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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, 1995
-- OR --
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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TEXAS UTILITIES COMPANY
A Texas Corporation I.R.S. Employer Identification
Commission File Number 1-3591 No. 75-0705930
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
(214) 812-4600
TEXAS UTILITIES ELECTRIC COMPANY
A Texas Corporation I.R.S. Employer Identification
Commission File Number 0-11442 No. 75-1837355
ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
(214) 812-4600
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Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes X No
--------- ---------
COMMON STOCK OUTSTANDING AT JULY 31, 1995:
Texas Utilities Company: 225,841,037 shares, without par value.
Texas Utilities Electric Company: 156,800,000 shares, without par value.
THIS COMBINED FORM 10-Q 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 ELECTRIC COMPANY NOR TEXAS UTILITIES COMPANY MAKES ANY REPRESENTATIONS
AS TO INFORMATION FILED BY THE OTHER REGISTRANT.
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TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
Condensed Statements of Consolidated Income
Three, Six and Twelve Months Ended June 30, 1995 and 1994.... 3
Condensed Statements of Consolidated Cash Flows
Six Months Ended June 30, 1995 and 1994...................... 4
Condensed Consolidated Balance Sheets
June 30, 1995 and December 31, 1994.......................... 5
TEXAS UTILITIES ELECTRIC COMPANY
Condensed Statements of Income
Three, Six and Twelve Months Ended June 30, 1995 and 1994.... 7
Condensed Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994...................... 8
Condensed Balance Sheets
June 30, 1995 and December 31, 1994.......................... 9
NOTES TO CONDENSED FINANCIAL STATEMENTS........................ 11
INDEPENDENT ACCOUNTANTS' REPORTS............................... 18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation................................. 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 24
Item 4. Submission of Matters to a Vote of Security Holders...... 24
Item 5. Other Information........................................ 25
Item 6. Exhibits and Reports on Form 8-K......................... 25
SIGNATURES................................................................. 26
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
----------------------- --------------------- ----------------------
1995 1994 1995 1994 1995 1994
------- -------- ------- ------- ------- -------
THOUSANDS OF DOLLARS
OPERATING REVENUES......... $1,353,998 $1,436,738 $2,598,263 $2,740,836 $5,520,970 $5,776,902
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power. 392,277 434,303 782,869 851,589 1,660,372 1,856,420
Operation................ 203,862 210,301 399,478 427,332 844,417 865,716
Maintenance.............. 65,970 82,942 134,801 155,321 284,421 357,636
Depreciation and
amortization............ 139,245 137,100 278,159 273,698 554,001 497,602
Federal income taxes..... 81,861 81,565 124,634 124,796 316,905 357,390
Taxes other than income.. 130,339 144,972 269,307 292,634 535,744 557,023
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 1,013,554 1,091,183 1,989,248 2,125,370 4,195,860 4,491,787
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME........... 340,444 345,555 609,015 615,466 1,325,110 1,285,115
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME (LOSS)
Allowance for equity
funds used during
construction............ 6 3,092 (48) 5,981 4,746 41,574
Regulatory disallowances. -- -- -- -- -- (359,556)
Other income and
deductions -- net....... 4,388 6,912 9,124 16,238 20,490 33,119
Federal income taxes..... (2,717) (1,413) (5,662) (4,649) (10,657) 90,671
---------- ---------- ---------- ---------- ---------- ----------
Total other income (loss) 1,677 8,591 3,414 17,570 14,579 (194,192)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCOME............... 342,121 354,146 612,429 633,036 1,339,689 1,090,923
---------- ---------- ---------- ---------- ---------- ----------
INTEREST CHARGES
Interest on mortgage bonds 135,241 141,603 272,228 290,294 549,477 596,323
Interest on other
long-term debt........... 27,276 23,542 50,405 47,320 95,609 100,582
Other interest............ 14,580 19,431 30,985 33,498 64,295 49,744
Allowance for borrowed
funds used during
construction............. (4,643) (2,647) (9,813) (5,121) (15,953) (31,935)
---------- ---------- ---------- ---------- ---------- ----------
Total interest charges. 172,454 181,929 343,805 365,991 693,428 714,714
PREFERRED STOCK DIVIDENDS
OF SUBSIDIARY............. 21,235 25,990 44,781 54,072 92,592 110,359
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME.... $ 148,432 $ 146,227 $ 223,843 $ 212,973 $ 553,669 $ 265,850
========== ========== ========== ========== ========== ==========
Average shares of common
stock outstanding
(thousands)............... 225,841 225,841 225,841 225,826 225,841 224,719
Earnings and dividends
per share of common stock:
Earnings (on average
shares outstanding).... $ 0.66 $ 0.65 $ 0.99 $ 0.94 $ 2.45 $ 1.18
Dividends declared per
share of common stock.. $ 0.77 $ 0.77 $ 1.54 $ 1.54 $ 3.08 $ 3.08
See Accompanying Notes to Condensed Financial Statements.
3
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1994
-------- --------
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income....................... $223,843 $212,973
Adjustments to reconcile consolidated net
income to cash provided by operating
activities:
Depreciation and amortization
(including amounts charged to fuel)........ 352,533 350,237
Deferred federal income taxes -- net........ 98,176 60,877
Federal investment tax credits -- net....... (11,518) (14,410)
Allowance for equity funds used during
construction............................... 48 (5,981)
Changes in operating assets and liabilities:
Receivables............................... (65,329) (70,725)
Inventories............................... 4,810 17,003
Accounts payable.......................... 45,426 (18,605)
Interest and taxes accrued................ (48,393) (79,173)
Other working capital..................... (40,923) 30,128
Over/(under)-recovered fuel
revenue -- net of deferred taxes......... 85,388 (21,991)
Other -- net.............................. (9,911) 48,471
-------- --------
Cash provided by operating activities... 634,150 508,804
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of securities:
First mortgage bonds........................ 317,176 378,340
Other long-term debt........................ 300,000 --
Common stock................................ -- 62,102
Retirement of long-term debt and
preferred stock.............................. (501,251) (851,406)
Change in notes payable....................... (64,781) 320,335
Common stock dividends paid................... (347,861) (347,795)
Debt premium, discount, financing and
reacquisition expenses....................... (44,672) (11,013)
-------- --------
Cash used in financing activities....... (341,389) (449,437)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures..................... (199,428) (200,949)
Allowance for equity funds used during
construction (excluding amount for
nuclear fuel)................................ (48) 2,485
Change in construction
receivables/payables -- net.................. 1,328 (390)
-------- --------
Cash construction expenditures.......... (198,148) (198,854)
Non-utility property -- net................... (63,039) (15,655)
Nuclear fuel (excluding allowance for equity
funds used during construction).............. (18,552) (27,911)
Other investments............................. (13,185) (9,159)
-------- --------
Cash used in investing activities....... (292,924) (251,579)
NET CHANGE IN CASH AND CASH EQUIVALENTS....... (163) (192,212)
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE 7,426 212,584
-------- --------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE... $ 7,263 $ 20,372
======== ========
See Accompanying Notes to Condensed Financial Statements.
4
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
1995 1994
(UNAUDITED)
----------- ------------
THOUSANDS OF DOLLARS
UTILITY PLANT
In service:
Production............................................................ $16,520,207 $16,516,326
Transmission.......................................................... 1,588,824 1,573,634
Distribution.......................................................... 4,145,969 4,048,867
General............................................................... 446,173 456,212
----------- -----------
Total............................................................. 22,701,173 22,595,039
Less accumulated depreciation........................................... 5,232,948 5,023,003
----------- -----------
Utility plant in service less accumulated depreciation............ 17,468,225 17,572,036
Construction work in progress........................................... 271,833 1,060,731
Nuclear fuel (net of accumulated amortization: 1995 -- $246,944,000;
1994 -- $205,420,000).................................................. 275,991 298,964
Held for future use (Note 6)............................................ 853,074 46,197
----------- -----------
Utility plant less accumulated depreciation and amortization...... 18,869,123 18,977,928
Less reserve for regulatory disallowances (Note 5)...................... 1,308,460 1,308,460
----------- -----------
Net utility plant................................................. 17,560,663 17,669,468
----------- -----------
INVESTMENTS
Non-utility property.................................................... 632,376 569,337
Other investments....................................................... 135,746 122,906
----------- -----------
Total investments................................................. 768,122 692,243
----------- -----------
CURRENT ASSETS
Cash in banks........................................................... 7,263 7,426
Special deposits........................................................ 1,006 1,002
Accounts receivable:
Customers.............................................................. 269,647 201,687
Other.................................................................. 35,327 38,712
Allowance for uncollectible accounts................................... (4,341) (5,095)
Inventories -- at average cost:
Materials and supplies................................................. 195,277 194,271
Fuel stock............................................................. 139,846 145,662
Prepaid taxes........................................................... 42,010 21,629
Other prepayments....................................................... 39,034 41,871
Deferred federal income taxes........................................... 37,355 37,113
Other current assets.................................................... 12,666 11,216
----------- -----------
Total current assets.............................................. 775,090 695,494
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets:
Debt reacquisition costs.............................................. 321,187 284,563
Cancelled lignite unit costs.......................................... 16,677 18,049
Rate case costs....................................................... 63,517 64,862
Litigation and settlement costs....................................... 72,685 72,685
Voluntary retirement/severance program................................ 170,339 184,340
Recoverable deferred federal income taxes -- net...................... 1,181,980 1,201,688
Other regulatory assets............................................... 15,178 15,939
Under-recovered fuel revenue........................................... -- 29,860
Other deferred debits.................................................. 70,692 36,902
----------- -----------
Total deferred debits............................................. 1,912,255 1,908,888
Less reserve for regulatory disallowances (Note 5)..................... 72,685 72,685
----------- -----------
Net deferred debits............................................... 1,839,570 1,836,203
----------- -----------
Total..................................................... $20,943,445 $20,893,408
=========== ===========
See Accompanying Notes to Condensed Financial Statements.
5
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
JUNE 30, DECEMBER 31,
1995 1994
(UNAUDITED)
------------ ------------
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value -- net:
Authorized shares -- 500,000,000
Outstanding shares: 1995 -- 225,841,037; 1994 -- 225,841,037................ $ 4,802,844 $ 4,798,797
Retained earnings................................................................. 1,569,738 1,691,250
----------- -----------
Total common stock equity........................................... 6,372,582 6,490,047
Preferred stock:
Not subject to mandatory redemption......................................... 855,869 870,190
Subject to mandatory redemption............................................. 300,457 387,482
Long-term debt, less amounts due currently........................................ 8,130,245 7,888,413
----------- -----------
Total capitalization................................................ 15,659,153 15,636,132
----------- -----------
CURRENT LIABILITIES
Notes payable -- commercial paper................................................. 299,105 363,886
Long-term debt due currently...................................................... 58,126 74,610
Accounts payable.................................................................. 266,415 219,661
Dividends declared................................................................ 194,978 197,564
Customers' deposits............................................................... 61,287 56,391
Taxes accrued..................................................................... 207,198 243,753
Interest accrued.................................................................. 171,707 183,545
Over-recovered fuel revenue....................................................... 101,850 --
Other current liabilities......................................................... 71,029 95,329
----------- -----------
Total current liabilities........................................... 1,431,695 1,434,739
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes......................................... 2,888,243 2,852,462
Unamortized federal investment tax credits........................................ 667,586 679,104
Other deferred credits and noncurrent liabilities................................. 296,768 290,971
----------- -----------
Total deferred credits and other noncurrent liabilities............. 3,852,597 3,822,537
COMMITMENTS AND CONTINGENCIES (Note 6)
----------- -----------
Total............................................................... $20,943,445 $20,893,408
=========== ===========
See Accompanying Notes to Condensed Financial Statements.
6
TEXAS UTILITIES ELECTRIC COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------------- ------------------------- ------------------------
1995 1994 1995 1994 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
THOUSANDS OF DOLLARS
OPERATING REVENUES.................. $1,341,245 $1,423,644 $2,575,017 $2,716,979 $5,471,212 $5,728,293
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power.......... 410,127 452,981 816,829 886,524 1,728,798 1,930,781
Operation......................... 189,939 194,610 377,471 397,488 793,040 804,988
Maintenance....................... 63,853 80,405 131,231 151,337 275,653 347,115
Depreciation and amortization..... 136,871 134,816 273,428 269,121 544,842 487,814
Federal income taxes.............. 87,580 86,061 135,024 134,918 338,570 377,323
Taxes other than income........... 124,254 139,188 257,022 279,891 511,561 533,448
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses..... 1,012,624 1,088,061 1,991,005 2,119,279 4,192,464 4,481,469
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME.................... 328,621 335,583 584,012 597,700 1,278,748 1,246,824
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME (LOSS)
Allowance for equity funds used
during construction.............. -- 3,085 (58) 5,968 4,717 41,552
Regulatory disallowances.......... -- -- -- -- -- (359,556)
Other income and deductions
-- net........................... 2,680 1,848 5,042 4,635 10,567 7,786
Federal income taxes.............. (808) (1,134) (1,592) (2,080) (3,734) 101,310
---------- ---------- ---------- ---------- ---------- ----------
Total other income (loss).... 1,872 3,799 3,392 8,523 11,550 (208,908)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCOME........................ 330,493 339,382 587,404 606,223 1,290,298 1,037,916
---------- ---------- ---------- ---------- ---------- ----------
INTEREST CHARGES
Interest on mortgage bonds........ 135,205 141,557 272,147 290,203 549,306 596,141
Interest on other long-term
debt............................. 12,823 8,058 21,422 16,141 37,464 37,755
Other interest.................... 12,887 18,060 27,667 31,884 58,414 46,365
Allowance for borrowed funds used
during construction.............. (4,641) (2,645) (9,809) (5,117) (15,943) (31,929)
---------- ---------- ---------- ---------- ---------- ----------
Total interest charges....... 156,274 165,030 311,427 333,111 629,241 648,332
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME.......................... 174,219 174,352 275,977 273,112 661,057 389,584
PREFERRED STOCK DIVIDENDS........... 21,235 25,990 44,781 54,072 92,592 110,359
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS................... $ 152,984 $ 148,362 $ 231,196 $ 219,040 $ 568,465 $ 279,225
========== ========== ========== ========== ========== ==========
See Accompanying Notes to Condensed Financial Statements.
7
TEXAS UTILITIES ELECTRIC COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------------
1995 1994
--------- ---------
THOUSANDS OF DOLLARS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................................. $275,977 $273,112
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization........................................................ 337,374 332,572
Deferred federal income taxes -- net................................................. 105,474 80,058
Federal investment tax credits -- net................................................ (10,730) (13,044)
Allowance for equity funds used during construction.................................. 58 (5,968)
Changes in operating assets and liabilities:
Receivables...................................................................... (59,401) (72,243)
Inventories...................................................................... (3,309) 4,846
Accounts payable................................................................. 16,439 (2,608)
Interest and taxes accrued....................................................... (48,370) (63,499)
Other working capital............................................................ (33,066) 26,713
Over/(under)-recovered fuel revenue -- net of deferred taxes..................... 85,388 (21,991)
Other -- net..................................................................... (18,692) 35,956
-------- --------
Cash provided by operating activities.................................... 647,142 573,904
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of securities:
First mortgage bonds................................................................. 317,176 378,340
Other long-term debt................................................................. 300,000 --
Common stock......................................................................... -- 249,600
Retirement of long-term debt and preferred stock........................................ (496,976) (773,440)
Change in notes receivable -- affiliates................................................ (30,614) (6,808)
Change in notes payable -- parent....................................................... -- (88,434)
Change in notes payable -- other........................................................ (64,781) 295,335
Preferred stock dividends paid.......................................................... (47,141) (55,804)
Common stock dividends paid............................................................. (360,640) (355,120)
Debt premium, discount, financing and reacquisition expenses............................ (44,672) (11,334)
-------- --------
Cash used in financing activities........................................ (427,648) (367,665)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures............................................................... (190,942) (190,557)
Allowance for equity funds used during construction (excluding amount for nuclear fuel). (58) 2,472
Change in construction receivables/payables -- net...................................... 1,328 449
-------- --------
Cash construction expenditures........................................... (189,672) (187,636)
Non-utility property -- net............................................................. 16 --
Nuclear fuel (excluding allowance for equity funds used during construction)............ (18,552) (27,911)
Other investments....................................................................... (11,423) (10,411)
-------- --------
Cash used in investing activities........................................ (219,631) (225,958)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................................................. (137) (19,719)
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE........................................... 6,699 27,929
-------- --------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE.............................................. $ 6,562 $ 8,210
======== ========
See Accompanying Notes to Condensed Financial Statements.
8
TEXAS UTILITIES ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
1995 1994
(UNAUDITED)
------------- ------------
THOUSANDS OF DOLLARS
ELECTRIC PLANT
In service:
Production............................................................. $15,560,887 $15,553,422
Transmission........................................................... 1,582,795 1,567,617
Distribution........................................................... 4,092,240 3,997,061
General................................................................ 414,501 425,973
----------- -----------
Total............................................................. 21,650,423 21,544,073
Less accumulated depreciation.......................................... 4,763,942 4,560,054
----------- -----------
Electric plant in service less accumulated depreciation........... 16,886,481 16,984,019
Construction work in progress........................................... 257,656 971,429
Nuclear fuel (net of accumulated amortization: 1995 -- $246,944,000;
1994 -- $205,420,000).................................................. 275,991 298,964
Held for future use (Note 6)............................................ 772,333 43,550
----------- -----------
Electric plant less accumulated depreciation and amortization..... 18,192,461 18,297,962
Less reserve for regulatory disallowances (Note 5)...................... 1,308,460 1,308,460
----------- -----------
Net electric plant................................................ 16,884,001 16,989,502
----------- -----------
INVESTMENTS............................................................... 82,492 71,085
----------- -----------
CURRENT ASSETS
Cash in banks.......................................................... 6,562 6,699
Special deposits....................................................... 552 527
Notes receivable - affiliates.......................................... 59,208 28,594
Accounts receivable:
Customers............................................................. 263,522 196,507
Other................................................................. 18,500 26,869
Allowance for uncollectible accounts.................................. (4,271) (5,026)
Inventories -- at average cost:
Materials and supplies................................................ 181,080 178,977
Fuel stock............................................................ 84,731 83,525
Prepaid taxes.......................................................... 41,856 21,614
Deferred federal income taxes.......................................... 37,444 37,202
Other current assets................................................... 15,306 16,379
----------- -----------
Total current assets.............................................. 704,490 591,867
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets:
Debt reacquisition costs............................................... 318,533 281,023
Cancelled lignite unit costs........................................... 16,677 18,049
Rate case costs........................................................ 63,517 64,862
Litigation and settlement costs........................................ 72,685 72,685
Voluntary retirement/severance program................................. 144,519 156,397
Recoverable deferred federal income taxes -- net....................... 1,188,599 1,208,833
Other regulatory assets................................................ 12,194 12,654
Under-recovered fuel revenue............................................. -- 29,860
Other deferred debits.................................................... 55,456 22,866
----------- -----------
Total deferred debits............................................. 1,872,180 1,867,229
Less reserve for regulatory disallowances (Note 5)....................... 72,685 72,685
----------- -----------
Net deferred debits............................................... 1,799,495 1,794,544
----------- -----------
Total..................................................... $19,470,478 $19,446,998
=========== ===========
See Accompanying Notes to Condensed Financial Statements.
9
TEXAS UTILITIES ELECTRIC COMPANY
CONDENSED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
JUNE 30, DECEMBER 31,
1995 1994
(UNAUDITED)
----------- -----------
THOUSANDS OF DOLLARS
CAPITALIZATION
Common stock without par value:
Authorized shares -- 180,000,000
Outstanding shares: 1995 -- 156,800,000; 1994 -- 156,800,000.. $ 5,166,125 $ 5,166,125
Retained earnings............................................... 817,876 948,136
----------- -----------
Total common stock equity................................. 5,984,001 6,114,261
Preferred stock:
Not subject to mandatory redemption........................... 855,869 870,190
Subject to mandatory redemption............................... 300,457 387,482
Long-term debt, less amounts due currently...................... 7,465,841 7,220,641
----------- -----------
Total capitalization...................................... 14,606,168 14,592,574
----------- -----------
CURRENT LIABILITIES
Notes payable -- commercial paper................................ 299,105 363,886
Long-term debt due currently..................................... 40,263 56,037
Accounts payable:
Affiliates..................................................... 115,522 97,443
Other.......................................................... 112,832 113,144
Dividends declared............................................... 21,080 23,600
Customers' deposits.............................................. 60,640 55,726
Taxes accrued.................................................... 198,066 234,840
Interest accrued................................................. 148,198 159,794
Over-recovered fuel revenue...................................... 101,850 --
Other current liabilities........................................ 53,163 71,950
----------- -----------
Total current liabilities.................................. 1,150,719 1,176,420
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred federal income taxes........................ 2,804,324 2,761,772
Unamortized federal investment tax credits....................... 653,479 664,209
Other deferred credits and noncurrent liabilities................ 255,788 252,023
----------- -----------
Total deferred credits and other noncurrent liabilities.... 3,713,591 3,678,004
COMMITMENTS AND CONTINGENCIES (Note 6)
----------- -----------
Total.............................................. $19,470,478 $19,446,998
=========== ===========
See Accompanying Notes to Condensed Financial Statements.
10
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. GENERAL
Basis of Presentation -- The condensed financial statements of Texas
Utilities Company and Subsidiaries (Company) and Texas Utilities Electric
Company (TU Electric) have been prepared on the same basis as those in the
respective 1994 Annual Report on Form 10-K of such company and, in the opinion
of the Company or TU Electric, as the case may be, all adjustments (constituting
only normal recurring accruals) necessary to a fair statement of the results of
operation have been included therein. The statements are presented pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The Company and TU
Electric each believes that its respective disclosures are adequate to make the
information presented not misleading.
The financial statements and notes should be considered in conjunction with
the financial statements, and the notes thereto, of the Company and TU Electric
included in their respective 1994 Annual Reports on Form 10-K, and the
information under Management's Discussion and Analysis of Financial Condition
and Results of Operation herein.
Certain financial statement items for 1994 have been reclassified to
conform to the 1995 presentation.
THE COMPANY
- -----------
Consolidation -- The consolidated financial statements include the Company
and all of its subsidiaries (System Companies):
TU Electric Texas Utilities Services Inc. (TU Services)
Southwestern Electric Service Texas Utilities Properties Inc.
Company (SESCO) (TU Properties)
Texas Utilities Fuel Company Texas Utilities Communications Inc.
(Fuel Company) (TU Communications)
Texas Utilities Mining Company Basic Resources Inc. (Basic)
(Mining Company)
Chaco Energy Company (Chaco)
In March 1995, 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 expanding energy
services business.
All significant intercompany items and transactions have been eliminated in
consolidation.
TU ELECTRIC
- -----------
Allowance for Funds Used During Construction (AFUDC) -- TU Electric is
capitalizing AFUDC monthly, on expenditures for ongoing construction work in
progress (CWIP) and nuclear fuel in process not otherwise allowed in rate base
by regulatory authorities. Effective January 1, 1995, TU Electric began using a
gross rate of 6.75% for AFUDC for all construction. For 1994 and 1993, the gross
rates were 8.6% and 10.4%, respectively.
2. SHORT-TERM FINANCING
THE COMPANY AND TU ELECTRIC
- ---------------------------
At June 30, 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. The
Company pays a fee for each facility. Facility A provides for borrowings up to
$300,000,000 and terminates April 28, 1996. 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 $400,000,000. Borrowings under the
Agreements will be used for working capital and other corporate purposes,
including commercial paper backup.
11
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
3. CAPITALIZATION
COMMON STOCK
THE COMPANY
- -----------
In 1990, the Company's Employee Thrift Plan (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 the 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 during the six months
ended June 30, 1995, increased common stock equity by $4,046,525.
PREFERRED STOCK
TU ELECTRIC
- -----------
At June 30, 1995 and December 31, 1994, TU Electric had 17,000,000 shares
of preferred stock authorized by its articles of incorporation of which
11,764,553 and 12,787,228 shares were issued and outstanding, respectively.
During the six months ended June 30, 1995, TU Electric redeemed or
purchased 897,675 shares of preferred stock with annual dividend rates ranging
from $7.22 to $10.375, and redeemed 125,000 shares of $9.64 Cumulative Preferred
Stock which fulfills its mandatory redemption requirement until November 1,
1995.
LONG-TERM DEBT
TU ELECTRIC
- -----------
TU Electric issued the following long-term debt during the six months ended
June 30, 1995:
PRINCIPAL
DESCRIPTION AMOUNT INTEREST RATE MATURITY
----------- --------- ------------- --------
Term credit agreement....................................................... $300,000,000 (a) 1997
Pollution control revenue bonds............................................. 317,176,000 (b) 2030
-----------
Total.................................................................... $617,176,000
============
_____________________
(a) At June 30, 1995, borrowings under the term credit agreement carried annual
interest rates of 6.4875% for the six-month period ending in November and
6.425% for the six-month period ending in December.
(b) All of such bonds currently bear interest in a daily mode and are secured
by an irrevocable letter of credit. Interest rates have ranged from 1.80%
to 5.25% per annum.
TU Electric redeemed or reacquired the following long-term debt during the
six months ended June 30, 1995:
PRINCIPAL
DESCRIPTION AMOUNT INTEREST RATE MATURITY
----------- -------- ------------- --------
First mortgage bonds....................................................... $111,150,000 9-7/8% 2019
Taxable pollution control revenue bonds.................................... 9,000,000 8.85%* 2021
Pollution control revenue bonds............................................ 252,235,000 7-3/4% to 9-7/8% 2007-2018
------------
Total................................................................ $372,385,000
============
- ------------------------------------
* The remaining $91,000,000 of Taxable Series 1991 was remarketed on June 1,
1995, in a flexible mode for rate periods up to 180 days and is secured by an
irrevocable letter of credit.
12
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
3. CAPITALIZATION -- (CONCLUDED)
In July 1995, TU Electric reacquired $7,000,000 of 10-5/8% First Mortgage
and Collateral Trust Bonds due September 1, 2020.
4. RETAINED EARNINGS
THE COMPANY
- -----------
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 June 30, 1995,
$139,057,000 of the Company's retained earnings was thus restricted as a result
of such provisions. Retained earnings at such date also included $431,243,000,
representing the Company's equity in undistributed earnings since acquisition
included in transfers by TU Electric from its retained earnings to stated value
of common stock. The total of such restricted retained earnings at June 30,
1995 is $570,300,000.
5. 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 Public Utility Commission of Texas (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) has been reviewed by the 250th Judicial
District Court of Travis County, Texas (District Court) and thereafter was
appealed to the Court of Appeals for the Third District of Texas (Court of
Appeals). In June 1994, the Court of Appeals affirmed a prudence disallowance of
$472 million provided for in the Order with respect to its Comanche Peak nuclear
generating station (Comanche Peak), reversed and remanded the portion of the
District Court's judgment that had affirmed a disallowance of $25 million
relating to TU Electric's reacquisitions of the minority owner interests in
Comanche Peak nuclear fuel, and affirmed the District Court's remand of the
remainder of the disallowance of $884 million relating to the reacquisitions of
such minority owner interests. Therefore, the Court of Appeals remanded an
aggregate of $909 million of disallowances with respect to TU Electric's
reacquisitions of minority owner interests in Comanche Peak to the PUC for
reconsideration and ordered that such reconsideration be on the basis of a
prudent investment standard.
In addition, the Court of Appeals reversed the District Court's finding
that the PUC erred in ordering a refund of $2.5 million with respect to certain
fuel gas costs. Also, the Court of Appeals specified that, on remand, the PUC
will be required to re-evaluate 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 and to reconsider whether the $442 million revenue increase
provided for in the PUC's final order remains the benchmark in light of this re-
examination.
The Court of Appeals also ruled in the appeal of TU Electric's Docket 9300
rate case that prior court rulings required that the tax benefits generated by
costs, including capital costs, not allowed in rates, must be used to reduce
rates charged to customers, reversing the District Court's decision. TU Electric
believes that such ruling is erroneous and not consistent with the Texas Public
Utility Regulatory Act (PURA). TU Electric contended that, according to a
13
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
5. RATE PROCEEDINGS -- (CONTINUED)
Private Letter Ruling issued to TU Electric by the Internal Revenue Service
(IRS) with respect to investment tax credits, such ratemaking treatment, to the
extent related to property classified for tax purposes as public utility
property, would result in a violation of the normalization rules under the
Internal Revenue Code of 1986, as amended. Violation of the normalization rules
would result in a significant adverse effect on TU Electric's results of
operation and liquidity. If there are normalization violations, TU Electric will
forfeit its investment tax credits that remain unamortized as of the date of the
violation, and will also forfeit the ability to take advantage of accelerated
tax depreciation in years to which the violative order relates. This could
result in payments to the IRS of up to $1.3 billion. TU Electric disagrees with
certain portions of the decision of the Court of Appeals, including specifically
its decision with respect to federal income taxes, and has filed an appeal to
the Supreme Court of Texas. Other parties have also filed appeals of this
decision to the Supreme Court of Texas. TU Electric cannot predict whether such
appeals will be accepted by the Supreme Court of Texas and cannot predict the
outcome of any such appeals or any resulting reconsideration of these issues on
remand by the PUC.
In April 1995, in an appeal of a rate case involving another utility, the
Supreme Court of Texas held that the PUC has considerable discretion in
determining the fair share of consolidated tax savings to be allocated to a
utility and, accordingly, is not required to include losses of unregulated
affiliates in determining such fair share. The Supreme Court also held that the
PUC could not use the tax benefits generated by disallowed expenses to reduce
rates.
FUEL COST RECOVERY RULE
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. Such over-
collection was primarily due to lower natural gas prices than previously
anticipated. PUC approval is expected in August 1995 with the refund to be
included in September 1995 billings. 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 affiliated suppliers are
no higher than the prices charged by those affiliates to others for the same
items or class of items. TU Electric is vigorously defending its position in
these appeals but is unable to predict their outcome.
FLEXIBLE RATE INITIATIVES
In June 1994, TU Electric filed with the PUC and municipalities with
original regulatory jurisdiction a package of four proposed flexible rates. Two
of the proposed rates would allow for negotiated competitive pricing through
reductions in demand charges to retain existing non-residential retail and
wholesale customers who have viable alternative sources of supply and would
otherwise leave the system. The remaining two rates are an economic development
rider and an environmental technology service rider. The economic development
rider would provide an incentive to attract new businesses and jobs and to
encourage existing customers to expand their facilities within TU Electric's
service area. The environmental technology service rider would provide an
incentive for qualifying customers to convert to advanced technologies that
conserve total energy or improve the environment. These new rates have been
approved and implemented in over 160 municipalities with original regulatory
jurisdiction, including the cities of Dallas and Fort Worth, within TU
Electric's service territory. Following hearings on the proposed rates, however,
the PUC issued an interim order on the rate package which either rejected or
significantly weakened the proposed flexible rates, rendering them ineffective.
In January 1995, TU Electric withdrew its package of proposed rates from
consideration by the PUC. This action does not affect the over 160
municipalities where the flexible rates are already in effect. As
14
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
5. RATE PROCEEDINGS -- (CONCLUDED)
a result of recent legislation, flexible retail and wholesale pricing at levels
lower than the utility's approved rates and higher than the utility's marginal
cost may be approved by the PUC. Through its involvement at the legislature and
the PUC, TU Electric will continue to pursue the possibility of offering
flexible rates.
INTEGRATED RESOURCE PLAN
In October 1994, TU Electric filed an application for approval by the PUC
of its Integrated Resource Plan (IRP) for the ten-year period 1995-2004. The IRP
includes initiatives that address demand-side management resources, purchased
power, and future generating capacity that includes renewable energy sources. TU
Electric's IRP includes 288 megawatts (MW) of simple-cycle combustion turbines,
1,514 MW of combined-cycle combustion turbines and 300 MW of wind or other
renewable resources. Assuming these units are financed by TU Electric using
traditional methods, approximately $200 million would be added to capital
expenditures in 1997. TU Electric's IRP also includes one lignite-fueled 750 MW
unit at the Twin Oak facility (Twin Oak). A second planned lignite-fueled unit
at Twin Oak has been deferred beyond the ten-year planning period. Hearings on
this application were concluded in March 1995. The PUC's decision on the IRP is
expected later in August 1995.
6. COMMITMENTS AND CONTINGENCIES
CAPITAL EXPENDITURES
THE COMPANY
- -----------
The Company's construction expenditures for utility related activities,
excluding AFUDC and expenditures relating to new generating units, are presently
estimated at $400 million for each of the years 1995, 1996 and 1997.
Expenditures for nuclear fuel and non-utility property are presently estimated
at $110 million for 1995, $78 million for 1996, and $106 million for 1997.
TU ELECTRIC
- -----------
TU Electric's construction expenditures for utility related activities,
excluding AFUDC and expenditures relating to new generating units, are presently
estimated at $372 million for each of the years 1995, 1996 and 1997.
Expenditures for nuclear fuel and non-utility property are presently estimated
at $46 million for 1995, $53 million for 1996, and $80 million for 1997.
THE COMPANY AND TU ELECTRIC
- ---------------------------
Active construction and the accrual of AFUDC on Twin Oak, suspended in 1987
due to forecast changes in load growth, would need to resume in 1999 in order to
meet the current schedule. Due to the delay, and the possibility of further
delays resulting from forecast changes, in the schedule of Twin Oak, as well as
the lignite-fueled Forest Grove facility (Forest Grove) which is not included in
the ten-year resource plan, TU Electric is contemplating alternative uses for
its investment in these projects, which might include construction as exempt
wholesale generators, construction at different locations, or sale of the
facilities. While the Company and TU Electric currently believe their investment
in these assets can be recovered if held and developed according to existing
plans, other alternative uses might contribute more to their long-term strategy
of maximizing shareholder value, and might include disposition for amounts which
may be less than current book value with respect to these assets. Management has
no specific plans for alternative uses. In March 1995, the Company's and TU
Electric's respective investments of approximately $807 million and $729
million, for Twin Oak and Forest Grove, were transferred from CWIP to Utility
Plant Held for Future Use.
15
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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.
CLEAN AIR ACT
TU ELECTRIC
- -----------
TU Electric's capital requirements have not been significantly affected by
the requirements of the federal Clean Air Act (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 either company. During
1994, installation of continuous emissions monitoring systems was completed at a
total cost of approximately $38 million. Any additional capital costs, as well
as any increased operating costs, associated with these new requirements or
compliance measures, are expected to be recoverable through rates, as similar
costs have been recovered in the past. TU Electric's environmental expenditures
for 1995 are estimated to be $58 million.
THE COMPANY
- -----------
The Company's capital requirements have not been significantly affected by
the requirements of the Clean Air Act.
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, $36,650,000 at June 30, 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. 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 $84,610,000 remaining principal amount of bonds at June 30, 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 performance by Chaco with respect to this agreement. At June
30, 1995 and December 31, 1994, $515,926,000 and $499,890,000, respectively, of
minimum advance royalties paid by Chaco are included in non-utility property. In
addition, Chaco has under lease with the federal government certain coal
reserves with a carrying value of approximately
16
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONCLUDED)
6. COMMITMENTS AND CONTINGENCIES -- (CONCLUDED)
$44 million as of June 30, 1995. 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 purchasers
thereof.
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 1995 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 June 30, 1995, such reserve totaled $65,636,000 which
includes an accrual of $9,089,000 and $18,179,000 for the six and twelve months
ended June 30, 1995, respectively. As of June 30, 1995, the market value of
deposits in the external trust for decommissioning of Comanche Peak was
$71,527,000. 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 2032 for Comanche Peak Unit 1, and Unit 2 and
common facilities, respectively. TU Electric is recovering such costs based upon
the 1992 study through its rates placed in effect under Docket 11735. (See
Note 5.)
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
- -----------
In addition to the above, the Company and its subsidiaries are involved in
various legal and administrative proceedings which, in the opinion of the
Company, should not have a material effect upon its financial position or
results of operation.
7. ACCOUNTING CHANGE
THE COMPANY AND TU ELECTRIC
- ---------------------------
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (Statement 121) was issued. Statement 121 is effective for
financial statements for fiscal years beginning after December 15, 1995 and
prescribes a methodology for assessing and measuring impairments in the carrying
value of certain assets. As a result of such standard, the Company and TU
Electric will be subject to a more formal standard for assessing asset
impairment in the future.
17
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Company:
We have reviewed the accompanying condensed consolidated balance sheet of Texas
Utilities Company and subsidiaries as of June 30, 1995, and the related
condensed statements of consolidated income for the three-month, six-month and
twelve-month periods ended June 30, 1995 and 1994, and of consolidated cash
flows for the six-month periods ended June 30, 1995 and 1994. These financial
statements are the responsibility of Texas Utilities Company'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
generally accepted auditing standards, 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 generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Texas Utilities Company and
subsidiaries as of December 31, 1994, and the related consolidated statements of
income, retained earnings and cash flows for the year then ended (not presented
herein); and in our report dated March 1, 1995, 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, 1994, 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 8, 1995
18
INDEPENDENT ACCOUNTANTS' REPORT
Texas Utilities Electric Company:
We have reviewed the accompanying condensed balance sheet of Texas Utilities
Electric Company as of June 30, 1995, and the related condensed statements of
income for the three-month, six-month and twelve-month periods ended June 30,
1995 and 1994, and of cash flows for the six-month periods ended June 30, 1995
and 1994. These financial statements are the responsibility of Texas Utilities
Electric Company'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
generally accepted auditing standards, 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 financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Texas Utilities Electric Company as of December
31, 1994, and the related statements of income, retained earnings and cash flows
for the year then ended (not presented herein); and in our report dated March 1,
1995, we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 1994, is fairly stated in all material respects in relation
to the balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
August 8, 1995
19
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
For information concerning liquidity and capital resources, see Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operation in the Texas Utilities Company (Company) and Texas Utilities Electric
Company (TU Electric) Annual Reports on Form 10-K for the year 1994. No
significant changes or events which might affect the financial condition of the
Company and its subsidiaries (System Companies) have occurred subsequent to
year-end other than as disclosed in this report.
THE COMPANY
- -----------
External funds of a permanent or long-term nature are obtained through
sales of common stock, preferred stock and long-term debt by the System
Companies. The capitalization ratios of the Company and its subsidiaries at
June 30, 1995 consisted of approximately 52% long-term debt, 7% preferred stock
and 41% common stock equity.
TU ELECTRIC
- -----------
The capitalization ratios of TU Electric at June 30, 1995 consisted of
approximately 51% long-term debt, 8% of preferred stock and 41% common stock
equity.
TU Electric had financings totaling $617,176,000 to date in 1995. Proceeds
from such financings were used primarily for the early redemption or
reacquisition of debt and preferred stock. Financings to date in 1995 by TU
Electric consisted of:
LONG-TERM DEBT:
PRINCIPAL CURRENT
DESCRIPTION AMOUNT INTEREST RATES MATURITY
----------- --------- -------------- --------
Term credit agreement................................. $300,000,000 6.425% and 6.4875% 1997
Pollution control revenue bonds....................... 317,176,000 1.80% to 5.25% 2030
------------
Total............................................... $617,176,000
============
THE COMPANY
- -----------
To date in 1995, the System Companies redeemed, reacquired or made
principal payments of $507,402,000 (including $503,127,000 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.
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
$650,000,000 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 250,000 shares
of Cumulative Preferred Stock ($100 liquidation value) similarly registered.
THE COMPANY AND TU ELECTRIC
- ---------------------------
The Company and TU Electric have joint lines of credit aggregating
$1,000,000,000 under credit facility agreements (Agreements). The Agreements
have two facilities. The Company pays a fee for each facility. Facility A
provides for borrowings up to $300,000,000 and terminates April 28, 1996.
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
$400,000,000. Borrowings under the Agreements will be used for working capital
and other corporate purposes, including commercial paper backup.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED)
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 under consideration include the
potential disposition or alternative utilization of existing assets and the
restructuring of strategic business units. Some of the Company's assets,
including approximately $807 million invested in partially completed generating
facilities on which construction is temporarily suspended (including investment
by TU Electric of approximately $729 million) and related mining facilities and
approximately $579 million invested in coal properties of Chaco Energy Company,
are not contributing to earnings and, as a result, the Company and TU Electric
are considering possible alternatives to the scheduled development, operation
and recovery of such assets through traditional means. While the Company and TU
Electric currently believe that their investment in these assets can be
recovered if held and ultimately developed according to existing plans, other
alternative uses might contribute more to their long-term strategy of maximizing
shareholder value, and might include disposition for amounts which may be less
than current book value with respect to these assets. It is not possible at this
time to predict the effect any of these possible initiatives might have on the
carrying value of the Company's and TU Electric's assets or their results of
operation.
THE COMPANY
- -----------
In May 1995, Texas Utilities Communications Inc. (TU Communications), a new
wholly-owned subsidiary of the Company, entered into a partnership agreement
with PCS PrimeCo, L.P. (PrimeCo), a partnership among four large
telecommunications companies, to become a 20% partner in PrimeCo's personal
communications services business in three Federal Communications Commission-
defined Major Trading Areas (MTAs). The Dallas/Ft. Worth, Houston and San
Antonio MTAs cover almost the entire State of Texas, as well as portions of
adjoining states. This partnership provides TU Communications with access to
advanced telecommunications technology which is expected to be a significant
part of the System Companies' expanding energy services business. As of June 30,
1995, the Company's investment in TU Communications was approximately $47
million.
The Company's capital requirements have not been significantly affected by
the requirements of the federal Clean Air Act (Clean Air Act).
TU ELECTRIC
- -----------
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 either company. During 1994, installation of
continuous emissions monitoring systems was completed at a total cost of
approximately $38 million. Any additional required capital costs, as well as any
increased operating costs, associated with these new requirements or compliance
measures are expected to be recoverable through rates, as similar costs have
been recovered in the past. TU Electric's environmental expenditures for 1995
are estimated to be $58 million.
For information regarding Rate Proceedings, see Note 5 to Condensed
Financial Statements.
THE COMPANY AND TU ELECTRIC
- ---------------------------
The National Energy Policy Act of 1992 (Energy Act) addresses a wide range
of energy issues and is intended to increase competition in electric generation
and broaden access to electric transmission systems. The Public Utility
Regulatory Act, as amended and effective September 1, 1995, requires the Public
Utility Commission of Texas (PUC) to have rules in place within 180 days
governing comparable wholesale open access transmission services. To meet this
requirement, the PUC has initiated a generic rule making proceeding to address
wholesale transmission issues within Texas. In addition, the Texas legislature
recently enacted a provision for the sale of electric energy by exempt wholesale
generators and power marketers at the wholesale level. Although TU Electric and
Southwestern Electric Service Company (SESCO) are unable to predict the ultimate
impact of the Energy Act and any related regulations or any state
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES -- (CONCLUDED)
legislation or PUC regulation 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 approximately 354 MW loss of load for TU Electric
since the beginning of 1993 and notifications of the possible termination of
approximately 600 MW through 1999, wholesale sales represented a relatively low
percentage of total consolidated operating revenues in 1994. 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.
RESULTS OF OPERATIONS
THE COMPANY
- -----------
For the three-, six- and twelve-month periods, consolidated net income
increased approximately 2%, 5% and 108%, respectively. For the Company and TU
Electric, from which most of consolidated earnings is derived, the major factors
affecting earnings for the three-, six- and twelve-month periods were continuing
cost reduction efforts partially offset by mild weather conditions. For the
twelve-month periods, earnings were affected by the recording of the regulatory
disallowance in the prior period, implementation of the Docket 11735 rate
increase, the discontinuation of AFUDC on Comanche Peak nuclear generating
station (Comanche Peak) Unit 2 and the commencement of depreciation on
approximately $668 million of investment in Comanche Peak Unit 2 incurred after
the end of the Docket 11735 test year which is not being recovered currently in
rates.
TU ELECTRIC
- -----------
Operating revenues decreased approximately 6% for the three-month period,
5% for the six-month period and 4% for the twelve-month period ended June 30,
1995. The following table details the factors contributing to these changes:
INCREASE (DECREASE)
------------------------------------------------------------
FACTORS THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
------- ------------------ ---------------- -------------------
THOUSANDS OF DOLLARS
Base rate revenue (billed).......... $ 10,044 $ (11,875) $ 100,390
Fuel revenue........................ (39,597) (59,681) (176,234)
Power cost recovery factor revenue.. (1,440) (4,962) (22,958)
Unbilled revenue and other.......... (51,406) (65,444) (158,279)
-------- --------- ---------
Total.............................. $(82,399) $(141,962) $(257,081)
======== ========= =========
Base rate revenue for TU Electric increased for the three- and twelve-month
periods and decreased for the six-month period. Total energy sales (including
unbilled energy sales) decreased less than 1%, and approximately 2% and 1% for
the three-, six- and twelve-month periods, respectively. The effect on billed
energy sales and base rate revenue for all periods was primarily a result of
mild weather conditions and loss of wholesale power sales, partially offset by
an increase in customers and billing cycle days. For the twelve-month period,
the rate increase placed in effect in August 1993 increased base rate revenues
over the prior period. The decrease in fuel revenue for all periods was
primarily due to continued reduction in gas prices and also, for the twelve-
month period, increased nuclear generation as compared to the prior period. The
decrease in unbilled energy sales and unbilled revenue and other in all periods
resulted from milder weather conditions than in the prior period and an increase
in the number of billing days.
Fuel and purchased power expense decreased approximately 10%, 8% and 10%
for the three-, six- and twelve-month periods, respectively, primarily due to a
reduction in gas prices and purchased power commitments and, for the twelve-
month period, increased utilization of nuclear fuel.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- (CONCLUDED)
RESULTS OF OPERATION -- (CONCLUDED)
Total operating expenses, excluding fuel and purchased power, decreased
approximately 4% for the three- and six-month periods and 3% for the twelve-
month period. Operation and maintenance expense decreased for all periods due
primarily to a decrease in employee benefit expenses, uncollectible accounts
expense and material and supplies expense. For the twelve-month period, the
decrease was due also to inventory adjustments taken in the prior period
partially offset by the effect of the commencement of commercial operation of
Unit 2 of Comanche Peak. Taxes other than income decreased for all periods due
primarily to a reduction in franchise, state gross receipts and estimated ad
valorem taxes partially offset by an increase in local gross receipts taxes.
Allowance for funds used during construction (AFUDC) decreased
approximately 19%, 12% and 72% for the three-, six- and twelve-month periods,
respectively. For the three- and six-month periods, the decrease was primarily
due to a reduction in the gross rate used for capitalizing AFUDC. The decrease
in the twelve-month period was primarily due to the discontinuation of the
accrual of AFUDC on Unit 2 of Comanche Peak when such unit achieved commercial
operation in August 1993.
The regulatory disallowance in the prior twelve-month period reflects
charges resulting from a settlement agreement among the parties in Docket 11735.
Federal income taxes -- other income increased for the twelve-month period
primarily due to the effect from the prior period of recording the taxes
associated with the regulatory disallowances on Unit 2 of Comanche Peak.
Total interest charges, excluding AFUDC, decreased approximately 4% for the
three-month period and decreased 5% for the six- and twelve-month periods,
respectively. Interest on mortgage bonds decreased over the prior periods 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 was affected in all periods due primarily
to borrowings on the term credit agreement offset by the continuing retirement
of debt incurred on the purchases of the minority ownership interests in
Comanche Peak. Other interest expense was affected by increased average short-
term borrowings and increased amortization of debt issuance expenses and
redemption premiums and, for the three- and six-month periods, offset in part by
decreased interest on bonded rates from the prior period.
Preferred stock dividends decreased approximately 18%, 17% and 16% for
the three-, six- and twelve-month periods, respectively, due to the redemption
of certain series.
23
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1990, Nancy F. King and Rodney B. Shields, allegedly as shareholders
of the Company, filed suit in the United Stated District Court for the Northern
District of Texas derivatively on behalf of the Company against the Company as a
nominal defendant and certain directors and former directors of the Company. In
November 1991, Sheree Anne Meyer, as custodian for Adam Joseph Davenport,
allegedly as a shareholder of the Company, filed suit in the same Court
derivatively on behalf of the Company and TU Electric against the Company and TU
Electric as nominal defendants and certain officers and directors and former
officers and directors of the Company and TU Electric. Reference is made to Item
3. Legal Proceedings in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 for a more complete description of these proceedings,
which were consolidated in December 1992. On May 17, 1995 the Court approved the
settlement of the consolidated suit.
On July 17, 1995 the United States District Court for the Northern District
of Texas (Dallas Division) approved a consent decree among the United States,
the State of Texas, certain federal and state agencies and 73 of the defendants
in an action styled United States v. Wallace, et.al. The consent decree
-------------------------------
apportioned liability among the defendants for remedial actions taken at the
waste treatment and disposal facility operated in Grand Prairie, Texas from 1972
to 1978 by Bio-Ecology Systems, Inc. TU Electric was among the defendants in
this proceeding and agreed as part of the consent decree to payment of a portion
of the clean up costs to the United States and the State of Texas in the
aggregate amount of $323,757.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's annual meeting of shareholders was held on May 19, 1995.
(b) The following items were presented to the shareholders with the following
results:
VOTES WITHHELD OR
VOTES FOR AGAINST ABSTENTIONS
--------- ----------------- -----------
Election of Directors
Jack W. Evans 183,126,167 2,706,852 --
J. S. Farrington 183,368,320 2,464,699 --
Bayard H. Friedman 183,390,082 2,442,937 --
William M. Griffin 183,370,347 2,462,672 --
Kerney Laday 183,216,235 2,616,784 --
Margaret N. Maxey 183,405,941 2,427,078 --
James A. Middleton 183,498,804 2,334,215 --
Erle Nye 183,368,917 2,464,102 --
Charles R. Perry 183,302,407 2,530,612 --
Herbert H. Richardson 183,418,081 2,414,938 --
Selection of Deloitte & 183,294,558 1,203,806 1,334,655
Touche as Auditors
Approval of Annual 165,229,193 16,569,410 4,034,416
Incentive Plan/(1)/
/(1)/ The purpose of the Annual Incentive Plan (AIP) is to provide performance-
based annual incentive compensation opportunities to officers who
contribute significantly to the success of the Company.
24
TEXAS UTILITIES COMPANY AND TEXAS UTILITIES ELECTRIC COMPANY
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
RATE PROCEEDINGS
TU ELECTRIC
- -----------
Reference is made herein to Note 5 to TU Electric's Condensed Financial
Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as a part of Part II are:
10(a) - Deferred and Incentive Compensation Plan of the Texas Utilities
Company System, as amended as of January 1, 1995
10(b) - Deferred Compensation Plan for Outside Directors of Texas Utilities
Company, effective as of January 1, 1995
10(c) - Restated Supplemental Retirement Plan for Employees of the Texas
Utilities Company System, as restated effective January 1, 1995
10(d) - Annual Incentive Plan of the Texas Utilities Company System, dated
as of May 19, 1995
10(e) - Management Transition Agreement, dated as of May 18, 1995, between
Texas Utilities Company and J.S. Farrington
10(f) - Salary Deferral Program of the Texas Utilities Company System, as
amended as of January 1, 1995
15 - Letters from Deloitte & Touche LLP as to unaudited interim financial
information
15(a) Texas Utilities Company
15(b) Texas Utilities Electric Company
27 - Financial Data Schedules
27(a) Texas Utilities Company
27(b) Texas Utilities Electric Company
99 - Fifty-third Supplemental Indenture, dated as of June 1, 1995, to the
Texas Utilities Electric Company Mortgage and Deed of Trust, dated as
of December 1, 1983, between Texas Utilities Electric Company and
Irving Trust Company (now the Bank of New York), Trustee.
(b) Reports on Form 8-K filed since March 31, 1995 are as follows:
THE COMPANY
-----------
Date of Report Item Reported
-------------- -------------
May 19, 1995 Item 5. OTHER EVENTS
TU ELECTRIC
-----------
None
25
SIGNATURE
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.
TEXAS UTILITIES COMPANY
By /s/ H. Dan Farell
----------------------------------
H. Dan Farell
Controller and
Principal Accounting Officer
Date: August 10, 1995
- -------------------------------------------------------------------------------
SIGNATURE
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.
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ Marc D. Moseley
---------------------------------
Marc D. Moseley
Controller and
Principal Accounting Officer
Date: August 10, 1995
26
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBIT PAGE
- --------------------------------------------------------------------------------
10(a) - Deferred and Incentive Compensation Plan of the Texas
Utilities Company System, as amended as of January 1, 1995
10(b) - Deferred Compensation Plan for Outside Directors of
Texas Utilities Company, effective as of July 1, 1995
10(c) - Restated Supplemental Retirement Plan for Employees of
the Texas Utilities Company System, as restated effective
January 1, 1995
10(d) - Annual Incentive Plan of the Texas Utilities Company System,
dated as of May 19, 1995
10(e) - Management Transition Agreement, dated as of May 18, 1995,
between Texas Utilities Company and J.S. Farrington
10(f) - Salary Deferral Program of the Texas Utilities Company
System, as amended as of January 1, 1995
15 - Letters from Deloitte & Touche LLP as to unaudited interim
financial information
15(a) Texas Utilities Company
15(b) Texas Utilities Electric Company
27 - Financial Data Schedules
27(a) Texas Utilities Company
27(b) Texas Utilities Electric Company
99 - Fifty-third Supplemental Indenture, dated as of June 1, 1995,
to the Texas Utilities Electric Company Mortgage and Deed
of Trust, dated as of December 1, 1983, between Texas
Utilities Electric Company and Irving Trust Company (now
the Bank of New York), Trustee.
27