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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
-- OR --
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11668
TXU ELECTRIC COMPANY
A Texas Corporation I.R.S. Employer Identification
No. 75-1837355
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201-3411
(214) 812-4600
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
COMMON STOCK OUTSTANDING AT AUGUST 9, 2000: 94,083,000 shares, without par
value.
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Condensed Statements of Consolidated Income -
Three and Six Months Ended June 30, 2000 and 1999................. 3
Condensed Statements of Consolidated Cash Flows -
Six Months Ended June 30, 2000 and 1999........................... 4
Condensed Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999............................... 5
Notes to Financial Statements..................................... 7
Independent Accountants' Report................................... 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................... 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........ 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 15
SIGNATURES.......................................................................... 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
MILLIONS OF DOLLARS
OPERATING REVENUES ....................................... $1,684 $1,503 $3,035 $2,788
------ ------ ------ ------
OPERATING EXPENSES
Energy purchased for resale and fuel consumed ....... 684 513 1,118 926
Operation and maintenance ........................... 327 301 638 616
Depreciation and amortization ....................... 151 207 303 354
Income taxes ........................................ 94 64 152 109
Taxes other than income ............................. 130 128 264 260
------ ------ ------ ------
Total operating expenses ...................... 1,386 1,213 2,475 2,265
------ ------ ------ ------
OPERATING INCOME ......................................... 298 290 560 523
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction.. 2 1 3 2
Other income (deductions)-- net ..................... (5) (6) (8) (10)
Income tax benefit (expense) ........................ 7 9 (1) 10
------ ------ ------ ------
Total other income (deductions) ............... 4 4 (6) 2
------ ------ ------ ------
INCOME BEFORE INTEREST AND
OTHER CHARGES ....................................... 302 294 554 525
------ ------ ------ ------
INTEREST INCOME .......................................... -- 1 1 2
INTEREST EXPENSE AND OTHER CHARGES
Interest ............................................ 99 118 189 230
Distributions on TXU Electric Company obligated,
mandatorily redeemable, preferred securities
of subsidiary trusts holding solely junior
subordinated debentures of TXU Electric Company 17 17 34 34
Allowance for borrowed funds used during construction
and capitalized interest ...................... (2) (2) (4) (5)
------ ------ ------ ------
Total interest expense and other charges ..... 114 133 219 259
------ ------ ------ ------
NET INCOME ............................................... 188 162 336 268
PREFERRED STOCK DIVIDENDS ................................ 2 2 5 5
------ ------ ------ ------
NET INCOME AVAILABLE FOR COMMON STOCK .................... $ 186 $ 160 $ 331 $ 263
====== ====== ====== ======
See Notes to Financial Statements.
3
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
---- ----
MILLIONS OF DOLLARS
CASH FLOWS -- OPERATING ACTIVITIES
Net income .............................................................................. $ 336 $ 268
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization ...................................................... 363 430
Deferred income taxes and investment tax credits -- net ............................ 5 60
Allowance for equity funds used during construction ................................ (3) (2)
Reduction in revenues for earnings in excess of earnings cap ....................... 100 --
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (85) (11)
Inventories ................................................................. 3 4
Accounts payable:
Affiliates ............................................................. 103 29
Other .................................................................. 49 (20)
Interest and taxes accrued .................................................. 91 (21)
Other working capital ....................................................... 2 38
Over/(under)-recovered fuel revenue -- net of deferred taxes ................ (81) (38)
Other -- net ................................................................. 2 59
----- -----
Cash provided by operating activities ................................. 885 796
----- -----
CASH FLOWS -- FINANCING ACTIVITIES
Issuances of long-term debt ............................................................. 14 111
Retirements/repurchases of securities:
Long-term debt ...................................................................... (110) (341)
Common stock ........................................................................ (372) (297)
Change in notes payable -- affiliates ................................................... (32) 95
Preferred stock dividends paid .......................................................... (5) (5)
Debt premium, discount, financing and reacquisition expenses ............................ (3) (23)
----- -----
Cash used in financing activities ....................................... (508) (460)
----- -----
CASH FLOWS -- INVESTING ACTIVITIES
Construction expenditures ................................................................ (318) (275)
Nuclear fuel ............................................................................. (38) (45)
Other investments ........................................................................ (10) (13)
----- -----
Cash used in investing activities ....................................... (366) (333)
----- -----
NET CHANGE IN CASH AND CASH EQUIVALENTS ..................................................... 11 3
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE ................................................ 4 5
----- -----
CASH AND CASH EQUIVALENTS -- ENDING BALANCE ................................................... $ 15 $ 8
===== =====
See Notes to Financial Statements.
4
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
----------- ------------
MILLIONS OF DOLLARS
ELECTRIC PLANT
In service:
Production ................................................................................ $15,564 $15,533
Transmission .............................................................................. 1,686 1,681
Distribution .............................................................................. 5,544 5,390
General ................................................................................... 505 498
------- -------
Total ........................................................................... 23,299 23,102
Less accumulated depreciation ............................................................. 7,687 7,409
------- -------
Electric plant in service, less accumulated depreciation ........................ 15,612 15,693
Construction work in progress ............................................................. 286 191
Nuclear fuel (net of accumulated amortization: 2000 -- $679; 1999 -- $635) ............... 165 171
Held for future use ....................................................................... 22 24
------- -------
Electric plant, less accumulated depreciation and amortization .................. 16,085 16,079
Reserve for regulatory disallowances ...................................................... (836) (836)
------- -------
Net electric plant .............................................................. 15,249 15,243
------- -------
INVESTMENTS .................................................................................... 634 612
------- -------
CURRENT ASSETS
Cash and cash equivalents ................................................................. 15 4
Accounts receivable (net of allowance for uncollectible accounts: 2000 -- $4; 1999 -- $4).. 247 162
Inventories - at average cost:
Materials and supplies ............................................................... 156 158
Fuel stock ........................................................................... 83 84
Deferred income taxes ..................................................................... -- 21
Prepayments and other current assets ...................................................... 51 38
------- -------
Total current assets ............................................................ 552 467
------- -------
OTHER ASSETS
Regulatory assets ......................................................................... 1,579 1,680
Under-recovered fuel revenue .............................................................. 164 39
Deferred debits ........................................................................... 68 67
------- -------
Total other assets .............................................................. 1,811 1,786
------- -------
Total ................................................................. $18,246 $18,108
======= =======
See Notes to Financial Statements.
5
TXU ELECTRIC COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
JUNE 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
----------- ------------
MILLIONS OF DOLLARS
CAPITALIZATION
Common stock without par value:
Authorized shares: 180,000,000
Outstanding shares: 2000 -- 94,083,000 and 1999 -- 103,874,700 ....................... $ 2,851 $ 3,145
Stock of parent held for long-term incentive plan trust .................................... (8) (10)
Retained earnings .......................................................................... 3,789 3,536
------- -------
Total common stock equity ...................................................... 6,632 6,671
Preferred stock:
Not subject to mandatory redemption ................................................... 115 115
Subject to mandatory redemption ....................................................... 21 21
TXU Electric Company obligated, mandatorily redeemable, preferred securities of subsidiary
trusts holding solely junior subordinated debentures of TXU Electric Company ......... 829 824
Long-term debt, less amounts due currently ................................................ 4,658 4,684
------- -------
Total capitalization ........................................................... 12,255 12,315
------- -------
CURRENT LIABILITIES
Notes payable - affiliates ................................................................ 289 321
Long-term debt due currently .............................................................. 442 509
Accounts payable:
Affiliates ......................................................................... 219 116
Other .............................................................................. 168 119
Customers' deposits ....................................................................... 79 79
Taxes accrued ............................................................................. 240 139
Interest accrued .......................................................................... 103 113
Deferred income taxes ..................................................................... 55 --
Other current liabilities ................................................................. 141 130
------- -------
Total current liabilities .................................................... 1,736 1,526
------- -------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes ........................................................ 3,337 3,340
Investment tax credits ................................................................... 504 515
Other deferred credits and noncurrent liabilities ........................................ 414 412
------- -------
Total deferred credits and other noncurrent liabilities ...................... 4,255 4,267
------- -------
CONTINGENCIES (Note 5)
------- -------
Total ................................................................... $18,246 $18,108
======== =======
See Notes to Financial Statements.
6
TXU ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS
TXU Electric Company (TXU Electric) is an electric utility engaged in the
generation, purchase, transmission, distribution and sale of electric energy
solely within the State of Texas. TXU Electric is a wholly-owned subsidiary of
TXU Corp., a Texas corporation. TXU Corp. is a holding company that, through its
subsidiaries, is engaged in the generation, purchase, transmission, distribution
and sale of electricity; the purchase, transmission and distribution of natural
gas; energy services; and telecommunications and other businesses primarily in
the United States (US), Europe and Australia. As an integrated electric utility,
TXU Electric currently has only one reportable segment.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The condensed consolidated financial statements
of TXU Electric and its subsidiaries have been prepared on the same basis as
those in its 1999 Form 10-K and, in the opinion of management, all adjustments
(constituting only normal recurring accruals) necessary for a fair presentation
of the results of operations and financial position have been included therein.
Certain information and footnote disclosures normally included in annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain previously reported amounts have been reclassified to conform to current
classifications. All dollar amounts in the financial statements and tables in
the notes are stated in millions of dollars unless otherwise indicated.
There were no items impacting comprehensive income for the periods
reported; therefore, comprehensive income is the same as net income.
3. CAPITALIZATION
COMMON STOCK -- During the six months ended June 30, 2000, TXU Electric
purchased and retired 9.8 million shares of its issued and outstanding common
stock from TXU Corp. at a cost of $372 million. The cost of the repurchased
shares, to the extent it exceeded the amount received upon issuance, has been
charged to retained earnings.
7
TXU ELECTRIC OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS, HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF TXU ELECTRIC
(TRUST SECURITIES) -- At June 30, 2000 and December 31, 1999, the statutory
business trust subsidiaries had Trust Securities outstanding as follows:
TRUST SECURITIES TRUST ASSETS
----------------------------------------------- -----------------------
UNITS (000'S) AMOUNT AMOUNT MATURITY
---------------------- --------------------- ----------------------- --------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
TXU Electric Capital I
(8.25% Series) .............. 5,871 5,871 $ 141 $ 141 $ 155 $ 155 2030
TXU Electric Capital III
(8.00% Series) .............. 8,000 8,000 194 194 206 206 2035
TXU Electric Capital IV
(Floating Rate Trust
Securities)(a) .............. 100 100 98 97 103 103 2037
TXU Electric Capital V
(8.175% Trust
Securities) ................. 400 400 396 392 412 412 2037
------ ------ ----- ----- ----- -----
Total ............... 14,371 14,371 $ 829 $ 824 $ 876 $ 876
====== ====== ===== ===== ===== =====
(a) Floating rate is determined quarterly based on LIBOR. A related interest
rate swap, expiring in May 2002, effectively fixes the rate at 7.183%.
TXU Electric owns the common securities issued by its subsidiary trusts
and has effectively issued a full and unconditional guarantee of each such
trust's securities.
LONG-TERM DEBT -- Certain variable rate debt of TXU Electric requires
periodic remarketing. Because TXU Electric intends to remarket these
obligations, and has the ability to refinance if necessary, they have been
classified as long-term debt. TXU Electric's first mortgage bonds are secured by
a mortgage and deed of trust with a major financial institution. Electric plant
of TXU Electric is generally subject to the lien of its mortgage.
OTHER -- In April 2000, the holders of $340 million of TXU Electric's
Floating Rate Debentures due April 24, 2000 agreed to extend the maturity date
of those debentures to December 1, 2000. In connection with the extension, the
quarterly interest rate formula, based on LIBOR plus a margin, was changed. The
interest rate through July 23, 2000 was 6.68%, and was then reset at 7.11%.
4. REGULATION AND RATES
DOCKET NO. 21527 -- In October 1999, TXU Electric filed a petition with
the Public Utility Commission of Texas (PUC) for a financing order (Docket No.
21527) to permit the issuance by a special purpose entity of $1.65 billion of
transition bonds secured by payments designed to enable TXU Electric to recover
its generation-related regulatory assets and other qualified costs in accordance
with the 1999 Restructuring Legislation. The proceeds received by TXU Electric
are to be used solely for the purpose of retiring utility debt and equity. On
May 1, 2000, the PUC signed a final order rejecting TXU Electric's request for
the $1.65 billion and authorized only $363 million. TXU Electric believes this
final order is inconsistent with the 1999 Restructuring Legislation and filed an
appeal on May 2, 2000 with the Travis County, Texas District Court. TXU Electric
expects that any difference between the $1.65 billion and the amount finally
authorized will continue to be deferred until recovery of generation-related
assets is again addressed by the PUC, most likely in 2001. TXU Electric is
unable to predict the outcome of these proceedings.
The constitutionality of the securitization provisions of the 1999
Restructuring Legislation under the Texas constitution has been challenged in
connection with a securitization request made by Central Power and Light
Company. On July 21, 2000, the Travis County, Texas District Court issued its
judgment denying this appeal and finding that the securitization provisions are
constitutional. Notice of appeal of this judgement to the Texas Supreme Court
has been filed.
8
TXU Electric is unable to predict the outcome of such proceedings.
DOCKET NO. 21950 -- In January 2000, TXU Electric filed with the PUC its
business separation plan as required by the 1999 Restructuring Legislation. The
plan describes how TXU Electric proposes to separate, by September 1, 2000, the
provision of competitive energy services from its regulated business activities,
and how it proposes to unbundle its business by January 1, 2002 in accordance
with the 1999 Restructuring Legislation. Only the transmission and distribution
(T&D) functions will continue to be regulated. An independent organization
certified by the PUC will oversee transmission system planning and reliability
in the State of Texas. Beginning January 1, 2002, retail electric customers in
Texas will be able to select their electricity providers. The portion of this
plan that describes how TXU Electric proposes to separate the provision of
competitive energy services from its regulated business activities has been
severed by the PUC from Docket No. 21950 and assigned Docket No. 21987. On April
3, 2000, TXU Electric and certain other parties to Docket No. 21987 filed with
the PUC a nonunanimous stipulation concerning matters at issue in that
proceeding. In June 2000, the PUC issued an order in Docket No. 21987 approving
this stipulation and the TXU Electric plan, as modified by this stipulation. The
remainder of Docket No. 21950 has been merged with Docket No. 22350 described
below.
DOCKET NO. 22350 -- As required by the 1999 Restructuring Legislation, in
March 2000, TXU Electric filed its transition to competition plan with the PUC.
This plan lays the foundation for retail competition to begin in the Texas
electricity market. Under the plan as filed, the generation business unit and
the retail business unit of TXU Electric will become unregulated entities and
will be allowed to compete for customers. The T&D business units of TXU Electric
will be separated into regulated entities and will together represent the
regulated part of the business. The filing also includes proposed T&D delivery
rates to be charged to retail electric providers. In addition to the actual T&D
charges for delivering electricity, these rates include nuclear decommissioning
fund charges, system benefit fund charges and stranded cost recovery charges.
TXU Electric's stranded costs are estimated to be approximately $3.7 billion,
including the regulatory assets that were part of the Docket No. 21527
proceedings and amounts related to the remand of Docket No. 9300, addressed
below. TXU Electric will be filing an updated stranded cost estimate on or
before August 28, 2000 to reflect various PUC decisions made since Docket No.
22350 was filed. This estimate is subject to a future "true-up" in 2004. TXU
Electric is unable to predict the outcome of these proceedings.
DOCKET NO. 9300/DOCKET NO. 22652 -- The PUC's final order (Order) in
connection with TXU Electric's January 1990 rate increase request (Docket No.
9300) was ultimately reviewed by the Texas Supreme Court. As a result, an
aggregate of $909 million of disallowances with respect to TXU Electric's
reacquisitions of minority owners' interests in Comanche Peak, which had
previously been recorded as a charge to TXU Electric's earnings, was remanded to
the District Court with instructions that it be remanded to the PUC for
reconsideration on the basis of a prudent investment standard. On remand, the
PUC also was required to reevaluate the appropriate level of TXU Electric's
construction work in progress included in rate base in light of its financial
condition at the time of the initial hearing. In connection with the settlement
of Docket No. 18490, proceedings in the remand of Docket No. 9300 had been
stayed through December 31, 1999. In April 2000, TXU Electric requested that the
District Court enter an order remanding Docket No. 9300 to the PUC. On June 9,
2000, the District Court's order of remand was filed with the PUC, and the PUC
has assigned the remand proceeding Docket No. 22652. TXU Electric cannot predict
the outcome of the reconsideration of the Order on remand by the PUC.
DOCKET NO. 22880 -- On August 4, 2000, TXU Electric filed with the PUC a
request to surcharge the cumulative undercollection of fuel cost revenues that
exists as of June 30, 2000, together with interest through November 2000, in the
amount of $167 million, and to increase its current fuel factors by 27.6%. TXU
Electric proposes that the surcharge be collected over a six-month period,
beginning in November 2000. TXU Electric proposes to increase its current fuel
factors, solely to reflect the projected increase in the commodity cost of
natural gas for the period July 1, 2000 through June 30, 2001, on an interim
basis effective September 4, 2000. TXU Electric cannot predict the outcome of
this proceeding.
9
5. CONTINGENCIES
FINANCIAL GUARANTEES --TXU Electric has entered into contracts with public
agencies to purchase cooling water for use in the generation of electric energy
and has agreed, in effect, to guarantee the principal, $25 million at June 30,
2000, 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%. TXU Electric has assigned to a
municipality all contract rights and obligations of TXU Electric in connection
with $53 million principal amount of bonds remaining at June 30, 2000, issued
for similar purposes which had previously been guaranteed by TXU Electric. TXU
Electric is, however, contingently liable in the unlikely event of default by
the municipality.
GENERAL -- TXU Electric is involved in various legal and administrative
proceedings, the ultimate resolution of which, in the opinion of management,
should not have a material effect upon its financial position, results of
operations or cash flows.
10
INDEPENDENT ACCOUNTANTS' REPORT
TXU Electric Company:
We have reviewed the accompanying condensed consolidated balance sheet of TXU
Electric Company and subsidiaries (TXU Electric) as of June 30, 2000, and the
related condensed statements of consolidated income for the three-month and
six-month periods ended June 30, 2000 and 1999 and of consolidated cash flows
for the six-month periods ended June 30, 2000 and 1999. These financial
statements are the responsibility of TXU Electric's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of TXU
Electric as of December 31, 1999, and the related statements of consolidated
income, comprehensive income, cash flows and common stock equity for the year
then ended (not presented herein); and in our report dated February 16, 2000, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1999, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
August 7, 2000
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS
In October 1999, TXU Electric announced plans to sell six of its eighteen
natural gas-fired electricity generating plants in Texas. Due to recent action
by the Texas Natural Resource Conservation Commission, which would require
emission reductions for TXU Electric's power plants, TXU Electric has extended
the bid process to allow prospective buyers time to evaluate this action. TXU
Electric anticipates completion of the plant sales in 2001.
RESULTS OF OPERATIONS
SIGNIFICANT HIGHLIGHTS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
------- ------- ------- -------
Revenues (millions):
Base rate ............................ $ 1,145 $ 1,082 $ 2,081 $ 1,981
Transmission service ................. 41 34 84 68
Fuel ................................. 580 425 938 761
Fuel reconciliation settlement ....... -- (52) -- (52)
Earnings in excess of earnings cap... (100) -- (100) --
Other ................................ 18 14 32 30
------- ------- ------- -------
Total operating revenues ........ $ 1,684 $ 1,503 $ 3,035 $ 2,788
======= ======= ======= =======
Electric energy sales (gigawatt-hours) .... 25,245 24,755 47,560 46,139
Degree days (% of normal):
Cooling .............................. 115% 112% 121% 110%
Heating .............................. 79% 53% 64% 73%
THREE MONTHS ENDED JUNE 30, 2000
Net income of $188 million for the three months ended June 30, 2000 was
16% higher than the same period of 1999. Comparisons of net income were impacted
by both a fuel reconciliation settlement that reduced net income in the 1999
period by $31 million and a rate settlement agreement that became effective in
1998 and was modified by the 1999 Restructuring Legislation, which reduced
customer rates and introduced an earnings cap.
From January 1, 1998 through June 30, 1999, earnings in excess of the
earnings cap were recorded as additional depreciation of nuclear production
assets. Effective July 1, 1999, following the 1999 Restructuring Legislation,
earnings in excess of the earnings cap were recorded as a reduction of revenues,
with a corresponding regulatory liability recorded. Mitigation as a result of
the earnings cap reduced net income by $65 million in the second quarter of 2000
and $33 million in the second quarter of 1999.
Additionally, from January 1, 1998 through June 30, 1999, depreciation
expense was reclassified from transmission and distribution (T&D) to nuclear
production assets. Effective July 1, 1999, following the 1999 Restructuring
Legislation, T&D depreciation expense was no longer transferred to nuclear
production assets; instead an amount equivalent to T&D depreciation was recorded
as a regulatory asset, with an offsetting amount recorded as a regulatory
liability. The regulatory asset will be amortized as it is recovered through the
distribution portion of the business, while the regulatory liability will be
applied against stranded generation assets. Since January 1998, regular nuclear
depreciation and additional nuclear mitigation total approximately $1.6 billion.
12
Excluding the decrease in revenues as a result of the earnings cap and
fuel reconciliation settlement, operating revenues for the second quarter of
2000 were up 15% from the second quarter of 1999 primarily due to higher fuel
revenues as a result of higher gas prices and a 2% increase in sales volumes
resulting primarily from customer growth.
Energy purchased for resale and fuel consumed in the current quarter
increased $171 million (33%) from the second quarter of last year primarily due
to both higher fuel gas prices and growth in electric energy sales.
Operation and maintenance expenses for the current second quarter were 9%
higher than in the 1999 second quarter primarily due to increased PUC
third-party transmission tariffs. Depreciation and amortization expense was $56
million lower in the 2000 second quarter versus the 1999 second quarter, which
included mitigation depreciation of $61 million.
The 14% decrease in interest expense and other charges in the second
quarter of 2000 compared with the prior-year second quarter was primarily due to
the reacquisition of long-term debt and remarketing of certain debt to lower
interest rates.
The effective income tax rate for the 2000 three-month period was 32%
versus 25% for the prior-year period. Both periods benefited from the
discontinuation of amortization of prior period flow-through amounts and other
tax-related regulatory assets and liabilities resulting from the impact of the
1999 Restructuring Legislation.
SIX MONTHS ENDED JUNE 30, 2000
Net income for the six months ended June 30, 2000 of $336 million
increased 25% from the same period of 1999, which included the $31 million fuel
reconciliation settlement. Mitigation as a result of the earnings cap reduced
net income by $65 million in the 2000 period and $33 million in the 1999 period.
Excluding the reduction in revenues as a result of the earnings cap and
fuel reconciliation settlement, operating revenues for the second quarter of
2000 were up 10% from the corresponding 1999 period, reflecting a 23% increase
in fuel revenues and a 3% increase in sales volumes.
Energy purchased for resale and fuel consumed in the first six months of
2000 increased $192 million (21%) from the first six months of 1999 primarily
due to both higher fuel gas prices and growth in electric energy sales.
Operation and maintenance expenses for the current six-month period were
4% higher than the same period in 1999 primarily due to increased PUC
third-party transmission tariffs. Depreciation and amortization expense was $51
million lower in the current period compared with the prior-year period, which
included mitigation depreciation of $61 million.
Interest expense and other charges of $219 million for the first half of
2000 was 15% lower than in the same period of 1999 due to the reacquisition of
long-term debt and remarketing of certain debt to lower interest rates.
The effective income tax rate for the 2000 six-month period was 31% versus
27% for the prior-year period. Both periods benefited from the discontinuation
of amortization of prior period flow-through amounts and other tax-related
regulatory assets and liabilities resulting from the impact of the 1999
Restructuring Legislation.
13
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities before changes in operating
assets and liabilities for the six months ended June 30, 2000 were $801 million
compared with $756 million for the same period in 1999 year. Changes in
operating assets and liabilities in the first six months of 2000 provided $84
million versus $40 million in the prior-year period.
Cash flows used in financing activities were $508 million in the first
half of 2000 compared with $460 million for the first six months of 1999.
Financing activities in the first half of 2000 included the retirement of $110
million of long-term debt and the repurchase of $372 million of common stock
from TXU Corp.
Cash flows used in investing activities for the first six months of 2000
totaled $366 million versus $333 million for the same period last year.
Construction expenditures were $318 million and $275 million for the six months
of 2000 and 1999, respectively.
No other substantive changes to financing arrangements have occurred
subsequent to December 31, 1999. Early redemptions of preferred stock, long-term
debt and trust securities may occur from time to time in amounts presently
undetermined.
REGULATION AND RATES
Although TXU Electric cannot predict future regulatory or legislative
actions or any changes in economic and securities market conditions, no changes
are expected in trends or commitments, other than those discussed in the 1999
Form 10-K and this Form 10-Q, which might significantly alter its financial
position, results of operations or cash flows. See Note 4 to Financial
Statements.
CHANGES IN ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities", as extended and amended, is
effective for TXU Electric beginning January 1, 2001. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires the recognition of derivatives as either assets or liabilities in
the statement of financial position and the measurement of those instruments at
fair value. TXU Electric is currently evaluating the impact the adoption of this
standard will have on its financial position and results of operations.
FORWARD-LOOKING STATEMENTS
This report and other presentations made by TXU Electric contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Although TXU Electric believes that in making
any such statement its expectations are based on reasonable assumptions, any
such statement involves uncertainties and is qualified in its entirety by
reference to factors contained in the Forward-Looking Statements section of Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations in TXU Electric's 1999 Form 10-K, as well as general industry trends;
implementation of the 1999 Restructuring Legislation; power costs and
availability; changes in business strategy, development plans or vendor
relationships; availability of qualified personnel; changes in, or the failure
or inability to comply with, governmental regulations, including, without
limitation, environmental regulations; changes in tax laws; and access to
adequate transmission facilities to meet changing demands, among others, that
could cause the actual results of TXU Electric to differ materially from those
projected in such forward-looking statements.
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Any forward-looking statement speaks only as of the date on which such
statement is made, and TXU Electric undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for TXU
Electric to predict all of such factors, nor can it assess the impact of each
such factor or the extent to which any factor, or combination of factors, may
cause results to differ materially from those contained in any forward-looking
statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required hereunder is not significantly different from the
information set forth in Item 7A. Quantitative and Qualitative Disclosures About
Market Risk included in TXU Electric's 1999 Form 10-K and is therefore not
presented herein.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as a part of Part II are:
15 Letter from independent accountants as to unaudited interim financial
information
27 Financial Data Schedule
99 Condensed Statements of Consolidated Income -- Twelve Months Ended
June 30, 2000 and 1999.
(b) Reports on Form 8-K filed since March 31, 2000:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TXU ELECTRIC COMPANY
By /s/ Jerry W. Pinkerton
-------------------------------
Jerry W. Pinkerton
Vice President,
Principal Accounting Officer
By /s/ Gaylene M. Mcmahon
-------------------------------
Gaylene M. McMahon
Controller
Date: August 10, 2000
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