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________________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2003
-- OR --
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 333-100240
Oncor Electric Delivery Company
(Exact Name of Registrant as Specified in its Charter)
Texas 75-2967830
(State of Incorporation) (I.R.S. Employer Identification No.)
500 N Akard Street, Dallas, TX 75201 (214) 486-2000
(Address of Principal Executive Offices) (Registrant's Telephone Number)
(Zip Code)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
__________________________________________
Indicate by check mark whether the registrant (1) has 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has 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 the 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. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
-- ---
Aggregate market value of Oncor Electric Delivery Company Common Stock held
by non-affiliates: None
Common Stock outstanding at March 14, 2004: 59,174,500 shares, without
par value
Oncor Electric Delivery Company meets the conditions set forth in General
Instructions (I) (1) (a) and (b) of Form 10-K and is therefore filing this
report with the reduced disclosure format.
__________________________________________
DOCUMENTS INCORPORATED BY REFERENCE - None
_______________________________________________________________________________
TABLE OF CONTENTS
Page
----
Glossary........................................................................................... ii
PART I
Items 1. and 2. BUSINESS and PROPERTIES............................................................ 1
ONCOR ELECTRIC DELIVERY COMPANY AND SUBSIDIARY............................................... 1
DESCRIPTION OF ONCOR'S BUSINESS.............................................................. 1
REGULATION AND RATES......................................................................... 3
ENVIRONMENTAL MATTERS........................................................................ 3
Item 3. LEGAL PROCEEDINGS........................................................................ 3
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................... 3
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.................................................................................. 4
Item 6. SELECTED FINANCIAL DATA.................................................................. 4
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................................... 4
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................... 4
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................. 4
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..................................................................... 4
Item 9A. CONTROLS AND PROCEDURES................................................................. 4
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT........................................... 4
Item 11. EXECUTIVE COMPENSATION................................................................... 4
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................... 4
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................... 5
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES................................................... 5
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.......................... 6
APPENDIX A - Financial Information of Oncor Electric Delivery Company
APPENDIX B -Exhibits to 2003 Form 10-K
Periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K that
contain financial information of Oncor Electric Delivery Company are made
available to the public, free of charge, on the TXU Corp. website at
http://www.txucorp.com, shortly after they have been filed with the Securities
and Exchange Commission. Oncor Electric Delivery Company will provide copies of
current reports not posted on the website upon request.
i
GLOSSARY
When the following terms and abbreviations appear in the text of this report,
they have the meanings indicated below.
1999 Restructuring Legislation........legislation that restructured the electric
utility industry in Texas to provide
for competition
2002 Form 10-K........................Oncor Electric Delivery Company's Annual
Report on Form 10-K for the year ended
December 31, 2002
2003 Form 10-K........................Oncor Electric Delivery Company's
Annual Report on Form 10-K for the year
ended December 31, 2003
Commission............................Public Utility Commission of Texas
EPA...................................Environmental Protection Agency
ERCOT.................................Electric Reliability Council of Texas,
the Independent System Operator and the
regional reliability coordinator of the
various electricity systems within Texas
FASB..................................Financial Accounting Standards Board
FERC..................................Federal Energy Regulatory Commission
FIN...................................Financial Accounting Standards Board
Interpretation
FIN 45................................FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees,
Including Indirect Guarantees of
Indebtedness of Others - an Interpretation
of FASB Statements No. 5, 57, and 107
and Rescission of FIN No. 34"
FIN 46................................FIN No. 46, "Consolidation of Variable
Interest Entities"
Fitch.................................Fitch Ratings, Ltd.
GWh...................................gigawatt-hours
historical service territory..........US Holdings historical service territory
at the time of entering competition on
January 1, 2002.
IRS...................................Internal Revenue Service
kV....................................kilovolt
Moody's...............................Moody's Investors Services, Inc.
Oncor.................................refers to Oncor Electric Delivery Company
and/or its consolidated bankruptcy remote
financing subsidiary, Oncor Electric
Delivery Transition Bond Company LLC,
depending on the context
REP...................................retail electric provider
S&P...................................Standard & Poor's, a division of the
McGraw Hill Companies
Settlement Plan.......................regulatory settlement plan that received
final approval by the Commission in
January 2003
SFAS..................................Statement of Financial Accounting
Standards issued by the FASB
SFAS 71...............................SFAS No. 71, "Accounting for the Effects
of Certain Types of Regulation"
SFAS 87...............................SFAS No. 87, "Employers' Accounting
for Pensions"
SFAS 106..............................SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than
Pensions"
SFAS 109..............................SFAS No. 109, "Accounting for Income
Taxes"
ii
SFAS 132..............................SFAS No. 132, "(Revised 2003):Employers'
Disclosures about Pensions and Other
Postretirement Benefits - An Amendment of
FASB Statements No. 87, 88, and 106"
SFAS 133..............................SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities"
SFAS 140..............................SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and
Extinguishment of Liabilities--
a Replacement of FASB Statement No. 125"
SFAS 142..............................SFAS No. 142, "Goodwill and Other
Intangible Assets"
SFAS 145..............................SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of
FASB Statement 13, and Technical
Corrections"
SFAS 146..............................SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal
Activities"
SFAS 150..............................SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics
of both Liabilities and Equity"
SOP 98-1..............................Statement of Position No. 98-1,
"Accounting for the Costs of Computer
Software Developed or Obtained for
Internal Use"
TCEQ..................................Texas Commission on Environmental Quality
TXU Corp..............................refers to TXU Corp. and/or its
consolidated subsidiaries, depending on
context
TXU Energy............................refers to TXU Energy Company LLC, a REP
subsidiary of US Holdings, and/or its
consolidated subsidiaries, depending on
context
TXU Gas...............................TXU Gas Company, a subsidiary of TXU Corp.
TXU SESCO.............................TXU SESCO Company, a subsidiary of
TXU Energy, which serves as a REP in ten
counties in the eastern and central parts
of Texas
US....................................United States of America
US Holdings...........................TXU US Holdings Company, a subsidiary of
TXU Corp.
iii
PART I
Items 1. and 2. BUSINESS and PROPERTIES
ONCOR ELECTRIC DELIVERY COMPANY AND SUBSIDIARY
----------------------------------------------
Oncor is a regulated electricity transmission and distribution company
principally engaged in providing delivery services to REPs that sell power in
the north-central, eastern and western parts of Texas.
As a result of the 1999 Restructuring Legislation, which set into motion
the deregulation of the electric industry in Texas, effective January 1, 2002,
TXU Corp.'s integrated electric utility business was disaggregated and its
operations were transferred to the newly established Oncor and TXU Energy
subsidiaries. Oncor and TXU Energy are wholly-owned subsidiaries of US Holdings,
which is a wholly-owned subsidiary of TXU Corp.
Oncor owns and operates 98,286 miles of electric distribution lines and
14,180 miles of electric transmission lines. The operating assets of Oncor are
located principally in the north-central, eastern and western parts of Texas. At
December 31, 2003, Oncor had approximately 4,100 full-time employees, including
175 in a collective bargaining unit.
Oncor operates within the ERCOT system. ERCOT is an intrastate network of
investor-owned entities, cooperatives, public entities, non-utility generators
and power marketers. ERCOT is the regional reliability coordinating organization
for member electricity systems in Texas, the Independent System Operator of the
interconnected transmission system of those systems, and is responsible for
ensuring equal access to transmission service by all wholesale market
participants in the ERCOT region.
Oncor is managed as a single, integrated electricity delivery business;
consequently, there are no separate reportable business segments.
REGULATORY SETTLEMENT PLAN
On December 31, 2001, US Holdings filed a Settlement Plan with the
Commission. It resolved all major pending issues related to US Holdings'
transition to competition pursuant to the 1999 Restructuring Legislation. The
Settlement Plan does not remove regulatory oversight of Oncor's business. The
Settlement Plan became final and non-appealable in January 2003.
As part of the Settlement Plan, US Holdings received a financing order
authorizing the issuance of securitization bonds in the aggregate principal
amount up to $1.3 billion to recover regulatory asset stranded costs and other
qualified costs. Accordingly, Oncor Electric Delivery Transition Bond Company
LLC, a bankruptcy remote financing subsidiary of Oncor, issued an initial $500
million of securitization bonds in 2003 and is expected to issue approximately
$790 million in the first half of 2004. The principal and interest on the bonds
are recoverable through a delivery fee surcharge (transition charge) to all
REPs, including TXU Energy.
DESCRIPTION OF ONCOR'S BUSINESS
-------------------------------
ELECTRICITY TRANSMISSION
Oncor's electricity transmission business is responsible for the safe and
reliable operations of its transmission network and substations. These
responsibilities consist of the construction and maintenance of transmission
facilities and substations and the monitoring, controlling and dispatching of
high-voltage electricity over Oncor's transmission facilities in coordination
with ERCOT.
Oncor is a member of ERCOT, and the transmission business actively
supports the operations of ERCOT and market participants. The transmission
business participates with ERCOT and other member utilities to plan, design,
construct and operate new transmission lines, with regulatory approval,
necessary to maintain reliability, increase bulk power transfer capability and
to minimize limitations and constraints on the ERCOT transmission grid.
1
Transmission revenues are provided under tariffs approved by either the
Commission or, to a small degree, FERC. Network transmission revenues compensate
Oncor for delivery of power over transmission facilities operating at 60,000
volts and above. Transformation service revenues compensate Oncor for substation
facilities that transform power from high-voltage transmission to distribution
voltages below 60,000 volts. Other services offered by the transmission business
include, but are not limited to: system impact studies, facilities studies and
maintenance of substations and transmission lines owned by other non-retail
parties.
Oncor's transmission facilities include 4,502 circuit miles of 345-kV
transmission lines and 9,678 circuit miles of 138- and 69-kV transmission lines.
Also, 43 generating plants totaling 33,260 megawatts are directly connected to
Oncor's transmission system, and 693 distribution substations are served from
Oncor's transmission system.
Oncor is connected by eight 345-kV lines to CenterPoint Energy; by four
345-kV (one of which is an asynchronous high voltage direct current
interconnection) to American Electric Power Company in the Southwest Power Pool,
eight 138-kV and thirteen 69-kV lines to American Electric Power Company; by
four 345-kV and eighteen 138-kV lines and three 69-kV lines to the Lower
Colorado River Authority; by seven 345-kV and nine 138-kV lines to the Texas
Municipal Power Agency; and at several points with smaller systems operating
wholly within Texas.
ELECTRICITY DISTRIBUTION
Oncor's electricity distribution business is responsible for the overall
safe and efficient operation of distribution facilities, including power
delivery, power quality and system reliability. The Oncor distribution system
supplies electricity to over 2.9 million points of delivery. The electricity
distribution business consists of the ownership, management, construction,
maintenance and operation of the distribution system within Oncor's certificated
service area. Over the past five years, the number of Oncor's distribution
system premises served has been growing an average of 2% per year.
Oncor's distribution system receives electricity from the transmission
system through substations and distributes electricity to end users and
wholesale customers through 2,944 distribution feeders.
The Oncor distribution system consists of 55,472 miles of overhead primary
conductors, 22,076 miles of overhead secondary and street light conductors,
12,936 miles of underground primary conductors and 7,802 miles of underground
secondary and street light conductors. The majority of the distribution system
operates at 25-kV and 12.5-kV.
Most of Oncor's power lines have been constructed over lands of others
pursuant to easements or along public highways, streets and right-of-ways as
permitted by law.
CUSTOMERS
Oncor's transmission customers consist of municipalities, electric
cooperatives and other distribution companies. Oncor's distribution customers
consist of approximately 43 REPs in Oncor's certified service area, including
subsidiary REPs of TXU Energy. For the year ended December 31, 2003, delivery
fee revenues from TXU Energy represented approximately 70% of Oncor's revenues.
There are no individually significant unaffiliated customers upon which Oncor's
business or results are highly dependent.
Since January 1, 2002, the retail customers who purchase and consume
electricity and are connected to Oncor's system have been free to choose their
electricity supplier from REPs who compete for their business. The changed
character of electric service, however, does not mean that the safe and reliable
delivery of dependable power is any less critical to Oncor's success. Service
quality, safety and reliability are of paramount importance to REPs, electricity
customers, and Oncor. Oncor intends to continue to build on its inherited
tradition of low cost and high performance.
2
REGULATION AND RATES
--------------------
As its operations are wholly within Texas, Oncor believes that it is not a
public utility as defined in the Federal Power Act and has been advised by its
counsel that it is not subject to general regulation under such Act.
The Commission has original jurisdiction over transmission rates and
services and over distribution rates and services in unincorporated areas and in
those municipalities that have ceded original jurisdiction to the Commission and
has exclusive appellate jurisdiction to review the rate and service orders and
ordinances of municipalities. Generally, the Public Utility Regulatory Act
(PURA) prohibits the collection of any rates or charges by a public utility that
do not have the prior approval of the Commission.
At the state level, PURA, as amended, requires owners or operators of
transmission facilities to provide open access wholesale transmission services
to third parties at rates and terms that are non-discriminatory and comparable
to the rates and terms of the utility's own use of its system. The Commission
has adopted rules implementing the state open access requirements for utilities
that are subject to the Commission's jurisdiction over transmission services,
such as Oncor.
Provisions of the 1999 Restructuring Legislation allow Oncor to annually
update its transmission rates to reflect changes in invested capital. These
provisions encourage investment in the transmission system to help ensure
reliability and efficiency by allowing for timely recovery of and return on new
transmission investments.
ENVIRONMENTAL MATTERS
----------------------
Water
The TCEQ has jurisdiction over water discharges (including storm water)
from all domestic facilities. Oncor's facilities are presently in compliance
with applicable state and federal requirements relating to discharge of
pollutants into the water. Oncor holds all required waste water discharge
permits from the TCEQ for facilities in operation and has applied for or
obtained necessary permits for facilities under construction. Oncor believes it
can satisfy the requirements necessary to obtain any required permits or
renewals. Recent changes to federal rules pertaining to Spill Prevention,
Control and Countermeasure Plans for oil-filled electrical equipment and bulk
storage facilities for oil will require updating of certain plans and
facilities. Oncor is unable to predict at this time the impact of these changes.
Other
Treatment, storage and disposal of solid and hazardous waste are regulated
at the state level under the Texas Solid Waste Disposal Act and at the federal
level under the Resource Conservation and Recovery Act of 1976, as amended, and
the Toxic Substances Control Act. The EPA has issued regulations under the
Resource Conservation and Recovery Act of 1976 and the Toxic Substances Control
Act, and the TCEQ has issued regulations under the Texas Solid Waste Disposal
Act applicable to Oncor's facilities. Oncor's facilities operate in compliance
with applicable solid and hazardous waste regulations.
Environmental Capital Expenditures -- Oncor's capital expenditures for
environmental matters were $2 million in 2003.
Item 3. LEGAL PROCEEDINGS
Oncor is involved in various legal and administrative proceedings the
ultimate resolution of which should not have a material effect on its financial
position, results of operations or cash flows.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
3
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Not applicable. All of Oncor's common stock is owned by US Holdings.
Reference is made to Note 6 to Financial Statements regarding limitations upon
payment of dividends on common stock of Oncor.
Item 6. SELECTED FINANCIAL DATA
The information required hereunder for Oncor is set forth under Selected
Financial Data included in Appendix A to this report.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required hereunder for Oncor is set forth under
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Appendix A to this report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder for Oncor is set forth in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Appendix A to this report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder for Oncor is set forth under Statement
of Responsibility, Independent Auditors' Report, Statements of Consolidated
Income, Statements of Consolidated Comprehensive Income, Statements of
Consolidated Cash Flows, Consolidated Balance Sheets, Statements of Consolidated
Shareholder's Equity and Notes to Financial Statements included in Appendix A to
this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Item 9A. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of Oncor's management, including the principal executive officer
and principal financial officer, of the effectiveness of the design and
operation of the disclosure controls and procedures in effect as of December 31,
2003. Based on the evaluation performed, Oncor's management, including the
principal executive officer and principal financial officer, concluded that the
disclosure controls and procedures were effective.
There have been no significant changes in Oncor's internal
controls over financial reporting that have occurred during the most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, Oncor's internal control over financial reporting.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Item 10 is not presented herein as Oncor meets the conditions set forth in
General Instruction (I) (1) (a) and (b).
Item 11. EXECUTIVE COMPENSATION
Item 11 is not presented herein as Oncor meets the conditions set forth in
General Instruction (I) (1) (a) and (b).
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12 is not presented herein as Oncor meets the conditions set forth in
General Instruction (I) (1) (a) and (b).
4
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13 is not presented herein as Oncor meets the conditions set forth in
General Instruction (I) (1) (a) and (b).
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
US Holdings has no Audit Committee of its own, but relies upon the TXU
Corp. Audit Committee (Committee). The Committee has adopted a policy relating
to engagement of the TXU Corp.'s independent auditors. The policy provides that
in addition to the audit of the financial statements, related quarterly reviews
and other audit services, Deloitte & Touche LLP may be engaged to provide
non-audit services as described herein. Prior to engagement, all services to be
rendered by the independent auditors must be authorized by the Committee in
accordance with pre-approval procedures which are defined in the policy. The
pre-approval procedures require (i) the annual review and pre-approval by the
Committee of all anticipated audit and non-audit services; and (ii) the
quarterly pre-approval by the Committee of services, if any, not previously
approved and the review of the status of previously approved services. The
Committee may also approve certain on-going non-audit services not previously
approved in the limited circumstances provided for in the SEC rules. All
services performed by the independent auditor were pre-approved.
The policy defines those non-audit services which Deloitte & Touche may
also be engaged to provide as follows: (i) audit related services (e.g. due
diligence related to mergers, acquisitions and divestitures; employee benefit
plan audits; accounting and financial reporting standards consultation; internal
control reviews; and the like); (ii) tax services (e.g. Federal and state tax
returns; regulatory rulings preparation; general tax, merger, acquisition and
divestiture consultation and planning; and the like); and (iii) other services
(e.g. process improvement, review and assurance; litigation and rate case
assistance; general research; and the like). The policy prohibits the engagement
of Deloitte & Touche to provide: (i) bookkeeping or other services related to
the accounting records or financial statements of Oncor; (ii) financial
information systems design and implementation services; (iii) appraisal or
valuation services, fairness opinions, or contribution-in-kind reports; (iv)
actuarial services; (v) internal audit outsourcing services; (vi) management or
human resource functions; (vii) broker-dealer, investment advisor, or investment
banking services; (viii) legal and expert services unrelated to the audit; and
(ix) any other service that the Public Company Accounting Oversight Board
determines, by regulation, to be impermissible.
Compliance with the Committee's policy relating to the engagement of
Deloitte & Touche will be monitored on behalf of the Committee by TXU Corp.'s
chief internal audit executive. Reports from Deloitte & Touche and the chief
internal audit executive describing the services provided by the firm and fees
for such services will be provided to the Committee no less often than
quarterly.
For the years ended December 31, 2003 and 2002, fees billed to Oncor by
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu and their
respective affiliates were as follows:
2003 2002
-------------- ---------------
Audit Fees. Fees for services necessary to perform the annual audit,
review Securities and Exchange Commission filings, fulfill statutory and
other attest service requirements, provide comfort letters and consents... $ 591,000 $ 1,044,000
Audit-Related Fees. Fees for services including employee benefit plan audits,
due diligence related to mergers, acquisitions and divestitures, accounting
consultations and audits in connection with acquisitions, internal control
reviews, attest services that are not required by statute or regulation, and
consultation concerning financial accounting
and reporting standards................................................... -- --
Tax Fees. Fees for tax compliance, tax planning, and tax advice related
to mergers and acquisitions, divestitures, and communications with and
requests for rulings from taxing authorities.............................. -- --
All Other Fees. Fees for services including process improvement
reviews, forensic accounting reviews, litigation and rate case assistance. -- 135,000
-------------- ---------------
Total ..................................................................... $591,000 $1,179,000
============== ===============
5
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
-----
(a) Documents filed as part of this Report:
Financial Statements (included in Appendix A to this report):
Selected Financial Data .............................................................. A-2
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ A-3
Statement of Responsibility.............................................................. A-15
Independent Auditors' Report............................................................. A-16
Statements of Consolidated Income for each of the three years in the period ended
December 31, 2003..................................................................... A-17
Statements of Consolidated Comprehensive Income for each of the three years in the
period ended December 31, 2003........................................................ A-17
Statements of Consolidated Cash Flows for each of the three years in the period
ended December 31, 2003............................................................... A-18
Consolidated Balance Sheets, December 31, 2003 and 2002.................................. A-19
Statements of Consolidated Shareholder's Equity for each of the three years in the
period ended December 31, 2003........................................................ A-20
Notes to Financial Statements............................................................ A-21
The consolidated financial statements schedules are omitted because of the
absence of the conditions under which they are required or because the required
information is included in the consolidated financial statements or notes
thereto.
(b) Reports on Form 8-K filed or furnished since September 30, 2003:
None
(c) Exhibits:
Included in Appendix B to this report.
6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Oncor Electric Delivery Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
ONCOR ELECTRIC DELIVERY COMPANY
Date: March 17, 2004 By: /s/ M. S. Greene
--------------------------------
(M. S. Greene Vice Chairman and
Chief Executive)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Oncor
Electric Delivery Company and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ M. S. Greene Principal Executive March 17, 2004
- ----------------------------------------------------------- Officer and Director
(M. S. Greene, Vice Chairman and Chief Executive)
/s/ SCOTT LONGHURST
- ----------------------------------------------------------- Principal Financial Officer March 17, 2004
(Scott Longhurst, Senior Vice President and
Principal Financial Officer)
/s/ DAVID H. ANDERSON Principal Accounting Officer March 17, 2004
- -----------------------------------------------------------
(David H. Anderson, Vice President)
/s/ C. JOHN WILDER Director March 17, 2004
- -----------------------------------------------------------
(C. John Wilder, Chairman of the Board)
/s/ H. DAN FARELL Director March 17, 2004
- -----------------------------------------------------------
(H. Dan Farell)
/s/ MICHAEL J. McNALLY Director March 17, 2004
- -----------------------------------------------------------
(Michael J. McNally)
/s/ ERLE NYE Director March 17, 2004
- -----------------------------------------------------------
(Erle Nye)
/s/ ERIC H. PETERSON Director March 17, 2004
- -----------------------------------------------------------
(Eric H. Peterson)
7
Supplemental Information to be Furnished with Reports Filed
Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act
No annual report, proxy statement, form of proxy or other proxy soliciting
material has been sent to security holders of Oncor Electric Delivery Company
during the period covered by this Annual Report on Form 10-K for the fiscal year
ended December 31, 2003.
8
Appendix A
ONCOR ELECTRIC DELIVERY COMPANY
INDEX TO FINANCIAL INFORMATION
December 31, 2003
Page
----
Selected Financial Data..................................................................... A-2
Management's Discussion and Analysis of Financial Condition and Results of Operations....... A-3
Statement of Responsibility................................................................. A-15
Independent Auditors' Report................................................................ A-16
Financial Statements:
Statements of Consolidated Income and Comprehensive Income............................ A-17
Statements of Consolidated Cash Flows................................................. A-18
Consolidated Balance Sheets........................................................... A-19
Statements of Consolidated Shareholder's Equity....................................... A-20
Notes to Financial Statements......................................................... A-21
A-1
ONCOR ELECTRIC DELIVERY COMPANY
SELECTED FINANCIAL DATA
Year Ended December 31,
----------------------------------------
2003 2002 2001(c) 2000(c)
---- ---- ------- -------
(Millions of Dollars, except ratios)
Total assets -- end of year......................... $9,316 $9,022 $8,495 $8,149
Property, plant and equipment - net-- end of year... $6,333 $6,056 $5,802 $5,445
Capital expenditures............................. 543 513 635 517
Capitalization-- end of year
Long-term debt, less amounts due currently....... $3,983 $4,080 $3,282 $2,752
Shareholder's equity............................. 2,856 2,649 2,701 2,532
----- ------ ------ ------
Total...................................... $6,839 $6,729 $5,983 $5,284
====== ====== ====== ======
Capitalization ratios-- end of year
Long-term debt, less amounts due currently....... 58.2% 60.6% 54.9% 52.1%
Shareholder's equity............................. 41.8% 39.4% 45.1% 47.9%
---- ---- ----- -----
Total...................................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Embedded interest cost on long-term debt-- end of
year (a).......................................... 6.9% 7.2% 8.6% 8.4%
Operating revenues.................................. $2,087 $ 1,994 $2,314 $2,081
Net income (b)...................................... $ 258 $ 122 $ 228 $ 226
Ratio of earnings to fixed charges.................. 2.24 2.32 2.24 2.28
(a) Represents the annual interest and amortization of any discounts,
premiums, issuance costs and any deferred gains/losses on
reacquisitions divided by the carrying value of the debt plus or minus
the unamortized balance of any discounts, premiums, issuance costs and
gains/losses on reacquisitions at the end of the year and excludes
advances from affiliates.
(b) Net of extraordinary loss related to the writedown of a regulatory
asset in 2002 of $123 million.
(c) 2001 and 2000 financial data is derived from US Holdings' historical
financial information unbundled to reflect comparable amounts prior
to Oncor's existence as a separate entity, effective January 1, 2002.
See Note 1 to financial statements under Basis of Presentation.
A-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS
Oncor is a wholly-owned subsidiary of US Holdings, which is a wholly-owned
subsidiary of TXU Corp. Oncor is a regulated electricity transmission and
distribution company principally engaged in providing delivery services to REPs
that sell power in the north-central, eastern and western parts of Texas. A
majority of Oncor's revenues represent fees for delivery services provided to
TXU Energy, which is also a wholly-owned subsidiary of US Holdings. For the year
ended December 31, 2003, such affiliated revenues represented approximately 70%
of Oncor's revenues. Oncor is managed as an integrated business; consequently,
there are no separate reportable business segments.
The Oncor electricity distribution business provides delivery services to
REPs who sell electricity to retail customers; consequently, Oncor has no
electricity commodity supply or price risk. Oncor operates in a favorable
regulatory environment, as evidenced by a regulatory provision that allows Oncor
to annually update its transmission rates to reflect changes in invested
capital. This provision encourages investment in the transmission system to help
ensure reliability and efficiency by allowing for timely return on the
investments. Oncor has no pending rate cases.
A key management challenge and initiative is controlling operation and
maintenance expenses. Oncor continues to seek opportunities to enhance
efficiency and improve the effectiveness of operating processes in order to
mitigate upward cost pressures such as rising employee benefits expenses. Such
efforts are balanced against the need to support growth and maintain the
reliability, efficiency and security of the electricity delivery infrastructure.
Oncor's operation and maintenance expense in 2003 was about even with last year,
excluding the increase in transmission fees paid to other utilities that was
largely offset by higher transmission fee revenues. Management is continuing to
focus on limiting increases in operating costs through productivity and other
cost control initiatives.
All dollar amounts in Management's Discussion and Analysis of Financial
Condition and Results of Operations and the tables therein are stated in
millions of US dollars unless otherwise indicated.
CRITICAL ACCOUNTING POLICIES
Oncor's significant accounting policies are detailed in Note 1 to
Financial Statements. Oncor follows accounting principles generally accepted in
the US. In applying these accounting policies in the preparation of Oncor's
consolidated financial statements, management is required to make estimates and
assumptions about future events that affect the reporting and disclosure of
assets and liabilities at the balance sheet dates and revenue and expense during
the periods covered. The following is a summary of certain critical accounting
policies of Oncor that are impacted by judgments and uncertainties and for which
different amounts might be reported under a different set of conditions or using
different assumptions.
Revenue Recognition -- Oncor records revenue for delivery services under
the accrual method. Electricity delivery revenues are recognized when delivery
services are provided to customers on the basis of periodic cycle meter readings
and include an accrual for the delivery fee value of electricity provided from
the meter reading date to the end of the period. The accrued revenue is based on
actual daily revenues for the most recent metered period applied to the number
of unmetered days through the end of the period. Unbilled revenues reflected in
accounts receivable totaled $95 million and $97 million at December 31, 2003 and
2002, respectively.
Regulatory Assets and Liabilities -- The financial statements of Oncor
reflect regulatory assets and liabilities under cost-based rate regulation in
accordance with SFAS 71. The assumptions and judgments used by regulatory
authorities continue to have an impact on the recovery of costs, the rate earned
on invested capital and the timing and amount of assets to be recovered by
rates. (See Notes 10 and 12 to Financial Statements.)
Approximately $1.8 billion in regulatory asset stranded costs arising
prior to the 1999 Restructuring Legislation became subject to recovery through
issuance of transition (securitization) bonds in accordance with the Settlement
Plan with the Commission as described in Note 10 to Financial Statements. As a
result of the final approval of the Settlement Plan in January 2003, Oncor
recorded an extraordinary loss of $123 million (net of income tax benefit of $66
million) in the fourth quarter of 2002 principally to write down this regulatory
asset. The carrying value of the regulatory asset after the write down
A-3
represented the estimated future cash flows to be recovered from REPs, through a
delivery fee surcharge, to service the principal and interest of the bonds. The
carrying value of the regulatory asset is subject to further adjustment, which
would be recorded as an extraordinary item, as the remaining portion
(approximately $790 million) of the securitization bonds will be issued in 2004.
Defined Benefit Pension Plans and Other Postretirement Benefit Plans--
Oncor is a participating employer in the defined benefit pension plan sponsored
by TXU Corp. Oncor also participates with TXU Corp. and other affiliated
subsidiaries of TXU Corp. to offer health care and life insurance benefits to
eligible employees and their eligible dependents upon the retirement of such
employees. See Note 8 for information regarding retirement plans and other
postretirement benefits.
These costs are impacted by actual employee demographics (including age,
compensation levels and employment periods), the level of contributions made to
retiree plans and earnings on plan assets. TXU Corp.'s retiree plan assets are
primarily made up of equity and fixed income investments. Changes made to the
provisions of the plans may also impact current and future benefit costs.
Fluctuations in actual equity market returns as well as changes in general
interest rates may result in increased or decreased benefit costs in future
periods. Benefit costs may also be significantly affected by changes in key
actuarial assumptions, including anticipated rates of return on plan assets and
the discount rates used in determining the projected benefit obligation.
In accordance with accounting rules, changes in benefit obligations
associated with these factors may not be immediately recognized as costs on the
income statement, but are recognized in future years over the remaining average
service period of plan participants. As such, significant portions of benefit
costs recorded in any period may not reflect the actual level of cash benefits
provided to plan participants. Costs allocated from the plans are also impacted
by movement of employees between participating companies. Oncor recorded
allocated pension and other postretirement benefits expense of $48 million in
2003, $26 million in 2002 and $13 million in 2001. Oncor's funding requirements
for these plans were $29 million, $25 million and $18 million in 2003, 2002 and
2001, respectively.
During 2003, key assumptions of the US pension and other postretirement
benefit plans were revised, including decreasing the assumed discount rate in
2003 from 6.75% to 6.25% to reflect current interest rates. The expected rate of
return on pension plan assets remained at 8.5%, but declined to 8.01% from 8.26%
for the other postretirement benefit plan assets.
Based on current assumptions, pension and other postretirement benefits
expense for Oncor is expected to increase $4 million to approximately $52
million in 2004 and Oncor's funding requirements are expected to increase $12
million to approximately $41 million.
As a result of the pension plan asset return experience, at December 31,
2003, TXU Corp. recognized a minimum pension liability as prescribed by SFAS
87. Oncor's allocated portion of the liability, which totaled $3 million ($2
million after-tax), was recorded as a reduction to shareholders' equity through
a charge to Other Comprehensive Income. The recording of the minimum pension
liability did not affect net income.
TXU Corp. has elected not to defer accounting for the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Act)
as allowed for under FASB Staff Position 106-1. TXU Corp. believes that the plan
in which Oncor is a participant meets the actuarial equivalency as required by
the Medicare Act and therefore a reduction in future post retirement benefit
costs is expected. Further information related to the impact of the Medicare Act
can be found in the TXU Corp. Form 10-K. The Medicare Act had no effect on
Oncor's results of operations for 2003, but is expected to reduce Oncor's
postretirement benefits expense other than pensions by approximately $11
million in 2004.
A-4
RESULTS OF OPERATIONS
Operating Data
- --------------
2003 2002 2001
---- ---- ----
Operating statistics:
Electricity distribution volumes (GWh) (a).......................... 101,810 102,481 99,139
Electricity distribution points of delivery (end of period
and in thousands - based on number of meters) (b)................. 2,932 2,909 2,844
Operating revenues (million of dollars):
Affiliated (TXU Energy).......................................... $1,489 $1,586 $2,314
Non-affiliated (c)............................................... 598 408 -
------ ------ -------
Total ....................................................... $2,087 $1,994 $2,314
====== ====== ======
- ---------------------
(a) 2002 data revised
(b) Includes lighting sites, principally guard lights, for which TXU Energy is
the REP but are not included in TXU Energy's customer count. Such sites
totaled 100,901 in 2003, 105,987 in 2002 and 124,916 in 2001.
(c) There were no non-affiliated operating revenues in 2001 as the market was
not open to competition.
2003 compared to 2002
- ---------------------
Oncor's operating revenues increased $93 million, or 5%, to $2.1 billion
in 2003. Higher tariffs provided $56 million of this increase, reflecting
transmission rate increases approved in 2003 ($37 million) and delivery fee
surcharges associated with the issuance of transition (securitization) bonds in
August 2003 ($19 million). (See Note 5 to Financial Statements.) The balance of
the revenue growth reflected $26 million in increased disconnect/reconnect fees,
reflecting disconnections initiated by REPs under new regulatory rules and
increased consumer switching due to competitive activity, and $10 million from
increased pricing to certain business consumers due to higher peak demands in
2003. The increase in the non-affiliated component of Oncor's revenues reflects
competitive activity in the historical service territory. Delivered
electricity volumes were about even with 2002.
Operation and maintenance expenses increased by $24 million, or 3%, to
$786 million in 2003. The increase reflected higher employee compensation and
benefit costs of $34 million and increased third-party transmission costs of $22
million. Partially offsetting these increases were lower outside services and
consulting expenses of $17 million arising from cost reduction initiatives
implemented in late 2002, lower credit line fees of $9 million resulting from a
new secured credit facility and lower distribution and transmission line
maintenance costs of $6 million. Higher third-party transmission costs are being
mitigated by an increase in the transmission cost recovery factor included as a
part of Oncor's distribution tariffs effective with billings to REPs based on
meter readings after August 31, 2003.
Depreciation and amortization increased $33 million, or 13%, to $297
million in 2003. The increase reflected higher depreciation of $14 million due
to investments in delivery facilities to support growth and normal replacements
of property, plant and equipment and $19 million in amortization of regulatory
assets associated with the issuance of securitization bonds in August 2003. The
effect on revenues of the delivery fee surcharges associated with the issuance
of the securitization bonds is offset by the related amortization expense.
Taxes other than income declined $15 million, or 4%, to $376 million in
2003 primarily due to a $22 million decline due to the full implementation of a
regulatory change in the basis for the calculation of local gross receipts taxes
from revenue dollars to kilowatt-hours, partially offset by increases in
property and state franchise taxes.
Interest income increased $3 million, or 6% to $52 million in 2003
reflecting higher interest reimbursements from TXU Energy of $15 million due to
higher carrying costs on regulatory assets and $3 million in higher investment
income, partially offset by $15 million less interest on the excess mitigation
credit note receivable from TXU Energy due to principal repayments (see Note 10
to Financial Statements).
A-5
Interest expense and related charges increased by $35 million, or 13%, to
$300 million in 2003. The increase reflected a $48 million impact of higher
average interest rates and a $2 million impact of higher average borrowings,
partially offset by $15 million less interest credited to REPs related to the
excess mitigation credit. The increase in average interest rates reflected the
refinancing of affiliate borrowings with higher rate long-term debt issuances.
Income tax expense was $126 million in 2003 (including $106 million
related to operating income and $20 million related to nonoperating income). The
effective income tax rate increased slightly to 32.8% in 2003 from 32.5% in
2002.
Income before extraordinary loss increased $13 million, or 5%, to $258
million in 2003, reflecting higher revenues and lower gross receipts tax
expenses, partially offset by higher net interest expense. Net pension and
postretirement benefit costs reduced net income by $19 million in 2003 and $11
million in 2002.
2002 compared to 2001
- ---------------------
Operating revenues decreased $320 million, or 14%, to $2.0 billion in
2002. Revenues in 2001 included amounts associated with generation and retail
expenses that were the responsibility of Oncor, but in 2002 such revenues and
expenses are the responsibility of TXU Energy. Excluding the impact of such
revenues in 2001, electric delivery revenues rose 3% on a 6% increase in
electricity volumes delivered. Because the fees to REPs for their large business
customers are fixed for specified ranges of volumes, changes in distribution
volumes do not necessarily result in comparable changes in reported revenues.
Operation and maintenance expenses decreased by $158 million, or 17%, to
$762 million. The decline reflected the effects of approximately $150 million in
customer support costs and bad debt expense in 2001 that are the responsibility
of TXU Energy in 2002, a recoverable regulatory asset writeoff of $73 million in
2001 and computer systems costs incurred in 2001 for changes related to the
restructuring of the Texas electricity market. These effects were partially
offset by the costs in 2002 of a consumer energy efficiency program, mandated by
the Commission, and higher transmission costs paid to other utilities.
Depreciation and amortization increased $25 million, or 10%, to $264
million. The increase reflected $12 million related to transmission and
distribution property additions, $9 million related to computer system additions
and $4 million of debt issue cost amortization.
Taxes other than income declined $152 million, or 28%, to $391 million in
2002 due to state gross receipts taxes that are reported in TXU Energy in 2002.
Effective in 2002, local gross receipts taxes related to electricity revenue are
an expense of Oncor while state gross receipts taxes are an expense of TXU
Energy.
Interest income of $49 million in 2002 reflected the reimbursement,
effective in 2002, from TXU Energy for carrying costs on regulatory assets and
interest on the excess mitigation credit note receivable from TXU Energy.
Interest expense and related charges declined by $2 million, or 1%, to
$265 million. The decline reflected $25 million due to lower average debt
levels, largely offset by $21 million in interest expense credited to REPs
related to the excess mitigation credit and a $2 million decrease in capitalized
interest.
Income tax expense was $118 million in 2002 (including $100 million
related to operating income and $18 million related to nonoperating income),
resulting in an effective income tax rate of 32.5% in 2002 compared to 34.3% in
2001. The decline reflected nonrecurring regulatory-driven adjustments recorded
in 2001 relating to prior years.
Income before extraordinary loss increased $17 million, or 7%, to $245
million reflecting the declines in operation and maintenance expenses and taxes
other than income, as well as higher interest income, partially offset by the
lower revenues. Net pension and postretirement benefit costs reduced net income
by $11 million in 2002 and $2 million in 2001.
A-6
Extraordinary loss in 2002 reflected a $123 million (net of income tax
benefit of $66 million) charge, principally to write down regulatory assets
related to securitization bonds to be issued in accordance with the Settlement
Plan. (See Note 2 to Financial Statements.)
COMPREHENSIVE INCOME
Oncor has historically used, and may in the future use, derivative
financial instruments that are highly effective in offsetting future cash flow
volatility related to interest rates. The amounts included in accumulated other
comprehensive income are expected to offset the impact of future rate changes on
related payments. Amounts in accumulated other comprehensive income include (i)
the value of cash flow hedges, based on current market conditions and (ii) the
value of dedesignated and terminated cash flow hedges at the time of such
dedesignation, providing the transaction that was hedged is still forecasted.
The effects of the hedges will be recorded in the statement of income as the
hedged transactions are actually settled.
During 2002, changes in the fair value of derivatives effective as cash
flow hedges reflected losses of $39 million ($25 million after-tax) due to
decreases in the fair value of interest rate hedges because of lower interest
rates.
During both 2003 and 2002, $1 million in after-tax losses in other
comprehensive income were recognized in earnings.
Other comprehensive income also included adjustments related to minimum
pension liabilities.
The minimum pension liability adjustment was a loss of $3 million ($2
million after-tax) in 2003. The minimum pension liability represents the
difference between the excess of the accumulated benefit obligation over the
plans' assets and the liability reflected in the balance sheet. The recording of
the liability did not affect Oncor's financial covenants in any of its credit
agreements.
See also discussion in Note 12 to Financial Statements under "Derivative
Financial Instruments and Hedging Activities."
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows -- Cash flows provided by operating activities for 2003 were
$650 million, compared to $233 million for 2002. The improved cash flow
performance of $417 million was driven by favorable working capital changes
(accounts receivable, inventory, and accounts payable) of $286 million, which
primarily reflects the unfavorable effect in the prior year of billing and
collection delays in the transition to competition and the start-up of billing
REPs for transmission and distribution charges effective January 1, 2002. The
remaining change reflected the impact of lower federal income tax payments and
the timing of transmission fee payments to other utilities.
The decrease in cash flows provided by operating activities in 2002 from
2001 of $442 million was driven by unfavorable working capital changes of $239
million, primarily reflecting higher accounts receivable from REPs, largely TXU
Energy, due to the start-up of billing REPs for delivery charges effective
January 1, 2002. The decrease also reflected a $180 million effect of the excess
mitigation credit passed to REPs, which is offset in financing activities as the
related note receivable from TXU Energy is collected.
Cash flows provided by financing activities in 2003 were $96 million
compared to $364 million in 2002. Net cash used in issuances and retirements of
borrowings, including advances from affiliates, totaled $24 million in 2003
compared to net cash provided of $334 million in 2002, reflecting improved
operating cash flows. Oncor repurchased $300 million of common stock in 2003 and
$150 million in 2002. In 2003, an equity contribution from US Holdings provided
$250 million. In 2001, net cash provided by borrowings of $389 million was more
than offset by $455 million in repurchases of common stock.
Cash flows used in investing activities, which consisted primarily of
capital expenditures, totaled $578 million, $555 million and $596 million for
2003, 2002 and 2001, respectively. Other investing activities in 2003 included a
cash use of $35 million, primarily reflecting restricted cash deposits in
connection with the transition bonds issued in August 2003. Other investing
activities in 2002 of $46 million in cash used primarily reflected termination
of out-of-the-money cash flow hedges related to financing activities. The
decline in value of the hedges was due to lower interest rates.
A-7
Future Capital Expenditures -- Capital expenditures are estimated at $530
million for 2004, substantially all of which are for major repairs and organic
growth of existing operations.
Financing Activities
- ---------------------
Over the next twelve months, Oncor will need to fund ongoing working
capital requirements and maturities of debt. Oncor has funded or intend to fund
these requirements through cash on hand, cash flows from operations, short-term
credit facilities and the issuance of long-term debt or other securities.
Long-term Debt Activity -- During the year ended December 31, 2003, Oncor
issued, redeemed, reacquired or made scheduled principal payments on long-term
debt as follows:
Issuances Retirements
First mortgage bonds......................... $ - $ 661
Medium term notes............................ - 15
Transition bonds............................. 500 --
----- ------
Total........................................ $ 500 $ 676
===== ======
See Note 5 to Financial Statements for further detail of debt issuance and
retirements.
Regulatory Asset Securitization -- The Settlement Plan approved by the
Commission provides Oncor with a financing order authorizing the issuance of
securitization bonds in the aggregate principal amount of up to $1.3 billion to
recover regulatory asset stranded costs. Oncor issued $500 million of the bonds
in August of 2003. In addition, approximately $790 million is expected to be
issued in the first half of 2004. The proceeds will be used by Oncor to retire
debt and repurchase equity. Because the bond principal and interest payments are
secured by the collection of delivery fee surcharges by Oncor, the $1.3 billion
in debt is excluded from Oncor's capitalization by credit rating agencies.
Credit Facilities -- Oncor has a joint revolving credit facility (with TXU
Energy) that allows for aggregate borrowings up to $450 million. This facility
expires in 2005 and can be used for working capital and general corporate
purposes. At December 31, 2003, this facility was undrawn. In addition, US
Holdings and TXU Corp. have credit facilities totaling $1.8 billion and $500
million that expire in 2005 and 2008, respectively. At December 31, 2003, $1.8
billion of these two facilities was unused. Oncor expects that, to the extent
capacity is available, these additional facilities will be made available to it
for borrowings, letters of credit and other purposes. See Note 4 to Financial
Statements for details of all of these arrangements.
Capitalization -- The capitalization of Oncor at December 31, 2003,
consisted of 58.2% long-term debt, less current maturities, and 41.8%
shareholder's equity. Note 6 to the Financial Statements provides detailed
disclosures regarding repurchases of common stock.
Oncor's cash distributions may take the legal form of common stock share
repurchases or the payment of dividends on outstanding shares of its common
stock. The form of the distributions is primarily determined by current and
forecasted levels of retained earnings as well as state tax implications. The
common stock share repurchases made subsequent to January 1, 2002 are cash
distributions to US Holdings that for financial reporting purposes have been
recorded as a return of capital. Any future cash distributions to US Holdings
will be reported (i) as a return of capital if made through repurchases or (ii)
as a dividend if so declared by the board of directors. Any future common stock
share repurchases will reduce the amount of Oncor's equity, but will not change
US Holdings' 100% ownership of Oncor.
Sale of Receivables -- TXU Corp. has established an accounts receivable
securitization program. The activity under this program is accounted for as a
sale of accounts receivable in accordance with SFAS 140. Under the program, US
subsidiaries of TXU Corp. (originators) sell trade accounts receivable to TXU
Receivables Company, a consolidated wholly-owned bankruptcy remote direct
subsidiary of TXU Corp., which sells undivided interests in the purchased
accounts receivable for cash to special purpose entities established by
A-8
financial institutions. All new trade receivables under the program generated by
the originators are continuously purchased by TXU Receivables Company with the
proceeds from collections of receivables previously purchased. Funding to Oncor
under the program in 2003 totaled $44 million and $18 million in 2002. Because
Oncor's receivables are pooled with those of other TXU Corp. subsidiaries, the
increase of $26 million primarily reflects TXU Energy's billing and collection
delays in 2002 due to data compilation and reconciliation issues among ERCOT and
the market participants in the newly deregulated market. See Note 4 to Financial
Statements for a more complete description of the program including the
financial impact on earnings and cash flows for the periods presented and the
contingencies that could result in termination of the program.
Credit Ratings of TXU Corp. and its US Subsidiaries -- The current credit
ratings for TXU Corp., US Holdings and certain of its US subsidiaries are
presented below:
TXU Corp. US Holdings Oncor TXU Energy
---------------- ---------------- -------- -----------------
(Senior Unsecured) (Senior Unsecured) (Secured) (Senior Unsecured)
S&P BBB- BBB- BBB BBB
Moody's Ba1 Baa3 Baa1 Baa2
Fitch BBB- BBB- BBB+ BBB
Moody's currently maintains a negative outlook for TXU Corp. and a stable
outlook for US Holdings, TXU Energy and Oncor. Fitch currently maintains a
stable outlook for each such entity. S&P currently maintains a negative outlook
for each such entity.
These ratings are investment grade, except for Moody's rating of TXU
Corp.'s senior unsecured debt, which is one notch below investment grade.
A rating reflects only the view of a rating agency, and is not a
recommendation to buy, sell or hold securities. Any rating can be revised upward
or downward at any time by a rating agency if such rating agency decides that
circumstances warrant such a change.
Financial Covenants and Cross Default Provisions -- The terms of certain
financing arrangements of Oncor contain financial covenants that require
maintenance of specified fixed charge coverage ratios, shareholders' equity to
total capitalization ratios and leverage ratios and/or contain minimum net worth
covenants. As of December 31, 2003, Oncor was in compliance with all such
applicable covenants.
All of the credit facilities discussed above as well as certain of Oncor's
financing arrangements contain provisions that would result in an event of
default if there were a failure under other financing arrangements to meet
payment terms or to observe other covenants that would result in an acceleration
of payments due. Such provisions are referred to as "cross default" provisions.
Cross Default Provisions
- ------------------------
A default by TXU Energy or Oncor or any subsidiary thereof in respect of
indebtedness in a principal amount in excess of $50 million would result in a
cross default for such party under the TXU Energy/Oncor $450 million revolving
credit facility. Under this credit facility, a default by TXU Energy or any
subsidiary thereof would cause the maturity of outstanding balances under such
facility to be accelerated as to TXU Energy, but not as to Oncor. Also, under
this credit facility, a default by Oncor or any subsidiary thereof would cause
the maturity of outstanding balances under such facility to be accelerated as to
Oncor, but not as to TXU Energy.
A default by US Holdings or any subsidiary thereof on financing
arrangements of $50 million or more would result in a cross default under US
Holdings' credit facilities totaling $1.8 billion.
A default by TXU Corp. on indebtedness of $50 million or more would result
in a cross default under the new $500 million five-year revolving credit
facility.
The accounts receivable securitization program also contains a cross
default provision with a threshold of $50 million applicable to each of the
originators under the program. TXU Receivables Company and TXU Business Services
each have a cross default threshold of $50,000. If either an originator, TXU
Business Services or TXU Receivables Company defaults on indebtedness of the
applicable threshold, the facility could terminate.
A-9
Other arrangements, including leases, have cross default provisions, the
triggering of which would not result in a significant effect on liquidity.
Long-term Contractual Obligations and Commitments -- The following table
summarizes the contractual cash obligations of Oncor for each of the periods
presented (See Notes 5 and 11 to Financial Statements for additional disclosures
regarding terms of these obligations.) Because of new disclosure requirements,
this table includes commitment amounts not previously disclosed.
Payments Due
-----------------------------------------
More
Less One to Three to Than
Than One Three Five Five
Year Years Years Years
----------------------------------------
Long-term debt-- principal and interest ........................... $ 511 $ 673 $ 765 $6,660
Operating leases(a) ............................................... 5 11 8 18
Other liabilities on the balance sheet
Pension and other postretirement liabilities -
plan contributions (b)......................................... 41 87 83 41
----- ----- ----- ------
Total contractual cash obligations ................................ $ 557 $ 771 $ 856 $6,719
===== ===== ===== ======
_______________________________________________
(a) Includes short term noncancellable leases.
(b) Projections of cash contributions to qualified pension and other
postretirement benefit plans for the years 2004-2009.
The following contractual obligations were excluded from the disclosure in
the table above:
(1) individual contracts that have an annual cash requirement of less than
$1 million.
(2) contracts that are cancelable without payment of a substantial
cancellation penalty.
(3) employment contracts with management.
Guarantees-- See Note 11 to Financial Statements for details of
guarantees.
OFF BALANCE SHEET ARRANGEMENTS
See discussion above under Sale of Receivables and in Note 4 to Financial
Statements.
COMMITMENTS AND CONTINGENCIES
See Note 11 to Financial Statements for a discussion of commitments and
contingencies, including guarantees.
CHANGES IN ACCOUNTING STANDARDS
See Note 1 to Financial Statements for discussion of changes in accounting
standards.
REGULATION AND RATES
1999 Restructuring Legislation and Settlement Plan -- On December 31,
2001, US Holdings filed the Settlement Plan with the Commission. It resolved all
major pending issues related to US Holdings' transition to electricity
competition pursuant to the 1999 Restructuring Legislation. The Settlement Plan
does not remove regulatory oversight of Oncor's business. The Settlement Plan
became final and non-appealable in January 2003. See Note 10 to Financial
Statements for the major elements of the Settlement Plan, the most significant
of which to Oncor on a go-forward basis is the issuance of securitization bonds
to recover regulatory asset stranded costs.
As part of its restructuring at January 1, 2002, US Holdings determined
that the goal for Oncor's initial capital structure would consist of
approximately 40% shareholder's equity and 60% debt (total short-term and
long-term debt and advances from affiliates) after adjusting to exclude the
generation-related regulatory assets. This was the capital structure adopted by
the Commission in its rule-making for setting rates as part of the transition to
retail competition in Texas, and the Commission applied that capital structure
in setting Oncor's cost of service rates. Debt issuances and repurchases of
common stock subsequent to Oncor's January 1, 2002 commencement of business
reflect activities to move the actual capital structure close to the target
capital structure. The targeting of this capital structure may result in future
debt issuances and capital distributions.
A-10
Transmission Rates -- In May 2003, the Commission approved an increase in
Oncor's wholesale transmission tariffs (rates) charged to distribution utilities
that became effective immediately. In March and August 2003 and March 2004, the
Commission approved increases in the transmission cost recovery component of
Oncor's distribution rates charged to REPs. The combined effect of these four
increases in both the transmission and distribution rates is an estimated $62
million of incremental revenues to Oncor on an annualized basis.
On March 3, 2003, Oncor filed an annual request for interim update of its
wholesale transmission rates. Oncor requested a total annualized revenue
increase of $14 million effective April 7, 2003.
Summary -- Although Oncor cannot predict future regulatory or legislative
actions or any changes in economic and securities market conditions, no changes
are expected in trends or commitments, other than those discussed in this
report, which might significantly alter its basic financial position, results of
operations or cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the risk that Oncor may experience a loss in value as a
result of changes in market conditions such as interest rates, which Oncor is
exposed to in the ordinary course of business. Oncor enters into financial
instruments to manage interest rate risk related to its indebtedness.
Interest Rate Risk -- The table below provides information concerning
Oncor's financial instruments as of December 31, 2003 and 2002, that are
sensitive to changes in interest rates. The weighted average rate is based on
the rate in effect at the reporting date. Capital leases and the effects of
unamortized premiums and discounts are excluded from the table. See Note 5 to
Financial Statements for a discussion of changes in debt obligations.
Expected Maturity Date
--------------------------------------------------
2003 2002
There- 2003 Fair 2002 Fair
2004 2005 2006 2007 2008 after Total Value Total Value
---- ---- ---- ---- ---- ------- ------ ----- ----- -----
Long-term debt
(including current
maturities)
Fixed Rate ........... $ 243 $ 128 $ 37 $ 238 $ 39 $3,571 $4,256 $4,645 $4,432 $4,487
Average interest
rate............... 6.70% 5.49% 2.26% 4.79% 4.03% 6.69% 6.48% -- 6.92% --
Credit Risk -- Credit risk relates to the risk of loss that Oncor may
incur as a result of non-performance by its counterparties. Oncor's customers
consist primarily of REPs. As a requisite for obtaining and maintaining
certification, a REP must meet the financial resource standards established by
the Commission. REP certificates granted by the Commission are subject to
suspension and revocation for significant violation of PURA and Commission
rules. Significant violations include failure to timely remit payments for
invoiced charges to a transmission and distribution utility pursuant to the
terms of tariffs adopted by the Commission. Since most of the transmission and
distribution services provided and invoiced by Oncor are to its affiliated REP,
TXU Energy, a material loss to Oncor arising from nonperformance by its
customers is considered unlikely.
Oncor's exposure to credit risk as of December 31, 2003 primarily
represents trade accounts receivable from unaffiliated customers of $58 million.
Oncor has one customer, with a balance of $16 million, that represented greater
than 10% of this amount at December 31, 2003. This customer is non-investment
grade quality; however, the customer has consistently performed its obligations
in accordance with its agreements.
A-11
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The following risk factors are being presented in consideration of
industry practice with respect to disclosure of such information in filings
under the Securities Exchange Act of 1934, as amended.
Some important factors, in addition to others specifically addressed in
this MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, that could have a material impact on Oncor's operations, financial
results and financial condition, and could cause Oncor's actual results or
outcomes to differ materially from any projected outcome contained in any
forward-looking statement in this report, include:
Oncor is subject to changes in laws or regulations, including the Texas
Public Utility Regulatory Act, as amended, the Federal Power Act, as amended,
and the Public Utility Holding Company Act of 1935, as amended, changing
governmental policies and regulatory actions, including those of the Commission
and the FERC, with respect to matters including, but not limited to,
construction and operation of transmission facilities, acquisition, disposal,
depreciation and amortization of regulated assets and facilities and return on
invested capital.
Existing laws and regulations governing the market structure in Texas
could be reconsidered, revised or reinterpreted, or new laws or regulations
could be adopted.
Oncor's rates are regulated by the Commission and are subject to
cost-of-service regulation and annual earnings oversight. This regulatory
treatment does not provide any assurance as to achievement of earnings levels.
Oncor's rates are regulated by the Commission based on an analysis of Oncor's
costs, as reviewed and approved in a regulatory proceeding. While rate
regulation is premised on the full recovery of prudently incurred costs and a
reasonable rate of return on invested capital, there can be no assurance that
the Commission will judge all of Oncor's costs to have been prudently incurred
or that the regulatory process in which rates are determined will always result
in rates that will produce full recovery of Oncor's costs and the return on
invested capital allowed by the Commission.
Oncor is subject to extensive federal, state and local environmental
statutes, rules and regulations. There are capital, operating and other costs
associated with compliance with these environmental statutes, rules and
regulations, and those costs could increase in the future.
A portion of Oncor's revenues is derived from rates that Oncor collects
from each REP based on the amount of electricity Oncor distributes on behalf of
each such REP. Thus, Oncor's revenues and results of operations are subject to
seasonality, weather conditions and other changes in electricity usage. In
addition, the operation of electricity transmission and distribution facilities
involves many risks, including breakdown or failure of equipment and
transmission lines, lack of sufficient capital to maintain the facilities, the
impact of unusual or adverse weather conditions or other natural events, as well
as the risk of performance below expected levels of efficiency. This could
result in lost revenues and/or increased expenses. Insurance, warranties or
performance guarantees may not cover any or all of the lost revenues or
increased expenses. Natural disasters, war, terrorist acts and other
catastrophic events may impact Oncor's operations in adverse ways, including
disruption of power production and energy delivery activities, declines in
customer demand, cost increases and instability in the financial markets.
Oncor's ability to obtain insurance, and the cost of and coverage provided by
such insurance could be affected by events outside its control.
Oncor's revenues from the distribution of electricity are collected from
approximately 43 retail electric providers, including TXU Energy, that sell the
electricity Oncor distributes to these retail electric providers' customers.
Oncor depends on these retail electric providers to timely remit these revenues
to Oncor. Oncor could experience delays or defaults in payment from these retail
electric providers. TXU Energy represents approximately 70% of Oncor's revenue
base.
In addition to revenues, Oncor is owed other significant amounts from TXU
Energy. The incremental income taxes Oncor will pay on the increased delivery
fees to be charged to Oncor's customers related to the aggregate issuance of
$1.3 billion in securitization bonds will be reimbursed by TXU Energy.
Therefore, Oncor's financial statements reflect a $436 million receivable from
TXU Energy that will be extinguished as Oncor pays the related income taxes.
A-12
The continuous process of technological development may result in the
introduction to retail customers of economically attractive alternatives to
purchasing electricity through Oncor's distribution facilities. While not
generally competitive now, manufacturers of self-generation facilities continue
to develop smaller-scale, more fuel-efficient generating units that can be
cost-effective options for certain customers.
TXU Corp. and US Holdings are not obligated to provide any loans, further
equity contributions or other funding to Oncor. Oncor must compete with all of
TXU Corp.'s and US Holdings' other subsidiaries for capital and other resources.
While, as a member of the TXU corporate group, Oncor operates within policies,
including dividend policies, established by TXU Corp. that impact the liquidity
of Oncor, the regulation of Oncor's rates provides economic disincentives to any
significant reduction of Oncor's equity capitalization and prohibits
cross-subsidization of other TXU Corp. group members by Oncor.
The lack of necessary capital and cash reserves may adversely impact
Oncor's growth plans, its ability to raise additional debt and the evaluation of
its creditworthiness by rating agencies.
Oncor's ability to successfully and timely complete capital improvements
to existing facilities or other capital projects is contingent upon many
variables. If Oncor's efforts to complete capital improvements are unsuccessful,
Oncor could be subject to additional costs and/or the write-off of its
investment in the project or improvement.
The inability to raise capital on favorable terms, particularly during
times of uncertainty in the financial markets, could impact Oncor's ability to
sustain and grow its businesses, which are capital intensive, and would likely
increase its capital costs. Oncor relies on access to financial markets as a
significant source of liquidity for capital requirements not satisfied by cash
on hand or operating cash flows. Oncor's access to the financial markets could
be adversely impacted by various factors, such as:
o changes in credit markets that reduce available credit or the ability
to renew existing liquidity facilities on acceptable terms;
o inability to access commercial paper markets;
o a deterioration of Oncor's credit or a reduction in Oncor's credit
ratings or the credit ratings of TXU Corp. or its other subsidiaries;
o a material breakdown in Oncor's risk management procedures; and
o the occurrence of material adverse changes in Oncor's business that
restrict Oncor's ability to access its liquidity facilities.
As a result of the energy crisis in California during the summer of 2001,
the recent volatility of natural gas prices, the bankruptcy filing by Enron,
accounting irregularities of public companies, and investigations by
governmental authorities into energy trading activities, companies in the
regulated and non-regulated utility businesses have been under a generally
increased amount of public and regulatory scrutiny. Accounting irregularities at
certain companies in the industry have caused regulators and legislators to
review current accounting practices and financial disclosures. The capital
markets and rating agencies also have increased their level of scrutiny. Oncor
believes that it is complying with all applicable laws, but it is difficult or
impossible to predict or control what effect these events may have on Oncor's
financial condition or access to the capital markets. Additionally, it is
unclear what laws and regulations may develop, and Oncor cannot predict the
ultimate impact of any future changes in accounting regulations or practices in
general with respect to public companies, the energy industry or its operations
specifically.
The issues and associated risks and uncertainties described above are not
the only ones Oncor may face. Additional issues may arise or become material as
the energy industry evolves.
A-13
FORWARD-LOOKING STATEMENTS
This report and other presentations made by Oncor contain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Although Oncor believes that in making any such statement its
expectations are based on reasonable assumptions, any such statement involves
uncertainties and is qualified in its entirety by reference to the risks
discussed above under "Risk Factors That May Affect Future Results" and the
following important factors, among others, that could cause the actual results
of Oncor to differ materially from those projected in any such forward-looking
statement:
o prevailing governmental policies and regulatory actions, including
those of the FERC and the Commission, with respect to:
o allowed rate of return;
o industry, market and rate structure;
o recovery of investments;
o acquisitions and disposal of assets and facilities;
o operation and construction of facilities;
o changes in tax laws and policies; and
o changes in and compliance with environmental and safety laws
and policies;
o continued implementation of the 1999 Restructuring Legislation;
o legal and administrative proceedings and settlements;
o general industry trends;
o weather conditions and other natural phenomena, and acts of sabotage,
wars or terrorist activities;
o unanticipated population growth or decline, and changes in market
demand and demographic patterns;
o changes in business strategy, development plans or vendor
relationships;
o unanticipated changes in interest rates, commodity prices or rates of
inflation;
o unanticipated changes in operating expenses, liquidity needs and
capital expenditures;
o commercial bank market and capital market conditions;
o inability of various counterparties to meet their obligations with
respect to Oncor's financial instruments;
o changes in technology used by and services offered by Oncor;
o significant changes in Oncor's relationship with its employees,
including the availability of qualified personnel, and the potential
adverse effects if labor disputes or grievances were to occur;
o significant changes in critical accounting policies material to Oncor;
and
o actions by credit rating agencies.
Any forward-looking statement speaks only as of the date on which it is
made, and Oncor undertakes no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which it is made or to
reflect the occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for Oncor to predict all of them, nor can Oncor
assess the impact of each such factor or the extent to which any factor, or
combination of factors, may cause results to differ materially from those
contained in any forward-looking statement.
A-14
ONCOR ELECTRIC DELIVERY COMPANY
STATEMENT OF RESPONSIBILITY
The management of Oncor Electric Delivery Company is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
of Oncor Electric Delivery Company and other information included in this
report. The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America.
As appropriate, the statements include amounts based on informed estimates and
judgments of management.
The management of Oncor Electric Delivery Company is responsible for
establishing and maintaining a system of internal control, which includes the
internal controls and procedures for financial reporting, that is designed to
provide reasonable assurance, on a cost-effective basis, that assets are
safeguarded, transactions are executed in accordance with management's
authorization and financial records are reliable for preparing consolidated
financial statements. Management believes that the system of control provides
reasonable assurance that errors or irregularities that could be material to the
consolidated financial statements are prevented or would be detected within a
timely period. Key elements in this system include the effective communication
of established written policies and procedures, selection and training of
qualified personnel and organizational arrangements that provide an appropriate
division of responsibility. This system of control is augmented by an ongoing
internal audit program designed to evaluate its adequacy and effectiveness.
Management considers the recommendations of the internal auditors and
independent auditors concerning Oncor Electric Delivery Company's system of
internal control and takes appropriate actions which are cost-effective in the
circumstances. Management believes that, as of December 31, 2003, Oncor Electric
Delivery Company's system of internal control was adequate to accomplish the
objectives discussed herein.
The independent auditing firm of Deloitte & Touche LLP is engaged to
audit, in accordance with auditing standards generally accepted in the United
States of America, the consolidated financial statements of Oncor Electric
Delivery Company and its subsidiary and to issue their report thereon.
/s/ M. S. GREENE /s/ R. D. TRIMBLE
- ---------------------------------------- ------------------------------
M. S. Greene, Vice Chairman and R. D. Trimble, President
Chief Executive
/s/ SCOTT LONGHURST /s/ DAVID H. ANDERSON
- --------------------------------------- ----------------------------------
Scott Longhurst, Senior Vice President David H. Anderson, Vice President
and Principal Financial Officer and Principal Accounting Officer
A-15
INDEPENDENT AUDITORS' REPORT
Oncor Electric Delivery Company:
We have audited the accompanying consolidated balance sheets of Oncor Electric
Delivery Company and its subsidiary (Oncor) as of December 31, 2003 and 2002,
and the related statements of consolidated income, comprehensive income, cash
flows and shareholder's equity for each of the three years in the period ended
December 31, 2003. These financial statements are the responsibility of Oncor's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates and assumptions made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Oncor at December 31, 2003 and
2002, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 11, 2004
A-16
ONCOR ELECTRIC DELIVERY COMPANY
STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31,
----------------------------------
2003 2002 2001
---- ---- ----
Millions of Dollars
Operating revenues:
Affiliated....................................................... $1,489 $1,586 $2,314
Nonaffiliated ................................................... 598 408 -
------ ------ -----
Total operating revenues..................................... 2,087 1,994 2,314
Operating expenses:
Operation and maintenance........................................ 786 762 920
Depreciation and amortization.................................... 297 264 239
Income taxes..................................................... 106 100 118
Taxes other than income.......................................... 376 391 543
------ ------ ------
Total operating expenses..................................... 1,565 1,517 1,820
------ ------ ------
Operating income ................................................... 522 477 494
Other income and deductions:
Other income..................................................... 8 9 9
Other deductions................................................. 4 7 7
Nonoperating income taxes....................................... 20 18 1
Interest income..................................................... 52 49 -
Interest expense and related charges................................ 300 265 267
------ ------ ------
Income before extraordinary loss.................................... 258 245 228
Extraordinary loss, net of tax effect............................... -- (123) -
------ ------ ------
Net income.......................................................... $ 258 $ 122 $ 228
====== ====== ======
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
Year Ended December 31,
----------------------------------
2003 2002 2001
---- ---- ----
Millions of Dollars
Net income.......................................................... $ 258 $ 122 $ 228
Other comprehensive income (loss) --
Minimum pension liability adjustment (net of tax benefit of $1).. (2) - -
Net change related to derivatives (cash flow hedges):
Net change in fair value, net of tax benefit of $14....... - (25) -
Amounts realized in earnings during the year.............. 1 1 -
------ ------ ------
Total........................................................ (1) (24) -
------ ------ ------
Comprehensive income................................................ $ 257 $ 98 $ 228
====== ====== ======
See Notes to Financial Statements.
A-17
ONCOR ELECTRIC DELIVERY COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31,
-----------------------------------
2003 2002 2001
---- ---- ----
Millions of Dollars
Cash flows -- operating activities:
Net income ......................................................... $ 258 $ 122 $ 228
Adjustments to reconcile net income to cash provided by operating
activities:
Extraordinary loss, net of tax effect............................ - 123 -
Depreciation and amortization.................................... 303 285 239
Deferred income taxes and investment tax credits -- net.......... 108 154 34
Changes in operating assets and liabilities:
Accounts receivable -- trade (including affiliates)............. 21 (216) (23)
Accounts payable -- trade (including affiliates)................ 13 (23) 28
Other assets .................................................. (171) (205) 65
Other liabilities............................................... 118 (7) 104
----- ------ ------
Cash provided by operating activities......................... 650 233 675
Cash flows -- financing activities:
Issuance of long-term debt.......................................... 500 3,050 400
Retirements/repurchase of debt...................................... (676) (1,084) (920)
Net change in advances from affiliates.............................. (35) (1,345) 964
Decrease in note receivable from TXU Energy related to a regulatory
liability.......................................................... 170 180 -
Restricted cash activity related to debt............................ 210 (210) -
Capital contribution from parent.................................... 250 - -
Repurchase of common stock.......................................... (300) (150) (455)
Debt premium, discount, financing and reacquisition expenses........ (23) (77) (55)
----- ------ ------
Cash provided by (used in) financing activities............... 96 364 (66)
Cash flows -- investing activities:
Capital expenditures................................................ (543) (513) (635)
Proceeds from sale of assets........................................ - 4 -
Other .............................................................. (35) (46) 39
----- ------ ------
Cash used in investing activities............................. (578) (555) (596)
----- ------ ------
Net change in cash and cash equivalents............................... 168 42 13
Cash and cash equivalents -- beginning balance........................ 77 35 22
------ ------ ------
Cash and cash equivalents -- ending balance........................... $ 245 $ 77 $ 35
====== ====== ======
See Notes to Financial Statements.
A-18
ONCOR ELECTRIC DELIVERY COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
2003 2002
---- ----
Millions of Dollars
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 245 $ 77
Restricted cash............................................................ 12 210
Accounts receivable -- trade:
Affiliates (principally TXU Energy)..................................... 189 213
All other............................................................... 58 62
Notes or other receivables due from TXU Energy currently................... 13 170
Materials and supplies inventories -- at average cost...................... 29 40
Other current assets....................................................... 33 35
------ ------
Total current assets.................................................... 579 807
Investments................................................................... 44 29
Property, plant and equipment - net........................................... 6,333 6,056
Notes or other receivables due from TXU Energy................................ 423 437
Regulatory assets - net....................................................... 1,872 1,630
Other noncurrent assets....................................................... 65 63
------ ------
Total assets............................................................ $9,316 $9,022
====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Advances from affiliates................................................... $ 25 $ 60
Long-term debt due currently............................................... 243 319
Accounts payable - trade................................................... 43 30
Accrued taxes.............................................................. 147 142
Accrued interest........................................................... 88 70
Other current liabilities.................................................. 146 92
------ ------
Total current liabilities .............................................. 692 713
Investment tax credits........................................................ 68 74
Accumulated deferred income taxes............................................. 1,438 1,296
Other noncurrent liabilities and deferred credits............................. 279 210
Long-term debt, less amounts due currently.................................... 3,983 4,080
------ ------
Total liabilities....................................................... 6,460 6,373
Contingencies (Note 11)
Shareholder's equity (Note 6)................................................. 2,856 2,649
------ ------
Total liabilities and shareholder's equity.............................. $9,316 $9,022
====== ======
See Notes to Financial Statements.
A-19
ONCOR ELECTRIC DELIVERY COMPANY
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
December 31,
--------------------------------
2003 2002 2001
---- ---- ----
Millions of Dollars
Common stock without par value -- authorized shares -- 100,000,000:
Balance at beginning of year............................................ $2,551 $2,701 $2,760
Capital contribution of parent....................................... 250 - -
Common stock repurchased and retired (2003 - 7,50