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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from
to
COMMISSION FILE NUMBER 1-7629
HOUSTON INDUSTRIES INCORPORATED
(Exact name of registrant as specified in its charter)
TEXAS 74-1885573
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1111 LOUISIANA
HOUSTON, TEXAS 77002 (713) 207-3000
(Address and zip code of principal (Registrant's telephone number,
executive offices) including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, without par value, New York Stock Exchange
and associated rights to purchase Chicago Stock Exchange
preference stock London Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
COMMISSION FILE NUMBER 1-3187
HOUSTON LIGHTING & POWER COMPANY
(Exact name of registrant as specified in its charter)
TEXAS 74-0694415
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1111 LOUISIANA
HOUSTON, TEXAS 77002 (713) 207-1111
(Address and zip code of principal (Registrant's telephone number,
executive offices) including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
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Preferred stock, cumulative, no par: $4 Series; $6.72 Series; $7.52 Series;
$8.12 Series; Variable Term Cumulative Preferred Stock, Series A; Variable Term
Cumulative Preferred Stock, Series B; Variable Term Cumulative Preferred Stock,
Series C; Variable Term Cumulative Preferred Stock, Series D; and $9.375
Series.
Indicate by check mark whether each of the registrants: (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 [ ]
The aggregate market value of the voting stock held by non-affiliates of
Houston Industries Incorporated was $6,030,611,109 as of March 1, 1996, using
the definition of beneficial ownership contained in Rule 13d-3 promulgated
pursuant to the Securities Exchange Act of 1934 and excluding shares held by
directors and executive officers.
As of March 1, 1996, Houston Industries Incorporated had 262,742,947 shares
of Common Stock outstanding, including 14,253,044 ESOP shares not deemed
outstanding for financial statement purposes. As of March 1, 1996, all
outstanding shares of Houston Lighting & Power Company's common stock were
held, directly or indirectly, by Houston Industries Incorporated.
Portions of the definitive proxy statement relating to the 1996 Annual
Meeting of Shareholders of Houston Industries Incorporated, which will be filed
within 120 days of December 31, 1995, are incorporated by reference in Item 10,
Item 11, Item 12 and Item 13 of Part III of this form.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of each of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
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HOUSTON INDUSTRIES INCORPORATED AND
HOUSTON LIGHTING & POWER COMPANY
Form 10-K for the Year Ended December 31, 1995
PART I TABLE OF CONTENTS Page No.
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Item 1. Business:
The Company and Its Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business of HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business of HI Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Regulation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Executive Officers of HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 22
PART II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 23
Item 6. Selected Financial Data:
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 8. Financial Statements and Supplementary Data:
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
HL&P Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 57
Notes to HL&P Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
PART III
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Item 10. Directors and Executive Officers of the Company and HL&P . . . . . . . . . . . . . . . . . . 86
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . 96
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 98
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . 99
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THIS COMBINED FORM 10-K IS SEPARATELY FILED BY HOUSTON INDUSTRIES
INCORPORATED (COMPANY) AND HOUSTON LIGHTING & POWER COMPANY (HL&P).
INFORMATION CONTAINED HEREIN RELATING TO HL&P IS FILED BY THE COMPANY AND
SEPARATELY BY HL&P ON ITS OWN BEHALF. HL&P MAKES NO REPRESENTATION AS TO
INFORMATION RELATING TO THE COMPANY (EXCEPT AS IT MAY RELATE TO HL&P), HOUSTON
INDUSTRIES ENERGY, INC. (HI ENERGY) OR TO ANY OTHER AFFILIATE OR SUBSIDIARY OF
THE COMPANY.
PART I
ITEM 1. BUSINESS.
THE COMPANY AND ITS SUBSIDIARIES
The Company, incorporated in Texas in 1976, is a holding company
operating principally in the electric utility business. For a description of
the Company's status under the Public Utility Holding Company Act of 1935 (1935
Act), see "Regulation of the Company."
HL&P, incorporated in Texas in 1906, is the principal subsidiary of
the Company and is engaged in the generation, transmission, distribution and
sale of electric energy. HI Energy, a subsidiary of the Company formed in
1993, participates in domestic and foreign power generation projects and
invests in the privatization of foreign electric utilities. The business and
operations of HL&P account for substantially all of the Company's income from
continuing operations and common stock equity. For information regarding the
reorganization of the Company's operations into strategic business units, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Earnings of the Company and
HL&P--Response to Competition" in Item 7 of this Report.
In July 1995, the Company sold its cable television subsidiary, KBLCOM
Incorporated (KBLCOM), to Time Warner Inc. (Time Warner) in exchange for Time
Warner securities recorded at approximately $1 billion and the purchase by Time
Warner of intercompany debt for cash. For information regarding the sale of
KBLCOM, see Note 13 of the Company's Consolidated and HL&P's Financial
Statements in Item 8 of this Report (Financial Statements).
As of December 31, 1995, the Company and its subsidiaries had 8,891
full-time employees.
BUSINESS OF HL&P
SPECIAL FACTORS
HL&P's business and operations are subject to a number of factors
affecting the electric utility industry in general, including increasing levels
of competition; legislative and regulatory changes in the basic rules governing
electric utility operations and the uncertainties associated with such changes;
new technologies; and environmental and nuclear plant contingencies. The
effects of these and other factors on HL&P's business and operations are
described elsewhere in this Report. See "Competition" and "Regulation of the
Company" below and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Certain Factors Affecting Future Earnings of the
Company and HL&P" in Item 7 of this Report.
SERVICE AREA
HL&P's service area covers a 5,000 square mile area on the Texas Gulf
Coast, including Houston (the nation's fourth largest city). HL&P serves
approximately 1.5 million residential,
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commercial and industrial customers. HL&P is a member of the Electric
Reliability Council of Texas, Inc. (ERCOT) and is interconnected to a
transmission grid encompassing most of the state of Texas.
Although the economy of HL&P's service area encompasses a wide range
of products and services, Houston's economy is still centered primarily on
energy sector industries, such as oil firms, petrochemical and refining
complexes, industrial and petrochemical construction firms and natural gas
distribution and processing centers. During the year ended December 31, 1995,
energy sector industries accounted for approximately 35 percent of HL&P's
industrial electric base revenues and 9 percent of its total electric base
revenues. Other important sectors of Houston's economy include the Port of
Houston, the Johnson Space Center and the Texas Medical Center.
SYSTEM CAPABILITY AND LOAD
The following table sets forth information with respect to HL&P's
system capability and load:
Maximum Hourly Firm Demand
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Installed % Change
Net Purchased Total Net From Reserve
Capability Power Capability Prior Margin
Year (MW) (MW)(1) (MW) Date MW (2) Year (%)
- ---- ----------- ------------ ------------ -------- ------- ------------ ----------
1991 13,583 945 14,528 Aug. 21 10,908 (2.2) 33.2
1992 13,583 945 14,528 Jul. 30 10,783 (1.1) 34.7
1993 13,679 945 14,624 Aug. 19 11,397 5.7 28.3
1994 13,666 720 14,386 Jun. 28 11,245 (1.3) 27.9
1995 13,921 445 14,366 Jul. 27 11,419 1.5 25.8
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(1) Reflects firm capacity purchased. For additional information on
purchased power commitments, see "Fuel--Purchased Power" below.
(2) Does not include interruptible load. Including interruptible demand,
the maximum hourly demand served in 1995 was 12,377 megawatts (MW)
compared to 12,009 MW in 1994.
Based on present trends, HL&P expects maximum hourly firm demand for
electricity to grow at a compound annual rate of approximately 1.5 percent over
the next ten years. Assuming average weather conditions and including the net
effects of HL&P's demand-side management (DSM) programs, HL&P projects that its
reserve margins will decrease from an estimated 25.5 percent in 1996 to an
estimated 17.4 percent in 2000. For long-term planning purposes, HL&P intends
to maintain reserve margins at approximately 15 percent in excess of maximum
hourly firm demand load requirements.
HL&P experiences significant seasonal variation in its sales of
electricity. Sales during the summer months are higher than sales during other
months of the year due, in large part, to the reliance on air conditioning.
See Note 15 to the Financial Statements for a presentation of certain unaudited
quarterly financial information for 1994 and 1995.
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COMPETITION
Competition in the electric utility industry is affected by a number
of variables, including price, reliability of service, the cost of energy
alternatives and the impact of governmental regulations.
The electric utility industry historically has been composed of
vertically integrated companies that have largely been the exclusive provider
of electric service within a governmentally-defined geographic area. Prices
for that service have been set by governmental authorities under principles
designed to provide the utility with an opportunity to recover its cost of
providing electric service plus a reasonable return on its invested capital.
Federal legislation, such as the Public Utility Regulatory Policy Act of 1978
(PURPA) and the Energy Policy Act of 1992 (Energy Policy Act), as well as
legislative and regulatory initiatives in various states have encouraged
competition among electric utility and non-utility owned power generators.
These developments, combined with increasing demand for lower-priced
electricity, technological advances in electric generation and relatively low
natural gas prices, are acting to accelerate the electric utility industry's
movement toward more competition.
WHOLESALE MARKET AND TRANSMISSION ACCESS. The adoption of PURPA
contributed to the development of new non-utility sources of electric
generation by freeing cogenerators (facilities which produce electric energy
along with thermal energy used for industrial processes, usually the generation
of steam) from most of the regulatory constraints applicable to traditional
utilities, such as state rate regulation and federal regulation under the
Federal Power Act and the 1935 Act. Since 1978 cogeneration projects
representing over 5,000 MW in generating capability (which is equal to
approximately one-third of HL&P's current total peak generating capability)
have been built in the Houston area. As a consequence of this development,
HL&P estimates that it has lost approximately 2,500 MW in customer load to
self-generation resulting from such projects. It is anticipated that HL&P's
industrial customers may continue to consider additional self-generation
projects in the future. In 1995, approximately 9 percent of HL&P's total base
revenues were derived from large industrial customers owning industrial or
other facilities. An additional 15 percent of such revenues was derived from
small industrial customers (including retail stores, office buildings and other
customers not associated with large industrial plants). For information
regarding electricity purchased by HL&P from PURPA-qualified facilities, see
"Fuel--Purchased Power" below.
The Energy Policy Act created another category of non-utility
generators, exempt wholesale generators (EWGs). Like cogenerators, EWGs are
permitted to sell electric energy at wholesale, but unlike cogenerators, EWGs
may generate electricity without regard to the simultaneous production of
thermal energy. The most significant benefit of EWG status is that ownership
of one or more EWGs does not trigger regulation under the 1935 Act. Although
the Energy Policy Act permits exempt public utility holding companies to form
EWGs, the Energy Policy Act imposes significant limitations on the ability of
utilities to purchase power in their own service territories from an affiliated
EWG.
The Energy Policy Act also authorizes the Federal Energy Regulatory
Commission (FERC) to require utilities to provide transmission services to EWGs
and other generators upon request if
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FERC finds that such transmission would be in the public interest and would not
unreasonably impair the continued reliability of affected electric systems. In
March 1995, the FERC issued a Notice of Proposed Rulemaking proposing to
require all public utilities owning or controlling transmission facilities to
file open-access tariffs and to take transmission and ancillary services for
their own wholesale needs under such tariffs. Because HL&P conducts its
operations entirely within the state of Texas, it does not believe that the
proposed FERC rule will be applicable to its transmission system operations.
In 1995, the Texas legislature reenacted the Texas Public Utility
Regulatory Act (PURA), the basic statute governing the regulation of electric
utilities in Texas. The reenacted version of PURA includes provisions
intended, among other things, to establish a regulatory system for competitive
wholesale electric sales in the state of Texas (including authorization for
EWGs and power marketers to engage in such sales without regulation as electric
utilities). In 1995, HL&P's wholesale sales accounted for less than 1 percent
of its total 1995 revenues.
In February 1996, the Public Utility Commission of Texas (Utility
Commission) adopted a new transmission access and pricing rule requiring that
utilities offer third parties open access to utility-owned transmission systems
at rates and on terms and conditions comparable to those available to
transmission-owning utilities. To ensure comparability, the Utility Commission
is requiring utilities to functionally unbundle their wholesale power marketing
operations from the operation of the transmission grid. The rule requires that
utilities separately disclose their costs of generation, transmission and
distribution for purposes of transmission pricing. The rule also implements a
transmission pricing methodology by which all transmission loads are assessed a
facilities charge for transmission usage. For a discussion of the rule and its
financial impact on HL&P, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Certain Factors Affecting Future
Earnings of the Company and HL&P--Competition" in Item 7 of this Report.
RETAIL COMPETITION. Although neither federal nor Texas law
currently permits retail sales by unregulated entities, such as cogenerators or
EWGs, HL&P anticipates that cogenerators and EWGs will continue to exert
pressure to obtain access to the electric transmission and distribution systems
of regulated utilities for the purpose of making retail sales to customers of
regulated utilities.
UTILITY COMMISSION REPORTS ON COMPETITION AND STRANDED INVESTMENT. By
January 1997, the Utility Commission is required to deliver a report to the
Texas legislature on the scope of competition in Texas electric markets and the
impact of competition and industry restructuring on customers in both
competitive and non-competitive markets (including further legislative
recommendations to promote the public interest in such markets). In preparing
its reports, the Utility Commission has initiated projects to consider issues
relating to the scope of competition in the electric utility industry and to
address the potential impact of "stranded cost investment." In this
connection, the Utility Commission has indicated that it will require each
Texas electric utility to file in June 1996 a calculation of its total stranded
investment exposure. As of March 1996, the Utility Commission has not
finalized the methodology or assumptions to be used for calculating stranded
cost investments. HL&P is not able to predict either the outcome of the
Utility
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Commission's review of stranded cost investment issues or the ultimate impact
of such review on HL&P's results of operations.
For additional information on competition in the electric utility
industry, stranded cost issues and the Company and HL&P's continuing efforts to
respond to competition (including a recent reorganization of the Company's and
HL&P's operations into strategic business units), see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Certain Factors
Affecting Future Earnings of the Company and HL&P--Competition" in Item 7 of
this Report and Note 1(b) to the Financial Statements.
CAPITAL PROGRAM
HL&P has an ongoing program to maintain its existing production,
transmission and distribution facilities and to expand its physical plant in
response to customer needs. Assuming a target reserve margin of 15%, HL&P does
not currently forecast a need for additional capacity until the year 2002.
Thereafter, HL&P intends to satisfy its additional needs through the
construction of new facilities at existing HL&P plant sites, the development of
cogeneration projects or purchased power. Under an integrated resource
planning rule required to be adopted by the Utility Commission no later than
the fall of 1996, it is expected that Texas utilities will be required to
conduct public solicitations for generating capacity to satisfy their future
energy needs.
In 1995, HL&P's capital and nuclear fuel expenditures were
approximately $392 million, excluding Allowance for Funds Used During
Construction (AFUDC). HL&P's capital program (excluding AFUDC) is currently
estimated to cost approximately $387 million in 1996, $301 million in 1997 and
$328 million in 1998. HL&P's capital program for the three-year period 1996
through 1998 consists primarily of improvements to its existing electric
generating, transmission and distribution facilities. For the three-year
period 1996 through 1998, HL&P's projected capital program consists of the
following estimated principal expenditures:
Amount Percent of Total
(millions) Expenditures
---------- ------------
Generating facilities . . . . . . . . . . . . . $ 271 26%
Transmission facilities . . . . . . . . . . . . 37 4%
Distribution facilities . . . . . . . . . . . . 348 34%
Substation facilities . . . . . . . . . . . . . 68 7%
General plant facilities . . . . . . . . . . . . 230 23%
Nuclear fuel . . . . . . . . . . . . . . . . . . 62 6%
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Total . . . . . . . . . . . . . . . . . . . $ 1,016 100%
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Actual capital expenditures will vary from estimates as a result of
numerous factors, including, but not limited to, changes in the rate of
inflation, availability and relative cost of fuels and purchased power, changes
in environmental laws, regulatory and legislative changes and the effect of
regulatory proceedings. For information regarding expenditures associated with
(i) HL&P's share of nuclear fuel costs and (ii) environmental programs, see
"Fuel--Nuclear Fuel--Supply" and "Regulatory Matters--Environmental Quality"
below.
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FUEL
Based upon various assumptions relating to the cost and availability
of fuels, plant operation schedules, load growth, load management and
environmental protection requirements, HL&P's estimate of its future energy mix
is as follows:
Energy Mix (%)
----------------------------------------------------
Historical ------------ Estimated -------------
1995 1996 1998 2000
---------- ---- ---- ----
Gas . . . . . . . . . . . . . . . . . . 32 34 39 42
Coal and Lignite . . . . . . . . . . . . 43 41 42 40
Nuclear . . . . . . . . . . . . . . . . 9 9 7 8
Purchased Power (cogeneration) . . . . . 16 16 12 10
--- --- --- ---
Total . . . . . . . . . . . . . 100 100 100 100
=== === === ===
There can be no assurance that the various assumptions upon which the
estimates set forth in the table above are based will prove to be correct.
Accordingly, HL&P's actual energy mix in future years may vary from the
percentages shown in the table. For information regarding HL&P's fuel costs,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Fuel and Purchased Power Expense--HL&P" in Item 7 of this Report
and Note 11(b) to the Financial Statements.
NATURAL GAS SUPPLY. During 1995, HL&P purchased approximately 71
percent of its natural gas requirements pursuant to long-term contracts having
terms of five years or longer. HL&P purchased the remaining 29 percent of its
natural gas requirements in the spot market. In 1995, no individual supplier
provided more than 24 percent of HL&P's total natural gas requirements.
Substantially all of HL&P's natural gas supply contracts contain pricing
provisions based on fluctuating spot market prices.
Based on the current market for, and availability of, natural gas,
HL&P believes that it will be able to replace the supplies of natural gas
covered under its present long-term contracts with gas purchased in the spot
market or under short-term contracts as such long-term contracts expire.
HL&P's average daily gas consumption during 1995 was 602 billion British
Thermal Units (BBtu) with peak daily consumption of 1,328 BBtu. HL&P's average
cost of natural gas in 1995 was $1.69 per million British thermal units
(MMBtu), $1.90 per MMBtu in 1994 and $2.21 per MMBtu in 1993.
Although natural gas has been relatively plentiful in recent years,
supplies available to HL&P and other consumers are vulnerable to disruption due
to weather conditions, transportation disruptions, price changes and other
events. As a result of these factors, supplies of natural gas may become
unavailable from time to time, or prices may increase rapidly in response to
temporary supply disruptions or other factors.
COAL AND LIGNITE SUPPLY. HL&P purchases approximately three-fourths
of the coal required to operate its four coal-fired units at the W. A. Parish
Electric Generating Station (W. A. Parish) under two long-term contracts from
mines in the Powder River Basin area of Wyoming.
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The first of these contracts expires in 2008, and the other expires in 2010.
HL&P obtains the remaining coal required to operate these units under
short-term contracts. Based on current market conditions, HL&P believes that
it will be able to enter into new coal contracts with other suppliers as such
long-term contracts expire. Coal is transported to the W. A. Parish
coal-handling facilities under long-term and short-term rail transportation
contracts.
HL&P obtains the lignite used to fuel the two units of the Limestone
Electric Generating Station (Limestone) from a surface mine adjacent to the
plant. HL&P owns the mining equipment, facilities and a portion of the lignite
leases at the mine, which is operated under long-term contract. The lignite
reserves currently under lease and contract are expected to provide
substantially all of the fuel requirements for Limestone through 2015.
The mining of coal/lignite reserves is subject to federal and state
requirements with respect to the development and operation of coal mines, and
to state and federal regulations relating to land reclamation and environmental
protection.
NUCLEAR FUEL. Supply. HL&P is the project manager (and one of four
co-owners) of the South Texas Project Electric Generating Station (South Texas
Project). The supply of fuel for nuclear generating facilities involves the
acquisition of uranium concentrates, conversion of such concentrates into
uranium hexafluoride, enrichment of the uranium hexafluoride and fabrication of
nuclear fuel assemblies. The South Texas Project fuel requirements are
procured in common by the South Texas Project owners. HL&P and the other South
Texas Project owners have on-hand or have contracted for the raw materials and
services they expect to need for operation of the South Texas Project units
through the years shown in the following table:
Uranium . . . . . . . . . . . . . . . . 2000 (1)
Conversion . . . . . . . . . . . . . . . 2000 (1)
Enrichment . . . . . . . . . . . . . . 2014 (2)
Fabrication . . . . . . . . . . . . . . 2005
(1) Contracts provide for up to 50 percent of the uranium concentrates
required and up to 100 percent of the conversion services required.
The balance of uranium concentrates requirements (and any conversion
services not purchased under existing contracts) is expected to be
provided by future spot and medium-term contracts.
(2) The South Texas Project has suspended its enrichment services contract
for the period between October 2000 through September 2005 pursuant to
an option available under such contract. During this period, the
South Texas Project intends to obtain such services through a
competitive bidding process.
Although HL&P and the other South Texas Project owners cannot predict
the future availability of uranium and related services, they do not
anticipate, based on current market conditions, difficulty in obtaining
requirements for the remaining years of the South Texas Project's operations.
Spent Fuel Disposal. By contract, the United States Department of
Energy (DOE) has committed itself to ultimately taking possession of all spent
fuel generated by the South Texas
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Project. HL&P has been advised that the DOE plans to place the spent fuel in a
permanent underground storage facility (located near Yucca, Nevada). The DOE
contract currently requires payment of a spent fuel disposal fee on nuclear
plant-generated electricity of one mill (one-tenth of a cent) per net
kilowatt-hour (KWH) sold. This fee is subject to adjustment to ensure full cost
recovery by the DOE. Although the DOE's efforts to arrange long-term disposal
have been unsuccessful to date, the South Texas Project is designed to have
sufficient on-site storage facilities to accommodate over 40 years of spent fuel
disposal for each unit.
Enrichment Decontamination and Decommissioning Assessment Fees. The
Energy Policy Act includes a provision that assesses a fee upon domestic
utilities that purchased nuclear fuel enrichment services from the DOE before
October 24, 1992. This fee covers a portion of the cost to decontaminate and
decommission facilities providing for such enrichment services. In 1995, the
South Texas Project assessment was approximately $1.9 million and will be
approximately $2 million in 1996 and each year thereafter (subject to
escalation for inflation). HL&P's share of such fees is 30.8 percent. These
assessments will continue until the earlier of October 24, 2007, or when $2.25
billion (adjusted for inflation) has been collected from domestic utilities
with nuclear generating units. HL&P has a remaining estimated liability of $7
million for such assessments.
OIL SUPPLY. HL&P maintains limited fuel oil stocks to satisfy fuel
needs in emergency situations. In addition, certain of HL&P's gas-fired
generating plants are designed to operate on fuel oil if oil becomes more
economical to use than gas.
PURCHASED POWER. At December 31, 1995, HL&P had contracts covering
445 MW of firm capacity and associated energy. These contracts expire as
follows: 1998 - 125 MW and 2005 - 320 MW. Capacity payments under HL&P's firm
purchased power commitments for the next three years are approximately $22
million per year. The two principal firm capacity contracts contain provisions
allowing HL&P to suspend or reduce purchased power payments in the event that
the Utility Commission disallows future recovery of these costs through HL&P's
rates for electric service.
RECOVERY OF FUEL COSTS. Utility Commission rules provide for the
recovery of certain fuel and purchased power energy costs through a fixed fuel
factor included in electric rates. The fixed fuel factor is established during
either a utility's general rate proceeding or a fuel factor proceeding and is
to be generally effective for a minimum of six months. In any event, a
reconciliation of the fuel revenues and the fuel costs is required every three
years. HL&P can request a revision to its fuel factor in April and October of
each year. Fuel revenues accrued pursuant to such factor are adjusted monthly
to equal fuel expenses; therefore, such revenues and expenses have no effect on
earnings unless fuel costs are determined not to be recoverable. The adjusted
over/under recovery of fuel costs is recorded on HL&P's balance sheets as
fuel-related credits and fuel costs are reviewed during periodic fuel
reconciliation proceedings. For additional information regarding the recovery
of fuel costs, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--HL&P--Operating Revenues and Sales--HL&P" in Item 7
of this Report.
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REGULATORY MATTERS
RATES AND SERVICES. HL&P operates under a certificate of convenience
and necessity granted by the Utility Commission which covers HL&P's present
service area and facilities. In addition, HL&P holds franchises to provide
electric service within the incorporated municipalities in its service
territory. None of such franchises expires before 2007.
Under PURA, the Utility Commission has original jurisdiction over
electric rates and services in unincorporated areas of the state of Texas and
in the incorporated municipalities that have relinquished original
jurisdiction. Original jurisdiction over electric rates and services in the
remaining incorporated municipalities served by HL&P is exercised by such
municipalities, including Houston, but the Utility Commission has appellate
jurisdiction over electric rates and services within those incorporated
municipalities.
UTILITY COMMISSION RATE PROCEEDINGS. During 1995, HL&P implemented
under the terms of a settlement of its 1995 rate case (Docket No. 12065) a
reduction in its base rates (Rate Case Settlement). For a more detailed
description of the terms of the Rate Case Settlement, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Earnings of the Company and
HL&P--Rate Matters and Other Contingencies" in Item 7 of this Report and Note
3(a) to the Financial Statements.
ENVIRONMENTAL QUALITY. HL&P is subject to a number of federal, state
and local environmental requirements that govern its discharge of emissions
into the air and water and regulate its handling of solid and hazardous waste.
HL&P has incurred substantial expenditures in the past to comply with these
requirements and anticipates that further expenditures will be incurred in the
future. Most of the environmental requirements applicable to HL&P are
implemented by the Texas Natural Resource Conservation Commission (TNRCC),
which shares regulatory jurisdiction with the United States Environmental
Protection Agency (EPA).
Air Quality. A major provision of the Federal Clean Air Act (Clean
Air Act) affecting electric utilities, like HL&P, is the Acid Rain Program,
which is designed to reduce emissions of sulfur dioxide (SO2) from electric
utility generating units. The Acid Rain Program requires that after a certain
date a utility must have been granted a regulatory "allowance" for each ton of
SO2 emitted from its facilities. Allowances have been distributed to utilities
by the EPA based on their historic operations. If a utility is not allocated
sufficient allowances to cover its future SO2 emissions, it must either
purchase allowances from other utilities or reduce SO2 emissions from its units
through the installation of additional controls and equipment. HL&P believes
that it has been allocated a sufficient number of emission allowances for it to
continue operating its existing facilities for the foreseeable future.
Provisions of the Clean Air Act dealing with urban air pollution
require establishing new emission limitations for nitrogen oxides (NOx) from
existing sources. Initial limitations were finalized in 1993, but the
implementation of these emission reductions has been delayed by the EPA and
TNRCC until 1999. The cost of modifications to HL&P in 1995 was approximately
$1 million. Up to an additional $40 million may be incurred by HL&P in order
to fully comply with new NOx requirements through 1999.
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Additionally, to ensure compliance with these new regulatory programs,
the Clean Air Act requires electric utilities to install continuous emission
monitoring equipment, which cost HL&P approximately $3 million in 1995 and is
expected to cost an additional $1 million in 1996. To implement these new
Clean Air Act programs, a new Operating Permit Program was established that
will be administered in Texas by the TNRCC. Among other requirements, the
Operating Permit Program is funded by fees imposed by the TNRCC. The annual
cost of these fees to HL&P is approximately $1 million.
Water Quality. The Federal Clean Water Act governs the discharge of
pollutants into surface waters and is administered jointly in Texas by the
TNRCC and the EPA. HL&P has obtained permits from both the TNRCC and the EPA
for all of its facilities that require such permits and anticipates obtaining
renewal of such permits as they expire.
Solid and Hazardous Waste. HL&P's handling and disposal of solid
waste is also subject to regulation by the TNRCC. HL&P's cost in 1995 for
commercial disposal of industrial solid waste was approximately $2.3 million.
Electric and Magnetic Fields. The issue of whether exposure to
electric and magnetic fields (EMFs) may result in adverse health effects or
damage to the environment is currently being debated. EMFs are produced by all
devices which carry or use electricity, including home appliances as well as
electric transmission and distribution lines. Results of studies concerning
the effect of EMFs have been inconclusive and EMFs are not the subject of any
federal, state or local regulations affecting HL&P. However, lawsuits have
arisen in several states (including Texas) against electric utilities and
others alleging that the presence or use of electric power transmission and
distribution lines has an adverse effect on health and/or property values.
FEDERAL REGULATION OF NUCLEAR POWER. Under the 1954 Atomic Energy Act
and the 1974 Energy Reorganization Act, operation of nuclear plants is
extensively regulated by the United States Nuclear Regulatory Commission (NRC),
which has broad power to impose licensing and safety requirements. In the
event of non-compliance, the NRC has the authority to impose fines or shut down
nuclear plants, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved.
LOW-LEVEL RADIOACTIVE WASTE DISPOSAL. The 1980 federal Low-Level
Radioactive Waste Policy Act directed states to assume responsibility for the
disposal of low-level nuclear waste generated within their borders. Under the
Act, states may combine with other states and seek consent from Congress for
regional compacts to construct and operate low- level nuclear waste sites. As
of March 1, 1996, there existed in the United States only two facilities
licensed to receive commercial low-level nuclear waste. Only one such
facility, located in Barnwell, South Carolina, is currently available to the
South Texas Project. The South Texas Project has entered into a contract with
the operator of the Barnwell facility to dispose of all of its low-level
nuclear waste through September 1997.
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The Texas Low-Level Radioactive Waste Disposal Authority (Waste
Disposal Authority) is currently seeking authority to build and operate a
low-level waste disposal facility in Hudspeth County, Texas. A bill that
establishes an interstate compact among Texas, Maine and Vermont is currently
pending before Congress. Ratification of the compact would limit access to the
proposed facility to the three compact members. Although lack of Congressional
action would not prohibit the Waste Disposal Authority from constructing the
site unilaterally, failure to ratify the compact would result in the loss of
contributions from Maine and Vermont toward the construction of the facility.
HL&P expects that the measure will be considered by Congress in mid-1996.
The Waste Disposal Authority is authorized to assess a planning and
implementation fee to waste generators to fund development of the proposed
Texas disposal facility. For the authority's 1995 fiscal year, HL&P's share of
this assessment fee was approximately $1.3 million. Assuming Congress
ultimately approves the proposed compact, HL&P estimates that its share of
these fees for 1996 will be approximately $1.2 million. Subject to licensing
of the facility in 1996, the Waste Disposal Authority estimates that the Texas
site (construction of which has not yet begun) could begin receiving waste in
late 1997. In the event the Barnwell facility stops accepting waste before the
Texas site is opened, the South Texas Project would store its waste in an
interim storage facility located at the nuclear plant. The plant currently has
storage capacity for a minimum of five years of low-level nuclear waste
generated by the project.
NUCLEAR INSURANCE AND NUCLEAR DECOMMISSIONING
For information concerning nuclear insurance and nuclear
decommissioning, see Notes 2(c) and 2(d) to the Financial Statements.
LABOR MATTERS
As of December 31, 1995, HL&P had 8,641 full-time employees of whom
3,420 were hourly-paid employees represented by the International Brotherhood
of Electrical Workers under a collective bargaining agreement which expires on
May 25, 1998.
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OPERATING STATISTICS OF HL&P
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
---------- --------- ----------
Electric Energy Generated and Purchased (MWH):
Generated -- Net Station Output . . . . . . . . . 53,447,128 53,894,994 52,939,551
Purchased . . . . . . . . . . . . . . . . . . . . 10,452,818 10,107,449 11,113,971
Net Interchange . . . . . . . . . . . . . . . . . (1,488) (1,018) (282)
---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . 63,898,458 64,001,425 64,053,240
Company Use, Lost and Unaccounted for Energy . . . (2,822,876) (2,678,629) (2,903,780)
---------- ---------- ----------
Total Energy Sold . . . . . . . . . . . . . . . 61,075,582 61,322,796 61,149,460
========== ========== ==========
Electric Sales (MWH):
Residential . . . . . . . . . . . . . . . . . . . 18,103,209 17,194,724 16,953,667
Commercial . . . . . . . . . . . . . . . . . . . . 14,233,413 13,631,381 13,083,391
Small Industrial (1) . . . . . . . . . . . . . . . 11,174,404 10,940,813 11,038,653
Large Industrial (1) . . . . . . . . . . . . . . . 12,493,029 13,537,677 13,648,129
Street Lighting -- Government and Municipal . . . 117,253 116,643 112,914
---------- ---------- -----------
Total Firm Retail Sales . . . . . . . . . . . . 56,121,308 55,421,238 54,836,754
Other Electric Utilities . . . . . . . . . . . . . 169,750 167,286 223,204
---------- ---------- -----------
Total Firm Sales . . . . . . . . . . . . . . . 56,291,058 55,588,524 55,059,958
Interruptible . . . . . . . . . . . . . . . . . . 4,093,385 5,027,743 5,748,086
Off-System . . . . . . . . . . . . . . . . . . . . 691,139 706,529 341,416
---------- ---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . 61,075,582 61,322,796 61,149,460
========== ========== ==========
Number of Customers (End of Period):
Residential . . . . . . . . . . . . . . . . . . . 1,327,168 1,301,074 1,278,774
Commercial . . . . . . . . . . . . . . . . . . . . 175,998 170,959 168,284
Small Industrial (1) . . . . . . . . . . . . . . . 1,543 1,525 1,568
Large Industrial (Including Interruptible) (1) . . 127 145 138
Street Lighting -- Government and Municipal . . . 82 81 82
Other Electric Utilities (Including Off-System) . 11 11 12
---------- ---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . 1,504,929 1,473,795 1,448,858
========== ========== ===========
Operating Revenue (Thousands of Dollars):
Residential . . . . . . . . . . . . . . . . . . . $1,471,702 $1,586,074 $1,578,175
Commercial . . . . . . . . . . . . . . . . . . . . 923,223 1,029,104 994,461
Small Industrial (1) . . . . . . . . . . . . . . . 564,609 643,383 650,946
Large Industrial (1) . . . . . . . . . . . . . . . 431,499 541,188 539,971
Street Lighting -- Government and Municipal . . . 20,679 25,902 24,258
---------- ---------- -----------
Total Electric Revenue -- Firm Retail Sales . . 3,411,712 3,825,651 3,787,811
Other Electric Utilities . . . . . . . . . . . . . 22,207 25,669 26,154
---------- ---------- -----------
Total Electric Revenue -- Firm Sales . . . . . 3,433,919 3,851,320 3,813,965
Interruptible . . . . . . . . . . . . . . . . . . 81,707 108,730 135,066
Off-System . . . . . . . . . . . . . . . . . . . . 12,250 13,691 7,313
---------- ---------- -----------
Total Electric Revenue . . . . . . . . . . . . 3,527,876 3,973,741 3,956,344
Miscellaneous Electric Revenues . . . . . . . . . 152,421 (227,656) 123,519
---------- ---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . $3,680,297 $3,746,085 $4,079,863
========== ========== ==========
Installed Net Generating Capability (KW) 13,921,370 13,666,000 13,679,000
(End of Period) . . . . . . . . . . . . . . . . .
Cost of Fuel (Cents per MMBtu):
Gas . . . . . . . . . . . . . . . . . . . . . . . 168.5 189.8 221.4
Coal (2) . . . . . . . . . . . . . . . . . . . . . 202.5 159.0 199.6
Lignite . . . . . . . . . . . . . . . . . . . . . 124.8 110.8 122.1
Nuclear . . . . . . . . . . . . . . . . . . . . . 58.2 57.4 59.6
Average . . . . . . . . . . . . . . . . . . . . 159.3 153.6 195.2
(1) For reporting purposes, HL&P classifies customers with an electric
demand in excess of 600 KVA as industrial. Small industrial
customers typically are retail stores, office buildings, universities
and other customers not associated with large industrial plants.
(2) The cost of coal for 1994 reflects the receipt of approximately $66.1
million related to the sale of certain railroad settlement payments.
See Note 14 to the Financial Statements.
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BUSINESS OF HI ENERGY
The Company formed HI Energy in 1993 to seek investment opportunities
in domestic and foreign power generation projects and the privatization of
foreign electric utilities.
HI Energy's major foreign investments include a 90 percent interest in
an electric utility operating in north-central Argentina (acquired in 1995 for
$15.7 million), and a 17 percent indirect interest in an electric utility
operating in La Plata, Argentina (for which HI Energy's share of the purchase
price in 1992 was $37.4 million). In late 1997, a subsidiary of HI Energy
expects to complete development of a 160 MW cogeneration facility in Argentina
at an estimated cost to HI Energy of approximately $92 million. In 1998, a
subsidiary of HI Energy, together with various other investors, expects to
complete development of a petroleum coke calcination facility in the state of
Andhra Pradesh, India. The waste gases from this facility will be used to
generate electricity for sale to industrial customers and a local utility.
Assuming the project is completed on schedule, HI Energy's estimated share of
the cost of this project is approximately $8 million. HI Energy also owns an
indirect interest in two waste tire-to-energy projects located in the state of
Illinois (in which it has made investments and advances totaling approximately
$28 million).
For the year ended December 31, 1995, HI Energy had a consolidated net
loss of approximately $33 million. The net loss includes an $18 million
after-tax charge to earnings resulting from the adverse impact of legislation
adopted by the state of Illinois on the operations of the two HI Energy waste
tire-to-energy projects located in that state. For additional information, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Earnings of the Company and
HL&P--HI Energy" in Item 7 of this Report and Notes 1(a) and 4 to the Financial
Statements. Although HI Energy seeks to improve long-term shareholder returns,
HI Energy's operations are subject to greater risks than traditionally have
existed in HL&P's regulated operations. Such risks include foreign investment
risks, currency fluctuations, expropriation, intense competition for the
identification and development of projects and the risk of adverse legislation
or regulatory action.
As of December 31, 1995, HI Energy and its U.S. majority-owned
subsidiaries had 61 full-time employees of whom 14 were represented by a union.
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REGULATION OF THE COMPANY
FEDERAL
The Company is a holding company as defined in the 1935 Act; however,
based upon the intrastate operations of HL&P and the exemptions applicable to
the affiliates of HI Energy, the Company is exempt from regulation as a
"registered" holding company under the 1935 Act except with respect to the
acquisition of voting securities of other domestic public utility companies and
utility holding companies. The Company has no present intention of entering
into any transaction which would cause it to become a registered holding
company subject to regulation by the Securities and Exchange Commission (SEC)
under the 1935 Act.
In June 1995, the SEC issued a comprehensive report on the regulation
of utility holding companies in which it recommended repeal of the 1935 Act,
subject to a minimum one-year transition period and legislation that would
provide for access by state commissions to the books and records of holding
companies and their affiliates and oversight by the FERC of intrasystem
transactions. At least one bill has since been introduced in Congress which
would implement most of the SEC's recommendations. Repeal or significant
modification of the 1935 Act could have a significant effect on the electric
utility industry.
STATE
The Company is not subject to regulation by the Utility Commission
under PURA or by the incorporated municipalities served by HL&P. Those
regulatory bodies do, however, have authority to review accounts, records and
contracts relating to transactions by HL&P with the Company and its other
subsidiaries.
The exemption for foreign utility affiliates of the Company from
regulation under the 1935 Act as "public utility companies" is dependent upon
certification by the Utility Commission to the SEC to the effect that it has
the authority to protect HL&P's ratepayers from any adverse consequences of the
Company's investment in foreign utilities and that it intends to exercise its
authority. The Utility Commission has provided such certification to the SEC
subject, however, to its being revised or withdrawn by the Utility Commission
as to any future acquisition. In January 1996, the Utility Commission adopted
a rule specifying the procedures for granting certification to the SEC
regarding foreign utility investments and establishing reporting requirements
for exempt holding companies (like the Company) intended to provide the Utility
Commission with information relevant to its granting or maintaining the
certification. Among other things, the Company is now required to notify the
Utility Commission in the event that its aggregate investment in foreign EWGs
and utility companies exceeds 30 percent of the Company's consolidated net
worth or if the Company's operating losses attributable to its direct or
indirect investments exceeds 5 percent of consolidated retained earnings during
the previous four quarters.
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EXECUTIVE OFFICERS OF THE COMPANY (1)
As of March 1, 1996
Officer
Name Age(2) Since Business Experience 1991-1996 and Positions
---- ------ ------- ---------------------------------------------------------------
Don D. Jordan . . . . . . . . . . 63 1976 Chairman and Chief Executive 1993-
Officer and Director
Chairman, President and Chief 1991-1993
Executive Officer and Director
Chairman and Chief Executive 1991-
Officer and Director - HL&P
Hugh Rice Kelly . . . . . . . . . 53 1984 Senior Vice President, General 1994-
Counsel and Corporate Secretary
Vice President, General Counsel 1991-1994
and Corporate Secretary
Senior Vice President, General 1991-
Counsel and Corporate Secretary
- HL&P
Lee W. Hogan . . . . . . . . . . 51 1990 Senior Vice President and Director 1996-
Vice President and Director 1995-1996
Vice President 1993-1995
President and Chief Operating 1993-
Officer - HI Energy
Group Vice President - 1991-1993
External Affairs - HL&P
R. Steve Letbetter . . . . . . . 47 1978 Senior Vice President and Director 1996-
Vice President and Director 1995-1996
Vice President 1993-1995
President and Chief 1993-
Operating Officer - HL&P
Group Vice President - Finance 1991-1993
and Regulatory Relations - HL&P
Stephen W. Naeve . . . . . . . . 48 1988 Senior Vice President and Chief 1996-
Financial Officer
Vice President - Strategic Planning 1993-1996
and Administration
Vice President - Corporate Planning 1991-1993
and Treasurer - HL&P
Mary P. Ricciardello . . . . . . 40 1993 Vice President and Comptroller 1996-
Vice President and Comptroller 1996-
- HL&P
Comptroller 1993-1996
Assistant Corporate Secretary 1991-1993
and Assistant Treasurer - HL&P
- --------------------
(1) All of the officers have been elected to serve until the annual meeting
of the Board of Directors scheduled to
occur on May 22, 1996 and until their successors qualify.
(2) At December 31, 1995.
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EXECUTIVE OFFICERS OF HL&P (1)(2)
As of March 1, 1996
Officer
Name Age(3) Since Business Experience 1991-1996 and Positions
---- ------ ------- ------------------------------------------------------------------
Don D. Jordan . . . . . . . . . . 63 1971 Chairman and Chief Executive 1991-
Officer and Director
R. Steve Letbetter . . . . . . . 47 1978 President and Chief Operating Officer
and Director 1995-
President and Chief Operating Officer 1993-1995
Group Vice President - Finance 1991-1993
and Regulatory Relations
William T. Cottle . . . . . . . . 50 1993 Executive Vice President and General 1996-
Manager - Nuclear
Group Vice President - Nuclear 1993-1996
Vice President - Operations - 1991-1993
Grand Gulf Nuclear Station,
Entergy Operations, Inc.
Jack D. Greenwade . . . . . . . . 56 1982 Senior Vice President and Assistant 1996-
to the President
Group Vice President - Operations 1991-1996
Hugh Rice Kelly . . . . . . . . . 53 1984 Senior Vice President, General 1991-
Counsel and Corporate Secretary
David M. McClanahan . . . . . . . 46 1986 Executive Vice President and General 1996-
Manager - Energy Delivery and
Customer Services
Group Vice President - Finance 1993-1996
and Regulatory Relations
Senior Vice President and Chief 1991-1993
Financial Officer - KBLCOM
Vice President, Finance and 1991
Administration - KBLCOM
Vice President and Comptroller 1991
- Company
Stephen C. Schaeffer . . . . . . 48 1989 Executive Vice President - Shared 1996-
Services and Financial and
Regulatory Affairs
Senior Vice President - Treasurer - 1993-1996
HI Energy
Group Vice President - Administration 1992-1993
and Support
Vice President - Regulatory Relations 1991-1992
Robert L. Waldrop . . . . . . . 48 1988 Senior Vice President - Marketing and 1996-
Customer Services
Group Vice President - External Affairs 1993-1996
Vice President - Public and 1992-1993
Customer Relations
Vice President - Public Affairs 1991-1992
Mary P. Ricciardello . . . . . . 40 1993 Vice President and Comptroller 1996-
Vice President and Comptroller 1996-
- Company
Comptroller - Company 1993-1996
Assistant Corporate Secretary 1991-1993
and Assistant Treasurer
- -------------------
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(1) All of the officers have been elected to serve until the annual meeting
of the Board of Directors scheduled to occur on May 22, 1996 and until
their successors qualify.
(2) For the purposes of the requirements of this Report, the HL&P officers
listed may also be deemed to be executive officers of the Company.
(3) At December 31, 1995.
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ITEM 2. PROPERTIES.
The Company considers its property and the property of its
subsidiaries to be well maintained, in good operating condition and suitable
for their intended purposes.
HL&P
All of HL&P's electric generating stations and all of the other
operating properties of HL&P are located in the state of Texas.
ELECTRIC GENERATING STATIONS. As of December 31, 1995, HL&P owned 12
electric generating stations (62 generating units) with a combined turbine
nameplate rating of 13,544,608 kilowatts (KW), including a 30.8 percent
interest in one nuclear generating station (two units) with a combined turbine
nameplate rating of 2,623,676 KW.
SUBSTATIONS. As of December 31, 1995, HL&P owned 203 major
substations (with capacities of at least 10 megavolt amperes (Mva)) having a
total installed rated transformer capacity of 55,320 Mva (exclusive of spare
transformers), including a 30.8 percent interest in one major substation with
an installed rated transformer capacity of 3,080 Mva.
ELECTRIC LINES--OVERHEAD. As of December 31, 1995, HL&P operated
24,385 pole miles of overhead distribution lines and 3,597 circuit miles of
overhead transmission lines, including 567 circuit miles operated at 69,000
volts, 1,999 circuit miles operated at 138,000 volts and 1,031 circuit miles
operated at 345,000 volts.
ELECTRIC LINES--UNDERGROUND. As of December 31, 1995, HL&P operated
9,098 circuit miles of underground distribution lines and 12.6 circuit miles of
underground transmission lines, including 8.1 circuit miles operated at 138,000
volts and 4.5 circuit miles operated at 69,000 volts.
GENERAL PROPERTIES. HL&P owns various properties, including division
offices, service centers, telecommunications equipment and other facilities
used for general purposes.
TITLE. The electric generating plants and other important units of
property of HL&P are situated on lands owned in fee by HL&P. Transmission
lines and distribution systems have been constructed in part on or across
privately owned land pursuant to easements or on streets and highways and
across waterways pursuant to authority granted by municipal and county permits,
and by permits issued by state and federal governmental authorities. Under the
laws of the state of Texas, HL&P has the right of eminent domain pursuant to
which it may secure or perfect rights-of-way over private property, if
necessary.
MORTGAGE. HL&P's mortgage, which secures first mortgage bonds issued
by HL&P and collateralizes certain other securities issued on behalf of HL&P,
constitutes a direct first lien on substantially all of HL&P's properties. The
terms of the mortgage contain significant restrictions on the ability of HL&P
to pledge, sell or otherwise dispose of its assets.
HI ENERGY
For information with respect to property owned directly or indirectly
by HI Energy, see "Business of HI Energy" in Item 1 of this Report and Note 4
to the Financial Statements.
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ITEM 3. LEGAL PROCEEDINGS.
The following is a description of certain legal and regulatory
proceedings affecting the Company and its subsidiaries.
RATE MATTERS. In August 1995, the Utility Commission approved a
settlement of HL&P's 1995 rate case (Docket No. 12065) as well as a separate
proceeding (Docket No. 13126) regarding the prudence of operation of the South
Texas Project. For information regarding this settlement, including the status
of appeals of other Utility Commission orders affecting HL&P, see Note 3 to the
Financial Statements, which note is incorporated herein by reference.
SOUTH TEXAS PROJECT LITIGATION. For information concerning lawsuits
and related matters filed against HL&P by the City of Austin and the City of San
Antonio with respect to outages at the South Texas Project occurring in 1993 and
early 1994 and arbitration claims asserted against HL&P by the City of San
Antonio with respect to the construction of the South Texas Project, see Note
2(b) to the Financial Statements, which note is incorporated herein by
reference.
In April 1994, two former employees of HL&P filed a class action and
shareholder derivative suit on behalf of all shareholders of the Company. This
lawsuit (Pace and Fuentez v. Houston Industries Incorporated) alleges various
acts of mismanagement against certain officers and directors of the Company and
HL&P in connection with the operation of the South Texas Project, and seeks
unspecified actual and punitive damages for the benefit of shareholders of the
Company. The Company and HL&P believe that the suit is without merit. The
lawsuit is pending in the 133rd District Court of Harris County, Texas.
HL&P and the other owners of the South Texas Project filed suit in
1990 against Westinghouse Electric Corporation (Westinghouse) in the 23rd
District Court of Matagorda County, Texas, alleging breach of warranty and
misrepresentation in connection with the steam generators supplied by
Westinghouse for the South Texas Project. In December 1995, HL&P and the other
South Texas Project owners settled their lawsuit against Westinghouse.
Although the terms of the settlement do not allow disclosure of its specific
terms, the Company believes the litigation was settled on terms that provided
satisfactory consideration to HL&P.
ENVIRONMENTAL. HL&P is a defendent in litigation arising out of the
environmental remediation of a site in Corpus Christi, Texas. The site was
operated by third parties as a metals reclaiming operation. Although HL&P
neither operated nor owned the site, certain transformers and other equipment
originally sold by HL&P may have been delivered to the site by third parties,
and HL&P and others have remediated the site pursuant to a plan approved by
appropriate state agencies and a federal court. In Dumes, et al. v. HL&P, et
al., (pending in the U.S. District Court for the Southern District of Texas,
Corpus Christi Division), landowners near the site have asserted claims that
their property has been contaminated as a result of the remediation effort and
have asserted claims of approximately $70 million in damages, together with
punitive damages totaling $51 million. Although the ultimate outcome of this
case cannot be predicted at this time, the Company and HL&P do not believe that
this case will have a material adverse effect on the Company's or HL&P's
financial condition or results of operations.
The EPA has identified HL&P as a potentially responsible party under
the Comprehensive Environmental Response, Compensation, and Liability Act for
the costs of cleaning up a site located adjacent to one of HL&P's transmission
lines. In October 1992, the EPA issued an Administrative Order to HL&P and
several other companies purporting to require them to manage
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22
the remediation of the site. HL&P believes that the EPA took this action solely
on the basis of information indicating that HL&P in the 1950s acquired record
title to a portion of the land on which the site is located. HL&P does not
believe that it now nor previously has had any ownership interest in the land in
question and has obtained a judgment from a court in Galveston County, Texas, to
that effect. Accordingly, HL&P has not complied with this order, even though
HL&P understands that other responsible parties are proceeding with site
remediation. To date, neither the EPA nor any other potentially responsible
party has instituted a claim against HL&P for any share of the remediation
costs, but under current law if HL&P is determined to be a responsible party,
HL&P could be found to be jointly and severally liable for the remediation costs
(which HL&P estimates to be approximately $80 million in the aggregate) and
could be subjected to substantial fines and damage claims.
IRS REFUND LAWSUIT. In July 1990, the Company paid approximately
$104.5 million to the Internal Revenue Service (IRS) in connection with an IRS
audit of the Company's 1983 and 1984 federal income tax returns. In November
1991, the Company filed a refund suit in the U.S. Court of Federal Claims
seeking the return of $52.1 million of tax, $36.3 million of accrued interest,
plus interest on both of those amounts accruing after July 1990. The major
contested issue in the refund case involved the IRS's allegation that certain
amounts related to the over-recovery of fuel costs should have been included as
taxable income in 1983 and 1984 even though HL&P had an obligation to refund
the over- recoveries to its ratepayers. In October 1994, the Court granted the
Company's Motion for Partial Summary Judgment on the fuel cost over-recovery
issue, and in February 1995, entered partial judgment in favor of the Company.
The government has appealed this decision. If the government does not prevail
on appeal, the Company would be entitled to a refund of overpaid tax, interest
paid on the overpaid tax through July 1990 and interest on both of those
amounts from July 1990. If the government prevails on appeal, the Company's
ultimate financial exposure should be immaterial because of offsetting tax
deductions to which the Company is entitled for the year the over-recovery was
refunded to ratepayers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders of the
Company or HL&P during the fourth quarter of 1995.
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23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock, which at March 1, 1996 was held of record
by approximately 66,000 shareholders, is listed on the New York, Chicago and
London Stock Exchanges (symbol: HOU). All of HL&P's common stock is directly
or indirectly held by the Company. The following table sets forth the high and
low sales prices of the Company's Common Stock on the composite tape during the
periods indicated, as reported by The Wall Street Journal, and the dividends
declared for such periods, in each case as adjusted to give effect to the
two-for-one stock split effected by a stock distribution in December 1995.
Dividend payout was $1.50 per share for 1995 and 1994. The dividend declared
during the fourth quarter of 1995 is payable in March 1996.
Market Price
-------------------------- Dividend Declared
High Low Per Share
-------- -------- --------------------
1995
First Quarter $0.375
January 3 $17 11/16
February 3 $20 1/2
Second Quarter $0.375
April 3 $18 15/16
June 5 $21 7/8
Third Quarter $0.375
September 1 $21 1/16
September 28 $22 3/4
Fourth Quarter $0.375
October 2 $22 1/16
December 29 $24 1/2
1994
First Quarter $0.375
January 3 $23 7/8
March 31 $17 3/8
Second Quarter $0.375
April 21 $18 5/8
May 10 $15
Third Quarter $0.375
July 1 $16 1/4
August 2 $18 5/16
Fourth Quarter $0.375
November 23 $16
December 15 $18 1/4
On December 31, 1995, the consolidated book value of the Company's Common Stock
was $16.61 per share. The closing market price of the Company's Common Stock
on December 29, 1995 (the last business day of the year) was $24 1/4 per share.
There are no contractual limitations on the payment of dividends on
the Company's Common Stock or on the common stock of the Company's
subsidiaries.
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24
ITEM 6. SELECTED FINANCIAL DATA OF THE COMPANY.
The following table sets forth selected financial data with respect to
the Company's consolidated financial condition and results of consolidated
operations and should be read in conjunction with the Financial Statements and
the related notes in Item 8 of this Report. On July 6, 1995, the Company closed
the sale of its cable television operations. The operations of KBLCOM have been
accounted for as discontinued operations.
Year Ended December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(Thousands of Dollars, except per share amounts)
Revenues . . . . . . . . . . . . . . . . . . . . $ 3,730,173 $ 3,754,136 $ 4,083,655 $ 3,857,932 $ 3,707,605
----------- ----------- ----------- ----------- -----------
Income from continuing operations before
cumulative effect of change in
accounting (1) . . . . . . . . . . . . . . . $ 397,400 $ 423,985 $ 440,531 $ 370,031 $ 484,275
Loss from discontinued operations . . . . . . . . (16,524) (24,495) (29,544) (67,521)
Gain on sale of cable television subsidiary . . . 708,124
Cumulative effect of change in accounting (2) . . (8,200) 94,180
----------- ----------- ----------- ----------- -----------
Net income (1) . . . . . . . . . . . . . . . . . $ 1,105,524 $ 399,261 $ 416,036 $ 434,667 $ 416,754
=========== =========== =========== =========== ===========
Earnings per common share (3):
Continuing operations before cumulative
effect of change in accounting (1) . . . . . . $ 1.60 $ 1.72 $ 1.69 $ 1.43 $ 1.88
Gain on sale of cable television subsidiary. . 2.86
Discontinued operations . . . . . . . . . . (.07) (.09) (.11) (.26)
Cumulative effect of change in
accounting (2) . . . . . . . . . . . . . . . . (.03) .36
----------- ----------- ----------- ----------- -----------
Earnings per common share (1) . . . . . . . . . . $ 4.46 $ 1.62 $ 1.60 $ 1.68 $ 1.62
=========== =========== =========== =========== ===========
Cash dividends declared per common
share (3)(4) . . . . . . . . . . . . . . . . $ 1.50 $ 1.50 $ 1.875 $ 1.49 $ 1.48
Dividend pay-out ratio from continuing
operations . . . . . . . . . . . . . . . . . 94% 87% 89% 104% 79%
Return on average common equity (5) . . . . . . . 29.1% 11.9% 12.8% 13.4% 12.7%
Ratio of earnings from continuing
operations to fixed charges before
cumulative effect of change in accounting . . 2.71 2.89 2.78 2.29 2.55
- -------------------------------------------------- ----------------------------------------------------------------------
At year-end:
Book value per common share (1)(3) . . . . . $ 16.61 $ 13.64 $ 12.53 $ 12.68 $ 12.48
Market price per common share (3) . . . . . . $ 24.25 $ 17.82 $ 23.82 $ 22.94 $ 22.13
Market price as a percent of book value (1) 146% 131% 190% 181% 177%
- -------------------------------------------------- ----------------------------------------------------------------------
At year-end:
Total assets of continuing operations . . . . $11,819,606 $10,784,095 $10,867,581 $11,075,897 $10,820,562
Net assets of discontinued operations . . . . 618,982 487,026 231,252 170,718
----------- ----------- ----------- ----------- -----------
Total assets . . . . . . . . . . . . . . . . $11,819,606 $11,403,077 $11,354,607 $11,307,149 $10,991,280
=========== =========== =========== =========== ===========
Long-term obligations including current
maturities - continuing operations (6) . . . $ 3,768,928 $3,905,518 $ 3,950,576 $ 4,244,077 $ 4,488,628
Long-term obligations including current
maturities included in net assets of
discontinued operations . . . . . . . . . . 504,580 514,964 740,453 813,203
Capitalization from continuing operations:
Common stock equity . . . . . . . . . . . . 50% 44% 43% 42% 41%
Cumulative preferred stock of HL&P
(including current maturities) . . . . . 5% 7% 7% 7% 6%
Long-term debt (including current
maturities) . . . . . . . . . . . . . . . 45% 49% 50% 51% 53%
- -----------------------------------------------------------------------------------------------------------------------------
Capital expenditures:
Electric capital and nuclear fuel
expenditures (excluding AFUDC) (7) . . . . $ 296,635 $ 412,899 $ 329,016 $ 337,082 $ 365,486
Cable television additions and other . . . .
cable-related investments - discontinued. . 47,601 84,071 61,856 45,233 26,624
Corporate headquarters expenditures
(excluding capitalized interest) (7). . . . 89,627 44,250 26,034
Non-regulated electric power project
expenditures and advances . . . . . . . . 38,278 7,087 35,796 1,625
- -----------------------------------------------------------------------------------------------------------------------------
(1) The Company adopted Statement of Position (SOP) 93-6, "Employers'
Accounting for Employee Stock Ownership Plans," effective January 1, 1994,
which had the effect of reducing net income while increasing earnings per
share. See also Notes 1(g) and 9(b) to the Financial Statements. SOP 93-6
is effective only with respect to financial statements for periods after
January 1, 1994, and no restatement was permitted for prior periods.
(2) The 1994 cumulative effect relates to the change in accounting for
postemployment benefits. See also Note 9(d) to the Financial Statements.
The 1992 cumulative effect relates to the change in accounting for revenues.
(3) All common share data reflect a two-for-one common stock dividend
distribution in December 1995.
(4) Year ended December 31, 1993 includes five quarterly dividends of $.375
per share due to a change in the timing of the Company's Board of Directors'
declaration of dividends. Dividend payout was $1.50 per share for 1993.
See also Note 5(b) to the Financial Statements.
(5) The return on average common equity for 1995 includes the gain on the sale
of the Company's cable television subsidiary. The return on average common
equity excluding the gain was 11.6%.
(6) Includes Cumulative Preferred Stock subject to mandatory redemption.
(7) During 1995, HL&P made a payment toward the purchase of an ownership
interest in the corporate headquarters building. Such payment is not
reflected in the Company's electric capital and nuclear fuel expenditures as
it is an affiliate transaction eliminated upon consolidation.
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25
ITEM 6. SELECTED FINANCIAL DATA OF HL&P.
The following table sets forth selected financial data with respect to HL&P's
financial condition and results of operations and should be read in
conjunction with the Financial Statements.
Year Ended December 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- ----------- ----------- ----------- -----------
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . $ 3,680,297 $ 3,746,085 $ 4,079,863 $ 3,826,841 $ 3,674,543
----------- ----------- ----------- ----------- -----------
Income after preferred dividends but
before cumulative effect of change
in accounting . . . . . . . . . . . $ 450,977 $ 461,381 $ 449,750 $ 375,955 $ 472,712
Cumulative effect of change in
accounting (1) . . . . . . . . . . . (8,200) 94,180
----------- ----------- ----------- ----------- -----------
Income after preferred dividends . . . . $ 450,977 $ 453,181 $ 449,750 $ 470,135 $ 472,712
=========== =========== =========== =========== ===========
Return on average common
equity . . . . . . . . . . . . . . . 11.8% 12.0% 12.3% 13.3% 13.8%
Ratio of earnings to fixed charges
before cumulative effect of change
in accounting . . . . . . . . . . . . 3.75 3.80 3.40 2.73 2.97
Ratio of earnings to fixed charges and
preferred dividend requirements
before cumulative effect of change
in accounting . . . . . . . . . . . . 3.20 3.20 2.90 2.34 2.53
- ---------------------------------------------------------------------------------------------------------------------
At year-end:
Total assets . . . . . . . . . . . $10,665,259 $10,850,981 $10,753,616 $10,790,052 $10,620,642
Long-term obligations including
current maturities (2) . . . . . . $ 3,220,015 $ 3,356,789 $ 3,402,032 $ 3,796,719 $ 4,150,454
Capitalization:
Common stock equity . . . . . . . . 52% 51% 50% 47% 44%
Cumulative preferred stock . . . .
(including current maturities) . 6% 7% 7% 7% 6%
Long-term debt (including current
maturities) . . . . . . . . . . 42% 42% 43% 46% 50%
- ---------------------------------------------------------------------------------------------------------------------
Capital and nuclear fuel expenditures
(excluding AFUDC) (3) . . . . . . . . $ 391,550 $ 412,899 $ 329,016 $ 337,082 $ 365,486
Percent of capital expenditures
financed internally from
operations . . . . . . . . . . . . . 110% 216% 158% 137% 126%
- ---------------------------------------------------------------------------------------------------------------------
(1) The 1994 cumulative effect relates to the change in accounting for
postemployment benefits. See also Note 9(d) to the Financial Statements.
The 1992 cumulative effect relates to the change in accounting for
revenues from a cycle billing to a full accrual method effective January 1,
1992.
(2) Includes Cumulative Preferred Stock subject to mandatory redemption.
(3) 1995 expenditures include a payment toward the purchase of an ownership
interest in the corporate headquarters building.
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26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
HOUSTON INDUSTRIES INCORPORATED (COMPANY)
A summary of selected consolidated financial data for the Company and
its subsidiaries is set forth below:
Year Ended December 31,
------------------------------- Percent
1995 1994 Change
------------ ------------- ----------
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . . . $ 3,730,173 $ 3,754,136 (1)
Operating Expenses . . . . . . . . . . . . . 2,825,240 2,785,521 1
Operating Income . . . . . . . . . . . . . . 904,933 968,615 (7)
Interest and Other Charges . . . . . . . . . 326,340 318,599 2
Income Taxes . . . . . . . . . . . . . . . . 199,555 230,424 (13)
Income from Continuing Operations . . . . . 397,400 423,985 (6)
Gain/(Loss) from Discontinued
Operations . . . . . . . . . . . . . . . . 708,124 (16,524) --
Net Income . . . . . . . . . . . . . . . . . 1,105,524 399,261 177
Year Ended December 31,
------------------------------- Percent
1994 1993 Change
------------ ------------- ----------
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . . . $ 3,754,136 $ 4,083,655 (8)
Operating Expenses . . . . . . . . . . . . . 2,785,521 3,102,509 (10)
Operating Income . . . . . . . . . . . . . . 968,615 981,146 (1)
Interest and Other Charges . . . . . . . . . 318,599 350,299 (9)
Income Taxes . . . . . . . . . . . . . . . . 230,424 228,863 1
Income from Continuing Operations . . . . . 423,985 440,531 (4)
Loss from Discontinued
Operations . . . . . . . . . . . . . . . . (16,524) (24,495) (33)
Net Income . . . . . . . . . . . . . . . . . 399,261 416,036 (4)
All common stock data included in this section reflect the two-for-one stock
split in the form of a stock distribution effected on December 9, 1995. See
Note 5(a) to the Company's Consolidated and Houston Lighting & Power Company's
(HL&P) Financial Statements in Item 8 of this Report (Financial Statements).
In July 1995, the Company sold KBLCOM Incorporated, its cable television
subsidiary (KBLCOM). The operations of KBLCOM are reflected as discontinued
operations. See Note 13 to the Financial Statements.
26
27
EARNINGS - THE COMPANY
1995 Compared to 1994. Consolidated earnings per share were $4.46 for
1995, an increase of $2.84 per share from 1994. The Company's 1995 earnings
were significantly affected by a one-time after-tax gain of $708 million or
$2.86 per share recorded upon the sale of the Company's cable television
subsidiary. The gain is reflected in discontinued operations on the Company's
Statements of Consolidated Income. The Company's 1995 consolidated earnings
per share from continuing operations were $1.60 per share, compared to $1.72
per share in 1994.
HL&P contributed $1.82 per share in 1995 (reflecting net income of
$451 million after dividends on preferred stock). In 1995, Houston Industries
Energy, Inc. (HI Energy) sustained a net loss of $33 million or $.13 per share.
The net loss includes an $18 million after-tax charge to earnings resulting from
the establishment of a valuation allowance reflecting the impairment of the
ability of two waste tire-to-energy projects to repay $28 million in
subordinated debt advanced to the projects by HI Energy. This impairment is the
result of a repeal by the state of Illinois of an operating subsidy benefiting
the projects. For additional information regarding this charge and HI Energy's
commitments under certain circumstances to make additional subordinated loans to
these projects, see Note 4(c) to the Financial Statements. The remaining $.09
per share loss was primarily due to corporate overhead costs and financing
expenses at the parent company. Earnings for 1995 included after-tax dividend
income of approximately $18 million related to Time Warner Inc. (Time Warner)
securities received by the Company upon the sale of its cable television
subsidiary.
The Company had other revenues of $50 million in 1995 compared to $8
million in 1994. Other revenues are principally from electric sales and
operating revenues from HI Energy. The increase is primarily due to revenues
from a foreign electric utility operating company acquired in 1995 by HI
Energy. Other operating expenses for the Company were $123 million for 1995
compared to $36 million in 1994. Other operating expenses primarily include HI
Energy operating expenses and corporate overhead costs at the parent company.
The increase is principally due to increased HI Energy operating expenses for
the foreign electric utility operating company, the $18 million after-tax
charge to earnings described above and increased project development costs.
For additional information regarding HI Energy's activities and investments,
see Note 4 to the Financial Statements.
1994 Compared to 1993. Consolidated earnings per share from
continuing operations were $1.72 for 1994, compared to $1.69 per share in 1993.
Effective January 1, 1994, the Company adopted Statement of Position (SOP)
93-6, "Employers' Accounting for Employee Stock Ownership Plans," which had the
effect of reducing 1994 net income by $12.8 million while increasing earnings
per share by $.05. The increase in earnings per share occurred because SOP
93-6 required a reduction in the number of weighted average common shares
outstanding for the period ended December 31, 1994 by the number of shares not
yet allocated to plan participants in the Company's Employee Stock Ownership
Plan (ESOP). For a further discussion of the effects of the adoption of SOP
93-6, see Notes 1(g) and 9(b) to the Financial Statements.
HL&P contributed $1.88 per share in 1994 (reflecting income before
cumulative effect of a change in accounting and after dividends on preferred
stock of $461.4 million). In 1994, HI Energy sustained a net loss of $.03 per
share. The remaining net loss of $.13 per share was primarily due to corporate
overhead costs and financing expenses at the parent company partially offset by
the effects of the adoption of SOP 93-6, as discussed above.
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28
HL&P contributed $1.73 to the 1993 consolidated earnings per share
from continuing operations on income of $449.8 million after preferred
dividends. The remaining loss of $.04 per share resulted from corporate
overhead costs and financing expenses at the parent company and a combined loss
of the Company's other subsidiaries.
HL&P
Summary of selected financial data for HL&P is set forth below:
Year Ended December 31,
----------------------------- Percent
1995 1994 Change
------------ ------------ ------
(Thousands of Dollars)
Base Revenues (1) . . . . . . . . . . . . . . . $2,645,303 $2,673,146 (1)
Reconcilable Fuel Revenues (2) . . . . . . . . . 1,034,994 1,072,939 (4)
Operating Expenses (3) . . . . . . . . . . . . . 2,945,633 3,003,203 (2)
Operating Income (3) . . . . . . . . . . . . . . 734,664 742,882 (1)
Interest Charges . . . . . . . . . . . . . . . . 247,809 249,472 (1)
Income After Preferred Dividends . . . . . . . . 450,977 453,181 -
Year Ended December 31,
----------------------------- Percent
1994 1993 Change
------------ ------------ ------
(Thousands of Dollars)
Base Revenues (1) . . . . . . . . . . . . . . . $2,673,146 $2,755,057 (3)
Reconcilable Fuel Revenues (2) . . . . . . . . . 1,072,939 1,324,806 (19)
Operating Expenses (3) . . . . . . . . . . . . . 3,003,203 3,313,577 (9)
Operating Income (3) . . . . . . . . . . . . . . 742,882 766,286 (3)
Interest Charges . . . . . . . . . . . . . . . . 249,472 284,585 (12)
Income After Preferred Dividends . . . . . . . . 453,181 449,750 1
-----------------
(1) Includes miscellaneous revenues, certain non-reconcilable fuel
revenues and certain purchased power related revenues.
(2) Includes revenues collected through a fixed fuel factor net of
adjustment for over/under recovery. See "Operating Revenues and
Sales - HL&P" in this section for further discussion.
(3) Includes income taxes.
EARNINGS - HL&P
1995 Compared to 1994. HL&P's 1995 earnings were $451 million, a
decline of $2.2 million from 1994. Earnings for 1995 benefited from 5% growth
in residential and 4% growth in commercial kilowatt-hour (KWH) sales resulting
from continued customer growth and hotter summer weather in 1995. However, the
revenue improvements were offset by (i) reduced electric rates stemming from
the settlement of Docket No. 12065, HL&P's 1995 rate case (Rate Case
Settlement), (ii) HL&P's decision to write down $50 million ($33 million
after-tax) of its investment in the South Texas Project Electric Generating
Station (South Texas Project) as permitted under the Rate Case Settlement, and
(iii) increased non-routine operating expenses in part associated with staff
severance costs and litigation. HL&P's earnings for 1994 reflect a one-time,
after-tax charge of $46 million in the fourth quarter also related to the Rate
Case Settlement.
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29
For additional information regarding the Rate Case Settlement, see
"Certain Factors Affecting Future Earnings of the Company and HL&P--Rate
Matters and Other Contingencies," below, and Note 3(a) to the Financial
Statements.
1994 Compared to 1993. HL&P's 1994 earnings were $453.2 million, an
increase of $3.4 million from 1993. The increase in HL&P's 1994 earnings
resulted primarily from (i) increased residential and commercial KWH sales of 1
percent and 4 percent, respectively, (ii) lower operating costs associated
with reductions in production plant maintenance and employee benefits, and
(iii) reduced interest expenses. The increase in 1994 earnings was partially
offset by (i) the one-time after-tax charge of $46 million discussed above and
(ii) the recognition of an $8.2 million after-tax charge for postemployment
benefit costs incurred as a result of the adoption of Statement of Financial
Accounting Standards (SFAS) No. 112, "Employer's Accounting for Postemployment
Benefits." Earnings for 1993 included approximately $21 million (after-tax) in
franchise tax refunds.
OPERATING REVENUES AND SALES - HL&P
1995 Compared to 1994. The $27.8 million decline in 1995 base
revenues was primarily due to (i) decreased base rates resulting from the Rate
Case Settlement, (ii) decreased firm industrial KWH sales and (iii) a reduction
of revenues associated with recovery of certain firm capacity purchased power
costs included in base rates. See Note 11(b) to the Financial Statements for a
discussion of firm capacity costs.
Firm industrial KWH sales declined 3 percent in 1995. Contributing to
this decrease were a decline in sales to the chemical and refining industries,
primarily due to the loss of a large industrial customer to self-generation,
and the expiration of an economic development rate which caused some customers
to make greater use of interruptible service or switch to alternative rates.
Firm industrial sales exclude electricity sold at a reduced rate under
agreements which allow HL&P to interrupt service under some circumstances.
Reconcilable fuel revenues are revenues that are collected through a
fixed fuel factor. The Public Utility Commission of Texas (Utility Commission)
provides for recovery of certain fuel and purchased power costs through a fixed
fuel factor included in electric rates. The fixed fuel factor is established
during either a utility's general rate proceeding or fuel factor proceeding and
is generally effective for a minimum of six months. Revenues collected through
such factor are adjusted monthly to equal expenses; therefore, such revenues
and expenses have no effect on earnings unless fuel costs are determined not to
be recoverable. The adjusted over/under recovery of fuel costs is recorded on
HL&P's balance sheets as fuel-related credits. Fuel costs are reviewed during
periodic fuel reconciliation proceedings, which are required at least every
three years.
1994 Compared to 1993. 1994 operating revenues declined 8.2 percent,
or $333 million, primarily due to a decrease in reconcilable fuel revenues and
the one-time, after-tax $46 million charge relating to the Rate Case Settlement
discussed above. 1994 residential and commercial KWH sales increased by 1
percent and 4 percent, respectively, while firm industrial sales remained
relatively unchanged.
FUEL AND PURCHASED POWER EXPENSE - HL&P
Fuel costs constitute the single largest expense for HL&P. The mix of
fuel sources for generation of electricity is determined primarily by system
load and the unit cost of fuel consumed. The average cost of fuel used by HL&P
in 1995 was $1.59 per million British Thermal Unit (MMBtu)
29
30
($1.69 for natural gas, $2.03 for coal, $1.25 for lignite and $0.58 for
nuclear). In 1994, the average cost of fuel was $1.54 ($1.90 for natural gas,
$1.59 for coal, $1.11 for lignite and $0.57 for nuclear).
1995 Compared to 1994. 1995 fuel expense increased by 2 percent, or
$18.2 million, primarily due to the receipt in 1994 of $66.1 million from the
sale of receivables associated with a settlement resolving claims that HL&P had
been overcharged for the cost of coal transportation. For additional
information on this transaction, see Note 14 to the Financial Statements.
Excluding the effects of such transaction, 1995 fuel expense declined by 5.2
percent from 1994. This decline was attributable to (i) a general decline in
the unit cost of natural gas and (ii) the increased use of nuclear generation
(which has a per unit fuel cost that is substantially lower than HL&P's other
fuel sources). Purchased power expense decreased $175 million resulting
primarily from the expiration of certain purchased power contracts.
1994 Compared to 1993. The 19 percent, or $202 million, decrease in
1994 fuel expense was primarily due to (i) decreases in both the usage and per
unit cost of natural gas, and decreases in the unit cost of all other fuels
used in 1994 and (ii) the $66.1 million reduction discussed above. The $107
million decrease in purchased power costs was due to the expiration in 1994 of
a purchased power agreement.
OPERATION AND MAINTENANCE EXPENSES, DEPRECIATION, AMORTIZATION, AND OTHER -
HL&P
1995 Compared to 1994. Operation and maintenance expenses for 1995
increased $35 million and $2.4 million, respectively, compared to 1994.
Substantially all of the increase in operation expense resulted from (i)
employee severance expenses, (ii) other employee benefits adjustments and (iii)
certain litigation expenses. Depreciation and amortization expense for 1995
increased $77 million compared to 1994, primarily due to amortization recorded
pursuant to the Rate Case Settlement, see Note 3(a) to the Financial
Statements. Other taxes decreased $5.5 million for 1995 compared to 1994,
primarily due to decreased state gross receipts obligations attributable to
base and fuel refunds. Other-net expense for 1995 increased $13.3 million
compared to 1994 primarily as a result of a one-time, pre-tax charge of $9
million incurred in connection with mine-related costs which were not
previously recorded and are not recoverable under the Rate Case Settlement.
During 1995, HL&P incurred $15 million in work force severance costs
as a result of its efforts to streamline and improve certain business
activities. These severance costs reflect a staff reduction of approximately
570 employees. Although these costs have the short-term effect of putting
downward pressure on earnings, HL&P expects that these costs will be recovered
from future savings in employee-related costs. HL&P estimates that it saved
approximately $6 million in labor and benefit costs in 1995 as a result of
these work force reductions.
1994 Compared to 1993. Operation and maintenance expenses for 1994
decreased $28 million and $41.8 million, respectively, compared to 1993. These
decreases were due primarily to lower employee benefits expenses and production
plant maintenance costs. Depreciation and amortization expense in 1994
increased by $12.4 million compared to 1993, primarily due to an increase in
depreciable property and the commencement of the amortization of previously
deferred demand side management expenditures. Other taxes increased $40.1
million in 1994 primarily due to the effect of (i) franchise tax refunds of
$32.7 million received in 1993 and (ii) a $6.1 million increase in property
taxes in 1994.
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31
CERTAIN FACTORS AFFECTING FUTURE EARNINGS
OF THE COMPANY AND HL&P
Earnings for the past three years are not necessarily indicative of
future earnings and results of operations. The level of future earnings
depends on numerous factors ranging from growth in energy sales, weather, HI
Energy's future results of operations, competition, regulatory changes, the
rate of economic growth in HL&P's service area, and the ability of the Company
and HL&P to control costs and maintain a pricing structure that is both
attractive to customers and profitable to the Company and HL&P.
RATE MATTERS AND OTHER CONTINGENCIES
In August 1995, the Utility Commission unanimously approved the Rate
Case Settlement. Subject to certain changes in existing regulation or
legislation, the Rate Case Settlement precludes HL&P from seeking rate
increases through December 31, 1997.
Under the Rate Case Settlement, HL&P has the option to write down up
to $50 million per year of its investment in the South Texas Project through
December 31, 1999. In 1995, HL&P wrote down the maximum $50 million annual
($33 million after-tax) amount. Additionally, pursuant to the Rate Case
Settlement, HL&P was permitted, and in January 1996, commenced amortization of
its investment in certain lignite reserves (associated with the now canceled
Malakoff generation project) at a rate of approximately $22 million per year.
As a result of this additional amortization, all of HL&P's remaining investment
in the Malakoff project will be fully amortized no later than December 31, 2002.
In addition, accruals for nuclear decommissioning expenses increased by $9
million per year beginning in 1995. For details of the terms of the Rate Case
Settlement (as well as the status of pending litigation involving other Utility
Commission orders), see Note 3 to the Financial Statements.
HL&P is a party to litigation and an arbitration proceeding involving
certain of the owners of the South Texas Project. For information regarding
that litigation and such proceeding (including settlement discussions with the
City of San Antonio), see Note 2(b) to the Financial Statements.
The Company and HL&P are involved in other legal, tax and regulatory
proceedings before various courts, regulatory agencies and governmental
authorities, some of which may involve substantial amounts. For additional
information, see Notes 3 and 11 to the Financial Statements.
COMPETITION
Due to changing government regulations, technological developments and
the availability of alternative energy sources, the U.S. electric utility
industry has become increasingly competitive. Such competition affects HL&P's
business both in terms of source of power supply available to HL&P and
alternative choices for customers meeting their power needs.
Wholesale Competition. Under the Energy Policy Act of 1992 (Energy
Policy Act), exempt wholesale generators are permitted to produce and sell
electric energy at wholesale without becoming subject to regulation under the
Public Utility Holding Company Act of 1935 (1935 Act). In addition, the Energy
Policy Act expands the authority of the Federal Energy Regulatory Commission
(FERC) to grant exempt wholesale generators access to the transmission networks
of utilities in order to sell electricity to other utilities. Although HL&P's
wholesale sales traditionally
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have accounted for less than 1% of its total revenues, HL&P believes that the
Energy Policy Act could encourage the development of additional independent
power projects within its service area.
New Transmission Access Rule. In February 1996, the Utility
Commission adopted a new transmission access and pricing rule granting
third-party users of transmission systems open access to such systems at rates,
terms and conditions comparable to those available to the transmission-owning
utilities. The rule also implements a transmission pricing methodology by
which all transmission users will be assessed a facilities charge for
transmission usage. The Utility Commission is also requiring utilities (i) to
operationally separate or "functionally unbundle" their wholesale power
marketing operations from the operation of the transmission grid and (ii) to
separately disclose their costs of generation, transmission and distribution
for purposes of transmission pricing.
The facilities' charge to be paid by transmission users has two
components: a statewide "postage stamp" component and a distance sensitive
component. For the statewide postage stamp component, transmission users will
pay an amount based upon their share of the total peak demand on the Electric
Reliability Council of Texas, Inc. (ERCOT) system multiplied by 70% of the
total ERCOT transmission cost of service. For the distance sensitive
component, transmission users will pay to each affected transmission owner an
amount based upon the user's relative impact on all transmission owners'
systems multiplied by 30% of the total ERCOT transmission cost of service.
Statewide postage stamp revenues will be apportioned to each
transmission owner based on the ratio of its transmission cost of service to
the total ERCOT transmission cost of service. As noted above, transmission
owners will receive distance sensitive revenues based upon the relative impact
on their systems of all ERCOT transmission users. Since the method for
apportioning costs among transmission users is different from the method for
apportioning revenues among transmission owners, the impact on any particular
utility that both owns transmission facilities and uses the transmission
systems of others can vary. Generally speaking, the new transmission access
rule is less favorable to utilities with compact service areas and more
favorable to utilities with broader service areas.
Because HL&P has a compact service area and its transmission cost per
megawatt is less than the statewide average, HL&P estimates that it could incur
increased transmission costs of $35 million per year under the new rule. The
actual impact on HL&P, however, will not be known until the Utility Commission
approves total ERCOT transmission cost of service, which is not expected to
occur until late 1996. To mitigate any cost increases to utilities and/or
their customers, the Utility Commission will phase-in the increased
transmission costs in 10% increments during the three-year period beginning
with the implementation of the rule. At the end of the three-year period, the
Utility Commission expects that each transmission-owning utility will have
either adjusted its cost structures or requested a change in rates to account
for such increased transmission cost.
The new transmission access rule is one of several related regulatory
proceedings now underway at the Utility Commission. In one such proceeding the
Utility Commission is evaluating programs for Standard Terms and Conditions
which will govern transmission service provided under the new transmission
access rule when it is implemented. It is anticipated that the rule
establishing such Standard Terms and Conditions will be effective in April
1996. The Utility Commission is specifying the components of a rate filing
package, which should be adopted in March 1996, and utilities will file
specific transmission and ancillary service tariffs in May 1996. Finally, the
Utility Commission intends to adopt in the third quarter of 1996 rules that
would govern
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the action of the independent system operator selected to assure
non-discriminatory operation of the transmission grid. Final implementation of
the various Utility Commission's rules is expected to occur in January 1997.
The Utility Commission is also expected to revisit this rulemaking in order to
ensure compliance with transmission rules to be adopted by FERC.
Retail Wheeling and Stranded Costs. Although federal law currently
does not provide for transmission access to retail customers, retail wheeling
initiatives are evolving and becoming prominent issues in several states.
As the U.S. electric utility industry continues its transition to a
more competitive environment, a substantial amount of fixed costs previously
approved for recovery under traditional utility regulatory practices (including
regulatory assets and liabilities) may become "stranded," i.e., unrecoverable
at competitive market prices. The issue of stranded costs could be
particularly significant with respect to fixed costs incurred in connection
with the past construction of generation plants, such as nuclear power plants
which, because of their high fixed costs, would not command the same price for
their output as they have in a regulated environment. The Utility Commission
has initiated projects to consider issues relating to the scope of competition
in the electric utility industry and stranded investment in connection with the
preparation of their 1997 reports to the Texas legislature. For a description
of HL&P's principal regulatory assets and liabilities, see Note 1(b) to the
Financial Statements.
RESPONSE TO COMPETITION
In February 1996, the Company announced its intent to form two new
strategic business units (in addition to HI Energy) to focus on nonregulated
energy marketing and energy services nationwide. In 1996, HL&P took steps to
reorganize its operations into three strategic business units in order to
better position itself to respond to the deregulation of the electric utility
industry. The three strategic business units will consist of Energy Production
(fossil-fueled electric generation), Energy Delivery and Customer Services
(transmission and distribution of electricity and engineering, as well as
marketing and other customer services) and the South Texas Project.
HL&P has implemented flexible pricing to respond to the threat of
competition in situations where large industrial customers have a viable source
of alternative generation. Under a new tariff option approved by the Utility
Commission in 1995, HL&P may negotiate a competitive rate with industrial
customers who have an alternative to taking power from HL&P (as a result, for
example, of cogeneration). Under the approved tariff, HL&P can price its
industrial rate within a range between 6% above its marginal cost to its full
embedded cost rate. While flexible tariff structures may help HL&P increase or
retain sales to industrial customers (and reduces costs that would otherwise be
borne by other customers), such tariffs result in sales at lower margins over
cost.
HI ENERGY
The Company, through its subsidiary HI Energy, is focusing on
international and domestic cogeneration, the international power market and the
privatization of generating and distribution facilities in the international
market. At December 31, 1995, HI Energy's investments in these projects
amounted to approximately $93 million. Subject to HI Energy's ability to
identify other attractive investment opportunities, future capital expenditures
in connection with HI Energy's international and domestic operations could be
substantial. In October 1995, the Company and another Texas utility made an
offer to purchase an English regional electricity company for a total price
equal to approximately $2.7 billion. The offer was withdrawn after a competing
bidder made a higher bid for the target company.
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During 1995, HI Energy had a consolidated loss of approximately $33
million or $.13 per share. The loss included an $18 million after-tax charge
to earnings as described in more detail below. Based on existing commitments
entered into by HI Energy, the Company estimates that HI Energy's capital
expenditures for 1996 will be approximately $34 million ($31 million to be
expended in connection with the construction of HI Energy's cogeneration
project in San Nicolas, Argentina, and $3 million in connection with HI
Energy's investment in a coke calcining project in the state of Andhra Pradesh,
India). Additional capital expenditures (which could be substantial) are
dependent upon the nature and extent of future project commitments entered into
by HI Energy. During 1995, HI Energy satisfied its cash requirements primarily
through intercompany borrowings from the Company. As of December 31, 1995, the
balance of such intercompany borrowings was $53.4 million. Although in the
near term, HI Energy's investments are unlikely to have a positive effect on
earnings, the Company believes that such investments (although subject to
greater risks) may offer long-term opportunities for growth greater than those
that exist in HL&P's regulated operations.
HI Energy is a subordinated lender to two waste tire-to-energy
projects being developed by CGE Ford Heights, L.L.C. (Ford Heights) and CGE
Fulton, L.L.C. (Fulton), respectively, located in the state of Illinois. HI
Energy also owns a $400,000 (20 percent) equity interest in Ford Heights. As
of March 26, 1996, HI Energy had lent on a subordinated basis approximately
$17.5 million (including unpaid interest) to the Ford Heights project and $10.8
million to the Fulton project. These amounts are recorded on the Company's
Consolidated Balance Sheets in equity investments in and advances to foreign
and non-regulated affiliates-net. HI Energy also is party to two separate
Note Purchase Agreements committing it, under certain circumstances, to
acquire up to (i) $3 million in aggregate principal amount of additional
subordinated notes from the Ford Heights project and (ii) $17 million in
aggregate principal amount of additional subordinated notes from the Fulton
project. The Company has entered into a support agreement under which it has
agreed to provide additional funds to HI Energy to enable it to honor its
obligations under the two Note Purchase Agreements.
The two waste tire-to-energy projects were being developed in reliance
on the terms of the Illinois Retail Rate Law, enacted in 1987, to encourage
development of energy production facilities for the disposal of solid waste by
providing an operating subsidy to qualifying projects. In March 1996, the
Governor of the state of Illinois signed legislation which purports to repeal
the Retail Rate Law. Following the action of the Governor, the projects filed a
lawsuit against the Illinois Commerce Commission and an Illinois utility
alleging, among other things, that the repeal of the Retail Rate Law violated
the Illinois Constitution. On March 26, 1996, the Ford Heights project filed a
voluntary petition seeking protection under the federal bankruptcy laws. The
ability of the two waste tire-to-energy projects to meet their debt obligations
is dependent upon the projects continuing to receive the operating subsidy
provided under the Retail Rate Law. As a result, the Company has recorded a
valuation allowance of $28 million with respect to its advances to these two
projects, resulting in an after-tax charge to earnings of $18 million. The
Company is unable to predict the ultimate effect of these developments on HI
Energy's remaining funding commitments under the Note Purchase Agreements;
however, in the Company's opinion, it is unlikely that the majority of the
additional unfunded subordinated debt provided for in the Fulton Note Purchase
Agreement would be required to be funded unless construction activities with
respect to the Fulton project are recommenced at some future date. If HI Energy
becomes obligated to advance additional funds under the Note Purchase
Agreements, the Company may be required to increase the amount of the valuation
allowance, which would result in additional charges to earnings.
INVESTMENT IN TIME WARNER SECURITIES
In connection with the sale of the Company's cable television
subsidiary, the Company received 1 million shares of Time Warner common stock
and 11 million shares of non-publicly
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traded Time Warner convertible preferred stock. The 11 million shares of Time
Warner convertible preferred stock are convertible by the Company into
approximately 22.9 million shares of Time Warner common stock. The Company has
recorded these securities at a combined fair value of approximately $1 billion
on the Company's Consolidated Balance Sheets. The Company excludes unrealized
net changes in the fair value of Time Warner common stock (exclusive of
dividends and write downs) from earnings and, until realized, reports such
changes as a net amount in a separate component of shareholders' equity. The
Company's investment in the Time Warner convertible preferred stock is accounted
for under the cost method.
As with any investment, the value of the Company's investment will
fluctuate over time in response to general market conditions or economic and
regulatory developments affecting Time Warner.
Based on current dividend rates, the Company expects to receive
through July 1999 after-tax dividend income of approximately $37 million per
year from its Time Warner securities. While the Company has no specific plans
to dispose of these securities and is restricted in certain circumstances from
doing so, it does not expect to maintain its substantial investment in Time
Warner indefinitely. For a description of the Company's investment in Time
Warner (including a description of certain restrictions on the Company's
ability to sell its Time Warner securities), see Note 13 to the Financial
Statements.
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LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The liquidity and capital requirements of the Company and its
subsidiaries are affected primarily by capital programs and debt service
requirements. The capital requirements for 1995 were, and as estimated for
1996 through 1998, are as follows:
Millions of Dollars
-------------------------------------
1995 1996 1997 1998
------ ------ ------ ------
Electric capital and nuclear fuel (excluding Allowance
for Funds Used During Construction) (AFUDC) (1) . . . . . . $ 297 $ 387 $ 301 $ 328
Corporate headquarters expenditures (excluding
capitalized interest) (1) . . . . . . . . . . . . . . . . . 90 5
Non-regulated electric power project expenditures
and advances (2) . . . . . . . . . . . . . . . . . . . . . 38 34 55
Maturities of long-term debt, preferred stock
and minimum capital lease payments . . . . . . . . . . . . 49 379 252 66
Discontinued operations:
Cable television additions and other cable-related
investments . . . . . . . . . . . . . . . . . . . . . . . 48
Maturities of long-term debt . . . . . . . . . . . . . . . 41
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 563 $ 805 $ 608 $ 394
- -------------- ===== ===== ===== =====
(1) Renovation costs of new corporate headquarters building include costs
of structural improvements and renovations. During 1995, HL&P made a
payment toward the purchase of an ownership interest in the new
corporate headquarters building. Such payment is not reflected in the
Company's electric capital and nuclear fuel expenditures as it is an
affiliate transaction eliminated upon consolidation.
(2) Expenditures in table reflect only expenditures made or to be made
under existing commitments entered into by HI Energy. Additional
capital expenditures are dependent upon the nature and extent of
future project commitments (some of which may be substantial) entered
into by HI Energy.
The foregoing estimates are based on numerous assumptions, some of
which may prove to be incorrect. Actual liquidity and capital requirements
will also vary because of changes in governmental regulations, the resolution
of various litigation and other contingencies and changes in economic
conditions.
COMPANY CONSOLIDATED CAPITAL REQUIREMENTS
The cash requirements of the Company and its subsidiaries stem
primarily from operating expenses, capital expenditures, payment of dividends
on its common stock, payment of dividends on HL&P's preferred stock and
interest and principal payments on debt. In 1995, net cash provided by
operating activities totaled $839.4 million. Net cash provided by investing
activities totaled $124.9 million, primarily due to the settlement of
subsidiary debt related to the sale of KBLCOM of $619.3 million partially
offset by electric capital expenditures of $301.3 million (including allowance
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for borrowed funds used during construction) and expenses associated with
structural improvements and renovation of a new corporate headquarters of $96.5
million (including capitalized interest). Net cash used in discontinued cable
television investing activities for 1995 totaled approximately $48 million,
primarily due to property additions and other cable-related investments.
Financing activities for 1995 resulted in a net cash outflow of $963 million.
HL&P CAPITAL REQUIREMENTS
Cash Requirements. HL&P's cash requirements stem primarily from
operating expenses, capital expenditures, payment of dividends on its common
stock, payment of dividends on its preferred stock and interest and principal
payments on debt. In 1995, HL&P's net cash provided by operating activities
totaled approximately $867.7 million, and net cash used in HL&P's investing
activities totaled $406.9 million, including allowance for borrowed funds used
during construction. HL&P's financing activities for 1995 resulted in a net
cash outflow of $620.8 million. Included in these activities were the payment
of dividends, the extinguishment of long-term debt, the redemption of preferred
stock and the issuance of collateralizing first mortgage bonds. For
information with respect to these matters, see Notes 6 and 7(b) to the
Financial Statements.
Capital Program. In 1995, HL&P's capital and nuclear fuel
expenditures (excluding AFUDC) totaled approximately $392 million with
estimated expenditures for 1996, 1997 and 1998 totaling $387 million, $301
million and $328 million, respectively. HL&P's capital programs for the next
three years, which are expected to relate to costs for production,
transmission, distribution and general plant, are subject to periodic review
and may be revised at any time due to changes in load forecasts, regulatory and
environmental standards and other factors.
During the next three years, it is anticipated that HL&P will require
approximately $497 million for repayment of maturing long-term debt, preferred
stock subject to mandatory redemption and capital leases. These expenditures
are anticipated to be $179 million in 1996, $252 million in 1997 and $66
million in 1998.
Environmental Expenditures. The Federal Clean Air Act (Clean Air Act)
has required, and will continue to require, HL&P to increase its environmental
expenditures. In 1995, modifying HL&P's existing facilities to reduce
emissions of nitrogen oxides (NOx) cost approximately $1 million. The date for
installation of additional controls has been delayed by the United States
Environmental Protection Agency (EPA) and the Texas Natural Resource
Conservation Commission until it becomes certain that additional expenditures
for NOx emission reductions will be required under the provisions of the Clean
Air Act. However, up to an additional $40 million may be incurred by HL&P in
order to fully comply with new NOx requirements through 1999. In addition, it
is anticipated that approximately $1 million in 1996 will be expended to
install continuous emission monitoring equipment; approximately $3 million was
incurred for this equipment in 1995.
The EPA identified HL&P as a potentially responsible party under the
Comprehensive Environmental Response, Compensation, and Liability Act for the
costs of cleaning up a site located adjacent to one of HL&P's transmission
lines. HL&P believes that the EPA took this action solely on the basis of
information indicating that HL&P in the 1950s acquired record title to a
portion of the land on which the site is located. HL&P does not believe that
it now nor previously has had any ownership interest in the land in question
and has obtained a judgment from a court in Galveston County, Texas, to that
effect. Accordingly, HL&P has not complied with this order, even though HL&P
understands that other responsible parties are proceeding with site remediation.
To date, neither the EPA nor any other potentially responsible party has
instituted a claim against HL&P for any share of the remediation costs, but
under current law if HL&P is determined to be a responsible party, HL&P could be
found to be jointly and severally liable for the
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remediation costs (which HL&P estimates to be approximately $80 million) and
could be subjected to substantial fines and damage claims.
Compliance with possible additional legislation related to global
climate change, electromagnetic fields and other environmental and health
issues could significantly affect the Company and HL&P. The impact of the new
legislation, if any, will depend on the subsequent development and
implementation of applicable regulations.
COMPANY--SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
The Company has registered with the Securities and Exchange Commission
(SEC) ten million shares of its Common Stock and $250 million principal amount
of its debt securities, all of which securities remain unissued and, subject to
market conditions, could be sold to raise additional capital for the Company.
Proceeds from the sale of these securities can be used for general corporate
purposes, including, but not limited to, the redemption, repayment or
retirement of outstanding indebtedness of the Company or the advance or
contribution of funds to one or more of the Company's subsidiaries to be used
for their general corporate purposes, including, without limitation, the
redemption, repayment or retirement of indebtedness or preferred stock.
The Company has consolidated its financing activities in order to provide
a coordinated, cost-effective method of meeting short and long-term capital
requirements. As part of the consolidated financing program, the Company has
established a "money fund" through which its subsidiaries can borrow or invest
on a short-term basis. The funding requirements of individual subsidiaries are
aggregated and borrowing or investing is conducted by the Company based on the
net cash position.
In 1995, net funding requirements under the "money fund" were met with
borrowings under the Company's commercial paper program, except that HL&P's
short-term borrowing requirements were generally met with HL&P's commercial
paper program. In 1996, net funding requirements of the Company and HL&P are
expected to be met with a combination of commercial paper and bank borrowings.
As of December 31, 1995, the Company had a bank credit facility of $1.1 billion
(exclusive of bank credit facilities of subsidiaries), which was used to
support its commercial paper program. At December 31, 1995, the Company had
approximately $6.3 million of commercial paper outstanding. Rates paid by the
Company on its short-term borrowings are generally lower than the prime rate.
In the fourth quarter of 1996, the Company will be required to redeem
$200 million of its 7-1/4% debentures. Based on current market conditions, the
Company expects to fund this redemption requirement using proceeds from
short-term borrowings or other external sources.
Subject to the nature and extent of future project commitments, it is
anticipated that HI Energy's 1996 capital requirements will be satisfied
primarily through intercompany borrowings from the Company. HI Energy intends
that any third party borrowings it incurs will be non-recourse to the Company,
HL&P or HI Energy.
HL&P--SOURCES OF CAPITAL RESOURCES AND LIQUIDITY
HL&P expects to finance its 1996 through 1998 capital program with funds
generated internally from operations. HL&P has registered with the SEC $230
million aggregate liquidation value of its preferred stock and $580 million
aggregate principal amount of its debt securities that may be issued as first
mortgage bonds. Subject to market conditions, these securities could be
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issued as another source of capital for HL&P. Proceeds from any sale of these
securities are expected to be used for general corporate purposes including the
purchase, redemption (to the extent permitted by the terms of the outstanding
securities), repayment or retirement of outstanding indebtedness or preferred
stock of HL&P.
In 1995, HL&P's interim financing requirements were met with commercial
paper. HL&P has a commercial paper program supported by a bank line of credit
of $400 million. HL&P had no commercial paper outstanding at December 31,
1995. At December 31, 1995, HL&P had approximately $75.9 million in cash and
cash equivalents invested in short-term investments.
HL&P continued to reduce its financing costs by retiring higher-cost
bonds in 1995. In addition, HL&P accelerated in 1995 the sinking fund
requirements of certain shares of its preferred stock. As a result of these
efforts, the composite interest rate on long-term debt decreased from 8.32
percent at December 31, 1993 to 8.19 percent at December 31, 1995. During the
same period, the composite dividend rate on preferred stock increased from 6.23
percent to 6.43 percent. In 1996, HL&P will be required to redeem $150 million
of its first mortgage bonds and $26 million of its preferred stock. For
additional information, see Notes 6 and 7(b) to the Financial Statements.
HL&P intends to satisfy these redemption obligations using funds internally
generated from operations.
NEW ACCOUNTING ISSUES
In 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, ("Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of"), which imposes stricter standards for assessing
asset impairments than previously imposed by generally accepted accounting
principles. SFAS No. 121 is effective for years beginning after December 15,
1995. Beginning in 1996, the Company and HL&P (and other companies subject to
SFAS No. 121) must review certain assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If an impairment is found to exist, the impairment loss to be
recognized is the amount by which the carrying amount exceeds the fair value.
The Company and HL&P believe that, based on current conditions, SFAS No. 121
will have no material effect on their respective results of operations when
adopted in 1996. This conclusion, however, may change in the future as
competition influences wholesale and retail pricing in the electric utility
industry.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." Effective for fiscal years beginning after December
15, 1995, SFAS No. 123 does not rescind the existing accounting for employee
stock-based arrangements but encourages (although it does not require)
recognizing the fair value based method of accounting for stock-based
compensation. Companies that choose not to adopt the new rules will continue to
apply the existing accounting rules contained in Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees"; however, SFAS
No. 123 requires disclosure of pro forma net income and earnings per share that
would have been reported under the "fair value" recognition provisions of SFAS
No. 123. The Company and HL&P have reviewed the provisions of SFAS No. 123,
and based on current assumptions, the calculated "fair value" does not result
in a material difference in 1995 recorded compensation cost. The Company and
HL&P will continue to account for stock-based compensation under APB Opinion
No. 25 and disclose the pro forma information required under SFAS No. 123.
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs
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for nuclear generating facilities recorded on the financial statements of
electric utilities. In response to these questions, the FASB initiated a
project entitled "Accounting for Certain Liabilities Related to Closure or
Removal of Long-Lived Assets." Throughout 1995, the FASB reviewed the
accounting for closure or removal obligations, including decommissioning of
nuclear facilities. In February 1996, FASB issued an Exposure Draft
communicating the results of this project. The Exposure Draft outlines the
following: (i) the requirement of recognition of a liability based on the
present value of the estimated future cash outflows that will be required to
satisfy the closure or removal obligations, using a risk-free interest rate
(U.S. Treasury securities), (ii) an equal amount capitalized as part of the
costs of the related long-lived asset, depreciated over the life of the asset,
and (iii) recognition of a regulatory asset or liability under SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation", for differences in
expenses recognized under this statement and amounts charged to customers in
rate-regulated entities. HL&P believes that, while the proposed standard would
also significantly increase disclosure requirements, it would have minimal
impact on the Company's and HL&P's financial condition or results of
operations.
The Company and HL&P's financial statements include additional
disclosures required as a result of the adoption of the SOP 94-6 "Disclosure of
Certain Significant Risks and Uncertainties". This SOP, which is effective for
financial statements issued for fiscal years ending after December 15, 1995,
requires financial statement disclosure for (i) the nature of operations, (ii)
use of estimates in the preparation of financial statements, and, if specified
disclosure criteria are met, (iii) certain significant estimates and (iv)
current vulnerability due to certain concentrations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
----------- ----------- -----------
REVENUES:
Electric utility . . . . . . . . . . . . . . . . . . $ 3,680,297 $ 3,746,085 $ 4,079,863
Other . . . . . . . . . . . . . . . . . . . . . . . 49,876 8,051 3,792
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . 3,730,173 3,754,136 4,083,655
----------- ----------- -----------
EXPENSES:
Electric utility:
Fuel . . . . . . . . . . . . . . . . . . . . . . 879,148 860,936 1,063,050
Purchased power . . . . . . . . . . . . . . . . . 233,494 408,963 515,502
Operation and maintenance . . . . . . . . . . . . 866,170 828,748 898,535
Taxes other than income taxes. . . . . . . . . . . 245,890 251,421 211,295
Depreciation and amortization . . . . . . . . . . . . 478,034 399,341 386,893
Other operating expenses . . . . . . . . . . . . . . 122,504 36,112 27,234
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . 2,825,240 2,785,521 3,102,509
------------ ----------- -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . 904,933 968,615 981,146
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . 7,760 4,115 3,512
Time Warner dividend income . . . . . . . . . . . . 20,132
Interest income . . . . . . . . . . . . . . . . . . 9,774 6,628 33,357
Other - net . . . . . . . . . . . . . . . . . . . . (19,304) (6,350) 1,678
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . 18,362 4,393 38,547
----------- ----------- -----------
INTEREST AND OTHER CHARGES:
Interest on long-term debt . . . . . . . . . . . . . 279,491 265,494 304,462
Other interest . . . . . . . . . . . . . . . . . . . 21,586 25,076 15,145
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . (4,692) (5,554) (3,781)
Preferred dividends of subsidiary . . . . . . . . . 29,955 33,583 34,473
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . 326,340 318,599 350,299
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING . . . . 596,955 654,409 669,394
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 199,555 230,424 228,863
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING . . . . . . . . . . . 397,400 423,985 440,531
DISCONTINUED OPERATIONS (NET OF INCOME TAXES):
Gain on sale of cable television subsidiary . . . . 708,124
Loss from discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . (16,524) (24,495)
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING . . . . . . . . . . . . . . . . . . . 1,105,524 407,461 416,036
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS (NET OF INCOME
TAXES OF $4,415) . . . . . . . . . . . . . . . . . . (8,200)
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 1,105,524 $ 399,261 $ 416,036
=========== =========== ===========
(continued on next page)
41
42
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(CONTINUED)
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
----------- ----------- -----------
(Restated) (Restated)
EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING . . . . . . . . . . $ 1.60 $ 1.72 $ 1.69
DISCONTINUED OPERATIONS:
Gain on sale of cable television subsidiary . . . 2.86
Loss from discontinued cable television
operations . . . . . . . . . . . . . . . . . . . (.07) (.09)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR POSTEMPLOYMENT BENEFITS . . . . . . . . . . . (.03)
----------- ----------- -----------
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . $ 4.46 $ 1.62 $ 1.60
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000) . . . . . . . . . . . . . . . . . . 247,706 245,707 260,008
See Notes to Consolidated Financial Statements.
42
43
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31,
------------------------------------------------
1995 1994 1993
----------- ----------- -----------
Balance at Beginning of Year . . . . . . . . . . . . . . . $ 1,221,221 $ 1,191,230 $ 1,254,584
Add - Net Income . . . . . . . . . . . . . . . . . . . . . 1,105,524 399,261 416,036
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . 2,326,745 1,590,491 1,670,620
Common Stock Dividends:
1995, $1.50; 1994, $1.50; 1993, $1.875
(per share) . . . . . . . . . . . . . . . . . . . . . . . (371,760) (369,270) (487,927)
Stock Dividend Distribution . . . . . . . . . . . . . . . . (1,313)
Tax Benefit of ESOP Dividends . . . . . . . . . . . . . . . 8,939
Redemption of HL&P Preferred Stock . . . . . . . . . . . . (402)
----------- ----------- -----------
Balance at End of Year . . . . . . . . . . . . . . . . . . $ 1,953,672 $ 1,221,221 $ 1,191,230
=========== =========== ===========
See Notes to Consolidated Financial Statements.
43
44
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
December 31,
---------------------------
1995 1994
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,423,891 $ 7,221,142
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927,027 876,159
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,711,482 2,628,450
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,027,090 1,017,319
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . 320,040 333,180
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,604 212,795
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . . . . 48,631 201,741
Electric plant acquisition adjustments . . . . . . . . . . . . . . . . . . . . 3,166
Other property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,624 85,529
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,781,389 12,579,481
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 3,916,540 3,527,598
----------- -----------
Property, plant and equipment - net . . . . . . . . . . . . . . . . . 8,864,849 9,051,883
----------- ----------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 11,779 10,443
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433 10
Accounts receivable - net . . . . . . . . . . . . . . . . . . . . . . . . . . 39,635 13,981
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 59,017 38,372
Time Warner dividends receivable . . . . . . . . . . . . . . . . . . . . . . . 10,313
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,699 56,711
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . 138,007 148,007
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,562 14,398
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 337,445 281,922
----------- -----------
OTHER ASSETS:
Investment in Time Warner securities . . . . . . . . . . . . . . . . . . . . . 1,027,875
Net assets of discontinued cable television operations . . . . . . . . . . . . 618,982
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . . . . 613,134 638,917
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,215 271,454
Unamortized debt expense and premium on reacquired debt . . . . . . . . . . . 161,788 161,885
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . . . . 228,587 235,463
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . . . 232,775 98,954
Equity investments in and advances to foreign and
non-regulated affiliates - net . . . . . . . . . . . . . . . . . . . . . . 35,938 43,617
----------- -----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . 2,617,312 2,069,272
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,819,606 $11,403,077
=========== ===========
See Notes to Consolidated Financial Statements.
44
45
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
December 31,
-----------------------------
1995 1994
----------- -----------
CAPITALIZATION (STATEMENTS ON FOLLOWING PAGES):
Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,123,563 $ 3,369,248
----------- -----------
Preference stock, no par; authorized, 10,000,000 shares;
none outstanding
Cumulative preferred stock of subsidiary:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 351,345 351,345
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . . 51,055 121,910
----------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . . . 402,400 473,255
----------- -----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,338,422 3,734,133
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 7,864,385 7,576,636
----------- -----------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,300 423,291
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,008 159,225
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,925 169,690
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,380 73,527
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,502 98,469
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . . 20,773 21,307
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,582 64,905
Current portion of long-term debt and preferred stock . . . . . . . . . . . . . 379,451 49,475
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,664 64,026
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,015,585 1,123,915
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 2,067,246 1,763,230
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . . 392,153 411,580
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,063 242,912
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,174 284,804
----------- -----------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . 2,939,636 2,702,526
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,819,606 $11,403,077
=========== ===========
See Notes to Consolidated Financial Statements.
45
46
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
December 31,
------------------------------
1995 1994
----------- -----------
COMMON STOCK EQUITY:
Common stock, no par; authorized, 400,000,000 shares;
issued, 262,672,468 and 262,593,326 shares at
December 31, 1995 and 1994, respectively . . . . . . . . . . . . . . . . . $ 2,441,790 $ 2,437,638
Unearned ESOP shares, 14,355,758 and 15,540,626 shares at
December 31, 1995 and 1994, respectively . . . . . . . . . . . . . . . . . (268,405) (289,611)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,953,672 1,221,221
Unrealized loss on investment in Time Warner common
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,494)
----------- -----------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . 4,123,563 3,369,248
----------- -----------
CUMULATIVE PREFERRED STOCK, no par; authorized, 10,000,000
shares; outstanding, 4,318,397 and 5,232,397 shares at
December 31, 1995 and 1994, respectively (entitled upon
involuntary liquidation to $100 per share):
Houston Lighting & Power Company:
Not subject to mandatory redemption:
$4.00 series, 97,397 shares . . . . . . . . . . . . . . . . . . . . 9,740 9,740
$6.72 series, 250,000 shares . . . . . . . . . . . . . . . . . . . . 25,115 25,115
$7.52 series, 500,000 shares . . . . . . . . . . . . . . . . . . . . 50,226 50,226
$8.12 series, 500,000 shares . . . . . . . . . . . . . . . . . . . . 50,098 50,098
Series A - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . . 49,094 49,094
Series B - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . . 49,104 49,104
Series C - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . . 58,984 58,984
Series D - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . . 58,984 58,984
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,345 351,345
----------- -----------
Subject to mandatory redemption:
$8.50 series, 400,000 shares at December 31, 1994 . . . . . . . . . . . 39,799
$9.375 series, 771,000 and 1,285,000 shares at
December 31, 1995 and 1994, respectively . . . . . . . . . . . . . . 76,755 127,811
Current redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . (25,700) (45,700)
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,055 121,910
----------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . 402,400 473,255
----------- -----------
LONG-TERM DEBT:
Debentures:
7 1/4% series, due 1996 . . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
9 3/8% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . . 250,000 250,000
7 7/8% series, due 2002 . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
Unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . (1,087) (1,271)
----------- -----------
Total debentures . . . . . . . . . . . . . . . . . . . . . . . . . . 548,913 548,729
----------- -----------
Houston Lighting & Power Company:
First mortgage bonds:
5 1/4% series, due 1996 . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
5 1/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
7 5/8% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
6 3/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
6 3/4% series, due 1998 . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
7 1/4% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
9.15 % series, due 2021 . . . . . . . . . . . . . . . . . . . . . . . . 160,000 160,000
8 3/4% series, due 2022 . . . . . . . . . . . . . . . . . . . . . . . . 62,275 100,000
7 3/4% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . 250,000 250,000
7 1/2% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
(continued on next page)
46
47
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
(CONTINUED)
December 31,
-------------------------------
1995 1994
----------- -----------
4.90 % pollution control series, due 2003 . . . . . . . . . . . . . . $ 16,600 $ 16,600
7 % pollution control series, due 2008 . . . . . . . . . . . . . . 19,200 19,200
6 3/8% pollution control series, due 2012 . . . . . . . . . . . . . . 33,470 33,470
6 3/8% pollution control series, due 2012 . . . . . . . . . . . . . . 12,100 12,100
8 1/4% pollution control series, due 2015 . . . . . . . . . . . . . . 90,000 90,000
5.80 % pollution control series, due 2015 . . . . . . . . . . . . . . 91,945
7 3/4% pollution control series, due 2015 . . . . . . . . . . . . . . 68,700 68,700
5.80 % pollution control series, due 2015 . . . . . . . . . . . . . . 58,905
7 7/8% pollution control series, due 2016 . . . . . . . . . . . . . . 68,000 68,000
6.70 % pollution control series, due 2017 . . . . . . . . . . . . . . 43,820 43,820
5.60 % pollution control series, due 2017 . . . . . . . . . . . . . . 83,565 83,565
7 7/8% pollution control series, due 2018 . . . . . . . . . . . . . . 50,000 50,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . 75,000 75,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . 100,000 100,000
7 7/8% pollution control series, due 2019 . . . . . . . . . . . . . . 29,685 29,685
7.70 % pollution control series, due 2019 . . . . . . . . . . . . . . 75,000 75,000
8 1/4% pollution control series, due 2019 . . . . . . . . . . . . . . 100,000 100,000
8.10 % pollution control series, due 2019 . . . . . . . . . . . . . . 100,000 100,000
7 5/8% pollution control series, due 2019 . . . . . . . . . . . . . . 100,000 100,000
7 1/8% pollution control series, due 2019 . . . . . . . . . . . . . . 100,000 100,000
7.60 % pollution control series, due 2019 . . . . . . . . . . . . . . 70,315 70,315
6.70 % pollution control series, due 2027 . . . . . . . . . . . . . . 56,095 56,095
Medium-term notes series A, 9.80%-9.85%, due 1996-1999 . . . . . . . . . 180,500 180,500
Medium-term notes series B, 8 5/8%, due 1996 . . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.10%, due 2000 . . . . . . . . . . . . . . . 150,000 150,000
Medium-term notes series B, 8.15%, due 2002 . . . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.50%, due 2003 . . . . . . . . . . . . . . . 150,000 150,000
----------- -----------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . 3,145,175 3,032,050
----------- -----------
Pollution control revenue bonds:
Gulf Coast 1980-T series, floating rate, due 1998 . . . . . . . . . . . . 5,000 5,000
Brazos River 1985 A2 series, 9 3/4%, due 2005 . . . . . . . . . . . . . . 4,265
Brazos River 1985 A1 series, 9 7/8%, due 2015 . . . . . . . . . . . . . . 87,680
Matagorda County 1985 series, 10%, due 2015 . . . . . . . . . . . . . . . 58,905
----------- -----------
Total pollution control revenue bonds . . . . . . . . . . . . . . . 5,000 155,850
----------- -----------
Unamortized premium (discount) - net . . . . . . . . . . . . . . . . . . . . (16,456) (12,253)
Capitalized lease obligations, discount rates of
5.2%-11.7%, due 1996-2018 . . . . . . . . . . . . . . . . . . . . . . . . 8,560 12,403
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981 1,129
----------- -----------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,915) 1,279
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,143,260 3,189,179
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,692,173 3,737,908
Current maturities . . . . . . . . . . . . . . . . . . . . . . (353,751) (3,775)
----------- -----------
Total long-term debt 3,338,422 3,734,133
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . $ 7,864,385 $ 7,576,636
=========== ===========
See Notes to Consolidated Financial Statements.
47
48
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
Year Ended December 31,
----------------------------------------------
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations . . . . . . . . . . . . . $ 397,400 $ 423,985 $ 440,531
Adjustments to reconcile income from continuing
operations to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . 478,034 399,341 386,893
Amortization of nuclear fuel . . . . . . . . . . . . . . 28,545 21,561 2,101
Deferred income taxes . . . . . . . . . . . . . . . . . 78,382 85,547 194,711
Investment tax credits . . . . . . . . . . . . . . . . . (19,427) (19,416) (19,797)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . . (7,760) (4,115) (3,512)
Fuel refund . . . . . . . . . . . . . . . . . . . . . . (189,571)
Fuel cost over (under) recovery . . . . . . . . . . . . 76,970 277,940 (91,863)
Regulatory tax asset - net . . . . . . . . . . . . . . . 6,876 11,300 (69,337)
Net cash provided by (used in) discontinued
cable television operations . . . . . . . . . . . . . 16,391 19,349 (1,073)
Changes in other assets and liabilities:
Accounts receivable - net. . . . . . . . . . . . . . . (46,299) (19,295) 302,268
Inventory . . . . . . . . . . . . . . . . . . . . . . 7,012 14,273 13,868
Other current assets . . . . . . . . . . . . . . . . . (14,900) 14,710 (15,138)
Accounts payable . . . . . . . . . . . . . . . . . . (23,217) (45,081) (7,962)
Interest and taxes accrued . . . . . . . . . . . . . . 11,088 (17,979) (16,689)
Other current liabilities . . . . . . . . . . . . . . (9,215) (5,102) 41,430
Other - net . . . . . . . . . . . . . . . . . . . . . 49,129 48,254 52,609
----------- ----------- -----------
Net cash provided by operating activities . . . . . . 839,438 1,205,272 1,209,040
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . . (301,327) (418,453) (332,797)
Non-regulated electric power project expenditures
and advances . . . . . . . . . . . . . . . . . . . . . . (38,278) (7,087) (35,796)
Settlement of subsidiary debt in connection with
sale of cable television subsidiary . . . . . . . . . . 619,345
Corporate headquarters expenditures (including
capitalized interest) . . . . . . . . . . . . . . . . . (96,469) (46,829) (26,034)
Net cash used in discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . (47,601) (84,071) (61,856)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . (10,743) (13,562) (5,295)
----------- ----------- -----------
Net cash provided by (used in) investing activities . 124,927 (570,002) (461,778)
----------- ----------- -----------
(continued on next page)
48
49
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
(CONTINUED)
Year Ended December 31,
----------------------------------------------
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock . . . . . . . . . . . . . . . . . $ 52,638
Proceeds from first mortgage bonds . . . . . . . . . . . . . $ 142,972 840,427
Payment of matured first mortgage bonds . . . . . . . . . . $ (19,500) (136,000)
Payment of common stock dividends . . . . . . . . . . . . . (371,731) (368,790) (389,933)
Redemption of preferred stock . . . . . . . . . . . . . . . (91,400) (20,000) (40,000)
Increase (decrease) in notes payable . . . . . . . . . . . . (416,991) (168,094) 27,136
Extinguishment of long-term debt . . . . . . . . . . . . . . (195,224) (995,751)
Net cash used in discontinued cable television
operations . . . . . . . . . . . . . . . . . . . . . . . (40,798) (68,184) (225,489)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . 10,143 4,857 65,277
----------- ----------- -----------
Net cash used in financing activities . . . . . . . . . (963,029) (639,711) (801,695)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . 1,336 (4,441) (54,433)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . 10,443 14,884 69,317
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . $ 11,779 $ 10,443 $ 14,884
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . $ 342,551 $ 366,548 $ 397,911
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 104,228 174,657 123,975
See Notes to Consolidated Financial Statements.
49
50
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
----------- ----------- ------------
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . $ 3,680,297 $ 3,746,085 $ 4,079,863
----------- ----------- ------------
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 879,148 860,936 1,063,050
Purchased power . . . . . . . . . . . . . . . . . . 233,494 408,963 515,502
Operation . . . . . . . . . . . . . . . . . . . . . 615,924 580,892 608,912
Maintenance . . . . . . . . . . . . . . . . . . . . 250,246 247,856 289,623
Depreciation and amortization . . . . . . . . . . . 475,124 398,142 385,731
Federal income taxes . . . . . . . . . . . . . . . . 245,807 254,993 239,464
Other taxes . . . . . . . . . . . . . . . . . . . . 245,890 251,421 211,295
----------- ----------- -----------
Total 2,945,633 3,003,203 3,313,577
----------- ----------- -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . 734,664 742,882 766,286
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . 7,760 4,115 3,512
Interest income . . . . . . . . . . . . . . . . . . 12,218 10,000 3,296
Other - net . . . . . . . . . . . . . . . . . . . . (25,901) (12,561) (4,286)
----------- ----------- -----------
Total (5,923) 1,554 2,522
----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . 728,741 744,436 768,808
----------- ----------- -----------
INTEREST CHARGES:
Interest on long-term debt . . . . . . . . . . . . . 244,384 246,533 276,049
Other interest . . . . . . . . . . . . . . . . . . . 8,117 8,493 12,317
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . (4,692) (5,554) (3,781)
----------- ----------- -----------
Total 247,809 249,472 284,585
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING . . . . . . . . . . . . . . . . . . . . 480,932 494,964 484,223
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS (NET OF INCOME
TAXES OF $4,415) . . . . . . . . . . . . . . . . . . . (8,200)
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 480,932 486,764 484,223
DIVIDENDS ON PREFERRED STOCK . . . . . . . . . . . . . . . 29,955 33,583 34,473
----------- ----------- -----------
INCOME AFTER PREFERRED DIVIDENDS . . . . . . . . . . . . . $ 450,977 $ 453,181 $ 449,750
=========== =========== ===========
See Notes to Financial Statements.
50
51
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
----------- ----------- -----------
Balance at Beginning of Year . . . . . . . . . . . . . . . $ 2,153,109 $ 2,028,924 $ 1,922,558
Add - Net Income . . . . . . . . . . . . . . . . . . . . . 480,932 486,764 484,223
Redemption of Preferred Stock . . . . . . . . . . . . . . . (402)
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 2,634,041 2,515,688 2,406,379
----------- ----------- -----------
Deduct - Cash Dividends:
Preferred:
$4.00 Series 389 390 390
$6.72 Series 1,680 1,680 1,680
$7.52 Series 3,760 3,760 3,760
$8.12 Series 4,060 4,060 4,060
Series A - 1992 2,324 1,740 1,366
Series B - 1992 2,322 1,683 1,366
Series C - 1992 2,823 2,040 1,672
Series D - 1992 2,747 2,075 1,615
$8.50 Series 1,417 4,108 6,517
$9.375 Series 8,433 12,047 12,047
Common 454,000 328,996 342,982
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 483,955 362,579 377,455
----------- ----------- -----------
Balance at End of Year . . . . . . . . . . . . . . . . . . $ 2,150,086 $ 2,153,109 $ 2,028,924
=========== =========== ===========
See Notes to Financial Statements.
51
52
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
December 31,
-------------------------------
1995 1994
----------- ------------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,423,891 $ 7,221,142
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927,027 876,159
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,711,482 2,628,450
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,027,090 1,017,319
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . 320,040 333,180
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,604 212,795
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . . . . 48,631 201,741
Electric plant acquisition adjustments . . . . . . . . . . . . . . . . . . . . 3,166
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,675,765 12,493,952
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 3,906,139 3,517,923
----------- -----------
Property, plant and equipment - net . . . . . . . . . . . . . . . . . . 8,769,626 8,976,029
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 75,851 235,867
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433 10
Accounts receivable:
Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,845 4,213
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,858 8,896
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 59,017 38,372
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,699 56,711
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . 137,584 147,922
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,876 9,665
----------- -----------
Total current assets 371,163 501,656
----------- -----------
OTHER ASSETS:
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . . . . 613,134 638,917
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,012 241,611
Unamortized debt expense and premium on reacquired debt . . . . . . . . . . . 159,962 158,351
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . . . . 228,587 235,463
Recoverable project costs - net . . . . . . . . . . . . . . . . . . . . . . . 232,775 98,954
----------- -----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,524,470 1,373,296
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,665,259 $10,850,981
=========== ===========
See Notes to Financial Statements.
52
53
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
December 31,
----------------------------
1995 1994
----------- -----------
CAPITALIZATION (STATEMENTS ON FOLLOWING PAGES):
Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,826,013 $ 3,829,036
Cumulative preferred stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 351,345 351,345
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . . 51,055 121,910
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,989,509 3,185,404
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,217,922 7,487,695
----------- -----------
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,032 148,042
Accounts payable to affiliated companies . . . . . . . . . . . . . . . . . . . 6,982 10,936
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,673 181,043
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,823 64,732
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . . 20,773 21,307
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,582 64,905
Current portion of long-term debt and preferred stock . . . . . . . . . . . . 179,451 49,475
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,149 59,912
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 705,465 600,352
----------- -----------
DEFERRED CREDITS:
Accumulated deferred federal income taxes . . . . . . . . . . . . . . . . . . 1,947,488 1,876,300
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . 392,153 411,580
Fuel-related credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,063 242,912
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280,168 232,142
----------- -----------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . 2,741,872 2,762,934
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,665,259 $10,850,981
=========== ===========
See Notes to Financial Statements.
53
54
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
December 31,
----------------------------
1995 1994
----------- -----------
COMMON STOCK EQUITY:
Common stock, Class A; no par; authorized and outstanding,
1,000 shares, voting . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,524,949 $ 1,524,949
Common stock, Class B; no par; authorized and outstanding,
100 shares, non-voting . . . . . . . . . . . . . . . . . . . . . . . . . 150,978 150,978
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,150,086 2,153,109
----------- -----------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . . . 3,826,013 3,829,036
----------- -----------
CUMULATIVE PREFERRED STOCK, no par; authorized, 10,000,000
shares; outstanding, 4,318,397 and 5,232,397 shares at
December 31, 1995 and 1994, respectively (entitled upon
involuntary liquidation to $100 per share):
Not subject to mandatory redemption:
$4.00 series, 97,397 shares . . . . . . . . . . . . . . . . . . . 9,740 9,740
$6.72 series, 250,000 shares . . . . . . . . . . . . . . . . . . . 25,115 25,115
$7.52 series, 500,000 shares . . . . . . . . . . . . . . . . . . . 50,226 50,226
$8.12 series, 500,000 shares . . . . . . . . . . . . . . . . . . . 50,098 50,098
Series A - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . 49,094 49,094
Series B - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . 49,104 49,104
Series C - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . 58,984 58,984
Series D - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . 58,984 58,984
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,345 351,345
---------- -----------
Subject to mandatory redemption:
$8.50 series, 400,000 shares at December 31, 1994 . . . . . . . . . 39,799
$9.375 series, 771,000 and 1,285,000 shares at
December 31, 1995 and 1994, respectively . . . . . . . . . . . . . 76,755 127,811
Current redemptions . . . . . . . . . . . . . . . . . . . . . . . . . (25,700) (45,700)
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,055 121,910
---------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . . 402,400 473,255
---------- -----------
LONG-TERM DEBT:
First mortgage bonds:
5 1/4% series, due 1996 . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
5 1/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
7 5/8% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
6 3/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
6 3/4% series, due 1998 . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
7 1/4% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
9.15 % series, due 2021 . . . . . . . . . . . . . . . . . . . . . . . 160,000 160,000
8 3/4% series, due 2022 . . . . . . . . . . . . . . . . . . . . . . . 62,275 100,000
7 3/4% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . 250,000 250,000
7 1/2% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . 200,000 200,000
4.90 % pollution control series, due 2003 . . . . . . . . . . . . . . 16,600 16,600
7 % pollution control series, due 2008 . . . . . . . . . . . . . . 19,200 19,200
6 3/8% pollution control series, due 2012 . . . . . . . . . . . . . . 33,470 33,470
6 3/8% pollution control series, due 2012 . . . . . . . . . . . . . . 12,100 12,100
8 1/4% pollution control series, due 2015 . . . . . . . . . . . . . . 90,000 90,000
5.80 % pollution control series, due 2015 . . . . . . . . . . . . . . 91,945
7 3/4% pollution control series, due 2015 . . . . . . . . . . . . . . 68,700 68,700
5.80 % pollution control series, due 2015 . . . . . . . . . . . . . . 58,905
7 7/8% pollution control series, due 2016 . . . . . . . . . . . . . . 68,000 68,000
6.70 % pollution control series, due 2017 . . . . . . . . . . . . . . 43,820 43,820
5.60 % pollution control series, due 2017 . . . . . . . . . . . . . . 83,565 83,565
7 7/8% pollution control series, due 2018 . . . . . . . . . . . . . . 50,000 50,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . 75,000 75,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . 100,000 100,000
(continued on next page)
54
55
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
(CONTINUED)
December 31,
-----------------------------
1995 1994
----------- -----------
7 7/8% pollution control series, due 2019 . . . . . . . . . . . . . $ 29,685 $ 29,685
7.70 % pollution control series, due 2019 . . . . . . . . . . . . . 75,000 75,000
8 1/4% pollution control series, due 2019 . . . . . . . . . . . . . 100,000 100,000
8.10 % pollution control series, due 2019 . . . . . . . . . . . . . 100,000 100,000
7 5/8% pollution control series, due 2019 . . . . . . . . . . . . . 100,000 100,000
7 1/8% pollution control series, due 2019 . . . . . . . . . . . . . 100,000 100,000
7.60 % pollution control series, due 2019 . . . . . . . . . . . . . 70,315 70,315
6.70 % pollution control series, due 2027 . . . . . . . . . . . . . 56,095 56,095
Medium-term notes series A, 9.80%-9.85%, due 1996-1999 . . . . . . . . 180,500 180,500
Medium-term notes series B, 8 5/8%, due 1996 . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.10%, due 2000 . . . . . . . . . . . . . 150,000 150,000
Medium-term notes series B, 8.15%, due 2002 . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.50%, due 2003 . . . . . . . . . . . . . 150,000 150,000
----------- -----------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 3,145,175 3,032,050
----------- -----------
Pollution control revenue bonds:
Gulf Coast 1980-T series, floating rate, due 1998 . . . . . . . . . . 5,000 5,000
Brazos River 1985 A2 series, 9 3/4%, due 2005 . . . . . . . . . . . . 4,265
Brazos River 1985 A1 series, 9 7/8%, due 2015 . . . . . . . . . . . . 87,680
Matagorda County 1985 series, 10%, due 2015 . . . . . . . . . . . . . 58,905
----------- -----------
Total pollution control revenue bonds 5,000 155,850
----------- -----------
Unamortized premium (discount) - net . . . . . . . . . . . . . . . . . . . . (16,456) (12,253)
Capitalized lease obligations, discount rates of
5.2%-11.7%, due 1996-2018 . . . . . . . . . . . . . . . . . . . . . . . . 8,560 12,403
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981 1,129
----------- -----------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,915) 1,279
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,143,260 3,189,179
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . (153,751) (3,775)
----------- -----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . 2,989,509 3,185,404
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . $ 7,217,922 $ 7,487,695
=========== ===========
See Notes to Financial Statements.
55
56
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
Year Ended December 31,
-----------------------------------------------
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 480,932 $ 486,764 $ 484,223
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 475,124 398,142 385,731
Amortization of nuclear fuel . . . . . . . . . . . . . . 28,545 21,561 2,101
Deferred federal income taxes . . . . . . . . . . . . . 71,188 81,739 214,369
Investment tax credits . . . . . . . . . . . . . . . . . (19,427) (19,416) (19,797)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . . (7,760) (4,115) (3,512)
Fuel refund . . . . . . . . . . . . . . . . . . . . . . (189,571)
Fuel cost over (under) recovery . . . . . . . . . . . . 76,970 277,940 (91,863)
Cumulative effect of change in accounting
for postemployment benefits . . . . . . . . . . . . . 8,200
Regulatory tax asset - net . . . . . . . . . . . . . . . 6,876 11,300 (69,337)
Changes in other assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . . (34,239) (17,827) 170,784
Materials and supplies . . . . . . . . . . . . . . . 10,338 12,449 3,850
Fuel stock . . . . . . . . . . . . . . . . . . . . . (2,988) 1,874 9,979
Accounts payable . . . . . . . . . . . . . . . . . . (32,964) (40,054) (11,854)
Interest and taxes accrued . . . . . . . . . . . . . . 17,721 (6,980) (20,035)
Other current liabilities . . . . . . . . . . . . . . (7,816) (4,936) 18,040
Other - net . . . . . . . . . . . . . . . . . . . . . (5,239) 20,270 63,721
----------- ----------- -----------
Net cash provided by operating activities . . . . . . . 867,690 1,226,911 1,136,400
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . . (396,242) (418,453) (332,797)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . (10,618) (15,822) (13,067)
----------- ----------- -----------
Net cash used in investing activities . . . . . . . . . (406,860) (434,275) (345,864)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from first mortgage bonds . . . . . . . . . . . . . 142,972 840,427
Payment of matured bonds . . . . . . . . . . . . . . . . . . (19,500) (136,000)
Payment of dividends . . . . . . . . . . . . . . . . . . . . (485,793) (363,083) (378,528)
Increase (decrease) in notes payable . . . . . . . . . . . . (171,100) 31,660
Decrease in notes payable to affiliated company . . . . . . (120,001)
Redemption of preferred stock . . . . . . . . . . . . . . . (91,400) (20,000) (40,000)
Extinguishment of long-term debt . . . . . . . . . . . . . . (195,224) (995,751)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . 8,599 4,501 15,817
----------- ----------- -----------
Net cash used in financing activities . . . . . . . . . (620,846) (569,182) (782,376)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . (160,016) 223,454 8,160
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . 235,867 12,413 4,253
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . $ 75,851 $ 235,867 $ 12,413
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash Payments:
Interest (net of amounts capitalized) . . . . . . . . . . . $ 247,672 $ 251,245 $ 296,201
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 157,400 196,655 127,713
See Notes to Financial Statements.
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HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its wholly owned and
majority-owned subsidiaries. Certain investments in joint ventures or
other entities in which the Company or its subsidiaries have a 50
percent or less interest are recorded using the equity method or the
cost method. For additional information regarding investments and
advances, see Notes 1(j) and 4.
All significant intercompany transactions and balances are eliminated
in consolidation.
(B) SYSTEM OF ACCOUNTS AND EFFECTS OF REGULATION. HL&P, the principal
subsidiary of the Company, maintains its accounting records in
accordance with the FERC Uniform System of Accounts. HL&P's
accounting practices are subject to regulation by the Utility
Commission, which has adopted the FERC Uniform System of Accounts.
As a result of its regulated status, HL&P follows the accounting
policies set forth in SFAS No. 71, "Accounting for the Effects of
Certain Types of Regulation," which allows a utility with cost-based
rates to defer certain costs in concert with rate recovery that would
otherwise be expensed. In accordance with this statement, HL&P has
deferred certain costs pursuant to rate actions of the Utility
Commission and is recovering or expects to recover such costs in
electric rates charged to customers. The regulatory assets are
included in other assets on the Company's Consolidated and HL&P's
Balance Sheets. The regulatory liabilities are included in deferred
credits on the Company's Consolidated and HL&P's Balance Sheets. The
following is a list of significant regulatory assets and liabilities
reflected on the Company's Consolidated and HL&P's Balance Sheets:
December 31, 1995
-----------------
(Millions of Dollars)
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . . $613
Malakoff investment . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Regulatory tax asset - net . . . . . . . . . . . . . . . . . . . . . . . 229
Unamortized loss on reacquired debt . . . . . . . . . . . . . . . . . . 121
Deferred debits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Unamortized investment tax credit. . . . . . . . . . . . . . . . . . . . (392)
Accumulated deferred income taxes - regulatory tax asset . . . . . . . . (80)
If as a result of changes in regulation or competition, HL&P's ability
to recover these assets and/or liabilities would not be assured, then
pursuant to SFAS No. 71 and to the extent that such regulatory assets
or liabilities ultimately were determined not to be recoverable, HL&P
would be required to write off or write down such assets or
liabilities.
(C) ELECTRIC PLANT. HL&P capitalizes at cost all additions to electric
plant, betterments to existing property and replacements of units of
property. Cost includes the original cost of contracted services,
direct labor and material, indirect charges for engineering
supervision and similar overhead items and AFUDC. Customer payments
for construction reduce additions to electric
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plant. AFUDC represents the estimated debt and equity costs of capital
funds not already included in rates necessary to finance the
construction of new regulated facilities.
HL&P computes depreciation using the straight-line method. The
depreciation provision as a percentage of the depreciable cost of
plant was 3.2 percent for 1995, 3.2 percent for 1994 and 3.1 percent
for 1993.
(D) DEFERRED PLANT COSTS. Under a "deferred accounting" plan authorized
by the Utility Commission, HL&P was permitted for regulatory purposes
to accrue carrying costs in the form of AFUDC on its investment in the
South Texas Project and defer and capitalize depreciation and other
operating costs on its investment after commercial operation and
until such costs were reflected in rates. In addition, the Utility
Commission authorized HL&P under a "qualified phase-in plan" to
capitalize allowable costs (including return) deferred for future
recovery as deferred charges.
In 1991, HL&P ceased all cost deferrals related to the South Texas
Project and began amortizing such amounts on a straight-line basis.
The accumulated deferrals for "deferred accounting" are being
amortized over the estimated depreciable life of the South Texas
Project. The accumulated deferrals for the "qualified phase-in plan"
are being amortized over a ten-year phase-in period that commenced in
1991. The amortization of these deferrals (which totaled $25.8
million for each of the years 1995, 1994 and 1993) is included on the
Company's Statements of Consolidated Income and HL&P's Statements of
Income as depreciation and amortization expense.
(E) REVENUES. HL&P records electricity sales under the full accrual
method, whereby unbilled electricity sales are estimated and recorded
each month in order to better match revenues with expenses. Other
revenues include electricity sales of a foreign electric utility,
which are also recorded under the full accrual method. Other revenues
also include management fees and other sales and services, which are
recorded when earned.
(F) INCOME TAXES. The Company and its subsidiaries file a consolidated
federal income tax return. The Company follows a policy of
comprehensive interperiod income tax allocation. Investment tax
credits are deferred and amortized over the estimated lives of the
related property.
(G) EARNINGS PER COMMON SHARE. Earnings per common share for the Company
are computed by dividing net income by the weighted average number of
shares outstanding during the respective period. All earnings per
common share amounts reflect the two-for-one common stock split
effected in the form of a stock distribution on December 9, 1995.
The Company adopted SOP 93-6 effective January 1, 1994. Pursuant to
the adoption of SOP 93-6, the number of weighted average common shares
outstanding reflects a reduction for ESOP shares not yet committed for
release to savings plan participants (unallocated shares). In
accordance with SOP 93-6, earnings per common share for periods prior
to January 1, 1994 have not been restated.
(H) STATEMENTS OF CONSOLIDATED CASH FLOWS. For purposes of reporting cash
flows, cash equivalents are considered to be short-term, highly liquid
investments readily convertible to cash.
(I) DISCONTINUED OPERATIONS. In July 1995, the Company sold KBLCOM, its
cable television subsidiary. The operations of KBLCOM are reflected
as discontinued operations for all periods presented. See Note 13.
(J) INVESTMENTS IN DEBT AND EQUITY SECURITIES. The Company owns one
million shares of Time Warner common stock and 11 million shares of
non-publicly traded Time Warner convertible
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preferred stock. The Company has recorded its investment in these
securities at a combined fair value of approximately $1 billion on the
Company's Consolidated Balance Sheet. Investment in the Time Warner
common stock is considered an "available-for-sale" equity security
under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Consequently, the Company excludes unrealized net
changes in the fair value of Time Warner common stock (exclusive of
dividends and write downs) from earnings and, until realized, reports
such changes as a net amount in the shareholders' equity section of the
balance sheet. Investment in the Time Warner convertible preferred
stock (which is not subject to the requirements of SFAS No. 115, since
it is a non-publicly traded equity security) is accounted for under the
cost method.
The securities held in the Company's nuclear decommissioning trust are
classified as "available-for-sale" and, in accordance with SFAS No.
115, are reported at fair value which at December 31, 1995
approximates cost ($44.5 million as of December 31, 1995) on the
Company's Consolidated and HL&P's Balance Sheets under deferred debits
and deferred credits. Any unrealized gains or losses are accounted
for in accordance with SFAS No. 71 as a regulatory asset/liability and
reported on the Company's Consolidated and HL&P's Balance Sheets as a
deferred debit.
(K) FUEL STOCK. Gas inventory (at average cost) was $12.1 million at
December 31, 1995. Coal, lignite, and oil inventory balances
recorded at last-in, first-out, were $22.2 million, $12.1 million, and
$13.3 million, respectively.
(L) RECLASSIFICATION. Certain amounts from the previous years have been
reclassified to conform to the 1995 presentation of financial
statements. Such reclassifications do not affect earnings.
(M) NATURE OF OPERATIONS. The Company is a holding company operating
principally in the electric utility business. HL&P is engaged in the
generation, transmission, distribution and sale of electric energy.
HL&P's service area covers a 5,000 square mile area in the Texas Gulf
Coast, including Houston. Another subsidiary of the Company, HI
Energy, participates in domestic and foreign power generation projects
and invests in the privatization of foreign electric utilities. The
business and operations of HL&P account for substantially all of the
Company's income from continuing operations and common stock equity.
(N) USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) JOINTLY-OWNED NUCLEAR PLANT
(A) HL&P INVESTMENT. HL&P is the project manager (and one of four
co-owners) of the South Texas Project, which consists of two 1,250
megawatt nuclear generating units. HL&P has a 30.8 percent interest
in the project and bears a corresponding share of capital and
operating costs associated with the project. As of December 31, 1995,
HL&P's investment in the South Texas Project and in nuclear fuel,
including AFUDC, was $2.0 billion (net of $439 million plant
accumulated depreciation) and $75.1 million (net of $142 million
nuclear fuel amortization), respectively.
(B) REGULATORY PROCEEDINGS AND LITIGATION. Between June 1993 and February
1995, the South Texas Project was listed on the United States Nuclear
Regulatory Commission's (NRC) "watch list" of plants with weaknesses
that warrant increased NRC regulatory attention. In February 1995,
the NRC removed the South Texas Project from its "watch list."
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In February 1994, the City of Austin (Austin), one of the four
co-owners of the South Texas Project, filed suit against HL&P
(Austin Litigation). Trial of that suit, which began in March 1996
is pending in the 11th District Court of Harris County, Texas.
Austin alleges that the outages at the South Texas Project from
early 1993 to early 1994 were due to HL&P's failure to perform
obligations it owed to Austin under the Participation Agreement
among the four co-owners of the South Texas Project (Participation
Agreement). Austin also asserts that HL&P breached certain
undertakings voluntarily assumed by HL&P on behalf of the co-
owners under the terms of the NRC Operating Licenses and Technical
Specifications relating to the South Texas Project.
Under amended pleadings in the Austin Litigation, Austin claims it
suffered damages of at least $120 million due to increased operating
and maintenance costs, the cost of replacement power and lost profits
on wholesale transactions that did not occur. Although HL&P and the
Company do not believe there is merit to Austin's claims, no assurance
can be given as to the ultimate outcome of this matter.
In May 1994, the City of San Antonio (San Antonio), another co-owner
of the South Texas Project, intervened in the litigation filed by
Austin against HL&P and asserted claims similar to those asserted by
Austin. Although San Antonio has not specified the damages sought in
its complaint, expert reports filed in the litigation have indicated
that San Antonio's claims may be in excess of $228 million. On
February 29,1996, San Antonio announced that it was taking a nonsuit
on its claims in the Austin Litigation in order to pursue settlement
discussions with HL&P concerning those claims, as well as separate
claims for unspecified damages previously asserted by San Antonio
against HL&P with respect to the construction of the South Texas
Project, which construction claims are the subject of a request for
arbitration under the Participation Agreement. In order to preserve
its litigation claims pending the outcome of settlement negotiations,
San Antonio refiled its lawsuit in the 152nd District Court of Harris
County, Texas. While neither the Company nor HL&P believes there is
merit to San Antonio's claims either in the pending litigation or in
the arbitration proceeding, there can be no assurance as to the
ultimate outcome of those matters, nor can there be an assurance as to
the ultimate outcome of the settlement discussions. If a settlement
is reached, it is possible, among other things, that such resolution
could require in the near term a charge to earnings from continuing
operations, but it is not anticipated that any such resolution would
be material to the Company's or HL&P's financial position, liquidity
or ability to meet their respective cash requirements stemming from
operating, capital expenditures and financing activities.
(C) NUCLEAR INSURANCE. HL&P and the other owners of the South Texas
Project maintain nuclear property and nuclear liability insurance
coverage as required by law and periodically review available limits
and coverage for additional protection. The owners of the South Texas
Project currently maintain $2.75 billion in property damage insurance
coverage which is above the legally required minimum, but is less than
the total amount of insurance currently available for such losses.
This coverage consists of $500 million in primary property damage
insurance and excess property insurance in the amount of $2.25
billion. Under the excess property insurance (which became effective
in November 1995), HL&P and the other owners of the South Texas
Project are subject to assessments, the maximum aggregate assessment
under current policies being $25.8 million during any one policy year.
The application of the proceeds of such property insurance is subject
to the priorities established by the NRC regulations relating to the
safety of licensed reactors and decontamination operations.
Pursuant to the Price Anderson Act (Act), the maximum liability to the
public for owners of nuclear power plants, such as the South Texas
Project, was $8.92 billion as of December 1995. Owners are required
under the Act to insure their liability for nuclear incidents and
protective evacuations by maintaining the maximum amount of financial
protection available from private sources and by maintaining secondary
financial protection through an industry retrospective rating plan.
The
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assessment of deferred premiums provided by the plan for each nuclear
incident is up to $75.5 million per reactor subject to indexing for
inflation, a possible 5 percent surcharge (but no more than $10 million
per reactor per incident in any one year) and a 3 percent state premium
tax. HL&P and the other owners of the South Texas Project currently
maintain the required nuclear liability insurance and participate in
the industry retrospective rating plan.
There can be no assurance that all potential losses or liabilities
will be insurable, or that the amount of insurance will be sufficient
to cover them. Any substantial losses not covered by insurance would
have a material effect on HL&P's and the Company's financial condition
and results of operations.
(D) NUCLEAR DECOMMISSIONING. In accordance with the Rate Case Settlement,
HL&P contributes $14.8 million per year to a trust established to fund
HL&P's share of the decommissioning costs for the South Texas Project.
For a discussion of securities held in the Company's nuclear
decommissioning trust, see Note 1(j). In May 1994, an outside
consultant estimated HL&P's portion of decommissioning costs to be
approximately $318 million (1994 dollars). The consultant's
calculation of decommissioning costs for financial planning purposes
used the DECON methodology (prompt removal/dismantling), one of the
three alternatives acceptable to the NRC, and assumed deactivation of
Unit Nos. 1 and 2 upon the expiration of their 40-year operating
licenses. While the current and projected funding levels presently
exceed minimum NRC requirements, no assurance can be given that the
amounts held in trust will be adequate to cover the actual
decommissioning costs of the South Texas Project. Such costs may vary
because of changes in the assumed date of decommissioning, changes in
regulatory and accounting requirements, changes in technology and
changes in costs of labor, materials and equipment.
(3) RATE MATTERS
The Utility Commission has original (or in some cases appellate)
jurisdiction over HL&P's electric rates and services. In Texas,
Utility Commission orders may be appealed to a District Court in
Travis County, and from that Court's decision an appeal may be taken
to the Court of Appeals for the 3rd District at Austin (Austin Court
of Appeals). Discretionary review by the Supreme Court of Texas may
be sought from decisions of the Austin Court of Appeals. In the event
that the courts ultimately reverse actions of the Utility Commission,
such matters are remanded to the Utility Commission for action in
light of the courts' orders. On remand, the Utility Commission's
action could range from granting rate relief substantially equal to
the rates previously approved to reducing the revenues to which HL&P
was entitled during the time the applicable rates were in effect,
which could require a refund to customers of amounts collected
pursuant to such rates.
(A) 1995 RATE CASE. In August 1995, the Utility Commission unanimously
approved the Rate Case Settlement, which resolved HL&P's 1995 rate
case (Docket No. 12065) as well as a separate proceeding (Docket No.
13126) regarding the prudence of operation of the South Texas Project.
Subject to certain changes in existing regulation or legislation, the
Rate Case Settlement precludes HL&P from seeking rate increases until
after December 31, 1997. HL&P began recording the effects of the Rate
Case Settlement in the first quarter of 1995. The Rate Case Settlement
reduced HL&P's earnings for 1995 by approximately $100 million.
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The after-tax effects in 1995 of the Rate Case Settlement are as
follows:
Year Ended
December 31, 1995
-----------------
(Millions of Dollars)
Reduction in base revenues . . . . . . . . . . . . . . . . . . . $ 52
South Texas Project write-down . . . . . . . . . . . . . . . . . 33
One-time write-off of mine-related costs . . . . . . . . . . . . 6
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . 9
----
Total Rate Case Settlement effect on net income . . . . $100
====
The Rate Case Settlement gives HL&P the option to write down up to $50
million ($33 million after-tax) per year of its investment in the
South Texas Project through December 31, 1999. The parties to the
Rate Case Settlement agreed that any such write-down will be treated
as a reasonable and necessary expense during routine reviews of HL&P's
earnings and any rate review proceeding initiated against HL&P. In
accordance with the Rate Case Settlement, HL&P recorded a $50 million
pre-tax write-down in 1995 of its investment in the South Texas
Project which is included in the Company's Statements of Consolidated
Income and HL&P's Statements of Income in depreciation and
amortization expense. In 1995, HL&P also began accruing its share of
decommissioning expense for the South Texas Project at an annual rate
of $14.8 million (a $9 million per year increase over 1994).
As required by the Rate Case Settlement, HL&P will begin in 1996 to
amortize its $153 million investment in certain lignite reserves
associated with the canceled Malakoff project. These amortizations
will equal approximately $22 million per year. As a result of this
additional amortization, HL&P's remaining investment in Malakoff
($233 million at December 31, 1995) will be fully amortized no later
than December 31, 2002. During the second quarter of 1995, HL&P
recorded a one-time pre-tax charge of $9 million incurred in
connection with certain Malakoff mine-related costs that were not
previously recorded and were not recoverable under the terms of the
Rate Case Settlement. Issues concerning the prudence of expenditures
related to Malakoff were deferred until a subsequent rate case.
In Docket No. 8425, the Utility Commission allowed recovery of certain
costs associated with Malakoff by allowing HL&P to amortize these
costs over ten years. Such recoverable costs are not included in rate
base and, as a result, no return on investment is being earned during
the recovery period. The $28 million unamortized balance of these
costs at December 31, 1995 is included in the $233 million discussed
above and is to be amortized over the following 54 months.
In anticipation of the Rate Case Settlement, the Company and HL&P
recorded in the fourth quarter of 1994 a one-time, pre-tax charge of
approximately $70 million to reconcilable fuel revenues, an amount
which HL&P agreed as a part of the Rate Case Settlement was not
recoverable from ratepayers.
(B) RATE CASE APPEALS. Pursuant to the Rate Case Settlement, HL&P and the
other parties to that settlement have dismissed their pending appeals
of previous Utility Commission orders. As a result of that action or
subsequent judicial action, the Utility Commission's orders have
become final in Docket No. 9850 (involving HL&P's 1991 rate case) and
in Docket Nos. 8230 and 9010 (involving deferred accounting). Two
appeals of other orders, by parties who did not join in the Rate Case
Settlement, remain pending: review of Docket No. 8425 (HL&P's 1988
rate case), and review of Docket No. 6668 (the Utility Commission's
inquiry into the prudence of the planning and construction of the
South Texas Project). The appeal from the order in Docket No. 8425
concerns (i) the treatment as "plant held for future use" of certain
costs associated with the Malakoff
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generating station and (ii) the treatment by HL&P of certain tax
savings associated with federal income tax deductions for expenses not
included in cost of service for ratemaking purposes. The appeal is
currently pending before the Texas Supreme Court.
Review of the Utility Commission's order in Docket No. 6668 is pending
before a Travis County district court. In that order the Utility
Commission determined that $375.5 million of HL&P's $2.8 billion
investment in the South Texas Project had been imprudently incurred.
That ruling was incorporated into HL&P's 1988 and 1991 rate cases.
Unless the order is modified or reversed on appeal, the amount found
imprudent by the Utility Commission will be sustained.
(4) INVESTMENTS IN FOREIGN AND NON-REGULATED ENTITIES
(A) GENERAL. HI Energy sustained net losses of $33 million, $6 million
and $2 million in 1995, 1994 and 1993, respectively. Development
costs for 1995 were approximately $14 million. The majority of costs
in 1994 and 1993 were related to project development activities.
(B) FOREIGN INVESTMENTS. Houston Argentina S.A. (Houston Argentina),
a subsidiary of HI Energy, owns a 32.5 percent interest in
Compania de Inversiones en Electricidad S.A. (COINELEC), an Argentine
holding company which acquired a 51 percent interest in Empresa
Distribuidora de La Plata S.A. (EDELAP), an electric utility company
operating in La Plata, Argentina and surrounding regions. Houston
Argentina's share of the purchase price was approximately $37.4
million. Such investment was in the form of (i) a capital
contribution of $27.6 million to COINELEC and (ii) a loan to COINELEC
in the aggregate principal amount of $9.8 million. HI Energy has also
entered into support agreements with two financial institutions
pursuant to which HI Energy has agreed to make additional cash
contributions or subordinated loans to COINELEC or pay COINELEC's
lenders up to a maximum aggregate of $6.6 million in the event of a
default by COINELEC of its commitments to such financial institutions.
Subsequent to the acquisition, the generating assets of EDELAP were
transferred to Central Dique S.A., an Argentine Corporation, 51
percent of the stock of which is owned by COINELEC. HI Energy's
portion of EDELAP and Central Dique S.A. earnings was approximately $1
million in both 1995 and 1994.
In January 1995, HI Energy acquired for $15.7 million a 90 percent
ownership interest in an electric utility operating company located in
a rural province in the north central part of Argentina. The utility
system serves approximately 116,000 customers in an area of 136,000
square kilometers. HI Energy's share of net losses from this
investment for 1995 was $3.6 million substantially all of which was
due to non-recurring severance costs.
In 1995, HI Energy invested approximately $7 million in a cogeneration
project being developed in San Nicolas, Argentina and approximately $5
million in a coke calcining project being developed in the state of
Andhra Pradesh, India. These projects had no earnings impact in 1995.
HI Energy estimates that its commitment in 1996 for the Argentine
cogeneration project will be approximately $31 million and that its
share of the 1996 commitment for the coke calcining project will be
approximately $3 million. HI Energy has entered into a support
agreement in favor of the International Finance Corporation (IFC)
under the terms of which HI Energy has agreed to provide one of its
subsidiaries (HIE Rain), which is an investor in the coke calcining
project, with sufficient funds to meet certain funding obligations of
HIE Rain under agreements with the IFC. The maximum aggregate funding
commitment of HI Energy under this support agreement is approximately
$18 million, of which approximately $16 million is to support
contingent obligations of HIE Rain and the balance of which is
additional equity to be contributed to the coke calcining project.
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(C) ILLINOIS WASTE TIRE-TO-ENERGY PROJECTS. HI Energy is a subordinated
lender to two waste tire-to-energy projects being developed by Ford
Heights and Fulton, respectively, located in the state of Illinois. HI
Energy also owns a $400,000 equity interest (20 percent) in Ford
Heights. Both projects were being developed in reliance on the terms of
the Illinois Retail Rate Law, enacted in 1987, to encourage development
of energy production facilities for the disposal of solid waste by
providing an operating subsidy to qualifying projects. In March 1996,
the Governor of Illinois signed into law legislation which purports to
repeal the subsidy provided to most of such energy production
facilities, including the two waste tire-to-energy projects in which HI
Energy has invested. A lawsuit has been filed on behalf of the Ford
Heights and Fulton projects challenging, among other things, the
constitutionality of the repeal and its retroactive application to the
two waste tire-to-energy projects. On March 26, 1996, the Ford Heights
project filed a voluntary petition seeking protection under the federal
bankruptcy laws. The ability of the two waste tire-to-energy projects
to meet their debt obligations is dependent upon the projects
continuing to receive the operating subsidy under the Retail Rate Law.
The terms of the public bonds issued by the Ford Heights and Fulton
projects are non-recourse to the Company and HI Energy.
In response to the actions taken by the state of Illinois, the Company
has established a valuation allowance of $28 million ($18 million
after-tax), which amount reflects the combined amounts lent on a
subordinated basis to the Ford Heights and Fulton projects. In
addition to amounts funded through March 26, 1996, HI Energy also is
party to two separate Note Purchase Agreements committing it, under
certain circumstances, to acquire up to (i) $3 million in aggregate
principal amount of additional subordinated notes from the Ford Heights
project and (ii) $17 million in aggregate principal amount of
additional subordinated notes from the Fulton project. The Company has
entered into a support agreement under which it has agreed to provide
additional funds to HI Energy to enable it to honor its obligations
under the two Note Purchase Agreements. The Company is unable to
predict the ultimate effect of these developments on HI Energy's
remaining funding commitments under these Note Purchase Agreements;
however, in the Company's opinion it is unlikely that the majority of
the additional unfunded subordinated debt provided for in the Fulton
Note Purchase Agreement would be required to be funded unless
construction activities with respect to the Fulton project are
recommenced at some future date. If HI Energy becomes obligated to
advance additional funds under the Note Purchase Agreements, the
Company could be required to increase the amount of the valuation
allowance, which would result in additional charges to earnings.
(5) COMMON STOCK
(A) STOCK DISTRIBUTION. The Company effected a two-for-one stock split in
the form of a common stock distribution on December 9, 1995. All
prior periods have been restated for consistency to reflect the stock
distribution in terms of number of common shares outstanding and the
per share amounts for earnings, dividends and market price. The
nominal consideration established by the Board of Directors for the
common stock distributed ($.01 per share) is reflected as a deduction
from retained earnings in the Company's Statements of Consolidated
Retained Earnings.
(B) DIVIDENDS. The timing of the Company's Board of Directors'
declaration of dividends changed resulting in five quarterly dividend
declarations in 1993. All dividends declared in 1993 have been
included in 1993 common stock dividends on the Company's Statements of
Consolidated Retained Earnings. The Company paid four regular
quarterly dividends in 1993 aggregating $1.50 per share, after
restatement for the two-for-one stock split, on its common stock
shares.
(C) LONG-TERM INCENTIVE COMPENSATION PLANS. The Company has Long-Term
Incentive Compensation Plans (LICP) providing for the issuance of
stock incentives (including performance-based restricted shares and
stock options) to key employees of the Company, including officers.
As of December 31, 1995, 29 current and former employees participated
in the plans. A maximum of five million shares of common stock may be
issued under the LICP. Beginning one
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year after the grant date, the options become exercisable in one-third
increments each year. The options expire ten years from the grant
date.
Performance-based restricted shares issued were 49,792; 100,524; and
146,564 for 1995, 1994 and 1993, respectively. Stock option activity
for the years 1993 through 1995 is summarized below (as adjusted for
the Company's two-for-one stock distribution):
Option Price at
Number Date of Grant
of Shares or Exercise
---------- --------------
Non-statutory stock options:
Outstanding at December 31, 1992 . . . . . . . . . . . . 131,742
Options Granted . . . . . . . . . . . . . . . . . . 131,552 $23.125
Options Exercised . . . . . . . . . . . . . . . . . . (1,324) $21.75
Options Withheld for Taxes . . . . . . . . . . . . . (34)
Options Canceled . . . . . . . . . . . . . . . . . . (10,038)
Outstanding at December 31, 1993 . . . . . . . . . . . . 251,898
Options Granted . . . . . . . . . . . . . . . . . . 131,452 $23.25
Options Exercised . . . . . . . . . . . . . . . . .
Options Withheld for Taxes . . . . . . . . . . . . .
Options Canceled . . . . . . . . . . . . . . . . . . (80,772)
Outstanding at December 31, 1994 . . . . . . . . . . . . 302,578
Options Granted . . . . . . . . . . . . . . . . . . 133,324 $17.75; $21.25
Options Exercised . . . . . . . . . . . . . . . . .
Options Withheld for Taxes . . . . . . . . . . . . .
Options Canceled . . . . . . . . . . . . . . . . . . (24,560)
Outstanding at December 31, 1995 . . . . . . . . . . . . 411,342
Exercisable at:
December 31, 1995 . . . . . . . . . . . . . . . . . 181,924 $21.75-$23.25
December 31, 1994 . . . . . . . . . . . . . . . . . 107,672 $21.75-$23.125
(D) SHAREHOLDER RIGHTS PLAN. In July 1990, the Company adopted a shareholder
rights plan and declared a dividend of one right for each outstanding
share of the Company's common stock (including shares of common stock
issued in the Company's 1995 two-for-one stock split). The rights, which
under certain circumstances entitle their holders to purchase one
two-hundredth of a share of Series A Preference Stock for an exercise
price of $42.50, will expire on July 11, 2000. The rights will become
exercisable only if a person or entity acquires 20 percent or more of the
Company's outstanding common stock or if a person or entity commences a
tender offer or exchange offer for 20 percent or more of the outstanding
common stock. At any time after the occurrence of such events, the
Company may exchange unexercised rights at an exchange ratio of one share
of common stock, or equity securities of the Company of equivalent value,
per right. The rights are redeemable by the Company for $.01 per right
at any time prior to the date the rights become exercisable.
When the rights become exercisable, each right will entitle the holder to
receive, in lieu of the right to purchase Series A Preference Stock, upon
the exercise of such right, a number of shares of the Company's common
stock (or under certain circumstances cash, property, other equity
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securities or debt of the Company) having a current market price (as
defined in the plan) equal to twice the exercise price of the right,
except pursuant to an offer for all outstanding shares of common stock
which a majority of the independent directors of the Company determines
to be a price which is in the best interests of the Company and its
shareholders (Permitted Offer).
In the event that the Company is a party to a merger or other business
combination (other than a merger that follows a Permitted Offer), rights
holders will be entitled to receive, upon the exercise of a right, a
number of shares of common stock of the acquiring company having a
current market price (as defined in the plan) equal to twice the exercise
price of the right.
(E) INVESTOR'S CHOICE PLAN. The Company has registered four million shares
of its common stock under the Securities Act of 1933 for sale through the
Company's Investor's Choice Plan, a dividend reinvestment and stock
purchase plan. The plan is designed to provide investors with a way to
buy common stock directly from the Company and/or to arrange for
reinvestment of cash dividends in the Company's common stock.
(6) PREFERRED STOCK OF HL&P
At December 31, 1995, HL&P's cumulative preferred stock could be redeemed
at the following per share prices, plus any unpaid accrued dividends to
the date of redemption:
Redemption
Series Price Per Share
------ ---------------
Not Subject to Mandatory Redemption:
$4.00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $105.00
$6.72 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.51
$7.52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.35
$8.12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.25
Variable Term Preferred A (a) . . . . . . . . . . . . . . . . . . 100.00
Variable Term Preferred B (a) . . . . . . . . . . . . . . . . . . 100.00
Variable Term Preferred C (a) . . . . . . . . . . . . . . . . . . 100.00
Variable Term Preferred D (a) . . . . . . . . . . . . . . . . . . 100.00
Subject to Mandatory Redemption:
$9.375 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---
(a) Rates for Variable Term Preferred Stock as of December 31, 1995 were
as follows:
Series Rate
------ ------
Variable Term Preferred A 4.59%
Variable Term Preferred B 4.48%
Variable Term Preferred C 4.49%
Variable Term Preferred D 4.67%
(b) HL&P is required to redeem 257,000 shares annually.
In 1995, HL&P redeemed 514,000 shares of its $9.375 cumulative preferred
stock at $100 per share and the remaining 400,000 shares of its $8.50
cumulative preferred stock at $100 per share. In 1994, HL&P redeemed 200,000
shares of its $8.50 cumulative preferred stock at $100 per share. Annual
mandatory redemptions of HL&P's preferred stock are $25.7 million in 1996,
1997 and 1998.
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(7) LONG-TERM DEBT
(a) COMPANY. Consolidated annual maturities of long-term debt and minimum
capital lease payments for the Company are approximately $354 million
in 1996, $226 million in 1997, $40 million in 1998, $171 million in
1999 and $150 million in 2000.
(b) HL&P. Sinking or improvement fund requirements of HL&P's first
mortgage bonds outstanding will be approximately $40 million for each
of the years 1996 through 2000. Of such requirements, approximately
$37 million for each of the years 1996 through 2000 may be satisfied
by certification of property additions at 100 percent of the
requirements, and the remainder through certification of such property
additions at 166 2/3 percent of the requirements. Sinking or
improvement fund requirements for 1995 and prior years have been
satisfied by certification of property additions.
HL&P has agreed to expend an amount each year for replacements and
improvements in respect of its depreciable mortgaged utility property
equal to $1,450,000 plus 2 1/2 percent of net additions to such
mortgaged property made after March 31, 1948 and before July 1 of the
preceding year. Such requirement may be met with cash, first mortgage
bonds, gross property additions or expenditures for repairs or
replacements, or by taking credit for property additions at 100
percent of the requirements. With respect to first mortgage bonds of
a series subject to special redemption, HL&P has the option to use
deposited cash to redeem first mortgage bonds of such series at the
applicable special redemption price. The replacement fund requirement
to be satisfied in 1996 is approximately $296 million.
The amount of HL&P's first mortgage bonds is unlimited as to issuance,
but limited by property, earnings and other provisions of the Mortgage
and Deed of Trust dated as of November 1, 1944, between HL&P and South
Texas Commercial National Bank of Houston (Texas Commerce Bank
National Association, as Successor Trustee) and the supplemental
indentures thereto. Substantially all properties of HL&P are subject
to liens securing HL&P's long-term debt under the mortgage.
In 1995, HL&P repurchased from a third party $37.7 million aggregate
principal amount of its 8 3/4% first mortgage bonds due 2022. The
total purchase price for those bonds was $42.2 million. In July 1995,
HL&P caused to be issued $150.9 million aggregate principal amount of
revenue refunding bonds collaterized by a like amount of HL&P first
mortgage bonds. The new bonds bear interest at 5.8% variable at
HL&P's option after a five-year, no-call period, and mature in 2015.
Proceeds from this issue were used to redeem $150.9 million of
pollution control revenue bonds (bearing a weighted average interest
rate of 9.9%) at 102% of the aggregate principal amount. HL&P's
annual maturities of long-term debt and minimum capital lease
payments are approximately $154 million in 1996, $226 million in 1997,
$40 million in 1998, $171 million in 1999 and $150 million in 2000.
(8) SHORT-TERM FINANCING
The interim financing requirements of the Company and its subsidiaries
are met through short-term bank loans, the issuance of commercial
paper and short-term advances from the Company. The Company and its
subsidiaries had bank credit facilities aggregating $1.5 billion at
December 31, 1995 and $1 billion at December 31, 1994, under which
borrowings are classified as short-term indebtedness. In the first
quarter of 1996, the Company reduced its borrowing capacity under
these facilities to $1.15 billion. These bank facilities limit total
short-term borrowings and provide for interest at rates generally less
than the prime rate. The Company's weighted average short-term
borrowing rates for commercial paper for the year ended December 31,
1995 and 1994 were 6.33% and 4.35%, respectively. Outstanding
commercial paper was $6 million at
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December 31, 1995 and $423 million at December 31, 1994. Facility fees are
required on the credit facilities.
(9) RETIREMENT PLANS
(a) PENSION. The Company has a noncontributory retirement plan covering
substantially all employees. The plan provides retirement benefits
based on years of service and compensation. The Company's funding
policy is to contribute amounts annually in accordance with applicable
regulations in order to achieve adequate funding of projected benefit
obligations. The assets of the plan consist principally of common
stocks and high quality, interest-bearing obligations.
Net pension cost for the Company attributable to continuing operations
includes the following components:
Year Ended December 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(Thousands of Dollars)
Service cost - benefits earned during the period . . . . . . $ 22,852 $ 21,977 $ 25,282
Interest cost on projected benefit obligation . . . . . . . 49,317 46,091 51,062
Actual (return) loss on plan assets . . . . . . . . . . . . (96,004) 5,357 (39,237)
Net amortization and deferrals . . . . . . . . . . . . . . . 50,889 (51,491) (558)
-------- -------- ----------
Net pension cost . . . . . . . . . . . . . . . . . . . 27,054 21,934 36,549
SFAS No. 88 - curtailment expense . . . . . . . . . . . . . 5,645
-------- -------- --------
Total pension cost . . . . . . . . . . . . . . . . . . $ 32,699 $ 21,934 $ 36,549
======== ======== ========
The funded status of the Company's retirement plans attributable to
continuing operations was as follows:
December 31,
--------------------------------
1995 1994
------------ ------------
(Thousands of Dollars)
Actuarial present value of:
Vested benefit obligation . . . . . . . . . . . . . . . . . . . . $ 504,655 $ 439,668
========= =========
Accumulated benefit obligation . . . . . . . . . . . . . . . . . $ 541,278 $ 471,987
========= =========
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . $ 595,192 $ 496,365
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . 704,871 632,546
---------- -----------
Assets less than projected benefit obligation . . . . . . . . . . . (109,679) (136,181)
Unrecognized transitional asset . . . . . . . . . . . . . . . . . . . (13,421) (15,340)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . 46,627 21,456
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . 22,522 71,191
---------- -----------
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . $ (53,951) $ (58,874)
========== ===========
Net pension cost and funding attributable to discontinued operations
was not material.
The projected benefit obligation was determined using an assumed
discount rate of 7.5 percent in 1995 and 8 percent in 1994. A
long-term rate of compensation increase ranging from 4 percent to 6
percent was assumed for 1995 and ranging from 4.5 percent to 6.5
percent was assumed for 1994. The assumed long-term rate of return on
plan assets was 9.5 percent in 1995 and 1994. The transitional asset
at January 1, 1986, is being recognized over approximately 17 years,
and the prior service cost is being recognized over approximately 15
years.
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In 1995, the Company offered eligible employees (excluding officers) of
the Company, HL&P and HI Energy, who were 55 years of age or older and
had at least 10 years of service as of July 31, 1995 an incentive
program to retire early. For employees electing early retirement, the
program would add five years of service credit and five years in age up
to 35 years of service and age 65, respectively, in determining an
employee's pension. Each participating employee (under age 62) would
also receive a supplemental benefit to age 62. During July 1995, the
early retirement incentive was accepted by approximately 300 employees.
Pension benefits and supplemental benefits (if applicable) are being
paid out from the Houston Industries Incorporated Retirement Trust.
Based on the projected costs associated with the program, HL&P
increased its retirement plan and supplemental benefits by
approximately $28 million and $5 million, respectively. Pursuant to
SFAS No. 71, HL&P deferred the costs associated with the increases in
these benefit obligations and is amortizing the costs through the
period ending December 31, 1997. In 1995, the Company and HL&P
amortized $5.6 million of those costs as a curtailment under SFAS No.
88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," with regards to
the Company's and HL&P's early retirement program.
(b) SAVINGS PLAN. The Company has an employee savings plan that qualifies
as cash or deferred arrangements under Section 401(k) of the Internal
Revenue Code of 1986, as amended (IRC). Under the plan, participating
employees may contribute a portion of their compensation, pre-tax or
after-tax, up to a maximum of 16 percent of compensation limited by an
annual deferral limit ($9,240 for calendar year 1995) prescribed by
IRC Section 402(g) and the IRC Section 415 annual additions limits.
The Company matches 70 percent of the first 6 percent of each
employee's compensation contributed, subject to a vesting schedule
which entitles the employee to a percentage of the matching
contributions depending on years of service. Substantially all of the
Company's match is invested in the Company's common stock.
In October 1990, the Company amended its savings plan to add a
leveraged ESOP component. The Company may use ESOP shares to satisfy
its obligation to make matching contributions under the savings plan.
Debt service on the ESOP loan is paid using all dividends on shares in
the ESOP, interest earnings on funds held in the ESOP and cash
contributions by the Company. Shares of the Company's common stock
are released from encumbrance of the ESOP loan based on the proportion
of debt service paid during the period.
The Company adopted SOP 93-6, effective January 1, 1994, which
requires that the Company recognize benefit expense for the ESOP equal
to fair value of the ESOP shares committed to be released. In
accordance with SOP 93-6, the Company credits to unearned ESOP shares
the original purchase price of ESOP shares committed to be released to
plan participants with the difference between the fair value of the
shares and the original purchase price recorded to common stock.
Dividends on allocated ESOP shares are recorded as a reduction to
retained earnings; dividends on unallocated ESOP shares are recorded
as a reduction of debt or accrued interest on the ESOP loan. SOP 93-6
is effective only with respect to financial statements for periods
after January 1, 1994.
The Company's savings plan benefit expense attributable to continuing
operations was $18.9 million, $17.0 million and $17.3 million in 1995,
1994 and 1993, respectively. HL&P's portion of the savings plan
benefit expense was $18.3 million, $16.5 million and $15.9 million in
1995, 1994 and 1993, respectively. Savings plan benefit expense
attributable to discontinued operations was not material.
The ESOP shares (after restatement for the two-for-one stock dividend
distribution) were as follows:
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December 31,
---------------------------------------
1995 1994
------------- ------------
Allocated shares . . . . . . . . . . . . . . . . . . . 4,093,834 3,151,086
Unallocated shares . . . . . . . . . . . . . . . . . . 14,355,758 15,540,626
------------- -------------
Total ESOP shares . . . . . . . . . . . . . . . . 18,449,592 18,691,712
============= =============
Fair value of unallocated ESOP shares . . . . . . . . $348,127,132 $276,817,401
(c) POSTRETIREMENT BENEFITS. Effective January 1, 1993, the Company and
HL&P adopted SFAS No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions," which requires that companies
recognize the liability for postretirement benefit plans other than
pensions (primarily health care). In accordance with SFAS No. 106,
the Company and HL&P are amortizing over a 22 year period
approximately $213 million ($211 million for HL&P) to cover the
"transition cost" of adopting SFAS No. 106 (i.e., the Company and
HL&P's liability for post-retirement benefits payable with respect to
employee service years accrued prior to the adoption of SFAS No. 106).
As provided in the Rate Case Settlement, HL&P is required to fund
during each year in an irrevocable external trust approximately $22
million of postretirement benefit costs which are included in rates.
In December 1995, HL&P commenced funding by contributing a total of
$15.1 million to three Voluntary Employees' Beneficiary Association
(VEBA) trusts and one 401(h) account of the retirement plan. This
contribution represented the amount of postretirement benefits
included in HL&P's rates (which included HL&P's interest in the South
Texas Project costs) less the estimated pay-as-you-go amounts for 1995
plus interest as if the contributions had been made on a monthly basis
during the year. HL&P intends to fund, on a monthly basis beginning
in 1996, the amount included in its rates. The Company, excluding
HL&P, will continue funding its postretirement benefits on a
pay-as-you-go basis.
The net postretirement benefit cost for the Company includes the
following components:
Year Ended December 31,
-----------------------------------
1995 1994 1993
---------- ---------- ----------
(Thousands of Dollars)
Service cost - benefits earned during the period . . . . . . . $ 9,093 $ 9,131 $ 9,453
Interest cost on accumulated benefit obligation . . . . . . . 11,143 10,265 18,354
Actual return on plan assets . . . . . . . . . . . . . . . . . -- -- --
Net amortization and deferrals . . . . . . . . . . . . . . . . 6,061 7,868 9,773
--------- --------- ---------
Net postretirement benefit cost . . . . . . . . . . . . . . . $ 26,297 $ 27,264 $ 37,580
========= ========= =========
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The funded status of the Company's postretirement benefit costs was as
follows:
December 31,
-------------------------------
1995 1994
------------- ------------
(Thousands of Dollars)
Accumulated benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (127,653) $ (98,828)
Fully eligible active plan participants . . . . . . . . . . . . . (13,307) (22,251)
Other active plan participants . . . . . . . . . . . . . . . . . . (27,492) (23,378)
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . (168,452) (144,457)
Plan assets at fair market value . . . . . . . . . . . . . . . . . . . 18,310
---------- ----------
Assets less than accumulated benefit obligation . . . . . . . . . . . (150,142) (144,457)
Unrecognized transitional obligation . . . . . . . . . . . . . . . . . 183,727 193,500
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . (73,613) (91,477)
---------- ----------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . $ (40,028) $ (42,434)
========== ==========
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation in 1995 are as follows:
Medical - under 65 8.1%
Medical - 65 and over 9.0%
Dental 8.0%
The assumed health care rates gradually decline to 5.4 percent for both
medical categories and 3.7 percent for dental by the year 2001. The
accumulated postretirement benefit obligation was determined using an assumed
discount rate of 7.5 percent for 1995 and 8 percent for 1994.
If the health care cost trend rate assumptions were increased by 1 percent,
the accumulated postretirement benefit obligation as of December 31, 1995
would be increased by approximately 7 percent. The annual effect of the 1
percent increase on the total of the service and interest costs would be an
increase of approximately 11 percent.
(d) POSTEMPLOYMENT BENEFITS. Effective January 1, 1994, the Company and
HL&P adopted SFAS No. 112, "Employer's Accounting for Postemployment
Benefits," which requires the recognition of a liability for
benefits, not previously accounted for on the accrual basis, provided
to former or inactive employees, their beneficiaries and covered
dependents, after employment but before retirement (primarily health
care and life insurance benefits for participants in the long-term
disability plan). As required by SFAS No. 112, the Company and HL&P
expensed the transition obligation (liability from prior years) upon
adoption and recorded a one-time, after-tax charge to income of $8.2
million in the first quarter of 1994. Ongoing charges to income were
not material.
(10) INCOME TAXES
The Company and HL&P record income taxes under SFAS No. 109,
"Accounting for Income Taxes," which, among other things, (i) requires
the liability method be used in computing deferred taxes on all
temporary differences between book and tax bases of assets other than
nondeductible goodwill; (ii) requires that deferred tax liabilities
and assets be adjusted for an enacted change in tax laws or rates; and
(iii) prohibits net-of-tax accounting and reporting. SFAS No. 109
requires that regulated enterprises recognize such adjustments as
regulatory assets or liabilities if it is probable that such amounts
will be recovered from or returned to customers in future rates.
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In 1993, the corporate tax rate applicable to the Company and HL&P increased
from 34% to 35%. The effects of the new law, which decreased the Company's net
income by $14.3 million (approximately half of which was attributed to
discontinued operations), were recognized as a component of income tax expense
in 1993. The effect on the Company's deferred taxes, primarily attributable to
discontinued operations, as a result of the change in the new law, was an
increase of $10.9 million in 1993.
The Company's current and deferred components of income tax expense from
continuing operations are as follows:
Year Ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- ------------
(Thousands of Dollars)
Current . . . . . . . . . . . . . . . . . . . . . . . . . $ 119,435 $ 144,604 $ 109,078
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . 80,120 85,820 119,785
--------- --------- ---------
Income taxes for continuing operations before
cumulative effect of change in accounting . . . . . . $ 199,555 $ 230,424 $ 228,863
========= ========= =========
The Company's effective income tax rates are lower than statutory corporate
rates for each year as follows:
Year Ended December 31,
----------------------------------------------
1995 1994 1993
----------- ------------ -------------
(Thousands of Dollars)
Income from continuing operations before
income taxes and cumulative effect of
change in accounting . . . . . . . . . . . . . . . . $ 596,955 $ 654,409 $ 669,394
Preferred dividends of subsidiary . . . . . . . . . . . 29,955 33,583 34,473
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . 626,910 687,992 703,867
Statutory rate . . . . . . . . . . . . . . . . . . . . . 35% 35% 35%
--------- --------- ---------
Income taxes at statutory rate . . . . . . . . . . . . . 219,419 240,797 246,353
--------- --------- ---------
Net reduction in taxes resulting from:
AFUDC - other included in income . . . . . . . . . . 2,716 1,440 1,229
Amortization of investment tax credit . . . . . . . . 19,427 19,416 19,797
Excess deferred taxes . . . . . . . . . . . . . . . . 4,384 3,537 9,625
Difference between book and tax
depreciation for which deferred
taxes have not been normalized . . . . . . . . . . (15,211) (15,455) (12,976)
Equity dividend exclusion . . . . . . . . . . . . . . 4,932
Other - net . . . . . . . . . . . . . . . . . . . . . 3,616 1,435 (185)
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . 19,864 10,373 17,490
--------- --------- ---------
Income taxes before cumulative effect of
change in accounting . . . . . . . . . . . . . . . . $ 199,555 $ 230,424 $ 228,863
========= ========= =========
Effective rate . . . . . . . . . . . . . . . . . . . . . 31.8% 33.5% 32.5%
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Following are the Company's tax effects of temporary differences
attributable to continuing operations resulting in deferred tax assets
and liabilities:
December 31,
---------------------------------
1995 1994
-------------- -------------
(Thousands of Dollars)
Deferred Tax Assets:
Alternative minimum tax . . . . . . . . . . . . . . . . . . . . . . . $ 46,516 $ 66,707
IRS audit assessment . . . . . . . . . . . . . . . . . . . . . . . . . 74,966 74,966
Disallowed plant cost - net . . . . . . . . . . . . . . . . . . . . . 22,687 23,496
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,628 83,740
---------- ----------
Total deferred tax assets - net . . . . . . . . . . . . . . . . . 240,797 248,909
---------- ----------
Deferred Tax Liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391,573 1,336,035
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . . 200,028 207,746
Regulatory assets - net . . . . . . . . . . . . . . . . . . . . . . . 228,587 235,463
Capitalized taxes, employee benefits and removal costs . . . . . . . . 110,065 111,660
Gain on sale of cable television subsidiary . . . . . . . . . . . . . 227,515
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,275 121,235
---------- ----------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . 2,308,043 2,012,139
---------- ----------
Accumulated deferred income taxes - net . . . . . . . . . . $2,067,246 $1,763,230
========== ==========
See Note 13 for income taxes related to discontinued operations.
(11) COMMITMENTS AND CONTINGENCIES
(a) HL&P COMMITMENTS. HL&P has various commitments for capital
expenditures, fuel, purchased power, cooling water and operating
leases. Commitments in connection with HL&P's capital program are
generally revocable by HL&P subject to reimbursement to manufacturers
for expenditures incurred or other cancellation penalties. HL&P's
other commitments have various quantity requirements and durations.
However, if these requirements could not be met, various alternatives
are available to mitigate the cost associated with the contracts'
commitments.
(b) FUEL AND PURCHASED POWER. HL&P is a party to several long-term coal,
lignite and natural gas contracts which have various quantity
requirements and durations. Minimum payment obligations for coal and
transportation agreements are approximately $175 million in 1996, $178
million in 1997 and $184 million in 1998. Additionally, minimum
payment obligations for lignite mining and lease agreements are
approximately $5 million for 1996, $8 million for 1997 and $9 million
for 1998. Collectively, the fixed price gas supply contracts, which
expire in 1997, could amount to 11 percent of HL&P's annual natural
gas requirements for 1996 and 7 percent for 1997. Minimum payment
obligations for both natural gas purchase and storage contracts are
approximately $57 million in 1996, $38 million in 1997 and $9 million
in 1998.
HL&P also has commitments to purchase firm capacity from cogenerators
of approximately $22 million in each of the years 1996 through 1998.
Utility Commission rules currently allow recovery of these costs
through HL&P's base rates for electric service and additionally
authorize HL&P to charge or credit customers through a purchased power
cost recovery factor for any variation in actual purchased power costs
from the cost utilized to determine its base rates. In the event that
the Utility Commission, at some future date, does not allow recovery
through rates of any amount of purchased power payments, the two
principal firm capacity contracts contain provisions allowing HL&P to
suspend or reduce payments and seek repayment for amounts disallowed.
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(c) OTHER. HL&P's service area is heavily dependent on oil, gas, refined
products, petrochemicals and related businesses. Significant adverse
events affecting these industries would negatively affect the
revenues of the Company and HL&P. For information regarding
contingencies relating to the South Texas Project, see Note 2 above.
The Company and HL&P are involved in legal, tax and regulatory
proceedings before various courts, regulatory commissions and
governmental agencies regarding matters arising in the ordinary course
of business, some of which involve substantial amounts.
(12) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Company's
financial instruments are as follows:
December 31,
----------------------------------------------------------
1995 1994
---------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------- ----------- -------------
(Thousands of Dollars)
Financial assets:
Cash and short-term investments . . . . . . . $ 11,779 $ 11,779 $ 10,443 $ 10,443
Investment in Time Warner securities . . . . 1,027,875 1,027,875
Financial liabilities:
Short-term notes payable . . . . . . . . . . 6,300 6,300 423,291 423,291
Cumulative preferred stock of
subsidiary (subject to mandatory
redemption) . . . . . . . . . . . . . . . . 76,755 79,250 167,610 173,355
Debentures . . . . . . . . . . . . . . . . . 348,914 396,903 548,729 549,532
Long-term debt of subsidiaries:
Electric:
First mortgage bonds . . . . . . . . . 2,979,293 3,247,139 3,020,400 2,980,028
Pollution control revenue bonds . . . 4,426 5,000 155,247 163,736
Other notes payable 981 981 1,129 1,129
Discontinued operations:
Senior bank debt . . . . . . . . . . . 364,000 364,000
Senior and senior subordinated
notes . . . . . . . . . . . . . . . 140,580 154,654
The fair values of cash and short-term investments, investment in equity
securities, short-term and other notes payable and bank debt are estimated to
be equivalent to the carrying amounts.
The fair values of the Company's debentures, HL&P's cumulative preferred
stock subject to mandatory redemption, HL&P's first mortgage bonds, pollution
control revenue bonds issued on behalf of HL&P and senior subordinated notes
are estimated using rates currently available for securities with similar
terms and remaining maturities.
(13) CABLE TELEVISION--DISCONTINUED OPERATIONS
In July 1995, the Company completed the sale of KBLCOM, its cable television
subsidiary, to Time Warner. The Company's 1995 earnings include a one-time,
after-tax gain on the sale of $708 million. Effective January 1, 1995, the
operations of KBLCOM were accounted for as discontinued and prior periods
were restated for consistency in reflecting KBLCOM as a discontinued
operation.
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As consideration for the sale of KBLCOM, the Company received 1 million shares
of Time Warner common stock and 11 million shares of non-publicly traded
convertible preferred stock. Time Warner also purchased from the Company for
cash approximately $619 million (after post closing adjustments) of KBLCOM's
intercompany indebtedness and assumed approximately $650 million of KBLCOM's
external debt and other liabilities. The convertible preferred stock has an
aggregate liquidation preference (redeemable after July 6, 2000) of $100 per
share (plus accrued and unpaid dividends), is entitled to cumulative annual
dividends of $3.75 per share until July 6, 1999, is currently convertible by
the Company and after four years is exchangeable by Time Warner into
approximately 22.9 million shares of Time Warner common stock. Each share of
preferred stock is entitled to two votes (voting together with the holders of
the Time Warner common stock as a single class). Under the terms of the sale,
the Company may make up to four demands for registration of its shares of Time
Warner common stock. Subject to certain exceptions, the terms of the sale
prohibit the Company from acquiring additional shares of Time Warner securities
or selling shares of Time Warner securities to any holder of more than 5
percent of certain classes of Time Warner voting securities.
Dividends on the Time Warner securities are recognized as income at the time
they are earned. In 1995, the Company recorded pre-tax dividend income of
$20.1 million.
Operating results from discontinued operations for years ended December 31,
1995, 1994 and 1993 were as follows:
Year Ended December 31,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 143,925 $255,772 $244,067
Operating expenses (a) . . . . . . . . . . . . . . . . . . . 86,938 156,084 148,325
--------- -------- --------
Gross operating margin (a) . . . . . . . . . . . . . . . . . 56,987 99,688 95,742
Depreciation, amortization, interest and other . . . . . . . 81,409 128,023 117,982
Income taxes (benefit) . . . . . . . . . . . . . . . . . . . (4,997) (11,811) 2,255
Deferred loss (b) . . . . . . . . . . . . . . . . . . . . . 19,425
--------- -------- --------
Loss from discontinued operations (c) . . . . . . . . . . . $ 0 $(16,524) $(24,495)
========= ======== ========
(a) Exclusive of depreciation and amortization.
(b) The net loss for discontinued operations of KBLCOM through the date of
sale (July 6, 1995) was deferred by the Company. Upon closing of the
sale, the deferred loss was included as an adjustment to the gain on
sale of cable television subsidiary on the Company's Statements of
Consolidated Income.
(c) Loss from discontinued operations of KBLCOM excludes the effects of
corporate overhead charges and includes interest expense relating to
the amount of intercompany debt that Time Warner purchased from the
Company.
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Net assets of discontinued operations were as follows:
December 31, 1994
-----------------
(Thousands of Dollars)
Assets:
Cable television property, net of
accumulated depreciation of $161,402 . . . . . $ 276,624
Equity in cable television partnerships . . . . . . 160,363
Intangible assets . . . . . . . . . . . . . . . . . 1,029,440
Other assets . . . . . . . . . . . . . . . . . . . 43,625
----------
Total assets . . . . . . . . . . . . . . . . . . 1,510,052
Less:
Cable television debt . . . . . . . . . . . . . . . (504,580)
Accumulated deferred income taxes . . . . . . . . . (316,241)
Other liabilities . . . . . . . . . . . . . . . . . (70,249)
----------
Net assets . . . . . . . . . . . . . . . . . . . $ 618,982
==========
(14) RAILROAD SETTLEMENT PAYMENTS
In July 1994, HL&P contributed to a wholly owned subsidiary the right of HL&P
to receive certain receivables relating to a litigation settlement. This
subsidiary transferred the receivables to a trust, which in turn sold
certificates evidencing a senior interest in the trust to a commercial bank
for $66.1 million. The subsidiary retained a subordinate interest in the
trust. HL&P recorded the transaction as a $66.1 million reduction to
reconcilable fuel expense in July 1994. The reduction to reconcilable fuel
expense had no effect on earnings.
(15) UNAUDITED QUARTERLY INFORMATION
The following unaudited quarterly financial information includes, in the
opinion of management, all adjustments (which comprise only normal recurring
accruals) necessary for a fair presentation. Quarterly results are not
necessarily indicative of a full year's operations because of seasonality and
other factors, including rate increases and variations in operating expense
patterns.
Year Ended December 31, 1994
----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------------
(Thousands of Dollars, except per share amounts)
Revenues . . . . . . . . . . . . . . . . . . . . $ 824,133 $1,006,617 $1,152,667 $ 770,719
Operating income . . . . . . . . . . . . . . . . . 145,497 292,886 451,839 78,393
Income from continuing operations (b) . . . . . . . 41,599 134,308 242,239 5,839
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . . . . . (7,501) (7,583) (6,271) 4,831
Net income . . . . . . . . . . . . . . . . . . . . 25,898 126,725 235,968 10,670
Earnings per common share (a):
Income from continuing operations (b) . . . . . $ .17 $ .55 $ .98 $ .02
Net income . . . . . . . . . . . . . . . . . . . .11 .52 .96 .04
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Year Ended December 31, 1995
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------------
(Thousands of Dollars, except per share amounts)
Revenues . . . . . . . . . . . . . . . . . . . . $755,238 $989,843 $1,184,938 $800,154
Operating income . . . . . . . . . . . . . . . . . 115,151 283,789 421,903 84,090
Income from continuing operations . . . . . . . . . 23,849 133,260 235,861 4,430
Gain (loss) on sale of cable television
subsidiary . . . . . . . . . . . . . . . . . . . 90,607 618,088 (571)
Net income . . . . . . . . . . . . . . . . . . . . 114,456 133,260 853,949 3,859
Earnings per common share (a):
Income from continuing operations . . . . . . . $ .10 $ .54 $ .95 $ .02
Net income . . . . . . . . . . . . . . . . . . . .46 .54 3.44 .02
(a) Quarterly earnings per common share are based on the
weighted average number of shares outstanding during
the quarter, and the sum of the quarters may not
equal annual earnings per common share. See Note
5(a).
(b) Information for the first quarter of 1994 is before
the cumulative effect of a change in accounting for
postemployment benefits of $8.2 million which reduced
earnings by $.03 per share.
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HOUSTON LIGHTING & POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
Except as modified below, the Notes to the Company's Consolidated Financial
Statements are incorporated herein by reference insofar as they relate to HL&P:
(1) Summary of Significant Accounting Policies, (2) Jointly-Owned Nuclear
Plant, (3) Rate Matters, (6) Preferred Stock of HL&P, (7) Long-Term Debt, (9)
Retirement Plans, (10) Income Taxes, (11) Commitments and Contingencies, (12)
Estimated Fair Value of Financial Instruments and (14) Railroad Settlement
Payments.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(g) EARNINGS PER COMMON SHARE. All issued and outstanding Class A voting
common stock of HL&P is held by the Company and all issued and
outstanding Class B non-voting common stock of HL&P is held by Houston
Industries (Delaware) Incorporated, a wholly owned subsidiary of the
Company. Accordingly, earnings per share are not computed.
(h) STATEMENTS OF CASH FLOWS. At December 31, 1995, HL&P had
affiliate investments (considered to be cash equivalents) of
$75.5 million. At December 31, 1994, HL&P had affiliate
investments of $227.6 million. At December 31, 1993, HL&P did
not have any investments with affiliated companies.
(8) SHORT-TERM FINANCING
In 1994 and 1995, the interim financing requirements of HL&P were
primarily met through the issuance of commercial paper. HL&P had bank
credit facilities of $400 million at December 31, 1995 and 1994, which
limited total short-term borrowings and provided for interest at rates
generally less than the prime rate. HL&P's weighted average
short-term borrowing rates for commercial paper for the years ended
December 31, 1995 and 1994 were 6.21% and 3.71%, respectively. HL&P
had no commercial paper outstanding at December 31, 1995 and 1994.
Facility fees are required on HL&P's bank credit facility.
(9) RETIREMENT PLANS
(a) PENSION. Net pension cost for HL&P includes the following components:
Year Ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
(Thousands of Dollars)
Service cost - benefits earned during the period . . . . . . $ 22,264 $ 21,335 $ 24,640
Interest cost on projected benefit obligation . . . . . . . 48,144 45,064 49,950
Actual (return) loss on plan assets . . . . . . . . . . . . (93,023) 4,737 (38,668)
Net amortization and deferrals . . . . . . . . . . . . . . . 48,696 (50,012) (683)
-------- --------- ---------
Net pension cost . . . . . . . . . . . . . . . . . . . 26,081 21,124 35,239
SFAS No. 88 - curtailment expense . . . . . . . . . . . . . 5,645
-------- --------- ---------
Total pension cost . . . . . . . . . . . . . . . . . . $ 31,726 $ 21,124 $ 35,239
======== ========= ========
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The funded status of HL&P's retirement plan was as follows:
December 31,
----------------------------------
1995 1994
------------ ------------
(Thousands of Dollars)
Actuarial present value of:
Vested benefit obligation . . . . . . . . . . . . . . . $ 493,006 $ 429,279
========= =========
Accumulated benefit obligation . . . . . . . . . . . . . $ 528,467 $ 460,760
========= =========
Plan assets at fair value . . . . . . . . . . . . . . . . . $ 581,194 $ 486,100
Projected benefit obligation . . . . . . . . . . . . . . . . 687,420 617,690
--------- ---------
Assets less than projected benefit obligation . . . . . . . (106,226) (131,590)
Unrecognized transitional asset . . . . . . . . . . . . . . . (13,252) (15,157)
Unrecognized prior service cost . . . . . . . . . . . . . . 46,462 21,275
Unrecognized net loss . . . . . . . . . . . . . . . . . . . 19,343 67,093
--------- ---------
Accrued pension cost . . . . . . . . . . . . . . . . . . . . $ (53,673) $ (58,379)
========= =========
(c) POSTRETIREMENT BENEFITS. The net postretirement benefit cost for HL&P
includes the following components:
Year Ended December 31,
---------------------------------------
1995 1994 1993
---------- ---------- -----------
(Thousands of Dollars)
Service cost - benefits earned during the period . . . . . . $ 8,779 $ 8,904 $ 9,297
Interest cost on projected benefit obligation . . . . . . . 10,794 9,946 18,134
Actual return on plan assets . . . . . . . . . . . . . . . . ---- ---- ----
Net amortization and deferrals . . . . . . . . . . . . . . . 5,893 7,757 9,658
-------- --------- ---------
Net postretirement benefit cost . . . . . . . . . . . . . . $ 25,466 $ 26,607 $ 37,089
======== ========= =========
The funded status of HL&P's postretirement benefit costs was as follows:
December 31,
-------------------------------
1995 1994
-------------- -------------
(Thousands of Dollars)
Accumulated benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (125,925) $ (97,200)
Fully eligible active plan participants . . . . . . . . . . . . . (10,532) (20,126)
Other active plan participants . . . . . . . . . . . . . . . . . . (26,515) (22,706)
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . (162,972) (140,032)
Plan assets at fair market value . . . . . . . . . . . . . . . . . . . 18,310 ----
---------- ----------
Assets less than accumulated benefit obligation . . . . . . . . . . . (144,662) (140,032)
Unrecognized transitional obligation . . . . . . . . . . . . . . . . . 181,567 191,225
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . (75,451) (92,786)
---------- ---------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . . . $ (38,546) $ (41,593)
========== =========
(10) INCOME TAXES
During 1993, federal tax legislation was enacted that changed the income tax
consequences for HL&P. A net regulatory asset and the related deferred
income tax liability of $71.3 million were recorded by HL&P in 1993. The
effects of the new law, which decreased HL&P's net income by
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$8.0 million, were recognized as a component of income tax expense in 1993.
The effect on HL&P's deferred taxes as a result of the change in the new law
was $4.5 million in 1993.
HL&P's current and deferred components of income tax expense are as follows:
Year Ended December 31,
-------------------------------------------
1995 1994 1993
------------ ------------ ------------
(Thousands of Dollars)
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,104 $ 184,669 $ 115,745
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,703 70,324 123,719
--------- --------- ---------
Federal income tax expense . . . . . . . . . . . . . . . . . . . 245,807 254,993 239,464
Federal income taxes charged to other income . . . . . . . . . . (851) (836) (2,993)
--------- --------- ---------
Income taxes before cumulative effect of change
in accounting . . . . . . . . . . . . . . . . . . . . . . $ 244,956 $ 254,157 $ 236,471
========= ========= =========
HL&P's effective income tax rates are lower than statutory corporate rates
for each year as follows:
Year Ended December 31,
-------------------------------------------
1995 1994 1993
------------ ------------- ------------
(Thousands of Dollars)
Income before income taxes, preferred dividends
and cumulative effect of change in accounting . . . . . . . . . $ 725,888 $ 749,121 $ 720,694
Statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . 35% 35% 35%
--------- --------- ---------
Income taxes at statutory rate . . . . . . . . . . . . . . . . . . 254,061 262,192 252,243
--------- --------- ---------
Net reduction in taxes resulting from:
AFUDC - other included in income . . . . . . . . . . . . . . . . 2,716 1,440 1,229
Amortization of investment tax credit . . . . . . . . . . . . . 19,427 19,416 19,797
Difference between book and tax depreciation for
which deferred taxes have not been normalized . . . . . . . . (15,211) (15,455) (12,976)
Excess deferred taxes . . . . . . . . . . . . . . . . . . . . . 4,384 3,537 9,625
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . (2,211) (903) (1,903)
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,105 8,035 15,772
--------- --------- ---------
Income taxes before cumulative effect of change
in accounting . . . . . . . . . . . . . . . . . . . . . . . . $ 244,956 $ 254,157 $ 236,471
========= ========= =========
Effective rate . . . . . . . . . . . . . . . . . . . . . . . . . . 33.7% 33.9% 32.8%
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Following are HL&P's tax effects of temporary differences resulting in
deferred tax assets and liabilities:
December 31,
--------------------------------
1995 1994
------------- -------------
(Thousands of Dollars)
Deferred Tax Assets:
IRS audit assessment . . . . . . . . . . . . . . . . . . . . . . . . $ 48,513 $ 48,513
Disallowed plant cost - net . . . . . . . . . . . . . . . . . . . . . 22,687 23,496
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,558 60,174
----------- -----------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . 130,758 132,183
----------- -----------
Deferred Tax Liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391,277 1,335,265
Regulatory assets - net . . . . . . . . . . . . . . . . . . . . . . . 228,587 235,463
Deferred plant costs - net . . . . . . . . . . . . . . . . . . . . . 200,028 207,746
Capitalized taxes, employee benefits and removal costs . . . . . . . 110,177 111,681
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,177 118,328
----------- -----------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . 2,078,246 2,008,483
---------- ----------
Accumulated deferred income taxes - net . . . . . . . . . . . . . . . $1,947,488 $1,876,300
========== ==========
(12) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of HL&P's cash and short-term
investments was $75.9 million for 1995 and $235.9 million for 1994. The
carrying amount and estimated fair value of investments in HL&P Nuclear
Decommissioning Trust was $44.5 million in 1995 and $25.1 million in 1994.
See Note 1(j).
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(15) UNAUDITED QUARTERLY INFORMATION
The following unaudited quarterly financial information includes, in the
opinion of management, all adjustments (which comprise only normal recurring
accruals) necessary for a fair presentation. Quarterly results are not
necessarily indicative of a full year's operations because of seasonality and
other factors, including rate increases and variations in operating expense
patterns.
Income After
Operating Preferred
Quarter Ended Revenues Income Dividends
----------------- ----------------------------------------------
(Thousands of Dollars)
1994
----
March 31 . . . . . . . . . . . . . . . . . . . $ 821,581 $ 122,879 $ 41,686
June 30 . . . . . . . . . . . . . . . . . . . 1,004,906 216,842 142,478
September 30 . . . . . . . . . . . . . . . . . 1,150,946 320,859 251,092
December 31 . . . . . . . . . . . . . . . . . 768,652 82,302 17,925
1995
----
March 31 . . . . . . . . . . . . . . . . . . . $ 746,166 $ 104,566 $ 33,909
June 30 . . . . . . . . . . . . . . . . . . . 978,225 217,419 141,873
September 30 . . . . . . . . . . . . . . . . . 1,171,789 308,258 241,159
December 31 . . . . . . . . . . . . . . . . . 784,117 104,421 34,036
(16) PRINCIPAL AFFILIATE TRANSACTIONS
Year Ended December 31,
Affiliated ---------------------------------------------
Company Description 1995 1994 1993
---------- ----------------------------------- ----------- ------------ ------------
(Thousands of Dollars)
Houston Dividends $ 454,000 $ 328,996 $ 342,982
Industries Service Fees (a) 26,582 26,913 21,864
Money Fund Income (b) 10,837 6,025 2,748
(a) Included in Operating Expenses.
(b) Included in Other Income (Expense).
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INDEPENDENT AUDITORS' REPORT
HOUSTON INDUSTRIES INCORPORATED:
We have audited the accompanying consolidated balance sheets and the
consolidated statements of capitalization of Houston Industries Incorporated
and its subsidiaries as of December 31, 1995 and 1994, and the related
statements of consolidated income, consolidated retained earnings and
consolidated cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the Company's financial statement
schedule listed in Item 14(a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company and its
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Notes 9(b) and 9(d), respectively, to the consolidated
financial statements, the Company changed its method of accounting in 1994 for
(i) the Employee Stock Ownership Plan to conform with AICPA Statement of
Position 93-6 and (ii) postemployment benefits to conform with Statement of
Financial Accounting Standards No. 112.
DELOITTE & TOUCHE LLP
Houston, Texas
February 29, 1996 (March 26, 1996 as to Note 4)
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INDEPENDENT AUDITORS' REPORT
HOUSTON LIGHTING & POWER COMPANY:
We have audited the accompanying balance sheets and the statements of
capitalization of Houston Lighting & Power Company (HL&P) as of December 31,
1995 and 1994, and the related statements of income, retained earnings and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule of HL&P listed in Item
14(a)(2). These financial statements and financial statement schedule are the
responsibility of HL&P's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of HL&P at December 31, 1995 and
1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 9(d) to the financial statements, HL&P changed
its method of accounting for postemployment benefits to conform with Statement
of Financial Accounting Standards No. 112 in 1994.
DELOITTE & TOUCHE LLP
Houston, Texas
February 29, 1996
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND HL&P.
(a) The Company
The information called for by Item 10, to the extent not set forth
under Item 1 "Business-Executive Officers of The Company", is or will be set
forth in the definitive proxy statement relating to the Company's 1996 annual
meeting of shareholders pursuant to the Commission's Regulation 14A. Such
definitive proxy statement relates to a meeting of shareholders involving the
election of directors and the portions thereof called for by Item 10 are
incorporated herein by reference pursuant to Instruction G to Form 10-K.
(b) HL&P
The information set forth under Item 1. "Business-Executive Officers
of HL&P" is incorporated herein by reference.
Each member of the board of directors of HL&P currently is also a
member of the board of directors of the Company. Each member of the board of
directors of HL&P is elected annually for a one-year term. The HL&P annual
shareholder's meeting, at which the Company elects members to the HL&P board of
directors, is expected to occur on May 22, 1996. Information is set forth
below with respect to the business experience for the last five years of each
person who currently serves as a member of the board of directors of HL&P,
certain other directorships held by each such person and certain other
information. Unless otherwise indicated, each person has had the same
principal occupation for at least five years.
MILTON CARROLL, age 45, has been a director since 1992. Mr. Carroll is
Chairman, President and Chief Executive Officer of Instrument Products Inc., an
oil field supply manufacturing company, in Houston, Texas. He is a director of
PanEnergy Corp., the Federal Reserve Bank of Dallas and Blue Cross Blue Shield
of Texas.
JOHN T. CATER, age 60, has been a director since 1983. Mr. Cater is Chairman,
Chief Executive Officer and a director of River Oaks Trust Company in Houston,
Texas. He also serves as President and a director of Compass Bank-Houston.
Until his retirement in 1990, Mr. Cater served as President, Chief Operating
Officer and a director of MCorp, a Texas bank holding company. He served as a
director of MCorp until July 1994.
ROBERT J. CRUIKSHANK, age 65, has been a director since 1993. Mr. Cruikshank
is primarily engaged in managing his personal investments in Houston, Texas.
Prior to his retirement in 1993, he was a Senior Partner in the accounting firm
of Deloitte & Touche. Mr. Cruikshank serves as a director of MAXXAM Inc.,
Kaiser Aluminum Corporation, Compass Bank - Houston and Texas Biotechnology
Corporation.
LINNET F. DEILY, age 50, has been a director since 1993. Ms. Deily is
Chairman, Chief Executive Officer and President of First Interstate Bank of
Texas, N.A. She has served as Chairman since 1992, Chief Executive Officer
since 1991 and President since 1988. (1)
JOSEPH M. HENDRIE, Ph.D., age 71, has been a director since 1985. Dr. Hendrie
is a Consulting Engineer in Bellport, New York, and a Senior Scientist at the
Brookhaven National Laboratory in
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Upton, New York, having previously served as Chairman and Commissioner of the
U.S. Nuclear Regulatory Commission and as President of the American Nuclear
Society. He is also a director of Entergy Operations, Inc. of Jackson,
Mississippi. (2)
LEE W. HOGAN, age 51, has been a director since 1995. Mr. Hogan is President
and Chief Operating Officer of Houston Industries Energy, Inc., the
nonregulated power business subsidiary of the Company, having served in that
capacity since 1993. From 1990 to 1993 he served as Group Vice President -
External Affairs for HL&P. Mr. Hogan is also a Senior Vice President of the
Company.
HOWARD W. HORNE, age 69, has been a director since 1978. Mr. Horne is
Vice-Chairman of Cushman & Wakefield of Texas, Inc., a subsidiary of a national
real estate brokerage firm. Until 1990, he was Chairman of the Board of The
Horne Company, a Houston realty firm.
DON D. JORDAN, age 63, has been a director of the Company since 1977 and of
HL&P since 1974. Mr. Jordan is Chairman and Chief Executive Officer of the
Company and Chairman and Chief Executive Officer of HL&P. He also serves as a
director of Texas Commerce Bancshares, Inc. and BJ Services Company, Inc.
R. STEVE LETBETTER, age 47, has been a director since 1995. Mr. Letbetter is
President and Chief Operating Officer of HL&P, having served in that capacity
since 1993. He has served in various positions as an officer of HL&P since
1978, most recently as Group Vice President - Finance and Regulatory Relations
since 1988. He is also a Senior Vice President of the Company. Mr. Letbetter
is a director of Charter Bancshares Inc., a Texas bank holding company.
ALEXANDER F. SCHILT, Ph.D., age 55, has been a director since 1992. Dr. Schilt
served as Chancellor of the University of Houston System through August 1995.
Prior to 1990, he was President of Eastern Washington University in Cheney and
Spokane, Washington.
KENNETH L. SCHNITZER, SR., age 66, has been a director since 1983. Mr.
Schnitzer is Chairman of the Board of Schnitzer Enterprises Inc., a Houston
commercial real estate development company, having previously served as a
director of American Building Maintenance Industries Incorporated and
Weingarten Realty, Inc. (3)
JACK T. TROTTER, age 69, has been a director since 1985. Mr. Trotter is
primarily engaged in managing his personal investments in Houston, Texas. He
also serves as a director of First Interstate Bank of Texas, N.A. and Howell
Corporation and as a director and Trust Manager of Weingarten Realty Investors.
BERTRAM WOLFE, Ph.D., age 68, has been a director since 1993. Prior to his
retirement in 1992, Dr. Wolfe was Vice President and General Manager of General
Electric Company's nuclear energy business in San Jose, California. From 1992
to 1995, he was on the nuclear advisory committee of Pennsylvania Power & Light
and was a member of the international advisory committee of Concord Industries.
Dr. Wolfe serves on the boards of directors of URENCO Inc. and URENCO
Investments, Inc.
- ---------------
(1) First Interstate Bank of Texas, N. A., and certain of its affiliates
participate in various credit facilities with HL&P, the Company and
certain of HL&P's affiliates and other entities in which the Company
has an ownership interest. Under these agreements, First Interstate
and certain of its affiliates have
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maximum aggregate loans and loan commitments of approximately $35.5
million, as of December 31, 1995.
(2) Dr. Hendrie is expected to retire as a director of the Company and
HL&P at the May 22, 1996 annual shareholders' meetings.
(3) During 1995, HL&P and certain of its affiliates leased office space in
buildings owned or controlled by affiliates of Mr. Schnitzer. HL&P
and certain of its affiliates paid a total of approximately $283,000
to affiliates of Mr. Schnitzer during 1995. HL&P believes such
payments are comparable to those that would have been made to other
non-affiliated firms for comparable facilities and services. In 1994,
Mr. Schnitzer consented to the entry of an order by the Office of
Thrift Supervision (OTS) whereunder he may not hold office in, or
participate in the conduct of the affairs of, any federally regulated
depository institution without the prior approval of the OTS and, if
applicable, any other appropriate federal banking agency. The order
arose out of Mr. Schnitzer's prior service as a director of BancPLUS
Savings and Loan Association (BancPLUS), a Houston, Texas-based thrift
that was taken over by federal regulators in 1989. Mr. Schnitzer
consented to the order to avoid the time and expense of defending an
OTS administrative proceeding, without admitting whether there were
any grounds for such a proceeding. In August 1995, Mr. Schnitzer and
three other individuals were named as defendants in a criminal
proceeding based on two 1986 real estate transactions involving
BancPLUS. The matter is pending in the United States District Court
for the Southern District of Texas. The federal government has
alleged that the four defendants caused BancPLUS to enter into a land
swap and to falsely report the swap as two separate and independent
transactions. In 1987, following a default on notes secured by the
parcel that BancPLUS had sold and discovery that the person who
controlled the defaulting party had misrepresented his relationship
with the seller of the other parcel, BancPLUS reported the transaction
as a possible land swap to federal regulators and reversed a
previously reported profit from the sale transaction in its financial
statements. There is no allegation that Mr. Schnitzer (or any other
director or officer of BancPLUS) profited or attempted to profit
personally from the transaction. Mr. Schnitzer and his counsel have
advised the Company that the charges against him are without any basis
in fact and will be vigorously defended. The case has been scheduled
for trial in July 1996.
ITEM 11. EXECUTIVE COMPENSATION.
(a) The Company
The information called for by Item 11, with respect to the Company, is
or will be set forth in the definitive proxy statement relating to the
Company's 1996 annual meeting of shareholders pursuant to the Commission's
Regulation 14A. Such definitive proxy statement relates to a meeting of
shareholders involving the election of directors and the portions
thereof called for by Item 11 (excluding any information required by
paragraphs (i), (k) and (l) of Item 402 of Regulation S-K) are incorporated
herein by reference pursuant to Instruction G to Form 10-K.
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(b) HL&P
SUMMARY COMPENSATION TABLE. The following table shows, for the years ended
December 31, 1993, 1994 and 1995, the annual, long-term and certain other
compensation paid by the Company and its subsidiaries to the chief executive
officer and the other four most highly compensated executive officers of HL&P
(Named Officers).
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
-----------------------
Awards Payouts
Annual Compensation ---------- ---------
----------------------- Securities
Name and Other Annual Underlying LTIP All Other
Principal Position Year Salary(1) Bonus(1) Compensation Options(#)(2) Payouts(3) Compensation(4)
- -------------------------- ----- ---------- -------- ------------- ------------- ---------- ---------------
Don D. Jordan . . . . . 1995 $884,500 $ 907,226 $ 3,969 36,316 $ 407,437 $734,023
Chairman and 1994 859,500 734,873 114,648 27,726 550,567 717,261
Chief Executive Officer 1993 829,500 386,775 0 25,930 762,962 647,491
of the Company and
HL&P
R. Steve Letbetter . . 1995 363,500 285,750 190 9,746 84,201 47,242
President and Chief 1994 321,000 246,525 31,133 6,366 117,607 43,818
Operating Officer of 1993 271,000 109,335 0 4,256 212,362 42,562
HL&P and Senior Vice
President of the Company
Hugh Rice Kelly . . . . 1995 334,000 195,773 637 7,414 100,925 44,245
Senior Vice President, 1994 323,500 190,820 42,147 5,470 145,107 50,546
General Counsel and 1993 310,500 94,446 0 5,242 285,078 58,218
Corporate Secretary
of the Company and
HL&P
William T. Cottle (5) . 1995 254,500 157,200 401 5,566 0 16,711
Executive Vice 1994 241,000 129,675 337 4,044 0 13,126
President and General 1993 174,470 60,000 0 0 0 0
Manager - Nuclear
HL&P
David M. McClanahan . . 1995 238,100 151,860 317 5,028 35,806 23,162
Executive Vice 1994 208,100 129,398 12,195 3,322 41,512 23,376
President and General 1993 178,100 57,351 0 2,010 82,025 18,254
Manager - Energy
Delivery and Customer
Services of HL&P
- --------------------
(1) The amounts shown include salary and bonus earned as well as earned but
deferred by the Named Officers.
(2) The amounts shown have been adjusted to reflect the Company's two-for-one
stock split effected by a stock distribution on December 9, 1995 (1995
Stock Split).
(3) The amounts shown for 1995 represent the dollar value of shares of the
Company's Common Stock paid out in 1995 under the Company's long-term
incentive compensation plan based on the achievement of
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certain performance goals for the 1992-1994 performance cycle, plus
dividend equivalent accruals during the performance period.
(4) The amounts shown include (i) Company contributions to the Company's
savings plan and accruals under its savings restoration plan for the
years shown on behalf of the Named Officers, as follows: Mr. Jordan 1993
- $57,152; 1994 - $52,344; and 1995 - $33,610; Mr. Letbetter 1993 -
$16,672; 1994 - $18,074; and 1995 - $ 25,621; Mr. Kelly 1993 - $19,569;
1994 - $17,554; and 1995 - $18,892; Mr. Cottle 1994 - $12,642; and 1995 -
$16,135; and Mr. McClanahan 1993 - $7,724; 1994 - $10,547; and 1995 -
$14,076; (ii) the term portion of the premiums paid by the Company under
split-dollar life insurance policies purchased in 1994 in connection with
the Company's executive life insurance plan, as follows: Mr. Jordan 1994
- $4,800 and 1995 - $5,700; Mr. Letbetter 1994 - $218 and 1995 - $272;
Mr. Kelly 1994 - $801 and 1995 - $915; Mr. Cottle 1994 - $484 and 1995 -
$576; and Mr. McClanahan 1994 - $328 and 1995 - $456; and (iii) the
portion of accrued interest on amounts of compensation deferred under the
Company's deferred compensation plan and executive incentive compensation
plan that exceeds 120 percent of the applicable federal long-term rate
provided under Section 1274(d) of the Internal Revenue Code, as follows:
Mr. Jordan 1993 - $590,339; 1994 - $660,117; and 1995 - $694,713; Mr.
Letbetter 1993 - $25,890; 1994 - $25,526; and 1995 - $21,349; Mr. Kelly
1993 - $38,649; 1994 - $32,191; and 1995 - $24,438; Mr. Cottle (none for
1993, 1994 and 1995); and Mr. McClanahan 1993 - $10,530; 1994 -
$12,501; and 1995 - $8,630. The Company owns and is the beneficiary
under certain life insurance policies which are currently anticipated to
provide benefits sufficient to cover the accrued interest on deferred
amounts referenced in (iii) of this footnote.
(5) Mr. Cottle commenced employment with HL&P in April 1993.
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STOCK OPTION GRANTS. The following table contains information concerning
grants during 1995 of stock options under the Company's long-term incentive
compensation plan to the Named Officers. The information has been adjusted to
reflect the Company's 1995 Stock Split.
OPTION GRANTS IN 1995
Grant
Date
Individual Grants Value
-----------------------------------------------------------------------
% of Total
Number of Options
Securities Granted to Exercise Grant
Underlying Employees or Base Date
Options in Fiscal Price Per Expiration Present
Name Granted(#)(1) Year Share Date Value(2)
- ---- -------------- -------------- ------------ ----------- -------------
Don D. Jordan . . . . . . . . 36,316 27.2% $17.75 01/02/05 $69,000
R. Steve Letbetter . . . . . 9,746 7.3% 17.75 01/02/05 18,517
Hugh Rice Kelly . . . . . . . 7,414 5.6% 17.75 01/02/05 14,087
William T. Cottle . . . . . . 5,566 4.2% 17.75 01/02/05 10,575
David M. McClanahan . . . . . 5,028 3.8% 17.75 01/02/05 9,553
- -------------------
(1) The nonstatutory options for shares of the Company's Common Stock
included in the table were granted on January 3, 1995, have a ten-year
term and generally become exercisable annually in one-third increments
commencing one year after date of grant, so long as employment with the
Company or its subsidiaries continues. A change in control of the
Company would result in all options becoming immediately exercisable.
For the purposes of the Company's long-term incentive compensation plan,
a "change in control" generally is deemed to have occurred if (i) any
person or group becomes the direct or indirect beneficial owner of 30
percent or more of the Company's outstanding voting securities; (ii) the
majority of the Board changes as a result of, or in connection with,
certain transactions; (iii) as a result of the Company merging or
consolidating with another corporation, less than 70 percent of the
surviving corporation's outstanding voting securities is owned by the
former shareholders of the Company (excluding any party to such a
transaction or any affiliates of any such party); (iv) a tender offer or
exchange offer is made and consummated for the ownership of 30 percent or
more of the Company's outstanding voting securities; or (v) the Company
transfers all or substantially all of its assets to another corporation
that is not wholly-owned by the Company.
(2) The values are based on the Black-Scholes option pricing model adjusted
for the payment of dividends. The calculations were made based on the
following assumptions: volatility of 19.65 percent (based on daily
closing prices of the Company's Common Stock for the one-year period
prior to grant date); risk-free interest rate of 7.78 percent (interest
rate on a U.S. Treasury security with a maturity date corresponding to
that of the option term); option price of $17.75 (fair market value of
the underlying stock on the date of grant); current dividend rate of
$1.50 per share per year; and option term equal to the full ten-year
period until the stated expiration date. No reduction has been made in
the valuations on account of non-transferability of the options or
vesting or forfeiture provisions. Valuations would change if different
assumptions were made. Option values are dependent on general market
conditions and the performance of the Company's Common Stock. There can
be no assurance that the values in this table will be realized.
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STOCK OPTION VALUES. The following table sets forth information on the
unexercised options to purchase Common Stock held by each of the Named Officers
as of December 31, 1995. No options were exercised by the Named Officers
during 1995.
1995 YEAR-END OPTION VALUES
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
at December 31, 1995 December 31, 1995 (1)
---------------------------- -----------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---- ---------------------------------- -----------------------------
Don D. Jordan . . . . . . . . . 52,908 / 63,444 $97,946 / $268,228
R. Steve Letbetter . . . . . . 9,282 / 15,408 16,700 / 70,151
Hugh Rice Kelly . . . . . . . . 10,652 / 12,808 19,755 / 54,604
William T. Cottle . . . . . . . 1,348 / 8,262 1,432 / 39,392
David M. McClanahan . . . . . . 4,586 / 7,912 8,247 / 36,144
- -------------------
(1) Based on the average of the high and low sales prices of the Company's
Common Stock on the New York Stock Exchange Composite Tape, as reported
in The Wall Street Journal for December 29, 1995.
LONG-TERM INCENTIVE COMPENSATION. The following table sets forth, for each of
the Named Officers, information concerning awards made during 1995 for the
1995-1997 performance cycle under the Company's long-term incentive
compensation plan, as adjusted for the 1995 Stock Split. The amounts shown
represent potential payouts of awards of shares of Common Stock based on the
achievement of performance goals over a three-year performance cycle. The
performance goals include Company consolidated goals and subsidiary or business
unit goals, weighted 25 percent on consolidated performance and 75 percent on
subsidiary or business unit performance. The Company consolidated goal is
achieving a certain level of total shareholder return in relation to a group of
other companies. The subsidiary or business unit goals are achieving certain
cash flow performance in relation to a group of other companies and achieving a
competitive price target for electric utility services by the year 2000 while
maintaining an adequate return on equity. An additional goal applicable to
Messrs. Jordan and Kelly is based on the success of HI Energy, in closing
certain transactions and its achievement of specified rates of return. If a
change in control of the Company occurs before the end of a performance cycle,
the payouts of awards for performance shares will occur without regard to
achievement of the performance goals. See Note 1 to the Option Grants in 1995
table for information regarding the definition of a change in control under the
Company's long-term incentive compensation plan.
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LONG-TERM INCENTIVE PLAN AWARDS IN 1995
ESTIMATED FUTURE PAYOUTS UNDER
Performance NON-STOCK PRICE-BASED PLANS(1)
or Other ----------------------------------
Period Until Threshold Target Maximum
Number Maturation or Number Number Number
Name of Shares Payout of Shares of Shares of Shares
- ---- --------- ---------------- --------- --------- ---------
Don D. Jordan . . . . . . . . 32,812 12/31/97 16,406 32,812 49,218
R. Steve Letbetter . . . . . 10,160 12/31/97 5,080 10,160 15,240
Hugh Rice Kelly . . . . . . . 7,730 12/31/97 3,866 7,730 11,596
William T. Cottle . . . . . . 5,802 12/31/97 2,902 5,802 8,704
David M. McClanahan . . . . . 5,242 12/31/97 2,622 5,242 7,864
- ------------------
(1) The table does not reflect dividend equivalent accruals during the
performance period.
RETIREMENT PLANS, RELATED BENEFITS AND OTHER AGREEMENTS. The following table
shows the estimated annual benefit payable under the Company's retirement
plan, benefit restoration plan and, in certain cases, supplemental agreements,
to officers in various compensation classifications upon retirement at age 65
after the indicated periods of service, determined on a single-life annuity
basis. The benefits listed in the table are not subject to any deduction for
Social Security or other offsetting amounts.
PENSION PLAN TABLE
Final Average
Annual Estimated Annual Pension Based on Years of Service (1)
Compensation ------------------------------------------------------------
At Age 65 15 Years 20 Years 25 Years 30 Years 35 or More Years
----------- ---------- ----------- --------- --------- ----------------
$ 300,000 $ 85,901 $ 114,535 $ 143,169 $ 171,803 $200,436
400,000 115,001 153,335 191,669 230,003 268,336
500,000 144,101 192,135 240,169 288,203 336,236
600,000 173,201 230,935 288,669 346,403 404,136
700,000 202,301 269,735 337,169 404,603 472,036
800,000 231,401 308,535 385,669 462,803 539,936
900,000 260,501 347,335 434,169 521,003 607,836
1,000,000 289,601 386,135 482,669 579,203 675,736
1,200,000 347,801 463,735 579,669 695,603 811,536
1,400,000 406,001 541,335 676,669 812,003 947,336
1,600,000 464,201 618,935 773,669 928,403 1,083,136
1,800,000 522,401 695,535 870,669 1,044,803 1,218,936
2,000,000 580,601 774,135 967,669 1,161,203 1,354,736
- --------------------
(1) The qualified pension plan limits compensation in accordance with
Section 401(a)(17) of the Internal Revenue Code and also limits
benefits in accordance with Section 415 of the Internal Revenue Code.
Pension benefits based on compensation above the qualified plan limit
or in excess of the limit on annual benefits are provided through the
benefit restoration plan.
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For the purpose of the pension table above, final average annual
compensation means the average of covered compensation for 36 consecutive
months out of the 120 consecutive months immediately preceding retirement in
which the participant's covered compensation was the highest. Covered
compensation only includes the amounts shown in the "Salary" and "Bonus"
columns of the Summary Compensation Table. At December 31, 1995, the credited
years of service for the following persons are: 35 years for Mr. Jordan; 22
years for Mr. Letbetter; 21 years for Mr. Kelly, 10 of which result from a
supplemental agreement; 3 years for Mr. Cottle; and 21 years for Mr.
McClanahan.
The Company maintains an executive benefits plan that provides certain
salary continuation, disability and death benefits to key officers of the
Company and certain of its subsidiaries, including HL&P. The Named Officers
participate in this plan pursuant to individual agreements that generally
provide for (i) a salary continuation benefit of 100 percent of the officer's
current salary for twelve months after death during active employment and then
50 percent of salary for nine years or until the deceased officer would have
attained age 65, if later, and (ii) if the officer retires after attainment of
age 65, an annual post-retirement death benefit of 50 percent of the officer's
preretirement annual salary payable for six years.
The Company has established an executive life insurance plan providing
split-dollar life insurance in the form of a death benefit for certain officers
of the Company and its subsidiaries and members of the Company's Board of
Directors who are not officers of the Company or its subsidiaries. The death
benefit coverage varies but in each case is based on coverage (either single
life or second to die) that is available for the same amount of premium that
could purchase coverage equal to two times current salary for Messrs. Kelly,
Cottle and McClanahan; four times current salary for Mr. Letbetter; ten million
dollars for Mr. Jordan; and six times the annual retainer for the Company's
non-employee directors (except in the case of Mr. Trotter, who has a separate
agreement providing for similar coverage, as described below under
"Compensation of Directors"). The plan also provides that the Company may make
payments to the covered individuals designed to compensate for tax consequences
with respect to imputed income that they must recognize for federal income tax
purposes based on the term portion of the annual premiums. If a covered
executive retires at age 65 or at an earlier age under circumstances approved
for this purpose by the Board of Directors, rights under the plan vest so that
coverage is continued based on the same death benefit in effect at the time of
retirement. Upon death, the Company will receive the balance of the insurance
proceeds payable in excess of the specified death benefit which by design is
expected to be at least sufficient to cover the Company's cumulative outlays to
pay premiums and the after-tax cost to the Company of the tax reimbursement
payments. There is no arrangement or understanding under which any covered
individuals will receive or be allocated any interest in any cash surrender
value under the policy.
The Company and its subsidiaries HL&P and HI Energy have entered into
a trust agreement with an independent trustee establishing a "rabbi trust" for
the purpose of funding benefits payable to participants (which include each of
the Named Officers) under the Company's deferred compensation plans, executive
incentive compensation plans, benefits restoration plan and savings
restoration plan (Designated Plans). The trust is a grantor trust, irrevocable
except in the event of
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an unfavorable ruling by the Internal Revenue Service as to the tax status of
the trust or certain changes in tax law. It is currently funded with a nominal
amount of cash. The Company, HL&P and HI Energy are required to make future
contributions to the grantor trust when required by the provisions of the
Designated Plans or when required by the Company's benefits committee. The
benefits committee consists of officers of the Company designated by the board
of directors and has general responsibility for funding decisions and selection
of investment managers for the Company's retirement plans and other
administrative matters in connection with other employee benefit plans of the
Company. If there is a change in control (defined in a manner generally the
same as the comparable definition in the Company's long-term incentive
compensation plan), the Company, HL&P and HI Energy are required to fully fund
the grantor trust, within 15 days following the change in control, with an
amount equal to the entire benefit which each participant would be entitled
under the Designated Plans as of the date of the change in control (calculated
on the basis of the present value of the projected future benefits payable
under the Designated Plans). The assets of the grantor trust are required to
be held separate and apart from the other funds of the Company and its
subsidiaries, but remain subject to claims of general creditors under
applicable state and federal law.
The Company entered into an employment agreement in 1994 with Mr.
Jordan which provides for benefits in the event of termination of employment
following a change in control of the Company and for a two year extension of
employment if the covered executive is employed by the Company at age 65
without there having occurred a change in control. The Company also entered
into severance agreements in 1994 with certain executive officers, including
Messrs. Letbetter, Kelly, Cottle and McClanahan, that provide for the payment
of certain benefits in the event that, within three years following a change in
control of the Company, the officer's employment is terminated by the Company
or any subsidiary or successor to the Company for reasons other than cause or
disability or by the officer following certain changes in job responsibilities,
job location or compensation and benefits from those applicable to him
immediately prior to such change in control. For the purposes of these
agreements, the meaning of a change in control generally is the same as
provided in the Company's long-term incentive compensation plan which is
described in Note 1 to the Option Grants in 1995 table. All benefits payable
under these agreements would be payments by the Company and not HL&P.
HL&P and Mr. Cottle entered into an employment agreement in 1993 that
continues indefinitely, subject to termination by either party on 30 days'
notice (Employment Period). The agreement generally provides for employment of
Mr. Cottle as a group vice president - nuclear or in such other executive
capacities as may be determined from time to time, a minimum annual base salary
($235,000), bonuses and participation in those employee benefit plans and
programs available to similarly situated employees during the Employment
Period. In addition, if the Employment Period terminates after April 5, 2003,
Mr. Cottle will be eligible for supplemental pension, disability or death
benefits determined as if his employment had commenced ten years prior to the
initial date of the Employment Period.
The Company and Mr. McClanahan entered into a benefits agreement in
1991 which provided for the treatment of his employee benefits while he served
as an officer of the Company's cable television subsidiary from 1991 to 1993
(sold in July 1995). The agreement provided that
95
96
Mr. McClanahan would be compensated for the difference between the cable
television subsidiary benefits and the Company benefits he would have received
if he had been an employee of the Company during his period of employment with
the subsidiary. Such amounts will be paid to Mr. McClanahan at such time
benefits are due to him under the terms of the Company's pension and
savings plans.
COMPENSATION OF DIRECTORS. Each non-employee director of the Company receives
an annual retainer fee of $20,000, a fee of $1,000 for each Company and HL&P
board meeting attended and a fee of $700 for each Company and HL&P committee
meeting attended. Directors may defer all or a part of their annual retainer
fees and meeting fees under the Company's deferred compensation plan. The
deferred compensation plan currently provides for accrual of interest on
deferred director compensation at a rate equal to the average annual yield on
Moody's Long-Term Corporate Bond Index plus two percentage points.
Non-employee directors of the Company participate in a director
benefits plan pursuant to which a director who serves at least one full year
will receive an annual benefit in cash equal to the annual retainer payable in
the year the director terminates service. Benefits under this plan will be
payable to a director, commencing the January following the later of the
director's termination of service or attainment of age 65, for a period equal
to the number of full years of service of the director.
Non-employee directors of the Company may also participate in the
Company's executive life insurance plan described above under "Retirement
Plans, Related Benefits and Other Agreements," providing split-dollar life
insurance with a death benefit equal to six times the director's annual
retainer with coverage continuing after termination of service as a director.
This plan also permits the Company to provide for a tax reimbursement payment
to make the directors whole for any imputed income recognized with respect to
the term portion of the annual insurance premiums. Upon death, the Company
will receive the balance of the insurance proceeds payable in excess of the
specified death benefit which, by design, is expected to be at least sufficient
to cover the Company's cumulative outlays to pay premiums and the after-tax
cost to the Company of the tax reimbursement payments. Mr. Trotter, who does
not participate in this plan, has a separate agreement with the Company
providing for payment in the event of his death of a lump sum equal to eight
times his final annual retainer, which, because it is subject to taxation at
distribution, approximates on an after-tax basis the amount of the death
benefit that would have been payable had he participated in the executive life
insurance plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) The Company
The information called for by Item 12 is or will be set forth in the
definitive proxy statement relating to the Company's 1996 annual meeting of
shareholders pursuant to the Commission's Regulation 14A. Such definitive
proxy statement relates to a meeting of shareholders involving the election of
directors and the portions thereof called for by Item 12 are incorporated
herein by reference pursuant to Instruction G to Form 10-K.
96
97
(b) HL&P
As of the date of this Report, the Company owned all 1,000 authorized,
issued and outstanding shares of HL&P's Class A voting common stock, without
par value.
The following table sets forth information as of March 1, 1996, with
respect to the beneficial ownership of shares of the Company's Common Stock by
each current director, the chief executive officer and the other four most
highly compensated executive officers of HL&P and, as a group, by such persons
and other executive officers of HL&P. No person or member of the group listed
owns any equity securities of HL&P or any other subsidiary of the Company.
Unless otherwise indicated, each person or member of the group listed has sole
voting and sole investment power with respect to the shares of Common Stock
listed. No ownership shown in the table represents 1 percent or more of the
outstanding shares of Common Stock.
Name Shares of Common Stock Beneficially Owned
- --------------------- -----------------------------------------
Milton Carroll . . . . . . . . . . . . . . . . . . . . 2,400
John T. Cater . . . . . . . . . . . . . . . . . . . . . 2,000 (1)
William T. Cottle . . . . . . . . . . . . . . . . . . . 11,790 (2)(3)
Robert J. Cruikshank . . . . . . . . . . . . . . . . . 2,000
Linnet F. Deily . . . . . . . . . . . . . . . . . . . . 2,000 (4)
Joseph M. Hendrie . . . . . . . . . . . . . . . . . . . 967 (4)(5)
Lee W. Hogan . . . . . . . . . . . . . . . . . . . . . 26,513 (2)(3)(5)
Howard W. Horne . . . . . . . . . . . . . . . . . . . . 12,871 (5)
Don D. Jordan . . . . . . . . . . . . . . . . . . . . . 222,969 (2)(3)(6)
Hugh Rice Kelly . . . . . . . . . . . . . . . . . . . . 61,975 (2)(3)(5)
R. Steve Letbetter . . . . . . . . . . . . . . . . . . 51,707 (2)(3)(5)
David M. McClanahan . . . . . . . . . . . . . . . . . . 24,242 (2)(3)(5)
Alexander F. Schilt . . . . . . . . . . . . . . . . . . 800
Kenneth L. Schnitzer, Sr. . . . . . . . . . . . . . . . 9,300
Jack T. Trotter . . . . . . . . . . . . . . . . . . . . 2,000
Bertram Wolfe . . . . . . . . . . . . . . . . . . . . . 220
All of the above and other executive officers
as a group (20 persons) . . . . . . . . . . . . . 542,464 (2)(3)(5)
- -------------------
(1) Mr. Cater disclaims beneficial ownership of these shares, which are owned
by his adult children.
(2) Includes shares held under the Company's savings plan, as to which the
participant has sole voting power (subject to such power being exercised
by the plan's trustee in the same proportion as directed shares in the
savings plan are voted in the event the participant does not exercise
voting power). The shares held under the plan are reported as of
December 31, 1995.
97
98
(3) The ownership shown in the table includes shares which may be acquired
within 60 days on exercise of outstanding stock options granted under the
Company's long-term incentive compensation plan by each of the persons
and group, as follows: Mr. Cottle - 4,552 shares; Mr. Hogan - 7,668
shares; Mr. Jordan - 82,900 shares; Mr. Kelly - 16,694 shares; Mr.
Letbetter - 16,070 shares; Mr. McClanahan - 8,038 shares; and the group -
161,784 shares.
(4) Voting power and investment power with respect to the shares listed for
Ms. Deily and for Dr. Hendrie are shared with the individual's spouse.
(5) Includes shares held under the Company's dividend reinvestment and stock
purchase plan as of December 31, 1995.
(6) Voting power and investment power with respect to 1,152 of the shares
listed are shared with Mr. Jordan's spouse.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) The Company
The information called for by Item 13 is or will be set forth in the
definitive proxy statement relating to the Company's 1996 annual meeting of
shareholders pursuant to the Commission's Regulation 14A. Such definitive
proxy statement relates to a meeting of shareholders involving the election of
directors and the portions thereof called for by Item 13 are incorporated
herein by reference pursuant to Instruction G to Form 10-K.
(b) HL&P
The information set forth in Notes 1 and 3 to Item 10(b) above is
incorporated herein by reference.
98
99
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS. PAGE
Statements of Consolidated Income for the Three Years Ended December 31, 1995 . . . . . . . . . . . 41
Statements of Consolidated Retained Earnings for the Three Years
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Consolidated Balance Sheets at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 44
Consolidated Statements of Capitalization at December 31, 1995 and 1994 . . . . . . . . . . . . . . 46
Statements of Consolidated Cash Flows for the Three Years
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
HL&P Statements of Income for the Three Years Ended December 31, 1995 . . . . . . . . . . . . . . . 50
HL&P Statements of Retained Earnings for the Three Years
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
HL&P Balance Sheets at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 52
HL&P Statements of Capitalization at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . 54
HL&P Statements of Cash Flows for the Three Years
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Notes to HL&P's Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Independent Auditors' Report - The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Independent Auditors' Report - HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
(a)(2) FINANCIAL STATEMENT SCHEDULES FOR THE THREE YEARS ENDED DECEMBER 31,
1995.
THE COMPANY:
VIII -- Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
HL&P:
VIII -- Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
The following schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included
in the financial statements:
I, II, III, IV, V, VI, VII, IX, X, XI, XII and XIII.
(a)(3) EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
See Index of Exhibits on page 104, which also includes the management contracts
or compensatory plans or arrangements required to be filed as exhibits to this
Form 10-K by Item 601(10)(iii) of Regulation S-K.
(b) REPORTS ON FORM 8-K. None
99
100
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
SCHEDULE VIII - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS OF DOLLARS)
===================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------------
Additions
------------------------
Balance at Charged Charged Deductions Balance at
Beginning to to Other from End
Description of Period Income Accounts Reserves of Period
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995:
Accumulated provisions deducted
from related assets on
balance sheet:
Uncollectible advances . . . . . . $ 27,412 $ 27,412
Net assets of discontinued cable
televisions operations . . . . . $ 282,958 $ 282,958
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . . (3,468) 2,187 836 (2,117)
Injuries and damages . . . . . . . 2,241 2,327 3,045 1,523
Year Ended December 31, 1994:
Accumulated provisions deducted from
related assets on balance sheet:
Net assets of discontinued
cable television operations . . $ 243,400 $ 44,319 $ 1,799 $ 6,560 $ 282,958
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . (2,891) 2,187 2,764 (3,468)
Injuries and damages . . . . . . 2,891 3,099 3,749 2,241
Year Ended December 31, 1993:
Accumulated provisions deducted
from related assets on balance
sheet:
Uncollectible accounts . . . . . $ 7,194 $ 7,194
Net assets of discontinued
cable television operations . . . 205,739 $ 43,004 $ 91 5,434 $ 243,400
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . (2,821) 2,187 2,257 (2,891)
Injuries and damages . . . . . . 3,911 4,685 5,705 2,891
- -----------------
Notes:
(A) Deductions from reserves represent losses or expenses for which the
respective reserves were created. In the case of the uncollectible
accounts reserve, such deductions are net of recoveries of amounts
previously written off.
(B) The uncollectible advances reflect the combined amounts lent by HI Energy
on a subordinated basis to the Ford Heights and Fulton Projects as of
December 31, 1995. If the two projects no longer receive or qualify to
receive the operating subsidy provided by the Illinois Retail Rate Law,
the Projects would be unable to repay such amounts.
(C) During 1992, Houston Industries Finance purchased accounts receivable of
HL&P and of certain KBLCOM subsidiaries. In January 1993, Houston
Industries Finance sold the receivables back to the respective
subsidiaries and ceased operations. HL&P is now selling its accounts
receivable and most of its accrued unbilled revenues to a third party.
100
101
HOUSTON LIGHTING & POWER COMPANY
SCHEDULE VIII - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(THOUSANDS OF DOLLARS)
=====================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- ---------------------------------------------------------------------------------------------------------------------
Additions
------------------------
Balance at Charged Charged Deductions Balance at
Beginning to to Other from End
Description of Period Income Accounts Reserves of Period
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . $ (3,468) $ 2,187 $ 836 $ (2,117)
Injuries and damages . . . . . . 2,241 2,327 3,045 1,523
Year Ended December 31, 1994:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . $ (2,891) $ 2,187 $ 2,764 $ (3,468)
Injuries and damages . . . . . . 2,891 3,099 3,749 2,241
Year Ended December 31, 1993:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . . $ (2,821) $ 2,187 $ 2,257 $ (2,891)
Injuries and damages . . . . . . . 3,911 4,685 5,705 2,891
_______________
Notes:
(A) Deductions from reserves represent losses or expenses for which the
respective reserves were created.
(B) HL&P has no reserves for uncollectible accounts due to sales of accounts
receivable.
101
102
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON AND STATE OF TEXAS, ON THE 28TH DAY OF MARCH, 1996.
HOUSTON INDUSTRIES INCORPORATED (Registrant)
By DON D. JORDAN
----------------------------------------
(Don D. Jordan,
Chairman and Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 28, 1996.
SIGNATURE TITLE
--------- -----
DON D. JORDAN Chairman and Chief Executive
- --------------------------------------------- Officer and Director
(Don D. Jordan) (Principal Executive Officer)
STEPHEN W. NAEVE Senior Vice President
- --------------------------------------------- and Chief Financial Officer
(Stephen W. Naeve) (Principal Financial Officer)
MARY P. RICCIARDELLO Vice President and Comptroller
- --------------------------------------------- (Principal Accounting Officer)
(Mary P. Ricciardello)
MILTON CARROLL
- --------------------------------------------- Director
(Milton Carroll)
JOHN T. CATER
- --------------------------------------------- Director
(John T. Cater)
ROBERT J. CRUIKSHANK
- --------------------------------------------- Director
(Robert J. Cruikshank)
LINNET F. DEILY
--------------------------------------------- Director
(Linnet F. Deily)
JOSEPH M. HENDRIE
- --------------------------------------------- Director
(Joseph M. Hendrie)
LEE W. HOGAN
- --------------------------------------------- Director
(Lee W. Hogan)
HOWARD W. HORNE
- --------------------------------------------- Director
(Howard W. Horne)
R. S. LETBETTER
- --------------------------------------------- Director
(R. S. Letbetter)
ALEXANDER SCHILT
- --------------------------------------------- Director
(Alexander Schilt)
KENNETH L. SCHNITZER, SR.
- --------------------------------------------- Director
(Kenneth L. Schnitzer, Sr.)
JACK T. TROTTER
- --------------------------------------------- Director
(Jack T. Trotter)
BERTRAM WOLFE
- -------------------------------------------- Director
(Bertram Wolfe)
102
103
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON AND STATE OF TEXAS, ON THE 28TH DAY OF MARCH, 1996. THE SIGNATURE OF
HOUSTON LIGHTING & POWER COMPANY SHALL BE DEEMED TO RELATE ONLY TO MATTERS
HAVING REFERENCE TO SUCH COMPANY AND ANY SUBSIDIARIES THEREOF.
HOUSTON LIGHTING & POWER COMPANY (Registrant)
By DON D. JORDAN
------------------------------------
(Don D. Jordan,
Chairman and Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 28, 1996. THE SIGNATURE OF
EACH OF THE UNDERSIGNED SHALL BE DEEMED TO RELATE ONLY TO MATTERS HAVING
REFERENCE TO HOUSTON LIGHTING & POWER COMPANY AND ANY SUBSIDIARIES THEREOF.
SIGNATURE TITLE
--------- -----
Chairman and Chief Executive
DON D. JORDAN Officer and Director
- ------------------------------------------- (Principal Executive Officer and
(Don D. Jordan) Principal Financial Officer)
Vice President and Comptroller
MARY P. RICCIARDELLO (Principal Accounting Officer)
- -------------------------------------------
(Mary P. Ricciardello)
MILTON CARROLL
- ------------------------------------------- Director
(Milton Carroll)
JOHN T. CATER
- ------------------------------------------- Director
(John T. Cater)
ROBERT J. CRUIKSHANK
- ------------------------------------------- Director
(Robert J. Cruikshank)
LINNET F. DEILY
- ------------------------------------------- Director
(Linnet F. Deily)
JOSEPH M. HENDRIE
- ------------------------------------------- Director
(Joseph M. Hendrie)
LEE W. HOGAN
- ------------------------------------------- Director
(Lee W. Hogan)
HOWARD W. HORNE
- ------------------------------------------- Director
(Howard W. Horne)
R. S. LETBETTER
- ------------------------------------------- Director
(R. S. Letbetter)
ALEXANDER SCHILT
- ------------------------------------------- Director
(Alexander Schilt)
KENNETH L. SCHNITZER, SR.
- ------------------------------------------- Director
(Kenneth L. Schnitzer, Sr.)
JACK T. TROTTER
- ------------------------------------------- Director
(Jack T. Trotter)
BERTRAM WOLFE
- ------------------------------------------- Director
(Bertram Wolfe)
103
104
HOUSTON INDUSTRIES INCORPORATED
HOUSTON LIGHTING & POWER COMPANY
EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
INDEX OF EXHIBITS
Exhibits not incorporated by reference to a prior filing are designated by a
cross (+); all exhibits not so designated are incorporated herein by reference
to a prior filing as indicated. Exhibits designated by an asterisk (*) are
management contracts or compensatory plans or arrangements required to be filed
as exhibits to this Form 10-K by Item 601(10)(iii) of Regulation S-K.
(a) Houston Industries Incorporated
Report or SEC File or
Exhibit Registration Registration Exhibit
Number Description Statement Number Reference
- --------- --------------------- ------------------ ------------ ---------
2(a) Articles of Merger of Form 10-Q for the 1-7629 2
Houston Industries quarter ended
Finance, Inc. with the June 30, 1993
Company, effective
June 8, 1993
3(a) Restated Articles of Form 10-Q for 1-7629 3
Incorporation of the the quarter ended
Company (Restated as June 30, 1993
of May 1993)
+3(b) Amended and Restated
Bylaws of the Company
(as of March 11, 1996)
4(a)(1) Mortgage and Deed of Form S-7 of HL&P 2-59748 2(b)
Trust dated November filed on August
1, 1944 between HL&P 25, 1977
and South Texas
Commercial National
Bank of Houston
(Texas Commerce
Bank National Associ-
ation, as successor
trustee), as Trustee, as
amended and supple-
mented by 20
Supplemental Inden-
tures thereto
105
4(a)(2) Twenty-First through HL&P's Form 10-K 1-3187 4(a)(2)
Fiftieth Supplemental for the year ended
Indentures to HL&P December 31, 1989
Mortgage and Deed
of Trust
4(a)(3) Fifty-First Supple- HL&P's Form 10-Q 1-3187 4(a)
mental Indenture dated for the quarter
March 25, 1991 to ended June 30,
HL&P Mortgage and 1991
of Trust
4(a)(4) Fifty-Second through HL&P's Form 10-Q 1-3187 4
Fifty-Fifth Supplemental for the quarter
Indentures, each dated ended March 31,
March 1, 1992, to HL&P 1992
Mortgage and Deed of
Trust
4(a)(5) Fifty-Sixth and Fifty- HL&P's Form 10-Q 1-3187 4
Seventh Supplemental for the quarter
Indentures, each dated ended September 30,
October 1, 1992, to 1992
HL&P Mortgage and
Deed of Trust
4(a)(6) Fifty-Eighth and Fifty- HL&P's Form 10-Q 1-3187 4
Ninth Supplemental for the quarter
Indenture, each dated ended March 31, 1993
as of March 1, 1993 to
HL&P Mortgage and
Deed of Trust
4(a)(7) Sixtieth Supplemental HL&P's Form 10-Q 1-3187 4
Indenture dated as for the quarter
July 1, 1993 to HL&P ended June 30, 1993
Mortgage and Deed of
Trust
4(a)(8) Sixty-First through HL&P's Form 10-K 1-3187 4(a)(8)
Sixty-Third Supplemental for the year ended
Indentures to HL&P December 31, 1993
Mortgage and Deed of
Trust
106
4(a)(9) Sixty-Fourth and Sixty- HL&P's Form 10-K 1-3187 4(a)(9)
Fifth Supplemental for the year ended
Indentures, each dated December 31, 1995
as of July 1, 1995, to
HL&P Mortgage and
Deed of Trust
4(b)(1) Rights Agreement dated Form 8-K dated 1-7629 4(a)(1)
July 11, 1990 between July 11, 1990
the Company and Texas
Commerce Bank National
Association, as Rights
Agent (Rights Agent),
which includes form of
Statement of Resolution
Establishing Series of
Shares designated Series
A Preference Stock and
form of Rights Certificate
4(b)(2) Agreement and Appoint- Form 8-K dated 1-7629 4(a)(2)
ment of Agent dated July 11, 1990
as of July 11, 1990
between the Company
and the Rights Agent
4(c) Indenture dated as of Form 10-Q for 1-7629 4(b)
April 1, 1991 between the quarter ended
the Company and June 30, 1991
NationsBank of Texas,
National Association,
as Trustee
4(d) Agreement and Plan Form 8-K dated 1-7629 2(a)
of Merger dated as of January 26, 1995
January 26, 1995
among KBLCOM, the
Company, Time Warner
and TW KBLCOM
Acquisition Corp.
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed
as exhibits to this Form 10-K certain long-term debt instruments, under which
the total amount of securities authorized do not exceed 10 percent of the total
assets of the Company and its subsidiaries on a consolidated basis. The
Company hereby agrees to furnish a copy of any such instrument to the SEC upon
request.
107
*10(a) Executive Benefit Plan Form 10-Q for the 1-7629 10(a)(1)
of the Company and First quarter ended 10(a)(2)
and Second Amendments March 31, 1987 and
thereto (effective as 10(a)(3)
of June 2, 1982, July 1,
1984, May 7, 1986,
respectively)
*10(b)(1) Executive Incentive Form 10-K for the 1-7629 10(b)
Compensation Plan of year ended
the Company (effective December 31, 1991
as of January 1, 1982)
*10(b)(2) First Amendment to Form 10-Q for the 1-7629 10(a)
Exhibit 10(b)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
*10(b)(3) Second Amendment to Form 10-K for the 1-7629 10(b)(3)
Exhibit 10(b)(1) year ended
(effective as of December 31, 1992
November 4, 1992)
*10(b)(4) Third Amendment to Form 10-K for the 1-7629 10(b)(4)
Exhibit 10(b)(1) year ended
(effective as of December 31, 1994
September 7, 1994)
*10(c)(1) Executive Incentive Form 10-Q for the 1-7629 10(b)(1)
Compensation Plan quarter ended
of the Company March 31, 1987
(effective as of
January 1, 1985)
*10(c)(2) First Amendment to Form 10-K for the 1-7629 10(b)(3)
Exhibit 10(c)(1) year ended
(effective as of December 31, 1988
January 1, 1985)
*10(c)(3) Second Amendment to Form 10-K for 1-7629 10(c)(3)
Exhibit 10(c)(1) the year ended
(effective as of December 31, 1991
January 1, 1985)
*10(c)(4) Third Amendment to Form 10-Q for the 1-7629 10(b)
Exhibit 10(c)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
108
*10(c)(5) Fourth Amendment to Form 10-K for 1-7629 10(c)(5)
Exhibit 10(c)(1) the year ended
(effective as of December 31, 1992
November 4, 1992)
*10(c)(6) Fifth Amendment to Form 10-K for the 1-7629 10(c)(6)
Exhibit 10(c)(1) year ended
(effective as of December 31, 1994
September 7, 1994)
*10(d) Executive Incentive Form 10-Q for the 1-7629 10(b)(2)
Compensation Plan of quarter ended
HL&P (effective as March 31, 1987
of January 1, 1985)
*10(e)(1) Executive Incentive Form 10-Q for the 1-7629 10(b)
Compensation Plan quarter ended
of the Company June 30, 1989
(effective as of
January 1, 1989)
*10(e)(2) First Amendment to Form 10-K for the 1-7629 10(e)(2)
Exhibit 10(e)(1) year ended
(effective as of December 31, 1991
January 1, 1989)
*10(e)(3) Second Amendment to Form 10-Q for the 1-7629 10(c)
Exhibit 10(e)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
*10(e)(4) Third Amendment to Form 10-K for 1-7629 10(c)(4)
Exhibit 10(e)(1) the year ended
(effective as of December 31, 1992
November 4, 1992)
*10(e)(5) Fourth Amendment to Form 10-K for the 1-7629 10(e)(5)
Exhibit 10(e)(1) year ended December
(effective as of 31, 1994
September 7, 1994)
*10(f)(1) Executive Incentive Form 10-K for the 1-7629 10(b)
Compensation Plan of year ended
the Company (effec- December 31, 1990
tive as of January 1,
1991)
109
*10(f)(2) First Amendment to Form 10-K for the 1-7629 10(f)(2)
Exhibit 10(f)(1) year ended
(effective as of December 31, 1991
January 1, 1991)
*10(f)(3) Second Amendment to Form 10-Q for the 1-7629 10(d)
Exhibit 10(f)(1) quarter ended
(effective as of March 31, 1992
January 1, 1991)
*10(f)(4) Third Amendment to Form 10-K for 1-7629 10(f)(4)
Exhibit 10(f)(1) the year ended
(effective as of December 31, 1992
November 4, 1992)
*10(f)(5) Fourth Amendment to Form 10-K for 1-7629 10(f)(5)
Exhibit 10(f)(1) the year ended
(effective as of December 31, 1992
January 1, 1993)
*10(f)(6) Fifth Amendment to Form 10-K for 1-7629 10(f)(6)
Exhibit 10(f)(1) the year ended
(effective as of December 31, 1994
September 7, 1994)
*10(f)(7) Sixth Amendment to Form 10-Q for 1-7629 10(a)
Exhibit 10(f)(1) the quarter ended
June 30, 1995
*10(g)(1) Benefit Restoration Form 10-Q for the 1-7629 10(c)
Plan of the Company quarter ended
(effective as of March 31, 1987
June 1, 1985)
*10(g)(2) Benefit Restoration Form 10-K for 1-7629 10(g)(2)
Plan of the Company the year ended
as amended and re- December 31, 1991
stated (effective as
of January 1, 1988)
*10(g)(3) Benefit Restoration Form 10-K for 1-7629 10(g)(3)
Plan of the Company, the year ended
as amended and re- December 31, 1991
stated (effective as
of July 1, 1991)
*10(h)(1) Deferred Compensation Form 10-Q for the 1-7629 10(d)
Plan of the Company quarter ended
(effective as of March 31, 1987
September 1, 1985)
110
*10(h)(2) First Amendment to Form 10-K for the 1-7629 10(d)(2)
Exhibit 10(h)(1) year ended
(effective as of December 31, 1990
September 1, 1985)
*10(h)(3) Second Amendment to Form 10-Q for the 1-7629 10(e)
Exhibit 10(h)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
*10(h)(4) Third Amendment to Form 10-K for the 1-7629 10(h)(4)
Exhibit 10(h)(1) year ended
(effective as of December 31, 1993
June 2, 1993)
*10(h)(5) Fourth Amendment to Form 10-K for the 1-7629 10(h)(5)
Exhibit 10(h)(1) year ended
(effective as of December 31, 1994
September 7, 1994)
*10(h)(6) Fifth Amendment to Form 10-Q for the 1-7629 10(d)
Exhibit 10(h)(1) quarter ended
June 30, 1995
*10(i)(1) Deferred Compensation Form 10-Q for the 1-7629 10(a)
Plan of the Company quarter ended
(effective as of June 30, 1989
January 1, 1989)
*10(i)(2) First Amendment to Form 10-K for the 1-7629 10(e)(3)
Exhibit 10(i)(1) year ended
(effective as of December 31, 1989
January 1, 1989)
*10(i)(3) Second Amendment to Form 10-Q for the 1-7629 10(f)
Exhibit 10(i)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
*10(i)(4) Third Amendment to Form 10-K for the 1-7629 10(i)(4)
Exhibit 10(i)(1) year ended
(effective as of December 31, 1993
June 2, 1993)
*10(i)(5) Fourth Amendment to Form 10-K for the 1-7629 10(i)(5)
Exhibit 10(i)(1) year ended
(effective as of December 31, 1994
September 7, 1994)
111
*10(i)(6) Fifth Amendment to Form 10-Q for the 1-7629 10(c)
Exhibit 10(i)(1) quarter ended
June 30, 1995
*10(j)(1) Deferred Compensation Form 10-K for the 1-7629 10(d)(3)
Plan of the Company year ended
(effective as of December 31, 1990
January 1, 1991)
*10(j)(2) First Amendment to Form 10-K for the 1-7629 10(j)(2)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1991
January 1, 1991)
*10(j)(3) Second Amendment to Form 10-Q for the 1-7629 10(g)
Exhibit 10(j)(1) quarter ended
(effective as of March 31, 1992
March 30, 1992)
*10(j)(4) Third Amendment to Form 10-K for the 1-7629 10(j)(4)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1993
June 2, 1993)
*10(j)(5) Fourth Amendment to Form 10-K for the 1-7629 10(j)(5)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1993
December 1, 1993)
*10(j)(6) Fifth Amendment to Form 10-K for the 1-7629 10(j)(6)
Exhibit 10(j)(1) year ended
(effective as of December 31, 1994
September 7, 1994)
*10(j)(7) Sixth Amendment to Form 10-Q for 1-7629 10(b)
Exhibit 10(j)(1) the quarter ended
June 30, 1995
*10(k)(1) Long-Term Incentive Form 10-Q for the 1-7629 10(c)
Compensation Plan of quarter ended
the Company (effec- June 30, 1989
tive as of January 1,
1989)
*10(k)(2) First Amendment to Form 10-K for the 1-7629 10(f)(2)
Exhibit 10(k)(1) year ended
(effective as of December 31, 1989
January 1, 1990)
112
*10(k)(3) Second Amendment to Form 10-K for the 1-7629 10(k)(3)
Exhibit 10(k)(1) year ended
(effective as of December 31, 1992
December 22, 1992)
*10(l) Form of stock option Form 10-Q for the 1-7629 10(h)
agreement for nonqual- quarter ended
ified stock options March 31, 1992
granted under the
Company's 1989
Long-Term Incentive
Compensation Plan
*10(m) Forms of restricted Form 10-Q for the 1-7629 10(i)
stock agreement for quarter ended
restricted stock March 31, 1992
granted under the
Company's 1989
Long-Term Incentive
Compensation
Plan
*10(n)(1) 1994 Long-Term Incentive Form 10-K for the 1-7629 10(n)(1)
Compensation Plan of year ended
the Company (effective December 31, 1993
as of January 1, 1994)
*10(n)(2) Form of stock option Form 10-K for the 1-7629 10(n)(2)
agreement for non- year ended
qualified stock options December 31, 1993
granted under the
Company's 1994 Long-
Term Incentive Com-
pensation Plan
*10(o)(1) Savings Restoration Form 10-K for the 1-7629 10(f)
Plan of the Company year ended
(effective as of December 31, 1990
January 1, 1991)
*10(o)(2) First Amendment to Form 10-K for the 1-7629 10(l)(2)
Exhibit 10(o)(1) year ended
(effective as of December 31, 1991
January 1, 1991)
*10(p) Director Benefits Form 10-K for the 1-7629 10(m)
Plan, effective as year ended
of January 1, 1992 December 31, 1991
113
*10(q)(1) Executive Life Form 10-K for the 1-7629 10(q)
Insurance Plan of year ended
the Company December 31, 1993
(effective as of
January 1, 1994)
*10(q)(2) First Amendment to Form 10-Q for the 1-7629 10
Exhibit 10(q)(1) quarter ended
June 30, 1995
*10(r) Employment and Form 10-Q for the 1-7629 10(f)
Supplemental Benefits quarter ended
Agreement between March 31, 1987
HL&P and Hugh Rice
Kelly
10(s)(1) Houston Industries Form 10-Q for the 1-7629 10
Master Savings Trust, quarter ended
as Amended and March 31, 1994
Restated Effective
January 1, 1994,
between the
Company and Texas
Commerce Bank
National Association
10(s)(2) First Amendment to Form 10-Q for the 1-7629 10(a)
Exhibit 10(s)(1) quarter ended
March 31, 1995
10(s)(3) Termination of Houston Form 10-Q for the 1-7629 10(a)
Industries Incorporated quarter ended
Savings Plan and Trust September 30, 1995
Agreement as to KBLCOM
Incorporated Effective
as of June 30, 1995
+10(s)(4) Houston Industries
Incorporated Savings
Trust between the Company
and The Northern Trust
Company, as Trustee. (As
Amended and Restated
Effective July 1, 1995)
114
10(s)(5) ESOP Trust Agreement Form 10-K for the 1-7629 10(j)(2)
between the Company year ended
and State Street Bank December 31, 1990
and Trust Company,
as ESOP Trustee, dated
October 5, 1990
10(s)(6) First Amendment to Form 10-Q for the 1-7629 10(b)
Exhibit 10(s)(5) between quarter ended
the Company and The March 31, 1995
Northern Trust Company,
as successor Trustee,
effective as of May 1,
1995.
10(s)(7) Note Purchase Agree- Form 10-K for the 1-7629 10(j)(3)
ment between the year ended
Company and the ESOP December 31, 1990
Trustee, dated as of
October 5, 1990
10(s)(8) Stock Purchase Agree- Form 10-K for the 1-7629 10(j)(4)
ment between the year ended
Company and the ESOP December 31, 1991
Trustee, dated as of
October 5, 1990
*10(t) Agreement dated June 6, Form 10-Q for the 1-7629 10(a)
1994 between the quarter ended
Company and June 30, 1994
Don D. Jordan
*10(u) Agreement dated June 6, Form 10-Q for the 1-7629 10(b)
1994 between the quarter ended
Company and June 30, 1994
Don D. Sykora
*10(v) Letter Agreement between Form 10-K for the 1-7629 10(v)
the Company and year ended
Jack Trotter December 31, 1994
115
*10(w) Form of Severance Form 10-K for the 1-7629 10(w)
Agreements dated year ended
December 22, 1994 December 31, 1994
between the Com-
pany and each of
the following executive
officers: Hugh Rice Kelly,
R. Steve Letbetter,
David M. McClanahan,
Lee W. Hogan and
William T. Cottle
*10(x) Employment Agreement Form 10-K for the 1-3187 10(t)
dated April 5, 1993 year ended
between HL&P and December 31, 1994
William T. Cottle
10(y)(1) Stockholder's Agreement Schedule 13-D 5-19351 2
dated as of July 6, dated July 6,
1995 between the 1995
Company and Time
Warner Inc.
10(y)(2) Registration Rights Schedule 13-D 5-19351 3
Agreement dated as of dated July 6,
July 6, 1995 between 1995
the Company and Time
Warner Inc.
10(y)(3) Certificate of Voting Schedule 13-D 5-19351 4
Powers, Designations, dated July 6,
Preferences and 1995
Relative Participating,
Optional or Other
Special rights, and
Qualifications,
Limitations or
Restrictions Thereof of
Series D. Convertible
Preferred Stock of
Time Warner Inc.
+*10(z) Houston Industries
Incorporated Executive
Deferred Compensation
Trust, effective as of
December 19, 1995
+*10(aa) Agreement dated June 14,
1991 between the Company
and David M. McClanahan
116
+11 Computation of
Earnings Per Common
Share - and Common
Equivalent Share
+12 Computation of Ratios
of Earnings to Fixed
Charges
+21 Subsidiaries of the
Company
+23 Consent of Deloitte &
Touche LLP
+27 Financial Data Schedule
+99 Second Amendment to
Houston Industries
Energy, Inc. Long-Term
Project Incentive
Compensation Plan
effective December 6,
1995
117
(b) Houston Lighting & Power Company
Report or SEC File or
Exhibit Registration Registration Exhibit
Number Description Statement Number Reference
- --------- --------------------- ------------------ ------------ ---------
2 Articles of Merger of Form 10-Q for the 1-3187 2
Utility Fuels, Inc. quarter ended
with HL&P, effective September 30, 1993
October 8, 1993
3(a) Restated Articles of Form 10-Q for 1-3187 3
Incorporation of HL&P the quarter ended
dated May 11, 1993 June 30, 1993
3(b) Amended and Restated Form 10-K for the 1-3187 3(b)
Bylaws of HL&P (as year ended
of February 1, 1995) December 31, 1994
4(a)(1) Mortgage and Deed of Form S-7 filed on 2-59748 2(b)
Trust dated November August 25, 1977
1, 1944 between HL&P
and South Texas
Commercial National
Bank of Houston (Texas
Commerce Bank National
Association, as
successor trustee),
as Trustee, as amended
and supplemented
by 20 Supplemental
Indentures thereto
4(a)(2) Twenty-First through Form 10-K for the 1-3187 4(a)(2)
Fiftieth Supplemental year ended
Indentures to HL&P December 31, 1989
Mortgage and Deed of
Trust
4(a)(3) Fifty-First Supple- Form 10-Q for the 1-3187 4(a)
mental Indenture quarter ended
dated March 25, 1991 June 30, 1991
to HL&P Mortgage
and Deed of Trust
4(a)(4) Fifty-Second through Form 10-Q for the 1-3187 4
Fifty-Fifth Supple- quarter ended
mental Indentures, March 31, 1992
each dated March 1,
1992, to HL&P Mortgage
and Deed of Trust
118
4(a)(5) Fifty-Sixth and Fifty- Form 10-Q for the 1-3187 4
Seventh Supplemental quarter ended
Indentures, each September 30, 1992
dated October 1,
1992, to HL&P Mortgage
and Deed of Trust
4(a)(6) Fifty-Eighth and Fifty- Form 10-Q for the 1-3187 4
Ninth Supplemental quarter ended
Indentures, each March 31, 1993
dated March 1,
1993, to HL&P
Mortgage and Deed
of Trust
4(a)(7) Sixtieth Supplemental Form 10-Q for the 1-3187 4
Indenture dated as of quarter ended
July 1, 1993 to HL&P June 30, 1993
Mortgage and Deed of
Trust
4(a)(8) Sixty-First through HL&P's Form 10-K 1-3187 4(a)(8)
Sixty-Third Supplemental for the year ended
Indentures to HL&P December 31, 1993
Mortgage and Deed of
Trust
+4(a)(9) Sixty-Fourth and
Sixty-Fifth Supplemental
Indentures, each dated
as of July 1, 1995, to
HL&P Mortgage and
Deed of Trust
There have not been filed as exhibits to this Form 10-K certain long-term debt
instruments, including indentures, under which the total amount of securities
do not exceed 10 percent of the total assets of HL&P. HL&P hereby agrees to
furnish a copy of any such instrument to the SEC upon request.
*10(a) Executive Benefit Plan The Company's 1-7629 10(a)(1)
of the Company and Form 10-Q for the 10(a)(2)
First and Second quarter ended and
Amendments thereto March 31, 1987 10(a)(3)
(effective as of
June 2, 1982, July 1,
1984, May 7, 1986,
respectively)
*10(b)(1) Executive Incentive The Company's 1-7629 10(b)
Compensation Plan of Form 10-K for the
the Company (effective year ended
as of January 1, 1982) December 31, 1991
119
*10(b)(2) First Amendment to The Company's 1-7629 10(a)
Exhibit 10(b)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(b)(3) Second Amendment to The Company's 1-7629 10(b)(3)
Exhibit 10(b)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992
*10(b)(4) Third Amendment to The Company's 1-7629 10(b)(4)
Exhibit 10(b)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994
*10(c)(1) Executive Incentive The Company's 1-7629 10(b)(1)
Compensation Plan Form 10-Q for the
of the Company quarter ended
(effective as of March 31, 1987
January 1, 1985)
*10(c)(2) First Amendment to The Company's 1-7629 10(b)(3)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
January 1, 1985) December 31, 1988
*10(c)(3) Second Amendment to The Company's 1-7629 10(c)(3)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
January 1, 1985) December 31, 1991
*10(c)(4) Third Amendment to The Company's 1-7629 10(b)
Exhibit 10(c)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(c)(5) Fourth Amendment to The Company's 1-7629 10(c)(5)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992
*10(c)(6) Fifth Amendment to The Company's 1-7629 10(c)(6)
Exhibit 10(c)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994
*10(d) Executive Incentive The Company's 1-7629 10(b)(2)
Compensation Plan of Form 10-Q for the
HL&P (effective as quarter ended
of January 1, 1985) March 31, 1987
*10(e)(1) Executive Incentive The Company's 1-7629 10(b)
Compensation Plan Form 10-Q for the
of the Company quarter ended
(effective as of June 30, 1989
January 1, 1989)
120
*10(e)(2) First Amendment to The Company's 1-7629 10(e)(2)
Exhibit 10(e)(1) Form 10-K for the
(effective as of year ended
January 1, 1989) December 31, 1991
*10(e)(3) Second Amendment to The Company's 1-7629 10(c)
Exhibit 10(e)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(e)(4) Third Amendment to The Company's 1-7629 10(c)(4)
Exhibit 10(e)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992
*10(e)(5) Fourth Amendment to The Company's 1-7629 10(e)(5)
Exhibit 10(e)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994
*10(f)(1) Executive Incentive The Company's 1-7629 10(b)
Compensation Plan Form 10-K for the
of the Company year ended
(effective as of December 31, 1990
January 1, 1991)
*10(f)(2) First Amendment to The Company's 1-7629 10(f)(2)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1991
*10(f)(3) Second Amendment to The Company's 1-7629 10(d)
Exhibit 10(f)(1) Form 10-Q for the
(effective as of quarter ended
January 1, 1991) March 31, 1992
*10(f)(4) Third Amendment to The Company's 1-7629 10(f)(4)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
November 4, 1992) December 31, 1992
*10(f)(5) Fourth Amendment to The Company's 1-7629 10(f)(5)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
January 1, 1993) December 31, 1992
*10(f)(6) Fifth Amendment to The Company's 1-7629 10(f)(6)
Exhibit 10(f)(1) Form 10-K for the
(effective as of year ended
September 7, 1994) December 31, 1994
*10(f)(7) Sixth Amendment to The Company's 1-7629 10(a)
Exhibit 10(f)(1) Form 10-Q for the
quarter ended
June 30, 1995
121
*10(g)(1) Benefit Restoration The Company's 1-7629 10(c)
Plan of the Company Form 10-Q for the
(effective as of quarter ended
June 1, 1985) March 31, 1987
*10(g)(2) Benefit Restoration The Company's 1-7629 10(g)(2)
Plan of the Company Form 10-K for the
as amended and year ended
restated (effective December 31, 1991
as of January 1, 1988)
*10(g)(3) Benefit Restoration The Company's 1-7629 10(g)(3)
Plan of the Company Form 10-K for the
as amended and year ended
restated (effective December 31, 1991
as of July 1, 1991)
*10(h)(1) Deferred Compensation The Company's 1-7629 10(d)
Plan of the Company Form 10-Q for the
(effective as of quarter ended
September 1, 1985) March 31, 1987
*10(h)(2) First Amendment to The Company's 1-7629 10(d)(2)
Exhibit 10(h)(1) Form 10-K for the
(effective as of year ended
September 1, 1985) December 31, 1990
*10(h)(3) Second Amendment to The Company's 1-7629 10(e)
Exhibit 10(h)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(h)(4) Third Amendment to The Company's 1-7629 10(h)(4)
Exhibit 10(h)(1) Form 10-K for the
(effective as of year ended
June 2, 1993) December 31, 1993
*10(h)(5) Fourth Amendment to The Company's 1-7629 10(h)(5)
Exhibit 10(h)(1) Form 10-K for
effective as of the year ended
September 7, 1994 December 31, 1994
*10(h)(6) Fifth Amendment to The Company's 1-7629 10(d)
Exhibit 10(h)(1) Form 10-Q for
the quarter ended
June 30, 1995
*10(i)(1) Deferred Compensation The Company's 1-7629 10(a)
Plan of the Company Form 10-Q for the
(effective as of quarter ended
January 1, 1989) June 30, 1989
*10(i)(2) First Amendment to The Company's 1-7629 10(e)(3)
Exhibit 10(i)(1) Form 10-K for the
(effective as of year ended
January 1, 1989) December 31, 1989
122
*10(i)(3) Second Amendment to The Company's 1-7629 10(f)
Exhibit 10(i)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(i)(4) Third Amendment to The Company's 1-7629 10(i)(4)
Exhibit 10(i)(1) Form 10-K for the
(effective as of year ended
June 2, 1993) December 31, 1993
*10(i)(5) Fourth Amendment to The Company's 1-7629 10(i)(5)
Exhibit 10(i)(1) Form 10-K for
(effective as of the year ended
September 7, 1994) December 31, 1994
*10(i)(6) Fifth Amendment to The Company's 1-7629 10(c)
Exhibit 10(i)(1) Form 10-Q for
the quarter ended
June 30, 1995
*10(j)(1) Deferred Compensation The Company's 1-7629 10(d)(3)
Plan of the Company Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1990
*10(j)(2) First Amendment to The Company's 1-7629 10(j)(2)
Exhibit 10(j)(1) Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1991
*10(j)(3) Second Amendment to The Company's 1-7629 10(g)
Exhibit 10(j)(1) Form 10-Q for the
(effective as of quarter ended
March 30, 1992) March 31, 1992
*10(j)(4) Third Amendment to The Company's 1-7629 10(j)(4)
Exhibit 10(j)(1) Form 10-K for the
(effective as of year ended
June 2, 1993) December 31, 1993
*10(j)(5) Fourth Amendment to The Company's 1-7629 10(j)(5)
Exhibit 10(j)(1) Form 10-K for the
(effective as of year ended
December 1, 1993) December 31, 1993
*10(j)(6) Fifth Amendment to The Company's 1-7629 10(j)(6)
Exhibit 10(j)(1) Form 10-K for
(effective as of the year ended
September 7, 1994) December 31, 1994
*10(j)(7) Sixth Amendment to The Company's 1-7629 10(b)
Exhibit 10(j)(1) Form 10-Q for the
quarter ended
June 30, 1995
123
*10(k)(1) Long-Term Incentive The Company's 1-7629 10(c)
Compensation Plan of Form 10-Q for the
the Company quarter ended
(effective as of June 30, 1989
January 1, 1989)
*10(k)(2) First Amendment to The Company's 1-7629 10(f)(2)
Exhibit 10(k)(1) Form 10-K for the
(effective as of year ended
January 1, 1990) December 31, 1989
*10(k)(3) Second Amendment to The Company's 1-7629 10(k)(3)
Exhibit 10(k)(1) Form 10-K for the
(effective as of year ended
December 22, 1992) December 31, 1992
*10(l) Form of stock option The Company's 1-7629 10(h)
agreement for nonqual- Form 10-Q for the
ified stock options quarter ended
granted under the March 31, 1992
Company's 1989
Long-Term Incentive
Compensation Plan
*10(m) Forms of restricted The Company's 1-7629 10(i)
stock agreement for Form 10-Q for the
restricted stock quarter ended
granted under the March 31, 1992
Company's 1989
Long-Term Incentive
Compensation Plan
*10(n)(1) 1994 Long-Term Incentive The Company's 1-7629 10(n)(1)
Compensation Plan of Form 10-K for the
the Company (effective year ended
as of January 1, 1994) December 31, 1993
*10(n)(2) Form of Stock Option The Company's 1-7629 10(n)(2)
Agreement for Form 10-K for the
Nonqualified Stock year ended
Options Granted December 31, 1993
under the Company's
1994 Long-Term
Incentive Compen-
sation Plan
*10(o)(1) Savings Restoration The Company's 1-7629 10(f)
Plan of the Company Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1990
*10(o)(2) First Amendment to The Company's 1-7629 10(l)(2)
Exhibit 10(o)(1) Form 10-K for the
(effective as of year ended
January 1, 1991) December 31, 1991
124
*10(p) Director Benefits The Company's 1-7629 10(m)
Plan, effective as Form 10-K for the
of January 1, 1992 year ended
December 31, 1991
*10(q) Executive Life The Company's 1-7629 10(q)
Insurance Plan of Form 10-K for the
the Company (effective year ended
as of January 1, 1994) December 31, 1993
*10(q)(1) First Amendment to The Company's 1-7629 10(e)
Exhibit 10(q) Form 10-Q for the
quarter ended
June 30, 1995
*10(r) Employment and The Company's 1-7629 10(f)
Supplemental Benefits Form 10-Q for the
Agreement between HL&P quarter ended
and Hugh Rice Kelly March 31, 1987
10(s)(1) The Company's Master The Company's 1-7629 10
Savings Trust, as Form 10-Q for the
Amended and Restated quarter ended
effective as of March 31, 1994
January 1, 1994,
between the Company
and Texas Commerce
Bank National
Association
10(s)(2) First Amendment to The Company's 1-7629 10(a)
Exhibit 10(s)(1) Form 10-Q for the
quarter ended
March 31, 1995
10(s)(3) Termination of Houston The Company's 1-7629 10(a)
Industries Incorporated Form 10-Q for the
Savings Plan and Trust quarter ended
Agreement as to September 30, 1995
KBLCOM Incorporated
Effective as of June 30,
1995
10(s)(4) Houston Industries The Company's Form 1-7629 10(s)(4)
Incorporated Savings 10-K for the year
Trust (As Amended and ended December 31,
Restated Effective 1995
July 1, 1995)
10(s)(5) ESOP Trust Agreement The Company's 1-7629 10(j)(2)
between Houston Form 10-K for the
Industries and State year ended
Street Bank and Trust December 31, 1990
Company, as ESOP
Trustee, dated
October 5, 1990
125
10(s)(6) First Amendment to The Company's 1-7629 10(b)
Exhibit 10(s)(5) Form 10-Q for the
quarter ended
March 31, 1995
10(s)(7) Note Purchase Agreement The Company's 1-7629 10(j)(3)
between the Company Form 10-K for the
and the ESOP Trustee, year ended
dated as of December 31, 1990
October 5, 1990
10(s)(8) Stock Purchase The Company's 1-7629 10(j)(4)
Agreement between Form 10-K for the
the Company and the year ended
ESOP Trustee, dated as December 31, 1991
of October 9, 1990
*10(t) Employment Agreement Form 10-K for the 1-3187 10(t)
dated April 5, 1993 year ended
between HL&P and December 31, 1994
William T. Cottle
*10(u) Form of Severance Form 10-K for the 1-3187 10(u)
Agreements dated year ended
December 22, 1994 December 31, 1994
between the Company
and the following
executive officers:
Hugh Rice Kelly,
R. Steve Letbetter,
William T. Cottle and
David M. McClanahan
*10(v) Houston Industries The Company's Form 1-7629 10(z)
Incorporated Executive 10-K for the year ended
Deferred Compensation December 31, 1995
Trust, effective as of
December 19, 1995
*10(y) Agreement dated June The Company's 1-7629 10(aa)
14, 1991 between the Form 10-K for the
Company and David M. year ended
McClanahan December 31, 1995
+12 Computation of Ratios of
Earnings to Fixed Charges
and Ratios of Earnings
to Fixed Charges and
Preferred Dividends
+23 Consent of Deloitte
& Touche LLP
+27 Financial Data Schedule