UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 15, 1997
COMMISSION REGISTRANT, STATE OF INCORPORATION, I.R.S. EMPLOYER
FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
1-1443 CENTRAL AND SOUTH WEST CORPORATION 51-0007707
(A Delaware Corporation)
1616 Woodall Rodgers Freeway
Dallas, TX 75202-1234
(214) 777-1000
0-343 PUBLIC SERVICE COMPANY OF OKLAHOMA 73-0410895
(An Oklahoma Corporation)
212 East 6th Street
Tulsa, Oklahoma 74119-1212
(918) 599-2000
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GLOSSARY OF TERMS
The following abbreviations or acronyms used in this text are defined below:
ABBREVIATION OR ACRONYM DEFINITION
ALJ.....................................Administrative Law Judge
CSW.....................................Central and South West Corporation,
Dallas, Texas
ITC.....................................Investment Tax Credit
OCC.....................................Oklahoma Corporation Commission
OCC Staff...............................Staff of the OCC
PSO.....................................Public Service Company of Oklahoma,
Tulsa, Oklahoma
Settlement Agreement....................Joint stipulation agreement reached by
PSO and other parties to settle PSO's
current rate inquiry
FORWARD LOOKING INFORMATION
This report and other presentations made by CSW and its subsidiaries contain
forward looking statements within the meaning of Section 21E of the Exchange
Act. Although CSW and each of its subsidiaries believe that, in making any such
statements, its expectations are based on reasonable assumptions, any such
statements may be influenced by factors that could cause actual outcomes and
results to be materially different from those projected. Important factors that
could cause actual results to differ materially from those in the forward
looking statements include, but are not limited to: the impact of general
economic changes in the U.S. and in countries in which CSW either currently has
made or in the future may make investments; the impact of deregulation on the
U.S. electric utility business; increased competition and electric utility
industry restructuring in the U.S.; federal and state regulatory developments
and changes in law which may have a substantial adverse impact on the value of
CSW System assets; timing and adequacy of rate relief; adverse changes in
electric load and customer growth; climatic changes or unexpected changes in
weather patterns; changing fuel prices, generating plant and distribution
facility performance; decommissioning costs associated with nuclear generating
facilities; uncertainties in foreign operations and foreign laws affecting CSW's
investments in those countries; the effects of retail competition in the natural
gas and electricity distribution and supply businesses in the United Kingdom;
and the timing and success of efforts to develop or acquire domestic and
international power projects and utility assets. In the non-utility area, the
aforementioned factors would also apply, and, in addition, would include: the
ability to compete effectively in new areas, including telecommunications, power
marketing and brokering, and other energy related services, as well as evolving
federal and state regulatory legislation and policies that may adversely affect
those industries generally or the CSW System's business in areas in which it
operates.
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ITEM 5. OTHER EVENTS
PSO SETTLEMENT AGREEMENT
On October 15, 1997, PSO reached a stipulated agreement with parties to
settle the rate inquiry currently pending before the OCC. The Settlement
Agreement, which is subject to the approval of the OCC, calls for PSO to lower
its retail base rates beginning with the December 1997 billing cycle by
approximately $35.9 million annually, or a 5.3 percent decrease below the
current level of retail rates. Part of the proposed rate reduction includes a
reduction in annual depreciation expense of approximately $10.9 million. In
addition, the proposed settlement would result in PSO making a one-time $29
million refund to customers. PSO recorded the estimated financial impact of the
Settlement Agreement, including recognition of the $29 million refund
obligation, during the third quarter of 1997.
As previously reported, in July 1996, the OCC Staff filed an
application seeking a review of PSO's earnings. In accordance with the
established schedule, PSO subsequently filed financial data, cost of service and
rate design testimony supporting both its current rates and an increase in
annual depreciation expense of $26 million. In July 1997, the OCC Staff and
other intervenors to the proceeding filed their revenue requirements testimony.
In its filing, the OCC Staff recommended a rate reduction of $76.8 million for
PSO. Although the OCC Staff's recommended rate reduction included a $109 million
rate base reduction and a percentage return on capital, these issues were not
specifically addressed in the Settlement Agreement.
The Settlement Agreement also provides that PSO completely eliminate
approximately $41 million in certain regulatory assets, of which a $26 million
reserve has previously been established, before its next rate filing. Included
in the remaining $15 million of regulatory assets are approximately $9 million
of costs incurred for customer energy management incentive programs. PSO expects
to completely write off the regulatory assets, including the unreserved $15
million, in the fourth quarter of 1997. The following table is management's
estimate of the financial impact of the Settlement Agreement on PSO's 1997
results of operations and also its ongoing annual impact on net income in
successive years.
Ongoing
1997 Annual
Impact Impact
---------- --------
($ in millions)
Change in revenues $(31.5) $(35.9)
----- -----
Changes in expenses (offsetting impact included in revenues)
Depreciation (6.3) (10.9)
Write off deferred costs/regulatory assets (including
reduced amortization expense) 17.9 (2.7)
Income tax (including change in ITC amortization) (16.2) (7.8)
----- -----
(4.6) (21.4)
----- -----
Estimated impact on net income * $(26.9) $(14.5)
----- -----
* The 1997 third quarter impact was a reduction in net income of approximately
$17.2 million.
Hearings on the rate inquiry were delayed from September 24, 1997 to
October 16, 1997 to allow parties to complete the Settlement Agreement. After
hearings before the ALJ on October 16, 1997 which resulted in a recommendation
for approval of the Settlement Agreement from the ALJ, the OCC are scheduled to
begin deliberations on the proposed settlement on October 20, 1997. A final
order to approve the Settlement Agreement could be issued by the end of October
1997. Management cannot predict whether the OCC will approve the Settlement
Agreement. If the Settlement Agreement is not approved, then hearings to
consider the appropriateness of PSO's current retail rates will be held later
this year.
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If the Settlement Agreement is ultimately adopted without further
changes, PSO will experience a material adverse effect on its results of
operations but not on its financial condition. CSW will not experience a
material adverse effect on either its recurring results of operations or
financial condition if the Settlement Agreement is approved by the OCC.
Importantly, the Settlement Agreement will also reduce significant risks for PSO
related to this regulatory proceeding and will enable PSO's rates to remain
competitive for the foreseeable future.
Portions of the foregoing discussion of the PSO SETTLEMENT AGREEMENT
constitute forward looking information within the meaning of Section 21E of the
Securities Exchange Act. Actual results may differ materially from the projected
information contained therein. For additional background information regarding
this matter, please see CSW's and PSO's Combined Form 10-K for the year ended
December 31, 1996 and CSW's and PSO's Combined Form 10-Q's for the quarters
ended March 31, 1997 and June 30, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CENTRAL AND SOUTH WEST CORPORATION
Date: October 17, 1997
By: /S/ LAWRENCE B. CONNORS
Lawrence B. Connors
Controller
PUBLIC SERVICE COMPANY OF OKLAHOMA
Date: October 17, 1997
By: /S/ R. RUSSELL DAVIS
R. Russell Davis
Controller
