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UNITED STATES
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
For the fiscal year ended December 31, 1998
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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) 673-3000
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 West Corporation Common Stock, $3.50 Par Value New York Stock Exchange, Inc.
Chicago Stock Exchange, Inc.
CPL Capital I 8.00% Cumulative Quarterly Income Preferred New York Stock Exchange, Inc.
Securities, Series A, Liquidation Preference
$25 per Preferred Security
PSO Capital I 8.00% Trust Originated Preferred Securities New York Stock Exchange, Inc.
Series A, Liquidation Preference $25 per
Preferred Security
SWEPCO Capital I 7.875% Trust Preferred Securities, Series A, New York Stock Exchange, Inc.
Liquidation amount $25 per Preferred
Security
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Registrant Title of Each Class
- ---------- -------------------
Central Power and Light Company Cumulative Preferred Stock, $100 Par Value
Public Service Company of Oklahoma Cumulative Preferred Stock, $100 Par Value
Southwestern Electric Power Company Cumulative Preferred Stock, $100 Par Value
West Texas Utilities Company Cumulative Preferred 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:
Central and South West Corporation[__X__], Central Power and Light Company
[__X__], Public Service Company of Oklahoma [__X__], Southwestern Electric
Power Company [__X__] and West Texas Utilities Company [__X__]
Aggregate market value of the Common Stock of Central and South West
Corporation at February 22, 1999 held by non-affiliates was approximately $5.4
billion. Number of shares of Common Stock outstanding at February 22, 1999:
212,612,368. 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 1999 Notice of Annual Meeting and Proxy Statement of
Central and South West Corporation are hereby 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.
TABLE OF CONTENTS
GLOSSARY OF TERMS................................................ii
FORWARD-LOOKING INFORMATION......................................v
PART I
ITEM 1. BUSINESS ...............................................1
ITEM 2. PROPERTIES .............................................26
ITEM 3. LEGAL PROCEEDINGS ......................................27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....28
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .......................................2-1
ITEM 6. SELECTED FINANCIAL DATA ................................2-2
Registrants
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .......................2-2
Registrants
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................2-2
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............2-2
Registrants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .......................2-151
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ..3-1
ITEM 11. EXECUTIVE COMPENSATION ...............................3-7
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ...............................................3-12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......3-14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K ..............................................4-1
i
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-K are defined
below:
Abbreviation or Acronym Definition
AEP ....................American Electric Power Company, Inc.
AEP Merger .............Proposed Merger between AEP and CSW where CSW would
become a wholly owned subsidiary of AEP
AFUDC ..................Allowance for funds used during construction
ALJ ....................Administrative Law Judge
Alpek ..................Alpek S.A. de C.V.
Altamira................CSW International cogeneration project in Altamira,
Tamaulipas, Mexico
Anglo Iron..............Anglo Iron and Metal, Inc.
APBO ...................Accumulated Postretirement Benefit Obligation
Arkansas Commission ....Arkansas Public Service Commission
Btu ....................British thermal unit
Burlington Northern ....Burlington Northern Railroad Company
C3 Communications ......C3 Communications, Inc., Austin, Texas (formerly CSW
Communications, Inc.)
CAAA ...................Clean Air Act/Clean Air Act Amendments
Cajun ..................Cajun Electric Power Cooperative, Inc.
CEO ....................Chief Executive Officer
CERCLA .................Comprehensive Environmental Response, Compensation and
Liability Act of 1980
ChoiceCom ..............CSW/ICG ChoiceCom, L.P., a terminated joint venture
between C3 Communications and ICG Communications, Inc.
CLECO ..................Central Louisiana Electric Company, Inc.
Court of Appeals .......Court of Appeals, Third District of Texas, Austin, Texas
CPL ....................Central Power and Light Company, Corpus Christi, Texas
CPL 1997 Final Order ...Final orders received from the Texas Commission in
CPL's rate case Docket No, 14965, including both the
order received on September 10, 1997 and the revised
order received on October 16, 1997
CPL 1996 Fuel Agreement.Fuel settlement agreement entered into by CPL and
other parties
CSW ....................Central and South West Corporation, Dallas, Texas
CSW Credit .............CSW Credit, Inc., Dallas, Texas
CSW Energy .............CSW Energy, Inc., Dallas, Texas
CSW Energy Services ....CSW Energy Services, Inc., Dallas, Texas
CSW International ......CSW International, Inc., Dallas, Texas
CSW Investments ........CSW Investments, an unlimited company organized in the
United Kingdom through which CSW International owns
SEEBOARD
CSW Leasing ............CSW Leasing, Inc., Dallas, Texas
CSW Power Marketing ....CSW Power Marketing, Inc., Dallas, Texas
CSW Services ...........Central and South West Services, Inc., Dallas, Texas
and Tulsa, Oklahoma
CSW System .............CSW and its subsidiaries
CSW UK Finance Company..An unlimited company organized in the United Kingdom
through which CSW International owns CSW Investments
CSW U.S. Electric
System...............CSW and the U.S. Electric Operating Companies
CWIP ...................Construction work in progress
DeSoto .................Parish of DeSoto, State of Louisiana pollution control
revenue bond issuing authority
DGES ...................Director General of Electricity Supply
DHMV ...................Dolet Hills Mining Venture
Diversified Electric ...CSW Energy and CSW International
DOE ....................United States Department of Energy
ECOM ...................Excess cost over market
EITF....................Emerging Issues Task Force
El Paso ................El Paso Electric Company
EMF ....................Electric and magnetic fields
EnerACT.................Energy Aggregation and Control Technology
Energy Policy Act ......National Energy Policy Act of 1992
EnerShop ...............EnerShopsm Inc., Dallas, Texas
Entergy Texas, Inc. ....Entergy Texas Utilities Company, Inc.
EPA ....................United States Environmental Protection Agency
EPS ....................Earnings per share of common stock
ERCOT ..................Electric Reliability Council of Texas
ERISA ..................Employee Retirement Income Security Act of 1974, as
amended
Exchange Act ...........Securities Exchange Act of 1934, as amended
EWG ....................Exempt Wholesale Generator
FERC ...................Federal Energy Regulatory Commission
FMB ....................First mortgage bond
FUCO ...................Foreign utility company as defined by the Holding
Company Act
Guadalupe ..............Guadalupe-Blanco River Authority pollution control
revenue bond issuing authority
HL&P ...................Houston Lighting & Power Company
Holding Company Act ....Public Utility Holding Company Act of 1935, as amended
HVdc ...................High-voltage direct-current
ii
GLOSSARY OF TERMS (continued)
The following abbreviations or acronyms used in this Form 10-K are defined
below:
Abbreviation or Acronym Definition
IPP ....................Independent power producer
IBEW ...................International Brotherhood of Electrical Workers
ISO ....................Independent system operator
ITC ....................Investment tax credit
Joint Proxy Statement...The Notice of Annual Meeting and Joint Proxy Statement
of American Electric Power Company, Inc. and Central and
South West Corporation
KW .....................Kilowatt
KWH ....................Kilowatt-hour
LIFO ...................Last-in first-out (inventory accounting method)
Louisiana Commission ...Louisiana Public Service Commission
LTIP ...................Amended and Restated 1992 Long-Term Incentive Plan
Matagorda ..............Matagorda County Navigation District Number One
(Texas) pollution control revenue bond issuing authority
Mcfs ...................Thousand cubic feet of gas
MD&A ...................Management's Discussion and Analysis of Financial
Condition and Results of Operations
MDEQ ...................Mississippi Department of Environmental Quality
MGP ....................Manufactured gas plant or coal gasification plant
Mirror CWIP ............Mirror construction work in progress
Mississippi Power ......Mississippi Power Company
MMbtu ..................Million Btu
MW .....................Megawatt
MWH ....................Megawatt-hour
National Grid ..........National Grid Group plc
NEIL ...................Nuclear Electric Insurance Limited
NLRB ...................National Labor Relations Board
NRC ....................Nuclear Regulatory Commission
OASIS ..................Open access same time information system
OEFA ...................Oklahoma Environmental Finance Authority pollution
control revenue bond issuing authority
Oklahoma Commission ....Corporation Commission of the State of Oklahoma
Oklaunion ..............Oklaunion Power Station Unit No. I
OPEB ...................Other postretirement benefits (other than pension)
PCB ....................Polychlorinated biphenyl
PCRB ...................Pollution Control Revenue Bond
PowerShare .............CSW's PowerShareSM Dividend Reinvestment and Stock
Purchase Plan
PRP ....................Potentially responsible party
PSO ....................Public Service Company of Oklahoma, Tulsa, Oklahoma
PSO 1997 Rate Settlement
Agreement............Joint stipulation agreement reached by PSO and other
parties to settle PSO's rate inquiry
PURPA ..................Public Utility Regulatory Policies Act of 1978
QF .....................Qualifying Facility as defined in PURPA
RCRA ...................Federal Resource Conservation and Recovery Act of 1976
Red River ..............Red River Authority of Texas pollution control revenue
bond issuing authority
Registrant(s) ..........CSW, CPL, PSO, SWEPCO and WTU
RESCTA .................Rural Electric Supplier Certified Territory Act
Retirement Plan ........CSW's tax-qualified Cash Balance Retirement Plan
Retirement Savings Plan.CSW's employee retirement savings plan
Rights Plan ............Stockholders Rights Agreement between CSW and CSW
Services, as Rights Agent
RUS ....................Rural Utilities Service of the federal government
Sabine .................Sabine River Authority of Texas pollution control
revenue bond issuing authority
Siloam Springs .........City of Siloam Springs, Arkansas pollution control
revenue bond issuing authority
SAR ....................Stock Appreciation Right
SEC ....................United States Securities and Exchange Commission
SEEBOARD ...............SEEBOARD Group plc, Crawley, West Sussex, United
Kingdom
SEEBOARD U.S.A..........CSW's investment in SEEBOARD consolidated and converted
to U.S. Generally Accepted Accounting Principles
SERP ...................Special Executive Retirement Plan
SFAS ...................Statement of Financial Accounting Standards
SFAS No. 52 ............Foreign Currency Translation
SFAS No. 71 ............Accounting for the Effects of Certain Types of
Regulation
SFAS No. 87 ............Employers' Accounting for Pensions
SFAS No. 88.............Employers' Accounting for Settlements and Curtailments
of Defined Pension Plans and for Termination Benefits
SFAS No. 106 ...........Employers' Accounting for Postretirement Benefits
Other than Pensions
SFAS No. 115 ...........Accounting for Certain Investments in Debt and Equity
Securities
SFAS No. 123 ...........Accounting for Stock-Based Compensation
SFAS No. 130 ...........Reporting Comprehensive Income
iii
GLOSSARY OF TERMS (continued)
The following abbreviations or acronyms used in this Form 10-K are defined
below:
Abbreviation or Acronym Definition
SFAS No. 131 ...........Disclosure about Segments of an Enterprise and Related
Information
SFAS No. 132 ...........Employers' Disclosures about Pensions and Other
Postretirement Benefits
SFAS No. 133 ...........Accounting for Derivative Instruments and Hedging
Activities
SOP 98-5 ...............Statement of Position 98-5, Reporting on the Costs of
Start-up Activities
SPP ....................Southwest Power Pool
STP ....................South Texas Project nuclear electric generating station
STPNOC .................STP Nuclear Operating Company, a non-profit Texas
corporation, jointly owned by CPL, HL&P, City of Austin,
and City of San Antonio
SWEPCO .................Southwestern Electric Power Company, Shreveport,
Louisiana
SWEPCO Plan ............The amended plan of reorganization for Cajun filed by
the Members Committee and SWEPCO on March 18, 1998 with
the U.S. Bankruptcy Court for the Middle District of
Louisiana
Tejas ..................Tejas Gas Corporation
Texas Commission .......Public Utility Commission of Texas
Titus County ...........Titus County Fresh Water Supply District No. 1 pollution
control revenue bond issuing authority
TNRCC ..................Texas Natural Resource Conservation Commission
Transok.................Transok, Inc. and subsidiaries
Trust Preferred
Securities...........Collective term for securities issued by business trusts
of CPL, PSO and SWEPCO classified on the balance sheet
as "Certain Subsidiary (or CPL/PSO/SWEPCO)-obligated,
mandatorily redeemable preferred securities of
subsidiary trusts holding solely Junior Subordinated
Debentures of such Subsidiaries (or CPL/PSO/SWEPCO)"
U.K. Electric...........SEEBOARD U.S.A.
Union Pacific ..........Union Pacific Railroad Company
U.S. Electric Operating Companies or
U.S. Electric .....CPL, PSO, SWEPCO and WTU
Vale ...................Empresa De Electricidade Vale Paranapanema S/A, a
Brazilian Electric Distribution Company
Valero..................Valero Refining Company-Texas, Valero Refining Company
and Valero Energy Company
WTU ....................West Texas Utilities Company, Abilene, Texas
Yorkshire ..............Yorkshire plc, a regional electricity company in the
United Kingdom
iv
FORWARD-LOOKING INFORMATION
This report made by CSW and certain of its subsidiaries contains forward-looking
statements within the meaning of Section 21E of the Exchange Act. Although CSW
and each of its subsidiaries believe that their expectations are based on
reasonable assumptions, any such statements may be influenced by factors that
could cause actual outcomes and results to be materially different from those
projected. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include, but are not
limited to:
- the impact of general economic changes in the United States and in
countries in which CSW either currently has made or in the future may
make investments,
- the impact of deregulation on the United States electric utility
business,
- increased competition and electric utility industry restructuring in
the United States,
- the impact of the proposed AEP Merger including any regulatory
conditions imposed on the merger, the inability to consummate the AEP
Merger, or other merger and acquisition activity including the SWEPCO
Plan,
- federal and state regulatory developments and changes in law which may
have a substantial adverse impact on the value of CSW System assets,
- timing and adequacy of rate relief,
- adverse changes in electric load and customer growth,
- climatic changes or unexpected changes in weather patterns,
- changing fuel prices, generating plant and distribution facility
performance,
- decommissioning costs associated with nuclear generating facilities,
- costs associated with any year 2000 computer related failure(s) either
within the CSW System or supplier failures that adversely affect the
CSW System,
- uncertainties in foreign operations and foreign laws affecting CSW's
investments in those countries,
- the effects of retail competition in the natural gas and electricity
distribution and supply businesses in the United Kingdom, and
- the timing and success of efforts to develop domestic and international
power projects.
In the non-utility area, the previously mentioned factors apply and also
include, but are not limited to:
- the ability to compete effectively in new areas, including
telecommunications, power marketing and brokering, and other energy
related services, and
- evolving federal and state regulatory legislation and policies that may
adversely affect those industries generally or the CSW System's
business in areas in which it operates.
v
PART I
ITEM 1. BUSINESS.
CSW, incorporated under the laws of Delaware in 1925, is a Dallas-based
public utility holding company registered under the Holding Company Act. CSW
owns all of the outstanding shares of common stock of the U.S. Electric
Operating Companies, CSW Services, CSW Credit, CSW Energy, CSW International, C3
Communications, EnerShop and a currently inactive CSW Energy Services and
indirectly owns all of the outstanding share capital of SEEBOARD. In addition,
CSW owns 80% of the outstanding shares of common stock of CSW Leasing. In 1998,
CSW's operating segments, including its four registrants that form the U.S.
Electric segment, contributed the following percentages to aggregate operating
revenues, operating income and net income.
Other and
U.S. U.K. Reconciling
CPL PSO SWEPCO WTU Electric Electric Items Total
-------------------------------------------------------------
Operating
Revenues 25 14 17 8 64 32 4 100%
Operating
Income 32 15 16 10 73 26 1 100%
Net Income 35 17 22 9 83 27 (10) 100%
The relative contributions of the U.S. Electric, U.K. Electric and
Diversified Electric segments and other non-utility subsidiaries to the
aggregate operating revenues, operating income and net income differ from year
to year due to variations in weather, fuel costs, timing and amount of rate
changes and other factors, including but not limited to changes in business
conditions and the results of non-utility businesses. Sales of electricity by
the U.S. Electric Operating Companies tend to increase during warmer summer
months and, to a lesser extent, cooler winter months, because of higher demand
for power. The sale of electricity by the U.K. Electric segment tends to
increase during colder winter months because of a higher demand for power. For
additional detail related to CSW's reportable business segments, see ITEM 8 -
NOTE 14. BUSINESS SEGMENTS. For financial results showing CSW's seasonality, see
ITEM 8 - NOTE 19. QUARTERLY INFORMATION.
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 utility assets or any interest in any other business
and accounting practices, including certain affiliate transactions, and other
matters. See RATES AND REGULATION below, and ITEM 7. MD&A for additional
information regarding the Holding Company Act.
PROPOSED AEP MERGER
Background Information
On December 22, 1997, CSW and AEP announced that their boards of directors
had approved a definitive merger agreement for a tax-free, stock-for-stock
transaction creating a company with a total market capitalization of
approximately $28 billion at that time. At December 31, 1998, the total market
capitalization of the combined company would have been $28 billion ($15 billion
in equity; $13 billion in debt), the combined company would have served more
than 4.6 million customers in 11 states and approximately 4 million customers
outside the United States. On May 27, 1998, AEP shareholders approved the
issuance of the additional shares of stock required to complete the merger. On
May 28, 1998, CSW stockholders approved the merger.
1
Under the merger agreement, each common share of CSW will be converted
into 0.6 shares of AEP common stock. Based upon AEP's closing price immediately
prior to the merger announcement, this represented a premium of 20% over the CSW
closing price and would have issued approximately $6.6 billion in stock to CSW
stockholders to complete the transaction. At December 31, 1998, AEP would have
issued approximately $6.0 billion in stock to CSW stockholders to complete the
transaction. CSW plans to continue to pay dividends on its common stock until
the closing of the AEP Merger at approximately the same times and rates per
share as in 1998, subject to continuing evaluation of CSW's financial condition
and earnings by the CSW board of directors.
Under the merger agreement, there will be no changes required with respect
to the public debt issues, the outstanding preferred stock or the Trust
Preferred Securities of CSW's subsidiaries.
The companies anticipate net savings related to the merger of
approximately $2 billion over a 10-year period from the elimination of
duplication in corporate and administrative programs, greater efficiencies in
operations and business processes, increased purchasing efficiencies, and the
combination of the two work forces.
The electric systems of AEP and CSW will operate on an integrated and
coordinated basis as required by the Holding Company Act. Any fuel savings
resulting from the coordinated operation of the combined company will be passed
on to customers.
The merger agreement contains covenants and agreements that restrict the
manner in which the parties may operate their respective businesses until the
time of closing of the merger. In particular, without the prior written consent
of AEP, CSW may not engage in a number of activities that could affect its
sources and uses of funds. Pending closing of the merger, CSW's and its
subsidiaries' strategic investment activity, capital expenditures and non-fuel
operating and maintenance expenditures are restricted to specific agreed upon
projects or agreed upon amounts. In addition, prior to consummation of the
merger, CSW and its subsidiaries are restricted from: (i) issuing shares of
common stock other than pursuant to employee benefit plans; (ii) issuing shares
of preferred stock or similar securities other than to refinance existing
obligations or to fund permitted investment or capital expenditures; and (iii)
incurring indebtedness other than pursuant to existing credit facilities, in the
ordinary course of business or to fund permitted projects or capital
expenditures. These restrictions are not expected to limit the ability of CSW
and its subsidiaries to make investments and expenditures in amounts previously
budgeted. (The foregoing statements constitute forward-looking statements within
the meaning of Section 21E of the Exchange Act. Actual results may differ
materially from such projected information due to changes in the underlying
assumptions. See FORWARD-LOOKING INFORMATION).
Merger Regulatory Approval
The merger is conditioned, among other things, upon the approval of
several state and federal regulatory agencies. The transaction must satisfy many
conditions, including the condition that it must be accounted for as a pooling
of interests. The parties may not waive some of these conditions. AEP and CSW
have initiated the process of seeking regulatory approvals, but there can be no
assurances as to when, on what terms or whether the required approvals will be
received or whether there will be any regulatory proceedings in the United
Kingdom. The proposed AEP merger has a targeted completion date in the fourth
quarter of 1999. However, there can be no assurance that the AEP merger will be
consummated.
See ITEM 7. MD&A and ITEM 8 - NOTE 16. PROPOSED AEP MERGER.
U.S. ELECTRIC
The U.S. Electric Operating Companies generate, purchase, transmit,
distribute and sell electricity. The U.S. Electric Operating Companies serve
approximately 1.7 million customers in one of the largest combined service
2
territories in the United States covering approximately 152,000 square miles in
portions of Texas, Oklahoma, Louisiana and Arkansas. The customer base includes
a mix of residential, commercial and diversified industrial customers. 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.
Information concerning each of the U.S. Electric Operating Companies for 1998 is
presented in the following table.
Estimated
Estimated Service Average Rural Electric
State and Year of Population Territory Number of Municipal Cooperatives
Registrant Incorporation Served (sq. miles) Customers Customers Served
---------------------------------------------------------------------------------------------
CPL Texas - 1945 1,808,000 44,000 642,000 1 4
PSO Oklahoma - 1913 1,112,000 30,000 486,000 2 2
SWEPCO Delaware - 1912 952,000 25,000 419,000 3 8
WTU Texas - 1927 394,000 53,000 188,000 4 13
The largest cities in CPL's service territory are Corpus Christi, Laredo
and McAllen. The economic base of CPL's service territory includes
manufacturing, mining, agricultural, transportation and public utilities
sectors. Major activities in these sectors include oil and gas extraction, food
processing, apparel, metal refining, chemical and petroleum refining, plastics
and machinery equipment. Contracts with substantially all large 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.
The largest cities in PSO's service territory are Tulsa, Lawton, Broken
Arrow and Bartlesville. The economic base of PSO's service territory includes
petroleum products, manufacturing and agriculture. The principal industries in
the territory include natural gas and oil production, oil refining, steel
processing, aircraft maintenance, paper manufacturing and timber products,
glass, chemicals, cement, plastics, aerospace manufacturing, telecommunications
and rubber goods.
The largest cities in SWEPCO's service territory are Shreveport/Bossier
City, Longview and Texarkana. The economic base of SWEPCO's service territory
includes mining, manufacturing, chemical products, petroleum products,
agriculture and tourism. The principal industries in the territory include
natural gas and oil production, petroleum refining, manufacturing of pulp and
paper, chemicals, food processing and metal refining. The territory also has
several military installations, colleges and universities.
The largest cities in WTU's service territory are Abilene and San Angelo.
The economic base of WTU's service territory includes agricultural businesses,
such as the production of 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 cottonseed products,
oil products, electronic equipment, precision and consumer metal products, meat
products, gypsum products and carbon fiber products. The territory also has
several military installations and state correctional institutions.
The U.S. Electric Operating Companies operate on an interstate basis to
facilitate exchanges of power. PSO and WTU are interconnected through the 200 MW
North HVdc transmission interconnection located at Vernon, Texas. SWEPCO and CPL
are interconnected through the 600 MW East HVdc transmission interconnection
located at Pittsburg, Texas.
CPL and WTU are members of the ERCOT power grid that operates in Texas.
Other ERCOT members include Texas Utilities Electric Company, HL&P, Texas
Municipal Power Agency, 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. PSO and
3
SWEPCO are members of the SPP power grid that includes 12 investor-owned
utilities, 7 municipalities, 7 cooperatives, 3 state and 1 federal agency as
well as IPPs and power marketers operating in the states of Arkansas, Kansas,
Louisiana, Oklahoma and parts of Mississippi, Missouri, New Mexico and Texas.
ERCOT members interchange power and energy with one another on a firm, economy
and emergency basis, as do the members of the SPP.
CSW Services 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, primarily for the U.S.
Electric Operating Companies. The U.S. Electric Operating Companies are
functionally organized into power generation, energy delivery and energy
services business units, which are centrally managed by CSW Services. Currently,
CSW is developing management information systems to report segment information
along these business lines.
U.K. ELECTRIC
SEEBOARD is one of the 12 regional electricity companies formed as a
result of the restructuring and subsequent privatization of the United Kingdom
electricity industry in 1990. CSW acquired indirect control of SEEBOARD in April
1996. SEEBOARD's principal businesses are the distribution and supply of
electricity. In addition, SEEBOARD is engaged in other businesses, including gas
supply, electricity generation, and electrical contracting.
SEEBOARD's service area covers approximately 3,000 square miles in
Southeast England. The service area extends from the outlying areas of London to
the English Channel, and includes large towns such as Kingston-upon-Thames,
Croydon, Crawley, Maidstone, Ashford and Brighton, as well as substantial rural
areas. The area has a population of approximately 4.7 million people with
significant portions of the area, such as south London, having a high population
density. Over the past 25 years, the services sector of the area's economy has
grown in importance, while the industrial sector has declined. Considerable
commercial development has occurred in a number of towns in the area over the
last ten years, in particular in the areas around Gatwick Airport and the
English Channel ports.
In 1998, the electricity market in the U.K. began a phased in opening of
competition, allowing domestic and small business customers in selected areas to
choose their electric suppliers. During 1999, competition will be extended to
the entire country. SEEBOARD became one of the first regional electricity
companies to compete in the open marketplace, with part of its service area
being opened to competition in October 1998. SEEBOARD is actively competing to
retain its existing customers and win new customers in other regions.
In 1998, SEEBOARD streamlined its business by selling its 41 retail
appliance superstores to the Dixons Stores Group for about $30 million. SEEBOARD
recognized that its retail business would not be able to compete successfully
over the long term with the larger national chains.
In a joint venture, SEEBOARD Powerlink won a 30 year contract for $1.6
billion to operate, maintain, finance and renew the high-voltage power
distribution network of the London Underground, the largest metropolitan rail
system in the world. SEEBOARD Powerlink will be responsible for distributing
high voltage electricity supply to all 270 London Underground stations and to
some 250 miles of the rail system's track. SEEBOARD's partners in the Powerlink
consortium are the international electrical engineering group, ABB, and the
international cable and construction group, BICC.
OTHER CSW BUSINESS OPERATIONS
CSW continually seeks opportunities to expand its non-utility business in
areas related to energy and energy services. This expansion frequently occurs
through strategic domestic and international acquisitions, through marketing
4
initiatives inside and outside of the service territories of the U.S. Electric
Operating Companies and through new business investments. Acquisitions of any
new assets, or development of any new business opportunities, must meet defined
criteria, including the potential to lower CSW System costs, increase long-term
efficiency and competitiveness, and provide an acceptable return on investment
to CSW. See PROPOSED AEP MERGER for information related to covenants and
restrictions on certain business activities.
Diversified Electric
CSW Energy presently owns interests in six operating power projects
totaling 978 MW which are located in Colorado, Florida and Texas. CSW Energy
began construction in August 1998 of a 500 MW merchant power plant, known as
Frontera, in the Rio Grande Valley, near the city of Mission, Texas. The natural
gas-fired facility should begin simple cycle operation in the summer of 1999 and
combined cycle operation by the end of 1999.
CSW International was organized to pursue investment opportunities in EWGs
and FUCOs and currently holds investments in the United Kingdom, Mexico and
South America. In the first quarter of 1998, CSW International and its joint
venture partner, Alpek, commenced commercial operations of a 109 MW, gas fired
cogeneration project at Alpek's Petrocel industrial complex in Altamira,
Tamaulipas, Mexico.
Also during 1998, CSW International provided $100 million of debt, to be
converted to equity at the end of 1999, to Vale based in Sao Paulo, Brazil. At
December 31, 1998, CSW International had approximately $290 million invested in
South America.
In late 1998, CSW International and Scottish Power commenced construction
of a 400 MW combined cycle gas turbine power station in southeast England.
Commercial operation is expected to begin in the year 2000. CSW International
has a 50% interest in the project.
In addition to these projects, CSW Energy and CSW International have other
projects in various stages of development.
Energy Services
C3 Communications
C3 Communications, an exempt telecommunications company, is comprised of
two divisions. C3 Communications' Utility Automation Division provides automatic
meter reading, interval meter data and related products and services to
commercial and industrial customers, electric, gas and water utilities and other
energy service providers. C3 Communications' Networks Division was formed from
the dissolution of ChoiceCom. C3 Communications' Networks Division offers high
capacity inter-city fiber optic network services to telecommunications carriers
and wholesale customers in Texas and Louisiana with plans to expand into
Arkansas and Oklahoma.
C3 Communications' Utility Automation Division entered the direct access
market in 1998 and received approval from all three utility distribution
companies in California to manage meter data for the state's deregulated
electric utility industry. The Utility Automation Division continues to seek
other domestic opportunities.
In 1998, ChoiceCom expanded its switch-based local dial tone markets from
three cities to five by installing state-of-the art Lucent 5ESS(R) switches in
Dallas and Houston, Texas. ChoiceCom also expanded its long haul network with
the installation and operation of a high capacity fiber optic system linking the
Texas cities of Dallas, Houston, Austin and San Antonio in July of 1998.
5
By mutual agreement, the ChoiceCom partnership was terminated December 31,
1998. ICG Communications, Inc. purchased ChoiceCom's local dial tone business
while C3 Communications retained the long haul, high-capacity fiber optic
network. With the fiber assets, C3 Communications established the Networks
Division and plans to focus on CSW's original strategies to build new routes in
the states of Texas, Oklahoma, Louisiana and Arkansas.
The preceding discussion contains forward-looking information within the
meaning of Section 21E of the Exchange Act. Actual results may differ materially
from such projected information due to changes in the underlying assumptions.
See FORWARD-LOOKING INFORMATION.
EnerShop
EnerShop's two product lines are performance contracting and EnerACT
advisory services.
Through performance contracting, EnerShop provides energy services to
customers in Texas and Louisiana that help reduce customers' operating costs
through increased energy efficiencies and improved equipment operations.
EnerShop utilizes the skills of local trade allies in offering services that
include energy and facility analysis, project management, engineering design,
equipment procurement and construction and performance monitoring.
EnerACT is an innovative system that communicates with all brands and
models of energy management systems and utility meters. EnerACT aggregates load
profiles of multiple facilities into a single purchasing entity, optimizes
real-time control of buildings simultaneously with real-time energy prices, and
predicts energy consumption for operations through building simulation models.
Customers in California, Illinois, Louisiana, New York, Texas, and Wisconsin
currently subscribe to EnerACT advisory services.
Other Ventures
The CSW Services' Business Ventures group pursues energy-related projects.
Projects for these groups include staffing services for electric utility nuclear
power plants, energy management systems, and electric substation automation
software. In August 1998, the SEC approved the marketing and distribution of
electric bikes, and associated accessories under the TotalEV name.
In late 1997, CSW Energy Services was launched to explore the electric
utility industry's emerging retail supply markets as they were deregulated on a
state-by-state basis. CSW Energy Services began selling retail electric supply
to commercial customers in California and Pennsylvania. In March 1998, CSW
Energy Services signed its first major supply contract in California. In January
1999, CSW Energy Services announced that it was ceasing its business as a retail
electric supplier and that it would assign or terminate its existing electricity
supply contracts to other suppliers.
In June 1997, the FERC approved the request of CSW Power Marketing to sell
power and energy at market-based rates in the wholesale market. AEP is currently
pursuing this initiative. As a result, CSW has temporarily suspended this
initiative.
Other Diversified
CSW Credit was originally formed to purchase, without recourse, accounts
receivable from the U.S. Electric Operating Companies to reduce working capital
requirements. In addition, because CSW Credit's capital structure is more
leveraged than that of the U.S. Electric Operating Companies, CSW's overall cost
of capital is lower. Subsequent to its formation, CSW Credit's business has
expanded to include the purchase, without recourse, of accounts receivable from
certain non-affiliated utilities subject to limitations imposed by the SEC under
the Holding Company Act.
CSW Leasing has investments in leveraged leases.
6
COMPETITION AND INDUSTRY CHALLENGES
Competitive forces at work in the electric utility industry are affecting
the CSW System and electric utilities generally. Current legislative and
regulatory initiatives are likely to result in even greater competition in both
the wholesale and retail markets in the future. As competition in the industry
increases, the U.S. Electric Operating Companies will have the opportunity to
seek new customers and at the same time will be at risk of losing customers to
other competitors. Additionally, the U.S. Electric Operating Companies will
continue to compete with suppliers of alternative forms of energy, such as
natural gas, fuel oil and coal, some of which may be cheaper than electricity.
As a whole, the U.S. 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. In light of these
anticipated changes, CSW continues to seek opportunities to expand its business
operations that are not regulated by state utility commissions (The foregoing
statement constitutes a forward-looking statement within the meaning of Section
21E of the Exchange Act. Actual results may differ materially from such
projected information due to changes in the underlying assumptions. See
FORWARD-LOOKING INFORMATION).
To address the anticipated changes in the electric utility industry and to
properly align its business operations with its non-regulated activities, CSW
manages its business operations in six distinct lines of business. These
business lines fall into both the regulated and non-regulated categories. In
addition, given the expected restructuring of the utility industry, certain
aspects of the business lines will eventually cease to be regulated.
Consequently, CSW's operating structure is designed to accommodate both the
current business environment as well as the future. The six business lines are:
(i) power generation; (ii) energy delivery; (iii) energy services; (iv)
international energy operations; (v) energy trading; and (vi)
telecommunications. Currently, CSW is developing management information systems
to report segment information along these business lines.
For additional information regarding competition and industry challenges,
including legislative initiatives at both the state and federal level, see ITEM
7. MD&A.
RATES AND REGULATION
The CSW System is subject to the jurisdiction of the SEC under the Holding
Company Act with respect to the issuance of securities, certain acquisition and
divestiture activities, certain affiliate transactions and other matters. The
Holding Company Act generally limits the operations of a registered holding
company to that of a single integrated public utility system, plus such
additional businesses as are functionally related to such system. The U.S.
Electric Operating Companies have been classified as public utilities under the
Federal Power Act. Accordingly, the FERC has jurisdiction, in certain respects,
over their electric utility facilities and operations, wholesale rates, and
certain other matters. The U.S. Electric Operating Companies are subject to the
jurisdiction of various state commissions as to retail rates, accounting
matters, standards of service and, in some cases, issuances of securities,
certification of facilities and extensions or divisions of service territories.
For a discussion of regulation by the various environmental agencies that
applies to the CSW System, see ENVIRONMENTAL MATTERS below.
U.S. ELECTRIC
Franchises
The U.S. Electric Operating Companies hold franchises to provide electric
service in various municipalities within their service areas. These franchises
have varying provisions and expiration dates including, in some cases,
termination and buy-out provisions. CSW considers the franchises of the U.S.
Electric Operating Companies to be adequate for the conduct of their business.
7
Texas Rates - 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
original jurisdiction to the Texas Commission. The Texas Commission has
appellate jurisdiction over rates set by incorporated municipalities.
In Texas, electric service areas are approved by the Texas Commission. A
given tract in a utility's overall service area may be certificated to one
utility, to one of several competing electric cooperatives or investor owned
utilities, to one of the competing municipal electric systems, or it may be
certificated to two or more of these entities. The Texas Commission has changed
these certificated areas only slightly since 1976.
Three parties have filed applications at the Texas Commission requesting
authority to provide retail electric service in CPL's currently certificated
areas. Two of the parties requested that the Texas Commission order CPL to
permit them to use CPL's distribution facilities, which management believes to
be unlawful resulting in mandatory retail wheeling. The third party seeks to
operate as a distribution utility that will serve a major economic development
project located in the service areas of CPL and an electric cooperative in South
Texas. The Texas Commission has docketed the cases for hearings. CPL is actively
opposing these applications.
In a separate docket, the Texas Commission has determined that three large
naval bases, which are currently served as industrial customers by CPL, may
qualify as wholesale customers. A second phase of the proceeding has been
docketed to analyze all issues pertinent to the bases being able to take
electric service from other wholesale providers. Among the issues to be
addressed is the extent to which the Navy would have to compensate CPL for costs
that may be stranded if the naval facilities were to obtain electric service
from another wholesale provider. The Texas Commission's ultimate decision could
have ramifications for other industrial customers in the State of Texas who own
facilities upon which extensive distribution systems are located and who believe
access to wholesale electric power providers would reduce their electric costs.
Oklahoma Rates - PSO
PSO currently is subject to the jurisdiction of the Oklahoma Commission
with respect to retail prices. 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. See ITEM 7. MD&A, RECENT DEVELOPMENTS AND TRENDS.
Arkansas and Louisiana Rates - SWEPCO
SWEPCO is subject to the jurisdiction of the Arkansas Commission and
Louisiana Commission with respect to retail rates, as well as the Texas
Commission as described above.
Nuclear Regulation - CPL
Ownership of an interest in a nuclear generating unit exposes CPL and,
indirectly, CSW to regulation not common to a fossil fuel 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
8
upon its assessment of the severity of the situation. For additional information
regarding STP, see ITEM 7. MD&A.
U.K. ELECTRIC
SEEBOARD Rates and Franchise Area
The distribution and supply businesses of SEEBOARD are principally
regulated by the Electricity Act of 1989 and by the conditions contained in
SEEBOARD's public electricity supply license. The public electricity supply
license generally continues until at least 2025, although it may be revoked upon
25 years prior notice after 2000. In addition, the public electricity supply
license may be revoked by the United Kingdom's Secretary of State in certain
specified circumstances. Before October 1998, SEEBOARD had the sole right to
supply substantially all of the consumers in its authorized area, except where
demand exceeds 100 KW. However, commencing in October 1998, on a phased-in
basis, SEEBOARD no longer has monopoly supply rights in its franchise area. At
December 31, 1998, 10.5% of SEEBOARD's domestic customers had the option to
elect an alternative supplier but no more than 0.5% had done so.
Most of the income of the distribution business is regulated by a formula
set by the DGES based upon, among other factors, the United Kingdom Retail Price
Index. The formula generally sets a cap on the average price per unit of
electricity distributed, with allowed annual increases based upon changes in the
United Kingdom Retail Price Index plus a percentage factor set from time to time
by the DGES. The DGES has commenced the review of allowed distribution charges
for the regional electricity companies, including SEEBOARD, to take effect from
April 1, 2000.
The prices charged by SEEBOARD in its franchise supply business are also
determined from a formula set from time to time by the DGES, although as
competition increases, the significance of the regulatory allowance will
decline. The formula provides for a price cap derived from the forecast
electricity purchase costs, transmission charges, distribution costs and
overheads, together with an allowed margin as determined by the DGES. All
holders of a second-tier license, including SEEBOARD, who supply electricity to
non-franchise customers must pay charges to the host regional electricity
company for the use of its distribution network.
FUEL RECOVERY - U.S. ELECTRIC
The recovery of fuel costs from retail customers by the U.S. Electric
Operating Companies is subject to regulation by the state utility commissions in
the states in which they operate. All of the contracts of the U.S. Electric
Operating Companies with their wholesale customers contain FERC approved
fuel-adjustment provisions for recovery of fuel costs.
Texas Fuel Recovery - 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 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. Fuel factors are in the nature of temporary rates and the utility's
collection of revenues by such factors is subject to adjustment at the time of a
fuel reconciliation. Under these procedures, at its semi-annual adjustment date,
a utility is 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 variances of four
percent or more of the most recent Texas Commission adopted annual estimated
fuel cost for the utility. A utility does not have to revise its fuel factor
9
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 to be unreasonable
in a reconciliation proceeding are not recoverable from retail customers.
Oklahoma Fuel Recovery - PSO
In general, MWH sales to PSO's retail customers are made at rates which
include a service level fuel cost adjustment factor reflecting the difference
between projected fuel and purchased power costs and the fuel rate embedded in
PSO's base rates. The factors are determined twice each year and are based upon
projected fuel, natural gas transportation, and purchased power costs. Any
difference between projected and actual costs is included in the fuel recovery
calculation for future periods. Oklahoma law requires that an examination of
PSO's retail fuel cost adjustment factor be performed annually by the Oklahoma
Commission which approves the utility's embedded fuel rate per KWH.
Arkansas and Louisiana Fuel Recovery - 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 to each billing month
on a basis which permits SWEPCO to recover the level of fuel cost experienced
two months earlier. SWEPCO's fuel recovery mechanisms are subject to the
jurisdiction of the Arkansas Commission and the Louisiana Commission.
Recoverability of Fuel Costs
Under current regulation, the U.S. Electric Operating Companies recover
all their material fuel costs from their customers. The inability of any of the
U.S. Electric Operating Companies to recover its fuel costs under the procedures
described above could have a material adverse effect on such company's results
of operations and financial condition.
See ITEM 7. MD&A and ITEM 8-NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
for further information with respect to regulatory, rate and fuel proceedings.
10
FUEL SUPPLY AND PURCHASED POWER - U.S. ELECTRIC
The U.S. Electric Operating Companies' net dependable summer rating, power
generation capabilities and the type of fuel used are set forth in ITEM 2.
PROPERTIES. Information concerning energy sources and cost data for the years
1996 through 1998 is presented in the following tables. In addition, detailed
fuel cost and consumption information for 1998 is also presented.
CSW
Source of Energy (based on MW) 1998 1997 1996
-----------------------------------
Natural Gas 38% 36% 36%
Coal 39 41 39
Lignite 8 9 9
Nuclear 7 7 8
Other -- -- 1
-----------------------------------
Total Generated 92 93 93
Purchased Power 8 7 7
-----------------------------------
Total 100% 100% 100%
-----------------------------------
Fuel Cost data
Average Btu per net KWH 10,514 10,405 10,440
Cost per Mmbtu $1.67 $1.83 $1.81
Cost per KWH generated 1.75(cent) 1.90(cent) 1.89(cent)
Cost, including purchased power, as a
percentage of revenue 37.3% 38.1% 37.4%
CPL
Source of Energy (based on MW)
Natural Gas 51% 50% 42%
Coal 20 18 22
Nuclear 21 22 22
-----------------------------------
Total Generated 92 90 86
Purchased Power 8 10 14
-----------------------------------
Total 100% 100% 100%
-----------------------------------
Fuel cost data
Average Btu per net KWH 10,563 10,386 10,391
Cost per Mmbtu $1.59 $1.83 $1.62
Cost per KWH generated 1.68(cent) 1.90(cent) 1.68(cent)
Cost, including purchased power, as a
percentage of revenue 30.3% 32.9% 30.8%
PSO
Source of Energy (based on MW)
Natural Gas 43% 39% 43%
Coal 43 48 46
-----------------------------------
Total Generated 86 87 89
Purchased Power 14 13 11
-----------------------------------
Total 100% 100% 100%
-----------------------------------
Fuel cost data
Average Btu per net KWH 10,272 10,264 10,225
Cost per Mmbtu $1.77 $1.98 $2.04
Cost per KWH generated 1.82(cent) 2.03(cent) 2.09(cent)
Cost, including purchased power, as a
percentage of revenue 47.1% 46.4% 45.1%
11
SWEPCO
Source of Energy (based on MW) 1998 1997 1996
-----------------------------------
Natural Gas 15% 12% 15%
Coal 51 52 45
Lignite 23 26 26
Other -- -- 4
-----------------------------------
Total Generated 89 90 90
Purchased Power 11 10 10
-----------------------------------
Total 100% 100% 100%
-----------------------------------
Fuel cost data
Average Btu per net KWH 10,544 10,554 10,606
Cost per Mmbtu $1.63 $1.69 $1.76
Cost per KWH generated 1.72(cent) 1.79(cent) 1.87(cent)
Cost, including purchased power, as a
percentage of revenue 42.7% 43.4% 45.1%
WTU
Source of Energy (based on MW)
Natural Gas 42% 37% 46%
Coal 33 36 35
-----------------------------------
Total Generated 75 73 81
Purchased Power 25 27 19
-----------------------------------
Total 100% 100% 100%
-----------------------------------
Fuel cost data
Average Btu per net KWH 10,828 10,275 10,568
Cost per Mmbtu $1.83 $1.98 $2.01
Cost per KWH generated 1.98(cent) 2.03(cent) 2.12(cent)
Cost, including purchased power, as a
percentage of revenue 40.2% 42.6% 43.5%
12
1998 Cost 1998 Consumption
Fuel Type per MMbtu (millions)
- --------------------------------------------------------------------------------
Mmbtus Mcfs Tons
CSW
Natural gas $2.21 295 288
Coal 1.40 285 17
Lignite 1.35 59 4
Nuclear .46 55
Composite 1.67
CPL
Natural gas $2.12 137 133
Coal 1.37 51 3
Nuclear .46 55
Composite 1.59
PSO
Natural gas $2.36 79 77
Coal 1.17 78 4
Composite 1.77
SWEPCO
Natural gas $2.18 41 40
Coal 1.58 127 8
Lignite 1.35 59 4
Composite 1.63
WTU
Natural gas $2.23 38 38
Coal 1.26 29 2
Composite 1.83
Natural Gas
CSW Services purchased approximately 295 billion cubic feet of natural gas
during 1998 for the U.S. Electric Operating Companies, which ranks them as the
third largest consumer of natural gas in the United States. A majority of the
gas fired electric generation plants are connected to at least two natural gas
pipelines, which provides greater access to competitive supplies and improves
reliability. Natural gas requirements for each plant are supplied by a portfolio
of long-term and short-term gas purchase and transportation agreements which
were acquired on a competitive basis and are market price based.
Coal and Lignite
The U.S. Electric Operating Companies purchase coal from a number of
suppliers. In 1998, the U.S. Electric Operating Companies purchased
approximately 73% of their total coal purchases under long-term contracts with
the balance procured on the spot market. The coal for the plants comes primarily
from Wyoming and Colorado mines which are located between 1,000 and 1,700 rail
miles from the generating plants.
Oklaunion - CPL, PSO and WTU
The jointly-owned Oklaunion plant purchases coal under a coal supply
contract with Caballo Coal Company which accounts for approximately 64% each of
the total 1998 Oklaunion coal requirements for CPL, PSO and WTU with the balance
procured on the spot market. As of December 31, 1998, CPL's share of the
year-end 1998 coal inventory at Oklaunion was approximately 30,000 tons,
13
representing a 39-day supply. PSO's share was approximately 50,000 tons,
representing a 32-day supply. WTU's share was approximately 180,000 tons,
representing a 34-day supply.
Coleto Creek - CPL
CPL has a long-term coal supply agreement with Colowyo Coal Company
covering approximately 25% of the coal requirements of its Coleto Creek plant.
During 1998, this agreement was extended to cover approximately 40% of the plant
deliveries. The balance of the plant's coal deliveries came from spot market
purchases of Powder River Basin and Colorado coal that was delivered under one
spot market rail transportation agreement. Additionally, approximately 102,000
tons of coal were purchased from suppliers in Venezeula and transported via ship
to the Port of Corpus Christi where it was then transferred by train and/or
truck to the plant. At December 31, 1998, CPL had approximately 334,000 tons of
coal in inventory at Coleto Creek, representing a 44-day supply.
During 1999, CPL intends to purchase Powder River Basin coal on the spot
market for approximately 50% of the Coleto Creek plant requirements and will
transport such coal pursuant to a rail transportation agreement with Union
Pacific. The remainder of CPL's coal will be purchased from multiple Colorado
suppliers. This coal will also be transported by Union Pacific. As a result of
the recent merger between Union Pacific and the Southern Pacific Transportation
Company, Union Pacific is currently the only rail carrier with access to the
Coleto Creek Plant. In 1994, CPL instituted a proceeding at the Interstate
Commerce Commission requesting a reasonable rate for the 16 miles transported
from Victoria, Texas to Coleto Creek. Southern Pacific Transportation Company
moved to dismiss the complaint and, in a decision issued December 31, 1996, the
Surface Transportation Board of the U.S. Department of Transportation, successor
to the Interstate Commerce Commission, granted the motion. CPL has appealed this
decision to the U.S. Court of Appeals for the Eighth Circuit where the matter is
pending.
Northeastern Station - PSO
PSO has a contract with Kerr-McGee Coal Corporation, which substantially
covers the coal supply for PSO's Northeastern Station coal units through 2007.
In 1998, Kennecott Energy Corporation purchased Kerr-McGee Coal Corporation and
assumed the PSO coal contract. Coal delivery is by unit trains from mines
located in the Gillette, Wyoming vicinity, a distance of about 1,100 rail miles
from the Northeastern Station. PSO owns sufficient railcars for operation of six
unit trains. Coal is transported to the Northeastern Station pursuant to a
long-term contract with Burlington Northern. The plant is also equipped to
accept deliveries from Union Pacific. At December 31, 1998, PSO had
approximately 522,000 tons of coal in inventory at Northeastern Station
representing a 42-day supply.
Welsh and Flint Creek - SWEPCO
The long-term coal supply for SWEPCO's Welsh plant and its 50% owned Flint
Creek plant is provided under a contract with Cyprus Amax Minerals Company. Coal
under this contract is mined near Gillette, Wyoming, a distance of about 1,500
and 1,100 miles, respectively, from the Welsh and Flint Creek plants. Coal is
delivered to the plants under rail transportation contracts with Burlington
Northern and the Kansas City Southern Railroad Company having expiration dates
ranging between 2001 and 2006. SWEPCO owns or leases, under long-term leases,
sufficient railcars and spares for the operation of 15 unit trains. SWEPCO has
supplemented its railcar fleet from time to time with short-term leases. At
December 31, 1998, SWEPCO had coal inventories of approximately 875,000 tons at
Welsh, representing a 44-day supply and approximately 503,000 tons at Flint
Creek, representing a 67-day supply, See ITEM 8-NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS and NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES for
additional information.
Pirkey and Dolet Hills - SWEPCO
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, 1998, approximately 277,000
tons of lignite were in SWEPCO's inventory at the Pirkey plant representing a
23-day supply. Another 25,000 acres are jointly leased in equal portions by
SWEPCO and CLECO in the Dolet Hills area of Louisiana near the Dolet Hills Power
14
Plant. The DHMV is the contract miner for these reserves. At December 31, 1998,
SWEPCO had 133,000 tons of lignite in inventory at the Dolet Hills plant,
representing a 23-day supply. SWEPCO believes 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 - 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 into
the isotope U235, 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 that fuel decisions be made years in advance of the actual need
to refuel the reactor. Fuel requirements for STP are being handled by the
STPNOC.
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 a STP unit is down for
refueling or maintenance.
CPL and the other STP participants have entered into contracts with
suppliers for 100% of the uranium concentrate sufficient for the operation of
both STP units through October 2001, with additional flexible contracts to
provide 53% of the uranium concentrate needed for STP through 2003. In addition,
CPL and the other STP participants have entered into contracts with suppliers
for 100% of the nuclear fuel conversion service sufficient for the operation of
both STP units through October 2001, with additional flexible contracts to
provide at least 40% of the conversion service needed for STP through 2005.
Enrichment contracts were secured for a 30-year period from the initial
operation of each unit. The STP participants have canceled the enrichment
requirements for the period after October 2000 by negotiating a new contract
with the initial supplier. The participants believe that other, lower cost
options will be available in the future. CPL and the other STP participants have
entered into flexible contracts to provide for 100% of enrichment services from
October 2000 to December 2004, with additional flexible contracts to provide at
least 40% of enrichment services through 2006. 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 operation.
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 until October
2007. 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, required the DOE to
develop a permanent high level waste disposal facility for the storage of spent
nuclear fuel by 1998. The DOE last estimated that the permanent facility will
not be available until 2010. The DOE will take 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 lives. 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
15
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 8-NOTE 3.
COMMITMENTS AND CONTINGENT LIABILITIES for information relating to nuclear
insurance.
Governmental Regulation
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 U.S. Electric Operating Companies' ability to economically meet the needs of
their customers. Such regulatory measures could require the U.S. 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 the
financial condition and results of operations of CSW and/or any of the U.S.
Electric Operating Companies.
The Registrants are unable to predict the future cost of fuel (The
foregoing statements constitute forward-looking statements within the meaning of
Section 21E of the Exchange Act. Actual results may differ materially from such
projected information due to changes in the underlying assumptions. See
FORWARD-LOOKING INFORMATION). See ITEM 7. MD&A and ITEM 8-NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS for additional information concerning fuel costs.
Power Purchases and Sales
The U.S. Electric Operating Companies serve various municipalities,
electric cooperatives and public power authorities. The U.S. Electric Operating
Companies exchange power with various neighboring electric systems and engage in
electric interchanges with each other. In addition, they contract with certain
suppliers including power marketers and independent power producers for the
purchase or sale of capacity, firm energy, responsive reserves and other
wholesale services.
CPL - Wholesale Customers
Certain CPL wholesale customers have given notice of their intent to
terminate their contract when they expire in 2001 through 2004. During 1998,
these customers represented 3% of CPL's total electric operating revenues.
ENVIRONMENTAL MATTERS
The CSW System is subject to regulation with respect to air and water
quality, solid waste standards and other environmental matters. These
authorities have continuing jurisdiction in most cases to require modifications
in facilities and operations. Any such changes in environmental statutes or
regulations could require substantial additional expenditures to modify the CSW
System's facilities and operations and could have a material adverse effect on
the results of operations and financial condition of CSW and/or any of the U.S.
Electric Operating Companies. Violations of environmental statutes or
regulations can result in fines and other costs.
EMFs
Research is ongoing whether exposure to EMFs may result in adverse health
effects. Although earlier studies suggested a correlation between EMFs and some
types of effects, the research to date has not established a cause-and-effect
relationship between EMFs and adverse health effects from electric lines.
Recently, more comprehensive studies have failed to show any correlation. CSW
cannot predict the impact on CSW or the electric utility industry if further
investigations or proceedings were to establish that the present electricity
delivery system is contributing to increased risk or incidence of health
problems.
16
Other Environmental Matters
From time to time the Registrants are made aware of various other
environmental issues or are named as parties to various other legal claims,
actions, complaints or other proceedings related to environmental matters.
Management does not expect disposition of any such pending environmental
proceedings to have a material adverse effect on the results of operations or
financial condition of CSW and/or any of the U.S. Electric Operating Companies.
See ITEM 7. MD&A, ITEM 8-NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
and NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES, for additional information
relating to environmental matters.
U.S. ELECTRIC ENVIRONMENTAL MATTERS
Air Quality
Air quality standards and emission limitations are subject to the
jurisdiction of state regulatory authorities in each state in which the CSW
System operates, with oversight by the EPA. In accordance with regulations of
these state authorities, permits are required for all generating units on which
construction is commenced or which are substantially modified after the
effective date of the applicable regulations.
In 1990, the U.S. Congress amended the Clean Air Act. CAAA places
restrictions on the emission of sulfur dioxide from gas-, coal- and
lignite-fired generating plants. Beginning in the year 2000, the U.S. Electric
Operating Companies will be required to hold allowances in order to emit sulfur
dioxide. The EPA issues allowances to owners of existing generating units based
on historical operating conditions. Based on the CSW U.S. Electric System
facilities plan, CSW believes that the allowances of the U.S. Electric Operating
Companies are adequate to meet their needs through 2008. Public and private
markets are developing for trading of excess allowances.
The CAAA also directed the EPA to issue regulations governing nitrogen
oxide emissions and requiring government studies to determine what controls, if
any, should be imposed on utilities to control toxic air emissions. The acid
rain rules have not been released. Accordingly, the impact on CSW and the U.S.
Electric Operating Companies cannot be determined at this time.
Under the Acid Rain Title IV rules of the CAAA for nitrogen oxide control
for coal units, the U.S. Electric Operating Companies have elected alternate
standards for their units under an optional provision regarding emission limits.
This will eliminate any capital expenses through 2007, if the alternate
standards are met.
There is a legislative initiative in Texas to have older units, which were
grandfathered under the CAAA, operate under permits and reduce emissions. Based
upon reduction levels being discussed, the U.S. Electric Operating Companies'
compliance cost could be approximately $131 million. The time frame has not been
established for these controls. The issue will be considered in the 1999 Texas
legislative session.
The EPA recently promulgated revised, more stringent ambient air quality
standards for ozone and particulates. While these standards do not mandate
emission constraints or reductions for facilities such as electricity generating
power plants, they may result in more areas being designated as non-attainment
for these two pollutants. States will be required to develop strategies to
achieve compliance in these areas, strategies that may include lower emission
levels for electricity generating power plants, possibly including facilities
within the CSW System. The impact, if any, on CSW or the U.S. Electric Operating
Companies cannot yet be determined, but the impact could be significant.
At the Kyoto Conference on Global Warming held in December 1997, U.S.
representatives agreed to a treaty which could require new limitations on
"greenhouse gases" from power plants. CSW and the U.S. Electric Operating
17
Companies could be affected if this treaty, in its present form, is approved by
the United States Congress. The impact, if any, on CSW or the U.S. Electric
Operating Companies cannot be determined because most of the greenhouse gas
emission reduction would come from coal generation that would have to be
switched to natural gas or retired. Currently, 47% of the U.S. Electric
Operating Companies' MWH generation and 34% of its installed generating capacity
was coal and lignite.
Water Quality
Water quality is subject to the jurisdiction of each of the state
regulatory authorities in which the U.S. Electric Operating Companies operate as
well as the EPA. These authorities have jurisdiction over all wastewater
discharges into state waters, establish water quality standards and issue waste
control permits covering discharges which might affect the quality of state
waters. The EPA has jurisdiction over point source discharges through the
National Pollutant Discharge Elimination System provisions of the Clean Water
Act.
RCRA and CERCLA
The RCRA and the Arkansas, Louisiana, Oklahoma and Texas solid waste rules
provide for comprehensive control of all solid wastes from generation to final
disposal. The appropriate state regulatory authorities in the states in which
the U.S. Electric Operating Companies operate have received authorization from
the EPA to administer the RCRA solid waste control program for their respective
states.
The operations of the U.S. Electric Operating Companies, like those of
other utility systems, generally involve the use and disposal of substances
subject to environmental laws. CERCLA, the federal "Superfund" law, addresses
the cleanup of sites contaminated by hazardous substances. Superfund requires
that PRPs fund remedial actions regardless of fault or the legality of past
disposal activities. PRPs include owners and operators of contaminated sites and
transporters and/or generators of hazardous substances. Many states have similar
laws. Theoretically, any one PRP can be held responsible for the entire cost of
a cleanup. Typically, however, cleanup costs are allocated among PRPs.
CSW's subsidiaries incur significant costs for the handling,
transportation, storage and disposal of hazardous and non-hazardous waste
materials. Unit costs for waste classified as hazardous exceed by a substantial
margin unit costs for waste classified as non-hazardous.
The U.S. Electric Operating Companies, like other electric utilities,
produce combustion and other generation by-products, such as ash, sludge, slag,
low-level radioactive waste and spent nuclear fuel. The U.S. Electric Operating
Companies own distribution poles treated with creosote or other substances. The
EPA currently exempts coal combustion by-products from regulation as hazardous
wastes. Distribution poles treated with creosote or other substances are not
expected to exhibit characteristics that would cause them to be hazardous waste.
In connection with their operations, the U.S. Electric Operating Companies also
have used asbestos, PCBs and materials classified as hazardous waste. If
additional by-products or other materials generated or used by companies in the
CSW U.S. Electric System were reclassified as hazardous wastes, or other new
laws or regulations concerning hazardous wastes were put into effect, CSW System
disposal and remedial costs could increase materially. The EPA is expected to
issue new regulations stating whether certain other materials will be classified
as hazardous.
EPA Toxic Release Inventory Initiative
Beginning July 1, 1999, the EPA is requiring electric utilities to report
the amount of certain chemicals released by coal-fired power plants under its
Toxic Release Inventory Initiative. The regulations currently require nearly
30,000 facilities nationwide to report their annual emissions of certain
chemicals. The Toxic Release Inventory Initiative allows the public to access
information on the types and quantities of listed chemicals that are released.
The Toxic Release Inventory regulations require reports on the amounts of
materials disposed of, transferred offsite, recovered and recycled.
18
U.K. ELECTRIC ENVIRONMENTAL MATTERS
SEEBOARD's operations are subject to regulation with respect to water
quality standards and other environmental matters by various authorities within
the United Kingdom. Under certain circumstances, these authorities may require
modifications to SEEBOARD's facilities and operations or impose fines and other
costs for violations of applicable statutes and regulations. From time to time
SEEBOARD is made aware of various environmental issues or is named as a party to
various legal claims, actions, complaints or other proceedings related to
environmental matters. Management does not expect disposition of any such
pending environmental proceedings to have a material adverse effect on CSW's
consolidated results of operations or financial condition.
19
OPERATING INFORMATION - CSW SYSTEM
CSW
(excludes SEEBOARD)
1998 1997 1996
Kilowatt-hour sales (millions) --------------------------
Residential 19,757 17,995 17,883
Commercial 15,554 14,546 14,256
Industrial 21,481 21,087 20,266
Other retail 1,906 1,705 1,592
--------------------------
Sales to retail customers 58,698 55,333 53,997
Sales for resale 8,296 7,824 8,428
--------------------------
Total 66,994 63,157 62,425
--------------------------
Average number of electric customers (thousands)
Residential 1,480 1,462 1,443
Commercial 218 214 210
Industrial 22 23 24
Other retail 15 13 13
--------------------------
Total 1,735 1,712 1,690
--------------------------
Revenue per KWH
Residential 6.60(cent)6.96(cent)6.95(cent)
Commercial 5.71 6.13 6.12
Industrial 3.62 3.85 3.85
Sales for Resale 3.16 3.11 3.03
Peak Load and Capability
Net system capability (MW) (1) 14,839 14,290 14,377
Maximum coincident system demand (MW) 13,718 13,105 12,613
Percentage increase in peak demand over prior
period 4.7% 3.9% 2.4%
Generation at time of peak (MW) 13,012 12,817 11,625
Percent of peak demand generated 94.9% 97.8% 92.2%
Net purchases at time of peak (MW) 706 288 988
Percent of net purchases at time of peak 5.2% 2.2% 7.8%
Date of maximum coincident system demand July 27 July 28 July 22
The preceding table sets forth: (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 and net purchases and sales.
(1)Excludes 85 MW of system capability in storage in 1998 as described in ITEM
2. PROPERTIES, 310 MW of system capability in storage and 156 MW of system
capability under repair in 1997 and 358 MW of system capability in storage in
1996.
20
CPL
1998 1997 1996
-----------------------------
Kilowatt-hour sales (millions)
Residential 7,167 6,771 6,680
Commercial 5,122 4,846 4,773
Industrial 8,350 7,999 7,610
Other retail 553 486 499
-----------------------------
Sales to retail customers 21,192 20,102 19,562
Sale for resale 1,867 1,737 2,029
-----------------------------
Total 23,059 21,839 21,591
-----------------------------
Average number of electric customers
Residential 550,000 538,700 529,100
Commercial 82,000 79,700 78,000
Industrial 5,500 5,600 5,700
Other 4,500 3,900 3,900
-----------------------------
Total 642,000 627,900 616,700
-----------------------------
Revenue per KWH
Residential 7.35(cent)7.99(cent)7.92(cent)
Commercial 7.37 8.26 8.13
Industrial 3.71 4.13 4.05
Sales for resale 3.57 4.06 3.56
Peak Load and Capability
Net system capability (MW) (1) 4,542 4,319 4,380
Maximum coincident system demand (MW) 4,537 4,232 4,046
Percentage increase in peak demand over prior
period 7.2% 4.6% 4.8%
Generation at time of peak (MW) 3,688 4,227 3,484
Percent of peak demand generated 81.3% 99.9% 86.1%
Net purchases at time of peak (MW) 849 5 562
Percent of net purchases at time of peak 18.7% 0.1% 13.9%
Date of maximum coincident system demand August 13 August 20 August 13
The preceding table sets forth; (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 and net purchases and sales.
(1) Excludes 60 MW of system capability in storage in 1997 and 108 MW of
system capability in storage in 1996.
21
PSO
1998 1997 1996
----------------------------------
Kilowatt-hour sales (millions)
Residential 5,772 5,054 5,098
Commercial 5,091 4,698 4,621
Industrial 4,873 4,714 4,581
Other retail 265 192 81
----------------------------------
Sales to retail customers 16,001 14,658 14,381
Sales for resale 861 958 1,487
----------------------------------
Total 16,862 15,616 15,868
----------------------------------
Average number of electric customers
Residential 423,300 419,600 414,800
Commercial 56,100 55,300 54,400
Industrial 5,000 5,100 5,200
Other 1,600 1,400 1,400
----------------------------------
Total 486,000 481,400 475,800
----------------------------------
Revenue per KWH
Residential 5.70(cent) 5.88(cent)5.89(cent)
Commercial 4.64 4.82 4.80
Industrial 3.34 3.44 3.45
Sales for Resale 3.18 3.23 2.64
Peak Load and Capability
Net system capability (MW) (1) 4,042 3,882 3,848
Maximum coincident system demand (MW) 3,683 3,474 3,360
Percentage increase in peak demand over
prior period 6.0% 3.4% 2.1%
Generation at time of peak (MW) 3,048 3,376 3,009
Percent of peak demand generated 82.8% 97.2% 89.6%
Net purchases at time of peak (MW) 635 98 351
Percent of net purchases at time of peak 17.2% 2.8% 10.4%
Date of maximum coincident system demand September 4 July 28 August 7
The preceding table sets forth: (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 and net purchases and sales.
(1) Excludes 85 MW of system capability in storage in 1998 as described in ITEM
2. PROPERTIES, and 250 MW of system capability in storage in 1997 and 1996.
22
SWEPCO
1998 1997 1996
------------------------------------
Kilowatt-hour sales (millions)
Residential 5,052 4,549 4,487
Commercial 4,039 3,780 3,658
Industrial 6,929 6,968 6,833
Other retail 467 445 432
------------------------------------
Sales to retail customers 16,487 15,742 15,410
Sales for resale 6,449 6,791 6,395
------------------------------------
Total 22,936 22,533 21,805
------------------------------------
Average number of electric customers
Residential 358,600 356,600 353,200
Commercial 51,800 50,800 49,600
Industrial 5,800 5,800 5,900
Other 2,800 2,700 2,600
------------------------------------
Total 419,000 415,900 411,300
------------------------------------
Revenue per KWH
Residential 6.23(cent) 6.37(cent) 6.46(cent)
Commercial 4.90 5.08 5.19
Industrial 3.66 3.78 3.85
Sales for Resale 2.17 2.16 2.11
Peak Load and Capability
Net system capability (MW) 4,559 4,636 4,554
Maximum coincident system demand (MW) 4,372 4,157 4,018
Percentage increase in peak demand over
prior period 5.2% 3.5% 2.2%
Generation at time of peak (MW) 4,414 3,839 3,608
Percent of peak demand generated 101.0% 92.4% 89.8%
Net purchases (sales) at time of peak (MW) (42) 318 410
Percent of net purchases at time of peak (1.0)% 7.6% 10.2%
Date of maximum coincident system demand July 29 July 28 July 22
The preceding table sets forth: (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 and net purchases and sales.
23
WTU
1998 1997 1996
-------------------------------
Kilowatt-hour sales (millions)
Residential 1,766 1,622 1,620
Commercial 1,302 1,223 1,203
Industrial 1,329 1,406 1,241
Other retail 621 580 581
-------------------------------
Sales to retail customers 5,018 4,831 4,645
Sales for resale 2,622 2,504 2,411
-------------------------------
Total 7,640 7,335 7,056
-------------------------------
Average number of electric customers
Residential 147,600 146,900 146,500
Commercial 28,400 27,800 27,600
Industrial 5,800 6,000 6,300
Other 6,200 6,000 5,700
-------------------------------
Total 188,000 186,700 186,100
-------------------------------
Revenue per KWH
Residential 7.60(cent) 7.68(cent)7.67(cent)
Commercial 5.85 5.99 6.02
Industrial 3.89 4.05 4.22
Sales for Resale 3.72 3.55 3.69
Peak Load and Capability
Net system capability (MW) (1) 1,696 1,453 1,595
Maximum coincident system demand (MW) 1,591 1,481 1,433
Percentage increase (decrease) in peak demand
over prior period 7.4% 3.3% (0.1)%
Generation at time of peak (MW) 1,357 865 1,048
Percent of peak demand generated 85.3% 58.4% 73.1%
Net purchases at time of peak (MW) 234 616 385
Percent of net purchases at time of peak 14.7% 41.6% 26.9%
Date of maximum coincident system demand August 3 September 17 July 8
The preceding table sets forth: (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 and net purchases and sales.
(1) Excludes 156 MW of system capability for under repair 1997.
24
EMPLOYEES AND EXECUTIVE OFFICERS
The number of employees in the CSW System at December 31, 1998 is
presented in the table below. Of the employees listed below, 562 of the
positions at PSO and 788 of the positions at SWEPCO are covered under collective
bargaining agreements with the IBEW. In addition, 2,174 employees at SEEBOARD
are covered by collective agreements with several different unions. For
information related to ongoing union negotiations at PSO, reference is made to
ITEM 7. MD&A.
CSW SYSTEM EMPLOYEES
CPL 1,555
PSO 1,227
SWEPCO 1,461
WTU 913
-----------
U.S. Electric 5,156
UK Electric 3,985
Diversified Electric 137
Other (including CSW Services) 1,678
-----------
10,956
Age at
EXECUTIVE March 1,
OFFICERS 1999 Present Position
- --------------------------------------------------------------------------------
E. R. Brooks 61 Chairman, CEO and Director
T. V. Shockley, III 53 President, Chief Operating Officer and
Director
Glenn Files 51 Senior Vice President, Electric Operations
Ferd. C. Meyer, Jr. 59 Executive Vice President and General
Counsel
Glenn D. Rosilier 51 Executive Vice President and Chief
Financial Officer
Thomas M. Hagan 54 Senior Vice President, External Affairs
Venita McCellon-Allen 39 Senior Vice President, Customer Relations
and Corporate Development and Assistant
Corporate Secretary
Kenneth C. Raney 47 Vice President, Associate General Counsel
and Corporate Secretary
Wendy G. Hargus 41 Treasurer
Lawrence B. Connors 47 Controller
The information in the foregoing table is included in Part I pursuant to
Regulation S-K, Item 401 (b), Instruction 3. Each of the executive officers of
CSW is elected to hold office until the first meeting of 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 22, 1999. CSW or an
affiliate of CSW has employed each of the executive officers listed in the table
above in an executive or managerial capacity for at least the last five years.
25
ITEM 2. PROPERTIES.
U.S. ELECTRIC
The total capabilities (MW, net dependable summer rating) of the U.S.
Electric Operating Companies, which owned the following electric generating
units or portions thereof in the case of jointly owned facilities, as of
December 31, 1998 are shown in the following table. These properties are all
located in either Arkansas, Louisiana, Oklahoma or Texas.
Natural Coal Lignite Nuclear Other Total MW
Company Stations(a) Gas MW MW MW MW MW(b) (c)
- --------------------------------------------------------------------------------
CPL 12 3,142 686 630 6 4,464
PSO 8 2,794 1,008 25 3,827 (d)
SWEPCO 9 1,784 1,848 842 4,474
WTU 11 1,018 377 11 1,406
-----------------------------------------------------------------
CSW 40 8,738 3,919 842 630 42 14,171
-----------------------------------------------------------------
(a) CSW actually owns 38 stations. CPL, PSO and WTU each include the jointly
owned Oklaunion power station in their respective ownership count.
(b) 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 slight reduction in capability. PSO and
WTU have 25 MW and 11 MW, respectively, of facilities primarily designed to
burn oil. CPL has 6 MW of hydroelectric generation.
(c) Data reflects only the U.S. Electric Operating Companies' portion of
plants which are jointly owned with non-affiliates. For additional
information concerning jointly owned facilities see ITEM 8 - NOTE 6.
JOINTLY OWNED ELECTRIC UTILITY PLANT.
(d) Excludes 85 MW from units in storage at Tulsa for PSO, which should be
available in the summer of 1999.
All of the generating facilities described above are located on land owned by
the U.S. Electric Operating Companies or, in the case of jointly owned
facilities, jointly with other participants. The U.S. 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 have been obtained
(which the U.S. Electric Operating Companies believe to be satisfactory, but
without examination of underlying land titles). The principal plants and
properties of the U.S. Electric Operating Companies are subject to the liens of
the first mortgage indentures under which the U.S.
Electric Operating Companies' FMBs are issued.
26
DIVERSIFIED ELECTRIC
In addition to the generating facilities described above, CSW has
ownership interests in other electrical generating facilities, both foreign and
domestic. Information concerning these facilities is listed below.
Capacity Capacity Ownership
Company Location Total Committed Interest Status
----------------------------------------------------------
Operating Facilities - United States
Brush II CSW Energy Colorado 68