-----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, Rdc9v6l8FuxCzgTtTdVJ/Y+s+vGY8K/pKxG/r6a74nMUsxEpKejFpqtQteHwo9C3 8kehcgsiLIsrDG520ouXUQ== 0000018540-96-000149.txt : 19961115 0000018540-96-000149.hdr.sgml : 19961115 ACCESSION NUMBER: 0000018540-96-000149 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 000-00343 FILM NUMBER: 96660985 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 10-Q 1 PSO 10-Q 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, 1996 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 8, 1996 Shares Central and South West Corporation 210,884,974 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 other Registrant makes no representation as to information relating to the other Registrants. 2 CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES INDEX TO QUARTERLY REPORT ON FORM 10-Q SEPTEMBER 30, 1996 Page NUMBER GLOSSARY OF TERMS............................................................3 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements. Central and South West Corporation and Subsidiary Companies.........6 Central Power and Light Company....................................16 Public Service Company of Oklahoma.................................26 Southwestern Electric Power Company................................33 West Texas Utilities Company.......................................40 Notes to Financial Statements......................................47 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................58 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings............................................64 ITEM 2. Changes in Securities...............................Inapplicable ITEM 3. Defaults Upon Senior Securities.....................Inapplicable ITEM 4. Submission of Matters to a Vote of Security Holders...........................................Inapplicable ITEM 5. Other Information............................................65 ITEM 6. Exhibits and Reports on Form 8-K.............................66 SIGNATURES..................................................................67 3 GLOSSARY OF TERMS The following abbreviations or acronyms used in this text are defined below: ABBREVIATION OR ACRONYM DEFINITION ALJ..............................Administrative Law Judge Alpek............................Alpek S.A. de C.V. First Amended SWEPCO Plan........The plan of reorganization for Cajun filed by the Members Committee, SWEPCO and Entergy Gulf States on September 30, 1996 with the U.S. Bankruptcy Court for the Middle District of Louisiana ANI..............................American Nuclear Insurance Burlington Northern..............Burlington Northern Railroad Company Cajun............................Cajun Electric Power Cooperative, Inc. Court of Appeals.................Court of Appeals, Third District of Texas, Austin, Texas CPL..............................Central Power and Light Company, Corpus Christi, Texas CPL 1995 Agreement...............Settlement Agreement filed by CPL with the Texas Commission to settle certain CPL regulatory matters CPL 1996 Fuel Agreement..........Fuel settlement agreement entered into by CPL and other parties to CPL's current rate review CSW..............................Central and South West Corporation, Dallas, Texas CSW Common.......................CSW common stock, $3.50 par value per share CSW Communications...............CSW Communications, Inc., Austin, Texas CSW Credit Agreement.............$850 million senior credit agreement entered into by CSW with a consortium of banks to partially fund the SEEBOARD acquisition CSW Energy.......................CSW Energy, Inc., Dallas, Texas CSW Investments..................CSW Investments, an unlimited company organized in the United Kingdom which is wholly owned, indirectly though subsidiaries, by CSW International CSW Investments Credit Facility..1.0 billion (pound) senior credit facility arranged by CSW Investments with a consortium of banks to partially fund the SEEBOARD acquisition CSW System.......................CSW and its subsidiaries CSW U.K. Group...................Consolidated SEEBOARD, SEEBOARD Group plc (which has replaced CSW (UK) plc) and CSW Investments converted to U.S. Generally Accepted Accounting Principles CWIP.............................Construction work in progress El Paso..........................El Paso Electric Company EnerShop.........................EnerShop Inc., Dallas, Texas Entergy Gulf States..............Gulf States Utilities Company EPA..............................Environmental Protection Agency EPS..............................Earnings per share ERCOT............................Electric Reliability Council of Texas FERC.............................Federal Energy Regulatory Commission KWH..............................Kilowatt-hour LIFO.............................Last-in First-out (fuel inventory accounting method) Matagorda........................Matagorda County Navigation District Number One (Texas) MD&A.............................Management's Discussion and Analysis of Financial Condition and Results of Operations Members Committee................The members committee of Cajun, which represents 10 of the 12 Louisiana distribution cooperatives that are served by Cajun Merger...........................The proposed merger whereby El Paso would have become a wholly owned subsidiary of CSW Merger Agreement.................Agreement and Plan of Merger between El Paso and CSW, dated as of May 3, 1993, as amended Mirror CWIP......................Mirror construction work in progress Mississippi Power................Mississippi Power Company MMbtu............................Million British thermal units MW...............................Megawatt MWH..............................Megawatt-hour National Grid....................National Grid Group plc NEIL.............................Nuclear Electric Insurance Limited Oklahoma Commission..............Corporation Commission of the State of Oklahoma Oklaunion........................Oklaunion Power Station Unit No. 1 4 GLOSSARY OF TERMS (CONTINUED) The following abbreviations or acronyms used in this text are defined below: ABBREVIATION OR ACRONYM DEFINITION Original SWEPCO Plan.............The plan of reorganization for Cajun filed by the Members Committee, SWEPCO and Entergy Gulf States on April 19, 1996 with the U.S. Bankruptcy Court for the Middle District of Louisiana PCB..............................Polychlorinated biphenyl PCRB.............................Pollution Control Revenue Bond PSO..............................Public Service Company of Oklahoma, Tulsa, Oklahoma Red River........................Red River Authority of Texas Registrant(s)....................CSW, CPL, PSO, SWEPCO and WTU Sabine...........................Sabine River Authority of Texas SEC..............................Securities and Exchange Commission Second Amended SWEPCO Plan.......The plan of reorganization for Cajun filed by the Members Committee, SWEPCO and Entergy Gulf States on October 26, 1996 with the U.S. Bankruptcy Court for the Middle District of Louisiana (amends both the Original SWEPCO Plan and the First Amended SWEPCO Plan) SEEBOARD.........................SEEBOARD plc, Crawley, West Sussex, United Kingdom SFAS.............................Statement of Financial Accounting Standards SFAS No. 52......................Foreign Currency Translation STP..............................South Texas Project nuclear electric generating station SWEPCO...........................Southwestern Electric Power Company, Shreveport, Louisiana Tejas............................Tejas Gas Corporation Texas Commission.................Public Utility Commission of Texas Transok..........................Transok, Inc. and subsidiaries, Tulsa, Oklahoma U.S. Electric or U.S. Electric Operating Companies...........CPL, PSO, SWEPCO and WTU WTU..............................West Texas Utilities Company, Abilene, Texas WTU Stipulation and Agreement....Stipulation and Agreement to settle certain WTU regulatory matters 5 CSW CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. 6 CENTRAL AND SOUTH WEST CORPORATION CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------- --------------- 1996 1995 1996 1995 ------ ------- ------- ------ (millions, except per share amounts) Operating Revenues U.S. Electric $1,028 $933 $2,555 $2,221 United Kingdom 391 -- 1,322 -- Other diversified 19 15 43 36 ------ ------- ------- ------ 1,438 948 3,920 2,257 ------ ------- ------- ------ Operating Expenses and Taxes U.S. Electric fuel and purchased power 367 305 945 798 United Kingdom cost of sales 274 -- 961 -- Other operating 199 127 561 399 Maintenance 33 35 109 110 Depreciation and amortization 122 86 356 255 Taxes, other than income 49 47 138 124 Income taxes 110 89 208 66 ------ ------- ------- ------ 1,154 689 3,278 1,752 ------ ------- ------- ------ Operating Income 284 259 642 505 ------ ------- ------- ------ Other Income and Deductions Mirror CWIP liability amortization -- 11 -- 31 U.S. Electric utility plant development costs, net of tax -- -- (84) -- Other 11 11 15 45 ------ ------- ------- ------ 11 22 (69) 76 ------ ------- ------- ------ Income Before Interest Charges 295 281 573 581 ------ ------- ------- ------ Interest Charges Interest on long-term debt 80 57 240 163 Interest on short-term debt and other 21 26 76 78 ------ ------- ------- ------ 101 83 316 241 ------ ------- ------- ------ Income from Continuing Operations 194 198 257 340 ------ ------- ------- ------ Discontinued Operations Income from discontinued operations, net of tax of $-- and $6 for 1996 and $3 and $7 for 1995 -- 5 12 14 Gain on sale of discontinued operations, net of tax of $71 -- -- 113 -- ------ ------- ------- ------ -- 5 125 14 ------ ------- ------- ------ Net Income 194 203 382 354 Preferred stock dividends 4 4 13 14 ====== ======= ======= ====== Net Income for Common Stock $190 $199 $369 $340 ====== ======= ======= ====== Average Common Shares Outstanding 210.3 191.9 206.3 191.4 EPS of Common Stock from Continuing Operations $0.90 $1.01 $1.18 $1.71 EPS of Common Stock from Discontinued Operations -- 0.03 0.61 0.07 ------ ------- ------- ------ EPS of Common Stock $0.90 $1.04 $1.79 $1.78 ====== ======= ======= ====== Dividends Paid per Share of Common Stock $0.435 $0.43 $1.305 $1.29 The accompanying notes to consolidated financial statements are an integral part of these statements. 7 CENTRAL AND SOUTH WEST CORPORATION CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 (unaudited) (audited) ------- ------- (millions) ASSETS Fixed Assets Electric Production $5,833 $5,888 Transmission 1,521 1,484 Distribution 4,040 3,799 General 1,297 1,209 Construction work in progress 203 346 Nuclear fuel 175 165 ------- ------- Total Electric 13,069 12,891 Gas -- 869 Other diversified 57 18 ------- ------- 13,126 13,778 Less - Accumulated depreciation and amortization 4,820 4,761 ------- ------- 8,306 9,017 ------- ------- Current Assets Cash and temporary cash investments 422 401 Special deposits 60 -- National Grid assets held for sale -- 100 Accounts receivable 1,216 1,093 Materials and supplies, at average cost 179 188 Electric utility fuel inventory, substantially at average cost 111 129 Gas inventory/products for resale -- 13 Prepayments and other 164 115 ------- ------- 2,152 2,039 ------- ------- Deferred Charges and Other Assets Deferred plant costs 505 514 Mirror CWIP asset 302 312 Other non-utility investments 292 296 Income tax related regulatory assets, net 239 253 Goodwill 1,374 1,074 Other 422 364 ------- ------- 3,134 2,813 ------- ------- $13,592 $13,869 ======= ======= The accompanying notes to consolidated financial statements are an integral part of these statements. 8 CENTRAL AND SOUTH WEST CORPORATION CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 (unaudited) (audited) -------- -------- (millions) CAPITALIZATION AND LIABILITIES Capitalization Common Stock Equity Common stock: $3.50 par value Authorized: 350.0 million shares Issued and outstanding: 210.8 million shares in 1996 and 192.9 million shares in 1995 $737 $675 Paid-in capital 999 610 Retained earnings 1,996 1,893 Foreign currency translation adjustment (3) -- -------- -------- 3,729 3,178 Preferred Stock Not subject to mandatory redemption 293 292 Subject to mandatory redemption 32 34 Long-term debt 4,315 3,914 -------- -------- 8,369 7,418 -------- -------- Minority Interest -- 202 -------- -------- Current Liabilities Long-term debt and preferred stock due within twelve months 65 30 Short-term debt 378 692 Short-term debt - CSW Credit, Inc. 809 646 Loan notes 97 -- Accounts payable 457 595 Accrued taxes 451 228 Accrued interest 74 77 Provision for SEEBOARD acceptances -- 1,001 Other 175 156 -------- -------- 2,506 3,425 -------- -------- Deferred Credits Accumulated deferred income taxes 2,229 2,306 Investment tax credits 295 306 Other 193 212 -------- -------- 2,717 2,824 -------- -------- $13,592 $13,869 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these statements. 9 CENTRAL AND SOUTH WEST CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, ---------------------- 1996 1995 ------- ------- OPERATING ACTIVITIES (millions) Net Income $382 $354 Non-cash Items Included in Net Income Depreciation and amortization 403 312 Deferred income taxes and investment tax credits 17 (41) Mirror CWIP liability amortization -- (31) Charges for terminated Merger -- 42 Establishment of regulatory asset -- (34) Provision for bonded rate refund 7 -- Utility plant and other project development costs 141 -- Inventory reserve 7 -- Gain on sale of subsidiary (184) -- Changes in Assets and Liabilities Accounts receivable (177) (266) Accounts payable (92) (24) Accrued taxes 109 56 Unrecovered fuel costs (84) 68 Refund due customers (2) 22 Other (50) (34) ------- ------- 477 424 ------- ------- INVESTING ACTIVITIES Construction expenditures (343) (333) Acquisition expenditures (1,391) (6) CSW Energy/CSW International projects (52) 57 Sale of National Grid assets 99 -- Cash proceeds from sale of subsidiary 690 -- Other (5) (23) ------- ------- (1,002) (305) ------- ------- FINANCING ACTIVITIES Common stock sold 451 42 Proceeds from issuance of long-term debt 238 337 SEEBOARD acquisition financing 517 -- Reacquisition/Maturity of long-term debt (178) (263) Special deposits for reacquisition of long-term debt (60) -- Change in short-term debt (151) (20) Payment of dividends (279) (262) ------- ------- 538 (166) ------- ------- Effect of exchange rate changes on cash and cash equivalents 8 -- Net Change in Cash and Cash Equivalents 21 (47) Cash and Cash Equivalents at Beginning of Period 401 108 ======= ======= Cash and Cash Equivalents at End of Period $422 $61 ======= ======= SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $261 $225 ======= ======= Income taxes paid $139 $68 ======= ======= The accompanying notes to consolidated financial statements are an integral part of these statements. 10 CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES Set forth below is information concerning the consolidated results of operations for CSW for the three month and nine month periods ended September 30, 1996. For information concerning the results of operations for each of the U.S. Electric Operating Companies, see the discussions under the heading RESULTS OF OPERATIONS following the financial statements of each of the U.S. Electric Operating Companies. For supplementary information concerning SEEBOARD's results of operations for these periods, see NOTE 9. SUPPLEMENTAL INFORMATION - SEEBOARD'S RECENT OPERATING RESULTS. RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995 OVERVIEW. Net income for common stock decreased to $190 million or $0.90 per share for the third quarter of 1996 compared to $199 million or $1.04 per share for the third quarter of 1995. Third quarter 1996 earnings decreased when compared to the same period a year ago due primarily to increased depreciation and amortization, increased other operating expense, increased interest expense, the loss of Mirror CWIP earnings and the absence of Transok earnings. Partially offsetting these factors were the addition of earnings from SEEBOARD and increased non-fuel electric revenue due to the implementation of bonded rates at CPL, increased customer usage and customer growth. For discussion of the CPL 1996 Rate Case, see NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS. Below normal temperatures in the third quarter of 1996 partially offset the increase in non-fuel electric revenue. In the third quarter of 1996, the U.S. Electric Operating Companies and the CSW U.K. Group contributed the following percentages to CSW's results of operations. CORPORATE U.S. CSW U.K. TOTAL ITEMS AND ELECTRIC GROUP ELECTRIC OTHER TOTAL --------------------------------------------------- Operating Revenues 72% 27% 99% 1% 100% Operating Income 86% 11% 97% 3% 100% Net Income for CSW Common 96% 6% 102% (2)% 100% OPERATING REVENUES. Operating revenues increased 52% to $1,438 million in the third quarter of 1996 from $948 million in the third quarter of 1995. This increase reflects the addition of $391 million of SEEBOARD revenues and a $95 million increase in revenues for the U.S. Electric Operating Companies over the third quarter of 1995. The main factors contributing to the increase at the U.S. Electric Operating Companies were an increase in fuel revenues as discussed below, the implementation of bonded rates at CPL in the third quarter of 1996 and the recording of a base rate refund reserve in accordance with the WTU Stipulation and Agreement in the third quarter of 1995. Total retail KWH sales for the U.S. Electric Operating Companies increased 2% in the second quarter of 1996 compared to the third quarter of 1995. Residential KWH sales were relatively unchanged while commercial and industrial KWH sales increased 2% and 5%, respectively. Customer usage and growth contributed to the increase in KWH sales, while below normal temperatures partially offset the increase. U.S. ELECTRIC FUEL AND PURCHASED POWER. Fuel and purchased power expense increased 20% to $367 million in the third quarter of 1996 from $305 million in the third quarter of 1995. Fuel expense was higher at the U.S. Electric Operating Companies due primarily to an increase in the average unit 11 CSW RESULTS OF OPERATIONS (CONTINUED) cost of fuel to $1.77 per MMbtu in the third quarter of 1996 from $1.51 per MMbtu in the third quarter of 1995, reflecting higher natural gas prices. Partially offsetting this increase was the reduction in the delivered cost of coal at the U.S. Electric Operating Companies. Purchased power increased $4 million due primarily to increased economy energy purchases. UNITED KINGDOM COST OF SALES. SEEBOARD's cost of sales was $274 million for the third quarter of 1996. CSW did not acquire SEEBOARD until the fourth quarter of 1995. As a result, there is no amount shown for cost of sales in the third quarter of 1995. OTHER OPERATING. Other operating expense increased 57% to $199 million during the third quarter of 1996 from $127 million during the third quarter of 1995. The increase reflected the addition of SEEBOARD's operating expenses and higher operating expenses at the U.S. Electric Operating Companies including the effect of bonded rate implementation at CPL and the recognition in 1995 of a regulatory asset for previously recorded restructuring charges established in accordance with the WTU Stipulation and Agreement. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 42% to $122 million in the third quarter of 1996 from $86 million in the third quarter of 1995 due primarily to the addition of SEEBOARD's depreciable fixed assets and the goodwill amortization related to the purchase of SEEBOARD, as well as increases in depreciable fixed assets at the U.S. Electric Operating Companies. Also contributing to the increase were accelerated amortization of deferred STP plant costs at CPL implemented with bonded rates in May 1996 and accelerated amortization of deferred Oklaunion plant costs at WTU in accordance with the WTU Stipulation and Agreement. INCOME TAXES. Income taxes increased $21 million to $110 million during the third quarter of 1996 when compared to the third quarter of 1995 due in part to the addition of income taxes from SEEBOARD. Also contributing to the increase was the absence of a tax benefit recorded in the third quarter of 1995 related to the WTU Stipulation and Agreement. OTHER INCOME AND DEDUCTIONS. Other income and deductions decreased $11 million when compared to the third quarter of 1995 due primarily to the absence of CPL's 1995 Mirror CWIP liability amortization. INTEREST CHARGES. Interest on long-term debt increased $23 million or 40% during the third quarter of 1996 as compared to the third quarter of 1995 due to higher levels of long-term debt outstanding related to the SEEBOARD acquisition. Interest on short-term debt and other decreased $5 million or 19% during the third quarter of 1996 as compared to the third quarter of 1995 due primarily to lower levels of short-term borrowings. DISCONTINUED OPERATIONS. The results of Transok are shown separately in discontinued operations. Since Transok was sold on June 6, 1996, CSW's results for the quarter ended September 30, 1996 do not reflect any earnings from Transok. See NOTE 7. DISCONTINUED OPERATIONS for information, including comparative statements of income, related to the sale of Transok. 12 CSW RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 OVERVIEW. Net income for common stock for the nine months ended September 30, 1996 increased to $369 million from $340 million for the first nine months of 1995 due primarily to the gain from the sale of Transok, earnings from SEEBOARD and the absence of charges in 1996 related to the termination of the proposed El Paso Merger in June 1995 and the CPL 1995 Agreement. Also contributing to the increase were the implementation of bonded rates at CPL and stronger KWH sales resulting from increased usage and weather-related demand. Partially offsetting these increases in earnings for the nine months ended September 30, 1996 were the recording in June 1996 of one-time charges associated with certain investments and contingencies, the absence of favorable tax adjustments made in 1995 and the CPL 1996 Fuel Agreement. For additional information on the one-time charges, see NOTE 8. UTILITY PLANT DEVELOPMENT COSTS and NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES. For further discussion of CPL's Rate Case, see NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS. Increased depreciation and amortization, increased other operating expense, increased interest expense and the loss of Mirror CWIP earnings also reduced the increase in net income for the nine months ended September 30, 1996. In the first nine months of 1996, the U.S. Electric Operating Companies, the CSW U.K. Group and Transok contributed the following percentages to CSW's results of operations. CORPORATE U.S. CSW U.K. TOTAL ITEMS AND ELECTRIC GROUP ELECTRIC TRANSOK(1) OTHER TOTAL ---------------------------------------------------- Operating Revenues 65% 34% 99% --(2) 1% 100% Operating Income 79% 18% 97% --(2) 3% 100% After-tax one-time charges 86% -- 86% -- 14% 100% Net Income for CSW Common 63% 14% 77% 3%(3) 20%(4) 100% (1) On June 6, 1996, CSW sold Transok to Tejas. See NOTE 7. DISCONTINUED OPERATIONS. (2) Transok's Operating Revenues and Operating Income are shown as Income from Discontinued Operations in CSW's Consolidated Statements of Income. (3) Net Income for CSW Common for the nine months ended September 30, 1996 includes earnings from Transok for January through May 1996 only. (4) Includes CSW's gain on the sale of Transok. OPERATING REVENUES. Operating revenues increased 74% to $3,920 million in the first nine months of 1996 from $2,257 million in the first nine months of 1995. This increase reflects $1,322 million of SEEBOARD revenues and a $334 million increase in revenues for the U.S. Electric Operating Companies including the effects of higher fuel revenue, as discussed below, and bonded rate implementation at CPL. Also contributing to the increase were the recording of base rate and fuel refund reserves in the first quarter of 1995 in accordance with the CPL 1995 Agreement and the recording of a base rate refund reserve in the third quarter of 1995 in accordance with the WTU Stipulation and Agreement. Total retail KWH sales for the U.S. Electric Operating Companies increased 5% in the first nine months of 1996 compared to the first nine months of 1995. Residential, commercial and industrial KWH sales increased 6%, 4% and 5%, respectively. Increased usage, primarily by residential customers, as well as more favorable weather in the first six months of 1996 contributed to KWH sales growth. U.S. ELECTRIC FUEL AND PURCHASED POWER. Fuel and purchased power expense increased 18% to $945 million in the first nine months of 1996 from $798 million in the first nine months of 1995. Fuel expense was higher at the U.S. Electric Operating Companies due primarily to an increase in the average 13 CSW RESULTS OF OPERATIONS (CONTINUED) unit cost of fuel to $1.80 per MMbtu in the first nine months of 1996 from $1.57 per MMbtu in the first nine months of 1995, reflecting higher natural gas prices. Partially offsetting this increase was the reduction in the delivered cost of coal at CPL and WTU. Purchased power increased $31 million due primarily to increased economy energy purchases. UNITED KINGDOM COST OF SALES. SEEBOARD's cost of sales was $961 million for the first nine months of 1996. CSW did not acquire SEEBOARD until the fourth quarter of 1995. As a result, there is no amount shown for cost of sales for the first nine months of 1995. OTHER OPERATING. Other operating expense increased 41% to $561 million during the first nine months of 1996 from $399 million during the first nine months of 1995. This increase was due primarily to the addition in 1996 of SEEBOARD's operating expenses as well as the recognition in the first quarter of 1995 of a $23 million regulatory asset for previously recorded restructuring charges established in accordance with the CPL 1995 Agreement and the reversal of $4 million in rate case costs pursuant to the CPL 1995 Agreement. Also contributing to the increase was the recognition in the third quarter of 1995 of a regulatory asset for previously recorded restructuring charges in accordance with the WTU Stipulation and Agreement. Other factors contributing to increased other operating expense were the bonded rate implementation at CPL and expenses incurred with the CSW restructuring recorded in the second and third quarters of 1996. For additional information on this restructuring, see MD&A - COMPETITION AND INDUSTRY CHALLENGES. Operating expenses for the first nine months of 1995 were unusually high because of a $42 million reserve for deferred merger and acquisition costs recorded in 1995 from the termination of the proposed El Paso Merger. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 40% to $356 million in the first nine months of 1996 from $255 million in the first nine months of 1995 due primarily to the addition of SEEBOARD's depreciable fixed assets and the goodwill amortization related to the purchase of SEEBOARD, as well as increases in depreciable fixed assets at the U.S. Electric Operating Companies. Also contributing to the increase were accelerated amortization of deferred STP plant costs at CPL implemented with bonded rates in May 1996 and accelerated amortization of deferred Oklaunion plant costs at WTU in accordance with the WTU Stipulation and Agreement. TAXES, OTHER THAN INCOME. Taxes, other than income increased 11% to $138 million in the first nine months of 1996 from $124 million in the first nine months of 1995. The increase was due primarily to lower 1995 ad valorem taxes resulting from revisions of prior year estimates recorded in 1995. INCOME TAXES. Income taxes increased $142 million to $208 million during the first nine months of 1996 when compared to the first nine months of 1995. For the first nine months of 1995, income taxes were reduced primarily due to prior period adjustments, as well as the tax effect from both the CPL 1995 Agreement and the WTU Stipulation and Agreement. For the first nine months of 1996, SEEBOARD recorded $42 million in income taxes. OTHER INCOME AND DEDUCTIONS. Other income and deductions decreased $145 million in the first nine months of 1996 when compared to the first nine months of 1995 due primarily to one-time charges recorded in June 1996 associated with certain investments for plant sites, engineering studies and lignite reserves for the U.S. Electric Companies and project development costs for CSW Energy. For additional information concerning the one-time charges for the U.S. Electric Operating Companies, see NOTE 8. UTILITY PLANT DEVELOPMENT COSTS, and for CSW 14 CSW RESULTS OF OPERATIONS (CONTINUED) Energy, see NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES. Also, CPL's Mirror CWIP liability, which has now been fully amortized, contributed $31 million in the first nine months of 1995. INTEREST CHARGES. Interest on long-term debt increased $77 million or 47% during the first nine months of 1996 as compared to the first nine months of 1995 due to higher levels of long-term debt outstanding related to the SEEBOARD acquisition. DISCONTINUED OPERATIONS. The results of Transok are shown separately in discontinued operations. Transok's earnings for the first five months of 1996 were $12 million compared to $14 million for the nine months ended September 30, 1995. Since Transok was sold on June 6, 1996, CSW's results for the nine months ended September 30, 1996 do not reflect a full nine months of earnings from Transok. See NOTE 7. DISCONTINUED OPERATIONS for information, including comparative statements of income, related to the sale of Transok. 15 CPL CENTRAL POWER AND LIGHT COMPANY PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. 16 CENTRAL POWER AND LIGHT COMPANY STATEMENTS OF INCOME (unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------------- ---------------------- 1996 1995 1996 1995 --------- --------- ----------- --------- (thousands) (thousands) Electric Operating Revenues $410,899 $358,790 $1,026,352 $810,597 --------- --------- ----------- --------- Operating Expenses and Taxes Fuel 101,994 87,606 256,489 223,670 Purchased power 19,293 4,409 48,593 11,436 Other operating 56,480 52,578 166,242 133,567 Maintenance 11,080 12,842 40,190 44,744 Depreciation and amortization 43,907 37,552 126,044 111,924 Taxes, other than income 22,699 20,426 62,040 50,423 Income taxes 42,774 39,295 85,805 3,677 --------- --------- ----------- --------- 298,227 254,708 785,403 579,441 --------- --------- ----------- --------- Operating Income 112,672 104,082 240,949 231,156 --------- --------- ----------- --------- Other Income and Deductions Mirror CWIP liability amortization -- 10,250 -- 30,750 Utility plant development costs, net of tax -- -- (15,481) -- Other 1,498 2,829 4,708 13,288 --------- --------- ----------- --------- 1,498 13,079 (10,773) 44,038 --------- --------- ----------- --------- Income Before Interest Charges 114,170 117,161 230,176 275,194 --------- --------- ----------- --------- Interest Charges Interest on long-term debt 28,407 32,082 83,072 89,176 Interest on short-term debt and other 3,355 3,991 14,485 15,340 Allowance for borrowed funds used during construction (194) (1,150) (1,410) (3,566) --------- --------- ----------- --------- 31,568 34,923 96,147 100,950 --------- --------- ----------- --------- Net Income 82,602 82,238 134,029 174,244 Preferred stock dividends 3,386 3,535 10,183 10,899 --------- --------- ----------- --------- Net Income for Common Stock $79,216 $78,703 $123,846 $163,345 ========= ========= =========== ========= The accompanying notes to financial statements as they relate to CPL are an integral part of these statements. 17 CENTRAL POWER AND LIGHT COMPANY BALANCE SHEETS September 30, December 31, 1996 1995 (unaudited) (audited) ---------- ---------- ASSETS (thousands) Electric Utility Plant Production $3,108,291 $3,110,744 Transmission 500,320 486,090 Distribution 937,473 879,618 General 265,257 248,629 Construction work in progress 81,370 127,307 Nuclear fuel 174,698 165,087 ---------- ---------- 5,067,409 5,017,475 Less - Accumulated depreciation and amortization 1,674,030 1,547,530 ---------- ---------- 3,393,379 3,469,945 ---------- ---------- Current Assets Cash 5,946 2,883 Special deposits 60,113 797 Accounts receivable 36,301 45,186 Under-recovered fuel costs 22,727 -- Materials and supplies, at average cost 75,856 71,112 Fuel inventory, at average cost 16,132 26,472 Accumulated deferred income taxes 9,304 22,171 Prepayments and other 1,602 1,739 ---------- ---------- 227,981 170,360 ---------- ---------- Deferred Charges and Other Assets Deferred STP costs 481,295 488,047 Mirror CWIP asset 301,970 311,804 Income tax related regulatory assets, net 337,388 346,993 Other 124,557 93,987 ---------- ---------- 1,245,210 1,240,831 ---------- ---------- $4,866,570 $4,881,136 ========== ========== The accompanying notes to financial statements as they relate to CPL are an integral part of these statements. 18 CENTRAL POWER AND LIGHT COMPANY BALANCE SHEETS September 30, December 31, 1996 1995 (unaudited) (audited) ---------- ---------- CAPITALIZATION AND LIABILITIES (thousands) 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 872,290 863,444 ---------- ---------- 1,446,178 1,437,332 Preferred stock 250,351 250,351 Long-term debt 1,521,652 1,517,347 ---------- ---------- 3,218,181 3,205,030 ---------- ---------- Current Liabilities Long-term debt due within twelve months 60,000 231 Advances from affiliates 58,055 176,334 Accounts payable 49,816 49,507 Accrued taxes 98,851 61,614 Accrued interest 35,719 32,742 Over-recovered fuel costs -- 12,586 Refund due customers 6,642 -- Other 29,727 24,758 ---------- ---------- 338,810 357,772 ---------- ---------- Deferred Credits Accumulated deferred income taxes 1,149,657 1,151,823 Investment tax credits 148,402 152,744 Other 11,520 13,767 ---------- ---------- 1,309,579 1,318,334 ---------- ---------- $4,866,570 $4,881,136 ========== ========== The accompanying notes to financial statements as they relate to CPL are an integral part of these statements. 19 CENTRAL POWER AND LIGHT COMPANY STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, ------------------------ 1996 1995 --------- ---------- OPERATING ACTIVITIES (thousands) Net Income $134,029 $174,244 Non-cash Items Included in Net Income Depreciation and amortization 144,374 129,827 Deferred income taxes and investment tax credits 15,964 (41,244) Mirror CWIP liability amortization -- (30,750) Establishment of regulatory assets -- (20,652) Provision for bonded rate refund 6,642 -- Utility plant development costs 21,374 -- Inventory reserve 487 -- Changes in Assets and Liabilities Accounts receivable 8,885 (16,814) Fuel inventory 10,340 615 Accounts payable (172) (34,459) Accrued taxes 37,237 11,312 Over- and under-recovered fuel costs (35,313) 61,193 Other (13,445) 1,958 --------- --------- 330,402 235,230 --------- --------- INVESTING ACTIVITIES Construction expenditures (82,245) (112,868) Allowance for borrowed funds used during construction (1,410) (3,566) Other 2,415 -- --------- --------- (81,240) (116,434) --------- --------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 63,967 297,851 Retirement of long-term debt (231) -- Reacquisition of long-term debt (6,140) (253,278) Special deposits for reacquisition of long-term debt (60,000) -- Change in advances from affiliates (118,279) (16,706) Payment of dividends (125,416) (145,836) --------- --------- (246,099) (117,969) --------- --------- Net Change in Cash and Cash Equivalents 3,063 827 Cash and Cash Equivalents at Beginning of Period 2,883 642 ========= ========= Cash and Cash Equivalents at End of Period $5,946 $1,469 ========= ========= SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $85,876 $81,377 ========= ========= Income taxes paid $26,721 $25,280 ========= ========= The accompanying notes to financial statements as they relate to CPL are an integral part of these statements. 20 CENTRAL POWER AND LIGHT COMPANY RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995 NET INCOME FOR COMMON STOCK. Net income for common stock increased to $79.2 million during the third quarter of 1996 from $78.7 million in the third quarter of 1995. Third quarter earnings increased when compared to the prior year due to the implementation of bonded rates and an increase in KWH sales partially offset by the expiration of the Mirror CWIP liability amortization. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional information relating to bonded rates. ELECTRIC OPERATING REVENUES. Total revenues increased 15% to $410.9 million during the third quarter of 1996 from $358.8 million during the third quarter of 1995 due primarily to an increase in fuel revenues of $29.6 million resulting from higher average unit fuel costs and purchased power as discussed below. Also contributing to the higher revenues was a $22.5 million increase in non-fuel revenues due primarily to the implementation of bonded rates and a 4% increase in KWH sales resulting primarily from residential and commercial customer growth, as well as increased customer demand. FUEL. Fuel expense increased 16% to $102.0 million during the third quarter of 1996 from $87.6 million during the third quarter of 1995 due primarily to an increase in the average unit cost of fuel from $1.31 per MMbtu in the third quarter of 1995 to $1.69 per MMbtu in 1996 offset in part by an 8% decrease in generation. The cost of fuel reflects an increase in the spot market price of natural gas partially offset by a decrease in the delivered cost of coal. PURCHASED POWER. Purchased power increased $14.9 million in the third quarter of 1996 when compared to the third quarter of 1995 due primarily to increased economy energy purchases. OTHER OPERATING. Other operating expenses increased $3.9 million or 7% during the third quarter of 1996 when compared to the third quarter of 1995. This increase was due primarily to additional insurance, decommissioning and regulatory expenses associated with the implementation of bonded rates. Such increases were partially offset by lower nuclear production expenses due primarily to lower STP employee-related costs and fewer scheduled refueling outages and decreased transmission expenses resulting from the benefits associated with the installation of the high-voltage direct-current east tie. MAINTENANCE. Maintenance expense decreased $1.8 million or 14% during the third quarter of 1996 when compared to the third quarter of 1995 due primarily to fewer scheduled steam production maintenance repair projects in the third quarter of 1996. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased $6.4 million or 17% during the third quarter of 1996 when compared to the third quarter of 1995 as a result of an increase in depreciable property and the accelerated amortization of STP deferred costs in accordance with the implementation of bonded rates in May 1996. TAXES, OTHER THAN INCOME. Taxes, other than income increased $2.3 million in third quarter of 1996 when compared to the third quarter of 1995 due primarily to higher state franchise taxes partially offset by lower ad valorem taxes. 21 CPL RESULTS OF OPERATIONS (CONTINUED) INCOME TAXES. Income taxes increased $3.5 million in the third quarter of 1996 when compared to the third quarter of 1995 due primarily to higher pre-tax income. OTHER INCOME AND DEDUCTIONS. Other income and deductions decreased $11.6 million in the third quarter of 1996 when compared to the third quarter of 1995. Mirror CWIP liability amortization, which expired in 1995, contributed $10.3 million to other income and deductions in the third quarter of 1995. INTEREST CHARGES. Interest charges decreased $3.4 million during the third quarter of 1996 when compared to 1995 as a result of the refinancing of higher cost bonds. 22 CPL RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NET INCOME FOR COMMON STOCK. Net income for common stock decreased 24% to $123.8 million during the first nine months of 1996 from $163.3 million in the first nine months of 1995. The decrease resulted primarily from the expiration of Mirror CWIP liability amortization and a one-time charge associated with certain investments for plant sites, engineering studies and lignite reserves. Partially offsetting this decrease were the net effects of the settlements of certain regulatory issues, as shown in the table below, and the impact associated with the implementation of bonded rates. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional information relating to bonded rates. See NOTE 8. UTILITY PLANT DEVELOPMENT COSTS for additional information relating to the one-time charge. PRE-TAX AFTER-TAX (million) CPL 1996 FUEL AGREEMENT Provision for refund $(14.4) $(9.4) Reduction of fuel expense 9.6 6.2 Increased interest expense (1.1) (0.7) Litigation and settlement expense (0.8) (0.5) CPL 1995 AGREEMENT Base rate refund $(50.0) $(32.5) Fuel disallowance (62.3) (40.5) Wholesale fuel refund (3.2) (2.1) Current flowback of excess deferred federal income tax 34.3 34.3 Capitalization of previously expensed restructuring and rate case costs 27.6 17.9 Recognition of factoring income 16.1 10.5 Amortization, interest and other (6.6) (4.4) ELECTRIC OPERATING REVENUES. Total revenues increased $215.8 million or 27% during the first nine months of 1996 when compared to the first nine months of 1995 due primarily to an increase in non-fuel revenues. The increase in non-fuel revenues resulted principally from the net change in the provision for rate refunds, as reflected in the above table, and the implementation of bonded rates. Also contributing to the higher revenues was a 7% increase in KWH sales resulting primarily from increased customer demand, favorable weather-related demand as well as residential and commercial customer growth. Fuel revenues increased $78.3 million as a result of higher average unit fuel costs and purchased power as discussed below. FUEL. Fuel expense increased $32.8 million or 15% during the first nine months of 1996 when compared to the first nine months of 1995 due primarily to an increase in the average unit cost of fuel from $1.35 per MMbtu in the first nine months of 1995 to $1.59 per MMbtu for the same period in 1996. The cost of fuel reflects an increase in the spot market price of natural gas partially 23 CPL RESULTS OF OPERATIONS (CONTINUED) offset by a decrease in the delivered cost of coal and a one-time $9.6 million reduction in fuel expense as a result of the CPL 1996 Fuel Agreement. PURCHASED POWER. Purchased power increased $37.2 million during the first nine months 1996 when compared to the first nine months of 1995 primarily as a result of increased economy energy and cogeneration purchases. OTHER OPERATING. Other operating expenses increased $32.7 million or 24% during the first nine months of 1996 when compared to the first nine months of 1995. This increase was due primarily to the 1995 recognition of a $20.7 million regulatory asset for previously recorded restructuring charges and the reversal of $4.3 million in rate case costs pursuant to the CPL 1995 Agreement. Also, contributing to this increase were additional insurance, decommissioning and regulatory expenses associated with the implementation of bonded rates as well as higher employee-related costs. Partially offsetting the increase were lower nuclear production expenses due primarily to lower STP employee-related costs and fewer scheduled refueling outages. MAINTENANCE. Maintenance expense decreased $4.6 million or 10% during the first nine months of 1996 when compared to the first nine months of 1995 due primarily to fewer scheduled steam production maintenance repair projects in the first nine months of 1996 when compared to 1995. Distribution maintenance also decreased due to a change in capitalization policy. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased $14.1 million or 13% in the first nine months of 1996 primarily as a result of the accelerated amortization of deferred STP costs in accordance with the implementation of bonded rates in May 1996 as well as increases in depreciable property and Mirror CWIP asset amortization. TAXES, OTHER THAN INCOME. The $11.6 million increase in other taxes during the first nine months of 1996 when compared to the first nine months of 1995 was due primarily to lower 1995 ad valorem taxes resulting from revisions of prior year estimates. Also, higher accruals in 1996 for state franchise taxes partially offset by lower current year ad valorem taxes contributed to this increase. INCOME TAXES. Income taxes increased $82.1 million in the first nine months of 1996 when compared to the first nine months of 1995 due primarily to the accelerated flowback of $34.3 million of unprotected excess deferred income taxes in accordance with the CPL 1995 Agreement. The increase is also attributable to prior year tax adjustments, as well as higher pre-tax income, excluding the effects of the one-time charge, as discussed below. OTHER INCOME AND DEDUCTIONS. Other income and deductions decreased $54.8 million in the first nine months of 1996 when compared to 1995. Mirror CWIP liability amortization, which expired in 1995, contributed $30.8 million to other income and deductions in the first nine months of 1995. Also, a one-time charge in 1996 associated with certain investments for plant sites, engineering studies and lignite reserves of approximately $15.5 million, net of tax, contributed to this decline. See NOTE 8. UTILITY PLANT DEVELOPMENT COSTS for additional information. Furthermore, other income decreased in 1996 due primarily to the recognition of $12.4 million of factoring income in 1995 pursuant to the CPL 1995 Agreement. 24 CPL RESULTS OF OPERATIONS (CONTINUED) INTEREST CHARGES. Interest charges decreased $4.8 million during 1996 when compared to 1995 primarily as a result of the refinancing of higher cost bonds partially offset by a decrease in allowance for borrowed funds used for construction. 25 PSO PUBLIC SERVICE COMPANY OF OKLAHOMA PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. 26 PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------------- ---------------------- 1996 1995 1996 1995 --------- --------- ----------- --------- (thousands) (thousands) Electric Operating Revenues $250,015 $232,156 $579,021 $542,215 --------- --------- ----------- --------- Operating Expenses and Taxes Fuel 93,670 76,434 224,914 209,895 Purchased power 10,012 6,220 28,451 16,614 Other operating 30,818 28,196 88,340 86,201 Maintenance 8,777 8,716 26,487 23,778 Depreciation and amortization 19,559 16,916 57,990 49,981 Taxes, other than income 6,461 6,093 19,870 18,345 Income taxes 27,172 31,057 39,069 37,659 --------- --------- ----------- --------- 196,469 173,632 485,121 442,473 --------- --------- ----------- --------- Operating Income 53,546 58,524 93,900 99,742 --------- --------- ----------- --------- Other Income and Deductions Utility plant development costs, net of tax -- -- (35,552) -- Other 38 (212) 237 3,543 --------- --------- ----------- --------- 38 (212) (35,315) 3,543 --------- --------- ----------- --------- Income Before Interest Charges 53,584 58,312 58,585 103,285 --------- --------- ----------- --------- Interest Charges Interest on long-term debt 7,821 7,398 22,936 22,196 Interest on short-term debt and other 1,130 1,352 4,452 4,888 Allowance for borrowed funds used during construction (376) (1,120) (1,075) (2,442) --------- --------- ----------- --------- 8,575 7,630 26,313 24,642 --------- --------- ----------- --------- Net Income 45,009 50,682 32,272 78,643 Preferred stock dividends 204 204 612 612 --------- --------- ----------- --------- Net Income for Common Stock $44,805 $50,478 $31,660 $78,031 ========= ========= =========== ========= The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. 27 PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 (unaudited) (audited) ---------- ---------- ASSETS (thousands) Electric Utility Plant Production $902,271 $939,106 Transmission 370,544 363,692 Distribution 761,107 712,483 General 186,359 182,705 Construction work in progress 45,806 56,576 ---------- ---------- 2,266,087 2,254,562 Less - Accumulated depreciation and amortization 973,260 924,186 ---------- ---------- 1,292,827 1,330,376 ---------- ---------- Current Assets Cash 747 744 Accounts receivable 26,723 17,957 Materials and supplies, at average cost 36,100 41,179 Fuel inventory, at LIFO cost 15,431 15,765 Accumulated deferred income taxes 1,947 10,389 Prepayments and other 2,272 2,450 ---------- ---------- 83,220 88,484 ---------- ---------- Deferred Charges and Other Assets 57,693 61,956 ---------- ---------- $1,433,740 $1,480,816 ========== ========== The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. 28 PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 (unaudited) (audited) ---------- ---------- CAPITALIZATION AND LIABILITIES (thousands) Capitalization Common stock: $15 par value Authorized shares 11,000,000; issued 10,482,000 shares and outstanding 9,013,000 shares $157,230 $157,230 Paid-in capital 180,000 180,000 Retained earnings 146,941 150,281 ---------- ---------- 484,171 487,511 Preferred stock 19,826 19,826 Long-term debt 419,921 379,250 ---------- ---------- 923,918 886,587 ---------- ---------- Current Liabilities Long-term debt due within twelve months -- 25,000 Advances from affiliates 29,785 70,510 Payables to affiliates 19,560 40,463 Accounts payable 41,258 23,094 Payables to customers 14,123 32,517 Accrued taxes 44,389 27,014 Accrued interest 10,993 9,025 Other 9,142 8,589 ---------- ---------- 169,250 236,212 ---------- ---------- Deferred Credits Accumulated deferred income taxes 243,245 264,353 Investment tax credits 44,134 46,222 Income tax related regulatory liabilities, net 46,236 41,820 Other 6,957 5,622 ---------- ---------- 340,572 358,017 ---------- ---------- $1,433,740 $1,480,816 ========== ========== The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. 29 PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, ------------------------ 1996 1995 --------- --------- OPERATING ACTIVITIES (thousands) Net Income $32,272 $78,643 Non-cash Items Included in Net Income Depreciation and amortization 62,457 54,256 Deferred income taxes and investment tax credits (10,338) (2,584) Allowance for equity funds used during construction (85) (1,180) Utility plant development costs 50,854 -- Inventory reserve 3,945 -- Changes in Assets and Liabilities Accounts receivable (8,766) 2,667 Accounts payable (19,769) (28,093) Accrued taxes 17,375 22,698 Other (3,066) 2,110 --------- --------- 124,879 128,517 --------- --------- INVESTING ACTIVITIES Construction expenditures (56,830) (70,942) Allowance for borrowed funds used during construction (1,075) (2,442) Other (4,355) (5,024) --------- --------- (62,260) (78,408) --------- --------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 51,785 -- Retirement of long-term debt (25,000) -- Reacquisition of long-term debt (13,040) -- Change in advances from affiliates (40,725) (11,852) Payment of dividends (35,636) (40,613) --------- --------- (62,616) (52,465) --------- --------- Net Change in Cash and Cash Equivalents 3 (2,356) Cash and Cash Equivalents at Beginning of Period 744 5,453 ========= ========= Cash and Cash Equivalents at End of Period $747 $3,097 ========= ========= SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $22,686 $21,393 ========= ========= Income taxes paid $20,142 $20,949 ========= ========= The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. 30 PUBLIC SERVICE COMPANY OF OKLAHOMA RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995 NET INCOME FOR COMMON STOCK. Net income for common stock decreased 11% to $44.8 million during the third quarter of 1996 from $50.5 million during the third quarter of 1995. The decrease resulted primarily from decreased non-fuel revenue, increased depreciation and amortization expenses and increased other operating expenses. ELECTRIC OPERATING REVENUES. Electric operating revenues increased 8% to $250 million during the third quarter of 1996 from $232.2 million during the third quarter of 1995. The increase was due primarily to increased fuel revenues as discussed below, offset in part by decreased weather-related demand from retail customers. FUEL. Fuel expense was $93.7 million during the third quarter of 1996, a 23% increase from $76.4 million in the third quarter of 1995. The increase was due primarily to a higher under-recovery of fuel costs in the third quarter of 1995 and an increase in the average unit fuel cost from $1.70 per MMbtu in the third quarter of 1995 to $2.00 per MMbtu in the third quarter of 1996. The increase in the average unit fuel cost is attributable to an increase in the spot market price of natural gas offset in part by a decline in the delivered cost of coal resulting from lower transportation charges as well as purchases of lower priced spot market coal. In addition, partially offsetting this increase was a 3% decrease in KWH generation. PURCHASED POWER. Purchased power expenses increased approximately 61% to $10 million for the third quarter of 1996 from $6.2 million in the same period of 1995. The increase was due primarily to increases in purchases of economy energy. OTHER OPERATING. Other operating expenses were $30.8 million during the third quarter of 1996, a 9% increase from $28.2 million for the third quarter of 1995. The increase was due primarily to increased employee related expenses. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased 16% to $19.6 million in the third quarter of 1996 from $16.9 million in the third quarter of 1995. The increase was due to increases in depreciable property and completion in 1995 of the amortization of previously expensed inventory and supply items that were credited through amortization to cost of service. INCOME TAXES. Income tax expense for the third quarter of 1996 decreased $3.9 million from $31.1 million in 1995 to $27.2 million in 1996 primarily due to lower pre-tax income. 31 PSO RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NET INCOME FOR COMMON STOCK. For the nine months ended September 30, 1996, net income for common stock decreased 59% to $31.7 million from $78 million for the nine months ended September 30, 1995. The decrease resulted primarily from a one-time charge associated with certain investments for plant sites, engineering studies and lignite reserves of approximately $35.6 million, net of tax, offset in part by increased non-fuel revenue and prior year tax adjustments recorded in 1995. ELECTRIC OPERATING REVENUES. Electric operating revenues increased 7% to $579 million for the nine months ended September 30, 1996 from $542.2 million for the first nine months of 1995. The increase was due primarily to increased fuel revenues, as discussed below, and a 6% increase in retail KWH sales resulting from additional weather-related demand from customers in the first six months of 1996, as well as customer growth. FUEL. Fuel expense was $224.9 million for the first nine months of 1996, a 7% increase from $209.9 million for the same period of 1995. The increase was due primarily to an increase in average unit fuel costs from $1.76 per MMbtu in the first nine months of 1995 to $2.04 per MMbtu in the first nine months of 1996. The increase in the average unit fuel cost is attributable to an increase in the spot market price of natural gas offset in part by a decline in the delivered cost of coal resulting from lower transportation charges as well as purchases of lower priced spot market coal. Offsetting these factors in part was an under-recovery of fuel costs in the first nine months of 1996 compared to an over-recovery of fuel costs in the first nine months of 1995, as well as decreased KWH generation. PURCHASED POWER. Purchased power increased approximately 71% to $28.5 million for the first nine months of 1996 from $16.6 million during the first nine months of 1995. The increase was due primarily to increases in purchases of economy energy. MAINTENANCE. Maintenance expenses increased 11% to $26.5 million for the nine months ended September 30, 1996 from $23.8 million for the same period of 1995. The increase was due primarily to a $3.9 million write-down of production inventory in 1996 offset in part by decreased power plant maintenance activities and decreased distribution maintenance activities. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased 16% to $58 million for the nine month period ended September 30, 1996 from $50 million in the same period of 1995. The increase was due to increases in depreciable property and completion in 1995 of the amortization of previously expensed inventory and supply items that were credited through amortization to cost of service. INCOME TAXES. Income tax expense for the first nine months of 1996 increased $1.4 million from $37.7 million in 1995 to $39.1 million in 1996. Income tax expense was affected by prior year tax adjustments recorded in 1995 offset in part by lower pre-tax income, excluding the effects of a one-time charge, as discussed below. OTHER INCOME AND DEDUCTIONS. Other income and deductions for the nine months ended September 30, 1996 decreased approximately $39 million when compared to the same period of 1995 as a result of a one-time charge associated with certain investments for plant sites, engineering studies and lignite reserves of approximately $35.6 million, net of tax. See NOTE 8. UTILITY PLANT DEVELOPMENT COSTS for additional information. Other income and deductions were also affected by the $2.7 million gain on the sale of non-utility fiber optic telecommunication property in the first quarter of 1995. 32 SWEPCO SOUTHWESTERN ELECTRIC POWER COMPANY PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. 33 SOUTHWESTERN ELECTRIC POWER COMPANY STATEMENTS OF INCOME (unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------------- ---------------------- 1996 1995 1996 1995 --------- --------- ----------- --------- (thousands) (thousands) Electric Operating Revenues $278,227 $266,268 $715,671 $648,468 --------- --------- ----------- --------- Operating Expenses and Taxes Fuel 116,612 101,811 301,530 243,655 Purchased power 4,845 4,074 20,943 13,806 Other operating 35,887 32,533 99,360 90,482 Maintenance 10,406 10,849 31,444 31,665 Depreciation and amortization 23,010 20,853 67,949 61,496 Taxes, other than income 12,746 12,299 36,158 34,275 Income taxes 20,904 23,969 38,100 37,744 --------- --------- ----------- --------- 224,410 206,388 595,484 513,123 --------- --------- ----------- --------- Operating Income 53,817 59,880 120,187 135,345 --------- --------- ----------- --------- Other Income and Deductions Utility plant development costs, net of tax -- -- (21,743) -- Allowance for equity funds used during construction (1) 1,430 325 3,535 Other 12 (1,056) 937 396 --------- --------- ----------- --------- 11 374 (20,481) 3,931 --------- --------- ----------- --------- Income Before Interest Charges 53,828 60,254 99,706 139,276 --------- --------- ----------- --------- Interest Charges Interest on long-term debt 11,542 10,986 33,537 33,423 Interest on short-term debt and other 2,055 2,235 7,012 7,919 Allowance for borrowed funds used during construction (465) (1,440) (1,691) (4,134) --------- --------- ----------- --------- 13,132 11,781 38,858 37,208 --------- --------- ----------- --------- Net Income 40,696 48,473 60,848 102,068 Preferred stock dividends 758 854 2,295 2,472 --------- --------- ----------- --------- Net Income for Common Stock $39,938 $47,619 $58,553 $99,596 ========= ========= =========== ========= The accompanying notes to financial statements as they relate to SWEPCO are an integral part of these statements. 34 SOUTHWESTERN ELECTRIC POWER COMPANY BALANCE SHEETS September 30, December 31, 1996 1995 (unaudited) (audited) ---------- ---------- ASSETS (thousands) Electric Utility Plant Production $1,406,026 $1,410,546 Transmission 450,336 435,362 Distribution 835,129 789,884 General 272,226 231,276 Construction work in progress 49,881 128,963 ---------- ---------- 3,013,598 2,996,031 Less - Accumulated depreciation and amortization 1,175,285 1,116,375 ---------- ---------- 1,838,313 1,879,656 ---------- ---------- Current Assets Cash 1,857 1,702 Accounts receivable 60,308 54,628 Materials and supplies, at average cost 28,895 30,097 Fuel inventory, substantially at average cost 64,151 73,276 Accumulated deferred income taxes -- 4,636 Under-recovered fuel costs 10,077 -- Prepayments and other 15,966 14,109 ---------- ---------- 181,254 178,448 ---------- ---------- Deferred Charges and Other Assets 83,243 58,615 ---------- ---------- $2,102,810 $2,116,719 ========== ========== The accompanying notes to financial statements as they relate to SWEPCO are an integral part of these statements. 35 SOUTHWESTERN ELECTRIC POWER COMPANY BALANCE SHEETS September 30, December 31, 1996 1995 (unaudited) (audited) ---------- ---------- CAPITALIZATION AND LIABILITIES (thousands) 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 324,887 302,334 ---------- ---------- 705,547 682,994 Preferred stock Not subject to mandatory redemption 16,032 16,032 Subject to mandatory redemption 32,428 33,628 Long-term debt 595,971 598,951 ---------- ---------- 1,349,978 1,331,605 ---------- ---------- Current Liabilities Long-term debt and preferred stock due within twelve months 4,898 5,099 Advances from affiliates 78,481 101,228 Payables to affiliates 53,127 52,474 Accounts payable 43,600 34,717 Over-recovered fuel costs -- 8,923 Customer deposits 10,719 11,027 Accrued taxes 42,275 25,268 Accumulated deferred income taxes 2,027 -- Accrued interest 11,963 17,894 Other 16,100 30,525 ---------- ---------- 263,190 287,155 ---------- ---------- Deferred Credits Accumulated deferred income taxes 371,217 377,245 Investment tax credits 72,690 76,237 Income tax related regulatory liabilities, net 37,857 37,363 Other 7,878 7,114 ---------- ---------- 489,642 497,959 ---------- ---------- $2,102,810 $2,116,719 ========== ========== The accompanying notes to financial statements as they relate to SWEPCO are an integral part of these statements. 36 SOUTHWESTERN ELECTRIC POWER COMPANY STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, ------------------------ 1996 1995 --------- --------- OPERATING ACTIVITIES (thousands) Net Income $60,848 $102,068 Non-cash Items Included in Net Income Depreciation and amortization 75,686 69,269 Deferred income taxes and investment tax credits (2,417) (3,576) Allowance for equity funds used during construction (325) (3,535) Utility plant development costs 29,590 -- Inventory reserve 1,130 -- Changes in Assets and Liabilities Accounts receivable (5,680) 9,429 Fuel inventory 9,125 (4,121) Accounts payable 9,588 (3,857) Accrued taxes 17,007 29,457 Accrued interest (5,931) (3,706) Over- and under-recovered fuel costs (19,000) (1,684) Other (26,294) (3,783) --------- --------- 143,327 185,961 --------- --------- INVESTING ACTIVITIES Construction expenditures (67,837) (79,261) Allowance for borrowed funds used during construction (1,691) (4,134) Other (4,210) (5,064) --------- --------- (73,738) (88,459) --------- --------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 79,273 -- Retirement of long-term debt (3,561) (3,262) Reacquisition of long-term debt (83,334) -- Redemption of preferred stock (1,200) (50) Change in advances from affiliates (22,747) (18,803) Payment of dividends (37,865) (76,237) --------- --------- (69,434) (98,352) --------- --------- Net Change in Cash and Cash Equivalents 155 (850) Cash and Cash Equivalents at Beginning of Period 1,702 1,296 ========= ========= Cash and Cash Equivalents at End of Period $1,857 $446 ========= ========= SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $43,686 $39,402 ========= ========= Income taxes paid $25,736 $21,598 ========= ========= The accompanying notes to financial statements as they relate to SWEPCO are an integral part of these statements. 37 SOUTHWESTERN ELECTRIC POWER COMPANY RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995 NET INCOME FOR COMMON STOCK. Net income for common stock decreased 16% to $39.9 million during the third quarter of 1996 from $47.6 million during the third quarter of 1995. The decrease resulted primarily from increased other operating expenses and increased depreciation and amortization. ELECTRIC OPERATING REVENUES. Although KWH sales were relatively stable, electric operating revenues increased $12.0 million to $278.2 million during the third quarter of 1996 from $266.3 million during the third quarter of 1995. The increase is due primarily to an $11 million increase in fuel revenue resulting from higher average unit fuel cost as discussed below and a $1 million increase in non-fuel revenue. The increase in non-fuel revenue is attributable to higher customer demand which was partially offset by a decrease in weather-related demand. FUEL. Fuel expense increased 15% to $116.6 million during the third quarter of 1996 when compared to the third quarter of 1995 due primarily to an increase in the average unit fuel cost from $1.56 per MMbtu in 1995 to $1.66 per MMbtu in 1996. The increase in average unit fuel cost is attributable to an increase in the spot market price of natural gas offset in part by a decline in the delivered cost of coal resulting from lower transportation charges as well as purchases of lower priced spot market coal. OTHER OPERATING. Other operating expenses increased $3.4 million, or 10%, during the third quarter of 1996 when compared to the third quarter of 1995 due primarily to increases in production expenses and prior year adjustments made in 1995 to customer account expenses. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased approximately $2.2 million, or 10%, during the third quarter of 1996 as compared to the third quarter of 1995 due primarily to an increase in depreciable plant and the completion in 1995 of the amortization of previously expensed inventory and supply items that were credited through amortization to cost of service. INCOME TAXES. Income taxes decreased $3.1 million, or 13%, to $20.9 million during the third quarter of 1996 as compared to the third quarter of 1995 due primarily to lower pre-tax income. 38 SWEPCO RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NET INCOME FOR COMMON STOCK. Net income for common stock decreased 41% to $58.6 million during the nine months ended September 30, 1996 from $99.6 million during the nine months ended September 30, 1995. The decrease resulted primarily from a one-time charge associated with certain investments for plant sites, engineering studies and lignite reserves of approximately $21.7 million, net of tax. Increased other operating expenses, increased depreciation and amortization, and prior year tax adjustments recorded in 1995 also contributed to the decrease in net income for common stock. ELECTRIC OPERATING REVENUES. Electric operating revenues increased $67.2 million to $715.7 million during the first nine months of 1996 from $648.5 million during the first nine months of 1995 due primarily to a $50 million increase in fuel revenue and a $17 million increase in non-fuel revenue. The increase in fuel revenue was due to higher average unit fuel cost as discussed below. The increase in non-fuel revenue is attributable to a 4% increase in retail KWH sales resulting from increased customer demand. FUEL. Fuel expense increased 24% to $301.5 million during the first nine months of 1996 when compared to the first nine months of 1995 due primarily to a 10% increase in generation and an increase in the average unit fuel cost from $1.61 per MMbtu in 1995 to $1.77 per MMbtu in 1996. The increase in average unit fuel cost is attributable to an increase in the spot market price of natural gas offset in part by a decline in the delivered cost of coal resulting from lower transportation charges as well as purchases of lower priced spot market coal. PURCHASED POWER. Purchased power expense increased $7.1 million, or 52%, during the first nine months of 1996 when compared to the first nine months of 1995 due primarily to an increase in economy energy purchases. OTHER OPERATING. Other operating expenses increased $8.9 million, or 10%, during the first nine months of 1996 when compared to the first nine months of 1995 due primarily to increases in production expenses, employee-related expenses and outside services. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased approximately $6.5 million, or 10%, during the first nine months of 1996 as compared to the first nine months of 1995 due primarily to an increase in depreciable plant and the completion in 1995 of the amortization of previously expensed inventory and supply items that were credited through amortization to cost of service. TAXES, OTHER THAN INCOME. Taxes, other than income increased approximately $1.9 million, or 5%, during the first nine months of 1996 as compared to the first nine months of 1995 due primarily to an increase in ad valorem taxes and state franchise taxes. OTHER INCOME AND DEDUCTIONS. Other income and deductions decreased $24.4 million in the first nine months of 1996 when compared with the first nine months of 1995 due primarily to a one-time charge associated with certain investments for plant sites, engineering studies and lignite reserves of approximately $21.7 million, net of tax. See NOTE 8. UTILITY PLANT DEVELOPMENT COSTS for additional information. 39 WTU WEST TEXAS UTILITIES COMPANY PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. 40 WEST TEXAS UTILITIES COMPANY STATEMENTS OF INCOME (unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------------- ---------------------- 1996 1995 1996 1995 --------- --------- ----------- --------- (thousands) (thousands) Electric Operating Revenues $113,314 $87,178 $295,690 $245,148 --------- --------- ----------- --------- Operating Expenses and Taxes Fuel 35,177 29,963 102,982 90,891 Purchased power 8,918 4,373 21,442 8,198 Other operating 16,133 2,959 50,835 34,520 Maintenance 3,007 3,133 10,698 10,130 Depreciation and amortization 10,081 8,147 29,591 24,264 Taxes, other than income 5,940 6,108 17,121 17,448 Income taxes 9,367 2,063 14,402 6,183 --------- --------- ----------- --------- 88,623 56,746 247,071 191,634 --------- --------- ----------- --------- Operating Income 24,691 30,432 48,619 53,514 --------- --------- ----------- --------- Other Income and Deductions Utility plant development costs, net of tax -- -- (10,917) -- Other 204 (468) 861 576 --------- --------- ----------- --------- 204 (468) (10,056) 576 --------- --------- ----------- --------- Income Before Interest Charges 24,895 29,964 38,563 54,090 --------- --------- ----------- --------- Interest Charges Interest on long-term debt 5,815 5,297 16,407 15,435 Interest on short-term debt and other 1,043 833 3,788 2,987 Allowance for borrowed funds used during construction (183) (187) (687) (512) --------- --------- ----------- --------- 6,675 5,943 19,508 17,910 --------- --------- ----------- --------- Net Income 18,220 24,021 19,055 36,180 Preferred stock dividends 66 66 198 198 --------- --------- ----------- --------- Net Income for Common Stock $18,154 $23,955 $18,857 $35,982 ========= ========= =========== ========= The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. 41 WEST TEXAS UTILITIES COMPANY BALANCE SHEETS September 30, December 31, 1996 1995 (unaudited) (audited) ---------- ---------- ASSETS (thousands) Electric Utility Plant Production $416,358 $427,547 Transmission 200,066 199,055 Distribution 343,455 326,337 General 93,797 84,326 Construction work in progress 25,757 32,686 ---------- ---------- 1,079,433 1,069,951 Less - Accumulated depreciation and amortization 412,494 389,379 ---------- ---------- 666,939 680,572 ---------- ---------- Current Assets Cash 557 717 Accounts receivable 20,963 28,923 Materials and supplies, at average cost 15,366 16,660 Fuel inventory, at average cost 8,151 8,281 Coal inventory, at LIFO cost 6,855 5,545 Accumulated deferred income taxes 2,649 5,328 Under-recovered fuel costs 3,901 -- Prepayments and other 2,701 1,042 ---------- ---------- 61,143 66,496 ---------- ---------- Deferred Charges and Other Assets Deferred Oklaunion costs 23,297 26,092 Restructuring costs 11,326 12,741 Other 32,715 29,713 ---------- ---------- 67,338 68,546 ---------- ---------- $795,420 $815,614 ========== ========== The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. 42 WEST TEXAS UTILITIES COMPANY BALANCE SHEETS September 30, December 31, 1996 1995 (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 125,627 125,770 ---------- ---------- 265,077 265,220 Preferred stock 6,291 6,291 Long-term debt 274,178 273,245 ---------- ---------- 545,546 544,756 ---------- ---------- Current Liabilities Advances from affiliates 4,152 19,820 Payables to affiliates 6,421 8,244 Accounts payable 17,595 20,611 Accrued taxes 18,299 13,182 Accrued interest 9,291 6,081 Over-recovered fuel costs -- 4,060 Refund due customers 5 1,812 Other 3,104 3,121 ---------- ---------- 58,867 76,931 ---------- ---------- Deferred Credits Accumulated deferred income taxes 142,252 145,130 Investment tax credits 29,570 30,561 Income tax related regulatory liabilities, net 14,724 14,464 Other 4,461 3,772 ---------- ---------- 191,007 193,927 ---------- ---------- $795,420 $815,614 ========== ========== The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. 43 WEST TEXAS UTILITIES COMPANY STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, ------------------------ 1996 1995 --------- --------- OPERATING ACTIVITIES (thousands) Net Income $19,055 $36,180 Non-cash Items Included in Net Income Depreciation and amortization 30,816 25,288 Deferred income taxes and investment tax credits (930) (734) Regulatory assets established for restructuring charges -- (13,213) Allowance for equity funds used during construction (232) (260) Utility plant development costs 14,905 -- Inventory reserve 1,103 -- Changes in Assets and Liabilities Accounts receivable 7,960 (5,324) Accounts payable (2,456) (2,231) Accrued taxes 5,117 1,334 Over- and under-recovered fuel costs (7,961) 6,573 Refunds due customers (1,807) 22,335 Other 874 (10,970) --------- --------- 66,444 58,978 --------- --------- INVESTING ACTIVITIES Construction expenditures (28,243) (31,931) Allowance for borrowed funds used during construction (687) (512) Other (603) (1,329) --------- --------- (29,533) (33,772) --------- --------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 43,368 39,411 Reaquisition of long-term debt (45,639) (2,053) Change in advances from affiliates (15,668) (34,083) Payment of dividends (19,132) (27,198) --------- --------- (37,071) (23,923) --------- --------- Net Change in Cash and Cash Equivalents (160) 1,283 Cash and Cash Equivalents at Beginning of Period 717 2,501 ========= ========= Cash and Cash Equivalents at End of Period $557 $3,784 ========= ========= SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $11,563 $12,548 ========= ========= Income taxes paid $5,384 $14,155 ========= ========= The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. 44 WEST TEXAS UTILITIES COMPANY RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995 NET INCOME FOR COMMON STOCK. During the third quarter of 1996, net income for common stock decreased from $24.0 million in the third quarter of 1995 to $18.2 million. The decrease resulted primarily from decreased non-fuel revenues as well as increased depreciation and amortization. Although the initial after-tax effect of the WTU Stipulation and Agreement, recorded in the third quarter of 1995, had an immaterial effect on net income for common stock, it did have an impact on other income statement items as discussed below. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional information. ELECTRIC OPERATING REVENUES. Electric operating revenues increased $26.1 million, or 30%, in the third quarter of 1996 as compared to the third quarter of 1995. This increase was due primarily to recording a $21 million reserve for a base rate refund pursuant to the WTU Stipulation and Agreement during the third quarter of 1995. Also contributing to the variance were increased fuel revenues, as discussed below. The increase was partially offset by a $4.4 million decrease in non-fuel revenues, which was due primarily to a decrease in unbilled revenues and the effect of lower rates implemented in accordance with the WTU Stipulation and Agreement. Unbilled revenues represent electricity used by customers but not yet billed. FUEL. Fuel expense increased $5.2 million, or 17%, for the third quarter of 1996 as compared to the third quarter of 1995 due primarily to an increase in average unit fuel costs from $1.55 per MMbtu in 1995 to $1.91 per MMbtu in 1996, which resulted from higher spot market natural gas prices. The increase was partially offset by lower coal costs resulting from lower transportation charges as well as purchases of lower priced spot market coal. PURCHASED POWER. Purchased power increased $4.5 million during the third quarter of 1996 as compared to the third quarter of 1995, primarily as a result of increased economy energy purchases at a higher cost per MWH. OTHER OPERATING. Other operating expenses increased $13.2 million in the third quarter of 1996 as compared to the third quarter of 1995 due primarily to the recording in the third quarter of 1995 of a $13.2 million regulatory asset in accordance with the WTU Stipulation and Agreement for previously recorded restructuring costs. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased approximately $2.0 million during the third quarter of 1996 as compared to the third quarter of 1995 due primarily to increases in depreciable property and the accelerated amortization of deferred Oklaunion plant costs and amortization of regulatory assets established in 1995 in accordance with the WTU Stipulation and Agreement. INCOME TAXES. Income taxes increased $7.3 million in the third quarter of 1996 as compared to the third quarter of 1995 due primarily to a $6.9 million reduction of deferred income taxes in accordance with the WTU Stipulation and Agreement in the third quarter of 1995. 45 WTU RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 NET INCOME FOR COMMON STOCK. For the first nine months of 1996, net income for common stock decreased to $18.9 million from $36.0 million in the first nine months of 1995. The decrease resulted from a one-time charge associated with certain investments for plant sites, engineering studies and lignite reserves of approximately $10.9 million, net of tax. Also contributing to the decrease were increased other operating expense and increased depreciation and amortization. Although the initial after-tax effect of the WTU Stipulation and Agreement, recorded in the third quarter of 1995, had an immaterial effect on net income for common stock, it did have an impact on other income statement items as discussed below. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional information. ELECTRIC OPERATING REVENUES. Electric operating revenues increased $50.5 million, or 21%, in the first nine months of 1996 as compared to the first nine months of 1995. This increase was due primarily to recording a $21 million reserve during the third quarter of 1995 for a base rate refund pursuant to the WTU Stipulation and Agreement. Also contributing to the variance were increased fuel revenues, as discussed below, and an 8% increase in KWH sales resulting from additional weather-related demand in the first six months of 1996 as well as increased customer demand. Partially offsetting this increase was the effect of lower rates implemented in accordance with the WTU Stipulation and Agreement. FUEL. Fuel expense increased $12.1 million, or 13%, for the first nine months of 1996 as compared to the first nine months of 1995 due primarily to an increase in average unit fuel costs from $1.77 per MMbtu in 1995 to $2.00 per MMbtu in 1996, which resulted from higher spot market natural gas prices. The increase was partially offset by lower coal costs resulting from lower transportation charges as well as purchases of lower priced spot market coal. PURCHASED POWER. Purchased power increased $13.2 million during the first nine months of 1996 as compared to the first nine months of 1995, primarily as a result of increased economy energy purchases at a higher cost per MWH. OTHER OPERATING. Other operating expenses increased $16.3 million, or approximately 47%, in the first nine months of 1996 as compared to the first nine months of 1995 due primarily to the recording in the third quarter of 1995 of a $13.2 million regulatory asset in accordance with the WTU Stipulation and Agreement. Also contributing to this variance were increased expenses associated with regulatory activity, increased employee related expenses, and the amortization of a regulatory asset in accordance with the WTU Stipulation and Agreement. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased approximately $5.3 million during the first nine months of 1996 as compared to the first nine months of 1995 due primarily to increases in depreciable property and the accelerated amortization of deferred Oklaunion plant costs and amortization of regulatory assets established in accordance with the WTU Stipulation and Agreement during 1995. INCOME TAXES. Income taxes increased $8.2 million in the first nine months of 1996 as compared to the first nine months of 1995 due primarily to a $6.9 million reduction of deferred income taxes in accordance with the WTU Stipulation and Agreement in the third quarter of 1995 and prior year tax adjustments recorded in 1995. 46 WTU RESULTS OF OPERATIONS (CONTINUED) OTHER INCOME AND DEDUCTIONS. Other income and deductions decreased $10.6 million during the first nine months of 1996 as compared with the first nine months of 1995 as a result of a one-time charge associated with certain investments for plant sites, engineering studies and lignite reserves of approximately $10.9 million, net of tax. See NOTE 8. UTILITY PLANT DEVELOPMENT COSTS for additional information. 47 INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT NOTE 1. PRINCIPLES OF PREPARATION CSW, CPL, PSO, SWEPCO, WTU NOTE 2. LITIGATION AND REGULATORY CSW, CPL, PSO, SWEPCO, WTU PROCEEDINGS NOTE 3. COMMITMENTS AND CONTINGENT CSW, CPL, PSO, SWEPCO, WTU LIABILITIES NOTE 4. DIVIDENDS CSW, CPL, PSO, SWEPCO, WTU NOTE 5. CSW EARNINGS AND DIVIDENDS PER CSW SHARE OF CSW COMMON STOCK NOTE 6. LONG-TERM FINANCING CSW, CPL, PSO, SWEPCO, WTU NOTE 7. DISCONTINUED OPERATIONS CSW NOTE 8. UTILITY PLANT DEVELOPMENT COSTS CSW, CPL, PSO, SWEPCO, WTU NOTE 9. SUPPLEMENTAL INFORMATION - CSW SEEBOARD'S RECENT OPERATING RESULTS 48 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. PRINCIPLES OF PREPARATION The condensed financial statements of the Registrants included herein 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 thereto included in the Registrant's Combined Annual Report on Form 10-K for the year ended December 31, 1995 and the Registrant's Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996. The unaudited financial information furnished herewith 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 the CSW U.K. Group, which are included in CSW's consolidated financial statements, have been translated from British pounds to U.S. dollars in accordance with SFAS No. 52. All balance sheet accounts are translated at the exchange rate at September 30, 1996 and all income statement items are translated at the average exchange rate for the applicable period. At September 30, 1996, the current exchange rate was approximately (pound)1.00=$1.56 and the average exchange rate for the nine month period ended September 30, 1996 was approximately (pound)1.00=$1.54. All resulting translation adjustments are recorded directly to Foreign Currency Translation Adjustment on CSW's consolidated balance sheets. Cash flow statement items are translated at a combination of average, historical and current exchange rates. The effect of the changes in exchange rates on cash and cash equivalents, resulting from the translation of items at the different exchange rates, is shown on CSW's Consolidated Statements of Cash Flows in Effect of Exchange Rate Changes on Cash and Cash Equivalents. Certain financial statement items for prior years have been reclassified to conform to the 1996 presentation. 2. LITIGATION AND REGULATORY PROCEEDINGS See the Registrants' Combined Annual Report on Form 10-K for the year ended December 31, 1995 and the Registrants' Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996 for additional discussion of litigation and regulatory proceedings. Reference is also made to NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES and PART II - ITEM 1. for additional discussion of litigation matters and MD&A - COMPETITION AND INDUSTRY CHALLENGES for additional discussion of regulatory matters. CPL RATE REVIEW DOCKET NO. 14965 As previously reported, on November 6, 1995, CPL filed with the Texas Commission a request to increase its retail base rates by $71 million and reduce its annual retail fuel factors by $17 million. The net effect of these proposals would result in an increase of $54 million, or 4.6%, in total annual retail 49 revenues based on a test year ended June 30, 1995. CPL's filing also sought to reconcile $229 million of fuel costs incurred during the period July 1, 1994 through June 30, 1995. CPL's previous request to reconcile fuel costs from March 1, 1990 to June 30, 1994 in Docket No. 13650 was consolidated with the current rate review. If the requested increase and other adjustments in rate structure are approved, CPL will commit not to increase its base rates prior to January 1, 2001, subject to certain force majeure events. On April 30, 1996, CPL implemented new fuel factors that will lower fuel costs to its retail customers by $25 million annually. The lower fuel factors result primarily from the projected decline in CPL's fuel costs during the twelve-month period following the implementation of the new factors. On May 9, 1996, CPL placed a $70 million base rate increase into effect under bond. The bonded rates are subject to refund based on the final order of the Texas Commission. When combined with the fuel factor reduction, the net result is an increase in annual retail revenues of $45 million, or 3.8%. On May 10, 1996, CPL and other parties to the fuel reconciliation phase of the current rate review filed the CPL 1996 Fuel Agreement with the Texas Commission that reconciles CPL's fuel costs through June 1995. A final order implementing the settlement was issued on June 28, 1996, approving a one-time fuel refund of $23 million that was refunded to customers in July 1996. As a condition of the settlement, CPL agreed not to seek recovery of $6 million of fuel and fuel-related costs incurred during the reconciliation period. The additional amount of the refund results from an over-recovery of fuel costs during the reconciliation period and did not have a material impact on CPL's results of operations or financial condition. In a preliminary order issued December 21, 1995, the Texas Commission expanded the scope of the rate review to address certain competitive issues facing the electric utility industry. CPL made a supplemental filing on April 1, 1996, addressing a recommended model for restructuring the electric industry within ERCOT. In addition, the supplemental filing included: (i) estimates of CPL's potential stranded costs based upon various possible structures of the electric industry and under several energy price scenarios; and (ii) a recommendation that the potential stranded costs not be quantified in rates until any changes in the electricity market and structure of utilities in Texas are known. In this supplemental filing, CPL estimated its potential stranded costs could range from approximately zero to approximately $3.7 billion in a worst-case scenario. The range is dependent upon a number of presently unknown factors, including the extent to which CPL is compensated for its reasonable costs and the extent and timing of any implementation of retail competition. Hearings in this phase of the rate review concluded August 23, 1996. CPL has filed rebuttal testimony that challenges positions taken by the Texas Commission staff and other parties intervening in this case. CPL's testimony challenges the Texas Commission staff's proposals as unreasonable and contrary to current law and regulatory policy. While the Texas Commission staff reported the use of a "point estimate" of $850 million for potentially stranded costs, their testimony actually describes their range of potential stranded costs as very uncertain and having a range from $200 million to $2 billion. The Texas Commission staff subsequently revised their "point estimate" to $1.069 billion and their range to $223 million to $2.9 billion. In addition, the Texas Commission staff recommended (i) a nuclear performance standard that would penalize CPL unless it operates its nuclear units better than 75 percent of the U.S. nuclear industry; and (ii) a fuel-recovery mechanism that is based on prices in an undeveloped energy market; and (iii) a one-sided cap on CPL's earnings that effectively prevents CPL from realizing its authorized level of earnings. Hearings for the final stage of the case, the rate case expense phase, were completed in October 1996. Other parties to the rate case have recommended rate case expense disallowances from $8 to $9 million. 50 A proposal for decision is expected in December 1996 and a final order from the Texas Commission is expected in February 1997. CPL's management cannot predict the ultimate outcome of CPL's rate case, although management believes that the ultimate resolution will not have a material adverse effect on CPL's results of operations or financial condition. However, if CPL ultimately is unsuccessful in obtaining adequate rate relief, CPL could experience a material adverse effect on its results of operations and financial condition. For further information related to the preliminary order issued December 21, 1995, by the Texas Commission expanding the scope of the CPL rate review to address certain competitive issues facing the electric utility industry, see the Registrants' Combined Annual Report on Form 10-K for the year ended December 31, 1995 and the Registrants' Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996. PSO REGULATORY MATTERS As previously reported, on July 19, 1996, the Oklahoma Commission staff filed an application seeking a review of PSO's earnings and rate structure. The application does not include language indicating that the Oklahoma Commission staff believes a rate reduction is needed. Instead, the review is being initiated to investigate the potential impact on PSO's rates from both the sale of Transok and PSO's restructuring efforts as well as PSO's improved financial results. Although rate reviews do not have specific time limitations, a schedule has been established for PSO's response. In accordance with the established schedule, PSO filed a package of financial information with the Oklahoma Commission staff on November 1, 1996. PSO cannot predict the outcome of this review. SWEPCO FUEL SURCHARGE On October 31, 1996, SWEPCO filed with the Texas Commission an Application for Authority to Implement an Interim Surcharge of Fuel Cost Under-Recoveries. Through September 1996, SWEPCO had a fuel cost under-recovery balance of approximately $9.6 million including accumulated interest. SWEPCO proposes to surcharge its customers approximately $10.2 million which includes additional interest through the end of the surcharge period. An order in this proceeding is expected in January 1997 which will allow SWEPCO to surcharge customers from February 1997 through January 1998. WTU STIPULATION AND AGREEMENT As previously reported, in the third quarter of 1995 WTU entered into the WTU Stipulation and Agreement to settle several pending regulatory matters that included: (i) a retail rate proceeding and fuel reconciliation before the Texas Commission in Docket No. 13369; (ii) Writ of Error to the Supreme Court of Texas - review of WTU's 1987 Texas rate case in Docket 7510; and (iii) the Texas Commission's proceeding on remand in Docket No. 13949 regarding deferred accounting treatment for Oklaunion. In the fourth quarter of 1995, the Texas Commission rendered a final order that implemented the agreement. Part of the final order also set into motion the actions required to seek a remand of the appeal of Docket No. 7510 to the Texas Commission to implement a final order consistent with the WTU Stipulation and Agreement. The Court of Appeals issued a mandate on April 15, 1996, directed to the Travis County District Court, that permitted the case to be remanded back to the Texas Commission. On May 23, 1996, the Texas Commission assigned it a new proceeding for docketing purposes, Docket No. 15988. Parties to Docket No. 15988 filed a joint motion with the ALJ on June 21, 1996 that proposed to adopt a finding to implement the last outstanding element related to the WTU Stipulation and Agreement in Docket No. 13369, WTU's settled rate case. On October 4, 1996, the 51 ALJ issued a proposed order that is fully consistent with the terms of the WTU Stipulation and Agreement. The Texas Commission entered a final order in Docket No. 15988 approving this agreement on October 28, 1996. 3. COMMITMENTS AND CONTINGENT LIABILITIES TERMINATION OF EL PASO MERGER As previously reported, in May 1993, CSW entered into a Merger Agreement pursuant to which El Paso would have emerged from bankruptcy as a wholly owned subsidiary of CSW. On June 9, 1995, following CSW's notification that it was terminating the Merger Agreement, El Paso filed a suit against CSW seeking a $25 million termination fee from CSW, additional unspecified damages, punitive damages, interest as permitted by law and certain other costs. On June 15, 1995, CSW filed suit against El Paso seeking a $25 million termination fee from El Paso due to El Paso's breach of the Merger Agreement, at least $3.6 million in rate case expenses incurred by CSW on behalf of El Paso related to state regulatory merger proceedings and a declaratory judgment that CSW properly terminated the Merger Agreement. On June 14, 1996, CSW filed an amended complaint seeking a first priority administrative expense claim of $50 million from El Paso based upon El Paso's breach of the Merger Agreement. The United States Bankruptcy Court for the Western District of Texas, Austin Division, consolidated the El Paso suit and the CSW suit into one adversary proceeding. CSW is the named plaintiff in the consolidated adversary proceeding. A trial date of January 21, 1997 has been set for a two-week trial of the lawsuit. Although CSW believes that it has substantial defenses to El Paso's claims and intends to defend El Paso's claims and pursue CSW's claims vigorously, CSW cannot presently predict the outcome of the lawsuit. However, if the lawsuit is decided adversely to CSW, it could have a material adverse effect on CSW's consolidated results of operations but not on its financial condition. CSW ENERGY PROJECTS AND COMMITMENTS CSW Energy is authorized to develop various independent power and cogeneration facilities and to own and operate such non-utility projects, subject to regulatory approval. As previously disclosed, CSW Energy owns interests in five operating projects totaling 648 MW in Colorado, Florida and Texas. In addition, CSW Energy has a 330 MW project (Phillips Sweeny in the table below) under construction in Texas. CSW Energy has agreed to provide construction financing for this project. Construction on this project began in September 1996 with commercial operation scheduled for early 1998. To date, CSW Energy has incurred $30 million of construction and development costs. Total project costs are estimated at $190 million. The following table summarizes equity investments and loans made by CSW Energy and commitments provided by CSW at September 30, 1996. LETTERS OF CREDIT PROJECT EQUITY AND GUARANTEES LOANS - ------------------------------------------------------------------------------- (MILLIONS) Brush II $15.3 $ -- $ -- Ft. Lupton 43.0 56.4 -- Mulberry 24.0 15.7 -- Orange Cogen 53.2 1.7 -- Phillips Sweeny -- 228.0 30.0 Newgulf 10.5 -- -- Various developmental projects 3.8 7.6 5.5 52 During the second quarter of 1996, CSW Energy recorded a one-time charge of approximately $14 million after-tax to establish reserves for equity investments, loans made to development projects and deferred charges associated with certain operating projects. CSW INTERNATIONAL PROJECTS As previously reported, in July, 1996, CSW International announced a joint venture with Alpek, through a subsidiary, to build, own and operate a 120 MW, gas-fired cogeneration project at Alpek's Petrocel industrial complex in Altamira, Tamaulipas, Mexico. CSW International and Alpek each will have 50% ownership in the project, Enertek, which will cost approximately $75 million. CSW International has agreed to provide construction financing for the project of which approximately $11 million had been funded as of September 30, 1996. CSW International has entered into a limited guarantee agreement with the project's engineering, procurement and construction contractor that provides the contractor a guarantee of up to $5 million. The Enertek project is expected to commence commercial operations in the first quarter of 1998. CSW International is currently negotiating the acquisition of capital stock in a Brazilian electric utility company. The acquisition is expected to be consummated by December 1996. See MD&A - CAPITAL REQUIREMENTS, LIQUIDITY AND FINANCING for a discussion of the issuance of Senior Notes by CSW Energy. A portion of the proceeds from this issuance will be used to fund the $40 million acquisition. CPL DEFERRED ACCOUNTING CPL was granted deferred accounting treatment for certain STP Unit 1 and 2 costs by Texas Commission orders issued in October 1990 and December 1990, respectively. In 1994, the Supreme Court of Texas sustained deferred accounting as an appropriate mechanism for the Texas Commission to use in preserving the financial integrity of CPL, but remanded CPL's case to the Court of Appeals to consider certain substantial evidence points of error not previously decided by the Court of Appeals given its prior determinations. On August 16, 1995, the Court of Appeals rendered its opinion in the remand proceeding and affirmed the Texas Commission's order in all respects. CPL believes that the language of the Supreme Court of Texas opinion suggests that the appropriateness of allowing deferred accounting may be reviewed under a financial integrity standard in the first case in which the deferred STP costs are recovered through rates. If the courts decide that subsequent review under the financial integrity standard is required, that review would be conducted in a remand of the STP Unit 1 and Unit 2 orders. Pending the ultimate resolution of CPL's deferred accounting issues, CPL is unable to predict how its deferred accounting orders will ultimately be resolved by the Texas Commission. If CPL's deferred accounting matters are not favorably resolved, CPL could experience a material adverse effect on its results of operations and financial condition. While CPL's management is unable to predict the ultimate outcome of these matters, management believes CPL will receive approval of its deferred accounting orders or will be successful in renegotiation of its rate orders, so that there will be no material adverse effect on CPL's results of operation or financial condition. CPL NUCLEAR INSURANCE In connection with the licensing and operation of STP, the owners have purchased the maximum limits of nuclear liability insurance, as required by law, and have executed indemnification agreements with the Nuclear Regulatory Commission in accordance with the financial protection requirements of the Price-Anderson Act. 53 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 January 1996. 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, which may be adjusted for inflation, plus a five percent charge for legal expenses, but not more than $10 million per reactor for each nuclear incident in any one year. 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 ANI and NEIL. Policies of insurance issued by ANI and 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 to 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 21 consecutive weeks. In the event of an outage of STP Units 1 and 2 and the outage is the result of the same accident, such insurance will reimburse CPL up to 80% of the single unit recovery. The maximum amount recoverable for a single unit outage is $118.6 million for both Unit 1 and 2. CPL is subject to an additional assessment up to $1.9 million for the current policy year in the event that insured losses at a nuclear facility covered under the NEIL I policy exceeds the accumulated funds available under the policy. CPL renewed its current NEIL I Business Interruption and/or Extra Expense policy September 15, 1996. For further information relating to litigation associated with CPL nuclear insurance claims, reference is made to PART II - ITEM 1. PSO SAND SPRINGS/GRANDFIELD, OKLAHOMA PCB COMPLAINTS In 1989, PSO investigated a Sand Springs, Oklahoma PCB storage facility and found some PCB contamination. The clean-up plan was approved by the EPA and clean-up of the facility began in November 1994. In October 1996, EPA filed a complaint against PSO alleging PSO failed to comply with provisions of the Toxic Substances Control Act. The complaint has three counts, two of which pertain to the Sand Springs facility and the third dealing with a substation in Grandfield, Oklahoma. EPA alleges improper disposal of PCBs at the Sand Springs site due to the length of time between discovery of the contamination and the actual clean-up at the site. The complaint at the Grandfield site relates to failure to date PCB articles at the site. The total proposed penalty for the three counts is $479,500. PSO has filed an extension to respond to the complaint and is currently in discussions with EPA. PSO is unable to predict the outcome of the discussions. 54 PSO PCB CASES For information regarding the commitments and contingent liabilities relating to PSO's PCB cases, reference is made to PART II - ITEM 1. SWEPCO BILOXI, MISSISSIPPI MANUFACTURED GAS PLANT SITE As previously reported, SWEPCO was notified by Mississippi Power in 1994 that it may be a potentially responsible party at a manufactured gas plant site in Biloxi, Mississippi, 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 on 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 Mississippi Department of Environmental Quality, whose ensuing comments requested that a future residential exposure scenario be evaluated for comparison with commercial and industrial exposure scenarios. A final range of cleanup costs has not been determined, but based on preliminary estimates, SWEPCO has accrued approximately $2 million for its portion of the cleanup of this site, of which approximately $200,000 has been incurred to date. SWEPCO HENRY W. PIRKEY POWER PLANT In connection with the 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, 1996, the maximum SWEPCO would have to assume is $64.7 million. The maximum amount may vary as the mining contractor's need for funds fluctuates. The contractor's actual obligation outstanding as of September 30, 1996 was approximately $58.9 million. 4. DIVIDENDS The U.S. Electric Operating Companies' 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. At September 30, 1996, approximately $1.8 billion of the subsidiary companies' retained earnings were available for payment of cash dividends by such subsidiaries to CSW. Of this, the amounts attributable to the U.S. Electric Operating Companies were as follows. CPL-$771 million PSO-$147 million SWEPCO-$325 million WTU-$126 million 5. CSW EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK 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. Dividends per common share reflect per share amounts paid during the periods. 6. LONG-TERM FINANCING SWEPCO SABINE SERIES PCRBS In July 1996, $81.7 million of Sabine, 6.10%, Series 1996 PCRBs were issued for the benefit of SWEPCO. The proceeds from this issuance were used to refund the $81.7 million Sabine, 8.20%, Series 1986 PCRBs. 55 CPL, PSO, WTU RED RIVER SERIES PCRBS In August 1996, $63.3 million of Red River, 6.0%, Series 1996, PCRBs were issued for the benefit of CPL, PSO, and WTU. The proceeds from this issuance were used to refund the $63.3 million of Red River, 7 7/8%, Series 1984 PCRBs. CPL MATAGORDA SERIES PCRBS In September 1996, $60 million of Matagorda, 6 1/8%, Series 1996 PCRBs were issued for the benefit of CPL. The proceeds from this issuance will be used to refund the $60 million Matagorda, 7 7/8%, Series 1986 PCRBs, which are classified on the balance sheet as Long-term debt due within twelve months, on December 1, 1996. At September 30, 1996, the proceeds from the issuance were held in trust and are reflected as Special Deposits on the balance sheet. OTHER FINANCING ACTIVITIES See MD&A - CAPITAL REQUIREMENTS, LIQUIDITY AND FINANCING for a discussion of the financing transactions that have been undertaken during 1996 related to the acquisition of SEEBOARD as well as a discussion of the issuance by CSW Energy of $200 million in Senior Notes. 7. DISCONTINUED OPERATIONS On June 6, 1996, CSW sold Transok to Tejas. Accordingly, the results of operations for Transok have been reported as discontinued operations and prior periods have been restated for consistency. Transok is an intrastate natural gas gathering, transmission, marketing and processing company that provides natural gas services to the U.S. Electric Operating Companies, predominantly PSO, and to other non-affiliated gas customers throughout the United States. Transok's natural gas facilities are located in Oklahoma, Louisiana and Texas. After the sale, Transok has continued to supply gas to the U.S. Electric Operating Companies. Operating results of Transok for the nine month period ended September 30, 1996 and 1995 are summarized in the following table (intercompany transactions have not been eliminated). Nine Months Ended September 30, ---------------------- 1996 1995 -------- ------- (millions) Total revenue $362 $511 Operating income before income taxes 23 32 Earnings before income taxes 18 21 Income taxes 6 7 --- --- Net income from discontinued operations $12 $14 --- --- Since Transok was sold on June 6, 1996, the results of operations for the nine month period ended September 30, 1996 do not reflect a full nine months of earnings from Transok. CSW's Consolidated Balance Sheet at September 30, 1996 does not contain any assets or liabilities from Transok. CSW sold Transok to Tejas for approximately $890 million, consisting of $690 million in cash and $200 million in existing long-term debt that remained with Transok after the sale. A portion of the cash proceeds was used to repay 56 the CSW Credit Agreement and the remaining proceeds were used to repay commercial paper borrowings. CSW recorded an after tax gain on the sale of Transok of approximately $113 million in the second quarter of 1996. As a result of the gain, CSW incurred a current tax liability of approximately $195 million. Approximately two-thirds of the current tax liability results from taxes previously deferred by Transok. The deferred taxes were generated primarily by the excess of Transok's tax depreciation over its book depreciation. 8. UTILITY PLANT DEVELOPMENT COSTS During the second quarter of 1996, the U.S. Electric Operating Companies recorded one-time charges reflected in Other Income and Deductions relating to investments made in prior years for plant sites, engineering studies and lignite reserves for which future recovery is not probable. The charges are as follows. Pre-tax effect Income tax Net Income on income benefit effect -------------------------------------------- (thousands) CPL $(21,374) $5,893 $(15,481) PSO (50,854) 15,302 (35,552) SWEPCO (29,590) 7,847 (21,743) WTU (14,905) 3,988 (10,917) -------- ------ ------- $(116,723) $33,030 $(83,693) -------- ------ ------- For a discussion of reserves established by CSW Energy during the second quarter of 1996, see NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES. 9. SUPPLEMENTAL INFORMATION - SEEBOARD'S RECENT OPERATING RESULTS SEEBOARD's results of operations discussed below are prepared in accordance with Generally Accepted Accounting Principles in the United Kingdom and exclude currency conversion, CSW consolidation adjustments and the impact of interest expense on the debt incurred in connection with CSW's purchase of SEEBOARD. CSW did not own SEEBOARD during the prior periods presented in the discussion below. Accordingly, the comparative information has been provided for information only. NINE MONTHS ENDED SEPTEMBER 30, 1996 Net income for the nine months ended September 30, 1996, was (pound)97.6 million compared to (pound)69.1 million for the nine months ended September 30, 1995. Gross profit (revenue less cost of sales) is higher than the comparable period last year despite the impact of a reduction in regulatory allowed revenues following the completion of the regulatory price review of SEEBOARD's distribution business. This primarily reflects an improvement in volume in the current period, supplemented by increases in tariffs to customers from February 1996. Allowed revenue in SEEBOARD's distribution business was reduced by 14% with effect from April 1995 and a further 13% from April 1996. At the net income before interest level, the improvement reflects the continued cost reduction programs of SEEBOARD, the first year contribution from SEEBOARD's 37.5% interest in Medway Power Limited, a company formed to construct, own and operate a 675 MW power station, and the benefit of a release of a (pound)17.5 million accrual no longer required in respect of a previous liability for redundancy costs. Partially offsetting these benefits, during the nine months ended September 30, 1995, SEEBOARD received dividends of (pound)9.9 million as a 57 result of its shareholding in the National Grid. SEEBOARD's interest in the National Grid was demerged to shareholders of SEEBOARD in December 1995, and accordingly, did not receive any dividends in 1996. THREE MONTHS ENDED SEPTEMBER 30, 1996 Net income for the three months ended September 30, 1996 was (pound)25.8 million compared to (pound)12.6 million for the three months ended September 30, 1995. The improvement in net income primarily reflects improvement in volume, SEEBOARD's cost reduction programs and the first year contribution from SEEBOARD's 37.5% interest in Medway Power Limited. 58 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, 1995 and their Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996. Reference is also made to each Registrant's unaudited Financial Statements and related Notes to Financial Statements included herein. The information included therein should be read in conjunction with, and is essential in 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. COMPETITION AND INDUSTRY CHALLENGES INDUSTRY RESTRUCTURING IN TEXAS In compliance with the Texas Commission's Project 15001, "Stranded Costs Report," CPL, SWEPCO and WTU each filed information in response to the Texas Commission's order initiating investigation concerning potential stranded costs. The filings consist of various scenarios used to estimate potential stranded costs. Based on the requirements of the filing, no significant potential stranded costs were identified for SWEPCO or WTU. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for a discussion of the potential impact of potential stranded costs relating to CPL. The Texas Commission's Project 15002, "Scope of Competition Report," is a report that the Texas Commission is required to present to the Texas Legislature in each odd-numbered year detailing the impact of competition in the electric utility industry. In addition, the report will include the Texas Commission's recommendations concerning the public's interest in a partially competitive electric market. In June 1996, CPL, SWEPCO and WTU each filed information for the Texas Commission's report. INDEPENDENT SYSTEM OPERATOR PLAN In June 1996, CSW (including CPL and WTU) and more than 20 other parties, including other investor-owned utilities, municipal power companies, electric cooperatives, independent power producers and power marketers, filed plans to create an independent system operator to manage the ERCOT power grid. The filing marks a major step towards implementing the Texas Commission's overall strategy of creating the competitive wholesale electric market that was mandated by the Texas Legislature in 1995. The Texas Commission approved the independent system operator in August 1996. Such approval made Texas the first state in the nation to implement a regional independent system operator and a regional competitive wholesale bulk power market. INDUSTRY RESTRUCTURING IN OKLAHOMA In June 1996, the Oklahoma Commission announced that it has begun soliciting public comment to aid in the potential restructuring of the Oklahoma electric utility industry. The issues the Oklahoma Commission is exploring include the extent and speed of a restructuring, the unbundling of utility services, as well as the legislative and regulatory needs of such a restructuring. Informal public technical conferences have been held to discuss 59 these issues. The Commissioners of the Oklahoma Commission are scheduled to conduct a conference late in 1996 to review such comments and recommendations in order to prepare themselves for the 1997 session of the Oklahoma Legislature. FERC ORDER 888 As previously reported, on April 24, 1996, the FERC issued Order 888 which is the final comparable open access transmission rule. The provisions of the final rule are similar to provisions of the FERC's 1995 Notice of Proposed Rule Making in that they provide for comparable service between utilities and their transmission customers by requiring utilities to take service under their open access tariffs for all of their new wholesale sales and purchases and by requiring utilities to rely on the same transmission information network that their transmission customers rely on to make wholesale purchases and sales. In addition, it also reaffirms the FERC's position that utilities are entitled to recover, through a formula, all legitimate, prudent and verifiable stranded costs. The final rule requires holding companies to offer single system rates. However, the rule grants CSW an exemption whereby CSW will be given an opportunity to propose a solution that will provide comparability to all wholesale users whereby the rates, terms and conditions for the CSW ERCOT companies (CPL and WTU) would be permitted to differ from those offered by the CSW Southwest Power Pool companies (PSO and SWEPCO). CSW has filed open access tariffs that conform to the provisions of the pro forma tariff included as part of the final rule. CSW filed a system-wide tariff on November 1, 1996 that will, upon FERC approval, replace the conforming tariffs and comply with FERC Order 888 for a single system tariff. STRATEGIC EXECUTIVE AND ORGANIZATIONAL RESTRUCTURING As previously reported, in April 1996 CSW announced organizational and executive changes as CSW prepares for increased competition and for an unbundling of the electric utility industry into generation, transmission, distribution and service segments. This restructuring is expected to provide a more competitive organizational structure for CSW. In connection with implementing its 1996 restructuring, CSW has incurred approximately $8 million in expenses through the third quarter of 1996. Approximately $2.8 million of the restructuring expense relates to the U.S. Electric Operating Companies of which CPL's portion is approximately $1.9 million. The remaining amounts range from approximately $700,000 at SWEPCO to less than $100,000 at WTU. CSW could incur up to $15 million in additional expenses for the restructuring which is expected to be completed by early 1997. CPL, PSO, SWEPCO and WTU are currently unable to reasonably estimate their respective portions of such additional restructuring expenses. NON-UTILITY VENTURES CSW COMMUNICATIONS In September 1996, the Georgetown, Texas City Council awarded a $4.2 million contract to CSW Communications to implement a communications-based utility management system for the city of Georgetown. The Georgetown project, which is expected to be completed in 18 months, will be based on a wireless network to be owned and operated by the city of Georgetown. The network will enable the city to offer advanced energy management, water management and communications services to its more than 25,000 residents. 60 ENERSHOP In October 1996, the Hall Financial Group awarded EnerShop a $1 million energy services contract for a 36-story office tower in downtown Dallas, Texas. Under the agreement, EnerShop will retrofit the lighting, energy management system and other electrical equipment for the office tower. EnerShop is providing low-cost lease financing for the project and is guaranteeing that the savings on utility bills will more than offset Hall Financial Group's lease payments for the project. EnerShop expects to complete the project in the first quarter of 1997. CAPITAL REQUIREMENTS, LIQUIDITY AND FINANCING CONSTRUCTION EXPENDITURES CSW's construction expenditures totaled $343 million for the nine months ended September 30, 1996. Such expenditures for the U.S. Electric Operating Companies totaled $82 million, $57 million, $68 million and $28 million, for CPL, PSO, SWEPCO and WTU, respectively. CSW's construction expenditures, including those for SEEBOARD, 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 the majority of all funds required for construction for the remainder of the year will be provided from internal sources. SEEBOARD ACQUISITION FINANCING As previously reported, CSW, indirectly through intermediate subsidiaries, has acquired control of 100% of SEEBOARD for an aggregate adjusted purchase price of approximately (pound)1.4 billion (approximately $2.1 billion assuming average exchange rates during the purchase period). As of September 30, 1996, CSW had contributed approximately $829 million of the purchase price for the acquisition of SEEBOARD shares. Such funds, which were initially obtained through borrowings under the $850 million CSW Credit Agreement, have since been repaid by using the $398 million net proceeds from CSW's February 1996 common stock offering and $431 million of the proceeds from the sale of Transok. The additional funds necessary for the transaction were made with capital contributions and loans made to CSW (UK) plc (which has been replaced by SEEBOARD Group plc) by its sole shareholder, CSW Investments, which arranged the CSW Investments Credit Facility for that purpose. In August 1996, CSW Investments refinanced a total of (pound)358 million in two separate transactions. (pound)258 million was refinanced by the sale of $200 million of unsecured notes due 2001 and $200 million of unsecured notes due 2006. The proceeds were then swapped into British pounds through a cross currency swap and used to reduce borrowings outstanding under the CSW Investments Credit Facility. The remaining (pound)100 million was refinanced by the issuance of unsecured 10-year Sterling Eurobonds due 2006 and used to reduce the borrowings outstanding under the CSW Investments Credit Facility. In addition, SEEBOARD has entered into a (pound)155 million receivables securitization facility, which is expected to be drawn upon in the fourth quarter of 1996 to further reduce the borrowings outstanding under the CSW Investments Credit Facility. As of September 30, 1996, approximately (pound)467 million (approximately $729 million assuming the prevailing exchange rate on that date) was outstanding under the CSW Investments Credit Facility. CSW Investments anticipates that this amount will be repaid through dividends from SEEBOARD and other proceeds received from refinancing activities. 61 CAPITAL STRUCTURE The CSW System is committed to maintaining financial flexibility by having a strong capital structure and favorable securities ratings which help to assure future access to capital markets when required. At September 30, 1996, the capitalization ratios of each of the Registrants is presented in the following table. Common Preferred Long Stock Equity Stock Term Debt ---------------- ---------------- ---------------- CSW 44% 4% 52% CPL 45% 8% 47% PSO 52% 2% 46% SWEPCO 52% 4% 44% WTU 49% 1% 50% SWEPCO SABINE SERIES PCRBS In July 1996, $81.7 million of Sabine, 6.10%, Series 1996 PCRBs were issued for the benefit of SWEPCO. The proceeds from this issuance were used to refund the $81.7 million Sabine, 8.20%, Series 1986 PCRBs. CPL, PSO, WTU RED RIVER SERIES PCRBS In August 1996, $63.3 million of Red River, 6.0%, Series 1996 PCRBs were issued for the benefit of CPL, PSO and WTU. The proceeds from this issuance were used to refund the $63.3 million of Red River, 7 7/8%, Series 1984 PCRBs. CPL MATAGORDA SERIES PCRBS In September 1996, $60 million of Matagorda, 6 1/8%, Series 1996 PCRBs were issued for the benefit of CPL. The proceeds from this issuance will be used to refund the $60 million Matagorda, 7 7/8%, Series 1986 PCRBs, which are classified on the balance sheet as Long-term debt due within twelve months, on December 1, 1996. At September 30, 1996, the proceeds from the issuance were held in trust and are reflected as Special Deposits on the balance sheet. CSW INVESTMENTS YANKEE NOTES AND EUROBONDS In August 1996, CSW Investments issued unsecured notes in order to refinance a portion of the debt incurred to finance the SEEBOARD acquisition. CSW Investments issued $400 million Yankee Notes ($200 million 6.95% Notes due 2001 and $200 million 7.45% Notes due 2006) and issued (pound)100 million 8.875% Eurobonds due 2006. See SEEBOARD ACQUISITION FINANCING above for additional discussion of these financing activities. CSW ENERGY SENIOR NOTES In October 1996, CSW Energy issued $200.0 million, 6.875% Senior Notes due 2001. CSW Energy intends to use the proceeds from this issuance for the acquisition, development and construction of electric generation assets in the United States and to make affiliated loans to CSW International. CSW International, the guarantor of the senior notes, intends to use any such funds for the acquisition, development and construction of electric generation, transmission and distribution assets internationally. See NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES, for a discussion of CSW International's anticipated use of a portion of such proceeds. SHORT-TERM FINANCING The CSW System uses short-term debt to meet fluctuations in working capital requirements and other interim capital needs. The Registrants, together with other subsidiaries of CSW have: (i) established a money pool to coordinate 62 short-term borrowings and (ii) incurred borrowings outside the money pool through CSW's issuance of commercial paper. As of September 30, 1996, CSW had a revolving credit facility totaling $1.2 billion to back up its commercial paper program. 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 Bankruptcy Court for the Middle District of Louisiana. On October 26, 1996, SWEPCO, together with Entergy Gulf States and the Members Committee filed the Second Amended SWEPCO Plan in the bankruptcy court. Under the Second Amended SWEPCO Plan, a SWEPCO subsidiary or affiliate would acquire all of the non-nuclear assets of Cajun, comprised of the Big Cajun I gas-fired plant, the Big Cajun II coal-fired plant, and related non-nuclear assets, for approximately $780 million in cash, up to an additional $20 million to pay certain other bankruptcy claims and expenses and an additional $7 million to acquire claims of unsecured creditors. In addition, the Second Amended SWEPCO Plan provides for SWEPCO and the Cajun member cooperatives to enter into new 25-year power supply agreements which will provide the Cajun member cooperatives with wholesale rates starting at approximately 3.74 cents per kilowatt-hour while permitting the Cajun member cooperatives the flexibility to acquire power on the open market when their requirements exceed mutually agreed upon levels of generating capacity available from SWEPCO. The Second Amended SWEPCO Plan would settle all claims and litigation in the bankruptcy case, including potentially protracted litigation over power supply contract rights. The filing of the Second Amended SWEPCO Plan complies with an amended schedule of proceedings established by the bankruptcy court which provides for the filing of amended plans, disclosure statements and related documents by October 26, 1996 and for confirmation hearings to begin on December 16, 1996. The bankruptcy court's decision in the case is expected in the first quarter of 1997. The Second Amended SWEPCO Plan amends the Original SWEPCO Plan filed on April 19, 1996 (as amended by the First Amended SWEPCO Plan filed on September 30, 1996) by the Members Committee, SWEPCO and Entergy Gulf States in the bankruptcy court. Under the Original SWEPCO Plan, SWEPCO had proposed to acquire all of the non-nuclear assets of Cajun for approximately $405 million in cash. In addition, under the Original SWEPCO Plan, the Cajun member cooperatives would have made future payments with a net present value ranging from $497 million to $567 million to the Rural Utilities Service of the federal government, Cajun's largest creditor, by using a portion of the cooperatives' future income from their retail customers. Two competing plans of reorganization for the non-nuclear assets of Cajun have been filed with the bankruptcy court at about the same time as the filing of the First Amended SWEPCO Plan, including one plan with a higher bid price. Under one competing plan, Cajun's non-nuclear assets would be acquired by Louisiana Generating LLC, which would be owned by affiliates of SEI Holding, Inc., NRG Energy, Inc. and Zeigler Coal Holdings Company. Cajun's court appointed trustee in bankruptcy is supporting this plan. In addition, Enron Capital & Trade Resources Corp. and the Official Committee of Unsecured Creditors have jointly filed a competing plan of reorganization. Consummation of the Second Amended SWEPCO Plan is conditioned upon confirmation by the bankruptcy court, the receipt by SWEPCO and CSW of all requisite state and federal regulatory approvals in addition to the receipt of their corresponding board approvals. If the Second Amended SWEPCO Plan is confirmed, CSW and SWEPCO expect initially to finance the $807 million required to consummate the acquisition of Cajun's non-nuclear assets through a combination of external borrowings and internally generated funds. 63 REGULATORY MATTERS Reference is made to NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for a discussion of CPL's, PSO's and WTU's regulatory proceedings. LITIGATION RELATING TO TERMINATION OF EL PASO MERGER For information regarding the commitments and contingent liabilities relating to the termination of the Merger, reference is made to NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES. 64 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, 1995 and Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996. ITEM 1. LEGAL PROCEEDINGS. CPL NUCLEAR INSURANCE CLAIMS As previously reported, in 1994, CPL filed a claim under the NEIL I business interruption and/or extra expense policy relating to the 1993-1994 outage at STP Units 1 and 2. NEIL formally denied CPL's claim on November 21, 1995. On April 9, 1996, CPL filed an action in state district court in Corpus Christi, Texas, against NEIL and Johnson & Higgins of Texas, Inc., the former insurance broker for STP, seeking recovery under the policy and other relief. NEIL responded by filing a suit against CPL on April 16, 1996, in the United States District Court for the Southern District of New York seeking a declaratory judgment to enforce an arbitration provision contained in the policy. On May 24, 1996, the New York court ordered the dispute, including the issue of whether the arbitration provision is enforceable, to arbitration and stayed the Texas proceeding. NEIL canceled CPL's current NEIL I policy effective July 31, 1996. NEIL also filed a claim in arbitration seeking a determination that NEIL properly terminated CPL's coverage and that CPL has caused NEIL damages by opposing NEIL's attempt to compel arbitration and seeking recovery of NEIL's attorneys' fees. On June 21, 1996, CPL filed a notice of appeal of the New York court's order in the United States Court of Appeals for the Second Circuit. Subsequently, CPL and NEIL agreed to dismiss all litigation between them concerning CPL's claim for NEIL coverage. CPL and NEIL also agreed to submit their disputes over coverage to a non-binding neutral evaluation process, although both CPL and NEIL have reserved the right to take their dispute to binding arbitration. CPL and NEIL also agreed that CPL's NEIL I policy would be reinstated. CPL intends to assert its rights to recovery under the NEIL I policy vigorously, but cannot predict the ultimate outcome of these matters. CPL's management believes that the resolution of these actions will not have a material adverse effect on its results of operations or financial condition. PSO GAS PURCHASE CONTRACTS As previously reported, PSO has been named defendant in complaints filed in federal and state courts of Oklahoma and Texas in 1984 through 1995 by gas suppliers alleging claims arising out of certain gas purchase contracts. The plaintiffs seek relief through the filing dates as well as attorneys' fees. Through September 1996, complaints representing approximately $11 million in claims were settled. Remaining complaints currently total approximately $100,000 in claimed actual damages. The settlements did not have a material effect on PSO's consolidated results of operations or financial condition. PSO PCB CASES As previously reported, PSO has been named a defendant in complaints filed in federal and state courts in Oklahoma in 1984, 1985, 1986, 1993 and 1996. The complaints allege, among other things, that some of the plaintiffs and the property of other plaintiffs were contaminated with PCBs and other toxic by-products following certain incidents, including transformer malfunctions, in April 1982, December 1983 and May 1984. To date, all complaints, except for certain claims filed in 1996 for additional unspecified actual and punitive damages, have been dismissed, certain of which resulted in settlements among the parties. Management believes that PSO has defenses to the remaining complaints and intends to defend the suits vigorously. Moreover, management believes that the remaining complaints are covered under insurance. Management also believes 65 that the ultimate resolution of the remaining complaints will not have a material adverse effect on PSO's consolidated results of operations or financial condition. SWEPCO BURLINGTON NORTHERN TRANSPORTATION CONTRACT As previously reported, a state district court in Bowie County, Texas awarded SWEPCO a judgment of approximately $72 million against Burlington Northern for damages regarding rates charged under two rail transportation contracts for delivery of coal to two of SWEPCO's power plants, post-judgment interest and attorneys' fees and also granted certain declaratory relief requested by SWEPCO. Burlington Northern appealed the state district court's judgment to the Texarkana, Texas Court of Appeals and, on April 30, 1996, the Texarkana, Texas Court of Appeals reversed the judgment of the state district court. Subsequently, SWEPCO filed two motions for rehearing, but both were overruled. On October 14, 1996, SWEPCO filed an application with the Supreme Court of Texas to grant a writ of error to review and reverse the judgment of the Texas Court of Appeals. 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. See PART I - NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for a discussion CPL's and WTU's regulatory proceedings, and also to PART 1 - NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES for a discussion of litigation involving the termination of the El Paso Merger. ITEMS 2 - 4. INAPPLICABLE ITEM 5. OTHER INFORMATION. PSO UNION NEGOTIATIONS Since July 1, 1996, PSO and its Local Union 1002 of the International Brotherhood of Electrical Workers have been engaged in contract renewal negotiations for the approximately 600 members of the Local. The principal issue is over PSO's anticipated need for flexibility in a deregulated environment. The underlying agreement expired September 30, 1996, and the parties continue to negotiate. 66 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS: (3) BYLAWS AS AMENDED AND RESTATED CPL - (Exhibit 3.1) PSO - (Exhibit 3.2) SWEPCO - (Exhibit 3.3) WTU - (Exhibit 3.4) (12) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES CPL - (Exhibit 12.1) PSO - (Exhibit 12.2) SWEPCO - (Exhibit 12.3) WTU - (Exhibit 12.4) (27) FINANCIAL DATA SCHEDULES PSO - (Exhibit 27.1) (B) REPORTS FILED ON FORM 8-K: CSW, SWEPCO ITEM 5. OTHER EVENTS and ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS, reporting SWEPCO's proposal for the purchase of Cajun assets, dated September 30, 1996. CPL, PSO AND WTU None 67 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 12, 1996 /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 12, 1996 /S/ R. RUSSELL DAVIS ----------------------- R. Russell Davis Controller and Chief Accounting Officer (Principal Accounting Officer) EX-3.1 2 CPL BYLAWS OF CENTRAL POWER AND LIGHT COMPANY (A TEXAS CORPORATION) OCTOBER 25, 1996 INDEX ARTICLE I OFFICES ARTICLE II SEAL ARTICLE III STOCK AND TRANSFERS ARTICLE IV MEETINGS OF SHAREHOLDERS ARTICLE V DIRECTORS ARTICLE VI MEETINGS OF THE BOARD ARTICLE VII OFFICERS ARTICLE VIII COMMITTEES ARTICLE IX INDEMNIFICATION ARTICLE X ORDER OF BUSINESS ARTICLE XI INSPECTION OF BOOKS ARTICLE XII MISCELLANEOUS ARTICLE XIII REFERENCE ARTICLE XIV AMENDMENT BYLAWS OF CENTRAL POWER AND LIGHT COMPANY (A Texas Corporation) ARTICLE I OFFICES The Corporation shall maintain its principal office in Corpus Christi, Texas, and may maintain offices at such other places within or without the state as the Board of Directors may from time to time appoint. ARTICLE II SEAL The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation and the words "Incorporated 1945 Texas", and such seal may be facsimile. ARTICLE III STOCK AND TRANSFERS Section 1. Each holder of fully paid shares of stock of the Corporation shall be entitled to a certificate or certificates representing such shares, certifying the number of shares owned by the shareholder and the designation of the class of stock (and series, if any) in which issued and otherwise complying with any applicable law. All such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary of the Corporation and shall be sealed with the corporate seal of the Corporation or a facsimile thereof. The signature of the President or Vice President and/or the Secretary or Assistant Secretary of the Corporation upon any such certificate may be facsimile if the certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation itself or an employee of the Corporation, duly appointed by the Board of Directors. In case any one or more of such officers of the Corporation who has signed or whose facsimile signature or signatures have been placed or impressed or reproduced upon any such certificate shall have ceased to be such officer or officers of the Corporation before such certificate shall be actually issued, such certificate may be issued and delivered by the Corporation with the same effect as if he or they were such officer or officers at the date of such issuance. Section 2. Shares of stock may be transferred in the manner provided by law; and the Corporation, by its officers or agents appointed for that purpose, shall record upon the books of the Corporation a transfer of its shares upon receipt of a written assignment thereof, signed by the shareholder or his legal representatives and accompanied by the surrender of the certificate representing the shares of stock so transferred. No transfer shall affect the right of the Corporation to pay any dividend due upon the stock or to treat the holder of record as the holder in fact until such transfer has been recorded upon the books of the Corporation or until a new certificate has been issued to the person to whom it has been transferred. If an outstanding certificate of stock shall be lost, destroyed, or stolen, the holder thereof may have a new certificate upon producing evidence, satisfactory to the Board of Directors, of such loss, destruction, or theft, and upon furnishing to the Corporation a bond of indemnity, deemed sufficient by the Board of Directors, to protect the Corporation against claims under the outstanding certificate. Section 3. The stock transfer books of the Corporation may be closed from time to time, by order of the Board of Directors, for a stated period not to exceed, in any case, fifty (50) days, for the purpose of determining shareholders of the Corporation entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, PROVIDED, HOWEVER, that if the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books as aforesaid, the Board of Directors may from time to time fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty (50) days, and in case of a meeting of shareholders not less than ten (10) days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. Whenever a determination of shareholders entitled to vote at any meeting of shareholders has been made, as hereinabove provided, such determination shall apply to any adjournment thereof, except where the determination has been made through the closing of the stock transfer books and the stated period of closing has expired. If the stock transfer books shall not have been closed and no record date shall have been fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, as hereinabove provided, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. ARTICLE IV MEETINGS OF SHAREHOLDERS Section 1. The annual meeting of the shareholders shall be held on the second Thursday in April of each year, if not a legal holiday, and if a legal holiday, then on the day following, at the hour of 9 o'clock a.m. for the election of directors and for the transaction of such other business as may come before it. Such meeting shall be held at the office of the Corporation in Corpus Christi, Texas. In case the annual meeting shall not be duly called and held, the Secretary shall cause a special meeting in lieu of and for the purpose of such annual meeting and all proceedings at such special meeting shall have the same force and effect as at an annual meeting. Section 2. Special meetings of the shareholders may be called by the Chairman, if there shall be one, or by the President or by a majority of the directors and shall be called by the Secretary upon written application of three or more shareholders who are entitled to vote and who hold at least one-tenth part in interest of the shares entitled to vote at the meeting, which application shall state the time, place, and purpose of the meeting, or in such other manner as may be provided in Article VI of the Articles of Incorporation with Amendments of the Corporation, or as may from time to time be provided by statute. Section 3. A written notice, stating the place, day, and hour of the annual meeting shall be given by the Secretary at least ten days and not more than fifty days before the meeting to each shareholder entitled to vote thereat and to each shareholder who, under the Articles of Incorporation with Amendments or under the Bylaws, is entitled to such notice, by delivering such notice to him or by mailing it, postage prepaid, and addressed to such shareholder at his address as it appears on the books of the Corporation. Like notice shall be given of all special meetings, except in cases where other special method of notice may be required by statute, in all which cases the statutory method shall be followed. Notices of all meetings of shareholders shall state the purposes for which the meetings are called. Notice of meetings may in all cases be waived by shareholders entitled to notice. Section 4. At all meetings of shareholders, except as otherwise provided in the Articles of Incorporation with Amendments of the Corporation, a representation of the majority of the number of shares of stock outstanding and entitled to vote shall be necessary to constitute a quorum for the transaction of any business, other than (a) adjournment from time to time until a quorum shall be obtained, or (b) adjourning sine die, and for any such adjournment a majority vote of whatever stock shall be represented shall be sufficient. Section 5. At all shareholders' meetings, except as otherwise provided in the Articles of Incorporation with Amendments of the Corporation, holders of record of stock then having voting power shall be entitled to one vote for each share of stock held by them, respectively, upon any question or at any election, and such vote may, in all cases, be given by proxy, duly authorized in writing, and the vote of the holders of a majority of the shares entitled to vote and represented at a meeting at which a quorum is present shall be the act of the shareholders unless the vote of a greater number is required by law, the Articles of Incorporation with Amendments, or Bylaws. ARTICLE V DIRECTORS Section 1. The property, business, and affairs of the Corporation shall be managed by a Board of Directors which shall consist of that number of directors, not less than three, as shall be fixed from time to time by the Board of Directors or by the shareholders at the annual or a special meeting; provided, however, that no decrease in the number of directors shall have the effect of shortening the term of an incumbent director. Such directors shall be elected by the shareholders, by ballot, at the annual meeting of shareholders, by vote of the holders of a majority of the total number of shares of stock of the Corporation outstanding and entitled to vote at the meeting, present in person or represented by proxy; and each director so elected shall hold office until the next ensuing annual election of directors and until his successor shall be duly elected and qualified, unless sooner displaced in the manner provided by law. The term of any director who is an employee of the Corporation (other than a President who retires) shall expire concurrently with the termination of service of that director as such an employee. Directors need not be shareholders of the Corporation. Section 2. Vacancies occurring in the Board of Directors, and newly created directorships resulting from any increase in the authorized number of directors determined pursuant to the Bylaws, may be filled by vote of a majority of the directors then in office, though less than a quorum, unless otherwise provided in the Articles of Incorporation with Amendments or by statute. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. A directorship to be filled by reason of an increase in the number of directors shall be for a term of office continuing only until the next election of one or more directors by the shareholders; provided that the board of directors may not fill more than two such directorships during the period between any two successive annual meetings of shareholders. Unless otherwise provided in the Articles of Incorporation with Amendments or by statute, when one or more directors shall resign from the Board, effective at a future date, a majority of the remaining directors then in office, though less than a quorum of said Board, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective; and each director so chosen shall hold office as herein provided for the filling of other vacancies. Section 3. The Board of Directors may hold its meetings and may have one or more offices, and may keep the books of the Corporation (except such records and books as by the laws of Texas are required to be kept within that state) outside of Texas, at such places as they may from time to time determine. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the Corporation, and do all such lawful acts and things as are not by law or by the Bylaws required to be exercised or done by the shareholders. Section 4. Without prejudice to the general powers conferred by the last preceding clause, it is hereby expressly declared that the Board of Directors shall have the following powers, that is to say: 1. From time to time to make and change rules and regulations, not inconsistent with these Bylaws, for the management of the Corporation's business and affairs. 2. From time to time, as and when and upon such terms and conditions as it may determine, to issue any part of the authorized capital stock of the Corporation. 3. To purchase, or otherwise acquire for the Corporation, any property, right, or privilege which the Corporation is authorized to acquire at such price or consideration, and generally on such terms or conditions as it shall think fit. 4. At its discretion, to pay for any property or rights acquired by the Corporation, either wholly or partly, in money, stock, bonds, debentures or other securities of the Corporation. 5. To borrow money, to create, make, and issue mortgages, bonds, deeds of trust, trust agreements and negotiable or transferable instruments and securities, secured by mortgage or otherwise, and to do every other act and thing necessary to effectuate the same, but subject always to all requirements of law, as to the consent or authorization of shareholders or otherwise, in respect thereof. 6. To remove or suspend, at its discretion, any and all officers, employees, and agents, permanently or temporarily, as it may think fit, and to determine and fix, and from time to time change their duties, salaries, and emoluments, and to require security in such instances and in such amounts as it thinks fit. 7. To confer by resolution upon any committee or officer of the Corporation, the power to choose, remove, or suspend subordinate officers, employees, and agents. 8. To appoint any person or Corporation to accept and hold in trust for the Corporation any property belonging to the Corporation, or in which it is interested, or for any other purpose, and to execute and do all such deeds and things as may be requisite in relation to any such trust. 9. To determine who shall be authorized on the Corporation's behalf to sign bills, notes, receipts, acceptances, endorsements, checks, drafts, bonds, mortgages, releases, contracts, and other papers and documents, subject always to any requirements of law in respect thereof. 10. To delegate, to the extent permitted from time to time by the laws of the State of Texas, any of the power of the Board in the course of the current business of the Corporation to any standing or special committee, or to any officer, or agent, or to appoint any persons to be the agents of the Corporation with such powers (including the powers to sub-delegate) and upon such terms as it shall think fit. ARTICLE VI MEETINGS OF THE BOARD Section 1. Regular meetings of the Board of Directors of the Corporation shall be held at such place and time as may be designated from time to time by the Board. Special meetings of the Board may be called by the Chairman, if there shall be one, or by the President, or by a Vice President when acting as President, or by any two directors, upon not less than two days' notice to each director, either personally, by telephone, by telegraph or by mail. Notice of any meeting of the Board may be waived in writing by any director, either before or after the meeting, and shall be deemed to have been waived by his attendance at such meeting. Section 2. A majority of the authorized number of directors determined pursuant to the Bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but a lesser number may adjourn from time to time until a quorum shall be obtained or may adjourn sine die. Section 3. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless the act of a greater number is required by the Articles of Incorporation or the Bylaws or law. The Board shall keep minutes of the proceedings at its meetings. Section 4. Directors, as such, shall receive such compensation and expenses of attendance, if any, as may be fixed or allowed by resolution of the Board. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE VII OFFICERS Section 1. There shall be elected by the Board of Directors, at its first meeting (if practicable) held after the annual election of directors in each year, a President, a Secretary, a Treasurer, a Controller, and, if desired, one or more Assistant Secretaries, Assistant Treasurers, and Assistant Controllers. The Board of Directors also may provide for and elect at any time, a Chairman, a General Manager, one or more Vice Presidents, and such other officers, and prescribe such duties for them, respectively, as in the judgment of the Board of Directors may be required from time to time to conduct the business of the Corporation. Any two or more offices, except the offices of President and Vice President, President and Secretary, President and General Manager, and Chairman and any other office, may be held by the same person. All officers elected by the Board of Directors shall hold their respective offices, unless sooner terminated, until the first meeting of the Board of Directors held after the next ensuing annual election of directors and until their respective successors, willing to serve, shall have been duly elected and qualified. Any of such officers may be removed from their respective offices at the pleasure of the Board. Section 2. The Chairman of the Board, if there shall be one, shall preside at all meetings of the stockholders and of the Board of Directors. He shall be a member of the committees to which he has been appointed by the Board of Directors. He shall also have such other powers and duties as may at any time be prescribed by these Bylaws or by the Board of Directors. Section 3. The President shall be the chief executive officer of the Company and have general authority over all of the business and affairs of the Company and over all other officers, agents and employees of the Company, subject to the direction of the Board of Directors. He shall have general and active management of the business and affairs of the Company, and full authority and responsibility with respect to making effective all resolutions of the Board of Directors. He may execute bonds, mortgages, contracts and other instruments on behalf of the Company, except those required by law, governmental regulations, or indentures and other agreements of the Company to be otherwise signed and executed or expressly required by the Board of Directors to be executed by some other officer or agent of the Company. He may suspend the authority of any other officer or officers of the Company, subject, however, to the pleasure of the Board of Directors at its next meeting. He shall have authority to appoint and to remove and discharge any and all agents and employees of the Company not elected or appointed directly by the Board of Directors. In any absence of a Chairman of the Board he shall, if present, have all powers and duties conferred upon the Chairman of the Board. Section 4. The General Manager, if one is elected by the Board of Directors, shall have such powers and duties as may from time to time be prescribed by the Board of Directors. In case the President, due to absence or any other cause, shall be unable at any time to attend to the duties of the office of President requiring attention, or in the case of his death, resignation, or removal from office, the powers and duties of the President shall, except as the Board of Directors may otherwise provide, temporarily devolve upon the General Manager, and shall be exercised by such General Manager as acting President during such inability of the President, or until the vacancy in the office of the President shall be filled. In case of the absence, disability, death, resignation, or removal from office of the President and the General Manager, the Board of Directors shall elect one of its members to exercise the powers and duties of the President during such absence or disability, or until the vacancy in one of said offices shall be filled. Section 5. The Vice President, if one is elected by the Board of Directors, or Vice Presidents, if more than one is elected by the Board of Directors, shall have such powers and duties as may from time to time be prescribed by the Board of Directors. Section 6. The Secretary shall attend all meetings of the shareholders and the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall have the custody and care of the corporate seal, records, and minutes of shareholders' and directors' meetings. He shall issue all notices required for meetings of the shareholders and the Board of Directors. Whenever requested by not less than one-third in number of the directors constituting the whole Board to give notice for a meeting of the Board of Directors, the Secretary shall give such notice, as requested, and the notice shall state the names of the directors making the request. He shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him. He shall be sworn to the faithful discharge of his duty. Section 7. The Treasurer shall have charge of and be responsible for the collection, receipt, custody, and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks, trust companies, or safe deposit vaults as the Board of Directors may direct. He shall have the custody of such books, receipted vouchers, and other books and papers as in the practical business operations of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his custody by the Board of Directors, by the Chairman, by the President, or by the General Manager, or by a Vice President when acting as President. He shall also have charge of the safekeeping of all stocks, bonds, mortgages and other securities belonging to the Corporation, except his own bond; but such stocks, bonds, mortgages, and other securities shall be deposited for safekeeping in a safe deposit vault to be approved by the Board of Directors, in a box or boxes, access to which shall be had as may be provided by resolution of the Board of Directors. He shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him. He may be required to give bond to the Corporation for the faithful discharge of his duties in such form and to such amount and with sureties as shall be determined by the Board of Directors. Section 8. The Controller shall be responsible for the installation and supervision of all accounting records of the Corporation, the preparation and interpretation of the financial statements and reports of the Corporation, and maintenance of appropriate and adequate records of authorized appropriations, and the determination that all sums expended pursuant to such appropriations are properly accounted for, and the ascertainment currently that all financial transactions authorized or approved by the Board of Directors are properly executed and recorded. The Controller shall also have (a) direction of the accounting system and the functional supervision over the records of other departments of the Corporation pertaining to revenues, expenses, moneys, securities, properties, and other assets of the Corporation, (b) custody of all books and records of account and other papers relating to the accounts of the Corporation, except such books and records as, in the normal course of business of the Corporation, shall normally or ordinarily belong in the custody of the Treasurer of the Corporation or as shall be placed in the custody of the Treasurer or other personnel by the Board of Directors, the President, the General Manager, or any Vice President when acting as President, (c) authority to establish or approve accounting practices and procedures required or deemed necessary to assure compliance with the accounting rules, regulations, or orders of governmental authorities having jurisdiction, (d) access to all papers and records of the Corporation relating to its properties and other assets, revenues, and expenses, and (e) such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him. The Controller may be required to give bond to the Corporation for the faithful discharge of his duties, in such form and in such amount, and with such sureties, if any, as shall be determined by the Board of Directors. Section 9. Assistant Secretaries or Assistant Treasurers or Assistant Controllers shall assist the Secretary, the Treasurer, and the Controller, respectively, as the case may be, in the performance of the respective duties of such principal officers; and in case of the absence, disability, death, resignation, or removal from office of any such principal officer, the powers and duties of such principal officer shall, except as otherwise ordered by the Board of Directors, temporarily devolve upon his assistant or senior assistant if there shall be more than one. Such Assistants shall also perform such other duties as may be assigned to them from time to time. ARTICLE VIII COMMITTEES Section 1. The Board of Directors may from time to time appoint, by resolution passed by a majority of the whole Board, standing or special committees, each consisting of one or more directors, each committee to have such powers, permitted by law, as the Board may determine. Section 2. Meetings of a committee may be called by the chairman of the committee, by any two members of a committee consisting of two or more members, by any sole member of a committee or by the President. Notice of each committee meeting, stating the date, hour and place at which it will be held, shall be given to each member of the committee personally, by telephone, by telegraph or by mail, at least two days before the day of such meeting. A majority of the members of a committee shall constitute a quorum for the transaction of business at any meeting thereof, but a lesser number may adjourn the meeting from time to time until a quorum is obtained or may adjourn sine die. A majority vote of those present at a meeting of a committee at which a quorum is present shall be decisive of all questions before the meeting. Section 3. In the absence or disqualification of any member of a committee, the remaining member or members present at a meeting and not disqualified from voting, whether or not constituting a quorum, may appoint another director to act at such meeting in the place of such absent or disqualified member. Section 4. Notice to a director of any committee meeting may be waived in writing by such director, either before or after the meeting, and shall be deemed to have been waived by his attendance at the meeting. Section 5. In accordance with the foregoing provisions of these Bylaws, the following committees are hereby established: AUDIT COMMITTEE a. The Audit Committee of the Central Power and Light Company Board of Directors shall be composed of all directors of the Company who are not presently or formerly officers or employees of this Company or its affiliates. b. The Audit Committee shall have such responsibilities and powers, permitted by law, as the Board may determine from time-to-time by resolution passed by a majority of the whole Board. NOMINATING COMMITTEE a. The Nominating Committee of the Central Power and Light Company Board of Directors shall be composed of all directors who are not presently or formerly officers or employees of the Company or its affiliates, except that the Chief Executive Officer of the Company shall be an ex officio member of the Committee. b. The Nominating Committee shall: 1. Seek out and recommend to the Board of Directors qualified candidates for election to the Board when, under Article V of the Bylaws of the Company, a vacancy exists or a new directorship is created; 2. Have and exercise all other powers as it shall deem necessary for the performance of its duties. ARTICLE IX INDEMNIFICATION Section 1. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and is not determined by the Board to have been guilty of misconduct in the performance of his or her duty to the Corporation. Provided, however, that no person shall be indemnified for amounts paid in settlement, unless the terms and conditions of such settlement have been consented to by the Corporation. And further provided that with respect to any criminal action or proceeding, such person had no reasonable cause to believe that his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not of itself create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that such conduct was unlawful; provided, however, that no indemnity prohibited by law shall be made. Section 2. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation. Provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for misconduct in the performance of his or her duty to the Corporation unless and only to the extent that a District Court of the State of Texas or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which a District Court of the State of Texas or such other court shall deem proper; and further provided that no indemnity prohibited by law shall be made. Section 3. The Corporation may indemnify, to the same extent as hereinabove provided, any person who is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Any indemnification under this Section 3 shall be made only upon the authorization of the Board of Directors, which may occur at any time prior to, during, or after final judgment or order, in any action, suit or proceeding to which such person is or is threatened to be made a party. No right to such indemnification is created by this Section 3. Section 4. Any indemnification under Sections 1, 2 and 3 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 1 and 2. Such determination shall be made (i) by the Board of Directors by majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, by independent legal counsel in a written opinion, if a quorum of disinterested directors so directs, or (iii) by the stockholders. Section 5. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of such director, or officer, to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the Corporation as authorized in this Article. Such expenses incurred by other employees and agents with respect to which indemnification is claimed hereunder may also be advanced upon such terms and conditions, if any, as the Board of Directors deems appropriate. Section 6. The Corporation may, as authorized by the Board of Directors, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by him or her in any such capacity, or arising out of this status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article. Section 7. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Corporation pursuant to the foregoing provisions of this Article or the laws of the State of Texas, in the event any claim for indemnification against such liabilities (other than for the payment by the Corporation of expenses, including attorneys' fees, actually and reasonably incurred by a director, officer or controlling person of the Corporation in the successful defense of any action, suit or proceeding) is asserted against the Corporation by such director, officer or controlling person in connection with the registration of any security under the Securities Act of 1933, the Corporation will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to court of appropriate jurisdiction the question whether such indemnification by the Corporation is against public policy as expressed by the Securities Act of 1933 and will be governed by the final adjudication of such issue. Section 8. Each person who is or was or had agreed to become a director, officer, employee or agent of the Corporation, or each such person who is or was serving or had agreed to serve at the request of the Board of Directors or an officer of the Corporation as an employee or agent of the Corporation or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified (including, without limitation, the advancement of expenses and payment of all loss, liability and expenses) by the Corporation to the full extent permitted by the Texas Business Corporation Act or any other applicable laws as presently in effect or as may hereafter be amended (but in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said laws permitted the Corporation to provide prior to such amendment); provided however, that no person shall be indemnified for amounts paid in settlement unless the terms and conditions of such settlement have been consented to by the Corporation and provided further that no indemnification for employees or agents of the Corporation (other than directors and officers) will be made without the express authorization of the Corporation's Board of Directors. ARTICLE X ORDER OF BUSINESS Section 1. The order of business at meetings of the Board of Directors shall be determined by the Chairman, if there shall be one and he shall be present, or by the President or other person acting as Chairman of the meeting, unless otherwise ordered by the Board. ARTICLE XI INSPECTION OF BOOKS Section 1. The directors shall determine from time to time whether, and if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except such as may by statute be specifically open to inspection), or any of them, shall be open to inspection by the shareholders, and the shareholders' rights in this respect are and shall be restricted and limited accordingly, except as otherwise provided by law. ARTICLE XII MISCELLANEOUS Section 1. No debts shall be contracted by or on behalf of the Corporation, except for current expenses incurred in the ordinary course of business, unless authorized or approved by the Board of Directors or by the Chairman, if there shall be one, or by the President, the General Manager, or a Vice President when acting pursuant to authority or approval granted by the Board of Directors. No bills shall be paid by the Corporation unless audited and approved by the Controller, or individual(s) he may designate, to audit and approve bills for payment. Section 2. The dividends on the preferred stock, if declared, shall be payable on the dates as provided in the Articles of Incorporation with Amendments. All dividends declared upon the Common Stock shall be payable at such times as may be fixed by the Board of Directors. Before paying any dividend or making any distribution of profits, there shall be set aside out of the surplus or net profits of the Corporation, such sum or sums as the Board of Directors may from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board shall think conducive to the interests of the Corporation. Section 3. The calendar year shall be the fiscal year of the Corporation. ARTICLE XIII REFERENCE Section 1. The Articles of Incorporation with Amendments, as amended from time to time, are incorporated herein by reference and shall govern as to the provisions thereof, notwithstanding any provision herein to the contrary. ARTICLE XIV AMENDMENT Section 1. These Bylaws may be altered, amended or rescinded by vote of a majority of the shareholders having voting power at any annual meeting or at any special meeting of said shareholders called for the purpose and, if and to the extent permitted by law, may also be altered, amended or rescinded by the Board of Directors. EX-3.2 3 PSO BYLAWS OF PUBLIC SERVICE COMPANY OF OKLAHOMA ARTICLE I STOCK AND TRANSFERS SECTION 1. Each holder of fully paid stock shall be entitled to a certificate or certificates of stock stating the number of shares owned by such stockholder. All certificates of stock shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary and sealed with the seal, which may be facsimile, of the Company and shall be countersigned by a Transfer Agent appointed by the Board of Directors. All certificates of Preferred Stock shall also be countersigned and registered by a Registrar, appointed by the Board of Directors, and the signatures of the President or Vice President and the Secretary or Assistant Secretary upon all such certificates of Preferred Stock may be facsimiles, engraved or printed. In case any officer who has signed or whose facsimile signature has been placed upon a certificate of stock shall cease to be such officer before such certificate is issued, such certificate may be issued by the Company with the same effect as if such officer had not ceased to be such at the date of its issue. SECTION 2. The capital stock of the Company shall be divided into such classes, with such respective designations, preferences and voting powers, restrictions or qualifications thereof, as are or shall be from time to time stated and expressed in the Articles of Incorporation of the Company, and amendments thereto. No holder of shares of stock of any class of the Company shall have any preemptive or preferential rights of subscription or purchase of any shares of any class of stock of the Company, whether now or hereafter authorized, and any and all shares of capital stock of any class of the Company, whether now or hereafter authorized, may, in the discretion of the Board of Directors, be offered and sold to the holders of any one or more classes of stock of the Company to the exclusion of any other class or classes, or may be issued and disposed of from time to time in such manner and to such persons, whether stockholders or not, and for such corporate purposes as may be determined by the Company's Board of Directors and without first being offered to stockholders. SECTION 3. Shares of stock shall be transferable only on the books of the Company, and, except as hereinafter provided, or as may be required by law, or by order of court in a proper proceeding, shall be transferred only upon the proper assignment and surrender of the certificates issued therefor. If an outstanding certificate of stock shall be lost, destroyed or stolen, the holder thereof may have a new certificate upon producing evidence, satisfactory to the Board of Directors, of such loss, destruction or theft, and upon furnishing to the Company a bond of indemnity, deemed sufficient by the Board of Directors, to protect the Company against claims under the outstanding certificate. SECTION 4. The Board of Directors shall have power to fix a time, not exceeding sixty days preceding the date of any meeting of stockholders, or the date fixed for the payment of any dividend or distribution or the date for the allotment of rights or the date when any change or conversion or exchange of shares shall be made or go into effect, as a record date for the determination of the stockholders entitled to notice of and to vote at such meeting or entitled to receive payments of any such dividend, distribution, or allotment of rights, or to exercise rights in respect to any such change, conversion or exchange of shares, and in such case only registered stockholders on the date so fixed shall be entitled to receive notice of said meeting or to receive payment of such dividend, distribution, or allotment of rights, or to exercise such rights of change, conversion, or exchange of shares, as the case may be, notwithstanding any transfer of any shares on the books of the Company after any record date fixed as aforesaid; provided, however, that the stock transfer books of the Company may be closed by order of the Board of Directors for a period not exceeding sixty days for the purpose of holding a meeting of stockholders, or paying a dividend, or for any other legal purpose, as the Board of Directors shall deem advisable. SECTION 5. If default shall be made in the prompt payment when due of any sum payable to the Company upon any subscription for stock of the Company, and if such default shall continue for a period of thirty days, then all right under the subscription in and to the stock subscribed for shall, upon the expiration of such period, cease and determine and become and be forfeited to the Company; provided that if at the expiration of such thirty-day period such right shall belong to the estate of the decedent, it may be forfeited only by resolution of the Board of Directors declaring forfeiture. The Company shall, within thirty days after such forfeiture, cause such stock to be sold at private or public sale, at its market value at the time of sale, and shall, out of the net proceeds of sale and upon surrender of any outstanding stock subscription receipt issued to evidence the subscription, pay to the recorded holder of such receipt the amount paid on the subscription prior to forfeiture, less the amount, if any, by which the total subscription price of the stock exceeded the net proceeds of sale. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. The annual meeting of the stockholders shall be held usually on the third Tuesday in April of each year. Each such annual meeting shall be held at the hour of ten o'clock a.m., at the registered office of the Company, or on such other date in April and at such other time and place, within or without the state of Oklahoma, as shall have been designated by resolution of the Board of Directors or by written consent of all stockholders entitled to vote at such meeting, and at such annual meeting a Board of Directors shall be elected and such other business may be transacted as may come before the meeting, provided notice thereof, if required by statute, shall have been duly given. SECTION 2. Special meetings of the stockholders may be called at any time by the Chairman, if there shall be one, the President, the Board of Directors, or by one or more stockholders holding not less than one-fourth of the outstanding shares of Common Stock of the Company, or in such other manner as may be provided by statute or by paragraph (7) of Article VI of the Articles of Incorporation, as amended. SECTION 3. Notice of the time and place of each annual or special meeting of stockholders, shall be mailed to the address, as shown by the Company's records, of each stockholder entitled to vote at such meeting not less than ten days before the date of the meeting, except in cases where other special method of notice may be required by statute, in which cases the statutory method shall be followed. The notice of a special meeting shall state the purpose of the meeting. Notice of any meeting of the stockholders may be waived by any stockholder. SECTION 4. Any meeting of the stockholders, whenever or however called and held, shall be legal and its proceedings valid if all of the stockholders eligible under the Articles of Incorporation, as amended, and the Bylaws to vote upon questions submitted at such meeting are present either in person or by proxy, or if a quorum be present in person or by proxy and either before or after the meeting each of the stockholders entitled to vote and who was not present in person or by proxy at the meeting signs a written waiver of notice or a consent to the holding of such meeting or any approval of the minutes thereof. SECTION 5. At any stockholders' meeting, except as otherwise provided in paragraph (7) of Article VI of the Articles of Incorporation, as amended, a majority of the stock outstanding eligible under the Articles of Incorporation, as amended, and the Bylaws to vote upon questions being submitted at such meeting must be represented in order to constitute a quorum for the transaction of business, but the stockholders represented at any meeting, though less than a quorum, may adjourn the meeting to some other day or sine die. SECTION 6. No notice of any adjourned meeting need be given to stockholders unless the adjournment be for thirty days or more, in which case notice shall be given as of an original meeting, provided, however, that at an adjourned meeting no business may be transacted other than that which might have been transacted at the original meeting unless notice thereof shall have been given as in the case of an original meeting. SECTION 7. At all meetings of stockholders each share of stock eligible under the Articles of Incorporation, as amended, and the Bylaws to vote upon questions being submitted at such meeting shall be entitled to such vote or votes as from time to time shall be provided in the Article of Incorporation, as amended, and such stock may be voted by the holder thereof in person or by his duly authorized proxy in writing duly filed with the Secretary of the Company. SECTION 8. The Chairman, if there shall be one, when present, or in his absence the President of the Company, shall act as Chairman, and the Secretary of the Company shall act as Secretary, of each stockholders' meeting. ARTICLE III BOARD OF DIRECTORS SECTION 1. The number of directors of the Company shall be such number, not less than eight nor more than fifteen, as the Board shall by resolution determine from to time. Except as otherwise provided in paragraph (7) of Article VI of the Articles of Incorporation, as amended, the directors shall be elected at each annual meeting of stockholders except that a majority of the directors at the time in office, including any director who shall have resigned from the Board effective at a future date, though less than a quorum, may fill any vacancy occurring on the Board of Directors or any newly created directorship. Each director shall hold office until the next succeeding annual meeting of the stockholders and until his successor shall have been elected and qualified, or until his earlier resignation or removal. The term of a director employed by the Company (other than the Chief Executive Officer upon retirement) shall expire concurrently with the termination of such employment. SECTION 2. From and after October 28, 1987, the Board of Directors shall not elect as a director or propose for election by the stockholders as a director, (a) any person who has attained the age of seventy (70) or who will have attained that age on or before the date of his election by the Board or proposed election by the stockholders, or (b) any employee of the Company (other than a past or present Chief Executive Officer of the Company) whose service as such employee has terminated or will in normal course terminate on or before the date of his election by the Board or proposed election by the stockholders; excepting that any present member of the Board of Directors who has attained the age of seventy (70) by October 28, 1987 may, at the President's discretion, remain on the Board under the provisions of the Bylaws in effect prior to this Amendment. SECTION 3. The Board of Directors by resolution may confer upon any former director the honorary title of Director Emeritus. The designation and number of directors emeriti shall be within the discretion of the Board. Directors emeriti shall not be members of the Board of Directors, nor counted toward a quorum thereof, but shall have the privilege of attending, without vote, the meetings of the Board. Directors emeriti shall receive no compensation, but may be reimbursed for necessary expenses in the manner and amount as if directors. SECTION 4. A regular meeting of the Board of Directors shall be held immediately after the annual meeting of stockholders in each year and at the same place where such annual meeting shall have been held, provided a quorum for such meeting be obtained. A regular meeting of the Board of Directors shall also be held quarterly thereafter, usually on the third Tuesday of January, April, July and October at the registered office of the Company, or when directed by the Chairman, if there shall be one, the President or the Board of Directors, at such other place within or without the state of Oklahoma as may be specified in the notice of the meeting. Written notice of each regular meeting stating the time and place and, if required by statute or the Bylaws, the purpose of such meeting shall be mailed, or telegraphed, at least one week before the date of such meeting to each director, unless such notice shall be waived by any director, in writing, either before or after such meeting. SECTION 5. Special meetings of the Board of Directors may be called at any time by the Chairman, if there shall be one, by the President, by a Vice President when acting as President, or by any two or more directors, by mailing to each director, not less than one week before such meeting, a written notice stating the time, place and purpose of such meeting, unless such notice shall be waived by any director, in writing, either before or after such special meeting. Special meetings of the Board of Directors may be held at any time at the registered office of the Company, or at any other place within or without the state of Oklahoma. SECTION 6. Notice of any meeting of the Board of Directors may be waived by any director, in writing, either before or after the meeting; and any director, by his attendance at any meeting, shall be deemed to have waived such notice. SECTION 7. Five members of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but a less number may adjourn the meeting to some other day or sine die. The acts of a majority of the directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors. The Chairman, if there shall be one, or in his absence the President of the Company, shall act as Chairman of the meeting; and the Secretary of the Company shall act as Secretary of the meeting. In the absence of both the Chairman and the President of the Company, the Board of Directors shall elect a Chairman of the meeting. In the absence of the Secretary, an Assistant Secretary of the Company shall serve as secretary of the meeting. In their absence, the directors shall elect a secretary of the meeting. The members of the Board of Directors may be paid such fees for attendance at meetings as the Board of Directors from time to time by resolution may determine. SECTION 8. The order of business at meetings of the Board of Directors shall, unless otherwise ordered by the Board of Directors, be as follows: 1. Reading and consideration of the minutes of the preceding meeting. 2. Reading of the minutes of meetings of the Executive Committee, if any, held since the last meeting of the Board of Directors. 3. Report of other committees, if any. 4. Reports from officers or other employees of the Company. 5. Consideration of any other business of the Company. ARTICLE IV COMMITTEES SECTION 1. The Board of Directors, by resolution adopted by a majority of the entire Board, may appoint an Executive Committee consisting of four or more directors, including the Chairman, if there shall be one, and the President of the Company. Any three directors on the Executive Committee shall be required for a quorum. The Executive Committee may be discontinued at any time by resolution adopted by a majority of the entire Board of Directors; but, after its creation and until it is discontinued, the members of the Executive Committee shall be appointed annually, by resolution adopted by a majority of the entire Board of Directors at the first meeting of the Board after the annual meeting of stockholders in each year. Vacancies in the Executive Committee shall be filled by resolution adopted by a majority of the entire Board of Directors. During the intervals between meetings of the Board of Directors, the Executive Committee shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Company except as to matters in respect of which specific directions shall have been given by the Board of Directors. All actions of the Executive Committee shall be recorded by the Secretary of the Company and be reported to the Board of Directors at its regular meetings. SECTION 2. The Board of Directors may appoint other committees, standing or special, from time to time from among their own number, or otherwise, and confer powers on such committees, and revoke such powers and terminate the existence of such committees, at its pleasure. SECTION 3. Meetings of any committee may be called in such manner and may be held at such times and places as such committee may by resolution determine, provided that a meeting of any committee may be called at any time by the Chairman, if there shall be one, or by the President of the Company. Not less than one day's notice of all meetings of the Executive Committee shall be given to each member of the committee personally, in writing, or by mail, or by telegraph, but no notice shall be necessary where a meeting is held with the consent of all the members of the committee. Members of all committees shall be paid such fees for attendance at meetings as the Board of Directors may determine. ARTICLE V OFFICERS SECTION 1. There shall be elected by the Board of Directors, at its first meeting (if practicable) held after the annual election of directors in each year, a President, a Secretary, a Treasurer, a Controller, and, if desired, one or more Assistant Secretaries, Assistant Treasurers, and Assistant Controllers. The Board of Directors also may provide for and elect at any time, a Chairman, a General Manager, one or more Vice Presidents, and such other officers, and prescribe such duties for them, respectively, as in the judgment of the Board of Directors may be required from time to time to conduct the business of the Corporation. Any two or more offices, except the offices of President and Vice President, President and Secretary, President and General Manager, and Chairman and any other office, may be held by the same person. All officers elected by the Board of Directors shall hold their respective offices, unless sooner terminated, until the first meeting of the Board of Directors held after the next ensuing annual election of directors and until their respective successors, willing to serve, shall have been duly elected and qualified. Any of such officers may be removed from their respective offices at the pleasure of the Board. SECTION 2. The Chairman of the Board shall, at his discretion, preside at all meetings of the stockholders and at all meetings of the Board of Directors. In the absence of the Chairman of the Board, the President shall preside at the meetings of the Board of Directors. He shall also have and may exercise such further powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. SECTION 3. The President shall be the Chief Executive Officer of the Company and shall have general authority over all of the business and affairs of the Company and over all other officers, agents and employees of the Company. When the Chairman of the Board is not present, he shall preside at all meetings of the stockholders, and of the Board of Directors. He shall be a member of the Executive Committee, if there shall be one, and shall be ex officio a member of any other committee appointed by the Board of Directors. He shall preside at all meetings of the Executive Committee, if there shall be one. He shall have general and active management of the business and affairs of the Company, and full authority and responsibility with respect to making effective all resolutions of the Board of Directors. He shall execute bonds, mortgages, contracts and other instruments requiring the seal of the Company to be affixed, except where required or permitted by law to be otherwise signed and executed, and except where such duties shall be expressly delegated by him or the Board of Directors to some other officer or agent of the Company. He shall have authority when neither the Board of Directors nor the Executive Committee is in session to suspend the authority of any other officer or officers of the Company, subject, however, to the pleasure of the Board of Directors or of the Executive Committee at its next meeting, and authority to appoint and to remove and discharge any and all agents and employees of the Company not elected or appointed directly by the Board of Directors. He shall also have such other powers and duties as may at any time be prescribed by these Bylaws or by the Board of Directors. SECTION 4. The General Manager, if one is elected by the Board of Directors, shall have such powers and duties as may from time to time be prescribed by the Board of Directors. In case the President, due to absence or any other cause, shall be unable at any time to attend to the duties of the office of President requiring attention, or in the case of his death, resignation, or removal from office, the powers and duties of the President shall, except as the Board of Directors may otherwise provide, temporarily devolve upon the General Manager, and shall be exercised by such General Manager as acting President during such inability of the President, or until the vacancy in the office of the President shall be filled. In case of the absence, disability, death, resignation, or removal from office of the President and the General Manager, the Board of Directors shall elect one of its members to exercise the powers and duties of the President during such absence or disability, or until the vacancy in one of said offices shall be filled. SECTION 5. The Vice President, if one is elected by the Board of Directors, or Vice Presidents, if more than one is elected by the Board of Directors, shall have such powers and duties as may from time to time be prescribed by the Board of Directors. SECTION 6. The Secretary shall attend all meetings of the stockholders, the Board of Directors and the Executive Committee, shall keep a true and faithful record thereof, and shall have the custody and care of the corporate seal, minute books and stock books of the Company. Except as may be otherwise required by law, the Secretary shall sign and issue all notices required for meetings of stockholders, the Board of Directors and the Executive Committee. Whenever requested by the requisite number of stockholders or directors, the Secretary shall give notice, in the name of the stockholders or directors making the request, of a meeting of the stockholders, the Board of Directors or the Executive Committee, as the case may be. The Secretary shall sign all documents and papers to which the signature of the Secretary may be necessary or appropriate, shall affix and attest the seal of the Company to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of secretary of a corporation or as may be prescribed by the Board of Directors or the Chief Executive Officer. SECTION 7. The Treasurer shall have charge of and be responsible for the collection, receipt, custody and disbursement of the funds of the Company, and shall deposit its funds in the name of the Company in such banks, trust companies or other depositories as the Board of Directors may authorize. Such funds shall be subject to withdrawal only in such manner as may be designated from time to time by resolution of the Board of Directors. The Treasurer shall have the custody of such books and papers as in the practical business operations of the Company shall be convenient or as shall be placed in the Treasurer's custody by order of the Board of Directors. The Treasurer shall have such other powers and duties as are commonly incidental to the office of treasurer of a corporation or as may be prescribed by the Board of Directors, the Chief Executive Officer or the Chief Financial Officer. Securities owned by the Company shall be in the custody of the Treasurer or of such other officers, agents or depositories as may be designated by the Board of Directors. The Treasurer may be required to give bond to the Company for the faithful discharge of the treasurer's duties in such form and in such amount and with such surety as shall be determined by the Board of Directors. SECTION 8. The Controller shall be responsible for the preparation, installation and supervision of all accounting records of the Company, preparation and interpretation of the financial statements and reports of the Company, maintenance of appropriate and adequate records of authorized appropriations, determination that all sums expended pursuant to such appropriations are properly accounted for, and ascertainment that all financial transactions are properly executed and recorded, and shall have such specific powers and duties as shall be delegated by the Board of Directors, the Chief Executive Officer or the Chief Financial Officer. The Controller may be required to give bond to the Company for the faithful discharge of the duties of the controller in such form and in such amount and with such surety as shall be determined by the Board of Directors. SECTION 9. Assistant officers, if any, shall assist the principal officers in the performance of the duties assigned to such principal officers, and in so doing each shall have the powers of their respective principal officers. In case of the absence, disability, death, resignation or removal from office of any of such principal officers, their duties shall, except as otherwise ordered by the Board of Directors, temporarily evolve upon such assistant officer as shall be designated by the Chief Executive Officer. Such assistant officers shall also perform such other duties as may be assigned to them from time to time by their respective principal officers, by the Chief Executive Officer or by the Board of Directors. ARTICLE VI MISCELLANEOUS SECTION 1. The corporate seal of the Company shall have inscribed thereon the name of the Company, between concentric circles, and the word "SEAL". Such seal may be used by the Company by causing it, or a FACSIMILE thereof, to be imprinted, impressed or affixed or in any other manner reproduced. SECTION 2. The funds of the Company shall be deposited to its credit in such banks or trust companies as the Board of Directors from time to time shall designate and shall be withdrawn only on checks or drafts of the Company for the purposes of the Company. All checks, drafts, notes, acceptances and endorsements of the Company shall be signed in such manner and by such officer or officers or such individual or individuals as the Board of Directors from time to time by resolution shall determine. If and to the extent so authorized by the Board of Directors, such signature or signatures may be facsimile. Only checks, drafts, notes, acceptances and endorsements signed in accordance with such resolution or resolutions shall be the valid checks, drafts, notes, acceptances or endorsements of the Company. SECTION 3. No debt shall be contracted, for other than current expenses, unless authorized by the Board of Directors or the Chairman, and no bill shall be paid by the Treasurer unless previously certified by the head of the department in which it originated and the Treasurer is otherwise satisfied as to its propriety and accuracy. If the Treasurer is not so satisfied, the authority of the Chairman shall be secured before payment. SECTION 4. All dividends shall be declared by a vote of the Board of Directors. SECTION 5. The fiscal year of the company shall close at the end of December annually. SECTION 6. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and is not determined by the Board to have been guilty of misconduct in the performance of his or her duty to the Corporation. Provided, however, that no person shall be indemnified for amounts paid in settlement, unless the terms and conditions of such settlement have been consented to by the Corporation. And further provided that with respect to any criminal action or proceeding, such person had no reasonable cause to believe that his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not of itself create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that such conduct was unlawful; provided, however, that no indemnity prohibited by law shall be made. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation. Provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for misconduct in the performance of his or her duty to the Corporation unless and only to the extent that the District Court or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the District Court or such other court shall deem proper; and further provided that no indemnity prohibited by law shall be made. (c) The Corporation may indemnify, to the same extent as hereinabove provided, any person who is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Any indemnification under this Subsection (c) shall be made only upon the authorization of the Board of Directors, which may occur at any time prior to, during, or after final judgment or order, in any action, suit or proceeding to which such person is or is threatened to be made a party. No right to such indemnification is created by this Subsection (c). (d) Any indemnification under Subsections (a), (b) and (c) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Subsections (a) and (b). Such determination shall be made (i) by the Board of Directors by majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, by independent legal counsel in a written opinion, if a quorum of disinterested directors so directs, or (iii) by the stockholders. (e) Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of such director, or officer, to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the Corporation as authorized in this Section. Such expenses incurred by other employees and agents with respect to which indemnification is claimed hereunder may also be advanced upon such terms and conditions, if any, as the Board of Directors deems appropriate. (f) The Corporation may, as authorized by the Board of Directors, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by him or her in any such capacity, or arising out of this status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Section. (g) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Corporation pursuant to the foregoing provisions of this Section or the laws of the state of Oklahoma, in the event any claim for indemnification against such liabilities (other than for the payment by the Corporation of expenses, including attorneys' fees, actually and reasonably incurred by a director, officer or controlling person of the Corporation in the successful defense of any action, suit or proceeding) is asserted against the Corporation by such director, officer or controlling person in connection with the registration of any security under the Securities Act of 1933, the Corporation will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by the Corporation is against public policy as expressed by the Securities Act of 1933 and will be governed by the final adjudication of such issue. ARTICLE VII Unless otherwise ordered by the Board of Directors, the President shall have full power and authority on behalf of the Company, either in person or by proxy, at any meeting of stockholders of any corporation in which the Company may hold Stock and, at any such meeting, may possess and exercise all the rights and powers incident to the ownership of such Stock which, as the owner thereof, the Company might have possessed or exercised, if present. ARTICLE VIII AMENDMENT OR REPEAL OF BYLAWS The Bylaws may be altered or repealed or new Bylaws may be adopted (a) by a vote of the holders of a majority of the Common Stock present in person or by proxy at any regular or special meeting, duly convened after notice to the common stockholders setting out the purpose of such meeting, at which meeting a majority of the outstanding Common Stock is represented; or (b) by a majority vote of the entire Board of Directors at any regular or special meeting duly convened after notice of the purpose of such meeting, subject to the power of the stockholders to alter or repeal such Bylaws; provided that the Board of Directors shall not adopt, alter or repeal any Bylaw fixing the number, qualifications, classifications or terms of office of the directors, or any of them. * * * * * * * * EX-3.3 4 SWEPCO BYLAWS OF SOUTHWESTERN ELECTRIC POWER COMPANY (A DELAWARE CORPORATION) (A MEMBER OF THE CENTRAL AND SOUTH WEST SYSTEM) As amended to OCTOBER 30, 1996 (Recompiled October 30, 1996) ARTICLE I OFFICES The Corporation may maintain offices at such places as the Board of Directors may, from time to time, appoint. ARTICLE II SEAL The corporate seal of the Corporation shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Delaware"; and such seal may be facsimile. ARTICLE III STOCK AND TRANSFERS SECTION 1. Each holder of fully paid stock shall be entitled to a certificate or certificates of stock, stating the number of shares owned by such stockholder and the designation of the class (and series, if any) in which issued. All stock certificates shall be signed by the Chairman of the Company, the President, or a Vice President of the Corporation, and also by the Treasurer, the Secretary, an Assistant Treasurer, or an Assistant Secretary of the Corporation and shall be sealed with the corporate seal of the Corporation or a facsimile thereof; provided, that, however, if such certificates are countersigned by a Transfer Agent and/or registered by a Registrar, the signature of any such Chairman of the Company, President, Vice President, Treasurer, Secretary, Assistant Treasurer, or Assistant Secretary may be facsimile. Any such Transfer Agent or Registrar shall be a person other than the Corporation or employee of the Corporation, and shall be duly appointed by the Board of Directors. In case any one or more of such officers of the Corporation who have signed or whose facsimile signature or signatures have been reproduced upon any such certificate or certificates shall have ceased to be such officer or officers of the Corporation before such certificate or certificates shall have been issued or delivered by the Corporation, such certificate or certificates may be issued and delivered by the Corporation with the same effect as if such former officer or officers remained in office at the date of such issuance or delivery. SECTION 2. Shares of stock of the Corporation shall be transferable only on the books of the Corporation and, except (a) as may be required by law or by the order of a court in some proper proceeding, (b) as hereinafter provided, or (c) as the Board of Directors may otherwise expressly provide by resolution from time to time, shall be transferred only upon the assignment and surrender of the issued certificate or certificates representing such shares. Except as the Board of Directors may otherwise provide by resolution from time to time, in the event any issued certificate representing shares of stock of the Corporation shall be lost, destroyed or stolen, the holder thereof may have a new certificate for an equivalent number of shares of the same class issued to him in lieu of and to replace such lost, destroyed or stolen certificate upon producing evidence, satisfactory to the Board of Directors, of such loss, destruction or theft and upon furnishing to the Corporation a bond of indemnity, deemed sufficient by the Board of Directors, to protect the Corporation against any loss, damage or liability that may be sustained by reason of such lost, destroyed or stolen certificate and the issuance and delivery of such new or replacement certificate. SECTION 3. The stock transfer books of the Corporation may be closed by order of the Board of Directors for a period not exceeding fifty days preceding the date of any meeting of stockholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect. In lieu of closing the stock transfer books as aforesaid, the Board of Directors is authorized, in its discretion, to fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. ARTICLE IV MEETING OF STOCKHOLDERS SECTION 1. The annual meeting of the stockholders of the Corporation shall be held on the second Wednesday in April of each year, if not a legal holiday, and if a legal holiday then on the day following, at 10:30 o'clock a.m.; for the election of directors and for the transaction of such other business as may come before the meeting. Such meetings shall be held at the office of the Corporation in the City of Shreveport, Louisiana. SECTION 2. Special meetings of the stockholders may be called by the Board of Directors or by a majority of the directors individually, or by stockholders holding not less than one-third in number of the total outstanding shares of capital stock of the Corporation entitled to vote, or in such other manner as may be provided in Article Fourth of the Certificate of Incorporation, as amended, of the Corporation, or as may at any time be provided by statute. Such special meetings shall be held at the office of the Corporation either in the City of Shreveport, Louisiana, or in the City of Wilmington, Delaware, as the notice of the meeting may specify. SECTION 3. Notice of the time and place of each annual meeting shall be sent by mail to the recorded address of each stockholder entitled to vote, not less than ten days before the date of the meeting. Like notice shall be given of all special meetings, except in cases where other special method of notice may be required by statute, in all which cases, the statutory method shall be followed. The notice of a special meeting shall state the object of the meeting. Notice of meetings may in all cases be waived by stockholders entitled to notice. SECTION 4. At all meetings of stockholders, except as otherwise provided in Article Fourth of the Certificate of Incorporation, as amended, a majority of the number of shares of stock outstanding and entitled to vote must be represented in order to constitute a quorum for the transaction of any business other than (a) adjourning from time to time until a quorum shall be obtained, or (b) adjourning sine die, and for any such adjournment a majority vote of whatever stock shall be represented shall be sufficient. SECTION 5. At all stockholders' meetings, except as otherwise provided in Article Fourth of the Certificate of Incorporation, as amended, holders of record of stock then having voting power shall be entitled to one vote for each share of such stock held by them respectively, upon any question or at any election, and such vote may, in all cases, be given by proxy, duly authorized in writing. SECTION 6. A full list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the residence of each, and the number of shares held by each, shall be prepared by the Secretary and filed in the office where the election is to be held, at least ten days before every election, and shall at all times, during the usual hours for business, be open to the examination of any stockholder. ARTICLE V DIRECTORS SECTION 1. The property and business of the Corporation shall be managed by a Board of Directors, which, except as otherwise provided in Article Fourth of the Certificate of Incorporation, as amended, shall consist of not less than three nor more than thirteen members. Except as otherwise provided in Article Fourth of the Certificate of Incorporation, as amended, the Directors shall be elected by a majority of votes of the stockholders entitled to vote, present in person or represented by proxy at the annual meeting of the stockholders, and each Director shall be elected for a term of one year, and until his successor shall be elected and shall qualify. SECTION 2. Except as otherwise provided in Article Fourth of the Certificate of Incorporation, as amended, any vacancy in the Board of Directors shall be filled by the Board, and each Director so appointed shall hold office until the next annual election, and until his successor shall be duly elected and qualified. SECTION 3. The Board of Directors may hold its meetings and may have one or more offices, and may keep the books of the Corporation (except the original or duplicate stock ledger) outside of Delaware, at such places as they may from time to time determine. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the Corporation, and do all such lawful acts and things as are not by law or by these Bylaws required to be exercised or done by the stockholders. SECTION 4. Without prejudice to the general powers conferred by the last preceding clause, it is hereby expressly declared that the Board of Directors shall have the following powers, that is to say: 1. From time to time to make and change rules and regulations, not inconsistent with these Bylaws, for the management of the Corporation's business and affairs. 2. From time to time, as and when and upon such terms and conditions as it may determine, to issue any part of the authorized capital stock of the Corporation. 3. To purchase, or otherwise acquire for the Corporation, any property, right or privilege which the Corporation is authorized to acquire at such price or consideration, and generally on such terms or conditions as it shall think fit. 4. At its discretion to pay for any property or rights acquired by the Corporation, either wholly or partly in money, stock, bonds, debentures or other securities of the Corporation. 5. To borrow money, to create and issue mortgages, bonds, deeds of trust, trust agreements and negotiable or transferable instruments and securities, secured by mortgage or otherwise, and to do every other act and thing necessary to effectuate the same. 6. To appoint and at its discretion, remove or suspend any and all officers, employees and agents, permanently or temporarily, as it may think fit, and to determine their duties and fix, and from time to time change their duties, salaries, and emoluments, and to require security in such instances, and in such amounts as it thinks fit. 7. To confer by resolution upon any officer of the Corporation, the power to choose, remove or suspend subordinate officers, employees and agents. 8. To appoint any person or corporation to accept and hold in trust for the Corporation, any property belonging to the Corporation, or in which it is interested, or for any other purpose, and to execute and do all such deeds and things as may be requisite in relation to any such trust. 9. To determine who shall be authorized on the Corporation's behalf, to sign bills, notes, receipts, acceptances, endorsements, checks, releases, contracts and other papers and documents. 10. To delegate any of the powers of the Board in the course of the current business of the Corporation to any standing or special committee, or to any officer or agent, or to appoint any persons to be the agents of the Corporation, with such powers (including the powers to subdelegate), and upon such terms as it shall think fit. ARTICLE VI MEETINGS OF THE BOARD SECTION 1. Regular meetings of the Board of Directors of the Corporation shall be held at such place and time as may be designated from time to time by the Board. Special meetings of the Board may be called by the Chairman of the Company, if there shall be one, or by the President, or by a Vice President when acting as President, or by any two directors, upon not less than two days' notice to each director, either personally or by mail or telegraph. Notice of any meeting of the Board may be waived in writing by any director, either before or after the meeting, and shall be deemed to have been waived by his attendance at such meeting. SECTION 2. A majority of the authorized number of directors fixed by the Bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but a lesser number may adjourn from time to time until a quorum shall be obtained or may adjourn sine die. SECTION 3. At all meetings of the Board of Directors, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board, unless the act of a greater number of directors is required by statute. The Board shall keep minutes of the proceedings at its meetings. Unless otherwise restricted by the Certificate of Incorporation, as amended, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if, prior to such action, a written consent setting forth the action so taken shall be signed by all members of the Board or of such committee, as the case may be, and such written consent shall be filed with the minutes of the proceedings of the Board or of such committee, as the case may be. SECTION 4. Directors who are not officers or employees of the Corporation shall be entitled to receive such compensation, if any, for their services as directors of the Corporation, as may be fixed by resolution of the Board of Directors. Directors who are officers or employees of the Corporation shall not be entitled to receive any compensation for their services as directors. All directors of the Corporation (whether or not officers or employees) may be allowed such sum for attendance at any regular or special meeting of the Board as may be fixed by resolution of the Board and shall be reimbursed by the Corporation for any out-of-pocket expenses incurred for attendance at any such meeting. Nothing herein contained shall be construed to prevent any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE VII OFFICERS SECTION 1. There shall be elected by the Board of Directors, at its first meeting (if practicable) held after the annual election of directors in each year, a President, a Secretary, a Treasurer, a Controller, and if desired, one or more Assistant Secretaries and Assistant Treasurers, and Assistant Controllers. The Board of Directors also may provide for and elect, at any time, a Chairman of the Company, a General Manager, one or more Vice Presidents, and such other officers, and prescribe such duties for them, respectively, as in the judgment of the Board of Directors may be required from time to time to conduct the business of the Corporation. Any two or more offices, except the offices of President and Vice President, President and Secretary, President and General Manager, and Chairman and any other office, may be held by the same person. All officers elected by the Board of Directors shall hold their respective offices, unless sooner terminated, until the first meeting of the Board of Directors held after the next ensuing annual election of directors and until their respective successors, willing to serve, shall have been duly elected and qualified. Any of such officers may be removed from their respective offices at the pleasure of the Board. SECTION 2. The Chairman of the Company, if there shall be one, shall when present preside at all meetings of the stockholders, of the Board of Directors, and of the Executive Committee, if there shall be one. He shall be a member of the Executive Committee, if there shall be one, and may attend any meeting of any committee of the Board, whether or not a member, except that attendance at an Audit Committee meeting may be only upon invitation of that committee. He shall have such other powers and duties as may at any time be prescribed by the Bylaws or by the Board of Directors. In the event of death or incapacitation of the President and Chief Executive Officer, the Chairman, if there shall be one shall assume the duties of the Chief Executive Officer until a successor is elected. SECTION 3. The President shall be the Chief Executive Officer of the Company and shall have general authority over all of the business and affairs of the Company and over all other officers, agents and employees of the Company. When the Chairman, if there shall be one, is not present, the President shall preside at all meetings of the stockholders, of the Board of Directors, and of the Executive Committee, if there shall be one. He shall be a member of the Executive Committee, if there shall be one, and may attend any meeting of any committee of the Board, whether or not a member, except that attendance at an Audit Committee meeting may be only upon invitation of that committee. He shall have general and active management of the business and affairs of the Company, and full authority and responsibility with respect to making effective all resolutions of the Board of Directors. He shall execute bonds, mortgages, contracts and other instruments requiring the seal of the Company to be affixed, except where required or permitted by law to be otherwise signed and executed, and except where such duties shall be expressly delegated by him or the Board of Directors to some other officer or agent of the Company. He shall have authority, when neither the Board of Directors nor the Executive Committee is in session, to suspend the authority of any other officer or officers of the Company, subject, however, to the pleasure of the Board of Directors or the Executive Committee at its next meeting, and authority to appoint and to remove and discharge any and all agents and employees of the Company not elected or appointed directly by the Board of Directors. He shall have such other powers and duties as may at any time be prescribed by the Bylaws or by the Board of Directors. SECTION 4. The General Manager, if one is elected by the Board of Directors, shall have such powers and duties as may from time to time be prescribed by the Board of Directors. In case the President, due to absence or any other cause, shall be unable at any time to attend to the duties of the office of President requiring attention, or in the case of his death, resignation, or removal from office, the powers and duties of the President shall, except as the Board of Directors may otherwise provide, temporarily devolve upon the General Manager, and shall be exercised by such General Manager as acting President during such inability of the President, or until the vacancy in the office of the President shall be filled. In case of the absence, disability, death, resignation, or removal from office of the President and the General Manager, the Board of Directors shall elect one of its members to exercise the powers and duties of the President during such absence or disability, or until the vacancy in one of said offices shall be filled. SECTION 5. The Vice President, if one is elected by the Board of Directors, or Vice Presidents, if more than one is elected by the Board of Directors, shall have such powers and duties as may from time to time be prescribed by the Board of Directors. SECTION 6. The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall have the custody and care of the corporate seal, records, minutes and stock books of the Corporation. He shall also act as Secretary of all stockholders' meetings, and keep a record thereof, except as some other person may be selected as Secretary by any such meeting, shall keep a suitable record of the addresses of stockholders, and shall, except as may be otherwise required by statute or by the Bylaws, sign, and by order of the Board of Directors, issue all notices required for meetings of stockholders, and of the Board of Directors. Whenever requested by a requisite number of individual stockholders, or individual directors, to give notice, for a meeting of stockholders or of the Board of Directors, he shall give such notice, as requested, and the notice shall state the names of the stockholders or directors making the request. He shall; sign all mortgages, and all other documents and papers to which his signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him. He shall be sworn to the faithful discharge of his duty. SECTION 7. The Treasurer shall have charge of and be responsible for the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation, in such banks, trust companies, or safe deposit vaults as the Board of Directors may direct. He shall have the custody of such books, receipted vouchers, and other books and papers as in the practical business operations of the Corporation shall naturally belong in the office or custody of the Treasurer, or as shall be placed in his custody by the Board of Directors, by the Executive Committee, by the Chairman of the Company, by the President, or by a Vice President or a General Manager when acting as President. He shall also have charge of the safekeeping of all stocks, bonds, mortgages and other securities belonging to the Corporation, but such stocks, bonds, mortgages and other securities shall be deposited for safekeeping in a safe deposit vault to be approved by the Board of Directors or by the Executive Committee, in a box or boxes, access to which shall be had as may be provided by resolution of the Board of Directors or of the Executive Committee. He shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him. He may be required to give bond to the Corporation for the faithful discharge of his duties in such form and to such amount and with such sureties as shall be determined by the Board of Directors. SECTION 8. The Controller shall have general supervision and direction of matters pertaining to the function of the Accounting Department and related sections, including all matters pertaining to preparation of budgets, statistics, taxes and corporate matters, without excluding by this enumeration any other accounting functions not mentioned herein. He shall have general supervision over all books and accounts of the Corporation relating to receipts and disbursements, and the form of all vouchers, accounts, reports and returns required by the various departments. He shall see that the accounts of all officers and employees are examined from time to time and as often as practicable, and that proper returns are made of all receipts from all sources. He shall be responsible for the audit, verification and payment of all billings and voucher requisitions for any and all purposes which shall be submitted currently to him or to someone he designates on his staff. Payments shall be made forthwith if found satisfactory and correct unless deferment is properly requested and approved. No payments of billings and voucher requisitions shall be made unless previously certified to or approved by the head of the department in which it originates and by others authorized to approve such disbursements and unless he is satisfied of its propriety and correctness. He shall have full access to all contracts, correspondence and other papers and records of the Corporation relating to its business matters, shall have the custody of its account books, and other papers relating to the accounts of the Corporation, and shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him. He may be required to give bond to the Corporation for the faithful discharge of his duties in such form and to such amount and with such sureties as shall be determined by the Board of Directors. SECTION 9. Assistant Controllers, Assistant Secretaries and Assistant Treasurers shall assist the Controller, the Secretary and the Treasurer, respectively, as the case may be, in the performance of the respective duties of such principal officers; and in case of the absence, disability, death, resignation or removal from office of any such principal officer, the powers and duties of such principal officer shall, except as otherwise ordered by the Chairman of the Company, the President, the Board of Directors or the Executive Committee, temporarily devolve upon his assistant or senior assistant if there shall be more than one. Such assistants shall also perform such other duties as may be assigned to them from time to time by their respective principal officers or the Chairman of the Company or the President or by the Board or the Executive Committee. ARTICLE VIII INDEMNIFICATION SECTION 1. Each person who is or was or had agreed to become a Director or Officer of the Corporation, or each such person who is or was serving, or had agreed to serve at the request of the Board of Directors or an officer of the Corporation as an employee or agent of the Corporation, or as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified (including, without limitation, the advancement of expenses and payment of all loss, liability and expenses) by the Corporation to the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently in effect, or as may hereafter be amended (but in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said laws permitted the Corporation to provide prior to such amendment); provided, however, that no person shall be indemnified for amounts paid in settlement unless the terms and conditions of such settlement have been consented to by the Corporation, and provided further that no indemnification for employees or agents of the Corporation (other than Directors and officers) will be made without the express authorization of the Corporation's Board of Directors. ARTICLE IX COMMITTEES SECTION 1. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint an Executive Committee consisting of not less than three members of the Board, including the Chairman of the Company, if there shall be one, and the President of the Corporation. The Executive Committee may make its own rules of procedure and elect its chairman, and shall meet where and as provided by such rules or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. During the intervals between the meetings of the Board of Directors the Executive Committee shall have all the powers of the Board in the management of the business and affairs of the Corporation including power to authorize the seal of the Corporation to be affixed to all papers which may require it, and, by majority vote of all its members, may exercise any and all such powers in such manner as such Committee shall deem best for the interests of the Corporation in all cases in which specific directions shall not have been given by the Board of Directors. Vacancies in the Committee shall be filled by resolution passed by a majority of the whole Board of Directors. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board when required. SECTION 2. The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint any other standing committees, and such standing committees shall have and may exercise such powers as shall be authorized by the Bylaws or by the resolution appointing them. SECTION 3. In accordance with the foregoing provision, the following standing committee is hereby established: AUDIT COMMITTEE. The Audit Committee of the Southwestern Electric Power Company Board of Directors shall be composed of all directors of the Company who are not presently or formerly officers or employees of this Company or its affiliates. The Chairman of the Committee shall be appointed by the Chairman of the Board of Directors of the Company. The Audit Committee shall have such responsibilities and powers, permitted by law, as the Board may determine from time-to-time by resolution passed by a majority of the Board. ARTICLE X ORDER OF BUSINESS AT DIRECTORS' MEETINGS SECTION 1. The order of business at meetings of the Board of Directors shall be determined by the Chairman of the Company, if there shall be one and he shall be present, or by the President or other person acting as chairman of the meeting, unless otherwise ordered by the Board. ARTICLE XI INSPECTION OF BOOKS SECTION 1. The Board of Directors shall from time to time determine whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by statute or as authorized by the Board of Directors or by a resolution of the stockholders. ARTICLE XII MISCELLANEOUS SECTION 1. The funds of the Corporation shall be deposited to its credit in such banks or trust companies as the Board of Directors, or its designee, may, from time to time, designate, and shall be drawn out only for the purposes of the Corporation, and only upon checks or drafts signed as herein authorized. All checks, drafts or orders for payment except "transfer checks" and "payroll checks" as hereinafter provided drawn upon the "General Account," the "Deposit Refund Account," and the "Mid-South Towers-SWEPCO Account" in any depository shall be signed on behalf of the Company by the President, a Vice President, the General Manager, the Treasurer or an Assistant Treasurer, or by any such officers or employees of the Corporation as may be designated for the purpose from time to time by resolution of the Board of Directors or of the Executive Committee; provided, however, that all such checks in amounts over $50,000 shall be signed manually by such officer, and provided that all such checks or orders drawn in an amount of $50,000 or less may be signed by the mechanical or facsimile signature of said officer. "Transfer checks," transferring funds of the Company from its General Account in any depository to its General Account in any other depository, may be signed on behalf of the Company by the mechanical or facsimile signature of said officers as defined above. "Payroll checks" drawn upon the Payroll Account or Accounts of the Company may be signed on behalf of the Company by the mechanical or facsimile signature of said officer as defined above. All deposits and funds of the Company in any depository shall be made, in the first instance, directly to the credit of the Company in its General Account in such depository, and no such deposit shall be made, in the first instance, directly to the credit of the Company in any Special Account, fund or deposit (herein called a "Special Account") of the Company in any depository, whether now or hereafter authorized or maintained. SECTION 2. Promissory notes issued by the Corporation shall be signed by the Chairman of the Company or the President or a Vice President and by the Treasurer or an Assistant Treasurer of the Corporation, or shall be signed in such other manner as the Board of Directors or the Executive Committee shall by resolution provide. When the Board of Directors or the Executive Committee shall by resolution so provide, the signature of an officer or employee designated or authorized to sign or countersign bonds, debentures, notes, drafts or checks issued by the Corporation may be facsimile. SECTION 3. No debt shall be contracted, except for current expenses, unless authorized by the Board of Directors or the Executive Committee, and no bills shall be paid by the Treasurer unless audited and approved by the Controller, or by some person or committee expressly authorized by the Board of Directors or the Executive Committee to audit and approve bills for payment. SECTION 4. The dividends upon the preferred stock, if declared, shall be payable quarterly on the first day of January, April, July and October in each year, unless different quarterly payment dates shall be fixed, in respect of any series of the preferred stock of the Corporation, by the Certificate of Incorporation, as amended, or by the resolution of the Board of Directors creating such series. All dividends declared upon the common stock shall be payable at such time as may be fixed by the Board of Directors. Before payment of any dividend or making any distribution of profits, there shall be set aside, out of the surplus or net profits of the Corporation, such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such purpose as the Board shall think conducive to the interest of the Corporation. SECTION 5. The fiscal year of the Corporation shall be the calendar year. ARTICLE XIII AMENDMENT SECTION 1. Subject always to Bylaws made by the stockholders, the Board of Directors may make Bylaws from time to time, and may alter, amend or repeal such Bylaws at any regular or special meeting of the Board, but any Bylaws made by the Board of Directors may be altered, amended or repealed by the stockholders, at any annual meeting, or at any special meeting, provided notice of such proposed alteration, amendment or repeal shall have been included in the notice of such special meeting. EX-3.4 5 WTU WEST TEXAS UTILITIES COMPANY BY-LAWS --------------------------------- ARTICLE I. Offices. The corporation may maintain offices at such places in the State of Texas as the Board of Directors may, from time to time, appoint. ARTICLE II. Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, 1927 Texas". Such seal may be a facsimile. ARTICLE III. Stock and Transfers. Section 1. Each holder of fully paid stock shall be entitled to a certificate or certificates of stock stating the number of shares owned by such stockholder, and the designation of the class in which issued. All certificates of stock shall be signed by the President or a Vice-President of the Company and also by the Treasurer, Secretary, an Assistant Treasurer or an Assistant Secretary of the Company and sealed with the seal of the Company, which signatures and seal may be facsimile. All certificates of Common Stock shall be countersigned by a Transfer Agent appointed by the Board and all certificates of Preferred Stock shall be countersigned by a Transfer Agent and registered by a Registrar, appointed by the Board. In case any officer who has signed or whose facsimile signature has been placed upon a certificate is issued, such certificate may be issued by the Company with the same effect as if such officer had not ceased to be such at the date of issue. Section 2. Shares of stock shall be transferable only on the books of the Company, and, except as hereinafter provided, or as may be required by law, or by the order of a court in some proper proceedings, shall be transferred only upon the proper assignment and surrender of the certificates issued therefor. If an outstanding certificate of stock shall be lost, stolen or destroyed, a new certificate may, in the discretion of the Board of Directors, be issued in lieu thereof upon receipt of evidence, satisfactory to the Board, of such loss, destruction, or theft, and upon receipt by the Company of a bond of indemnity, deemed sufficient by the Board, to protect the Company against claims under the outstanding certificate. Section 3. The transfer books may be closed by order of the Board of Directors for short periods, not exceeding twenty-five days at any one time, for the purpose of paying a dividend, or holding a meeting of stockholders, or for any other legal purpose, as the Board of Directors shall deem advisable. Section 4. If default shall be made in the prompt payment, when due, of any sum payable to the company upon any subscription of stock of the Company, and if such default shall continue for a period of thirty days, all right under the subscription in and to the stock subscribed for shall, upon the expiration of such period, cease and determine, and all right under the subscription in and to the stock subscribed for shall be forfeited to the Company, but no right under the subscription in and to the stock subscribed for shall be forfeited unless and until the directors have caused a written notice to be served on the subscriber personally, or by depositing the same in the post office, properly directed to him at the post office nearest his usual place of residence, stating that he is required to make payment, setting forth the amount, at the time (which payment day must be not less than thirty days after the day the notice is served) and place specified in said notice, and if he fails to make the same, his stock and all previous payments thereon will be forfeited to the Company; and provided further, that if at the time for payment fixed in said notice, such right shall belong to the estate of a decedent, it may be forfeited only by resolution of the Board of Directors declaring forfeiture. The Company, shall, within thirty days after such forfeiture, cause such stock to be sold at private or public sale, at its market value at the time of sale, and shall, out of the net proceeds of sale and upon surrender of any outstanding stock subscription receipt issued to evidence the subscription, pay to the recorded holder of such receipt the amount paid on the subscription prior to forfeiture, less the amount, if any, by which the total subscription price of the stock exceeded the net proceeds of sale. ARTICLE IV. Meeting of Stockholders. Section 1. The annual meeting of the stockholders shall be held on the last Tuesday in March in each year, if not a legal holiday, and if a legal holiday, then on the day following, at the hour of 11 o'clock A. M., for the election of Directors, and for the transaction of such other business as may come before it. Such meeting shall be held at the principal office of the Company in the State of Texas. Section 2. Special meetings of the stockholders may be called by the Board of Directors, or by a majority of the Directors individually, or by the holders of not less than one-third in number of the total outstanding shares of capital stock of the Company entitled to vote, or in such manner as may be provided by statute or by Paragraph (7) of Article VI of the Charter, as amended. Section 3. Notice of the time and place of each annual meeting shall be sent by mail to the recorded address of each stockholder entitled to vote, not less than ten days before the date of the meeting. Like notice shall be given of all special meetings, except in cases where other special method of notice may be required by statute, in all which cases, the statutory method shall be followed. The notice of a special meeting shall state the object of the meeting. Notice of meetings may in all cases be waived by stockholders entitled to notice. Section 4. At any stockholders' meeting, except as otherwise provided in Paragraph (7) of Article VI of the Charter, as amended, a majority of the number of shares of stock outstanding eligible under the Charter, as amended, to vote upon questions being submitted at such meeting, must be represented, in person or by proxy, in order to constitute a quorum for the transaction of business, but the stockholders represented at an meeting, though less than a quorum, may adjourn the meeting to some other day or sine die. Section 5. At all meetings of stockholders each share of stock eligible under the Charter, as amended, to vote upon questions being submitted at such meeting shall be entitled to such a vote or votes as shall be from time to time provided in the Charter, as amended, and such stock may be represented by the holder thereof in person or a duly authorized proxy in writing duly filed with the Secretary of the Company. Section 6. A full list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the residence of each, and the number of shares held by each, shall be prepared by the Secretary and filed in the office where the election is to be held, at least ten days before every election, and shall at all times, during the usual hours for business, be open to the examination of any stockholder. ARTICLE V. Directors. Section 1. The Board of Directors shall consist of such number, not less than three nor more than fifteen members and, subject to the provisions of Paragraph (7) of Article VI of the Charter, as amended, shall be elected at each annual meeting of the stockholders. If for any reason such election shall not be held at an annual meeting, it may be subsequently held at any special meeting of the stockholders duly called for the purpose. Except as otherwise provided in Paragraph (7) of Article VI of the Charter, as amended, directors shall hold office until the next succeeding annual meeting of stockholders and until their respective successors shall have been duly elected and qualified; provided, however, the term of any director who is an employee of the Company or its Parent Company (other than a past or present Chief Executive Officer of the Company who retires), shall expire concurrently with the termination of such director's employment by the Company or its Parent Company. No person who has attained age seventy (70), and no former employee of the Company (other than a former Chief Executive Officer) who has retired from the Company shall be eligible for election as a director of the Company. Directors need not be stockholders. Section 2. Except as otherwise provided in Paragraph (7) of Article VI of the Charter, as amended, any vacancy occurring in the Board of Directors may be filled with the affirmative vote of a majority of the remaining directors though less than a quorum of the Board. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Section 3. The Board of Directors may hold its meetings and may have one or more offices, and may keep the books of the corporation at such places as they may from time to time determine within the State of Texas. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board may exercise all such powers of the corporation, and do all such lawful acts and things as are not by law or by these By-Laws required to be exercised or done by the stockholders. Section 4. Without prejudice to the general powers conferred by the last preceding clause, it is hereby expressly declared that the Board of Directors shall have the following powers, that is to say: 1. From time to time to make and change rules and regulations, not inconsistent with these By-Laws, for the management of the corporation's business and affairs. 2. From time to time, as and when and upon such terms and conditions as it may determine, to issue any part of the authorized capital stock of the corporation. 3. To purchase, or otherwise acquire for the corporation, any property, right or privilege which the corporation is authorized to acquire at such price or consideration, and generally on such terms or conditions as it shall think fit. 4. At its discretion to pay for any property or rights acquired by the corporation, either wholly or partly in money, stock, bonds, debentures or other securities of the corporation. 5. To borrow money, to create, make and issue mortgages, bonds, deeds of trust, trust agreements and negotiable or transferable instruments and securities, secured by mortgage or otherwise, and to do every other act and thing necessary to effectuate the same. 6. To appoint and at its discretion, remove or suspend any and all officers, employees and agents, permanently or temporarily, as it may think fit, and to determine their duties and fix, and from time to time change their duties, salaries and emoluments, and to require security in such instances, and in such amounts as it thinks fit. 7. To confer by resolution upon any officer of the corporation, the power to choose, remove or suspend subordinate officers, employees and agents. 8. To appoint any person or corporation to accept and hold in trust for the corporation, any property belonging to the corporation, or in which it is interested, or for any other purpose, and to execute and do all such deeds and things as may be requisite in relation to any such trust. 9. To determine who shall be authorized on the corporation's behalf, to sign bills, notes, receipts, acceptances, endorsements, checks, drafts, bonds, mortgages, releases, contracts and other papers and documents; subject always to any requirements of law in respect thereof. If and to the extent authorized by resolution of the Board of Directors, the signature or signatures on checks and drafts may be facsimile. 10. To delegate any of the powers of the Board in the course of the current business of the corporation to any standing or special committee, or to any officer or agent, or to appoint any persons to be the agents of the corporation, with such powers (including the powers to sub-delegate), and upon such terms as it shall think fit. ARTICLE VI. Meetings of the Board. Section 1. Regular meetings of the Board of Directors shall be held at such place and time as may be designated from time to time, by the Board. Special meetings of the Board may be called by the Chairman or the President, or by a Vice-President when acting as President, or by any two Directors upon two days' notice to each Director, either personally or by mail or by telegram. Notice of any meeting of the Board of Directors may be waived in writing by any director, either before or after meeting, and will be deemed to be waived by his attendance thereat. Section 2. A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board, but a less number may adjourn from time to time, until a quorum is obtained, or may adjourn sine die. Section 3. In all meetings of the Board a majority vote shall be decisive of all questions before the meeting, except as may be otherwise provided by law. The Board of Directors shall keep minutes of the proceedings of their meetings. Section 4. Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board, an annual retainer payable in monthly or other convenient installments, a fixed sum for attendance at each regular or special meeting of the Board, or of any standing or special committee of the Board, and expenses of attendance, if any, may be allowed; provided, that nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity, and receiving compensation therefor. ARTICLE VII. Officers. Section 1. There shall be elected by the Board of Directors, at its first meeting (if practicable) held after the annual election of directors in each year, a President, a Secretary, a Treasurer, a Controller, and, if desired, one or more Assistant Secretaries, Assistant Treasurers, and Assistant Controllers. The Board of Directors also may provide for and elect at any time, a Chairman, a General Manager, one or more Vice Presidents, and such other officers, and prescribe such duties for them, respectively, as in the judgment of the Board of Directors may be required from time to time to conduct the business of the Corporation. Any two or more offices, except the offices of President and Vice President, President and Secretary, President and General Manager, and Chairman and any other office, may be held by the same person. All officers elected by the Board of Directors shall hold their respective offices, unless sooner terminated, until the first meeting of the Board of Directors held after the next ensuring annual election of directors and until their respective successors, willing to serve, shall have been duly elected and qualified. Any of such officers may be removed from their respective offices at the pleasure of the Board. Section 2. The Chairman of the Board, if there shall be one, shall preside at all meetings of the stockholders and of the Board of Directors. He shall be a member of the Executive Committee, if there shall be one, and of such other committees to which he shall be appointed by the Board of Directors. He shall also have such other powers and duties as may at any time be prescribed by these By-Laws or by the Board of Directors. Section 3. The President shall be the chief executive officer of the Company and have general authority over all of the business and affairs of the Company and over all other officers, agents and employees of the Company, subject to the direction of the Board of Directors or Executive Committee. He shall have general and active management of the business and affairs of the Company, and full authority and responsibility with respect to making effective all resolutions of the Board of Directors. He may execute bonds, mortgages, contracts and other instruments on behalf of the Company, except those required by law, governmental regulations, or indentures and other agreements of the Company to be otherwise signed and executed or expressly required by the Company. He shall have the authority when neither the Board of Directors nor the Executive Committee is in session to suspend the authority of any other officer or officers of the Company, subject, however, to the pleasure of the Board of Directors or of the Executive Committee at its next meeting, and authority to appoint and to remove and discharge any and all agents and employees of the Company not elected or appointed directly by the Board of Directors. In any absence of the Chairman of the Board he shall, if present, have all powers and duties conferred upon the Chairman of the Board. Section 4. The General Manager, if one is elected by the Board of Directors, shall have such powers and duties as may from time to time be prescribed by the Board of Directors. In case the President, due to absence or any other cause, shall be unable at any time to attend to the duties of the office of President requiring attention, or in the case of his death, resignation, or removal from office, the powers and duties of the President shall, except as the Board of Directors may otherwise provide, temporarily devolve upon the General Manager, and shall be exercised by such General Manager as acting President during such inability of the President, or until the vacancy in the office of the President shall be filled. In case of the absence, disability, death, resignation, or removal from office of the President and the General Manager, the Board of Directors shall elect one of its members to exercise the powers and duties of the President during such absence or disability, or until the vacancy in one of said offices shall be filled. Section 5. The Vice President, if one is elected by the Board of Directors, or Vice Presidents, if more than one is elected by the Board of Directors, shall have such powers and duties as may from time to time be prescribed by the Board of Directors. Section 6. The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall have the custody and care of the corporate seal, records, minutes and stock books of the Company. He shall also act as Secretary of all stockholders' meetings, and keep a record thereof, except as some other person may be selected as Secretary by any such meeting, shall keep a suitable record of the addresses of stockholders, and shall, except as otherwise required by statute, or by the By-Laws, sign, and by order of the Board of Directors, issue all notices required for meetings of stockholders, and of the Board of Directors. Whenever requested by a requisite number of individual stockholders, or individual Directors, to give notice, for a meeting of stockholders or of the Board of Directors, he shall give such notice, as requested, and the notice shall state the names of the stockholders or Directors making the request. He shall sign all mortgages, and all other documents and papers to which his signature may be necessary or appropriate, shall affix the seal of the corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him. He shall be sworn to the faithful discharge of his duty. Section 7. The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Company, and shall deposit its funds in the name of the Company, in such banks, trust companies, or safe deposit vaults as the Board of Directors may direct. He shall have the custody of such books, receipted vouchers, and other books and papers as in the practical business operations of the Company shall naturally belong in the office or custody of the Treasurer, or as shall be placed in his custody by the Board of Directors, by the Executive Committee, by the President, or by a Vice-President when acting as President. He shall also have charge of the safe keeping of all stocks, bonds, mortgages and other securities belonging to the Company, but such stocks, bonds, mortgages and other securities shall be deposited for safe keeping in a safe deposit vault to be approved by the Board of Directors or by the Executive Committee, in a box or boxes, access to which shall be had as may be provided by resolution of the Board of Directors or Executive Committee. He shall have such powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him. He may be required to give bond to the company for the faithful discharge of his duties in such form and to such amount and with such sureties as shall be determined by the Board of Directors. Section 8. The Controller shall have general supervision over all books and accounts of the Company relating to receipts and disbursements, shall arrange the form of all vouchers, accounts, reports and returns required by the various departments, shall examine the accounts of all officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources, and that correct vouchers are turned over to him for all disbursements for any purpose. At such time in each month as may be found practicable all bills for the previous month, properly made in detail and certified, shall be submitted to him, and he shall audit and approve the same, if found satisfactory and correct, but he shall not approve or audit any voucher unless it has been previously certified to by the head of the department in which it originated, nor unless satisfied of its propriety and correctness. He shall have full access to all contracts, correspondence, and other papers and records of the Company relating to its business matters, shall have the custody of its account books, original contracts and other papers relating to the accounts of the Company, except such as in the practicable business operations of the Company shall naturally belong in the custody of the Treasurer, or shall be placed in the custody of the Treasurer by the Board of Directors, by the Executive Committee, by the President, or by one of the Vice-Presidents when acting as President, and shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him. He may be required to give bond to the Company for the faithful discharge of his duties in such form and to such amounts and with such sureties as shall be determined by the Board of Directors. Section 9. Assistant Secretaries, Treasurers or Controllers, when elected, shall assist the Secretary, the Treasurer or the Controller, as the case may be, in the performance of the respective duties assigned to such principal officers, and the powers and duties of any such principal officer, shall, except as otherwise ordered by the Board of Directors, temporarily devolve upon his assistant in case of the absence, disability, death, resignation or removal from office of such principal officer. They shall perform such other duties as may be assigned to them from time to time. ARTICLE VIII. Executive Committee. Section 1. The Board of Directors may, by resolution passed by a majority of the whole Board, appoint an Executive Committee of not less than three members of the Board, including the Chairman of the Board, if there be one, and the President of the Company. The Executive Committee may make its own rules of procedure and elect its Chairman, and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. During the intervals between the meetings of the Board of Directors the Executive Committee shall have all the powers of the Board in the management of the business and affairs of the Company, including power to authorize the seal of the Company to be affixed to all papers which may require it, and, by majority vote of all its members, may exercise any and all such powers in such manner as such Committee shall deem best for the interest of the Company, in all cases in which specific directions shall not have been given by the Board of Directors. Section 2. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board when required. ARTICLE IX. Order of Business at Directors' Meetings. Section 1. The order of business at meetings of the Board of Directors shall, unless otherwise ordered by the Board be as follows: 1. Reading and consideration of the minutes of the preceding meeting. 2. Reading of the minutes of meetings of the Executive Committee held since the last meeting of the Board. 3. Reading and consideration of communications. 4. Reports of standing and special committees. 5. Reports from officers of the Company. 6. The consideration of any other business of the Company. ARTICLE X. Indemnification. Each person who is or was or had agreed to become a Director, officer, employee or agent of the Company, and each person who is or was serving or had agreed to serve at the request of the Board of Directors or an officer of the Company as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, (including heirs, executors, administrators or estate of such person), shall be indemnified (including, without limitation, the advancement of expenses and payment of all loss, liability and expenses) by the Company against any liability asserted against him in such a capacity or arising out of his status as such a person, even though due to his own negligence, whether sole or joint and concurrent with the negligence of others, to the full extent permitted by the Texas Business Corporation Act or any other applicable laws as presently in effect or as may hereafter be amended (but in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said laws permitted the Company to provide prior to such amendment); provided however, that no person shall be indemnified for amounts paid in settlement unless the terms and conditions of such settlement have been consented to by the Company and provided further that no indemnification for employees or agents (other than Directors and officers) will be made without the express authorization of the Company's Board of Directors. ARTICLE XI. Inspection of Books. Section 1. The Directors shall determine from time to time, whether, and, if allowed, when and under what conditions and regulations the accounts and books of the corporation (except such as may be statute be specifically open to inspection), or any of them, shall be open to the inspection of the stockholders, and the stockholders' rights in this respect are and shall be restricted and limited accordingly. ARTICLE XII. Miscellaneous. Section 1. No debts shall be contracted, except for current expenses, unless authorized by the Board of Directors or the Executive Committee, and no bills shall be paid by the Treasurer unless audited and approved by the Controller, or by some person or committee expressly authorized by the Board of Directors or the Executive Committee to audit and approve bills for payment. Section 2. All dividends shall be payable at such time as may be fixed by the Board of Directors. Before payment of any dividend or making any distribution of profits, there shall be set aside, out of the surplus or net profits of the corporation, such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board shall think conducive to the interests of the corporation. Section 3. The first fiscal year of the corporation shall be the period commencing October 1, 1927, and ending December 31, 1927, and thereafter each calendar year, commencing with the year 1928, shall be the fiscal year of the corporation. ARTICLE XIII. Amendments. Section 1. These By-Laws may be altered, amended or repealed by vote of a majority of the shareholders having voting power at any annual meeting or at any special meeting of said shareholders called for that purpose and, to the extent permitted by law, may also be altered, amended or repealed by the Board of Directors. EX-12.1 6 CPL EXHIBIT 12.1 CENTRAL POWER AND LIGHT COMPANY RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996 (Thousands Except Ratio) (Unaudited) Operating Income $291,977 Adjustments: Income taxes 68,612 Provision for deferred income taxes 27,183 Deferred investment tax credits (5,789) Utility plant development costs, net of tax (15,481) Other income and deductions 6,714 Allowance for borrowed and equity funds used during construction 1,943 Mirror CWIP amortization 10,250 Earnings $385,409 Fixed Charges: Interest on long-term debt $110,100 Interest on short-term debt and other 19,071 Fixed Charges $129,171 Ratio of Earnings to Fixed Charges 2.98 ======= EX-12.2 7 PSO EXHIBIT 12.2 PUBLIC SERVICE COMPANY OF OKLAHOMA (CONSOLIDATED) RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996 (Thousands Except Ratio) (Unaudited) Operating Income $105,927 Adjustments: Income taxes 29,841 Provision for deferred income taxes (5,054) Deferred investment tax credits (2,785) Utility plant development costs, net of tax (35,552) Other income and deductions 64 Allowance for borrowed and equity funds used during construction 1,272 Earnings $ 93,713 ======= Fixed Charges: Interest on long-term debt $ 30,334 Amortization of debt issuance cost 1,643 Other interest 4,276 ------- Fixed Charges $ 36,253 ======= Ratio of Earnings to Fixed Charges 2.58 ======= EX-12.3 8 SWEPCO EXHIBIT 12.3 SOUTHWESTERN ELECTRIC POWER COMPANY RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996 (Thousands except Ratio) (Unaudited) Operating Income $147,619 Adjustments: Income taxes 23,907 Provision for income taxes 15,249 Deferred investment tax credits (4,744) Utility plant development costs, net of tax (21,743) Other income and deductions 719 Allowance for borrowed and equity funds used during construction 3,681 Interest portion of financing leases 1,601 Earnings $166,289 Fixed Charges: Interest on long-term debt $ 44,582 Amortization of debt issuance cost 3,355 Other interest 6,445 Interest portion of financing leases 1,601 ------- Fixed Charges $ 55,983 ======= Ratio of Earnings to Fixed Charges 2.97 ======= EX-12.4 9 WTU EXHIBIT 12.4 WEST TEXAS UTILITIES COMPANY RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996 (Thousands Except Ratio) (Unaudited) Operating Income $54,590 Adjustments: Income taxes 9,927 Provision for deferred income taxes 1,775 Deferred investment tax credits (1,321) Utility plant development costs, net of tax (10,917) Other income and deductions (150) Allowance for borrowed and equity funds used during construction 1,177 Earnings $55,081 Fixed Charges: Interest on long-term debt $22,385 Interest on short-term debt and other 4,911 Fixed Charges $27,296 Ratio of Earnings to Fixed Charges 2.02 ====== EX-27.1 10
UT 0000081027 PUBLIC SERVICE COMPANY OF OKLAHOMA 1,000 9-MOS DEC-31-1996 SEP-30-1996 PER-BOOK 1,292,827 9,404 83,220 4,720 43,569 1,433,740 157,230 180,000 146,941 484,171 0 19,826 379,921 29,785 40,000 0 0 0 0 0 480,037 1,433,740 579,021 39,069 446,052 485,121 93,900 (35,315) 58,585 26,313 32,272 612 31,660 35,000 22,936 124,879 0.15 0.15
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