Exhibit 99(g)
RECOVERY OF FUEL COSTS. For information relating to the cost of fuel
over the last three years, see "Operating Statistics of HL&P" below and
"Results of Operations - HL&P - Fuel and Purchased Power Expense" in Item 7 of
this Report. Utility Commission rules provide for the recovery of certain fuel
and purchased power costs through an energy component of electric rates (fixed
fuel factor). The fixed fuel factor is established during either a utility's
general rate proceeding or an interim fuel proceeding and is to be generally
effective for a minimum of six months, unless a substantial change in a
utility's cost of fuel occurs. In that event, a utility may be authorized to
revise the fixed fuel factor in its rates appropriately. In any event, a fuel
reconciliation is required every three years.
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In October 1991, the Utility Commission approved HL&P's fixed
fuel factor as contemplated in the settlement agreement reached in February
1991 by HL&P and most other parties to Docket No. 9850. See Note 10(c) to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report. In November 1993, the Utility Commission authorized HL&P to implement
a higher fuel factor under Docket No. 12370. The Company can request a
revision to its fuel factor in April and October each year.
Reconciliation of fuel costs after March 1990 is required in 1994, and
under Utility Commission rules, HL&P has anticipated that a filing would be
required in May 1994. However, the Utility Commission staff has requested that
such filing be delayed to the fourth quarter of 1994. If that request is
granted by the Utility Commission, HL&P anticipates that fuel costs through
some time in 1994 will be submitted for reconciliation at that time. No
hearing would be anticipated in that reconciliation proceeding before 1995, and
the schedule for reconciliation of those costs could be affected by the
institution of a rate proceeding by the Utility Commission and/or a prudence
inquiry concerning the outage at the South Texas Project. For a discussion of
that outage and the possibility that a rate proceeding may be instituted, see
Notes 9(f), 10(f) and 10(g), respectively, to the Company's Consolidated and
HL&P's Financial Statements in Item 8 of this Report, which notes are
incorporated herein by reference.
REGULATORY MATTERS
ENERGY ACT. In October 1992, the Energy Act became law. For a
description of the Energy Act, see "Competition" above and Note 8(a) to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report.
RATES AND SERVICES. Pursuant to the PURA, the Utility Commission has
original jurisdiction over electric rates and services in unincorporated areas
of the State of Texas and in the incorporated municipalities that have
relinquished original jurisdiction. Original jurisdiction over electric rates
and services in the remaining incorporated municipalities served by HL&P is
exercised by such municipalities, including Houston, but the Utility Commission
has appellate jurisdiction over electric rates and services within those
incorporated municipalities.
In 1993, the Texas Legislature considered changes to PURA as part of a
required review under the Sunset Act. None of the proposed changes to the
Utility Commission or Texas utility regulation were enacted. However, the
legislature passed legislation continuing the current PURA until September 1,
1995. The legislature also established a joint interim committee to study
certain regulatory issues prior to the next legislative session which begins in
January 1995. These issues include, among other items, tax issues relating to
public utilities, the organization and authority of the Utility Commission and
IRP. Recommendations from this study period will be considered during the next
legislative session.
UTILITY COMMISSION PROCEEDINGS. For information concerning the
Utility Commission's orders with respect to HL&P's applications for general
rate increases with the Utility Commission (Docket No. 8425 for the 1988 rate
case and Docket No. 9850 for the 1990 rate case) and the municipalities within
HL&P's service area and the appeals of such orders, see Notes 10(b) and 10(c)
to the Company's Consolidated and HL&P's
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Financial Statements in Item 8 of this Report, which notes are incorporated
herein by reference. HL&P's 1986 general rate case (Docket Nos. 6765 and
6766) and 1984 rate case (Docket No. 5779) have been affirmed and are no longer
subject to appellate review. For a discussion of the possibility that a rate
proceeding may be instituted, see Notes 10(f) and 10(g) to the Company's
Consolidated and HL&P's Financial Statements in Item 8 of this Report, which
notes are incorporated herein by reference.
PRUDENCE REVIEW OF CONSTRUCTION OF THE SOUTH TEXAS PROJECT. For
information concerning the Utility Commission's orders with respect to a
prudence review of the planning, management and construction of the South Texas
Project (Docket No. 6668) and the appeals of such orders, see Note 10(d) to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report, which note is incorporated herein by reference.
DEFERRED ACCOUNTING DOCKETS. For information concerning the Utility
Commission's orders allowing deferred accounting treatment for certain costs
associated with the South Texas Project (Docket Nos. 8230, 9010 and 8425), the
appeals of such orders and related proceedings, see Notes 10(b), 10(e) and 11
to the Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report, which notes are incorporated herein by reference.
ENVIRONMENTAL QUALITY. General. HL&P is subject to regulation with
respect to air and water quality, solid waste management and other
environmental matters by various federal, state and local authorities.
Environmental regulations continue to be affected by legislation,
administrative actions and judicial review and interpretation. As a result,
the precise effect of potential regulations upon existing and proposed
facilities and operations cannot presently be determined. However,
developments in these and other areas of regulation have required HL&P to make
substantial expenditures to modify, supplement or replace equipment and
facilities and may, in the future, delay or impede construction and operation
of new facilities or require expenditures to modify existing facilities. For
information regarding environmental expenditures, see "Capital Program" above.
Air. The TNRCC has jurisdiction and enforcement power to determine
the permissible level of air contaminants emitted in the State of Texas. The
standards established by the Texas Clean Air Act and the rules of the TNRCC are
subject to modification by standards promulgated by the EPA. Compliance with
such standards has resulted, and is expected to continue to result, in
substantial expenditures by HL&P. In addition, expanded permit and fee systems
and enforcement penalties may discourage industrial growth within HL&P's
service area.
In November 1990, significant amendments to the Clean Air Act became
law. The law is designed to control emissions of air pollutants which
contribute to acid rain, to reduce urban air pollution and to reduce emissions
of toxic air pollutants. Parts of the Clean Air Act are directed at reducing
emissions of sulfur dioxide from electric utility generating units. This
reduction program includes an "allowance" system which sets forth formulas and
criteria to establish a cap on sulfur dioxide emissions from utility generating
units. HL&P has been allocated allowances sufficient to permit continued
operation of its existing facilities and some expansion of its solid-fuel
generating facilities without substantial additional expense relating to
modification of its facilities.
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HL&P has already made substantial investments in pollution control
facilities, and all of its generating facilities currently comply in all
material respects with sulfur dioxide emission standards established by the
Clean Air Act. As a result of this previous investment, HL&P does not
anticipate that significant expenditures for sulfur dioxide removal equipment
will be required. Provisions of the Clean Air Act dealing with urban air
pollution require establishing new emission limitations for nitrogen oxides
from existing sources. Although initial limitations were finalized in 1993,
further reductions may be required in the future. The cost of modifications
necessary to reduce nitrogen oxide emissions from existing sources has been
estimated at $29 million in 1994 and $10.5 million in 1995. The Clean Air Act
also calls for additional stack gas continuous emissions monitoring equipment
to be installed on various HL&P generating facilities. Capital expenditures of
$12 million in 1994 and $2 million in 1995 are anticipated for installation of
this new monitoring equipment. See "Capital Program" above.
The Clean Air Act established a new permitting program to be
administered in Texas by the TNRCC. The precise requirements of the program
cannot be determined until the permit program is approved by the EPA. However,
based on regulations promulgated by the TNRCC, HL&P anticipates that additional
expenditures may be required for administering the permitting process. The
legislation could also substantially increase the cost of constructing new
generating units.
Water. The TNRCC has jurisdiction over water discharges in the State
of Texas and is empowered to set water quality standards and issue permits
regulating water quality. The TNRCC jurisdiction is currently shared with the
EPA, which also issues water discharge permits and reviews the Texas water
quality standards program.
HL&P has obtained permits from both the TNRCC and the EPA for all
facilities currently in operation which require such permits. Applications for
renewal of permits for existing facilities have been submitted as required.
The reissued permits reflect changes in federal and state regulations which may
increase the cost of maintaining compliance. Although compliance with the new
regulations has resulted and will continue to result in additional costs to
HL&P, the costs are not expected to have a material impact on HL&P's financial
condition or results of operations.
For a description of certain Administrative Orders issued by the EPA
to HL&P under the Clean Water Act and for a description of certain other
environmental litigation, see Item 3 of this Report.