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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission Exact name of registrant as specified in its charter; I.R.S. Employer
File Number address of principal executive offices; and telephone number Identification Number
- ----------- ------------------------------------------------------------ ---------------------
1-3591 TEXAS UTILITIES COMPANY 75-0705930
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
TELEPHONE NUMBER (214) 812-4600
0-11442 TEXAS UTILITIES ELECTRIC COMPANY 75-1837355
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
TELEPHONE NUMBER (214) 812-4600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Registrant Title of each class Name of each exchange on which registered
---------- ------------------- -----------------------------------------
Texas Utilities Company Common Stock, without par value New York Stock Exchange
The Chicago Stock Exchange
The Pacific Stock Exchange
Texas Utilities Electric Company Depositary Shares, each representing New York Stock Exchange
1/4 of a share of $8.20 Cumulative
Preferred Stock, without par value
Texas Utilities Electric Company Depositary Shares, Series A, each New York Stock Exchange
representing 1/4 of a share of $7.50
Cumulative Preferred Stock, without par
value
Texas Utilities Electric Company Depositary Shares, Series B, each New York Stock Exchange
representing 1/4 of a share of $7.22
Cumulative Preferred Stock, without par
value
TU Electric Capital I, a subsidiary 8.25% Trust Originated Preferred Securities New York Stock Exchange
of Texas Utilities Electric Company
TU Electric Capital II, a subsidiary 9.00% Trust Originated Preferred Securities New York Stock Exchange
of Texas Utilities Electric Company
TU Electric Capital III, a subsidiary 8.00% Quarterly Income Preferred Securities New York Stock Exchange
of Texas Utilities Electric Company
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
PREFERRED STOCK OF TEXAS UTILITIES ELECTRIC COMPANY, WITHOUT PAR VALUE
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of Texas Utilities Company Common Stock held by
non-affiliates, based on the last reported sale price on the composite tape on
February 29, 1996: $9,118,331,869
Aggregate market value of Texas Utilities Electric Company Common Stock held
by non-affiliates: None
Common Stock outstanding at February 29, 1996:
Texas Utilities Company - 225,841,037 shares, without par value
Texas Utilities Electric Company - 156,800,000 shares, without par value
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement pursuant to Regulation 14A, which
will be mailed to the Commission for filing on or about April 1, 1996, are
incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
- ---- ----------- --------
PART I
1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Texas Utilities Company and Subsidiaries . . . . . . . . . . . 1
TU Electric . . . . . . . . . . . . . . . . . . . . . . . . . 2
Peak Load and Capability . . . . . . . . . . . . . . . . . . . 3
Fuel Supply and Purchased Power . . . . . . . . . . . . . . . 4
Regulation and Rates . . . . . . . . . . . . . . . . . . . . . 7
Competition . . . . . . . . . . . . . . . . . . . . . . . . . 10
Environmental Matters . . . . . . . . . . . . . . . . . . . . 12
2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 16
3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 17
4 Submission of Matters to a Vote of Security Holders . . . . . . . 17
Executive Officers of the Company . . . . . . . . . . . . . . . . 17
PART II
5 Market for Each Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 18
6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 19
7 Management's Discussion and Analysis of Financial Condition and
Results of Operation . . . . . . . . . . . . . . . . . . . . . 23
8 Financial Statements and Supplementary Data . . . . . . . . . . . 28
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . 65
PART III
10 Directors and Executive Officers of Each Registrant . . . . . . . 65
11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 67
12 Security Ownership of Certain Beneficial Owners and Management . . 73
13 Certain Relationships and Related Transactions . . . . . . . . . . 73
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . 74
3
This combined Form 10-K is filed separately by Texas Utilities Company and
Texas Utilities Electric Company. Information contained herein relating to an
individual registrant is filed by that registrant on its own behalf except that
the information with respect to Texas Utilities Electric Company, other than
the financial statements of Texas Utilities Electric Company, is filed by each
of Texas Utilities Electric Company and Texas Utilities Company. Neither Texas
Utilities Company nor Texas Utilities Electric Company makes any representation
as to information filed by the other registrant.
PART I
ITEM 1. BUSINESS
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
Texas Utilities Company (Company) was incorporated under the laws of the
State of Texas in 1945 and has perpetual existence under the provisions of the
Texas Business Corporation Act. The Company is a holding company which owns
all of the outstanding common stock of Texas Utilities Electric Company (TU
Electric), the principal subsidiary of the Company, Southwestern Electric
Service Company (SESCO), and Texas Utilities Australia Pty. Ltd. (TU
Australia). The Company also has seven other wholly-owned subsidiaries which
perform specialized functions within the Texas Utilities Company system. The
Company and all of its subsidiaries are referred to herein as "System
Companies". References herein to TU Electric include its financing
subsidiaries, TU Electric Capital I, TU Electric Capital II and TU Electric
Capital III.
The Company holds no franchises other than its corporate franchise. TU
Electric, SESCO and TU Australia possess all of the necessary franchises,
licenses and certificates required to enable them to conduct their respective
businesses (see Regulation and Rates).
For information concerning TU Electric, the principal subsidiary of the
Company, see TU Electric below.
In December 1995, the Company's newly formed subsidiary, TU Australia,
acquired the common stock of Eastern Energy Limited (Eastern Energy), a major
Australian electricity distribution company. Eastern Energy is engaged in the
purchase, distribution and sale of electric energy to approximately 475,000
customers in a service area in Australia extending from the outer eastern
suburbs of the Melbourne metropolitan area to the eastern coastal areas of
Victoria and the New South Wales border to the north. Eastern Energy generates
no electric energy. All financial and operational information with respect to
TU Australia is as of December 31, 1995 and for the period from December 1,
1995 (date of acquisition) to December 31, 1995. References herein to TU
Australia include its subsidiary, Eastern Energy.
SESCO is engaged in the purchase, transmission, distribution and sale of
electric energy in ten counties in the eastern and central parts of Texas with
a population estimated at 125,000. SESCO generates no electric energy.
For consolidated energy sales and operating revenues contributed by TU
Electric, SESCO and TU Australia for each customer classification, see Item 6.
Selected Financial Data - Texas Utilities Company and Subsidiaries --
Consolidated Operating Statistics.
Texas Utilities Fuel Company (Fuel Company) owns a natural gas pipeline
system, acquires, stores and delivers fuel gas and provides other fuel services
at cost for the generation of electric energy by TU Electric.
Texas Utilities Mining Company (Mining Company) owns, leases and operates
fuel production facilities for the surface mining and recovery of lignite at
cost for the generation of electric energy by TU Electric.
Texas Utilities Services Inc. (TU Services) provides financial, accounting,
information technology, customer services, procurement, personnel and other
administrative services at cost to the System Companies. TU Services acts as
transfer agent, registrar and dividend paying agent with respect to the common
stock of the Company and the preferred stock and preferred securities of TU
Electric and as agent for participants under the Company's Automatic Dividend
Reinvestment and Common Stock Purchase Plan.
Texas Utilities Properties Inc. owns, leases and manages real and personal
properties, primarily the Company's corporate headquarters.
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ITEM 1. BUSINESS (CONTINUED)
TEXAS UTILITIES COMPANY AND SUBSIDIARIES -- (CONCLUDED)
In March 1995, Texas Utilities Communications Inc. (TU Communications), was
incorporated under the laws of the State of Delaware. TU Communications was
organized to provide access to advanced telecommunications technology,
primarily for the System Companies' expected expansion of the energy services
business.
Basic Resources Inc. was organized for the purpose of developing natural
resources, primarily energy sources and other business opportunities.
Chaco Energy Company (Chaco) was organized to own and operate facilities for
the acquisition, production, sale and delivery of coal and other fuels and
currently leases extensive coal reserves.
At December 31, 1995, the System Companies had 11,729 full-time employees.
TU ELECTRIC
TU Electric was incorporated under the laws of the State of Texas in 1982
and has perpetual existence under the provisions of the Texas Business
Corporation Act. TU Electric is an electric utility engaged in the generation,
purchase, transmission, distribution and sale of electric energy wholly within
the State of Texas. TU Electric possesses all of the necessary franchises and
certificates required to enable it to conduct its business (see Regulation and
Rates). TU Electric is the principal subsidiary of the Company.
TU Electric's service area is located in the north central, eastern and
western parts of Texas, with a population estimated at 5,820,000 -- about
one-third of the population of Texas. Electric service is provided in 91
counties and 372 incorporated municipalities, including Dallas, Fort Worth,
Arlington, Irving, Plano, Waco, Mesquite, Grand Prairie, Wichita Falls, Odessa,
Midland, Carrollton, Tyler, Richardson and Killeen. The area is a diversified
commercial and industrial center with substantial banking, insurance,
communications, electronics, aerospace, petrochemical and specialized steel
manufacturing, and automotive and aircraft assembly. The territory served
includes major portions of the oil and gas fields in the Permian Basin and East
Texas, as well as substantial farming and ranching sections of the State. It
also includes the Dallas-Forth Worth International Airport and the Alliance
Airport. For energy sales and operating revenues contributed by each customer
classification, see Item 6. Selected Financial Data -- Texas Utilities Electric
Company and Subsidiaries -- Consolidated Operating Statistics.
At December 31, 1995, TU Electric had 7,425 full-time employees.
2
5
ITEM 1. BUSINESS (CONTINUED)
PEAK LOAD AND CAPABILITY
THE COMPANY AND TU ELECTRIC
The peak load and capability for the System Companies includes the
information for TU Electric contained in the chart below along with peak loads
for SESCO and TU Australia. Peak load was 253 MW on July 28, 1995 for SESCO
and 974 MW on July 10, 1995 for TU Australia. SESCO and TU Australia generate
no electricity.
TU Electric's net capability, peak load and reserve, in megawatts (MW), at
the time of peak were as follows during the years indicated:
PEAK LOAD (A)
--------------------
INCREASE
(DECREASE) FIRM
NET OVER PEAK
YEAR CAPABILITY AMOUNT PRIOR YEAR LOAD RESERVE(B)
- ---- ------------ ------ ---------- ------ ----------
1995 . . . . . . . . 22,250(c)(d) 19,180 6.4 % 18,631 3,619
1994 . . . . . . . . 22,350(d)(e) 18,030 (1.6) 17,515 4,835
1993 . . . . . . . . 21,697(d)(f) 18,324 4.6 17,852 3,845
- -------------------------
(a) The 1995 peak load occurred on July 28. TU Electric's peak load includes
interruptible load at the time of peak of 744 MW in 1995, 656 MW in 1994
and 499 MW in 1993.
(b) Amount of net capability in excess of firm peak load at the time of peak.
(c) Included in net capability was 1,244 MW of firm purchased capacity, of
which 1,164 MW was cogeneration and small power production.
(d) In November 1993, the emissions chimney serving Unit 3 (750 MW) of the
Monticello lignite-fueled generating station collapsed, rendering the
unit inoperable. The unit was rebuilt and returned to service in June
1995. Such unit is included in net capability.
(e) Included in net capability was 1,344 MW of firm purchased capacity, of
which 1,264 MW was cogeneration and small power production. In 1994, one
70 MW natural gas-fueled unit was retired.
(f) Included in net capability was 1,771 MW of firm purchased capacity, of
which 1,691 MW was cogeneration and small power production, and excluded
was Comanche Peak Unit 2 (1,150 MW) which was placed into commercial
service after the 1993 peak load.
TU ELECTRIC
The peak load changes from 1994 to 1995 resulted primarily from customer
growth and warmer temperatures than the prior year. The peak load changes in
the prior periods resulted primarily from customer growth in the service area
and weather factors. TU Electric expects to continue to purchase capacity in
the future from various sources. (See Fuel Supply and Purchased Power and Note
14 to Consolidated Financial Statements.) Firm peak load increases over the
next ten years are expected to average approximately 2% annually, after
consideration of load management programs (including interruptible contracts).
Changes in utility regulation and legislation at the federal and state
levels such as the Public Utility Regulatory Policy Act of 1978 (PURPA), the
National Energy Policy Act of 1992 (Energy Policy Act), the 1995 amendments to
the Public Utility Regulatory Act (PURA) in Texas, and the Federal Energy
Regulatory Commission (FERC) Notice of Proposed Rulemaking have significantly
changed the way in which utilities plan for new resources. TU Electric
believes the results of competitive resource solicitations will be a major
factor in determining future resource additions to serve customer loads. Thus,
for planning purposes, TU Electric can no longer readily identify the ownership
and types of resources to include in its plan before the actual solicitation
and selection of those resources. TU Electric has decided to reflect this
uncertainty through the use of the term "Unspecified Resources." Except for
known contracts, all potential new resource needs will be designated as
"Unspecified Resources." The primary change in the current resource plan is
the designation of "Unspecified Resources" in the place of specified resources.
In October 1994, TU Electric filed an application for approval by the
Public Utility Commission of Texas (PUC) of certain aspects of its Integrated
Resource Plan (IRP) for the ten year period 1995 - 2004. The IRP, developed as
an experimental pilot project in conjunction with regulatory and customer
groups, includes initiatives that address demand-side management resources,
purchased power, combustion turbine resources, lignite/coal resources, and
renewable resources. Hearings on this application were concluded in March
1995. In August 1995, the PUC remanded the case for development of a
solicitation plan and to conform the TU Electric 1995 IRP to new state
legislation that requires the PUC to adopt a state-wide integrated resource
planning rule by September 1, 1996. In January 1996, TU Electric filed an
updated IRP with the PUC along with a proposed plan for the solicitation
3
6
ITEM 1. BUSINESS (CONTINUED)
PEAK LOAD AND CAPABILITY-- (CONCLUDED)
of resources through a competitive bidding process. The PUC's decision on the
solicitation plan is expected in July 1996. The resource needs identified in
the updated IRP are as follows:
INTEGRATED
RESOURCE PLAN
1996-2005
-----------------------
FIRM
CAPABILITY
RESOURCE ADDITIONS (MW) PERCENT
------------------ ---------- --------
Load Management(a)(c) . . . . . . . . . . . . . . 638 13.1%
Renewable Resources(b) . . . . . . . . . . . . . 4 0.1
Unspecified Resources . . . . . . . . . . . . . . 4,223 86.8
----- -----
Total . . . . . . . . . . . . . . . . . . . . 4,865 100.0%
===== =====
- -------------------------
(a) TU Electric has negotiated and signed contracts with eight suppliers of
demand side management services designed to displace a total of 72 MW by
2004.
(b) TU Electric has negotiated and signed one purchased power contract for 40
MW (4 MW firm) of wind-powered resources to be placed in service by 1997.
(c) Subject to the approval by the PUC.
FUEL SUPPLY AND PURCHASED POWER
THE COMPANY AND TU ELECTRIC
Net input for the Company's systems for 1995 totalled 95,761 million
kilowatt-hours (kWh) of which 83,877 million kWh were generated by TU Electric.
Average fuel and purchased power cost (excluding capacity charges) per kWh of
net input for the Company and TU Electric were 1.64 and 1.62 cents for 1995,
1.76 and 1.76 cents for 1994 and 1.92 and 1.92 cents for 1993, respectively.
The decrease for 1995 primarily reflects the reduction in natural gas costs and
increased nuclear generation. A comparison of TU Electric's resource mix for
net kWh input and the unit cost per million British thermal units (Btu) of
fuel during the last three years is as follows:
MIX FOR NET UNIT COST
KWH INPUT PER MILLION BTU
------------------------ ---------------------------
1995 1994 1993 1995 1994 1993
Fuel for Electric Generation:
Gas/Oil (a) . . . . . . . . . . . . . . . . 33.4% 34.5% 33.7% $2.31 $2.53 $2.81
Lignite/Coal (b) . . . . . . . . . . . . . . 37.4 37.3 40.3 1.02 1.04 1.10
Nuclear . . . . . . . . . . . . . . . . . . 17.9 15.7 12.4 0.59 0.67 0.71 (c)
----- ----- ----- ----- ----- -----
Total/Weighted Average Fuel Cost . . . . . . 88.7 87.5 86.4 $1.43 $1.58 $1.73
Purchased Power (d) . . . . . . . . . . . . . . 11.3 12.5 13.6
----- ----- -----
Total . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
===== ===== =====
- -------------------------
(a) Fuel oil was an insignificant component of total fuel and purchased power
requirements.
(b) Lignite cost per ton to the Company was $13.05 in 1995, $13.34 in 1994 and
$13.98 in 1993.
(c) Unit cost per million Btu in 1993 includes avoided cost of fuel during
trial operations. The 1993 cost, excluding costs associated with Comanche
Peak Unit 2 while in trial operations, was $0.62.
(d) Excludes SESCO and TU Australia purchased power of 865 million and 335
million kWh, respectively for 1995.
4
7
ITEM 1. BUSINESS (CONTINUED)
FUEL SUPPLY AND PURCHASED POWER -- (CONTINUED)
GENERAL
TU Electric, SESCO and TU Australia are unable to predict: (i) whether or
not problems may be encountered in the future in obtaining the fuel and
purchased power they will require, (ii) the effect upon their operations of any
difficulty they may experience in protecting their rights to fuel and purchased
power now under contract, or (iii) the cost of fuel and purchased power. The
reasonable costs of fuel and purchased power of TU Electric and SESCO are
generally recoverable subject to the rules of the PUC. (See Regulation and
Rates for information pertaining to the method of recovery of purchased power
and fuel costs.)
GAS/OIL
THE COMPANY AND TU ELECTRIC
Fuel gas for units at nineteen of the principal generating stations of TU
Electric, having an aggregate net gas/oil capability of 13,100 MW, was provided
during 1995 by Fuel Company. Fuel Company supplied approximately 29% of such
fuel gas requirements under contracts with producers at the wellhead and under
other contracts with dedicated reserves and 71% under contracts with commercial
suppliers.
Fuel Company has acquired under contracts expiring at intervals through
2008, with producers at the wellhead, supplies of gas which are generally
expected to be produced over a ten to fifteen year period. As gas production
under contract declines and contracts expire, new contracts are expected to be
negotiated to replenish or augment such supplies. Fuel Company has negotiated
gas purchase contracts, with terms ranging from one to twenty years, with a
number of commercial suppliers. Additionally, Fuel Company has entered into a
number of short-term gas purchase contracts with other commercial suppliers at
spot market prices; however, these contracts typically do not provide for a
firm supply obligation from the seller or a firm purchase obligation from Fuel
Company. In the past, curtailments of gas deliveries have been experienced
during periods of winter peak gas demand; however, such curtailments have been
of relatively short duration, have had a minimal impact on operations and have
generally required utilization of fuel oil and gas storage inventories to
replace the gas curtailed. During 1995, no curtailments were experienced.
Fuel Company owns and operates an intrastate natural gas pipeline system
which extends from the gas-producing area of the Permian Basin in West Texas to
the East Texas gas fields and southward to the Gulf Coast area. This system
includes a one-half interest in a 36-inch pipeline which extends 395 miles from
the Permian Basin area of West Texas to a point of termination south of the
Dallas- Fort Worth area and has a total estimated capacity of 885 million cubic
feet per day with existing compression facilities. Additionally, Fuel Company
owns a 39% undivided interest in another 36-inch pipeline connecting to this
pipeline and extending 58 miles eastward to one of Fuel Company's underground
gas storage facilities. Fuel Company also owns and operates approximately
1,600 miles of various smaller capacity lines which are used to gather and
transport natural gas from other gas-producing areas. The pipeline facilities
of Fuel Company form an integrated network through which fuel gas is gathered
and transported to certain TU Electric generating stations for use in the
generation of electric energy.
Fuel Company also owns and operates three underground gas storage facilities
with a usable capacity of 27.2 billion cubic feet with approximately 19.8
billion cubic feet of gas in inventory at December 31, 1995. Gas stored in
these facilities currently can be withdrawn for use during periods of peak
demand, to meet seasonal and other fluctuations or curtailment of deliveries by
gas suppliers. Under normal operating conditions, up to 400 million cubic feet
can be withdrawn each day for a ten-day period, with withdrawals at lower rates
thereafter.
Fuel oil is stored at eighteen of the principally gas-fueled generating
stations. At December 31, 1995, the System Companies had fuel oil storage
capacity sufficient to accommodate approximately 6.2 million barrels of oil,
with approximately 2.3 million barrels of oil in inventory.
5
8
ITEM 1. BUSINESS (CONTINUED)
FUEL SUPPLY AND PURCHASED POWER -- (CONTINUED)
LIGNITE/COAL
TU ELECTRIC
Lignite is used as the primary fuel in two units at the Big Brown generating
station (Big Brown), three units at Monticello generating station (Monticello),
three units at the Martin Lake generating station (Martin Lake), and one unit
at the Sandow generating station (Sandow), having an aggregate net capability
of 5,825 MW. TU Electric's lignite units have been constructed adjacent to
surface minable lignite reserves. At the present time, TU Electric owns in fee
or has under lease an estimated 567 million tons of proven reserves dedicated
to the Big Brown, Monticello, and Martin Lake generating stations. TU Electric
also owns in fee or has under lease in excess of 271 million tons of proven
reserves not dedicated to specific generating stations. Mining Company
operates owned and/or leased equipment to remove the overburden and recover the
lignite. One of TU Electric's lignite units, Sandow Unit 4, is fueled from
lignite deposits owned by Alcoa, which furnishes fuel at no cost to TU Electric
for that portion of energy generated from such unit which is equal to the
amount of energy delivered to Alcoa (see Item 6. Selected Financial Data -
Consolidated Operating Statistics).
Lignite production operations at Big Brown, Monticello, and Martin Lake are
accompanied by an extensive reclamation program which returns the land to
productive uses such as wildlife habitats, commercial timberland, and pasture
land. For information concerning federal and state laws with respect to
surface mining, see Environmental Matters.
TU Electric supplemented TU Electric-owned lignite fuel at its Monticello,
Martin Lake and Big Brown plants with western coal from the Powder River Basin
(PRB) in Wyoming. The coal was purchased and transported on an "as available,
as required" basis. Because current mine capacity in the PRB is greater than
demand, ample amounts of western coal are presently available at favorable
prices. Fuel requirements at Monticello were reduced as a result of the
November 1993 collapse of the emissions chimney at Unit 3. Consequently,
deliveries of western coal were discontinued and lignite mining operations at
the Monticello mines were reduced. With the return to service of Monticello
Unit 3 in June 1995, lignite mining operations have resumed and western coal
deliveries to Monticello will take place in 1996. TU Electric is also
considering the use of western coal as a supplemental fuel at its other
existing lignite-fueled plants and as a long-term alternative fuel. For
information concerning applicable air quality standards, see Environmental
Matters.
THE COMPANY
Chaco has rights to sub-bituminous coal reserves totaling more than 120
million recoverable tons located in the Star Lake region of San Juan and
McKinley counties in northwest New Mexico. In 1990, Chaco entered into a
revised lease agreement with a major mineral interest owner, Hospah Coal
Company (Hospah), a subsidiary of Santa Fe Industries, Inc. (Santa Fe),
estimated to cover more than 300 million additional tons of recoverable coal in
the same area of New Mexico. Chaco and Santa Fe also entered into a separate
agreement providing for the transportation of coal mined from both of these
deposits. In 1993, Santa Fe transferred the coal-related assets of Hospah to
Hanson Natural Resources Company. This transfer of assets includes the lease
agreement between Chaco and Hospah. This agreement will continue in accordance
with its terms. Because of the present ample availability of western coal at
favorable prices from other mines, Chaco has delayed plans to commence mining
operations, and accordingly, is reassessing its alternatives with respect to
its coal properties including seeking other purchasers thereof. (See Item 2.
Properties and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation and Note 14 to Consolidated Financial
Statements.)
NUCLEAR
TU ELECTRIC
TU Electric owns and operates two nuclear-fueled generating units at the
Comanche Peak nuclear generating station (Comanche Peak), each of which is
designed for a net capability of 1,150 MW. (See Peak Load and Capability.)
6
9
ITEM 1. BUSINESS (CONTINUED)
FUEL SUPPLY AND PURCHASED POWER -- (CONCLUDED)
The nuclear fuel cycle requires the mining and milling of uranium ore to
provide uranium oxide concentrate (U(3)O(8)), the conversion of U(3) O(8) to
uranium hexafluoride (UF (6)), the enrichment of the UF(6) and the fabrication
of the enriched uranium into fuel assemblies. TU Electric has on hand, or has
contracted for, the raw materials and services it expects to need for its
nuclear units through future years as follows: uranium (2001), conversion
(2003), enrichment (2014), and fabrication (2002). Although TU Electric cannot
predict the future availability of uranium and nuclear fuel services, TU
Electric does not currently expect to have difficulty obtaining U(3)O(8) and
the services necessary for its conversion, enrichment and fabrication into
nuclear fuel for years later than those shown above.
The Energy Policy Act has provisions for the recovery of a portion of the
costs associated with the decommissioning and decontamination of the gaseous
diffusion plants used to enrich uranium for fuel. These costs are being
recovered in fees paid to the Department of Energy as determined by the
Secretary of Energy. The total annual assessment for all domestic utilities is
capped at $150 million per federal fiscal year assessable for fifteen years.
TU Electric's share, as established by the Department of Energy, is estimated
to be about $1,556,000 per year.
The Nuclear Waste Policy Act of 1982, as amended (NWPA), provides for the
development by the federal government of interim storage and permanent disposal
facilities for spent nuclear fuel and/or high level radioactive waste
materials. TU Electric is unable to predict when the federal government will
be able to provide such storage and disposal facilities. Under provisions of
the NWPA, funding for the program is provided by a one-mill per kWh fee
currently levied on electricity generated and sold from nuclear reactors,
including the Comanche Peak units. Onsite storage capability for spent fuel
is sufficient to accommodate the operation of Comanche Peak through the year
2001. TU Electric is currently pursuing options for increasing its storage
capability, subject to approval by the Nuclear Regulatory Commission (NRC).
PURCHASED POWER
THE COMPANY AND TU ELECTRIC
In 1995, the Company purchased an aggregate of 11,884 million kWh or
approximately 12% of the Company's energy requirements. TU Electric and SESCO
had available 1,362 MW of firm purchased capacity under contract. As a result
of the renewable resources solicitation that was part of the IRP filing, TU
Electric has negotiated a 15-year contract with a developer for the
purchase of energy produced from wind turbines equivalent to approximately 40
MW (or approximately 4 MW of firm capacity at peak) beginning in 1997. The
Company may also acquire purchased power capacity in the future to accommodate
a portion of system load and continues to investigate potential available
sources. For information concerning the IRP, see Peak Load and Capability and
Note 12 to Consolidated Financial Statements.
TU Australia and the other distribution companies in Victoria purchase their
power from a competitive power pool operated by a statutory, independent
corporation. While the price of power from the pool can vary substantially, TU
Australia attempts to manage price fluctuations with other contracts. TU
Australia also has arrangements with a number of cogenerators under which it is
required to purchase approximately 52 MW of capacity.
REGULATION AND RATES
REGULATION
THE COMPANY AND TU ELECTRIC
The Company is a holding company as defined in the Public Utility Holding
Company Act of 1935. However, the Company and all of its subsidiary companies
are exempt from the provisions of such Act, except Section 9(a)(2) which
relates to the acquisition of securities of public utility companies.
TU Electric and SESCO do not transmit electric energy in interstate commerce
or sell electric energy at wholesale in interstate commerce, or own or operate
facilities therefor, and their facilities are not connected directly or
indirectly to other systems which are involved in such interstate
activities, except during the continuance of
7
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ITEM 1. BUSINESS (CONTINUED)
REGULATION AND RATES -- (CONTINUED)
emergencies permitting temporary or permanent connections or under order of the
FERC exempting TU Electric and SESCO from jurisdiction under the Federal Power
Act. In view thereof, TU Electric and SESCO believe that they are not public
utilities as defined in the Federal Power Act and have been advised by their
counsel that they are not subject to general regulation under such Act.
The PUC has original jurisdiction over electric rates and service in
unincorporated areas and those municipalities that have ceded original
jurisdiction to the PUC and has exclusive appellate jurisdiction to review the
rate and service orders and ordinances of municipalities. Generally, PURA
prohibits the collection of any rates or charges (including charges for fuel)
by a public utility that does not have the prior approval of the PUC.
The construction of new production facilities owned by TU Electric is
subject to PUC certification. TU Electric filed and received approval of
Notice of Intent (NOI) applications in connection with its IRP for 1,802 MW of
combustion turbine capacity and 100 MW of renewable resources (wind turbines).
Prior to the enactment of revisions in PURA, an NOI was the first step in the
process leading to PUC approval for construction of utility plant. However,
because PURA now requires the utilities to use solicitations to procure new
resources, the NOI requirement was eliminated. Thus, TU Electric's updated
1995 IRP does not specifically include the combustion turbine or the renewable
resources. Instead, all new resource additions (except known contracts) are
designated as "Unspecified Resources" that will be "specified" upon completion
of the required solicitations. (See Peak Load and Capabilities and Item 2.
Properties - Capital Expenditures.)
TU Electric is subject to the jurisdiction of the NRC with respect to
nuclear power plants. NRC regulations govern the granting of licenses for the
construction and operation of nuclear power plants and subject such plants to
continuing review and regulation.
TU Australia is subject to regulation by the Office of the Regulator General
(ORG). The ORG has the power to issue licenses for the supply, distribution
and sale of electricity within Victoria and regulates tariffs for the use of
the transmission system, distribution system, and other ancillary services.
The existing tariff under which TU Australia operates is in effect through
December 31, 2000.
The System Companies are also subject to various other federal, state and
local regulations. (See Environmental Matters.)
FUEL COST RECOVERY RULE
TU ELECTRIC
Pursuant to a PUC rule governing the recovery of fuel costs, the recovery of
TU Electric's eligible fuel costs is provided through fixed fuel factors. The
rule allows a utility's fuel factor to be revised upward or downward every six
months, according to a specified schedule. A utility is required to petition
to make either surcharges or refunds to ratepayers, together with interest
based on a twelve month average of prime commercial rates, for any material, as
defined by the PUC, cumulative under- or over-recovery of fuel costs. If the
cumulative difference of the under- or over-recovery, plus interest, is in
excess of 4% of the annual estimated fuel costs most recently approved by the
PUC, it will be deemed to be material. TU Electric filed a petition with the
PUC in November 1995 to refund to customers approximately $65 million,
including interest, in over-collected fuel costs for the period June 1995
through September 1995. PUC approval was granted in January 1996 and refunds
were included in February 1996 billings. In June 1995, TU Electric petitioned
the PUC for approval of a fuel refund to customers of approximately $89
million, including interest, in over-collected fuel costs for the period June
1994 through May 1995. PUC approval was granted in August 1995 and refunds
were included in September 1995 billings. These over-collections were
primarily due to lower natural gas prices than previously anticipated. In
August 1994, TU Electric petitioned the PUC for a recovery of approximately $93
million, including interest, in under-collected fuel costs for the period July
1993 through June 1994. The PUC approved the recovery of this amount through a
surcharge to customers over a six-month period beginning in January 1995. The
PUC's approval of this surcharge and a previously approved $147.5 million
surcharge for fuel cost recovery for a prior period have been appealed by
certain intervenors to the district courts of Travis County, Texas. In those
appeals, those parties are contending that the PUC is without authority to
allow a fuel cost surcharge without a hearing and resultant findings that the
costs are reasonable and
8
11
ITEM 1. BUSINESS (CONTINUED)
REGULATION AND RATES -- (CONTINUED)
necessary and that the prices charged to TU Electric by supplying affiliates
are no higher than the prices charged by those affiliates to others for the
same item or class of items. TU Electric is vigorously defending its position
in these appeals but is unable to predict their outcome.
The fuel cost recovery rule also contains a procedure for an expedited
change in the fixed fuel factor in the event of an emergency. Final
reconciliation of fuel costs must be made either in a reconciliation
proceeding, which may cover no more than three years and no less than one year,
or in a general rate case. In a final reconciliation, a utility has the burden
of proving that fuel costs under review were reasonable and necessary to
provide reliable electric service, that it has properly accounted for its
fuel-related revenues, and that fuel prices charged to the utility by an
affiliate were reasonable and necessary and not higher than prices charged for
similar items by such affiliate to other affiliates or nonaffiliates. In
addition, for generating utilities like TU Electric, the rule provides for
recovery of purchased power capacity costs through a power cost recovery factor
(PCRF) with respect to purchases from qualifying facilities, to the extent such
costs are not otherwise included in base rates. The energy-related costs of
such purchases are included in the fixed fuel factor. For non-generating
utilities like SESCO, the rule provides for the recovery of all costs of power
purchased at wholesale chargeable under rate schedules approved by a federal or
state regulatory authority and all amounts paid to qualifying facilities for
the purchase of capacity and/or energy, to the extent such costs are not
otherwise included in base rates. Penalties of up to 10% will be imposed in
the event an emergency increase has been granted when there was no emergency or
when collections under the PCRF exceed PCRF costs by 10% in any month or 5% in
the most recent twelve months.
FUEL RECONCILIATION
On December 29, 1995, in accordance with the PUC rules, TU Electric filed a
petition with the PUC seeking final reconciliation of all eligible fuel and
purchased power expenses incurred during the reconciliation period of July 1,
1992 through June 30, 1995, amounting to a total of $4.7 billion. TU Electric
is unable to predict the outcome of such proceeding.
In addition, and as permitted by the PUC rules, TU Electric is also seeking
an accounting order from the PUC that will allow certain costs incurred, and to
be incurred, to facilitate the use of coal as a supplemental fuel at its
Monticello plant to be treated as eligible fuel costs and billed pursuant to TU
Electric's fuel cost factor. By incurring these expenses, TU Electric believes
that it can significantly improve the reliability of the supply of fuel to
Monticello and can, at the same time, lower the fuel expense that would be
incurred in the absence of these investments.
FLEXIBLE RATE INITIATIVES
TU ELECTRIC
TU Electric continues to offer flexible rates in over 160 cities with
original regulatory jurisdiction within its service territory (including the
cities of Dallas and Fort Worth), to existing non-residential retail and
wholesale customers that have viable alternative sources of supply and would
otherwise leave the system. TU Electric also continues to offer an economic
development rider to attract new businesses and to encourage existing customers
to expand their facilities as well as an environmental technology rider to
encourage qualifying customers to convert to technologies that conserve energy
or improve the environment. To date, TU Electric has contracted to serve 91
commercial, industrial and municipal flexibly-priced loads, eight economic
development loads, and one environmental technology load under these rates. TU
Electric will continue to pursue the expanded use of flexible rates when such
rates are necessary to be price-competitive.
As a result of recent legislation, flexible retail and wholesale pricing may
be approved by the PUC at levels lower than the utility's approved rates but
higher than the utility's marginal cost. In September 1995, TU Electric filed
an application for such a wholesale rate with the PUC for service to two rural
electric cooperatives it has served since 1963. The proposed rate includes
provisions for a five-year term of service. If approved by the PUC, the
proposed rate will enable TU Electric to retain a combined load of
approximately 23 MW. The cooperatives have informed TU Electric that they will
transfer their load to alternative suppliers if the proposed rate is not
approved.
9
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ITEM 1. BUSINESS (CONTINUED)
REGULATION AND RATES -- (CONCLUDED)
TU Electric is actively pursuing several other opportunities through flexible
pricing to enhance its ability to compete for new wholesale loads, as well as
to retain existing wholesale loads.
DOCKET 11735
In July 1994, TU Electric filed a petition in the 200th Judicial District
Court of Travis County, Texas to seek judicial review of the final order of the
PUC granting a $449 million, or 9.0%, rate increase in connection with TU
Electric's January 1993 rate increase request of $760 million, or 15.3%
(Docket 11735). Other parties to the PUC proceedings also filed appeals with
respect to various portions of the order. TU Electric is unable to predict the
outcome of such appeals.
DOCKET 9300
The PUC's final order (Order) in connection with TU Electric's January 1990
rate increase request (Docket 9300) was reviewed by the 250th Judicial District
Court of Travis County, Texas and thereafter was appealed to the Court of
Appeals for the Third District of Texas (Court of Appeals) and to the Supreme
Court of Texas (Supreme Court). As a result of such review and appeals, an
aggregate of $909 million of disallowances with respect to TU Electric's
reacquisitions of minority owners' interests in Comanche Peak has been remanded
to the PUC for reconsideration on the basis of a prudent investment standard.
On remand, the PUC will also be required to reevaluate the appropriate level of
TU Electric's construction work in progress included in rate base in light of
its financial condition at the time of the initial hearing.
The Court of Appeals' holding that tax benefits generated by costs,
including capital costs, not allowed in rates must be used to reduce rates
charged to customers was reversed by the Supreme Court in a February 9, 1996
decision. The Supreme Court's ruling eliminates the potential normalization
violation that two Private Letter Rulings issued by the Internal Revenue
Service said would have resulted from the treatment that previously had been
ordered by the Court of Appeals.
TU Electric cannot predict the outcome of any possible rehearing of the
Supreme Court decision or the reconsideration of this Order on remand by the
PUC.
COMPETITION
GENERAL
THE COMPANY AND TU ELECTRIC
As legislative, regulatory, economic and technological changes occur, the
energy and utility industries are faced with increasing pressure to become more
competitive while adhering to regulatory requirements. The level of
competition is affected by a number of variables, including price, reliability
of service, the cost of energy alternatives, new technologies and governmental
regulations.
Federal legislation such as the PURPA and, more recently, the Energy Policy
Act, as well as initiatives in various states, encourage wholesale competition
among electric utility and non-utility power producers. Together with
increasing customer demand for lower-priced electricity and other energy
services, these measures have accelerated the industry's movement toward a more
competitive pricing and cost structure. Competition in the electric utility
industry was also addressed in the 1995 session of the Texas legislature. PURA
was amended to encourage greater wholesale competition and flexible retail
pricing. PURA amendments also require the PUC to report to the legislature,
during each legislative session, on competition in electric markets. The PUC's
report is to include recommendations for legislation to promote "the public
interest in the context of a partially competitive electric market." In
addition, PURA requires the PUC to report to the 1997 legislature on methods
for quantifying, allocating and recovering costs that may be stranded as a
result of competition. In preparation for its January 1997 reports, the PUC
has initiated an investigation of utility industry restructuring. TU Electric
is an active participant in this proceeding.
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ITEM 1. BUSINESS (CONTINUED)
COMPETITION -- (CONTINUED)
As a result of the shift in emphasis toward greater competition, large and
small industry participants are attempting to penetrate wholesale, industrial
and commercial markets by offering energy services and energy-related products
that are both economically and environmentally attractive to customers. In
Texas, aggressive marketing of competitive prices by rural electric
cooperatives, municipally-owned electric systems, and other energy providers
who are not subject to the traditional governmental regulation experienced by
the energy and utility industries has intensified competition within the
state's wholesale markets and, in multi-certificated areas, retail customer
markets.
Furthermore, there is increasing pressure on utilities to reduce costs,
including the cost of power, and to tailor energy services to the specific
needs of customers. Such competitive pressures among electric utility and
non-utility power producers could result in the loss of customers and the cost
of certain assets becoming stranded costs (i.e., costs of assets which may not
be recoverable from customers as a result of competitive pricing). To the
extent stranded costs cannot be recovered from customers, it may be necessary
for such costs to be borne partially or entirely by shareholders. In response
to these competitive pressures, many utilities are implementing significant
restructuring and re-engineering initiatives designed to make them more
competitive. Since the implementation of an Operations Review and Cost
Reduction program in April 1992, the System Companies continue to take steps to
reduce costs by streamlining business processes and operating practices. (For
information pertaining to the effects of competition on the treatment of
certain regulatory assets and liabilities, see Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation and Note 1 to
Consolidated Financial Statements.)
WHOLESALE MARKET AND TRANSMISSION ACCESS
In the wholesale power market, TU Electric competes with a variety of
utilities and other suppliers, some of which are willing and able to sell at
rates below TU Electric's standard wholesale power service rate as approved by
the PUC. As a result, TU Electric has lost approximately 327 MW of wholesale
load since the beginning of 1993 and received notifications of possible
termination of approximately 610 MW through 1999. In 1995, wholesale revenues
represented only about 2% of TU Electric's total consolidated operating
revenues.
Amendments to PURA made during the 1995 session of the Texas legislature
allow for wholesale pricing flexibility. While wholesale rates for electric
utilities are not deregulated, wholesale tariffs or contracts with charges less
than approved rates but greater than the utility's marginal cost may be
approved by the regulatory authority upon application by the utility. TU
Electric is responding to wholesale load losses by competitively pricing its
wholesale power so as to retain existing customers and attract new wholesale
business. Competitive wholesale power contracts have been successfully
negotiated with two existing customers, Lyntegar Electric Cooperative and
Taylor Electric Cooperative. TU Electric has applied for approval of these
contracts by the PUC. TU Electric also entered into a wholesale power contract
with the City of College Station to serve a load of approximately 125 MW. TU
Electric began serving this load on January 1, 1996.
PURA, as amended, provides the PUC with the authority to require a utility
to provide transmission services at wholesale to another utility, a qualifying
facility, an exempt wholesale generator or a power marketer at rates, terms and
conditions that are comparable to the utility's own use of it's system.
According to PURA, rules governing comparable open-access wholesale
transmission services must be in place within 180 days of September 1, 1995.
As a result, the PUC has initiated a generic rulemaking proceeding to address
wholesale transmission issues within Texas that will require transmission
owners to file wholesale open-access transmission tariffs. Final adoption of
the rule is expected by the end of February 1996 and tariffs pursuant to the
rule will be filed within 60 days of the effective date of the rule.
At the federal level, the Energy Policy Act empowers the FERC to require
utilities to provide transmission service for the delivery of wholesale power
from other power producers to qualified resellers, such as municipalities,
cooperatives, and other utilities. The FERC has issued a Notice of Proposed
Rulemaking (NOPR)
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ITEM 1. BUSINESS (CONTINUED)
COMPETITION -- (CONCLUDED)
with respect to open-access transmission service and the recovery of stranded
costs resulting from open-access. The proposed rules would require FERC
jurisdictional utilities to file tariffs for open-access transmission service.
Utilities would be required to use these same tariffs for their own wholesale
sales. Although the NOPR provides a framework for recovery of "legitimate,
prudent and verifiable stranded costs" resulting from the implementation of the
new tariffs, it is expected that the recovery of stranded investment will be
implemented at the state level. The FERC is expected to issue final rules on
this issue in 1996.
RETAIL MARKET
TU Electric and SESCO are experiencing competition for retail load in areas
that are multi-certificated with rural electric cooperatives or municipal
utilities. Except in areas where there is multi-certification by the PUC, TU
Electric and SESCO currently have the exclusive right to provide electric
service to the public within their service areas.
Legislatures and regulatory commissions in several states have begun to
examine the possibility of mandated "retail wheeling", the required delivery by
an electric utility over its transmission and distribution facilities of energy
produced by another entity to retail customers in such utility's service
territory. If implemented, such access could allow a retail customer to
purchase electric service from any other electric service provider, subject to
the practical constraints of long distance transmission. This issue was
pursued in the 1995 session of the Texas legislature during its review of PURA
as required by state law; however, retail wheeling has not been implemented in
Texas.
In addition, some energy consumers have the ability to produce their own
electricity or to use alternative forms of energy. Industrial customers may
also be able to relocate their facilities to a lower cost service area. To
some degree, there is competition among utilities with defined service areas to
attract and retain large customers. TU Electric and SESCO are pursuing efforts
to remain competitive through competitive pricing, economic development and
other initiatives. (See Regulation and Rates.)
TU Australia's retail distribution business is gradually being exposed to
competition. As a result of rules promulgated by the ORG, the level of
competition experienced by TU Australia is expected to increase after December
31, 2000. TU Australia is currently required to offer distribution of
electricity in its service area on behalf of other distribution businesses. In
addition, the ORG may issue further licenses to operate a separate distribution
network in some or all of TU Australia's distribution area.
TU Electric, TU Australia, and SESCO are not able to predict the extent of
future competitive developments or what impact, if any, such developments may
have on their operations.
ENVIRONMENTAL MATTERS
THE COMPANY AND TU ELECTRIC
The System Companies are subject to various federal, state and local
regulations dealing with air and water quality and related environmental
matters. (See Item 2. Properties -- Capital Expenditures and Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation for environmental expenditures.)
AIR
Under the Texas Clean Air Act, the Texas Natural Resource Conservation
Commission (TNRCC) has jurisdiction over the permissible level of air
contaminant emissions from generating facilities located within the State of
Texas. In addition, the new source performance standards of the Environmental
Protection Agency (EPA) promulgated under the federal Clean Air Act, as amended
(Clean Air Act), which have also been adopted by the TNRCC, are applicable to
generating units, the construction of which commenced after September 18, 1978.
TU
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ITEM 1. BUSINESS (CONTINUED)
ENVIRONMENTAL MATTERS -- (CONTINUED)
Electric's generating units have been constructed to operate in compliance with
current regulations and emission standards promulgated pursuant to these Acts;
however, due to variations in the quality of the lignite fuel, operation of
certain of the lignite-fueled generating units at reduced loads is required
from time to time in order to maintain compliance with these standards.
The Clean Air Act includes provisions which, among other things, place
limits on the sulfur dioxide emissions produced by generating units. In
addition to the new source performance standards applicable to sulfur dioxide,
the Clean Air Act required that fossil-fueled plants meet certain sulfur
dioxide emission allowances by 1995 (Phase I) and will require additional
sulfur dioxide emission allowances by 2000 (Phase II). TU Electric's
generating units were not affected by the Phase I requirements. The applicable
Phase II requirements currently are met by 52 out of the 56 of TU Electric's
generating units to which those requirements apply. Because the sulfur dioxide
emissions from the other four units are relatively low and alternatives are
available to enable these units to reduce sulfur dioxide emissions or utilize
compensatory reduction allowances achieved in other units, compliance with the
applicable Phase II sulfur dioxide requirements is not expected to have a
significant impact on TU Electric. In January 1993, the EPA issued its "core"
regulations to implement the sulfur dioxide reduction program. TU Electric is
preparing compliance plans in accordance with these regulations and expects
these plans to be implemented by January 1, 2000.
To meet these sulfur dioxide requirements, the Clean Air Act provides for
the annual allocation of sulfur dioxide emission allowances to utilities.
Under the Clean Air Act, utilities are permitted to transfer allowances within
their own systems and to buy or sell allowances from or to other utilities.
The EPA grants a maximum number of allowances annually to TU Electric based on
the amount of emissions from units in operation during the period 1985-1987.
The Clean Air Act also provides that TU Electric will be granted additional
annual allowances for Unit 1 of the Twin Oak facility. TU Electric intends to
utilize internal allocation of emission allowances within its system and, if
cost effective, may purchase additional emission allowances to enable both
existing and future electric generating units to meet the requirements of the
Clean Air Act. TU Electric may also sell excess emission allowances. TU
Electric is unable to predict the extent to which it may generate excess
allowances or will be able to acquire allowances from others if needed but does
not anticipate any significant problems in keeping emissions within its
allotted allowances.
TU Electric's lignite-fired generating units meet the nitrogen oxide limits
currently required by the Clean Air Act. The TNRCC and the EPA have determined
that the requirements of the Clean Air Act for ozone nonattainment areas will
not require nitrogen oxide emission reductions at TU Electric's natural
gas-fired units in the Dallas-Fort Worth area. The Clean Air Act also requires
studies, which began in 1991, by the EPA to assess the potential for toxic
emissions from utility boilers. TU Electric is unable to predict either the
results of such studies or the effects of any subsequent regulations.
Only certain parts of the regulations implementing the Clean Air Act have
been published as final rules. Until more of these regulations have been
promulgated and specific state requirements developed, TU Electric will not be
able to fully determine the cost or method of compliance with these
requirements. TU Electric believes that it can meet the requirements necessary
to be in compliance with these provisions as they are developed. Estimates for
the capital requirements related to the Clean Air Act are included in TU
Electric's estimated construction expenditures. Any additional required
capital costs, as well as any increased operating costs associated with new
requirements or compliance measures, are expected to be recoverable through
rates, as similar costs have been recovered in the past.
WATER
The TNRCC and the EPA have jurisdiction over all water discharges (including
storm water) from all System Companies' facilities. The Company's facilities
are presently in compliance with applicable state and federal requirements
relating to discharge of pollutants into the water. TU Electric, Fuel Company,
and Mining Company
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ITEM 1. BUSINESS (CONCLUDED)
ENVIRONMENTAL MATTERS -- (CONCLUDED)
have obtained all required waste water discharge permits from the TNRCC and the
EPA for facilities in operation and have applied for or obtained necessary
permits for facilities under construction. TU Electric, Fuel Company, and
Mining Company believe they can satisfy the requirements necessary to obtain
any required permits or renewals.
OTHER
Diversion, impoundment and withdrawal of water for cooling and other
purposes are subject to the jurisdiction of the TNRCC. The Company possesses
all necessary permits for these activities from the TNRCC for its present
operations.
Federal legislation regulating surface mining was enacted in August 1977 and
regulations implementing the law have been issued. Mining Company's lignite
mining operations are currently regulated at the state level by the Railroad
Commission of Texas, with oversight by the United States Department of the
Interior's Office of Surface Mining, Reclamation and Enforcement. Surface
mining permits have been issued for current Mining Company operations that
provide fuel for Big Brown, Monticello and Martin Lake.
Treatment, storage and disposal of solid and hazardous waste are regulated
at the state level under the Texas Solid Waste Disposal Act (Texas Act) and at
the federal level under the Resource Conservation and Recovery Act of 1976, as
amended (RCRA). The EPA has issued regulations under the RCRA and the TNRCC
has issued regulations under the Texas Act applicable to System Companies'
facilities. The Company has registered its solid waste disposal sites and has
obtained or applied for such permits as are required by such regulations.
Under the federal Low-Level Radioactive Waste Policy Act of 1980, as
amended, the State of Texas is required to provide, either on its own or
jointly with other states in a compact, for the disposal of all low-level
radioactive waste generated within the state. The State of Texas is taking
steps to site, construct and operate a low-level radioactive waste disposal
site by 1997 and submitted a license application in March 1992 for such a
facility. The license application has been revised and the TNRCC is charged
with processing the application and granting the permit. The State of Texas
has agreed to a compact with the States of Maine and Vermont, which is subject
to ratification by Congress, for such a facility. Low-level waste material
will continue to be shipped off-site as long as an alternate disposal site is
available. Otherwise the low-level waste material will be stored on-site. TU
Electric's on-site storage capacity is expected to be adequate until other
facilities are available.
TU Australia is subject to various Australian federal and Victorian state
environmental regulations, the most significant of which is the Victorian
Environmental Protection Act of 1970 (VEPA). VEPA regulates, in particular,
the discharge of waste into air, land and water, site contamination, the
emission of noise and the storage, recycling and disposal of solid and
industrial waste. VEPA establishes the Environmental Protection Authority
(Authority) and grants this Authority a wide range of powers to control and
prevent environmental pollution. These powers include issuing approvals for
construction of works which may cause noise or emissions to air, water or land,
waste discharge licenses and pollution abatement notices. No licenses or works
approvals from this Authority are currently required for activities undertaken
by TU Australia.
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ITEM 2. PROPERTIES
THE COMPANY AND TU ELECTRIC
The Company owns no utility plant or real property. At December 31, 1995,
TU Electric owned or leased and operated the following generating units:
ELECTRIC NET
GENERATING CAPABILITY
UNITS FUEL SOURCE (MW) %
- ---------- ----------- ---------- -----
46 Natural Gas (a) . . . . . . . . . . . . . . . . . 12,105(d) 57.0%
9 Lignite/Coal (b) . . . . . . . . . . . . . . . . . 5,825(d) 27.5
2 Nuclear . . . . . . . . . . . . . . . . . . . . . 2,300 10.8
15 Combustion Turbines (c) . . . . . . . . . . . . . 975 4.6
10 Diesel . . . . . . . . . . . . . . . . . . . . . . 20 0.1
------- ------
Total . . . . . . . . . . . . . . . . . . . . 21,225 100.0%
======= ======
- -------------------------
(a) Thirty-seven natural gas units are designed to operate on fuel oil for
short periods when gas supplies are interrupted or curtailed. Five
natural gas units are designed to operate on fuel oil for extended
periods.
(b) Includes the Monticello Unit 3 (750 MW), which was returned to service
in June 1995 (see Item 1. Business - Peak Load and Capability).
(c) Natural gas units leased and operated by TU Electric. Such units are
designed to operate on fuel oil for extended periods.
(d) In December 1995, TU Electric adjusted the net generating capabilities
of its existing fossil-fueled generating units to more closely reflect
actual operating capability. Natural gas-fueled unit capability
increased 239 MW and lignite-fueled unit capability decreased 20 MW for
a net increase of 219 MW.
The principal generating facilities and load centers of TU Electric and
SESCO are connected by 3,861 circuit miles of 345,000 volt transmission lines
and 9,324 circuit miles of 138,000 and 69,000 volt transmission lines.
TU Electric is connected by six 345,000 volt lines to Houston Lighting &
Power Company; by three 345,000 volt, eight 138,000 volt and nine 69,000 volt
lines to West Texas Utilities Company; by two 345,000 volt, seven 138,000 volt
and one 69,000 volt lines to the Lower Colorado River Authority; by four
345,000 volt and eight 138,000 volt lines to the Texas Municipal Power Agency;
and at several points with smaller systems operating wholly within Texas.
SESCO is connected to TU Electric by three 138,000 volt lines, ten 69,000 volt
lines and three lines at distribution voltage. TU Electric and SESCO are
members of the Electric Reliability Council of Texas (ERCOT), an intrastate
network of investor-owned entities, cooperatives and public entities. ERCOT is
the regional reliability coordinating organization for member electric power
systems in Texas.
TU Australia's distribution network is comprised primarily of
subtransmission and distribution assets. It owns no generating or transmission
facilities. TU Australia's distribution system is interconnected with an
intrastate power network comprised of the operator of the electric energy pool,
Victorian Power Exchange, and each of the other distribution companies within
Victoria. TU Australia has entered into distribution system agreements with
each of the distribution businesses which share the boundaries of its
distribution area to provide for wheeling of electricity on behalf of those
distribution businesses and for the reciprocal provision of other distribution
services.
The generating stations and other important units of property of TU
Electric and SESCO are located on lands owned primarily in fee simple. The
greater portion of the transmission and distribution lines of TU Electric and
SESCO, and of the gas gathering and transmission lines of Fuel Company, has
been constructed over lands of others pursuant to easements or along public
highways and streets as permitted by law. The rights of the System Companies
in the realty on which their properties are located are considered by them to
be adequate for their use in the conduct of their business. Minor defects and
irregularities customarily found in titles to properties of like size and
character may exist, but any such defects and irregularities do not materially
impair the use of the properties affected thereby. TU Electric, SESCO, Fuel
Company and TU Australia have the right of eminent domain whereby they may, if
necessary, perfect or secure titles to privately held land used or to be used
in their operations. Utility plant of TU Electric, SESCO and TU Australia is
generally subject to the liens of their respective mortgages.
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ITEM 2. PROPERTIES (CONCLUDED)
CAPITAL EXPENDITURES
THE COMPANY AND TU ELECTRIC
The Company has taken steps to aggressively manage its construction
expenditures. Such construction expenditures for utility related activities,
excluding allowance for funds used during construction (see Note 1 to
Consolidated Financial Statements) are presently estimated at $457 million,
$445 million and $448 million for the Company and $399 million, $388 million
and $389 million for TU Electric for each of the years 1996, 1997, and 1998,
respectively. The System Companies are subject to federal, state and local
regulations dealing with environmental protection. (See Item 1. Business -
Environmental Matters.) Such expenditures for construction to meet the
requirements of environmental regulations at existing generating units are
estimated to be $16 million for 1996 (included in the 1996 construction
estimates noted above) and were approximately $64 million in 1995, $40 million
in 1994 and $34 million for 1993. Expenditures for non-utility property are
presently estimated to be $60 million, $40 million, and $26 million for the
Company for each of the years 1996, 1997 and 1998, respectively. Expenditures
for nuclear fuel are presently estimated to be $55 million, $47 million and $60
million for the Company and TU Electric for each of the years 1996, 1997 and
1998, respectively.
In September 1995, the Company determined that the Twin Oak and Forest
Grove lignite-fueled facilities of TU Electric are not necessary to satisfy TU
Electric's capacity requirements as currently projected due to changes in load
growth patterns and availability of alternative generation. The Company
determined that Chaco's coal reserves in New Mexico will no longer be developed
through traditional means due to ample availability of alternative fuels at
favorable prices. Impairment of the Company's assets, including partially
completed Twin Oak and Forest Grove lignite-fueled facilities and Chaco coal
reserves, as well as several minor assets, aggregated $802 million after tax.
Impairment of TU Electric's assets, including its partially completed Twin Oak
and Forest Grove lignite-fueled facilities, as well as several minor assets,
aggregated $316 million after tax. Such impairment has been measured based on
management's current expectations that these assets will either be sold or
constructed outside the traditional regulated utility business. (See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation and Note 13 to Consolidated Financial Statements.)
The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes in estimated construction costs and
dates of completion. Commitments in connection with the construction program
are generally revocable subject to reimbursement to manufacturers for
expenditures incurred or other cancellation penalties. (See Item 1. Business -
Peak Load and Capability.)
The Company and TU Electric each plans to seek new investment opportunities
from time to time when it concludes that such investments are consistent with
its business strategies and will likely enhance the long-term returns to
shareholders. The timing and amounts of any specific new business investment
opportunities are presently undetermined.
For information regarding the financing of capital expenditures, see Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operation.
16
19
ITEM 3. LEGAL PROCEEDINGS
THE COMPANY
The Antitrust Division of the U.S. Department of Justice submitted to the
Company a civil investigative demand (CID) in October 1995. This CID appears
to request documents and information relating to an investigation of whether
alleged tying arrangements or other actions that unreasonably deny or condition
access to TU Electric's transmission system by others have occurred in
violation of certain antitrust laws. While the Company intends to comply with
requests within the appropriate purview of the Department of Justice, it
believes that it has not violated such antitrust laws. The Company is unable
to predict the outcome of any such investigation and does not expect it to have
any material effect on the Company's results of operation or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
THE COMPANY AND TU ELECTRIC
None.
- -------------------------
EXECUTIVE OFFICERS OF THE COMPANY
POSITIONS AND OFFICES DATE FIRST
PRESENTLY HELD (CURRENT TERM ELECTED TO PRESENT BUSINESS EXPERIENCE
NAME OF OFFICER AGE EXPIRES MAY 17, 1996) OFFICE(S) (PRECEDING FIVE YEARS)
- ---------------- --- ---------------------------- ----------------- ----------------------
J. S. Farrington 61 Chairman and Director February 20, 1987 Same and Chief Executive of the
Company.
Erle Nye 58 President, Chief Executive May 19, 1995 Same and Chief Executive of
and Director TU Electric.
There is no family relationship between any of the above named executive
officers.
17
20
PART II
ITEM 5. MARKET FOR EACH REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
THE COMPANY
The Company's common stock is listed on the New York, Chicago and Pacific
stock exchanges (symbol: TXU).
The price range of the common stock of the Company on the composite tape,
as reported by The Wall Street Journal, and the dividends paid, for each of the
calendar quarters of 1995 and 1994 were as follows:
Price Range Dividends Paid
---------------------------------------- --------------
Quarter Ended 1995 1994 1995 1994
------------- ------------------ ------------------- ----- -----
High Low High Low
------- ------- ------- --------
March 31 . . . . . . . . . . . . . . . . . . $35 $30 1/8 $43 1/8 $36 1/2 $0.77 $0.77
June 30 . . . . . . . . . . . . . . . . . . . 36 1/8 31 5/8 38 29 7/8 0.77 0.77
September 30 . . . . . . . . . . . . . . . . 35 32 5/8 34 1/8 29 5/8 0.77 0.77
December 31 . . . . . . . . . . . . . . . . . 41 1/4 34 1/4 34 1/8 30 3/4 0.77 0.77
----- -----
$3.08 $3.08
===== =====
The Company has declared common stock dividends payable in cash in each
year since its incorporation in 1945. The Board of Directors of the Company,
at its February 1996 meeting, declared a quarterly dividend of $0.50 a share,
payable April 1, 1996 to shareholders of record on March 7, 1996. For
information concerning the Company's dividend policy, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation.
Future dividends may vary depending upon the Company's profit levels and
capital requirements as well as financial and other conditions existing at the
time. Reference is made to Note 5 to Consolidated Financial Statements
regarding limitations upon payment of dividends on common stock of TU Electric
and SESCO.
The number of record holders of the common stock of the Company as of
February 29, 1996 was 97,348.
TU ELECTRIC
All of TU Electric's common stock is owned by the Company.
Reference is made to Note 5 to Consolidated Financial Statements regarding
limitations upon payment of dividends on common stock of TU Electric.
18
21
Item 6. SELECTED FINANCIAL DATA
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATISTICS
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995* 1994 1993*
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total assets -- end of year .................................. $ 21,535,851 $ 20,893,408 $ 21,518,128
- ----------------------------------------------------------------------------------------------------------------
Utility plant - gross -- end of year ......................... $ 24,911,787 $ 24,206,351 $ 23,836,729
Accumulated depreciation and amortization -- end of year.. 5,857,580 5,228,423 4,710,398
Reserve for regulatory disallowances -- end of year ...... 1,308,460 1,308,460 1,308,460
Construction expenditures (including allowance for
funds used during construction) ........................ 434,338 444,245 871,450
- ----------------------------------------------------------------------------------------------------------------
Capitalization -- end of year
Long-term debt ........................................... $ 9,174,575 $ 7,888,413 $ 8,379,826
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts ................................... 381,476 -- --
Preferred stock:
Not subject to mandatory redemption .................... 489,695 870,190 1,083,008
Subject to mandatory redemption ........................ 263,196 387,482 396,917
Common stock equity ...................................... 5,731,753 6,490,047 6,570,993
------------ ------------ ------------
Total ........................................... $ 16,040,695 $ 15,636,132 $ 16,430,744
============ ============ ============
Capitalization ratios -- end of year
Long-term debt ........................................... 57.2% 50.5% 51.0%
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts ................................... 2.4 -- --
Preferred stock .......................................... 4.7 8.0 9.0
Common stock equity ...................................... 35.7 41.5 40.0
------------ ------------ ------------
Total ........................................... 100.0% 100.0% 100.0%
============ ============ ============
- ----------------------------------------------------------------------------------------------------------------
Embedded interest cost on long-term debt-- end of year ....... 8.4% 8.7% 8.7%
Embedded interest cost on TU Electric obligated, mandatorily
redeemable, preferred securities of trusts-- end of year . 8.5% -- --
Embedded dividend cost on preferred stock-- end of year ...... 6.9% 7.5% 7.6%
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of a change
in accounting principle .................................. $ (138,645) $ 542,799 $ 368,660
Cumulative effect of a change in accounting for unbilled
revenue (Net of taxes of $41,679,000) .................... -- -- --
------------ ------------ ------------
Consolidated net income (loss) ............................... $ (138,645) $ 542,799 $ 368,660
============ ============ ============
Dividends declared on common stock ........................... $ 634,613 $ 695,590 $ 682,438
- ----------------------------------------------------------------------------------------------------------------
Common stock data
Shares outstanding-- average ............................. 225,841,037 225,833,659 221,555,218
Shares outstanding-- end of year ......................... 225,841,037 225,841,037 224,345,422
Earnings (loss) per share (on average shares outstanding):
Before cumulative effect of a change in accounting ..... $ (0.61) $ 2.40 $ 1.66
Cumulative effect of a change in accounting
for unbilled revenue ................................. -- -- --
------------ ------------ ------------
Total earnings (loss) per average share ......... $ (0.61) $ 2.40 $ 1.66
============ ============ ============
Dividends declared per share ............................. $ 2.81 $ 3.08 $ 3.08
Book value per share-- end of year ....................... $ 25.38 $ 28.74 $ 29.29
Return on average common stock equity .................... (2.3)% 8.3% 5.6%
- ----------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Pre-tax .................................................. 0.8 2.3 1.9
After-tax ................................................ 0.9 1.9 1.6
Allowance for funds used during construction as
percent of consolidated net income ....................... -- 4.1% 71.4%
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
1992 1991*
---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total assets -- end of year .................................. $ 19,428,568 $ 18,792,782
- ---------------------------------------------------------------------------------------------------------------
Utility plant - gross -- end of year ......................... $ 23,043,778 $ 21,927,788
Accumulated depreciation and amortization -- end of year.. 4,251,002 3,851,330
Reserve for regulatory disallowances -- end of year ...... 1,308,460 1,308,460
Construction expenditures (including allowance for
funds used during construction) ........................ 1,136,971 1,232,239
- ---------------------------------------------------------------------------------------------------------------
Capitalization -- end of year
Long-term debt ........................................... $ 7,931,981 $ 7,951,086
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts ................................... -- --
Preferred stock:
Not subject to mandatory redemption .................... 909,564 1,007,728
Subject to mandatory redemption ........................ 418,748 425,758
Common stock equity ...................................... 6,590,537 6,283,675
------------ ------------
Total ........................................... $ 15,850,830 $ 15,668,247
============ ============
Capitalization ratios -- end of year
Long-term debt ........................................... 50.0% 50.8%
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts ................................... -- --
Preferred stock .......................................... 8.4 9.1
Common stock equity ...................................... 41.6 40.1
------------ ------------
Total ........................................... 100.0% 100.0%
============ ============
- ---------------------------------------------------------------------------------------------------------------
Embedded interest cost on long-term debt -- end of year ...... 9.2% 9.7%
Embedded interest cost on TU Electric obligated, mandatorily
redeemable, preferred securities of trusts -- end
of year .................................................. -- --
Embedded dividend cost on preferred stock-- end of year ...... 8.4% 8.5%
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of a change
in accounting principle .................................. $ 619,204 $ (409,964)
Cumulative effect of a change in accounting for unbilled
revenue (Net of taxes of $41,679,000) .................... 80,907 --
------------ ------------
Consolidated net income (loss) ............................... $ 700,111 $ (409,964)
============ ============
Dividends declared on common stock ........................... $ 653,146 $ 624,261
- ---------------------------------------------------------------------------------------------------------------
Common stock data
Shares outstanding-- average ............................. 214,850,225 207,357,881
Shares outstanding-- end of year ......................... 217,316,054 210,700,373
Earnings (loss) per share (on average shares outstanding):
Before cumulative effect of a change in accounting ..... $ 2.88 $ (1.98)
Cumulative effect of a change in accounting
for unbilled revenue ................................. 0.38 --
------------ ------------
Total earnings (loss) per average share ......... $ 3.26 $ (1.98)
============ ============
Dividends declared per share ............................. $ 3.04 $ 3.00
Book value per share-- end of year ....................... $ 30.33 $ 29.82
Return on average common stock equity .................... 10.9% (6.3)%
- ---------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Pre-tax .................................................. 2.3 0.4
After-tax ................................................ 2.0 0.7
Allowance for funds used during construction as
percent of consolidated net income ....................... 43.5% --
- ---------------------------------------------------------------------------------------------------------------
* Certain financial statistics for 1995 were affected by the recording of the
impairment of certain assets (see Note 13 to Consolidated Financial
Statements) and the acquisition of Eastern Energy, and for the years 1993 and
1991, were affected by TU Electric recording regulatory disallowances in rate
orders issued by the Public Utility Commission of Texas in Dockets 11735 and
9300, respectively (see Note 12 to Consolidated Financial Statements).
19
22
Item 6. SELECTED FINANCIAL DATA (Continued)
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED OPERATING STATISTICS
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993
---- ---- ----
ELECTRIC ENERGY GENERATED AND
PURCHASED (MWh)
Generated-- net station output ............................ 83,876,565 81,320,922 79,105,495
Purchased and net interchange ............................. 11,883,965 12,551,167 12,785,246
----------- ----------- -----------
Total generated and purchased ........................... 95,760,530 93,872,089 91,890,741
Company use, losses and unaccounted for ................... 5,657,489 5,246,480 5,631,085
----------- ----------- -----------
Total electric energy sales ............................. 90,103,041 88,625,609 86,259,656
=========== =========== ===========
ELECTRIC ENERGY SALES (MWh)
Residential ............................................... 31,280,920 30,471,009 30,492,453
Commercial ................................................ 25,893,275 25,082,497 24,259,480
Industrial ................................................ 23,596,406 23,138,750 21,607,606
Government and municipal .................................. 5,753,515 5,621,110 5,425,206
----------- ----------- -----------
Total general business .................................. 86,524,116 84,313,366 81,784,745
Other electric utilities .................................. 3,578,925 4,312,243 4,474,911
----------- ----------- -----------
Total electric energy sales ............................. 90,103,041 88,625,609 86,259,656
=========== =========== ===========
OPERATING REVENUES (thousands)
Base rate:
Residential ............................................. $ 1,919,195 $ 1,871,226 $ 1,703,894
Commercial .............................................. 1,218,918 1,189,286 1,063,519
Industrial .............................................. 603,745 597,737 535,685
Government and municipal ................................ 287,825 285,108 245,394
----------- ----------- -----------
Total general business ............................... 4,029,683 3,943,357 3,548,492
Other electric utilities ................................ 114,293 148,889 144,385
----------- ----------- -----------
Total base rate revenues ............................. 4,143,976 4,092,246 3,692,877
Fuel revenue (including over/under-recovered) ............. 1,421,861 1,521,030 1,690,061
Other operating revenues* ................................. 72,851 50,267 51,574
----------- ----------- -----------
Total operating revenues ............................. $ 5,638,688 $ 5,663,543 $ 5,434,512
=========== =========== ===========
ELECTRIC CUSTOMERS (end of year)
Residential ............................................... 2,504,128 2,053,235 2,020,667
Commercial ................................................ 267,579 225,479 221,422
Industrial ................................................ 49,558 21,673 21,954
Government and municipal .................................. 30,458 29,437 29,034
----------- ----------- -----------
Total general business .................................. 2,851,723 2,329,824 2,293,077
Other electric utilities .................................. 165 212 220
----------- ----------- -----------
Total electric customers ................................ 2,851,888 2,330,036 2,293,297
=========== =========== ===========
RESIDENTIAL STATISTICS (excludes master-metered
customers, kWh sales and revenues)
Average kWh per customer ................................ 12,002 14,283 15,210
Average revenue per kWh ................................. 8.18(cent) 8.23(cent) 7.59(cent)
Industrial classification includes service to Alcoa-Sandow:
Electric energy sales (MWh) ............................. 3,764,658 3,886,258 3,166,797
Operating revenues (thousands) .......................... $ 47,739 $ 54,699 $ 53,352
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1991
---- ----
ELECTRIC ENERGY GENERATED AND
PURCHASED (MWh)
Generated-- net station output ............................ 74,652,339 76,326,601
Purchased and net interchange ............................. 11,417,251 11,027,061
----------- -----------
Total generated and purchased ........................... 86,069,590 87,353,662
Company use, losses and unaccounted for ................... 5,747,156 4,996,123
----------- -----------
Total electric energy sales ............................. 80,322,434 82,357,539
=========== ===========
ELECTRIC ENERGY SALES (MWh)
Residential ............................................... 27,266,411 28,505,885
Commercial ................................................ 22,959,464 23,012,114
Industrial ................................................ 21,108,894 21,482,750
Government and municipal .................................. 5,032,780 5,056,868
----------- -----------
Total general business .................................. 76,367,549 78,057,617
Other electric utilities .................................. 3,954,885 4,299,922
----------- -----------
Total electric energy sales ............................. 80,322,434 82,357,539
=========== ===========
OPERATING REVENUES (thousands)
Base rate:
Residential ............................................. $ 1,464,227 $ 1,505,386
Commercial .............................................. 963,175 957,190
Industrial .............................................. 513,358 521,480
Government and municipal ................................ 207,368 208,060
----------- -----------
Total general business ............................... 3,148,128 3,192,116
Other electric utilities ................................ 135,709 149,489
----------- -----------
Total base rate revenues ............................. 3,283,837 3,341,605
Fuel revenue (including over/under-recovered) ............. 1,540,667 1,498,595
Other operating revenues* ................................. 83,372 52,973
----------- -----------
Total operating revenues ............................. $ 4,907,876 $ 4,893,173
=========== ===========
ELECTRIC CUSTOMERS (end of year)
Residential ............................................... 1,952,916 1,921,119
Commercial ................................................ 210,185 205,555
Industrial ................................................ 21,969 22,156
Government and municipal .................................. 28,204 27,719
----------- -----------
Total general business .................................. 2,213,274 2,176,549
Other electric utilities .................................. 243 247
----------- -----------
Total electric customers ................................ 2,213,517 2,176,796
=========== ===========
RESIDENTIAL STATISTICS (excludes master-metered
customers, kWh sales and revenues)
Average kWh per customer ................................ 13,329 14,099
Average revenue per kWh ................................. 7.41(cent) 7.26(cent)
Industrial classification includes service to Alcoa-Sandow:
Electric energy sales (MWh) ............................. 3,157,852 3,359,824
Operating revenues (thousands) .......................... $ 56,043 $ 55,987
* In 1992, other operating revenues do not include $122,586,000 of unbilled
base rate revenues which were reclassified as a cumulative effect of a change
in accounting principle effective January 1, 1992.
20
23
Item 6. SELECTED FINANCIAL DATA (CONTINUED)
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATISTICS
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995* 1994 1993*
---- ---- ----
(DOLLARS IN THOUSANDS)
Total assets -- end of year ..................................... $ 19,003,374 $ 19,446,998 $ 19,870,990
- ----------------------------------------------------------------------------------------------------------------
Electric plant - gross -- end of year ........................... $ 22,747,860 $ 23,063,436 $ 22,680,508
Accumulated depreciation and amortization-- end of year ....... 5,370,818 4,765,474 4,233,720
Reserve for regulatory disallowances-- end of year ............ 1,308,460 1,308,460 1,308,460
Construction expenditures (including allowance for
funds used during construction) ............................. 407,305 415,290 841,181
- ----------------------------------------------------------------------------------------------------------------
Capitalization -- end of year
Long-term debt ................................................ $ 7,212,070 $ 7,220,641 $ 7,607,090
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts ........................................ 381,476 -- --
Preferred stock:
Not subject to mandatory redemption ......................... 489,695 870,190 1,083,008
Subject to mandatory redemption ............................. 263,196 387,482 396,917
Common stock equity ........................................... 5,799,898 6,114,261 6,029,217
------------ ------------ ------------
Total ................................................. $ 14,146,335 $ 14,592,574 $ 15,116,232
============ ============ ============
- ----------------------------------------------------------------------------------------------------------------
Embedded interest cost on long-term debt -- end of year ......... 8.4% 8.7% 8.8%
Embedded interest cost on TU Electric obligated, mandatorily
redeemable, preferred securities of trusts-- end of year ...... 8.5% -- --
Embedded dividend cost on preferred stock -- end of year ........ 6.9% 7.5% 7.6%
- ----------------------------------------------------------------------------------------------------------------
Consolidated income (loss) before cumulative effect of a change
in accounting principle ....................................... $ 454,432 $ 658,192 $ 476,526
Cumulative effect of a change in accounting for unbilled
revenue (Net of taxes of $41,679,000) ......................... -- -- --
------------ ------------ ------------
Consolidated net income (loss) .................................. $ 454,432 $ 658,192 $ 476,526
============ ============ ============
Dividends declared on common stock .............................. $ 682,080 $ 715,760 $ 707,382
- ----------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Pre-tax ..................................................... 2.0 2.5 2.0
After-tax ................................................... 1.7 2.0 1.7
Allowance for funds used during construction as a percent of
consolidated net income available for common stock ............ 6.0% 4.0% 72.9%
Return on average common stock equity ........................... 6.2% 9.2% 5.9%
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------
1992 1991*
---- ----
(DOLLARS IN THOUSANDS)
Total assets -- end of year ..................................... $ 17,962,812 $ 17,093,474
- ------------------------------------------------------------------------------------------------
Electric plant - gross -- end of year ........................... $ 21,957,681 $ 20,865,047
Accumulated depreciation and amortization-- end of year ....... 3,790,626 3,417,856
Reserve for regulatory disallowances-- end of year ............ 1,308,460 1,308,460
Construction expenditures (including allowance for
funds used during construction) ............................. 1,107,555 1,195,680
- ------------------------------------------------------------------------------------------------
Capitalization -- end of year
Long-term debt ................................................ $ 7,280,301 $ 7,253,626
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts ........................................ -- --
Preferred stock:
Not subject to mandatory redemption ......................... 909,564 1,007,728
Subject to mandatory redemption ............................. 418,748 425,758
Common stock equity ........................................... 6,198,208 5,741,437
------------ ------------
Total ................................................. $ 14,806,821 $ 14,428,549
============ ============
- ------------------------------------------------------------------------------------------------
Embedded interest cost on long-term debt -- end of year ......... 9.2% 9.7%
Embedded interest cost on TU Electric obligated, mandatorily
redeemable, preferred securities of trusts -- end of year ..... -- --
Embedded dividend cost on preferred stock -- end of year ........ 8.4% 8.5%
- ------------------------------------------------------------------------------------------------
Consolidated income (loss) before cumulative effect of a change
in accounting principle ....................................... $ 740,216 $ (289,173)
Cumulative effect of a change in accounting for unbilled
revenue (Net of taxes of $41,679,000) ......................... 80,907 --
------------ ------------
Consolidated net income (loss) .................................. $ 821,123 $ (289,173)
============ ============
Dividends declared on common stock .............................. $ 645,260 $ 650,940
- ------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Pre-tax ..................................................... 2.5 0.3
After-tax ................................................... 2.1 0.6
Allowance for funds used during construction as a percent of
consolidated net income available for common stock ............ 43.3% --
Return on average common stock equity ........................... 11.8% (6.7)%
- ------------------------------------------------------------------------------------------------
* Certain financial statistics for 1995 were affected by the recording of the
impairment of certain assets (see Note 13 to Consolidated Financial
Statements), and for the years 1993 and 1991, were affected by TU Electric
recording regulatory disallowances in rate orders issued by the Public
Utility Commission of Texas in Dockets 11735 and 9300, respectively (see Note
12 to Consolidated Financial Statements).
21
24
Item 6. SELECTED FINANCIAL DATA (CONCLUDED)
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED OPERATING STATISTICS
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993
---- ---- ----
ELECTRIC ENERGY GENERATED AND
PURCHASED (MWh)
Generated -- net station output ........................... 83,876,565 81,320,922 79,105,495
Purchased and net interchange ............................. 10,683,722 11,663,148 12,431,763
----------- ----------- -----------
Total generated and purchased ........................... 94,560,287 92,984,070 91,537,258
Company use, losses and unaccounted for ................... 5,532,031 5,131,173 5,572,916
----------- ----------- -----------
Total electric energy sales ............................. 89,028,256 87,852,897 85,964,342
=========== =========== ===========
ELECTRIC ENERGY SALES (MWh)
Residential ............................................... 30,716,945 30,076,510 30,265,559
Commercial ................................................ 25,553,954 24,824,741 24,129,019
Industrial ................................................ 23,300,922 22,968,710 21,527,656
Government and municipal .................................. 5,615,843 5,507,265 5,363,570
----------- ----------- -----------
Total general business .................................. 85,187,664 83,377,226 81,285,804
Other electric utilities .................................. 3,840,592 4,475,671 4,678,538
----------- ----------- -----------
Total electric energy sales ............................. 89,028,256 87,852,897 85,964,342
=========== =========== ===========
OPERATING REVENUES (thousands)
Base rate:
Residential ............................................. $ 1,875,306 $ 1,832,735 $ 1,685,885
Commercial .............................................. 1,193,558 1,165,611 1,051,723
Industrial .............................................. 586,152 585,758 532,655
Government and municipal ................................ 279,802 276,883 241,484
----------- ----------- -----------
Total general business ............................... 3,934,818 3,860,987 3,511,747
Other electric utilities .................................. 133,362 163,021 157,341
----------- ----------- -----------
Total from base rate revenues ........................ 4,068,180 4,024,008 3,669,088
Fuel revenues (including over/under-recovered) ........... 1,421,861 1,521,030 1,690,061
Other operating revenues* ................................ 70,421 68,137 50,007
----------- ----------- -----------
Total operating revenues ................................ $ 5,560,462 $ 5,613,175 $ 5,409,156
=========== =========== ===========
ELECTRIC CUSTOMERS (end of year)
Residential ............................................... 2,061,273 2,019,025 1,986,946
Commercial ................................................ 225,183 219,604 215,621
Industrial ................................................ 21,253 21,445 21,716
Government and municipal .................................. 29,429 28,949 28,555
----------- ----------- -----------
Total general business .................................. 2,337,138 2,289,023 2,252,838
Other electric utilities .................................. 177 219 228
----------- ----------- -----------
Total electric customers ................................ 2,337,315 2,289,242 2,253,066
=========== =========== ===========
RESIDENTIAL STATISTICS (excludes master-metered
customers, kWh sales and revenues)
Average kWh per customer ................................ 14,336 14,328 14,459
Average revenue per kWh ................................. 8.18(cent) 8.24(cent) 7.59(cent)
- --------------------
Industrial classification includes service to Alcoa-Sandow:
Electric energy sales (MWh) ............................. 3,764,658 3,886,258 3,166,797
Operating revenues (thousands) .......................... $ 47,739 $ 54,699 $ 53,352
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1991
---- ----
ELECTRIC ENERGY GENERATED AND
PURCHASED (MWh)
Generated -- net station output ........................... 74,652,339 76,326,601
Purchased and net interchange ............................. 11,417,251 11,027,061
----------- -----------
Total generated and purchased ........................... 86,069,590 87,353,662
Company use, losses and unaccounted for ................... 5,747,156 4,996,123
----------- -----------
Total electric energy sales ............................. 80,322,434 82,357,539
=========== ===========
ELECTRIC ENERGY SALES (MWh)
Residential ............................................... 27,266,411 28,505,885
Commercial ................................................ 22,959,464 23,012,114
Industrial ................................................ 21,108,894 21,482,750
Government and municipal .................................. 5,032,780 5,056,868
----------- -----------
Total general business .................................. 76,367,549 78,057,617
Other electric utilities .................................. 3,954,885 4,299,922
----------- -----------
Total electric energy sales ............................. 80,322,434 82,357,539
=========== ===========
OPERATING REVENUES (thousands)
Base rate:
Residential ............................................. $ 1,464,227 $ 1,505,386
Commercial .............................................. 963,175 957,190
Industrial .............................................. 513,358 521,480
Government and municipal ................................ 207,368 208,060
----------- -----------
Total general business ............................... 3,148,128 3,192,116
Other electric utilities .................................. 135,709 149,489
----------- -----------
Total from base rate revenues ........................ 3,283,837 3,341,605
Fuel revenues (including over/under-recovered) ........... 1,540,667 1,498,585
Other operating revenues* ................................ 82,191 51,322
----------- -----------
Total operating revenues ................................ $ 4,906,695 $ 4,891,522
=========== ===========
ELECTRIC CUSTOMERS (end of year)
Residential ............................................... 1,952,916 1,921,119
Commercial ................................................ 210,185 205,555
Industrial ................................................ 21,969 22,156
Government and municipal .................................. 28,204 27,719
----------- -----------
Total general business .................................. 2,213,274 2,176,549
Other electric utilities .................................. 243 247
----------- -----------
Total electric customers ................................ 2,213,517 2,176,796
=========== ===========
RESIDENTIAL STATISTICS (excludes master-metered
customers, kWh sales and revenues)
Average kWh per customer ................................ 13,329 14,099
Average revenue per kWh ................................. 7.41(cent) 7.26(cent)
- --------------------
Industrial classification includes service to Alcoa-Sandow:
Electric energy sales (MWh) ............................. 3,157,852 3,359,824
Operating revenues (thousands) .......................... $ 56,043 $ 55,987
* In 1992, other operating revenues do not include $122,586,000 of unbilled
base rate revenues which were reclassified as a cumulative effect of a
change in accounting principle effective January 1, 1992.
22
25
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY AND TU ELECTRIC
The primary capital requirements of Texas Utilities Company and its
subsidiaries (System Companies) in 1995 and as estimated for 1996 through 1998
are as follows:
1995 1996 1997 1998
---- ---- ---- ----
THOUSANDS OF DOLLARS
Cash construction expenditures (excluding
allowance for funds used during construction)... $ 421,000 $457,000 $ 445,000 $ 448,000
Nuclear fuel (excluding allowance for funds used
during construction) ........................... 49,000 55,000 47,000 60,000
Non-utility property ................................ 70,000 60,000 40,000 26,000
Maturities and redemptions of long-term debt,
sinking fund requirements and redemptions
of preferred stock ............................. 1,392,000 86,000 681,000 487,000
---------- -------- ---------- ----------
Total ...................................... $1,932,000 $658,000 $1,213,000 $1,021,000
========== ======== ========== ==========
The primary capital requirements of Texas Utilities Electric Company and
its subsidiaries (TU Electric) in 1995 and as estimated for 1996 through 1998
are as follows:
1995 1996 1997 1998
---- ---- ---- ----
THOUSANDS OF DOLLARS
Cash construction expenditures (excluding
allowance for funds used during construction)... $ 394,000 $399,000 $ 388,000 $ 389,000
Nuclear fuel (excluding allowance for funds used
during construction) ........................... 49,000 55,000 47,000 60,000
Maturities and redemptions of long-term debt,
sinking fund requirements and redemptions
of preferred stock ............................. 1,373,000 68,000 663,000 468,000
---------- -------- ---------- ----------
Total ...................................... $1,816,000 $522,000 $1,098,000 $ 917,000
========== ======== ========== ==========
See Item 2. Properties -- Capital Expenditures and Note 14 to Consolidated
Financial Statements.
The System Companies have generated cash from operations sufficient to meet
operating needs, pay dividends on capital stock and finance capital
requirements. For 1995, all of the cash needed for construction expenditures was
generated from operations by the System Companies. Factors affecting the
continued ability of TU Electric to fund its capital requirements from
operations include responsive regulatory practices allowing recovery of capital
investment through adequate depreciation rates, recovery of the cost of fuel and
purchased power and the opportunity to earn competitive rates of return required
in the capital markets.
In order to remain competitive, the Company and TU Electric are
aggressively managing their operating costs and capital expenditures through
streamlined business processes and are developing and implementing strategies to
address an increasingly competitive environment. These strategies include
initiatives to improve their return on corporate assets and to maximize
shareholder value through new marketing programs, creative rate design, and new
business opportunities. Additional initiatives include the potential disposition
or alternative utilization of existing assets and the restructuring of strategic
business units. The Company and TU Electric are studying alternative uses for
their investment in certain assets, including TU Electric's partially completed
Twin Oak and Forest Grove lignite-fueled facilities and the New Mexico coal
reserves of Chaco Energy Company (Chaco), which, based upon management's current
expectations, might include sale of the reserves or facilities or construction
outside the traditional regulated business. In September 1995, the Company and
TU Electric determined that the partially completed Twin Oak and Forest Grove
lignite-fueled facilities are not necessary to satisfy TU Electric's capacity
requirements due to continuing changes in load growth patterns and availability
of alternative generation. Also, the Company determined that the Chaco coal
reserves would no longer be developed through traditional means due to
availability of ample alternative fuels at favorable prices. A variety of
options are being considered with respect to the Chaco coal reserves. The total
impairment of the Company's assets, including the partially completed Twin Oak
and Forest Grove lignite-fueled facilities and Chaco's coal reserves, as well as
several minor assets, aggregated $802 million after-tax (see Note 13 to
Consolidated Financial Statements).
23
26
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
Under the current regulatory environment, TU Electric and Southwestern
Electric Service Company (SESCO) are subject to the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS 71). In the event the companies no longer meet the
criteria for application of SFAS 71 due to significant changes in regulation or
competition, the companies would discontinue the application of SFAS 71. If a
portion of either company's operations continues to meet the criteria for
application of SFAS 71, only that portion would be subject to SFAS 71 treatment.
Should significant changes in regulation or competition occur, TU Electric and
SESCO would also be required to assess the recoverability of other assets,
including plant, and, if impaired, to write down the assets to reflect their
fair market value. (See Note 1 to Consolidated Financial Statements.) Neither TU
Electric nor SESCO can predict the timing or extent of changes in the business
environment that may require the discontinuation of SFAS 71 application.
The Public Utility Commission of Texas' (PUC's) final order in connection
with TU Electric's January 1990 rate increase request (Docket 9300) was reviewed
by the 250th Judicial District Court of Travis County, Texas and thereafter was
appealed to the Court of Appeals for the Third District of Texas (Court of
Appeals) and to the Supreme Court of Texas (Supreme Court). As a result of such
review and appeals, an aggregate of $909 million of disallowances with respect
to TU Electric's reacquisitions of minority owners' interests in Comanche Peak
nuclear-generating station (Comanche Peak) has been remanded to the PUC for
reconsideration on the basis of a prudent investment standard. On remand, the
PUC will also be required to reevaluate the appropriate level of TU Electric's
construction work in progress included in rate base in light of its financial
condition at the time of the initial hearing.
The Court of Appeals' holding that tax benefits generated by costs,
including capital costs, not allowed in rates must be used to reduce rates
charged to customers was reversed by the Supreme Court in a February 9, 1996
decision. The Supreme Court's ruling eliminates the potential normalization
violation that two Private Letter Rulings issued by the Internal Revenue Service
said would have resulted from the treatment that previously had been ordered by
the Court of Appeals.
Although TU Electric cannot predict the outcome of any appeal or
reconsideration of the Dockets 9300 and 11735 rate decisions, future regulatory
actions or any changes in economic and securities market conditions, no changes
are expected in trends or commitments, other than those discussed in this Form
10-K, which might significantly alter its basic financial position or results of
operation. (See Note 12 to Consolidated Financial Statements.)
External funds of a permanent or long-term nature are obtained through the
sales of common stock, preferred stock, preferred securities and long-term debt
by the System Companies. The capitalization ratios of the Company and its
subsidiaries at December 31, 1995, consisted of approximately 57% long-term
debt, 2% TU Electric obligated, mandatorily redeemable, preferred securities of
trusts, 5% preferred stock and 36% common stock equity.
The capitalization ratios of TU Electric at December 31, 1995 consisted of
approximately 51% long-term debt, 3% TU Electric obligated, mandatorily
redeemable, preferred securities of trusts, 5% preferred stock and 41% common
stock equity.
Proceeds from TU Electric financings in 1995 were used primarily for the
early redemption or reacquisition of debt and preferred stock. These financings
consisted of:
PRINCIPAL CURRENT
DESCRIPTION AMOUNT INTEREST RATES MATURITY
----------- -------------- ----------------- ---------
Term credit agreement ......................................................... $ 300,000,000 6.050% and 6.113% 1997
Pollution control revenue bonds (backed by first mortgage bonds) ............. 333,905,000 3.50% to 3.60% 2030
First mortgage bonds (designated medium-term notes) ........................... 201,150,000 6.25% to 6.58% Various
TU Electric obligated, mandatorily redeemable, preferred securities of trusts.. 381,476,000 8.00% to 9.00% 2030-2035
--------------
Total .................................................................... $1,216,531,000
==============
24
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
Since December 31, 1994, the System Companies redeemed, reacquired or made
principal payments of $1,443,364,000 (including $1,424,803,000 for TU Electric)
on long-term debt and preferred stock. Early redemptions of long-term debt and
preferred stock may occur from time to time in amounts presently undetermined.
(See Notes 6 and 8 to Consolidated Financial Statements.)
The System Companies expect to sell additional debt and equity securities
as needed including (i) the possible future sale by TU Electric of up to
$350,000,000 of First Mortgage Bonds currently registered with the Securities
and Exchange Commission for offering pursuant to Rule 415 under the Securities
Act of 1933 and (ii) the possible future sale by TU Electric of up to 250,000
shares of Cumulative Preferred Stock ($100 liquidation value) similarly
registered. In addition, TU Electric has the ability to issue from time to time
an additional $98,850,000 of First Mortgage Bonds designated as Medium-Term
Notes, Series D.
The Company and TU Electric have credit facility agreements (Agreements)
with a group of commercial banks. The Agreements have two facilities, for each
of which the Company pays a fee. Facility A provides for borrowings up to
$300,000,000 and terminates April 26, 1996. The Company and TU Electric intend
to negotiate an extension or replacement of this facility. Facility B provides
for borrowings up to $700,000,000 and terminates April 28, 2000. The Company's
borrowings under the Agreements are limited to $600,000,000. Borrowings under
the Agreements are used for working capital and other corporate purposes,
including commercial paper backup.
In November 1995, the Company entered into a Competitive Advance and
Revolving Credit Facility Agreement with a group of commercial banks. This
facility, for which the Company pays a fee, provides for borrowings, on a
standby basis, up to $200,000,000 and terminates April 26, 1996. Borrowings
under this facility are used for corporate purposes. In addition to the above,
the Company and Fuel Company have separate arrangements for uncommitted lines of
credit. For more information regarding short-term financings of the Company and
TU Electric, see Note 3 to Consolidated Financial Statements.
TU Electric's capital requirements have not been significantly affected by
the requirements of the federal Clean Air Act, as amended (Clean Air Act).
Although TU Electric is unable to fully determine the cost of compliance with
the Clean Air Act, it is not expected to have a significant impact on TU
Electric. Any additional required capital costs, as well as any increased
operating costs, associated with these requirements or compliance measures are
expected to be recoverable through rates, as similar costs have been recovered
in the past. Environmental expenditures for 1996 are estimated to be $16
million.
The National Energy Policy Act of 1992 (Energy Policy Act) addresses a wide
range of energy issues and is intended to increase competition in electric
generation and broaden access to electric transmission systems. In addition, the
Public Utility Regulatory Act of 1995, as amended (PURA), impacts the PUC and
its regulatory practices and encourages increased competition in some aspects of
the electric utility industry in Texas. Although TU Electric and SESCO are
unable to predict the ultimate impact of the Energy Policy Act, PURA and any
related regulations or legislation on their operations, they believe that such
actions are consistent with the trend toward increased competition in the energy
industry.
While TU Electric and SESCO have experienced competitive pressures in the
wholesale market resulting in a small loss of load for TU Electric since the
beginning of 1993, wholesale sales represented a relatively low percentage of TU
Electric's consolidated operating revenues in 1995. TU Electric and SESCO are
unable to predict the extent of future competitive developments in either the
wholesale or retail markets or what impact, if any, such developments may have
on their operations. (See Item 1. Business - Competition.)
25
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONCLUDED)
THE COMPANY
In October 1995, the Company announced a modification of its dividend
policy as a part of a financial strategy supporting the Company's overall
business plan. As a result, a quarterly dividend of $0.50 per share payable
January 2, 1996, was declared by the Company's Board of Directors. The previous
quarterly dividend was $0.77 per share.
In December 1995, the Company's newly formed Australian subsidiary, Texas
Utilities Australia Pty. Ltd., acquired the common stock of Eastern Energy
Limited (Eastern Energy) for $1.55 billion. Eastern Energy is an Australian
electric distribution company serving approximately 475,000 customers,
including a portion of the Melbourne, Victoria metropolitan area. The Company's
equity investment is approximately $600 million. The remainder of the
acquisition cost was borrowed by Eastern Energy under a A$1.2 billion
(Australian dollar) term credit facility with a group of banks. Eastern Energy
also has a A$100 million facility with a group of banks used for working
capital purposes. Both facilities are non-recourse to the Company but are
secured by all of the property, assets and rights of Eastern Energy both
present and future.
RESULTS OF OPERATION
THE COMPANY AND TU ELECTRIC
For the year ended December 31, 1995, consolidated net income for the
Company (excluding the after-tax effect of the September 1995 asset impairment)
increased approximately 23% over the prior period. For the Company and TU
Electric, from which most of consolidated earnings is derived, the major factors
affecting earnings for the twelve-month period were continuing cost reduction
efforts and customer growth, partially offset by mild weather conditions.
In September 1995, the Company recorded an impairment of several
non-performing assets, including the partially completed Twin Oak and Forest
Grove lignite-fueled facilities of TU Electric, and Chaco's coal reserves in New
Mexico, as well as several minor assets. Such impairment, on an after-tax basis,
amounted to $802 million. (See Note 13 to Consolidated Financial Statements.)
TU ELECTRIC
Operating revenues decreased approximately 1% and increased approximately 4%
for the years ended December 31, 1995 and 1994, respectively. The following
table details the factors contributing to these changes:
INCREASE (DECREASE)
--------------------------
FACTORS 1995 1994
------- ---- ----
THOUSANDS OF DOLLARS
Base rate revenue ................................. $ 31,635 $ 427,217
Fuel revenue ...................................... (91,425) (130,077)
Power cost recovery factor revenue ................ (7,744) (38,955)
Unbilled revenue and other ........................ 14,821 (54,166)
--------- ---------
Total ......................................... $ (52,713) $ 204,019
========= =========
Energy sales (including unbilled sales) increased approximately 1% and 4% for
1995 and 1994, respectively. The increase in energy sales for 1995 was generally
a result of customer growth and increased usage, partially offset by mild
weather conditions. The increase in energy sales in 1994 was due primarily to an
increase in commercial and industrial usage, partially offset by milder than
normal weather. Fuel revenue decreased in 1995 and 1994 due primarily to a
reduction in gas prices and increased nuclear generation. The decrease in
unbilled revenue and other in 1994 resulted from milder than normal weather in
December 1994 and an increase in the number of billing days in 1994.
26
29
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (CONTINUED)
RESULTS OF OPERATION -- (CONCLUDED)
With respect to operating expenses, fuel and purchased power expense
decreased approximately 6% and approximately 8% for 1995 and 1994, respectively.
The decrease in 1995 was due to continued reduction in gas prices and purchased
power commitments and increased utilization of nuclear fuel. Fuel and purchased
power expense decreased in 1994 primarily due to a reduction in gas prices,
lignite requirements and purchase power commitments, and an increased
utilization of nuclear fuel. (See Item 1. Business -- Fuel Supply and Purchased
Power and Item 6. Selected Financial Data -- Consolidated Operating Statistics.)
Total operating expenses, excluding fuel and purchased power, decreased
approximately 1% and increased approximately 9% for 1995 and 1994, respectively.
Operation and maintenance expense decreased in 1995 due primarily to a decrease
in uncollectible accounts expense and employee benefit expenses. Operation and
depreciation expenses increased in 1994 primarily as a result of a full year's
operation of Comanche Peak Unit 2, and increases in uncollectible accounts
expense and demand-side management expenses. Taxes other than income decreased
in 1995 as a result of a reduction in TU Electric's ad valorem tax obligation
due primarily to a reduction in property valuations and increased in 1994 due
primarily to increased local gross receipts taxes, an increase in ad valorem
taxes charged to operation which were previously capitalized, and a refund of
franchise taxes in the prior period.
Allowance for funds used during construction (AFUDC) decreased approximately
92% in 1994. Such decrease was primarily due to the discontinuation of the
accrual of AFUDC on Comanche Peak Unit 2 when such unit achieved commercial
operation in August 1993.
Federal income taxes -- other income decreased in 1995 due to the effect of
recording the taxes associated with the asset impairment, and increased in 1994
due primarily to the effect of recording the taxes associated with the
regulatory disallowance in 1993. (See Note 9 to Consolidated Financial
Statements.)
Total interest charges, excluding AFUDC, decreased approximately 5% and 3%
for 1995 and 1994, respectively. Interest on mortgage bonds decreased over the
prior period as a result of reduced interest requirements due to the Company's
refinancing efforts, partially offset by increased interest requirements for new
issues sold. Interest on other long-term debt increased in 1995 due to
borrowings on the term credit agreement and decreased in the prior period due to
the continuing retirement of debt incurred on the purchases of the minority
ownership interests in Comanche Peak. Other interest expense in 1995 was
affected by decreased interest on bonded rates over the prior period, increased
average short-term borrowings, and increased amortization of debt issuance
expenses and redemption premiums. For 1994, other interest expense increased
over the prior period due primarily to interest on bond rates refunded, an
increase in short-term rates, and increased amortization of debt issuance
expenses and redemption premiums.
Preferred stock dividends decreased approximately 17% and 12% for 1995 and
1994, respectively, primarily due to the redemption of certain series.
POSSIBLE CHANGE IN ACCOUNTING STANDARDS
THE COMPANY AND TU ELECTRIC
The Financial Accounting Standards Board (FASB) is currently deliberating a
new accounting standard addressing the accounting for liabilities related to
closure and removal of long-lived assets, which would include nuclear
decommissioning (see Note 14 to Consolidated Financial Statements). Such new
standard is not expected to be effective before calendar year 1997. Based upon
FASB's exposure draft, which is subject to change, any new standard would likely
prescribe a methodology for measuring and recognizing liabilities related to
closure and removal of long-lived assets. Any liability required to be
recognized would have a corresponding asset recognized as an addition to plant
and depreciation of the long-lived asset would be revised prospectively. If such
new standard were adopted, the application of such statement would increase
total assets and liabilities for the Company and TU Electric. Such requirements
are not expected to have a material effect on the Company's and TU Electric's
financial position or results of operations.
27
30
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
OPERATING REVENUES ..................................................... $ 5,638,688 $ 5,663,543 $ 5,434,512
----------- ----------- -----------
OPERATING EXPENSES
Fuel and purchased power ............................................ 1,640,990 1,729,091 1,858,054
Operation ........................................................... 819,633 872,272 812,555
Maintenance ......................................................... 290,011 304,941 350,004
Depreciation and amortization ....................................... 563,819 549,539 439,548
Taxes other than income ............................................. 536,608 559,144 465,307
----------- ----------- -----------
Total operating expenses ......................................... 3,851,061 4,014,987 3,925,468
----------- ----------- -----------
OPERATING INCOME ....................................................... 1,787,627 1,648,556 1,509,044
OTHER INCOME AND (DEDUCTIONS)-- NET .................................... 24,583 38,379 183,643
----------- ----------- -----------
TOTAL INCOME ........................................................... 1,812,210 1,686,935 1,692,687
----------- ----------- -----------
INTEREST AND OTHER CHARGES
Interest ............................................................ 706,182 726,876 752,803
Allowance for borrowed funds used during construction ............... (15,327) (11,261) (113,108)
Impairment of assets ................................................ 1,233,320 -- --
Regulatory disallowances ............................................ -- -- 359,556
TU Electric obligated, mandatorily redeemable, preferred securities
of trusts distributions .......................................... 1,801 -- --
Preferred stock dividends of subsidiary ............................. 84,914 101,883 115,232
----------- ----------- -----------
Total interest and other charges ................................. 2,010,890 817,498 1,114,483
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES ...................................... (198,680) 869,437 578,204
INCOME TAXES ........................................................... (60,035) 326,638 209,544
----------- ----------- -----------
CONSOLIDATED NET INCOME (LOSS) ......................................... $ (138,645) $ 542,799 $ 368,660
=========== =========== ===========
Average shares of common stock outstanding (thousands) ................. 225,841 225,834 221,555
Earnings (loss) and dividends per share of common stock:
Earnings (loss) (on average shares outstanding) ..................... $ (0.61) $ 2.40 $ 1.66
Dividends declared per share of common stock ........................ $ 2.81 $ 3.08 $ 3.08
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
BALANCE AT BEGINNING OF YEAR ........................................... $ 1,691,250 $ 1,842,413 $ 2,171,018
ADD -- Consolidated net income (loss) .................................. (138,645) 542,799 368,660
LESOP dividend deduction tax benefit ............................ 6,452 6,733 6,975
DEDUCT -- Dividends declared on common stock (for amounts per
share, see Statements of Consolidated Income) .............. 634,613 695,590 682,438
Preferred stock redemption costs -- net ...................... -- 5,105 21,802
----------- ----------- -----------
BALANCE AT END OF YEAR ................................................. $ 924,444 $ 1,691,250 $ 1,842,413
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
28
31
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income (loss) ........................................ $ (138,645) $ 542,799 $ 368,660
Adjustments to reconcile consolidated net income (loss) to cash
provided by operating activities:
Depreciation and amortization (including amounts charged to fuel).... 725,646 710,196 543,441
Deferred federal income taxes -- net ................................ (204,550) 261,452 82,290
Federal investment tax credits -- net ............................... (22,774) (26,427) (22,383)
Allowance for equity funds used during construction ................. (6,680) (10,774) (150,125)
Impairment of assets ................................................ 1,233,320 -- --
Regulatory disallowances ............................................ -- -- 359,556
Changes in assets and liabilities:
Receivables ....................................................... (22,898) 10,408 (90,561)
Inventories ....................................................... 18,701 2,673 11,112
Accounts payable .................................................. 48,079 (43,684) 2,797
Interest and taxes accrued ........................................ (94,158) (77,795) 14,449
Other working capital ............................................. (25,932) (131,506) 126,919
Over/(under) - recovered fuel revenue -- net of deferred taxes .... 94,717 113,693 (83,501)
Other -- net ...................................................... 5,902 68,549 29,751
----------- ----------- -----------
Cash provided by operating activities ........................... 1,610,728 1,419,584 1,192,405
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of securities:
First mortgage bonds ................................................ 535,055 378,340 2,448,465
Other long-term debt ................................................ 300,000 -- 325,000
TU Electric obligated, mandatorily redeemable, preferred securities
of trusts ........................................................ 381,476 -- --
Preferred stock ..................................................... -- 123 731,342
Common stock ........................................................ -- 62,102 240,971
Retirement of long-term debt and preferred stock ...................... (1,391,686) (1,176,023) (2,944,339)
Change in notes payable ............................................... 615,929 363,886 (253,100)
Common stock dividends paid ........................................... (695,656) (694,355) (674,869)
Debt premium, discount, financing and reacquisition expenses .......... (123,668) (21,799) (141,545)
----------- ----------- -----------
Cash used in financing activities ............................... (378,550) (1,087,726) (268,075)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures ............................................. (434,338) (444,245) (871,450)
Allowance for equity funds used during construction (excluding
amount for nuclear fuel) ............................................ 3,952 4,802 138,950
Change in construction receivables/payables -- net .................... 2,140 3,897 (32,847)
Non-utility property -- net ........................................... (69,949) (14,967) (10,171)
Nuclear fuel (excluding allowance for equity funds used
during construction) ................................................ (55,013) (62,655) (16,889)
Acquisition of Eastern Energy ......................................... (616,865) -- --
Other investments ..................................................... (41,226) (23,848) (17,213)
----------- ----------- -----------
Cash used in investing activities ............................... (1,211,299) (537,016) (809,620)
----------- ----------- -----------
(DECREASE) IN CASH DUE TO EXCHANGE RATE CHANGES ......................... (3,452) -- --
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ................................. 17,427 (205,158) 114,710
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE .......................... 7,426 212,584 97,874
----------- ----------- -----------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE ............................. $ 24,853 $ 7,426 $ 212,584
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
29
32
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
----------------------------
1995 1994
---- ----
THOUSANDS OF DOLLARS
UTILITY PLANT
In service:
Production ......................................................... $ 16,661,053 $ 16,516,326
Transmission ....................................................... 1,592,610 1,573,634
Distribution ....................................................... 5,333,396 4,048,867
General ............................................................ 466,474 456,212
------------ ------------
Total ............................................................ 24,053,533 22,595,039
Less accumulated depreciation ...................................... 5,562,190 5,023,003
------------ ------------
Utility plant in service less accumulated depreciation ........... 18,491,343 17,572,036
Construction work in progress ........................................ 271,033 1,060,731
Nuclear fuel (net of accumulated amortization: 1995 -- $295,390,000;
1994 -- $205,420,000) ............................................ 266,735 298,964
Held for future use .................................................. 25,096 46,197
------------ ------------
Utility plant less accumulated depreciation and amortization ..... 19,054,207 18,977,928
Less reserve for regulatory disallowances ............................ 1,308,460 1,308,460
------------ ------------
Net utility plant ................................................ 17,745,747 17,669,468
------------ ------------
INVESTMENTS
Non-utility property ................................................. 422,421 569,337
Other investments .................................................... 617,583 122,906
------------ ------------
Total investments ................................................ 1,040,004 692,243
------------ ------------
CURRENT ASSETS
Cash in banks ........................................................ 24,853 7,426
Special deposits ..................................................... 19,455 1,002
Accounts receivable:
Customers .......................................................... 275,275 201,687
Other .............................................................. 51,735 38,712
Allowance for uncollectible accounts ............................... (5,965) (5,095)
Inventories -- at average cost:
Materials and supplies ............................................. 200,145 194,271
Fuel stock ......................................................... 128,028 145,662
Prepaid taxes ........................................................ 18,696 21,629
Other prepayments .................................................... 36,832 41,871
Deferred federal income taxes ........................................ 84,410 37,113
Other current assets ................................................. 14,924 11,216
------------ ------------
Total current assets ............................................. 848,388 695,494
------------ ------------
DEFERRED DEBITS
Unamortized regulatory assets ........................................ 1,828,625 1,769,441
Under-recovered fuel revenue ......................................... -- 29,860
Other deferred debits ................................................ 73,087 36,902
------------ ------------
Total deferred debits ............................................ 1,901,712 1,836,203
------------ ------------
Total .................................................... $ 21,535,851 $ 20,893,408
============ ============
See accompanying Notes to Consolidated Financial Statements.
30
33
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
DECEMBER 31,
-------------------------
1995 1994
---- ----
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value -- net:
Authorized shares -- 500,000,000
Outstanding shares -- 225,841,037 .......................................... $ 4,806,912 $ 4,798,797
Retained earnings ............................................................. 924,444 1,691,250
Cumulative currency translation adjustment .................................... 397 --
----------- -----------
Total common stock equity ................................................. 5,731,753 6,490,047
Preferred stock:
Not subject to mandatory redemption ......................................... 489,695 870,190
Subject to mandatory redemption ............................................. 263,196 387,482
TU Electric obligated, mandatorily redeemable, preferred securities of trusts.. 381,476 --
Long-term debt, less amounts due currently .................................... 9,174,575 7,888,413
----------- -----------
Total capitalization ...................................................... 16,040,695 15,636,132
----------- -----------
CURRENT LIABILITIES
Notes payable:
Commercial paper ............................................................ 321,990 363,886
Banks ....................................................................... 275,000 --
Long-term debt due currently .................................................. 61,321 74,610
Accounts payable .............................................................. 300,726 219,661
Dividends declared ............................................................ 125,929 197,564
Customers' deposits ........................................................... 76,963 56,391
Taxes accrued ................................................................. 167,951 243,753
Interest accrued .............................................................. 165,277 183,545
Over-recovered fuel revenue ................................................... 115,858 --
Other current liabilities ..................................................... 101,566 95,329
--------- ---------
Total current liabilities ................................................. 1,712,581 1,434,739
--------- ---------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes ..................................... 2,669,808 2,852,462
Unamortized federal investment tax credits .................................... 622,786 679,104
Other deferred credits and noncurrent liabilities ............................. 489,981 290,971
----------- -----------
Total deferred credits and other noncurrent liabilities ................... 3,782,575 3,822,537
COMMITMENTS AND CONTINGENCIES (Note 14)
----------- -----------
Total ............................................................. $21,535,851 $20,893,408
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
31
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TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
OPERATING REVENUES ........................................... $ 5,560,462 $ 5,613,175 $ 5,409,156
----------- ----------- -----------
OPERATING EXPENSES
Fuel and purchased power .................................. 1,697,091 1,798,493 1,946,049
Operation ................................................. 767,750 813,057 756,596
Maintenance ............................................... 281,284 295,758 341,840
Depreciation and amortization ............................. 549,611 540,535 427,992
Federal income taxes ...................................... 382,315 338,465 343,485
Taxes other than income ................................... 512,045 534,430 445,220
----------- ----------- -----------
Total operating expenses ............................... 4,190,096 4,320,738 4,261,182
----------- ----------- -----------
OPERATING INCOME ............................................. 1,370,366 1,292,437 1,147,974
----------- ----------- -----------
OTHER INCOME (LOSS)
Allowance for equity funds used during construction ....... 6,658 10,743 150,115
Impairment of assets ...................................... (486,350) -- --
Regulatory disallowances .................................. -- -- (359,556)
Other income and deductions -- net ........................ 8,625 10,160 9,114
Federal income taxes ...................................... 169,362 (4,222) 101,745
----------- ----------- -----------
Total other income (loss) .............................. (301,705) 16,681 (98,582)
----------- ----------- -----------
TOTAL INCOME ................................................. 1,068,661 1,309,118 1,049,392
----------- ----------- -----------
INTEREST CHARGES
Interest on mortgage bonds ................................ 526,977 567,363 610,999
Interest on other long-term debt .......................... 44,071 32,183 45,787
Other interest ............................................ 58,500 62,631 29,186
Allowance for borrowed funds used during construction...... (15,319) (11,251) (113,106)
----------- ----------- -----------
Total interest charges ................................. 614,229 650,926 572,866
----------- ----------- -----------
CONSOLIDATED NET INCOME ...................................... 454,432 658,192 476,526
TU ELECTRIC OBLIGATED, MANDATORILY REDEEMABLE,
PREFERRED SECURITIES OF TRUSTS DISTRIBUTIONS .............. 1,801 -- --
PEFERRED STOCK DIVIDENDS ..................................... 84,914 101,883 115,232
----------- ----------- -----------
CONSOLIDATED NET INCOME AVAILABLE FOR
COMMON STOCK ............................................... $ 367,717 $ 556,309 $ 361,294
=========== =========== ===========
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
BALANCE AT BEGINNING OF YEAR.................................. $ 948,136 $ 1,112,692 $ 1,480,582
ADD -- Consolidated net income .............................. 454,432 658,192 476,526
Transfer from common stock............................ 433,820 -- --
DEDUCT -- TU Electric obligated, mandatorily redeemable,
preferred securities of trusts distributions.... 1,801 -- --
Preferred stock dividends........................... 84,914 101,883 115,232
Common stock dividends (per share: 1995 -$4.35;
1994 - $4.60; 1993 - $4.68)....................... 682,080 715,760 707,382
Preferred stock redemption costs -- net............. -- 5,105 21,802
----------- ----------- -----------
BALANCE AT END OF YEAR........................................ $ 1,067,593 $ 948,136 $ 1,112,692
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
32
35
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income ................................................ $ 454,432 $ 658,192 $ 476,526
Adjustments to reconcile consolidated net income to cash
provided by operating activities:
Depreciation and amortization ........................................ 685,693 675,351 512,195
Deferred federal income taxes -- net ................................. 83,621 280,971 118,368
Federal investment tax credits -- net ................................ (21,201) (23,698) (19,698)
Allowance for equity funds used during construction .................. (6,658) (10,743) (150,115)
Impairment of assets ................................................. 427,478 -- --
Regulatory disallowances ............................................. -- -- 359,556
Changes in assets and liabilities:
Receivables ........................................................ (24,807) 10,827 (88,104)
Inventories ........................................................ 612 5,777 10,557
Accounts payable ................................................... 1,842 (40,009) (5,763)
Interest and taxes accrued ......................................... (110,455) (60,637) 16,471
Other working capital .............................................. 4,917 (140,210) 123,918
Over/(under) - recovered fuel revenue -- net of deferred taxes ..... 94,717 113,693 (83,501)
Other -- net ....................................................... (2,580) 54,877 10,025
----------- ----------- -----------
Cash provided by operating activities ............................ 1,587,611 1,524,391 1,280,435
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of securities:
First mortgage bonds ................................................. 535,055 378,340 2,448,465
Other long-term debt ................................................. 300,000 -- --
TU Electric obligated, mandatorily redeemable, preferred
securities of trusts ................................................. 381,476 -- --
Preferred stock ...................................................... -- 123 731,342
Common stock ......................................................... -- 249,600 198,900
Retirement of long-term debt and preferred stock ....................... (1,373,113) (1,083,306) (2,702,847)
Change in notes receivable - affiliates ................................ 26,238 (28,594) --
Change in notes payable - parent ....................................... -- (88,434) 36,684
Change in notes payable - other ........................................ (41,896) 363,886 (250,000)
TU Electric obligated, mandatorily redeemable, preferred securities of
trusts distributions paid ............................................ (1,801) -- --
Preferred stock dividends paid ......................................... (95,304) (105,572) (114,933)
Common stock dividends paid ............................................ (682,080) (715,760) (707,382)
Debt premium, discount, financing and reacquisition expenses ........... (123,393) (21,931) (132,366)
----------- ----------- -----------
Cash used in financing activities ................................ (1,074,818) (1,051,648) (492,137)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures .............................................. (407,305) (415,290) (841,181)
Allowance for equity funds used during construction (excluding
amount for nuclear fuel) ............................................. 3,929 4,771 138,941
Change in construction receivables/payables -- net ..................... (1,305) 1,343 (33,976)
Non-utility property -- net ............................................ 21 (4) (6)
Nuclear fuel (excluding allowance for equity funds used
during construction) ................................................. (55,013) (62,655) (16,889)
Other investments ...................................................... (37,186) (22,138) (12,944)
----------- ----------- -----------
Cash used in investing activities ................................ (496,859) (493,973) (766,055)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................................. 15,934 (21,230) 22,243
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE ........................... 6,699 27,929 5,686
----------- ----------- -----------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE .............................. $ 22,633 $ 6,699 $ 27,929
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
33
36
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
----------------------------
1995 1994
---- ----
THOUSANDS OF DOLLARS
ELECTRIC PLANT
In service:
Production .......................................................... $ 15,699,488 $ 15,553,422
Transmission ........................................................ 1,586,547 1,567,617
Distribution ........................................................ 4,229,794 3,997,061
General ............................................................. 407,897 425,973
------------ ------------
Total ............................................................. 21,923,726 21,544,073
Less accumulated depreciation ....................................... 5,075,428 4,560,054
------------ ------------
Electric plant in service less accumulated depreciation ........... 16,848,298 16,984,019
Construction work in progress ........................................ 236,913 971,429
Nuclear fuel (net of accumulated amortization: 1995 -- $295,390,000;
1994 -- $205,420,000) ............................................... 266,735 298,964
Held for future use .................................................. 25,096 43,550
------------ ------------
Electric plant less accumulated depreciation and amortization ..... 17,377,042 18,297,962
Less reserve for regulatory disallowances ............................ 1,308,460 1,308,460
------------ ------------
Net electric plant ................................................ 16,068,582 16,989,502
------------ ------------
INVESTMENTS
Non-utility property ................................................. 332,234 4,383
Other investments .................................................... 103,888 66,702
------------ ------------
Total investments ................................................. 436,122 71,085
------------ ------------
CURRENT ASSETS
Cash in banks ........................................................ 22,633 6,699
Special deposits ..................................................... 527 527
Notes receivable -- affiliates ....................................... 2,356 28,594
Accounts receivable:
Customers ........................................................... 212,165 196,507
Other ............................................................... 34,906 26,869
Allowance for uncollectible accounts ................................ (3,914) (5,026)
Inventories -- at average cost:
Materials and supplies .............................................. 179,001 178,977
Fuel stock .......................................................... 82,889 83,525
Prepaid taxes ........................................................ 18,664 21,614
Deferred federal income taxes ........................................ 79,629 37,202
Other current assets ................................................. 14,016 16,379
------------ ------------
Total current assets .............................................. 642,872 591,867
------------ ------------
DEFERRED DEBITS
Unamortized regulatory assets ........................................ 1,806,684 1,741,818
Under-recovered fuel revenue ......................................... -- 29,860
Other deferred debits ................................................ 49,114 22,866
------------ ------------
Total deferred debits ............................................. 1,855,798 1,794,544
------------ ------------
Total ......................................................... $ 19,003,374 $ 19,446,998
============ ============
See accompanying Notes to Consolidated Financial Statements.
34
37
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
DECEMBER 31,
-------------------------
1995 1994
---- ----
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value:
Authorized shares -- 180,000,000
Outstanding shares -- 156,800,000 ........................................... $ 4,732,305 $ 5,166,125
Retained earnings ............................................................. 1,067,593 948,136
----------- -----------
Total common stock equity .............................................. 5,799,898 6,114,261
Preferred stock:
Not subject to mandatory redemption ......................................... 489,695 870,190
Subject to mandatory redemption ............................................. 263,196 387,482
TU Electric obligated, mandatorily redeemable, preferred securities of trusts.. 381,476 --
Long-term debt, less amounts due currently .................................... 7,212,070 7,220,641
----------- -----------
Total capitalization ................................................... 14,146,335 14,592,574
----------- -----------
CURRENT LIABILITIES
Notes payable -- commercial paper ............................................. 321,990 363,886
Long-term debt due currently .................................................. 43,458 56,037
Accounts payable:
Affiliates .................................................................. 101,722 97,443
Other ....................................................................... 109,402 113,144
Dividends declared ............................................................ 13,210 23,600
Customers' deposits ........................................................... 63,564 55,726
Taxes accrued ................................................................. 142,364 234,840
Interest accrued .............................................................. 141,815 159,794
Over-recovered fuel revenue ................................................... 115,858 --
Other current liabilities ..................................................... 63,716 71,950
----------- -----------
Total current liabilities .............................................. 1,117,099 1,176,420
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes ..................................... 2,869,049 2,761,772
Unamortized federal investment tax credits .................................... 609,466 664,209
Other deferred credits and noncurrent liabilities ............................. 261,425 252,023
----------- -----------
Total deferred credits and other noncurrent liabilities ................ 3,739,940 3,678,004
COMMITMENTS AND CONTINGENCIES (Note 14)
----------- -----------
Total ................................................................ $19,003,374 $19,446,998
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
35
38
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
General -- Texas Utilities Company (Company) is a holding company which
owns all of the outstanding common stock of Texas Utilities Electric Company and
its subsidiaries (TU Electric), Southwestern Electric Service Company (SESCO),
Texas Utilities Australia Pty. Ltd. (TU Australia) and seven other wholly-owned
subsidiaries which perform specialized functions within the Texas Utilities
Company system. TU Electric, the largest subsidiary of the Company, representing
88% of the total assets, is engaged in the generation, purchase, transmission,
distribution and sale of electric energy wholly within Texas.
Consolidation -- The consolidated financial statements include the Company
and all of its subsidiaries (System Companies). All significant intercompany
items and transactions have been eliminated in consolidation. Certain financial
statement items have been reclassified to conform to the current year
presentation.
In March 1995, Texas Utilities Communications Inc. (TU Communications), a
new wholly-owned subsidiary of the Company, was incorporated under the laws of
the State of Delaware. TU Communications was organized to provide access to
advanced telecommunications technology, primarily for the System Companies'
expected expansion of the energy services business.
Business Acquisition -- In December 1995, the Company's newly formed
subsidiary, TU Australia, acquired the common stock of Eastern Energy Limited
(Eastern Energy), a major Australian electricity distribution company. Eastern
Energy is engaged in the purchase, distribution and sale of electric energy to
approximately 475,000 customers in a service area in Australia extending from
the outer eastern suburbs of the Melbourne metropolitan area to the eastern
coastal areas of Victoria and the New South Wales border to the north. Eastern
Energy generates no electric energy. The acquisition by TU Australia was
accounted for as a purchase business combination. Accordingly, a portion of the
purchase price has been tentatively allocated to the assets acquired and
liabilities assumed based on their estimated fair values. The excess of the
purchase price over the estimated fair values of the assets acquired is being
amortized over 40 years. The operations of Eastern Energy after December 1,
1995, the date of acquisition, have been reflected in the consolidated
financial statements. The acquisition of Eastern Energy did not have a material
effect on the Company's 1995 results of operation or financial position.
Income Taxes on Undistributed Earnings of Foreign Subsidiary -- The Company
intends to invest the undistributed earnings of its foreign subsidiary back into
the foreign subsidiary's business. Accordingly, no provision has been made for
taxes which would be payable if such earnings were repatriated to the United
States.
Other Investments -- The difference of $348,517,000 between the amount at
which the investments in subsidiaries is carried by the Company and the
underlying book equity of such subsidiaries at the respective dates of
acquisition is included in other investments.
Foreign Currency Translation -- The assets and liabilities of TU
Australia's operations denominated in the Australian dollar are translated at
rates in effect at year end. Revenues and expenses have been translated at
average rates for the applicable periods. Local currencies are considered to be
the functional currency, and adjustments resulting from such translation are
included in the cumulative currency translation adjustment, a separate component
of common stock equity.
TU ELECTRIC
System of Accounts -- The accounting records of TU Electric are maintained
in accordance with the Federal Energy Regulatory Commission's Uniform System of
Accounts as adopted by the Public Utility Commission of Texas (PUC).
36
39
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Consolidation -- The consolidated financial statements of TU Electric
include all of its business trusts. All significant intercompany items and
transactions have been eliminated in consolidation. Certain financial statement
items have been reclassified to conform to the current year presentation.
In September and October 1995, TU Electric established three financing
subsidiaries, TU Electric Capital I, TU Electric Capital II, and TU Electric
Capital III, in the form of Delaware statutory business trusts, for the purpose
of issuing securities and holding Junior Subordinated Debentures issued by TU
Electric. (See Note 7.)
Amortization of Nuclear Fuel and Refueling Outage Costs -- The amortization
of nuclear fuel in the reactors (net of regulatory disallowances) is calculated
on the units of production method and, subsequent to commercial operation, is
included in nuclear fuel expense. TU Electric accrues a provision for costs
anticipated to be incurred during the next scheduled Comanche Peak refueling
outage.
THE COMPANY AND TU ELECTRIC
Use of Estimates -- The preparation of TU Company's and TU Electric's
consolidated financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the balance sheet dates. In the event
estimates and/or assumptions prove to be different from actual amounts,
appropriate adjustments will be made in subsequent periods.
Utility Plant -- Utility plant is stated at original cost. The cost of
property additions to utility plant includes labor and materials, applicable
overhead and payroll-related costs and an allowance for funds used during
construction.
Allowance For Funds Used During Construction -- Allowance for funds used
during construction (AFUDC) is a cost accounting procedure whereby amounts based
upon interest charges on borrowed funds and a return on equity capital used to
finance construction are added to utility plant. The accrual of AFUDC is in
accordance with generally accepted accounting principles for the industry, but
does not represent current cash income.
TU Electric is capitalizing AFUDC, compounded semi-annually, on
expenditures for ongoing construction work in progress (CWIP) and nuclear fuel
in process not otherwise allowed in rate base by regulatory authorities. For
1995, 1994 and 1993, TU Electric used gross rates of 7.7%, 8.6% and 10.4%,
respectively. Rates were determined on the basis of, but are less than, the cost
of capital used to finance the construction program.
Depreciation of Utility Plant -- Depreciation is generally based upon an
amortization of the original cost of depreciable properties (net of regulatory
disallowances) on a straight-line basis over the estimated service lives of the
properties. Depreciation as a percent of average depreciable property for the
Company and System Companies approximated 2.6%, 2.6% and 2.5% for 1995, 1994 and
1993, respectively. For TU Electric, depreciation as a percent of average
depreciable property approximated 2.6%, 2.6% and 2.4% for 1995, 1994 and 1993,
respectively. Depreciation also includes an amount for TU Electric's Comanche
Peak nuclear generating station (Comanche Peak) decommissioning costs which is
being accrued over the lives of the units and deposited to external trust funds.
(See Note 14.)
Revenues -- Revenues include billings under approved rates (including a
fixed fuel factor) applied to meter readings each month on a cycle basis and an
accrual of base rate revenue for energy provided after cycle billing but not
billed through the end of each month. Revenues also include an amount for under-
or over-recovery of fuel revenue representing the difference between actual fuel
cost and billings under the approved fixed fuel factor and a provision that
generally allows recovery through a Power Cost Recovery Factor, on a monthly
basis, of the capacity portion of purchased power cost and wheeling cost from
qualifying facilities not included in base rates. The fuel portion of purchased
power cost is included in the fixed fuel factor. A utility's fuel factor can be
revised
37
40
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
upward or downward every six months, according to a specified schedule. A
utility is required to petition to make either surcharges or refunds to
ratepayers, together with interest based on a twelve month average of prime
commercial rates, for any material cumulative under- or over-recovery of fuel
costs. If the cumulative difference of the under- or over-recovery, plus
interest, is in excess of 4% of the annual estimated fuel costs most recently
approved by the PUC, it will be deemed to be material. A procedure exists for an
expedited change in fuel factors in the event of an emergency. Final
reconciliation of fuel costs must be made either in a reconciliation proceeding,
which may cover no more than three years and no less than one year, or in a
general rate case. In December 1995, TU Electric filed for a fuel reconciliation
proceeding for the reconciliation period of July 1992 through June 1995. (See
Note 12.)
Federal Income Taxes -- The Company and System Companies, excluding TU
Australia, file a consolidated federal income tax return and federal income
taxes are allocated to System Companies based upon their taxable income or loss.
Investment tax credits are normally amortized to income over the estimated
service lives of the properties. Deferred federal income taxes are currently
provided for temporary differences between the book and tax basis of assets and
liabilities (including the provision for regulatory disallowances). In January
1993, the Company and TU Electric adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which among other
things, requires the liability method of recognition for all temporary
differences, requires that deferred tax liabilities and assets be adjusted for
an enacted change in tax laws or rates and prohibits net-of-tax accounting and
reporting. Certain provisions of SFAS 109 provide that regulated enterprises are
permitted to recognize such adjustments as regulatory assets or liabilities if
it is probable that such amounts will be recovered from or returned to customers
in future rates. Accordingly, at December 31, 1995, the consolidated balance
sheets include a regulatory asset of approximately $1.2 billion net of an
approximate $0.6 billion regulatory liability.
Consolidated Cash Flows -- For purposes of reporting cash flows, temporary
cash investments purchased with a remaining maturity of three months or less are
considered to be cash equivalents.
The supplemental schedule below details the Company's cash payments and
noncash investing and financing activities:
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
CASH PAYMENTS
Interest (net of amounts capitalized)................................ $ 677,415 $678,682 $637,186
Income taxes......................................................... 208,326 220,316 74,756
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of Eastern Energy - 1995
and SESCO - 1993:
Book value of assets acquired..................................... $1,329,158 $ -- $ 69,521
Goodwill acquired................................................. 302,497 -- 32,059
Less: Liabilities incurred........................................ 8,503 -- --
Liabilities assumed......................................... 1,006,848 -- 39,991
Stock issued................................................ -- -- 59,976
---------- -------- --------
Cash paid...................................................... 616,304 -- 1,613
Less: Cash acquired............................................... 7,943 -- 376
Currency translation adjustment................................... 53 -- --
---------- -------- --------
Net cash....................................................... $ 608,414 $ -- $ 1,237
========== ======== ========
38
41
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONCLUDED)
The supplemental schedule below details TU Electric's cash payments:
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
CASH PAYMENTS
Interest (net of amounts capitalized)............................... $602,524 $616,254 $572,208
Income taxes........................................................ 213,690 198,267 76,933
Regulatory Assets and Liabilities -- Under the current regulatory
environment, TU Electric and SESCO are subject to the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS 71). This statement applies to utilities which have
cost-based rates established by a regulator and charged to and collected from
customers. In accordance with this statement, these companies may defer the
recognition of certain costs (regulatory assets) and certain obligations
(regulatory liabilities) that, as a result of the ratemaking process, have
probable corresponding increases or decreases in future revenues. Future
significant changes in regulation or competition could affect these companies'
ability to meet the criteria for continued application of SFAS 71, and may
affect these companies' ability to recover these regulatory assets from, or
refund these regulatory liabilities to customers. These regulatory assets and
liabilities, which are being amortized over various periods (5 to 40 years), are
currently included in rates, or are expected to be included in future rates. In
the event all or a portion of these companies' operations fail to meet the
criteria for application of SFAS 71, these companies' would be required to
write-off all or a portion of their regulatory assets and liabilities.
Significant net regulatory assets are as follows:
THE COMPANY TU ELECTRIC
DECEMBER 31, DECEMBER 31,
------------ ------------
ITEM 1995 1994 1995 1994
---- ---- ---- ---- ----
THOUSANDS OF DOLLARS
Securities reacquisition costs.......................... $ 387,493 $ 284,563 $ 385,287 $ 281,023
Cancelled lignite unit costs............................ 15,266 18,049 15,266 18,049
Rate case costs......................................... 62,211 64,862 62,211 64,862
Litigation and settlement costs......................... 72,685 72,685 72,685 72,685
Voluntary retirement/severance program.................. 156,339 184,340 132,641 156,397
Recoverable deferred federal income taxes - net (Note 9) 1,192,959 1,201,688 1,199,552 1,208,833
Other regulatory assets................................. 14,357 15,939 11,727 12,654
---------- ---------- ---------- ----------
Unamortized regulatory assets ...................... 1,901,310 1,842,126 1,879,369 1,814,503
Less-- Reserve for regulatory disallowances............ 72,685 72,685 72,685 72,685
Unamortized federal investment tax credits....... 622,786 679,104 609,466 664,209
---------- ---------- ---------- ----------
Unamortized regulatory assets-- net........... $1,205,839 $1,090,337 $1,197,218 $1,077,609
========== ========== ========== ==========
Should significant changes in regulation or competition occur, TU Electric
and SESCO would also be required to assess the recoverability of other assets,
including plant, and, if impaired, write down the assets to reflect their fair
market value.
2. AFFILIATES
TU ELECTRIC
The Company provides common stock capital and partial requirements for
short-term financing to TU Electric. The Company has three other subsidiaries
which perform specialized services for the System Companies, including TU
Electric: Texas Utilities Services Inc. which provides financial, accounting,
information technology, customer services, procurement, personnel, shareholder
services and other administrative services at cost; Texas Utilities
39
42
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. AFFILIATES -- (CONCLUDED)
Fuel Company (Fuel Company) which owns a natural gas pipeline system, acquires,
stores and delivers fuel gas and provides other fuel services at cost for the
generation of electric energy by TU Electric; and Texas Utilities Mining Company
(Mining Company) which owns, leases and operates fuel production facilities for
the surface mining and recovery of lignite at cost for use at TU Electric's
generating stations. TU Electric provided services such as energy sales,
wheeling and scheduling to SESCO which is engaged in the purchase, transmission,
distribution and sale of electric energy in ten counties in the eastern and
central parts of Texas with a population estimated at 125,000. SESCO generates
no electric energy.
TU Electric has entered into agreements with Fuel Company for the
procurement of certain fuels and related services and with Mining Company for
the procurement and production of lignite. Payments are at cost for the services
received and are required by the agreements to be "at least equivalent in the
aggregate to the annual charge to income on the books" of Fuel Company and of
Mining Company. TU Electric is, in effect, obligated for the principal,
$410,714,000 at December 31, 1995, and interest on long-term notes of Mining
Company through payments described above. Such notes mature at various dates
through 2005 and have interest rates ranging from 6.50% to 9.42%. At December
31, 1995, TU Electric had extended $2,356,000 of operating funds to the Fuel
Company recorded as a note receivable on the balance sheet.
The schedule below details TU Electric's billings to and from affiliates
for services rendered and interest on short-term financings:
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
Billings from:
The Company................................................... $ 123 $ 1,074 $ 1,122
TU Services................................................... 182,334 184,537 162,735
Fuel Company.................................................. 763,346 850,825 901,761
Mining Company................................................ 327,856 329,108 374,464
Billings to:
SESCO......................................................... $ 20,657 $ 21,869 $38,286
Fuel Company.................................................. 5,669 3,205 --
3. SHORT-TERM FINANCING
THE COMPANY
The schedule below details the Company's amounts outstanding to banks for
borrowings at December 31, 1995:
THOUSANDS OF DOLLARS
Credit facility agreements..................................................... $320,000
Revolving credit facility...................................................... 200,000
Uncommitted bank lines:
The Company................................................................ 90,000
Fuel Company............................................................... 85,000
--------
Total................................................................... $695,000
========
At December 31, 1995, the Company and TU Electric had joint lines of credit
aggregating $1,000,000,000 under credit facility agreements (Agreements) with a
group of commercial banks. The Agreements have two facilities, for each of which
the Company pays a fee. Facility A provides for borrowings up to $300,000,000
and terminates April 26, 1996. The Company and TU Electric intend to negotiate
an extension or replacement of this
40
43
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SHORT-TERM FINANCING -- (CONCLUDED)
facility. Facility B provides for borrowings up to $700,000,000 and terminates
April 28, 2000. The Company's borrowings under the Agreements are limited to
$600,000,000. Borrowings under the Agreements are used for working capital and
other corporate purposes, including commercial paper backup.
In November 1995, the Company entered into a Competitive Advance and
Revolving Credit Facility Agreement with a group of commercial banks. This
facility, for which the Company pays a fee, provides for borrowings, on a
standby basis, up to $200,000,000 and terminates April 26, 1996. Borrowings
under this facility are used for corporate purposes. In addition to the above,
the Company and Fuel Company have separate arrangements for uncommitted lines of
credit.
During the years 1995, 1994 and 1993, the Company's average amounts
outstanding to banks for borrowings were $149,806,000, $66,042,000 and
$84,934,000, respectively. Weighted average interest rates to banks for
borrowings during such periods were 6.33%, 4.92% and 3.84%, respectively. At
December 31, 1995, the total of short-term borrowings authorized by the Board of
Directors of the Company from banks or other lenders was $1,075,000,000.
The Company intends to refinance up to $420,000,000 of its current
$695,000,000 short-term borrowings from banks beyond one year of the balance
sheet date of December 31, 1995. As a result, such amount has been reclassified
from notes payable - banks to long-term debt on the Company's 1995 Balance
Sheet. (See Note 8.)
TU ELECTRIC
At December 31, 1995, TU Electric had $321,990,000 of commercial paper
outstanding with interest rates ranging from 5.85% to 6.35%. During the years
1995, 1994 and 1993, average amounts outstanding to banks for borrowings were
$11,667,000, $32,292,000 and $55,611,000, respectively and to holders of
commercial paper were $340,579,000, $238,401,000 and $54,401,000, respectively.
During such periods, weighted average interest rates to banks for borrowings
were 6.51%, 4.60% and 3.92%, respectively, and to holders of commercial paper
were 6.10%, 4.94% and 3.72%, respectively.
4. COMMON STOCK
THE COMPANY
The Company issued shares of its authorized but unissued common stock as
follows:
AUTOMATIC DIVIDEND EMPLOYEES' THRIFT PLAN
REINVESTMENT AND COMMON AND EMPLOYEE
PUBLIC OFFERING STOCK PURCHASE PLAN STOCK OWNERSHIP PLAN TOTAL
------------------ -------------------- -------------------- -----------------
YEAR SHARES* AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---- ------- ------ ------ ------ ------ ------ ------ ------
1995 -- -- -- -- -- -- -- --
1994 -- -- 1,364,690 $ 56,671,000 130,925 $ 5,431,000 1,495,615 $ 62,102,000
1993 1,420,316 $59,976,000 5,163,587 220,848,000 445,465 20,123,000 7,029,368 300,947,000
- -------------
* Shares issued for public offering in 1993 were used in connection with the
acquisition of SESCO.
At December 31, 1995, 1,997,005 shares of the authorized but unissued
common stock of the Company were reserved for issuance and sale pursuant to the
above plans.
41
44
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMON STOCK -- (CONCLUDED)
In February 1994, the Company amended its Automatic Dividend Reinvestment
and Common Stock Purchase Plan. The amendments included, among other things, the
option to purchase common stock in the open market through an independent broker
to meet share requirements under the plan. Since March 1994, requirements under
the Automatic Dividend Reinvestment and Common Stock Purchase Plan and the
Employees' Thrift Plan of the Texas Utilities Company System (Thrift Plan) have
been met through open market purchases of common stock.
In 1990, the Thrift Plan borrowed $250,000,000 in the form of a note
payable from an outside lender and purchased 7,142,857 shares of common stock
(LESOP Shares) from the Company in connection with the leveraged employee stock
ownership provision of the Thrift Plan. LESOP Shares are held by the trustee
until allocated to Thrift Plan participants when required to meet the System
Companies' obligations under terms of the Thrift Plan. The Company has purchased
the note from the outside lender, which has been recorded as a reduction to
common stock equity. The Thrift Plan uses dividends on the LESOP Shares
purchased and contributions from the System Companies, if required, to repay
interest and principal on the note. Common stock equity increases at such time
as LESOP Shares are allocated to participants' accounts even though shares of
common stock outstanding include unallocated LESOP Shares held by the trustee.
Allocations to participants' accounts in 1995, 1994 and 1993 increased common
stock equity by $8,115,000, $8,115,000 and $8,114,000, respectively.
The Company has 50,000,000 authorized shares of serial preference stock
having a par value of $25 a share, none of which has been issued.
TU ELECTRIC
TU Electric issued shares of its authorized but unissued common stock to
the Company as follows:
NET
YEAR SHARES PROCEEDS
---- ------ --------
1995.................................... -- --
1994.................................... 4,800,000 $249,600,000
1993.................................... 3,400,000 198,900,000
No shares of TU Electric's common stock are held by or for its own account,
nor are any shares of such capital stock reserved for its officers and employees
or for options, warrants, conversions and other rights in connection therewith.
5. RETAINED EARNINGS
THE COMPANY AND TU ELECTRIC
The articles of incorporation and the mortgages, as supplemented, of TU
Electric and SESCO, contain provisions which, under certain conditions, restrict
distributions on or acquisitions of their common stock. At December 31, 1995,
$94,283,000 of retained earnings of TU Electric and $13,969,000 of retained
earnings of SESCO were thus restricted as a result of such provisions.
In 1995, TU Electric transferred approximately $433,820,000 from its common
stock account to retained earnings. Such amount represented the Company's equity
in undistributed earnings, since acquisition, included in previous transfers by
TU Electric.
42
45
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PREFERRED STOCK OF TU ELECTRIC (CUMULATIVE, WITHOUT PAR VALUE, ENTITLED
UPON LIQUIDATION TO $100 A SHARE; AUTHORIZED 17,000,000 SHARES)
REDEMPTION PRICE PER SHARE
(BEFORE ADDING ACCUMULATED DIVIDENDS)
SHARES OUTSTANDING AMOUNT -------------------------------------
DIVIDEND RATE DECEMBER 31, DECEMBER 31, DECEMBER 31,1995 EVENTUAL MINIMUM
------------- ------------ ------------ ---------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
THOUSANDS OF DOLLARS
NOT SUBJECT TO MANDATORY REDEMPTION
$ 4.50 series..................... 74,367 74,367 $ 7,440 $ 7,440 $110.00 $110.00
4.00 series (Dallas Power)...... 70,000 70,000 7,049 7,049 103.56 103.56
4.56 series (Texas Power)....... 133,628 133,628 13,371 13,371 112.00 112.00
4.00 series (Texas Electric).... 110,000 110,000 11,000 11,000 102.00 102.00
4.56 series (Texas Electric).... 64,947 64,947 6,560 6,560 112.00 112.00
4.24 series..................... 100,000 100,000 10,081 10,081 103.50 103.50
4.64 series..................... 100,000 100,000 10,016 10,016 103.25 103.25
4.84 series..................... 70,000 70,000 7,000 7,000 101.79 101.79
4.00 series (Texas Power)....... 70,000 70,000 7,000 7,000 102.00 102.00
4.76 series..................... 100,000 100,000 10,000 10,000 102.00 102.00
5.08 series..................... 80,000 80,000 8,004 8,004 103.60 103.60
4.80 series..................... 100,000 100,000 10,009 10,009 102.79 102.79
4.44 series..................... 150,000 150,000 15,061 15,061 102.61 102.61
7.20 series..................... 200,000 200,000 20,044 20,044 103.21 103.21
6.84 series..................... 200,000 200,000 20,023 20,023 103.05 103.05
7.24 series..................... 247,862 249,800 24,905 25,100 103.42 103.42
8.20 series (a)................. 338,872 1,250,000 32,704 120,637 (b) 100.00
7.98 series..................... 500,000 500,000 49,361 49,361 (b) 100.00
7.50 series (a)................. 392,234 2,000,000 38,062 194,048 (b) 100.00
7.22 series (a)................. 308,632 1,715,925 29,909 166,290 (b) 100.00
Adjustable rate series A (c)...... 1,000,000 1,000,000 98,200 98,200 100.00 100.00
Adjustable rate series B (c)...... 548,561 548,561 53,896 53,896 103.00 100.00
--------- --------- -------- --------
Total...................... 4,959,103 8,887,228 $489,695 $870,190
========= ========= ======== ========
SUBJECT TO MANDATORY REDEMPTION (D)
$ 9.64 series (e)................ 650,000 900,000 $ 64,950 $ 89,902 (f) (f)
10.375 series................... -- 750,000 -- 74,656
9.875 series................... -- 250,000 -- 24,843
6.98 series.................... 1,000,000 1,000,000 99,123 99,047 (b) 100.00
6.375 series................... 1,000,000 1,000,000 99,123 99,034 (b) 100.00
--------- --------- -------- --------
Total........................ 2,650,000 3,900,000 $263,196 $387,482
========= ========= ======== ========
- --------------------
(a) The preferred stock series is the underlying preferred stock for depositary
shares that were issued to the public. Each depositary share represents one
quarter of a share of underlying preferred stock.
(b) Preferred stock series is not redeemable at December 31, 1995.
(c) Adjustable rate series A bears a dividend rate for the period ended January
31, 1996, of $6.50 per annum and adjustable rate series B bears a dividend
rate for the period ended December 31, 1995, of $7.00 per annum.
(d) TU Electric is required to redeem at a price of $100 per share plus
accumulated dividends a specified minimum number of shares annually or
semi-annually on the initial/next dates shown below. These redeemable shares
may be called, purchased or otherwise acquired. Certain issues may not be
redeemed at the option of TU Electric prior to 2003. TU Electric may
annually call for redemption, at its option, an aggregate of up to twice the
number of shares shown below for each series at a price of $100 per share
plus accumulated dividends, except for the $9.64 series which may be
redeemed in a minimum amount of 10,000 shares at any time at a price of $100
per share plus accumulated dividends plus a component at a variable price
per share which is designed to maintain the expected yield at issuance:
MINIMUM REDEEMABLE INITIAL/NEXT DATE OF
SERIES SHARES MANDATORY REDEMPTION
------ ------ --------------------
$ 9.64 125,000 semi-annually 5/1/96
6.98 50,000 annually 7/1/03
6.375 50,000 annually 10/1/03
Preferred stock mandatory redemption requirements for the next five years
are $25 million in 1996, $25 million in 1997, $15 million in 1998 and none
thereafter. The carrying value of preferred stock subject to mandatory
redemption is being increased periodically to equal the redemption amounts
at the mandatory redemption dates with a corresponding increase in
preferred stock dividends.
(e) Under certain circumstances relating to a change in federal tax law
governing the dividends received deduction applicable to eligible
corporations, the dividend rate of the $9.64 series may increase to a
maximum of $10.74.
(f) The redemption price is calculated on the business day next preceding the
settlement date at a price of $100 per share plus accumulated dividends
plus a component which is designed to maintain the expected yield at
issuance.
43
46
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. TU ELECTRIC OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED SECURITIES OF
TRUSTS (LIQUIDATION PREFERENCE, $25 PER UNIT)
Three statutory business trusts, TU Electric Capital I, TU Electric Capital
II and TU Electric Capital III (each a TU Electric Trust), were established in
1995 as financing subsidiaries of TU Electric for the purposes, in each case, of
issuing common and preferred trust securities and holding Junior Subordinated
Debentures issued by TU Electric (Debentures). The Debentures held by each TU
Electric Trust are its only assets. Each TU Electric Trust will use interest
payments received on the Debentures it holds to make cash distributions on the
trust securities.
The combination of the obligations of TU Electric pursuant to agreements to
pay the expenses of each TU Electric Trust and TU Electric's guarantees of
distributions with respect to trust securities, to the extent a TU Electric
Trust has funds available therefor, constitute a full and unconditional
guarantee by TU Electric of the obligations of each TU Electric Trust under the
trust securities it has issued. TU Electric is the owner of all the common trust
securities of each TU Electric Trust, which constitutes 3% or more of the
liquidation amount of all the trust securities issued by such TU Electric Trust.
At December 31, 1995, the following Trust Originated Preferred Securities
of TU Electric Capital I and II and Quarterly Income Preferred Securities of TU
Electric Capital III were outstanding:
COMPANY UNITS AMOUNT DESCRIPTION OF DEBENTURES
------- ----- ------ -------------------------
THOUSANDS OF DOLLARS
TU Electric Capital I. (series 8.25%)......... 5,871,044 $140,880 $154,869,150 Series A, 8.25% due 9/30/30
TU Electric Capital II. (series 9.00%)........ 1,991,253 47,374 $51,418,575 Series B, 9.00% due 9/30/30
TU Electric Capital III. (series 8.00%)....... 8,000,000 193,222 $206,185,575 Series C, 8.00% due 12/31/35
---------- --------
Total............................. 15,862,297 $381,476
========== ========
The preferred trust securities are subject to mandatory redemption upon
payment of the Debentures at maturity or upon redemption. The Debentures are
subject to redemption, in whole or in part at the option of TU Electric, at 100%
of their principal amount plus accrued interest, after an initial period during
which they may not be redeemed and at any time upon the occurrence of certain
events.
44
47
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT, LESS AMOUNTS DUE CURRENTLY
THE COMPANY TU ELECTRIC
DECEMBER 31, DECEMBER 31,
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
THOUSANDS OF DOLLARS
First mortgage bonds:
6-3/8% series due 1997.................... $175,000 $175,000 $175,000 $175,000
7-1/8% series due 1997.................... 150,000 150,000 150,000 150,000
5-1/2% series due 1998.................... 125,000 125,000 125,000 125,000
5-3/4% series due 1998.................... 150,000 150,000 150,000 150,000
5-7/8% series due 1998.................... 175,000 175,000 175,000 175,000
6-1/2% series due 1998.................... 1,080 1,095 -- --
7-3/8% series due 1999.................... 100,000 100,000 100,000 100,000
Floating rate series due 1999 (a) .......... 300,000 300,000 300,000 300,000
9-1/2% series due 1999.................... 200,000 200,000 200,000 200,000
7-3/8% series due 2001.................... 150,000 150,000 150,000 150,000
7.95 % series due 2002.................... 912 924 -- --
8 % series due 2002.................... 147,000 147,000 147,000 147,000
8-1/8% series due 2002.................... 150,000 150,000 150,000 150,000
6-3/4% series due 2003.................... 200,000 200,000 200,000 200,000
6-3/4% series due 2003.................... 100,000 100,000 100,000 100,000
6-1/4% series due 2004.................... 125,000 125,000 125,000 125,000
8-1/4% series due 2004.................... 100,000 100,000 100,000 100,000
6-3/4% series due 2005.................... 100,000 100,000 100,000 100,000
10.44% series due 2008.................... 150,000 150,000 150,000 150,000
9-7/8% series due 2019.................... -- 111,150 -- 111,150
10-5/8% series due 2020.................... -- 250,000 -- 250,000
9-3/4% series due 2021.................... 300,000 300,000 300,000 300,000
8-7/8% series due 2022.................... 175,000 175,000 175,000 175,000
9 % series due 2022.................... 100,000 100,000 100,000 100,000
7-7/8% series due 2023.................... 300,000 300,000 300,000 300,000
8-3/4% series due 2023.................... 200,000 200,000 200,000 200,000
7-7/8% series due 2024.................... 225,000 225,000 225,000 225,000
8-1/2% series due 2024.................... 175,000 175,000 175,000 175,000
7-3/8% series due 2025.................... 300,000 300,000 300,000 300,000
7-5/8% series due 2025.................... 250,000 250,000 250,000 250,000
Pollution control series:
Brazos River Authority
8-1/4% series due 2016.................... 111,215 200,000 111,215 200,000
7-7/8% series due 2017.................... 81,305 100,000 81,305 100,000
9-7/8% series due 2017.................... 28,765 112,000 28,765 112,000
9-1/4% series due 2018.................... 54,005 100,000 54,005 100,000
8-1/4% series due 2019.................... 100,000 100,000 100,000 100,000
8-1/8% series due 2020.................... 50,000 50,000 50,000 50,000
7-7/8% series due 2021.................... 100,000 100,000 100,000 100,000
Taxable series due 2021 (b).............. 91,000 100,000 91,000 100,000
5-1/2% series due 2022.................... 50,000 50,000 50,000 50,000
6-5/8% series due 2022.................... 33,000 33,000 33,000 33,000
6.70 % series due 2022.................... 16,935 16,935 16,935 16,935
6-3/4% series due 2022.................... 50,000 50,000 50,000 50,000
Taxable series due 2023 (b).............. 100,000 100,000 100,000 100,000
6.05 % series due 2025.................... 90,000 90,000 90,000 90,000
6-1/2% series due 2027 ................... 46,660 46,660 46,660 46,660
6.10 % series due 2028 ................... 50,000 50,000 50,000 50,000
Series 1994A due 2029(c).................... 39,170 39,170 39,170 39,170
Series 1994B due 2029(c).................... 39,170 39,170 39,170 39,170
Series 1995A due 2030(d).................... 50,670 -- 50,670 --
Series 1995B due 2030(d).................... 118,355 -- 118,355 --
Series 1995C due 2030(d).................... 118,355 -- 118,355 --
Sabine River Authority of Texas
9 % series due 2007.................... 51,525 55,000 51,525 55,000
7-3/4% series due 2016.................... 57,950 70,000 57,950 70,000
8-1/8% series due 2020.................... 40,000 40,000 40,000 40,000
8-1/4% series due 2020.................... 11,000 11,000 11,000 11,000
45
48
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT, LESS AMOUNTS DUE CURRENTLY -- (CONTINUED)
THE COMPANY TU ELECTRIC
DECEMBER 31, DECEMBER 31,
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
THOUSANDS OF DOLLARS
Sabine River Authority of Texas
5.55 % series due 2022....................... $ 75,000 $ 75,000 $ 75,000 $ 75,000
6.55 % series due 2022....................... 40,000 40,000 40,000 40,000
5.85 % series due 2022....................... 33,465 33,465 33,465 33,465
Series 1995A due 2030(d)..................... 16,000 -- 16,000 --
Series 1995B due 2030(d)..................... 12,050 -- 12,050 --
Series 1995C due 2030(d)..................... 18,475 -- 18,475 --
Trinity River Authority of Texas
9 % series due 2007....................... 12,000 12,000 12,000 12,000
Secured medium-term notes, series A............. 30,000 30,000 30,000 30,000
Secured medium-term notes, series B............. 125,000 130,000 125,000 130,000
Secured medium-term notes, series C............. 47,000 95,000 47,000 95,000
Secured medium-term notes, series D............. 201,150 -- 201,150 --
---------- ---------- ---------- ----------
Total first mortgage bonds................ 6,813,212 6,953,569 6,811,220 6,951,550
General obligation bonds........................... 10,000 10,000 -- --
Promissory note and debt assumed for
purchase of utility plant (e)................. 158,595 338,963 158,595 338,963
Senior notes....................................... 639,328 657,164 -- --
Term credit facilities (f) ........................ 1,612,200 -- 300,000 --
Unamortized premium and discount................... (58,760) (71,283) (57,745) (69,872)
---------- ---------- ---------- ----------
Total long-term debt, less amounts
due currently.................. $9,174,575 $7,888,413 $7,212,070 $7,220,641
========== ========== ========== ==========
- --------------------
(a) Floating rate series due May 1, 1999 bears an interest rate for the
period November 1, 1995 to January 31, 1996 of 6.3828%. Such interest
rate is reset on a quarterly basis.
(b) Taxable pollution control series consist of two series: $91,000,000 of
flexible rate series 1991D due 2021 with interest rates on December 31,
1995 ranging from 5.72% to 5.76% and $100,000,000 of flexible rate
series 1993 due 2023 at 5.65% on December 31, 1995. Series 1991D bonds
were remarketed on June 1, 1995 in a flexible mode for rate periods up
to 180 days and are secured by an irrevocable letter of credit with
maturities in excess of one year. Series 1993 bonds are in a flexible
mode and, while in such mode, will be remarketed for periods of less
than 270 days and are secured by an irrevocable letter of credit with
maturities in excess of one year.
(c) Series 1994A and Series 1994B due 2029 are in a flexible mode with
interest rates on December 31, 1995 ranging from 3.50% to 4.00% and,
while in such mode, will be remarketed for periods of less than 270 days
and are secured by an irrevocable letter of credit with maturities in
excess of one year.
(d) Series 1995A, Series 1995B and Series 1995C due 2030 are in a daily mode
with interest rates on December 31, 1995 ranging from 5.50% to 6.15% and
are secured by an irrevocable letter of credit with maturities in excess of
one year.
(e) In 1990, TU Electric purchased the ownership interest in Comanche Peak
of Tex-La Electric Cooperative of Texas, Inc. (Tex-La) and assumed debt
of Tex-La payable over approximately 32 years. The assumption is secured
by a mortgage on the acquired interest. The Company has guaranteed these
various payments.
(f) Includes TU Electric's $300,000,000 Term Credit Agreement due 1997 with
interest rates on December 31, 1995 ranging from 6.050% to 6.1125%, the
Company's $420,000,000 reclassified short-term debt (see Note 3) and
Eastern Energy's $892,200,000 (including a notional principal amount of
$535,320,000 under an interest rate swap agreement expiring 2002 with a
fixed interest rate of 8.4475% per annum) Term Credit Facility due 2002
with a floating interest rate of 7.5114% on December 31, 1995.
Long-term debt of the Company and TU Electric does not include junior
subordinated debentures held by each TU Electric Trust. (See Note 7.)
Sinking fund and maturity requirements for the years 1996 through 2000 under
long-term debt instruments in effect at December 31, 1995, were as follows:
THE COMPANY TU ELECTRIC
---------------------------------- -----------------------------------
SINKING MINIMUM CASH SINKING MINIMUM CASH
YEAR FUND MATURITY REQUIREMENT FUND MATURITY REQUIREMENT
- ---- ---- -------- ----------- ---- -------- -----------
THOUSANDS OF DOLLARS
1996......................... $ 20,053 $ 41,000 $ 61,053 $ 2,190 $ 41,000 $ 43,190
1997......................... 20,276 635,800 656,076 2,413 635,800 638,213
1998......................... 21,216 451,065 472,281 2,645 450,000 452,645
1999......................... 73,715 630,000 703,715 17,906 630,000 647,906
2000......................... 313,075 576,150 889,225 18,199 156,150 174,349
46
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TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT, LESS AMOUNTS DUE CURRENTLY -- (CONCLUDED)
TU Electric's first mortgage bonds are secured by the Mortgage and Deed of
Trust dated as of December 1, 1983, as supplemented, between TU Electric and
Irving Trust Company (now The Bank of New York), Trustee. SESCO's first mortgage
bonds are secured by the Mortgage and Deed of Trust dated as of May 1, 1945, as
supplemented, between SESCO and BankOne, Texas, NA, successor Trustee. Electric
plant of TU Electric and SESCO is generally subject to the liens of their
respective mortgages.
9. FEDERAL INCOME TAXES
The components of the Company's federal income taxes are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
Charged (credited) to consolidated net income (loss):
Current.................................................................. $222,358 $152,833 $103,466
Deferred-- Domestic ..................................................... (259,445) 200,232 128,461
Foreign....................................................... (174) -- --
Investment tax credits................................................... (22,774) (26,427) (22,383)
-------- -------- --------
Total to consolidated net income (loss)................................ (60,035) 326,638 209,544
Charged (credited) to consolidated retained earnings........................ (6,452) (6,733) (6,975)
-------- -------- --------
Total federal income taxes........................................... $(66,487) $319,905 $202,569
======== ======== ========
The components of TU Electric's federal income taxes are as follows:
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
---- ---- ----
THOUSANDS OF DOLLARS
Charged (credited) to operating expenses:
Current.................................................................. $260,988 $182,107 $127,169
-------- -------- --------
Deferred:
Depreciation differences and capitalized construction costs............ 205,280 222,762 241,573
Over/under-recovered fuel revenue...................................... (49,798) (59,224) 43,436
Alternative minimum tax................................................ (30,937) (121,948) (88,529)
Other.................................................................. 17,983 138,466 39,534
-------- -------- --------
Total deferred - net................................................. 142,528 180,056 236,014
-------- -------- --------
Investment tax credit.................................................... (21,201) (23,698) (19,698)
-------- -------- --------
Total to operating expenses....................................... 382,315 338,465 343,485
-------- -------- --------
Charged (credited) to other income:
Current.................................................................. (59,454) (35,474) (30,218)
-------- -------- --------
Deferred:
Impairment of assets................................................... (149,617) -- --
Regulatory disallowance................................................ -- -- (102,034)
Other.................................................................. 39,709 39,696 30,507
-------- -------- --------
Total deferred - net................................................. (109,908) 39,696 (71,527)
-------- -------- --------
Total to other income............................................. (169,362) 4,222 (101,745)
-------- -------- --------
Total federal income taxes...................................... $212,953 $342,687 $241,740
======== ======== ========
47
50
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FEDERAL INCOME TAXES -- (CONTINUED)
The significant components of deferred federal income tax assets and
liabilities reflected net in the balance sheets are as follows:
THE COMPANY TU ELECTRIC
DECEMBER 31, DECEMBER 31,
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
THOUSANDS OF DOLLARS
DEFERRED TAX ASSETS
Current:
Unbilled revenues............................................ $ 27,323 $ 27,552 $ 27,323 $ 27,552
Over-recovered fuel revenue.................................. 40,550 -- 40,550 --
Foreign operations........................................... 4,832 -- -- --
Other........................................................ 11,705 9,561 11,756 9,650
---------- ---------- ---------- ----------
Total current deferred tax assets........................ $ 84,410 $ 37,113 $ 79,629 $ 37,202
========== ========== ========== ==========
Non-Current:
Unamortized ITC.............................................. $ 329,994 $ 359,839 $ 323,685 $ 352,732
Impairment of assets......................................... 174,003 -- 71,968 --
Regulatory disallowances..................................... 237,521 276,717 237,521 276,717
Alternative minimum tax...................................... 611,934 566,707 454,222 425,290
Tax rate differences......................................... 83,111 89,289 82,108 88,111
Net operating loss carryforward.............................. -- 30,474 -- 22,589
Other........................................................ 59,604 55,295 33,982 34,977
---------- ---------- ---------- ----------
Total non-current deferred tax assets.................... 1,496,167 1,378,321 1,203,486 1,200,416
---------- ---------- ---------- ----------
DEFERRED TAX LIABILITIES
Non-Current:
Depreciation differences and capitalized construction costs . 3,920,888 3,845,677 3,850,545 3,772,752
Foreign operations........................................... 593 -- -- --
Other........................................................ 244,494 385,106 221,990 189,436
---------- ---------- ---------- ----------
Total non-current deferred tax liabilities............... 4,165,975 4,230,783 4,072,535 3,962,188
---------- ---------- ---------- ----------
NET TOTAL NON-CURRENT DEFERRED TAX LIABILITY....................... $2,669,808 $2,852,462 $2,869,049 $2,761,772
========== ========== ========== ==========
Federal income taxes were less than the amount computed by applying the
federal statutory rate to pre-tax book income as follows:
THE COMPANY TU ELECTRIC
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------- ------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
THOUSANDS OF DOLLARS
Federal income taxes at statutory rate (35%) ...... $(39,188) $339,962 $242,703 $233,585 $350,308 $251,393
-------- -------- -------- -------- -------- --------
Increases(decreases) in federal income taxes
resulting from:
Allowance for funds used during construction . (2,330) (3,760) (52,540) (2,330) (3,760) (52,540)
Depletion allowance........................... (23,564) (23,361) (22,696) (23,564) (23,361) (22,696)
Amortization of investment tax credits ....... (23,036) (24,213) (22,336) (21,463) (21,484) (19,698)
LESOP dividend deduction...................... (7,700) (7,700) (7,675) -- -- --
Amortization of tax rate differences ......... (9,648) (9,732) (2,420) (9,288) (9,143) 17,316
Reversal of prior book/tax differences:
Regulatory disallowances................... -- -- 21,553 -- -- 21,553
Other...................................... 38,974 43,157 27,811 38,630 42,899 27,454
Foreign operations............................ 283 -- -- -- -- --
Other......................................... (278) 5,552 18,169 (2,617) 7,228 18,958
-------- -------- -------- -------- -------- --------
Total increase (decrease).................. (27,299) (20,057) (40,134) (20,632) (7,621) (9,653)
-------- -------- -------- -------- -------- --------
Total federal income taxes......................... $(66,487) $319,905 $202,569 $212,953 $342,687 $241,740
======== ======== ======== ======== ======== ========
Effective tax rate................................. 59.4% 32.9% 29.2% 31.9% 34.2% 33.7%
48
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TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FEDERAL INCOME TAXES -- (CONCLUDED)
The System Companies and TU Electric have approximately $612 million and
$454 million, respectively, of alternative minimum tax credit carryforwards
which are available to offset future taxes.
As a part of its ongoing large case audit program, the Internal Revenue
Service (IRS) has audited the consolidated Federal income tax returns of the
System Companies for the years 1987 through 1990. During the course of the
audit, the IRS proposed a number of adjustments to the returns as filed, the
most significant of which relates to a proposed reclassification of certain
costs incurred in connection with the construction of Comanche Peak as costs
incurred to procure a nuclear operating license. The Company is unable to
predict the ultimate resolution of the issues raised in the audit and therefor
is unable to predict at this time the amount of any additional tax payment which
may be required. While the making of additional tax payments would have an
impact on the Company's cash position, the Company does not expect the outcome
of the audit to have a material effect on its financial position or results of
operation.
10. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
The System Companies and TU Electric have defined benefit pension plans
covering substantially all employees. Generally, plan benefits are based on
years of accredited service and average annual earnings received during the
three years of highest earnings. Contributions to the domestic plans were
determined using the frozen attained age method which is one of several
actuarial methods allowed by the Employee Retirement Income Security Act of
1974. The costs of the plans were determined by independent actuaries. For
financial reporting purposes, pension cost has been determined using the
projected unit credit actuarial method. The cumulative difference between
pension cost as determined for financial reporting purposes and contributions to
the plans is recorded either as prepaid pension cost or as accrued pension
liability.
Total pension cost including amounts charged to fuel cost, deferred and
capitalized, were comprised of the following components:
THE COMPANY TU ELECTRIC
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------- -------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
THOUSANDS OF DOLLARS
Service cost-- benefits earned during the period ... $ 23,515 $27,185 $23,872 $ 16,047 $18,667 $17,764
Interest cost on projected benefit obligation....... 65,675 64,142 62,017 53,684 52,907 52,695
Actual return on plan assets........................ (241,887) 5,641 (93,850) (199,436) 4,772 (80,495)
Net amortization and deferral....................... 160,198 (72,700) 37,722 132,147 (60,560) 32,465
-------- ------- ------- -------- ------- -------
Net periodic pension cost........................ $ 7,501 $24,268 $29,761 $ 2,442 $15,786 $22,429
======== ======= ======= ======== ======= =======
49
52
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS -- (CONTINUED)
The table below details the plans' funded status and amount recognized in
the balance sheets:
THE COMPANY TU ELECTRIC
DECEMBER 31, DECEMBER 31,
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
THOUSANDS OF DOLLARS
Actuarial present value of accumulated benefits:
Accumulated benefit obligation (including vested benefits for the System
Companies of $809,869,000 for 1995 and $599,439,000 for 1994; and for TU
Electric of $629,679,000 for 1995 and $514,418,000 for 1994)............ $ (874,345) $(646,967) $(676,236) $(549,416)
=========== ========= ========= =========
Projected benefit obligation for service rendered to date................ $(1,062,619) $(782,446) $(803,815) $(644,205)
Plan assets at fair value-- primarily equity investments,
government bonds and corporate bonds..................................... 1,139,688 845,881 881,014 704,510
----------- --------- --------- ---------
Plan assets in excess of projected benefit obligation........................ 77,069 63,435 77,199 60,305
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions....................... (180,444) (193,802) (168,104) (171,535)
Prior service cost not yet recognized in net periodic pension expense ....... 17,061 18,616 17,015 18,543
Unrecognized plan assets in excess of projected benefit obligation at
application.............................................................. (6,375) (7,042) (3,765) (4,203)
----------- --------- --------- ---------
Accrued pension cost..................................................... $ (92,689) $(118,793) $ (77,655) $ (96,890)
=========== ========= ========= =========
Assumptions used in determination of the projected benefit obligation for
System Companies (excluding Eastern Energy) include a discount rate of 7.25% for
1995 and 8.75% for 1994 and an increase in compensation levels of 4.3% for 1995
and 4.7% for 1994. The assumed long-term rate of return on plan assets was 9.0%
for 1995 and 1994 and 8.75% for 1993.
Eastern Energy's employees participate in the Victorian Electricity
Industry Superannuation Fund (Eastern Plan). The Eastern Plan meets the
definition of a single-employer defined benefit pension plan and is included
above in the Company's plan. The Company's net periodic pension cost and accrued
pension cost for 1995 include $175,000 and $3,018,000, respectively,
representing Eastern Energy's December 1995 pension costs. Assumptions for
the Eastern Plan used in the determination of the projected benefit obligation
include a discount rate of 7.50% for 1995 and an increase in compensation levels
of 6.0% for 1995. The assumed long-term rate of return on plan assets for the
Eastern Plan was 8.5% for 1995.
In addition to the retirement plans, the System Companies, excluding
Eastern Energy, offer certain health care and life insurance benefits to
substantially all its employees and their eligible dependents at retirement
which normally is age 65 but may be as early as age 55 with 15 years of service.
Retirees currently pay a portion of the cost of providing such benefits and are
expected to continue to do so in the future. In January 1993, the Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", which requires a
change in the accounting for a company's obligation to provide health care and
certain other benefits to its retirees from the "pay-as-you-go" method to an
accrual method and requires the cost of the obligation to be recognized in the
period from employment date until full eligibility for benefits.
50
53
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS -- (CONCLUDED)
Net periodic postretirement benefits cost other than pensions, including
amounts charged to fuel cost, deferred and capitalized, were comprised of the
following components:
THE COMPANY TU ELECTRIC
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
THOUSANDS OF DOLLARS
Service cost-- benefits earned during the period.................... $ 9,771 $11,525 $ 6,559 $ 7,669
Interest cost on the accumulated postretirement benefit obligation . 38,842 33,120 31,109 26,063
Amortization of the transition obligation........................... 16,978 16,900 13,633 13,557
Actual return on plan assets........................................ (6,096) 44 (4,520) 34
Net amortization and deferral....................................... 4,646 1,313 3,662 977
------- ------- ------- -------
Net postretirement benefits cost................................ $64,141 $62,902 $50,443 $48,300
======= ======= ======= =======
The table below details the funded status for other postretirement
benefits and amount recognized by the System Companies (excluding Eastern
Energy) and TU Electric:
THE COMPANY TU ELECTRIC
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
THOUSANDS OF DOLLARS
Accumulated postretirement benefit obligation (APBO):
Retirees............................................... $(344,045) $(295,910) $(296,996) $(257,706)
Fully eligible active employees........................ (27,779) (16,150) (17,241) (9,635)
Other active employees................................. (193,407) (145,766) (133,783) (100,332)
--------- --------- --------- ---------
Total APBO................................................. (565,231) (457,826) (448,020) (367,673)
Plan assets at fair value.................................. 56,786 21,577 43,969 16,453
--------- --------- --------- ---------
APBO in excess of plan assets......................... (508,445) (436,249) (404,051) (351,220)
Unrecognized net loss...................................... 144,833 78,082 119,216 70,314
Unrecognized prior service cost............................ 902 986 -- --
Unrecognized transition obligation......................... 288,627 305,605 231,759 245,392
--------- --------- --------- ---------
Accrued postretirement benefits cost................... $ (74,083) $ (51,576) $ (53,076) $ (35,514)
========= ========= ========= =========
The expected increase in costs of future benefits covered by the plan is
projected using a health care cost trend rate of 5.5% in 1996 and 5.0% in 1997
and thereafter. A one percentage point increase in the assumed health care cost
trend rate in each future year would increase the APBO at December 31, 1995 by
approximately $79.4 million for the System Companies and $62.9 million for TU
Electric, and other postretirement benefits cost for 1995 by approximately $6.9
million for System Companies and $5.4 million for TU Electric. The assumed
discount rate used to measure the APBO is 7.25% for 1995 and 8.75% for 1994.
11.SALES OF ACCOUNTS RECEIVABLE
TU ELECTRIC
TU Electric has a facility with financial institutions whereby it is
entitled to sell and such financial institutions may purchase, on an ongoing
basis, undivided interests in customer accounts receivable representing up to an
aggregate of $350,000,000. Additional receivables are continually sold to
replace those collected. At December 31, 1995 and 1994, accounts receivable was
reduced by $300,000,000 to reflect the sales of such receivables to financial
institutions under such agreements.
51
54
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12.RATE PROCEEDINGS
TU ELECTRIC
DOCKET 11735
In July 1994, TU Electric filed a petition in the 200th Judicial District
Court of Travis County, Texas to seek judicial review of the final order of the
PUC granting a $449 million, or 9.0%, rate increase in connection with TU
Electric's January 1993 rate increase request of $760 million, or 15.3% (Docket
11735). Other parties to the PUC proceedings also filed appeals with respect to
various portions of the order. TU Electric is unable to predict the outcome of
such appeals.
DOCKET 9300
The PUC's final order (Order) in connection with TU Electric's January 1990
rate increase request (Docket 9300) was reviewed by the 250th Judicial District
Court of Travis County, Texas and thereafter was appealed to the Court of
Appeals for the Third District of Texas (Court of Appeals) and to the Supreme
Court of Texas (Supreme Court). As a result of such review and appeals, an
aggregate of $909 million of disallowances with respect to TU Electric's
reacquisitions of minority owners' interests in Comanche Peak has been remanded
to the PUC for reconsideration on the basis of a prudent investment standard. On
remand, the PUC will also be required to reevaluate the appropriate level of TU
Electric's CWIP included in rate base in light of its financial condition at the
time of the initial hearing.
The Court of Appeals' holding that tax benefits generated by costs,
including capital costs, not allowed in rates must be used to reduce rates
charged to customers was reversed by the Supreme Court in a February 9, 1996
decision. The Supreme Court's ruling eliminates the potential normalization
violation that two Private Letter Rulings issued by the IRS said would have
resulted from the treatment that previously had been ordered by the Court of
Appeals.
TU Electric cannot predict the outcome of any possible rehearing of the
Supreme Court decision or the reconsideration of this Order on remand by the
PUC.
FUEL COST RECOVERY RULE
TU Electric filed a petition with the PUC in November 1995 to refund to
customers approximately $65 million, including interest, in over-collected fuel
costs for the period June 1995 through September 1995. PUC approval was granted
in January 1996 and refunds were included in February 1996 billings. In June
1995, TU Electric petitioned the PUC for approval of a fuel refund to customers
of approximately $89 million, including interest, in over-collected fuel costs
for the period June 1994 through May 1995. PUC approval was granted in August
1995 and refunds were included in September 1995 billings. These
over-collections were primarily due to lower natural gas prices than previously
anticipated. In August 1994, TU Electric petitioned the PUC for a recovery of
approximately $93 million, including interest, in under-collected fuel costs for
the period July 1993 through June 1994. The PUC approved the recovery of this
amount through a surcharge to customers over a six-month period beginning in
January 1995. The PUC's approval of this surcharge and a previously approved
$147.5 million surcharge for fuel cost recovery for a prior period have been
appealed by certain intervenors to the district courts of Travis County, Texas.
In those appeals, those parties are contending that the PUC is without authority
to allow a fuel cost surcharge without a hearing and resultant findings that the
costs are reasonable and necessary and that the prices charged to TU Electric by
supplying affiliates are no higher than the prices charged by those affiliates
to others for the same item or class of items. TU Electric is vigorously
defending its position in these appeals but is unable to predict their outcome.
52
55
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RATE PROCEEDINGS -- (CONCLUDED)
FUEL RECONCILIATION
On December 29, 1995, in accordance with the PUC rules, TU Electric filed
a petition with the PUC seeking final reconciliation of all eligible fuel and
purchased power expenses incurred during the reconciliation period of July 1,
1992 through June 30, 1995, amounting to a total of $4.7 billion. TU Electric is
unable to predict the outcome of such proceeding.
In addition, and as permitted by the PUC rules, TU Electric is also
seeking an accounting order from the PUC that will allow certain costs incurred,
and to be incurred, to facilitate the use of coal as a supplemental fuel at its
Monticello lignite-fueled generating station (Monticello) to be treated as
eligible fuel costs and billed pursuant to TU Electric's fuel cost factor. By
incurring these expenses, TU Electric believes that it can significantly improve
the reliability of the supply of fuel to Monticello and can, at the same time,
lower the fuel expense that would be incurred in the absence of these
investments.
FLEXIBLE RATE INITIATIVES
TU Electric continues to offer flexible rates in over 160 cities with
original regulatory jurisdiction within its service territory (including the
cities of Dallas and Fort Worth), to existing non-residential retail and
wholesale customers that have viable alternative sources of supply and would
otherwise leave the system. TU Electric also continues to offer an economic
development rider to attract new businesses and to encourage existing customers
to expand their facilities as well as an environmental technology rider to
encourage qualifying customers to convert to technologies that conserve energy
or improve the environment. To date, TU Electric has contracted to serve 91
commercial, industrial and municipal flexibly-priced loads, eight economic
development loads, and one environmental technology load under these rates. TU
Electric will continue to pursue the expanded use of flexible rates when such
rates are necessary to be price-competitive.
As a result of recent legislation, flexible retail and wholesale pricing
may be approved by the PUC at levels lower than the utility's approved rates but
higher than the utility's marginal cost. In September 1995, TU Electric filed an
application for such a wholesale rate with the PUC for service to two rural
electric cooperatives it has served since 1963. The proposed rate includes
provisions for a five-year term of service. If approved by the PUC, the proposed
rate will enable TU Electric to retain a combined load of approximately 23
megawatts. The cooperatives have informed TU Electric that they will transfer
their load to alternative suppliers if the proposed rate is not approved. TU
Electric is actively pursuing several other opportunities through flexible
pricing to enhance its ability to compete for new wholesale loads, as well as to
retain existing wholesale loads.
INTEGRATED RESOURCE PLAN
In October 1994, TU Electric filed an application for approval by the PUC
of certain aspects of its Integrated Resource Plan (IRP) for the ten-year period
1995-2004. The IRP, developed as an experimental pilot project in conjunction
with regulatory and customer groups, includes initiatives that address
demand-side management resources, purchased power, combustion turbine resources,
lignite/coal resources and renewable resources. Hearings on this application
were concluded in March 1995. In August 1995, the PUC remanded the case for
development of a solicitation plan and to conform the TU Electric 1995 IRP to
new state legislation that requires the PUC to adopt a state-wide integrated
resource planning rule by September 1, 1996. In January 1996, TU Electric filed
an updated IRP with the PUC along with a proposed plan for the solicitation of
resources through a competitive bidding process. The PUC's decision on the
solicitation plan is expected in July 1996.
53
56
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. IMPAIRMENT OF ASSETS
THE COMPANY AND TU ELECTRIC
In September 1995, the Company and TU Electric recorded the impairment of
several non-performing assets in accordance with the early adoption of Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" which prescribes
a methodology for assessing and measuring impairments in the carrying value of
certain assets.
THE COMPANY
The total impairment of the Company's assets, including the partially
completed Twin Oak and Forest Grove lignite-fueled facilities of TU Electric,
and Chaco Energy Company's (Chaco's) coal reserves in New Mexico, as well as
several minor assets, aggregated $802 million after tax. The Company has
determined that the Twin Oak and Forest Grove lignite-fueled facilities are not
necessary to satisfy TU Electric's capacity requirements as currently projected
due to changes in load growth patterns and availability of alternative
generation. The impairment of TU Electric's lignite-fueled facilities has been
measured based on management's current expectations that these assets will
either be sold or constructed outside the traditional regulated utility
business. The Company has determined that the Chaco coal reserves will no longer
be developed through traditional means due to ample availability of alternative
fuels at favorable prices. Chaco's impairment has been measured based on a
significant decrease in the market value of the coal reserves as determined by
an external study performed and completed in the quarter ended September 30,
1995. The external study was precipitated by a third party inquiry regarding the
possible sale of the coal reserves. A variety of options are being considered
with respect to the Chaco coal reserves. (See Note 14.) The impairment of these
assets involved a write-down to their estimated fair values using a valuation
study based on the discounted expected future cash flows from the respective
assets' use. With respect to the other assets impaired, fair values were
determined based on current market values of similar assets.
TU ELECTRIC
The total impairment of TU Electric's assets, including its partially
completed Twin Oak and Forest Grove lignite-fueled facilities, as well as
several minor assets, aggregated $316 million after tax. TU Electric has
determined that the Twin Oak and Forest Grove lignite-fueled facilities are not
necessary to satisfy its capacity requirements as currently projected due to
changes in load growth patterns and availability of alternative generation. Such
impairment has been measured based on management's current expectations that
these assets will either be sold or constructed outside the traditional
regulated utility business. The impairment of these assets involved a write-down
to their estimated fair values using a valuation study based on the discounted
expected future cash flows from the respective assets' use. With respect to the
other assets impaired, fair values were determined based on current market
values of similar assets.
14. COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES
THE COMPANY
The Company's construction expenditures for utility related activities,
excluding AFUDC, are presently estimated at $457 million, $445 million and $448
million for 1996, 1997 and 1998, respectively. Expenditures for non-utility
property are presently estimated at $60 million for 1996, $40 million for 1997
and $26 million for 1998. Expenditures for nuclear fuel are presently estimated
at $55 million for 1996, $47 million for 1997 and $60 million for 1998.
54
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TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
TU ELECTRIC
TU Electric's construction expenditures for utility related activities,
excluding AFUDC, are presently estimated at $399 million, $388 million and $389
million for 1996, 1997 and 1998, respectively. Expenditures for nuclear fuel are
presently estimated at $55 million for 1996, $47 million for 1997, and $60
million for 1998.
THE COMPANY AND TU ELECTRIC
The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes in estimated construction costs and
dates of completion. Commitments in connection with the construction program are
generally revocable subject to reimbursement to manufacturers for expenditures
incurred or other cancellation penalties.
The Company and TU Electric each plans to seek new investment
opportunities from time to time when it concludes that such investments are
consistent with its business strategies and will likely enhance the long-term
returns to shareholders. The timing and amounts of any specific new business
investment opportunities are presently undetermined.
OAK KNOLL AND MONUMENT DRAW CONSTRUCTION CANCELLATION
In 1995, the Company and TU Electric announced the cancellation and
abandonment of the previously planned Oak Knoll and Monument Draw generating
stations which had been scheduled for service beyond the IRP's ten-year period
of 1995-2004. This cancellation did not have a material effect on the Company's
or TU Electric's financial position or results of operation.
CLEAN AIR ACT
TU ELECTRIC
The federal Clean Air Act, as amended (Clean Air Act) includes provisions
which, among other things, place limits on the sulfur dioxide emissions produced
by generating units. To meet these sulfur dioxide requirements, the Clean Air
Act provides for the annual allocation of sulfur dioxide emission allowances to
utilities. Under the Clean Air Act, utilities are permitted to transfer
allowances within their own systems and to buy or sell allowances from or to
other utilities. The Environmental Protection Agency grants a maximum number of
allowances annually to TU Electric based on the amount of emissions from units
in operation during the period 1985 through 1987. TU Electric's capital
requirements have not been significantly affected by the requirements of the
Clean Air Act. Although TU Electric is unable to fully determine the cost of
compliance with the Clean Air Act, it is not expected to have a significant
impact on the company. During 1995, installation of continuous emissions
monitoring systems was completed at a total cost of approximately $41 million.
Any additional capital costs, as well as any increased operating costs,
associated with these new requirements are expected to be recoverable through
rates, as similar costs have been recovered in the past.
PURCHASED POWER CONTRACTS
THE COMPANY AND TU ELECTRIC
The System Companies have entered into purchased power contracts to
purchase portions of the generating output of certain qualifying cogenerators
and qualifying small power producers through the year 2005. These contracts
provide for capacity payments subject to a facility meeting certain operating
standards and energy payments based on the actual power taken under the
contracts. The cost of these and other purchased power contracts is recovered
currently through base rates, power cost and fuel recovery factors applied to
customer billings. Capacity payments under these contracts for the years ended
December 31, 1995, 1994 and 1993 were
55
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TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
$229,340,000, $236,991,000 and $251,610,000, respectively, for the Company, and
$223,910,000, $231,081,000 and $249,110,000, respectively, for TU Electric.
Assuming operating standards are achieved, future capacity payments under
the agreements are estimated as follows:
THE COMPANY TU ELECTRIC
----------- -----------
YEARS THOUSANDS OF DOLLARS
-----
1996............................................................... $ 232,915 $ 228,337
1997............................................................... 240,812 237,014
1998............................................................... 246,536 244,796
1999............................................................... 199,963 199,963
2000............................................................... 134,784 134,784
Thereafter......................................................... 319,895 319,895
---------- ----------
Total capacity payments........................................ $1,374,905 $1,364,789
========== ==========
LEASES
THE COMPANY AND TU ELECTRIC
The System Companies have entered into operating leases covering various
facilities and properties including combustion turbines, transportation, mining
and data processing equipment, and office space. Lease costs charged to
operation expense for the years ended December 31, 1995, 1994 and 1993 were
$141,775,000, $140,370,000 and $138,184,000, respectively, for the Company, and
$60,156,000, $62,704,000 and $66,219,000, respectively, for TU Electric.
Future minimum lease commitments under such operating leases that have
initial or remaining noncancellable lease terms in excess of one year as of
December 31, 1995, were as follows:
THE COMPANY TU ELECTRIC
----------- -----------
YEARS THOUSANDS OF DOLLARS
1996................................................................ $ 73,980 $ 29,986
1997................................................................ 67,101 30,519
1998................................................................ 54,700 29,544
1999................................................................ 49,933 30,202
2000................................................................ 50,859 30,606
Thereafter.......................................................... 650,790 511,089
-------- --------
Total minimum lease commitments................................... $947,363 $661,946
======== ========
COOLING WATER CONTRACTS
TU ELECTRIC
TU Electric has entered into contracts with public agencies to purchase
cooling water for use in the generation of electric energy. In connection with
certain contracts, TU Electric has agreed, in effect, to guarantee the
principal, $34,575,000 at December 31, 1995, and interest on bonds issued to
finance the reservoirs from which the water is supplied. The bonds mature at
various dates through 2011 and have interest rates ranging from 5-1/2 to 7%. TU
Electric is required to make periodic payments equal to such principal and
interest, including amounts assumed by a third party and reimbursed to TU
Electric, for the years 1996 through 2000 as follows: $4,430,000 for 1996;
$4,435,000 for 1997; $4,435,000 for 1998; $4,435,000 for 1999 and $4,419,000 for
2000. Payments made by TU Electric, net of amounts assumed by a third party
under such contracts, for 1995, 1994 and
56
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TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
1993 were $3,628,000, $3,615,000 and $2,954,000, respectively. In addition, TU
Electric is obligated to pay certain variable costs of operating and maintaining
the reservoirs. TU Electric has assigned to a municipality all contract rights
and obligations of TU Electric in connection with $79,865,000 remaining
principal amount of bonds at December 31, 1995, issued for similar purposes
which had previously been guaranteed by TU Electric. TU Electric is, however,
contingently liable in the unlikely event of default by the municipality.
CHACO COAL PROPERTIES
THE COMPANY
Chaco has a coal lease agreement for the rights to certain surface
mineable coal reserves located in New Mexico. The agreement provides for minimum
advance royalty payments of approximately $16 million per year through 2017,
covering approximately 228 million tons of coal. The Company has entered into a
surety agreement to assure the performance by Chaco with respect to this
agreement. In addition, Chaco has under lease with the federal government
certain coal reserves. A provision in this lease requires that substantial
mining be completed by September 1997. Chaco is currently reviewing its options
with regard to this provision. Because of the present ample availability of
western coal at favorable prices from other mines, Chaco has delayed plans to
commence mining operations, and accordingly, is reassessing its alternatives
with respect to its coal properties, including seeking other purchasers thereof.
(See Note 13.)
NUCLEAR INSURANCE
TU ELECTRIC
With regard to liability coverage, the Price-Anderson Act (Act) provides
financial protection for the public in the event of a significant nuclear power
plant incident. The Act sets the statutory limit of public liability for a
single nuclear incident currently at $8.9 billion and requires nuclear power
plant operators to provide financial protection for this amount. As required, TU
Electric provides this financial protection for a nuclear incident at Comanche
Peak resulting in public bodily injury and property damage through a combination
of private insurance and industry-wide retrospective payment plans. As the first
layer of financial protection, TU Electric has purchased $200 million of
liability insurance from American Nuclear Insurers (ANI), which provides such
insurance on behalf of two major stock and mutual insurance pools, Nuclear
Energy Liability Insurance Association and Mutual Atomic Energy Liability
Underwriters. The second layer of financial protection is provided under an
industry-wide retrospective payment program called Secondary Financial
Protection (SFP). Under the SFP, each operating licensed reactor in the United
States is subject to an assessment of up to $79.275 million, subject to
increases for inflation every five years, in the event of a nuclear incident at
any nuclear plant in the United States. Assessments are limited to $10 million
per operating licensed reactor per year per incident. All assessments under the
SFP are subject to a 3% insurance premium tax which is not included in the
amounts above.
With respect to nuclear decontamination and property damage insurance,
Nuclear Regulatory Commission (NRC) regulations require that nuclear plant
license-holders maintain not less than $1.06 billion of such insurance and
require the proceeds thereof to be used to place a plant in a safe and stable
condition, to decontaminate it pursuant to a plan submitted to and approved by
the NRC before the proceeds can be used for plant repair or restoration or to
provide for premature decommissioning. TU Electric maintains nuclear
decontamination and property damage insurance for Comanche Peak in the amount of
$3.85 billion, above which TU Electric is self-insured. The primary layer of
coverage of $500 million is provided by Nuclear Mutual Limited (NML), a nuclear
electric utility industry mutual insurance company. The remaining coverage
includes premature decommissioning coverage and is provided by ANI in the amount
of $1.1 billion and Nuclear Electric Insurance Limited (NEIL), another nuclear
electric utility industry mutual insurance company, in the amount of $2.25
billion. TU Electric is subject to a maximum annual assessment from NML of $14
million and NEIL of $27 million in the event NML's
57
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TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES -- (CONCLUDED)
and/or NEIL's losses under this type of insurance for major incidents at nuclear
plants participating in these programs exceed the respective mutual's
accumulated funds and reinsurance.
TU Electric maintains Extra Expense Insurance through NEIL to cover the
additional costs of obtaining replacement power from another source if one or
both of the units at Comanche Peak are out of service for more than twenty-one
weeks as a result of covered direct physical damage. The coverage provides for
weekly payments of $3.5 million for the first and $2.8 million for the second
and third fifty-two week periods of each outage, respectively, after the initial
twenty-one week period. The total maximum coverage is $473 million per unit. The
coverage amounts applicable to each unit will be reduced to 80% if both units
are out of service at the same time as a result of the same accident. Under this
coverage, TU Electric is subject to a maximum assessment of $9 million per year.
GAS PURCHASE CONTRACTS
THE COMPANY
Fuel Company buys gas under long-term intrastate contracts in order to
assure reliable supply to its customers. Many of these contracts require minimum
purchases ("take-or-pay") of gas. Based on Fuel Company's estimated gas demand,
which assumes normal weather conditions, requisite gas purchases are expected to
substantially satisfy purchase obligations for the year 1996 and thereafter.
NUCLEAR DECOMMISSIONING AND DISPOSAL OF SPENT FUEL
TU ELECTRIC
TU Electric has established a reserve, charged to depreciation expense and
included in accumulated depreciation, for the decommissioning of Comanche Peak,
whereby decommissioning costs are being recovered from customers over the life
of the plant and deposited in external trust funds (included in other
investments). At December 31, 1995, such reserve totaled $76,363,000 which
includes an accrual of $18,179,000 for the year ended December 31, 1995. As of
December 31, 1995, the market value of deposits in the external trust for
decommissioning of Comanche Peak was $88,094,000. Realized earnings on funds
deposited in the external trust are recognized in the reserve. Based on a
site-specific study during 1992 using the prompt dismantlement method and
then-current dollars, decommissioning costs for Comanche Peak Unit 1, and Unit 2
and common facilities were estimated to be $255,000,000 and $344,000,000,
respectively. Decommissioning activities are projected to begin in 2030 and 2033
for Comanche Peak Unit 1, and Unit 2 and common facilities, respectively. TU
Electric is recovering such costs based upon the 1992 study through the rates
placed in effect under Docket 11735 (see Note 12).
TU Electric has a contract with the United States Department of Energy for
the future disposal of spent nuclear fuel at a cost of one mill per
kilowatt-hour of Comanche Peak net generation. The disposal fee is included in
nuclear fuel expense.
GENERAL
THE COMPANY AND TU ELECTRIC
In addition to the above, the Company and TU Electric are involved in
various legal and administrative proceedings which, in the opinion of each,
should not have a material effect upon its financial position or results of
operation.
58
61
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
THE COMPANY AND TU ELECTRIC
The following information represents the Company's and TU Electric's
respective estimates of the amount at which their financial instruments could be
exchanged in a current transaction between willing parties, other than in a
forced sale.
The amounts reflected in the balance sheets for cash, temporary cash
investments and special deposits approximate fair value due to the short
maturity of such instruments. The fair values of financial instruments for which
estimated fair values have not been specifically presented is not materially
different than their related book value.
Other investments includes amounts principally for nuclear decommissioning
fund assets and funds invested pursuant to certain incentive and compensation
agreements. The fair values of the nuclear decommissioning assets and incentive
and compensation assets are estimated based on quoted market prices at year-end
for the instruments in which such funds are invested.
The fair values of long-term debt and preferred stock subject to mandatory
redemption are estimated at the lesser of the call price or the present value of
future cash flows discounted at rates consistent with comparable maturities
adjusted for credit risk.
The carrying amount of other financial liabilities classified as current
on the consolidated balance sheets, such as notes payable and long-term debt due
currently, approximates fair value due to the short maturity of such
instruments. Customer deposits have no defined maturities and, therefore, are
reflected at the amount payable on demand at the date of the balance sheets.
TU Electric has agreed, in effect, to guarantee the principal and interest
on bonds used to finance the reservoirs from which TU Electric uses cooling
water for certain generating units. TU Electric is also the guarantor for the
principal amount of certain bonds issued for similar purposes which were
assigned to a municipality. The outstanding principal at December 31, 1995 and
1994 of the bonds for which TU Electric is contingently liable is approximately
$114,000,000 and $121,000,000, respectively. The fair value of the bonds,
approximately $121,000,000 and $115,000,000 for December 31, 1995 and 1994,
respectively, is based on the present value of the instruments' approximate cash
flows discounted at the year-end risk free rate for issues of comparable
maturities adjusted for credit risk.
THE COMPANY
Common stock -- net has been reduced by the note receivable from the
trustee of the leveraged employee stock ownership provision of the Thrift Plan.
The fair values of such note, long-term debt and preferred stock subject to
mandatory redemption are estimated at the lesser of the Company's call price or
the present value of future cash flows discounted at rates consistent with
comparable maturities adjusted for credit risk.
The estimated fair value of the System Companies' significant financial
instruments are as follows:
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
THOUSANDS OF DOLLARS
Long-term debt....................................... $9,174,575 $9,875,881 $7,888,413 $7,688,189
TU Electric obligated, mandatorily redeemable,
preferred securities of trusts.................... 381,476 405,729 -- --
Preferred stock subject to mandatory redemption...... 263,196 280,106 387,482 377,621
LESOP note receivable................................ 250,000 280,713 250,000 235,392
Other investments.................................... 118,526 134,949 77,443 77,522
59
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TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONCLUDED)
TU ELECTRIC
The estimated fair value of TU Electric's significant financial instruments
are as follows:
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
THOUSANDS OF DOLLARS
Long-term debt....................................... $7,212,070 $7,836,861 $7,220,641 $7,030,321
TU Electric obligated, mandatorily redeemable,
preferred securities of trusts................... 381,476 405,729 -- --
Preferred stock subject to mandatory redemption...... 263,196 280,106 387,482 377,621
Other investments.................................... 103,888 118,415 66,702 66,798
16. SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
THE COMPANY AND TU ELECTRIC
In the opinion of the Company and TU Electric, respectively, the
information below includes all adjustments (constituting only normal recurring
accruals) necessary to a fair statement of such amounts. Quarterly results are
not necessarily indicative of expectations for a full year's operations because
of seasonal and other factors, including rate changes, variations in maintenance
and other operating expense patterns, the impact of the change in AFUDC accruals
(see Note 1) and the charges for regulatory disallowances. Certain quarterly
information has been reclassified to conform to the current year presentation.
For additional information regarding the charges for regulatory disallowances,
see Note 12.
THE COMPANY
EARNINGS PER
CONSOLIDATED SHARE OF
OPERATING REVENUES OPERATING INCOME NET INCOME COMMON STOCK*
------------------ ---------------- ---------- -------------
QUARTER ENDED 1995 1994 1995 1994 1995 1994 1995 1994
- ------------- ---- ---- ---- ---- ---- ---- ---- ----
THOUSANDS OF DOLLARS (EXCEPT PER SHARE AMOUNTS)
March 31................. $1,244,265 $1,304,098 $ 311,344 $ 313,071 $ 75,411 $ 66,746 $0.33 $0.30
June 30.................. 1,353,998 1,436,738 422,305 427,120 148,432 146,227 0.66 0.65
September 30............. 1,775,669 1,702,019 742,699 652,033 (441,716) 294,250 (1.96) 1.30
December 31.............. 1,264,756 1,220,688 311,279 256,332 79,228 35,576 0.35 0.16
---------- ---------- ---------- ---------- --------- --------
$5,638,688 $5,663,543 $1,787,627 $1,648,556 $(138,645) $542,799
========== ========== ========== ========== ========= ========
* The sum of the quarters may not equal annual earnings per share due to
rounding.
TU ELECTRIC
CONSOLIDATED
OPERATING REVENUES OPERATING INCOME NET INCOME
------------------ ---------------- ----------
QUARTER ENDED 1995 1994 1995 1994 1995 1994
- ------------- ---- ---- ---- ---- ---- ----
THOUSANDS OF DOLLARS
March 31................. $1,233,772 $1,290,615 $ 255,391 $ 262,118 $101,758 $ 98,761
June 30.................. 1,341,245 1,417,175 328,621 335,583 174,219 174,352
September 30............. 1,761,378 1,687,405 534,167 478,538 68,172 321,146
December 31.............. 1,224,067 1,217,980 252,187 216,198 110,283 63,933
---------- ---------- ---------- ---------- -------- --------
$5,560,462 $5,613,175 $1,370,366 $1,292,437 $454,432 $658,192
========== ========== ========== ========== ======== ========
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63
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENT OF RESPONSIBILITY
The management of Texas Utilities Company is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
of the Company and its subsidiaries and other information included in this
report. The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. As appropriate, the statements
include amounts based on informed estimates and judgments of management.
The management of the Company has established and maintains a system of
internal control designed to provide reasonable assurance, on a cost-effective
basis, that assets are safeguarded, transactions are executed in accordance with
management's authorization and financial records are reliable for preparing
consolidated financial statements. Management believes that the system of
control provides reasonable assurance that errors or irregularities that could
be material to the consolidated financial statements are prevented or would be
detected within a timely period. Key elements in this system include the
effective communication of established written policies and procedures,
selection and training of qualified personnel and organizational arrangements
that provide an appropriate division of responsibility. This system of control
is augmented by an ongoing internal audit program designed to evaluate its
adequacy and effectiveness. Management considers the recommendations of the
internal auditors and independent certified public accountants concerning the
Company's system of internal control and takes appropriate actions which are
cost-effective in the circumstances. Management believes that, as of December
31, 1995, the Company's system of internal control was adequate to accomplish
the objectives discussed herein.
The Board of Directors of the Company addresses its oversight
responsibility for the consolidated financial statements through its Audit
Committee, which is composed of directors who are not employees of the Company.
The Audit Committee meets regularly with the Company's management, internal
auditors and independent certified public accountants to review matters relating
to financial reporting, auditing and internal control. To ensure auditor
independence, both the internal auditors and independent certified public
accountants have full and free access to the Audit Committee.
The independent certified public accounting firm of Deloitte & Touche LLP
is engaged to audit, in accordance with generally accepted auditing standards,
the consolidated financial statements of the Company and its subsidiaries and to
issue their report thereon.
/s/ J. S. FARRINGTON
-------------------------------
J. S. Farrington, Chairman of the Board
/s/ ERLE NYE
-------------------------------
Erle Nye, President and Chief Executive
/s/ PETER B. TINKHAM
-------------------------------
Peter B. Tinkham, Treasurer and Assistant
Secretary and Principal Financial Officer
/s/ CATHRYN C. HULEN
-------------------------------
Cathryn C. Hulen, Controller
and Principal Accounting Officer
61
64
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENT OF RESPONSIBILITY
The management of Texas Utilities Electric Company is responsible for the
preparation, integrity and objectivity of the financial statements of TU
Electric and its subsidiaries and other information included in this report. The
financial statements have been prepared in conformity with generally accepted
accounting principles. As appropriate, the statements include amounts based on
informed estimates and judgments of management.
The management of TU Electric has established and maintains a system of
internal control designed to provide reasonable assurance, on a cost-effective
basis, that assets are safeguarded, transactions are executed in accordance with
management's authorization and financial records are reliable for preparing
financial statements. Management believes that the system of control provides
reasonable assurance that errors or irregularities that could be material to the
financial statements are prevented or would be detected within a timely period.
Key elements in this system include the effective communication of established
written policies and procedures, selection and training of qualified personnel
and organizational arrangements that provide an appropriate division of
responsibility. This system of control is augmented by an ongoing internal audit
program designed to evaluate its adequacy and effectiveness. Management
considers the recommendations of the internal auditors and independent certified
public accountants concerning TU Electric's system of internal control and takes
appropriate actions which are cost-effective in the circumstances. Management
believes that, as of December 31, 1995, TU Electric's system of internal control
was adequate to accomplish the objectives discussed herein.
The independent certified public accounting firm of Deloitte & Touche LLP
is engaged to audit, in accordance with generally accepted auditing standards,
the financial statements of TU Electric and to issue their report thereon.
/s/ ERLE NYE
-------------------------------
Erle Nye, Chairman of the Board
and Chief Executive
/s/ ROBERT S. SHAPARD
-------------------------------
Robert S. Shapard, Treasurer and Assistant
Secretary and Principal Financial Officer
/s/ CATHRYN C. HULEN
-------------------------------
Cathryn C. Hulen, Controller
and Principal Accounting Officer
62
65
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Texas Utilities
Company and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, retained earnings and cash flows for each of
the three years in the period ended December 31, 1995. Our audits also included
the financial statement schedule listed in Item 14.(a)2. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Texas Utilities Company and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note 13 to the consolidated financial statements, in 1995, the
Company changed its method of accounting for the impairment of long-lived assets
and for long-lived assets to be disposed of to conform with Statement of
Financial Accounting Standards No. 121.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 29, 1996
63
66
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Texas Utilities
Electric Company and subsidiaries (TU Electric) as of December 31, 1995 and
1994, and the related consolidated statements of income, retained earnings and
cash flows for each of the three years in the period ended December 31, 1995.
Our audits also included the financial statement schedule listed in Item
14.(a)4. These financial statements and the financial statement schedule are the
responsibility of TU Electric's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TU Electric at December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 13 to the consolidated financial statements, in 1995, TU
Electric changed its method of accounting for the impairment of long-lived
assets and for long-lived assets to be disposed of to conform with Statement of
Financial Accounting Standards No. 121.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 29, 1996
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67
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
THE COMPANY AND TU ELECTRIC
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF EACH REGISTRANT
THE COMPANY
Information with respect to this item is found under the heading Election
of Directors in the definitive proxy statement to be filed by the Company with
the Commission on or about April 1, 1996.
TU ELECTRIC
Identification of directors, business experience and other directorships:
OTHER POSITIONS AND OFFICES PRESENT PRINCIPAL OCCUPATION
PRESENTLY HELD WITH TU OR EMPLOYMENT AND PRINCIPAL
ELECTRIC (CURRENT TERM EXPIRES DATE FIRST ELECTED BUSINESS (PRECEDING 5 YRS.),
NAME OF DIRECTOR AGE MAY 19, 1996) AS DIRECTOR OTHER DIRECTORSHIPS
- ---------------- --- ------------------------------ ------------------ ----------------------------
T. L. Baker 50 President, Electric Service February 20, 1987 Executive Vice President of TU
Division Electric; prior thereto, Senior Vice
President of TU Electric.
J. S. Farrington 61 None September 17, 1982 Chairman of the Board and prior
thereto, Chief Executive of the
Company, other directorships: the
Company.
H. Jarrell Gibbs 58 President May 24, 1989 Vice President and Principal Financial
Officer of the Company and President
of TU Services; and prior thereto,
Executive Vice President of TU
Electric; prior thereto, Executive Vice
President of Texas Electric Service
Division; prior thereto, Vice President
of TU Electric.
Michael J. McNally 41 President, Transmission February 16, 1996 Executive Vice President of TU Electric;
Division prior thereto, Principal of Enron
Development Corporation and prior
thereto, Managing Director of Industrial
Services (Enron Capital and Trade
Resources); President of Houston Pipe
Line; President of Enron Gas Liquids,
Inc. Vice President of Marketing for
Houston Pipe Line Company.
Erle Nye 58 Chairman and September 17, 1982 President and Chief Executive of the
Chief Executive Company; other directorships: the
Company.
W. M. Taylor 53 President, Generation May 20, 1986 Executive Vice President of TU
Division Electric; prior thereto, President of
Dallas Power Division.
E. L. Watson 61 Vice Chairman February 20, 1987 Executive Vice President of TU
Electric; prior thereto, Senior Vice
President of TU Electric.
Directors of TU Electric receive no compensation in their capacity as
directors of TU Electric.
65
68
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF EACH REGISTRANT -- (CONTINUED)
Identification of executive officers and business experience:
POSITIONS AND OFFICES
PRESENTLY HELD (CURRENT
TERM EXPIRES MAY 19, 1996) DATE FIRST ELECTED BUSINESS EXPERIENCE
NAME OF OFFICER AGE -------------------------- TO PRESENT OFFICES (PRECEDING FIVE YEARS)
- --------------- --- ------------------ ----------------------
Erle Nye 58 Chairman and February 20, 1987 Same and President and Chief
Chief Executive Executive of the Company.
H. Jarrell Gibbs 58 President February 16, 1996 Vice President and Principal
Financial Officer of the Company and
President of TU Services; and prior
thereto, Executive Vice President of
TU Electric; prior thereto, Executive
Vice President of Texas Electric
Service Division; prior thereto, Vice
President of TU Electric.
T. L. Baker 50 President, Electric Service February 16, 1996 Executive Vice President of TU
Division Electric; prior thereto, Senior Vice
President of TU Electric.
Michael J. McNally 41 President, Transmission February 16, 1996 Executive Vice President of TU
Division Electric; prior thereto, Principal of
Enron Development Corporation and prior
thereto, Managing Director of Industrial
Services (Enron Capital and Trade
Resources); President of Houston Pipe
Line; President of Enron Gas Liquids,
Inc.; and Vice President of Marketing
for Houston Pipe Line Company.
W. M. Taylor 53 President, Generation February 16, 1996 Executive Vice President of TU
Division Electric; prior thereto, President of
Dallas Power Division.
E. L. Watson 61 Vice Chairman November 1, 1992 Executive Vice President of TU
Electric; prior thereto, Senior Vice
President of TU Electric.
There is no family relationship between any of the above named executive
officers.
66
69
ITEM 11. EXECUTIVE COMPENSATION
THE COMPANY
Information with respect to this item is found under the heading
Executive Compensation of the Company in the definitive proxy statement to be
filed by the Company with the Commission on or about April 1, 1996.
TU ELECTRIC
TU Electric and its affiliates have paid or awarded compensation
during the last three calendar years to the following executive officers for
services in all capacities:
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation (3)
------------------------------------------ --------------------------
Awards Payouts
-------- -------
Name and Other Annual Restricted All Other
Principal Compensation Stock LTIP Compensa-
Position Year Salary ($) Bonus($)(2) ($) Awards ($) Payouts ($) tion ($) (4)
-------- ---- ---------- ----------- ----------- ---------- ----------- -------------
Erle Nye, 1995 679,167 140,000 -- 266,000 25,602 87,810
Chairman of the 1994 618,750 0 -- 217,000 0 67,275
Board and Chief 1993 554,167 100,000 -- 203,500 61,938 63,907
Executive of
TU Electric (1)
H. Jarrell Gibbs, 1995 282,917 67,200 -- 120,300 9,102 38,702
President of 1994 245,167 40,000 -- 97,880 0 29,017
TU Electric 1993 203,083 45,000 -- 58,880 15,989 25,070
W. M. Taylor, 1995 282,917 64,700 -- 117,800 10,809 38,278
President, Generation 1994 249,333 40,000 -- 97,880 0 30,333
Division - 1993 217,250 65,000 -- 60,680 28,815 21,296
TU Electric
T. L. Baker, 1995 261,667 44,900 -- 93,500 11,947 34,465
President, Electric 1994 245,833 25,000 -- 80,000 0 28,183
Service Division - 1993 237,083 25,000 -- 58,200 29,720 26,042
TU Electric
E. L. Watson, 1995 243,000 51,380 -- 95,120 11,606 35,746
Vice Chairman - TU 1994 238,417 25,000 -- 68,740 0 29,242
Electric 1993 227,000 27,000 -- 56,760 29,682 28,944
(1) Amounts reported in the table for Mr. Nye consist entirely of
compensation paid by the Company.
(2) Amounts reported as Bonus in the Summary Compensation
Table are attributable, beginning in 1995, to the named officer's
participation in the Annual Incentive Plan (AIP). Officers of the
Company and its subsidiaries with a title of Vice President or above
are eligible to participate in the AIP. Under the terms of the AIP,
target incentive awards ranging from 35% to 50% of base salary, and a
maximum award of 100% of base salary, are established. The percentage
of the target or the maximum actually awarded, if any, is dependent
upon the attainment of per share net income goals established in
advance by the Organization and Compensation Committee (Committee) as
well as the Committee's evaluation of the participants' and the
Company's performance. One-half of each such award is paid in cash and
is reflected as Bonus in the Summary Compensation Table. Payment of the
remainder of the award is deferred under the Deferred and Incentive
Compensation Plan (DICP) discussed below.
(3) Amounts reported as Long-Term Compensation are
attributable to the named officer's participation in the DICP. Officers
of the Company and its subsidiaries with the title of Vice President or
above are eligible to participate in the DICP. Participants in the DICP
may defer a percentage of their base salary not to exceed a maximum
percentage determined by the Committee for each Plan year and in any
event not to exceed 15% of the participant's base salary. The Company
makes a matching award (Matching Award) equal to 150% of the
participant's deferred salary. In addition, the deferred portion of
any AIP award (Incentive Award) is invested under the DICP. The
Matching Awards and Incentive Awards are subject to forfeiture under
certain circumstances. Under the DICP, a trustee purchases Company
common stock with an amount of cash equal to each participant's
deferred salary, Matching Award and Incentive Award and accounts are
established for each participant containing
67
70
ITEM 11. EXECUTIVE COMPENSATION - (CONTINUED)
performance units (Units) equal to such number of common shares. DICP
investments, including reinvested dividends, are restricted to Company
common stock. On the expiration of the applicable maturity period
(three years for the Incentive Awards and five years for deferred
salary and Matching Awards) the values of the participant's accounts
are paid in cash based upon the then current value of the Units;
provided, however, that in no event will a participant's account be
deemed to have a cash value which is less than the sum of such
participant's deferred salary together with a 6% per annum (compounded
annually) interest equivalent thereon. The maturity period is waived
if the participant dies or becomes totally and permanently disabled
and may be extended under certain circumstances.
Salary deferred under the DICP is included in amounts
reported as Salary in the Summary Compensation Table. Amounts shown in
the table below represent the number of shares purchased under the DICP
with such deferred salaries for 1995:
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
PERFORMANCE
OR OTHER
NUMBER OF PERIOD UNTIL
SHARES, UNITS OR MATURATION
NAME OTHER RIGHTS (#) OR PAYOUT
---- ---------------- ------------
Erle Nye 2,447 5 Years
H. Jarrell Gibbs 1,031 5 Years
W. M. Taylor 1,031 5 Years
T. L. Baker 944 5 Years
E. L. Watson 849 5 Years
Incentive Awards and Matching Awards that have been made
under the DICP are included under Restricted Stock Awards in the
Summary Compensation Table. As a result of these awards, undistributed
Incentive Awards and Matching Awards made under the Plan in prior
years, and dividends reinvested thereon, at December 31, 1995 the
number and market value of Units (each of which is equal to one share
of common stock) held in the DICP accounts for Messrs. Nye, Gibbs,
Taylor, Baker and Watson were 24,006 ($984,260), 9,662 ($396,149),
9,752 ($399,861), 8,500 ($348,509) and 8,039 ($329,603), respectively.
Amounts reported as LTIP Payouts in the Summary Compensation
Table represent payouts maturing during such years of earnings on
salary deferred under the DICP in prior years.
(4) Amounts reported as All Other Compensation are attributable
to the named officer's participation in certain plans described
hereinafter in this footnote:
Under the Employees' Thrift Plan of the Texas Utilities
Company System (Thrift Plan) all employees with at least six months of
eligible service with the Company or any of its subsidiaries may invest
up to 16% of their regular salary or wages in common stock of the
Company, or in a variety of selected mutual funds. Under the Thrift
Plan, the Company matches a portion of an employee's savings in an
amount equal to 40%, 50% or 60% (depending on the employee's length of
service) of the first 6% of such employee's savings. All matching
amounts are invested in common stock of the Company. The amounts
reported under All Other Compensation in the Summary Compensation
Table includes these matching amounts which, for Messrs. Nye, Gibbs,
Taylor, Baker and Watson totaled $5,400, $4,500, $5,400, $3,686 and
$5,400, respectively, during 1995.
The Company has a Salary Deferral Program (Program) under
which each employee of the Company and its subsidiaries whose annual
salary is $80,000 ($89,510 for the Program Year beginning April 1995)
or more may elect to defer a percentage of annual salary for a period
of seven years, a period ending with the retirement of such employee,
or for a combination thereof. Such deferrals may not exceed in the
aggregate 10% of such annual salary. Salary deferred under the program
is included in amounts reported under Salary in the Summary
Compensation Table. The Company makes a matching award, subject to
forfeiture under certain circumstances, equal to 100% of the deferred
salary. A trustee will distribute at the end of the applicable maturity
period cash equal to the greater of the actual earnings of Program
assets, or the average yield during the applicable maturity period of
U.S. Treasury Notes with a maturity of ten years. The
68
71
ITEM 11. EXECUTIVE COMPENSATION -- (CONTINUED)
distribution of the amounts due under the Program will be in a lump sum
if the maturity period is seven years or, if the retirement option is
elected, in twenty annual installments. The Company is financing the
retirement portion of the Program through the purchase of
corporate-owned life insurance on the lives of the participants. The
proceeds from such insurance are expected to allow the Company to fully
recover the cost of the retirement option. During 1995, matching
awards, which are included under All Other Compensation in the Summary
Compensation Table, were made for Messrs. Nye, Gibbs, Taylor, Baker and
Watson in the amount of $67,917, $28,292, $28,292, $26,167 and $24,300,
respectively.
Under the Split-Dollar Life Insurance Program (Insurance
Program) of the Texas Utilities Company System, split-dollar life
insurance policies are purchased for officers of the Company and its
subsidiaries with a title of Vice President or above, with a death
benefit equal to four times their annual compensation. The Company pays
the premiums for these policies and has received a collateral
assignment of the policies equal in value to the sum of all of its
insurance premium payments. Although the Insurance Program is
terminable at any time, it is designed so that if it is continued, the
Company will fully recover all of the insurance premium payments it has
made either upon the death of the participant or, if the assumptions
made as to policy yield are realized, upon the later of fifteen years
of participation or the participant's attainment of age sixty-five.
During 1995, the economic benefit derived by Messrs. Nye, Gibbs,
Taylor, Baker and Watson from the term insurance coverage provided and
the foregone interest on the remainder of the insurance premiums paid
by the Company amounted to $14,493, $5,910, $4,586, $4,612 and $6,046.
PENSION PLAN TABLE
YEARS OF SERVICE
---------------------------------------------------------------------------------------
Remuneration 20 25 30 35 40
------------ -- -- -- -- --
$ 100,000 $ 29,688 $ 37,110 $ 44,532 $ 51,954 $ 59,376
200,000 59,688 74,610 89,532 104,454 119,376
400,000 119,688 149,610 179,532 209,454 239,376
800,000 239,688 299,610 359,532 419,454 479,376
1,000,000 299,688 374,610 449,532 524,454 599,376
1,400,000 419,688 524,610 629,532 734,454 839,376
The Company and its subsidiaries maintain retirement plans (Plans)
which are qualified under applicable provisions of the Internal Revenue Code of
1986, as amended (Code). Annual retirement benefits are computed as follows: for
each year of accredited service up to a total of 40 years of service, 1.3% of
the first $7,800, plus 1.5% of the excess over $7,800 of the participant's
average annual earnings during his or her three years of highest earnings.
Amounts reported under Salary for the named officers in the Summary Compensation
Table approximate earnings as defined by the Plans. Benefits paid under the
Plans are not subject to any reduction for Social Security payments but are
limited by provisions of the Code. The Company maintains a Supplemental
Retirement Plan (Supplemental Plan) which provides for the payment of retirement
benefits which would otherwise be limited by the Code or by the definition of
earnings in the Plans. Under the Supplemental Plan, retirement benefits are
calculated in accordance with the same formula used under the Plans, except that
earnings also include AIP awards. One-half of the AIP award is reported under
Bonus for the named officers in the Summary Compensation Table. As of February
29, 1996, years of accredited service under the plans for Messrs. Nye, Gibbs,
Taylor, Baker and Watson were 33, 33, 28, 25 and 36, respectively. The above
table illustrates the total annual benefit payable at retirement under the Plans
and Supplemental Plan prior to any reduction for a contingent beneficiary option
which may be selected by the participant.
69
72
ITEM 11. EXECUTIVE COMPENSATION -- (CONTINUED)
The following report and performance graph are presented herein for
informational purposes only. This information is not required to be included
herein and shall not be deemed to form a part of this report or be "filed" with
the Securities and Exchange Commission. The report set forth hereinafter is the
report of the Organization and Compensation Committee of the Board of Directors
of the Company and is illustrative of the methodology utilized in establishing
the compensation of executive officers of the Company and TU Electric.
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors
is responsible for reviewing and establishing the compensation of the executive
officers of the Company. The Committee consists of all of the nonemployee
directors of the Company and is chaired by James A. Middleton. The Committee has
directed the preparation of this report and has approved its contents and
submission to the shareholders.
As a matter of policy, the Committee believes that levels of executive
compensation should be based upon an evaluation of the performance of the
Company and its officers generally, as well as in comparison to persons with
comparable responsibilities in similar business enterprises. Compensation plans
should align executive compensation with returns to shareholders with due
consideration accorded to balancing both long-term and short-term objectives.
The Committee has determined that, as a matter of policy to be implemented over
time, the base salaries of the officers will be established at the median, or
50th percentile, of the top ten electric utilities and that opportunities for
total direct compensation to reach the 75th percentile, or above, of such
utilities will be provided through performance-based compensation plans. Such
compensation principles and practices have allowed, and should continue to
allow, the Company to attract, retain and motivate its key executives.
As previously reported, a nationally recognized compensation consultant
was retained, in late 1994, to conduct a comprehensive review of the
compensation and benefits provided by the Company to its officers. The
consultant's report included recommended revisions to the Company's compensation
and benefits program principally so as to place a greater emphasis on
performance-based incentive compensation and to provide, thereby, for an
appropriate and competitive balance between base salaries, annual incentives and
long-term incentives. The consultant's recommendations, including the Annual
Incentive Plan (referred to as the AIP and described in footnote 2 to the
Summary Compensation Table) as well as improvements in life insurance coverage
and retirement benefits, have generally been implemented.
The compensation of the officers of the Company consists principally of
base salaries, the opportunity to participate in the Deferred and Incentive
Compensation Plan (referred to as the DICP and described in footnote 3 to the
Summary Compensation Table) and the opportunity to earn an incentive award under
the AIP. Benefits provided under the DICP and the AIP represent a substantial
portion of officers' compensation; and the value of future payments under the
DICP, as well as the value of the deferred portion of any award under the AIP,
is directly related to the future performance of the Company's common stock. It
is anticipated that performance-based incentive awards under the AIP will, in
future years, constitute an increasing percentage of officers' total
compensation.
The AIP, as approved by shareholders at the annual meeting in May 1995,
is administered by the Committee and provides an objective framework within
which Company and individual performance can be evaluated by the Committee.
Depending on the results of such performance evaluations, and the attainment of
the per share net income goals established in advance, the Committee may provide
annual incentive compensation awards to eligible officers. The evaluation of
each individual participant's performance is based upon the attainment of
individual and business unit objectives. The Company's performance is evaluated,
compared to the ten largest electric utilities and/or the electric utility
industry, based upon its total return to shareholders and return on invested
capital as well as other measures relating to competitiveness, service quality
and employee safety. The combination of individual and Company performance
results, together with the Committee's evaluation of the competitive level of
compensation which is appropriate for such results, determines the amount, if
any, actually awarded.
In establishing levels of executive compensation at its May 1995
meeting, the Committee reviewed various performance and compensation data
including the performance measures under the AIP and the report of its
compensation consultant. Information was also gathered from industry sources and
other published and private materials which provided a basis for comparing the
largest electric and gas utilities and other survey groups
70
73
ITEM 11. EXECUTIVE COMPENSATION -- (CONTINUED)
representing a large variety of business organizations. Included in the data
considered was that, in 1994, TU Electric, the Company's principal subsidiary,
was the largest electric utility in the United States as measured by megawatt
hour sales and, compared to other electric utilities in the United States, was
sixth in electric revenues, sixth in total assets, third in net generating
capability, ninth in number of customers and fifteenth in number of employees.
This information provided a basis for comparing the Company with the largest
electric and gas utilities, including companies generally comparable in size
represented in the Moody's 24 utilities whose comparative investment return is
depicted in the graph herein. Compensation amounts were established by the
Committee based upon its subjective evaluation of Company and individual
performance at levels consistent with the Committee's policy relating to total
direct compensation.
In May 1995, Mr. J.S. Farrington, formerly Chairman of the Board and
Chief Executive, was elected Chairman of the Board and Mr. Nye, formerly
President, was elected President and Chief Executive. In connection with this
change, Mr. Farrington's compensation was provided for pursuant to a management
transition agreement described in Footnote 4 [to the Summary Compensation Table
set forth in the Company's 1996 proxy statement]. Based upon the Committee's
subjective evaluation of the information described herein, the Committee also
provided Mr. Farrington with an AIP award of $330,000 compared to the prior
year's incentive award under the DICP of $125,000. The Committee established
Mr. Nye's base salary as Chief Executive at the annual rate of $700,000,
representing a $50,000, or 7.7%, increase over the amount established for Mr.
Nye in May 1994. The Committee also provided Mr. Nye with an AIP award of
$280,000 compared to the prior year's incentive award under the DICP of
$100,000. This amount of compensation was established in recognition of Mr.
Nye's election as Chief Executive and was based upon the Committee's subjective
evaluation of the information described herein.
In discharging its responsibilities with respect to establishing
executive compensation, the Committee normally considers such matters at its May
meeting held in conjunction with the Annual Meeting of Shareholders. Although
Company management may be present during Committee discussions of officers'
compensation, Committee decisions with respect to the compensation of the
President and Chief Executive and the Chairman of the Board are reached in
private session without the presence of any member of Company management.
Section 162(m) of the Code limits the deductibility of compensation
which a publicly traded corporation provides to its most highly compensated
officers. As a general policy, the Company does not intend to provide
compensation which is not deductible for federal income tax purposes. Awards
under the AIP in 1996 and subsequent years are expected to be fully deductible,
and the DICP and the Salary Deferral Program have been amended to require the
deferral of distributions of amounts earned in 1995 and subsequent years until
the time when such amounts would be deductible. Awards provided under the AIP in
1995 and distributions under the DICP and the Salary Deferral Program which were
earned in plan years prior to 1995, may not be fully deductible but such amounts
are not expected to be material.
Shareholder comments to the Committee are welcomed and should be
addressed to the Corporate Secretary of the Company at the Company's offices.
Organization and Compensation Committee
James A. Middleton, Chair Kerney Laday
Jack W. Evans Margaret N. Maxey
Bayard H. Friedman Charles R. Perry
William M. Griffin Herbert H. Richardson
71
74
ITEM 11. EXECUTIVE COMPENSATION -- (CONCLUDED)
PERFORMANCE GRAPH
The following graph compares the performance of the Company's common
stock to the S&P 500 Index and to the Moody's 24 Utilities for the last five
years. The graph assumes the investment of $100 at December 31, 1990 and that
all dividends were reinvested. The amount of the investment at the end of each
year is shown in the graph and in the table which follows.
1990 1991 1992 1993 1994 1995
Texas Utilities 100 123 135 147 119 166
S&P 500 Index 100 131 140 154 156 216
Moody's 24 Utilities 100 129 135 149 126 166
72
75
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
THE COMPANY
Information with respect to this item is found under the heading Beneficial
Ownership of Common Stock of the Company in the definitive proxy statement to
be filed by the Company with the Commission on or about April 1, 1996.
Additional information with respect to Executive Officers of the Registrant is
found at the end of Part I.
TU ELECTRIC
Security ownership of certain beneficial owners at February 29, 1996:
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
-------------- ------------------- --------- ----------------
Common Stock, Texas Utilities Company 156,800,000 shares 100.0%
without par value, Energy Plaza, 1601 Bryan Street sole voting and
of TU Electric Dallas, Texas 75201 investment power
Security ownership of management at February 29 ,1996:
The following lists the common stock of the Company owned by the Directors
and Executive Officers of TU Electric. The named individuals have sole voting
and investment power for the shares of common stock reported. Ownership of such
common stock constituted less than 1% of the outstanding shares for each
individual. None of the named individuals own any of the preferred stock of TU
Electric.
NUMBER OF SHARES
NAME OF COMMON STOCK
---- ---------------
T. L. Baker 2,749
J. S. Farrington 18,575
H. Jarrell Gibbs 6,254
Michael J. McNally 5,250
Erle Nye 19,053
W. M. Taylor 7,807
E. L. Watson 7,698
All Directors and Executive
Officers as a group (7) 67,386
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE COMPANY
Information with respect to this item is found under the heading Beneficial
Ownership of Common Stock of the Company in the definitive proxy statement to be
filed by the Company with the Commission on or about April 1, 1996. Additional
information with respect to Executive Officers of the Registrant is found at the
end of Part I.
TU ELECTRIC
None.
73
76
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(a) Documents filed as part of this Report:
THE COMPANY
1. Financial Statements (included in Item 8, Financial Statements
and Supplementary Data):
Statements of Consolidated Income for each of the three years in the
period ended December 31, 1995............................................. 28
Statements of Consolidated Retained Earnings for each of the three
years in the period ended December 31, 1995................................ 28
Statements of Consolidated Cash Flows for each of the three years in
the period ended December 31, 1995......................................... 29
Consolidated Balance Sheets, December 31, 1995 and 1994....................... 30
Notes to Consolidated Financial Statements.................................... 36
Statement of Responsibility................................................... 61
Independent Auditors' Report.................................................. 63
2. Financial Statement Schedule -
For each of the three years in the period ended December 31, 1995:
Schedule II-Valuation and Qualifying Accounts................................. 80
TU ELECTRIC
3. Financial Statements (included in Item 8, Financial Statements
and Supplementary Data):
Statements of Consolidated Income for each of the three years in the
period ended December 31, 1995............................................. 32
Statements of Consolidated Retained Earnings for each of the three
years in the period ended December 31, 1995................................ 32
Statements of Consolidated Cash Flows for each of the three years in
the period ended December 31, 1995......................................... 33
Consolidated Balance Sheets, December 31, 1995 and 1994....................... 34
Notes to Consolidated Financial Statements.................................... 36
Statement of Responsibility................................................... 62
Independent Auditors' Report.................................................. 64
4. Financial Statement Schedule -
For each of the three years in the period ended December 31, 1995:
Schedule II-Valuation and Qualifying Accounts................................. 80
All other financial statement schedules are omitted because of the
absence of the conditions under which they are required or because the required
information is included in the Financial Statements or notes thereto.
74
77
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --
(CONTINUED)
(b) Reports on Form 8-K:
Reports on Form 8-K filed since September 30, 1995, are as follows:
THE COMPANY
Date of Report Item Reported
-------------- -------------
October 17, 1995 Item 5. OTHER EVENTS
TU ELECTRIC
Date of Report Item Reported
-------------- -------------
October 17, 1995 Item 5. OTHER EVENTS
October 26, 1995 Item 5. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits:
THE COMPANY AND TU ELECTRIC
PREVIOUSLY FILED*
---------------------------
WITH
FILE AS
EXHIBITS NUMBER EXHIBIT NUMBER DATED
- -------- ------ ------- ------ -----
3(a) 33-48880 4(a) - Restated Articles of Incorporation of the Company.
3(b) 33-48880 4(b) - Bylaws, as amended, of the Company.
3(c) 0-11442 3(a) - Restated Articles of Incorporation of TU Electric.
Form 10-K
(1993)
3(d) 33-64694 4(c) - Bylaws of TU Electric, as amended.
4(a) 2-90185 4(a) - Mortgage and Deed of Trust, dated as of December 1,
1983, between TU Electric and Irving Trust Company
(now The Bank of New York), Trustee.
4(a)(1) - Supplemental Indentures to Mortgage and Deed of Trust:
2-90185 4(b) First April 1, 1984
2-92738 4(a)-1 Second September 1, 1984
2-97185 4(a)-1 Third April 1, 1985
2-99940 4(a)-1 Fourth August 1, 1985
2-99940 4(a)-2 Fifth September 1, 1985
33-01744 4(a)-2 Sixth December 1, 1985
33-9583 4(a)-1 Seventh March 1, 1986
33-9583 4(a)-2 Eighth May 1, 1986
33-11376 4(a)-1 Ninth October 1, 1986
33-11376 4(a)-2 Tenth December 1, 1986
33-11376 4(a)-3 Eleventh December 1, 1986
33-14584 4(a)-1 Twelfth February 1, 1987
33-14584 4(a)-2 Thirteenth March 1, 1987
33-14584 4(a)-3 Fourteenth April 1, 1987
33-24089 4(a)-1 Fifteenth July 1, 1987
33-24089 4(a)-2 Sixteenth September 1, 1987
33-24089 4(a)-3 Seventeenth October 1, 1987
33-24089 4(a)-4 Eighteenth March 1, 1988
33-24089 4(a)-5 Nineteenth May 1, 1988
33-30141 4(a)-1 Twentieth September 1, 1988
33-30141 4(a)-2 Twenty-first November 1, 1988
33-30141 4(a)-3 Twenty-second January 1, 1989
33-35614 4(a)-1 Twenty-third August 1, 1989
33-35614 4(a)-2 Twenty-fourth November 1, 1989
33-35614 4(a)-3 Twenty-fifth December 1, 1989
33-35614 4(a)-4 Twenty-six February 1, 1990
33-39493 4(a)-1 Twenty-seventh September 1, 1990
33-39493 4(a)-2 Twenty-eighth October 1, 1990
33-39493 4(a)-3 Twenty-ninth October 1, 1990
33-39493 4(a)-4 Thirtieth March 1, 1991
33-45104 4(a)-1 Thirty-first May 1, 1991
33-45104 4(a)-2 Thirty-second July 1, 1991
75
78
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --
(CONTINUED)
PREVIOUSLY FILED*
---------------------------
WITH
FILE AS
EXHIBITS NUMBER EXHIBIT NUMBER DATED
- -------- ------ ------- ------ -----
33-46293 4(a)-1 Thirty-third February 1, 1992
33-49710 4(a)-1 Thirty-fourth April 1, 1992
33-49710 4(a)-2 Thirty-fifth April 1, 1992
33-49710 4(a)-3 Thirty-sixth June 1, 1992
33-49710 4(a)-4 Thirty-seventh June 1, 1992
33-57576 4(a)-1 Thirty-eighth August 1, 1992
33-57576 4(a)-2 Thirty-ninth October 1, 1992
33-57576 4(a)-3 Fortieth November 1, 1992
33-57576 4(a)-4 Forty-first December 1, 1992
33-60528 4(a)-1 Forty-second March 1, 1993
33-64692 4(a)-1 Forty-third April 1, 1993
33-64692 4(a)-2 Forty-fourth April 1, 1993
33-64692 4(a)-3 Forty-fifth May 1, 1993
33-68100 4(a)-1 Forty-sixth July 1, 1993
33-68100 4(a)-3 Forty-seventh October 1, 1993
33-68100 4(a)-4 Forty-eighth November 1, 1993
33-68100 4(a)-5 Forty-ninth May 1, 1994
33-68100 4(a)-6 Fiftieth May 1, 1994
33-68100 4(a)-7 Fifty-first August 1, 1994
33-68100 4(a)-8 Fifty-second April 1, 1995
33-68100 4(a)-9 Fifty-third June 1, 1995
4(b)(1) - Agreement to furnish certain debt instruments (the Company).
4(b)(2) - Agreement to furnish certain debt instruments (TU Electric).
4(c) 33-68104 4(b)-16 - Deposit Agreement between TU Electric and Chemical Bank, dated
as of January 11, 1993.
4(d) 33-68104 4(b)-17 - Deposit Agreement between TU Electric and Chemical Bank, dated
as of August 4, 1993.
4(e) 0-11442 4(h) - Deposit Agreement between TU Electric and Chemical Bank, dated
Form 10-K as of October 14, 1993.
(1993)
4(f) - Indenture (For Unsecured Subordinated Debt Securities relating
to Trust Securities), dated as of December 12, 1995, between TU
Electric and The Bank of New York, as Trustee.
4(g) - Amended and Restated Trust Agreement, dated as of December
12, 1995, between TU Electric, as Depositor, and The Bank of
New York, The Bank of New York (Delaware) and the
Administrative Trustees thereunder, as Trustees for TU Electric
Capital I.
4(h) - Guarantee Agreement with respect to TU Electric Capital I, dated
as of December 12, 1995, between TU Electric, as Guarantor,
and The Bank of New York, as Trustee.
4(i) - Agreement as to Expenses and Liabilities, dated as of December
12, 1995, between TU Electric and TU Electric Capital I.
4(j) - Amended and Restated Trust Agreement, dated as of December
12, 1995, between TU Electric, as Depositor, and The Bank of
New York, The Bank of New York (Delaware) and the
Administrative Trustees thereunder, as Trustees for TU Electric
Capital II.
4(k) - Guarantee Agreement with respect to TU Electric Capital II,
dated as of December 12, 1995, between TU Electric, as
Guarantor, and The Bank of New York, as Trustee.
76
79
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --
(CONTINUED)
PREVIOUSLY FILED*
---------------------------
WITH
FILE AS
EXHIBITS NUMBER EXHIBIT NUMBER DATED
- -------- ------ ------- ------ -----
4(l) - Agreement as to Expenses and Liabilities, dated as of December
12, 1995, between TU Electric and TU Electric Capital II.
4(m) - Amended and Restated Trust Agreement, dated as of December
13, 1995, between TU Electric, as Depositor, and The Bank of
New York, The Bank of New York (Delaware), and the
Administrative Trustees thereunder, as Trustees for TU Electric
Capital III.
4(n) - Guarantee Agreement with respect to TU Electric Capital III,
dated as of December 13, 1995, between TU Electric. as
Guarantor, and The Bank of New York, as Trustee.
4(o) - Agreement as to Expenses and Liabilities, dated as of December
13, 1995, between TU Electric and TU Electric Capital III.
10(a)** 1-3591 10(a) - Deferred and Incentive Compensation Plan of the Texas Utilities
Form 10-Q Company System, as amended January 1, 1995.
(Quarter ended
June 30, 1995)
10(b)** 1-3591 10(f) - Salary Deferral Program of the Texas Utilities Company System
Form 10-Q as amended January 1, 1995.
(Quarter ended
June 30, 1995)
10(c)** 1-3591 10(c) - Restated Supplemental Retirement Plan for Employees of the
Form 10-Q Texas Utilities Company System, as restated effective January 1,
(Quarter ended 1995.
June 30, 1995)
10(d)** 1-3591 10(b) - Deferred Compensation Plan for Outside Directors of the
Form 10-Q Company, effective as of July 1, 1995.
(Quarter ended
June 30, 1995)
10(e)** 1-3591 10(d) - Annual Incentive Plan of the Texas Utilities Company System,
Form 10-Q dated as of May 19, 1995.
(Quarter ended
June 30, 1995)
10(f)** 1-3591 10(e) - Management Transition Agreement, dated as of May 19, 1995
Form 10-Q between the Company and J.S. Farrington.
(Quarter ended
June 30, 1995)
12 - Computation of Ratio of Earnings to Fixed Charges for TU
Electric.
21 - Subsidiaries of the Company.
23(a) - Consent of Counsel to the Company.
23(b) - Consent of Counsel to TU Electric.
23(c) - Independent Auditor's Consent for the Company.
23(d) - Independent Auditor's Consent for TU Electric.
27(a) - Financial Data Schedule for the Company.
27(b) - Financial Data Schedule for TU Electric.
27(c) - Restated Financial Data Schedule of the Company, 09-30-94.
27(d) - Restated Financial Data Schedule of the Company, 12-31-94.
27(e) - Restated Financial Data Schedule of the Company, 03-31-95.
27(f) - Restated Financial Data Schedule of the Company, 06-30-95.
27(g) - Restated Financial Data Schedule of the Company, 09-30-95.
77
80
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --
(CONTINUED)
PREVIOUSLY FILED*
---------------------------
WITH
FILE AS
EXHIBITS NUMBER EXHIBIT NUMBER DATED
- -------- ------ ------- ------ -----
99(a) 1-3591 28(b) - Agreement, dated as of February 12, 1988, between TU Electric
Form 10-K and Texas Municipal Power Agency.
(1987)
99(b) 33-55408 99(a) - Agreement, dated as of July 5, 1988, between TU Electric and
the Brazos Electric Power Cooperative, Inc.
99(c) 33-55408 99(b) - Agreement, dated as of January 30, 1990, between TU Electric
and Tex-La Electric Cooperative of Texas, Inc.
99(d) 33-59988 2 - Agreement and plan of merger, dated as of January 25, 1993, by
and among the Company, TUA, Inc., and Southwestern Electric
Service Company.
99(e) 33-23532 4(c)(i) - Trust Indenture, Security Agreement and Mortgage, dated as of
December 1, 1987, as supplemented by Supplement No. 1 thereto
dated as of May 1, 1988 among the Lessor, TU Electric and the
Trustee.
99(f) 33-24089 4(c)-1 - Supplement No. 2 to Trust Indenture, Security Agreement and
Mortgage, dated as of August 1, 1988.
99(g) 33-24089 4(e)-1 - Supplement No. 3 to Trust Indenture, Security Agreement and
Mortgage, dated as of August 1, 1988.
99(h) 0-11442 99(c) - Supplement No. 4 to Trust Indenture, Security Agreement and
Form 10-Q Mortgage, including form of Secured Facility Bond, 1993 Series.
(Quarter ended
June 30, 1993)
99(i) 33-23532 4(d) - Lease Agreement, dated as of December 1, 1987 between the
Lessor and TU Electric as supplemented by Supplement No. 1
thereto dated as of May 20, 1988 between the Lessor and TU
Electric.
99(j) 33-24089 4(f) - Lease Agreement Supplement No. 2, dated as of August 18,
1988.
99(k) 33-24089 4(f)-1 - Lease Agreement Supplement No. 3, dated as of August 25,
1988.
99(l) 33-63434 4(d)(iv) - Lease Agreement Supplement No. 4, dated as of December 1,
1988.
99(m) 33-63434 4(d)(v) - Lease Agreement Supplement No. 5, dated as of June 1, 1989.
99(n) 0-11442 99(d) - Lease Agreement Supplement No. 6, dated as of July 1, 1993.
Form 10-Q
(Quarter ended
June 30, 1993)
99(o) 33-23532 4(e) - Participation Agreement dated as of December 1, 1987, as
amended by a Consent to Amendment of the Participation
Agreement, dated as of May 20, 1988, each among the Lessor,
the Trustee, the Owner Participant, certain banking institutions,
Capcorp, Inc. and TU Electric.
99(p) 33-24089 4(g) - Consent to Amendment of the Participation Agreement, dated as
of August 18, 1988.
99(q) 33-24089 4(g)-1 - Supplement No. 1 to the Participation Agreement, dated as of
August 18, 1988.
99(r) 33-24089 4(g)-2 - Supplement No. 2 to the Participation Agreement, dated as of
August 18, 1988.
99(s) 33-63434 4(e)(v) - Supplement No. 3 to the Participation Agreement, dated as of
December 1, 1988.
78
81
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --
(CONCLUDED)
PREVIOUSLY FILED*
---------------------------
WITH
FILE AS
EXHIBITS NUMBER EXHIBIT NUMBER DATED
- -------- ------ ------- ------ -----
99(t) 0-11442 99(e) - Supplement No. 4 to the Participation Agreement, dated as of
Form 10-Q June 17, 1993.
(Quarter ended
June 30, 1993)
99(u) 0-11442 99(t) - Competitive Advance and Revolving Credit Facility Agreement,
Form 10-Q "Facility A", dated as of April 29, 1994, among the Company, TU
(Quarter ended Electric, certain banks and Chemical Bank, Agent (Facility A).
September 31, 1994)
99(v) 0-11442 99(a) - Amendment, dated as of April 28, 1995, to Facility A.
(Form 10-Q
Quarter ended
March 31, 1995)
99(w) - Second Amendment, dated as of November 24, 1995, to Facility
A.
99(x) 0-11442 99(u) - Competitive Advance and Revolving Credit Facility Agreement,
Form 10-Q "Facility B", dated as of April 29, 1994, among the Company,
(Quarter ended TU Electric, certain banks and Chemical Bank, Agent (Facility
September 31, 1994) B).
99(y) 0-11442 99(b) - Amendment, dated as of April 28, 1995, to Facility B.
Form 10-Q
(Quarter ended
March 31, 1995)
99(z) - Second Amendment, dated as of November 24, 1995, to Facility B.
99(aa) 0-11442 99(v) - Credit Agreement, dated as of February 24, 1995, among TU
Form 10-K Electric, Bank of America and The Bank of New York.
(1994)
99(bb) - Competitive Advance and Revolving Credit Facility Agreement,
dated as of November 22, 1995, among the Company and
Chemical Bank and Texas Commerce Bank National Association,
as Agents.
- ---------------
* Incorporated herein by reference.
** Management contract or compensation plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
79
82
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
============================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS (a) END OF YEAR
- ------------------------------------------------------------------------------------------------------------
THOUSANDS OF DOLLARS
VALUATION ACCOUNT, DEDUCTED FROM RELATED
ASSET ON THE BALANCE SHEET --
Year Ended December 31, 1995
Reserve for regulatory disallowance.... $1,381,145 -- -- -- $1,381,145
Allowance for uncollectible accounts... 5,095 20,335 12 19,477 5,965
Year Ended December 31, 1994
Reserve for regulatory disallowances... $1,381,145 -- -- -- $1,381,145
Allowance for uncollectible accounts... 6,394 $30,020 -- $31,319 5,095
Year Ended December 31, 1993
Reserve for regulatory disallowances... $1,381,145 -- -- -- $1,381,145
Allowance for uncollectible accounts... 1,613 $21,607 -- $16,826 6,394
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
============================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS (a) END OF YEAR
- ------------------------------------------------------------------------------------------------------------
THOUSANDS OF DOLLARS
VALUATION ACCOUNT, DEDUCTED FROM RELATED
ASSET ON THE BALANCE SHEET --
Year Ended December 31, 1995
Reserve for regulatory disallowance.... $1,381,145 -- -- -- $1,381,145
Allowance for uncollectible accounts... 5,026 $18,163 -- $19,275 3,914
Year Ended December 31, 1994
Reserve for regulatory disallowances... $1,381,145 -- -- -- $1,381,145
Allowance for uncollectible accounts... 6,304 $29,854 -- $31,132 5,026
Year Ended December 31, 1993
Reserve for regulatory disallowances... $1,381,145 -- -- -- $1,381,145
Allowance for uncollectible accounts... 1,613 $21,430 -- $16,739 6,304
- -------------------
(a) Deductions represents uncollectible accounts written off net of recoveries
of amounts previously written off.
80
83
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, TEXAS UTILITIES COMPANY HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
TEXAS UTILITIES COMPANY
Date: March 5, 1996 By: /s/ J.S. FARRINGTON
-----------------------------------------
(J. S. FARRINGTON, CHAIRMAN OF THE BOARD)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF TEXAS
UTILITIES COMPANY AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ J. S. FARRINGTON Chairman of the Board March 5, 1996
- ---------------------------------------------------------
(J. S. Farrington, Chairman of the Board)
/s/ ERLE NYE Principal Executive March 5, 1996
- --------------------------------------------------------- Officer and Director
(Erle Nye, President and Chief Executive)
/s/ PETER B. TINKHAM Principal Financial March 5, 1996
- --------------------------------------------------------- Officer
(Peter B. Tinkham, Treasurer and Assistant Secretary)
/s/ CATHRYN C. HULEN Principal Accounting March 5, 1996
- --------------------------------------------------------- Officer
(Cathryn C. Hulen, Controller)
/s/ BAYARD H. FRIEDMAN Director March 5, 1996
- ---------------------------------------------------------
(Bayard H. Friedman)
/s/ WILLIAM M. GRIFFIN Director March 5, 1996
- ---------------------------------------------------------
(William M. Griffin)
/s/ KERNEY LADAY Director March 5, 1996
- ---------------------------------------------------------
(Kerney Laday)
/s/ MARGARET N. MAXEY Director March 5, 1996
- ---------------------------------------------------------
(Margaret N. Maxey)
/s/ JAMES A. MIDDLETON Director March 5, 1996
- ---------------------------------------------------------
(James A. Middleton)
/s/ J. E. OESTERREICHER Director March 5, 1996
- ---------------------------------------------------------
(J. E. Oesterreicher)
/s/ CHARLES R. PERRY Director March 5, 1996
- ---------------------------------------------------------
(Charles R. Perry)
/s/ HERBERT H. RICHARDSON Director March 5, 1996
- ---------------------------------------------------------
(Herbert H. Richardson)
81
84
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
TEXAS UTILITIES ELECTRIC COMPANY
Date: March 5, 1996 By: /s/ ERLE NYE
------------------------------------
(ERLE NYE, CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ERLE NYE Principal Executive March 5, 1996
- --------------------------------------------------------- Officer and Director
(Erle Nye, Chairman of the Board and Chief Executive)
/s/ ROBERT S. SHAPARD Principal Financial March 5, 1996
- --------------------------------------------------------- Officer
(Robert S. Shapard, Treasurer and Assistant Secretary)
/s/ CATHRYN C. HULEN Principal Accounting March 5, 1996
- --------------------------------------------------------- Officer
(Cathryn C. Hulen, Controller)
/s/ T. L. BAKER Director March 5, 1996
- ---------------------------------------------------------
(T. L. Baker)
/s/ J. S. FARRINGTON Director March 5, 1996
- ---------------------------------------------------------
(J.S. Farrington)
/s/ H. JARRELL GIBBS Director March 5, 1996
- ---------------------------------------------------------
(H. Jarrell Gibbs)
/s/ MICHAEL J. MCNALLY Director March 5, 1996
- ---------------------------------------------------------
(Michael J. McNally)
/s/ W. M. TAYLOR Director March 5, 1996
- ---------------------------------------------------------
(W. M. Taylor)
/s/ E. L. WATSON Director March 5, 1996
- ---------------------------------------------------------
(E. L. Watson)
82
85
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ---------------------------------
4(b)(1) - Agreement to furnish certain debt instruments (the Company).
4(b)(2) - Agreement to furnish certain debt instruments (TU Electric).
4(f) - Indenture (For Unsecured Subordinated Debt Securities relating
to Trust Securities), dated as of December 12, 1995, between
TU Electric and The Bank of New York, as Trustee.
4(g) - Amended and Restated Trust Agreement, dated as of December 12,
1995, between TU Electric, as Depositor, and The Bank of New
York, The Bank of New York (Delaware) and the Administrative
Trustees thereunder, as Trustees for TU Electric Capital I.
4(h) - Guarantee Agreement with respect to TU Electric Capital I,
dated as of December 12, 1995, between TU Electric, as
Guarantor, and The Bank of New York, as Trustee.
4(i) - Agreement as to Expenses and Liabilities, dated as of December
12, 1995, between TU Electric and TU Electric Capital I.
4(j) - Amended and Restated Trust Agreement, dated as of December 12,
1995, between TU Electric, as Depositor, and The Bank of New
York, The Bank of New York (Delaware) and the Administrative
Trustees thereunder, as Trustees for TU Electric Capital II.
4(k) - Guarantee Agreement with respect to TU Electric Capital II,
dated as of December 12, 1995, between TU Electric, as
Guarantor, and The Bank of New York, as Trustee.
4(l) - Agreement as to Expenses and Liabilities, dated as of December
12, 1995, between TU Electric and TU Electric Capital II.
4(m) - Amended and Restated Trust Agreement, dated as of December 13,
1995, between TU Electric, as Depositor, and The Bank of New
York, The Bank of New York (Delaware), and the Administrative
Trustees thereunder, as Trustees for TU Electric Capital III.
4(n) - Guarantee Agreement with respect to TU Electric Capital III,
dated as of December 13, 1995, between TU Electric. as
Guarantor, and The Bank of New York, as Trustee.
4(o) - Agreement as to Expenses and Liabilities, dated as of December
13, 1995, between TU Electric and TU Electric Capital III.
12 - Computation of Ratio of Earnings to Fixed Charges for TU
Electric.
21 - Subsidiaries of the Company.
23(a) - Consent of Counsel to the Company.
23(b) - Consent of Counsel to TU Electric.
23(c) - Independent Auditor's Consent for the Company.
23(d) - Independent Auditor's Consent for TU Electric.
27(a) - Financial Data Schedule for the Company.
27(b) - Financial Data Schedule for TU Electric.
27(c) - Restated Financial Data Schedule for the Company, 09-30-94
27(d) - Restated Financial Data Schedule for the Company, 12-31-94
27(e) - Restated Financial Data Schedule for the Company, 03-31-95
27(f) - Restated Financial Data Schedule for the Company, 06-30-95
27(g) - Restated Financial Data Schedule for the Company, 09-30-95
99(w) - Second Amendment, dated as of November 24, 1995, to Facility A.
99(z) - Second Amendment, dated as of November 24, 1995, to Facility B.
99(bb) - Competitive Advance and Revolving Credit Facility Agreement,
dated as of November 22, 1995, among the Company and Chemical
Bank and Texas Commerce Bank National Association, as Agents.