-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NhOvp+FDnIyYgULpblKSrWz4dfCHXtfnI0M4q0N33TS6rJJ4uoUMybZb6db1aSKN 3QdXtRlS0ACzElgChmaLEw== 0000018540-98-000140.txt : 19981118 0000018540-98-000140.hdr.sgml : 19981118 ACCESSION NUMBER: 0000018540-98-000140 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL & SOUTH WEST CORP CENTRAL INDEX KEY: 0000018540 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 510007707 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01443 FILM NUMBER: 98749762 BUSINESS ADDRESS: STREET 1: 1616 WOODALL RODGERS FRWY CITY: DALLAS STATE: TX ZIP: 75202 BUSINESS PHONE: 2147771000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL POWER & LIGHT CO /TX/ CENTRAL INDEX KEY: 0000018734 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 740550600 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12973 FILM NUMBER: 98749763 BUSINESS ADDRESS: STREET 1: 539 N CARANCAHUA ST CITY: CORPUS CHRISTI STATE: TX ZIP: 78401 BUSINESS PHONE: 5128815300 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE CO OF OKLAHOMA CENTRAL INDEX KEY: 0000081027 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 730410895 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12945 FILM NUMBER: 98749764 BUSINESS ADDRESS: STREET 1: 212 E 6TH ST CITY: TULSA STATE: OK ZIP: 74119 BUSINESS PHONE: 9185992000 MAIL ADDRESS: STREET 1: P O BOX 201 CITY: TULSA STATE: OK ZIP: 74119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWESTERN ELECTRIC POWER CO CENTRAL INDEX KEY: 0000092487 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 720323455 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03146 FILM NUMBER: 98749765 BUSINESS ADDRESS: STREET 1: 428 TRAVIS ST CITY: SHREVEPORT STATE: LA ZIP: 71156 BUSINESS PHONE: 3182222141 MAIL ADDRESS: STREET 1: C/O SOUTHWESTERN ELECTRIC POWER CO STREET 2: 428 TRAVIS STREET CITY: SHREVEPORT STATE: LA ZIP: 71156-0001 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST TEXAS UTILITIES CO CENTRAL INDEX KEY: 0000105860 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 750646790 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00340 FILM NUMBER: 98749766 BUSINESS ADDRESS: STREET 1: 301 CYPRESS CITY: ABILENE STATE: TX ZIP: 79601 BUSINESS PHONE: 9156747000 10-Q 1 CSW FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) COMBINED QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____to_____ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-1443 Central and South West Corporation 51-0007707 (A Delaware Corporation) 1616 Woodall Rodgers Freeway Dallas, Texas 75202-1234 (214) 777-1000 0-346 Central Power and Light Company 74-0550600 (A Texas Corporation) 539 North Carancahua Street Corpus Christi, Texas 78401-2802 (512) 881-5300 0-343 Public Service Company of Oklahoma 73-0410895 (An Oklahoma Corporation) 212 East 6th Street Tulsa, Oklahoma 74119-1212 (918) 599-2000 1-3146 Southwestern Electric Power Company 72-0323455 (A Delaware Corporation) 428 Travis Street Shreveport, Louisiana 71156-0001 (318) 222-2141 0-340 West Texas Utilities Company 75-0646790 (A Texas Corporation) 301 Cypress Street Abilene, Texas 79601-5820 (915) 674-7000 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No Common Stock Outstanding at November 10, 1998 Shares Central and South West Corporation 212,601,915 Central Power and Light Company 6,755,535 Public Service Company of Oklahoma 9,013,000 Southwestern Electric Power Company 7,536,640 West Texas Utilities Company 5,488,560 This Combined Form 10-Q is separately filed by Central and South West Corporation, Central Power and Light Company, Public Service Company of Oklahoma, Southwestern Electric Power Company and West Texas Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant on its own behalf. Each Registrant makes no representation as to information relating to the other Registrants. CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q SEPTEMBER 30, 1998 PAGE GLOSSARY OF TERMS............................................................3 FORWARD-LOOKING INFORMATION..................................................5 PART I. FINANCIAL INFORMATION...............................................6 ITEM 1. FINANCIAL STATEMENTS CENTRAL AND SOUTH WEST CORPORATION.......................................6 CENTRAL POWER AND LIGHT COMPANY.........................................17 PUBLIC SERVICE COMPANY OF OKLAHOMA......................................25 SOUTHWESTERN ELECTRIC POWER COMPANY.....................................33 WEST TEXAS UTILITIES COMPANY............................................41 NOTES TO FINANCIAL STATEMENTS...........................................49 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................67 PART II - OTHER INFORMATION.................................................78 ITEM 1. LEGAL PROCEEDINGS................................................78 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................78 SIGNATURES..................................................................80 GLOSSARY OF TERMS The following abbreviations or acronyms used in this text are defined below: Abbreviation or Acronym Definition AEP........................American Electric Power Company, Inc. AEP Merger.................Proposed Merger between AEP and CSW as a result of which CSW would become a wholly owned subsidiary of AEP ALJ........................Administrative Law Judge Alpek......................Alpek S.A. de C.V. Ameren System..............Ameren Corporation, parent of recently merged Union Electric Company and Central Illinois Public Service Company Anglo Iron.................Anglo Iron and Metal, Inc. Arkansas Commission........Arkansas Public Service Commission C3 Communications..........C3 Communications, Inc., Austin, Texas (formerly CSW Communications, Inc.) Cajun......................Cajun Electric Power Cooperative, Inc. Cajun Members Committee....A committee which represents 7 of the 12 Louisiana member distribution cooperatives that are served by Cajun CERCLA.....................Comprehensive Environmental Response, Compensation and Liability Act of 1980 ChoiceCom..................CSW/ICG ChoiceCom, L..P., a joint venture between C3 Communications and ICG Communications CPL........................Central Power and Light Company, Corpus Christi, Texas CPL 1997 Final Order.......Final orders received from the Texas Commission in CPL's rate case Docket No. 14965 CSW........................Central and South West Corporation, Dallas, Texas CSW Credit.................CSW Credit, Inc., Dallas, Texas CSW Energy.................CSW Energy, Inc., Dallas, Texas CSW International..........CSW International, Inc., Dallas, Texas CSW Services...............Central and South West Services, Inc., Dallas, Texas and Tulsa, Oklahoma CSW System.................CSW and its subsidiaries CWIP.......................Construction work in progress ECOM.......................Excess cost over market El Paso....................El Paso Electric Company EnerShop...................EnerShop Inc., Dallas, Texas Enertek....................Co-generation power plant, Tampico, Mexico EPA........................Environmental Protection Agency ERCOT......................Electric Reliability Council of Texas Exchange Act...............Securities Exchange Act of 1934, as amended FASB.......................Financial Accounting Standards Board FERC.......................Federal Energy Regulatory Commission FMB........................First mortgage bond Holding Company Act........Public Utility Holding Company Act of 1935, as amended ICG Communications.........ICG Communications, Inc. ITC........................Investment tax credit LIFO.......................Last-in First-out (inventory accounting method) Louisiana Commission.......Louisiana Public Service Commission MD&A.......................Management's Discussion and Analysis of Financial Condition and Results of Operations MDEQ.......................Mississippi Department of Environmental Quality MGP........................Manufactured gas plant or coal gasification plant Mirror CWIP................Mirror Construction Work in Progress Mississippi Power..........Mississippi Power Company MMbtu......................Million Btu (British thermal unit) MW.........................Megawatt MWH........................Megawatt-hour NEIL.......................Nuclear Electric Insurance Limited NRC........................Nuclear Regulatory Commission Oklahoma Commission........Corporation Commission of the State of Oklahoma Phillips Sweeny............Cogeneration power plant, Sweeny, Texas PRP........................Potentially responsible party GLOSSARY OF TERMS (continued) Abbreviation or Acronym Definition PSO........................Public Service Company of Oklahoma, Tulsa, Oklahoma PSO 1997 Rate Settlement Agreement...............Joint stipulation agreement reached by PSO and other parties to settle PSO's 1997 rate inquiry Registrant(s)..............CSW, CPL, PSO, SWEPCO and WTU RUS........................Rural Utilities Service of the federal government SEC........................United States Securities and Exchange Commission SEEBOARD...................SEEBOARD plc., Crawley, West Sussex, United Kingdom SEEBOARD U.S.A.............CSW's investment in SEEBOARD consolidated and converted to U.S. Generally Accepted Accounting Principles SFAS.......................Statement of Financial Accounting Standards SFAS No. 52................Foreign Currency Translation SFAS No. 71................Accounting for the Effects of Certain Types of Regulation SFAS No. 130...............Reporting Comprehensive Income SFAS No. 133...............Accounting for Derivative Instruments and Hedging Activities SOP........................Statement of Position (accounting standard) SOP 98-5...................Reporting on the Costs of Start-Up Activities STP........................South Texas Project nuclear electric generating station, jointly owned by CPL, Houston Lighting and Power Company, City of Austin, and City of San Antonio SWEPCO.....................Southwestern Electric Power Company, Shreveport, Louisiana SWEPCO Plan................The amended plan of reorganization for Cajun filed by the Members Committee and SWEPCO on March 18, 1998 with the U.S. Bankruptcy Court for the Middle District of Louisiana Texas Commission...........Public Utility Commission of Texas Transok....................Transok, Inc., a former wholly-owned subsidiary of CSW Trust Preferred Securities.Collective term for securities issued by business trusts of CPL, PSO and SWEPCO classified on the balance sheet as "Certain Subsidiary (or CPL/PSO/SWEPCO)- obligated, mandatorily redeemable preferred securities of subsidiary trusts holding solely Junior Subordinated Debentures of such Subsidiaries (or CPL/PSO/SWEPCO)" U.S. Electric(s) or U.S. Electric Operating Companies................CPL, PSO, SWEPCO and WTU Valero.....................Valero Refining Company-Texas, Valero Refining Company and Valero Energy Company WTU........................West Texas Utilities Company, Abilene, Texas Yorkshire..................Yorkshire plc, a regional electricity company in the United Kingdom FORWARD-LOOKING INFORMATION This report made by CSW and certain of its subsidiaries contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Although CSW and each of its subsidiaries believe that, in making any such statements, their expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the impact of general economic changes in the U.S. and in countries in which CSW either currently has made or in the future may make investments; the impact of deregulation on the U.S. electric utility business; increased competition and electric utility industry restructuring in the U.S.; the impact of the proposed AEP Merger including any regulatory conditions imposed on the merger, the inability to consummate the AEP Merger, or other merger and acquisition activity including the SWEPCO Plan; federal and state regulatory developments and changes in law which may have a substantial adverse impact on the value of CSW System assets; timing and adequacy of rate relief; adverse changes in electric load and customer growth; climatic changes or unexpected changes in weather patterns; changing fuel prices, generating plant and distribution facility performance; decommissioning costs associated with nuclear generating facilities; costs associated with any year 2000 failure either within the CSW System or supplier failures that adversely affect the CSW System; uncertainties in foreign operations and foreign laws affecting CSW's investments in those countries; the effects of retail competition in the natural gas and electricity distribution and supply businesses in the United Kingdom; and the timing and success of efforts to develop domestic and international power projects. In the non-utility area, the previously mentioned factors would apply and also include, but are not limited to: the ability to compete effectively in new areas, including telecommunications, power marketing and brokering, and other energy related services, as well as evolving federal and state regulatory legislation and policies that may adversely affect those industries generally or the CSW System's business in areas in which it operates. CSW CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. CENTRAL AND SOUTH WEST CORPORATION CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------- 1998 1997 1998 1997 ---------- ---------- ----------- ----------- (millions, except per share amounts) Operating Revenues U.S. Electric $ 1,172 $ 1,054 $ 2,746 $ 2,562 United Kingdom 352 401 1,288 1,324 Other diversified 57 22 148 53 ---------- ---------- ----------- ----------- 1,581 1,477 4,182 3,939 Operating Expenses and Taxes U.S. Electric fuel 388 370 939 892 U.S. Electric purchased power 39 18 86 61 United Kingdom cost of sales 224 276 879 927 Other operating 232 216 705 658 Maintenance 41 38 114 111 Provision for CPL 1997 Final Order -- 3 -- 18 El Paso merger litigation -- -- -- 35 Depreciation and amortization 126 121 375 360 Taxes, other than income 44 49 145 143 Income taxes 143 83 218 135 ---------- ---------- ----------- ----------- 1,237 1,174 3,461 3,340 ---------- ---------- ----------- ----------- Operating Income 344 303 721 599 ---------- ---------- ----------- ----------- Other Income and Deductions Other 5 11 33 24 Non-operating income taxes 3 (1) 2 3 ---------- ---------- ----------- ----------- 8 10 35 27 ---------- ---------- ----------- ----------- Income Before Interest and Other Charges 352 313 756 626 ---------- ---------- ----------- ----------- Interest and Other Charges Interest on long-term debt 78 84 238 251 Interest on short-term debt and other 33 23 92 59 Distributions on trust preferred securities 7 7 20 11 Preferred dividend requirements of subsidiaries 1 3 6 10 (Gain)/loss on reacquired preferred stock -- -- 1 (10) ---------- ---------- ----------- ----------- 119 117 357 321 ---------- ---------- ----------- ----------- Income Before Extraordinary Item 233 196 399 305 Extraordinary Item - United Kingdom windfall profits tax -- (176) -- (176) ========== ========== =========== =========== Net Income for Common Stock $ 233 $ 20 $ 399 $ 129 ========== ========== =========== =========== Average Common Shares Outstanding 212.5 212.2 212.3 212.1 Basic and Diluted Earnings per Share before Extraordinary Item 1.10 0.93 1.88 1.44 Basic and Diluted Loss per Share from Extraordinary Item -- (0.83) -- (0.83) ========== ========== =========== =========== Basic and Diluted Earnings per Share $ 1.10 $ 0.10 $ 1.88 $ 0.61 ========== ========== =========== =========== Dividends Paid per Share of Common Stock $ 0.435 $ 0.435 $ 1.305 $ 1.305 ========== ========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. CENTRAL AND SOUTH WEST CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------- ----------------- 1998 1997 1998 1997 ------- ------- ------- ------- (millions) (millions) Net Income for Common Stock $ 233 $ 20 $ 399 $ 129 ------- ------- ------- ------- Other Comprehensive Income, Net of Tax Foreign currency translation adjustment 10 (7) 20 (46) Unrealized gains or losses on securities: Unrealized gains/(losses) occurring during period (9) 2 (18) 3 Adjustments for gains/(losses) included in net income -- -- (8) -- ------- ------- ------- ------- 1 (5) (6) (43) Comprehensive Income $ 234 $ 15 $ 393 $ 86 ======= ======= ======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements. CENTRAL AND SOUTH WEST CORPORATION CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) --------------- -------------- (millions) ASSETS Fixed Assets Electric Production $ 5,852 $ 5,824 Transmission 1,589 1,558 Distribution 4,659 4,453 General 1,371 1,381 Construction work in progress 174 184 Nuclear fuel 202 196 --------------- -------------- 13,847 13,596 Other diversified 348 250 --------------- -------------- 14,195 13,846 Less - Accumulated depreciation and amortization 5,592 5,264 --------------- -------------- 8,603 8,582 --------------- -------------- Current Assets Cash and temporary cash investments 183 75 Accounts receivable 1,407 916 Materials and supplies, at average cost 174 172 Electric utility fuel inventory 84 65 Under-recovered fuel costs 18 84 Notes receivable 105 -- Prepayments and other 75 78 --------------- -------------- 2,046 1,390 --------------- -------------- Deferred Charges and Other Assets Deferred plant costs 499 503 Mirror CWIP asset 275 285 Other non-utility investments 416 448 Securities available for sale 61 103 Income tax related regulatory assets, net 321 329 Goodwill 1,445 1,428 Other 439 383 --------------- -------------- 3,456 3,479 --------------- -------------- $ 14,105 $ 13,451 =============== ==============
The accompanying notes to consolidated financial statements are an integral part of these statements. CENTRAL AND SOUTH WEST CORPORATION CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) -------------- -------------- CAPITALIZATION AND LIABILITIES (millions) Capitalization Common stock: $3.50 par value Authorized shares: 350.0 million Issued and outstanding shares: 212.3 million in 1998 and 212.1 million in 1997 $ 744 $ 743 Paid-in capital 1,046 1,039 Retained earnings 1,871 1,750 Accumulated other comprehensive income 18 24 -------------- -------------- 3,679 47% 3,556 45% -------------- --------- -------------- ---------- Preferred stock Not subject to mandatory redemption 176 176 Subject to mandatory redemption -- 26 -------------- -------------- 176 2% 202 2% Certain Subsidiary-obligated, mandatorily redeemable preferred securities of subsidiary trusts holding solely Junior Subordinated Debentures of such Subsidiaries 335 4% 335 4% Long-term debt 3,702 47% 3,898 49% -------------- --------- -------------- ---------- Total Capitalization 7,892 100% 7,991 100% -------------- --------- -------------- ---------- Current Liabilities Long-term debt and preferred stock due within twelve months 144 32 Short-term debt 794 721 Short-term debt - CSW Credit 929 636 Loan notes 59 56 Accounts payable 650 573 Accrued taxes 379 171 Accrued interest 109 87 Other 190 238 -------------- -------------- 3,254 2,514 -------------- -------------- Deferred Credits Accumulated deferred income taxes 2,436 2,431 Investment tax credits 270 278 Other 253 237 -------------- -------------- 2,959 2,946 -------------- -------------- $ 14,105 $ 13,451 ============== ==============
The accompanying notes to consolidated financial statements are an integral part of these statements. CENTRAL AND SOUTH WEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, ------------------------ 1998 1997 ----------- ---------- OPERATING ACTIVITIES (millions) Net Income for Common Stock $ 399 $ 129 Non-cash Items and Adjustments Depreciation and amortization 436 385 Deferred income taxes and investment tax credits (19) (11) Preferred stock dividends included in Net income for common stock 6 10 (Gain)/loss on reacquired preferred stock 1 (10) Provision for CPL 1997 Final Order -- 18 Changes in Assets and Liabilities Accounts receivable (486) (383) Accounts payable 62 5 Accrued taxes 211 125 Fuel inventory (19) 30 Fuel recovery 73 (53) Refund due customers -- 29 Other (40) 131 ----------- ---------- 624 405 ----------- ---------- INVESTING ACTIVITIES Construction expenditures (339) (341) CSW Energy/CSW International projects (143) (187) Other 1 -- ----------- ---------- (481) (528) ----------- ---------- FINANCING ACTIVITIES Common stock sold 8 20 Long-term debt sold 5 -- Reacquisition/Retirement of long-term debt (181) (52) Reacquisition of preferred stock (28) (114) Proceeds from the issuance of Subsidiary obligated, mandatorily redeemable, trust preferred securities -- 323 Change in short-term debt 365 344 Payment of dividends (279) (290) Other 73 35 ----------- ---------- (37) 266 ----------- ---------- Effect of exchange rate changes on cash and cash equivalents 2 (7) Net Change in Cash and Cash Equivalents 108 136 Cash and Cash Equivalents at Beginning of Period 75 254 =========== ========== Cash and Cash Equivalents at End of Period $ 183 $ 390 =========== ========== SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $ 249 $ 282 =========== ========== Income taxes paid $ 49 $ 247 =========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES RESULTS OF OPERATIONS Set forth below is information concerning the consolidated results of operations of CSW for the three month and nine month periods ended September 30, 1998 and September 30, 1997. For information concerning the results of operations for each of the U.S. Electric Operating Companies, see the discussion under the heading RESULTS OF OPERATIONS following the financial statements of each of the U.S. Electric Operating Companies. COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997 Net income for common stock increased to $233 million in the third quarter of 1998 from $20 million in 1997. The largest single factor that increased earnings was the absence in 1998 of the United Kingdom windfall profits tax of $176 million that was recorded in 1997. Earnings in 1998 from the U.S. Electric Operating Companies were substantially higher. Hotter than normal weather added $25 million to earnings and increased customer usage and growth added another $21 million. Also contributing to the increase in earnings at the U.S. Electric companies was lower operations and maintenance expense of $6 million and the absence of the provision for rate refund associated with the PSO rate case settlement that lowered 1997 earnings by $16 million. The increase in earnings from the U.S. Electric Operating Companies was partially offset by lower base rates at CPL and PSO related to the CPL 1997 Final Order and the PSO 1997 Rate Settlement Agreement. SEEBOARD U.S.A. earnings increased due primarily to lower operations and maintenance expenses in the third quarter of 1998 when compared to a year earlier and increased earnings from its Medway power plant. The increase in earnings at SEEBOARD U.S.A. was offset in part by a $4 million decrease in deferred tax expenses related to United Kingdom corporation tax rate reductions that affected both periods. C3 Communications' earnings were $3 million below the same period last year because of increased operating costs for new telecommunications activities. Corporate expenses were higher than the same period last year due primarily to tax provisions. Other factors affecting earnings are discussed below. In the third quarter of 1998, the U.S. Electric Operating Companies and SEEBOARD U.S.A. contributed the following percentages to CSW's results of operations. Corporate U.S. SEEBOARD Total Items and Electric U.S.A. Electric Other Total --------------------------------------------- Operating Revenues 74% 22% 96% 4% 100% Operating Income 83% 17% 100% --% 100% Net Income for Common Stock 99% 13% 112% (12)% 100% U.S. Electric revenues increased $118 million, or 11%, in the third quarter of 1998 compared to the same period a year ago. The increase was due primarily to higher non-fuel revenues of $88 million. Non-fuel revenues increased as a result of hotter weather and the absence in 1998 of the $26 million provision for rate refund at PSO. Also contributing to the increase in U.S. Electric revenues were higher fuel revenues of $30 million due primarily to increased weather-related usage. The increases in fuel and non-fuel electric revenues were partially offset by rate reductions associated with both the CPL 1997 Final Order and the PSO 1997 Rate Settlement Agreement. CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES RESULTS OF OPERATIONS Revenues from SEEBOARD U.S.A. decreased $49 million due to the loss of revenues associated with the sale of its retail stores in the second quarter of 1998 and lower business volumes. Other diversified revenues increased $35 million to $57 million during the comparison periods. A CSW Energy power plant project which began operations in February 1998 was responsible for $29 million of the increase. However, CSW Energy also experienced a significant increase in other operating expenses, as discussed below. U.S. Electric fuel expenses increased $18 million, or 5%, during the third quarter of 1998 compared to the same period last year due primarily to a $16 million increase in the recovery of deferred fuel costs at PSO and hotter weather. The increase in fuel expenses was offset in part by a decrease in the average unit fuel cost to $1.70 per MMbtu in 1998 from $1.87 per MMbtu in 1997. The average unit fuel cost declined as a result of lower spot market natural gas and coal prices during the quarter. Purchased power increased $21 million during the comparison periods due primarily to increases in off-system energy purchases resulting from the effects of hotter weather. United Kingdom cost of sales decreased $52 million, or 19%, during the third quarter of 1998 compared to the same period last year due primarily to lower cost of sales associated with the sale of SEEBOARD's retail stores and a decrease in the cost of purchased power reflecting lower business volumes. Other operating expenses increased $16 million in the third quarter of 1998 compared to the same period a year ago. As previously discussed, a CSW Energy power plant went into service in February 1998 resulting in a $25 million increase in other operating expenses in the third quarter of 1998 compared to the same period last year. Reductions in operating expenses at the U.S. Electric Operating Companies and SEEBOARD U.S.A. partially offset this increase. Depreciation and amortization expenses increased $5 million in the third quarter of 1998 compared to the same period last year due primarily to accelerated recovery of ECOM property recorded in 1998 related to the CPL 1997 Final Order, as well as increases in depreciable property. Partially offsetting this increase is reduced depreciation rates as a result of the CPL 1997 Final Order (on non-ECOM property) and the PSO 1997 Rate Settlement Agreement. Operating income taxes increased $60 million in the third quarter of 1998 compared to the same period last year due primarily to increased taxable income partially offset by the recognition of foreign tax benefits at SEEBOARD U.S.A. Interest on long-term debt decreased $6 million due primarily to the repayment of a $60 million variable rate bank loan due December 1, 2001 and the maturity of $228 million of FMBs at CPL. Short-term debt was used to repay the variable rate bank loan in two $30 million installments on January 28, 1998 and April 27, 1998. Interest on short-term debt and other increased $10 million when compared to the same period last year due primarily to higher levels of borrowings. CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES RESULTS OF OPERATIONS COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Net income for common stock for the first nine months of 1998 increased to $399 million from $129 million for the comparable period in 1997. The largest single factor that contributed to this increase in earnings was the absence in 1998 of the United Kingdom windfall profit tax of $176 million that was recorded at SEEBOARD U.S.A. in 1997. Earnings in 1998 from the U.S. Electric Operating Companies were higher due primarily to increased MWH sales from hotter than normal weather which added about $40 million to earnings, and increased customer usage and growth added another $32 million. Also contributing to the increase in earnings at the U.S. Electric Operating Companies was lower operations and maintenance expenses of $26 million. Earnings for the first nine months of 1998 also improved due to the absence in 1998 of a provision for rate refund related to the PSO 1997 Rate Settlement Agreement that lowered 1997 earnings by $18 million and the absence of a provision for the CPL 1997 Final Order. The increase in earnings from the U.S. Electric Operating Companies was partially offset by lower base rates at CPL and PSO related to the CPL 1997 Final Order and the PSO 1997 Rate Settlement Agreement. Earnings at SEEBOARD U.S.A. in the first nine months of 1998 increased due primarily to foreign tax benefits, lower operations and maintenance expenses and increased earnings from its Medway power plant. The increase in earnings at SEEBOARD U.S.A. was offset in part by a $4 million decrease in deferred tax expenses related to United Kingdom corporation tax rate reductions that affected both periods. C3 Communications' earnings were $3 million below the same period last year because of increased operating costs for new telecommunications activities. Corporate expenses were lower than the same period last year due primarily to the absence in 1998 of the impact of CSW's final settlement of litigation with El Paso, which cost $23 million, after tax. Other factors affecting earnings are discussed below. In the first nine months of 1998, the U.S. Electric Operating Companies and SEEBOARD U.S.A. contributed the following percentages to CSW's results of operations. Corporate U.S. SEEBOARD Total Items and Electric U.S.A. Electric Other Total --------------------------------------------- Operating Revenues 65% 31% 96% 4% 100% Operating Income 76% 22% 98% 2% 100% Net Income for Common Stock 91% 21% 112% (12)% 100% U.S. Electric revenues increased $184 million, or 7%, in the first nine months of 1998 compared to the same period a year ago. The increase was due primarily to higher non-fuel related revenues of $137 million. Non-fuel revenues increased as a result of hotter weather and the absence in 1998 of the CPL 1997 Final Order and the $26 million provision for rate refund at PSO. Also contributing to the increase in U.S. Electric revenues were higher fuel-related revenues of $47 million due primarily to increased weather-related demand. The increases in fuel and non-fuel electric revenues were partially offset by rate reductions associated with the CPL 1997 Final Order and the PSO 1997 Rate Settlement Agreement. CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES RESULTS OF OPERATIONS Revenues from SEEBOARD U.S.A. decreased $36 million due to the loss of revenues associated with the sale of its retail stores in the second quarter of 1998. Other diversified revenues increased $95 million to $148 million during the comparison periods. A CSW Energy power plant project which began operations in February 1998 was responsible for $79 million of the increase. However, CSW Energy also experienced a significant increase in other operating expenses, as discussed below. Also contributing to the increase in other diversified revenues was increased business activity at C3 Communications, CSW Credit and EnerShop. U.S. Electric fuel expenses increased $47 million, or 5%, during the first nine months of 1998 compared to the same period last year due primarily to a $25 million increase in the recovery of deferred fuel costs at PSO and hotter weather. The increase in fuel expenses was offset in part by a decrease in the average unit fuel cost from $1.80 per MMbtu in the first nine months of 1997 to $1.71 per MMbtu in the first nine months of 1998 due to lower priced spot market natural gas and coal. Purchased power expenses increased $25 million, or 41%, during the comparison periods due primarily to increases in off-system energy purchases resulting from the effects of hotter weather. United Kingdom cost of sales decreased $48 million, or 5%, during the first nine months of 1998 compared to the same period last year due primarily to lower cost of sales associated with the sale of SEEBOARD's retail stores and a decrease in the cost of purchased power reflecting lower business volumes. Other operating expenses increased $47 million in the first nine months of 1998 compared to the same period a year ago. As previously discussed, a CSW Energy power plant went into service in February 1998 resulting in a $67 million increase in other operating expense in the first nine months of 1998 compared to the same period last year. Partially offsetting this increase were reductions in operating expenses at the U.S. Electric Operating Companies and SEEBOARD U.S.A. In the first quarter of 1997, CPL recorded a $41 million provision related to the CPL 1997 Final Order. In the second and third quarters of 1997, CPL reclassified $23 million of the provision to reflect the effects of the CPL 1997 Final Order in its specific accounts. Approximately $18 million remained as a Provision for the CPL 1997 Final Order at the end of the first nine months of 1997. Another item for which there is no corresponding amount in 1998 was the $35 million accrual for settlement of the El Paso merger litigation recorded in the first nine months of 1997. Depreciation and amortization expenses increased $15 million in the first nine months of 1998 compared to the same period last year due primarily to accelerated recovery of ECOM property recorded in 1998 related to the CPL 1997 Final Order, as well as increases in depreciable property. Partially offsetting this increase are reduced depreciation rates as a result of the CPL 1997 Final Order (on non-ECOM property) and the PSO 1997 Rate Settlement Agreement. Operating income taxes increased $83 million in the first nine months of 1998 compared to the same period last year due primarily to increased taxable income, which was partially offset by the recognition of foreign tax benefits at SEEBOARD U.S.A. CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES RESULTS OF OPERATIONS Other income and deductions increased $8 million to $35 million in the first nine months of 1998 compared to the same period in 1997. In 1998, SEEBOARD U.S.A. recorded a $4 million gain from the sale of its retail stores and $4 million of increased earnings from its Medway power plant. Also, in the first nine months of 1998, C3 Communications recorded a $5 million dollar after-tax gain on the sale of a telecommunications investment. These increases were partially offset by the absence in 1998 of a litigation settlement that CSW Energy recorded in 1997 in the amount of $3 million. Interest and other charges increased $36 million in the first nine months of 1998 compared to the same period last year due primarily to a $33 million increase in interest on short-term debt due to higher levels of borrowings. Also contributing to the increase was an additional $9 million in distributions on Trust Preferred Securities at CPL, PSO and SWEPCO as a result of the securities being outstanding for a full nine months in 1998 compared to only five months in 1997. Also contributing to the increase in 1998 was the absence of a $10 million gain on reacquired preferred stock which lowered the interest and other charges in 1997. Interest on long-term debt decreased $13 million due to the repayment of a $60 million variable rate bank loan due December 1, 2001 and the maturity of $228 million of FMBs at CPL. Short-term debt was used to repay the variable rate bank loan in two $30 million installments on January 28, 1998 and April 27, 1998. CPL CENTRAL POWER AND LIGHT COMPANY PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. CENTRAL POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ----------------------------------- 1998 1997 1998 1997 ------------- ------------- --------------- --------------- (thousands) (thousands) Electric Operating Revenues $ 454,403 $ 444,964 $ 1,092,506 $ 1,060,746 Operating Expenses and Taxes Fuel 121,129 129,296 302,406 291,492 Purchased power 12,198 11,705 28,733 39,856 Other operating 55,276 66,489 178,030 212,413 Provision for CPL 1997 Final Order -- 3,122 -- 18,160 Maintenance 15,361 16,985 42,886 46,418 Depreciation and amortization 42,903 39,349 126,892 117,256 Taxes, other than income 14,664 20,455 55,719 61,383 Income taxes 64,369 45,753 104,541 66,524 ------------- ------------- --------------- --------------- 325,900 333,154 839,207 853,502 ------------- ------------- --------------- --------------- Operating Income 128,503 111,810 253,299 207,244 ------------- ------------- --------------- --------------- Other Income and Deductions Allowance for equity funds used during construction 59 849 51 1,622 Other (3,141) 2,360 (592) 1,269 Non-operating income taxes 1,964 195 3,055 2,788 ------------- ------------- --------------- --------------- (1,118) 3,404 2,514 5,679 ------------- ------------- --------------- --------------- Income Before Interest Charges 127,385 115,214 255,813 212,923 ------------- ------------- --------------- --------------- Interest Charges Interest on long-term debt 23,331 26,864 70,397 80,982 Distributions on Trust Preferred Securities 3,000 2,985 9,000 4,533 Interest on short-term debt and other 1,200 3,783 16,025 11,994 Allowance for borrowed funds used during construction (607) (644) (1,948) (1,770) ------------- ------------- --------------- --------------- 26,924 32,988 93,474 95,739 ------------- ------------- --------------- --------------- Net Income 100,461 82,226 162,339 117,184 Less: preferred stock dividends 1,320 2,039 4,929 7,649 Gain/(loss) on reacquired preferred stock -- (284) -- 2,422 ============= ============= =============== =============== Net Income for Common Stock $ 99,141 $ 79,903 $ 157,410 $ 111,957 ============= ============= =============== ===============
The accompanying notes to consolidated financial statements as they relate to CPL are an integral part of these statements. CENTRAL POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) ---------------- ---------------- (thousands) ASSETS Electric Utility Plant Production $ 3,116,812 $ 3,106,576 Transmission 525,866 517,903 Distribution 1,078,421 1,021,759 General 302,596 295,974 Construction work in progress 76,598 77,390 Nuclear fuel 202,639 196,147 ---------------- ---------------- 5,302,932 5,215,749 Less - Accumulated depreciation 2,026,835 1,891,406 ---------------- ---------------- 3,276,097 3,324,343 ---------------- ---------------- Current Assets Cash -- -- Accounts receivable 102,155 61,311 Materials and supplies, at average cost 58,468 65,290 Fuel inventory 19,095 14,816 Under-recovered fuel costs -- 43,229 Prepayments 490 2,595 ---------------- ---------------- 180,208 187,241 ---------------- ---------------- Deferred Charges and Other Assets Deferred STP costs 482,984 484,277 Mirror CWIP asset 275,229 285,431 Income tax related regulatory assets, net 376,703 390,149 Nuclear decommissioning trust 56,272 45,676 Other 94,859 96,193 ---------------- ---------------- 1,286,047 1,301,726 ---------------- ---------------- $ 4,742,352 $ 4,813,310 ================ ================
The accompanying notes to consolidated financial statements as they relate to CPL are an integral part of these statements. CENTRAL POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) ----------------------- ---------------------- (thousands) CAPITALIZATION AND LIABILITIES Capitalization Common stock: $25 par value Authorized shares: 12,000,000 Issued and outstanding shares: 6,755,535 $ 168,888 $ 168,888 Paid-in capital 405,000 405,000 Retained earnings 818,692 833,282 --------------- -------------- Total Common Stock Equity 1,392,580 48% 1,407,170 47% --------------- ------- -------------- ------- Preferred stock 163,204 6% 163,204 5% CPL-obligated, mandatorily redeemable preferred securities of subsidiary trust holding solely Junior Subordinated Debentures of CPL 150,000 5% 150,000 5% Long-term debt 1,170,325 41% 1,302,266 43% --------------- ------- -------------- ------- Total Capitalization 2,876,109 100% 3,022,640 100% --------------- ------- -------------- ------- Current Liabilities Long-term debt due within twelve months 100,000 28,000 Advances from affiliates 127,781 142,781 Accounts payable 85,108 84,160 Accrued taxes 98,626 13,558 Accumulated deferred income taxes 4,686 21,382 Accrued interest 27,340 28,379 Refund due customers -- 63,713 Over-recovered fuel 6,184 -- Other 20,035 14,551 --------------- -------------- 469,760 396,524 --------------- -------------- Deferred Credits Accumulated deferred income taxes 1,239,306 1,237,386 Investment tax credits 139,815 142,371 Other 17,362 14,389 --------------- -------------- 1,396,483 1,394,146 --------------- -------------- $ 4,742,352 $ 4,813,310 =============== ==============
The accompanying notes to consolidated financial statements as they relate to CPL are an integral part of these statements. CENTRAL POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, 1998 1997 ------------- ------------- (thousands) OPERATING ACTIVITIES Net Income $ 162,339 $ 117,184 Non-cash Items Included in Net Income Depreciation and amortization 181,237 133,610 Deferred income taxes and investment tax credits (3,886) (11,230) Provision for CPL 1997 Final Order -- 18,160 Refund due customers (63,713) 62,865 Changes in Assets and Liabilities Accounts receivable (40,844) (12,490) Material and supplies 6,822 5,051 Fuel inventory (4,279) 1,713 Fuel recovery 49,413 (27,877) Accounts payable 10 15,535 Accrued interest 1,039 3,373 Accrued taxes 85,068 14,711 Other (30,774) 13,134 ------------- ------------- 342,432 333,739 ------------- ------------- INVESTING ACTIVITIES Construction expenditures (84,348) (101,164) Other (6,400) 6,870 ------------- ------------- (90,748) (94,294) ------------- ------------- FINANCING ACTIVITIES Retirement of long-term debt (28,000) -- Reacquisition of preferred stock (36,000) (84,725) Trust Preferred Securities -- 144,706 Change in advances from affiliates (15,000) (52,525) Payment of dividends (172,684) (119,577) Other -- (41) ------------- ------------- (251,684) (112,162) ------------- ------------- Net Change in Cash and Cash Equivalents -- 127,283 Cash and Cash Equivalents at Beginning of Period -- 3,299 ============= ============= Cash and Cash Equivalents at End of Period $ -- $ 130,582 ============= ============= SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized (includes distributions on Trust Preferred Securities) $ 88,021 $ 82,716 ============= ============= Income taxes paid $ 19,364 $ 61,510 ============= =============
The accompanying notes to consolidated financial statements as they relate to CPL are an integral part of these statements. CENTRAL POWER AND LIGHT COMPANY RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 and 1997 Net income for common stock increased $19.2 million to $99.1 million during the third quarter of 1998 from $79.9 million in the third quarter of 1997. This increase was due primarily to higher non-fuel related revenues as well as the absence of the impact of the provision for the CPL 1997 Final Order. The increase in net income for common stock was partially offset by a reduction in base rates associated with the CPL 1997 Final Order. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS and MD&A, RATES AND REGULATORY MATTERS for more information related to the CPL 1997 Final Order. Electric operating revenues increased $9.4 million, or 2%, to $454.4 million during the third quarter of 1998 from $445.0 million during the third quarter of 1997. The increase was due primarily to higher non-fuel revenues of $25.4 million as a result of a 9% increase in retail MWH sales relating to weather-related demand, as well as the absence in 1998 of the provision for the CPL 1997 Final Rate Order. In addition, electric operating revenues were affected by a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). These increases were partially offset by lower base rates as a result of the CPL 1997 Final Rate Order and decreased fuel recovery of $16.0 million. Fuel expenses decreased $8.2 million, or 6%, due primarily to a decrease in average unit fuel costs from $1.90 per MMbtu in 1997 to $1.60 per MMbtu in 1998, which was the result of lower priced spot market natural gas and coal during the quarter. Other operating expenses were $55.3 million during the third quarter of 1998, a decrease of $11.2 million from the same period of 1997. The decrease was due primarily to a reduction in transmission expenses and a reduction in general and administrative expenses. The decrease in transmission expenses resulted primarily from a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Depreciation and amortization expenses increased $3.6 million for the third quarter of 1998 due primarily to the accelerated recovery of ECOM property recorded in 1998 related to the CPL 1997 Final Order as well as increases in depreciable and amortizable plant. Partially offsetting the increase in depreciation and amortization expenses was reduced depreciation rates on non-ECOM property related to the CPL 1997 Final Order. Taxes other than income decreased $5.8 million in the third quarter of 1998 due to a decrease in Texas ad valorem taxes. Operating income taxes increased $18.6 million in the third quarter of 1998 as compared to the third quarter of 1997 as a result of an increase in taxable income. Other income and deductions decreased due primarily to net losses from equity investments in the nuclear decommissioning trust. The net earnings of the nuclear decommissioning trust are offset by a like amount of interest expense shown as interest charges in short-term debt and other. See NOTE 1. PRINCIPLES OF PREPARATION - CPL Nuclear Decommissioning of STP. CENTRAL POWER AND LIGHT COMPANY RESULTS OF OPERATIONS Interest charges decreased $6.1 million in the third quarter of 1998 compared to the same period last year due primarily to the maturity of CPL's $200 million Series BB, 6% First Mortgage Bonds in October 1997 and $28 million Series J, 6-5/8% First Mortgage Bonds that matured January 1, 1998. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Net income for common stock increased $45.5 million to $157.4 million during the first nine months of 1998 from $112.0 million in the first nine months of 1997. This increase was due primarily to increased non-fuel revenues and the absence in 1998 of the 1997 provision for the CPL 1997 Final Order. The increase in net income for common stock was partially offset by a reduction in base rates associated with the CPL 1997 Final Order. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS and MD&A, RATES AND REGULATORY MATTERS for more information related to the CPL 1997 Final Order. Electric operating revenues increased $31.8 million, or 3%, to $1,092.5 million during the first nine months of 1998 from $1,060.7 million during the first nine months of 1997. This increase was due primarily to increased non-fuel revenue of $46.3 million as a result of increased weather-related demand and the absence in 1998 of the provision for rate refund in 1997. In addition, electric operating revenues were affected by a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). The increase was partially offset by decreased fuel revenues of $14.5 million and by lower base rates resulting from the CPL 1997 Final Order. Fuel and purchased power expenses decreased approximately $0.2 million in the first nine months of 1998 compared to the first nine months of 1997. Fuel expenses increased $10.9 million as a result of an 11% increase in generation, which was offset in part by a reduction in the average unit cost of fuel. The average unit cost of fuel declined from $1.76 per MMbtu in the first nine months of 1997 to $1.61 per MMbtu in the first nine months of 1998 due to lower spot market natural gas prices. Purchased power expenses decreased approximately 28% from $39.9 million in the first nine months of 1997 to $28.7 million in the first nine months of 1998 due primarily to decreases in economy energy purchases. Other operating expenses were $178.0 million during the first nine months of 1998, a decrease of $34.4 million compared to the same period in 1997. The decrease was due to a reduction in transmission expenses and a reduction in general and administrative expenses. The decrease in transmission expenses resulted primarily from a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Maintenance expenses decreased $3.5 million due to the scheduled refueling of STP Unit 2 during the first half of 1997. Depreciation and amortization expenses increased $9.6 million, or 8%, for the first nine months of 1998 compared to the same period last year due primarily to the accelerated recovery of ECOM property recorded in 1998 related to the CPL 1997 Final Order as well as increases in depreciable and amortizable plant. Partially offsetting the increase in depreciation and amortization expenses was lower depreciation rates on non-ECOM property related to the CPL 1997 Final Order. CENTRAL POWER AND LIGHT COMPANY RESULTS OF OPERATIONS Taxes, other than income decreased $5.7 million for the first nine months of 1998 due to a decrease in Texas ad valorem taxes. Operating income taxes increased $38.0 million in the first nine months of 1998 compared to the first nine months of 1997 resulting primarily from an increase in taxable income. Other income and deductions decreased approximately $3.2 million due primarily to net losses from equity investments in the nuclear decommissioning trust. The net earnings of the nuclear decommissioning trust are offset by a like amount of interest expense shown as interest charges in short-term debt and other. See NOTE 1. PRINCIPLES OF PREPARATION - CPL Nuclear Decommissioning of STP. Interest charges decreased $2.3 million during the first nine months of 1998 when compared to the same period of 1997 primarily as a result of the maturity of CPL's $200 million Series BB, 6% First Mortgage Bonds in October 1997 and $28 million Series J, 6-5/8%, First Mortgage Bonds that matured January 1, 1998. The decrease was offset in part by increased levels of short-term borrowing and distributions on Trust Preferred Securities. PSO PUBLIC SERVICE COMPANY OF OKLAHOMA PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 -------------- ------------- ------------- -------------- (thousands) (thousands) Electric Operating Revenues $ 279,833 $ 222,235 $ 623,110 $ 544,092 Operating Expenses and Taxes Fuel 104,704 89,577 242,891 211,385 Purchased power 17,594 9,979 44,891 34,419 Other operating 20,102 28,707 75,478 86,782 Maintenance 8,014 7,732 23,899 23,088 Depreciation and amortization 18,202 20,412 54,358 60,229 Taxes, other than income 7,363 6,953 22,583 21,357 Income taxes 40,282 18,738 52,564 28,406 -------------- ------------- ------------- -------------- 216,261 182,098 516,664 465,666 -------------- ------------- ------------- -------------- Operating Income 63,572 40,137 106,446 78,426 -------------- ------------- ------------- -------------- Other Income and Deductions Allowance for equity funds used during construction 293 395 519 652 Other 242 (253) 24 (128) Non-operating income taxes 56 560 430 1,045 -------------- ------------- ------------- -------------- 591 702 973 1,569 -------------- ------------- ------------- -------------- Income Before Interest Charges 64,163 40,839 107,419 79,995 -------------- ------------- ------------- -------------- Interest Charges Interest on long-term debt 7,287 7,618 22,524 22,855 Interest on short-term debt and other 736 683 3,200 3,349 Distributions on Trust Preferred Securities 1,500 1,499 4,500 2,467 Allowance for borrowed funds used during construction (281) (221) (943) (1,141) -------------- ------------- ------------- -------------- 9,242 9,579 29,281 27,530 -------------- ------------- ------------- -------------- Net Income 54,921 31,260 78,138 52,465 Less: preferred stock dividends 54 53 160 310 Gain/(loss) on reacquired preferred stock -- (217) -- 4,227 -------------- ------------- ------------- -------------- Net Income for Common Stock $ 54,867 $ 30,990 $ 77,978 $ 56,382 ============== ============= ============= ==============
The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) -------------- -------------- ASSETS (thousands) Electric Utility Plant Production $ 916,581 $ 907,735 Transmission 378,495 375,111 Distribution 852,010 818,806 General 207,885 197,264 Construction work in progress 31,889 40,992 -------------- -------------- 2,386,860 2,339,908 Less - Accumulated depreciation and amortization 1,083,543 1,031,322 -------------- -------------- 1,303,317 1,308,586 -------------- -------------- Current Assets Cash 7,524 2,171 Advances to affiliates 8,366 -- Accounts receivable 34,349 34,974 Materials and supplies, at average cost 33,781 32,211 Fuel inventory 13,477 11,427 Accumulated deferred income taxes 6,297 -- Prepayments and other 1,027 3,366 -------------- -------------- 104,821 84,149 -------------- -------------- Deferred Charges and Other Assets 57,555 54,946 -------------- -------------- $ 1,465,693 $ 1,447,681 ============== ==============
The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) --------------- ---------------- CAPITALIZATION AND LIABILITIES (thousands) Capitalization Common stock: $15 par value Authorized shares: 11,000,000 Issued shares: 10,482,000 Outstanding shares: 9,013,000 $ 157,230 $ 157,230 Paid-in capital 180,000 180,000 Retained earnings 172,974 136,996 --------------- ---------------- Total Common Stock Equity 510,204 53% 474,226 49% --------------- --------- ---------------- --------- Preferred stock 5,287 1% 5,287 --% PSO-obligated, mandatorily redeemable preferred securities of subsidiary trust holding solely Junior Subordinated Debentures of PSO 75,000 8% 75,000 8% Long-term debt 367,724 38% 421,821 43% --------------- --------- ---------------- --------- Total Capitalization 958,215 100% 976,334 100% --------------- --------- ---------------- --------- Current Liabilities Advances from affiliates -- 4,874 Payables to affiliates 5,378 29,011 Accounts payable 45,268 55,179 Payables to customers 17,939 18,837 Accrued taxes 49,009 -- Accumulated deferred income taxes -- 2,262 Accrued interest 10,396 9,090 Other 9,170 4,178 --------------- ---------------- 137,160 123,431 --------------- ---------------- Deferred Credits Accumulated deferred income taxes 279,177 258,848 Investment tax credits 39,812 41,160 Income tax related regulatory liabilities, net 39,235 41,793 Other 12,094 6,115 --------------- ---------------- 370,318 347,916 --------------- ---------------- $1,465,693 $1,447,681 =============== ================
The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, --------------------------- 1998 1997 ------------ ----------- OPERATING ACTIVITIES (thousands) Net Income $78,138 $52,465 Non-cash Items Included in Net Income Depreciation and amortization 56,616 64,417 Deferred income taxes and investment tax credits 7,864 (9,814) Refund due customers -- 29,000 Changes in Assets and Liabilities Accounts receivable 625 (16,050) Prepayments and other 2,339 2,562 Accounts payable (34,929) (17,439) Accrued taxes 49,696 26,641 Other 5,604 (2,960) ------------ ----------- 165,953 128,822 ------------ ----------- INVESTING ACTIVITIES Construction expenditures (45,004) (55,851) Other (4,966) (4,734) ------------ ----------- (49,970) (60,585) ------------ ----------- FINANCING ACTIVITIES Change in advances from affiliates (4,874) (42,867) Proceeds from the issuance of Trust Preferred Securities -- 72,506 Reacquisition of long-term debt (55,231) -- Reacquisition of preferred stock -- (10,312) Payment of dividends (42,159) (40,461) ------------ ----------- (102,264) (21,134) ------------ ----------- Net Change in Cash and Cash Equivalents 13,719 47,103 Cash and Cash Equivalents at Beginning of Period 2,171 1,479 ============ =========== Cash and Cash Equivalents at End of Period $15,890 $48,582 ============ =========== SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized (includes distributions on Trust Preferred Securities) $26,713 $24,501 ============ =========== Income taxes paid $ 6,606 $22,095 ============ ===========
The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. PUBLIC SERVICE COMPANY OF OKLAHOMA RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997 Net income for common stock was $54.9 million for the third quarter of 1998, a 77% increase, or $23.9 million above the equivalent period of 1997. The increase resulted primarily from higher non-fuel revenues, the absence in 1998 of a provision for rate refund and decreased depreciation expenses. The increase in net income was offset in part by lower base rates in 1998 as a result of the PSO 1997 Rate Settlement Agreement. Electric operating revenues were $279.8 million during the third quarter of 1998, a 26% increase from $222.2 million in the third quarter of 1997. This increase was due primarily to increases in non-fuel and fuel-related revenues of $26.4 million and $19.4 million, respectively. The increase in non-fuel revenues was due primarily to a 15% increase in retail MWH sales resulting from warmer weather as well as the absence in 1998 of a $25.9 million provision for rate refund. Additionally, this increase was partially offset by lower base rates resulting from the PSO 1997 Rate Settlement Agreement in the amount of $14.1 million and a decrease in transmission related revenues resulting from changes to CSW's Transmission Coordination Agreement pending before the FERC. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - Transmission Coordination Agreement. The increase in fuel revenues was due primarily to higher fuel expenses, as discussed below. Fuel expenses increased $15.1 million, or 17%, during the third quarter of 1998 compared to the third quarter of 1997 due primarily to a $15.5 million increase in the recovery of deferred fuel costs and a 10% increase in generation due primarily to higher weather-related demand. The increase in fuel expenses was offset in part by lower average unit fuel costs. The average unit costs of fuel for the quarter declined from $2.02 per MMbtu in 1997 to $1.82 per MMbtu in 1998 due primarily to lower spot market natural gas and coal prices. Purchased power expenses increased to $17.6 million in the third quarter of 1998 from $10.0 million for the same period in 1997. This increase was due primarily to more off-system and emergency pool energy purchases as well as increased capacity commitments due primarily to higher weather-related demand. Other operating expenses were $20.1 million during the third quarter of 1998, a decrease of $8.6 million from the comparable period of 1997. The decrease in other operating expenses was due primarily to lower transmission expenses resulting primarily from a transmission service agreement adjustment related to the final order in Texas Commission Docket 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Depreciation and amortization expenses decreased 11% to $18.2 million in the third quarter of 1998 from $20.4 million in the third quarter of 1997. This decrease was due primarily to lower depreciation rates as a result of the PSO 1997 Rate Settlement Agreement, offset in part by an increase in depreciable property. Operating income taxes increased to $40.3 million in the third quarter 1998 compared to $18.7 million in the third quarter of 1997 due primarily to higher taxable income in 1998. PUBLIC SERVICE COMPANY OF OKLAHOMA RESULTS OF OPERATIONS COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Net income for common stock was $78.0 million for the first nine months of 1998, a 38% increase when compared to $56.4 million for the equivalent period of 1997. The increase resulted from higher non-fuel revenues, the absence in 1998 of a provision for rate refund and decreased depreciation expenses. The increase in net income was offset in part by lower base rates in 1998 as a result of the PSO 1997 Rate Settlement Agreement and the absence in 1998 of a $4.2 million gain on the reacquisition of preferred stock. Electric operating revenues were $623.1 million during the first nine months of 1998, a 15% increase from $544.1 million during the same period of 1997. This increase was due primarily to higher non-fuel revenues of $40.4 million and fuel-related revenues of $39.3 million. The increase in non-fuel revenues was due primarily to an 11% increase in retail MWH sales resulting from warmer weather as well as the absence in 1998 of a $29.0 million provision for rate refund. Additionally, this increase was partially offset by lower base rates resulting from the PSO 1997 Rate Settlement Agreement in the amount of $29.8 million and a decrease in transmission related revenues resulting from changes to CSW's Transmission Coordination Agreement pending before the FERC. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - Transmission Coordination Agreement. The increase in fuel revenues was due primarily to higher fuel expenses, as discussed below. Fuel expenses increased $31.5 million, or 15%, during the first nine months of 1998 when compared to the same period of 1997 due primarily to a $25.2 million increase in the recovery of deferred fuel costs and a 10% increase in generation due primarily to higher weather-related demand. The increase in fuel expenses was offset in part by lower average unit fuel costs. The average unit cost of fuel declined from $1.95 per MMbtu in the first nine months of 1997 to $1.80 per MMbtu in the first nine months of 1998 due primarily to lower spot market natural gas and coal prices. Purchased power expenses increased 30% to $44.9 million for the first nine months of 1998 from $34.4 million in the same period of 1997. This increase was due primarily to higher off-system and emergency pool energy purchases associated with higher weather-related demand in the first nine months of 1998 and a plant outage in the first quarter of 1998, partially offset by lower cogeneration purchases. Other operating expenses were $75.5 million for the first nine months of 1998, a decrease of $11.3 million from the $86.8 million for the same period in 1997. The decrease in other operating expenses was due primarily to lower transmission expenses resulting primarily from a transmission service agreement adjustment related to the final order in Texas Commission Docket 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Additionally, lower employee benefit expenses offset in part by higher meter and overhead line expenses contributed to the decline in other operating expenses. Depreciation and amortization expenses decreased 10% to $54.4 million in 1998 from $60.2 million in 1997. This decrease was due primarily to lower depreciation rates as a result of the PSO 1997 Rate Settlement Agreement offset in part by an increase in depreciable property. Taxes other than income were $1.2 million higher in the first nine months of 1998 when compared to the same period in 1997 as a result of higher ad valorem tax expenses. Operating income taxes were $52.6 million in the first nine months of 1998 compared to $28.4 million in the same period in 1997 due PUBLIC SERVICE COMPANY OF OKLAHOMA RESULTS OF OPERATIONS primarily to higher taxable income in 1998. Interest charges increased $1.8 million, or 6%, during the first nine months of 1998 when compared to the same period of 1997 as a result of higher distributions on Trust Preferred Securities. SWEPCO SOUTHWESTERN ELECTRIC POWER COMPANY PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------- ------------- ------------- (thousands) (thousands) Electric Operating Revenues $311,549 $291,539 $756,044 $722,146 ------------ ------------- ------------- ------------- Operating Expenses and Taxes Fuel 124,210 116,294 298,530 294,876 Purchased power 12,230 7,456 30,234 17,895 Other operating 36,168 35,318 100,490 101,074 Maintenance 12,341 9,984 35,770 31,424 Depreciation and amortization 24,675 24,138 74,303 71,166 Taxes, other than income 14,239 14,339 43,320 40,432 Income taxes 28,164 22,561 45,416 39,399 ------------ ------------- ------------- ------------- 252,027 230,090 628,063 596,266 ------------ ------------- ------------- ------------- Operating Income 59,522 61,449 127,981 125,880 ------------- ------------- ------------- ------------- Other Income and Deductions Allowance for equity funds used during construction 219 413 925 589 Other (462) 1,902 (564) 1,109 Non-operating income taxes 522 (12) 1,734 1,162 ------------- ------------- ------------- ------------- 279 2,303 2,095 2,860 ------------- ------------- ------------- ------------- Income Before Interest Charges 59,801 63,752 130,076 128,740 ------------- ------------- ------------- ------------- Interest Charges Interest on long-term debt 9,808 9,811 29,426 30,631 Distributions on Trust Preferred Securities 2,166 2,167 6,497 3,565 Interest on short-term debt and other 1,566 1,028 5,763 4,619 Allowance for borrowed funds used during construction (369) (202) (1,066) (944) ------------- ------------- ------------- ------------- 13,171 12,804 40,620 37,871 ------------- ------------- ------------- ------------- Net Income 46,630 50,948 89,456 90,869 Less: preferred stock dividends 57 589 648 1,922 Gain/(loss) on reacquired preferred stock -- (528) (855) 1,652 ============= ============= ============= ============= Net Income for Common Stock $ 46,573 $ 49,831 $ 87,953 $ 90,599 ============= ============= ============= =============
The accompanying notes to consolidated financial statements as they relate to SWEPCO are an integral part of these statements. SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) ---------------- ----------------- (thousands) ASSETS Electric Utility Plant Production $ 1,399,156 $ 1,391,676 Transmission 471,442 456,401 Distribution 909,790 870,378 General 320,644 311,323 Construction work in progress 37,016 51,665 ---------------- ----------------- 3,138,048 3,081,443 Less - Accumulated depreciation 1,300,827 1,225,865 ---------------- ----------------- 1,837,221 1,855,578 ---------------- ----------------- Current Assets Cash 5,077 2,298 Accounts receivable 87,555 81,507 Materials and supplies, at average cost 24,261 24,523 Fuel inventory 37,916 26,415 Under-recovered fuel cost 7,697 13,013 Prepayments and other 18,385 13,678 ---------------- ----------------- 180,891 161,434 ---------------- ----------------- Deferred Charges and Other Assets 78,948 77,734 ---------------- ----------------- $ 2,097,060 $ 2,094,746 ================ =================
The accompanying notes to consolidated financial statements as they relate to SWEPCO are an integral part of these statements. SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) ----------------- ----------------- (thousands) CAPITALIZATION AND LIABILITIES Capitalization Common stock: $18 par value Authorized shares: 7,600,000 Issued and outstanding shares: 7,536,640 $ 135,660 $ 135,660 Paid-in capital 245,000 245,000 Retained earnings 334,003 324,050 ---------------- ---------------- Total Common Stock Equity 714,663 54% 704,710 51% ---------------- --------- ---------------- --------- Preferred stock Not subject to mandatory redemption 4,707 4,709 Subject to mandatory redemption -- 25,930 ---------------- ---------------- 4,707 --% 30,639 2% SWEPCO-obligated, mandatorily redeemable preferred securities of subsidiary trust holding solely Junior Subordinated Debentures of SWEPCO 110,000 8% 110,000 8% Long-term debt 506,304 38% 547,751 39% --------- --------- ---------------- ---------------- Total Capitalization 1,335,674 100% 1,393,100 100% ---------------- --------- ---------------- --------- Current Liabilities Long-term debt and preferred stock due within twelve months 43,932 3,555 Advances from affiliates 11,917 25,175 Accounts payable 70,104 73,582 Payables to affiliates 53,705 63,583 Customer deposits 14,400 14,359 Accrued taxes 57,093 12,884 Accumulated deferred income taxes 4,187 4,594 Accrued interest 12,727 13,425 Other 14,017 9,551 ---------------- ---------------- 282,082 220,708 ---------------- ---------------- Deferred Credits Accumulated deferred income taxes 395,695 395,909 Investment tax credits 63,371 66,845 Income tax related regulatory liabilities, net 5,930 10,072 Other 14,308 8,112 ---------------- ---------------- 479,304 480,938 ---------------- ---------------- $ 2,097,060 $ 2,094,746 ================ ================
The accompanying notes to consolidated financial statements as they relate to SWEPCO are an integral part of these statements. SOUTHWESTERN ELECTRIC POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, ---------------------------- 1998 1997 ------------ ------------- (thousands) OPERATING ACTIVITIES Net Income $ 89,456 $ 90,869 Non-cash Items Included in Net Income Depreciation and amortization 78,353 74,775 Deferred income taxes and investment tax credits (8,237) 1,956 Changes in Assets and Liabilities Accounts receivable (6,048) 17,146 Fuel inventory (11,501) 27,001 Fuel recovery 5,316 (9,862) Deferred charges and other assets (1,214) (15,835) Accounts payable (2,403) 10,126 Payables to affiliates (9,878) (8,416) Accrued taxes 44,209 16,488 Other current liabilities 4,466 (15,151) Other deferred credits 6,196 (1,206) Other (3,209) 2,975 ------------ ------------- 185,506 190,866 ------------ ------------- INVESTING ACTIVITIES Construction expenditures (55,690) (73,268) Other (4,456) (2,990) ------------ ------------- (60,146) (76,258) ------------ ------------- FINANCING ACTIVITIES Redemption of preferred stock (27,988) (16,210) Retirement of long-term debt (2,209) (52,278) Change in advances from affiliates (13,258) (57,495) Trust Preferred Securities -- 106,245 Payment of dividends (79,126) (65,134) ------------ ------------- (122,581) (84,872) ------------ ------------- Net Change in Cash and Cash Equivalents 2,779 29,736 Cash and Cash Equivalents at Beginning of Period 2,298 1,879 ============ ============= Cash and Cash Equivalents at End of Period $ 5,077 $ 31,615 ============ ============= SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized (includes distributions on Trust Preferred Securities) $ 39,257 $ 39,119 ============ ============= Income taxes paid $ 30,849 $ 33,507 ============ =============
The accompanying notes to consolidated financial statements as they relate to SWEPCO are an integral part of these statements. SOUTHWESTERN ELECTRIC POWER COMPANY RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997 Net income for common stock for the third quarter of 1998 was $46.6 million, a decrease of $3.3 million, or 7%, from the same period of 1997. The decrease resulted primarily from increased operating expenses and taxes and the absence in 1998 of the gain on the sale of lignite properties recorded in the third quarter of 1997. The decrease was offset in part by increased non-fuel revenues. Electric operating revenues increased $20.0 million, or 7%, to $311.5 million during the third quarter of 1998 from $291.5 million during the third quarter of 1997. The increase was due primarily to a $17.0 million increase in non-fuel revenues as a result of an 8% increase in retail MWH sales attributable to warmer weather. Fuel revenues increased $6.7 million as discussed below. The increase in electric operating revenues was partially offset by a $3.7 million transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Fuel expenses increased $7.9 million, or 7%, for the third quarter of 1998 compared to the third quarter of 1997 due primarily to increased natural gas generation associated with weather-related demand. The increase in fuel expenses was offset in part by a decrease in average unit fuel cost for natural gas from $2.45 per MMbtu in 1997 to $2.08 per MMbtu in 1998 as a result of lower priced spot-market natural gas. Fuel expenses also increased as a result of a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Purchased power expenses for the third quarter of 1998 increased $4.8 million compared to the same period of 1997 due primarily to an increase in economy energy purchases. Other operating and maintenance expenses increased approximately $1.0 million as a result of increased production steam generation expenses and higher administrative and general expenses, offset in part by decreased customer assistance expenses and lower transmission expenses. The decrease in transmission expenses resulted from a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). The decrease in transmission expenses was offset in part by the accrual of expenses related to CSW's transmission coordination agreement currently pending before the FERC. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - Transmission Coordination Agreement. Maintenance expenses increased $2.4 million, or 24%, due primarily to increased power plant maintenance. Operating income taxes increased $5.6 million, or 25%, due primarily to increased taxable income. Other income and deductions decreased $2.0 million for the third quarter of 1998 compared to the same period of 1997 due primarily to the absence in 1998 of a gain on the sale of lignite properties recorded in the third quarter of 1997. SOUTHWESTERN ELECTRIC POWER COMPANY RESULTS OF OPERATIONS COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Net income for common stock for the nine months ended September 30, 1998 was $88.0 million, a decrease of $2.6 million, or 3%, from $90.6 million for the same period in 1997. The decrease in net income resulted primarily from an increase in operating and maintenance expenses, increased interest charges, a loss on reacquisition of preferred stock in 1998 and the absence in 1998 of the gain on reacquisition of preferred stock recorded in 1997. The decrease in net income was offset in part by increased non-fuel revenues. Electric operating revenues increased $33.9 million, or 5%, to $756.0 million for the nine months ended September 30, 1998 from $722.1 million during the same period in 1997. The increase was due primarily to higher non-fuel revenues of $33.2 million resulting from a 7% increase in weather-related retail MWH sales and increased fuel revenues of $11.2 million. The increase in electric operating revenues was offset in part by a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285, a provision for rate refund of $3.6 million in connection with the annual determination of cost of service formula rates for SWEPCO's wholesale customers and a $3.2 million reduction in fuel revenues in accordance with a Texas Commission order in SWEPCO's fuel reconciliation regarding transmission equalization expense recovery. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Fuel expenses increased $3.7 million for the nine months ended September 30, 1998 when compared to the same period in 1997 due primarily to an increase in weather-related natural gas generation. The increase in fuel expenses was offset in part by a decrease in the average unit fuel cost for natural gas from $2.49 per MMbtu in 1997 to $2.19 per MMbtu in 1998 which resulted from purchases of lower priced spot-market natural gas. Fuel expenses increased due in part to a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Purchased power expenses for the nine months ended September 30, 1998 increased $12.3 million when compared to the same period in 1997 due primarily to an increase in economy energy purchases. Other operating expenses decreased slightly during the first nine months of 1998 from the comparable period of 1997. The decrease was due primarily to decreased transmission expenses and decreased customer assistance expenses, offset in part by increased steam generation expenses. The decrease in transmission expenses resulted from a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). The decrease in transmission expenses was offset in part by increased expenses related to CSW's transmission coordination agreement currently pending before the FERC. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - Transmission Coordination Agreement. Maintenance expenses increased $4.3 million, or 14%, as a result of increased overhead lines expenses from additional tree-trimming maintenance expenses, wind storm damage and increased power station maintenance expenses. Depreciation and amortization expenses increased $3.1 million, or 4%, for the first nine months of 1998 due primarily to increases in depreciable and amortizable plant. SOUTHWESTERN ELECTRIC POWER COMPANY RESULTS OF OPERATIONS Taxes, other than income increased $2.9 million, or 7%, as a result of increased ad valorem taxes due to higher assessed values. Operating income taxes increased $6.0 million, or 15%, due primarily to increased taxable income. Other income and deductions decreased in the first nine months of 1998 compared to the same period of 1997 due primarily to the absence in 1998 of a gain on the sale of lignite properties recorded in the third quarter of 1997, offset in part by charges associated with the write-off of certain plant development costs recorded in the first quarter of 1997. Interest charges increased $2.7 million due primarily to distributions on Trust Preferred Securities, which were outstanding for only five months in 1997. WTU WEST TEXAS UTILITIES COMPANY PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. WEST TEXAS UTILITIES COMPANY STATEMENTS OF INCOME (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------- ------------- ------------ (thousands) (thousands) Electric Operating Revenues $ 147,343 $ 124,984 $ 335,644 $ 308,867 Operating Expenses and Taxes Fuel 38,546 34,450 95,231 94,361 Purchased power 17,169 16,559 37,831 34,984 Other operating 19,637 20,920 62,496 64,038 Maintenance 4,911 3,239 11,816 10,393 Depreciation and amortization 10,719 10,741 32,108 31,067 Taxes, other than income 5,827 6,347 18,008 18,148 Income taxes 16,623 9,139 21,705 12,425 ------------ ------------- ------------- ------------ 113,432 101,395 279,195 265,416 ------------ ------------- ------------- ------------ Operating Income 33,911 23,589 56,449 43,451 ------------ ------------- ------------- ------------ Other Income and Deductions Allowance for equity funds used during construction 193 26 421 125 Other (22) (48) 1,476 176 Non-operating income taxes 259 198 282 373 ------------ ------------- ------------- ------------ 430 176 2,179 674 ------------ ------------- ------------- ------------ Income Before Interest Charges 34,341 23,765 58,628 44,125 ------------ ------------- ------------- ------------ Interest Charges Interest on long-term debt 5,088 5,088 15,264 15,264 Interest on short-term debt and other 1,319 1,127 3,405 3,912 Allowance for borrowed funds used during construction (182) (132) (469) (599) ------------ ------------- ------------- ------------ 6,225 6,083 18,200 18,577 ------------ ------------- ------------- ------------ Net Income 28,116 17,682 40,428 25,548 Less: preferred stock dividends 26 26 78 118 Gain/(loss) on reacquired preferred stock -- (101) -- 1,082 ------------ ------------- ------------- ------------ Net Income for Common Stock $ 28,090 $ 17,555 $ 40,350 $ 26,512 ============ ============= ============= ============
The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. WEST TEXAS UTILITIES COMPANY BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) -------------- -------------- ASSETS (thousands) ELECTRIC UTILITY PLANT Production $ 419,302 $ 417,849 Transmission 212,887 208,905 Distribution 378,129 363,911 General 107,911 104,026 Construction work in progress 24,076 14,154 ---------- ---------- 1,142,305 1,108,845 Less - Accumulated depreciation 466,493 441,281 ---------- ---------- 675,812 667,564 ---------- ---------- CURRENT ASSETS Cash 3,160 811 Advances to affiliates 14,618 19,802 Accounts receivable 42,747 10,570 Materials and supplies, at average cost 13,266 14,246 Fuel inventory 13,215 12,471 Under-recovered fuel costs 10,597 11,968 Prepayments and other 6,889 4,006 ---------- ---------- 104,492 73,874 ---------- ---------- DEFERRED CHARGES AND OTHER ASSETS Deferred Oklaunion costs 15,842 18,637 Restructuring costs 7,550 8,966 Other 33,605 33,107 ---------- ---------- 56,997 60,710 ---------- ---------- $ 837,301 $ 802,148 ========== ==========
The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. WEST TEXAS UTILITIES COMPANY BALANCE SHEETS
September 30, December 31, 1998 1997 (unaudited) (audited) ------------- ------------- CAPITALIZATION AND LIABILITIES (thousands) CAPITALIZATION Common stock: $25 par value Authorized shares: 7,800,000 Issued and outstanding shares: 5,488,560 $ 137,214 $ 137,214 Paid-in capital 2,236 2,236 Retained earnings 141,829 119,479 ------------- ------------- 281,279 50% 258,929 48% ------------- --------- ------------- ---------- Preferred stock 2,482 --% 2,483 --% Long-term debt 281,318 50% 278,640 52% ------------- --------- ------------- ---------- 565,079 100% 540,052 100% ------------- --------- ------------- ---------- CURRENT LIABILITIES Payables to affiliates 20,496 21,569 Accounts payable 29,208 29,521 Accrued taxes 25,136 11,375 Accumulated deferred income taxes 908 203 Accrued interest 8,024 4,525 Other 5,492 3,859 ------------- ------------- 89,264 71,052 ------------- ------------- DEFERRED CREDITS Accumulated deferred income taxes 141,064 149,346 Investment tax credits 26,927 27,918 Income tax related regulatory liabilities, net 10,673 9,482 Other 4,294 4,298 ------------- ------------- 182,958 191,044 ------------- ------------- $ 837,301 $ 802,148 ============= =============
The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. WEST TEXAS UTILITIES COMPANY STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, -------------------------------- 1998 1997 -------------- -------------- OPERATING ACTIVITIES (thousands) Net Income $ 40,428 $ 25,548 Non-cash Items Included in Net Income Depreciation and amortization 32,890 32,286 Deferred income taxes and investment tax credits (7,377) 3,077 Changes in Assets and Liabilities Accounts receivable (32,177) (6,741) Accounts payable (313) (1,163) Accrued taxes 13,761 103 Fuel recovery 1,371 (6,581) Other (3,241) 9,149 -------------- -------------- 45,342 55,678 -------------- -------------- INVESTING ACTIVITIES Construction expenditures (33,049) (21,448) Other 2,950 (1,008) -------------- -------------- (30,099) (22,456) -------------- -------------- FINANCING ACTIVITIES Change in advances from affiliates -- (11,503) Redemption of preferred stock -- (2,727) Payment of dividends (18,078) (18,159) -------------- -------------- (18,078) (32,389) -------------- -------------- Net Change in Cash and Cash Equivalents (2,835) 833 Cash and Cash Equivalents at Beginning of Period 20,613 664 ============== ============== Cash and Cash Equivalents at End of Period $ 17,778 $ 1,497 ============== ============== SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $ 9,813 $ 11,773 ============== ============== Income taxes paid $ 15,042 $ 9,407 ============== ==============
The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. WEST TEXAS UTILITIES COMPANY RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997 Net Income for common stock was $28.1 million for the third quarter of 1998 compared to $17.6 million in the third quarter of 1997. The increase in net income was primarily a result of an increase in non-fuel revenues, a transmission service agreement adjustment and a transmission coordination agreement accrual, as discussed below. The increase in net income was partially offset by an increase in operating expenses and taxes. Electric operating revenues were $147.3 million in the third quarter of 1998, an 18% increase from $125.0 million in the third quarter of 1997. This increase was due primarily to increases in non-fuel revenues of $12.0 million and fuel revenues of $10.4 million. The increase in non-fuel revenues was due primarily to a 9% increase in retail MWH sales resulting from favorable weather. Included in non-fuel revenues were additional transmission revenues resulting from changes to CSW's Transmission Coordination Agreement currently pending before the FERC. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - Transmission Coordination Agreement. Fuel revenues were higher as a result of higher fuel costs, as discussed below. Fuel expenses were $38.5 million for the third quarter of 1998, an increase of $4.1 million, or 12%, when compared to the third quarter of 1997 due primarily to a 16% increase in generation. The increase in generation was due primarily to favorable weather conditions. Partially offsetting the increase in fuel expenses was a lower average unit cost of fuel. The average unit cost of fuel declined from $1.97 per MMbtu in the third quarter of 1997 to $1.81 per MMbtu in the third quarter of 1998. This decline in the average unit cost of fuel was due primarily to lower spot market natural gas and coal prices. Other operating expenses declined $1.3 million in the third quarter of 1998 when compared to third quarter of 1997 as a result of lower employee related expenses as well as a decrease in transmission expenses. The decrease in transmission expenses resulted primarily from a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Maintenance expenses rose $1.7 million from the comparable period in 1997. This increase was primarily a result of the re-activation of generating stations due primarily to increased customer demand. Operating income taxes increased $7.5 million in the third quarter of 1998 as compared to the third quarter in 1997 due primarily to higher taxable income. WEST TEXAS UTILITIES COMPANY RESULTS OF OPERATIONS COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Net income for common stock was $40.4 million during the first nine months of 1998 compared to $26.5 million in the first nine months of 1997, an increase of $13.8 million, or 52%. The rise in net income was due largely to increases in non-fuel revenues, interest income, a transmission service agreement adjustment and a transmission coordination agreement accrual, as discussed below. The increase in net income was partially offset by an increase in operating expenses and taxes. The change also reflects the recognition of the gain on reacquired preferred stock recorded in the first nine months of 1997. Electric operating revenues were $335.6 million for the first nine months of 1998, an increase of $26.8 million, or 9%, when compared to the first nine months of 1997. This increase was due primarily to an increase in non-fuel revenues of $18.6 million and fuel revenues of $8.2 million. The increase in non-fuel revenues was due primarily to a 5% increase in retail MWH sales resulting from favorable weather. Included in non-fuel revenues were additional transmission revenues resulting from changes to CSW's Transmission Coordination Agreement currently pending before the FERC. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS Transmission Coordination Agreement. Fuel revenues were higher as a result of higher fuel costs, as discussed below. Fuel costs increased to $95.2 million in the first nine months of 1998 from $94.4 million in the first nine months of 1997 due primarily to a 6% increase in generation. The increase in generation was due largely to favorable weather conditions and increase retail sales. Partially offsetting the increase in fuel expenses was a lower average unit cost of fuel. The average unit cost of fuel declined from $2.04 per MMbtu in the first nine months of 1997 to $1.87 per MMbtu in the first nine months of 1998. This decline in the average unit cost of fuel was due primarily to lower spot market natural gas and coal prices. Purchased power expenses increased $2.8 million, or 8%, for the first nine months of 1998 compared to the first nine months of 1997 as a result of additional economy energy purchases. Other operating expenses declined $1.5 million in the first nine months of 1998 when compared to the same period of 1997 resulting from a reduction in transmission expenses due to a transmission service agreement adjustment related to the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285). Additionally, other operating expenses were affected by lower employee related expenses. The decrease in other operating expenses was offset in part by higher production expenses resulting from the re-activation of generating stations due primarily to increased customer demand. Maintenance expenses rose $1.4 million from the comparable period in 1997 as a result of the previously mentioned re-activation of generating stations. Operating income taxes increased to $21.7 million for the first nine months of 1998 compared to $12.4 million in the first nine months of 1997 as a result of higher taxable income. Other income and deductions increased $1.5 million for the first nine months of 1998 compared to the same period in 1997 due primarily to an increase in interest income. INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANTS NOTE 1. PRINCIPLES OF PREPARATION CSW, CPL, PSO, SWEPCO, WTU NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS CSW, CPL, PSO, SWEPCO, WTU NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES CSW, CPL, PSO, SWEPCO, WTU NOTE 4. COMMON STOCK AND DIVIDENDS CSW, CPL, PSO, SWEPCO, WTU NOTE 5. INCOME TAXES CSW, CPL, PSO, SWEPCO, WTU NOTE 6. PROPOSED AEP MERGER CSW, CPL, PSO, SWEPCO, WTU NOTE 7. LONG-TERM FINANCING CSW, CPL, PSO NOTE 8. NEW ACCOUNTING STANDARDS CSW, CPL, PSO, SWEPCO, WTU NOTE 9. EXTRAORDINARY ITEM CSW NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. PRINCIPLES OF PREPARATION The condensed financial statements of the Registrants have been prepared by each Registrant pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although each Registrant believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the financial statements and the notes included in the Registrants' Combined Annual Report on Form 10-K for the year ended December 31, 1997 and the Registrants' Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998. The unaudited financial information reflects all adjustments which are, in the opinion of management of such Registrant, necessary for a fair statement of the results of operations for the interim periods. Information for quarterly periods is affected by seasonal variations in sales, rate changes, timing of fuel expense recovery and other factors. The financial statements of foreign operations have been translated from the local currency to U.S. dollars in accordance with SFAS No. 52. SFAS No. 52 requires the translation of income statement items at average exchange rates and balance sheet accounts at current exchange rates. All balance sheet translation adjustments are recorded directly to Accumulated other comprehensive income on CSW's consolidated balance sheets. Cash flow statement items are translated at a combination of average, historical and current exchange rates. The non-cash impact of the changes in exchange rates on cash and cash equivalents is shown on CSW's consolidated statements of cash flows in Effect of exchange rate changes on cash and cash equivalents. CPL Nuclear Decommissioning of STP At the end of STP's service life, decommissioning is expected to be accomplished using the decontamination method, which is one of the techniques acceptable to the NRC. Using this method, the decontamination activities occur as soon as possible after the end of plant operations. Contaminated equipment is cleaned and removed to a permanent disposal location, and the site is generally returned to its pre-plant condition. CPL's decommissioning costs are accrued and funded to an external trust over the expected service life of the STP units. The existing NRC operating licenses will allow the operation of STP Unit 1 until 2027 and Unit 2 until 2028. The accrual for decommissioning costs is an annual level cost based on the estimated future cost to decommission STP, including escalation for expected inflation to the expected time of decommissioning, and is net of expected earnings on the trust fund. CPL's portion of the costs of decommissioning STP were estimated to be $258 million in 1995 dollars based on a site specific study completed in 1995. CPL is accruing and recovering these decommissioning costs through rates based on the service life of STP at a rate of $8.2 million per year. The funds are deposited with a trustee under the terms of an irrevocable trust and are reflected in CPL's consolidated balance sheets as Nuclear decommissioning trust with a corresponding amount accrued in Accumulated depreciation. On CSW's consolidated balance sheets, the irrevocable trust is included in Deferred Charges and Other Assets, Other with a corresponding amount accrued in Accumulated depreciation. In CSW's and CPL's consolidated statements of income, the interest income related to the irrevocable trust is recorded in Other Income and Deductions, Other. In CPL's consolidated statements of income, the interest expense related to the irrevocable trust is recorded in Interest Charges, Interest on short-term debt and other. In CSW's consolidated statements of income the interest expense related to the irrevocable trust is recorded in Interest and Other Charges, Interest on short-term debt and other. Inventory CPL, PSO and WTU utilize the LIFO method for the valuation of all fossil fuel inventories. SWEPCO continues to utilize the weighted average cost method pending approval of the Arkansas Commission to utilize the LIFO method. At October 31, 1998, none of the U.S. Electric Operating Companies had LIFO reserves. LIFO reserves are the excess of the inventory replacement cost over the carrying amount on the balance sheet. Cash Equivalents Cash equivalents are considered to be highly liquid debt instruments purchased with a maturity of three months or less. Accordingly, temporary cash investments and advances to affiliates are considered cash equivalents. Comprehensive Income Consistent with the requirements of SFAS No. 130, CSW has presented consolidated statements of comprehensive income. Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Reclassifications Certain financial statement items for prior periods have been reclassified to conform to the 1998 presentation. 2. LITIGATION AND REGULATORY PROCEEDINGS See the Registrants' Combined Annual Report on Form 10-K for the year ended December 31, 1997 and Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998 for additional discussion of litigation and regulatory proceedings. Reference is also made to NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES, MD&A - RATES AND REGULATORY MATTERS and PART II - OTHER INFORMATION, ITEM 1. LEGAL PROCEEDINGS for additional discussion of litigation and regulatory matters. CPL Rate Review - Docket No. 14965 In November 1995, CPL filed with the Texas Commission a request to increase its retail base rates by $71 million. On October 16, 1997 the Texas Commission issued the CPL 1997 Final Order. The CPL 1997 Final Order lowered the annual retail base rates of CPL by approximately $19 million, or 2.5%, from CPL's rate level existing prior to May 1996. The Texas Commission also included a "Glide Path" rate methodology in the CPL 1997 Final Order pursuant to which CPL's annual rates were reduced by $13 million beginning May 1, 1998 and will be reduced an additional $13 million on May 1, 1999. CPL has appealed the CPL 1997 Final Order to the State District Court of Travis County to challenge the resolution of several issues in the rate case. The primary issues include: (i) the classification of $800 million of invested capital in STP as ECOM which was also assigned a lower return on equity than non-ECOM property, (ii) the Texas Commission's use of the "Glide Path" rate reduction methodology applied on May 1, 1998 and to be applied on May 1, 1999, and (iii) the $18 million of disallowed affiliate transactions from CSW Services. As part of the appeal, CPL sought a temporary injunction to prohibit the Texas Commission from implementing the "Glide Path" rate reduction methodology. The court denied the temporary injunction and the "Glide Path" rate reduction was implemented in May 1998. Hearings on the appeal were held during the third quarter of 1998. A decision from the State District Court of Travis County has not yet been received. Management is unable to predict how the final resolution of these issues will ultimately affect CSW's and CPL's results of operations and financial condition. See MD&A - RATES AND REGULATORY MATTERS, CPL Rate Review - Docket No. 14965 for additional discussion of the CPL 1997 Final Order. CPL Fuel Proceeding In January 1998, CPL filed a request with the Texas Commission to recover approximately $41.4 million in uncollected fuel and purchased power costs including related interest from its retail customers and to increase its fixed fuel factors used to recover fuel costs by approximately $23.4 million effective with March 1998 bills. The primary cause of CPL's fuel cost under-recovery and the need to increase its fuel factors was the result of the unanticipated increase in the price of natural gas. In February 1998, stipulated settlements were reached with intervenors in CPL's fuel proceeding on both the fuel factor and surcharge. The fuel factor increase was reduced to $15.4 million, and the fuel surcharge including interest was reduced to $34.3 million. The reductions are not a disallowance and will be considered as part of CPL's fuel reconciliation filing to be made in December 1998. CPL Anglo Iron Litigation In April 1998, CPL was sued by Anglo Iron in the United States District Court for the Southern District of Texas, Brownsville Division, for claims arising from the clean up of a site owned and operated by Anglo Iron in Harlingen, Texas. Anglo Iron seeks reimbursement pursuant to CERCLA and common law contribution and indemnity for alleged response and clean up costs of $328,139 and damages of $150,000 for "loss of fair market value" of the site. Management cannot predict the outcome of this litigation. However, management believes that CPL has valid defenses to Anglo Iron's claims and intends to defend the matter vigorously. Management also believes that the ultimate resolution of this matter will not have a material adverse impact on CSW's or CPL's consolidated results of operations or financial condition. CPL Municipal Franchise Fee Litigation In May 1996, the City of San Juan, Texas filed a purported class action in Hidalgo County, Texas District Court on behalf of all cities served by CPL based upon CPL's alleged underpayment of municipal franchise fees. The plaintiff's petition asserts various contract and tort claims against CPL as well as certain audit rights. The suit seeks unspecified damages and attorneys' fees. CPL filed a counterclaim for any overpayment of franchise fees it may have made as well as its attorneys' fees. CPL also filed a motion to transfer venue to Nueces County, Texas, and a plea to the jurisdiction and pleas in abatement asserting that the Texas Commission has primary jurisdiction over the claims. In May 1996 and December 1996, respectively, the Cities of Pharr, Texas and San Benito, Texas filed individual suits making claims virtually identical to those claimed by the City of San Juan. In January, 1997, CPL filed an original petition at the Texas Commission requesting the Texas Commission to declare its jurisdiction over CPL's collection and payment of municipal franchise fees. In April 1997, the Texas Commission issued a declaratory order in which it declined to assert jurisdiction over the claims of the City of San Juan. CPL appealed the Texas Commission's decision to the Travis County, Texas District Court. After the Texas Commission's order, the Hidalgo County, Texas District Court overruled CPL's plea to the jurisdiction and plea in abatement. In July 1997, the Hidalgo County, Texas District Court entered an order certifying the case as a class action. CPL appealed this order to the Corpus Christi Court of Appeals. In February 1998, the Corpus Christi Court of Appeals affirmed the trial court's order certifying the class. CPL appealed the Corpus Christi Court of Appeals ruling to the Texas Supreme Court, which declined to hear the case. In August, 1998, the Hidalgo County, Texas District Court ordered the case to mediation and suspended all proceedings pending the completion of the mediation. Although CPL believes that it has substantial defenses to the cities' claims and intends to defend itself against the cities' claims and pursue its counterclaims vigorously, CPL cannot predict the outcome of these lawsuits. CPL Sinton Landfill Litigation CPL, along with over 30 others, is named as a defendant in the district court in San Patricio County, Texas. The plaintiffs, approximately 500 current and former landowners in the vicinity of a landfill site near Sinton, Texas, each of whom alleges $10 million property damage and personal injury as a result of alleged contamination from the site. Plaintiffs have made a collective demand upon CPL for $1.1 million. Trial for 20 of the plaintiffs' cases is set for January 29, 1999. Management cannot predict the outcome of this litigation. However, management believes that CPL has valid defenses to the plaintiffs' claims and intends to defend the matter vigorously. Management also believes that the ultimate resolution of this matter will not have a material adverse impact on CSW's or CPL's consolidated results of operation or financial condition. CPL Valero Litigation In April 1998, Valero filed suit against CPL in Nueces County, Texas District Court, alleging claims for breach of contract and negligence. Valero's suit seeks in excess of $11 million as damages for property loss and lost profits allegedly incurred after an interruption of electricity to its facility in Corpus Christi, Texas in April 1996. Management cannot predict the outcome of this litigation. However, management believes that CPL has valid defenses to Valero's claims and intends to defend the matter vigorously. Management also believes that the ultimate resolution of this matter will not have a material adverse impact on CSW's or CPL's consolidated results of operations or financial condition. CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No. 17285) A joint complaint filed by CPL and WTU with the Texas Commission asserted that since January 1, 1997, Texas Utilities Electric Company has been effectively double charging for transmission service within ERCOT. A proposal for decision received in February 1998 recommended approval of a CPL and WTU proposed reduction of $15.5 million annually of payments to Texas Utilities Electric Company under FERC-approved transmission service agreements against amounts that CPL and WTU would otherwise owe Texas Utilities Electric Company pursuant to Texas Commission rules for transmission service in ERCOT. The Texas Commission approved the proposal in June 1998. On September 30, 1998, the Texas Commission denied Texas Utilities Electric Company's most recent motion for rehearing. Based on this denial for rehearing, the U.S. Electric Operating Companies recorded the effects of the final order. Prior to the Texas Commission's September 1998 decision, the $15.5 million annual payment to Texas Utilities Electric Company was allocated to the U.S. Electric Operating Companies. As a result of this order the payment is recorded on CPL's and WTU's books as a reduction to ERCOT transmission expense. Transmission Coordination Agreement The Transmission Coordination Agreement provides the means by which the U.S. Electric Operating Companies will operate, plan and maintain the four separate transmission systems as a single system. The agreement also establishes a process for the U.S. Electric Operating Companies to allocate revenues received under open access transmission tariffs. On August 7, 1998, the FERC accepted the Transmission Coordination Agreement for filing, suspended it for a nominal period, and made it effective as of January 1, 1997, subject to refund and investigation. SWEPCO Fuel Proceeding In April 1997, SWEPCO filed with the Texas Commission an application concerning fuel cost under-recoveries and a possible fuel surcharge. The application included a motion to either abate the requested interim surcharge and consolidate the surcharge with a filed fuel reconciliation as discussed below, or alternatively, implement an interim surcharge in the months of July 1997 through June 1998. The Texas Commission's Office of Policy Development, on behalf of the Texas Commission, approved the consolidation. In May 1997, SWEPCO filed with the Texas Commission an application to reconcile fuel costs and implement a 12 month surcharge of fuel cost under-recoveries. Because of the uncertainty as to when a surcharge may be implemented, SWEPCO did not establish in its filing a proposed surcharge period or a total surcharge amount which would reflect interest through the entire surcharge period. However, SWEPCO indicated that it had an under-recovered Texas jurisdictional fuel cost balance of $16.8 million, including interest through December 1996. Included in the $16.8 million balance are fuel-related litigation expenses of $5.0 million and an interest return of $2.0 million on the unamortized balance of a fuel contract termination payment. On December 8, 1997, SWEPCO and the other parties to the above consolidated proceedings before the Texas Commission filed a settlement on all issues except whether transmission equalization payments should be included in fuel revenues or base revenues. Of the $16.8 million in under-recovered fuel costs as of December 31, 1996, the settlement would result in a decrease of the under-recovered fuel costs, and the resulting surcharge recovery, of $6.0 million. The settlement also provides that SWEPCO's fuel and fuel-related expenses during the reconciliation period were reasonable and necessary and would allow them to be reconciled as eligible fuel expense. Also, the settlement provides that SWEPCO's actions in litigating and renegotiating certain fuel contracts, together with the prices, terms and conditions of the renegotiated contracts, were prudent. The $6.0 million reduction is not associated with any particular activity or issue within the fuel proceedings. On April 8, 1998, the ALJ assigned to this proceeding issued a proposal for decision regarding the one outstanding issue, whether transmission equalization payments should be included in eligible fuel expense. The proposal for decision recommended that SWEPCO be allowed to include transmission equalization expense in eligible fuel expense. On May 19, 1998, the Texas Commission reversed the ALJ and did not allow SWEPCO to recover its transmission equalization payments as a component of eligible fuel expense. This ruling resulted in an earnings reduction of $1.8 million, which was recorded in the second quarter of 1998. On June 8, 1998, SWEPCO filed a motion for rehearing on the transmission equalization issue, which was denied through operation of law. After the Texas Commission's order on May 19, 1998, SWEPCO still had under-recovered its fuel and fuel related expenses. On July 1, 1998, the Texas Commission issued an order allowing SWEPCO to surcharge its Texas retail customers $6.9 million of under-recovered fuel and fuel related expenses including associated interest. The surcharge began in July 1998 and will end in June 1999. SWEPCO has filed an appeal regarding this matter in the State District Court of Travis County, Texas. Management believes that SWEPCO's position is legally correct but is unable to predict the ultimate outcome of this litigation. WTU Fuel Proceedings Fuel Reconciliation On December 31, 1997, WTU filed with the Texas Commission an application to reconcile fuel costs and to request authorization to carry the reconciled balance forward into the next reconciliation period. WTU did not seek a surcharge of the reconciled balance in the December 31, 1997 filing. During the reconciliation period of July 1, 1994 through June 30, 1997, WTU incurred approximately $422 million in eligible fuel and fuel-related expenses to generate and purchase electricity. The Texas jurisdictional allocation of such fuel and fuel-related expenses is approximately $295 million. On June 11, 1998, WTU amended its application to reconcile fuel costs to remove a credit from the calculation of eligible fuel in the amount of $3 million related to transmission equalization payments. This amendment was a result of the Texas Commission's ruling concerning transmission equalization payments in the SWEPCO fuel reconciliation described above. On October 14, 1998, the general counsel of the Texas Commission and WTU agreed to an non-unanimous stipulation regarding WTU's eligible fuel and fuel-related expenses. One party does not accept the stipulation's proposed treatment of transmission equalization payment, discussed above. Parties will file briefs in November 1998, and a proposal for decision from the ALJ is expected by early 1999 with a Texas Commission decision expected by the end of the first quarter 1999. Management is unable to predict the outcome of the fuel proceeding. Fuel Factor Filing In March 1998, WTU filed with the Texas Commission an Application for Authority to Implement an increase in fuel factors of $7.4 million, or 7.3%, on an annual basis. Additionally, WTU proposed to implement a fuel surcharge of $6.8 million, including accumulated interest, over a six month period to collect its under-recovered fuel costs. WTU implemented the revised fuel factors with its June 1998 billings. Other Legal Claims and Proceedings The CSW System is party to various other legal claims and proceedings arising in the normal course of business. Management does not expect disposition of these matters to have a material adverse effect on the Registrants' results of operations or financial condition. 3. COMMITMENTS AND CONTINGENT LIABILITIES Fuel and Related Commitments To supply a portion of their fuel requirements, the U.S. Electric Operating Companies have entered into various commitments for the procurement of fuel. SWEPCO Henry W. Pirkey Power Plant In connection with the South Hallsville lignite mining contract for its Henry W. Pirkey Power Plant, SWEPCO has agreed, under certain conditions, to assume the obligations of the mining contractor. As of September 30, 1998, the maximum amount SWEPCO believes it could potentially assume is $93 million. However, the maximum amount may vary as the mining contractor's need for funds fluctuates. The contractor's actual obligation outstanding on September 30, 1998 was $73 million. SWEPCO South Hallsville Lignite Mine As part of the process to receive a renewal of a Texas Railroad Commission permit for lignite mining at the South Hallsville lignite mine and expansion into the Marshall South Lignite Project area, SWEPCO has agreed to provide guarantees of mine reclamation in the amount of $85 million. Since SWEPCO uses self-bonding, the guarantee provides for SWEPCO to commit to use its resources to complete the reclamation in the event the work is not completed by the third party miner. The current cost to reclaim the mine is estimated to be approximately $36 million. Other Commitments and Contingencies CPL Nuclear Insurance In connection with the licensing and operation of STP, the owners have purchased nuclear property and liability insurance coverage as required by law, and have executed indemnification agreements with the NRC in accordance with the financial protection requirements of the Price-Anderson Act. The Price-Anderson Act, a comprehensive statutory arrangement providing limitations on nuclear liability and governmental indemnities, is in effect until August 1, 2002. The limit of liability under the Price-Anderson Act for licensees of nuclear power plants is $8.92 billion per incident, effective as of December 1997. The owners of STP are insured for their share of this liability through a combination of private insurance amounting to $200 million and a mandatory industry-wide program for self-insurance totaling $8.72 billion. The maximum amount that each licensee may be assessed under the industry-wide program of self-insurance following a nuclear incident at an insured facility is $75.5 million per reactor, for any one nuclear incident, payable at $10 million per year per reactor. An additional surcharge of five percent of the maximum may be payable if the total amount of public claims and legal costs exceed the limit. CPL and each of the other STP owners are subject to such assessments, which CPL and the other owners have agreed will be allocated on the basis of their respective ownership interests in STP. For purposes of these assessments, STP has two licensed reactors. The owners of STP currently maintain on-site decontamination liability and property damage insurance in the amount of $2.75 billion provided by NEIL. Policies of insurance issued by NEIL stipulate that policy proceeds must be used first to pay decontamination and cleanup costs before being used to cover direct losses to property. Under project agreements, CPL and the other owners of STP will share the total cost of decontamination liability and property insurance for STP, including premiums and assessments, on a pro rata basis, according to each owner's respective ownership interest in STP. CPL purchased, for its own account, a NEIL I Business Interruption and/or Extra Expense policy. This insurance will reimburse CPL for extra expenses incurred for replacement generation or purchased power as the result of a covered accident that shuts down production at one or both of the STP Units for more than 23 consecutive weeks. In the event of an outage of STP Units 1 and 2 as a result of the same accident, such insurance will reimburse CPL up to 80% of the recovery. The maximum amount recoverable for a single unit outage is $133.8 million for both Units 1 and 2. CPL is subject to an additional assessment of up to $1.54 million for the current policy year in the event that insured losses at a nuclear facility covered under the NEIL I policy exceed the accumulated funds available under the policy. CPL renewed its current NEIL I Business Interruption and/or Extra Expense policy on October 1, 1998. SWEPCO Cajun Asset Purchase Proposal As previously reported, Cajun filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code on December 21, 1994 and is currently operating under the supervision of the United States Bankruptcy Court for the Middle District of Louisiana. On March 18, 1998, SWEPCO, together with the Cajun Members Committee, which currently represents 7 of the 12 Louisiana member distribution cooperatives that are served by Cajun, filed the SWEPCO Plan in the bankruptcy court. The SWEPCO Plan replaces plans filed previously by SWEPCO. Under the SWEPCO Plan, a SWEPCO affiliate or subsidiary would acquire all of the non-nuclear assets of Cajun, comprised of the two-unit Big Cajun I natural gas-fired plant, the three-unit Big Cajun II coal-fired plant, and related non-nuclear assets. The purchase price under the SWEPCO Plan is $940.5 million in cash, subject to adjustment pursuant to the terms of the asset purchase agreement proposed as part of the SWEPCO Plan. The SWEPCO Plan incorporates the terms of a settlement between the RUS, Cajun Members Committee, Claiborne Electric Cooperative, Inc. and SWEPCO. In addition, the SWEPCO Plan provides for SWEPCO and the Cajun member cooperatives to enter into long-term power supply agreements which will provide the Cajun member cooperatives with rate plan options and market access provisions designed to ensure the long-term competitiveness of the cooperatives. Eight cooperatives and Central Louisiana Electric Company, Inc., successor to Teche Electric Cooperative, agreed to purchase power from SWEPCO, if SWEPCO's plan is confirmed by the bankruptcy court. Two competing plans of reorganization for the non-nuclear assets of Cajun were filed with the bankruptcy court. On September 25, 1998, Enron Capital and Trade Resource Corporation, a subsidiary of Enron Corporation, withdrew its bid. The trustee for Cajun supports the sole remaining competing bid of $1.19 billion by Louisiana Generating LLC, a partnership of subsidiaries of Southern Energy, Inc., Northern States Power Company and Zeigler Coal Holding Company. Confirmation hearings in Cajun's bankruptcy case were completed in May 1998. SWEPCO and the Cajun Members Committee are co-plaintiffs in litigation regarding a central issue in the bankruptcy case, whether a competing plan supported by the Cajun trustee can force the cooperatives to buy power for 25 years under the nonconsensual arrangements contained in that plan. As previously reported, on August 11, 1998 , the U.S. Fifth Circuit Court of Appeals overturned a U.S. District Court for the Middle District of Louisiana ruling that disqualified the SWEPCO Plan from being considered in the Cajun bankruptcy reorganization process. The U.S. Fifth Circuit Court of Appeals said the U.S. District Court for the Middle District of Louisiana erred in reversing the bankruptcy court, which had originally had determined that $1 million in assistance payments from SWEPCO to the Cajun Members Committee did not constitute vote-buying and were legal. On October 30, 1998, the U.S. Fifth Circuit Court of Appeals rejected requests for rehearing by the Cajun Trustee, the RUS and others of its decision to overturn a U.S. District Court for the Middle District of Louisiana ruling that disqualified the SWEPCO Plan from competing in the Cajun bankruptcy reorganization process. On October 13, 1998, the trustee for Cajun sought an injunction preventing the Louisiana Commission from acting on a rate case involving Cajun, contending that the Louisiana Commission's involvement in the rate case was a violation of the bankruptcy court's jurisdiction over Cajun's assets and thus by extension, its rates. The bankruptcy court enjoined individual commissioners of the Louisiana Commission from acting on issues related to possible changes in wholesale electric rates of Cajun. The bankruptcy court dismissed the Louisiana Commission as a defendant in the case, but permitted the action to continue against the commissioners of the Louisiana Commission and the executive secretary of the Louisiana Commission. Consummation of the SWEPCO Plan is conditioned upon confirmation by the bankruptcy court, and the receipt by SWEPCO and CSW of all requisite state and federal regulatory approvals in addition to their respective board of directors approvals. If the SWEPCO Plan is confirmed, the $940.5 million required to consummate the acquisition of Cajun's non-nuclear assets is expected to be financed through a combination of external borrowings and internally generated funds with approximately 70% of the external borrowings funded with non-recourse debt. There can be no assurance that the SWEPCO Plan will be confirmed by the bankruptcy court or, if it is confirmed, that it will be approved by federal and state regulators. As of September 30, 1998, SWEPCO had deferred $10.4 million in costs related to the SWEPCO Plan on its consolidated balance sheet which would be expensed if the SWEPCO plan is not ultimately successful. SWEPCO Biloxi, Mississippi MGP Site SWEPCO was notified by Mississippi Power in 1994 that it may be a PRP at a MGP site in Biloxi, Mississippi, which was formerly owned and operated by a predecessor of SWEPCO. Since then, SWEPCO has worked with Mississippi Power on both the investigation of the extent of contamination on the site as well as the subsequent sampling of the site. The sampling results indicated contamination at the property as well as the possibility of contamination of an adjacent property. A risk assessment was submitted to the MDEQ, and the MDEQ requested that a future residential exposure scenario be evaluated for comparison with commercial and industrial exposure scenarios. However, Mississippi Power and SWEPCO do not believe that cleanup to a residential usage scenario is appropriate since this site has been industrial/commercial for more than 100 years, and Mississippi Power plans to continue this type of usage. Mississippi Power and SWEPCO also presented a report to the MDEQ demonstrating that the ground water on the site was not potable, further demonstrating that cleanup to residential standards is not necessary. Resolution of this issue is still pending. Currently, a feasibility study is being conducted to more definitively evaluate remedial strategies for the property. The feasibility study process will require public input prior to a final decision and will result in a remediation strategy along with associated costs. SWEPCO has incurred approximately $200,000 to date for its portion of the cleanup of this site, and, based on its preliminary estimates, anticipates that an additional $2 million may be incurred. Accordingly, SWEPCO has accrued $2.2 million for the cleanup of the site. The State of Mississippi has passed Brownsfield legislation which provides for levels of cleanup standards. Although regulations implementing this legislation are not expected to be finalized until the summer of 1999, the MDEQ has indicated that it will work with SWEPCO in the interim within the legislation's intent to allow the project to move forward. SWEPCO Voda Petroleum Superfund Site In April 1996, SWEPCO received correspondence from the EPA notifying SWEPCO that it is a PRP to a cleanup action planned for the Voda Petroleum Superfund Site located in Clarksville, Texas. SWEPCO is conducting a records review to compile documentation relating to SWEPCO's past use of the Voda Petroleum site. The proposed cleanup of the site is estimated by the EPA to cost approximately $2 million and to take approximately twelve months to complete. SWEPCO is considering an option where over 30 PRPs would conduct the cleanup in lieu of EPA. Any SWEPCO liability associated with this project is not expected to have a material adverse effect on SWEPCO's results of operations or financial condition. SWEPCO Wilkes Power Plant Copper Limit Compliance The EPA has issued Wilkes power plant, which is owned by SWEPCO, an administrative order for wastewater permit violations related to copper limits. The administrative order is initially for a show cause meeting only. Past and future compliance activities including activities that have been conducted to determine the source of copper will be presented by SWEPCO during this meeting. The show cause meeting with the EPA held on August 13, 1998, resulted in continued negotiations. The EPA has not issued an administrative penalty order or referral to the United States Department of Justice for judicial action with monetary fines. CSW Energy Loans and Commitments In June 1998, the 325 MW Phillips Sweeny cogeneration facility, an entity 50% owned by CSW Energy, obtained permanent project financing. The $149 million of debt, with an effective interest rate of 7.4%, is unconditionally guaranteed by the project and is non-recourse to CSW Energy and CSW. Concurrently, the project repaid its outstanding note to CSW Energy for construction financing. CSW Energy obtained the funds for this project from CSW's short-term borrowing program, which were also repaid. CSW, CSW Energy and CSW International have provided letters of credit and guarantees on behalf of independent power projects, including Phillips Sweeny, of approximately $254 million, $1 million, and $200 million, respectively, as of September 30, 1998. 4. COMMON STOCK AND DIVIDENDS CSW's basic earnings per share of common stock are computed by dividing net income for common stock by the average number of common shares outstanding for the respective periods. CSW's dividends per common share reflect per share amounts paid for each of the periods. See MD&A - LIQUIDITY AND CAPITAL RESOURCES, Capital Structure for information related to CSW's common stock. At September 30, 1998, approximately $1.6 billion of CSW's subsidiary companies' retained earnings were available for payment of cash dividends by such subsidiaries to CSW. The CPL and PSO mortgage indentures, as amended and supplemented, contain certain restrictions on the use of their retained earnings for cash dividends on their common stock. These restrictions do not currently limit the ability of CSW to pay dividends to its shareholders. The amounts of retained earnings available for dividends attributable to each of the U.S. Electric Operating Companies at September 30, 1998 are as follows. CPL - $819 million PSO - $173 million SWEPCO - $334 million WTU - $142 million 5. INCOME TAXES The following tables provide a reconciliation of the differences between total income tax expense (income taxes included in Operating Expenses and Taxes as well as Other Income and Deductions) at the federal statutory tax rate and the effective tax rate for the Registrants. CSW CPL PSO SWEPCO WTU --------------------------------------------- (millions) (thousands) ------------------------------------ Quarter Ended September 30, 1998 Income before taxes attributable to: Domestic operations $353 Foreign operations 21 --------- Income before taxes $374 $162,865 $95,147 $74,272 $44,480 Tax at U.S. statutory rate $131 $57,003 $33,301 $25,995 $15,568 Differences Amortization of ITC (3) (1,302) (448) (1,142) (330) Mirror CWIP 1 1,285 -- -- -- Non-deductible goodwill Amortization 3 -- -- -- -- Foreign tax benefit (16) -- -- -- -- Other 24 5,419 7,373 2,789 1,126 --------------------------------------------- Tax expense $140 $62,405 $40,226 $27,642 $16,364 --------------------------------------------- Effective tax rate 37% 38% 42% 37% 37% Quarter Ended September 30, 1997 Income before taxes attributable to: Domestic operations $269 Foreign operations 15 --------- Income before taxes $284 $127,785 $49,597 $73,521 $26,620 Tax at U.S. statutory rate $99 $44,725 $17,359 $25,732 $9,317 Differences Amortization of ITC (2) (622) (46) (1,165) (330) Non-deductible goodwill Amortization 3 -- -- -- -- Foreign tax benefit (15) -- -- -- -- Other (1) 1,455 865 (1,994) (46) --------------------------------------------- Tax expense $84 $45,558 $18,178 $22,573 $8,941 --------------------------------------------- Effective tax rate 30% 36% 37% 31% 34% Nine Months Ended September 30, 1998 Income before taxes attributable to: Domestic operations $543 Foreign operations 80 --------- Income before taxes $623 $263,824 $130,271 $133,139 $61,850 Tax at U.S. statutory rate $218 $92,338 $45,595 $46,599 $21,648 Differences Amortization of ITC (10) (3,905) (1,347) (3,474) (991) Mirror CWIP 4 3,571 -- -- -- Non-deductible goodwill Amortization 9 -- -- -- -- Foreign tax benefit (29) -- -- -- -- Other 24 9,482 7,886 557 766 --------------------------------------------- Tax expense $216 $101,486 $52,134 $43,682 $21,423 --------------------------------------------- Effective tax rate 35% 38% 40% 33% 35% CSW CPL PSO SWEPCO WTU --------------------------------------------- (millions) (thousands) ------------------------------------ Nine Months Ended September 30, 1997 Income before taxes attributable to: Domestic operations $363 Foreign operations 74 --------- Income before taxes $437 $180,921 $79,826 $129,107 $37,598 Tax at U.S. statutory rate $153 $63,322 $27,939 $45,187 $13,159 Differences Amortization of ITC (9) (3,517) (1,438) (3,497) (991) Non-deductible goodwill Amortization 9 -- -- -- -- Foreign tax benefit (15) -- -- -- -- Other (6) 3,931 860 (3,453) (116) --------------------------------------------- Tax expense $132 $63,736 $27,361 $38,237 $12,052 --------------------------------------------- Effective tax rate 30% 35% 34% 30% 32% 6. PROPOSED AEP MERGER Background Information On December 22, 1997, CSW and AEP announced that their boards of directors had approved a definitive merger agreement for a tax-free, stock-for-stock transaction creating a company with a total market capitalization of approximately $28.1 billion ($16.5 billion in equity; $11.6 billion in debt and preferred stock). The combined company would serve more than 4.6 million customers in 11 states and approximately 4 million customers outside the United States. On May 27, 1998, AEP shareholders approved the issuance of the additional shares of stock required to complete the merger. On May 28, 1998, CSW shareholders approved the merger. Under the merger agreement, each common share of CSW will be converted into 0.6 shares of AEP common stock. Based upon AEP's closing price immediately prior to the merger announcement, this represented a premium of 20% over the CSW closing price. AEP will issue approximately $6.6 billion in stock to CSW stockholders to complete the transaction. CSW stockholders will own approximately 40% of the combined company. Both companies anticipate continuing their current dividend policies until the close of the transaction. Under the merger agreement, there will be no changes required with respect to the public debt issues, the outstanding preferred stock or the Trust Preferred Securities of CSW's subsidiaries. The companies anticipate net savings related to the merger of approximately $2 billion over a 10-year period from the elimination of duplication in corporate and administrative programs, greater efficiencies in operations and business processes, increased purchasing efficiencies, and the combination of the two work forces. At the same time, the companies will continue their commitment to high quality, reliable service. Job reductions related to the merger are expected to be approximately 1,050 out of a total domestic workforce of approximately 25,000. The combined company will use a combination of growth, reduced hiring and attrition to minimize the need for employee separations. Organizational and staffing recommendations will be made by transition teams of employees from both companies. The electric systems of AEP and CSW will operate on an integrated and coordinated basis as required by the Holding Company Act. Any fuel savings resulting from the coordinated operation of the combined company will be passed on to customers. The merger agreement contains covenants and agreements that restrict the manner in which the parties may operate their respective businesses until the time of closing of the merger. In particular, without the prior written consent of AEP, CSW may not engage in a number of activities that could affect its sources and uses of funds. Pending closing of the merger, CSW's and its subsidiaries' strategic investment activity, capital expenditures and non-fuel operating and maintenance expenditures are restricted to specific agreed upon projects or agreed upon amounts. In addition, prior to consummation of the merger, CSW and its subsidiaries are restricted from (i) issuing shares of common stock other than pursuant to employee benefit plans, (ii) issuing shares of preferred stock or similar securities other than to refinance existing obligations or to fund permitted investment or capital expenditures and (iii) incurring indebtedness other than pursuant to existing credit facilities, in the ordinary course of business or to fund permitted projects or capital expenditures. These restrictions are not expected to limit the ability of CSW and its subsidiaries to make investments and expenditures in amounts previously budgeted. Merger Regulatory Approvals The proposed AEP merger has a targeted completion date in the first half of 1999. The merger is conditioned, among other things, upon the approval of several state and federal regulatory agencies. On April 30, 1998, AEP and CSW jointly filed a request with the FERC for approval of their proposed merger. On July 15, the FERC approved a draft order accepting the proposed transmission service agreements between the Ameren System and PSO. The draft order confirms that PSO's 250 MW firm contract path is available for AEP and CSW to meet the Holding Company Act's requirement that the two systems operate on an integrated and coordinated basis. On November 10, 1998, the FERC issued an order to establish a procedural schedule for its review of the proposed merger between AEP and CSW. A scheduling conference will be held in November 1998. The order indicated that the review of the proposed merger will address the issues of competition and market power and instructed AEP and CSW to refile an updated market power study. The outcome of the FERC scheduling conference could extend the targeted completion date of the merger. On April 30, 1998, AEP and CSW jointly filed a request with the Texas Commission for a finding that the merger is in the public interest. On July 2, 1998, the Texas Commission issued a preliminary order setting forth the issues the Texas Commission will consider in the merger application. In its preliminary order, the Texas Commission also determined that (i) the merger application was not a rate proceeding, (ii) restructuring issues should not be addressed and (iii) matters in the jurisdiction of other regulatory bodies should not be addressed. AEP and CSW have reached a settlement in principle with the Texas Office of Public Utility Counsel and several cities in Texas. The settlement resolves all issues in principle and anticipates the submission of a more detailed filing outlining specific terms of the settlement along with supporting testimony. As a result of the settlement, the ALJ for the merger proceeding suspended the procedural schedule on November 10, 1998 and announced that a pre-hearing conference will be held November 17, 1998. The purpose of that pre-hearing conference will be to determine the schedule for consideration of the settlement by other parties relating to AEP and CSW's application for merger approval by the Texas Commission. The hearing to consider merger approval was originally scheduled to begin December 2, 1998. On May 15, 1998, AEP and CSW jointly filed a request with the Louisiana Commission for approval of their proposed merger and for a finding that the merger is in the public interest. Hearings in Louisiana are scheduled to begin January 18, 1999. On June 12, 1998, AEP and CSW jointly filed a request with the Arkansas Commission for approval of their proposed merger. On August 17, 1998, the Arkansas Commission approved the merger, subject to a number of conditions including the approval of a regulatory plan for sharing net merger savings. On November 3, 1998, AEP, CSW and SWEPCO filed a settlement agreement for approval with the Arkansas Commission outlining a regulatory plan, agreed to with the Arkansas Commission general staff, which provides for a sharing of net merger savings through a reduction of rates for Arkansas retail customers. On June 19, 1998, CPL filed a license transfer application with the NRC requesting the NRC's consent to the indirect transfer of control of CPL's interests in the NRC licenses issued for STP, which would result from the proposed merger between CSW, CPL's parent company, and AEP. CPL would continue to own its 25.2% interest in STP and CPL's name would remain on the NRC operating license. On November 5, 1998, the NRC approved the license transfer application. On August 14, 1998, AEP and CSW jointly filed a request with the Oklahoma Commission for approval of their proposed merger. The merger filing in Oklahoma is similar to requests currently before the Arkansas Commission, Louisiana Commission, Texas Commission, FERC and SEC. Testimony submitted in these merger filings outlines the expected combined company benefits of the merger to AEP and CSW customers and shareholders, which include: - $2 billion in net non-fuel cost savings over 10 years; - $98 million in net fuel savings over 10 years; - Improved capital structure and increased financial strength; - Increased diversity in customer base, generating resources and service territory; - Optimization of business practices and continued high-quality service; - Support for restructuring of retail electric markets; and - Support for an independent system operator. AEP and CSW have proposed a regulatory plan in Oklahoma that provides for: - Approximately $11.8 million in fuel cost savings to Oklahoma customers of CSW's PSO subsidiary during the 10 years following completion of the merger; - A commitment not to raise base rates above current levels prior to Jan. 1, 2002, for PSO retail customers in Oklahoma and to share approximately one-half of the savings from synergies created by the merger during the first 10 years following the merger. Under this plan, approximately $78.6 million of these non-fuel merger-related savings will be used to reduce future costs to PSO's retail customers; and - A commitment to continue the current high level of customer service and to identify opportunities and implement measures to further improve service quality. On October 1, 1998, an Oklahoma Commission ALJ issued an oral ruling recommending to the Oklahoma Commission that the merger filing be dismissed without prejudice for lack of information regarding the potential impact of the merger on the retail electric market in Oklahoma, in response to comments received from intervenors to the merger. A dismissal without prejudice would allow AEP and CSW to submit an amended application with the added information. Subsequent meetings with the parties to the merger proceeding resulted in an agreement on criteria for the additional studies. On October 21, 1998, the ALJ approved these criteria, as well as AEP and CSW's plans to file an amended application along with the additional studies. Submission of the amended application would reset Oklahoma's 90-day statutory time period for Oklahoma Commission action on the merger. All other material in the written record in the merger case will be preserved since the docket is not being dismissed. AEP and CSW anticipate that the Oklahoma Commission will establish a procedural schedule that will result in a final order in Oklahoma in the first quarter of 1999. The revision to the Oklahoma proceeding schedule should not impact the timing of the merger closing, which is targeted for completion during the first half of 1999. On October 13, 1998, AEP and CSW jointly filed an application with the SEC for approval of their proposed merger. The SEC merger filing is similar to requests currently before other jurisdictions and outlines the expected combined company benefits of the merger to AEP and CSW customers and shareholders. On November 9, 1998, AEP and CSW filed an amendment to the application. AEP and CSW plan to make other required federal merger filings with the Federal Communications Commission and the Department of Justice and/or the Federal Trade Commission later in 1998. CSW has a 100% interest in SEEBOARD, and AEP has a 50% interest in Yorkshire. The proposed merger of CSW into AEP would result in common ownership of the United Kingdom entities. As a result, the common ownership of the United Kingdom entities could be referred by the United Kingdom Secretary of State for Trade and Industry for an investigation by the United Kingdom Monopolies and Mergers Commission. CSW is unable to predict the outcome of any such regulatory proceeding. The merger is conditioned, among other things, upon the approval of several state and federal regulatory agencies. The transaction must satisfy many conditions, including the condition that it must be a pooling. Some of these conditions may not be waived by the parties. AEP and CSW have initiated the process of seeking regulatory approvals, but there can be no assurances as to when, on what terms or whether the required approvals will be received or whether there will be any regulatory proceedings in the United Kingdom. There can be no assurance that the AEP merger will be consummated. Merger Costs As of September 30, 1998, CSW had deferred $22 million in costs related to the merger on its consolidated balance sheet, which will be charged to expense if AEP and CSW are not successful in completing their proposed merger. 7. LONG-TERM FINANCING On September 1, 1998, PSO called $25 million principal amount outstanding of Series K and $30 million principal amount outstanding of Series L FMBs, in their entirety, at call prices of 100 and 100.77, respectively. On September 1, 1998, CPL called $36 million principal amount outstanding of Series L FMBs, in its entirety, at a call price of 100.53. 8. NEW ACCOUNTING STANDARDS SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows gains and losses associated with a derivative to offset related results on the hedged item in the income statement and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement SFAS No. 133 for any fiscal quarter beginning June 16, 1998 and thereafter. SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to derivative instruments and certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantially modified after December 31, 1997. The Registrants have not yet quantified the impact of adopting SFAS No. 133 on their financial statements and have not determined the timing or the method of adopting SFAS No. 133. SOP 98-5, Reporting on the Costs of Start-Up Activities The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants has issued SOP 98-5, Reporting on the Costs of Start-Up Activities. SOPs are included in the hierarchy of generally accepted accounting principals and must be followed unless a transaction or event is covered by a more specific pronouncement. SOP 98-5 defines start-up activities very broadly, including activities related to organizing a new entity (commonly referred to as start-up costs). SOP 98-5 provides that the cost of start-up activities, including organization costs, should be expensed as incurred. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998. SOP 98-5 requires that start-up costs be identified and that upon adoption of the SOP, a retroactive adjustment be made to expense these amounts. CSW is currently reviewing amounts capitalized on its books as organization or start-up costs. Any amounts identified as subject to SOP 98-5 would have to be expensed in the first quarter of 1999. The Registrants have not yet quantified the impact of adopting SOP 98-5 on their financial statements. 9. EXTRAORDINARY ITEM In the third quarter of 1997, a one-time windfall profits tax was enacted in the United Kingdom. Accordingly, during the third quarter of 1997, SEEBOARD U.S.A. accrued, as an extraordinary item, $176 million for the one-time, windfall profits tax. The windfall profits tax is payable in two equal installments, the first of which was paid December 1, 1997 and the second of which will be paid December 1, 1998. The tax was charged at a rate of 23% on the difference between nine times the average profits after tax for the four years following the privatization of SEEBOARD and the public sale of its shares in 1990, and SEEBOARD's market capitalization calculated as the number of shares issued multiplied by the price per share. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Registrants' Combined Annual Report on Form 10-K for the year ended December 31, 1997 and the Registrants' Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998. Reference is also made to each Registrant's unaudited Financial Statements and related Notes to Financial Statements. The information should be read in conjunction with, and is essential to understanding, the following discussion and analysis. RESULTS OF OPERATIONS Reference is made to ITEM 1. FINANCIAL STATEMENTS for each of the Registrants' RESULTS OF OPERATIONS for the three and nine month periods ended September 30, 1998. LIQUIDITY AND CAPITAL RESOURCES Overview of CSW Operating, Investing, and Financing Activities Net cash inflows from operating activities increased $219 million to $624 million for the first nine months of 1998 compared to the same period last year. The increase in net cash inflows is due primarily to the absence in 1998 of $190 million of federal and state income tax payments made in the first half of 1997 for the gain on CSW's 1996 sale of Transok. However, these payments were offset in part by the utilization of Alternative Minimum Tax credits that CSW had previously generated. Also contributing to the increase were better fuel recovery positions and a higher accounts payable balance. The increase in net cash inflows was also offset in part by decreases in other working capital accounts. Net cash outflows from investing activities decreased $47 million to an outflow of $481 million for the first nine months of 1998 compared to an outflow of $528 million for the same period last year. CSW Energy obtained permanent external financing during the first half of 1997 for the Orange cogeneration project and subsequently reduced its equity investment in the project. In addition, CSW Energy made its final purchase agreement payment on the Ft. Lupton cogeneration project in the first half of 1997. CSW Energy also experienced a decrease in construction expenditures for the Phillips Sweeny project which went into operation in the first quarter of 1998. Further reducing the cash outflows from investing activities was a cash inflow resulting from CSW International's Enertek partner, Alpek, assuming its 50% obligation of that power plant project. Also contributing to the lower net cash outflows from investing activities was reduced spending at the U.S. Electric Operating Companies for facilities. The decrease in net cash outflows was partially offset by an increase in investment for telecommunications projects at C3 Communications. Net cash flows from financing activities decreased $303 million to an outflow of $37 million for the first nine months of 1998 compared to an inflow of $266 million for the same period last year. In September 1998, CPL and PSO called bonds, which contributed $91 million to the decline in cash flows from financing activities. In the second quarter of 1997, CSW received proceeds from the issuance of Trust Preferred Securities. The proceeds were used primarily to reacquire preferred stock and pay down short-term debt in the second quarter of 1997. In April 1997, CSW made changes to its common stock plans and stopped issuing original shares. The decrease in net cash from financing activities was due in part to funding these common stock plans through open market purchases. Construction Expenditures CSW's construction expenditures, including allowance for funds used during construction, totaled $345 million for the nine months ended September 30, 1998. Construction expenditures for the U.S. Electric Operating Companies totaled $86 million, $46 million, $58 million and $34 million, for CPL, PSO, SWEPCO and WTU, respectively. Construction expenditures at the U.S. Electric Operating Companies were primarily for improvements to existing production, transmission and distribution facilities. The improvements are required to meet the needs of new customers and to satisfy the changing requirements of existing customers. CSW anticipates that all funds required for construction for the remainder of the year will be provided from internal sources. Other Financing Issues CSW provides common stock, either through the purchase of shares from the open market or original issue shares, to fund its long-term incentive plan, the CSW PowerShare Dividend Reinvestment and Stock Purchase Plan and the CSW Retirement Savings Plan. CSW began funding these plans through open market purchases effective April 1, 1997. The CSW System uses short-term debt to meet fluctuations in working capital requirements and other interim capital needs. CSW has established a system money pool to coordinate short-term borrowings for certain of its subsidiaries, primarily the U.S. Electric Operating Companies and CSW Services. In addition, CSW also incurs borrowings for other subsidiaries that are not included in the money pool. As of September 30, 1998, CSW had revolving credit facilities totaling $1.4 billion to back up its commercial paper program. As of September 30, 1998, CSW Credit's revolving credit agreement totaled $1.2 billion. On September 1, 1998, PSO called $25 million principal amount outstanding of Series K and $30 million principal amount outstanding of Series L FMBs, in their entirety, at call prices of 100 and 100.77, respectively. On September 1, 1998, CPL called $36 million principal amount outstanding of Series L FMBs, in its entirety, at a call price of 100.53. The final installment of (pound)55 million, or an estimated $91 million using an exchange rate of (pound)1.00 = $1.65, for the windfall profits tax is payable by SEEBOARD on December 1, 1998. RATES AND REGULATORY MATTERS CPL Rate Review - Docket No. 14965 In November 1995, CPL filed with the Texas Commission a request to increase its retail base rates by $71 million. On October 16, 1997, the Texas Commission issued the CPL 1997 Final Order. The CPL 1997 Final Order lowered the annual retail base rates of CPL by approximately $19 million, or 2.5%, from CPL's rate level existing prior to May 1996. The Texas Commission also included a "Glide Path" rate methodology in the CPL 1997 Final Order pursuant to which CPL's annual rates were reduced by an additional $13 million beginning May 1, 1998 and will be reduced an additional $13 million on May 1, 1999. CPL has appealed the CPL 1997 Final Order to the State District Court of Travis County to challenge the resolution of several issues in the rate case. The primary issues include: (i) the classification of $800 million of invested capital in STP as ECOM which was also assigned a lower return on equity than non-ECOM property, (ii) the Texas Commission's use of the "Glide Path" rate reduction methodology applied on May 1, 1998 and to be applied again on May 1, 1999, and (iii) the $18 million of disallowed affiliate transactions from CSW Services. As part of the appeal, CPL sought a temporary injunction to prohibit the Texas Commission from implementing the "Glide Path" rate reduction methodology. The court denied the injunction, and the "Glide Path" rate reduction was implemented in May 1998. Hearings on the appeal were held during the third quarter of 1998. A decision from the State District Court of Travis County has not yet been received. Management is unable to predict how the final resolution of these issues will ultimately affect CSW's and CPL's results of operations and financial condition. CPL currently accounts for the economic effects of regulation in accordance with SFAS No. 71. Pursuant to the provisions of SFAS No. 71, CPL had recorded approximately $1.3 billion of regulatory-related assets at March 31, 1998. The application of SFAS No. 71 is conditioned upon CPL's rates being set based on the cost of providing service. In the event management concludes that as a result of changes in regulation, legislation, the competitive environment, or other factors, including the CPL 1997 Final Order, CPL, or some portion of its business, no longer meets the criteria for following SFAS No. 71, a write-off of regulatory assets and liabilities would be required, absent a means of recovering such assets or settling such liabilities in a continuing regulated segment of the business. CPL would also be required to evaluate whether there was any impairment of any deregulated plant assets. In addition, CPL and CSW could experience, depending on the timing and amount of any write-off, a material adverse effect on their results of operations and financial condition. The foregoing discussion of CPL Rate Review - Docket No. 14965 contains forward-looking information within the meaning of Section 21E of the Exchange Act. Actual results may differ materially from such projected information. See FORWARD-LOOKING INFORMATION. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional information on the CPL 1997 Final Order. SWEPCO Louisiana Rate Review In 1993, the Louisiana Commission issued an order initiating a review of the rates of all investor-owned utilities in the state. Since that time, each of the other investor-owned utilities in Louisiana has been reviewed. In December 1997, the Louisiana Commission announced it would review SWEPCO's rates and service. SWEPCO's last rate activity was an $8.2 million rate decrease, initiated by SWEPCO and approved for its small and large industrial customers in January 1988. Prior to that, SWEPCO's last rate increase was in 1985. The Louisiana Commission has selected consultants and legal counsel to perform a review of SWEPCO's rates and charges and to review SWEPCO's quality of service. The Louisiana Commission's legal counsel will issue a report in May 1999, and hearings will begin in September 1999. Management cannot predict the outcome of this review. SWEPCO Arkansas Rate Review In June 1998, the Arkansas Commission indicated that it would conduct a review of SWEPCO's earnings. The review began in July 1998, but no case has yet been docketed. Management cannot predict the outcome of this review. Other Reference is made to NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for information regarding fuel proceedings at CPL, SWEPCO and WTU. STRATEGIC INITIATIVES A vital part of CSW's future strategy involves the pursuit of initiatives that are outside the traditional United States electric utility business due to increasing competition and fundamental changes in this industry. In addition, lower anticipated growth rates in CSW's core United States electric utility business combined with the previously mentioned industry factors have resulted in CSW pursuing other initiatives. These initiatives have taken a variety of forms; however, they are all consistent with the overall plan for CSW to develop a global energy business. CSW also has restrictions on the amounts it may spend on these activities under the AEP merger agreement as discussed below. While CSW believes that such initiatives are necessary to maintain its competitiveness and to supplement its growth in the future, the Holding Company Act may also restrict its ability to successfully pursue some of these initiatives (The foregoing statement constitutes a forward-looking statement within the meaning of Section 21E of the Exchange Act. Actual results may differ materially from such projected information due to changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION and RECENT DEVELOPMENTS AND TRENDS. PROPOSED AEP MERGER Background Information On December 22, 1997, CSW and AEP announced that their boards of directors had approved a definitive merger agreement for a tax-free, stock-for-stock transaction creating a company with a total market capitalization of approximately $28.1 billion ($16.5 billion in equity; $11.6 billion in debt and preferred stock). The combined company would serve more than 4.6 million customers in 11 states and approximately 4 million customers outside the United States. On May 27, 1998, AEP shareholders approved the issuance of the additional shares of stock required to complete the merger. On May 28, 1998, CSW shareholders approved the merger. Under the merger agreement, each common share of CSW will be converted into 0.6 shares of AEP common stock. Based upon AEP's closing price immediately prior to the merger announcement, this represented a premium of 20% over the CSW closing price. AEP will issue approximately $6.6 billion in stock to CSW stockholders to complete the transaction. CSW stockholders will own approximately 40% of the combined company. Both companies anticipate continuing their current dividend policies until the close of the transaction. Under the merger agreement, there will be no changes required with respect to the public debt issues, the outstanding preferred stock or the Trust Preferred Securities of CSW's subsidiaries. The companies anticipate net savings related to the merger of approximately $2 billion over a 10-year period from the elimination of duplication in corporate and administrative programs, greater efficiencies in operations and business processes, increased purchasing efficiencies, and the combination of the two work forces. The electric systems of AEP and CSW will operate on an integrated and coordinated basis as required by the Holding Company Act. Any fuel savings resulting from the coordinated operation of the combined company will be passed on to customers. The merger agreement contains covenants and agreements that restrict the manner in which the parties may operate their respective businesses until the time of closing of the merger. In particular, without the prior written consent of AEP, CSW may not engage in a number of activities that could affect its sources and uses of funds. Pending closing of the merger, CSW's and its subsidiaries' strategic investment activity, capital expenditures and non-fuel operating and maintenance expenditures are restricted to specific agreed upon projects or agreed upon amounts. In addition, prior to consummation of the merger, CSW and its subsidiaries are restricted from (i) issuing shares of common stock other than pursuant to employee benefit plans, (ii) issuing shares of preferred stock or similar securities other than to refinance existing obligations or to fund permitted investment or capital expenditures and (iii) incurring indebtedness other than pursuant to existing credit facilities, in the ordinary course of business or to fund permitted projects or capital expenditures. These restrictions are not expected to limit the ability of CSW and its subsidiaries to make investments and expenditures in amounts previously budgeted. Merger Regulatory Approvals The proposed AEP merger has a targeted completion date in the first half of 1999. The merger is conditioned, among other things, upon the approval of several state and federal regulatory agencies. AEP and CSW have jointly filed a request with the FERC, the Arkansas Commission, the Louisiana Commission, the Oklahoma Commission and the SEC for approval of their proposed merger. AEP and CSW jointly filed a request with the Texas Commission for a finding that the merger is in the public interest. On August 17, 1998, the Arkansas Commission issued a conditional order approving the proposed merger between CSW and AEP, subject to the findings issued when the Arkansas Commission reviews the proposed regulatory plan associated with the merger. The Arkansas Commission had previously divided the merger application into one phase to review the merger and another phase to review the proposed regulatory plan. CPL filed a license transfer application with the NRC requesting the NRC's consent to the indirect transfer of control of CPL's interests in the NRC licenses issued for STP, which would result from the proposed merger between CSW, CPL's parent company, and AEP. CPL would continue to own its 25.2% interest in STP and CPL's name would remain on the NRC operating license. On November 5, 1998, the NRC approved the license transfer application. AEP and CSW plan to make other required federal merger filings with the Federal Communications Commission and the Department of Justice and/or the Federal Trade Commission later in 1998. CSW has a 100% interest in SEEBOARD, and AEP has a 50% interest in Yorkshire. The proposed merger of CSW into AEP would result in common ownership of the United Kingdom entities. As a result, the common ownership of the United Kingdom entities could be referred by the United Kingdom Secretary of State for Trade and Industry for an investigation by the United Kingdom Monopolies and Mergers Commission. CSW is unable to predict the outcome of any such regulatory proceeding. The merger is conditioned, among other things, upon the approval of several state and federal regulatory agencies. The transaction must satisfy many conditions, including the condition that it must be a pooling. Some of these conditions may not be waived by the parties. AEP and CSW have initiated the process of seeking regulatory approvals, but there can be no assurances as to when, on what terms or whether the required approvals will be received or whether there will be any regulatory proceedings in the United Kingdom. There can be no assurance that the AEP merger will be consummated. See NOTE 6. PROPOSED AEP MERGER. The preceding discussion contains forward-looking information within the meaning of Section 21E of the Exchange Act. Actual results may differ materially from such projected information due to changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION. Merger Costs As of September 30, 1998, CSW had deferred $22 million in costs related to the merger on its consolidated balance sheet, which will be charged to expense if AEP and CSW are not successful in completing their proposed merger. OTHER MERGER AND ACQUISITION ACTIVITY SWEPCO Cajun Asset Purchase Proposal As previously reported, Cajun filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code on December 21, 1994 and is currently operating under the supervision of the United States Bankruptcy Court for the Middle District of Louisiana. On March 18, 1998, SWEPCO, together with the Cajun Members Committee, which currently represents 7 of the 12 Louisiana member distribution cooperatives that are served by Cajun, filed the SWEPCO Plan in the bankruptcy court. The SWEPCO Plan replaces plans filed previously by SWEPCO. Under the SWEPCO Plan, a SWEPCO affiliate or subsidiary would acquire all of the non-nuclear assets of Cajun, comprised of the two-unit Big Cajun I natural gas-fired plant, the three-unit Big Cajun II coal-fired plant, and related non-nuclear assets. The purchase price under the SWEPCO Plan is $940.5 million in cash, subject to adjustment pursuant to the terms of the asset purchase agreement proposed as part of the SWEPCO Plan. Two competing plans of reorganization for the non-nuclear assets of Cajun were filed with the bankruptcy court. On September 25, 1998, Enron Capital and Trade Resource Corporation, a subsidiary of Enron Corporation, withdrew its bid. The trustee for Cajun supports the sole remaining competing bid of $1.19 billion by Louisiana Generating LLC, a partnership of subsidiaries of Southern Energy, Inc., Northern States Power Company and Zeigler Coal Holding Company. Confirmation hearings in Cajun's bankruptcy case were completed in May 1998. Consummation of the SWEPCO Plan is conditioned upon confirmation by the bankruptcy court, and the receipt by SWEPCO and CSW of all requisite state and federal regulatory approvals in addition to their respective board of directors approvals. If the SWEPCO Plan is confirmed, the $940.5 million required to consummate the acquisition of Cajun's non-nuclear assets is expected to be financed through a combination of external borrowings and internally generated funds with approximately 70% of the external borrowings funded with non-recourse debt. There can be no assurance that the SWEPCO Plan will be confirmed by the bankruptcy court or, if it is confirmed, that it will be approved by federal and state regulators. As of September 30, 1998, SWEPCO had deferred $10.4 million in costs related to the SWEPCO Plan on its consolidated balance sheet which would be expensed if the SWEPCO plan is not ultimately successful. See NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES. Frontera Project CSW Energy began construction in August 1998 of a 500 MW power plant, known as Frontera, in the Rio Grande Valley, near the city of Mission, Texas. At September 30, 1998, CSW Energy had spent approximately $50 million, including development, construction and financing of the projected $210 million project costs. The natural gas-fired facility should begin partial operation in the summer of 1999 and full operation by the end of 1999. Although the Frontera project is being built as a merchant power plant without long-term purchase power contracts, it will supply power to the rapidly growing Rio Grande Valley and customers throughout Texas. Shoreham Project CSW International and Scottish Power plc. commenced construction of a 400 MW combined cycle gas turbine power station in southeast England. Commercial operation is expected to begin in the year 2000. The joint venture partners will provide interim construction financing with third party financing expected in early 1999. Project costs are expected to total approximately $320 million. CSW International has a 50% interest in the joint venture. C3 Communications On October 8, 1998, C3 Communications announced that it had signed an agreement with ICG Communications, Inc. to end their CSW\ICG ChoiceComSM partnership. The agreement, anticipated to close by the end of 1998 or early 1999, is subject to the approval of the Texas Commission and the Federal Communications Commission and to certain other conditions, some of which may not be waived by the parties. ChoiceCom was formed in January 1997 to market telecommunications services, including local exchange telephone service, in a four-state region in the southwest. C3 Communications plans to form a new division, C3 Networks, from the fiber assets of the partnership that C3 Communications will receive under the agreement. C3 Networks will use this city-to-city fiber network to deliver state-of-the-art optical networking to the wholesale telecommunications market. The preceding two sentences contains forward-looking information within the meaning of Section 21E of the Exchange Act. Actual results may differ materially from such projected information due to changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION. Also, as part of the agreement, ICG Communications is expected to own and operate ChoiceCom's telephone business in several Texas cities. Under the terms of the agreement, ICG Communications will pay, upon closing, approximately $50 million for certain ChoiceCom assets comprising ChoiceCom's telephone business. C3 Communications will also receive the fiber network assets from the partnership at closing. The agreement is expected to result in a one-time gain, which is not expected to be material to CSW's annual earnings. During the remainder of 1998 and thereafter, C3 Communications' operating expenses and capital investments to develop its city-to-city fiber optic network are expected to be significantly lower than the previously expected expenses and investments that would have been required to support the ChoiceCom partnership. RECENT DEVELOPMENTS AND TRENDS Industry Restructuring Initiatives Several initiatives regarding restructuring the electric utility industry have recently been undertaken in the four states in which the U.S. Electric Operating Companies operate. Legislation was enacted in Oklahoma while legislative activity in Texas, Louisiana and Arkansas stopped short of any definitive action. The regulatory commissions in Arkansas, Louisiana and Texas are currently studying various restructuring issues. In April 1997, the Oklahoma Legislature enacted legislation dealing with industry restructuring in Oklahoma, which provides for retail competition by July 1, 2002. The legislation directs the Oklahoma Commission to study all relevant issues relating to restructuring and develop a framework for a restructured industry. A bill was passed in the 1998 Oklahoma legislative session that accelerates the completion date for the restructuring studies but does not change the date for retail competition. Electricity Deregulation in the United Kingdom On October 28, 1998, the market for the supply of electricity was opened to competition in part of the United Kingdom, and competition is to be extended to the rest of the country in subsequent phases. Customers in SEEBOARD's region will be able to choose their power supplier, but SEEBOARD will also be able to win customers in areas previously supplied by other regional electricity companies. RISK MANAGEMENT In October 1997, CSW's board of directors adopted a risk management resolution authorizing CSW to engage in currency, interest rate and energy spot and forward transactions and related derivative transactions on behalf of CSW with foreign and domestic parties. The risk management program is necessary to meet the growing demands of CSW's customers for competitive prices as well as price stability, to enable CSW to compete in a deregulated power industry, to manage the risks associated with domestic and foreign investments and to take advantage of strategic investment opportunities. The U.S. Electric Operating Companies experience commodity price exposures related to the purchase of fuel supplies for the generation of electricity and for the purchase of power and energy from other generation sources. Contracts that provide for the future delivery of these commodities can be considered forward contracts which contain pricing and/or volume terms designed to stabilize the cost of the commodity. The U.S. Electric Operating Companies manage their price exposure for the benefit of customers by balancing their commodity purchases through a combination of long-term and short-term (spot-market) agreements. In addition, SEEBOARD has entered into contracts for differences to reduce exposure to fluctuations in the price of electricity purchased from the electricity power pool of England and Wales. This pool was established upon privatization of the United Kingdom's electric industry for the bulk trading of electricity between generators and suppliers. Since CSW's purchase of SEEBOARD in 1995, it has been exposed to currency and interest rate risks which reflect the floating exchange rate that exists between the U.S. dollar and the British pound. CSW has utilized certain risk management tools to manage potential adverse changes in exchange rates and to facilitate financing transactions resulting from CSW's acquisition of SEEBOARD. At September 30, 1998, CSW had positions in two cross currency swap contracts to hedge its interest rate and exchange rate risks associated with these U.S. denominated debts. The following table presents information relating to these contracts. The market value represents the foreign exchange/interest rate terms inherent in the cross currency swaps at current market pricing. CSW expects to hold these contracts to maturity. At current exchange rates, this liability is included in long-term debt on the balance sheet at a carrying value of approximately $431 million. Expected Expected Cash Inflows Cash Contract Maturity (Maturity Outflows Date Value) (Market Value) -------------------------------------------------------------------------- Cross currency swap August 1, 2001 $200 million $219.7 million Cross currency swap August 1, 2006 $200 million $229.0 million The decline in value of the currency swaps reflects the strengthening of the British pound versus the U.S. dollar. Consequently, CSW's investment in SEEBOARD's assets at September 30, 1998 is worth more in U.S. dollars than when the acquisition was made. This gain in asset value offsets the change in market value of the currency swaps. CSW Energy or its affiliates use interest rate swap agreements to hedge exposure to fluctuations in the interest rates to be paid on outstanding indebtedness. CSW Energy or its affiliates have entered into swaps on debt totaling $87 million with expiration dates through the year 2013. The interest rate of these instruments is 6.02%. CSW Energy or its affiliates are exposed to credit risk in the event of nonperformance by the counter parties. An analysis of the financial condition of each counter party is made prior to entering into an agreement, credit limits are established and the appropriateness of these limits are monitored on an on-going basis. ENVIRONMENTAL State of Texas Pursuant to legislation passed in the 1997 Texas legislature, the Texas Natural Resources Conservation Commission is developing a program that will allow effected parties to obtain permits for grandfathered facilities on a voluntary basis. Grandfathered facilities are generally defined as those facilities with air emissions that began operation before the requirements of the 1971 Clean Air Act took effect. These facilities were not required to obtain construction or operation permits for their air emissions. Grandfathered facilities include a wide range of sources, including refineries, chemical plants, power plants, cotton gins, paint shops, bakeries, and dry cleaners. Constituents in Texas are working with the Texas Natural Resources Conservation Commission to develop the rules for the voluntary program, which are currently in draft form. The proposed draft rules call for grandfathered facilities to employ "best available retrofit technology" where appropriate and reasonable. CSW estimates the cost to obtain permits for its grandfathered units under the voluntary program to be $3 to $15 million over the next ten years. All of CSW's grandfathered units are gas units which are less expensive to upgrade than coal units. OTHER MATTERS Year 2000 In 1996, CSW initiated a system-wide program to prepare CSW's computer systems and applications for the year 2000. The year 2000 activities are a top priority of CSW. CSW expects to incur internal staff costs as well as consulting and other expenses related to infrastructure and facilities enhancements necessary to prepare the systems for the year 2000. Costs related to the year 2000 program are being expensed as incurred. The estimated historical costs incurred to date for the year 2000 project are $13 million, $11 million of which has been incurred in 1998. Testing and conversion is expected to cost an additional $32 million to $37 million over the next eighteen months, including both domestic and foreign operations. Approximately 29% of the expected costs are to be covered through the redeployment of existing resources. Approximately 39% of the projected costs are for contract labor. The remaining 32% of the projected costs is for computer hardware and software purchases. The funds for year 2000 project expenditures are included in CSW's operating budget. At present, no CSW computer information system projects have been affected by the year 2000 project, but that may change as the year 2000 approaches. Accordingly, no estimate has been made for the financial impact of any future forgone projects. CSW has completed a review of its year 2000 project. The purpose of this review was to assess the project plans and processes to ensure that the significant risks to CSW associated with the year 2000 are prudently managed. Several changes have been incorporated into the year 2000 project as a result of the review findings. The year 2000 project includes all management information systems that support business functions such as customer billing, payroll and other business functions. Other systems with computer-based controls such as telecommunications, elevators, building environmental management, metering, plant, transmission, distribution and substations are included in this project as well. The greatest financial risk to CSW would be a total inability to generate and deliver electricity. Many primary systems and backup systems would have to fail in order for that total inability to occur. The probability of a total inability by CSW to generate and deliver electricity is very low because only 50% of its power generation systems operate with date sensitive logic and less than 15% of the transmission and distribution systems contain date sensitive logic. The potential problems related to this worse case scenario include electric service interruptions to customers, interrupted revenue data gathering and poor customer relations resulting from delayed billing. Currently, no cost estimate exists related to CSW's year 2000 risks. CSW's system-wide year 2000 program began with the naming of an executive sponsor and project manager and the formation of a program management office. CSW has hired a consultant to assist the project team. Status is checked bi-weekly including weekly updates to the senior management team, monthly review by an executive oversight committee comprised of the functional vice presidents, and quarterly review by the board of directors' audit committee. Key milestones for the CSW system-wide year 2000 program excluding SEEBOARD are listed below. (i) Inventory and assessment of business applications and vendor supplied software were completed in the first quarter of 1997. Only 25% of the business application programs were determined to be non-compliant and in need of remediation by December 1999. (ii) Plans for modification and certification testing of business application software was completed in the third quarter of 1997. (iii) Remediation plans and schedules for business applications were established in the fourth quarter of 1997, and conversion and certification activities were initiated. All but three applications are targeted for completion by December 31, 1998 and the remainder by mid-year 1999. The conversion and certification activities are approximately 60% complete. (iv) A detailed inventory and assessment of other critical systems was completed in the third quarter of 1998. This includes switchboards, elevators, environmental controls, vehicles, metering systems, and embedded logic or real time control systems in support of generation and delivery of electricity. The findings have shown that less than 15% of installed controls have microprocessors, very few have date logic and over 90% of those with date logic already process new millennium dates correctly. The need for additional functionality in the early 1990's resulted in the modernization of several electric operation systems that has reduced the conversion requirements. Corrective and certification measures are well underway for these systems and completion is targeted for all systems by the second quarter of 1999. (v) Contingency plans are currently in development to address year 2000 issues internally, as well as within the national electric delivery system, and with our suppliers. Contingency plans will be completed in the first quarter of 1999, and most of calendar year 1999 has been reserved for final verification of all external interfaces and rehearsal of contingency plans. SEEBOARD is on schedule to complete an inventory and assessment of all critical systems by year-end 1998 and remediation of those systems in the first quarter of 1999. Final verification of those systems is scheduled for completion by mid-year 1999. The preceding discussion contains forward-looking information within the meaning of Section 21E of the Exchange Act. Actual results may differ materially from such projected information due to changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION. New Accounting Standards The FASBoard has issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is effective for fiscal years beginning after June 15, 1999. The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants has issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities, which is effective for fiscal years beginning after December 15, 1998. See NOTE 8. ACCOUNTING STANDARDS for additional information on the new accounting standards. PART II - OTHER INFORMATION For background and earlier developments relating to PART II information, reference is made to the Registrants' Combined Annual Report on Form 10-K for the year ended December 31, 1997 and Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998. ITEM 1. LEGAL PROCEEDINGS. Legal Claims and Proceedings The CSW System is party to various legal claims and proceedings arising in the normal course of business. Management does not expect disposition of these matters to have a material adverse effect on the Registrants' results of operations or financial condition. See PART I - NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS and NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS: (12) Computation of Ratio of Earnings to Fixed Charges CPL - (Exhibit 12.1), filed herewith. PSO - (Exhibit 12.2), filed herewith. SWEPCO - (Exhibit 12.3), filed herewith. WTU - (Exhibit 12.4), filed herewith. (27) Financial Data Schedules CSW - (Exhibit 27.1), filed herewith. CPL - (Exhibit 27.2), filed herewith. PSO - (Exhibit 27.3), filed herewith. SWEPCO - (Exhibit 27.4), filed herewith. WTU - (Exhibit 27.5), filed herewith. (b) REPORTS FILED ON FORM 8-K: CSW, PSO, and SWEPCO Date of earliest event reported: August 17, 1998 Date of Report: August 20, 1998 Item 5. Other Events and Item 7. Financial Statements and Exhibits, reporting information related to the proposed merger between CSW and AEP (requested merger approval from the Oklahoma Commission and conditional approval of the merger by the Arkansas Commission). CSW and PSO Date of earliest event reported: October 1, 1998 Date of Report: October 9, 1998 Item 5. Other Events and Item 7. Financial Statements and Exhibits, reporting information related to the proposed merger between CSW and AEP (recommendation from an administrative law judge that the merger filing be dismissed for lack of information). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned Registrant shall be deemed to relate only to matters having reference to such Registrant or its subsidiaries. CENTRAL AND SOUTH WEST CORPORATION Date: November 16, 1998 /s/ Lawrence B. Connors ------------------------------------------- Lawrence B. Connors Controller and Chief Accounting Officer (Principal Accounting Officer) CENTRAL POWER AND LIGHT COMPANY PUBLIC SERVICE COMPANY OF OKLAHOMA SOUTHWESTERN ELECTRIC POWER COMPANY WEST TEXAS UTILITIES COMPANY Date: November 16, 1998 /s/ R. Russell Davis -------------------------------- R. Russell Davis Controller and Chief Accounting Officer (Principal Accounting Officer) EX-12.1 2 EXHIBIT 12.1 CPL EXHIBIT 12.1 CENTRAL POWER AND LIGHT COMPANY (CONSOLIDATED) RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998 (Thousands Except Ratio) (Unaudited) Operating Income $297,422 Adjustments: Income taxes 69,735 Provision for deferred income taxes 40,865 Deferred investment tax credits (3,859) Other income and deductions 4,959 Allowance for borrowed and equity funds used during construction 2,385 ---------- Earnings $411,507 ========== Fixed Charges: Interest on long-term debt $94,496 Interest on short-term debt and other 22,666 Nuclear Decommissioning Trust 1,978 Distributions on Trust Preferred Securities 12,000 ---------- Fixed Charges $131,140 Ratio of Earnings to Fixed Charges 3.14 ========== EX-12.2 3 EXHIBIT 12.2 PSO EXHIBIT 12.2 PUBLIC SERVICE COMPANY OF OKLAHOMA (CONSOLIDATED) RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998 (Thousands Except Ratio) (Unaudited) Operating Income $109,796 Adjustments: Income taxes 19,407 Provision for deferred income taxes 26,036 Deferred investment tax credits (2,188) Other income and deductions 191 Allowance for borrowed and equity funds used during construction 1,984 ------- Earnings $155,226 ======= Fixed Charges: Interest on long-term debt $30,142 Interest on short-term debt and other 3,950 Distributions on Trust Preferred Securities 6,000 ------- Fixed Charges $40,092 ======= Ratio of Earnings to Fixed Charges 3.87 ======= EX-12.3 4 EXHIBIT 12.3 SWP EXHIBIT 12.3 SOUTHWESTERN ELECTRIC POWER COMPANY (CONSOLIDATED) RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998 (Thousands Except Ratio) (Unaudited) Operating Income $141,510 Adjustments: Income taxes 60,035 Provision for deferred income taxes (12,461) Deferred investment tax credits (4,639) Other income and deductions 1,994 Allowance for borrowed and equity funds used during construction 2,614 Interest portion of financing leases 652 --------- Earnings $189,705 ========= Fixed Charges: Interest on long-term debt $39,235 Distributions on Trust Preferred Securities 8,514 Interest on short-term debt and other 6,880 Interest portion of financing leases 652 --------- Fixed Charges $55,281 ========= Ratio of Earnings to Fixed Charges 3.43 ======== EX-12.4 5 EXHIBIT 12.4 WTU EXHIBIT 12.4 WEST TEXAS UTILITIES COMPANY RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1998 (Thousands Except Ratio) (Unaudited) Operating Income $57,567 Adjustments: Income taxes 31,117 Provision for deferred income taxes (11,407) Deferred investment tax credits (1,321) Other income and deductions 2,445 Allowance for borrowed and equity funds used during construction 1,087 -------- Earnings $79,488 ======== Fixed Charges: Interest on long-term debt $20,352 Interest on short-term debt and other 4,406 -------- Fixed Charges $24,758 ======== Ratio of Earnings to Fixed Charges 3.21 ======== EX-27.1 6
UT 0000018540 CENTRAL AND SOUTH WEST CORPORTION 001 CENTRAL AND SOUTH WEST CORPORATION 1,000,000 9-MOS DEC-31-1998 SEP-30-1998 PER-BOOK 8,255 348 2,046 499 2,957 14,105 744 1,046 1,889 3,679 0 176 3,993 0 40 1,723 142 0 4 2 4,346 14,105 4,182 218 3,243 3,461 721 35 756 357 399 6 399 277 141 624 1.88 1.88
EX-27.2 7
UT 0000018734 CENTRAL POWER AND LIGHT COMPANY 003 CENTRAL POWER AND LIGHT COMPANY 1,000 9-MOS DEC-31-1998 SEP-30-1998 PER-BOOK 3,276,097 7,231 180,208 9,132 1,269,684 4,742,352 168,888 405,000 818,692 1,392,580 0 163,204 1,320,325 127,781 0 0 100,000 0 0 0 1,638,462 4,742,352 1,092,506 104,541 734,666 839,207 253,299 2,514 255,813 93,474 162,339 4,929 157,410 172,000 70,397 342,432 0.00 0.00
EX-27.3 8
UT 0000081027 PUBLIC SERVICE COMPANY OF OKLAHOMA 004 PUBLIC SERVICE COMPANY OF OKLAHOMA 1,000 9-MOS DEC-31-1998 SEP-30-1998 PER-BOOK 1,303,317 20,590 104,821 2,607 34,358 1,465,693 157,230 180,000 172,974 510,204 0 5,287 402,724 0 40,000 0 0 0 0 0 507,478 1,465,693 623,110 52,564 464,100 516,664 106,446 973 107,419 29,281 78,138 160 77,978 42,000 21,666 165,953 0.00 0.00
EX-27.4 9
UT 0000092487 SOUTHWESTERN ELECTRIC POWER COMPANY 005 SOUTHWESTERN ELECTRIC POWER COMPANY 1,000 9-MOS DEC-31-1998 SEP-30-1998 PER-BOOK 1,837,221 6,052 180,891 19,024 53,872 2,097,060 135,660 245,000 334,003 714,663 0 4,707 614,092 11,917 0 0 40,595 0 2,212 3,337 705,537 2,097,060 756,044 45,416 582,647 628,063 127,981 2,095 130,076 40,620 89,456 648 87,953 78,000 29,426 185,506 0.00 0.00
EX-27.5 10
UT 0000105860 WEST TEXAS UTILITIES COMPANY 009 WEST TEXAS UTILITIES COMPANY 1,000 9-MOS DEC-31-1998 SEP-30-1998 PER-BOOK 675,812 1,054 104,492 18,004 37,939 837,301 137,214 2,236 141,829 281,279 0 2,482 281,318 0 0 0 0 0 0 0 272,222 837,301 335,644 21,705 257,490 279,195 56,449 2,179 58,628 18,200 40,428 78 40,350 18,000 15,264 45,342 0.00 0.00
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