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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from _____to_____
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, Texas 75202-1234
(214) 777-1000
0-346 Central Power and Light Company 74-0550600
(A Texas Corporation)
539 North Carancahua Street
Corpus Christi, Texas 78401-2802
(512) 881-5300
0-343 Public Service Company of Oklahoma 73-0410895
(An Oklahoma Corporation)
212 East 6th Street
Tulsa, Oklahoma 74119-1212
(918) 599-2000
1-3146 Southwestern Electric Power Company 72-0323455
(A Delaware Corporation)
428 Travis Street
Shreveport, Louisiana 71156-0001
(318) 222-2141
0-340 West Texas Utilities Company 75-0646790
(A Texas Corporation)
301 Cypress Street
Abilene, Texas 79601-5820
(915) 674-7000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
Central and South Common Stock, $3.50 Par New York Stock
West Corporation Value Exchange, Inc.
Chicago Stock
Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Central Power and Cumulative Preferred
Light Company Stock, $100 Par Value
Public Service Cumulative Preferred
Company of Oklahoma Stock, $100 Par Value
Southwestern Cumulative Preferred
Electric Power Stock, $100 Par Value
Company
West Texas Utilities Cumulative Preferred
Company Stock, $100 Par Value
Indicate by check mark whether the registrants (1) have filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) have been subject to such filing requirements for the past 90
days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K[ ].
Aggregate market value of the Common Stock of Central and South
West Corporation at January 31, 1995 held by non-affiliates was
approximately $4.6 billion. Number of shares of Common Stock
outstanding at January 31, 1995: 190,627,949. Central and South West
Corporation is the sole holder of the common stock of Central Power
and Light Company, Public Service Company of Oklahoma, Southwestern
Electric Power Company and West Texas Utilities Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Notice of Annual Meeting and Proxy Statement of
Central and South West Corporation dated March 13, 1995 are
incorporated by reference into Part III hereof.
This combined Form 10-K is separately filed by Central and South
West Corporation, Central Power and Light Company, Public Service
Company of Oklahoma, Southwestern Electric Power Company and West
Texas Utilities Company. Information contained herein relating to
any individual registrant is filed by such registrant on its own
behalf. Each registrant makes no representation as to information
relating to the other registrants.
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TABLE OF CONTENTS
PAGE
GLOSSARY OF TERMS.................................... 1-4
PART I
ITEM 1. BUSINESS
General...................................... 1-7
Regulation and Rates......................... 1-12
Nuclear - STP................................ 1-15
Utility Operations........................... 1-17
Operating Statistics......................... 1-24
Construction and Financing................... 1-29
Fuel Supply.................................. 1-30
Environmental Matters........................ 1-37
Non-Utility Operations....................... 1-43
ITEM 2. PROPERTIES................................... 1-47
ITEM 3. LEGAL PROCEEDINGS 1-47
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS ................................... 1-47
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................ 2-1
ITEM 6. SELECTED FINANCIAL DATA...................... 2-1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 2-2
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.. 2-3
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE..... 2-188
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANTS............................... 3-1
ITEM 11. EXECUTIVE COMPENSATION...................... 3-8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................... 3-17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.............................. 3-22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K....................... 4-1
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GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-K are
defined below:
Abbreviation or Acronym Definition
ADPCE........................ Arkansas Department of Pollution Control and
Ecology
AECC......................... Arkansas Electric Cooperative Corporation
AECT......................... Association of Electric Companies of Texas
AFUDC........................ Allowance for funds used during construction
ALJ.......................... Administrative Law Judge
AMAX......................... AMAX Coal Company
ANI.......................... American Nuclear Insurance
APBO......................... Accumulated Postretirement Benefit Obligation
APS.......................... Arizona Public Service Company
Arkansas Commission.......... Arkansas Public Service Commission
Austin....................... City of Austin, Texas
Bankruptcy Court............. United States Bankruptcy Court for the Western
District of Texas, Austin Division, before
which the El Paso bankruptcy reorganization
proceeding, Case No. 92-10148-FM, is pending
Bcf.......................... Billion cubic feet
BREMCO....................... Bossier Rural Electric Membership Corporation
Btu.......................... British thermal unit
Burlington Northern.......... Burlington Northern Railroad Company
Cajun........................ Cajun Electric Power Cooperative, Inc.
CEO.......................... Chief Executive Officer
CERCLA....................... Comprehensive Environmental Response,
Compensation and Liability Act of 1980
CFO.......................... Chief Financial Officer
Cimmaron..................... Cimmaron Chemical Company
Cities....................... Several cities in CPL's service territory
Clean Air Act................ Clean Air Act Amendments of 1990
CLECO........................ Central Louisiana Electric Company
Confirmation Date............ December 8, 1993, the confirmation date for the
Modified Plan
COO.......................... Chief Operating Officer
Court of Appeals............. Court of Appeals, Third District of Texas,
Austin, Texas
CPL.......................... Central Power and Light Company, Corpus
Christi, Texas
CSF.......................... Customer Supplied Fuel Program
CSW.......................... Central and South West Corporation, Dallas,
Texas
CSW Common................... CSW common stock, $3.50 par value per share
CSW Communications........... CSW Communications, Inc., Dallas, Texas
CSW Credit................... CSW Credit, Inc., Dallas, Texas
CSWE......................... CSW Energy, Inc., Dallas, Texas
CSWI......................... CSW International, Inc., Dallas, Texas
CSW Leasing.................. CSW Leasing, Inc., Dallas, Texas
CSW System................... CSW and its subsidiaries
CSWS......................... Central and South West Services, Inc., Dallas,
Texas and Tulsa, Oklahoma
CWIP......................... Construction work in progress
Delhi........................ Delhi Gas Pipeline Corporation
DET.......................... Diagnostic Evaluation Team
District Court............... State District Court of Travis County, Texas
DOE.......................... United States Department of Energy
EDE.......................... Empire District Electric Company
Effective Date............... The effective date of the Modified Plan
El Paso...................... El Paso Electric Company
El Paso Common............... El Paso common stock, no par value
Electric Operating Companies. CPL, PSO, SWEPCO and WTU
EMF.......................... Electric and magnetic fields
Energy Policy Act............ National Energy Policy Act of 1992
EPA.......................... United States Environmental Protection Agency
EPS.......................... Earnings per share
ERCOT........................ Electric Reliability Council of Texas
ERISA........................ Employee Retirement Income Security Act of
1974, as amended
EWG.......................... Exempt Wholesale Generators
Exxon........................ Exxon Coal USA, Inc.
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FASB......................... Financial Accounting Standards Board
FERC......................... Federal Energy Regulatory Commission
FMB.......................... First Mortgage Bond
FUSER........................ Fuel Supply Electricity Rider
HLP.......................... Houston Lighting & Power Company, the Project
Manager of STP
Holding Company Act.......... Public Utility Holding Company Act of 1935, as
amended
HVdc......................... High-voltage direct-current
IBEW......................... International Brotherhood of Electrical Workers
INPO......................... Institute of Nuclear Power Operations
ITC.......................... Investment tax credit
KV........................... Kilovolt
KW........................... Kilowatt
KWH.......................... Kilowatt-hour
Las Cruces................... City of Las Cruces, New Mexico
LDEQ......................... Louisiana Department of Environmental Quality
Lone Star.................... Lone Star Gas Company
Louisiana Commission......... Louisiana Public Service Commission
LTIP......................... Long-Term Incentive Plan
Mcf.......................... 1,000 cubic feet
MCPC......................... Mid-Continent Power Company, Inc.
MDEQ......................... Mississippi Department of Environmental Quality
Merger....................... The proposed merger whereby El Paso would
become a wholly owned subsidiary of CSW
Merger Agreement............. Agreement and Plan of Merger between El Paso
and CSW, dated as of May 3, 1993, as amended
MGP.......................... Manufactured gas plant or coal gasification
plant
Mirror CWIP.................. Mirror Construction Work in Progress
MMcf/d....................... Million cubic feet of gas per day
Modified Plan................ Modified Third Amended Plan of Reorganization
for the proposed merger with El Paso
MTN.......................... Medium-term note
MW........................... Megawatt
MWH.......................... Megawatt-hour
Named Executive Officers..... The CEO and the four most highly compensated
executive officers, as defined by regulation
NEIL......................... Nuclear Electric Insurance Limited
New Mexico Commission........ New Mexico Public Utility Commission
Notes........................ Notes to Financial Statements
NRC.......................... Nuclear Regulatory Commission
NTEC......................... Northeast Texas Electric Cooperative, Inc.
O&M.......................... Operations and maintenance
ODEQ......................... Oklahoma Department of Environmental Quality
Oklahoma Commission.......... Corporation Commission of the State of Oklahoma
Oklahoma Supreme Court....... Supreme Court of the State of Oklahoma
Oklaunion.................... Oklaunion Power Station Unit No. 1
OMPA......................... Oklahoma Municipal Power Authority
OPEBs........................ Other Postretirement Employee Benefits
Operating Companies.......... CPL, PSO, SWEPCO, WTU, and Transok
OPUC......................... Office of Public Utility Counsel of Texas
Palo Verde................... Palo Verde Nuclear Generating Station
PCB.......................... Polychlorinated biphenyl
PCRB......................... Pollution Control Revenue Bond
PFD.......................... Proposal for Decision
PFDs......................... Preferred Stock
Project Manager.............. HLP, the Project Manager for STP
PRP.......................... Potentially responsible party
PSO.......................... Public Service Company of Oklahoma, Tulsa,
Oklahoma
PURA......................... Public Utility Regulatory Act of the State of
Texas
Rayburn Country.............. Rayburn Country Electric Cooperative, Inc.
RCRA......................... Federal Resource Conservation and Recovery Act
of 1976.
RESCTA....................... Rural Electric Supplier Certified Territory Act
RFP.......................... Rate Filing Package
San Antonio.................. City of San Antonio, Texas
SALP......................... Systematic Appraisal of Licensee Performance
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SAR.......................... Stock appreciation right
SEC.......................... Securities and Exchange Commission
SERP......................... Special Executive Retirement Plan
SFAS......................... Statement of Financial Accounting Standards
SFAS No. 71.................. Accounting for the Effects of Certain Types of
Regulation
SFAS No. 106................. Employers' Accounting for Postretirement
Benefits Other than Pensions
SFAS No. 109................. Accounting for Income Taxes
SFAS No. 112................. Employers' Accounting for Postemployment
Benefits
SFAS No. 115................. Accounting for Certain Investments in Debt and
Equity Securities
SFAS No. 116................. Accounting for Contributions Received and
Contributions Made
SFAS No. 119................. Disclosure about Derivative Financial
Instruments and Fair Value of Financial
Instruments
SO2.......................... Sulfur dioxide
SPA.......................... Southwestern Power Administration
SPS.......................... Southwestern Public Service Company
Staff........................ The Staff of the Texas Commission
STP.......................... South Texas Project nuclear electric generating
station
STP Unit 1 Order............. October 1990 Texas Commission STP Unit 1 Final
Order
STP Unit 2 Order............. December 1990 Texas Commission STP Unit 2 Final
Order
Supreme Court................ Supreme Court of Texas
SWEPCO....................... Southwestern Electric Power Company,
Shreveport, Louisiana
Texas Commission............. Public Utility Commission of Texas
Texas Court.................. State District Court in Harris County, Texas
TEX/CON...................... TEX/CON Oil and Gas Company
TEX/CON Assets............... Gas gathering, transmission, processing and
marketing assets of TEX/CON Oil and Gas
Company
Tex-La....................... Tex-La Electric Cooperative of Texas, Inc.
TIEC......................... Texas Industrial Energy Consumers
TNRCC........................ Texas Natural Resource Conservation Commission,
formerly the Texas Water Commission
TSA.......................... Texas State Agencies
Transok...................... Transok, Inc. and subsidiaries, Tulsa, Oklahoma
TSCA......................... Toxic Substance Control Act of 1976
TU........................... Texas Utilities Electric Company
USI.......................... Utility Services, Inc.
Westinghouse................. Westinghouse Electric Corporation
WTU.......................... West Texas Utilities Company, Abilene, Texas
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PART I
ITEM 1. BUSINESS.
GENERAL
CSW, CPL, PSO, SWEPCO and WTU
CSW, incorporated under the laws of Delaware in 1925, is a
registered holding company under the Holding Company Act and owns all
of the outstanding shares of common stock of the Operating Companies,
CSWS, CSW Credit, CSWE, CSWI and CSW Communications. In addition,
CSW owns 80% of the outstanding shares of common stock of CSW
Leasing. The corporate predecessors of CSW and the Electric
Operating Companies date back to the 19th century.
The Electric Operating Companies are public utility companies
engaged in generating, purchasing, transmitting, distributing and
selling electricity. The Electric Operating Companies were
incorporated as follows:
State of
Registrant Incorporation Year
CPL Texas 1945
PSO Oklahoma 1913
SWEPCO Delaware 1912
WTU Texas 1927
CPL and WTU operate in portions of south and central west Texas,
respectively. PSO operates in portions of eastern and southwestern
Oklahoma, and SWEPCO operates in portions of northeastern Texas,
northwestern Louisiana and western Arkansas. Transok is an
intrastate natural gas gathering, transmission, processing, storage
and marketing company which transports for and sells natural gas to
the Electric Operating Companies, principally PSO, as well as
processing, transporting and selling natural gas to and for non-
affiliates. CSWS performs, at cost, various accounting, engineering,
tax, legal, financial, electronic data processing, centralized
economic dispatching of electric power and other services for the CSW
System. CSW Credit purchases accounts receivable of the Operating
Companies and unaffiliated electric and gas utilities. CSWE and CSWI
pursue cogeneration projects and other energy ventures within the
United States and internationally. CSW Communications provides
communication services to the Operating Companies and non-affiliates.
CSW Leasing invests in leveraged leases.
CPL
The economic base of the service territory served by CPL
includes manufacturing, metal refining, petroleum products,
agriculture and tourism. In 1994, industrial customers accounted for
approximately 22% of CPL's total operating revenues. Contracts with
substantially all industrial customers provide for both demand and
energy charges. Demand charges continue under such contracts even
during periods of reduced industrial activity, thus mitigating the
effect of reduced activity on operating income.
PSO
The economic base of the territory served by PSO includes
mining, petroleum products, manufacturing and agriculture, which
provides a balanced economy. The principal industries in the
territory include natural gas and oil production, oil refining, steel
processing, maintenance of aircraft, the manufacture of paper and
timber products, glass, chemicals, cement and aircraft components.
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SWEPCO
The economic base of the service territory served by SWEPCO
includes chemical processing, petroleum refining and oil and gas
extraction. The primary metals and paper processing industries add
balance to SWEPCO's industrial base.
WTU
The economic base of the territory served by WTU is
predominantly agricultural, producing cattle, sheep, goats, cotton,
wool, mohair and feed crops. Significant gains have been made in
economic diversification through value added processing of these
products. The natural resources of the territory include oil,
natural gas, sulfur, gypsum and ceramic clays. Important
manufacturing and processing plants served by WTU produce cotton seed
products, oil products, electronic equipment, precision and consumer
metal products, meat products and gypsum products. The territory
also includes several military installations and state correctional
institutions.
Certain information relating to service provided by the Electric
Operating Companies at December 31, 1994 follows:
SERVICE AREA
ESTIMATED APPROXIMATE RETAIL RURAL ELECTRIC
REGISTRANT POPULATION SQUARE MILES CUSTOMERS MUNICIPALITIES COOPERATIVES
CPL 1,969,000 44,000 603,000 1 5
PSO 1,021,000 30,000 470,000 2 1
SWEPCO 887,000 25,000 403,000 2 8
WTU 410,000 53,000 185,000 2 12
CSW SYSTEM 4,287,000 152,000 1,661,000 7 26
The largest cities served by the Electric Operating Companies at
retail are shown below:
CITY CPL PSO SWEPCO WTU
Corpus Christi, Texas 265,000
Laredo, Texas 133,000
McAllen, Texas 88,000
Tulsa, Oklahoma 557,000
Lawton, Oklahoma 89,000
Bartlesville, Oklahoma 44,000
Shreveport/Bossier City,
Louisiana 278,000
Longview, Texas 79,000
Texarkana, Texas and
Arkansas 63,000
Abilene, Texas 112,000
San Angelo, Texas 88,000
In 1994, the CSW System companies contributed the following
percentages to aggregate operating revenues, operating income and net
income for common stock.
TOTAL
CPL PSO SWEPCO WTU ELECTRIC TOK OTHER TOTAL
OPERATING REVENUES 34% 20% 22% 9% 85% 14% 1% 100%
OPERATING INCOME 48% 15% 22% 8% 93% 7% --% 100%
NET INCOME FOR COMMON
STOCK 49% 17% 26% 9% 101% 6% (7)% 100%
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The relative contributions of the CSW System companies to the
aggregate operating revenues, operating income and net income for
common stock differ from year to year due to variations in weather,
fuel costs reflected in charges to customers, timing and amount of
rate changes and other factors, including changes in business
conditions and the results of non-utility businesses. In 1994,
approximately 62% of the CSW System's electric revenues were earned
in Texas, 24% in Oklahoma, 8% in Louisiana and 6% in Arkansas.
Restructuring
In November 1993, CSW undertook a restructuring designed to
consolidate and restructure its operations in order to meet the
challenges of the changing electric utility industry and to compete
effectively in the years ahead. The restructuring is a response to
two major factors, (i) a reduction in the rate of growth in the use
of electricity and (ii) increasing competition among suppliers of
electricity as a result of the Energy Policy Act. As a result of
these changes, CSW believes that the electric utility industry faces
changes in the way all electric utilities do business. The
underlying goal of the restructuring is to enable the Electric
Operating Companies to focus on and be accountable for serving the
customer.
In general, the restructuring is designed to consolidate and
centralize in CSWS certain functions which had been performed
separately by CSW's Electric Operating Companies. In part, the
restructuring shifts certain management functions relating to the
operation of power plants, certain engineering activities and certain
administrative and support functions from the Electric Operating
Companies to CSWS, thereby reducing costs and freeing the Electric
Operating Companies to focus on customer service, marketing and
economic development. The restructuring is intended to standardize
certain practices throughout the CSW System and to streamline
management.
To delineate lines more clearly at the holding company level,
the restructuring aligns CSW management into two principal units, CSW
Electric, covering the CSW System's electric utility operations, and
CSW Enterprises, covering CSW's other businesses, including Transok,
CSWE, CSWI, CSW Communications, and the mergers and acquisitions and
strategic planning departments. CSW Electric and CSW Enterprises are
functional business designations only, not new subsidiaries.
CSW expects to realize a number of benefits from the
restructuring. Beginning in 1994 and continuing into the future,
increased efficiencies and synergies have been, and are expected to
continue to be, realized with the elimination of previously
duplicated functions. This leads to enhanced communication and
efficiency, which should translate into a reduction in the rate of
growth in O&M costs and thereby reduce the need for future rate
increases.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Restructuring for further
discussion about the restructuring.
New Business Opportunities
CSW
CSW continues to consider new business opportunities to expand
and enhance its core electric utility business, and to expand its non-
utility business. CSW's investment strategy with respect to non-
utility businesses is to invest in businesses that are related to the
expertise utilized in the core electric utility business. CSW's
principal non-utility businesses are Transok and CSWE. During 1994,
CSW formed a new corporation, CSWI, to pursue independent power
initiatives abroad. In addition, CSW is considering investments in
telecommunications, environmental and energy services. During 1994,
CSW formed CSW Communications to provide a communications network for
the CSW System as well as third-parties. CSW expects to make
additional investments in non-regulated business during 1995. For
additional information, see NON-UTILITY OPERATIONS below.
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Proposed Acquisition of El Paso
CSW
In May 1993, CSW entered into a Merger Agreement pursuant to
which El Paso would emerge from bankruptcy as a wholly-owned
subsidiary of CSW. El Paso is an electric utility company
headquartered in El Paso, Texas, engaged principally in the
generation and distribution of electricity to approximately 262,000
retail customers in west Texas and southern New Mexico. El Paso also
sells electricity under contract to wholesale customers in a number
of locations including southern California and Mexico. El Paso had
filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code on January 8, 1992.
On July 30, 1993, El Paso filed the Modified Plan and a related
proposed form of Disclosure Statement providing for the acquisition
of El Paso by CSW. On November 15, 1993, all voting classes of
creditors and shareholders of El Paso voted to approve the Modified
Plan. On December 8, 1993, the Bankruptcy Court confirmed the
Modified Plan.
Under the Modified Plan, the total value of CSW's offer to
acquire El Paso is approximately $2.2 billion. The Modified Plan
generally provides for El Paso creditors and shareholders to receive
shares of CSW Common, cash and/or securities of El Paso, or to have
their claims cured and reinstated. The Modified Plan also provides
for claims of secured creditors generally to be paid in full with
debt securities of reorganized El Paso, and for unsecured creditors
to receive a combination of debt securities of reorganized El Paso
and CSW Common equal to 95.5 percent of their claims, and for small
trade creditors to be paid in full with cash. The Modified Plan
provides for El Paso's preferred shareholders to receive preferred
shares of reorganized El Paso, or cash, and for options to purchase
El Paso Common to be converted into options to purchase a
proportionate number of shares of CSW Common. In addition, the
Modified Plan provides for certain creditor classes of El Paso to
accrue interest on their claims and to receive periodic interim
distributions of such interest through the Effective Date or the
withdrawal or revocation of the Modified Plan, subject to certain
conditions and limitations set forth in the Modified Plan. To date,
all such accrued interest payments to creditors have been made by El
Paso on a timely basis. If, under certain circumstances, the Merger
is not consummated, the Merger Agreement provides for CSW to pay El
Paso for a portion of such interim interest payments paid or accrued
prior to the termination of the Merger Agreement. The Merger
Agreement also provides for CSW to pay for a portion of fees and
expenses, including legal expenses of certain El Paso creditors under
such circumstances. CSW's potential exposure as of December 31,
1994, is estimated to be approximately $17.5 million; however, the
actual amount, if any, that CSW may be required to pay pursuant to
these provisions depends on a number of contingencies and cannot
presently be predicted.
The Merger is subject to numerous conditions set forth in the
Merger Agreement, including but not limited to (i) the receipt of
final orders with respect to all required regulatory approvals on
terms that would not cause a regulatory material adverse effect as
defined in the Merger Agreement, (ii) the receipt of all third party
consents, (iii) the absence of a material adverse effect or facts or
circumstances that could reasonably be expected to result in a
material adverse effect on El Paso or the business prospects of El
Paso, (iv) transfer to El Paso of good and marketable title to El
Paso's share of Palo Verde, (v) performance by El Paso, CSW and CSW's
acquisition subsidiary, CSW Sub, Inc., in all material respects of
all covenants contained in the Merger Agreement and (vi) the
occurrence of the Effective Date under the Modified Plan. Required
regulatory approvals and filings in connection with the Merger
include approvals of the FERC, the SEC, the Texas Commission, the New
Mexico Commission, the NRC, and filings with the Department of
Justice and the Federal Trade Commission under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
See ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, NOTE
11 for CSW, Commitments and Contingent Liabilities, for a discussion
of regulatory approval process relating to El Paso.
CSW continues to use its best efforts to consummate the Merger.
At the same time, however, CSW continues to monitor contingencies
which may preclude the consummation of the Merger, including without
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limitation the potential loss of significant portions of El Paso's
service area and significant El Paso customers, including Las Cruces
and two military installations, Holloman Air Force Base and White
Sands Missile Range, regulatory risks principally related to approval
of the Merger and El Paso's request for a rate increase in Texas as
well as the effects of the conditions imposed by federal or state
regulatory agencies on the approval of the Merger and operating risks
associated with the ownership of an interest in Palo Verde.
Based upon El Paso's written response to the concerns identified
in a September 12 letter from CSW to El Paso and the failure of El
Paso to resolve the contingencies set forth above, CSW cannot predict
whether, or if so when, the Merger will be consummated. In the event
that the proposed Merger is not consummated, there may be ensuing
litigation between El Paso and CSW or among other parties to El
Paso's bankruptcy proceedings and either or both of El Paso and CSW.
See CSW's ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Proposed Acquisition
of El Paso, and CSW's ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA - NOTE 11, Commitments and Contingent Liabilities, for
additional information related to the proposed El Paso merger.
Competition
CSW, CPL, PSO, SWEPCO and WTU
Competitive forces at work in the electric utility industry are
impacting the CSW System and electric utilities generally. Increased
competition facing electric utilities is driven by complex economic,
political and technological factors. These factors have resulted in
legislative and regulatory initiatives that are likely to result in
even greater competition at both the wholesale and retail levels in
the future. As competition in the industry increases, the Electric
Operating Companies will have the opportunity to seek out new
customers and at the same time be at risk of losing customers to
competitors. The Electric Operating Companies believe that their
prices for electricity and the quality and reliability of their
service currently place them in a position to compete effectively in
the marketplace.
The Energy Policy Act, which was enacted in 1992, significantly
alters the way in which electric utilities compete. The Energy
Policy Act creates exemptions from regulation under the Holding
Company Act for EWGs and permits utilities, including registered
holding companies and non-utilities, to form EWGs. EWGs are a new
category of non-utility wholesale power producers that are free from
most federal and state regulation, including the principal
restrictions of the Holding Company Act. These provisions enable
broader participation in wholesale power markets by reducing
regulatory hurdles to such participation. The Energy Policy Act also
allows the FERC, on a case-by-case basis and with certain
restrictions, to order wholesale transmission access and to order
electric utilities to enlarge their transmission systems. A FERC
order requiring a transmitting utility to provide wholesale
transmission service must include provisions generally that permit
(i) the utility to recover from the FERC applicant all of the costs
incurred in connection with the transmission services and (ii) any
enlargement of the transmission system and associated services.
While CSW believes that the Energy Policy Act will continue to make
the wholesale markets more competitive, CSW is unable to predict the
extent to which the Energy Policy Act will impact CSW System
operations.
Wholesale energy markets, including the market for wholesale
electric power, have been extremely competitive since the enactment
of the Energy Policy Act. The Electric Operating Companies compete
in the wholesale energy markets with other public utilities,
cogenerators, qualified facilities, exempt wholesale generators and
others for sales of electric power.
CSW is unable to predict the ultimate outcome or impact of
competitive forces on the electric utility industry or the CSW
System. As the wholesale and retail electricity markets become more
competitive, however, the principal factor determining success is
likely to be price, and to a lesser extent, reliability, availability
of capacity, and customer service.
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CSW, CPL, SWEPCO and WTU
PURA is the legal foundation for electric utility regulation in
Texas. PURA will expire on September 1, 1995, in accordance with the
sunset policy of the Texas Legislature, which applies to all state
agencies, unless the Texas Legislature reenacts PURA in its current
form or in modified form. Several proposals have been made to amend
PURA which, among other things, provide for a market-driven
integrated resource planning process, pricing flexibility for
utilities faced with competitive challenges, incentive regulation and
deregulation of the wholesale bulk power market in ERCOT. CSW is
unable to predict the ultimate outcome of the 1995 session of the
Texas Legislature and in particular whether amendments to PURA will
be adopted.
In Texas, electric service areas are approved by the Texas
Commission. A given tract in a utility's overall service area may be
singly certificated to a utility, to one of several competing
electric cooperatives or to one of the competing municipal electric
systems or, it may be dually or triply certificated to these
entities. These certificated areas have changed only slightly since
the formation of the Texas Commission in 1976.
CSW and CPL
CPL is generally singly certificated to serve inside most
municipalities, and cooperatives are singly certificated to serve
much of the rural areas. The suburban areas are mostly dually
certificated. Since 1990, in dually certificated areas, CPL's rates
have been higher than some competitors for some customers, especially
small commercial and industrial customers. However, most business
has been retained and some new business acquired, primarily because
of service reliability and other customer service advantages. The
availability of low cost natural gas and other alternative fuels,
including those used in cogeneration facilities, have resulted in
some losses of sales. Although there have been some losses,
electricity is still the fuel of choice for most air conditioning
installations. Renewable energy such as solar and wind is not now a
feasible economic choice for customers of CPL in most instances. CPL
believes that its rates, the quality and reliability of its service
and the relatively inelastic demand for electricity for certain end
uses should allow it to continue to compete in current retail
markets.
See each of the registrants' ITEM 7 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Recent Developments and Trends for a discussion of competitive issues
facing the utility industry.
REGULATION AND RATES
Regulation
CSW, CPL, PSO, SWEPCO and WTU
The CSW System is subject to the jurisdiction of the SEC under
the Holding Company Act with respect to the issuance, acquisition and
sale of securities, the acquisition and sale of certain assets or any
interest in any business and accounting practices and other matters.
The Holding Company Act generally limits the operations of a
registered holding company to a single integrated public utility
system, plus such additional businesses as are functionally related
to such system.
The Electric Operating Companies have been classified as public
utilities under the Federal Power Act and accordingly the FERC has
jurisdiction in certain respects over their electric utility
facilities and operations, wholesale rates, and in certain other
matters.
The Electric Operating Companies are subject to the jurisdiction
of various state commissions as to rates, accounting matters,
standards of service and, in some cases, issuance of securities,
certification of facilities and extensions and division of service
territory.
1-13
CPL, SWEPCO and WTU
The Texas Commission has jurisdiction over accounts,
certification of utility service territory, sales of certain utility
property, mergers and certain other matters. Neither the Texas
Commission nor the governing bodies of incorporated municipalities
have jurisdiction over the issuance of securities.
CPL
Ownership of an interest in a nuclear generating unit exposes
CPL and indirectly CSW to regulation not common to a fossil
generating unit. Under the Atomic Energy Act of 1954 and the Energy
Reorganization Act of 1974, operation of nuclear plants is
intensively regulated by the NRC, which has broad power to impose
licensing and safety-related requirements. Along with other federal
and state agencies, the NRC also has extensive regulations pertaining
to the environmental aspects of nuclear reactors. The NRC has the
authority to impose fines and/or shut down a unit until compliance is
achieved, depending upon its assessment of the severity of the
situation.
For a discussion of NRC regulation and other considerations
arising from the ownership of nuclear assets, see NUCLEAR-STP, below.
Other
See ENVIRONMENTAL MATTERS below, for information relating to
environmental regulation.
Rates
CSW, CPL, PSO, SWEPCO and WTU
The retail rates of the Electric Operating Companies are subject
to regulation by the state utility commissions in the states in which
they operate.
CPL, SWEPCO and WTU
The Texas Commission has original jurisdiction over retail rates
in the unincorporated areas of Texas. The governing bodies of
incorporated municipalities have original jurisdiction over rates
within their incorporated limits. Municipalities may elect, and some
have elected, to surrender this jurisdiction to the Texas Commission.
The Texas Commission has appellate jurisdiction over rates set by
incorporated municipalities.
PSO
PSO is subject to the jurisdiction of the Oklahoma Commission
with respect to retail prices, accounts, issuance of certain
securities and certain other matters.
Pursuant to authority granted under RESCTA, the Oklahoma
Commission established service territorial boundary maps in all
unincorporated areas for all regulated retail electric suppliers
serving Oklahoma. In accordance with RESCTA, a retail electric
supplier may not extend retail electric service into the certified
territory of another supplier, except to serve its own facilities or
to serve a new customer with an initial full load of 1,000 KW or
more. RESCTA provides that when any territory certified to a retail
electric supplier or suppliers is annexed and becomes part of an
incorporated city or town, the certification becomes null and void.
However, once established in the annexed territory, a supplier may
generally continue to serve within the annexed area.
SWEPCO
In Arkansas, SWEPCO is subject to the jurisdiction of the
Arkansas Commission as to rates, accounts, standards of service, sale
or acquisition of certain utility property and issuance of securities
by liens on property located in that state. In Louisiana, SWEPCO is
subject to the jurisdiction of the Louisiana Commission as to rates,
accounts and standards of service, but not as to the issuance of
securities. In Oklahoma, SWEPCO is subject to the jurisdiction of
the Oklahoma Commission only as to the issuance of evidences of
indebtedness secured by liens on property located in that state.
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SWEPCO has agreements, which have been approved by the FERC,
with all of its wholesale customers under which rates are based upon
an agreed cost of service formula. These rates are adjusted
periodically to reflect the actual cost of providing service. All of
SWEPCO's contracts with its wholesale customers contain FERC approved
fuel-adjustment provisions that permit it to pass actual fuel costs
through to its customers.
Fuel Recovery in Texas
CSW, CPL, SWEPCO and WTU
Electric utilities in Texas, including CPL, SWEPCO and WTU, are
not allowed to make automatic adjustments to recover changes in fuel
costs from retail customers. A utility is allowed to recover its
known or reasonably predictable fuel costs through a fixed fuel
factor. The Texas Commission established procedures that became
effective on May 1, 1993, subject to certain transition rules,
whereby each utility under its jurisdiction may petition to revise
its fuel factor every six months according to a specified schedule.
Fuel factors may also be revised in the case of emergencies or in a
general rate proceeding. Under the revised procedures, a utility
will remain subject to the prior rules until after its first fuel
reconciliation, or in some instances, a general rate proceeding
including a fuel reconciliation. To date, the new fuel rule has not
significantly changed the manner in which the Electric Operating
Companies recover retail fuel costs in Texas. Fuel factors are in
the nature of temporary rates and the utility's collection of
revenues by such factors is subject to adjustments at the time of a
fuel reconciliation. Under the procedures, at the utility's semi-
annual adjustment date, a utility will be required to petition the
Texas Commission for a surcharge or to make a refund when it has
materially under- or over-collected its fuel costs and projects that
it will continue to materially under- or over-collect. Material
under- or over-collections including interest are defined as four
percent of the most recent Texas Commission adopted annual estimated
fuel cost for the utility. A utility does not have to revise its
fuel factor when requesting a surcharge or refund. An interim
emergency fuel factor order must be issued by the Texas Commission
within 30 days after such petition is filed by the utility. Final
reconciliation of fuel costs is made through a reconciliation
proceeding, which may contain a maximum of three years and a minimum
of one year of reconcilable data, and must be filed with the Texas
Commission no later than six months after the end of the period to be
reconciled. In addition, a utility must include a reconciliation of
fuel costs in any general rate proceeding regardless of the time
since its last fuel reconciliation proceeding. Any fuel costs that
are determined unreasonably incurred in a reconciliation proceeding
are not recoverable from retail customers.
Fuel Recovery in Oklahoma
CSW and PSO
All KWH sales to PSO's retail customers for 1994 were made under
rates which include a fuel cost adjustment clause. Oklahoma law
requires that an examination of PSO's retail fuel cost adjustment
clause be performed annually by the Oklahoma Commission. The fuel
cost adjustment is computed for each month on the basis of the
average cost of fuel consumed in the month. The amount of any
difference in such cost over or under a base rate is applied on a KWH
basis and reflected in adjustments to customers' bills during the
second month subsequent to the month in which the difference
occurred.
The FUSER program for qualified commercial and industrial
customers and the CSF program, for qualified wholesale customers,
were developed to allow program participants to purchase natural gas
directly from suppliers, at negotiated prices, to be delivered to and
burned in PSO's gas-fired power plants, resulting in reduced prices
because of the low cost spot gas fuel provided. Under these programs
participants could deliver sufficient quantities of natural gas to
meet 70% of their generation requirements with the remaining 30% met
with PSO-supplied coal. The FUSER and CSF programs resulted in lower
electric costs to all classes of PSO's customers. The FUSER program
was canceled effective October 1, 1993 because changing market and
supply conditions eliminated the economic viability of the program.
The CSF program remains in place although no customers participated
in the program during 1994.
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Fuel Recovery in Louisiana and Arkansas
CSW and SWEPCO
SWEPCO's retail rates currently in effect in Louisiana are
adjusted based on SWEPCO's cost of fuel in accordance with a fuel
cost adjustment which is applied to each billing month based on the
second previous month's average cost of fuel. Provision for any over-
or under-recovery of fuel costs is allowed under an automatic fuel
clause.
Under SWEPCO's fuel adjustment rider currently in effect in
Arkansas, the fuel cost adjustment is applied for each billing month
on a basis which permits SWEPCO to recover the level of fuel cost
experienced two months earlier.
Fuel Recovery from Wholesale Customers
CSW, CPL, PSO, SWEPCO and WTU
All of the Electric Operating Companies' contracts with their
wholesale customers contain FERC approved fuel-adjustment provisions
for recovery of fuel costs.
Other
CSW, CPL, PSO, SWEPCO and WTU
In the event that the Electric Operating Companies do not
recover all of their fuel costs under the procedures described above,
such event could have a material adverse effect on the companies'
results of operations and financial condition.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS for CSW, CPL, PSO, SWEPCO and
WTU, and ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE
10, for CSW, NOTE 9 for CPL, SWEPCO, and WTU and NOTE 8 for PSO,
Litigation and Regulatory Proceedings, for further information with
respect to rate proceedings including CPL's rate case and fuel
reconciliation proceedings, PSO's rate proceedings, SWEPCO's fuel
reconciliation proceedings, WTU's rate matters and fuel
reconciliation and CPL's and WTU's deferred accounting matters.
NUCLEAR - STP
CSW and CPL
CPL owns 25.2% of STP, a two-unit nuclear power plant which is
located near Bay City, Texas. In addition, HLP, the Project Manager,
owns 30.8%; San Antonio owns 28.0%; and Austin owns 16.0%. STP Unit
1 was placed in service in August 1988 and STP Unit 2 was placed in
service in June 1989.
STP Outage
From February 1993 until May 1994 STP experienced an unscheduled
outage which has resulted in significant rate and regulatory
proceedings involving CPL.
Nuclear Decommissioning
At the end of STP's service life, decommissioning is expected to
be accomplished using the decontamination method, which is one of the
techniques acceptable to the NRC. Using this method the
decontamination activities occur as soon as possible after the end of
plant operations. Contaminated equipment is cleaned or removed to a
permanent disposal location and the site is generally returned to its
pre-plant state.
CPL's decommissioning costs are accrued and funded to an
external trust over the expected service life of the STP units. The
existing NRC operating licenses will allow the operation of STP Unit
1 until 2027, and Unit 2 until 2028. The accrual is an annual level
cost based on the estimated future cost to decommission STP,
including escalations for expected inflation to the expected time of
decommissioning and is net of expected earnings on the trust fund.
1-16
Deferred Accounting
CPL was granted deferred accounting for STP Unit 1 and 2 costs
by Texas Commission orders. These orders allowed CPL to defer post-
in-service operating and maintenance costs, including taxes and
depreciation, and carrying costs until these costs were reflected in
retail rates. Deferred accounting had an immediate positive effect
on net income in the years allowed, but cash earnings were not
increased until rates went into effect reflecting STP in service.
See CSW's and CPL's ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE 10 for CSW and
NOTE 9 for CPL, Litigation and Regulatory Proceedings, for further
information with respect to CPL's rate case and fuel reconciliation
proceedings, nuclear decommissioning and deferred accounting.
Other
See ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE
11 for CSW and NOTE 10 for CPL, Commitments and Contingent
Liabilities for further information related to nuclear insurance for
STP.
1-17
UTILITY OPERATIONS
Facilities
At December 31, 1994, the Electric Operating Companies owned
electric generating plants, or portions thereof in the case of
jointly-owned plants, with the following net dependable summer rating
capabilities, substantially all of which were steam electric and
which were located in the cities indicated:
Net Dependable
Capability
Plant Name and Location Principal Fuel (MW) (b)
Source (a)
CSW and CPL
Barney M. Davis, Corpus Christi, Gas 679
Texas
Coleto Creek, Goliad, Texas Coal 604
Lon C. Hill, Corpus Christi, Texas Gas 549
Nueces Bay, Corpus Christi, Texas Gas 512 (c)
Victoria, Victoria, Texas Gas 258 (c)
La Palma, San Benito, Texas Gas 203 (c)
E.S. Joslin, Point Comfort, Texas Gas 252
J. L. Bates, Mission, Texas Gas 182
Laredo, Laredo, Texas Gas 172
Eagle Pass, Eagle Pass, Texas Hydro 6
Oklaunion, Vernon, Texas (b) Coal 53 (d)
STP, Bay City, Texas (b) Nuclear 630 (e)
CPL Total 4,100 (c)
CSW and PSO
Comanche, Lawton, Oklahoma Gas 258
Oil 4
Northeastern, Oologah, Oklahoma Gas 632
Coal 924
Oil 4
Riverside, Jenks, Oklahoma Gas 922
Oil 3
Southwestern, Washita, Oklahoma Gas 475
Oil 2
Tulsa, Tulsa, Oklahoma Gas 162 (c)
Oil 8
Weleetka, Weleetka, Oklahoma Gas 151
Oil 4
Oklaunion, Vernon, Texas (b) Coal 106 (d)
PSO Total 3,655 (c)
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(Continued) Net Dependable
Capability
Plant Name and Location Principal Fuel (MW) (b)
Source (a)
CSW and SWEPCO
Arsenal Hill, Shreveport, Gas 113
Louisiana
Lieberman, Mooringsport, Louisiana Gas 276
Knox Lee, Cherokee Lake, Texas Gas 501
Lone Star, Daingerfield, Texas Gas 50
Wilkes, Jefferson, Texas Gas 879
Welsh, Cason, Texas Coal 1,584
Flint Creek, Gentry, Arkansas (b) Coal 240
Henry W. Pirkey, Hallsville,
Texas (b) Lignite 559
Dolet Hills, Mansfield, Texas (b) Lignite 262
SWEPCO Total 4,464
CSW and WTU
Abilene, Abilene, Texas Gas 18
Paint Creek, Haskell, Texas Gas 237
Lake Pauline, Quanah, Texas Gas 46
Oak Creek, Bronte, Texas Gas 87
San Angelo, San Angelo, Texas Gas 125
Rio Pecos, Girvin, Texas Gas 140
Fort Phantom, Abilene, Texas Gas (f) 362
Presidio, Presidio, Texas Oil 2
Ft. Stockton, Ft. Stockton, Texas Gas 5
Vernon, Vernon, Texas Oil 9
Oklaunion, Vernon, Texas (b) Coal 370 (d)
WTU Total 1,401
CSW 13,620
Plant in storage 557
CSW Total 14,177
Facilities Notes
CSW, CPL, PSO, SWEPCO and WTU
(a)Some plants have the capability of burning oil in combination
with gas. Use of oil in facilities primarily designed to burn
gas results in increased maintenance expense and a reduction of
approximately from 5% to 15% in capability. PSO and WTU have 25
MW and 11 MW, respectively, of facilities primarily designed to
burn oil.
(b)Data reflects only CSW System's portion of plants which are
jointly owned with non-affiliates.
(c)Excludes units in storage - 34 MW at Nueces Bay, 228 MW at
Victoria, 48 MW at La Palma for CPL and 247 MW at Tulsa for PSO.
(d)CPL owns 7.81%, PSO owns 15.62% and WTU owns 54.69% of the 676 MW
unit. The plant is operated by WTU.
(e)CPL owns 25.2% of the two 1,250 MW units operated by HLP.
(f)Although both Fort Phantom units burn primarily gas, Unit 1 is
designed to burn fuel oil for extended periods of time before
maintenance is required and Unit 2 is designed to burn fuel oil
on a continuous basis.
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Plants and Properties
CSW, CPL, PSO, SWEPCO and WTU
All of the generating plants described above are located on
land owned by the Electric Operating Companies or jointly with other
participants in the case of jointly owned plants. The Electric
Operating Companies' electric transmission and distribution
facilities are mostly located over or under highways, streets and
other public places or property owned by others, for which permits,
grants, easements or licenses (which the Electric Operating
Companies believe to be satisfactory, but without examination of
underlying land titles) have been obtained. The principal plants
and properties of the Electric Operating Companies are subject to
the liens of the first mortgage indentures under which the Electric
Operating Companies' bonds are issued.
Peak Loads and System Capabilities of the Electric Operating
Companies
CSW, CPL, PSO, SWEPCO and WTU
The following tables set forth for the last three years (i) the
net system capability, including the net amounts of contracted
purchases and contracted sales, at the time of peak demand, (ii) the
maximum coincident system demand on a one-hour integrated basis,
exclusive of sales to other electric utilities, and (iii) the
respective amounts and percentages of peak demand generated by the
Electric Operating Companies and net purchases and sales:
CSW 1994 1993 1992
NET SYSTEM CAPABILITY (MW) 13,549(3) 13,163(1)(2)(3) 13,230(1)(3)
MAXIMUM COINCIDENT SYSTEM DEMAND (MW) 11,434 11,464 10,606
PERCENTAGE INCREASE (DECREASE) IN PEAK
DEMAND OVER PRIOR PERIOD (0.3)% 8.1% 3.9%
GENERATION AT TIME OF PEAK (MW) 11,353 10,624 10,426
PERCENT OF PEAK DEMAND GENERATED 99.3% 92.7% 98.3%
NET PURCHASES (SALES) AT TIME OF
PEAK (MW) 81 840 180
PERCENT OF NET PURCHASES (SALES) AT
TIME OF PEAK .7% 7.3% 1.7%
DATE OF MAXIMUM COINCIDENT SYSTEM
DEMAND JUNE 27 AUGUST 18 AUGUST 10
(1) CSW's 1993 net system capability at the time of peak demand was
less than 1992 net system capability due to unit outages.
(2) Does not include 630 MW of STP capability that was not available
at the 1993 peak due to the outage described in ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA - NOTE 10 for CSW, Litigation and
Regulatory Proceedings and NUCLEAR - STP, in ITEM 1.
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(3) Does not include 881 MW of system capability for 1994, 719 MW of
system capability for 1993 and 1992.
CPL 1994 1993 1992
NET SYSTEM CAPABILITY (MW) 3,969(2) 3,850(1)(2) 4,165(2)
MAXIMUM COINCIDENT SYSTEM DEMAND (MW) 3,732 3,518 3,347
PERCENTAGE INCREASE (DECREASE) IN PEAK
DEMAND OVER PRIOR PERIOD 6.1% 5.1% 1.7%
GENERATION AT TIME OF PEAK (MW) 3,074 2,943 3,003
PERCENT OF PEAK DEMAND GENERATED 82.4% 83.7% 89.7%
NET PURCHASES (SALES) AT TIME OF PEAK (MW) 658 575 344
PERCENT OF NET PURCHASES (SALES) AT TIME
OF PEAK 17.6% 16.3% 10.3%
DATE OF MAXIMUM COINCIDENT SYSTEM DEMAND AUGUST 18 AUGUST 25 AUGUST 11
(1) Does not include 630 MW of STP capability that was not available
at the 1993 peak due to the outage described in ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA - NOTE 9 for CPL, Litigation and
Regulatory Proceedings and NUCLEAR - STP, in ITEM 1.
(2) Does not include 310 MW of system capability in storage as
described above under the heading UTILITY OPERATIONS - Facilities.
PSO 1994 1993 1992
NET SYSTEM CAPABILITY (MW) 3,664(1) 3,649(1) 3,721(1)
MAXIMUM COINCIDENT SYSTEM DEMAND (MW) 3,167 3,147 3,010
PERCENTAGE INCREASE (DECREASE) IN PEAK
DEMAND OVER PRIOR PERIOD 0.6% 4.6% (2.3)%
GENERATION AT TIME OF PEAK (MW) 2,645 2,609 2,788
PERCENT OF PEAK DEMAND GENERATED 83.5% 82.9% 92.6%
NET PURCHASES (SALES) AT TIME OF PEAK (MW) 522 538 222
PERCENT OF NET PURCHASES (SALES) AT TIME
OF PEAK 16.5% 17.1% 7.4%
DATE OF MAXIMUM COINCIDENT SYSTEM DEMAND JUNE 27 AUGUST 18 AUGUST 10
(1) Does not include 247 MW of system capability for 1994, and 409
MW of system capability for 1993 and 1992 in storage, as described
above under the heading UTILITY OPERATIONS - Facilities.
SWEPCO 1994 1993 1992
NET SYSTEM CAPABILITY (MW) 4,464(1) 4,436 3,959
MAXIMUM COINCIDENT SYSTEM DEMAND (MW) 3,526 3,651 3,237
PERCENTAGE INCREASE (DECREASE) IN PEAK
DEMAND OVER PRIOR PERIOD (3.4%) 12.8% 1.2%
GENERATION AT TIME OF PEAK (MW) 3,987 3,559 3,292
PERCENT OF PEAK DEMAND GENERATED 113.1% 97.5% 101.7%
NET PURCHASES (SALES) AT TIME OF PEAK (MW) (461) 92 (55)
PERCENT OF NET PURCHASES (SALES) AT TIME
OF PEAK (13.1%) 2.5% (1.7)%
DATE OF MAXIMUM COINCIDENT SYSTEM DEMAND JUNE 27 AUGUST 18 AUGUST 10
(1) Does not include 324 MW of capability that was not available at
the 1994 peak.
WTU 1994 1993 1992
NET SYSTEM CAPABILITY (MW) 1,459 1,384 1,404
MAXIMUM COINCIDENT SYSTEM DEMAND (MW) 1,262 1,201 1,118
PERCENTAGE INCREASE (DECREASE) IN PEAK
DEMAND OVER PRIOR PERIOD 5.1% 7.4% 1.9%
GENERATION AT TIME OF PEAK (MW) 1,401 1,223 1,151
PERCENT OF PEAK DEMAND GENERATED 111.0% 101.8% 102.9%
NET PURCHASES (SALES) AT TIME OF PEAK (MW) (139) (22) (33)
PERCENT OF NET PURCHASES (SALES) AT TIME
OF PEAK (11.0%) (1.8%) (2.9)%
DATE OF MAXIMUM COINCIDENT SYSTEM DEMAND JUNE 27 AUGUST 11 JULY 1
Power Purchases and Sales
CSW, CPL, PSO, SWEPCO and WTU
Various municipalities, electric cooperatives and public power
authorities are served by the Electric Operating Companies. The
Electric Operating Companies exchange power on an emergency or
economy basis with various neighboring systems and engage in economy
interchanges with each other. In addition, they contract with certain
suppliers for the purchase or sale of power on a unit capacity basis.
CSW and SWEPCO
As part of the negotiations to acquire BREMCO, SWEPCO entered
into a long-term purchased power contract with Cajun, BREMCO's
previous full-requirements wholesale supplier. The contract covered
the purchase of energy at a fixed price for 1993 and 1994, and the
purchase of capacity and energy in subsequent years. SWEPCO is a
member of the Southwest Power Pool and the Western Systems Power
Pool.
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CSW, SWEPCO and WTU
On April 4, 1994, the FERC issued an order pursuant to Section
211 of the Federal Power Act forcing a regional utility to transmit
power to Tex-La on behalf of WTU. The order was one of the first
issued by FERC under that provision, which was added by the Energy
Policy Act to increase competition in wholesale power markets. On
December 1, 1994, the FERC issued an order requiring a regional
utility to provide this transmission service at a cost which was
acceptable to Tex-La. The FERC also ordered the same regional
utility to enter into an interconnection and remote control area load
agreement with WTU within 30 days. This agreement was executed on
January 3, 1995. On January 5, 1995, WTU began selling 92 MW of
power and energy to Tex-La. Tex-La has a peak requirement of
approximately 120 MWs. WTU will serve Tex-La until facilities are
completed to connect Tex-La to SWEPCO, at which time SWEPCO will
provide 85 MW and WTU will retain 35 MW of the Tex-La electric load.
CSW and PSO
In 1989, PSO entered into certain long-term contracts with MCPC,
a cogeneration development company located in northeastern Oklahoma.
These contracts include (i) an Interconnection and Interchange
Agreement providing terms and conditions under which MCPC can connect
its electric generating facilities to PSO's transmission system and
providing for future transmission by PSO of specified amounts of
MCPC's power to an unaffiliated utility, (ii) a Stock/Asset Purchase
Agreement which allows PSO under certain conditions to acquire the
stock or assets of MCPC, and (iii) an Energy Conversion Agreement
which requires PSO to deliver natural gas to MCPC for conversion to
electrical energy to be delivered by MCPC to PSO. Under the Energy
Conversion Agreement, MCPC is required to deliver at least 394,200
MWH per year of firm energy to PSO. PSO also has the right to
dispatch up to 60 MWH per hour of quick-start capability.
PSO and MCPC filed a joint application with the Oklahoma
Commission seeking approval of a September 1992 Letter Agreement
between PSO and MCPC which provided for MCPC granting two-year
extensions to the Interconnection and Interchange Agreement and the
Energy Conversion Agreement in exchange for PSO not requiring payment
by MCPC of certain debt and charges related to the Energy Conversion
Agreement. The Oklahoma Commission Staff subsequently filed its own
application seeking a review and evaluation of the current value to
PSO of the Energy Conversion Agreement. MCPC also filed an
application with the Oklahoma Commission requesting additional relief
through the modification of the existing Energy Conversion
Agreement. An emergency order was issued under MCPC's application
which increased the payment made by PSO to MCPC for energy purchases
and decreased the amount of firm energy MCPC is required to deliver
to PSO. The emergency order is subject to a permanent ruling. The
application filed by the Oklahoma Commission Staff was subsequently
withdrawn. In December 1993, PSO filed an application with an ALJ to
dismiss the case filed by MCPC based on a recent ruling from the
Oklahoma Supreme Court. PSO's application to dismiss was denied by
the ALJ and was appealed to the Oklahoma Commission. PSO's appeal
was subsequently denied. The joint application and MCPC's
application are expected to be heard by the second quarter of 1995.
In July 1993, PSO commenced a lawsuit in the District Court of
Tulsa County, Oklahoma, seeking a declaratory judgment that PSO is
entitled to terminate the Energy Conversion Agreement as of August 1,
1993, because of a default committed by MCPC. In November 1993, the
Court granted judgment in favor of MCPC on grounds that the Oklahoma
Commission had exclusive jurisdiction of the case and also that PSO
had contractually waived its cause of action. PSO has appealed the
Court's ruling to the Oklahoma Supreme Court, where the case is
pending.
SWEPCO
SWEPCO furnishes energy at wholesale to two municipalities and
also supplies electric energy at wholesale to eight electric
cooperatives operating in its territory through NTEC, Tex-La and
Rayburn Country. SWEPCO also sells power to AECC and Cajun on an as-
available basis.
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WTU
WTU provides wholesale electricity to four electric cooperatives
and one municipality for all their electric energy requirements. WTU
also provides wholesale power to eight other electric cooperatives,
one other municipal customer and one investor owned electric utility
company. WTU's contractual obligations with thirteen of its
wholesale customers require a five year notice of termination, while
one wholesale customer has a three year notice period and another has
a fifteen year obligation.
System Interconnections
CSW, CPL, PSO, SWEPCO and WTU
The CSW System operates on an interstate basis to facilitate
exchanges of power. PSO and WTU are interconnected through the 200
MW North HVdc Tie. In August 1992, SWEPCO and CPL entered into an
agreement with HLP and TU to construct and operate an East Texas HVdc
transmission interconnection which will facilitate exchanges of power
for the CSW System. This interconnection will consist of a back-to-
back HVdc converter station and 16 miles of 345 KV transmission line
connecting transmission substations at SWEPCO's Welsh Power Plant and
TU's Monticello Power Plant. In March 1993, an application for a
Certificate of Convenience and Necessity for the transmission
interconnection was approved by the Texas Commission. This 600 MW
project is scheduled to be completed in mid-1995.
CPL and WTU are members of ERCOT, which also includes TU, HLP,
Texas Municipal Power Agency, Texas Municipal Power Pool, Lower
Colorado River Authority, the municipal systems of San Antonio,
Austin and Brownsville, the South Texas and Medina Electric
Cooperatives, and several other interconnected systems and
cooperatives. The ERCOT members interchange power and energy on a
firm, economy and emergency basis.
Seasonality
CSW, CPL, PSO, SWEPCO and WTU
Sales of electricity by the Electric Operating Companies tend to
increase during warmer summer months and, to a lesser extent, cooler
winter months, because of higher demand for power for cooling and
heating purposes.
Franchises
CSW, CPL, PSO, SWEPCO and WTU
The Electric Operating Companies hold franchises to provide
electric service in various municipalities in their service areas.
These franchises have varying provisions and expiration dates
including, in some cases, termination and buy-out provisions. CSW
considers the Electric Operating Companies' franchises to be adequate
for the conduct of their business.
Employees
CSW, CPL, PSO, SWEPCO and WTU
At December 31, 1994, CSW had 8,055 employees, as follows:
CSWS 1,070
CPL 1,933
PSO 1,552
SWEPCO 1,777
WTU 1,090
TRANSOK 554
CSWE 79
8,055
1-23
Approximately 600 employees at PSO and 700 employees at SWEPCO
are covered under collective bargaining agreements with the IBEW.
CSW implemented a restructuring plan in 1994 which resulted in a
reduction of approximately 7% of the CSW System work force.
Executive Officers of the
Registrant
The following information is included in Part I pursuant to
Regulation S-K, Item 401(b), Instruction 3.
CSW
Age
Name at March 16, Present Position
1995
E. R. Brooks 57 Chairman, President and CEO,
Director
Harry D. Mattison 58 Executive Vice President of CSW
and President and CEO of Central
and South West Electric, Director
T. V. Shockley, III 50 Executive Vice President of CSW
and President and CEO of Central
and South West Enterprises,
Director
Ferd. C. Meyer, Jr. 55 Senior Vice President and General
Counsel
Glenn D. Rosilier 47 Senior Vice President and CFO
Frederic L. Frawley 52 Corporate Secretary and Senior
Attorney
Stephen J. McDonnell 44 Treasurer
Wendy G. Hargus 37 Controller
Each of the executive officers of CSW is elected to hold office
until the first meeting of the CSW's Board of Directors after the
next annual meeting of stockholders. CSW's next annual meeting of
stockholders is scheduled to be held April 20, 1995. Each of the
executive officers listed in the table above has been employed by CSW
or an affiliate of CSW in an executive or managerial capacity for
more than the last five years.
1-24
OPERATING STATISTICS
CSW
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED ELECTRIC OPERATING STATISTICS
1994 1993 1992
KILOWATT-HOUR SALES (MILLIONS)
RESIDENTIAL 16,368 15,903 14,593
COMMERCIAL 13,463 12,966 12,370
INDUSTRIAL 18,869 18,205 17,257
OTHER RETAIL 1,501 1,434 1,363
SALES TO RETAIL CUSTOMERS 50,201 48,508 45,583
SALES FOR RESALE 7,133 5,852 6,262
TOTAL 57,334 54,360 51,845
NUMBER OF ELECTRIC CUSTOMERS AT END
OF PERIOD (THOUSANDS)
RESIDENTIAL 1,417 1,396 1,366
COMMERCIAL 205 201 196
INDUSTRIAL 24 24 25
OTHER 15 12 12
TOTAL 1,661 1,633 1,599
RESIDENTIAL SALES AVERAGES
KWH PER CUSTOMER 11,665 11,541 10,786
REVENUE PER CUSTOMER(a) $824 $842 $773
REVENUE PER KWH(a)(cents) 7.06 7.29 7.17
REVENUE PER KWH ON TOTAL SALES (a)(cents) 5.35 5.62 5.38
FUEL COST DATA (a)
AVERAGE Btu PER NET KWH 10,344 10,391 10,482
COST PER MILLION Btu $1.82 $2.11 $1.92
COST PER KWH GENERATED (cents) 1.88 2.19 2.01
COST AS A PERCENTAGE OF REVENUE 37.9% 39.6% 37.1%
(a) These statistics reflect the outage at STP in 1993 and early
1994 as well as FUSER and CSF in 1993 and 1992.
1-25
CPL
CENTRAL POWER AND LIGHT COMPANY
OPERATING STATISTICS
1994 1993 1992
KILOWATT-HOUR SALES (MILLIONS)
RESIDENTIAL 5,954 5,612 5,408
COMMERCIAL 4,523 4,278 4,181
INDUSTRIAL 6,910 6,406 5,800
OTHER RETAIL 457 435 414
SALES TO RETAIL CUSTOMERS 17,844 16,731 15,803
SALES FOR RESALE 1,286 913 1,370
TOTAL 19,130 17,644 17,173
NUMBER OF ELECTRIC CUSTOMERS AT END
OF PERIOD
RESIDENTIAL 516,355 504,893 493,772
COMMERCIAL 76,739 74,767 73,200
INDUSTRIAL (a) 5,864 6,156 6,307
OTHER 3,577 3,538 3,561
TOTAL 602,535 589,354 576,840
RESIDENTIAL SALES AVERAGES
KWH PER CUSTOMER 11,729 11,298 11,133
REVENUE PER CUSTOMER (b) $935 $955 $890
REVENUE PER KWH (b) (cents) 7.97 8.45 7.99
REVENUE PER KWH ON TOTAL SALES (b)(cents) 6.37 6.93 6.48
FUEL COST DATA (b)
AVERAGE Btu PER NET KWH 10,289 10,296 10,404
COST PER MILLION Btu $1.75 $2.17 $1.70
COST PER KWH GENERATED (cents) 1.80 2.23 1.77
COST AS A PERCENTAGE OF REVENUE 27.0% 28.6% 27.6%
(a) The customer decrease in 1994 was due primarily to the combining
of multiple customer accounts into single accounts and a decline in
customers due to economic and competitive conditions. The customer
decrease in 1993 was largely due to the combining of multiple
customer accounts into single accounts.
(b) These statistics reflect the outage at STP in 1993 and early
1994.
1-26
PSO
PUBLIC SERVICE COMPANY OF OKLAHOMA
OPERATING STATISTICS
1994 1993 1992
KILOWATT-HOUR SALES (MILLIONS)
RESIDENTIAL 4,749 4,714 4,139
COMMERCIAL 4,434 4,352 4,092
INDUSTRIAL 4,360 4,445 4,420
OTHER RETAIL 89 87 85
SALES TO RETAIL CUSTOMERS 13,632 13,598 12,736
SALES FOR RESALE 1,509 563 665
TOTAL 15,141 14,161 13,401
NUMBER OF ELECTRIC CUSTOMERS AT END
OF PERIOD
RESIDENTIAL 409,675 406,847 404,170
COMMERCIAL 53,454 53,166 52,215
INDUSTRIAL 5,156 5,087 5,163
OTHER 1,287 1,008 1,009
TOTAL 469,572 466,108 462,557
RESIDENTIAL SALES AVERAGES
KWH PER CUSTOMER 11,640 11,637 10,297
REVENUE PER CUSTOMER $726 $731 $642
REVENUE PER KWH (cents) 6.24 6.28 6.24
REVENUE PER KWH ON TOTAL SALES (a)(cents) 4.89 5.00 4.64
FUEL COST DATA (a)
AVERAGE Btu PER NET KWH 10,231 10,220 10,305
COST PER MILLION Btu $1.96 $2.38 $2.34
COST PER KWH GENERATED(cents) 2.00 2.43 2.41
COST AS A PERCENTAGE OF REVENUE 39.5% 43.7% 40.3%
(a) These statistics reflect FUSER and CSF in 1993 and 1992. See
REGULATION AND RATES and FUEL SUPPLY.
1-27
SWEPCO
SOUTHWESTERN ELECTRIC POWER COMPANY
OPERATING STATISTICS
1994 1993 1992
KILOWATT-HOUR SALES (MILLIONS)
RESIDENTIAL 4,157 4,114 3,702
COMMERCIAL 3,378 3,249 3,039
INDUSTRIAL 6,357 6,122 5,862
OTHER RETAIL 400 390 373
SALES TO RETAIL CUSTOMERS 14,292 13,875 12,976
SALES FOR RESALE 5,189 4,508 3,854
TOTAL 19,481 18,383 16,830
NUMBER OF ELECTRIC CUSTOMERS AT END
OF PERIOD
RESIDENTIAL 346,227 340,379 325,301
COMMERCIAL 48,153 46,728 45,185
INDUSTRIAL 5,747 5,809 5,687
OTHER 2,609 2,605 2,636
TOTAL 402,736 395,521 378,809
RESIDENTIAL SALES AVERAGES
KWH PER CUSTOMER 12,107 12,357 11,445
REVENUE PER CUSTOMER $776 $822 $770
REVENUE PER KWH (cents) 6.41 6.65 6.73
REVENUE PER KWH ON TOTAL SALES (cents) 4.24 4.60 4.62
FUEL COST DATA
AVERAGE Btu PER NET KWH 10,489 10,582 10,717
COST PER MILLION Btu $1.75 $1.94 $1.93
COST PER KWH GENERATED (cents) 1.84 2.05 2.07
COST AS A PERCENTAGE OF REVENUE 40.6% 42.5% 43.0%
1-28
WTU
WEST TEXAS UTILITIES COMPANY
OPERATING STATISTICS
1994 1993 1992
KILOWATT-HOUR SALES (MILLIONS)
RESIDENTIAL 1,508 1,464 1,344
COMMERCIAL 1,128 1,087 1,057
INDUSTRIAL 1,241 1,231 1,175
OTHER RETAIL 556 522 491
SALES TO RETAIL CUSTOMERS 4,433 4,304 4,067
SALES FOR RESALE 2,051 2,288 1,951
TOTAL 6,484 6,592 6,018
NUMBER OF ELECTRIC CUSTOMERS AT END
OF PERIOD
RESIDENTIAL 144,966 143,453 142,270
COMMERCIAL 26,618 26,001 25,714
INDUSTRIAL 7,392 7,453 7,384
OTHER 5,533 5,361 5,254
TOTAL 184,509 182,268 180,622
RESIDENTIAL SALES AVERAGES
KWH PER CUSTOMER 10,449 10,241 9,485
REVENUE PER CUSTOMER $822 $811 $752
REVENUE PER KWH (cents) 7.86 7.92 7.93
REVENUE PER KWH ON TOTAL SALES (cents) 5.29 5.24 5.24
FUEL COST DATA
AVERAGE Btu PER NET KWH 10,424 10,491 10,445
COST PER MILLION Btu $1.88 $1.91 $1.82
COST PER KWH GENERATED (cents) 1.96 2.00 1.91
COST AS A PERCENTAGE OF REVENUE 38.3% 39.1% 38.0%
1-29
CONSTRUCTION AND FINANCING
CSW, CPL, PSO, SWEPCO and WTU
The CSW System maintains a continuing construction program, the
nature and extent of which is based upon current and estimated future
loads of the system. The estimated total capital expenditures,
including AFUDC, of the CSW System for the years 1995-1997 are as
follows:
CSW
CONSTRUCTION 1995 1996 1997 TOTAL
(MILLIONS)
GENERATION $ 47 $ 37 $ 43 $ 127
TRANSMISSION 35 85 59 179
DISTRIBUTION 146 138 131 415
FUEL 4 21 12 37
TRANSOK 63 40 40 143
OTHER 90 61 73 224
TOTAL $385 $382 $358 $1,125
CPL
CONSTRUCTION 1995 1996 1997 TOTAL
(MILLIONS)
GENERATION $ 23 $ 20 $ 19 $ 62
TRANSMISSION 16 28 11 55
DISTRIBUTION 45 59 57 161
FUEL 4 21 12 37
OTHER 23 8 11 42
TOTAL $111 $136 $110 $357
PSO
CONSTRUCTION 1995 1996 1997 TOTAL
(MILLIONS)
GENERATION $11 $ 9 $18 $ 38
TRANSMISSION 6 20 13 39
DISTRIBUTION 35 29 29 93
OTHER 19 13 11 43
TOTAL $71 $71 $71 $213
SWEPCO
CONSTRUCTION 1995 1996 1997 TOTAL
(MILLIONS)
GENERATION $12 $ 7 $ 5 $ 24
TRANSMISSION 10 34 28 72
DISTRIBUTION 48 31 27 106
OTHER 26 22 34 82
TOTAL $96 $94 $94 $284
WTU
CONSTRUCTION 1995 1996 1997 TOTAL
(MILLIONS)
GENERATION $ 1 $ 1 $ 1 $ 3
TRANSMISSION 3 3 7 13
DISTRIBUTION 18 19 18 55
OTHER 15 13 11 39
TOTAL $37 $36 $37 $110
Information in the foregoing tables is subject to change as a
result of change in the underlying assumptions from numerous
factors, including the rate of load growth, escalation of
construction costs, changes in lead times in manufacturing,
inflation, the availability and pricing of alternatives to
construction, and nuclear, environmental and other regulation,
delays from regulatory hearings, the adequacy of rate relief and the
1-30
availability of necessary external capital. Changes in these and
other factors could cause each respective Electric Operating Company
to defer or accelerate construction or to sell or buy more power,
which would affect its cash position, revenues and income to an
extent that cannot now be reliably predicted.
In addition, increasing competition in the electric utility
industry may have an impact on the construction programs of the
Electric Operating Companies. Traditionally, the Electric Operating
Companies have made investments in their utility systems, filed a
rate case to seek recovery of their operating and other costs and
sought to earn a rate of return on their assets in rate base.
Competition in the utility industry, however, is likely to lead to
an increasing need to stabilize or reduce rates. At the same time,
the retail regulatory environment is beginning to shift from
traditional rate base regulation to incentive and performance-based
regulation which are intended to encourage efficiency and increased
productivity in lieu of traditional ratemaking formulas. In light
of the trend toward competition and away from traditional
ratemaking, the CSW System will periodically reevaluate its capital
spending policies and generally seek to fund only those construction
projects and investments that management believes will offer
satisfactory returns in the current environment. Consistent with
this strategy, the CSW System is likely to continue to make
additional investments in non-utility businesses.
CSW continues to study ways to reduce or meet future increases
in customer demand, including demand-side management programs, new
and efficient electric technologies, construction of various types
and sizes of generation facilities, increasing the availability or
efficiency of existing generation facilities, reducing transmission
and distribution losses, and where feasible and economical,
acquisition of reliable long-term capacity from other suppliers.
The public utility commissions in some of the jurisdictions served
by the Electric Operating Companies may consider on a case-by-case
basis mechanisms to permit recovery of costs of demand-side
management programs and a return on the related investment from
ratepayers.
The CSW System facilities plan indicates that CSW will not
require substantial additions of generating capacity until the year
2001 or beyond.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital
Resources, Capital Expenditures for each registrant, for additional
information with respect to construction expenditures and financing.
FUEL SUPPLY
General
The CSW System's present net dependable summer rating power
generation capabilities and the type of fuel used are set forth in
UTILITY OPERATIONS - Facilities above. Additional fuel supply data
is set forth in the tables presented below.
CSW SYSTEM AGGREGATE
CAPABILITY GENERATION
1994 (MW) 1994 (KWH)
NATURAL GAS 8,246 NATURAL GAS 47%
COAL AND LIGNITE 4,702 COAL AND LIGNITE 47%
NUCLEAR 630 NUCLEAR 6%
HYDRO and OIL 42 TOTAL 100%
SUB TOTAL 13,620
PLANT IN STORAGE 557
TOTAL 14,177
1-31
CPL AGGREGATE
CAPABILITY GENERATION
1994 (MW) 1994 (KWH)
NATURAL GAS 2,807 NATURAL GAS 56%
COAL 657 COAL 24%
NUCLEAR 630 NUCLEAR 20%
HYDRO 6 TOTAL 100%
SUB TOTAL 4,100
PLANT IN STORAGE 310
TOTAL 4,410
PSO AGGREGATE
CAPABILITY GENERATION
1994 (MW) 1994 (KWH)
NATURAL GAS 2,600 NATURAL GAS 58%
COAL 1,030 COAL 42%
OIL 25 TOTAL 100%
SUB TOTAL 3,655
PLANT IN STORAGE 247
TOTAL 3,902
SWEPCO AGGREGATE
CAPABILITY GENERATION
1994 (MW) 1994 (KWH)
NATURAL GAS 1,819 NATURAL GAS 23%
COAL 1,824 COAL 48%
LIGNITE 821 LIGNITE 29%
TOTAL 4,464 TOTAL 100%
WTU AGGREGATE
CAPABILITY GENERATION
1994 (MW) 1994 (KWH)
NATURAL GAS 1,020 NATURAL GAS 59%
COAL 370 COAL 41%
OIL 11 TOTAL 100%
TOTAL 1,401
Natural Gas
CSW
The Electric Operating Companies purchase their gas from a
number of suppliers operating in and around their service
territories. In 1994, approximately 48% of the Electric Operating
Companies' total gas purchases were made under long-term contracts
and approximately 52% came from short-term contracts and spot
purchases.
CSW and CPL
CPL's eight gas-fired electric generating plants are supplied by
a portfolio of long-term and short-term natural gas purchase
agreements through multiple natural gas pipeline systems.
Approximately 68% of CPL's total gas requirements in 1994 were
purchased under long-term arrangements representing both purchase
obligations and discretionary purchases, with the balance of CPL's
requirements being acquired under short-term arrangements from the
spot market. CPL's principal gas supplies for 1994 were provided
1-32
under agreements with Corpus Christi Gas Marketing, L.P., Onyx
Pipeline Company, Enron Corporation, or their affiliates. They
supplied approximately 25%, 13% and 10%, respectively, of CPL's total
natural gas purchases.
CSW and PSO
PSO engages in a program to maintain adequate gas supplies
necessary for operation. Natural gas for generation is provided by
purchases under a number of long-term and spot market contracts.
Approximately 60% of PSO's natural gas requirements were provided for
under firm contracts. Transok acts as an administrator with respect
to purchases of natural gas supplies. Gas is transported by Transok
to PSO facilities under agreements pursuant to which PSO pays Transok
for actual costs incurred in providing the services as determined on
an allocated cost of service basis, including a rate of return on
equity applicable between affiliates as specified by the Oklahoma
Commission in PSO's most recent Oklahoma price review. See ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - CSW's NOTE 10 and PSO's
NOTE 8, Litigation and Regulatory Proceedings, for further
information with respect to such agreements between PSO and Transok.
CSW and SWEPCO
In 1994, SWEPCO purchased approximately 99.5% of its gas
requirements pursuant to spot purchase contracts with no take-or-pay
obligations. The remaining 0.5% of SWEPCO's 1994 gas requirements
came from a long-term take-or-pay contract which was terminated in
January 1994. SWEPCO plans to continue to enter into short-term
contracts with various suppliers to provide gas for peaking purposes.
CSW and WTU
WTU has gas purchase contracts with several suppliers. The
largest long-term contract, which is with Lone Star, provided
approximately 13% of WTU's total gas requirements in 1994. Lone Star
is obligated, except during curtailments, to have gas available for
125% of the estimated annual fuel requirements of each plant served,
provided the total of all plants does not exceed 110% of the
estimated annual fuel requirement. The Lone Star contract, which
expires in 2000, allows WTU considerable flexibility to purchase gas
from other sources. Utilizing this flexibility in 1994, WTU
purchased approximately 68% of its gas requirements on the spot
market from many different suppliers. The remaining 19% of WTU's
1994 gas requirements came from supplemental firm contracts with
several suppliers. The contracts with suppliers vary in their terms,
but generally provide for periodic or other price adjustments.
Coal and Lignite
CSW
The Electric Operating Companies purchase coal from a number of
suppliers. In 1994, approximately 82% of the Electric Operating
Companies' total coal purchases were supplied under long-term
contract with the balance procured on the spot market. The coal for
the CSW System plants comes primarily from Wyoming or Colorado mines
which are located between 1,000 and 1,500 rail miles from the
generating plants.
Proposed Railroad Merger
CSW, CPL, PSO, SWEPCO and WTU
In October 1994, Burlington Northern Railroad Company and the
Atchison, Topeka and Santa Fe Railway Company filed an application
with the Interstate Commerce Commission to merge the two railroads.
These railroads currently compete for a portion of the coal
transportation traffic to CPL's Coleto Creek power plant. Because of
the potential elimination of such competition and other factors, CPL
and the other Electric Operating Companies may be adversely affected
by this merger, if approved, unless conditions mitigating the impact
are included in the merger.
Oklaunion
CSW, CPL, PSO and WTU
The jointly-owned Oklaunion plant is supplied coal under a coal
supply contract with Exxon expiring in 2006. This contract was
amended and restated in December 1993 as part of a settlement of
litigation with Exxon. In November 1994, Caballo Coal Company, an
1-33
affiliate of Peabody Holding Company, Inc., purchased Exxon's Rawhide
and Caballo mines in Wyoming, the sources of the Exxon coal. The
long-term coal supply contract has subsequently been transferred from
Exxon to Caballo Coal Company.
Approximately 67% of the total 1994 Oklaunion coal requirements
for CPL, 70% for PSO and 71% for WTU were supplied under the Exxon
contract with the balance procured on the spot market.
CPL's share of the year-end 1994 coal inventory at Oklaunion was
approximately 46,000 tons, representing approximately 60 days supply.
PSO's share was approximately 95,000 tons, representing approximately
21 days supply. WTU's share was approximately 250,000 tons,
representing approximately 55 days supply.
All coal used at the Oklaunion plant is transported
approximately 1,100 miles to the plant by the Burlington Northern
Railroad Company pursuant to a coal transportation contract which is
projected to expire during late 1995. The coal is transported under
this contract in Burlington Northern supplied rail cars. WTU has
instituted a rate proceeding at the Interstate Commerce Commission
requesting a reasonable rate for rail transportation of coal to the
Oklaunion plant, pursuant to filed tariffs, after expiration of the
Burlington Northern contract.
Coleto Creek
CSW and CPL
At Coleto Creek, the long-term agreement expiring in 1999 with
Colowyo Coal Company provided approximately 60% of the coal
requirements of the plant for 1994. CPL's purchase obligation set
forth in the Colowyo agreement for 1995 and through 1999 is for
approximately 25% of Coleto Creek's requirements. The coal is mined
in northwestern Colorado and is transported approximately 1,400 miles
under long-term rail agreements with Denver & Rio Grande Western
Railroad Company, the Burlington Northern Railroad Company and the
Southern Pacific Transportation Company. Southern Pacific
Transportation Company is currently the only rail carrier with access
to the Coleto Creek plant. The balance of the Coleto Creek
requirements are currently being procured on the spot market. CPL
owns sufficient railcars for operation of three unit trains and has
negotiated contracts with the rail carriers involved which have been
filed with the Interstate Commerce Commission. CPL's rail
transportation contracts for Coleto Creek expire December 31, 1995.
CPL has instituted a proceeding at the Interstate Commerce Commission
requesting a reasonable rate for the 16 mile movement from Coleto
Creek to Victoria, Texas, a destination served by Missouri Pacific
Railroad Company. After 1995, CPL intends to utilize coal from the
Powder River Basin of Wyoming for a portion of the Coleto Creek plant
requirements and intends to negotiate rail transportation agreements
for such coal. At year-end 1994, CPL had approximately 290,000 tons
of coal in inventory at Coleto Creek, representing approximately 43
days supply.
Northeastern Station
CSW and PSO
PSO has a contract with Kerr-McGee Coal Corporation, which
substantially covers the coal supply for PSO's Northeastern Station
coal units through at least 2007, with approximately 11% of the 1994
requirements purchased on the spot market. Coal delivery is by unit
trains from mines located in the Gillette, Wyoming vicinity, a
distance of about 1,100 rail miles from Northeastern Station. PSO
owns sufficient rail cars and spares for operation of six unit
trains. Coal is transported to Northeastern Station pursuant to long-
term contracts with Burlington Northern and the Missouri Pacific
Railroad Company which have been filed with the Interstate Commerce
Commission. In some years, including 1994, a portion of the coal has
been transported pursuant to short-term contracts with other
carriers. Burlington Northern has disputed PSO's right to transport
coal at Northeastern Station utilizing other carriers. This dispute
is the subject of pending litigation. See ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA - CSW NOTE 10 and PSO NOTE 8,
1-34
Litigation and Regulatory Proceedings for further discussion. At
year-end 1994, PSO had approximately 529,000 tons of coal in
inventory at Northeastern representing approximately 50 days supply.
CSW and SWEPCO
The long-term supply for SWEPCO's Welsh plant and its 50 percent-
owned Flint Creek plant is provided under a contract with AMAX. The
current contract, executed in December 1993, replaced a prior
contract between the parties as part of a settlement of litigation
concerning the prior contract. The settlement has resulted in lower
fuel costs to the Welsh and Flint Creek plants. Approximately 99% of
the total 1994 Flint Creek coal requirements and 94% of the total
1994 Welsh coal requirements were supplied under the AMAX contract
with the balance purchased on the spot market.
Coal under the AMAX contract is mined near Gillette, Wyoming, a
distance of about 1,500 and 1,100 miles, respectively, from the Welsh
and Flint Creek plants. This coal is delivered to the plants under
rail transportation contracts with Burlington Northern and the Kansas
City Southern Railroad Company. These contracts will expire between
2001 and 2007. SWEPCO owns or leases under long-term leases
sufficient cars and spares for operation of twelve unit trains.
SWEPCO has supplemented its railcar fleet from time to time with
short-term leases. At December 31, 1994, SWEPCO had coal inventories
of 1,199,000 tons at Welsh representing 53 days supply and 552,000
tons at Flint Creek representing 80 days supply.
SWEPCO has acquired lignite leases covering an aggregate of
about 27,000 acres near the Henry W. Pirkey power plant. Sabine
Mining Company is the contract miner of these reserves. At December
31, 1994, 322,000 tons of lignite were in inventory at the plant
representing 33 days supply.
Another 25,000 acres are jointly leased in equal portions by
SWEPCO and CLECO in the Dolet Hills area of Louisiana near Dolet
Hills Power Plant. The Dolet Hills Mining Venture is the contract
miner for these reserves. At December 31, 1994, SWEPCO had 240,000
tons of lignite in inventory at the plant representing 58 days
supply.
In the opinion of the management of SWEPCO, the acreage under
lease in these areas contains sufficient reserves to cover the
anticipated lignite requirements for the estimated useful lives of
the lignite-fired plants.
Nuclear Fuel
CSW and CPL
The supply of fuel for STP involves a complex process. This
process includes the acquisition of uranium concentrate, the
conversion of uranium concentrate to uranium hexafluoride, the
enrichment of uranium hexafluoride in the isotope U235 and the
fabrication of the enriched uranium into fuel rods and incorporation
of fuel rods into fuel assemblies. The fuel assemblies are the final
product loaded into the reactor core. The time associated with this
process requires fuel decisions be made years in advance of the
actual need to refuel the reactor. Fuel requirements for STP are
being handled by the STP Management Committee, comprised of
representatives of all participants in STP.
Outages are necessary approximately every 18 months for
refueling. Because STP's fuel costs are significantly lower than any
of the other CPL units, CPL's average fuel costs are expected to be
higher whenever an STP unit is down for refueling or maintenance.
CPL and the other STP participants have entered into contracts
with suppliers for uranium concentrate and conversion service
sufficient for the operation of both STP units through 1996. Also,
flexible uranium concentrate and uranium hexafluoride contracts are
in place to provide approximately 50% of the uranium needed for STP
from 1997 to 2000. Enrichment contracts have been secured for a 30-
year period from the initial operation of each unit with the
exception of the period from October of 2000 to September of 2002.
The STP participants canceled the enrichment requirements for such
period under a ten year no cost termination provision in the
1-35
enrichment contract. The STP participants believe that other, lower-
cost options will be available in the future. Also, fuel fabrication
services have been contracted for operation through 2005 for Unit 1
and 2006 for Unit 2. Although CPL and the other STP owners cannot
predict the availability of uranium and related services, CPL and the
other STP owners do not currently expect to have difficulty obtaining
uranium and related services required for the remaining years of STP
operations.
The Energy Policy Act has provisions for the recovery of a
portion of the costs associated with the decommissioning and
decontamination of the gaseous diffusion plants used in the
enrichment process. These costs are being recovered on the basis of
enrichment services purchased by utilities from the DOE prior to
October of 1992. The total annual assessment for all domestic
utilities is limited to $150 million per federal fiscal year and
assessable for 15 years. The STP assessment will be approximately
$2.0 million each year with CPL's share being 25.2% of the annual STP
assessment.
The Nuclear Waste Policy Act of 1982, as amended, requires the
DOE to develop a permanent high level waste disposal facility for the
storage of spent nuclear fuel by 1998. The DOE recently announced
that the permanent facility will not be available until 2010. The
DOE will be taking possession of all spent fuel generated at STP as a
result of a contract CPL and other STP participants have entered into
with the DOE. STP has on-site storage facilities with the capability
to store all the spent nuclear fuel generated by the STP units over
their life. Therefore, the DOE delay in providing the disposal
facility will not impact the operation of the STP units. Under
provisions of the Nuclear Waste Policy Act of 1992, a one-mill per
KWH assessment on electricity generated and sold from nuclear
reactors funds the DOE waste disposal program.
Risks of substantial liability could arise from the operation of
STP and from the use, handling, disposal and possible radioactive
emissions associated with nuclear fuel. While CPL carries insurance,
the availability, amount and coverage thereof is limited and may
become more limited in the future. The available insurance may not
cover all types or amounts of loss or expense which may be
experienced in connection with the ownership of STP.
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Fuel and Purchased Power for
information relating to coal contract litigation.
Governmental Regulation
CSW, CPL, PSO, SWEPCO and WTU
The price and availability of each of the foregoing fuel types
are significantly affected by governmental regulation. Any inability
in the future to obtain adequate fuel supplies or adoption of
additional regulatory measures restricting the use of such fuels for
the generation of electricity might affect the CSW System's ability
to economically meet the needs of its customers and could require the
Electric Operating Companies to supplement or replace, prior to
normal retirement, existing generating capability with units using
other fuels. This would be impossible to accomplish quickly, would
require substantial additional expenditures for construction and
could have a significant adverse effect on CSW's and/or the Electric
Operating Companies' financial condition and results of operations.
1-36
Fuel Costs and Consumption
CSW, CPL, PSO, SWEPCO and WTU
Additional fuel cost data for the CSW System appears under
OPERATING STATISTICS. Average fuel costs and consumption by fuel
type follow:
1994
AVERAGE
COST PER
FUEL TYPE MILLION
Btu
CSW
NATURAL GAS $2.18
COAL 1.71
LIGNITE 1.34
NUCLEAR .51 FUEL TYPE 1994 CONSUMPTION (MILLIONS)
All fuel types 1.82 Tons Mcfs Btus
CPL CPL
NATURAL GAS $2.10 NATURAL GAS 105 107
COAL 1.98 COAL 2 43
NUCLEAR .51