of any investment by legal counsel, including local and
international counsel where foreign projects are concerned. Such legal reviews
address regulatory and permitting risks, environmental risks, the adequacy and
enforceability of guarantees or other contractual undertakings of third parties,
the status of title to utility property and the obligations inherent in the
financing arrangements.
In addition to the specific risks mentioned above, investment
outside the United States can entail country-specific risks related to political
or economic performance. As indicated above, Energy and CSWI evaluate country
risk at the outset of any project development effort and attempt to mitigate
this risk through a number of measures. Most important, the country review
process described above ensures that the political and economic stability of any
country has been reviewed at several decisional levels up to and including CSW's
board of directors before any investment occurs. In addition to a general
review, the country
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analysis focuses specifically on the country's electric sector and on the
government's support for private ownership in that sector.
Also at the outset of development work in a foreign country,
Energy and CSWI seek local partners who are experienced in doing business in the
host country. Local partners are a very important element in mitigating the risk
of future expropriation or unfair regulatory treatment. An additional mitigating
factor is the participation of official or multilateral agencies in a project.
When funds for the project are supplied by government- sponsored export credit
agencies or other governments or institutions, such as the World Bank through
its International Finance Corporation affiliate, the host country has strong
incentives not to take actions which would harm a project's viability. In
addition, political risk can often be addressed through political risk insurance
obtained from the Overseas Private Investment Corporation, a United States
agency, or the Multilateral Investment Guaranty Agency, a World Bank affiliate,
or in the commercial insurance market. Political risk insurance is available to
insure the project debt or the return of an investor's equity. One can also
insure against outright expropriation, acts of civil violence or even "creeping"
nationalization brought about by punitive regulation. CSW analyzes the perceived
risk and costs associated therewith and compares that with the cost of obtaining
such insurance and, when
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such costs associated with such risks exceed the costs of insurance coverage
therefor, CSW plans to procure such insurance.
(vii) Portfolio Diversification. Apart from
the detailed and comprehensive approach to the specific risks described above,
CSW's fundamental view is that the best long-term approach to managing the risk
of investing in the independent power business is through diversifying both the
type and the location of projects. In this regard, CSW recognizes that the risk
inherent in any investment cannot be eliminated entirely, even by the most
careful approach to project development. Consequently, CSW is committed to
diversifying its investments across countries and regions of the world. CSW's
strategy has been focused on investment opportunities in North America (outside
the core regulated business of CSW), Europe, Latin America, Australia and Asia.
Substantial investments have been made in the first two regions, and extensive
development efforts are underway in Latin America and, to a lesser degree, in
Asia. By the authority of the Commission granted pursuant to the effectiveness
of this Application-Declaration, CSW plans to make additional investments in
Exempt Projects to diversify its portfolio of Exempt Projects by country,
project type and stage of development.
Regional diversification is important since economic and
political instability, when they have occurred historically, have tended to
involve multiple countries in a region. Accordingly, CSW's board of directors
may set limits on
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investment in specific countries which vary according to an
assessment of the country's stability.
Another element of CSW's diversification policy is to achieve
a balance between so-called "greenfield" projects and acquisitions of existing
facilities and power systems. Greenfield projects are those that involve
completely new development and construction of electric facilities, principally
generating stations. Greenfield projects involve a higher degree of risk since
they entail a lengthy process of development and construction. Funds are
expended during the early years of such projects; return on investment is not
earned until the project is in operation. Nevertheless, while these projects
have higher levels of risk and deferred returns, they are important to CSW
because they generally produce higher rates of return on investment than
investments in existing assets and because they lay the foundation for continued
earnings growth for CSW after the turn of the century.
To balance these greenfield project development efforts, CSW's
development efforts target assets to be purchased that are already in operation,
either from existing private owners or through privatizations. These
acquisitions reduce the risk of CSW's overall business by producing near-term
earnings without significant development or construction risk.
The result of this balanced portfolio strategy is that CSW is
not dependent on any single country, regulatory environment or type of asset for
its earnings from independent
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power projects and foreign utility investments. In addition, while CSW has
successfully developed significant investments in projects which are expected to
produce long-term results, it has also ensured that its portfolio of projects
will add cash flow and earnings for its shareholders in the immediate future,
thereby supporting share value and dividend growth. CSW anticipates that its
project portfolio will also provide a positive contribution to earnings after
the turn of the century.
(c) Application of Review Process and Risk Factors to Specific
Investment Decisions: CSW's acquisition activity in the United Kingdom provides
an illustration of the review process and risk analysis outlined above.
Review process: The SEEBOARD acquisition project was developed
and executed by a CSW team with past experience in U.K. electric utility
acquisition activity. In October 1995, before focusing on SEEBOARD, CSW formed a
bidding partnership with Houston Industries, Inc. ("Houston"), under the name
Texas Energy Partners, and made an acquisition offer for another U.K. regional
electricity company, Norweb plc. Although the bid was favorably received by
Norweb management, a British water utility made a higher offer. After careful
financial analysis, CSW and Houston increased their bid, but were again outbid
by the British water company. Because a higher bid posed excessive financial
risks and would no longer be beneficial to CSW's shareholders, CSW made a
decision to withdraw.
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<PAGE>
Shortly thereafter, CSW met with SEEBOARD's management. After
receiving favorable information regarding SEEBOARD's plans, financial
characteristics, growth opportunities and management group, CSW made a
successful bid.
Risk factors: In the SEEBOARD acquisition, construction risk
was not a significant factor, since CSW was acquiring a company with existing
facilities. Financial risks were addressed through a financing structure relying
in significant part on non-recourse financing which limits CSW's exposure.
In assessing the commercial and operating risks of acquiring
SEEBOARD, CSW took comfort from a number of factors, including SEEBOARD's
extremely successful operating history since privatization, its five-year record
of earnings and its dividend growth. In addition, CSW considered the high
quality of SEEBOARD's management and took steps to retain the services of
existing management following the acquisition.
To limit the foreign currency risk of the acquisition, CSW
took a number of steps. The bulk of the financing for the acquisition borrowed
under the CSW Investments Credit Facility is denominated in sterling and is
expected to be repaid ultimately out of SEEBOARD's earnings, which are also in
sterling. The remainder of the acquisition financing was in the form of
dollar-denominated borrowings by CSW under the CSW Credit Agreement. These
borrowings have since been repaid in full out of the dollar-denominated proceeds
of an offering of CSW common stock
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<PAGE>
and the sale of Transok, Inc. By matching the currency of the debt and the
repayment source, these arrangements significantly reduce the exchange rate and
currency risks of the acquisition. Finally, the British pound is freely
convertible and actively traded, and a variety of financial instruments are
available if needed for further management of the currency and exchange rate
risk as required.
Given the advanced state of the British legal and political
system and the developed state of the British economy, the SEEBOARD acquisition
did not present significant legal, political, country or economic risks. To
reduce any residual legal risk of the acquisition, and to ensure compliance with
local law, CSW engaged U.K. counsel to assist in the acquisition.
Finally, the SEEBOARD acquisition added to the diversification
of CSW's investment activity, which theretofore had been concentrated in Asia
and Latin and South America.
(4) Potential Investments in Additional Exempt Projects.
Energy and CSWI are presently investigating, alone and in conjunction with
others, investment opportunities in several additional domestic and foreign
power projects and existing foreign utility systems. Most of these ventures are
expected to qualify as either EWGs or FUCOs. In particular, several foreign
countries, such as Australia and Brazil, are now privatizing state-owned utility
systems. Other countries, such as Korea, Taiwan and Thailand, are promoting
private investment to construct, own and operate generating plants.
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CSW intends to make substantial additional investments in
Exempt Projects, primarily for the following reasons:
Over the past ten (10) years, the Operating Companies have
funded substantially all of their construction expenditures from internal
sources of cash and from sales of senior securities and other borrowings.
Present projections indicate that the Operating Companies will continue to fund
substantially all of their construction expenditures from internal sources of
cash and from sales of senior securities and other borrowings for the next ten
(10) years and that CSW will not have to make any equity investment in any
Operating Company for at least the next ten (10) years. Thus, acquisitions of
Exempt Projects present CSW with the opportunity to continue to grow through
reinvestment of retained earnings in an industry sector that CSW has decades of
experience in, while at the same time diversifying overall asset risk. In the
event that one or more of the Operating Companies requires additional equity
capital after such ten (10) year period, CSW believes that its investments in
Exempt Projects will give the CSW system a larger and more diversified base for
raising equity capital, because CSW's intended portfolio will be diversified by
region and operating assets and have an increased potential for revenue growth
and be less susceptible to adverse effects from any one particular market. In
addition, as set forth below, CSW believes that its investments in Exempt
Projects will help the CSW system remain competitive as competition increases in
the U.S. electric utility industry. For these
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reasons, CSW believes that its investments in Exempt Projects will not have a
negative effect on its ability to make any additional equity investments in the
Operating Companies that may be required in the future.
Second, CSW, directly or through Energy or CSWI, has purposely
pursued investments in utility systems in geographical regions, such as England,
Australia and South America, which have moved much further than the United
States towards deregulation and full competition in both wholesale and retail
electricity markets. CSW believes that the creation and maintenance of value for
its shareholders will depend critically on its ability to operate its core
business in the United States successfully as that business becomes subject to
increasing competition. CSW's experience in markets that are already largely
deregulated will be critical to the long-term success of its core business.
Moreover, the lessons learned from these markets provide CSW with insights about
the market structures that produce efficient and equitable results for consumers
and shareholders. These insights will allow CSW to play a role in shaping the
evolution of the electric sector of the United States.
(5) Proposed Increase in Financing of Exempt Projects. For the
reasons stated above, CSW, Energy and CSWI hereby request that the Commission
exempt CSW, Energy and CSWI from the requirements of Rule 53(a)(1) under the Act
such that CSW, Energy and CSWI may use the net proceeds from the issuance of
recourse debt and equity securities and issue Guarantees, each in
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accordance with and upon the terms of the Financing Orders, in an aggregate
amount at any time outstanding which, when added to CSW's direct and indirect
"aggregate investment" in all Exempt Projects, would not at any time exceed
CSW's "consolidated retained earnings." Based on CSW's "aggregate investment" in
all Exempt Projects (approximately $852.1 million as of August 15, 1996) and
"consolidated retained earnings" as of June 30, 1996 (approximately $1.883
billion), such limitation would allow financing of additional investments in
Exempt Projects of approximately $1.031 billion.
As described in Subsection (2) above, CSW's "aggregate
investment" in Exempt Projects is expected to increase to at least $1.231
billion by the year 2001, or approximately 65% of CSW's consolidated retained
earnings as of June 30, 1996, without investment in any additional new Exempt
Projects as described in Subsection (4) above. The additional authority
requested herein will be sufficient to enable CSW to make investments in all
Exempt Projects it is presently developing, as well as additional investment
opportunities in Exempt Projects that are under investigation at present or that
arise in the future.
Item 2. Fees, Commissions and Expenses.
The estimate of the approximate amount of fees and
expenses payable in connection with this Application-Declaration
is as follows:
Holding Company Act filing fee..........$ 2,000.00*
Counsel fees
Milbank, Tweed, Hadley & McCloy.... 30,000.00
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Miscellaneous and incidental expenses
including travel, telephone,
postage and copying................ 5,000.00
Total.........................$22,000.00
--------------------
* Actual Amount.
Item 3. Applicable Statutory Provisions.
The proposal herein is subject to Sections 6(a), 7,
12(b), 32 and 33 of the Act and Rules 45, 53 and 54 thereunder. Rule 53 provides
that, if each of the conditions of paragraph (a) thereof is met, and none of the
conditions of paragraph (b) thereof is applicable, then the Commission may not
make certain adverse findings under Sections 7 and 12 of the Act in determining
whether to approve a proposal by a registered holding company to issue
securities in order to finance an investment in any EWG or to guaranty the
securities of any EWG. Giving effect to the proposals contained herein, CSW will
satisfy all of the conditions of Rule 53(a) except for clause (1) thereof, since
CSW is proposing herein that CSW's "aggregate investment" may exceed 50% of
CSW's "consolidated retained earnings." None of the conditions specified in Rule
53(b) is or will be applicable.
Rule 53(c) states that, in connection with a proposal to issue
and sell securities to finance an investment in any EWG, or to guarantee the
securities of any EWG, a registered holding company that is unable to satisfy
the requirements of paragraph (a) or (b) of Rule 53 must "affirmatively
demonstrate" that such proposal:
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(a) will not have a substantial adverse impact upon the
financial integrity of the registered holding company system;
and (b) will not have an adverse impact on any utility
subsidiary of the registered holding company, or its
customers, or on the ability of State commissions to protect
such subsidiary or customers. The Commission has performed an
analysis of the
requirements of Rule 53(c) with respect to an application- declaration filed by
The Southern Company ("Southern") in File No. 70-8725. In such
application-declaration, Southern sought almost identical authority to the
authority sought by the Applicants hereunder, namely relief from the safe-harbor
requirements of Rule 53(a)(1) to allow investments in Exempt Projects in an
amount not to exceed its "consolidated retained earnings." The Commission
granted such authority by issuing its order making such application-declaration
effective on April 1, 1996 (HCAR No. 26501) (the "Southern Order"). In that
order, the Commission found that Southern had demonstrated successfully, through
the use of certain financial indicators, that investing in Exempt Projects in an
amount not to exceed its "consolidated retained earnings" would not have a
substantial adverse impact on the financial integrity of its system. A
comparison with CSW of those financial indicators used by Southern, considering
the size and market position of CSW relative to Southern, demonstrates that the
financial integrity of the CSW system is substantially
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similar to the financial integrity of the Southern system. As discussed below in
subsection (1)(g) of this Item 3, any overall differences are not significant
especially when compared to other key financial indicators in which CSW
outperforms Southern. Thus, this Application-Declaration, which seeks
substantially the same authority (for CSW to invest in Exempt Projects in an
aggregate amount not to exceed its "consolidated retained earnings"), is
consistent with the rational of, and the conclusions reached by the Commission
in, the Southern Order.
CSW addresses each of the requirements of Rule 53(c) as
follows:
(1) The use of proceeds from the issuance of debt and equity
securities of CSW to make investments in EWGs (as well as in FUCOs), and the
issuance of, or provision for, Guarantees in connection therewith by CSW, in
amounts of up to CSW's "consolidated retained earnings" will not have a
"substantial adverse impact" on the financial integrity of the CSW System.
The lack of any "substantial adverse impact" on CSW's
financial integrity as a result of increased levels of investments in Exempt
Projects can be demonstrated in several ways, including by analyses of CSW's
success to date in its investment in SEEBOARD and historic trends in CSW's
consolidated capitalization ratios and retained earnings, the market view of
CSW's securities and CSW's proven success in obtaining appropriate levels of
non-recourse debt financing and third-party equity for its investments in QFs
and Exempt Projects.
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Consideration of these and other relevant factors supports the conclusion that
the issuance of securities and Guarantees by CSW to finance investments in
Exempt Projects exceeding the 50% consolidated retained earnings limitation in
Rule 53(a)(1) will not have any "substantial adverse impact" on the financial
integrity of the CSW System.
Substantially all of CSW's "aggregate investment" (as defined
under Rule 53(a) of the Act) to date in Exempt Projects is in SEEBOARD. As noted
above, SEEBOARD has achieved amongst the lowest overall customer tariffs and
highest overall returns for its shareholders among the 12 regional electricity
companies of the United Kingdom. SEEBOARD holds the highest ratings for customer
service, has a highly regarded management team, serves an affluent suburban and
rural area and is a low cost-of-service provider. SEEBOARD had net earnings of
approximately $118 million for the year ended December 31, 1995, and net
earnings for the first six months of 1996 were $51 million, an increase of $12
million over results for the same period in 1995. Thus, CSW's investment in
SEEBOARD has improved CSW's overall financial position and demonstrates CSW's
ability to prudently make these types of investments.
CSW has a solid, competitive core electric utility business,
strong management, a growing international presence and diversified businesses
that provide real and immediate benefits to CSW's core utility business, as well
as enhance the potential for substantial long-term earnings growth. CSW's
consolidated
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retained earnings have grown on average approximately 3.8% per year over each of
the previous 5 years (which average would have been approximately 4.5% per year
had CSW not taken a pretax charge of approximately $100 million in 1993 to
undertake a corporate restructuring), and CSW expects the SEEBOARD acquisition
to contribute to additional increases in its earnings in 1996. In January 1996,
CSW declared its 45th consecutive annual dividend increase making it one of only
a handful of companies on the New York Stock Exchange to have such an
uninterrupted history of dividend increases. CSW's consolidated capitalization
and interest coverage ratios are within industry ranges for Single-A rated
companies. In February 1996, CSW successfully issued approximately $400 million
of new common stock, the proceeds of which were used to partially pay down its
bridge debt incurred to fund its equity investment in SEEBOARD. CSW paid down
the remaining portion of that debt in June 1996 with a portion of the proceeds
from the sale of its intrastate gas pipeline subsidiary, Transok, Inc. Finally,
the market's assessment of CSW's prospect for future growth and earnings
compares favorably to other electric utility companies, and its dividend policy
is aligned with the electric industry as a whole. CSW has a strong "customers
first" focus, relatively low rates in the region where its system operates,
experienced management and strong growth prospects. Due in part to its SEEBOARD
investment, CSW expects that its payout ratio will compare favorably to the rest
of the electric utility industry in the future.
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(a) Aggregate investments in Exempt Projects in
amounts up to 100% of CSW's "consolidated retained earnings," which were $1.883
billion as of June 30, 1996, would still represent a relatively small commitment
of capital for a company the size of CSW, based on various key financial ratios
at June 30, 1996. For example, investments in this amount would be equal to only
23% of CSW's total capitalization ($8.2 billion), 23% of consolidated net
utility plant ($8.3 billion), 14% of total consolidated assets ($13.3 billion),
and 31% of the market value of CSW's outstanding common stock ($6.1 billion).
Such percentages are not significantly higher than those of Southern as of
December 31, 1995 (16.3%, 15.4%, 11.0% and 20.4%, respectively) described by the
Commission in the Southern Order as "a relatively small commitment of capital.
As of June 30, 1996, Southern's percentages had increased to 20%, 16%, 12%, and
22%, respectively. GPU, Inc., a company which is much more like CSW than
Southern in terms of total capitalization, consolidated net utility plant, and
total consolidated assets and which is requesting similar relief to that sought
by CSW pursuant to this Application-Declaration, had percentages of 30%, 32%,
18%, and 46%, respectively, as of June 30, 1996.
CSW's consolidated capitalization ratio as of September 30,
1996 reflected components of 43.5% equity and 56.5% debt (including $1.2 billion
of short-term debt and $1.1 billion of non-recourse debt related to Exempt
Projects which are consolidated for financial reporting purposes). This ratio
falls
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just outside the industry guidelines that rating agencies set for "A" rated
companies.
(b) CSW's consolidated retained earnings have
grown on average approximately 3.8% per year over each of the previous 5 years.
Consolidated retained earnings increased $71 million from 1993 to 1994, a 4.1%
increase; and by $69 million for the year ended December 31, 1995, a 3.8%
increase. In 1993, CSW recorded a one-time pretax charge of approximately $100
million in connection with an early retirement program and corporate
restructuring which has led to the functional unbundling of the generation,
transmission, and distribution services provided by its entire system, thus
allowing CSW to position itself for future competitive pressures on the electric
utility industry. This charge significantly reduced the retained earnings
increase from 1992 to 1993. As shown below, had CSW not undertaken the
restructuring and not incurred the related charge against retained earnings, the
average retained earnings growth per year over each of the five previous years
would have been approximately 4.5% rather than 3.8%.
Annual Retained Without
Year Earnings Increase % Incr. Pretax Charge % Incr.
1991 $89 million 5.7 $89 million 5.7
1992 $92 million 5.5 $92 million 5.5
1993 $2 million 0.1 $67 million 3.8
1994 $71 million 4.1 $71 million 3.9
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1995 $69 million 3.8 $69 million 3.7
5-yr. average increase 3.8 4.5
per year
(c) There is every indication that CSW's ability
to raise common equity has been positively affected by investments in Exempt
Projects, as evidenced by CSW's continued success in raising funds in the
capital markets. In February, CSW successfully issued $400 million of its common
stock in a public offering. In addition, CSW has ongoing public offerings of
common stock through its PowerShare program which commenced in February 1994,
and on February 27, 1996 sold 15,525,000 shares of common stock of CSW at a
price of $26.385 per share, the proceeds of which were used to reduce the bridge
debt incurred by CSW to fund its equity investment in SEEBOARD. Net proceeds
from the sale of CSW common stock through its PowerShare program for 1994 and
1995 (average $23.23 and $25.27, respectively, per share) compare favorably to
the then per share net book values for CSW's common stock ($16.01 and $16.48,
respectively), resulting in market-to-book ratios of 145% and 154%,
respectively. The market's assessment of CSW's future growth and earnings also
compared favorably to other electric utility issuers in the 1992 to 1995 time
frame. This can be shown by comparison of price-earnings and market-to-book
ratios, both of which were, on average, better than the electric utility
industry average for that period. These measures indicate investor confidence in
CSW's ability to deliver shareholder value.
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1992 1993 1994 1995 4-yr. Average
P/E Ratio:
CSW 14.3 18.6 10.9 13.3 14.3
Electric Industry* 14.8 15.1 11.8 12 13.4
Market-to-Book
Ratio:
CSW 187% 195% 141% 169% 173%
Electric Industry* 160% 161% 133% 137% 148%
*(Source: Historical - Compustat Electric Utilities Database;
Current - Utility Focus, Regulatory Research Associates, Inc.,
August 1995)
(d) In recent years, CSW has been aligned with
the industry as a whole in its dividend payout policy.2 This can be shown by
CSW's dividend payout ratio (percentage of earnings paid out in dividends),
which has consistently approximated the electric utility industry average. The
implication of a relatively conservative payout policy is that CSW's earnings
are more than adequate to cover current dividend levels and to support dividend
levels necessary to attract common stock investors, while continuing to
strengthen the equity base through retained earnings growth.
1992 1993 1994 1995
- --------
2 The exception was 1993, during which CSW underwent a corporate-wide
restructuring and early retirement program and recorded a one-time pretax charge
of approximately $100 million.
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CSW Payout Ratio (%): 75.9 99.4 81.7 81.9
Electric Industry* 84.3 78.6 81.4 81
*(Source: Historical - Compustat Electric Utilities Database;
1995 - Merrill Lynch & Co., Utility Data Sheet, June 19, 1995
(for 12 months ended May 31, 1995))
(e) The market's assessment of the overall
quality of Energy's and CSWI's portfolio of projects (Exempt Projects and QFs)
is demonstrated by the success that Energy and CSWI have had in obtaining
appropriate levels of non-recourse debt to finance and refinance the operations
of these projects. For example, Energy recently arranged a $104 million and a
$59 million non-recourse refinancing of Energy's pro rata investment in the Ft.
Lupton and Mulberry Projects, respectively, and CSW Investments has arranged a
$1.29 billion non-recourse financing of a portion of CSW's investment in the
SEEBOARD project.
(f) None of the conditions described in paragraph
(b) of Rule 53 is applicable. Specifically, (1) there has been no bankruptcy of
any CSW associate company, (2) CSW's consolidated retained earnings, as
previously indicated, have increased in recent years, and (3) CSW has never
reported an "operating loss" attributable to its Exempt Projects. SFAS 121
requires a listing of all assets of a utility that a company plans to write down
and take as a loss. CSW presently has no assets listed pursuant to SFAS 121.
Based on CSW's current knowledge, no assets with respect to any Exempt Project
presently
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owned (directly or indirectly) by CSW are expected to be placed on such list
pursuant to SFAS 121. Further, with the completion of the purchase of the
capital shares of SEEBOARD, and with the Altamira Project scheduled to go into
commercial operation in early 1998, it is reasonable to expect a positive impact
on the "operating income" of CSW's Exempt Projects as a group. Finally, no
associate Exempt Project has ever defaulted under the terms of any financing
document. None of the circumstances described in Rule 53(b) has occurred. CSW
undertakes to notify the Commission by filing a post-effective amendment in this
proceeding in the event that any of the circumstances described in Rule 53(b)
should occur during the authorization period.
(g) Any differences between the financial indicators of CSW
and Southern discussed in subsection (a) above are not significant as indicated
by the performance of CSW in certain other key financial indicators. In
particular, based upon publicly available information for Southern, the average
of CSW's recent price/earnings ratio (13.5 for the year ended 1995 and 17.7 for
the six months ended June 1996), earnings per share ($2.10 for the year ended
1995 and $2.08 for the year ended 1994) and return on equity for shareholders
(12.9% for the year ended 1995 and 13.2% for the year ended 1994) are better
than those of Southern. CSW believes that such financial indicators exemplify
the market's positive assessment of CSW's overall performance and future
prospects and that such indicators have been enhanced by
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CSW's present strategy of diversifying its holdings to include investments in
Exempt Projects.
(2) The proposed increased use of financing proceeds to invest
in Exempt Projects will not have an "adverse impact" on any of CSW's Operating
Companies, their respective customers, or on the ability of the four State
commissions having jurisdiction over one or more such Operating Companies to
protect such Operating Companies or such customers.
The conclusion that the Operating Companies and their
customers will not be adversely impacted by increased levels of
investment by CSW in Exempt Projects is well supported by
analyses of the Operating Companies' financial integrity
(including ability of the Operating Companies to issue senior
securities), lack of present and anticipated need for any equity
capital from CSW for the next ten (10) years (as discussed in
Subsection (4) of Item 1 and Subsection (2)(c) of this Item 3),
continuing compliance with other applicable requirements of Rule
53(a), and the proven effectiveness of State commission oversight
together with the affirmation by the State commissions of
Louisiana, Oklahoma and Texas that they have authority and
jurisdiction, and will exercise such authority, to protect
ratepayers in their respective state from any adverse impact, and
the acknowledgement by the State commission of Arkansas that it
does not object to the relief sought by CSW in this Application-
Declaration, contained in the letters from the State commissions
filed as Exhibit 2 to this Application-Declaration. The State
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commissions can set the cost of capital for electric utilities by comparison
with selected groups of domestic utilities, which exclude any utilities with
adverse impacts due to foreign investments or EWGs. Therefore, the States have
the authority and the mechanism to prohibit any adverse effects on the cost of
capital due to investments in Exempt Projects from being passed on to
ratepayers. CSW has complied and will continue to comply with the requirements
of Rule 53(a)(4) regarding filing of copies of applications and reports with
other regulatory commissions.
(a) All of CSW's investments in Exempt Projects
are, and are currently expected in the future to remain, segregated from the
Operating Companies. The Operating Companies are, and are currently expected in
the future to remain, insulated from the direct effects of investments by CSW in
Exempt Projects. No Operating Company owes indebtedness or has extended credit
or sold or pledged its assets directly or indirectly to any Exempt Project in
which CSW owns any interest, no Operating Company intends to do so in the
future,3 and any losses that may be incurred by such Exempt Projects would have
no effect on domestic rates of any Operating Company (because of the Applicants'
undertaking not to seek recovery in rates). CSW represents that it will not seek
recovery through higher rates to the Operating Companies' utility customers in
order to compensate
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3 It should be noted that Section 33(f), with a minor exception, prohibits State
regulated public utilities from financing investments in FUCOs, and Section
33(g) prohibits outright any pledge or encumbrance of utility assets by a State
regulated public utility for the benefit of any associate FUCO.
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CSW for any possible losses that it may sustain on investments in Exempt
Projects or for any inadequate returns on such investments.
(b) Debt (including short-term debt) ratios of
the Operating Companies are consistent with industry averages for
'A'-rated electric utilities. The current industry average for
'A'-rated electric utilities is 49%*
Projected
Debt as % of 1991 1992 1993 1994 1995 1996
Capitalization
SWEPCO 45% 48% 48% 48% 49% 47%
WTU 45% 44% 43% 48% 52% 51%
PSO 47% 49% 49% 49% 48% 47%
CPL 45% 48% 48% 49% 50% 49%
*(Source: 'A' industry average-Calculated using Merrill Lynch &
Co., Utility Data Sheet - Electric and Combination Utility
Companies, April 1995)
Debt levels of the Operating Companies are projected to steadily decline, moving
to the 44-45% range by the year 2000. The reduction in debt levels is
attributable largely to projected growth in retained earnings.
(c) Additional investments in Exempt Projects
will not have any negative impact on the Operating Companies'
ability to fund operations and growth. The last significant
equity infusion by CSW in the Operating Companies was made in
1985 (approximately $70 million). Over the past 10 years, the
Operating Companies have funded substantially all of their
construction expenditures from internal sources of cash and from
sales of senior securities and other borrowings. Present
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projections indicate that the Operating Companies will continue to fund
substantially all of their construction expenditures from internal sources of
cash and from sales of senior securities and other borrowings for the next 10
years and that CSW will not have to make any equity investment in any Operating
Company for at least the next ten (10) years. In addition, present projections
indicate that CSW will not have to make any equity investment in SEEBOARD during
the next ten (10) years to maintain SEEBOARD's existing business. Any additional
investment by CSW in SEEBOARD would be subject to the provisions of the Act and
the rules thereunder and would increase CSW's "aggregate investment" (as defined
under Rule 53(a) of the Act) in Exempt Projects in accordance with Rule 53(a) of
the Act.
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<PAGE>
Operating Companies - Construction Expenditures:
Actual (1992-1995) and projected (1996-1997) expenditures, net of Allowance for
Funds Used During Construction ($million):
1991 1992 1993 1994 1995 1996 1997
276 326 480 493 397 332 356
Percent internally generated:
1991 1992 1993 1994 1995
114% 87% 82% 66% 76%
CSW presently estimates that for 1996 and 1997 the cash flow from operations
will be sufficient to fund expected construction expenditures.
(d) The Operating Companies' ability to issue debt
and equity securities in the future depends, in most cases, upon earnings
coverages at the time such securities are issued; that is, the Operating
Companies must comply with certain coverage requirements designated in their
mortgage bond indentures. Generally, such conservative earnings coverage ratios
must be maintained in order to allow the issuance of additional debt. CSW
recognizes that in order to maintain financial flexibility for the future, it
must continue to maintain these coverage ratios and presently, the Operating
Companies anticipate having more than adequate earnings coverages for financing
requirements
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in the foreseeable future.4 In light of this and taking into consideration the
criteria for rating an outstanding series of debt securities generally (which
emphasizes a strong earnings coverage ratio), the Operating Companies' senior
securities should continue to receive ratings of investment grade from Standard
& Poor's and the other national rating agencies that rate such senior
securities.
(e) The senior securities of each of the
Operating Companies are presently rated AA-, A+, A and A+ for SWEPCO, WTU, CPL
and PSO, respectively, by Standard & Poor's. These ratings were affirmed by
Standard & Poor's following the announcement of the SEEBOARD acquisition in
November 1995.5 The
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4 1995 indenture earnings coverages for the Operating Companies range from about
5.2x to 8.1x, in each case well above the required coverages of 2x. 5 In other
rating action since the announcement of CSW's plans to acquire SEEBOARD in
November 1995, Moody's Investors Service in December 1995 lowered its rating on
CSW commercial paper from Prime-1, the highest rating, to Prime-2, the next-
highest rating. In addition, each of Standard & Poor's and Moody's lowered its
ratings on SEEBOARD's unsecured debt from AA+ to A- and from Aa2 to Baa1,
respectively, and on SEEBOARD's commercial paper from A-1+ to A-2 and from P-1
to P-2, respectively. Based on currently available public information and
correspondence with the rating agencies that rate the CSW system, CSW believes
that such downgradings relate to the structure and size of the acquisition of
SEEBOARD and not to the status of SEEBOARD as a FUCO. The rating changes apply
only to CSW commercial paper and securities of SEEBOARD. The ratings do not
apply to any securities of the Operating Companies and should have no adverse
effect on the Operating Companies. All of the new ratings are investment-grade
ratings. In addition, the new rating on CSW commercial paper (Prime-2) signifies
"a strong capacity for short-term promissory obligations," with "sound" earnings
trends and coverage ratios, "appropriate" capitalization characteristics, and
"ample" alternate liquidity. Moreover, since the downgrades, events have
occurred which should have a positive impact on the evaluation of CSW's
investment in SEEBOARD which were not available in December 1995, to wit: (i)
SEEBOARD (a),through the Office of Electricity Regulations's annual report on
customer service, was recognized as the top regional electricity company with
respect to overall customer service and (b) received the top customer service
rating in the utility sector from the Daily Telegraph; (ii) CSW's earnings were
up for the first and second quarter of 1996 as compared to the same periods in
the previous year due in part to SEEBOARD's earnings; and (iii) CSW has repaid
the $829 million equity bridge loan obtained to finance a portion of the
acquisition of SEEBOARD from the proceeds of CSW common stock issuance in
February 1996 and a portion of the proceeds of the sale of its natural gas
pipeline subsidiary, Transok, Inc., in June 1996.
In addition, on August 27, 1996, Standard & Poor's decided to put a
"negative outlook" on the ratings of the Operating Subsidiaries, which is not an
actual downgrading of the rating of the securities of such companies, but is an
indication that Standard & Poor's believes that conditions exist that could
justify such a downgrading at some future time. Based on currently available
public information and correspondence with the ratings agencies that rate the
CSW system, CSW believes that Standard & Poor's justification for such "negative
outlook" is the potential uncertainty that the Operating Companies face in
future rate cases and is not dependent on CSW's investments in Exempt Projects.
Though the announcement by Standard & Poor's of such "negative outlook" makes
reference to the capital structure of the CSW system subsequent to the SEEBOARD
acquisition, most of the analysis provided therein, and contained in
Confidential Exhibit No. 4, is on the past, current, and anticipated domestic
retail rate cases before state commissions. While Standard & Poor's mentions
generally the obligations of the Operating Companies for CSW's debt financing,
its detailed analysis focuses on the past WTU rate case which resulted in a rate
reduction and rate freeze, the current CPL rate case, and an anticipated rate
review of PSO due to the sale of Transok, Inc. Moreover, as of December 3, 1996,
no actual downgrading of the securities of any of the Operating Subsidiaries or
CSW had occurred. Additionally, as of such date, such "negative outlook" has not
had (i) a substantial adverse impact on the financial integrity of CSW's holding
company system or (ii) an adverse impact on any Operating Company or its
customers, or on the ability of State commissions to protect the Operating
Companies. As evidence, with respect to CPL's Auction Preferred Stock, Series A
and B, the auctions which have occurred since the August 27, 1996 "negative
outlook" have obtained an average dividend rate which was a lower percentage of
the average Fed. AA 60-day commercial paper rate than the average percentage of
the five auctions preceding Standard & Poor's announcement of a "negative
outlook". In the five auctions preceding Standard & Poor's announcement, CPL's
auction of its Preferred Stock, Series A, averaged 74.21% of such 60-day
commercial paper rate, and 71.93% in the two auctions since the announcement.
For its Preferred Stock, Series B, the average of the five auctions preceding
the announcement was 73.79% while the only auction since the announcement
resulted in a dividend rate which was 73.63% of such 60-day commercial paper
rate. Also, the "negative outlook" did not negatively impact the securing of
insurance from the MBIA Insurance Corporation which allowed CPL to receive a AAA
rating on its successful $60 million issuance of its Matagorda County Series
1996 pollution control revenue refunding bonds in September 1996.
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Operating Companies' coverages have generally been within the 'A' and 'AA'
ranges set by the major rating agencies in recent years. The Operating Companies
continue to show strong financial statistics as measured by the rating agencies
(pre-tax interest coverage, debt ratio, funds from operations to debt, funds
from operations interest coverage, and net cash flow to capital expenditures).
Based on currently available public information and correspondence with the
ratings agencies that rate the CSW system, CSW believes there has been no
adverse effect on the financial ratings of the Operating Companies as a result
of CSW's investments in Exempt Projects.
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<PAGE>
Projected
Present 1999
Nov. Industry Industry
1991 1992 1993 1994 1995 1996 Composite Comp.
S&P Rating: A- BBB+
SWEPCO AA- AA- AA- AA- AA- AA-
WTU AA- AA- AA- A+ A+ A+
CPL A- A A A A A
PSO AA- AA- AA- A+ A+ A+
Nov.
1991 1992 1993 1994 1995 1996
Moody's Rating: A3 Baal
SWEPCO Aa2 Aa2 Aa2 Aa2 Aa2 Aa2
WTU Aa2 Aa2 Aa2 Aa2 A1 A1
CPL A2 A2 A2 A2 A2 A2
PSO Aa2 Aa2 Aa2 Aa2 Aa3 Aa3
Nov.
1991 1992 1993 1994 1995 1996
Duff & Phelps Rating: A n/a
SWEPCO AA+ AA+ AA+ AA+ AA+ AA+
WTU AA AA AA AA AA- AA-
CPL A A A A A A
PSO AA AA AA AA AA AA
As illustrated by the above ratings, the Operating Companies'
financial ratings have remained consistently above the present average ratings
of the industry with only CPL's being equal to the industry's composite rating
from Duff & Phelps. With the expected downgrades across the industry over the
next two to three years, the Operating Companies' ratings are expected to remain
above or at least equal to the projected industry composite.
(f) CSW has complied and will continue to comply
with the requirements of Rule 53(a)(2) regarding preparation of and making
available books and records and financial reports regarding Exempt Projects.
(g) CSW has complied and will continue to comply
with the requirements of Rule 53(a)(3) regarding the limitation
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on the use of Operating Company employees in connection with providing services
to Exempt Projects. Increased levels of investment in Exempt Projects are not
expected to have any impact on utilization of Operating Company employees. The
Operating Companies have not and will not increase staffing levels or acquire
other resources to support the operations of Exempt Projects. In this regard,
the vast majority of the operational employees of the Exempt Projects are hired
or contracted locally. This is true even where Energy, CSWI or their respective
subsidiary is the operator. Project development, management and home office
support functions for the Exempt Projects are largely performed by Energy or
CSWI, which together have approximately 89 full time employees, and by outside
consultants (e.g., engineers, investment advisors, accountants and attorneys)
engaged by Energy or CSWI. Accordingly, Energy's and CSWI's need for the support
of personnel provided by the Operating Companies has been and is projected to
remain relatively modest.
(h) In the opinion of CSW, Energy and CSWI, the
four State commissions of Arkansas, Louisiana, Oklahoma and Texas have
jurisdiction over the Operating Companies and are able to protect utility
customers within their respective states. The State commissions have not raised
objections (or have withdrawn any such objection) to CSW's current investments
in Exempt Projects.6 To provide the Commission with additional assurances,
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6 Section 33(c)(2) provides that the State commissions may make recommendations
to the Commission regarding a registered holding company's relationship to
FUCOs, and that the Commission shall "reasonably and fully consider" such
recommendations.
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CSW met with each of the State commissions having jurisdiction over the
Operating Companies and requested each to provide the Commission with a letter
certifying that such State commission has jurisdiction over certain Operating
Companies and that such State commission will protect ratepayers from any
adverse effect or costs that might result from CSW's investments in Exempt
Projects. Specifically, CSW, SWEPCO and the State commission of Arkansas have
entered into an agreement to ensure that such State commission has the ability
to protect its ratepayers against any potential adverse impact that may result
from investments by CSW in Exempt Projects; the State commission of Louisiana
asserts in its letter included in Exhibit 2 that it "has the authority and
jurisdiction to protect the ratepayers of SWEPCO, and intends to exercise such
authority" and that such authority "is applicable to all EWGs and FUCOs in which
CSW or its subsidiaries seek to obtain an ownership interest"; the State
commission of Oklahoma asserts in its letter included in Exhibit 2 that it has
both State "constitutional and statutory authority . . . to supervise and
regulate electric utilities and all matters relating to the performance of their
public duties and their charges therefore, and to correct any abuses of such
utilities" and that it "intends to exercise such authority"; and the State
commission of Texas asserts in its letter included in Exhibit 2 that a State
rule is in effect, the purpose of which is "to ensure that Texas ratepayers are
protected from the potential adverse effects
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associated with FUCO diversification" and that "the rule requires the reporting
of certain information so the State commission of Texas may monitor FUCO
activities and requires the holding company to make certain covenants designed
to insulate the utility from the potential adverse effects of FUCO activities."
Additionally, with respect to certain State commissions, CSW will, among other
things, have to comply with certain reporting requirements and covenant that
such investments in Exempt Projects will not result in any obligation by the
Operating Companies. CSW and its affiliates have been subjected to numerous
audits by the FERC and the Commission, and it is assumed both staffs will
participate in future audits. Audits by the Commission have not raised
"significant" questions.
Rule 54 provides that the Commission, in determining whether
to approve the issue or sale of a security by a registered holding company for
purposes other than the acquisition of an Exempt Project, or other transactions
by such registered holding company or its subsidiary other than with respect to
Exempt Projects, shall not consider the effect of the capitalization or earnings
of any subsidiary which is an Exempt Project upon the registered holding company
system if the provisions of Rule 53(a), (b) and (c) are satisfied. If the
transactions contemplated hereby are consummated and CSW's "aggregate
investment" in Exempt Projects exceeds 50% of its "consolidated retained
earnings," the provisions of Rule 53(a) will not be satisfied. The Applicants
have included in this
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Application certain reporting requirements that are intended to enable the
Commission to monitor the impact of the transactions for which authority is
sought hereby. The Applicants believe that such reporting requirements will
assist the Commission in its determinations concerning the effect of Exempt
Projects on other transactions for which CSW will require authorization.
Item 4. Regulatory Approval.
The issuance and sale of securities by CSW and the use of the
proceeds thereof to acquire or guaranty the securities of any Exempt Project are
not subject to the jurisdiction of any State commission or of any federal
commission other than this Commission. CSW has complied with the requirements of
Rule 53(a)(4) by submitting a copy of this Application-Declaration to the public
utility commissions in Texas, Arkansas, Louisiana and Oklahoma. In addition, CSW
and the Operating Companies have discussed the request for additional investment
authority set forth in this Application-Declaration with each of the four State
commissions having jurisdiction over one or more such Operating Companies. Item
5. Procedure.
The Commission issued and published on April 12, 1996, the
requisite notice under Rule 23 with respect to the filing of this
Application-Declaration. Such notice specified a date of May 6, 1996, as the
date after which an order granting and permitting this Application-Declaration
to become effective may be entered by the Commission and the Commission enter as
soon as
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possible, an appropriate order granting and permitting this
Application-Declaration to become effective.
CSW, Energy and CSWI respectfully request that appropriate and
timely action be taken by the Commission in this matter in order that the
development activities of CSW, Energy and CSWI may continue to expand to the
levels sought hereby.
No recommended decision by a hearing officer or other
responsible officer of the Commission is necessary or required in this matter.
The Division of Investment Management of the Commission may assist in the
preparation of the Commission's decision in this matter, unless such Division
opposes the matters covered hereby. There should be no thirty-day waiting period
between the issuance and the effective date of any order issued by the
Commission in this matter, and it is respectfully requested that such order be
made effective immediately upon the entry thereof.
CSW proposes to file, within 60 days after the end of the
applicable quarter, a quarterly report pursuant to Rule 24, commencing with the
report for the quarter ending December 31, 1996, which contains the following
information:
(i) A computation in accordance with Rule 53(a)
(as modified by the Commission's order in
this proceeding) of CSW's "aggregate
investment" in all Exempt Projects;
(ii) CSW's cumulative "aggregate investment" in
all Exempt Projects expressed as a percentage
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of: total capitalization, net utility plant,
total consolidated assets and market value of
common equity, all as of the end of such
quarter;
(iii) Consolidated capitalization ratios as of the
end of such quarter, with consolidated debt
to be inclusive of all short-term debt and
non-recourse debt of Exempt Projects to the
extent normally consolidated under
applicable financial reporting rules;
(iv) The market-to-book ratio of CSW's common
stock at the end of such quarter;
(v) An analysis of the growth in consolidated
retained earnings which segregates earnings
growth attributable to Exempt Projects as a
whole versus all other subsidiaries of CSW;
and
(vi) A breakdown in revenues and net income of
each of the Exempt Projects for the 12-
months then ended.
CSW proposes to file a single report under Rule 24
which combines the foregoing information with the information
required pursuant to Rule 24 in File No. 70-8423 (Holding Co. Act
Rel. Nos. 26156 and 26383, dated November 2, 1994 and September
27, 1995, respectively).
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Item 6. Exhibits and Financial Statements.
Exhibit 1 - Proposed Notice of Proceeding.
Exhibit 2 - Correspondence from State Commissions.
Exhibit 3 - Central and South West Corporation's
Capitalization Statement, dated
September 30, 1996.
Exhibit 4 - Correspondence from Standard & Poor's
regarding CSW's comparative ratings
(Confidential).
Item 7. Information as to Environmental Effects.
The proposed transactions do not involve major federal action
having a significant effect on the human environment. See Item 1. No federal
agency has prepared or is preparing an environmental impact statement with
respect to the proposed transaction.
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S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly caused this
document to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: December 4, 1996
CENTRAL AND SOUTH WEST CORPORATION
By:/S/WENDY G. HARGUS
Wendy G. Hargus
Treasurer
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S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly caused this
document to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: December 4, 1996
CSW ENERGY, INC.
By:/S/TERRY D. DENNIS
Terry D. Dennis
President and Chief Executive
Officer
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S I G N A T U R E
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly caused this
document to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: December 4 1996
CSW INTERNATIONAL, INC.
By:/S/TERRY D. DENNIS
Terry D. Dennis
President and Chief Executive
Officer
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EXHIBIT INDEX
Exhibit
Transmission
Number Exhibit Method
1 Proposed Notice of Proceeding. (Previously
filed)
2 Correspondence from State Commissions. Paper
3 Central and South West Corporation's Paper
Capitalization Statement, dated
September 30, 1996.
4 Correspondence from Standard & Poor's Paper
regarding CSW's comparative ratings
(Confidential).
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