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SELECTED FINANCIAL DATA
For the years ended December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -----------
(In thousands, except per share amounts, ratios and operating statistics)
FINANCIAL DATA
Statement of Income Data
Operating revenues.................... $ 435,416 $ 394,426 $ 379,603 $ 382,433 $351,613
Net income............................ $ 52,135 $ 48,703 $ 45,043 $ 41,812 $ 45,239
Net income applicable to common
stock.............................. $ 50,061 $ 46,651 $ 43,017 $ 39,827 $ 43,010
Primary net income per common share... $ 2.23 $ 2.08 $ 1.92 $ 1.78 $ 1.93(1)
Fully diluted net income per common
share.............................. $ 2.16 $ 2.01 $ 1.86 $ 1.73 $ 1.89(1)
Cash dividends paid per common
share.............................. $ 1.53 $ 1.49 $ 1.45 $ 1.41 $ 1.37(1)
Ratio of earnings to fixed charges...... 3.70X 3.49x 3.35x 3.30x 3.16x
Ratio of earnings to combined fixed
charges and preferred stock
dividends............................. 3.36X 3.17x 3.02x 2.96x 2.83x
Balance Sheet Data
(at end of period)
Total assets.......................... $1,321,771 $1,226,034 $1,178,191 $1,161,635 $978,220
Long-term obligations and redeemable
preferred stock.................... $ 347,231 $ 367,432 $ 343,509 $ 358,329 $318,214
OPERATING STATISTICS
Electric sales -- regular system
customers (million KWH)
Residential........................... 2,723 2,763 2,532 2,470 2,353
Commercial............................ 1,338 1,265 1,180 1,109 1,062
Industrial............................ 2,369 2,227 2,030 2,005 1,972
Other retail.......................... 526 502 487 463 477
Sales for resale...................... 291 360 210 175 146
---------- ---------- ---------- ---------- --------
Total sales to regular customers...... 7,247 7,117 6,439 6,222 6,010
Short-term energy sales to other
utilities
(million KWH)......................... 330 68 174 266 88
---------- ---------- ---------- ---------- --------
Total electric sales.................. 7,577 7,185 6,613 6,488 6,098
========== ========== ========== ========== ========
System peak (thousand kilowatts)........ 1,500 1,473 1,310 1,346 1,308
Electric customers...................... 224,703 220,923 217,568 212,559 213,941
- ---------------
(1) Amounts have been restated to reflect a two-for-one stock split effective in
May 1992.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INDUSTRY DEVELOPMENTS/CUSTOMER CHOICE
Forces driving the movement toward increased competition in the electric
utility industry involve numerous and complex economic, political and
technological factors. These factors have resulted in the introduction of
federal and state legislation and other regulatory initiatives that are likely
to result in even greater competition at both the wholesale and retail level in
the future. In 1995 the LPSC opened a docket to investigate customer choice of
electric power supplier. In 1996 legislation was proposed at the federal and
Louisiana levels that would have mandated retail customer "choice" of electric
supplier. The Company expects that customer choice debate will continue in
legislative and regulatory bodies in 1997. The Company has taken the position
that all customers, large or small, should have a choice in electric supplier.
The Company recognizes the need to work out issues to create a level playing
field for all energy suppliers. The increasingly competitive environment
presents opportunities to compete for new customers, as well as the risk of loss
of existing customers. The Company believes that it is a reliable, low-cost
provider of electricity and as such is currently positioned to compete
effectively in the changing marketplace.
RESULTS OF OPERATIONS
Net income applicable to common stock for 1996 totaled $50.1 million, or
$2.23 per share, an increase of $0.15 per share from 1995 earnings of $46.1
million, or $2.08 per share. Net income applicable to common stock for 1994 was
$43.0 million, or $1.92 per share. The increase in 1996 earnings was primarily
due to the effect on base revenues of increased kilowatt-hour sales to
commercial and industrial customers, slightly offset by an increase in nonfuel
operating expenses. Results for 1995 were affected by increased kilowatt-hour
sales resulting from warmer-than-normal weather, which were partially offset by
higher operating expenses compared to 1994. Net income for 1994 reflected a
$0.03 per share after-tax restructuring charge for a customer service office
consolidation plan.
Earnings for the past three years are not necessarily indicative of future
earnings and results. The Company's future earnings may be affected by weather
conditions, the Company's business development programs, the overall economy of
the Company's service area, increased property and other taxes, a full-year's
effect of a $3 million rate reduction, a scheduled rate reduction of $2 million
in 1998, legislative and other regulatory changes and increased competition.
REVENUES AND SALES
Revenues and kilowatt-hour (kwh) sales for 1996 and 1995 were as follows:
Revenues 1996 1995
-------- -------------------- --------------------
In Percent In Percent
Thousands Change Thousands Change
--------- ------- --------- -------
Base (nonfuel).......................... $266,301 2.0% $261,143 7.0%
Fuel cost recovery...................... 169,115 26.9% 133,283 (1.7)%
-------- ---- -------- ----
Total revenues................ $435,416 10.4% $394,426 3.9%
======== ==== ======== ====
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Sales 1996 1995
----- ------------------ ------------------
Million Percent Million Percent
kwh Change kwh Change
------- ------- ------- -------
Regular customers
Residential........................... 2,723 (1.4)% 2,763 9.1%
Commercial............................ 1,338 5.8% 1,265 7.2%
Industrial............................ 2,369 6.4% 2,227 9.7%
Other retail.......................... 526 4.8% 502 3.1%
Sales for resale...................... 291 (19.2)% 360 71.4%
----- ----- ----- -----
Total sales to regular customers........ 7,247 1.8% 7,117 10.5%
Short-term sales to other utilities..... 330 385.3% 68 (60.9)%
----- ----- ----- -----
Total electric sales.......... 7,577 5.5% 7,185 8.6%
===== ===== ===== =====
The Company's base rates did not change in 1995 or 1994, but were reduced
in 1996 by the settlement of the Company's earnings review conducted by the
LPSC. For more information concerning the settlement of the LPSC earnings review
of the Company, see "Financial Condition -- Retail Rates" below. The $41.0
million increase in 1996 operating revenues compared to 1995 was primarily due
to a $35.8 million increase in fuel cost recovery revenues, caused primarily by
higher natural gas prices in effect during 1996. Base revenues improved $5.2
million due to an increase in kilowatt-hour sales to commercial and industrial
customers. Net income is not affected by changes in the cost of fuel and
purchased power because these cost fluctuations are currently passed on to
customers through fuel adjustment clauses.
Total operating revenues were 3.9% higher in 1995 compared to 1994 largely
as a result of the effect on base revenues of weather-related increases in
kilowatt-hour sales. The net increase in operating revenues resulted from an
increase in base revenues offset by a slight decrease in fuel cost recovery
revenues resulting from lower natural gas prices.
During 1996, consumption by commercial and industrial customers was higher
than in 1995 due to customer growth and increased consumption by the Company's
largest industrial customer. Residential kilowatt-hour sales are influenced
significantly by weather. The summer weather in 1996 was milder than experienced
in 1995, resulting in a 1.4% decrease in residential sales. The unusually hot
weather during 1995, together with industrial growth, produced higher sales in
1995 than in 1994.
During the last five years, sales growth to regular customers averaged 4.2%
per year, and is expected to range from 2.5% to 4.5% per year during the next
five years. The level of future sales will depend upon weather conditions,
customer conservation efforts, the Company's retail marketing and business
development programs, acquisitions of other electric utility properties and the
overall economy of the service area. Sales to industrial customers are also
affected by the national economy and worldwide demand for wood products, since
the Company's two largest customers are producers of such products. Issues
facing the electric utility industry that could affect sales include
deregulation, retail wheeling, legislative and regulatory changes, retention of
large industrial customers, municipal franchises and access to transmission
systems.
In 1995, the Company leased the England Industrial Airpark distribution
system from the industrial development authority for a twenty year period. This
facility includes a new commercial airport, industrial park, golf course and
residential village. These are all portions of the former England Air Force Base
near Alexandria which the Company was serving prior to its closure several years
ago.
Also in 1996, the Company signed a contract to serve a new industrial port
on the Red River at Natchitoches. This port is a development resulting from a
federal project which has made the Red River navigable from its confluence with
the Mississippi River to near Shreveport. The Red River
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runs through the Company's service territory in central and western Louisiana
and provides a water transportation connection to the world via the Mississippi
River and the Gulf of Mexico.
On May 1, 1995, the Company began providing approximately 13 megawatts of
wholesale power service to the city of St. Martinville under a five-year
contract subject to the jurisdiction of the FERC. This contract was challenged
in 1993 by the previous supplier, Louisiana Energy and Power Authority (LEPA),
as well as the city of Lafayette and the American Public Power Association, with
assertions of preferential, discriminatory and predatory pricing. An initial
decision of the FERC's presiding administrative law judge (ALJ) in February 1995
rejected LEPA's arguments. Under FERC procedures, LEPA filed a brief requesting
the FERC to revise the initial decision and this matter is still pending before
the FERC. The Company has opposed LEPA's brief. Management believes that the
ALJ's initial decision will be upheld.
FUEL AND PURCHASED POWER
Changes in fuel and purchased power expenses reflect fluctuations in
generation mix, fuel costs, availability of economy power and deferral of
expenses for recovery from customers through fuel adjustment clauses in
subsequent months.
Fuel and purchased power expenses for 1996 and 1995 were as follows:
1996 1995
------------------- -------------------
In Percent In Percent
Thousands Change Thousands Change
--------- ------- --------- -------
Fuel used for electric generation............ $115,642 6.8% $108,322 (10.1)%
Power purchased.............................. 55,609 103.2% 27,367 57.5%
-------- ----- -------- -----
Total fuel expenses................ $171,251 26.2% $135,689 (1.6)%
======== ===== ======== =====
The increase in the cost of fuel used for electric generation is
attributable primarily to the higher cost of natural gas in 1996, compared to
1995. The increase in purchased power resulted from the increased availability
of low-cost power (generally from solid fuel generation) on the wholesale
market, primarily due to the substantial increases in natural gas prices.
The Company obtains coal and lignite under long-term contracts. The Company
purchases natural gas under short-term contracts on the spot market when prices
are advantageous. Power is purchased from other utilities when the purchase
price is less than the Company's cost to generate. During 1996, 33% of the
Company's energy requirements were met with purchased power, compared to 18% in
1995.
During 1996, the Company constructed natural gas pipelines at its three
power stations where natural gas is used as a primary fuel. These pipelines
increase the Company's access to natural gas markets and lower-cost gas
supplies. These pipelines are owned and operated by a consolidated subsidiary of
the Company. Also during the year, the Company terminated its contracts with its
main transporter and supplier of natural gas and replaced them with a base
supply contract for approximately one-third of the Company's natural gas
requirements. The combination of the new natural gas contracts and access to the
gas markets afforded by the pipelines will help assure that the Company's
generating units remain competitive.
CO-OP DEVELOPMENTS
In February 1994, the Company approached the management of Teche Electric
Cooperative, Inc. (Teche) about the possibility of purchasing Teche. Teche
serves about 8,600 customers, and its service area, which comprises parts of
Iberia, St. Martin and St. Mary parishes, is adjacent to the Company's service
area. The acquisition of Teche would result in an increase in the Company's
kilowatt-hour sales to regular customers of about 2.4%.
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In February 1995, Teche and the Company executed a purchase and sale
agreement for a purchase price, including the Company's assumption or other
discharge of Teche's liabilities, of approximately $22.4 million. The members of
Teche overwhelmingly approved the sale at their annual meeting in March 1995. On
March 31, 1996, the board of directors of Teche voted to extend the Purchase and
Sale Agreement with the Company for an additional twelve months until March 31,
1997, to allow for the Teche wholesale power contract with Cajun Electric Power
Cooperative, Inc. (Cajun) to be resolved through Cajun's bankruptcy process.
Consummation of the acquisition is subject to a number of conditions, including
approval by the LPSC, the Rural Utilities Service and other governmental
agencies, the successful resolution of Teche's wholesale power supply contract
with Cajun and certain other conditions. Each plan of reorganization currently
filed with the bankruptcy court in the Cajun bankruptcy includes a provision for
the assignment or substitution of Teche's supply contract to or with the
Company. This provision is subject to a number of approvals, including
confirmation by the bankruptcy court.
NONFUEL OPERATING EXPENSES AND INCOME TAXES
The changes in nonfuel operating expenses (excluding restructuring charges)
for 1996 and 1995 were as follows:
1996 1995
-------------------- --------------------
In Percent In Percent
Thousands Change Thousands Change
--------- ------- --------- -------
Other operation......................... $(2,898) (4.4)% $ 9,402 16.6%
Maintenance............................. $ 873 3.9% $(2,064) (8.4)%
Depreciation............................ $ 2,277 5.5% $ 1,157 2.9%
Other taxes............................. $ 532 1.8% $ 164 0.6%
Income taxes............................ $ 925 3.7% $ 5,328 26.8%
------- ---- ------- ----
Total......................... $ 1,709 0.9% $13,987 8.2%
======= ==== ======= ====
In 1996, total nonfuel operating expenses increased 0.9% compared to 1995.
The increase was primarily due to higher depreciation expense and federal and
state income taxes offset by a decrease in costs to operate the Company's
electric system. Depreciation expense increased primarily due to property
additions associated with the Energy Control Center and transmission and
distribution facilities. The increase in federal and state income taxes resulted
from an increase in pretax income. The cost of operating the Company's electric
system decreased as a result of reduced co-op acquisition expenses during 1996
and a higher employee incentive expense incurred in 1995. Maintenance expenses
increased as a result from additional upkeep of the water plant facilities at
Coughlin Power Station.
Nonfuel operating expenses in 1995 increased 8.2% over 1994, excluding the
effects of restructuring charges. This increase was primarily due to costs
associated with the Company's electric cooperative acquisition efforts, an
employee incentive plan, prior year criteria pollutant fees assessed by the
Louisiana Department of Environmental Quality in 1995, costs associated with the
start-up of the Company's 24-hour call center (while customer service offices
remained open until full implementation of the call center) and uncollectible
accounts expense resulting from higher sales and a pre-bankruptcy receivable
from Cajun. Maintenance expenses in 1995 decreased relative to 1994 because of a
major inspection at Teche power plant performed in 1994 and because of a
reduction in the portion of employees' time associated with maintenance
activities. Income taxes increased primarily due to higher taxable income in
1995.
An audit of the Company's 1991 and 1992 tax returns was completed by agents
of the Internal Revenue Service (IRS) in January 1995. A settlement of these
audit assessments totaling $0.9 million has been proposed by an IRS appeals
officer. Deferred federal income taxes have been provided for all temporary
differences, and reserves have been provided for other issues. In October 1996,
the IRS completed an audit of the Company's 1993 and 1994 tax returns. The
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assessments in this audit totaling $1.3 million were agreed to and paid by the
Company at the conclusion of the audit. Interest has not been paid in either
settlement but all interest through December 31, 1996 has been accrued.
In 1997, a ten-year property tax exemption will expire on the Dolet Hills
Power Station. The Company expects that taxes other than income taxes will
increase approximately $3 million annually, its estimated share of the property
taxes on this generating station.
A number of parishes have attempted in recent years to impose franchise
fees on retail revenues earned within the unincorporated areas served by the
Company. If the parishes are ultimately successful, taxes other than income
taxes could increase substantially in future years.
OTHER INCOME AND INTEREST EXPENSE
During 1996, "other income (expenses), net" increased $0.2 million as a
result of lower charitable donations and other miscellaneous expenses compared
to 1995. In 1995, the Company donated several closed customer service offices to
local government authorities. "Other income (expenses), net" increased in 1995
as compared to the prior year, as a result of earnings from short-term
instruments held by an unregulated subsidiary.
Total interest expense decreased $0.2 million in 1996, as compared to 1995,
due, in part, to lower interest rates on short-term debt and variable-rate
pollution control bonds. During 1996, $50 million of 9 5/8% first mortgage bonds
were redeemed with proceeds from $45 million of medium-term notes issued at a
weighted average interest rate of 6.37%. Interest expense increased $1.8 million
in 1995, as compared to 1994, due to higher interest rates on short-term debt
and variable-rate pollution control bonds. Also during 1995, $25 million of
medium-term notes were issued at a weighted average interest rate of 6.63% to
refinance $14 million of maturing 5.0% first mortgage bonds and to reduce
short-term debt levels.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC represents the estimated cost of financing construction
work-in-progress and is not a current source of cash. A return on and recovery
of AFUDC is generally permitted by regulatory bodies in setting rates charged
for utility services. In the absence of a specified return on equity in the LPSC
earnings review, a rolling average of the last three years was used. AFUDC for
1996 decreased as a result of a lower AFUDC rate as well as lower average
construction work-in-progress balances compared to 1995. AFUDC increased in 1995
from the prior year as a result of higher average construction work-in-progress
balances. AFUDC accounted for 1.5% of net income applicable to common stock in
1996, compared to 4.5% in 1995 and 3.3% in 1994.
EARNINGS PER SHARE
In 1996, potentially dilutive securities had more than a 3% dilutive effect
on net income per common share due to the assumed conversion of the Incentive
Stock Option Plan and the convertible preferred stock held by the Employee Stock
Ownership Plan (ESOP). As a result, both primary and fully diluted average
shares of common stock outstanding and earnings per share are presented in the
Consolidated Statements of Income.
FINANCIAL CONDITION
- ----------------------------
LIQUIDITY AND CAPITAL RESOURCES
Financing for construction requirements and operational needs is dependent
upon the cost and availability of external funds through capital markets and
from financial institutions. Access to funds is dependent upon factors such as
general economic conditions, regulation and the Company's credit rating.
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Since 1990, the Company participated in a program where up to $35 million
of receivables were sold on an ongoing basis. The amount of receivables that
could be sold at any time depended upon seasonal fluctuations in the amount of
eligible receivables. In December 1996, the Company reduced to zero outstanding
sales of accounts receivable under this program. The Company plans to terminate
this program in early 1997. To replace this short-term liquidity program, the
Company plans to increase its committed bank borrowing capacity by $25 million
in 1997. For more information concerning the Company's accounts receivables, see
"Note C -- Receivables" included in the notes to the Consolidated Financial
Statements.
The Company has an effective shelf registration statement and all
regulatory approvals necessary to issue up to $180 million of medium-term notes.
At December 31, 1996 and 1995, the Company had $65.2 million and $23.1
million, respectively, of short-term debt outstanding in the form of commercial
paper borrowings and bank loans. Short-term debt increased as a result of the
Company discontinuing the sale of accounts receivable. The Company currently has
a $100 million revolving credit facility, which supports the issuance of
commercial paper, and is scheduled to continue through June 2000. Uncommitted
lines of credit with banks totaling $20 million are available to meet short-term
working capital needs. Additionally, at December 31, 1996, an unregulated
consolidated subsidiary of the Company held $14.1 million of cash and marketable
securities.
CASH GENERATION AND CASH REQUIREMENTS
During 1996, the Company generated $60.8 million of cash flows from
operating activities, as shown in the Consolidated Statements of Cash Flows. Net
cash provided by operating activities resulted from net income, adjusted for
noncash charges to income, and changes in working capital. Net cash used in
investing activities is related to additions to utility plant and changes in
utility and nonutility investments. Net cash used in financing activities
resulted principally from the payment of dividends to shareholders and long-term
financing activities.
In recent years, the construction program has consisted primarily of
enhancements to the transmission and distribution systems. In 1996, the Company
completed $10 million in additions to its Energy Control Center. Utility
expenditures, excluding AFUDC, totaled $60 million in 1996 and $55 million in
1995.
Construction expenditures, excluding AFUDC, for 1997 are estimated to be
$67.5 million and for the five-year period ending 2001 are expected to total
$280 million. About half of the planned construction in the five-year period
will support line extensions and substation upgrades to accommodate new business
and load growth. Approximately 25% will be used to enhance or rehabilitate the
Company's transmission and distribution systems. About 10% will be used to lower
fuel cost, extend the life of generating units and comply with environmental
standards. The remaining investments will be in information technology and
general infrastructure to operate the Company more efficiently.
Scheduled maturities of debt and preferred stock will total about $15.3
million for 1997 and approximately $111.6 million for the five-year period
ending 2001. In 1991, the Company began a common stock repurchase program, and
as part of that program, up to $23.5 million of common stock may be repurchased
in the future. The Company did not repurchase any shares of common stock during
1996. The Company may require additional funds to purchase outstanding shares of
the Company's common stock.
Approximately 96% of total construction requirements were funded internally
in 1996, as compared to 93% in 1995 and 100% in 1994. In 1997, 81% of
construction requirements are expected to be funded internally. For the
five-year period ending 2001, all of the construction requirements are expected
to be funded internally.
Other capital requirements in 1996 and 1995 were funded by the issuance of
debt, while in 1994, other capital requirements were funded internally.
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RETAIL RATES
Retail rates, which are regulated by the LPSC, account for 97% of total
revenues. Fuel costs and monthly fuel adjustment billing factors are subject to
audit by the LPSC. The LPSC establishes base rates for the Company which reflect
nonfuel costs, including the cost of capital, and sales. In the past, the
Company has sought increases in base rates to reflect the cost of service
related to plant facility additions and increases in operating costs. If the
Company were to request an increase in its rates and adequate rate relief was
not granted on a timely basis, the Company's ability to attract capital at
reasonable costs to finance its operations and capital improvements might be
impaired.
The LPSC elected in 1993 to review the earnings of all electric, gas, water
and telecommunications utilities regulated by it to determine whether the
returns on equity of these companies may be higher than returns that might be
awarded in the current economic environment. The LPSC began its review of the
Company's earnings in August 1995. In October 1996, the LPSC approved a
settlement of the Company's earnings review, providing for lower electricity
rates to the Company's customers. The first rate decrease was effective November
1, 1996, with a second decrease scheduled for January 1, 1998.
On November 1, 1996, the Company's annual base rate tariff for electric
service was reduced by $3 million. In January 1998, the Company's annual base
rate tariff for electric service will be reduced an additional $2 million. The
terms of this settlement will be effective for a five-year period.
During the five-year period, which began November 1, 1996, a rate
stabilization plan will be in place. This plan will allow the Company to retain
all earnings equating to a regulatory return on equity up to and including
12.25% on its regulated utility operations. Any earnings over 12.25%, up to and
including 13%, will be shared equally between the Company and its customers,
which effectively provides the Company with the opportunity to realize a
regulatory rate of return of up to 12.625%. Any earnings above this level would
be refunded fully to customers.
During the five-year period, 1997-2001, the Company's revenues and return
on equity will be reviewed each year by the LPSC. If the Company is found to be
achieving a regulatory return on equity in any given year which requires a
refund to customers, the refund will be made in the form of billing credits
during the months of July, August and September following the evaluation period.
During the five-year rate stabilization period, the Company will have the
right to apply for a rate increase if a significant event affecting its earnings
would justify it, such as regulatory or economic changes, major hurricane damage
or other unforeseen circumstances. During the period, the Company will also be
able to propose for LPSC consideration any revenue-neutral rate design changes
it feels appropriate, such as revenue redistribution among customer classes
which may be warranted. Also, during the period, the LPSC may amend or modify
any of the settlement's terms should it determine changes are warranted by the
public interest.
INFLATION AND FUEL COSTS
The Company is a capital-intensive electric utility. As such, it is
affected by inflation since depreciation, which is based on the historical cost
of assets, will in all likelihood not fully reflect the cost of replacing
assets. Although the cost of fuel used for electric generation is a major
component of total costs, the Company is not currently exposed to the effects of
market fluctuations in fuel prices since fuel costs are currently recovered from
customers through fuel adjustment clauses.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws and regulations
governing the protection of the environment. Violations of such laws and
regulations may result in substantial fines and penalties. The Company has
obtained all material environmental permits necessary for its operations and
believes it is in substantial compliance with these permits, as well as all
applicable environmental laws and regulations. The Company does not anticipate
that existing environmental rules will significantly impact its operations, but
some capital improvements may have to be made in response to new environmental
programs expected in the next few years.
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Implementation of Phase I of the Clean Air Act will not require the Company
to reduce sulfur emissions at its solid-fuel generating units, which either burn
low-sulfur coal or utilize pollution control equipment. Installation of
continuous emission monitoring equipment on its generating units has been
completed at a cost of approximately $3.0 million. Although Phase II of the
legislation, effective in 2000, involves more stringent limits on emissions, it
should not significantly affect the operation of the Company's generating units.
However, some capital investment may be necessary in order to comply with Phase
II requirements. Capital expenditures for environmental matters in 1997 are
estimated to be $0.5 million.
REGULATORY MATTERS
In 1996, the FERC issued rules requiring open transmission access. The open
access provisions require FERC-regulated electric utilities to offer third
parties open access to transmission under comparable terms and conditions as the
utilities' use of their own systems. Providing unbundled transmission services
to firm-requirements customers may have significant financial consequences to
the utility industry. Providing open access for non-firm sales may have a
significant effect on utility operations. Currently, the Company has three
wholesale full-requirements customers representing about 0.9% of the Company's
total kilowatt-hour sales to regular customers.
Federal and state regulators and legislators are studying potential effects
of deintegrating the vertically integrated utility systems and providing retail
customers a choice of supplier. At this time, it is not possible to predict
when, if, or to what extent, retail customers will be able to choose their
electric service suppliers. The regulatory requirement to serve customers and
industry standards for reliability of electric supply have resulted in the
construction of facilities sufficient to meet peak load conditions with a margin
for reserve.
With customer choice, costs associated with utility assets specifically
dedicated to, or used by, departing customers would have to be paid by the
departing customers (stranded costs), absorbed by remaining and new customers or
written off by the Company.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121), establishes accounting standards for determining if long-lived
assets are impaired, and when and how losses, if any, should be recognized. The
Company believes that the net cash flows that will result from the operation of
its assets are sufficient to cover the carrying value of the assets.
The Company has recorded regulatory assets and liabilities, primarily for
the effects of income taxes, as a result of past rate actions of the Company's
regulators, pursuant to Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71). The
effects of potential deregulation of the industry or possible future changes in
the method of rate regulation of the Company could require the Company to
discontinue the application of SFAS 71, pursuant to Statement of Financial
Accounting Standards No. 101, "Regulated Enterprises -- Accounting for the
Discontinuation of Application of FASB Statement No. 71" (SFAS 101). At December
31, 1996, the Company had recorded $43.8 million of regulatory assets, net of
regulatory liabilities, because of the regulatory requirement to flow through
the tax benefits of accelerated deductions to current customers and an implied
regulatory compact that future customers would pay when the Company paid the
additional taxes. These differences occur over the lives of relatively
long-lived assets, up to 30 years or more. Under the current regulatory and
competitive environment, the Company believes that these regulatory assets are
fully recoverable. However, if in the future, as a result of regulatory changes
or increased competition, the Company's ability to recover these regulatory
assets would not be probable, then to the extent that such regulatory assets
were determined not to be recoverable, the Company would be required to write
off or write down such assets.
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CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31
------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands,
except share and per share amounts)
OPERATING REVENUES................................... $435,416 $394,426 $379,603
---------- ---------- ----------
Operating expenses
Fuel used for electric generation.................. 115,642 108,322 120,546
Power purchased.................................... 55,609 27,367 17,376
Other operation.................................... 63,065 65,963 56,561
Restructuring charges.............................. 1,203
Maintenance........................................ 23,489 22,616 24,680
Depreciation....................................... 43,441 41,164 40,007
Taxes other than income taxes...................... 29,595 29,063 28,899
Federal and state income taxes..................... 26,154 25,229 19,901
---------- ---------- ----------
Total operating expenses................... 356,995 319,724 309,173
---------- ---------- ----------
OPERATING INCOME..................................... 78,421 74,702 70,430
Interest income...................................... 256 219 238
Allowance for other funds used during construction... 1,134 1,912 1,716
Other income (expenses), net......................... 333 74 (967)
---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES....................... 80,144 76,907 71,417
---------- ---------- ----------
Interest charges
Interest on debt and other......................... 27,492 27,998 25,736
Allowance for borrowed funds used during
construction.................................... (590) (1,028) (585)
Amortization of debt discount, premium and expense,
net............................................. 1,107 1,234 1,223
---------- ---------- ----------
Total interest charges..................... 28,009 28,204 26,374
---------- ---------- ----------
NET INCOME........................................... 52,135 48,703 45,043
Preferred dividend requirements, net................. 2,074 2,052 2,026
---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK................ $ 50,061 $ 46,651 $ 43,017
========== ========== ==========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING
Primary............................................ 22,452,762 22,430,759 22,414,831
Fully diluted...................................... 23,858,530 23,849,854 23,842,199
========== ========== ==========
EARNINGS PER SHARE
Primary............................................ $2.23 $2.08 $1.92
Fully diluted...................................... $2.16 $2.01 $1.86
---------- ---------- ----------
CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK........ $1.53 $1.49 $1.45
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
12
11
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
At December 31
-----------------------
1996 1995
---------- ----------
(In thousands)
ASSETS
Utility plant (Notes A and B)
Property, plant and equipment............................. $1,379,035 $1,319,815
Accumulated depreciation.................................. (475,212) (441,686)
---------- ----------
Net property, plant and equipment......................... 903,823 878,129
Construction work-in-progress............................. 49,075 51,390
---------- ----------
Total utility plant, net............................ 952,898 929,519
---------- ----------
Investments and other assets (Note D)....................... 8,488 8,097
---------- ----------
Current assets
Cash and cash equivalents (Note A)........................ 20,307 20,621
Accounts receivable, net (Note C)
Customer accounts receivable............................ 23,145 6,081
Other accounts receivable............................... 20,767 10,994
Unbilled revenues......................................... 11,193 3,098
Fuel inventory, at average cost........................... 9,366 8,699
Material and supplies inventory, at average cost.......... 17,029 15,819
Prepayments and other current assets...................... 2,505 2,501
---------- ----------
Total current assets...................................... 104,312 67,813
---------- ----------
Prepayments................................................. 8,683 8,213
---------- ----------
Regulatory assets -- deferred taxes (Note J)................ 103,839 118,967
---------- ----------
Other deferred charges...................................... 69,320 66,967
---------- ----------
Accumulated deferred federal and state income taxes (Note
J)........................................................ 74,231 66,458
---------- ----------
TOTAL ASSETS........................................ $1,321,771 $1,266,034
========== ==========
CAPITALIZATION AND LIABILITIES
Common shareholders' equity
Common stock, $2 par value, authorized 50,000,000 shares,
issued 22,760,154 and 22,745,104 shares at December 31,
1996 and 1995, respectively (Note F).................... $ 45,520 $ 45,490
Premium on capital stock.................................. 113,702 113,444
Retained earnings......................................... 240,414 224,688
Treasury stock, at cost, 307,577 and 318,446 shares at
December 31, 1996 and 1995, respectively................ (6,242) (6,459)
---------- ----------
Total common shareholders' equity................... 393,394 377,163
---------- ----------
Preferred stock (Note H)
Not subject to mandatory redemption....................... 30,280 30,519
Subject to mandatory redemption........................... 6,372 6,610
Deferred compensation related to preferred stock held by
ESOP...................................................... (20,751) (22,595)
Long-term debt, net (Note E)................................ 340,859 360,822
---------- ----------
Total capitalization................................ 750,154 752,519
---------- ----------
Current liabilities
Short-term debt (Note E).................................. 65,161 23,062
Long-term debt due within one year (Note E)............... 15,000
Accounts payable.......................................... 50,022 51,087
Customer deposits......................................... 19,761 19,725
Taxes accrued (Note J).................................... 5,806 2,503
Interest accrued.......................................... 7,521 8,909
Accumulated deferred fuel................................. 2,168 3,651
Other current liabilities................................. 3,252 2,343
---------- ----------
Total current liabilities........................... 168,691 111,280
---------- ----------
Deferred credits
Accumulated deferred federal and state income taxes (Note
J)...................................................... 281,684 266,873
Accumulated deferred investment tax credits (Note J)...... 31,364 33,173
Regulatory liabilities -- deferred taxes (Note J)......... 60,058 79,332
Other deferred credits.................................... 29,820 22,857
---------- ----------
Total deferred credits.............................. 402,926 402,235
---------- ----------
Commitments and contingencies (Notes E, F, H, I, J and K)
TOTAL CAPITALIZATION AND LIABILITIES................ $1,321,771 $1,266,034
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
13
12
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31
--------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
OPERATING ACTIVITIES
Net income................................................ $ 52,135 $ 48,703 $ 45,043
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization......................... 44,548 42,398 40,095
Allowance for funds used during construction.......... (1,724) (2,940) (2,301)
Amortization of investment tax credits................ (1,809) (1,814) (1,819)
Deferred income taxes................................. 3,818 2,854 2,445
Deferred fuel costs................................... (1,483) (2,463) 799
Restructuring charge.................................. 1,152
Gain (loss) on disposition of utility plant, net...... (20) (270) 25
Changes in assets and liabilities
Accounts receivable, net............................ (26,837) (5,928) (446)
Unbilled revenues................................... (8,095) (2,525) 933
Fuel, material and supplies inventories............. (1,877) 611 776
Accounts payable.................................... (1,065) 7,621 2,076
Customer deposits................................... 36 212 875
Taxes accrued....................................... 3,303 (759) (1,807)
Interest accrued.................................... (1,388) 611 (31)
Other, net............................................ 1,251 1,343 981
-------- -------- --------
Net cash provided by operating activities........... 60,793 87,654 88,796
-------- -------- --------
INVESTING ACTIVITIES
Additions to utility plant................................ (64,425) (57,839) (55,445)
Allowance for funds used during construction.............. 1,724 2,940 2,301
Sale of utility plant..................................... 482 546 373
Purchase of investments................................... (420) (2,618) (203,165)
Sale of investments....................................... 807 14,278 203,749
-------- -------- --------
Net cash used in investing activities............... (61,832) (42,693) (52,187)
-------- -------- --------
FINANCING ACTIVITIES
Issuance of common stock.................................. 288 379 208
Repurchase of common stock................................ (16) (309)
Redemption of preferred stock............................. (238) (310) (322)
Issuance of long-term debt................................ 45,000 25,000
Retirement of long-term debt.............................. (50,000) (15,481) (650)
Increase (decrease) in short-term debt, net............... 42,099 (5,915) 603
Dividends paid on common and preferred stock, net......... (36,408) (35,453) (34,501)
-------- -------- --------
Net cash provided by (used in) financing
activities........................................ 725 (31,780) (34,971)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (314) 13,181 1,638
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 20,621 7,440 5,802
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 20,307 $ 20,621 $ 7,440
======== ======== ========
Supplementary cash flow information
Interest paid (net of amount capitalized)................. $ 29,881 $ 27,744 $ 27,457
======== ======== ========
Income taxes paid......................................... $ 20,351 $ 24,357 $ 25,762
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
14
13
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
COMMON SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1995 and 1996
-------------------------------------------------------------------
Common Stock Premium Treasury Stock
--------------------- on Capital Retained ----------------
Shares Amount Stock Earnings Shares Cost
---------- ------- ------------ -------- ------- ------
(In thousands, except share and per share amounts)
BALANCE, JANUARY 1, 1994............ 22,708,874 $45,418 $112,829 $200,908 326,380 $6,600
---------- ------- -------- -------- ------- ------
Redemptions of preferred stock...... 48
Incentive stock options exercised... 11,200 22 186
Repurchase of common stock.......... 14,300 309
Issuance of treasury stock.......... 7 (11,247) (228)
Capital stock expense............... (12)
Dividend requirements, preferred
stock, net........................ (2,026)
Cash dividends paid, common stock,
$1.45 per share................... (32,475)
Unrealized holding loss on
available-for-sale securities,
net............................... (240)
Net income.......................... 45,043
---------- ------- -------- -------- ------- ------
BALANCE, DECEMBER 31, 1994.......... 22,720,074 45,440 113,070 211,198 329,433 6,681
---------- ------- -------- -------- ------- ------
Redemptions of preferred stock...... 39
Incentive stock options exercised... 25,030 50 329
Issuance of treasury stock.......... 6 (10,987) (222)
Dividend requirements, preferred
stock, net........................ (2,052)
Cash dividends paid, common stock,
$1.49 per share................... (33,401)
Change in unrealized holding loss on
available-for-sale securities,
net............................... 240
Net income.......................... 48,703
---------- ------- -------- -------- ------- ------
BALANCE, DECEMBER 31, 1995.......... 22,745,104 45,490 113,444 224,688 318,446 6,459
---------- ------- -------- -------- ------- ------
Redemptions of preferred stock...... 31
Incentive stock options exercised... 15,050 30 220
Issuance of treasury stock.......... 7 (11,484) (233)
Incentive shares forfeited.......... 615 16
Dividend requirements, preferred
stock, net........................ (2,073)
Cash dividends paid, common stock,
$1.53 per share................... (34,336)
Net income.......................... 52,135
---------- ------- -------- -------- ------- ------
BALANCE, DECEMBER 31, 1996.......... 22,760,154 $45,520 $113,702 $240,414 307,577 $6,242
========== ======= ======== ======== ======= ======
The accompanying notes are an integral part of the consolidated financial
statements.
15
14
CENTRAL LOUISIANA ELECTRIC COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION AND REGULATION
Central Louisiana Electric Company, Inc. (the Company) provides electric
service to a diversified base of residential, commercial and industrial
customers in 23 parishes of Louisiana. The Company maintains its accounts in
accordance with the Uniform System of Accounts prescribed for electric utilities
by the Federal Energy Regulatory Commission (FERC), as adopted by the Louisiana
Public Service Commission (LPSC). The Company's retail rates for residential,
commercial and industrial customers and other retail sales are regulated by the
LPSC, and its rates for transmission services and wholesale power sales are
regulated by the FERC. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries.
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.
UTILITY PLANT AND DEPRECIATION
Utility plant is stated at the original cost of construction, which
includes certain materials, labor, payroll taxes and benefits, administrative
and general costs, and the estimated cost of funds used during construction. The
cost of repairs and minor replacements is charged as incurred to the appropriate
operating expense and clearing accounts. The cost of improvements is
capitalized. Upon retirement or disposition, the recorded cost of depreciable
plant and the cost of removal, net of salvage value, are charged to accumulated
depreciation.
The provision for depreciation is computed using the straight-line method
at rates which will amortize the unrecovered cost of depreciable property over
its estimated useful life. Annual depreciation provisions expressed as a
percentage of average depreciable property were 3.21% for 1996, 3.19% for 1995
and 3.17% for 1994.
CASH EQUIVALENTS
The Company considers highly liquid, marketable securities and other
similar instruments with original maturity dates of three months or less at the
time of purchase to be cash equivalents.
INCOME TAXES
Deferred income taxes are provided at the current enacted income tax rate
on all temporary differences between tax and book bases of assets and
liabilities. The Company recognizes regulatory assets and liabilities for the
tax effect of temporary differences, which, to the extent past ratemaking
practices are continued by regulators, will be realized over the accounting
lives of the related properties.
INVESTMENT TAX CREDITS
Investment tax credits which were deferred for financial statement purposes
are amortized to income over the estimated service lives of the properties which
gave rise to the credits.
16
15
DEBT EXPENSE, PREMIUM AND DISCOUNT
Expense, premium and discount applicable to debt securities are amortized
to income ratably over the lives of the related issues. Expense and call premium
related to refinanced debt are amortized over the remaining life of the original
issue.
REVENUES AND FUEL COSTS
Revenues from sales of electricity are recognized based upon the amount of
energy delivered. The cost of fuel is currently recovered from customers through
fuel adjustment clauses, based upon fuel costs incurred in prior months. These
adjustments are subject to audit and final determination by regulators.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The capitalization of AFUDC is a utility accounting practice prescribed by
the FERC. AFUDC represents the estimated cost of financing construction
work-in-progress. AFUDC does not represent a current source of cash, but under
regulatory practices, a return on and recovery of AFUDC is permitted in setting
rates charged for utility services. The composite AFUDC rate, including borrowed
and other funds on a combined basis, for 1996 was 13.33% on a pre-tax basis
(8.20% net of tax), and was 15.10% on a pre-tax basis (9.29% net of tax) for the
years 1995 and 1994.
NET INCOME PER COMMON SHARE
Net income per common share has been computed using the weighted average
number of shares of common stock outstanding during the year. In 1996
potentially dilutive securities had more than a 3% dilutive effect on net income
per common share due to the assumed conversion of the Incentive Stock Option
Plan and the convertible preferred stock held by the Employee Stock Ownership
Plan (ESOP). As a result, both primary and fully diluted average shares of
common stock outstanding and earnings per share are presented.
DERIVATIVES
From time to time the Company may limit or expand its exposure to interest
rate risk or electricity or generator boiler fuel market price risk by using
hedging transactions. In each case the transactions reflect underlying
indebtedness or commodity requirements. No hedging transactions are entered into
for speculative purposes. The Company did not engage in any interest rate hedges
in 1996 and has only diminimus amounts of natural gas futures transactions
outstanding at December 31, 1996.
NOTE B -- JOINTLY OWNED GENERATING UNITS
Two electric generating units operated by the Company are jointly owned
with other utilities. The Company's proportionate share of operation and
maintenance expenses associated with these two units is reflected in the
financial statements.
At December 31, 1996
-------------------------
Rodemacher Dolet Hills
Unit #2 Unit #1
---------- -----------
(Dollar amounts in
thousands)
Percentage of ownership..................................... 30% 50%
Utility plant in service.................................... $85,234 $271,401
Accumulated depreciation.................................... $36,818 $ 86,781
Unit capability (thousand kilowatts)........................ 523.0 650.0
Share of capability (thousand kilowatts).................... 156.9 325.0
17
16
NOTE C -- RECEIVABLES
During 1996 and 1995, the Company participated in a program in which it
sold an ownership interest in certain types of accounts receivable and unbilled
revenues. A maximum of $35 million of receivables could be sold at any time, and
new receivables were sold as previously sold receivables were collected. The
Company discontinued selling receivables in late 1996 and plans to terminate its
participation in the program in early 1997.
For the year ended
December 31
------------------
1996 1995
------- -------
(In thousands)
Receivables sold but not collected (at
year-end)............................. $ 0 $35,000
Average amount of receivables sold...... $33,706 $34,058
Costs charged to operating expense...... $ 1,911 $ 2,251
Receivables subject to repurchase (at
year-end)............................. $ 0 $ 4,137
Accumulated provision for uncollectible
accounts (at year-end)................ $ 681 $ 538
NOTE D -- INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
The Company classifies various debt securities it owns as
"available-for-sale" securities and carries these securities at fair value.
These securities are invested through an outside investment manager pending
final determination by the Company as to their ultimate utilization. The
original cost and fair market values for the "available-for-sale" securities
that are not classified as cash equivalents because of their short-term nature
are shown below.
At December 31
-----------------------------------------------
1996 1995
---------------------- ----------------------
Original Fair Market Original Fair Market
Cost Value Cost Value
-------- ----------- -------- -----------
(In thousands)
U.S. Treasury/Government Agency......... $0 $0 $594 $594
-- -- ---- ----
Total marketable securities... $0 $0 $594 $594
-- -- ---- ----
During 1996, there were no sales of "available-for-sale" securities.
Proceeds from the sales of "available-for-sale" securities in 1995 were $15.1
million and these sales produced gross realized gains of approximately $78,000
and gross realized losses of approximately $76,000.
18
17
The amounts reflected in the financial statements at December 31, 1996 and
1995 for cash and cash equivalents, accounts receivable, accounts payable and
short-term debt approximate fair value because of their short-term nature. The
fair value of investments at December 31, 1996 and 1995 is estimated based on
quoted market prices for these or similar investments. The fair value of the
Company's long-term debt and nonconvertible preferred stock is estimated based
upon the quoted market price for the same or similar issues or by a discounted
present value analysis of future cash flows using current rates obtainable by
the Company for debt and preferred stock with similar maturities. The fair value
of convertible preferred stock is estimated assuming its conversion into common
stock at the market price per common share at December 31, 1996 and 1995, with
proceeds from the sale of the common stock used to repay the principal balance
of the Company's loan to the ESOP.
At December 31
---------------------------------------------
1996 1995
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
(In thousands)
Investments............................... $ 585 $ 585 $ 7,786 $ 7,786
Long-term debt............................ $356,260 $364,784 $361,260 $384,427
Preferred stock
Not subject to mandatory redemption..... $ 9,529 $ 15,889 $ 7,924 $ 13,359
Subject to mandatory redemption......... $ 6,372 $ 5,490 $ 6,610 $ 4,597
NOTE E -- DEBT
The Company has a $100 million revolving credit facility with a group of
banks that provides for uncollateralized borrowings at prevailing market
interest rates or at interest rates established by competitive bids. The
facility has a scheduled termination date of June 15, 2000. The Company pays a
commitment fee (currently 0.10%) on the full amount of the facility, based upon
the Company's lowest senior secured debt rating. The Company is not required to
maintain compensating balances in connection with the revolving credit facility.
In addition to its revolving credit facility, the Company also has various
uncommitted borrowing arrangements with banks totaling $20 million. The banks
are not obligated to lend under uncommitted arrangements, and any borrowings are
made at negotiated interest rates and are uncollateralized. The Company pays no
fees on any of the uncommitted arrangements, nor are compensating balances
required. The weighted average interest rate on short-term debt was 5.56% at
December 31, 1996 and 5.90% at December 31, 1995.
19
18
Changes in total indebtedness for the two-year period ended December 31,
1996, were as follows:
At December 31
----------------------
1996 1995
-------- --------
(In thousands)
Commercial paper, net...................................... $ 65,161 $ 22,922
Bank loans................................................. 140
-------- --------
Total short-term debt............................ $ 65,161 $ 23,062
======== ========
First mortgage bonds
Series X, 9 1/2%, due 2005............................... $ 60,000 $ 60,000
Series Y, 9 5/8%, due 2021, redeemed 1996................ 50,000
Pollution control revenue bonds, variable rate, due 2018... 61,260 61,260
Medium-term notes
9.10%, due 1997.......................................... 5,000 5,000
9.15%, due 1997.......................................... 10,000 10,000
7.85%, due 2000.......................................... 25,000 25,000
7.55%, due 2004, callable at 100%, 2002.................. 15,000 15,000
7.50%, due 2004, callable at 100%, 2002.................. 10,000 10,000
7.00%, due 2003.......................................... 10,000 10,000
6.90%, due 1998.......................................... 15,000 15,000
5.90%, due 1999.......................................... 10,000 10,000
6.55%, due 2003.......................................... 15,000 15,000
6.33%, due 2002.......................................... 25,000 25,000
5.78%, due 2001.......................................... 10,000 10,000
6.20%, due 2006.......................................... 15,000 15,000
6.42%, due 2001.......................................... 15,000 15,000
6.95%, due 2006.......................................... 10,000 10,000
6.53%, due 2007.......................................... 10,000
6.32%, due 2006.......................................... 15,000
6.28%, due 2018, putable at 100%, 1999................... 20,000
-------- --------
Total long-term debt............................. $356,260 $361,260
Amount due within one year................................. (15,000)
Unamortized premium and discount, net...................... (401) (438)
-------- --------
Total long-term debt, net........................ $340,859 $360,822
======== ========
1997 1998 1999 2000 2001 Thereafter
------- ------- ------- ------- ------- ----------
(In thousands)
Amounts payable under long-term debt
agreements........................ $15,000 $15,000 $30,000 $25,000 $25,000 $246,260
======= ======= ======= ======= ======= ========
NOTE F -- COMMON STOCK
In association with incentive compensation plans in effect during the
three-year period ended December 31, 1996, certain officers and key employees
could be awarded shares of restricted or unrestricted common stock or granted
options to purchase shares of the Company's common stock at 100% of the fair
market value of the common stock at the dates the options were granted. The cost
of the restricted stock awards, as measured by the market value of the common
stock at the time of the grant, is recorded as compensation expense during the
periods in which the restrictions on the common stock lapse. Had the Company
accounted for the value of these awards after 1995 using an estimate of their
"fair value," including the effect of historical volatility of the market price,
rather than their intrinsic value, there would have been no significant change
in net income or
20
19
earnings per share. The Company makes no charge to expense with respect to the
granting of options. At December 31, 1996, all options were exercisable, while
the number of shares of restricted stock previously granted for which
restrictions had not lapsed totaled 42,291 shares.
Changes in incentive shares for the three-year period ended December 31,
1996, were as follows:
Incentive Shares
----------------------------------------------
Option Price Unexercised Available for
per Share Option Shares Future Grants
------------ ------------- -------------
Balance, January 1, 1994................ 70,430 771,315
------- -------
Options exercised....................... $14.75 (6,500)
$16.78 (4,700)
Restricted stock granted................ (9,263)
Incentive stock awarded................. (2,274)
------- -------
Balance, December 31, 1994.............. 59,230 759,778
------- -------
Options exercised....................... $14.75 (18,230)
$16.78 (6,800)
Restricted stock granted................ (11,186)
------- -------
Balance, December 31, 1995.............. 34,200 748,592
------- -------
Options exercised....................... $14.75 (1,250)
$16.78 (13,800)
Options lapsed.......................... $14.75 (750)
Restricted stock granted................ (12,751)
Restricted stock forfeited.............. 615
Incentive stock awarded................. (3,607)
------- -------
BALANCE, DECEMBER 31, 1996.............. 18,400 732,849
======= =======
Various debt agreements of the Company contain covenants which restrict the
amount of retained earnings that may be distributed as dividends to common
shareholders. The most restrictive covenant requires that common shareholders'
equity be not less than 30% of total capitalization, including short-term debt.
At December 31, 1996, approximately $144.3 million of retained earnings was not
restricted.
NOTE G -- SUPPLEMENTARY PROFIT AND LOSS INFORMATION
For the years ended December 31
--------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
Operating revenue derived from one
customer.............................. $33,359 $28,695 $28,259
======= ======= =======
Other taxes included in the consolidated
income statements..................... $29,595 $29,063 $28,899
Other taxes capitalized to plant........ 1,049 1,010 742
------- ------- -------
Total other taxes....................... $30,644 $30,073 $29,641
======= ======= =======
Other taxes consist of:
State and municipal property.......... $16,302 $15,868 $15,406
State and municipal franchise......... 10,434 10,072 10,424
Other................................. 3,908 4,133 3,811
------- ------- -------
Total other taxes....................... $30,644 $30,073 $29,641
======= ======= =======
21
20
NOTE H -- PREFERRED STOCK
In connection with the establishment of the ESOP, the Company sold 300,000
shares of 8.125% convertible preferred stock to the ESOP. Each share of
preferred stock is convertible into 4.8 shares of common stock. The amount of
total capitalization reflected in the consolidated financial statements has been
reduced by an amount of deferred compensation expense related to the shares of
convertible preferred stock which have not yet been allocated to ESOP
participants. The amount shown in the consolidated financial statements for
preferred dividend requirements in 1996, 1995 and 1994 has been reduced by
$658,000, $716,000 and $771,000, respectively, to reflect the benefit of the
income tax deduction for dividend requirements on unallocated shares held by the
ESOP.
Upon involuntary liquidation, preferred shareholders are entitled to
receive par value for shares held before any distribution is made to common
shareholders. Upon voluntary liquidation, preferred shareholders are entitled to
receive the redemption price per share applicable at the time such liquidation
occurs plus any accrued dividends.
Information about the components of preferred stock capitalization is as
follows:
Balance Balance Balance Balance
Jan. 1, Dec. 31, Dec. 31, Dec. 31,
1994 Change 1994 Change 1995 Change 1996
--------- ------- --------- ------- --------- ------- ---------
(In thousands, except share amounts)
CUMULATIVE PREFERRED STOCK, $100 par
value
NOT SUBJECT TO MANDATORY REDEMPTION
4.50%............................... $ 1,029 $ 1,029 $ 1,029 $ 1,029
Convertible, Series of 1991,
variable rate..................... 29,953 $ (234) 29,719 $ (229) 29,490 $ (239) 29,251
--------- ------- --------- ------- --------- ------- ---------
$ 30,982 $ (234) $ 30,748 $ (229) $ 30,519 $ (239) $ 30,280
========= ======= ========= ======= ========= ======= =========
SUBJECT TO MANDATORY REDEMPTION
4.50%, Series of 1955............... $ 480 $ (40) $ 440 $ (40) $ 400 $ (40) $ 360
4.65%, Series of 1964............... 3,500 (140) 3,360 (140) 3,220 (140) 3,080
4.75%, Series of 1965............... 3,262 (142) 3,120 (130) 2,990 (58) 2,932
--------- ------- --------- ------- --------- ------- ---------
$ 7,242 $ (322) $ 6,920 $ (310) $ 6,610 $ (238) $ 6,372
========= ======= ========= ======= ========= ======= =========
Deferred compensation related to
convertible preferred stock held by
the ESOP............................ $ (26,118) $ 1,714 $ (24,404) $ 1,809 $ (22,595) $ 1,844 $ (20,751)
========= ======= ========= ======= ========= ======= =========
CUMULATIVE PREFERRED STOCK, $100 par
value
Number of Shares
Authorized.......................... 1,419,619 (2,819) 1,416,800 (2,700) 1,414,100 (1,975) 1,412,125
Issued and Outstanding.............. 382,238 (5,562) 376,676 (5,389) 371,287 (4,768) 366,519
========= ======= ========= ======= ========= ======= =========
CUMULATIVE PREFERRED STOCK, $25 par
value
Number of Shares Authorized
(None outstanding).................. 3,000,000 3,000,000 3,000,000 3,000,000
========= ========= ========= =========
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21
Preferred stock, other than the convertible preferred stock held by the
ESOP, is redeemable at the Company's option, subject to 30 days' prior written
notice to holders. Preferred stock subject to mandatory redemption is redeemable
annually through sinking funds or purchase funds at prices of not more than $100
per share until all shares have been redeemed. The convertible preferred stock
is redeemable at any time at the Company's option. If the Company were to elect
to redeem the convertible preferred shares, shareholders may elect to receive
the optional redemption price or convert the preferred shares into common stock.
The redemption provisions for the various series of preferred stock are shown in
the following table.
Optional Redemption Mandatory Redemption
------------------- ----------------------------
Price Number of Price
Series per Share Shares Annually per Share
------ --------- --------------- ---------
4.50%................................... $101
4.50%, Series of 1955................... $102 400 $100
4.65%, Series of 1964................... $102 1,400 $100
4.75%, Series of 1965................... $100 1,300* $100
Convertible, Series of 1991
Through April 1, 1997................. $104.0625
Thereafter............................ $103.25 to $100
* The Company is required to offer holders of the Series of 1965 the opportunity
to redeem 1,300 shares each year. The Company is required to redeem only
shares actually tendered, if any.
NOTE I -- PENSION PLAN AND EMPLOYEE BENEFITS
Substantially all employees are covered by a noncontributory, defined
benefit pension plan. Benefits under the plan reflect an employee's years of
service, age at retirement and highest total average compensation for any
consecutive five calendar years during the last ten years of employment with the
Company. The Company's policy is to fund contributions to the employee pension
plan based upon actuarial computations utilizing the projected unit credit
method, subject to the Internal Revenue Service's full funding limitation. No
contributions to the pension plan were required during the three-year period
ended December 31, 1996. Effective January 1, 1993, the Company began accounting
for its pension plan on an accrual basis for ratemaking purposes with the
approval of the LPSC staff. A previously recorded regulatory credit with regard
to the pension plan is being amortized to income over a five-year period,
subject to review by the LPSC in future proceedings.
For the years ended December 31
--------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
Service costs for benefits earned during
the period............................ $ 3,010 $ 2,498 $ 2,648
Interest costs on projected benefit
obligation............................ 6,768 6,542 6,269
Actual gain on assets................... (9,572) (8,920) (8,730)
Net amortization and deferral........... (1,037) (1,037) (1,037)
------- ------- -------
Net pension benefit cost................ $ (831) $ (917) $ (850)
======= ======= =======
Actuarial assumptions
Weighted average discount rate........ 7.50% 7.00% 7.50%
Rate of increase in future
compensation....................... 5.00% 5.00% 5.00%
Rate of return on plan assets......... 9.50% 9.50% 9.50%
Employee pension plan assets are invested in the Company's common stock,
other publicly traded domestic common stocks, U.S. government, federal agency
and corporate obligations, an international equity fund, commercial real estate
funds and pooled temporary investments.
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The employee pension plan's funded status as determined by the actuary at
December 31, 1996 and 1995 is presented in the following table.
1996 1995
-------- ---------
(In thousands)
Actuarial present value of benefit obligation
Vested benefits........................................... $(77,769) $ (77,427)
Nonvested benefits........................................ (3,648) (3,479)
-------- ---------
Accumulated benefit obligation............................ (81,417) (80,906)
Effect of projected future compensation levels............ (16,307) (19,352)
-------- ---------
Projected benefit obligation for service rendered to date... (97,724) (100,258)
Plan assets at fair market value............................ 138,672 121,801
-------- ---------
Plan assets in excess of projected benefit obligation....... 40,948 21,543
Unamortized transition asset................................ (9,261) (10,578)
Unrecognized net gain....................................... (26,226) (6,336)
-------- ---------
Prepaid pension asset....................................... $ 5,461 $ 4,629
======== =========
Substantially all employees are eligible to participate in a savings and
investment plan (401(k) Plan). The Company makes matching contributions to
401(k) Plan participants by allocating shares of convertible preferred stock
held by the ESOP. Compensation expense related to the 401(k) Plan is based upon
the value of shares of preferred stock allocated to ESOP participants, and the
amount of interest incurred by the ESOP, less dividends on unallocated shares
held by the ESOP. At December 31, 1996 and 1995, the ESOP had allocated to
employees 89,655 and 71,761 shares, respectively.
The table below contains information about the 401(k) Plan and the ESOP:
For the years ended December 31
--------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
401(k) Plan expense.................................... $1,490 $1,542 $1,537
------ ------ ------
Dividend requirements to ESOP on convertible preferred
stock................................................ $2,378 $2,396 $2,415
------ ------ ------
Interest incurred by ESOP on its indebtedness.......... $1,746 $1,905 $2,008
------ ------ ------
Company contributions to ESOP.......................... $1,239 $1,071 $1,205
------ ------ ------
The Company's retirees and their dependents are eligible to receive health,
dental and life insurance benefits. The Company recognizes the expected cost of
these benefits during the periods in which the benefits are earned.
The components of net postretirement benefit cost for 1996, 1995 and 1994,
were as follows:
1996 1995 1994
------ ------ ------
(In thousands)
Service costs for benefits earned...................... $ 596 $ 639 $ 640
Interest costs......................................... 934 1,066 1,025
Amortization of transition obligation.................. 513 513 567
------ ------ ------
Net postretirement benefit cost........................ $2,043 $2,218 $2,232
====== ====== ======
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The financial status of the postretirement benefit plan at December 31,
1996 and 1995, as determined by the actuary, is presented in the following
table.
1996 1995
------- -------
(In thousands)
Accumulated benefit obligation
Retirees.................................................. $ 8,169 $10,255
Fully eligible participants............................... 2,581 1,958
Other active participants................................. 2,591 3,954
------- -------
Total accumulated benefit obligation........................ 13,341 16,167
Unamortized transition obligation........................... (8,213) (8,726)
Unrecognized gain (loss).................................... 3,005 (630)
------- -------
Accrued unfunded postretirement benefit liability........... $ 8,133 $ 6,811
======= =======
The assumed health care cost trend rate used to measure the expected cost
of benefits was 10% in 1996, declining to 5.5% by 2008 and remaining at 5.5%
thereafter. The initial health care cost trend rate was reduced from 10.5% in
1995 to 8.5% in 1996 and resulted in an unrecognized gain. If the health care
cost trend rate assumptions were increased by 1%, the accumulated benefit
obligation would be $13.8 million at December 31, 1996, and the aggregate of the
service and interest cost components of the net periodic cost of health care
benefits would be $1.6 million annually. The weighted average assumed discount
rate used to measure the accumulated benefit obligation in 1996 was changed from
7% to 7.5% and together with a decrease in per capita claims cost, resulted in
an unrecognized gain. The weighted average assumed discount rate used to measure
the accumulated benefit obligation in 1995 was changed from 7.5% to 7% and
resulted in an unrecognized loss.
In 1994 the Company announced a plan to consolidate 25 customer service
offices into ten regional offices by June 1995. This plan resulted in a
restructuring charge to 1994 earnings of $1.2 million. This charge consisted
mainly of voluntary severance benefits and customer service office lease
commitment costs.
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NOTE J -- INCOME TAX EXPENSE
Federal income tax expense is less than the amount computed by applying the
statutory federal rate to book income before tax as follows:
For the years ended December 31
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Amount % Amount % Amount %
------- ----- ------- ----- ------- -----
(In thousands, except for %)
Book income before tax................ $78,289 100.0 $73,932 100.0 $64,944 100.0
------- ----- ------- ----- ------- -----
Tax at statutory rate on book income
before tax.......................... $27,401 35.0 $25,876 35.0 $22,730 35.0
Increase (decrease):
Tax effect of AFUDC................. (185) (0.2) (1,029) (1.4) (805) (1.2)
Amortization of investment tax
credits.......................... (1,809) (2.3) (1,814) (2.5) (1,819) (2.8)
Tax effect of prior-year tax
benefits not deferred............ 921 1.1 900 1.2 537 0.8
Other, net.......................... (3,296) (4.2) (1,435) (1.9) (3,219) (5.0)
------- ----- ------- ----- ------- -----
Total federal income tax expense...... 23,032 29.4 22,498 30.4 17,424 26.8
------- ----- ------- ----- ------- -----
Current state income tax expense...... 3,122 4.0 2,731 3.7 2,477 3.8
------- ----- ------- ----- ------- -----
Total federal and state income tax
expense............................. $26,154 33.4 $25,229 34.1 $19,901 30.6
======= ===== ======= ===== ======= =====
Information about current and deferred income tax expense is as follows:
1996 1995 1994
------- ------- -------
(In thousands)
Current federal income tax expense.................. $21,023 $21,458 $16,798
Deferred federal income tax expense................. 3,818 2,854 2,445
Amortization of accumulated deferred investment tax
credits........................................... (1,809) (1,814) (1,819)
------- ------- -------
Total federal income tax expense.................... 23,032 22,498 17,424
Current state income tax expense.................... 3,122 2,731 2,477
------- ------- -------
Total federal and state income tax expense.......... $26,154 $25,229 $19,901
======= ======= =======
Deferred federal income tax expense attributable to:
Depreciation...................................... $ 4,834 $ 3,746 $ 4,466
Storm damages..................................... 70 (15) (340)
Asset basis differences........................... 425 (1,213) (352)
Employee benefits................................. (504) (558) (455)
Fuel costs........................................ (481) 890 (244)
Other............................................. (526) 4 (630)
------- ------- -------
Total deferred federal income tax expense........... $ 3,818 $ 2,854 $ 2,445
======= ======= =======
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The balance of accumulated deferred federal and state income tax assets and
liabilities at December 31, 1996 and 1995 was comprised of the tax effect of the
following:
1996 1995
-------------------- --------------------
Asset Liability Asset Liability
------- --------- ------- ---------
(In thousands)
Depreciation and property basis
differences......................... $ 6,851 $129,710 $ 6,311 $125,494
Allowance for funds used during
construction........................ 41,564 42,038
Investment tax credits................ 19,617 20,844
FASB 109 adjustments.................. 38,897 101,287 34,126 93,383
Postretirement benefits other than
pension............................. 3,007 2,414
Other................................. 5,859 9,123 2,763 5,958
------- -------- ------- --------
Accumulated deferred federal and state
income taxes........................ $74,231 $281,684 $66,458 $266,873
======= ======== ======= ========
Regulatory assets recorded for deferred taxes at December 31, 1996 and 1995
were $103.8 million and $119 million, respectively. Regulatory liabilities
recorded for deferred taxes at December 31, 1996 and 1995 were $60.1 million and
$79.3 million, respectively. Regulatory assets and liabilities will be realized
over the accounting lives of the related properties to the extent past
ratemaking practices are continued by regulators.
An audit of the Company's 1991 and 1992 tax returns was completed by agents
of the Internal Revenue Service (IRS) in January 1995. A settlement of these
audit assessments totaling $0.9 million has been proposed by IRS appeals
officer. Deferred federal income taxes have been provided for all temporary
differences, and reserves have been provided for other issues. In October 1996,
the IRS agents completed an audit of the 1993 and 1994 tax returns. The
assessments in this audit totaling $1.3 million were agreed to and paid at the
conclusion of the audit. Interest has not been paid in either settlement but all
interest through December 31, 1996, has been accrued.
NOTE K -- COMMITMENTS AND CONTINGENCIES
Construction expenditures for 1997 are estimated to be $67.5 million,
excluding AFUDC, and for the five-year period ending 2001 are expected to total
$280 million, excluding AFUDC. Scheduled maturities of debt and preferred stock
will total about $15.3 million for 1997 and approximately $111.6 million for the
five-year period ending 2001.
The Company has entered into various long-term contracts for the
procurement of coal and lignite to fuel certain of its generating stations.
These contracts contain provisions for price changes, minimum purchase levels
and other financial commitments. The Company purchases, as an additional fuel
source for generation, natural gas under short-term contracts on the spot
market.
The Company has accrued for liabilities to third parties, environmental
claims, employee medical benefits, storm damages and deductibles under insurance
policies which it maintains on major properties, primarily generating stations
and transmission substations. Consistent with regulatory treatment, annual
charges to operating expense to provide a reserve for future storm damages are
based upon the average amount of noncapital, uninsured storm damages experienced
by the Company during the previous five years.
In early 1995, the Company and Teche Electric Cooperative, Inc. (Teche)
executed a purchase and sale agreement regarding a purchase of all of the assets
of Teche by the Company for a purchase price, including the Company's assumption
or other discharge of Teche's liabilities, of approximately $22.4 million.
Closing of the transaction is subject to a number of conditions,
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including approval by the LPSC and the Rural Utilities Service, successful
resolution of Teche's power supply contract with Cajun Electric Cooperative,
Inc. (Cajun) and certain other conditions. The Teche members approved the sale
at their annual meeting in March 1995. On March 31, 1996, the board of directors
of Teche voted to extend the Purchase and Sale Agreement with the Company for an
additional twelve months until March 31, 1997 to allow for the Teche wholesale
power contract with Cajun to be resolved through Cajun's bankruptcy process.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121), establishes accounting standards for determining if long-lived
assets are impaired, and when and how losses, if any, should be recognized. The
Company believes that the net cash flows that will result from the operation of
its assets are sufficient to cover the carrying value of the assets.
The Company has recorded regulatory assets and liabilities, primarily for
the effects of income taxes, as a result of past rate actions of the Company's
regulators, pursuant to Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71). The
effects of potential deregulation of the industry or possible future changes in
the method of rate regulation of the Company could require that the Company
discontinue the application of SFAS 71, pursuant to Statement of Financial
Accounting Standards No. 101, "Regulated Enterprises -- Accounting for the
Discontinuation of Application of FASB Statement No. 71" (SFAS 101). At December
31, 1996, the Company had recorded $43.8 million of regulatory assets, net of
regulatory liabilities, because of the regulatory requirement to flow through
the tax benefits of accelerated deductions to current customers and an implied
regulatory compact that future customers would pay when the Company paid the
additional taxes. These differences occur over the lives of relatively
long-lived assets, up to 30 years or more. Under the current regulatory and
competitive environment, the Company believes that these regulatory assets are
fully recoverable. However, if in the future, as a result of regulatory changes
or increased competition, the Company's ability to recover these regulatory
assets would not be probable, then to the extent that such regulatory assets
were determined not to be recoverable, the Company would be required to write
off or write down such assets.
NOTE L -- MISCELLANEOUS FINANCIAL INFORMATION (UNAUDITED)
Quarterly information for 1996 and 1995 is shown in the following table.
1996
------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- -------- -------- -------
(In thousands, except per share amounts)
Operating revenues.......................... $98,606 $112,867 $130,054 $93,889
Operating income............................ $16,747 $ 21,566 $ 27,190 $12,918
Net income applicable to common stock....... $ 9,516 $ 14,026 $ 20,379 $ 6,140
Primary net income per average common
share..................................... $ 0.42 $ 0.63 $ 0.91 $ 0.27
Fully diluted net income per average common
share..................................... $ 0.41 $ 0.61 $ 0.87 $ 0.27
Dividends paid per common share............. $ 0.375 $ 0.385 $ 0.385 $ 0.385
Market price per share
High...................................... $27 3/4 $ 27 3/8 $ 27 1/4 $29 1/4
Low....................................... $25 3/8 $ 25 1/8 $ 25 3/8 $26 1/8
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1995
------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- -------- -------- -------
(In thousands, except per share amounts)
Operating revenues.......................... $79,872 $100,599 $123,383 $90,572
Operating income............................ $14,589 $ 20,295 $ 27,444 $12,374
Net income applicable to common stock....... $ 7,582 $ 13,490 $ 20,556 $ 5,023
Primary net income per average common
share..................................... $ 0.34 $ 0.60 $ 0.92 $ 0.22
Fully diluted net income per average common
share..................................... $ 0.33 $ 0.58 $ 0.88 $ 0.22
Dividends paid per common share............. $ 0.365 $ 0.375 $ 0.375 $ 0.375
Market price per share
High...................................... $24 1/2 $ 24 1/2 $ 25 5/8 $28 1/8
Low....................................... $ 22 $ 22 1/8 $ 22 1/4 $25 1/4
The Company's common stock is listed for trading on the New York and
Pacific stock exchanges under the ticker symbol "CNL." The Company's preferred
stock is not listed on any stock exchange. On December 31, 1996, the Company had
11,765 common and 184 preferred shareholders, as determined from the records of
the transfer agent.
On January 24, 1997, the Company's Board of Directors declared a quarterly
dividend of 38 1/2 cents per share payable February 15, 1997, to common
shareholders of record on February 3, 1997. Preferred dividends were also
declared, payable March 1, 1997, to preferred shareholders of record on February
15, 1997.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Central Louisiana Electric Company, Inc.
We have audited the accompanying consolidated balance sheets of Central
Louisiana Electric Company, Inc. as of December 31, 1996 and 1995, and the
related consolidated statements of income, cash flows and changes in common
shareholders' equity for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Central Louisiana Electric Company, Inc. as of December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
January 29, 1997
30