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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1993
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 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
(State or other jurisdiction 74-1885573
of incorporation or organization) (I.R.S. employer identification number)
5 POST OAK PARK
4400 POST OAK PARKWAY
HOUSTON, TEXAS 77027
(713) 629-3000 (713) 629-3000
(Address and zip code of principal executive offices) (Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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 (I.R.S. employer identification number)
of incorporation or organization)
611 WALKER AVENUE
HOUSTON, TEXAS 77002 (713) 228-9211
(Address and zip code of principal execuive offices) (Registrant's telephone number, 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
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 $8.50 Series.
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes { X }
No { }
The aggregate market value of the voting stock held by non-affiliates of
Houston Industries Incorporated was $5,203,106,003 as of March 1, 1994,
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, 1994, Houston Industries Incorporated had 130,708,985
shares of Common Stock outstanding. As of March 1, 1994, all 1,000 shares
of Houston Lighting & Power Company's Class A voting common stock, without
par value, were held by Houston Industries Incorporated and all 100
authorized and outstanding shares of Houston Lighting & Power Company's
Class B non-voting common stock were held by Houston Industries (Delaware)
Incorporated.
Portions of the definitive proxy statement relating to the 1994 Annual
Meeting of Shareholders of Houston Industries Incorporated, which will be
filed within 120 days of December 31, 1993, 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 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. { }
2
This combined Form 10-K is separately filed by Houston Industries Incorporated
and Houston Lighting & Power Company. Information contained herein relating to
Houston Lighting & Power Company is filed by Houston Industries Incorporated
and separately by Houston Lighting & Power Company on its own behalf. Houston
Lighting & Power Company makes no representation as to information relating to
Houston Industries Incorporated (except as it may relate to Houston Lighting &
Power Company) or to any other affiliate or subsidiary of Houston Industries
Incorporated.
DEFINITIONS
When used herein, the following terms will have the meanings indicated.
TERM DEFINITION
- --------------- -----------------------------------------------
1935 Act Public Utility Holding Company Act of 1935
1992 Cable Act Cable Television Consumer Protection and
Competition Act of 1992
AFUDC Allowance for Funds Used During Construction
ATC American Television and Communications
Austin City of Austin
BBtu Billion British Thermal Units
Bcf Billion Cubic Feet
Cable Act Cable Communications Policy Act of 1984
CERCLA Comprehensive Environmental Response,
Compensation and Liability Act
Clean Air Act Federal Clean Air Act including Amendments
of 1990
Clean Water Act Clean Water Act Amendments of 1987
CNN Cable News Network
Company Houston Industries Incorporated
CPL Central Power and Light Company
CSW Central and South West Corporation
DOE Department of Energy
DSM Demand Side Management
DuPont E.I. du Pont de Nemours Company
Energy Act Energy Policy Act of 1992
EPA U.S. Environmental Protection Agency
ESOP Employee Stock Ownership Plan of Houston
Industries Incorporated
EWG Exempt Wholesale Generator
ESPN Entertainment & Sports Programming Network
Exxon Exxon Company, U.S.A.
FASB Financial Accounting Standards Board
FCC Federal Communications Commission
FERC Federal Energy Regulatory Commission
Gulf States Gulf States Utilities Company
HBO Home Box Office
HL&P Houston Lighting & Power Company
Houston City of Houston
Houston Argentina Houston Argentina S.A.
HI Energy Houston Industries Energy, Inc.
Houston Industries
Finance Houston Industries Finance, Inc.
IRP Integrated Resource Planning
IRS Internal Revenue Service
KBL Cable KBL Cable, Inc.
KBLCOM KBLCOM Incorporated
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TERM DEFINITION
- --------------- -----------------------------------------------
KW Kilowatt (1,000 Watts)
KWH Kilowatt-Hour
LIBOR London Interbank Offered Rate
Limestone Limestone Electric Generating Station
Malakoff Malakoff Electric Generating Station
MD&A Management's Discussion and Analysis of
Financial Condition and Results of Operations
Mva Megavolt Amperes
MMBtu Million British Thermal Units
MMcf Million Cubic Feet
MW Megawatt (1,000 KW)
NCTA National Cable Television Association
NRC United States Nuclear Regulatory Commission
Paragon Paragon Communications
PCB Polychlorinated Biphenyl
PURA Texas Public Utility Regulatory Act of 1975
as Amended
RBOC Regional Bell Operating Company
RCRA Resource Conservation and Recovery Act
San Antonio City of San Antonio
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
Showtime Showtime Networks, Inc.
South Texas Project South Texas Project Electric Generating Station
STEP Success Through Excellence in Performance
Sunset Act Texas Sunset Act
TNRCC Texas National Resource Conservation Commission
Utility Commission Public Utility Commission of Texas
Utility Fuels Utility Fuels, Inc.
W. A. Parish W. A. Parish Electric Generating Station
Westinghouse Westinghouse Electric Corporation
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HOUSTON INDUSTRIES INCORPORATED
HOUSTON LIGHTING & POWER COMPANY
Form 10-K for the Year Ended December 31, 1993
TABLE OF CONTENTS
Page No.
--------
PART I
- ------
Item 1. Business:
The Company and Its Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Business of HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Business of KBLCOM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Businesses of Other Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Regulation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Executive Officers of HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 38
PART II
- -------
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Item 6. Selected Financial Data:
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Item 8. Financial Statements and Supplementary Data:
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
HL&P Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 74
Notes to HL&P Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
PART III
- --------
Item 10. Directors and Executive Officers of the Company
and HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 123
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
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PART I
ITEM 1. BUSINESS:
THE COMPANY AND ITS SUBSIDIARIES.
The Company, incorporated in Texas in 1976, is a holding company
operating principally in two business segments, the electric utility business
and the cable television business. The Company conducts its operations
primarily through three subsidiaries: HL&P, its principal operating
subsidiary, KBLCOM and HI Energy. See "Regulation of the Company" for a
description of the Company's status under the 1935 Act.
HL&P is engaged in the generation, transmission, distribution and sale
of electric energy and serves over 1.4 million customers in an approximately
5,000 square-mile area of the Texas Gulf Coast, including Houston. As of
December 31, 1993, the total assets and common stock equity of HL&P represented
88% of the Company's consolidated assets and 113% of the Company's consolidated
common stock equity, respectively. For the year ended December 31, 1993, the
operations of HL&P accounted for 108% of the Company's consolidated net income.
See "Business of HL&P."
The cable television operations of the Company are conducted through
KBLCOM and its subsidiaries. This segment includes five cable television
systems located in four states and a 50% interest in Paragon, a partnership
which owns systems located in seven states. As of December 31, 1993, KBLCOM's
systems served approximately 605,000 basic cable customers subscribing to
approximately 488,000 premium programming units. According to information
provided by Paragon's managing partner, Paragon served approximately 932,000
basic cable customers subscribing to approximately 542,000 premium programming
units. See "Business of KBLCOM."
HI Energy was recently organized by the Company to participate in
domestic and foreign power generation projects and to invest in the
privatization of foreign electric utilities. HI Energy is actively engaged in
the evaluation of several such projects, but has not yet committed significant
financial or other resources to any single project. See "Businesses of Other
Subsidiaries - HI Energy."
As of December 31, 1993, the Company and its subsidiaries had 11,350
full-time employees. HL&P had 9,578 full-time employees, and KBLCOM and its
subsidiaries had 1,581 full-time employees (excluding employees of joint
ventures and partnerships in which the Company holds less than a majority
interest).
For certain financial information with respect to each of the
Company's two principal business segments, see Note 16 to the Company's
Consolidated and HL&P's Financial Statements in Item 8 of this Report.
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BUSINESS OF HL&P.
HL&P, incorporated in Texas in 1906, is engaged in the generation,
transmission, distribution and sale of electric energy. Sales are made to
residential, commercial and industrial customers in an approximately 5,000
square-mile area of the Texas Gulf Coast, including Houston.
CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY BUSINESS
As an electric utility, HL&P has been affected, to varying degrees, by
a number of factors that have affected the electric utility industry in
general. These factors include, among others, difficulty in obtaining rate
increases sufficient to provide an adequate return on invested capital, high
costs and delays associated with environmental and nuclear regulations, changes
in regulatory climate, prudence audits, competition from other energy suppliers
and difficulty in obtaining regulatory approval for construction of new
generating plants. HL&P is unable to predict the future effect of these or
other factors upon its operations and financial condition. HL&P's results of
operations are significantly affected by decisions of the Utility Commission
primarily in connection with rate increase applications filed prior to 1991 by
HL&P. Although Utility Commission action on those applications has been
completed, a number of the orders of the Utility Commission are currently
subject to judicial review. Rate issues relating to a possible proceeding to
review HL&P's rate levels and to review costs associated with the outage of the
South Texas Project are also pending before the Utility Commission. For a
discussion of these matters, see Notes 9, 10, 11 and 12 to the Company's
Consolidated and HL&P's Financial Statements in Item 8 of this Report.
HL&P is project manager and one of four co-owners of the South Texas
Project, which consists of two 1,250 MW nuclear generating units. HL&P owns a
30.8% interest in the South Texas Project. Both generating units at the South
Texas Project were out of service from February 1993 to February 1994 when Unit
No. 1 was authorized by the NRC to return to service. In June 1993, the NRC
placed the South Texas Project on its "watch list" of plants with "weaknesses
that warrant increased NRC attention." Such action followed the NRC's issuance
of a report issued by its Diagnostic Evaluation Team which identified a number
of areas requiring improvement. For a description of litigation and regulatory
proceedings relating to the South Texas Project including, among other things,
the NRC's diagnostic evaluation of the South Texas Project, the operating
status of the South Texas Project and Austin's lawsuit filed on February 22,
1994, see "Regulatory Matters" below, Item 3 of this Report, "Results of
Operations - HL&P - United States Nuclear Regulatory Commission (NRC)
Diagnostic Evaluation of the South Texas Project" in Item 7 of this Report and
Notes 9(b), 9(c), 9(f), 10 and 11 to the Company's Consolidated and HL&P's
Financial Statements in Item 8 of this Report.
In 1992, Congress enacted the Energy Act which, among other changes,
exempts from the 1935 Act EWGs, a class of electric power producers engaged in
sales of electric energy exclusively at wholesale. For information with
respect to the Energy Act, see "Competition" and "Regulatory Matters" below and
Note 8(a) to the Company's Consolidated and HL&P's Financial Statements in Item
8 of this Report. In 1995, the Texas legislature is expected to consider
various proposals regarding the organization and responsibilities of the
Utility Commission. For information regarding the Sunset Act review process
and Utility Commission rulemaking activities regarding IRP, see "Regulatory
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Matters - Rates and Services" below.
SERVICE AREA
While employment, personal income and industrial activity in the
Houston area steadily increased from 1987 to 1990, the effects of the national
recession have since slowed growth in HL&P's service area. While the local
economy continues to slowly expand and diversify in numerous areas, such as
medical, professional and engineering services, it is still dependent, to a
large degree, on oil, gas, refined products, petrochemicals and related
businesses.
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.
MAXIMUM HOURLY FIRM DEMAND AND CAPABILITY
The following table sets forth, for the years indicated, information
with respect to HL&P's net capability, maximum hourly firm demand and the
resulting reserve margin:
Maximum Hourly Firm Demand
--------------------------
Installed Pur- % Change
Net chased Total Net From Reserve
Capability Power Capability Prior Margin
Year (MW) (MW)(1) (MW) Date MW (2) Year (%)
- ---- ---------- ------- ---------- ------- ------ -------- -------
1989 13,644 820 14,464 Sep. 1 10,456 0.3 38.3
1990 13,584 945 14,529 Aug. 27 11,150 6.6 30.3
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
- -------------------
(1) Reflects firm capacity purchased.
(2) Does not include interruptible load at time of peak.
At December 31, 1993, HL&P owned and operated generating facilities
with installed net generating capability of 13,679 MW.
HL&P experienced a maximum hourly firm demand in 1993, a year of
unusually warm summer weather, of 11,397 MW, a 5.7% increase over the maximum
hourly firm demand in 1992, a year of unusually mild summer weather. Including
interruptible demand, the maximum hourly firm demand actually served in 1993
was 12,472 MW compared to 11,638 MW in 1992.
For planning purposes, HL&P currently expects maximum hourly firm
demand for electricity to grow at a compound annual rate of about 1.6% over the
next ten years. Assuming average weather conditions, reserve margins are
projected to decrease from an estimated 25% in 1994 to an estimated 21% in 1997
as a result of growth in maximum hourly firm demand and the expiration of
certain firm cogeneration contracts. Assuming average weather conditions, HL&P
projects that reserve margins in 1998 will decrease to 18%. For long-term
planning purposes, HL&P expects to maintain a reserve margin in the range of
17%-20% in excess of its
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estimate of maximum hourly firm demand load requirements. See "Capital
Program" and "Competition" below.
HL&P experiences significant seasonal variation in its sales of
electricity. Sales during the summer months are typically higher than sales
during other months of the year due, in large part, to the reliance on air
conditioning in HL&P's service territory. See Note 20 to the Company's
Consolidated and HL&P's Financial Statements in Item 8 of this Report for a
presentation of certain quarterly unaudited financial information for 1992 and
1993.
CAPITAL PROGRAM
HL&P has a continuous program to maintain its existing facilities and
to expand its physical plant as needed to meet customer requirements. Such
program and the estimated construction costs set forth below are subject to
periodic review and revision because of changes in load forecasts, the need to
retire older plants, changing regulatory and environmental standards and other
factors. HL&P's capital program is currently estimated to cost approximately
$1.28 billion during the three-year period 1994-1996 with approximately $478
million, $381 million and $418 million to be spent in 1994, 1995 and 1996,
respectively, excluding AFUDC. In 1993, total capital expenditures and nuclear
fuel were approximately $329 million.
HL&P's capital program for 1994-1996 consists of the following
principal estimated expenditures:
Percent of
Amount Total
(millions) Expenditures
---------- ------------
Generating facilities................... $ 551 43%
Transmission facilities................. 86 7%
Distribution facilities................. 466 36%
General plant facilities................ 141 11%
Nuclear fuel............................ 33 3%
------ ---
Total.............................. $1,277 100%
====== ===
HL&P's near-term construction program includes the installation of two
gas turbines with attendant heat recovery steam generators at the DuPont
chemical plant located in the Houston area. The project, which is estimated to
cost $117 million, is expected to be available for peak demand in 1995 and is
designed to add approximately 160 MW of electrical capacity to HL&P's system
while providing needed process steam to the DuPont chemical plant. For further
information regarding the DuPont project, see "Liquidity and Capital Resources
- - HL&P - Capital Program" in Item 7 of this Report. The remaining construction
expenditures relating to generating facilities expected in 1994-1996 are
primarily associated with improvements to existing generating stations. HL&P
does not forecast additional capacity needs until 1999-2001. HL&P currently
believes that future capacity needs will likely be met through the construction
of combined cycle gas turbines at existing HL&P plant sites, the development of
additional steam sale projects or through other means, such as purchased power
or additional DSM activities.
The scheduled in-service dates for the Malakoff units have been
indefinitely postponed. For information with respect to expenditures on
Malakoff, see Note 12 to the Company's Consolidated and HL&P's Financial
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Statements in Item 8 of this Report.
Expenditures for environmental protection facilities for the five
years ended December 31, 1993 aggregated $34.5 million (excluding AFUDC),
including expenditures of $12.8 million and $7.6 million in 1993 and 1992,
respectively. Environmental protection expenditures for 1994-1996 are
estimated to be $71 million (excluding AFUDC), primarily for nitrogen oxide
emissions controls and monitoring equipment. See "Regulatory Matters -
Environmental Quality" below.
Actual construction expenditures and scheduled in-service dates may
vary from estimates as a result of numerous factors including, but not limited
to, changes in the rate of inflation, changes in equipment delivery schedules,
construction delays and deferrals, the availability and relative cost of fuel,
the availability and cost of purchased power, environmental protection
requirements, regulatory requirements related to the South Texas Project, the
availability of adequate and timely rate relief and other regulatory approvals,
ability to secure external financing, legislative changes, and changes in
anticipated customer demand and business conditions. In connection with its
construction program planning, HL&P employs value-based planning techniques
that take into account energy conservation and load management programs along
with traditional utility supply options and renewable energy resources to
select the plan utilizing the most appropriate and cost-effective alternatives.
In 1993, HL&P spent approximately $9.5 million, excluding AFUDC, for
uranium concentrate and nuclear fuel processing services for its share of the
fuel for the South Texas Project. See "Fuel - Nuclear Fuel Supply" below.
Total gross additions to the plant of HL&P during the five years ended
December 31, 1993 amounted to approximately $2.9 billion and, during the same
period, retirements amounted to approximately $351 million. Gross additions
during the five-year period amounted to approximately 25% of total utility
plant at December 31, 1993.
COMPETITION
HL&P and the electric utility industry in general are experiencing
increased competition as a result of legislative and regulatory changes,
technological advances, the cost and availability of natural gas, consumer
demands, environmental needs and other factors.
A number of cogeneration facilities have been built in HL&P's service
area as a result of the high concentration of process industries located in the
Gulf Coast region and the availability of attractively priced fuels.
Cogeneration is the simultaneous generation of two forms of energy, usually
steam and electricity. The Public Utility Regulatory Policy Act of 1978
generally requires utilities to purchase all electricity offered to them by
qualifying cogeneration facilities at or below avoided costs. In Texas,
however, cogenerators generally are not permitted to make sales of electricity
to parties other than electric utilities or the thermal purchaser. HL&P has
experienced the loss of a number of industrial customers and continues to be
faced with further customer losses as a result of cogeneration.
As of December 31, 1993, HL&P purchased energy from fourteen
cogeneration facilities, representing over 3,400 MW of total generating
capability. As of December 31, 1993, HL&P had contracts totaling 720 MW
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of firm cogeneration capacity and associated energy which expire as follows:
1994 - 325 MW; 1998 - 125 MW and 2005 - 270 MW. In addition, a ten-year
contract for 50 MW of firm capacity and associated energy becomes effective in
1994. Electric utilities in Texas are required to provide transmission
wheeling service for power sales by cogenerators to other electric utilities at
a compensatory rate. During 1993, approximately 1,400 MW of cogenerated power
was transmitted or "wheeled" by HL&P to other utilities in Texas.
Given the uncertainties associated with efforts to obtain additional
commitments for firm power on reasonable terms, HL&P is continuing to pursue
plans to meet its needs for increased generation in 1999-2001, which plans
include new construction. See "Capital Program" above.
In October 1992, the Energy Act became law. The Energy Act contains
provisions which affect the regulatory structure of the electric utility
industry. First, the legislation amends the 1935 Act, exempting a class of
power producers known as EWGs. Companies that are already exempt from
registration under the 1935 Act, as well as companies not otherwise engaged in
the electric utility business, will be permitted to own EWGs without being
subject, as a result of such ownership, to the registration requirements and
the geographic, ownership and other restrictions imposed by the 1935 Act on
non-exempt holding companies and their subsidiaries. Companies registered
under the 1935 Act are also permitted to own EWGs. Although the Energy Act
instructs state regulatory commissions to consider standards applicable to
wholesale power purchases by electric utilities, including purchases from EWGs,
EWG generation sources, to the extent any may be located in Texas, currently
would be treated as regulated public utilities under PURA. In addition, the
Energy Act permits exempt and registered holding companies to acquire and
maintain an interest in "foreign utility companies" that meet certain
requirements for an exemption from the 1935 Act. Second, the Energy Act
significantly expands the authority of the FERC to order owners of transmission
lines, such as HL&P, to carry power at the request of any electric utility,
federal power marketing agency or any person generating electric energy for
sale or for resale over such transmission lines. The Energy Act requires
transmission for third parties to wholesale customers, provided the reliability
of service to the utility's local customer base is protected and the local
customer base does not subsidize the third-party service. The Energy Act
prohibits the FERC from ordering the transmission of electric energy directly
to an ultimate consumer (i.e. retail wheeling); however, it does not affect any
authority of any state or local government under state law concerning
transmission of electric energy directly to an ultimate consumer.
The Energy Act is expected to have significant implications for the
utility industry by moving utilities toward a more competitive environment.
Competition may be increased in connection with the generation of electricity.
Pressure for access to utility retail customers is also expected to increase.
The Company will actively oppose any access to its retail customers by
third-party generators. In addition, the amendments to the 1935 Act will
remove barriers to the Company, allowing it to develop independent electric
generating plants in the United States for sales to wholesale customers as well
as to contract for utility projects internationally, without becoming subject
to registration under the 1935 Act as an electric utility holding company.
HL&P continues to address the issue of increased competition, among
other things, by focusing on the energy needs of its customers and by
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controlling and, where possible, reducing the cost to serve its customers.
HL&P undertook a major operating performance improvement program in 1992 to
improve the effectiveness and efficiency of its operations and continues to
seek ways to improve its operations and lower costs. HL&P is attempting to
control its fuel costs, which compose a substantial portion of its operating
cost, by (1) purchasing gas at generally low prices and utilizing gas storage
facilities to mitigate significant variations in gas demand, (2) purchasing
spot coal at prices below existing contract terms and (3) contracting for
additional purchased power when available on attractive terms. For information
on HL&P's operating performance improvement programs, see "Results of
Operations - HL&P - STEP Program" in Item 7 of this Report and Note 18 to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report. Additionally, HL&P continues to encourage industrial expansion in its
service area by offering an economic development tariff and economically
attractive interruptible rates for those customers capable of taking such
service.
FUEL
Approximately 42% of HL&P's energy requirements during 1993 were met
with natural gas, 40% with coal and lignite and 1% with nuclear fuel. The
remaining 17% was purchased power, principally cogenerated power. However,
both nuclear-fueled units of the South Texas Project were out of service during
most of 1993. During 1992, the most recent year not affected by the outage of
the South Texas Project, HL&P's energy requirements were obtained from the
following sources: natural gas (34%); coal and lignite (39%); nuclear fuel
(9%) and purchased power (18%). Based upon various assumptions relating to the
cost and availability of fuels, plant operation schedules, actual in-service
dates of HL&P's planned generating facilities, load growth, load management and
environmental protection requirements, HL&P currently expects its future energy
mix to be in the following proportions for the indicated periods:
Estimated Energy Mix
----------------------
1994 1997 2000
---- ---- ----
Gas........................... 33% 35% 43%
Coal and Lignite.............. 42 41 39
Nuclear....................... 7 8 8
Cogeneration.................. 18 16 10
--- --- ---
Total................... 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, and
HL&P's actual energy mix in future years may vary from the percentages shown in
the table. For information on the outage of the South Texas Project, see Note
9(f) to the Company's Consolidated and HL&P's Financial Statements in Item 8 of
this Report, which is incorporated herein by reference.
NATURAL GAS SUPPLY. During 1993, HL&P purchased approximately 63% of
its natural gas requirements pursuant to long-term contracts with various
suppliers. No individual supplier provided more than approximately 24% of
HL&P's natural gas requirements during 1993. Substantially all of HL&P's
natural gas supply contracts contain pricing
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provisions based on fluctuating market prices. HL&P's natural gas supply
contracts have expiration dates ranging from 1994 to 2002. HL&P believes that
it will be able to renew such contracts as they expire or enter into similar
contractual arrangements with other natural gas suppliers. HL&P expects to
purchase its remaining natural gas requirements on the spot market. HL&P has a
long-term contract for gas storage and gas transportation arrangements with gas
pipelines connected to certain of its generating facilities. The contract for
gas storage provides working storage capacity of up to 3,500 BBtu of natural
gas. HL&P's average daily gas consumption during 1993 was 749 BBtu per day
with peak consumption of 1,427 BBtu per day.
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. Large boiler fuel users of natural gas, including electric utilities,
generally have the lowest priority among gas users in the event pipeline
suppliers are forced to curtail deliveries due to inadequate supplies. As a
result of this vulnerability, 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. Such events could require HL&P to
withdraw gas from its gas storage facility or shift its gas-fired generation to
alternative fuel sources such as fuel oil to the extent it has the capability
to burn those alternative fuels. Since most of the purchased power capacity
available to HL&P is also gas-fired, gas supply disruptions may also affect
these suppliers.
Currently, HL&P anticipates that its alternate fuel capability,
combined with its solid-fueled generating resources and available gas storage
capability is adequate to meet fuel needs during any temporary gas supply
interruptions. However, there is no assurance that adequate levels of gas
supply will be available over the long term.
HL&P's average cost of natural gas was $2.15 per MMBtu in 1993
(excluding storage costs). HL&P's average cost of natural gas in 1992 and 1991
was $1.85 and $1.54 per MMBtu, respectively.
COAL AND LIGNITE SUPPLY. Substantially all of the coal for HL&P's
four coal-fired units at W. A. Parish is purchased under two long- term
contracts from mines in the Powder River Basin area of Wyoming. Additional
coal is obtained on the spot market. The coal is transported under terms of a
long-term rail transportation contract to the W. A. Parish coal handling
facilities in HL&P's fleet of approximately 2,300 railcars. A substantial
portion of the coal requirements for the projected operating lives of the four
coal-fired units at W. A. Parish is expected to be met under such contracts.
The lignite for the Limestone units is obtained from a 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 by a contract miner under the
terms of a long-term agreement. The lignite reserves currently under lease and
contract are expected to provide a substantial portion of the fuel requirement
for the projected operating lives of the Limestone units.
Prior to October 1993, coal and lignite purchasing, transportation and
handling services were provided to HL&P by a subsidiary of the Company, Utility
Fuels, which has since been merged into HL&P. See "Businesses of Other
Subsidiaries - Utility Fuels."
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NUCLEAR FUEL SUPPLY. The supply of fuel for nuclear generating
facilities involves the acquisition of uranium concentrates, conversion to
uranium hexafluoride, enrichment of the uranium hexafluoride and fabrication of
nuclear fuel assemblies. Contracts have been entered into with various
suppliers to provide the South Texas Project with converted uranium
hexafluoride to permit operation through 1996, enrichment services through 2014
(except as noted below) and fuel fabrication services for the initial cores and
16 additional years of operation. Contracts for enrichment services from
October 2000 through September 2002 have been terminated by HL&P, as Project
Manager for the South Texas Project, under a ten-year termination notice
provision, because HL&P believes that other, lower-cost options will be
available.
In addition to the above, flexible contracts for the supply of uranium
concentrates and uranium hexafluoride have been entered into that will provide
approximately 50% of the uranium needed for South Texas Project operation from
1997 through 2000. Contracts for the balance of the uranium requirements will
soon be under negotiation; however, HL&P does not presently anticipate
difficulty in obtaining contracts for those requirements.
By contract, the DOE will ultimately take possession of all spent fuel
generated by the South Texas Project. HL&P has been advised that the DOE plans
to place the spent fuel in a permanent underground storage facility in an
as-yet undetermined location. 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 KWH sold. This fee is subject to adjustment to
ensure full cost recovery by the DOE. The South Texas Project is designed to
have sufficient on-site storage facilities to accommodate over 40 years of the
spent fuel discharges for each unit.
For information relating to a fee assessment upon domestic utilities
having purchased enrichment services from the DOE, see Note 8(a) to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report.
OIL SUPPLY. Fuel oil is maintained in inventory by HL&P to provide for
fuel needs in emergency situations in the event sufficient supplies of natural
gas are not available. In addition, certain of HL&P's generating plants have
the ability to use fuel oil if oil becomes a more economical fuel than
incremental gas supplies. HL&P has storage facilities for over six million
barrels of oil located at those generating plants capable of burning oil.
HL&P's oil inventory is adjusted periodically to accommodate changes in the
availability of primary fuel supplies.
RECOVERY OF FUEL COSTS. For information relating to the cost of fuel
over the last three years, see "Operating Statistics of HL&P" below and
"Results of Operations - HL&P - Fuel and Purchased Power Expense" in Item 7 of
this Report. Utility Commission rules provide for the recovery of certain fuel
and purchased power costs through an energy component of electric rates (fixed
fuel factor). The fixed fuel factor is established during either a utility's
general rate proceeding or an interim fuel proceeding and is to be generally
effective for a minimum of six months, unless a substantial change in a
utility's cost of fuel occurs. In that event, a utility may be authorized to
revise the fixed fuel factor in its rates appropriately. In any event, a fuel
reconciliation is required every three years.
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In October 1991, the Utility Commission approved HL&P's fixed
fuel factor as contemplated in the settlement agreement reached in February
1991 by HL&P and most other parties to Docket No. 9850. See Note 10(c) to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report. In November 1993, the Utility Commission authorized HL&P to implement
a higher fuel factor under Docket No. 12370. The Company can request a
revision to its fuel factor in April and October each year.
Reconciliation of fuel costs after March 1990 is required in 1994, and
under Utility Commission rules, HL&P has anticipated that a filing would be
required in May 1994. However, the Utility Commission staff has requested that
such filing be delayed to the fourth quarter of 1994. If that request is
granted by the Utility Commission, HL&P anticipates that fuel costs through
some time in 1994 will be submitted for reconciliation at that time. No
hearing would be anticipated in that reconciliation proceeding before 1995, and
the schedule for reconciliation of those costs could be affected by the
institution of a rate proceeding by the Utility Commission and/or a prudence
inquiry concerning the outage at the South Texas Project. For a discussion of
that outage and the possibility that a rate proceeding may be instituted, see
Notes 9(f), 10(f) and 10(g), respectively, to the Company's Consolidated and
HL&P's Financial Statements in Item 8 of this Report, which notes are
incorporated herein by reference.
REGULATORY MATTERS
ENERGY ACT. In October 1992, the Energy Act became law. For a
description of the Energy Act, see "Competition" above and Note 8(a) to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report.
RATES AND SERVICES. Pursuant to the PURA, the Utility Commission has
original jurisdiction over electric rates and services in unincorporated areas
of the State of Texas and in the incorporated municipalities that have
relinquished original jurisdiction. Original jurisdiction over electric rates
and services in the remaining incorporated municipalities served by HL&P is
exercised by such municipalities, including Houston, but the Utility Commission
has appellate jurisdiction over electric rates and services within those
incorporated municipalities.
In 1993, the Texas Legislature considered changes to PURA as part of a
required review under the Sunset Act. None of the proposed changes to the
Utility Commission or Texas utility regulation were enacted. However, the
legislature passed legislation continuing the current PURA until September 1,
1995. The legislature also established a joint interim committee to study
certain regulatory issues prior to the next legislative session which begins in
January 1995. These issues include, among other items, tax issues relating to
public utilities, the organization and authority of the Utility Commission and
IRP. Recommendations from this study period will be considered during the next
legislative session.
UTILITY COMMISSION PROCEEDINGS. For information concerning the
Utility Commission's orders with respect to HL&P's applications for general
rate increases with the Utility Commission (Docket No. 8425 for the 1988 rate
case and Docket No. 9850 for the 1990 rate case) and the municipalities within
HL&P's service area and the appeals of such orders, see Notes 10(b) and 10(c)
to the Company's Consolidated and HL&P's
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Financial Statements in Item 8 of this Report, which notes are incorporated
herein by reference. HL&P's 1986 general rate case (Docket Nos. 6765 and
6766) and 1984 rate case (Docket No. 5779) have been affirmed and are no longer
subject to appellate review. For a discussion of the possibility that a rate
proceeding may be instituted, see Notes 10(f) and 10(g) to the Company's
Consolidated and HL&P's Financial Statements in Item 8 of this Report, which
notes are incorporated herein by reference.
PRUDENCE REVIEW OF CONSTRUCTION OF THE SOUTH TEXAS PROJECT. For
information concerning the Utility Commission's orders with respect to a
prudence review of the planning, management and construction of the South Texas
Project (Docket No. 6668) and the appeals of such orders, see Note 10(d) to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report, which note is incorporated herein by reference.
DEFERRED ACCOUNTING DOCKETS. For information concerning the Utility
Commission's orders allowing deferred accounting treatment for certain costs
associated with the South Texas Project (Docket Nos. 8230, 9010 and 8425), the
appeals of such orders and related proceedings, see Notes 10(b), 10(e) and 11
to the Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report, which notes are incorporated herein by reference.
ENVIRONMENTAL QUALITY. General. HL&P is subject to regulation with
respect to air and water quality, solid waste management and other
environmental matters by various federal, state and local authorities.
Environmental regulations continue to be affected by legislation,
administrative actions and judicial review and interpretation. As a result,
the precise effect of potential regulations upon existing and proposed
facilities and operations cannot presently be determined. However,
developments in these and other areas of regulation have required HL&P to make
substantial expenditures to modify, supplement or replace equipment and
facilities and may, in the future, delay or impede construction and operation
of new facilities or require expenditures to modify existing facilities. For
information regarding environmental expenditures, see "Capital Program" above.
Air. The TNRCC has jurisdiction and enforcement power to determine
the permissible level of air contaminants emitted in the State of Texas. The
standards established by the Texas Clean Air Act and the rules of the TNRCC are
subject to modification by standards promulgated by the EPA. Compliance with
such standards has resulted, and is expected to continue to result, in
substantial expenditures by HL&P. In addition, expanded permit and fee systems
and enforcement penalties may discourage industrial growth within HL&P's
service area.
In November 1990, significant amendments to the Clean Air Act became
law. The law is designed to control emissions of air pollutants which
contribute to acid rain, to reduce urban air pollution and to reduce emissions
of toxic air pollutants. Parts of the Clean Air Act are directed at reducing
emissions of sulfur dioxide from electric utility generating units. This
reduction program includes an "allowance" system which sets forth formulas and
criteria to establish a cap on sulfur dioxide emissions from utility generating
units. HL&P has been allocated allowances sufficient to permit continued
operation of its existing facilities and some expansion of its solid-fuel
generating facilities without substantial additional expense relating to
modification of its facilities.
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HL&P has already made substantial investments in pollution control
facilities, and all of its generating facilities currently comply in all
material respects with sulfur dioxide emission standards established by the
Clean Air Act. As a result of this previous investment, HL&P does not
anticipate that significant expenditures for sulfur dioxide removal equipment
will be required. Provisions of the Clean Air Act dealing with urban air
pollution require establishing new emission limitations for nitrogen oxides
from existing sources. Although initial limitations were finalized in 1993,
further reductions may be required in the future. The cost of modifications
necessary to reduce nitrogen oxide emissions from existing sources has been
estimated at $29 million in 1994 and $10.5 million in 1995. The Clean Air Act
also calls for additional stack gas continuous emissions monitoring equipment
to be installed on various HL&P generating facilities. Capital expenditures of
$12 million in 1994 and $2 million in 1995 are anticipated for installation of
this new monitoring equipment. See "Capital Program" above.
The Clean Air Act established a new permitting program to be
administered in Texas by the TNRCC. The precise requirements of the program
cannot be determined until the permit program is approved by the EPA. However,
based on regulations promulgated by the TNRCC, HL&P anticipates that additional
expenditures may be required for administering the permitting process. The
legislation could also substantially increase the cost of constructing new
generating units.
Water. The TNRCC has jurisdiction over water discharges in the State
of Texas and is empowered to set water quality standards and issue permits
regulating water quality. The TNRCC jurisdiction is currently shared with the
EPA, which also issues water discharge permits and reviews the Texas water
quality standards program.
HL&P has obtained permits from both the TNRCC and the EPA for all
facilities currently in operation which require such permits. Applications for
renewal of permits for existing facilities have been submitted as required.
The reissued permits reflect changes in federal and state regulations which may
increase the cost of maintaining compliance. Although compliance with the new
regulations has resulted and will continue to result in additional costs to
HL&P, the costs are not expected to have a material impact on HL&P's financial
condition or results of operations.
For a description of certain Administrative Orders issued by the EPA
to HL&P under the Clean Water Act and for a description of certain other
environmental litigation, see Item 3 of this Report.
SOLID AND HAZARDOUS WASTE. HL&P is also subject to regulation by the
TNRCC and the EPA with respect to the handling and disposal of solid waste
generated on-site. Although legislation that would expand the scope of the
RCRA was not adopted in 1993, the TNRCC has promulgated new rules regulating
the classification of industrial solid waste. These regulations will result in
increased analytical and disposal costs to HL&P. Although the precise amount
of these costs is unknown at this time, HL&P does not believe, based on its
current analysis, that such costs will be material. The EPA has promulgated a
number of regulations to protect human health and the environment from
hazardous waste. Compliance with the regulations promulgated to date has not
materially affected the operation of HL&P's facilities, but such compliance has
increased operating costs.
The EPA has identified HL&P as a "potentially responsible party" for
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the costs of remediation of a CERCLA site located adjacent to one of HL&P's
transmission lines in Harris County. For information regarding this site, see
"Liquidity and Capital Resources - HL&P - Environmental Expenditures" in Item 7
of this Report.
FEDERAL REGULATION OF NUCLEAR POWER. Under the Atomic Energy Act of
1954 and the Energy Reorganization Act of 1974, operation of nuclear plants is
extensively regulated by the 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.
For information concerning a diagnostic evaluation that was completed
by the NRC at the South Texas Project, the placement of the South Texas Project
on the NRC's watch list and related matters, see "Results of Operations - HL&P
- - United States Nuclear Regulatory Commission (NRC) Diagnostic Evaluation of
the South Texas Project" in Item 7 of this Report and Note 9(f) to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report, which note is incorporated herein by reference.
LOW-LEVEL RADIOACTIVE WASTE. The federal Low-Level Radioactive Waste
Policy Act assigns responsibility for low-level waste disposal to the states.
Texas created the Texas Low-Level Radioactive Waste Disposal Authority to build
and operate a low-level waste disposal facility. HL&P was assessed
approximately $5.9 million in 1993 by the State of Texas for the development
work on this facility and estimates that the assessment for 1994 and 1995 will
be $2.2 million and $4.2 million, respectively. Texas currently has access to
the low-level waste disposal facility at Barnwell, South Carolina through June
1994. Extended access beyond June will depend upon action by the governor and
state legislature of South Carolina.
HL&P has constructed a temporary low-level radioactive waste storage
facility at the South Texas Project. The facility was completed in late 1992
and will be utilized for interim storage of low-level radioactive waste after
access to the Barnwell facility is suspended and prior to the opening of the
Texas Low-Level Radioactive Waste Site.
NUCLEAR INSURANCE AND NUCLEAR DECOMMISSIONING
For information concerning nuclear insurance and nuclear
decommissioning, see Notes 9(d) and 9(e) to the Company's Consolidated and
HL&P's Financial Statements in Item 8 of this Report, which notes are
incorporated herein by reference.
LABOR MATTERS
As of December 31, 1993, HL&P had 9,578 full-time employees of whom
3,715 were hourly-paid employees represented by the International Brotherhood
of Electrical Workers under a collective bargaining agreement which expires on
May 25, 1995.
For a discussion of HL&P's STEP program and related employee matters,
see "Results of Operations - HL&P - STEP Program" in Item 7 of this Report and
Note 18 to the Company's Consolidated and HL&P's Financial Statements in Item 8
of this Report.
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OPERATING STATISTICS OF HL&P
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
(Restated) (Restated)
Electric Energy Generated and Purchased (MWH):
Generated - Net Station Output . . . . . . . . . . . . . 52,939,551 51,065,016 52,346,488
Purchased . . . . . . . . . . . . . . . . . . . . . . . . 11,113,971 11,537,872 10,518,246
Net Interchange . . . . . . . . . . . . . . . . . . . . . (282) 204 (54)
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 64,053,240 62,603,092 62,864,680
Company Use, Lost and Unaccounted for Energy . . . . . . 2,903,780 2,660,704 2,663,539
----------- ----------- -----------
Total Energy Sold . . . . . . . . . . . . . . . . . . 61,149,460 59,942,388 60,201,141
=========== =========== ===========
Electric Sales (MWH):
Residential . . . . . . . . . . . . . . . . . . . . . . . 16,953,667 16,375,400 16,978,934
Commercial . . . . . . . . . . . . . . . . . . . . . . . 13,083,391 12,541,636 12,501,613
Industrial . . . . . . . . . . . . . . . . . . . . . . . 24,686,782 24,374,284 24,250,892
Street Lighting - Government and Municipal . . . . . . . 112,914 110,896 109,874
----------- ----------- -----------
Total Firm Retail Sales . . . . . . . . . . . . . . . 54,836,754 53,402,216 53,841,313
Other Electric Utilities . . . . . . . . . . . . . . . . 223,204 243,167 506,558
----------- ----------- -----------
Total Firm Sales . . . . . . . . . . . . . . . . . . . 55,059,958 53,645,383 54,347,871
Interruptible . . . . . . . . . . . . . . . . . . . . . . 5,748,086 5,974,203 5,304,345
Off-System . . . . . . . . . . . . . . . . . . . . . . . 341,416 322,802 548,925
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 61,149,460 59,942,388 60,201,141
=========== =========== ===========
Number of Customers (End of Period):
Residential . . . . . . . . . . . . . . . . . . . . . . . 1,278,774 1,258,556 1,238,451
Commercial . . . . . . . . . . . . . . . . . . . . . . . 168,284 165,241 163,054
Industrial (Including Interruptible) . . . . . . . . . . 1,706 1,756 1,791
Street Lighting - Government and Municipal . . . . . . . 82 82 82
Other Electric Utilities (Including Off-System) . . . . . 12 10 13
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 1,448,858 1,425,645 1,403,391
=========== =========== ===========
Operating Revenue (Thousands of Dollars):
Residential . . . . . . . . . . . . . . . . . . . . . . . $ 1,578,175 $ 1,465,627 $ 1,465,403
Commercial . . . . . . . . . . . . . . . . . . . . . . . 994,461 926,157 882,873
Industrial . . . . . . . . . . . . . . . . . . . . . . . 1,190,917 1,134,601 1,109,108
Street Lighting - Government and Municipal . . . . . . . 24,258 23,148 21,977
----------- ----------- -----------
Total Electric Revenue - Firm Retail Sales . . . . . . 3,787,811 3,549,533 3,479,361
Other Electric Utilities . . . . . . . . . . . . . . . . 26,154 26,834 41,136
----------- ----------- -----------
Total Electric Revenue - Firm Sales . . . . . . . . . 3,813,965 3,576,367 3,520,497
Interruptible . . . . . . . . . . . . . . . . . . . . . . 135,066 127,042 105,476
Off-System . . . . . . . . . . . . . . . . . . . . . . . 7,313 6,364 8,907
----------- ----------- -----------
Total Electric Revenue . . . . . . . . . . . . . . . . 3,956,344 3,709,773 3,634,880
Miscellaneous Electric Revenues . . . . . . . . . . . . . 123,519 117,068 39,663
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 4,079,863 $ 3,826,841 $ 3,674,543
=========== =========== ===========
Installed Net Generating Capability (KW)
(End of Period) . . . . . . . . . . . . . . . . . . . . . . 13,679,000 13,583,000 13,583,000
Cost of Fuel (Cents per Million Btu): (1)
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . 221.4 192.3 161.5
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . 199.6 200.3 210.3
Lignite . . . . . . . . . . . . . . . . . . . . . . . . . 122.1 132.6 129.6
Nuclear (1) . . . . . . . . . . . . . . . . . . . . . . . 59.6 59.9 58.3
Average . . . . . . . . . . . . . . . . . . . . . . . . 195.2 171.0 161.0
(1) Both generating units of the South Texas Project were out of service from
February 1993 to February 1994 when Unit No. 1 was authorized by the NRC
to return to service. See "Results of Operations-HL&P-Fuel and Purchased
Power Expense" in Item 7 of this Report.
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BUSINESS OF KBLCOM.
GENERAL
The cable television operations of the Company are conducted through
KBLCOM and its subsidiaries. KBL Cable, a subsidiary of KBLCOM, owns and
operates five cable television systems located in four states. Another
subsidiary of KBLCOM owns a 50% interest in Paragon, a Colorado partnership,
which in turn owns twenty systems located in seven states. KBLCOM's 50%
interest in Paragon is recorded in the financial statements using the equity
method of accounting. The remaining 50% interest in Paragon is owned by
subsidiaries of ATC, which is a subsidiary of Time Warner Inc. ATC serves as
the general manager for all but one of the Paragon systems. The partnership
agreement provides that, at any time after December 31, 1993, either partner
may elect to divide the assets of the partnership under certain predefined
procedures set forth in the agreement. To date, neither party has initiated
such procedures.
As of December 31, 1993, KBL Cable served approximately 605,000 basic
cable customers who subscribed to approximately 488,000 premium programming
units. As of the same date, Paragon served approximately 932,000 basic cable
customers who subscribed to approximately 542,000 premium programming units.
The Company has engaged an investment banking firm to assist in
finding a strategic partner or investor for KBLCOM in the telecommunications
industry.
Unless otherwise indicated or the context otherwise requires, all
references in this section to "KBLCOM" mean KBLCOM and its subsidiaries. All
references to KBL Cable mean KBL Cable and its subsidiaries, and all references
to Paragon mean the Paragon partnership. All information pertaining to Paragon
has been provided to KBLCOM by Paragon's managing partner, ATC, unless stated
otherwise. For a discussion regarding recent developments in regulations
affecting the cable television industry, see "Regulation - Rate Regulation" and
"Regulation - Recent Developments in Rate Regulation" below.
CABLE TELEVISION SERVICES
The cable television business of KBLCOM consists primarily of selling
to subscribers, for a monthly fee, television programming that is distributed
through a network of coaxial and fiber optic cables. KBLCOM offers its
subscribers both basic services and, for an extra monthly charge, premium
services. Each of the KBLCOM systems carries the programming of all three
major television networks, programming from independent and public television
stations and certain other local and distant (out-of-market) broadcast
television stations. KBLCOM also offers to its subscribers locally produced or
originated video programming, advertiser-supported cable programming (such as
ESPN and CNN), premium programming (such as HBO and Showtime) and a variety of
other types of programming services such as sports, family and children, news,
weather and home shopping programming. As is typical in the industry, KBLCOM
subscribers may terminate their cable television service on notice. KBLCOM's
business is generally not considered to be seasonal.
All of KBL Cable's systems are "addressable," allowing individual
subscribers, among other things, to electronically select pay-per-view
programs. Approximately 48% of KBL Cable's customers presently have converters
permitting addressability. This allows KBL Cable to offer
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pay-per-view services for various movies, sports events, concerts and other
entertainment programming.
OVERVIEW OF SYSTEMS AND DEVELOPMENT
The KBL Cable systems are located in the areas of greater San Antonio
and Laredo, Texas; Minneapolis, Minnesota; Portland, Oregon and Orange County,
California. All of these systems other than the Laredo system, which is the
smallest system, were built between 1979 and 1986 and have channel capacities
ranging from 46 channels (San Antonio and California) to 132 channels
(Minneapolis). The Laredo system was originally wired for cable in the 1960s
and upgraded in 1979. It has a 42-channel capacity. Although all of these
systems are considered fully built, annual capital expenditures will be
required to accommodate growth within the service areas and to replace and
upgrade existing equipment. Capital expenditures, which were approximately $54
million in 1993, are expected to be approximately $276 million over the
1994-1996 period. KBL Cable has projected an increase in its capital
expenditures over the next three years in order to stay competitive in the
increasingly complex cable environment. KBL Cable anticipates increased
investments in rebuilds, fiber plant and addressable converter boxes. For
additional information with respect to capital expenditures, see "Liquidity and
Capital Resources - KBLCOM" in Item 7 of this Report and Note 8(b) to the
Company's Consolidated Financial Statements in Item 8 of this Report.
Paragon owns cable television systems that serve a number of cities,
towns or other areas in Texas (including El Paso), Arizona, Florida (including
the Tampa Bay area), New Hampshire, New York (including a portion of
Manhattan), Maine and southern California (areas in Los Angeles County).
Paragon made capital expenditures of approximately $54 million in 1993 and
expects to make capital expenditures of approximately $200.8 million during the
1994-1996 period.
For information regarding KBLCOM's financial results and liquidity and
the financing of KBLCOM, see "Results of Operations - KBLCOM" in Item 7 of this
Report and Note 4 to the Company's Consolidated Financial Statements in Item 8
of this Report.
The following table summarizes certain information relating to the
cable television systems owned by KBL Cable and Paragon:
Total
KBL Cable Paragon (1)
As of December 31, As of December 31,
------------------------------- -------------------------------
1993 1992 1991 1993 1992 1991
--------- --------- --------- --------- --------- ---------
Estimated number
of homes passed
by cable(2) 1,198,000 1,176,000 1,160,000 1,575,000 1,544,000 1,513,000
Number of basic
subscribers(3) 605,000 577,000 559,000 932,000 901,000 865,000
Basic subscribers
as a percentage
of homes passed 50.5% 49.1% 48.2% 59.2% 58.4% 57.2%
Number of premium
(pay) units(4) 488,000 435,000 434,000 542,000 540,000 541,000
Premium (pay) units
as a percentage of
basic subscribers 80.7% 75.4% 77.6% 58.2% 59.9% 62.5%
- --------------------
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1) A KBLCOM subsidiary has a 50% interest in Paragon. Information has
been furnished by ATC, the general manager of Paragon.
2) A home is "passed by cable" if it can be connected to cable service
without extension of the distribution system.
3) Basic subscribers means the sum of (i) the number of homes receiving
cable services, (ii) all units in multiple dwellings which receive one
bill and (iii) each commercial establishment (hotels, hospitals, etc.)
less (iv) complimentary accounts.
4) Premium (or pay) units consist of the number of subscriptions to
premium programming services counting, as separate subscriptions, each
service received by a subscriber.
Over the three-year period ended December 31, 1993, growth in the
number of subscribers in the KBLCOM systems was achieved through marketing
efforts aimed at existing homes passed by cable, population growth in the
franchise areas and increased access to potential subscribers through the
construction of additional distribution facilities within existing franchise
areas. KBLCOM believes these same factors will contribute to continued growth.
In addition, KBLCOM may, from time to time, acquire additional cable television
systems. In 1993, KBL Cable acquired a small cable television system
(comprising approximately 1,150 basic subscribers) which adjoined one of the
existing systems. KBLCOM is also actively marketing premium programming
services and intends to introduce new services as they become commercially
feasible.
On February 17, 1994, KBLCOM entered into an agreement to acquire three
cable companies serving approximately 47,000 customers in the Minneapolis area.
KBLCOM will acquire the stock of the companies in exchange for the issuance of
common stock of the Company. The amount of common stock of the Company to be
issued, currently estimated to be approximately $24 million, is dependent on
the amount of liabilities assumed, currently estimated to be approximately $63
million.
Approximately 40,000 of the cable customers served by the properties to
be acquired are in the Minneapolis metropolitan area. The remaining 7,000
customers are located in small communities south and west of the metropolitan
area. Closing of the transaction is subject to the satisfaction of certain
conditions.
SOURCES OF REVENUES AND RATES TO SUBSCRIBERS
For the year ended December 31, 1993, the average monthly revenue per
subscriber for KBL Cable was approximately $34.43. Approximately 67% of KBL
Cable's revenue was derived from monthly fees paid by subscribers for basic
cable services, and 16% was derived from premium programming services. Rates
to subscribers vary from system to system and in accordance with the type of
service selected. As of December 31, 1993, the average monthly basic revenue
per subscriber for the KBL Cable systems generally ranged from $18.36 to
$23.00. As of December 31, 1993, approximately 39% of KBL Cable's customers
subscribed to one or more premium channels. KBL Cable's premium units
increased during 1993 and 1992; however, the premium revenue has declined
during this period due to the reduction of rates. The rates have been reduced
for a variety of reasons including the effect of recessionary economic
conditions, value perception and competition from other forms of entertainment
such as pay-per-view and home video rental. KBL Cable implemented a number of
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strategies designed to strengthen this service category including new packaging
of premium units and multiplexing, which is the delivery of multiple channels
of a premium service (with programs beginning at different times) with no
change in price to the subscriber. The fourth quarter of 1993 showed results
from these efforts as the premium revenues increased over the corresponding
period in the prior year.
The remainder of KBL Cable's revenues for the year ended December 31,
1993 was derived from advertising, pay-per-view services, installation fees and
other ancillary services. KBL Cable's management believes, within its present
markets, the sale of commercial advertising to local, regional and national
advertisers, pay-per-view services and other ancillary services offer the
potential for increased revenues. Advertising revenues for the year ended
December 31, 1993 increased $1.4 million or 10% over the previous year while
pay-per-view and the other ancillary revenues increased by $2.0 million or 8%.
For the year ended December 31, 1993, the average monthly revenue per
subscriber for the Paragon systems was approximately $30.99. Approximately 68%
of Paragon's revenues was derived from monthly fees for basic services, and 19%
was derived from premium services. As of December 31, 1993, the average
monthly basic revenue per subscriber for the Paragon systems ranged from $18.13
to $24.10. As of December 31, 1993, approximately 31% of Paragon's customers
subscribed to one or more premium channels.
FRANCHISES
KBLCOM's cable television systems generally operate pursuant to
non-exclusive franchises or permits awarded by local governmental authorities,
and accordingly, other applicants may obtain franchises or permits in franchise
areas served by KBLCOM. See "Regulation" below. As of December 31, 1993, KBL
Cable held 56 franchises with unexpired terms ranging from under one year to
approximately 18 years. A single franchise agreement with San Antonio, which
expires in 2003, covered approximately 32% of KBL Cable's subscribers as of
December 31, 1993. The expiration periods and approximate percentages of
subscribers for KBL Cable's franchises are as follows:
Percent of Expiration Period
Subscribers of Remaining Franchises
----------- -----------------------
14% 1994-1997
17% 1998-2001
63% after 2001
6% No expiration date
As of December 31, 1993, Paragon held 147 franchises with unexpired
terms ranging from 1994 to 2010. The single largest franchise, which covers a
portion of Manhattan, included more than 20% of Paragon's subscribers as of
December 31, 1993. This franchise expires in 2003.
The provisions of state and local franchises are subject to Federal
regulation under the Cable Act. See "Regulation" below. Cable television
franchises generally can be terminated prior to their stated expiration date
under certain circumstances such as a material breach of the franchise by the
cable operator. Franchises typically contain a number of provisions dealing
with, among other things, minimum technical specifications for the systems;
operational requirements; total channel
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capacity; local governmental, community and educational access; franchise fees
(which range up to 5% of cable system revenues) and procedures for renewal of
the franchise. Sometimes conditions of franchise renewal require improved
facilities, increased channel capacity or enhanced services. One franchise,
with approximately 58,000 subscribers as of December 31, 1993, held by a
subsidiary of KBL Cable, provides that the city granting the franchise may, at
any time, require the KBL Cable subsidiary to sell, at fair market value, its
franchise and operations in the city to another cable television operator with
a franchise for another portion of the city.
KBLCOM's franchises are also subject to renewal and generally are not
transferable without the prior approval of the franchising authority. In
addition, some franchises provide for the purchase of the franchise under
certain circumstances, such as a failure to renew the franchise. To date,
KBLCOM's franchises have generally been renewed or extended upon their stated
expirations, but there can be no assurance of renewal of franchises in the
future.
PROGRAMMING CONTRACTS
A substantial portion of KBLCOM's programming is obtained under
contracts with terms that typically extend for more than one year. KBLCOM
generally pays program suppliers a monthly fee per subscriber. Certain of
these contracts have price escalation provisions.
COMPETITION
Cable television systems experience competition from a variety of
sources, including broadcast television signals, multipoint microwave
distribution systems, direct broadcast satellite systems (satellite signals
directly to a subscriber's satellite dish) and satellite master antenna systems
(a satellite dish which receives signals and distributes them within a multiple
dwelling unit). The effectiveness of such competition depends, in part, upon
the quality of the signals and the variety of the programming offered over such
competitive technologies and the cost thereof as compared with cable television
systems. These competitive technologies are not generally subject to the same
form of local regulation that affects cable television. Cable television
systems also compete, to varying degrees, with other communications and
entertainment media such as motion picture theaters and video cassette rental
stores, and such competition may increase with the development and growth of
new technologies.
It is expected that, in April 1994, two national direct broadcast
satellite (DBS) systems will commence operation. These national DBS providers
will compete in all KBLCOM franchise areas and it is expected that they will
constitute significant new competition to such KBLCOM systems. As a result of
the programming access requirements contained in the 1992 Cable Act, these two
national DBS providers will have access to virtually all cable television
programming services. Additionally, within the next two years, there may be
significant development in the provision of "Video Dialtone" programming over
telephone company facilities. This new source of competition will result from
telephone companies leasing video capacity to independent programmers in KBLCOM
service areas. Finally, both federal legislation and FCC proceedings are
currently underway which may allow telephone companies to own and distribute
their own programming over their own facilities in direct competition with
cable systems. Specifically, US West has indicated, in an FCC filing, that it
intends to upgrade facilities in at least one
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KBLCOM service area in order to provide either Video Dialtone service or to own
and distribute its own video programming services.
KBLCOM is addressing increased competition by focusing on (i)
improving customer service; (ii) carrying a greater variety of local and
national programming, some of which will be available in its markets only
through KBLCOM and (iii) furthering the development of the interactive use of
its cable systems.
Since KBLCOM's systems operate under non-exclusive franchises, other
companies may obtain permission to build cable television systems in areas
where KBLCOM presently operates. A 1986 United States Supreme Court decision
has raised questions regarding the constitutionality of the cable television
franchising process. The decision requires lower courts to decide whether, in
areas where more than one cable operator can be physically accommodated by
local utilities, franchising authorities may refuse to grant more than one
franchise to serve that area. No prediction can be made at this time as to
whether additional franchises will be granted to any competitors, or if granted
and a cable television system is constructed, what the impact on KBLCOM and the
Company might be.
KBLCOM competes with a variety of other media in the sale of
advertising time on its cable television systems.
REGULATION
Cable television is subject to regulation at the federal, local and,
in some cases, state level.
In October 1992, the 1992 Cable Act became law. The 1992 Cable Act
expands the scope of cable industry regulation beyond that imposed by the Cable
Act. The following are new and significant areas of regulation imposed by the
1992 Cable Act as interpreted by the FCC.
RATE REGULATION. Under the 1992 Cable Act, virtually all of the
Company's cable systems are subject to rate regulation. The 1992 Cable Act
mandates that the FCC establish rate standards and procedures governing
regulation of basic cable service rates. Franchising authorities may certify
to the FCC that they will follow the FCC standards and procedures in regulating
basic rates, and once such certification is made, the franchising authorities
will assume such rate regulation authority over basic rates. The 1992 Cable
Act also requires that the FCC, upon complaint from a franchising authority or
a cable subscriber, review the reasonableness of rates for additional tiers of
cable service. Only rates for premium pay channels, single-event, pay-per-view
services and a la carte (pay-per-channel) services are excluded entirely from
rate regulation.
Pursuant to the congressional directive in the 1992 Cable Act, the FCC
issued rules implementing, among other things, the provisions of the 1992 Act
establishing rate standards and procedures governing regulation of cable
television services.
Prior to the release of its rate regulation rules, the FCC entered an
order, effective April 5, 1993, freezing rates for all cable television
services, other than premium and pay-per-view services, for 120 days (Rate
Freeze Order). Under the Rate Freeze Order, the rate frozen is the average
monthly subscriber rate for non-premium cable services for the most recent
billing cycle ending prior to April 5, 1993.
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The Rate Freeze Order was subsequently extended by the FCC through May 15,
1994.
On May 3, 1993, the FCC issued its rate regulation rules (Rate Rule),
which became effective on September 1, 1993. The Rate Rule relies primarily on
a "benchmark" approach. Current rates charged by cable operators are to be
evaluated initially against "competitive benchmark" rate formulas established
by the FCC based upon a nationwide cable rate survey previously conducted by
the FCC. At that time, the FCC estimated that, on average, the cable
industry's existing rates exceed its "benchmark" levels by approximately 10%,
and that up to 75% of all cable television systems have rates which exceed
applicable benchmarks. Under the Rate Rule, if a cable system's rates exceed
the applicable benchmark, the cable operator can be required to reduce its
rates to the higher of (i) a level 10% below the level that existed as of
September 30, 1992 or (ii) the applicable benchmark. For additional
information regarding rate reductions, see the discussion regarding the FCC's
announcement of further changes in the Rate Rule in "Recent Developments in
Rate Regulation" below.
The benchmarks published in the Rate Rule vary depending on the size
of cable systems, the total number of channels subject to regulation and the
total number of channels which contain satellite-delivered programming. Using
the benchmark tables published in the Rate Rule, the cable operator calculates
a permitted monthly "per channel/per subscriber" charge. In making this
calculation, the operator must include all revenues it derives from the lease
of equipment to customers, such as converters, remote control devices and
additional outlets, and installation services, such as installation fees,
disconnect fees, reconnect fees and tier change fees, during the operator's
last fiscal year.
The benchmark tables apply to both basic cable services and the tier
services, known in the 1992 Act as "cable programming services". Once
calculated, the same monthly per channel/per subscriber rate applies to all
regulated channels. In addition, once calculated and approved by the
applicable regulating authority, this benchmark rate functions as a price cap.
In the future, rates for regulated channels must remain at or below this
benchmark rate, adjusted for inflation measured on the gross national
product-price index (GNP-PI) published by the United States government.
Certain limited "external" costs beyond the cable operator's control, such as
franchise fees or program license fee increases which exceed the level of
GNP-PI inflation, can be charged directly through to cable consumers.
Under the Rate Rule, a cable operator which believes that the
benchmark approach produces a rate which does not adequately cover its actual
costs can choose to defend its current rates in a cost-of-service hearing
before the applicable regulating authority. Election of this cost-of-service
mode of rate regulation preempts the application of the benchmark approach and
may result in rates for regulated channels below the indicated benchmark
levels.
On July 15, 1993, the FCC adopted a notice of proposed rulemaking
requesting comment on the substance of, and the procedure for the
cost-of-service mode of rate regulation. For additional information regarding
the cost-of-service mode of rate regulation, see the discussion regarding the
FCC's announcement of interim cost-of-service standards (Interim COS
Standards) in "Recent Developments in Rate Regulation" below.
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The Rate Rule implements the requirement in the 1992 Act that local
franchising authorities have the opportunity to regulate rates for basic cable
service, defined as that level of service containing all local broadcast
channels, all public, educational and governmental access channels and all
equipment used to receive that level of service. In order for a local
franchising authority to exercise regulatory authority under the Rate Rule, the
local franchising authority must seek certification from the FCC. A local
franchising authority must, among other things, represent in its application to
the FCC that it will follow all provisions of the Rate Rule. Certification
will be granted no earlier than 30 days after the date the local franchising
authority's application is filed with the FCC.
The 1992 Cable Act and the Rate Rule vest regulatory authority
regarding regulation of cable programming services with the FCC. The FCC's
regulatory authority must be triggered, if at all, by the filing of a complaint
concerning a cable operator's rate for cable programming service tier(s). Both
local franchising authorities and subscribers may file such rate complaints.
The Rate Rule defines a new rate standard for commercial leased
channels on a cable system. Under this standard, the FCC will allow the cable
operator to charge a rate equal to the highest equivalent value which the
operator could otherwise secure by distributing commercial programming of its
own choice on that channel.
The FCC order establishing the September 1, 1993 effective date for
the Rate Rule preempted all local, state and federal advance notice
requirements, thus permitting KBLCOM to restructure its rates and service
offerings up until September 1, 1993 without prior notice to subscribers.
Local franchise authorities with jurisdiction over KBLCOM's franchises covering
significant numbers of cable television subscribers have given KBLCOM notice
that they have obtained, or are seeking, certification from the FCC to regulate
basic service level rates.
RECENT DEVELOPMENTS IN RATE REGULATION. On February 22, 1994, the FCC
announced further changes in the Rate Rule in several Executive Summaries. The
Commission stated that it has determined that the differential between average
cable system rates and rates charged by cable systems in markets with effective
competition is 17%, rather than 10% as stated in the Rate Rule. Therefore, the
FCC will issue revised benchmark formulas which will produce lower benchmarks,
effective on May 15, 1994 (Revised Benchmarks). At that time, cable operators
will be required to reduce their rates for regulated services by 17% below the
level in effect in September 1992, or to the new benchmark, whichever is
higher. The FCC stated that the Revised Benchmarks will require approximately
90% of all cable operators to reduce their regulated rates by about an
additional 7% from their current rate levels.
In announcing the Revised Benchmarks, the FCC stated that they would
apply prospectively. Therefore, the existing Rate Rule governs regulated rates
from September 1, 1993 until May 15, 1994, while the Revised Benchmarks will
govern regulated rates effective May 15, 1994.
The FCC also announced new criteria for determining whether a la carte
carriage of previously regulated channels was valid under the 1992 Cable Act.
Among other criteria, the FCC stated it will look to: (1) whether a la carte
carriage avoids a rate reduction that would otherwise have been required under
the FCC's rules; (2) whether an entire tier of regulated services has been
converted to a la carte carriage; (3) whether
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the services involved have been traditionally offered a la carte; (4) whether
there is a significant equipment charge to order a la carte services rather
than a discounted package of such services; (5) whether the individual
subscriber is able to select the channels which comprise the a la carte package
and (6) how significantly the package of a la carte services is discounted from
the per channel charges for those services. A la carte packages which are
found to evade rate regulation rather than enhance subscriber choice will be
treated as regulated tiers, and operators engaging in such practices may be
subject to sanctions.
The FCC also announced, in an Executive Summary, its Interim COS
Standards. Under the Interim COS Standards which the FCC characterized as based
upon principles similar to those which govern rate regulation of telephone
companies, cable operators facing "unusually" high costs, may recover through
their regulated rates, their normal operating expenses and a "reasonable"
return on investment. The FCC provided, in the Executive Summary, that the
presumptive permissible rate of return on investment under the Interim COS
Standard is 11.25%. The FCC presumptively excluded acquisition costs above
book value from the rate base because such "excess acquisition costs" represent
the value of the monopoly rents the acquirer expected to earn during the period
when an acquired cable system was effectively an unregulated monopoly. The FCC
further stated that it will, under certain unspecified circumstances, allow
cable operators to rebut this presumption excluding "excess acquisition costs."
Under the Interim COS Standards, cable operators which opt for the
cost-of-service approach may make such filings only once every two years. The
FCC also announced a streamlined cost-of-service procedure under which cable
systems regulated under the Revised Benchmarks will be allowed to recover a
share of system upgrade costs, offset for savings in operating expenses due to
efficiencies gained by the upgrade.
While KBLCOM believes that the Revised Benchmarks will impose some
further reduction in rates and new obligations which are burdensome and will
increase KBLCOM's costs of doing business, it is impossible to assess the
detailed impact of the Revised Benchmarks on KBLCOM until the FCC completes and
issues the actual text of its rules on the Revised Benchmarks and the
Interim COS Standards.
MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act specified
certain rights for mandatory carriage on cable systems for local broadcast
stations, known as must-carry rights. As an alternative, local broadcast
stations were authorized to elect retransmission consent rights.
Under the must carry option, a cable operator can be compelled to
allocate up to one-third of its channel capacity for carriage of local
commercial broadcast television stations. In addition, a cable operator can
also be required to allocate up to three additional channels to local
non-commercial broadcast television stations. Such non-commercial broadcasters
do not have the retransmission consent option under the 1992 Cable Act.
Under the retransmission consent option, a local commercial
broadcasters can require a cable operator to make payments as a condition to
granting its consent for the carriage of the broadcast station's signal on the
cable system. Established "super stations" are exempted from this provision.
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On March 29, 1993, the FCC issued its rules clarifying and implementing
the must carry/retransmission consent portions of the 1992 Cable Act (Must
Carry Rule). By June 17, 1993, the deadline specified by the Must Carry Rule,
approximately 40% of the local broadcasters in KBL Cable's markets elected
retransmission consent. According to the terms of the 1992 Cable Act and the
Must Carry Rule, if the local commercial broadcast stations that had elected
retransmission consent rights had not granted such consent by October 6, 1993,
KBL Cable was required to remove them from carriage on the relevant cable
system. To date, all local broadcast stations having elected retransmission
consent rights have granted to KBL Cable their consent to carriage at no
material cost to KBL Cable. Paragon has also reached retransmission consent
agreements with all of the local broadcast affiliates in its service areas.
A challenge to the Must Carry portion of the 1992 Cable Act is
presently pending in the Supreme Court of the United States, Turner
Broadcasting System, Inc., et al. v. Federal Communications Commission, et al.,
No. 93-44. Appellants argue that the Must Carry provisions violate their
rights under the First Amendment of the United States Constitution. The
Supreme Court has heard oral argument, and a decision is expected by the end of
June 1994.
BUY-THROUGH PROHIBITION. The 1992 Cable Act prohibits cable systems
which have addressable technology and addressable converters in place from
requiring cable subscribers to purchase service tiers above basic as a
condition to purchasing premium channels, such as HBO or Showtime. If cable
systems do not have such addressable technology or addressable converters in
place, they are given up to ten years to comply with this provision.
PROGRAMMING ACQUISITION. The 1992 Cable Act directs the FCC to
promulgate regulations regarding the sale and acquisition of cable programming
between cable operators and programming services in which the cable operator
has an attributable interest. The legislation and the subsequent FCC
regulations will preclude most exclusive programming contracts, will limit
volume discounts that can be offered to affiliated cable operators and will
generally prohibit cable programmers from providing terms and conditions to
affiliated cable operators that are more favorable than those provided to
unaffiliated operators. Furthermore, the 1992 Cable Act requires that such
cable programmers make their programming services available to competing video
technologies, such as multi-channel, microwave distribution systems and direct
broadcast satellite systems on terms and conditions that do not discriminate
against such competing technologies.
PROGRAMMING CARRIAGE AGREEMENTS. The 1992 Cable Act requires the FCC
to adopt regulations that will prohibit cable operators from (1) requiring
ownership of a financial interest in a program service as a condition to
carriage of such service, (2) coercing exclusive rights in a programming
service or (3) favoring affiliated programmers so as to restrain unreasonably
the ability of unaffiliated programmers to compete.
OWNERSHIP RESTRICTIONS. The 1992 Cable Act requires the FCC to (1)
prescribe rules and regulations establishing reasonable limits on the number of
cable subscribers a person is authorized to reach through cable systems owned
by such person, or in which such person has an attributable interest; (2)
prescribe rules and regulations establishing reasonable limits on the number of
channels on a cable system that can be occupied by a video programmer in which
a cable operator has an attributable interest and (3) consider the necessity
and appropriateness of imposing
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limitations on the degree to which multi-channel video programming distributors
may engage in the creation or production of video programming. Additionally,
cable operators are prohibited from selling a cable system within three years
of acquisition or construction of such cable system.
CUSTOMER SERVICE/TECHNICAL STANDARDS. The 1992 Cable Act requires the
FCC to promulgate regulations establishing minimum standards for customer
service and technical system performance. Franchising authorities are allowed
to enforce stricter customer service requirements than the standards so
promulgated by the FCC.
The majority of the provisions of the Cable Act remain in place. The
Cable Act continues to: (a) restrict the ownership of cable systems by
prohibiting cross-ownership by a telephone company within its operating area
and cross-ownership by local television broadcast station owners; (b) require
cable television systems with 36 or more "activated" channels to reserve a
percentage of such channels for commercial use by unaffiliated third parties;
(c) permit franchise authorities to require the cable operator to provide
channel capacity, equipment and facilities for public, educational and
governmental access; (d) limit the amount of fees required to be paid by the
cable operator to franchise authorities to a maximum of 5% of annual gross
revenues; (e) grant cable operators access to public rights of way and utility
easements; (f) establish a federal privacy policy regulating the use of
subscriber lists and subscriber information; (g) establish civil and criminal
liability for unauthorized reception or interception of programming offered
over a cable television system or satellite delivered service; (h) authorize
the FCC to preempt state regulation of rates, terms and conditions for pole
attachments unless the state has issued effective rules; (i) require the sale
or lease to subscribers of devices enabling them to block programming
considered offensive and (j) contain provisions governing cable operators'
compliance with equal employment opportunity requirements.
The 1992 Cable Act, together with the Cable Act, creates a
comprehensive regulatory framework for cable television. Violation by a cable
operator of the statutory provisions or the rules and regulations of the FCC
can subject the operator to substantial monetary penalties and other
significant sanctions. While many of the specific obligations imposed on cable
television systems under the 1992 Cable Act are complex, burdensome and will
increase KBLCOM's costs of doing business, it is impossible to assess the
detailed impact of the 1992 Cable Act, other than the Rate Rule and the Must
Carry Rule on KBLCOM.
Telephone companies continue in their efforts to repeal legislative
prohibitions against their ownership of cable television systems. At this
time, RBOCs are still prohibited by the Cable Act from owning or operating a
cable television system within their service areas. However, in a decision
rendered in The Chesapeake and Potomac Telephone Company of Virginia, et al. v.
United States, et al., No. 92-1751-A, on August 24, 1993, the U. S. District
Court for the Eastern District of Virginia ruled that the portion of the Cable
Act prohibiting subsidiaries of Bell Atlantic from owning a cable television
system within their service areas violated the First Amendment to the United
States Constitution. The court, in subsequent rulings, refused to extend its
ruling to other RBOCs and refused to stay its decision pending appeal. As a
consequence, the Bell Atlantic subsidiaries can engage in the cable television
business, including owning cable television systems, despite the Cable Act's
language. A final affirmation of the court's decision could result in
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additional direct competition for KBLCOM. No prediction can be made at this
time concerning the impact, if any, of this decision on KBLCOM and the Company.
Any changes to the ownership prohibitions could result in additional direct
competition for KBLCOM.
FINANCIAL IMPACT ON KBLCOM. KBLCOM's responses to the Rate Rule
included, among other things, restructuring of certain program offerings, a
reduction in rates for services regulated according to the Rate Rule and an
increase in rates for programming services previously offered in the basic
service or cable programming service tier which are not subject to rate
regulation and for which fees will be charged on a per-channel basis. KBLCOM
estimates that revenues in 1993 from its owned and operated cable systems were
reduced by approximately $6.8 million. A large portion of this decrease in
revenues is derived from a reduction in revenue from additional outlets.
There can be no assurance at this time, however, that the reaction of
customers to these changes will continue, and variations in such matters could
change the financial impact on KBLCOM. For information regarding the impact
of the Cable Act regulations on KBLCOM's financial condition and results of
operation, see "KBLCOM - Financial Impact on KBLCOM" in Item 7 of this Report.
EMPLOYEES
Excluding employees of Paragon, KBLCOM had 1,581 full-time employees
as of December 31, 1993, none of whom are represented by a union.
As of December 31, 1993, Paragon had 1,820 full-time employees of whom
583 were represented by unions.
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BUSINESSES OF OTHER SUBSIDIARIES.
HI ENERGY
HI Energy was recently organized by the Company to participate in
domestic and foreign power generation projects and to invest in the
privatization of foreign electric utilities. HI Energy is actively engaged in
the evaluation of several such projects, but has not yet committed significant
financial or other resources to any single project.
HOUSTON ARGENTINA
Houston Argentina, a subsidiary of the Company located in Buenos
Aires, Argentina, acquired a 32.5% interest in Compania de Inversiones en
Electricidad S.A. (COINELEC), an Argentine holding company which acquired, in
December 1992, a 51% interest in Empresa Distribuidora La Plata S.A. (EDELAP),
an electric utility company operating in La Plata, Argentina and surrounding
areas. Houston Argentina's share of the purchase price was $37.4 million in
cash. Subsequent to the acquisition, the generating assets of EDELAP were
transferred to Central Dique S.A., an Argentine corporation, 51% of the stock
of which is owned by COINELEC. Houston Argentina provides technical and
managerial service to EDELAP and Central Dique S.A.
UTILITY FUELS
On October 8, 1993, Utility Fuels, the Company's coal supply
subsidiary, was merged into HL&P. The Company's consolidated financial
statements have been reclassified, and HL&P's financial statements have been
restated to reflect the merger. See Note 1(b) to the Company's Consolidated
and HL&P's Financial Statements in Item 8 of this Report. Prior to the merger,
Utility Fuels provided coal and lignite purchasing, transportation and handling
services to HL&P. For information with respect to HL&P's sources of coal and
lignite, see "Business of HL&P - Fuel - Coal and Lignite Supply."
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REGULATION OF THE COMPANY.
FEDERAL
1935 ACT. The Company is a holding company as defined in the 1935
Act. It is exempt from regulation under the 1935 Act except with respect to
the acquisition of certain voting securities of other domestic public utility
companies and holding companies. The Company's exemption is based upon the
intrastate character of the operations of its public utility subsidiary, HL&P,
and the filing with the SEC of an annual exemption statement pursuant to
Section 3(a)(1) of the 1935 Act and Rule 2 thereunder. The SEC is authorized
by the 1935 Act and by its own rules to deny or terminate such an exemption
upon a determination that it is detrimental to the public interest or to the
interest of investors or consumers. Based on past SEC policy, there may be
limits on the extent to which the Company and its non-utility subsidiaries may
engage in non-utility activity without affecting the Company's exempt status.
The Company has no present intention, however, of becoming a registered holding
company subject to regulation by the SEC under the 1935 Act.
The Energy Act, which amended the 1935 Act, provides that, subject to
certain conditions, foreign utility companies are exempt from the provisions of
the 1935 Act and will not be deemed to be "public utility companies" under the
1935 Act. For information with respect to the Energy Act, see "Business of
HL&P - Competition" and "Business of HL&P - Regulatory Matters" and Note 8(a)
to the Company's and HL&P's Financial Statements in Item 8 of this Report.
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 provided to the SEC such certification at
the time of the Company's acquisition of an indirect interest in an Argentine
utility company. The certification is subject, however, to being revised or
withdrawn by the Utility Commission as to any future acquisition.
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EXECUTIVE OFFICERS OF THE COMPANY (1)
AS OF MARCH 1, 1994
Officer
Name Age(2) Since Business Experience 1989-1993 and Positions
- --------------------------- ------ ------- --------------------------------------------
Don D. Jordan.............. 61 1976 Chairman and Chief Executive 1993-
Officer and Director
Chairman and Chief Executive 1989-
Officer and Director - HL&P
Chairman, President and Chief 1990-1993
Executive Officer and Director
President and Chief Executive 1989-1990
Officer and Director
Don D. Sykora.............. 63 1977 President and Chief Operating 1993-
Officer and Director
Vice President and Director 1989-1993
President and Chief Operating 1989-1993
Officer and Director - HL&P
Raymond J. Snokhous........ 64 1983 Senior Vice President - 1990-
Governmental and Regulatory
Affairs
Group Vice President - 1989-1990
External Affairs - HL&P
William A. Cropper......... 54 1983 Vice President and Treasurer 1989-
Lee W. Hogan............... 49 1990 Vice President 1993-
President and Chief Operating 1993-
Officer - HI Energy
Group Vice President - 1990-1993
External Affairs - HL&P
President and Chief Executive 1989-1990
Officer - Greater Houston
Partnership
Hugh Rice Kelly............ 51 1984 Vice President, General Counsel 1989-
and Corporate Secretary
Senior Vice President, 1989-
General Counsel and
Corporate Secretary - HL&P
R. Steve Letbetter......... 45 1978 Vice President 1993-
President and Chief 1993-
Operating Officer - HL&P
Group Vice President - 1989-1993
Finance and Regulatory
Relations - HL&P
Stephen W. Naeve........... 46 1988 Vice President - Strategic 1993-
Planning and Administration
Vice President - Corporate 1990-1993
Planning and Treasurer - HL&P
Vice President - Corporate 1989-1990
Planning - HL&P
Gary G. Weik............... 47 1989 Vice President 1990-
President and Chief Operating 1989-
Officer - KBLCOM
Mary P. Ricciardello....... 38 1993 Comptroller 1993-
Assistant Corporate Secretary 1990-1993
and Assistant Treasurer - HL&P
Division Manager - HL&P 1989-1990
- -----------------
(1) All of the officers have been elected to serve until the annual meeting
of the Board of Directors scheduled to occur on May 4, 1994 and until
their successors qualify.
(2) At December 31, 1993.
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EXECUTIVE OFFICERS OF HL&P (1)(2)
AS OF MARCH 1, 1994
Officer
Name Age(3) Since Business Experience 1989-1993 and Positions
- --------------------------- ------ ------- -------------------------------------------
Don D. Jordan.............. 61 1971 Chairman and Chief Executive 1989-
Officer and Director
R. Steve Letbetter......... 45 1978 President and Chief Operating 1993-
Officer
Group Vice President - Finance 1989-1993
and Regulatory Relations
William T. Cottle......... 48 1993 Group Vice President - Nuclear 1993-
Vice President - Operations - 1989-1993
Grand Gulf Nuclear Station,
Entergy Operations, Inc.
Jack D. Greenwade.......... 54 1982 Group Vice President - Operations 1990-
Senior Vice President and Chief 1989
Operating Officer - KBLCOM
Hugh Rice Kelly............ 51 1984 Senior Vice President, General 1989-
Counsel and Corporate Secretary
David M. McClanahan........ 44 1986 Group Vice President - Finance 1993-
and Regulatory Relations
Senior Vice President and Chief 1991-1993
Financial Officer - KBLCOM
Vice President, Finance and 1991
Administration - KBLCOM
Vice President and Comptroller 1989-1991
- HII
Robert L. Waldrop.......... 46 1988 Group Vice President - External 1993-
Affairs
Vice President - Public and 1992-1993
Customer Relations
Vice President - Public Affairs 1989-1992
Ken W. Nabors.............. 50 1986 Vice President and Comptroller 1993-
Comptroller - HII 1990-1993
Treasurer - HL&P 1989-1990
- -----------------
(1) All of the officers have been elected to serve until the annual meeting
of the Board of Directors scheduled to occur on May 4, 1994 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, 1993.
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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 property of HL&P are located in the State of Texas.
ELECTRIC GENERATING STATIONS. As of December 31, 1993, HL&P owned
eleven electric generating stations (61 generating units) with a combined
turbine nameplate rating of 13,425,868 KW, including a 30.8% interest in one
station (two units) with a combined turbine nameplate rating of 2,623,676 KW.
SUBSTATIONS. As of December 31, 1993, HL&P owned 204 major
substations (with capacities of at least 10.0 Mva) having a total installed
rated transformer capacity of 55,257 Mva (exclusive of spare transformers),
including a 30.8% interest in one major substation with an installed rated
transformer capacity of 3,080 Mva.
ELECTRIC LINES-OVERHEAD. As of December 31, 1993, HL&P operated
24,084 pole miles of overhead distribution lines and 3,569 circuit miles of
overhead transmission lines including 534 circuit miles operated at 69,000
volts, 2,005 circuit miles operated at 138,000 volts and 1,030 circuit miles
operated at 345,000 volts.
ELECTRIC LINES-UNDERGROUND. As of December 31, 1993, HL&P operated
7,840 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.
The major properties of HL&P are subject to liens securing its
long-term debt, and title to some of its properties are subject to minor
encumbrances and defects, none of which impairs the use of such properties in
the operation of its business.
KBLCOM
The principal tangible assets (other than real estate) relating to
KBLCOM's cable television operations consist of operating plant and equipment
for each of its cable television systems. These include signal receiving
apparatus, "headend" facilities, coaxial and fiber optic cable or wire and
related electronic equipment over which programming and data
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36
are distributed, and decoding converters attached to subscribers' television
receivers. The signal receiving apparatus typically includes a tower,
antennae, ancillary electronic equipment and earth stations for reception of
video, audio and data signals transmitted by satellite. Headend facilities,
which consist of associated electronic equipment necessary for the reception,
amplification, switching and modulation of signals, are located near the signal
receiving apparatus and control the programming and data signals distributed on
the cable system. For certain information with respect to property owned
directly or indirectly by KBLCOM, see "Business of KBLCOM" in Item 1 of this
Report.
OTHER SUBSIDIARIES
For certain information with respect to property owned directly or
indirectly by the other subsidiaries of the Company, see "Businesses of Other
Subsidiaries" in Item 1 of this Report.
-36-
37
ITEM 3. LEGAL PROCEEDINGS.
For a description of certain legal and regulatory proceedings
affecting the Company and its subsidiaries, see Notes 9 through 12 to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report, which notes are incorporated herein by reference.
In August 1993, HL&P entered into a Consent Agreement with the EPA
that resolved three Administrative Orders issued by the EPA in 1991 and 1992
regarding alleged violations of certain provisions of the Clean Water Act at
Limestone during the period 1989 through 1992. Pursuant to the Consent
Agreement, HL&P, while neither admitting nor denying the allegations contained
in the complaint, agreed to pay the EPA $87,500. On August 29, 1991, the EPA
issued an Administrative Order related to alleged noncompliance at W. A.
Parish. HL&P has taken action to address the issues cited by the EPA and
believes them to be substantially resolved at this time.
From time to time, HL&P sells equipment and material it no longer
requires for its business. In the past, some purchasers may have improperly
handled the material, principally through improper disposal of oils containing
PCBs used in older transformers. Claims have been asserted against HL&P for
clean-up of environmental contamination as well as for personal injury and
property damages resulting from the purchasers' alleged improper activities.
Although HL&P has disputed its responsibility for the actions of such
purchasers, HL&P has, in some cases, participated in or contributed to the
remediation of those sites. Such undertakings in the past have not required
material expenditures by HL&P. In 1990, HL&P, together with other companies,
participated in the clean-up of one such site. Three suits have been brought
against HL&P and a number of other parties for personal injury and property
damages in connection with that site and its cleanup. In two of the cases,
Dumes, et al. vs. Houston Lighting & Power Company, et al., pending in the
United States District Court for the Southern District of Texas, Corpus Christi
Division, and Trevino, et al. vs. Houston Lighting & Power Company, et al.,
pending before the 117th District Court of Nueces County, Texas, landowners
near the site are seeking damages primarily for lead contamination to their
property. A third lawsuit, Holland vs. Central Power and Light Company, et
al., involving an allegation of exposure to PCBs disposed of at the site, was
dismissed pursuant to a settlement agreement entered into by the parties in
July 1993. The terms of the settlement were not material. In all these
cases, HL&P has disputed its responsibility for the actions of the disposal
site operator and whether injuries or damages occurred. In addition, Gulf
States has filed suit in the United States District Court for the Southern
District of Texas, Houston Division, against HL&P and two other utilities
concerning another site in Houston, Texas, which allegedly has been
contaminated by PCBs and which Gulf States has undertaken to remediate pursuant
to an EPA order. Gulf States seeks contribution from HL&P and the other
utilities for Gulf States' remediation costs. HL&P does not currently believe
that it has any responsibility for that site, and HL&P has not been determined
by the EPA to be a responsible party for that site. Discovery is underway in
all these pending cases and, although their ultimate outcomes cannot be
predicted at this time, HL&P and the Company believe, based on information
currently available, that none of these cases will result in a material adverse
effect on the Company's or HL&P's financial condition or results of operations.
For information with respect to the EPA's identification of HL&P as a
"potentially responsible party" for remediation of a CERCLA site
-37-
38
adjacent to one of HL&P's transmission lines in Harris County, see "Liquidity
and Capital Resources - HL&P - Environmental Expenditures" in Item 7 of this
Report, which information is incorporated herein by reference.
HL&P and the other owners of the South Texas Project have filed suit
against Westinghouse in the District Court for Matagorda County, Texas (Cause
No. 90-S-0684-C), alleging breach of warranty and misrepresentation in
connection with the steam generators supplied by Westinghouse for the South
Texas Project. In recent years, other utilities have encountered stress
corrosion cracking in steam generator tubes in Westinghouse units similar to
those supplied for the South Texas Project. Failure of such tubes can result
in a reduction of plant efficiency, and, in some cases, utilities have replaced
their steam generators. During an inspection concluded in the fall of 1993,
evidence was found of stress corrosion cracking consistent with that
encountered with Westinghouse steam generators at other facilities, and a small
number of tubes were found to require plugging. To date, stress corrosion
cracking has not had a significant impact on operation of either unit; however,
the owners of the South Texas Project have approved remedial operating plans
and have undertaken expenditures to minimize and delay further corrosion. The
litigation, which is in discovery, seeks appropriate damages and other relief
from Westinghouse and is currently scheduled for trial in the fall of 1994. No
prediction can be made as to the ultimate outcome of that litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the fourth quarter of 1993.
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39
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock, which at February 1, 1994 was held of
record by approximately 70,730 shareholders, is listed on the New York, Chicago
(formerly Midwest) and London Stock Exchanges (symbol: HOU). The following
table sets forth the high and low sales prices of the Common Stock on the
composite tape during the periods indicated, as reported by The Wall Street
Journal, and the dividends declared for such periods. Third quarter 1993
includes two quarterly dividends of $.75 per share due to a change in the
timing of the Company's Board of Directors' declaration of dividends. Dividend
payout was $3.00 per share for 1993. The dividend declared during the fourth
quarter of 1993 is payable in March 1994.
Market Price Dividend
------------------- Declared per
High Low Share
-------- -------- ------------
1993
First Quarter $0.75
January 8 $44 3/4
February 4 $48 3/4
Second Quarter $0.75
April 15 $48 3/8
June 22 $42 1/2
Third Quarter $1.50
July 6 $43 3/8
August 31 $47 1/8
Fourth Quarter $0.75
November 2 $49 3/4
November 30 $44 3/4
1992
First Quarter $0.74
January 2 $44 3/8
February 24 $40 1/8
Second Quarter $0.74
April 8 $42
May 5 $44 3/4
Third Quarter $0.75
August 3 $46 7/8
August 26 $43 3/8
Fourth Quarter $0.75
October 7 $42 1/2
December 23 $46 7/8
On December 31, 1993, the consolidated book value of the Company's
common stock was $25.06 per share, and the closing market price was $47.63 per
share.
There are no contractual limitations on the payment of dividends on
the common stock of the Company or on the common stock of the Company's
subsidiaries other than KBL Cable. Restrictions on distributions and other
financial covenants in KBL Cable credit agreements and other debt instruments
affecting KBL Cable will effectively prevent the payment of common stock
dividends by these subsidiaries for the foreseeable future.
-39-
40
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 consolidated results of
operations and should be read in conjunction with the Consolidated Financial
Statements and the related notes included elsewhere herein.
(Thousands of Dollars, except per share amounts)
Year Ended December 31,
-----------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
Revenues (1) . . . . . . . . . . . . . . $ 4,323,930 $ 4,062,099 $ 3,898,454 $ 3,668,575 $ 3,269,168
----------- ----------- ----------- ----------- -----------
Income before cumulative effect of
change in accounting . . . . . . . . . $ 416,036 $ 340,487 $ 416,754 $ 342,789 $ 413,452
Cumulative effect of change in
accounting (2) . . . . . . . . . . . . 94,180 (219,718)
----------- ----------- ----------- ----------- -----------
Net income . . . . . . . . . . . . . . . $ 416,036 $ 434,667 $ 416,754 $ 123,071 $ 413,452
=========== =========== =========== =========== ===========
Earnings per share before cumulative
effect of change in accounting . . . . $ 3.20 $ 2.63 $ 3.24 $ 2.70 $ 3.32
Cumulative effect of change in
accounting (2) . . . . . . . . . . . . .73 (1.73)
----------- ----------- ----------- ----------- -----------
Earnings per share . . . . . . . . . . . $ 3.20 $ 3.36 $ 3.24 $ .97 $ 3.32
=========== =========== =========== =========== ===========
Cash dividends declared
per common share (3) . . . . . . . . . $ 3.75 $ 2.98 $ 2.96 $ 2.96 $ 2.96
Return on average common
equity . . . . . . . . . . . . . . . . 12.8% 13.4% 12.7% 3.6% 11.7%
Ratio of earnings to fixed
charges before cumulative effect
of change in accounting (4) . . . . . 2.44 1.99 2.11 1.91 2.19
At Year-End:
Book value per common
share . . . . . . . . . . . . . . . $ 25.06 $ 25.36 $ 24.96 $ 26.76 $ 29.05
Market price per common
share . . . . . . . . . . . . . . . $ 47.63 $ 45.88 $ 44.25 $ 36.75 $ 35.00
Market price as a percent
of book value . . . . . . . . . . . 190% 181% 177% 137% 120%
At Year-End:
Total assets (1) . . . . . . . . . . . $12,230,177 $12,421,667 $12,171,677 $12,047,506 $11,697,213
Long-term obligations including
current maturities (1)(5) . . . . . $ 4,465,540 $ 4,984,530 $ 5,302,564 $ 4,972,675 $ 4,986,613
Capitalization:
Common stock equity . . . . . . . . 40% 38% 37% 39% 41%
Cumulative preferred
stock of HL&P (including
current maturities) . . . . . . . 7% 7% 5% 7% 6%
Long-term debt (including
current maturities) . . . . . . . 53% 55% 58% 54% 53%
Capital Expenditures:
Construction and nuclear fuel
expenditures (excluding AFUDC)(1) . $ 329,016 $ 337,082 $ 365,486 $ 355,285 $ 386,789
Cable television additions . . . . . . 54,482 44,306 26,624 31,186 1,339,680
Investment in foreign electric
utility . . . . . . . . . . . . . . 35,796 1,625
(1) Reflects reclassification for the years 1989-1992 due to the merger of
Utility Fuels into HL&P.
(2) The 1990 cumulative effect reflects the effects for years prior to 1990 of
the adoption of SFAS No. 109, "Accounting for Income Taxes." The 1992
cumulative effect relates to the change in accounting for revenues. See
also Note 19 to the Company's Consolidated and HL&P's Financial Statements.
(3) Year ended December 31, 1993 includes five quarterly dividends of $.75 per
share due to a change in the timing of the Company's Board of Directors
declaration of dividends. Dividend payout was $3.00 per share for 1993.
(4) Amounts differ from previously reported amounts for 1991 and 1992 because
of the reclassification of interest income on ESOP note.
(5) Includes Cumulative Preferred Stock subject to mandatory redemption.
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41
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 and the related notes included
elsewhere herein.
(Thousands of Dollars)
Year Ended December 31,
-----------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(Restated) (Restated) (Restated) (Restated)
Revenues . . . . . . . . . . . . . . . . $ 4,079,863 $ 3,826,841 $ 3,674,543 $ 3,468,682 $ 3,118,735
----------- ----------- ----------- ----------- -----------
Income after preferred
dividends but before
cumulative effect of
change in accounting . . . . . . . . $ 449,750 $ 375,955 $ 472,712 $ 429,209 $ 477,613
Cumulative effect of
change in accounting (1) . . . . . . 94,180
----------- ----------- ----------- ----------- -----------
Income after preferred
dividends . . . . . . . . . . . . . . $ 449,750 $ 470,135 $ 472,712 $ 429,209 $ 477,613
=========== =========== =========== =========== ===========
Return on average common
equity . . . . . . . . . . . . . . . 12.3% 13.3% 13.8% 12.8% 14.5%
Ratio of earnings to fixed
charges before cumulative
effect of change in
accounting . . . . . . . . . . . . . 3.40 2.73 2.97 2.85 3.14
Ratio of earnings to fixed
charges and preferred
dividend requirements
before cumulative effect
of change in accounting . . . . . . . 2.90 2.34 2.53 2.40 2.65
At year-end:
Total assets . . . . . . . . . . . $10,753,616 $10,790,052 $10,620,642 $10,475,774 $10,180,897
Long-term obligations
including current
maturities (2) . . . . . . . . . . $ 3,402,032 $ 3,796,719 $ 4,150,454 $ 4,065,853 $ 4,058,453
Capitalization:
Common stock equity . . . . . . . . 50% 47% 44% 43% 43%
Cumulative preferred stock
(including current
maturities) . . . . . . . . . . . 7% 7% 6% 8% 8%
Long-term debt (including
current maturities) . . . . . . . . 43% 46% 50% 49% 49%
Construction and nuclear
fuel expenditures
(excluding AFUDC) . . . . . . . . $ 329,016 $ 337,082 $ 365,486 $ 355,285 $ 386,789
Percent of construction
expenditures financed
internally from operations . . . . 158% 137% 126% 60% 82%
(1) The 1992 cumulative effect relates to the change in accounting for
revenues. See also Note 19 to HL&P's Financial Statements.
(2) Includes Cumulative Preferred Stock subject to mandatory redemption.
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42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPANY. Selected financial data for Houston Industries Incorporated
(Company) is set forth below:
Year Ended December 31,
-------------------------------
Percent
1993 1992 Change
---------- ---------- ------
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . . . . . $4,323,930 $4,062,099 6
Operating Expenses . . . . . . . . . . . . . . . 3,301,513 3,120,231 6
Operating Income . . . . . . . . . . . . . . . . 1,022,417 941,868 9
Other Income . . . . . . . . . . . . . . . . . . 47,882 43,789 9
Interest and Other
Charges . . . . . . . . . . . . . . . . . . . 423,145 480,561 (12)
Income Taxes . . . . . . . . . . . . . . . . . . 231,118 164,609 40
Net Income . . . . . . . . . . . . . . . . . . . 416,036 434,667 (4)
Year Ended December 31,
-------------------------------
Percent
1992 1991 Change
---------- ---------- ------
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . . . . . $4,062,099 $3,898,454 4
Operating Expenses . . . . . . . . . . . . . . . 3,120,231 2,873,525 9
Operating Income . . . . . . . . . . . . . . . . 941,868 1,024,929 (8)
Other Income . . . . . . . . . . . . . . . . . . 43,789 94,481 (54)
Interest and Other
Charges . . . . . . . . . . . . . . . . . . . 480,561 494,476 (3)
Income Taxes . . . . . . . . . . . . . . . . . . 164,609 208,180 (21)
Net Income . . . . . . . . . . . . . . . . . . . 434,667 416,754 4
Consolidated earnings per share were $3.20 for 1993 as compared to
$3.36 per share in 1992 and $3.24 per share in 1991. The Company's 1992
earnings were increased by non-recurring items at Houston Lighting & Power
Company (HL&P), the Company's electric utility subsidiary, as discussed below.
Without these items, the Company's earnings for the year ended 1992 would have
been $397.5 million or $3.07 per share. HL&P contributed $3.46 to the 1993
consolidated earnings per share on income of $449.8 million after preferred
dividends. KBLCOM Incorporated (KBLCOM), the Company's cable television
subsidiary, posted a loss of $13.0 million or $.10 per share. The Company and
its other subsidiaries posted a combined loss of $.l6 per share.
Omnibus Budget Reconciliation Act of 1993 (OBRA). As a result of the
1% general corporate income tax rate increase imposed by OBRA, the Company's
1993 results were negatively impacted by $14.3 million. For additional
information regarding the effect of OBRA on the Company, see Note 14 to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report.
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43
HL&P. General. Selected financial data for HL&P is set forth below:
Year Ended December 31,
-------------------------------
Percent
1993 1992 Change
---------- ---------- ------
(Restated)
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . . . . . $4,079,863 $3,826,841 7
Operating Expenses. . . . . . . . . . . . . . . 3,313,577 3,077,771 8
Operating Income . . . . . . . . . . . . . . . . 766,286 749,070 2
Other Income (Expense) . . . . . . . . . . . . . 2,522 (9,223) -
Interest Charges . . . . . . . . . . . . . . . . 284,585 324,565 (12)
Income After Preferred
Dividends . . . . . . . . . . . . . . . . . . 449,750 470,135 (4)
Year Ended December 31,
-------------------------------
Percent
1992 1991 Change
---------- ---------- ------
(Restated) (Restated)
(Thousands of Dollars)
Revenues . . . . . . . . . . . . . . . . . . . . $3,826,841 $3,674,543 4
Operating Expenses . . . . . . . . . . . . . . . 3,077,771 2,886,768 7
Operating Income . . . . . . . . . . . . . . . . 749,070 787,775 (5)
Other Income (Expense) . . . . . . . . . . . . . (9,223) 58,318 -
Interest Charges . . . . . . . . . . . . . . . . 324,565 327,194 (1)
Income After Preferred
Dividends . . . . . . . . . . . . . . . . . . 470,135 472,712 (1)
The decline in earnings from 1992 to 1993 was primarily due to the effect of
nonrecurring items during 1992, which had the net effect of increasing 1992
earnings. Earnings for 1992 included $142.7 million of pre-tax income
associated with the adoption of a change in accounting principle reflecting a
change in the timing of recognition of revenue from electricity sales (unbilled
revenues), and a one-time, pre-tax charge of $86.4 million related to HL&P's
restructuring of operations as a result of the implementation of the Success
Through Excellence in Performance (STEP) program discussed below. Excluding
these two nonrecurring items, earnings for 1992 would have been $433.0 million.
For a further discussion on HL&P's restructuring of operations and its change
in accounting method for revenues, see Notes 18 and 19, respectively, to the
Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report.
Earnings for 1993 were positively affected by an increase in
kilowatt-hour (KWH) sales due to warmer weather compared to 1992, and the
addition of approximately 23,000 customers during the year. Earnings for 1992
when compared to 1991 were negatively impacted by a decrease in KWH sales and
the one-time charge related to HL&P's STEP program as discussed below. The
decrease in KWH sales is primarily due to substantially milder weather than in
1991, partially offset by the addition of approximately 22,000 customers during
1992.
HL&P's results of operations are significantly affected by decisions of
the Public Utility Commission of Texas (Utility Commission) in connection with
rate increase applications filed prior to 1991 by HL&P relating to, among other
things, the commercial operation for the South
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Texas Project Electric Generating Station (South Texas Project). These
decisions are discussed in Notes 9 and 10 to the Company's Consolidated and
HL&P's Financial Statements in Item 8 of this Report.
OBRA. As a result of the 1% general corporate income tax rate increase
imposed by OBRA, HL&P's 1993 results were negatively impacted by $8.0 million.
For additional information regarding the effect of OBRA on HL&P, see Note 14 to
the Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report.
Operating Revenue and Sales. Electric operating revenue for 1993
increased 6.6% primarily due to increased KWH sales in all three major customer
categories, excluding interruptible. Residential and commercial KWH sales
increased 3.5% and 4.3%, respectively, due to warmer weather and a 1.7%
increase in number of customers. Firm industrial KWH sales increased 1.3%. As
a result of these increased sales, base revenues were $70 million higher in
1993 compared to the previous year. Electric operating revenue for 1992
increased 4.1% over 1991. This was due to a rate increase effective in May
1991 that reflected recovery of costs previously deferred, partially offset by
a decrease in fuel revenue and lower KWH sales. Residential KWH sales in 1992
decreased 3.6% from 1991 due to substantially milder weather, while commercial
and firm industrial KWH sales in 1992 were almost unchanged compared to 1991
levels. The negative effect of the mild weather in 1992, partially offset by a
1.6% increase in number of customers, resulted in a decrease in base revenues
of approximately $100 million compared to 1991.
Fuel and Purchased Power Expense. Fuel expense for 1993 was $148.3
million higher than the 1992 level (an increase of 16.2%), primarily due to
increases in the utilization and unit cost of gas, partially offset by
decreases in the unit cost of all other fuels used in 1993. Purchased power
expense increased $29.1 million due to higher fuel costs and escalating
capacity charges paid to cogenerators. The average cost of fuel used by HL&P
during 1993 was $1.95 per million British Thermal Units (MMBtu) compared to
$1.71 per MMBtu in 1992. The combined cost of fuel used by HL&P and the fuel
portion of purchased power was 2.05 cents per KWH in 1993, up from 1.84 cents
per KWH in 1992. The increased fuel costs reflect in part the use of
non-nuclear sources of fuel during the outage of Unit Nos. 1 and 2 of the South
Texas Project, which outage covered substantially all of 1993. For additional
information regarding the outage of Unit Nos. 1 and 2 of the South Texas
Project, see Note 9(f) and Note 10(g) to the Company's Consolidated and HL&P's
Financial Statements in Item 8 of this Report. Fuel expense for 1992 increased
$32.6 million over the 1991 level due to the higher unit cost of fuel resulting
from higher natural gas prices, partially offset by the lower unit cost of coal
and increased generation from nuclear and coal units. The average cost of fuel
used by HL&P during 1992 was $1.71 per MMBtu compared to $1.61 per MMBtu in
1991. The combined cost of fuel used by HL&P and the fuel portion of purchased
power was 1.84 cents per KWH in 1992, up from 1.74 cents per KWH in 1991.
Purchased power expense increased $42.4 million due to increased usage and
escalating capacity charges paid to cogenerators.
STEP Program. In January 1992, HL&P offered certain employees a
voluntary early retirement plan and announced a severance plan for those
employees affected by recommended changes to HL&P's workforce under its STEP
program. Approximately 500 employees accepted the early retirement offer, and
an additional 1,100 positions were eliminated. Affected employees were
released and offered the severance package. Various legal proceedings, which
the Company and HL&P believe to be immaterial and
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without merit, have been filed by some former employees of HL&P under federal
and state laws seeking damages alleged to have been caused by the STEP program.
There can be no assurance that additional proceedings asserting labor related
claims will not be filed. The Company and HL&P believe that the resolution of
such proceedings will not have a material adverse impact on the Company's or
HL&P's financial position or results of operations.
Operation and Maintenance Expenses, Depreciation and Amortization,
Other Taxes and Interest. Electric operation and maintenance expenses,
increased $55.1 million and $33.1 million, respectively, in 1993. This is
primarily due to (i) the recognition of postretirement benefit costs (pursuant
to the adoption of Statement of Financial Accounting Standards (SFAS) No. 106
on January 1, 1993), (ii) costs related to the sale of receivables, and (iii)
higher production plant operation and maintenance costs. Electric operating
expenses in 1992 decreased $28.9 million from 1991 primarily due to savings
resulting from the restructuring of operations as discussed above. Maintenance
expenses increased $25.4 million due to increases in production, transmission,
and distribution maintenance expenses.
Depreciation and amortization expense in 1993 was $14.1 million higher
than the 1992 level primarily due to an increase in depreciable property and
the additional amortization, beginning in January 1993, of project costs
related to the Malakoff Electric Generating Station (Malakoff). For
information regarding Malakoff, see Note 12 to the Company's Consolidated and
HL&P's Financial Statements in Item 8 of this Report. These increases were
partially offset by the cessation of property loss amortization in 1993.
Depreciation and amortization expense for 1992 was $21.1 million higher than
the 1991 level which was primarily due to the increase in depreciable property
and the amortization of deferred plant costs related to the South Texas Project
that commenced when new rates were implemented in May 1991.
Other taxes decreased $22.1 million in 1993 primarily due to state
franchise tax refunds totaling approximately $33 million, partially offset by
increased property taxes due to increased tax rates. Other taxes increased
$39.4 million in 1992, reflecting an increase in state franchise tax due to a
new required method of calculating franchise taxes, the positive effects of a
state franchise tax refund in 1991, and higher property taxes in 1992 due to
increased tax rates and assessments.
Interest on long-term debt was $35.2 million lower in 1993 compared to
1992 because of refinancing activities and the reduction of long-term debt (see
"Liquidity and Capital Resources"). Other interest expense decreased $7.2
million in 1993 due to the reduction of intercompany borrowings and on fuel
cost under-recoveries. Interest income decreased $11.1 million in 1992
compared to 1991 primarily due to interest received in 1991 on a refund of
prior years' income taxes. Interest on long-term debt was $15.5 million lower
in 1992 compared to 1991 because of refinancing activities and the reduction of
long-term debt (see "Liquidity and Capital Resources"). Other interest expense
decreased $21.7 million in 1992 compared to 1991 due to the reduction of
interest on commercial paper and on fuel cost over-recoveries in 1992, and
because interest was paid in 1991 on a payment of prior years' income taxes.
Rate Proceedings. On February 23, 1994, an administrative law judge
(ALJ) of the Utility Commission concluded that a proceeding should be conducted
under Section 42 of the Texas Public Utility Regulatory Act of 1975, as
amended, with respect to whether HL&P's existing rates are unjust
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and unreasonable. Although the ALJ acknowledged that the decision was a close
one, and subject to the review of the Utility Commission, he concluded that
information concerning HL&P's financial results as of December 1992 indicated
that HL&P's adjusted revenues could be approximately $62 million (or 2.33% of
its adjusted base revenues) more than might be authorized in a current rate
proceeding. The ALJ's conclusion was based on various accounting
considerations, including use of a different treatment of federal income tax
expense than the method utilized in HL&P's last rate case. For additional
information regarding the ALJ's decision and a possible proceeding to review
HL&P's rate levels, see Note 10(f) to the Company's Consolidated and HL&P's
Financial Statements in Item 8 of this Report.
United States Nuclear Regulatory Commission (NRC) Diagnostic
Evaluation of the South Texas Project. On June 25, 1993, the NRC announced
that the South Texas Project had been placed on its "watch list" of plants with
"weaknesses that warrant increased NRC attention." The announcement was made
following the issuance of a report on the South Texas Project by the NRC's
Diagnostic Evaluation Team (DET) which had been sent to review the South Texas
Project in the spring of 1993. For a further discussion of the NRC diagnostic
evaluation of the South Texas Project, see Note 9(f) to the Company's
Consolidated and HL&P's Financial Statements in Item 8 of this Report. HL&P
estimates that its share of the non-fuel expenditures associated with the DET
inspection and certain corrective actions taken at the South Texas Project was
approximately $35 million above previously budgeted amounts for 1993. It is
expected that, subsequent to 1993, operation and maintenance costs will
continue to be higher than previous levels in order to support initiatives
developed in 1993.
KBLCOM. General. KBLCOM experienced a net loss of $13.0 million in
1993 compared to net losses of $21.2 million in 1992 and $57.4 million in 1991.
Cable television systems owned by KBL Cable, Inc. (KBL Cable), which are
located in four states, served approximately 605,000, 577,000, and 559,000
basic subscribers at December 31, 1993, 1992 and 1991, respectively. For
business segment information, see Note 16 to the Company's Consolidated
Financial Statements in Item 8 of this Report.
KBLCOM's future earnings outlook is dependent, to a large degree, on
the success of its marketing programs to increase basic subscribers and premium
programming services, its success in marketing other services, such as
advertising and pay-per-view, and the general economic conditions in the areas
it serves. In addition, the cable television industry in general, including
KBLCOM, is faced with various uncertainties including the impact of recent
regulation of basic service rates by municipalities, the potential entry of
telephone companies into the cable business and increased competition from
other entities. Recent changes to the legislative and regulatory environment
in which the cable television industry operates could limit KBLCOM's ability to
increase prices charged for cable television services in the future. See "1992
Cable Act" below.
Because the Paragon Communications (Paragon) partnership is accounted
for under the equity method of accounting, the following discussion of
operating revenues and sales, and depreciation and interest expense results
relate only to KBL Cable and its subsidiaries.
Operating Revenues and Sales. In 1993, revenues were $244.1 million,
an increase of 3.7% over 1992. Revenues increased 5.1% in 1992 as compared to
1991. Gross operating margin (revenues less operating expenses, exclusive of
depreciation and amortization) grew to $95.7
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million in 1993, an increase of .8% over 1992. Gross operating margin
increased 12.4% in 1992 over the prior year. The operating margin for 1993 was
39.2%, compared to 40.4% for 1992 and 37.7% for 1991. Cable television
revenues were favorably impacted by the addition of 28,000 basic subscribers in
1993, an increase of 4.8%, and by the addition of approximately 18,000 basic
subscribers in 1992, an increase of approximately 3.2%.
Basic service revenues increased $5.4 million or 3.4% and $10.6
million or 7.2% in 1993 and 1992, respectively, as compared to the prior years.
Basic service revenue increases are due primarily to additional customers.
However, the increase in 1993 basic service revenues was partially offset by a
reduction in basic rates effective on September 1, 1993 implemented as a result
of the Cable Television Consumer Protection and Competition Act of 1992 (1992
Cable Act). See "1992 Cable Act" below.
Ancillary service revenues increased significantly in 1993 and 1992.
Advertising revenues and other revenues including installation fees increased
$3.2 million or 11.8% in 1993 from the prior year. In 1992, these same revenue
categories increased $5.5 million or 24.9% over the previous year. The
increases in both years are due primarily to increased advertising sales and
higher installation and other related transaction fees. Pay-per-view revenues
were approximately the same in 1993 as in 1992. Pay-per-view revenues declined
in 1992 as compared to the prior year by $1.2 million or 10.5%. This decrease
was primarily due to the lack of major pay-per-view sporting events in 1992.
The 1993 premium revenues were approximately the same as in 1992,
ending a long decline in this revenue category. Premium service revenues for
1992 were down $3.5 million or 8.3% compared to 1991, due to a decline in unit
prices.
KBLCOM estimates that its revenues in 1993 from its owned and operated
cable systems were reduced by approximately $6.8 million as a result of the
1992 Cable Act. A large portion of this decrease in revenues was derived from
a reduction in revenue from additional outlets.
Depreciation and Interest Expense. Depreciation and amortization
increased $2.3 million or 3.0% in 1993 over 1992 and $5.1 million or 7.3% in
1992 over 1991. The increases in both years were due primarily to asset
additions.
In 1993, interest expense decreased $18.7 million or 26.8% due to
reduced interest rates and lower debt balances. The Company recapitalized
KBLCOM to reduce the amount of debt in its capital structure. As part of this
restructuring, the Company contributed $177.3 million of equity which was used
to reduce KBLCOM's indebtedness. This restructuring increased KBLCOM's equity,
reduced the financial risks associated with indebtedness and increased KBLCOM's
financial flexibility.
Interest expense decreased $18.1 million or 20.5% in 1992 when
compared to the prior year due to lower interest rates and lower debt balances
resulting from the conversion, in March 1992, of $117 million of intercompany
loans to common stock equity. This debt conversion, which accounted for $5.4
million of the decrease in interest expense, does not affect consolidated
earnings.
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OBRA. As a result of the 1% general corporate income tax rate increase
imposed by OBRA, KBLCOM's 1993 results were negatively impacted by $6.8
million.
Paragon Partnership. A subsidiary of KBLCOM owns a 50% interest in
Paragon, a Colorado partnership, which, in turn, owns cable television systems
that served approximately 932,000, 901,000 and 865,000 basic cable customers in
seven states as of December 31, 1993, 1992 and 1991, respectively. Paragon's
revenues were favorably impacted in 1993 and 1992 by the addition of
approximately 31,000 and 36,000 basic subscribers, respectively. This
represents an increase in subscribers of 3.4% and 4.2% for 1993 and 1992,
respectively. KBLCOM's 1993 equity interest in the pre-tax earnings of Paragon
was $32.2 million compared to $24.9 million and $10.3 million for 1992 and
1991, respectively. The increase in both of these years was due to increased
revenue, improved operating margins and reduced interest expense at Paragon,
partially offset in 1993 by the impact of the 1992 Cable Act.
1992 Cable Act. In October 1992, the 1992 Cable Act became law. The
1992 Cable Act significantly revised various provisions of the Cable
Communications Policy Act of 1984. The 1992 Cable Act provides that the
Federal Communications Commission (FCC) will set guidelines for retail prices
on basic cable service, which includes network broadcast stations and
educational, public and governmental access channels. Local governments will
regulate retail prices for basic service based on the FCC's guidelines. The
1992 Cable Act also requires that the FCC, upon complaint from a franchising
authority or a cable subscriber, review the reasonableness of rates for
additional tiers consisting of cable programming services. Only rates for
premium pay channels, single event pay-per-view services and a la carte
(pay-per-channel) services are excluded entirely from rate regulation. Prior
to the release of its rate regulation rules (Rate Rule), the FCC entered an
order, effective April 5, 1993, freezing rates for all cable television
services, other than premium and pay-per-view services which was subsequently
extended by the FCC through May 15, 1994. The 1992 Cable Act also requires
cable programmers to license their services on a fair basis to cable
competitors, such as direct broadcast satellite and wireless distribution
systems. In addition, at the option of the broadcasters, cable operators will
be required to obtain the permission of, and potentially pay a charge to, local
broadcast television affiliates to retransmit their programming to cable
customers.
In February 1994, the FCC announced further changes in the Rate Rule
and announced its interim cost-of-service standards (Interim COS Standards).
The FCC will issue revised benchmark formulas which will produce lower
benchmarks, effective May 15, 1994 (Revised Benchmarks). It is impossible to
assess the detailed impact of the revised Rate Rule and Interim COS Standards
on KBLCOM or Paragon until the FCC completes and issues the actual text of its
rules on the Revised Benchmarks.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW. The Company's cash requirements stem primarily from
operating expenses, capital expenditures, payment of common stock dividends,
payment of preferred stock dividends, and interest and principal payments on
debt. Net cash provided by operating activities totaled $1.2 billion in 1993.
Net cash used in investing activities in 1993 totaled $460.4 million,
primarily due to electric capital expenditures of $332.8 million
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(including Allowance for Funds Used During Construction (AFUDC)), cable
television additions and investments of $60 million, and an investment in a
foreign electric utility of $35.8 million.
Financing activities for 1993 resulted in a net cash outflow of $801.7
million. The Company's primary financing activities were the payment and
extinguishment of long-term debt, the payment of dividends and HL&P's issuance
of long-term debt.
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 1993, and as estimated for 1994
through 1996, are as follows:
Millions of Dollars
--------------------------------------
1993 1994 1995 1996
---- ---- ---- ------
Utility construction and nuclear fuel
(excluding AFUDC) . . . . . . . . . . . . . . . . . . . . . . . $329 $478 $381 $ 418
Cable television additions . . . . . . . . . . . . . . . . . . . 54 77 110 89
Other cable-related investments . . . . . . . . . . . . . . . . . 6 95 1 2
Other capital improvements . . . . . . . . . . . . . . . . . . . 42 71 19
Investment in foreign electric utility . . . . . . . . . . . . . 36
Maturities of long-term debt, preferred
stock and minimum capital lease
payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 55 66 476
---- ---- ---- ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $763 $747 $629 $1,004
==== ==== ==== ======
For a discussion of the Company's commitments for capital expenditures,
see Note 8 to the Company's Consolidated and HL&P's Financial Statements in
Item 8 of this Report.
THE COMPANY. Sources of Capital Resources and Liquidity. 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. Net funding requirements are met with borrowings under the
Company's commercial paper program except that HL&P's borrowing requirements
are generally met with HL&P's commercial paper program. As of December 31,
1993, the Company had a bank credit facility of $500 million (exclusive of bank
credit facilities of subsidiaries), which was used to support its commercial
paper program. At December 31, 1993, the Company had approximately $420
million of commercial paper outstanding. Rates paid by the Company on its
short-term borrowings are generally lower than the prime rate. Subsequent to
December 31, 1993, the Company's bank line of credit was increased to $600
millon.
The Company has registered with the Securities and Exchange Commission
(SEC) $250 million principal amount of debt securities which remain unissued.
Proceeds from any sales of these debt securities are expected to be used for
general corporate purposes including investments in and loans to subsidiaries.
The Company also has registered with the SEC five million shares of its
common stock. Proceeds from the sale of these securities will be used for
general corporate purposes, including, but not limited to, the
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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.
Employee Stock Ownership Plan (ESOP). In October 1990, the Company
amended its existing savings plan to add an ESOP component to the plan. The
ESOP component of the plan allows the Company to satisfy a portion of its
obligations to make matching contributions under the plan. The ESOP trustee
purchased shares of the Company's common stock in open market transactions with
funds provided by loans from the Company and completed the purchase of stock
under the ESOP in December 1991 after purchasing 9,381,092 shares at a cost of
$350 million. As the ESOP loans are repaid by the ESOP trustee over a period
of up to 20 years, the common stock purchased for the plan will be allocated to
the participants' accounts. The loans will be repaid with dividends on the
common stock in, and Company contributions to, the plan. The loans to the plan
were funded initially by the Company from short-term borrowings which have been
refinanced with long-term debt. At December 31, 1993, the balance of the ESOP
loans was approximately $332 million. For a further discussion, see Note 7(b)
to the Company's Consolidated and HL&P's Financial Statements in Item 8 of this
Report.
Houston Argentina. Houston Argentina S. A. (Houston Argentina), a
subsidiary of the Company, owns a 32.5% interest in Compania de Inversiones en
Electricidad S. A. (COINELEC), an Argentine holding company which acquired, in
December 1992, a 51% interest in Empresa Distribuidora 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, of which $1.6 million was paid in December 1992 with the
remainder paid in March 1993. Subsequent to the acquisition, the generating
assets of EDELAP were transferred to Central Dique S. A., an Argentine
corporation, 51% of the stock of which is owned by COINELEC.
HL&P. HL&P's cash requirements stem primarily from operating expenses,
capital expenditures, payment of common stock dividends, payment of preferred
stock dividends, and interest and principal payments on debt. HL&P's net cash
provided by operating activities for 1993 totaled approximately $1.1 billion.
Net cash used in HL&P's investing activities for 1993 totaled $345.9
million.
HL&P's financing activities for 1993 resulted in a net cash outflow of
$782.4 million. Included in these activities were the payment of dividends,
the payment and extinguishment of long-term debt and redemption of preferred
stock, partially offset by the issuance of long-term debt. For information
with respect to these matters, see Notes 3 and 4 to the Company's Consolidated
and HL&P's Financial Statements in Item 8 of this Report.
Capital Program. HL&P's construction and nuclear fuel expenditures
(excluding AFUDC) for 1993 totaled $329 million, which was below the authorized
budgeted level of $345 million. Estimated expenditures for 1994, 1995 and 1996
are $478 million, $381 million and $418 million, respectively. Maturities of
long-term debt and preferred stock with mandatory redemption provisions and
capital leases for this same period include $45 million in 1994, $50 million in
1995 and $200 million in 1996.
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HL&P's construction program for the next three years is expected to
relate to costs for production, transmission, distribution, and general plant.
HL&P began construction of the E.I. du Pont de Nemours Company (DuPont) project
in 1993 in order to provide generating capacity in 1995. The DuPont project is
based on a contractual agreement between HL&P and DuPont, whereby HL&P will
construct, own, and operate two 80 megawatt gas turbine units located at
DuPont's LaPorte, Texas facility. The project will supply DuPont with process
steam while all electrical energy will be used in the HL&P system. HL&P's
capital program is subject to periodic review and portions may be revised from
time to time due to changes in load forecasts, changing regulatory and
environmental standards and other factors.
Financing Activities. In January 1993, HL&P repaid at maturity $136
million aggregate principal amount of its 9 3/8% first mortgage bonds.
In March 1993, HL&P issued $250 million principal amount of 7 3/4% first
mortgage bonds due 2023 and $150 million principal amount of 6.10%
collateralized medium-term notes due 2000. In April 1993, HL&P issued $150
million principal amount of 6.50% collateralized medium-term notes due 2003.
Proceeds of the offerings were used to provide funds for the purchases and
redemptions of HL&P's first mortgage bonds (including those series described
below) and for general corporate purposes, including the repayment of
short-term indebtedness of HL&P.
In April 1993, HL&P purchased the following first mortgage bonds pursuant
to tender offers for any and all bonds of such series:
Price as a
Principal Percent of
Series Amount Principal Amount
- ------------------------- ----------- ----------------
8 3/4% due March 1, 2005 $24,026,500 101.355%
8 3/8% due October 1, 2006 $74,526,500 101.093%
8 3/8% due October 1, 2007 $72,435,000 101.353%
8 1/8% due February 1, 2004 $45,955,000 101.821%
In April 1993, HL&P called for redemption the remaining $18,220,500 of
its 8 3/4% first mortgage bonds due 2005 at 100.61% of their principal amount,
the remaining $50,473,500 of its 8 3/8% first mortgage bonds due 2006 at
100.38% of their principal amount, the remaining $52,565,000 of its 8 3/8%
first mortgage bonds due 2007 at 100.64% of their principal amount, the
remaining $54,045,000 of its 8 1/8% first mortgage bonds due 2004 at 101.13% of
their principal amount, the outstanding $50,000,000 of its 7 1/2% first
mortgage bonds due 2001 at 100.85% of their principal amount and the
outstanding $30,000,000 of its 7 1/2% first mortgage bonds due 1999 at 100.68%
of their principal amount. Approximately $263 million deposited in the
Replacement Fund in March 1993 was applied to the May 1993 redemption of these
bonds.
In June 1993, HL&P redeemed 400,000 shares of its $8.50 cumulative
preferred stock at $100 per share pursuant to sinking fund provisions.
In July 1993, HL&P issued $200 million principal amount of 7 1/2%
first mortgage bonds due 2023. Proceeds were used to provide funds for the
redemption of HL&P's first mortgage bonds referenced in the following paragraph
and the repayment of approximately $80 million aggregate
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principal amount of intercompany debt owed to the Company, which was assumed by
HL&P upon the merger of Utility Fuels, Inc. into HL&P.
In October 1993, HL&P redeemed, at 106.57% of their principal amount,
$390,519,000 aggregate principal amount of its 9% first mortgage bonds due
2017.
In December 1993, the Brazos River Authority (BRA) and the Gulf Coast
Waste Disposal Authority (GCWDA) issued on behalf of HL&P $100,165,000
aggregate principal amount of revenue refunding bonds collateralized by HL&P's
first mortgage bonds. The BRA issuance of $83,565,000 principal amount has an
interest rate of 5.6% and matures in 2017. The GCWDA issuance of $16,600,000
principal amount has an interest rate of 4.9% and matures in 2003. Proceeds
were used in 1994 to redeem, at 102% of their aggregate principal amount,
$83,565,000 principal amount of pollution control revenue bonds previously
issued on behalf of HL&P by the BRA and, at 100% of their aggregate principal
amount, $16,600,000 principal amount of pollution control revenue bonds
previously issued on behalf of HL&P by the GCWDA.
Sources of Capital Resources and Liquidity. HL&P expects to finance
its capital program for the period 1994-1996 with funds generated internally
from operations.
HL&P has registered with the SEC $230 million aggregate liquidation
value of preferred stock and $580 million aggregate principal amount of debt
securities that may be issued as first mortgage bonds and/or as debt securities
collateralized by first mortgage bonds. Proceeds from the sales 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.
HL&P's interim financing requirements are met through the issuance of
short-term debt, primarily commercial paper. At December 31, 1993, HL&P had
outstanding commercial paper of approximately $171 million, which was supported
by a bank credit facility of $250 million. Subsequent to December 31, 1993,
HL&P's line of credit was increased to $400 millon.
HL&P's capitalization at December 31, 1993 was 43% long-term debt, 7%
preferred stock and 50% common equity.
Environmental Expenditures. In November 1990, the Clean Air Act was
extensively amended by Congress. HL&P has already made an investment in
pollution control facilities, and all of its generating facilities currently
comply in all material respects with sulfur dioxide emission standards
established by the statute. Provisions of the Clean Air Act dealing with urban
air pollution required establishing new emission limitations for nitrogen
oxides from existing sources. The cost of modifications necessary to reduce
nitrogen oxide emissions from existing sources has been estimated at $29
million in 1994 and $10.5 million in 1995. In addition, continuous emission
monitoring regulations are anticipated to require expenditures of $12 million
in 1994 and $2 million in 1995. Capital expenditures are expected to total $71
million for the years 1994 through 1996.
The United States Environmental Protection Agency (EPA) has identified
HL&P as a "potentially responsible party" for the costs of remediation of a
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
site located adjacent to one of HL&P's transmission
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lines in Harris County. Although HL&P did not contribute waste to or operate
the site, the party primarily responsible for contributing waste to the site
and possibly other potentially responsible parties have alleged that waste
disposal pits dug by the site operator encroach onto HL&P's property and
therefore HL&P is responsible as a site owner. Although HL&P admits that it
owns an adjacent strip of land onto which substances from the site appear to
have migrated, it denies that it ever owned the strip of land containing the
pits. In June 1993, a Galveston County District Court entered a final judgment
to the effect that HL&P did not own the disputed strip of land. In October
1992, the EPA issued an Administrative Order to HL&P and several other
companies purporting to require those parties to implement the management of
migration remediation at the site. A related Administrative Order had been
issued in June 1990. Neither the EPA nor any other responsible party has
presented HL&P with a claim for a share of costs for the management of the
migration remediation design or operation. However, in the event HL&P were
ultimately held to be a responsible party for the remediation of this site and
if other responsible parties do not complete the management of migration
remediation, CERCLA provides for substantial remedies that could be pursued by
the United States, including substantial fines, punitive damages and treble
damages for costs incurred by the United States in completing such remediation.
The aggregate potential clean-up costs for the entire site have been estimated
to be approximately $80 million. Although no prediction can be made at this
time as to the ultimate outcome of this matter, in light of all the
circumstances, the Company and HL&P do not believe that any costs that HL&P
incurs in this matter will have a material adverse effect on the Company's or
HL&P's financial condition or results of operations.
KBLCOM. KBLCOM's cash requirements stem primarily from operating
expenses, capital expenditures, and interest and principal payments on debt.
KBLCOM's net cash provided by operating activities was $13.9 million in 1993.
Net cash used in KBLCOM's investing activities for 1993 totaled $61.9
million, primarily due to property additions which approximated $54.5 million.
These amounts were financed principally through internally generated funds and
intercompany advances. A substantial portion of KBLCOM's 1994-1996 capital
requirements is expected to be met through internally generated funds. It is
expected that any shortfall will be met through intercompany borrowings.
KBLCOM's financing activities for 1993 resulted in a net cash inflow
of $47.9 million. Included in these activities were the reduction of third
party debt, proceeds from additional paid-in capital and an increase in
borrowings from the Company.
Financing Activities. In the first quarter of 1993, KBL Cable repaid
$6.4 million principal amount of its senior notes and senior subordinated
notes. In the second and third quarters of 1993, KBL Cable repaid borrowings
under its senior bank credit facility in the amounts of $15 million and $56
million, respectively. These repayments were partially offset by $20 million
in additional borrowing under the senior bank credit facility during the first
quarter of 1993.
In the first quarter of 1993, KBLCOM prepaid $167.3 million of senior
bank debt funded with proceeds from the Company's additional equity investment.
The Company obtained the funds for such investment from the sale of commercial
paper. This KBLCOM debt was included in current portion of long-term debt and
preferred stock at December 31, 1992 on the Company's Consolidated Balance
Sheets.
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54
Sources of Capital Resources and Liquidity. In the first quarter of
1993, KBLCOM reduced its outstanding indebtedness by approximately $153.7
million. This was accomplished through an equity investment of approximately
$167.3 million from the Company (funded with proceeds from the sale of
commercial paper by the Company) and offset by net additional borrowing of
$13.6 million. In the second quarter of 1993, the Company made capital
contributions to KBLCOM aggregating approximately $114.3 million. The capital
contributions included KBL Cable senior notes aggregating approximately $29
million and KBL Cable senior subordinated notes aggregating approximately $36
million that had been previously acquired by the Company. The Company
contributed such notes to KBLCOM which, in turn, contributed such notes to KBL
Cable, a subsidiary of KBLCOM which retired and canceled the notes. The
balance of the capital contributions resulted from the conversion to equity of
intercompany debt payable by KBLCOM to the Company. The capital contributions
will have no impact on the consolidated earnings of the Company.
Additional borrowing under KBL Cable's bank facility is subject to
certain covenants which relate primarily to the maintenance of certain
financial ratios, principally debt to cash flow and interest coverages. KBL
Cable presently is in compliance with such covenants. Cash requirements for
1994 are expected to be met through intercompany borrowing and contributions,
internally generated funds, and borrowing under existing credit lines of
KBLCOM's subsidiaries. At December 31, 1993, KBL Cable had $108.5 million
available for borrowing under its bank facility. The line of credit has
scheduled reductions in March of each year until it is eliminated in March
1999.
Recent Developments. The Company has engaged an investment banking
firm to assist in finding a strategic partner or investor for KBLCOM in the
telecommunications industry.
On February 17, 1994, KBLCOM entered into an agreement to acquire
three cable companies serving approximately 47,000 customers in the Minneapolis
area. KBLCOM will acquire the stock of the companies in exchange for the
issuance of common stock of the Company. The amount of common stock of the
Company to be issued, currently estimated to be approximately $24 million, is
dependent on the amount of liabilities assumed, currently estimated to be
approximately $63 million.
Approximately 40,000 of the cable customers served by the properties
to be acquired are in the Minneapolis metropolitan area. The remaining 7,000
customers are located in small communities south and west of the metropolitan
area. Closing of the transaction is subject to the satisfaction of certain
conditions.
HOUSTON INDUSTRIES FINANCE. During 1992, Houston Industries Finance,
Inc. (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. HL&P is now selling its
accounts receivable and most of its accrued unbilled revenues to a third party.
As of January 12, 1993, Houston Industries Finance ceased operations and its
$300 million bank revolving credit facility and related commercial paper
program were terminated. The subsidiary was merged into the Company effective
June 8, 1993.
NEW ACCOUNTING PRONOUNCEMENTS
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits." This
-54-
55
accounting standard, effective for fiscal years beginning after December 15,
1993 requires companies to recognize the liability for benefits provided to
former or inactive employees, their beneficiaries and covered dependents after
employment but before retirement. Those benefits include, but are not limited
to, salary continuation, supplemental unemployment benefits, severance
benefits, disability-related benefits (including worker's compensation), job
training and counseling, and continuation of benefits such as health care and
life insurance. The Company will adopt SFAS No. 112 in 1994. The transition
obligation of approximately $20 million will be expensed upon adoption and
reported similar to the cumulative effect of a change in accounting principle.
The Company estimates that benefit costs for 1994 (exclusive of the transition
obligation) will be approximately $1 million over the expected pay-as-you-go
amount.
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56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
REVENUES:
Electric . . . . . . . . . . . . . . . . . . . . . . $ 4,079,863 $ 3,826,841 $ 3,674,543
Cable television . . . . . . . . . . . . . . . . . . . 244,067 235,258 223,911
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . 4,323,930 4,062,099 3,898,454
----------- ----------- -----------
EXPENSES:
Electric:
Fuel . . . . . . . . . . . . . . . . . . . . . . 1,063,050 914,732 882,114
Purchased power . . . . . . . . . . . . . . . . . 515,502 486,414 444,040
Operation and maintenance . . . . . . . . . . . . 898,535 810,379 813,821
Taxes other than income taxes . . . . . . . . . . 211,295 233,439 194,069
Deferred expenses . . . . . . . . . . . . . . . . (22,973)
Restructuring . . . . . . . . . . . . . . . . . . 86,431
Cable television operating expenses . . . . . . . . . 148,325 140,242 139,406
Depreciation and amortization . . . . . . . . . . . . 464,806 448,594 423,048
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . 3,301,513 3,120,231 2,873,525
----------- ----------- -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 1,022,417 941,868 1,024,929
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . 3,512 6,169 5,749
Deferred return under phase-in plan . . . . . . . . . 38,758
Regulatory adjustment related to prior
year's disallowed plant costs . . . . . . . . . . 14,483
Equity in income of cable television
partnerships . . . . . . . . . . . . . . . . . . . 31,979 24,871 10,672
Interest income . . . . . . . . . . . . . . . . . . . 33,357 34,361 39,010
Other - net . . . . . . . . . . . . . . . . . . . . . (20,966) (21,612) (14,191)
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . 47,882 43,789 94,481
----------- ----------- -----------
FIXED CHARGES:
Interest on long-term debt . . . . . . . . . . . . . . 380,089 428,152 447,701
Other interest . . . . . . . . . . . . . . . . . . . . 12,364 19,273 41,332
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . (3,781) (6,191) (10,049)
Deferred carrying costs . . . . . . . . . . . . . . . (30,695)
Preferred dividends of subsidiary . . . . . . . . . . 34,473 39,327 46,187
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . 423,145 480,561 494,476
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR
REVENUES . . . . . . . . . . . . . . . . . . . . . . 647,154 505,096 624,934
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 231,118 164,609 208,180
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR REVENUES . . . . . . . . . . . . . . 416,036 340,487 416,754
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
REVENUES (NET OF INCOME TAXES OF $48,517) . . . . . . 94,180
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . $ 416,036 $ 434,667 $ 416,754
=========== =========== ===========
(continued on next page)
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57
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
(CONTINUED)
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
EARNINGS PER COMMON SHARE:
EARNINGS PER COMMON SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR
REVENUES . . . . . . . . . . . . . . . . . . . . . $ 3.20 $ 2.63 $ 3.24
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR REVENUES . . . . . . . . . . . . . . . . . . . .73
----------- ----------- -----------
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . $ 3.20 $ 3.36 $ 3.24
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (000) . . . . . . . . . . . . . . . . . . 130,004 129,514 128,802
See Notes to Consolidated Financial Statements.
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58
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
Balance at Beginning of Year . . . . . . . . . . . . . . . $ 1,254,584 $ 1,202,125 $ 1,165,786
Add - Net Income . . . . . . . . . . . . . . . . . . . . . 416,036 434,667 416,754
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . 1,670,620 1,636,792 1,582,540
Common Stock Dividends:
1993, $3.75; 1992, $2.98; 1991, $2.96;
(per share) . . . . . . . . . . . . . . . . . . . . . . (487,927) (385,952) (381,117)
Tax Benefit of ESOP Dividends . . . . . . . . . . . . . . . 8,939 8,944 4,862
Redemption of HL&P Preferred Stock . . . . . . . . . . . . (402) (5,200) (4,160)
----------- ----------- -----------
Balance at End of Year . . . . . . . . . . . . . . . . . . $ 1,191,230 $ 1,254,584 $ 1,202,125
=========== =========== ===========
See Notes to Consolidated Financial Statements.
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59
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
December 31,
-----------------------------
1993 1992
----------- -----------
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,165,811 $ 7,108,713
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 840,736 818,584
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,503,964 2,394,226
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 969,733 978,998
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . 242,661 205,214
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,785 202,013
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . . . . 196,330 200,865
Electric plant acquisition adjustments . . . . . . . . . . . . . . . . . . . . 3,166 3,166
Cable television property . . . . . . . . . . . . . . . . . . . . . . . . . . 372,178 320,661
Other property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,494 21,687
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,553,858 12,254,127
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 3,355,616 3,062,103
----------- -----------
Property, plant and equipment - net . . . . . . . . . . . . . . . . . . 9,198,242 9,192,024
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 14,884 69,317
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,834 2,071
Accounts receivable:
Customers (less allowance for doubtful accounts of $1,682
and $10,439 at December 31, 1993 and 1992, respectively) . . . . . . . . 4,985 135,072
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,153 21,706
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 29,322 190,897
Fuel stock, at lifo cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,585 68,564
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . 166,477 167,438
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,432 14,765
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 317,672 669,830
----------- -----------
OTHER ASSETS:
Cable television franchises and intangible assets (less
accumulated amortization of $184,057 and $145,856 at
December 31, 1993 and 1992, respectively) . . . . . . . . . . . . . . . . . 984,032 1,021,934
Deferred plant costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664,699 690,482
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,773 274,252
Unamortized debt expense and premium on reacquired debt . . . . . . . . . . . 169,465 137,395
Equity investment in cable television partnerships . . . . . . . . . . . . . . 122,531 90,220
Equity investment in foreign electric utility . . . . . . . . . . . . . . . . 36,984 37,554
Regulatory asset - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,763 177,426
Recoverable project costs . . . . . . . . . . . . . . . . . . . . . . . . . . 118,016 130,550
----------- -----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,714,263 2,559,813
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,230,177 $12,421,667
=========== ===========
See Notes to Consolidated Financial Statements.
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HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
December 31,
-----------------------------
1993 1992
----------- -----------
CAPITALIZATION (STATEMENTS ON FOLLOWING PAGES):
Common Stock Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,273,997 $ 3,284,713
----------- -----------
Preference Stock, no par; authorized 10,000,000 shares;
none outstanding
Cumulative Preferred Stock of Subsidiary:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 351,354 351,354
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . . 167,236 206,834
----------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . . . . 518,590 558,188
----------- -----------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,243,195 4,439,892
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 8,035,782 8,282,793
----------- -----------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591,385 564,249
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239,814 249,397
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,503 189,579
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,178 101,054
Dividends accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,207 7,992
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . . 22,589 20,947
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,604 69,940
Current portion of long-term debt and preferred stock . . . . . . . . . . . . 55,109 337,804
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,688 67,493
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,414,077 1,608,455
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 1,987,336 1,789,820
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . 434,597 454,782
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,385 285,817
----------- -----------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . 2,780,318 2,530,419
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,230,177 $12,421,667
=========== ===========
See Notes to Consolidated Financial Statements.
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HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
December 31,
-----------------------------
1993 1992
----------- -----------
COMMON STOCK EQUITY:
Common stock, no par; authorized, 400,000,000 and 200,000,000
shares at December 31, 1993 and 1992, respectively;
outstanding, 130,658,755 and 129,514,483 shares at
December 31, 1993 and 1992, respectively . . . . . . . . . . . . . . . . . . $ 2,415,256 $ 2,362,618
Note receivable from ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . (332,489) (332,489)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,191,230 1,254,584
----------- -----------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . . 3,273,997 3,284,713
----------- -----------
CUMULATIVE PREFERRED STOCK, no par; authorized, 10,000,000
shares; outstanding, 5,432,397 and 5,832,397 shares at
December 31, 1993 and 1992, respectively (entitled upon
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 . . . . . . . . . . . . . . . . . . . . 49,098 49,098
Series B - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . . 49,109 49,109
Series C - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . . 58,984 58,984
Series D - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . . 58,984 58,984
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,354 351,354
----------- -----------
Subject to mandatory redemption:
$8.50 series, 600,000 and 1,000,000 shares
at December 31, 1993 and 1992, respectively . . . . . . . . . . . . . . 59,597 99,195
$9.375 series, 1,285,000 shares . . . . . . . . . . . . . . . . . . . . 127,639 127,639
Current redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,000) (20,000)
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,236 206,834
----------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . . 518,590 558,188
----------- -----------
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 . . . . . . . . . . . . . . . . . . . . . . . . . . (1,456) (1,641)
----------- -----------
Total debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 548,544 548,359
----------- -----------
Houston Lighting & Power Company:
First mortgage bonds:
9 3/8% series, due 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 136,000
5 1/4% series, due 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
5 1/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
6 3/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
7 5/8% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
6 3/4% series, due 1998 . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
7 1/2% series, due 1999 . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
7 1/4% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
7 1/2% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
8 1/8% series, due 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
8 3/4% series, due 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 42,247
(continued on next page)
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62
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
(CONTINUED)
December 31,
------------------------------
1993 1992
----------- -----------
8 3/8% series, due 2006 . . . . . . . . . . . . . . . . . . . . . . . . . $ 125,000
8 3/8% series, due 2007 . . . . . . . . . . . . . . . . . . . . . . . . . 125,000
9 % series, due 2017 . . . . . . . . . . . . . . . . . . . . . . . . . 390,519
9.15 % series, due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . $ 160,000 160,000
8 3/4% series, due 2022 . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
7 3/4% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
7 1/2% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
4.90 % pollution control series, due 2003 . . . . . . . . . . . . . . . . 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
7 3/4% pollution control series, due 2015 . . . . . . . . . . . . . . . . 68,700 68,700
8 1/4% pollution control series, due 2015 . . . . . . . . . . . . . . . . 90,000 90,000
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
7 7/8% pollution control series, due 2018 . . . . . . . . . . . . . . . . 50,000 50,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . . . 175,000 175,000
8 1/4% pollution control series, due 2019 . . . . . . . . . . . . . . . . 100,000 100,000
8.10 % pollution control series, due 2019 . . . . . . . . . . . . . . . . 100,000 100,000
7 7/8% pollution control series, due 2019 . . . . . . . . . . . . . . . . 29,685 29,685
7.60 % pollution control series, due 2019 . . . . . . . . . . . . . . . . 70,315 70,315
7.70 % pollution control series, due 2019 . . . . . . . . . . . . . . . . 75,000 75,000
7 1/8% pollution control series, due 2019 . . . . . . . . . . . . . . . . 100,000 100,000
7 5/8% pollution control series, due 2019 . . . . . . . . . . . . . . . . 100,000 100,000
6.70 % pollution control series, due 2027 . . . . . . . . . . . . . . . . 56,095 56,095
Medium-term notes series A, 9.79%-9.85%, due 1994-1999 . . . . . . . . . . 200,000 200,000
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
Medium-term notes series B, 8.15%, due 2002 . . . . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.50%, due 2003 . . . . . . . . . . . . . . . . 150,000
----------- -----------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . 3,051,550 3,200,151
----------- -----------
Pollution control revenue bonds:
Gulf Coast 1980-T series, floating rate, due 1998 . . . . . . . . . . . . . 5,000 5,000
Brazos River 1983 series, 10 1/2%, due 2003 . . . . . . . . . . . . . . . . 17,935
Gulf Coast 1974 series, 7 3/8%, due 2004 . . . . . . . . . . . . . . . . . 16,950
Brazos River 1985 A2 series, 9 3/4%, due 2005 . . . . . . . . . . . . . . . 4,265 4,265
Brazos River 1983 series, 10 5/8%, due 2013 . . . . . . . . . . . . . . . . 65,630
Brazos River 1985 A1 series, 9 7/8%, due 2015 . . . . . . . . . . . . . . . 87,680 87,680
Matagorda County 1985 series, 10%, due 2015 . . . . . . . . . . . . . . . . 58,905 58,905
----------- -----------
Total pollution control revenue bonds . . . . . . . . . . . . . . . . . 155,850 256,365
----------- -----------
Unamortized premium (discount) - net . . . . . . . . . . . . . . . . . . . . . (12,839) (12,118)
Capitalized lease obligations, discount rates of
6.4%-11.7%, due 1994-2018 . . . . . . . . . . . . . . . . . . . . . . . . . 17,825 19,589
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,410 4,897
----------- -----------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,396 12,368
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,214,796 3,468,884
----------- -----------
(continued on next page)
-62-
63
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
(CONTINUED)
December 31,
------------------------------
1993 1992
----------- -----------
KBLCOM Incorporated and Subsidiaries:
KBL Cable, Inc. senior bank debt . . . . . . . . . . . . . . . . . . . . . . $ 364,000 $ 415,000
KBLCOM Incorporated senior bank debt . . . . . . . . . . . . . . . . . . . . 167,349
KBL Cable, Inc. senior notes . . . . . . . . . . . . . . . . . . . . . . . . 67,095 69,935
KBL Cable, Inc. senior subordinated notes . . . . . . . . . . . . . . . . . 83,869 87,419
Capitalized lease obligations . . . . . . . . . . . . . . . . . . . . . . . 750
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514,964 740,453
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,278,304 4,757,696
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . (35,109) (317,804)
----------- -----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 4,243,195 4,439,892
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . $ 8,035,782 $ 8,282,793
=========== ===========
See Notes to Consolidated Financial Statements.
-63-
64
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 416,036 $ 434,667 $ 416,754
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . 464,806 448,594 423,048
Amortization of nuclear fuel . . . . . . . . . . . . 2,101 29,237 23,145
Deferred income taxes . . . . . . . . . . . . . . . . 197,516 61,670 110,243
Investment tax credit . . . . . . . . . . . . . . . . (20,185) (19,950) (19,903)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . (3,512) (6,169) (5,749)
Deferred plant costs . . . . . . . . . . . . . . . . (53,668)
Payment of disputed income taxes and
related interest . . . . . . . . . . . . . . . . . (52,817)
Deferred return under phase-in plan . . . . . . . . . (38,758)
Regulatory adjustment related to prior
year's disallowed plant costs . . . . . . . . . . . (14,483)
Disallowed expenses . . . . . . . . . . . . . . . . . 13,124
Fuel cost (refund) and over/(under)
recovery - net . . . . . . . . . . . . . . . . . . (91,863) (84,072) (7,061)
Restructuring . . . . . . . . . . . . . . . . . . . . 86,431
Cumulative effect of change in accounting
for revenues . . . . . . . . . . . . . . . . . . . (94,180)
Regulatory asset - net . . . . . . . . . . . . . . . (69,337) (12,180) (21,614)
Equity in income of cable television
partnerships . . . . . . . . . . . . . . . . . . . (31,979) (24,871) (10,672)
Changes in other assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . 302,215 10,357 5,885
Inventory . . . . . . . . . . . . . . . . . . . . . 10,940 9,350 (7,182)
Other current assets . . . . . . . . . . . . . . . (15,430) 2,885 7,989
Accounts payable . . . . . . . . . . . . . . . . . (9,583) 10,990 16,561
Interest and taxes accrued . . . . . . . . . . . . (18,952) (20,693) 49,223
Other current liabilities . . . . . . . . . . . . . 28,088 (53,520) (40,225)
Other - net . . . . . . . . . . . . . . . . . . . . 46,789 68,083 16,778
----------- ----------- -----------
Net cash provided by operating activities . . . . . 1,207,650 793,812 863,435
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Electric capital expenditures (including
allowance for borrowed funds used
during construction) . . . . . . . . . . . . . . . (332,797) (343,273) (375,535)
Cable television additions . . . . . . . . . . . . . . . (54,482) (44,306) (26,624)
Investment in foreign electric utility . . . . . . . . . (35,796) (1,625)
Other - net . . . . . . . . . . . . . . . . . . . . . . (37,313) (10,608) (18,998)
----------- ----------- -----------
Net cash used in investing activities . . . . . . . (460,388) (399,812) (421,157)
----------- ----------- -----------
(continued on next page)
-64-
65
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(THOUSANDS OF DOLLARS)
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock . . . . . . . . . . . . . . . $ 52,638 $ 50,620
Increase in note receivable from ESOP . . . . . . . . . (285,116)
Proceeds from preferred stock . . . . . . . . . . . . . $ 216,700
Proceeds from first mortgage bonds . . . . . . . . . . . 840,427 488,760 257,653
Proceeds from senior bank debt . . . . . . . . . . . . . 20,000 23,504
Proceeds from debentures . . . . . . . . . . . . . . . . 99,216 448,935
Purchase of senior and subordinated notes . . . . . . . (71,419)
Reacquisition of debentures . . . . . . . . . . . . . . (205,220)
Payment of matured first mortgage bonds . . . . . . . . (136,000) (157,000) (132,000)
Payment of senior bank debt . . . . . . . . . . . . . . (238,349) (5,000) (40,000)
Payment of senior and subordinated notes . . . . . . . . (6,390)
Payment of common stock dividends . . . . . . . . . . . (389,933) (385,952) (381,117)
Redemption of preferred stock . . . . . . . . . . . . . (40,000) (103,000) (112,500)
Increase (decrease) in notes payable . . . . . . . . . . 27,136 233,955 (34,318)
Extinguishment of long-term debt . . . . . . . . . . . . (995,751) (717,912) (35,757)
Other - net . . . . . . . . . . . . . . . . . . . . . . 64,527 49,300 22,053
----------- ----------- -----------
Net cash used in financing activities . . . . . . . (801,695) (352,352) (423,263)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . (54,433) 41,648 19,015
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . 69,317 27,669 8,654
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . $ 14,884 $ 69,317 $ 27,669
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash Payments:
Interest (net of amounts
capitalized or deferred) . . . . . . . . . . . . . . $ 397,911 $ 474,655 $ 395,822
Income taxes . . . . . . . . . . . . . . . . . . . . . . 123,975 172,053 85,202
See Notes to Consolidated Financial Statements.
-65-
66
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS)
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
(Restated) (Restated)
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . $ 4,079,863 $ 3,826,841 $ 3,674,543
---------- ----------- -----------
OPERATING EXPENSES:
Fuel . . . . . . . . . . . . . . . . . . . . . . . 1,063,050 914,732 882,114
Purchased power . . . . . . . . . . . . . . . . . . . 515,502 486,414 444,040
Operation . . . . . . . . . . . . . . . . . . . . . . 608,912 553,847 582,712
Maintenance . . . . . . . . . . . . . . . . . . . . . 289,623 256,532 231,109
Depreciation and amortization . . . . . . . . . . . . 385,731 371,645 350,593
Income taxes . . . . . . . . . . . . . . . . . . . . . 239,464 174,731 225,104
Other taxes . . . . . . . . . . . . . . . . . . . . . 211,295 233,439 194,069
Deferred expenses . . . . . . . . . . . . . . . . . . (22,973)
Restructuring . . . . . . . . . . . . . . . . . . . . 86,431
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . 3,313,577 3,077,771 2,886,768
----------- ----------- -----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . 766,286 749,070 787,775
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . 3,512 6,169 5,749
Deferred return under phase-in plan . . . . . . . . . 38,758
Regulatory adjustment related to prior
year's disallowed plant costs . . . . . . . . . . . 14,483
Interest income . . . . . . . . . . . . . . . . . . . 3,296 2,447 13,585
Other - net . . . . . . . . . . . . . . . . . . . . . (4,286) (17,839) (14,257)
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . 2,522 (9,223) 58,318
----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES . . . . . . . . . . . . . . 768,808 739,847 846,093
----------- ----------- -----------
INTEREST CHARGES:
Interest on long-term debt . . . . . . . . . . . . . . 276,049 311,208 326,722
Other interest . . . . . . . . . . . . . . . . . . . . 12,317 19,548 41,216
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . . . (3,781) (6,191) (10,049)
Deferred carrying costs . . . . . . . . . . . . . . . (30,695)
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . 284,585 324,565 327,194
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR REVENUES . . . . . . . . . . . . . . 484,223 415,282 518,899
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
REVENUES (NET OF INCOME TAXES OF $48,517) . . . . . . 94,180
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . 484,223 509,462 518,899
DIVIDENDS ON PREFERRED STOCK . . . . . . . . . . . . . . . 34,473 39,327 46,187
----------- ----------- -----------
INCOME AFTER PREFERRED DIVIDENDS . . . . . . . . . . . . . $ 449,750 $ 470,135 $ 472,712
=========== =========== ===========
See Notes to Financial Statements.
-66-
67
HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF RETAINED EARNINGS
(THOUSANDS OF DOLLARS)
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
(Restated) (Restated)
Balance at Beginning of Year . . . . . . . . . . . . . . . $ 1,922,558 $ 1,803,371 $ 1,685,086
Add - Net Income . . . . . . . . . . . . . . . . . . . . . 484,223 509,462 518,899
Redemption of Preferred Stock . . . . . . . . . . . . . . . (402) (5,200) (4,160)
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 2,406,379 2,307,633 2,199,825
----------- ----------- -----------
Deduct - Cash Dividends:
Preferred:
$4.00 Series . . . . . . . . . . . . . . . . . . . . . 390 390 390
$6.72 Series . . . . . . . . . . . . . . . . . . . . . 1,680 1,680 1,680
$7.52 Series . . . . . . . . . . . . . . . . . . . . . 3,760 3,760 3,760
$9.52 Series . . . . . . . . . . . . . . . . . . . . . 3,290
$9.08 Series . . . . . . . . . . . . . . . . . . . . . 3,138
$8.12 Series . . . . . . . . . . . . . . . . . . . . . 4,060 4,060 4,060
$9.04 Series . . . . . . . . . . . . . . . . . . . . . 2,343
Series A - 1984 . . . . . . . . . . . . . . . . . . . 2,720 3,550
Series B - 1985 . . . . . . . . . . . . . . . . . . . 2,625 3,430
Series A - 1992 . . . . . . . . . . . . . . . . . . . 1,366 1,425
Series B - 1992 . . . . . . . . . . . . . . . . . . . 1,366 1,405
Series C - 1992 . . . . . . . . . . . . . . . . . . . 1,672 356
Series D - 1992 . . . . . . . . . . . . . . . . . . . 1,616 359
$8.50 Series . . . . . . . . . . . . . . . . . . . . . 6,517 8,500 8,500
$9.375 Series . . . . . . . . . . . . . . . . . . . . 12,047 12,047 12,046
Common . . . . . . . . . . . . . . . . . . . . . . . . . 342,981 345,748 350,267
----------- ----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . 377,455 385,075 396,454
----------- ----------- -----------
Balance at End of Year . . . . . . . . . . . . . . . . . . $ 2,028,924 $ 1,922,558 $ 1,803,371
=========== =========== ===========
See Notes to Financial Statements.
-67-
68
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
December 31,
-----------------------------
1993 1992
----------- -----------
(Restated)
PROPERTY, PLANT AND EQUIPMENT - AT COST:
Electric plant:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,165,811 $ 7,108,713
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 840,736 818,584
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,503,964 2,394,226
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 969,733 978,998
Construction work in progress . . . . . . . . . . . . . . . . . . . . . . . 242,661 205,214
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,785 202,013
Plant held for future use . . . . . . . . . . . . . . . . . . . . . . . . . 196,330 200,865
Electric plant acquisition adjustments . . . . . . . . . . . . . . . . . . . . 3,166 3,166
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,134,186 11,911,779
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 3,194,127 2,936,865
----------- -----------
Property, plant and equipment - net . . . . . . . . . . . . . . . . . . 8,940,059 8,974,914
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 12,413 4,253
Special deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,834 2,071
Accounts receivable:
Affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,792 2,111
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,540 11,429
Accrued unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 29,322 190,897
Fuel stock, at lifo cost . . . . . . . . . . . . . . . . . . . . . . . . . . 58,585 68,564
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . 160,371 164,221
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,234 9,420
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 286,091 452,966
----------- -----------
OTHER ASSETS:
Deferred plant costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664,699 690,482
Deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,620 233,253
Unamortized debt expense and premium on reacquired debt . . . . . . . . . . . 164,368 130,461
Regulatory asset - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,763 177,426
Recoverable project costs . . . . . . . . . . . . . . . . . . . . . . . . . . 118,016 130,550
----------- -----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,527,466 1,362,172
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,753,616 $10,790,052
=========== ===========
See Notes to Financial Statements.
-68-
69
HOUSTON LIGHTING & POWER COMPANY
BALANCE SHEETS
(THOUSANDS OF DOLLARS)
CAPITALIZATION AND LIABILITIES
December 31,
-----------------------------
1993 1992
----------- -----------
(Restated)
CAPITALIZATION (STATEMENTS ON FOLLOWING PAGES):
Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,704,851 $ 3,598,485
Cumulative preferred stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . 351,354 351,354
Subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . . 167,236 206,834
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,190,071 3,418,755
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 7,413,512 7,575,428
----------- -----------
CURRENT LIABILITIES:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,100 139,440
Notes payable to affiliated companies . . . . . . . . . . . . . . . . . . . . 19,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,583 203,445
Accounts payable to affiliated companies . . . . . . . . . . . . . . . . . . . 8,449 7,441
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,517 192,781
Interest and dividends accrued . . . . . . . . . . . . . . . . . . . . . . . . 65,238 80,010
Accrued liabilities to municipalities . . . . . . . . . . . . . . . . . . . . 22,589 20,947
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,604 69,940
Current portion of long-term debt and preferred stock . . . . . . . . . . . . 44,725 171,130
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,607 32,767
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 819,412 936,901
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 1,798,976 1,584,607
Unamortized investment tax credit . . . . . . . . . . . . . . . . . . . . . . 430,996 450,793
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,720 242,323
----------- -----------
Total deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . 2,520,692 2,277,723
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,753,616 $10,790,052
=========== ===========
See Notes to Financial Statements.
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HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
December 31,
------------------------------
1993 1992
----------- -----------
(Restated)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,028,924 1,922,558
----------- -----------
Total common stock equity . . . . . . . . . . . . . . . . . . . . . 3,704,851 3,598,485
----------- -----------
CUMULATIVE PREFERRED STOCK, no par; authorized, 10,000,000
shares; 5,432,397 shares outstanding at December 31, 1993
and 5,832,397 shares outstanding at December 31, 1992
(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 . . . . . . . . . . . . . . . . . . . . 49,098 49,098
Series B - 1992, 500,000 shares . . . . . . . . . . . . . . . . . . . . 49,109 49,109
Series C - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . . 58,984 58,984
Series D - 1992, 600,000 shares . . . . . . . . . . . . . . . . . . . . 58,984 58,984
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351,354 351,354
----------- -----------
Subject to mandatory redemption:
$8.50 series, 600,000 shares and 1,000,000 shares
at December 31, 1993 and 1992, respectively . . . . . . . . . . . . . 59,597 99,195
$9.375 series, 1,285,000 shares . . . . . . . . . . . . . . . . . . . . 127,639 127,639
Current redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . (20,000) (20,000)
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,236 206,834
----------- -----------
Total cumulative preferred stock . . . . . . . . . . . . . . . . 518,590 558,188
----------- -----------
LONG-TERM DEBT:
First mortgage bonds:
9 3/8% series, due 1993 . . . . . . . . . . . . . . . . . . . . . . . . 136,000
5 1/4% series, due 1996 . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
5 1/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
6 3/4% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
7 5/8% series, due 1997 . . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
6 3/4% series, due 1998 . . . . . . . . . . . . . . . . . . . . . . . . 35,000 35,000
7 1/2% series, due 1999 . . . . . . . . . . . . . . . . . . . . . . . . 30,000
7 1/4% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
7 1/2% series, due 2001 . . . . . . . . . . . . . . . . . . . . . . . . 50,000
8 1/8% series, due 2004 . . . . . . . . . . . . . . . . . . . . . . . . 100,000
8 3/4% series, due 2005 . . . . . . . . . . . . . . . . . . . . . . . . 42,247
(continued on next page)
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HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CAPITALIZATION
(THOUSANDS OF DOLLARS)
(CONTINUED)
December 31,
------------------------------
1993 1992
----------- -----------
(Restated)
8 3/8% series, due 2006 . . . . . . . . . . . . . . . . . . . . . . . . $ 125,000
8 3/8% series, due 2007 . . . . . . . . . . . . . . . . . . . . . . . . 125,000
9 % series, due 2017 . . . . . . . . . . . . . . . . . . . . . . . . 390,519
9.15 % series, due 2021 . . . . . . . . . . . . . . . . . . . . . . . . $ 160,000 160,000
8 3/4% series, due 2022 . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
7 3/4% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . 250,000
7 1/2% series, due 2023 . . . . . . . . . . . . . . . . . . . . . . . . 200,000
4.90 % pollution control series, due 2003 . . . . . . . . . . . . . . . 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
7 3/4% pollution control series, due 2015 . . . . . . . . . . . . . . . 68,700 68,700
8 1/4% pollution control series, due 2015 . . . . . . . . . . . . . . . 90,000 90,000
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
7 7/8% pollution control series, due 2018 . . . . . . . . . . . . . . . 50,000 50,000
7.20 % pollution control series, due 2018 . . . . . . . . . . . . . . . 175,000 175,000
8 1/4% pollution control series, due 2019 . . . . . . . . . . . . . . . 100,000 100,000
8.10 % pollution control series, due 2019 . . . . . . . . . . . . . . . 100,000 100,000
7 7/8% pollution control series, due 2019 . . . . . . . . . . . . . . . 29,685 29,685
7.60 % pollution control series, due 2019 . . . . . . . . . . . . . . . 70,315 70,315
7.70 % pollution control series, due 2019 . . . . . . . . . . . . . . . 75,000 75,000
7 1/8% pollution control series, due 2019 . . . . . . . . . . . . . . . 100,000 100,000
7 5/8% pollution control series, due 2019 . . . . . . . . . . . . . . . 100,000 100,000
6.70 % pollution control series, due 2027 . . . . . . . . . . . . . . . 56,095 56,095
Medium-term notes series A, 9.79%-9.85%, due 1994-1999 . . . . . . . . . 200,000 200,000
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
Medium-term notes series B, 8.15%, due 2002 . . . . . . . . . . . . . . . 100,000 100,000
Medium-term notes series C, 6.50%, due 2003 . . . . . . . . . . . . . . . 150,000
----------- -----------
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . 3,051,550 3,200,151
----------- -----------
Pollution control revenue bonds:
Gulf Coast 1980-T series, floating rate, due 1998 . . . . . . . . . . . . 5,000 5,000
Brazos River 1983 series, 10 1/2%, due 2003 . . . . . . . . . . . . . . . 17,935
Gulf Coast 1974 series, 7 3/8%, due 2004 . . . . . . . . . . . . . . . . 16,950
Brazos River 1985 A2 series, 9 3/4%, due 2005 . . . . . . . . . . . . . . 4,265 4,265
Brazos River 1983 series, 10 5/8%, due 2013 . . . . . . . . . . . . . . . 65,630
Brazos River 1985 A1 series, 9 7/8%, due 2015 . . . . . . . . . . . . . . 87,680 87,680
Matagorda County 1985 series, 10%, due 2015 . . . . . . . . . . . . . . . 58,905 58,905
----------- -----------
Total pollution control revenue bonds . . . . . . . . . . . . . . . . 155,850 256,365
----------- -----------
Unamortized premium (discount) - net . . . . . . . . . . . . . . . . . . . . . (12,839) (12,118)
Capitalized lease obligations, discount rates of
6.4%-11.7%, due 1994-2018 . . . . . . . . . . . . . . . . . . . . . . . . . 17,825 19,589
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,410 4,897
Notes payable to affiliated company . . . . . . . . . . . . . . . . . . . . . 101,001
----------- -----------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,396 113,369
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,214,796 3,569,885
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . (24,725) (151,130)
----------- -----------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . 3,190,071 3,418,755
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . $ 7,413,512 $ 7,575,428
=========== ===========
See Notes to Financial Statements.
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HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 484,223 $ 509,462 $ 518,899
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . 385,731 371,645 350,593
Amortization of nuclear fuel . . . . . . . . . . . . 2,101 29,237 23,145
Deferred income taxes . . . . . . . . . . . . . . . . 214,369 73,943 124,484
Investment tax credit . . . . . . . . . . . . . . . . (19,797) (19,926) (19,567)
Allowance for other funds used during
construction . . . . . . . . . . . . . . . . . . . (3,512) (6,169) (5,749)
Deferred plant costs . . . . . . . . . . . . . . . . (53,668)
Deferred return under phase-in plan . . . . . . . . . (38,758)
Regulatory adjustment related to prior
year's disallowed plant costs . . . . . . . . . . . (14,483)
Disallowed expenses . . . . . . . . . . . . . . . . . 13,124
Fuel cost (refund) and over/(under)
recovery - net . . . . . . . . . . . . . . . . . (91,863) (84,072) (7,061)
Cumulative effect of change in accounting
for revenues . . . . . . . . . . . . . . . . . . . (94,180)
Restructuring . . . . . . . . . . . . . . . . . . . . 86,431
Regulatory asset - net . . . . . . . . . . . . . . . (69,337) (12,180) (21,614)
Changes in other assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . 170,784 14,633 (9,216)
Materials and supplies . . . . . . . . . . . . . . 3,850 10,791 (12,691)
Fuel stock . . . . . . . . . . . . . . . . . . . . 9,979 (1,542) 5,684
Accounts payable . . . . . . . . . . . . . . . . . (11,854) 13,235 (475)
Interest and taxes accrued . . . . . . . . . . . . (20,035) (24,610) 52,508
Other current liabilities . . . . . . . . . . . . . 18,040 (54,694) (36,363)
Other - net . . . . . . . . . . . . . . . . . . . . 63,721 41,382 51,436
----------- ----------- -----------
Net cash provided by operating activities . . . . . 1,136,400 853,386 920,228
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction and nuclear fuel expenditures
(including allowance for borrowed funds
used during construction) . . . . . . . . . . . . . . (332,797) (343,273) (375,535)
Other - net . . . . . . . . . . . . . . . . . . . . . . (13,067) (10,668) (11,108)
----------- ----------- -----------
Net cash used in investing activities . . . . . . . . (345,864) (353,941) (386,643)
----------- ----------- -----------
(continued on next page)
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HOUSTON LIGHTING & POWER COMPANY
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Thousands of Dollars)
(Continued)
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
(Restated) (Restated)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred stock . . . . . . . . . . . . . $ 216,700
Proceeds from first mortgage bonds . . . . . . . . . . . $ 840,427 488,760 $ 257,653
Payment of matured bonds . . . . . . . . . . . . . . . . (136,000) (157,000) (132,000)
Payment of dividends . . . . . . . . . . . . . . . . . . (378,528) (386,049) (399,436)
Increase (decrease) in notes payable . . . . . . . . . . 31,660 139,440 (64,000)
Increase (decrease) in notes payable to
affiliated company . . . . . . . . . . . . . . . . . (120,001) 19,000 (35,500)
Redemption of preferred stock . . . . . . . . . . . . . (40,000) (103,000) (112,500)
Extinguishment of long-term debt . . . . . . . . . . . . (995,751) (717,912) (35,757)
Other - net . . . . . . . . . . . . . . . . . . . . . . 15,817 (5,997) (6,935)
----------- ----------- -----------
Net cash used in financing activities . . . . . . . (782,376) (506,058) (528,475)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . 8,160 (6,613) 5,110
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . 4,253 10,866 5,756
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . $ 12,413 $ 4,253 $ 10,866
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash Payments:
Interest (net of amounts
capitalized or deferred) . . . . . . . . . . . . . . $ 296,201 $ 341,921 $ 278,104
Income taxes . . . . . . . . . . . . . . . . . . . . . . 127,713 153,010 95,759
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, 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) SYSTEM OF ACCOUNTS. The accounting records of Houston Lighting & Power
Company (HL&P), the principal subsidiary of Houston Industries
Incorporated (Company), are maintained in accordance with the Federal
Energy Regulatory Commission's Uniform System of Accounts as adopted by
the Public Utility Commission of Texas (Utility Commission).
(B) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
Effective October 8, 1993, the Company merged Utility Fuels Inc.
(Utility Fuels), the Company's coal supply subsidiary, into HL&P.
Accounting for the merger did not affect consolidated earnings.
All significant intercompany transactions and balances are eliminated in
consolidation except sales of accounts receivable to Houston Industries
Finance, Inc. (Houston Industries Finance), a former subsidiary of the
Company, which were not eliminated because of the distinction for
regulatory purposes between utility and non-utility operations. As of
January 12, 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.
Investments in affiliates in which the Company has a 20% to 50%
interest, which include the investment in Paragon Communications
(Paragon), are recorded using the equity method of accounting. See Note
17.
(C) ELECTRIC PLANT. Additions to electric plant, betterments to existing
property and replacements of units of property are capitalized at cost.
Cost includes the original cost of contracted services, direct labor and
material, indirect charges for engineering supervision and similar
overhead items and an Allowance for Funds Used During Construction
(AFUDC). Customer advances for construction reduce additions to
electric plant.
HL&P computes depreciation using the straight-line method. The
depreciation provision as a percentage of the depreciable cost of plant
was 3.1% for 1993, and 3.2% for 1992 and 1991.
(D) CABLE TELEVISION PROPERTY. KBLCOM Incorporated (KBLCOM),
the Company's cable television subsidiary, records additions to property
at cost which include amounts for material, labor, overhead and
interest. Depreciation is computed using the straight-line method.
Depreciation as a percentage of the depreciable cost of property was
11.3% for 1993, 12.1% for 1992, and 11.7% for 1991. Expenditures for
maintenance and repairs are expensed as incurred.
(E) CABLE TELEVISION FRANCHISES AND INTANGIBLE ASSETS. KBLCOM has
recorded the acquisition cost in excess of the fair market value of the
tangible assets and liabilities of RCA Cablesystems Holding Co.
(Cablesystems) in cable television franchises and intangible assets
acquired in 1989. Such amount is being amortized over periods ranging
from 8 to 40 years on a straight-line basis. KBLCOM periodically
reviews the carrying value of
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cable television franchises and intangible assets in relation to current
and expected operating results of the business in order to assess
whether there has been a permanent impairment of such amounts.
(F) ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. HL&P accrues AFUDC on
construction projects and nuclear fuel payments, except for amounts
included in the rate base pursuant to regulatory authorization. The
accrual rates were 7.25% in 1993 and 8.75% in 1992 and 1991.
(G) REVENUES. Effective January 1, 1992, HL&P changed its method of
recording electricity sales from cycle billing to a full accrual method,
whereby unbilled electricity sales are estimated and recorded each month
in order to better match revenues with expenses. Prior to January 1,
1992, electric revenues were recognized as bills were rendered (see Note
19).
The Utility Commission provides for the recovery of certain fuel and
purchased power costs through an energy component of base electric
rates.
Cable television revenues are recognized as the services are provided to
subscribers, and advertising revenues are recorded when earned.
(H) INCOME TAXES. 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. In 1992,
the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," with restatement to January 1,
1990 (see Note 14). Under current tax laws, the Company may realize tax
savings by deducting for tax purposes dividends on the Company's common
stock that are used to pay debt service on the Employee Stock Ownership
Plan (ESOP) loans (see Note 7).
(I) EARNINGS PER COMMON SHARE. Earnings per common share for the Company is
computed by dividing net income by the weighted average number of shares
outstanding during the respective period.
(J) 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.
(2) COMMON STOCK
In May 1993, the Company's shareholders approved an increase in the
Company's authorized common stock from 200,000,000 shares to 400,000,000
shares.
In 1993, the Company paid four regular quarterly dividends aggregating
$3.00 per share on its common stock pursuant to dividend declarations
made in 1993. In December 1993, the Company declared its regular
quarterly dividend of $.75 per share to be paid in March 1994. All
dividends declared in 1993 have been included in 1993 common stock
dividends on the Company's Statements of Consolidated Retained Earnings
and, with respect to the dividends declared in December 1993, in
dividends accrued at December 31, 1993 on the Company's Consolidated
Balance Sheets.
In May 1989, the Company adopted, with shareholder approval, a long-term
incentive compensation plan (1989 LICP Plan), which provided for the
issuance of certain stock incentives (including performance-based
restricted shares and stock options). A maximum of 500,000 shares of
common stock may be issued under the 1989 LICP Plan, of which 300,090
shares were available for issuance as of December 31, 1993. In 1993,
73,282 shares of performance-based restricted shares were issued to plan
participants. In January 1992, non-statutory stock options for 67,984
shares of the Company's stock were granted to key employees of the
Company and its subsidiaries at an option price of $43.50 per share, of
which 679 shares were exercised during 1993. Options for 21,430 shares
from the January 1992 grant were exercisable on December 31, 1993. In
January 1993, non-
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statutory stock options for 65,776 shares of the Company's stock
were granted at an option price of $46.25 per share. Beginning one year
after the grant date, the options become exercisable in one-third
increments each year. The options expire ten years from the grant date.
At December 31, 1993, 7,132 shares had been canceled under provisions of
the plan.
In May 1993, the Company adopted, with shareholder approval, a new
long-term incentive compensation plan (1994 LICP Plan), providing for
the issuance of certain stock incentives (including performance-based
restricted shares and stock options) of the general nature provided by
the 1989 LICP Plan. A maximum of 2,000,000 shares of common stock may
be issued under the 1994 LICP Plan. No stock incentives were awarded
under the 1994 LICP Plan during the year ended December 31, 1993.
However, in January of 1994, the Company granted to certain of its key
employees non-statutory stock options under the 1994 LICP Plan for
65,726 shares of common stock at an option price of $46.50 per share.
Beginning one year after the grant date, the options will become
exercisable in one-third increments each year. The options expire ten
years from the grant date.
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. The rights, which under certain circumstances entitle
their holders to purchase one one-hundredth of a share of Series A
Preference Stock for an exercise price of $85, will expire on July 11,
2000. The rights will become exercisable only if a person or entity
acquires 20% or more of the Company's outstanding common stock or if a
person or entity commences a tender offer or exchange offer for 20% 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
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.
In October 1990, the Company amended its savings plan to add an ESOP
component. The ESOP component of the plan allows the Company to satisfy
a portion of its obligation to make matching contributions under the
plan. For additional information with respect to the ESOP component of
the plan, see Note 7(b).
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(3) PREFERRED STOCK OF HL&P
HL&P's cumulative preferred stock may be redeemed at the following per
share prices, plus any unpaid accrued dividends to the date of
redemption:
Series Redemption Price Per Share
------ ----------------------------------
Current Future Range
------- --------------------
From To
------- --------
Not Subject to Mandatory
Redemption:
$4.00 . . . . . . . . . . . . . . . . . . . . . . . $105.00 $105.00 $105.00
$6.72 . . . . . . . . . . . . . . . . . . . . . . . 102.51 102.51 102.51
$7.52 . . . . . . . . . . . . . . . . . . . . . . . 102.35 102.35 102.35
$8.12 . . . . . . . . . . . . . . . . . . . . . . . 102.25 102.25 102.25
Variable Term Preferred A (a) . . . . . . . . . . . 100.00 100.00 100.00
Variable Term Preferred B (a) . . . . . . . . . . . 100.00 100.00 100.00
Variable Term Preferred C (a) . . . . . . . . . . . 100.00 100.00 100.00
Variable Term Preferred D (a) . . . . . . . . . . . 100.00 100.00 100.00
Subject to Mandatory
Redemption:
$8.50 (b) . . . . . . . . . . . . . . . . . . . . . $102.13 $100.00 $100.00
$9.375 (c) . . . . . . . . . . . . . . . . . . . . --- 100.00 100.00
(a) Rates for Variable Term Preferred stock as of December 31,
1993 were as follows:
Series Rate
------------------------- ------
Variable Term Preferred A 3.00%
Variable Term Preferred B 2.91%
Variable Term Preferred C 3.07%
Variable Term Preferred D 2.83%
(b) HL&P is required to redeem 200,000 shares of this series
annually. This series is redeemable at the option of HL&P at
$100 per share beginning June 1, 1994.
(c) HL&P is required to redeem 257,000 shares annually beginning
April 1, 1995. This series is redeemable at the option of HL&P
at $100 per share beginning April 1, 1997.
Annual mandatory redemptions of HL&P's preferred stock are $20 million
in 1994, $45.7 million for 1995 and 1996, and $25.7 million for 1997 and
1998.
(4) LONG-TERM DEBT
HL&P. Sinking or improvement fund requirements of HL&P's first mortgage
bonds outstanding will be approximately $37 million for each of the
years 1994 through 1998. Of such requirements, approximately $34
million for each of the years 1994 through 1998 may be satisfied by
certification of property additions at 100% of the requirements, and the
remainder through certification of such property additions at 166 2/3%
of the requirements. Sinking or improvement fund requirements for 1993
and prior years have been satisfied by certification of property
additions.
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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% 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% of the requirements. At
the option of HL&P, but only with respect to first mortgage bonds of a
series subject to special redemption, deposited cash may be used to
redeem first mortgage bonds of such series at the applicable special
redemption price. The replacement fund requirement to be satisfied in
1994 is approximately $271 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.
HL&P's annual maturities of long-term debt and minimum capital lease
payments are approximately $25 million in 1994, $4 million in 1995, $155
million in 1996, $229 million in 1997, and $40 million in 1998.
KBLCOM and Subsidiaries. As of December 31, 1993,
all borrowings under KBLCOM's letter of credit and term loan facility
had been repaid and such facility was utilized only in the form of
letters of credit aggregating $89.3 million. In January 1994, KBLCOM
terminated this facility.
KBL Cable, Inc. (KBL Cable), a subsidiary of KBLCOM, is a party to a
$510.3 million revolving credit and letter of credit facility agreement
with annual mandatory commitment reductions (which may require principal
payments). At December 31, 1993, KBL Cable had $108.5 million available
on such lines of credit. The available line of credit has scheduled
reductions in March of each year until it is eliminated in March 1999.
Loans have generally borne interest at an interest rate of LIBOR plus an
"applicable margin." The margin was .625% at December 31, 1993. The
bank credit agreement also contains certain restrictions, including
restrictions on dividends, sales of assets and limitations on total
indebtedness. The amount of indebtedness outstanding at December 31,
1993 and 1992 was $364 million and $415 million, respectively.
KBL Cable has interest rate swap agreements with four banks which, as of
December 31, 1993 and 1992, effectively fixed the rates on the $200
million of debt under the KBL Cable senior bank credit facility at
approximately 9% plus the applicable margin. As of December 31, 1993
and 1992, the effective interest rates on such debt were approximately
9.625% and 9.875%, respectively. Interest rate swaps aggregating $75
million terminated in October 1992. The remaining interest rate swaps
terminate in 1994 and 1996. The differential to be paid or received
under the interest rate swap agreements is accrued and is recognized
over the life of the agreement. KBL Cable is exposed to risk of
nonperformance by the other parties to the interest rate swap
agreements. However, KBL Cable does not anticipate nonperformance by
the parties.
Commitment fees are required on the unused capacity of the KBL Cable
bank credit facility.
As of December 31, 1993, KBL Cable had outstanding $67.1 million of
10.95% senior notes and $83.9 million of 11.30% senior subordinated
notes. Both
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series mature in 1999 with annual principal payments which began in
1992. The agreement under which the notes were issued contains
restrictions and covenants similar to those contained in the KBL Cable
senior bank facility. During the second quarter of 1993, the Company
contributed to KBLCOM KBL Cable senior notes aggregating approximately
$29 million and KBL Cable senior subordinated notes aggregating
approximately $36 million previously held by the Company. KBLCOM
subsequently contributed such notes to KBL Cable, which retired and
canceled the notes.
Annual Maturities of Company Long-Term Debt. Consolidated annual
maturities of long-term debt and minimum capital lease payments for the
Company are approximately $35 million in 1994, $20 million in 1995, $431
million in 1996, $359 million in 1997 and $181 million in 1998.
(5) SHORT-TERM FINANCING
The interim financing requirements of the Company's operating
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 $750 million
at December 31, 1993 and $1.05 billion at December 31, 1992, under which
borrowings are classified as short-term indebtedness. Such bank
facilities limit total short-term borrowings and provide for interest at
rates generally less than the prime rate. Outstanding commercial paper
was $591 million at December 31, 1993 and $564 million at December 31,
1992. Commitment fees are required on the bank facilities. For a
description of bank credit facilities of KBLCOM and KBL Cable,
borrowings under which are classified as long-term debt or current
maturities of long-term debt, see Note 4.
In January 1994, the Company's bank credit facility was increased from
$500 million to $600 million and HL&P's bank credit facility was
increased from $250 million to $400 million. The increased facilities
aggregate $1 billion. Borrowings under these facilities continue to be
available at rates generally less than the prime rate.
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(6) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of the Company's financial
instruments at December 31, 1993 and 1992 are as follows:
1993 1992
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(Thousands of Dollars)
Financial assets:
Cash and short-term
investments $ 14,884 $ 14,884 $ 69,317 $ 69,317
Note receivable from ESOP 332,489 421,468 332,489 395,202
Financial liabilities:
Short-term notes payable 591,385 591,385 564,249 564,249
Cumulative preferred stock
(subject to mandatory
redemption) 187,236 207,489 226,834 242,289
Debentures 548,544 616,672 548,359 586,405
Long-term debt:
Electric:
First mortgage bonds 3,039,343 3,360,442 3,188,694 3,407,236
Pollution control
revenue bonds 155,218 174,094 255,704 286,813
Cable television:
Senior bank debt 364,000 364,000 582,349 582,349
Senior and
subordinated notes 150,964 180,890 157,354 184,044
Other notes payable 2,410 2,410 4,897 4,897
Unrecognized financial
instruments:
Interest rate swaps:
Net payable position 13,604 17,162
The fair values of cash and short-term investments, short-term and other
notes payable and bank debt are equivalent to the carrying amounts.
The fair values of the ESOP loan, 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 KBL Cable senior and senior subordinated notes are estimated using
rates currently available for securities with similar terms and
remaining maturities.
The fair value of interest rate swaps is the estimated amount that the
swap counterparties would receive or pay to terminate the swap
agreements, taking into account current interest rates and the current
creditworthiness of the swap counterparties.
(7) RETIREMENT PLANS
(A) PENSION. The Company has noncontributory retirement plans covering
substantially all employees. The plans provide 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
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assets of the plans consist principally of common stocks and high
quality, interest-bearing obligations.
Net pension cost for the Company includes the following components:
Year Ended December 31,
------------------------------------------
1993 1992 1991
-------- -------- --------
(Thousands of Dollars)
Service cost - benefits earned
during the period . . . . . . . . . . . . . . . . . . . . $ 25,932 $ 24,282 $ 22,132
Interest cost on projected
benefit obligation . . . . . . . . . . . . . . . . . . . 51,343 45,585 38,564
Actual return on plan assets . . . . . . . . . . . . . . . (39,477) (26,934) (61,582)
Net amortization and deferrals . . . . . . . . . . . . . . (557) (11,749) 30,413
-------- -------- --------
Net pension cost . . . . . . . . . . . . . . . . . . . . . $ 37,241 $ 31,184 $ 29,527
======== ======== ========
The funded status of the Company's retirement plans was as follows:
December 31,
------------------------------
1993 1992
--------- ----------
(Thousands of Dollars)
Actuarial present value of:
Vested benefit obligation . . . . . . . . . . . . . . . . . . . . . $ 446,825 $ 360,714
========= =========
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . $ 506,567 $ 396,751
========= =========
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . $ 491,759 $ 444,511
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . 655,593 598,677
--------- ---------
Assets less than projected benefit
obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (163,834) (154,166)
Unrecognized transitional asset . . . . . . . . . . . . . . . . . . . (17,260) (19,179)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . 23,380 12,129
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . 81,826 86,084
--------- ---------
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . $ (75,888) $ (75,132)
========= =========
The projected benefit obligation was determined using an assumed
discount rate of 7.25% in 1993 and 8.5% in 1992. A long-term rate of
compensation increase ranging from 3.9% to 6% was assumed for 1993 and
ranging from 6.9% to 9.0% was assumed in 1992. The assumed long- term
rate of return on plan assets was 9.5% in 1993 and 1992. 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.
(B) SAVINGS PLANS. In 1993, the Company (which includes HL&P) and KBLCOM
had employee savings plans that qualified as cash or deferred
arrangements under Section 401(k) of the Internal Revenue Code of 1986,
as amended (IRC). Under the plans, participating employees could
contribute a portion of their compensation, pre-tax or after-tax, up to
a maximum of 16% of compensation limited by an annual deferral limit
($8,994 for calendar year 1993) prescribed by IRC Section 402(g) and the
IRC Section 415 annual additions limits. The Company matched 70%
(KBLCOM matched 50%) of the first 6% of each employee's compensation
contributed, subject to a vesting schedule which entitled the employee
to a percentage of the matching contributions depending on years of
service. Substantially all of the Company's and KBLCOM's match was
invested in the Company's common stock. Effective January 1, 1994,
KBLCOM's plan was merged with the Company's plan and KBLCOM's matching
contribution was increased to 70% of the first 6% of each employee's
contributions.
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Under the ESOP component of the Company's savings plan, the ESOP trustee
purchased shares of the Company's common stock in open-market
transactions with funds provided by loans from the Company and completed
the purchase of stock under the ESOP in December 1991, after purchasing
9,381,092 shares at a cost of $350 million. At December 31, 1993, the
balance of the ESOP loans was approximately $332 million. The loans
from the Company to the ESOP are shown on the Company's Consolidated
Balance Sheets as a reduction in common stock equity. Principal and
interest on the loans will be paid with dividends on the common stock
in, and Company contributions to, the ESOP. Repayment of the loan is
scheduled to occur over a 20-year period with the first mandatory
repayment in 1997. The loans to the ESOP were funded initially by the
Company from short-term borrowings which have been refinanced with
long-term debt.
Interest expense related to the ESOP debt service was $32.5 million in
1993, $32.6 million in 1992, and $17.9 million in 1991. ESOP benefit
expense was $17.3 million, $20.0 million, and $21.3 million in 1993,
1992 and 1991, respectively.
The Company match for the savings plan is satisfied with the allocation
to employee accounts of released shares of stock and with cash
contributions. Shares are released from the encumbrance of the loans
upon the payment of debt service using dividends on unallocated shares
in the ESOP, interest earnings and cash contributions by the Company. A
summary of dividends on unallocated ESOP shares and ESOP cash
contributions for the three years ended December 31, 1993 is as follows:
Year Ended December 31,
------------------------------------------
1993 1992 1991
-------- -------- --------
(Thousands of Dollars)
Dividends . . . . . . . . . . . . . . . . . . . . . . . $ 25,540 $ 26,306 $ 14,301
Cash Contributions . . . . . . . . . . . . . . . . . . . 8,631 6,995 21,339
(C) POSTRETIREMENT BENEFITS. The Company and HL&P adopted SFAS No. 106,
"Employer's Accounting for Postretirement Benefits Other Than
Pensions" effective January 1, 1993. SFAS No. 106 requires companies
to recognize the liability for postretirement benefit plans other than
pensions, primarily health care. The Company and HL&P previously
expensed the cost of these benefits as claims were incurred. SFAS No.
106 allows recognition of the transition obligation (liability for
prior years' service) in the year of adoption or to be amortized over
the plan participants' future service period. The Company and HL&P
have elected to amortize the estimated transition obligation of
approximately $213 million (including $211 million for HL&P) over 22
years. In March 1993, the Utility Commission adopted a rule governing
the ratemaking treatment of postretirement benefits other than
pensions. This rule provides for recovery in ratemaking proceedings
(which, in HL&P's case, has not occurred) of the cost of
postretirement benefits calculated in accordance with SFAS No. 106
including amortization of the transition obligation.
For 1992, the Company and HL&P continued to fund postretirement
benefit costs other than pensions on a "pay-as-you-go" basis. The
Company made postretirement benefit payments in 1992 of $8.6 million.
The Company's postretirement benefit costs were $38 million for 1993,
an increase of $27 million over the 1993 "pay-as-you-go" amount.
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The net postretirement benefit cost for the Company in 1993 includes
the following components, in thousands of dollars:
Service cost - benefits earned during
the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,453
Interest cost on projected benefit
obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,354
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---
Net amortization and deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,773
----------
Net postretirement benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,580
==========
The funded status of postretirement benefit costs for the Company at
December 31, 1993 was as follows, in thousands of dollars:
Accumulated benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (130,336)
Fully eligible active plan participants . . . . . . . . . . . . . . . . . . . . . (22,913)
Other active plan participants . . . . . . . . . . . . . . . . . . . . . . . . . (20,810)
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174,059)
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---
-----------
Assets less than accumulated benefit obligation . . . . . . . . . . . . . . . . . (174,059)
Unrecognized transitional obligation . . . . . . . . . . . . . . . . . . . . . . 203,273
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55,682)
----------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . . . . . . . $ (26,468)
==========
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation in 1993 are as follows:
Medical - under 65 10.0%
Medical - 65 and over 11.0%
Dental 10.0%
The assumed health care rates gradually decline to 5.4% for both medical
categories and 3.7% for dental by the year 2001. The accumulated
postretirement benefit obligation was determined using an assumed
discount rate of 7.25% for 1993.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1993
would be increased by approximately 8%. The annual effect of the 1%
increase on the total of the service and interest costs would be an
increase of approximately 10%.
(8) COMMITMENTS AND CONTINGENCIES
(a) HL&P. 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.
HL&P's capital program (exclusive of AFUDC) is presently estimated to
cost $478 million in 1994, $381 million in 1995 and $418 million in
1996. These amounts do not include expenditures on projects for which
HL&P expects to be reimbursed by customers or other parties.
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HL&P has entered into several long-term coal, lignite and natural gas
contracts which have various quantity requirements and durations.
Minimum obligations for coal and transportation agreements are
approximately $167 million in 1994, and $165 million in 1995 and 1996.
In addition, the minimum obligations under the lignite mining and lease
agreements will be approximately $14 million annually during the
1994-1996 period. HL&P has entered into several gas purchase agreements
containing contract terms in excess of one year which provide for
specified purchase and delivery obligations. Minimum obligations for
natural gas purchase and natural gas storage contracts are approximately
$57.4 million in 1994, $58.9 million in 1995 and $60.5 million in 1996.
Collectively, the gas supply contracts included in these figures could
amount to 11% of HL&P's annual natural gas requirements. The Utility
Commission's rules provide for recovery of the coal, lignite and natural
gas costs described above through the energy component of HL&P's
electric rates. Nuclear fuel costs are also included in the energy
component of HL&P's electric rates based on the cost of nuclear fuel
consumed in the reactor.
HL&P has commitments to purchase firm capacity from cogenerators of
approximately $145 million in 1994, $32 million in 1995 and $22 million
in 1996. The Utility Commission's rules allow recovery of these costs
through HL&P's base rates for electric service and additionally
authorize HL&P to charge or credit customers for any variation in actual
purchased power cost 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 three principal firm capacity contracts contain provisions allowing
HL&P to suspend or reduce payments and seek repayment for amounts
disallowed.
In November 1990, the Clean Air Act was extensively amended by Congress.
HL&P has already made an investment in pollution control facilities, and
all of its generating facilities currently comply in all material
respects with sulfur dioxide emission standards established by the
legislation. Provisions of the Clean Air Act dealing with urban air
pollution required establishing new emission limitations for nitrogen
oxides from existing sources. The cost of modifications necessary to
reduce nitrogen oxide emissions from existing sources has been estimated
at $29 million in 1994 and $10.5 million in 1995. In addition,
continuous emission monitoring regulations are anticipated to require
expenditures of $12 million in 1994 and $2 million in 1995. Capital
expenditures are expected to total $71 million for the years 1994
through 1996.
The Energy Policy Act of 1992, which became law in October 1992,
includes a provision that assesses a fee upon domestic utilities having
purchased enrichment services from the Department of Energy before
October 22, 1992. This fee is to cover a portion of the cost to
decontaminate and decommission the enrichment facilities. It is
currently estimated that the assessment to the South Texas Project
Electric Generating Station (South Texas Project) will be approximately
$4 million in 1994 and approximately $2 million each year thereafter
(subject to escalation for inflation), of which HL&P's share is 30.8%.
This assessment will continue until the earlier of 15 years or when
$2.25 billion (adjusted for inflation) has been collected from domestic
utilities. Based on HL&P's actual payment of $579,810 in 1993, it
recorded an estimated liability of $8.7 million.
HL&P's service area is heavily dependent on oil, gas, refined products,
petrochemicals and related business. Significant adverse events
affecting these industries would negatively impact the revenues of the
Company and HL&P.
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(b) KBLCOM COMMITMENTS AND OBLIGATIONS UNDER CABLE FRANCHISE AGREEMENTS.
KBLCOM's capital additions are estimated to be $77 million in 1994, $110
million in 1995 and $89 million in 1996. KBLCOM and its subsidiaries
presently have certain cable franchises containing provisions for
construction of cable plant and service to customers within the
franchise area. In connection with certain obligations under existing
franchise agreements, KBLCOM and its subsidiaries obtain surety bonds
and letters of credit guaranteeing performance to municipalities and
public utilities. Payment is required only in the event of
non-performance. KBLCOM and its subsidiaries have fulfilled all of
their obligations such that no payments have been required.
(c) IMPACT OF THE 1992 CABLE ACT ON KBLCOM. In May 1993, the Federal
Communications Commission (FCC) issued its rate regulation rules (Rate
Rule) which became effective on September 1, 1993. As a result of the
Rate Rule, KBLCOM estimates that revenues in 1993 were reduced by
approximately $6.8 million. In February 1994, the FCC announced
further changes in the Rate Rule and announced its interim cost-of-
service standards (Interim COS Standards). The FCC will issue revised
benchmark formulas which will produce lower benchmarks, effective May
15, 1994 (Revised Benchmarks). It is impossible to assess the detailed
impact of the revised Rate Rule and Interim COS Standards on KBLCOM
until the FCC completes and issues the actual text of its rules on the
Revised Benchmarks and the Interim COS Standards.
(9) JOINTLY-OWNED NUCLEAR PLANT
(a) HL&P INVESTMENT. HL&P is project manager and one of four co-owners in
the South Texas Project, which consists of two 1,250 megawatt nuclear
generating units. Unit Nos. 1 and 2 of the South Texas Project achieved
commercial operation in August 1988 and June 1989, respectively. Each
co-owner funds its own share of capital and operating costs associated
with the plant, with HL&P's interest in the project being 30.8%. HL&P's
share of the operation and maintenance expenses is included in electric
operation and maintenance expenses on the Company's Statements of
Consolidated Income and in the corresponding operating expense amounts
on HL&P's Statements of Income.
As of December 31, 1993, HL&P's investments (net of accumulated
depreciation and amortization) in the South Texas Project and in nuclear
fuel, including AFUDC, were $2.1 billion and $119 million, respectively.
(b) CITY OF AUSTIN LITIGATION. In 1983, the City of Austin (Austin), one of
the four co-owners of the South Texas Project, filed a lawsuit against
the Company and HL&P alleging that it was fraudulently induced to
participate in the South Texas Project and that HL&P failed to perform
properly its duties as project manager. After a jury trial in 1989,
judgment was entered in favor of HL&P, and that judgment was affirmed on
appeal. In May 1993, following the expiration of Austin's rights to
appeal to the United States Supreme Court, the judgment in favor of the
Company and HL&P became final.
On February 22, 1994, Austin filed a new suit against HL&P. In that
suit, filed in the 164th District Court for Harris County, Texas, Austin
alleges that the outages at the South Texas Project since February 1993
are 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 asserts that such failures
have caused Austin damages of at least $125 million, which are
continuing, due to the incurrence of increased operating and maintenance
costs, the cost of replacement power and lost profits on wholesale
transactions that did not occur. Austin states that it will file a
"more detailed" petition at a later date. For a discussion of the 1993
outage, see Note 9(f).
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As it did in the litigation filed against HL&P in 1983, Austin asserts
that HL&P breached obligations HL&P owed under the Participation
Agreement to Austin, and Austin seeks a declaration that HL&P had as
duty to exercise reasonable care in the operation and maintenance of the
South Texas Project. In that earlier litigation, however, the courts
concluded that the Participation Agreement did not impose on HL&P a duty
to exercise reasonable skill and care as Project Manager.
Austin also asserts in its new suit that certain terms of a settlement
reached in 1992 among HL&P and Central and South West Corporation (CSW)
and its subsidiary, Central Power and Light Company (CPL), are invalid
and void. The Participation Agreement permits arbitration of certain
disputes among the owners, and the challenged settlement terms provide
that in any future arbitration, HL&P and CPL would each appoint an
arbitrator acceptable to the other. Austin asserts that, as a result of
this agreement, the arbitration provisions of the Participation
Agreement are void and Austin should not be required to participate in
or be bound by arbitration proceedings; alternatively, Austin asserts
that HL&P's rights with respect to CPL's appointment of an arbitrator
should be shared with all the owners or canceled, and Austin seeks
injunctive relief against arbitration of its dispute with HL&P. For a
further discussion of the settlement among HL&P, CSW and CPL, see Note
9(c) below.
HL&P and the Company do not believe there is merit to Austin's claims,
and they intend to defend vigorously against them. However, there can
be no assurance as to the ultimate outcome of this matter.
(c) ARBITRATION WITH CO-OWNERS. During the course of the litigation filed
by Austin in 1983, the City of San Antonio (San Antonio) and CPL, the
other two co-owners in the South Texas Project, asserted claims for
unspecified damages against HL&P as project manager of the South Texas
Project, alleging HL&P breached its duties and obligations. San Antonio
and CPL requested arbitration of their claims under the Participation
Agreement. This matter was severed from the Austin litigation and is
pending before the 101st District Court in Dallas County, Texas.
The 101st District Court ruled that the demand for arbitration is valid
and enforceable under the Participation Agreement, and that ruling has
been upheld by appellate courts. Arbitrators were appointed by HL&P and
each of the other co-owners in connection with the District Court's
ruling. The Participation Agreement provides that the four appointed
arbitrators will select a fifth arbitrator, but that action has not yet
occurred.
In 1992, the Company and HL&P entered into a settlement with CPL and
CSW with respect to various matters including the arbitration and
related legal proceedings. Pursuant to the settlement, CPL withdrew its
demand for arbitration under the Participation Agreement, and the
Company, HL&P, CSW and CPL dismissed litigation associated with the
dispute. The settlement also resolved other disputes between the
parties concerning various transmission agreements and related billing
disputes. In addition, the parties also agreed to support, and to seek
consent of the other owners of the South Texas Project to, certain
amendments to the Participation Agreement, including changes in the
management structure of the South Texas Project through which HL&P would
be replaced as project manager by an independent entity.
Although settlement with CPL does not directly affect San Antonio's
pending demand for arbitration, HL&P and CPL have reached certain other
understandings which contemplate that: (i) CPL's arbitrator previously
appointed for that proceeding would be replaced by CPL; (ii) arbitrators
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approved by CPL and HL&P for any future arbitrations will be mutually
acceptable to HL&P and CPL; and (iii) HL&P and CPL will resolve any
future disputes between them concerning the South Texas Project without
resorting to the arbitration provision of the Participation Agreement.
The settlement with CPL did not have a material adverse effect on the
Company's or HL&P's financial position and results of operations.
In February 1994, San Antonio indicated a desire to move forward with
its demand for arbitration and suggested that San Antonio considers all
allegations of mismanagement against HL&P to be appropriate subjects for
arbitration in that proceeding, not just allegations related to the
planning and construction of the South Texas Project. It is unclear
what additional allegations San Antonio may make, but it is possible
that San Antonio will assert that HL&P has liability for all or some
portion of the additional costs incurred by San Antonio due to the 1993
outage of the South Texas Project. For a discussion of that outage see
Note 9(f).
HL&P and the Company continue to regard San Antonio's claims to be
without merit. From time to time, HL&P and other parties to these
proceedings have held discussions with a view toward settling their
differences on these matters.
While HL&P and the Company cannot give definite assurance regarding the
ultimate resolution of the San Antonio litigation and arbitration, they
presently do not believe such resolutions will have a material adverse
impact on HL&P's or the Company's financial position and results of
operations.
(d) NUCLEAR INSURANCE. HL&P and the other owners of the South Texas Project
maintain nuclear property and nuclear liability insurance coverages as
required by law and periodically review available limits and coverage
for additional protection. The owners of the South Texas Project
currently maintain $500 million in primary property damage insurance
from American Nuclear Insurers (ANI). Effective November 15, 1993, the
maximum amounts of excess property insurance available through the
insurance industry increased from $2.125 billion to $2.2 billion. This
$2.2 billion of excess property insurance coverage includes $800 million
of excess insurance from ANI and $1.4 billion of excess property
insurance coverage through participation in the Nuclear Electric
Insurance Limited (NEIL) II program. The owners of the South Texas
Project have approved the purchase of the additional available excess
property insurance coverage. Additionally, effective January 1, 1994,
ANI will be increasing their excess property insurance limits to $850
million, and the owners of the South Texas Project have also approved
the purchase of the additional limits at the March 1, 1994 renewal for
ANI excess property insurance. Under NEIL II, HL&P and the other owners
of the South Texas Project are subject to a maximum assessment, in the
aggregate, of approximately $15.9 million in any one policy year. The
application of the proceeds of such property insurance is subject to the
priorities established by the United States Nuclear Regulatory
Commission (NRC) regulations relating to the safety of licensed reactors
and decontamination operations.
Pursuant to the Price Anderson Act, the maximum liability to the public
for owners of nuclear power plants, such as the South Texas Project, was
increased from $7.9 billion to $9.3 billion effective February 18, 1994.
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. Effective August 20, 1993, the assessment of
deferred premiums provided by the plan for each nuclear incident has
increased from $63 million to up to $75.5 million per reactor subject to
indexing for inflation, a possible 5%
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surcharge (but no more than $10 million per reactor per incident in
any one year) and a 3% 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.
(e) NUCLEAR DECOMMISSIONING. HL&P and the other co-owners of the South
Texas Project are required by the NRC to meet minimum decommissioning
funding requirements to pay the costs of decommissioning the South Texas
Project. Pursuant to the terms of the order of the Utility Commission
in Docket No. 9850, HL&P is currently funding decommissioning costs for
the South Texas Project with an independent trustee at an annual amount
of $6 million.
As of December 31, 1993, the trustee held approximately $18.7 million
for decommissioning, for which the asset and liability are reflected on
the Company's Consolidated and HL&P's Balance Sheets in deferred debits
and deferred credits, respectively. HL&P's funding level is estimated
to provide approximately $146 million in 1989 dollars, an amount which
currently exceeds the NRC minimum. However, the South Texas Project
co-owners have engaged an outside consultant to review the estimated
decommissioning costs of the South Texas Project which review should be
completed by the end of 1994. While changes to present funding levels,
if any, cannot be estimated at this time, a substantial increase in
funding may be necessary. No assurance can be given that the amounts
held in trust will be adequate to cover the decommissioning costs.
(f) NRC INSPECTIONS AND OPERATIONS. Both generating units at the South
Texas Project were out of service from February 1993 to February 1994,
when Unit No. 1 was authorized by the NRC to return to service.
Currently, Unit No. 1 is out of service for repairs to a small steam
generator leak encountered following the unit's shutdown to repair a
feedwater control valve. Those repairs are scheduled for completion by
mid-March 1994, and no formal NRC approval is required to resume
operation of Unit No. 1. Unit No. 2 is currently scheduled to resume
operation after completion of regulatory reviews, in the spring of 1994.
HL&P removed the units from service in February 1993 when a problem was
encountered with certain pumps. At that time HL&P concluded that the
units should not resume operation until HL&P had determined the root
cause of the failure and had briefed the NRC and corrective action had
been taken. The NRC formalized that commitment in a Confirmatory Action
Letter, which confirmed that HL&P would not resume operations until it
had briefed the NRC on its findings and actions. Subsequently, that
Confirmatory Action Letter was supplemented by the NRC to require HL&P,
prior to resuming operations, to address additional matters which were
identified during the course of analyzing the issues associated with the
original pump failure and during various subsequent NRC inspections and
reviews.
In June 1993, the NRC announced that the South Texas Project had been
placed on the NRC's "watch list" of plants with "weaknesses that warrant
increased NRC attention." Plants in this category are authorized to
operate but are subject to close monitoring by the NRC. The NRC reviews
the status of plants on this list semi-annually, but HL&P does not
anticipate that the South Texas Project would be removed from that list
until there has been a period of operation for both units, and the NRC
concludes that the concerns which led the NRC to place the South Texas
Project on that list have been satisfactorily addressed.
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The NRC's decision to place the South Texas Project on its "watch list"
followed the June 1993 issuance of a report by its Diagnostic Evaluation
Team (DET) which conducted a review of the South Texas Project in the
spring of 1993 and identified a number of areas requiring improvement at
the South Texas Project. Conducted infrequently, NRC diagnostic
evaluations do not evaluate compliance with NRC regulations but are
broad-based evaluations of overall plant operations and are intended to
review the strengths and weaknesses of the licensee's performance and to
identify the root cause of performance problems.
The DET report found, among other things, weaknesses in maintenance and
testing, deficiencies in training and in the material condition of some
equipment, strained staffing levels in operations and several weaknesses
in engineering support. The report cited the need to reduce backlogs of
engineering and maintenance work and to simplify work processes which,
the DET found, placed excessive burdens on operating and other plant
personnel. The report also identified the need to strengthen management
communications, oversight and teamwork as well as the capability to
identify and correct the root causes of problems. The DET also
expressed concern with regard to the adequacy of resources committed to
resolving issues at the South Texas Project but noted that many issues
had already been identified and were being addressed by HL&P.
In response to the DET report, HL&P presented its plan to address the
issues raised in that report and began its action program to address
those concerns. While those programs were being implemented, HL&P also
initiated additional activities and modifications that were not
previously scheduled during 1993 but which are designed to eliminate the
need for some future outages and to enhance operations at the South
Texas Project. The NRC conducted additional inspections and reviews of
HL&P's plans and agreed in February 1994 that HL&P's progress in
addressing the NRC's concerns had satisfied the issues raised in the
Confirmatory Action Letter with respect to Unit No. 1. The NRC
concurred in HL&P's determination that Unit No. 1 could resume
operation. Work is now underway to address the NRC's concerns with
respect to Unit No. 2, which HL&P anticipates will not require as
extensive an effort as was required by the NRC for Unit No. 1. However,
difficulties encountered in completing actions required on Unit No. 2
and any additional issues which may be raised in the conduct of those
activities or in the operation of Unit No. 1 could adversely affect the
anticipated schedule for resuming operation of Unit No. 2. During the
outage, HL&P has not had, and does not anticipate having, difficulty in
meeting its energy needs.
During the outage, both fuel and non-fuel expenditures have been higher
for HL&P than levels originally projected for the year. HL&P's non-fuel
expenditures for the South Texas Project during 1993 were approximately
$115 million greater than originally budgeted levels (of which HL&P's
share was $35 million) for work undertaken in connection with the DET
and for other initiatives taken during the year. It is expected that,
subsequent to 1993, operation and maintenance costs will continue to be
higher than previous levels in order to support additional initiatives
developed in 1993. Fuel costs also were necessarily higher due to the
use of higher cost alternative fuels. However, these increased
expenditures are expected to be offset to some extent by savings from
future outages that can now be avoided as a result of activities
accelerated into 1993 and from overall improvement in operations
resulting from implementing the programs developed during the outage.
For a discussion of regulatory treatment related to the outage, see
Notes 10(f) and 10(g).
During 1993, the NRC imposed a total of $500,000 in civil penalties (of
which HL&P's share was $154,000) in connection with violations of NRC
requirements.
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In March 1993, a Houston newspaper reported that the NRC had referred to
the Department of Justice allegations that the employment of three
former employees and an employee of a contractor to HL&P had been
terminated or disrupted in retaliation for their having made
safety-related complaints to the NRC. Such retaliation, if proved,
would be contrary to requirements of the Atomic Energy Act and
regulations promulgated by the NRC. The NRC has confirmed to HL&P that
these matters have been referred to the Department of Justice for
consideration of further action and has notified HL&P that the NRC is
considering enforcement action against HL&P and one or more HL&P
employees in connection with one of those cases. HL&P has been advised
by counsel that most referrals by the NRC to the Department of Justice
do not result in prosecutions. The Company and HL&P strongly believe
that the facts underlying these events would not support action by the
Department of Justice against HL&P or any of its personnel; accordingly,
HL&P intends to defend vigorously against such charges. HL&P also
intends to defend vigorously against civil proceedings filed in the
state court in Matagorda County, Texas, by the complaining employees and
against administrative proceedings before the Department of Labor and
the NRC, which, independently of the Department of Justice, could impose
administrative sanctions if they find violations of the Atomic Energy
Act or the NRC regulations. These administrative sanctions may include
civil penalties in the case of the NRC and, in the case of the
Department of Labor, ordering reinstatement and back pay and/or imposing
civil penalties. Although the Company and HL&P do not believe these
allegations have merit or will have a material adverse effect on the
Company or HL&P, neither the Company nor HL&P can predict at this time
their outcome.
(10) UTILITY COMMISSION PROCEEDINGS
Pursuant to a series of applications filed by HL&P in recent years, the
Utility Commission has granted HL&P rate increases to reflect in
electric rates HL&P's substantial investment in new plant construction,
including the South Texas Project. Although Utility Commission action
on those applications has been completed, judicial review of a number of
the Utility Commission orders is pending. 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. The pending appeals from the Utility
Commission orders are in various stages. In the event the courts
ultimately reverse actions of the Utility Commission in any of these
proceedings, such matters would be remanded to the Utility Commission
for action in light of the courts' orders. Because of the number of
variables which can affect the ultimate resolution of such matters on
remand, the Company and HL&P generally are not in a position at this
time to predict the outcome of the matters on appeal or the ultimate
effect that adverse action by the courts could have on the Company and
HL&P. On remand, the Utility Commission's action could range from
granting rate relief substantially equal to the rates previously
approved, to a reduction in 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.
Judicial review has been concluded or currently is pending on the
final orders of the Utility Commission described below.
(a) DOCKET NOS. 6765, 6766 AND 5779. In February 1993, the Austin Court of
Appeals granted a motion by the Office of Public Utility Counsel (OPC)
to voluntarily dismiss its appeal of the Utility Commission's order in
HL&P's 1984 rate case (Docket No. 5779). In December 1993, the Supreme
Court of Texas granted a similar motion by OPC to dismiss its appeal of
the Utility
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Commission's order in HL&P's 1986 rate case (Docket Nos. 6765 and 6766).
As a result, appellate review of the Utility Commission's orders in
those dockets has been concluded, and the orders have been affirmed.
(b) DOCKET NO. 8425. In October 1992, a District Court in Travis County,
Texas affirmed the Utility Commission's order in HL&P's 1988 rate case
(Docket No. 8425). An appeal to the Austin Court of Appeals is pending.
In its final order in that docket, the Utility Commission granted HL&P a
$227 million increase in base revenues, allowed a 12.92% return on
common equity, authorized a qualified phase-in plan for Unit No. 1 of
the South Texas Project (including approximately 72% of HL&P's
investment in Unit No. 1 of the South Texas Project in rate base) and
authorized HL&P to use deferred accounting for Unit No. 2 of the South
Texas Project. Rates substantially corresponding to the increase
granted were implemented by HL&P in June 1989 and remained in effect
until May 1991.
In the appeal of the Utility Commission's order, certain parties have
challenged the Utility Commission's decision regarding deferred
accounting, treatment of federal income tax expense and certain other
matters. A recent decision of the Austin Court of Appeals, in an appeal
involving another utility (and to which HL&P was not a party), adopted
some of the arguments being advanced by parties challenging the Utility
Commission's order in Docket No. 8425. In that case, Public Utility
Commission of Texas vs. GTE-SW, the Austin Court of Appeals ruled that
when a utility pays federal income taxes as part of a consolidated
group, the utility's ratepayers are entitled to a fair share of the tax
savings actually realized, which can include savings resulting from
unregulated activities. The Texas Supreme Court has agreed to hear an
appeal of that decision, but on points not involving the federal income
tax issues, though tax issues could be decided in such opinion.
In its final order in Docket No. 8425, the Utility Commission did not
reduce HL&P's tax expense by any of the tax savings resulting from the
Company's filing of a consolidated tax return. Although the GTE
decision was not legally dispositive of the tax issues presented in the
appeal of Docket No. 8425, it is possible that the Austin Court of
Appeals could utilize the reasoning in GTE in addressing similar issues
in the appeal of Docket No. 8425. However, in February 1993 the Austin
Court of Appeals, considering an appeal involving another telephone
utility, upheld Utility Commission findings that the tax expense for the
utility included the utility's fair share of the tax savings resulting
from a consolidated tax return, even though the utility's fair share of
the tax savings was determined to be zero. HL&P believes that the
Utility Commission findings in Docket No. 8425 and in Docket No. 9850
(see Note 10(c)) should be upheld on the same principle (i.e., that the
Utility Commission determined that the fair share of tax savings to be
allocated to ratepayers is determined to be zero). However, no
assurance can be made as to the ultimate outcome of this matter.
The Utility Commission's order in Docket No. 8425 may be affected also
by the ultimate resolution of appeals concerning the Utility
Commission's treatment of deferred accounting. For a discussion of
appeals of the Utility Commission's orders on deferred accounting, see
Notes 10(e) and 11.
(c) DOCKET NO. 9850. In August 1992, a district court in Travis County
affirmed the Utility Commission's final order in HL&P's 1991 rate case
(Docket No. 9850). That decision was appealed by certain parties to the
Austin Court of Appeals, raising issues concerning the Utility
Commission's approval of a non-unanimous settlement in that docket, the
Utility Commission's calculation of federal income tax expense and the
allowance of deferred accounting reflected in the settlement. In August
1993, the Austin Court of Appeals
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affirmed on procedural grounds the ruling by the Travis County District
Court, and applications for writ of error were filed with the Supreme
Court of Texas by one of the other parties to the proceeding. The
Supreme Court has not yet ruled on these applications. In Docket No.
9850, the Utility Commission approved a settlement agreement reached
with most parties. That settlement agreement provided for a $313
million increase in HL&P's base rates, termination of deferrals granted
with respect to Unit No. 2 of the South Texas Project and of the
qualified phase-in plan deferrals granted with respect to Unit No. 1 of
the South Texas Project, and recovery of deferred plant costs. The
settlement authorized a 12.55% return on common equity for HL&P, and
HL&P agreed not to request additional increases in base rates that would
be implemented prior to May 1, 1993. Rates contemplated by that
settlement agreement were implemented in May 1991 and remain in effect.
The Utility Commission's order in Docket No. 9850 found that HL&P would
have been entitled to more rate relief than the $313 million agreed to
in the settlement, but certain recent actions of the Austin Court of
Appeals could, if ultimately upheld and applied to the appeal of Docket
No. 9850, require a remand of that settlement to the Utility Commission.
HL&P believes that the amount which the Utility Commission found HL&P
was entitled to would exceed any disallowance that would have been
required under the Austin Court of Appeals' ruling regarding deferred
accounting (see Notes 10(e) and 11) or any adverse effect on the
calculation of tax expense if the court's ruling in the GTE decision
were applied to that settlement (see Note 10(b) above). However, the
amount of rate relief to which the Utility Commission found HL&P to be
entitled in excess of the $313 million agreed to in the settlement may
not be sufficient if the reasoning in both the GTE decision and the
ruling on deferred accounting were to be applied to the settlement
agreement in Docket No. 9850. Although HL&P believes that it should be
entitled to demonstrate entitlement to rate relief equal to that agreed
to in the stipulation in Docket No. 9850, HL&P cannot rule out the
possibility that a remand and reopening of that settlement would be
required if decisions unfavorable to HL&P are rendered on both the
deferred accounting treatment and the calculation of tax expense for
ratemaking purposes.
(d) DOCKET NO. 6668. In June 1990, the Utility Commission issued the final
order in Docket No. 6668, the Utility Commission's inquiry into the
prudence of the planning, management and construction of the South Texas
Project. The Utility Commission's findings and order in Docket No. 6668
were incorporated in Docket No. 8425, HL&P's 1988 general rate case.
Pursuant to the findings in Docket No. 6668, the Utility Commission
found imprudent $375.5 million out of HL&P's $2.8 billion investment in
the two units of the South Texas Project.
The Utility Commission's findings did not reflect $207 million in
benefits received in a settlement of litigation with the former
architect-engineer of the South Texas Project or the effects of federal
income taxes, investment tax credits or certain deferrals. In addition,
accounting standards require that the equity portion of AFUDC accrued
for regulatory purposes under deferred accounting orders be utilized to
determine the cost disallowance for financial reporting purposes. After
taking all of these items into account, HL&P recorded an after-tax
charge of $15 million in 1990 and continued to reduce such loss with the
equity portion of deferrals in 1991 related to Unit No. 2 of the South
Texas Project. The findings in Docket No. 6668 represent the Utility
Commission's final determination regarding the prudence of expenditures
associated with the planning and construction of the South Texas
Project. Unless the order is modified or reversed on appeal, HL&P will
be precluded from recovering in rate proceedings the amount found
imprudent by the Utility Commission.
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Appeals by HL&P and other parties of the Utility Commission's order in
Docket No. 6668 were dismissed by a District Court in Travis County in
May 1991. However, in December 1992 the Austin Court of Appeals
reversed the District Court's dismissals on procedural grounds. HL&P
and other parties have filed applications for writ of error with the
Supreme Court of Texas concerning the order by the Austin Court of
Appeals, but unless the order is modified on further review, HL&P
anticipates that the appeals of the parties will be reinstated and that
the merits of the issues raised in those appeals of Docket No. 6668 will
be considered by the District Court, with the possibility of subsequent
judicial review once the District Court has acted on those appeals. In
addition, separate appeals are pending from Utility Commission orders in
Dockets Nos. 8425 and 9850, in which the findings of the order in Docket
No. 6668 are reflected in rates. See Notes 10(b) and 10(c).
(e) DOCKET NOS. 8230 AND 9010. Deferred accounting treatment for Unit No. 1
of the South Texas Project was authorized by the Utility Commission in
Docket No. 8230 and was extended in Docket No. 9010. Similar deferred
accounting treatment with respect to Unit No. 2 of the South Texas
Project was authorized in Docket No. 8425. For a discussion of the
deferred accounting treatment granted, see Note 11. In September 1992,
the Austin Court of Appeals, in considering the appeal of the Utility
Commission's final order in Docket Nos. 8230 and 9010, upheld the
Utility Commission's action in granting deferred accounting treatment
for operation and maintenance expenses, but rejected such treatment for
the carrying costs associated with the investment in Unit No. 1 of the
South Texas Project. That ruling followed the Austin Court of Appeals
decision rendered in August 1992, on a motion for rehearing, involving
another utility which had been granted similar deferred accounting
treatment for another nuclear plant. In its August decision, the court
ruled that Texas law did not permit the Utility Commission to allow the
utility to place the carrying costs associated with the investment in
the utility's rate base, though the court observed that the Utility
Commission could allow amortization of such costs.
The Supreme Court of Texas has granted applications for writ of error
with respect to the Austin Court of Appeals decision regarding Docket
Nos. 8230 and 9010. The Supreme Court of Texas has also granted
applications for writ of error on three other decisions by the Austin
Court of Appeals regarding deferred accounting treatment granted to
other utilities by the Utility Commission. The Supreme Court heard oral
arguments on these appeals on September 13, 1993. The court has not yet
ruled.
(f) DOCKET NO. 12065. HL&P is not currently seeking authority to change its
base rates for electric service, but the Utility Commission has
authority to initiate a rate proceeding pursuant to Section 42 of the
Public Utility Regulatory Policy Act (PURA) to determine whether
existing rates are unjust or unreasonable. In 1993, the Utility
Commission referred to an administrative law judge (ALJ) the complaint
of a former employee of HL&P seeking to initiate such a proceeding.
On February 23, 1994, the ALJ concluded that a Section 42 proceeding
should be conducted and that HL&P should file full information,
testimony and schedules justifying its rates. The ALJ acknowledged that
the decision was a close one, and is subject to review by the Utility
Commission. However, he concluded that information concerning HL&P's
financial results as of December 1992 indicated that HL&P's adjusted
revenues could be approximately $62 million (or 2.33% of its adjusted
base revenues) more than might be authorized in a current rate
proceeding. The ALJ's conclusion was based on various accounting
considerations, including use of a different treatment of federal income
tax expense than the method utilized in HL&P's last rate case. The ALJ
also found that there could be a link between the 1993 outage at the
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South Texas Project, the NRC's actions with respect to the South Texas
Project and possible mismanagement by HL&P, which in turn could result
in a reduction of HL&P's authorized rate of return as a penalty for
imprudent management.
HL&P and the Company believe that the examiner's analysis is incorrect,
that the South Texas Project has not been imprudently managed, and that
ordering a Section 42 proceeding at this time is unwarranted and
unnecessarily expensive and burdensome. HL&P has appealed
the ALJ's decision to the Utility Commission.
If HL&P ultimately is required to respond to a Section 42 inquiry, it
will assert that it remains entitled to rates at least at the levels
currently authorized. However, there can be no assurance as to the
outcome of a Section 42 proceeding if it is ultimately authorized, and
HL&P's rates could be reduced following a hearing. HL&P believes that
any reduction in base rates as a result of a Section 42 inquiry would
take effect prospectively.
HL&P is also a defendant in a lawsuit filed in a Fort Bend County,
Texas, district court by the same former HL&P employee who originally
initiated the Utility Commission complaint concerning HL&P's rates. In
that suit, Pace and Scott v. HL&P, the former employee contends that
HL&P is currently charging illegal rates since the rates authorized by
the Utility Commission do not allocate to ratepayers tax benefits
accruing to the Company and to HL&P by virtue of the fact that HL&P's
federal income taxes are paid as part of a consolidated group. HL&P is
seeking dismissal of that suit because in Texas exclusive jurisdiction
to set electric utility rates is vested in municipalities and in the
Utility Commission, and the courts have no jurisdiction to set such
rates or to set aside authorized rates except through judicial appeals
of Utility Commission orders in the manner prescribed in applicable law.
Although substantial damages have been claimed by the plaintiffs in that
litigation, HL&P and the Company consider this litigation to be wholly
without merit, and do not presently believe that it will have a material
adverse effect on the Company's or HL&P's results of operations, though
no assurances can be given as to its ultimate outcome at this time.
(g) FUEL RECONCILIATION. HL&P recovers fuel costs incurred in electric
generation through a fixed fuel factor that is set by the Utility
Commission. The difference between fuel revenues billed pursuant to
such factor and fuel expense incurred is recorded as an addition to or a
reduction of revenues, with a corresponding entry to under- or
over-recovered fuel, as appropriate. Amounts collected pursuant to the
fixed fuel factor must be reconciled periodically by the Utility
Commission against actual, reasonable costs as determined by the Utility
Commission. Any fuel costs which the Utility Commission determines are
unreasonable in a fuel reconciliation proceeding would not be
recoverable from customers, and a charge against earnings would result.
Under Utility Commission rules, HL&P is required to file an application
to reconcile those costs in 1994. Such a filing would also be required
in conjunction with any rate proceeding that may be filed, such as the
Section 42 proceeding described in Note 10(f).
Unless filed earlier in conjunction with a rate proceeding, HL&P
currently anticipates filing its fuel reconciliation application in the
fourth quarter of 1994 in accordance with a schedule proposed by the
Utility Commission staff. If that schedule is approved by the Utility
Commission, HL&P anticipates that fuel costs through some time in 1994
will be submitted for reconciliation. No hearing would be anticipated
in that reconciliation proceeding before 1995.
The schedule for a fuel reconciliation proceeding could be affected by
the institution of a prudence inquiry concerning the outage at the South
Texas Project. The Utility Commission staff has indicated a desire to
conduct an inquiry into the prudence of HL&P's management prior to and
during the outage, but it is currently unknown what action the Utility
Commission will take on that request or what the nature and scope of any
such proceeding
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would be. Such an inquiry could also be conducted in connection with a
rate proceeding under Section 42 of PURA if one is instituted by the
Utility Commission.
Through the end of 1993, HL&P had recovered through the fuel factor
approximately $115 million (including interest) less than the amounts
expended for fuel, a significant portion of which under recovery
occurred in 1993 during the outage at the South Texas Project. In any
review of costs incurred during the period of the 1993 outage at the
South Texas Project, it is anticipated that other parties will contend
that a portion of fuel costs incurred should be attributed to imprudence
on the part of HL&P and thus should be disallowed as unreasonable, with
recovery from rate payers denied. Those amounts could be substantial.
HL&P intends to defend vigorously against any allegation that its
actions have been imprudent or that any portion of its costs incurred
should be judged to be unreasonable, but no prediction can be made as to
the ultimate outcome of such a proceeding.
(11) DEFERRED PLANT COSTS
Deferred plant costs were authorized for the South Texas Project by the
Utility Commission in two contexts. In the first context, or "deferred
accounting," the Utility Commission orders permitted HL&P, for
regulatory purposes, to continue to accrue carrying costs in the form of
AFUDC (at a 10% rate) on its investment in the two units of the South
Texas Project until costs of such units were reflected in rates (which
was July 1990 for approximately 72% of Unit No. 1, and May 1991 for the
remainder of Unit No. 1 and 100% of Unit No. 2) and to defer and
capitalize depreciation, operation and maintenance, insurance and tax
expenses associated with such units during the deferral period.
Accounting standards do not permit the accrual of the equity portion of
AFUDC for financial reporting purposes under these circumstances.
However, in accordance with accounting standards, such amounts were
utilized to determine the amount of plant cost disallowance for
financial reporting purposes.
The deferred expenses and the debt portion of the carrying costs
associated with the South Texas Project are included on the Company's
Statements of Consolidated Income in deferred expenses and deferred
carrying costs, respectively.
Beginning with the June 1990 order in Docket No. 8425, deferrals were
permitted in a second context, a "qualified phase-in plan" for Unit No.
1 of the South Texas Project. Accounting standards require allowable
costs deferred for future recovery under a qualified phase-in plan to be
capitalized as a deferred charge if certain criteria are met. The
qualified phase-in plan as approved by the Utility Commission meets
these criteria.
During the period June 1990 through May 15, 1991, HL&P deferred
depreciation and property taxes related to the 28% of its investment in
Unit No. 1 of the South Texas Project not reflected in the Docket No.
8425 rates and recorded a deferred return on that investment as part of
the qualified phase-in plan. Deferred return represents the financing
costs (equity and debt) associated with the qualified phase-in plan. The
deferred expenses and deferred return related to the qualified phase-in
plan are included on the Company's Statements of Consolidated Income and
HL&P's Statements of Income in deferred expenses and deferred return
under phase-in plan, respectively. Under the phase-in plan, these
accumulated deferrals will be recoverable within ten years of the June
1990 order.
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On May 16, 1991, HL&P implemented under bond, in Docket No. 9850, a
$313 million base rate increase consistent with the terms of the
settlement. Accordingly, HL&P ceased all cost deferrals related to the
South Texas Project and began the recovery of such amounts. These
deferrals are being amortized on a straight-line basis as allowed by the
final order in Docket No. 9850. The amortization of these deferrals
totaled $25.8 million for both 1993 and 1992 and $16.1 million in 1991,
and is included on the Company's Statements of Consolidated Income and
HL&P's Statements of Income in depreciation and amortization expense.
See also Notes 10(b), 10(c) and 10(e).
The following table shows the original balance of the deferrals and the
unamortized balance at December 31, 1993.
Balance at
Original December 31,
Balance 1993
--------- -----------
(Thousands of Dollars)
Deferred Accounting: (a)
Deferred Expenses . . . . . . . . . . . . . . . . . . . . . . $ 250,151 $ 233,341
Deferred Carrying Costs on
Plant Investment . . . . . . . . . . . . . . . . . . . . 399,972 373,094
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,123 606,435
Qualified Phase-In Plan: (b) . . . . . . . . . . . . . . . . . . 82,254 58,264
--------- ---------
Total Deferred Plant Cost . . . . . . . . . . . . . . . . . . . . $ 732,377 $ 664,699
========= =========
__________
(a) Amortized over the estimated depreciable life of the South Texas
Project.
(b) Amortized over nine years beginning in May 1991.
As of December 31, 1993, HL&P has recorded deferred income taxes of
$200.9 million with respect to deferred accounting and $14.5 million
with respect to the deferrals associated with the qualified phase-in
plan.
(12) MALAKOFF ELECTRIC GENERATING STATION
The scheduled in-service dates for the Malakoff Electric Generating
Station (Malakoff) units were postponed during the 1980's as
expectations of continued strong load growth were tempered. These units
have been indefinitely deferred due to the availability of other cost
effective resource options. In 1987, all developmental work was stopped
and AFUDC accruals ceased.
Due to the indefinite postponement of the in-service date for Malakoff,
the engineering design work is no longer considered viable. The costs
associated with this engineering design work are currently included in
rate base and are earning a return per the Utility Commission's final
order in Docket No. 8425. Pursuant to HL&P's determination that such
costs will have no future value, $84.1 million was reclassified from
plant held for future use to recoverable project costs as of December
31, 1992. An additional $7.0 million was reclassified to recoverable
project costs in 1993. Amortization of these amounts began in 1993.
Amortization amounts will correspond to the amounts being earned as a
result of the inclusion of such costs in rate base. The Utility
Commission's action in allowing treatment of those costs as plant held
for future use has been challenged in the pending appeal of the Utility
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Commission's final order in Docket No. 8425. Also, recovery of such
Malakoff costs may be addressed if rate proceedings are initiated such
as that proposed under Section 42 of PURA. See Notes 10(b) and 10(f) for
a discussion of these respective proceedings.
In June 1990, HL&P purchased from its then fuel supply affiliate,
Utility Fuels, all of Utility Fuels' interest in the lignite reserves
and lignite handling facilities for Malakoff. The purchase price was
$138.2 million, which represented the net book value of Utility Fuels'
investment in such reserves and facilities. As part of the June 1990
rate order (Docket No. 8425), the Utility Commission ordered that issues
related to the prudence of the amounts invested in the lignite reserves
be considered in HL&P's next general rate case which was filed in
November 1990 (Docket No. 9850). However, under the October 1991
Utility Commission order in Docket No. 9850, this determination was
postponed to a subsequent docket.
HL&P's remaining investment in Malakoff through December 31, 1993 of
$167 million, consisting primarily of lignite reserves and land, is
included on the Company's Consolidated and HL&P's Balance Sheets in
plant held for future use. For the 1994-1996 period, HL&P anticipates
$14 million of expenditures relating to lignite reserves, primarily to
keep lignite leases and other related agreements in effect.
(13) RECOVERABLE PROJECT COSTS
The Utility Commission has allowed recovery of certain costs over a
period of time by amortizing those costs for rate making purposes.
However, recoverable project costs have not been included in rate base
and, as a result, no return on investment is being earned during the
recovery period. Malakoff is the only remaining project with an
unrecovered amount of $118 million at December 31, 1993, with remaining
recovery periods of 72 months ($78 million) and 78 months ($40 million).
(14) INCOME TAXES
The Company records income taxes under SFAS No. 109, 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 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. KBLCOM has
significant temporary differences related to its 1986 and 1989
acquisitions of cable television systems, the tax effect of which were
recognized when SFAS No. 109 was adopted.
During 1993, federal tax legislation was enacted that changes the income
tax consequences for the Company and HL&P. The principal provision of
the new law which affects the Company and HL&P is the change in the
corporate income tax rate from 34% to 35%. A net regulatory asset and
the related deferred federal income tax liability of $71.3 million was
recorded by HL&P in 1993. The effect of the new law, which decreased
the Company's net income by $14.3 million was recognized as a component
of income tax expense in 1993. The effect on the Company's deferred
taxes for the change in the new law was $10.9 million in 1993.
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The Company's current and deferred components of income tax expense are as
follows:
Year Ended December 31,
--------------------------------------------------
1993 1992 1991
--------- ---------- ---------
(Thousands of Dollars)
Current:
U.S. . . . . . . . . . . . . . . . . . . . . . . . $ 113,248 $ 130,360 $ 138,195
Foreign . . . . . . . . . . . . . . . . . . . . . . 286
Deferred:
Liberalized depreciation . . . . . . . . . . . . . 99,426 82,013 87,282
Investment tax credit . . . . . . . . . . . . . . . (20,185) (19,950) (19,903)
Alternative minimum tax . . . . . . . . . . . . . . 8,542 (438) 10,391
Excess deferred taxes . . . . . . . . . . . . . . . (9,625) (17,403) (17,532)
Deferred plant costs . . . . . . . . . . . . . . . (6,867) (6,671) 22,828
Malakoff write-off . . . . . . . . . . . . . . . . 43,303
Under recovery of fuel . . . . . . . . . . . . . . 12,083
IRS 1983-84 audit assessment . . . . . . . . . . . (2,446)
Other - net . . . . . . . . . . . . . . . . . . . . (9,093) (3,302) (10,635)
---------- --------- ---------
Income taxes before cumulative
effect of change in accounting . . . . . . . . . . $ 231,118 $ 164,609 $ 208,180
========= ========= =========
The Company's effective income tax rates are lower than statutory corporate
rates for each year as follows:
Year Ended December 31,
---------------------------------------------
1993 1992 1991
--------- ---------- ---------
(Thousands of Dollars)
Income before income taxes and
cumulative effect of change in
accounting . . . . . . . . . . . . . . . . . . . . . . . $ 647,154 $ 505,096 $ 624,934
Preferred dividends of subsidiary . . . . . . . . . . . . . 34,473 39,327 46,187
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 681,627 544,423 671,121
Statutory rate . . . . . . . . . . . . . . . . . . . . . . 35% 34% 34%
--------- --------- ---------
Income taxes at statutory
rate . . . . . . . . . . . . . . . . . . . . . . . . . . 238,569 185,104 228,181
--------- --------- ---------
Net reduction in taxes resulting from:
AFUDC - other included in income . . . . . . . . . . . . 1,229 2,097 6,658
Amortization of investment tax
credit . . . . . . . . . . . . . . . . . . . . . . . . 20,185 19,950 19,903
Amortization of intangible assets . . . . . . . . . . . . (4,389) (4,264) (4,264)
Excess deferred taxes . . . . . . . . . . . . . . . . . . 9,625 17,403 17,532
Difference between book and tax
depreciation for which deferred
taxes have not been normalized . . . . . . . . . . . . (12,976) (13,466) (14,437)
Other - net . . . . . . . . . . . . . . . . . . . . . . . (6,223) (1,225) (5,391)
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 7,451 20,495 20,001
--------- --------- ---------
Income taxes before cumulative effect
of change in accounting . . . . . . . . . . . . . . . . . $ 231,118 $ 164,609 $ 208,180
========= ========= =========
Effective rate . . . . . . . . . . . . . . . . . . . . . . 33.9% 30.2% 31.0%
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Following are the Company's tax effects of temporary differences resulting
in deferred tax assets and liabilities:
December 31,
-------------------------------
1993 1992
---------- ----------
(Thousands of Dollars)
Deferred Tax Assets:
Alternative minimum tax . . . . . . . . . . . . . . . . . . . . . . . . $ 120,576 $ 108,287
IRS audit assessment . . . . . . . . . . . . . . . . . . . . . . . . . 74,966 74,966
Disallowed plant cost - net . . . . . . . . . . . . . . . . . . . . . . 24,304 24,394
Loss and ITC carryforwards . . . . . . . . . . . . . . . . . . . . . . 55,822 54,799
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,503 68,999
---------- ----------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . 344,171 331,445
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . 57,661 56,638
---------- ----------
Total deferred tax assets - net . . . . . . . . . . . . . . . . . . 286,510 274,807
---------- ----------
Deferred Tax Liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,271,153 1,146,970
Identifiable intangibles . . . . . . . . . . . . . . . . . . . . . . . 236,476 238,778
Deferred plant costs . . . . . . . . . . . . . . . . . . . . . . . . . 215,472 216,813
Regulatory assets - net . . . . . . . . . . . . . . . . . . . . . . . . 246,763 177,426
Capitalized taxes, employee benefits
and removal costs . . . . . . . . . . . . . . . . . . . . . . . . . . 110,252 122,268
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,730 162,372
---------- ----------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . 2,273,846 2,064,627
---------- ----------
Accumulated deferred income taxes - net . . . . . . . . . . . . . $1,987,336 $1,789,820
========== ==========
At December 31, 1993, pursuant to the acquisition of Cablesystems, KBLCOM
has unutilized Separate Return Limitation Year (SRLY) net operating loss
tax benefits of approximately $23.1 million and unutilized SRLY investment
tax credits of approximately $15.5 million which expire in the years 1995
through 2003, and 1994 through 2003, respectively. In addition, KBLCOM
has unutilized restricted state loss tax benefits of $17.2 million, which
expire in the years 1994 through 2008, and unutilized minimum tax credits
of $1.8 million. The Company does not anticipate full utilization of
these losses and tax credits and, therefore, has established a valuation
allowance. Utilization of preacquisition carryforwards in the future
would not affect income of the Company and KBLCOM but would be applied to
reduce the carrying value of cable television franchises and intangible
assets.
(15) SUPPLEMENTARY EXPENSE INFORMATION
Taxes, other than income taxes, were charged to expense as follows:
Year Ended December 31,
------------------------------------------------
1993 1992 1991
--------- ---------- ---------
(Thousands of Dollars)
Electric:
Ad valorem . . . . . . . . . . . . . . . . . . . . . . . $ 151,124 $ 138,889 $ 119,565
State gross receipts . . . . . . . . . . . . . . . . . . 44,805 42,662 40,876
Payroll . . . . . . . . . . . . . . . . . . . . . . . . . 21,711 22,381 24,344
PUC assessment . . . . . . . . . . . . . . . . . . . . . 6,560 6,163 6,001
State franchise tax (net of refunds) . . . . . . . . . . (13,633) 22,392 2,403
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 728 952 880
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . 211,295 233,439 194,069
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Year Ended December 31,
------------------------------------------------
1993 1992 1991
--------- ---------- ---------
(Thousands of Dollars)
Taxes included in cable television
operating expenses . . . . . . . . . . . . . . . . . . 10,295 9,481 9,260
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 221,590 $ 242,920 $ 203,329
========= ========= =========
Research and development costs charged
to expense . . . . . . . . . . . . . . . . . . . . . . . $ 16,557 $ 15,963 $ 15,548
========= ========= =========
(16) BUSINESS SEGMENT INFORMATION
The Company operates principally in two business segments: electric
utility and cable television. Financial information by business segment
is summarized as follows:
Year Ended December 31,
----------------------------------------------------
1993 1992 1991
----------- ----------- -----------
(Thousands of Dollars)
Revenues:
Electric utility . . . . . . . . . . . . . . . . . $ 4,079,863 $ 3,826,841 $ 3,674,543
Cable television (a) . . . . . . . . . . . . . . . 244,067 235,258 223,911
----------- ----------- -----------
Total revenues . . . . . . . . . . . . . . . . . $ 4,323,930 $ 4,062,099 $ 3,898,454
=========== =========== ===========
Operating Income (Expense):
Electric utility (b) . . . . . . . . . . . . . . . $ 1,005,750 $ 923,801 $ 1,012,879
Cable television (a) . . . . . . . . . . . . . . . 17,830 19,394 14,009
Other operations . . . . . . . . . . . . . . . . . (1,163) (1,327) (1,959)
----------- ----------- -----------
Total operating income . . . . . . . . . . . . . . 1,022,417 941,868 1,024,929
Other income (expense) . . . . . . . . . . . . . . 47,882 43,789 94,481
Fixed charges . . . . . . . . . . . . . . . . . . . (423,145) (480,561) (494,476)
----------- ----------- -----------
Income before income taxes . . . . . . . . . . . . $ 647,154 $ 505,096 $ 624,934
=========== =========== ===========
Depreciation and Amortization:
Electric utility . . . . . . . . . . . . . . . . . $ 385,731 $ 371,645 $ 350,593
Cable television (a) . . . . . . . . . . . . . . . 77,912 75,622 70,496
Other operations . . . . . . . . . . . . . . . . . 1,163 1,327 1,959
----------- ----------- -----------
Total depreciation and
amortization . . . . . . . . . . . . . . . . . $ 464,806 $ 448,594 $ 423,048
=========== =========== ===========
Identifiable Assets (end of period):
Electric utility . . . . . . . . . . . . . . . . . $10,753,616 $10,790,052 $10,620,642
Cable television . . . . . . . . . . . . . . . . . 1,407,916 1,386,927 1,391,526
Other operations . . . . . . . . . . . . . . . . . 141,542 328,231 221,160
Adjustments and eliminations . . . . . . . . . . . (72,897) (83,543) (61,651)
----------- ----------- -----------
Total assets . . . . . . . . . . . . . . . . . . $12,230,177 $12,421,667 $12,171,677
=========== =========== ===========
Capital Expenditures:
Electric utility . . . . . . . . . . . . . . . . . $ 329,016 $ 337,082 $ 365,486
Cable television (a) . . . . . . . . . . . . . . . 54,482 44,306 26,624
Other . . . . . . . . . . . . . . . . . . . . . . . 35,796 1,625
----------- ----------- -----------
Total capital expenditures . . . . . . . . . . . $ 419,294 $ 383,013 $ 392,110
=========== =========== ===========
(a) Amounts do not include amounts attributable to Paragon, which is
accounted for under the equity method.
(b) 1992 amounts include the effect of a charge of $86.4 million which
relates to HL&P's restructuring of operations as a result of the
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implementation of the Success Through Excellence in Performance (STEP)
program (see Note 18).
(17) INVESTMENTS
(a) Cable Television Partnership. A KBLCOM subsidiary owns a 50% interest
in Paragon, a Colorado partnership that owns cable television systems.
The remaining interest in the partnership is owned by American
Television and Communications Corporation (ATC), a subsidiary of Time
Warner Inc. The partnership agreement provides that at any time after
December 31, 1993 either partner may elect to divide the assets of the
partnership under certain pre-defined procedures set forth in the
agreement.
Paragon is party to a $275 million revolving credit and letter of credit
facility agreement with a group of banks. Paragon also has outstanding
$100 million principal amount of 9.56% senior notes due 1995. In each
case, borrowings are non-recourse to the Company and to ATC.
(b) Foreign Electric Utility. Houston Argentina owns a 32.5% interest in
Compania de Inversiones en Electricidad S. A. (COINELEC), an Argentine
holding company which acquired, in December 1992, a 51% interest in
Empresa Distribuidora 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, of which $1.6 million was paid in December 1992 with the
remainder paid in March 1993. Subsequent to the acquisition, the
generating assets of EDELAP were transferred to Central Dique S. A., an
Argentine Corporation, 51% of the stock of which is owned by COINELEC.
(18) RESTRUCTURING
HL&P recorded a one-time, pre-tax charge of $86.4 million in the first
quarter of 1992 to reflect the implementation of the STEP program, a
restructuring of its operations. This charge includes $42 million
related to the acceptance of an early retirement plan by 468 employees
of HL&P, $31 million for severance benefits related to the elimination
of an additional 1,100 positions and $13 million in other costs
associated with the restructuring.
(19) CHANGE IN ACCOUNTING METHOD FOR REVENUES
During the fourth quarter of 1992, HL&P adopted a change in accounting
method for revenue from a cycle billing to a full accrual method,
effective January 1, 1992. Unbilled revenues represent the estimated
amount customers will be charged for service received, but not yet
billed, as of the end of each month. The accrual of unbilled revenues
results in a better matching of revenues and expenses. This change
impacts the pattern of revenue recognition, which had the effect of
increasing revenues and earnings in the second and third quarters
(periods of higher usage) and decreasing revenues and earnings in the
first and fourth quarters (periods of lower usage).
The cumulative effect of this accounting change, less income taxes of
$48.5 million, amounted to $94.2 million, and was included in 1992
income. If this change in accounting method were applied retroactively,
the effect on consolidated net income in 1991 would not have been
material.
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(20) 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.
Earnings
per
Operating Net Common
Quarter Ended Revenues Income Income Share (a)
------------------------------- ------------ ---------- ------------- ---------
(Thousands of Dollars)
1992
----
March 31 . . . . . . . . . . . $ 959,666 $ 53,046 $ 51,949(d) $0.40(e)
Adjustment 1(b) . . . . . . . . (131,952) 313
Adjustment 2(c) . . . . . . . . (322)
---------- ---------- ---------- -----
March 31 Reclassified . . . . . $ 827,392 $ 53,359 $ 51,949(d) $0.40(e)
========== ========== ========== =====
June 30 . . . . . . . . . . . . $1,167,792 $ 293,154 $ 120,200 $0.93
Adjustment 1(b) . . . . . . . . (135,430) (330)
Adjustment 2(c) . . . . . . . . (350)
---------- ---------- ---------- -----
June 30 Reclassified . . . . . $1,032,012 $ 292,824 $ 120,200 $0.93
========== ========== ========== =====
September 30 . . . . . . . . . $1,403,344 $ 457,461 $ 239,367 $1.85
Adjustment 1(b) . . . . . . . . (138,076) (384)
Adjustment 2(c) . . . . . . . . (389)
---------- ---------- ---------- -----
Sept. 30 Reclassified . . . . . $1,264,879 $ 457,077 $ 239,367 $1.85
========== ========== ========== =====
December 31 . . . . . . . . . . $1,065,586 $ 138,753 $ 23,151 $0.18
Adjustment 1(b) . . . . . . . . (127,329) (145)
Adjustment 2(c) . . . . . . . . (441)
---------- ---------- ---------- -----
Dec. 31 Reclassified . . . . . $ 937,816 $ 138,608 $ 23,151 $0.18
========== ========== ========== =====
1993
----
March 31 . . . . . . . . . . . $ 992,236 $ 127,247 $ 27,055 $0.21
Adjustment 1(b) . . . . . . . . (125,820) 734
Adjustment 2(c) . . . . . . . . (457)
---------- ---------- ---------- -----
March 31 Reclassified . . . . . $ 865,959 $ 127,981 $ 27,055 $0.21
========== ========== ========== =====
June 30 . . . . . . . . . . . . $1,068,179 $ 247,686 $ 100,209 $0.77
Adjustment 2(c) . . . . . . . . (426)
---------- ---------- ---------- -----
June 30 Reclassified . . . . . $1,067,753 $ 247,686 $ 100,209 $0.77
========== ========== ========== =====
September 30 . . . . . . . . . $1,416,746 $ 513,860 $ 260,409 $2.00
Adjustment 2(c) . . . . . . . . (415)
---------- ---------- ---------- -----
Sept. 30 Reclassified . . . . . $1,416,331 $ 513,860 $ 260,409 $2.00
========== ========== ========== =====
December 31 . . . . . . . . . . $ 973,887 $ 132,890 $ 28,363 $0.22
========== ========== ========== =====
(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.
(b) Adjustment required to reclassify quarterly amounts for the merger of
Utility Fuels into HL&P. (see Note 1(b)).
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(c) Adjustment required to reclassify quarterly amounts for certain
advertising expenses at KBLCOM.
(d) Amounts include the effect of a pre-tax charge of $86.4 million which
relates to HL&P's restructuring of operations as a result of the
implementation of the STEP program and pre-tax income of $142.7
million associated with the adoption of a change in accounting
principle reflecting a change in the timing of recognition of revenue
from electricity sales. (see Notes 18 and 19, respectively).
(e) Loss from continuing operations per share for the first quarter of
1992 was $.33.
(21) RECLASSIFICATION
Certain amounts from the previous years have been reclassified to
conform to the 1993 presentation of financial statements. Such
reclassifications do not affect earnings.
(22) SUBSEQUENT EVENT
On February 17 1994, KBLCOM entered into an agreement to acquire three
cable companies serving approximately 47,000 customers in the
Minneapolis area. KBLCOM will acquire the stock of the companies in
exchange for the issuance of common stock of the Company. The amount of
common stock of the Company to be issued, currently estimated to be
approximately $24 million, is dependent on the amount of liabilities
assumed, currently estimated to be approximately $63 million.
Approximately 40,000 of the cable customers served by the properties to
be acquired are in the Minneapolis metropolitan area. The remaining
7,000 customers are located in small communities south and west of the
metropolitan area. Closing of the transaction is subject to the
satisfaction of certain conditions.
-103-
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HOUSTON LIGHTING & POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
Except as modified below, the Notes to Consolidated Financial
Statements of the Company are incorporated herein by reference insofar as they
relate to HL&P: (1) Summary of Significant Accounting Policies, (3) Preferred
Stock of HL&P, (4) Long-Term Debt, (5) Short-Term Financing, (7) Retirement
Plans, (8) Commitments and Contingencies, (9) Jointly-Owned Nuclear Plant, (10)
Utility Commission Proceedings, (11) Deferred Plant Costs, (12) Malakoff
Electric Generating Station, (13) Recoverable Project Costs, (14) Income Taxes,
(15) Supplementary Expense Information, (18) Restructuring, (19) Change in
Accounting Method for Revenues, and (21) Reclassification.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(b) MERGER OF UTILITY FUELS INTO HL&P. The merger has been accounted for in
a manner similar to a pooling of interests. HL&P's financial statements
have been restated to reflect the combined operations for the current
and previous periods, with the appropriate eliminating entries. The
merger increased HL&P's previously reported earnings by $28.3 million
and $24.4 million in 1992 and 1991, respectively.
(i) 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 (Houston Industries Delaware), a
wholly owned subsidiary of the Company. Accordingly, earnings per share
is not computed.
(j) STATEMENT OF CASH FLOWS. At December 31, 1993, HL&P did not have any
investments with affiliated companies (considered to be cash
equivalents). At December 31, 1992 and 1991, HL&P had affiliate
investments of $2.1 million and $9.7 million, respectively.
(2) COMMON STOCK
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.
(5) SHORT-TERM FINANCING
The interim financing requirements of HL&P are primarily met through the
issuance of commercial paper. HL&P had a bank credit facility of $250
million at December 31, 1993 and 1992, which limits total short-term
borrowings and provides for interest at rates generally less than the
prime rate. Outstanding commercial paper was approximately $171 million
at December 31, 1993 and $139 million at December 31, 1992. Commitment
fees are required on HL&P's bank credit facility.
-104-
105
(6) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of HL&P's financial
instruments at December 31, 1993 and 1992 are as follows:
1993 1992
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(Restated) (Restated)
(Thousands of Dollars)
Financial assets:
Cash and short-term
investments $ 12,413 $ 12,413 $ 4,253 $ 4,253
Financial liabilities:
Short-term notes payable 171,100 171,100 139,440 139,440
Short-term notes payable
to affiliated company 19,000 19,000
Cumulative preferred stock
(subject to mandatory
redemption) 187,236 207,489 226,834 242,289
Long-term debt:
First mortgage bonds 3,039,343 3,360,442 3,188,694 3,407,236
Pollution control
revenue bonds 155,218 174,094 255,704 286,813
Notes payable to
affiliated company 101,001 101,001
Other notes payable 2,410 2,410 4,897 4,897
The fair values of cash and short-term investments, short-term and other
notes payable, and notes payable to affiliated company are equivalent to
the carrying amounts.
The fair values of cumulative preferred stock subject to mandatory
redemption, first mortgage bonds and pollution control revenue bonds
issued on behalf of HL&P are estimated using rates currently available
for securities with similar terms and remaining maturities.
-105-
106
(7) RETIREMENT PLANS
(a) PENSION. The Company maintains a noncontributory retirement plan
covering substantially all employees of HL&P.
Net pension cost for HL&P includes the following components:
Year Ended December 31,
------------------------------------------
1993 1992 1991
-------- -------- --------
(Restated) (Restated)
(Thousands of Dollars)
Service cost - benefits earned
during the period . . . . . . . . . . . . . . . . . . $ 24,640 $ 23,211 $ 21,277
Interest cost on projected
benefit obligation . . . . . . . . . . . . . . . . . 49,950 44,580 37,739
Actual return on plan assets . . . . . . . . . . . . . (38,668) (26,334) (60,499)
Net amortization and deferrals . . . . . . . . . . . . (683) (11,605) 29,868
-------- -------- --------
Net pension cost . . . . . . . . . . . . . . . . . . . $ 35,239 $ 29,852 $ 28,385
======== ======== ========
The funded status of HL&P's retirement plan was as follows:
December 31,
------------------------------
1993 1992
--------- ----------
(Restated)
(Thousands of Dollars)
Actuarial present value of:
Vested benefit obligation . . . . . . . . . . . . . . . . . . . $ 434,797 $ 352,993
========= =========
Accumulated benefit obligation . . . . . . . . . . . . . . . . $ 492,301 $ 388,335
========= =========
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . $ 478,515 $ 434,781
Projected benefit obligation . . . . . . . . . . . . . . . . . . . 636,724 585,424
--------- ---------
Assets less than projected benefit
obligation . . . . . . . . . . . . . . . . . . . . . . . . . . (158,209) (150,643)
Unrecognized transitional asset . . . . . . . . . . . . . . . . . (17,062) (18,966)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . 23,183 12,027
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . 77,937 83,448
--------- ---------
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . $ (74,151) $ (74,134)
========= =========
The projected benefit obligation was determined using an assumed discount
rate of 7.25% in 1993 and 8.5% in 1992. A long-term rate of compensation
increase ranging from 3.9% to 6% was assumed for 1993 and ranging from
6.9% to 9.0% was assumed in 1992. The assumed long- term rate of return
on plan assets was 9.5% in 1993 and 1992. 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.
(c) POSTRETIREMENT BENEFITS. HL&P adopted SFAS No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions" effective
January 1, 1993. For 1992, HL&P continued to fund postretirement benefit
costs on a "pay-as-you-go" basis and made payments of $8.6 million.
HL&P's 1993 postretirement benefit costs under SFAS No. 106 were $37
million, an increase of approximately $27 million over the 1993
"pay-as-you-go" amount.
-106-
107
The net postretirement benefit cost for HL&P in 1993 includes the
following components, in thousands of dollars:
Service cost - benefits earned during
the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,297
Interest cost on projected benefit
obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,134
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---
Net amortization and deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,658
----------
Net postretirement benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,089
==========
The funded status of postretirement benefit costs for HL&P at December
31, 1993 was as follows, in thousands of dollars:
Accumulated benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (128,122)
Fully eligible active plan participants . . . . . . . . . . . . . . . . . . . . . . . . (22,691)
Other active plan participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,576)
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (171,389)
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---
----------
Assets less than accumulated
benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (171,389)
Unrecognized transitional obligation . . . . . . . . . . . . . . . . . . . . . . . . . 200,883
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (55,577)
----------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . $ (26,083)
==========
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation in 1993 are as follows:
Medical - under 65 10.0%
Medical - 65 and over 11.0%
Dental 10.0%
The assumed health care rates gradually decline to 5.4% for both medical
categories and 3.7% for dental by the year 2001. The accumulated
postretirement benefit obligation was determined using an assumed
discount rate of 7.25% for 1993.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1993
would be increased by approximately 8%. The annual effect of the 1%
increase on the total of the service and interest costs would be an
increase of approximately 10%.
(14) INCOME TAXES
HL&P records income taxes under SFAS No. 109. During
1993, federal tax legislation was enacted that changes the income tax
consequences for HL&P. The principal provision of the new law which
affects HL&P is the change in the corporate income tax rate from 34% to
35%. A net regulatory asset and the related deferred federal income tax
liability of $71.3 million was recorded by HL&P in 1993. The effect of
the new law, which decreased HL&P's net income by $8.0 million was
recognized as a component of income tax expense in 1993. The effect on
HL&P's deferred taxes for the change in the new law was $4.5 million in
1993.
-107-
108
HL&P's current and deferred components of income tax expense are as
follows:
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
--------- ---------- ---------
(Restated) (Restated)
(Thousands of Dollars)
Current . . . . . . . . . . . . . . . . . . . . . . . . $ 115,745 $ 134,514 $ 145,105
Deferred:
Liberalized depreciation . . . . . . . . . . . . . 96,460 84,318 88,709
Investment tax credit - net . . . . . . . . . . . . (19,797) (19,926) (19,567)
Alternative minimum tax credit . . . . . . . . . . 4,256 8,519 20,573
Deferred plant costs . . . . . . . . . . . . . . . (6,867) (6,671) 22,828
Loss on reacquired debt . . . . . . . . . . . . . . 10,186 14,916 (328)
Malakoff write-off . . . . . . . . . . . . . . . . 43,303
Under recovery of fuel . . . . . . . . . . . . . . 12,083
Excess deferred taxes . . . . . . . . . . . . . . . (9,625) (17,403) (17,532)
Other - net . . . . . . . . . . . . . . . . . . . . (6,280) (23,536) (14,684)
--------- --------- ---------
Federal income tax expense . . . . . . . . . . . . 239,464 174,731 225,104
Federal income taxes charged to
other income . . . . . . . . . . . . . . . . . . (2,993) (1,062) 1,941
--------- --------- ---------
Income taxes before cumulative
effect of change in
accounting . . . . . . . . . . . . . . . . . . . $ 236,471 $ 173,669 $ 227,045
========= ========= =========
HL&P's effective income tax rates are lower than statutory corporate rates
for each year as follows:
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
--------- --------- ---------
(Restated) (Restated)
(Thousands of Dollars)
Income before income taxes, preferred
dividends and cumulative effect of
change in accounting . . . . . . . . . . . . . . . . $ 720,694 $ 588,951 $ 745,944
Statutory rate . . . . . . . . . . . . . . . . . . . . 35% 34% 34%
--------- --------- ---------
Income taxes at statutory rate . . . . . . . . . . . . 252,243 200,243 253,621
--------- --------- ---------
Net reduction in taxes resulting from:
AFUDC - other included in income . . . . . . . . . . 1,229 2,097 6,658
Amortization of investment tax
credit . . . . . . . . . . . . . . . . . . . . . . 19,797 19,926 19,567
Difference between book and tax
depreciation for which deferred
taxes have not been normalized . . . . . . . . . . (12,976) (13,466) (14,437)
Excess deferred taxes . . . . . . . . . . . . . . . . 9,625 17,403 17,532
Other - net . . . . . . . . . . . . . . . . . . . . . (1,903) 614 (2,744)
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . 15,772 26,574 26,576
--------- --------- ---------
Income taxes before cumulative effect
of change in accounting . . . . . . . . . . . . . . . $ 236,471 $ 173,669 $ 227,045
========= ========= =========
Effective rate . . . . . . . . . . . . . . . . . . . . 32.8% 29.5% 30.4%
-108-
109
Following are HL&P's tax effects of temporary differences resulting in
deferred tax assets and liabilities:
December 31,
-------------------------------
1993 1992
---------- ----------
(Restated)
(Thousands of Dollars)
Deferred Tax Assets:
Alternative minimum tax . . . . . . . . . . . . . . . . . . . . . . $ 51,506 $ 54,795
IRS audit assessment . . . . . . . . . . . . . . . . . . . . . . . 48,513 48,513
Disallowed plant cost - net . . . . . . . . . . . . . . . . . . . . 24,304 24,394
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,906 50,885
---------- ----------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . 172,229 178,587
---------- ----------
Deferred Tax Liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,210,410 1,122,216
Regulatory assets - net . . . . . . . . . . . . . . . . . . . . . . 246,763 177,426
Deferred plant costs . . . . . . . . . . . . . . . . . . . . . . . 215,472 216,813
Capitalized taxes, employee benefits,
and removal costs . . . . . . . . . . . . . . . . . . . . . . . . 111,333 108,554
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,227 138,185
---------- ----------
Total deferred tax liabilities . . . . . . . . . . . . . . . . 1,971,205 1,763,194
---------- ----------
Accumulated deferred income taxes - net . . . . . . . . . . . . . . $1,798,976 $1,584,607
========== ==========
(20) 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)
1992
----
March 31 . . . . . . . . . . . . $ 770,379 $ 56,115 $ 59,165(b)
Adjustment (a) . . . . . . . . . 10,588 6,940
---------- ---------- ----------
March 31 Restated . . . . . . . . $ 770,379 $ 66,703 $ 66,105(b)
========== ========== ==========
June 30 . . . . . . . . . . . . . $ 972,535 $ 213,122 $ 120,415
Adjustment (a) . . . . . . . . . 10,372 7,119
---------- ---------- ----------
June 30 Restated . . . . . . . . $ 972,535 $ 223,494 $ 127,534
========== ========== ==========
September 30 . . . . . . . . . . $1,206,367 $ 322,847 $ 236,672
Adjustment (a) . . . . . . . . . 9,881 7,203
---------- ---------- ----------
September 30 Restated . . . . . . $1,206,367 $ 332,728 $ 243,875
========== ========== ==========
December 31 . . . . . . . . . . . $ 877,560 $ 116,502 $ 25,624
Adjustment (a) . . . . . . . . . 9,643 6,997
---------- ---------- ----------
December 31 Restated . . . . . . $ 877,560 $ 126,145 $ 32,621
========== ========== ==========
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110
Income After
Operating Preferred
Quarter Ended Revenues Income Dividends
----------------- ---------- --------- -----------
(Thousands of Dollars)
1993
----
March 31 . . . . . . . . . . . . $ 805,685 $ 104,145 $ 25,103
Adjustment (a) . . . . . . . . . 9,015 6,471
---------- ---------- ----------
March 31 Restated . . . . . . . . $ 805,685 $ 113,160 $ 31,574
========== ========== ==========
June 30 . . . . . . . . . . . . . $1,005,149 $ 189,066 $ 105,765
========== ========== ==========
September 30 . . . . . . . . . . $1,355,339 $ 355,221 $ 271,594
========== ========== ==========
December 31 . . . . . . . . . . . $ 913,690 $ 108,839 $ 40,817
========== ========== ==========
(a) Adjustment required to restate quarterly amounts for the merging of
Utility Fuels into HL&P. (See Note 1(b))
(b) Amounts include the effect of a pre-tax charge of $86.4 million
which relates to HL&P's restructuring of operations as a result of
the implementation of the STEP program and pre-tax income of $142.7
million associated with the adoption of a change in accounting
principle reflecting a change in the timing of recognition of
revenue from electricity sales. (see Notes 18 and 19,
respectively).
(23) PRINCIPAL AFFILIATE TRANSACTIONS
Year Ended December 31,
Affiliated -------------------------------------------
Company Description 1993 1992 1991
---------- ------------------------ ------- --------- ----------
(Restated) (Restated)
(Thousands of Dollars)
Houston Dividends $ 342,981 $ 345,748 $ 350,267
Industries Service Fees (a) 21,864 18,215 21,055
Money Fund Income (b) 2,748 930 3,229
Houston
Industries
Finance Discount Expenses (a) 21,053 26,202
(a) Included in Operating Expenses
(b) Included in Other Income (Expense)
During 1992 and 1991, Houston Industries Finance purchased accounts
receivable of HL&P. 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 an unaffiliated third party.
-110-
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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, 1993 and 1992 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, 1993. Our audits also included the Company's financial statement
schedules listed in Item 14(a)(2). These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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, 1993 and 1992 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
As discussed in Note 19 to the consolidated financial statements, the
Company changed its method of accounting for revenues in 1992.
DELOITTE & TOUCHE
Houston, Texas
February 23, 1994
-111-
112
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,
1993 and 1992 and the related statements of income, retained earnings and cash
flows for each of the three years in the period ended December 31, 1993. Our
audits also included the financial statement schedules of HL&P listed in Item
14(a)(2). These financial statements and financial statement schedules are the
responsibility of HL&P's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules 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, 1993 and 1992
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 1 to the financial statements, Utility Fuels,
Inc., HL&P's coal supply affiliate, was merged into HL&P in 1993. The merger
has been accounted for in a manner similar to a pooling of interests with
restatement of all years presented. As discussed in Note 19 to the financial
statements, HL&P changed its method of accounting for revenues in 1992.
DELOITTE & TOUCHE
Houston, Texas
February 23, 1994
-112-
113
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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 1994 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 is
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 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 4, 1994. 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 43, has been a director since 1992. He is Chairman,
President and Chief Executive Officer of Instrument Products Inc., an oil field
supply manufacturing company, in Houston, Texas. Mr. Carroll currently serves
as an advisor to Lazard Freres & Co., an investment banking firm, and is a
director of Panhandle Eastern Corporation and the Federal Reserve Bank of
Dallas.
JOHN T. CATER, age 58, 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 director of Compass Bank-Houston.
Until his retirement in July 1990, Mr. Cater served as President, Chief
Operating Officer and a director of MCorp, a Texas bank holding company. He
currently serves as a director of MCorp.(1)
ROBERT J. CRUIKSHANK, age 63, 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, Mr. Cruikshank was a Senior Partner in the
accounting firm of Deloitte & Touche. Mr. Cruikshank is also Vice-Chairman of
the Board of Regents of the University of Texas System. He also serves as a
director of MAXXAM Inc., Compass Bank and Texas Biotechnology Corporation.
-113-
114
LINNET F. DEILY, age 48, 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. (2)
JOSEPH M. HENDRIE, PH.D., age 68, has been a director since 1985. Dr. Hendrie
is a Consulting Engineer in Bellport, 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.
HOWARD W. HORNE, age 67, 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, Mr. Horne was Chairman of the Board of
The Horne Company, a realty firm. (3)
DON D. JORDAN, age 61, 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. Mr. Jordan also
serves as a director of Texas Commerce Bancshares, Inc. and BJ Services
Company, Inc.
THOMAS B. MCDADE, age 70, has been a director since 1980. Mr. McDade is
primarily engaged in managing his personal investments in Houston, Texas. Mr.
McDade also serves as a director and trustee of eleven registered investment
companies for which Transamerica Fund Management Company serves as investment
advisor. (4)
ALEXANDER F. SCHILT, PH.D., age 53, has been a director since 1992. He is
Chancellor of the University of Houston System. Prior to 1990, Dr. Schilt was
President of Eastern Washington University in Cheney and Spokane, Washington.
KENNETH L. SCHNITZER, SR., age 64, 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. (5)
DON D. SYKORA, age 63, has been a director since 1982. Mr. Sykora is President
and Chief Operating Officer of the Company. He also serves as a director of
Powell Industries, Inc., Pool Energy Services Company, Inc. and TransTexas Gas
Corporation.
JACK T. TROTTER, age 67, 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., Howell
Corporation, Weingarten Realty Investors, Zapata Corporation and Continental
Airlines, Inc.
BERTRAM WOLFE, PH.D., age 66, 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.
- -----------------
(1) In March 1989, the FDIC declared 20 of MCorp's 25 banks to be
insolvent and transferred their assets and deposits to another bank.
In 1989, MCorp filed for protection under the Federal Bankruptcy Code.
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(2) First Interstate 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 maximum aggregate loans and commitments to lend
approximately $81.24 million.
(3) Under a consulting arrangement originally with Mr. Horne which was
subsequently amended to be an agreement with Cushman & Wakefield of
which Mr. Horne is Vice Chairman, Cushman & Wakefield represented the
Company in negotiations concerning the purchase of an office building
in 1993, for which that firm was paid $358,000 by the Company and
$78,000 by the seller of the building.
(4) Mr. McDade is expected to retire at the date of the Company's 1994
annual meeting of shareholders.
(5) HL&P and certain of its affiliates currently lease office space in
buildings owned or controlled by affiliates of Mr. Schnitzer. HL&P
and certain of its affiliates paid a total of approximately $5.4
million to affiliates of Mr. Schnitzer during 1993, and it is expected
that approximately $5.6 million will be paid in 1994. HL&P believes
such payments are comparable to those that would have been made to
other non-affiliated firms for comparable facilities and services.
ITEM 11. EXECUTIVE COMPENSATION.
(a) The Company
The information called for by Item 11 is or will be set forth in the
definitive proxy statement relating to the Company's 1994 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.
(b) HL&P
SUMMARY COMPENSATION TABLE. The following table shows, for the years
ended December 31, 1991, 1992 and 1993, the annual, long-term and certain other
compensation of the chief executive officer and the other four most highly
compensated executive officers of HL&P including Mr. Hall who retired
effective January 1, 1994 (Named Officers). The format and information
presented are as prescribed in revised rules of the Securities and Exchange
Commission (SEC) and in accordance with transitional provisions of the rules,
information in the "All Other Compensation" column is not presented for 1991.
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SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual -----------------------
Compensation Awards Payouts
--------------------- -------- -------
All
Securities Other
Underlying LTIP Compen-
Name and Salary Bonus Options Payouts sation
Principal Position Year (1) (2) (#) (3) (4)
- --------------------- ---- --------- -------- --------- -------- ---------
Don D. Jordan (5) 1993 $829,500 12,965 $762,962 $647,491
Chairman and 1992 785,125 $531,268 13,190 32,000 543,204
Chief Executive 1991 745,883 334,688 29,062
Officer
Hugh Rice Kelly 1993 310,500 2,621 285,078 58,218
Senior Vice President, 1992 297,583 155,439 2,667 13,188 65,266
General Counsel and 1991 283,750 86,981 12,313
Corporate Secretary
R. Steve Letbetter 1993 271,000 2,128 212,362 42,562
President and 1992 241,417 125,952 2,161 10,125 44,813
Chief Operating 1991 224,583 70,484 9,125
Officer
Donald P. Hall 1993 267,000 2,309 251,530 18,061
Senior Vice President 1992 262,000 136,170 2,345 15,669
and Assistant to the 1991 248,750 76,483
President
Jack D. Greenwade 1993 225,500 1,903 178,814 36,786
Group Vice President 1992 215,833 110,880 1,931 8,875 38,184
- Operations 1991 207,583 62,986 7,863
- -----------------
(1) The amounts shown include salary earned and received by the Named
Officers as well as salary earned but deferred. Also included are
board of director and committee fees paid in 1991 prior to the time
such fees were eliminated for employee directors.
(2) The amount of bonus earned for 1993 has not been determined because it
was not calculable as of the date of this Report. In accordance with
the SEC's revised rules on executive compensation, these amounts will
be included for such year in HL&P's Annual Report on Form 10-K for
the year ended December 31, 1994.
(3) The amounts shown represent (i) cash paid in 1991 and 1992 under the
Company's executive incentive compensation plan for long-term awards
based on the performance periods of 1987-1990 and 1988-1991
respectively and (ii) the dollar value of shares of the Company's
common stock paid out in 1993 under the Company's long-term incentive
compensation plans based on the achievement of certain performance
objectives for the 1990-1992 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 1992
and 1993 on behalf of the Named Officers, as follows: Mr. Jordan
1992 - $41,348 and 1993 - $57,152; Mr. Kelly 1992 - $26,141 and 1993 -
$19,569; Mr. Letbetter 1992 - $20,225 and 1993 - $16,672; Mr. Hall
1992 - $14,005 and 1993 - $16,933; and
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Mr. Greenwade 1992 - $16,898 and 1993 - $14,128 and (ii) 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% of the applicable federal
long-term rate provided under Section 1274(d) of the Internal Revenue
Code, as follows: Mr. Jordan 1992 - $501,856 and 1993 - $590,339; Mr.
Kelly 1992 - $39,125 and 1993 - $38,649; Mr. Letbetter 1992 - $24,588
and 1993 - $25,890; Mr. Hall 1992 - $1,664 and 1993 - $1,128; and Mr.
Greenwade 1992 - $21,286 and 1993 - $22,658. With respect to the
accrued interest on deferred amounts referenced in (ii) of this
footnote, the Company owns and is the beneficiary under life insurance
policies, and it is currently anticipated that the benefits associated
with these policies will be sufficient to cover such accumulated
interest.
(5) The information related to Mr. Jordan includes his compensation as
Chairman and Chief Executive Officer of the Company.
STOCK OPTION GRANTS. The following table contains information
concerning the grant of stock options under the Company's long-term incentive
compensation plan to the Named Officers during 1993.
OPTION GRANTS IN 1993
Individual Grants Grant Date Value
--------------------------------------------------------- -----------------
% of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration Grant Date
Name (#)(1) Year Per Share Date Present Value (2)
- --------------- ----------- ----------- --------- ---------- -----------------
Don D. Jordan 12,965 19.71% $46.25 01/03/03 $41,618
Hugh Rice Kelly 2,621 3.98% 46.25 01/03/03 8,413
R. Steve Letbetter 2,128 3.24% 46.25 01/03/03 6,831
Donald P. Hall(3) 2,309 3.51% 46.25 01/03/03 7,412
Jack D. Greenwade 1,903 2.89% 46.25 01/03/03 6,109
- -----------------
(1) The nonstatutory options for shares of the Company's common
stock included in the table were granted on January 4, 1993, have a
ten-year term and generally become exercisable in one-third increments
commencing one year after date of grant, so long as employment with the
Company or its subsidiaries continues. If a change in control (as
defined in the plan) of the Company occurs before the options become
exercisable, the options will become immediately exercisable.
(2) Based on the Black-Scholes option pricing model adjusted for the
payment of dividends. The calculations were made based on the
following assumptions: volatility equal to historical volatility of
the Company's common stock in the six-month period prior to grant
date; risk-free interest rate equal to the ten-year average monthly
U.S. Treasury rate for January 1993; option strike price equal to
current stock price on the date of grant ($46.25); current dividend
rate of $3 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
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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.
(3) Under the terms of the Company's long-term incentive compensation
plans, Mr. Hall's retirement effective January 1, 1994 resulted in his
receiving options for only 770 shares of the originally granted number
of shares, and resulted in the forfeiture, for no value, of his
options for 1,539 shares. Options expire one year after date of
retirement; therefore, Mr. Hall's options expire January 1, 1995.
STOCK OPTION VALUES. The following table sets forth information for
each of the Named Officers with respect to the unexercised options to purchase
the Company's common stock granted under the Company's long-term incentive
compensation plans and held as of December 31, 1993, including the aggregate
amount by which the market value of the option shares exceeds the exercise
price of the option shares at December 31, 1993. No options were exercised
by the Named Officers during 1993.
1993 YEAR-END OPTION VALUES
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 1993 December 31, 1993 (1)
--------------------- ---------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- -------------------- --------------------- ---------------------
Don D. Jordan 4,397 / 21,758 $18,962 / $58,178
Hugh Rice Kelly 889 / 4,399 3,834 / 11,763
R. Steve Letbetter 720 / 3,569 3,105 / 9,539
Donald P. Hall 782 / 3,872 3,372 / 10,348
Jack D. Greenwade 644 / 3,190 2,777 / 8,523
- -----------------
(1) Based on the average of the high and low sales prices of the the
Company's common stock on the composite tape, as reported by The
Wall Street Journal for December 31, 1993.
LONG-TERM INCENTIVE COMPENSATION PLANS
The following table sets forth information concerning awards made
during the year ended December 31, 1993 under the Company's long-term incentive
compensation plans. The table represents potential payouts of awards for
performance shares (target and opportunity shares) of Common Stock based on the
achievement of certain performance goals over a performance cycle of three
years. The performance goals are weighted differently depending on the parent
or subsidiary company by which the Named Officer is employed. The
consolidated performance goal applicable to each of the Named Officers is
achieving a superior total return to shareholders in relation to a panel of
other companies. With respect to Messrs. Letbetter, Hall and Greenwade,
subsidiary performance goals consist of (1) increasing HL&P's competitive rate
advantage by
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maintaining current base electric rates and (2) achieving a superior cash flow
performance in relation to a panel of other companies. With respect to
Messrs. Jordan and Kelly, subsidiary performance goals include all of the above
as well as goals from the Company's other major subsidiary. Each of these
goals has attainment levels ranging from 50% to 150% of the target amounts.
Target amounts for awards will be earned if goals are achieved at the 100%
level; threshold amounts if goals are achieved at the 50% level and maximum
amounts if goals are achieved at the 150% level. If a change in control (as
defined in the plan) 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.
LONG-TERM INCENTIVE COMPENSATION PLANS - AWARDS IN 1993
Estimated Future Payouts Under
Non-Stock Price-Based Plans(1)
---------------------------------------
Performance
or Other
Period Until Threshold Target Maximum
Number of Maturation or Number Number Number
Name Shares Payout of Shares of Shares of Shares
- ----------------- ----------- --------------- --------- --------- ---------
Don D. Jordan 11,659 12/31/95 5,830 11,659 17,489
Hugh Rice Kelly 2,719 12/31/95 1,360 2,719 4,079
R. Steve Letbetter 2,208 12/31/95 1,104 2,208 3,312
Donald P. Hall (2) 2,396 12/31/95 1,198 2,396 3,594
Jack D. Greenwade 1,974 12/31/95 987 1,974 2,961
- -----------------
(1) The table does not reflect dividend equivalent accruals during the
performance period.
(2) Under the terms of the Company's long-term incentive compensation
plans, Mr. Hall's retirement effective January 1, 1994 resulted in his
receiving a payout in January, 1994 of 799 shares, a pro-rated amount
based on the number of days elapsed in the performance cycle.
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 amounts in the table are not subject to any deduction for
Social Security payments or other offsetting amounts.
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PENSION PLAN TABLE
Final Average Estimated Annual Pension Based on Years of Service
Annual -----------------------------------------------------------------------------------
Compensation 35 or
At Age 65 15 Years 20 Years 25 Years 30 Years More Years
- ------------------- -------- -------- -------- -------- ----------
$ 300,000 $ 85,998 $114,664 $143,330 $171,996 $200,662
400,000 115,098 153,464 191,830 230,196 268,562
500,000 144,198 192,264 240,330 288,396 336,462
600,000 173,298 231,064 288,830 346,596 404,362
700,000 202,398 269,864 337,330 404,796 472,262
800,000 231,498 308,664 385,830 462,996 540,162
900,000 260,598 347,464 434,330 521,196 608,062
1,000,000 289,698 386,264 482,830 579,396 675,962
1,200,000 347,898 463,864 579,830 695,796 811,762
1,400,000 406,098 541,464 676,830 812,196 947,562
1,500,000 435,198 580,264 725,330 870,396 1,015,462
1,600,000 464,298 619,064 773,830 928,596 1,083,362
1,700,000 493,398 657,864 822,330 986,796 1,151,262
NOTE: The qualified pension plan limits compensation in accordance with IRC
401(a)(17) and also limits benefits in accordance with IRC 415. 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.
For the purpose of the pension table above, final average annual
compensation means the average of covered compensation for the 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, 1993 the credited
years of service and current covered compensation for the following persons
are: Mr. Jordan, 35 years $1,360,768; Mr. Kelly, 19 years, 10 of which result
from a supplemental agreement $465,939; Mr. Letbetter, 20 years $396,952 and
Mr. Greenwade, 28 years $336,380. Mr. Hall , who retired effective January 1,
1994, does not participate in the Company's retirement plan, but under
supplemental agreements, he receives a pension of $50,000 per year. Because
bonus amounts for 1993 are not yet available, the foregoing covered
compensation amounts are based in part on 1992 data.
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. The Named Officers participate in
this plan pursuant to individual agreements. The agreements generally provide
for (1) a salary continuation benefit of 100% of the officer's current salary
for twelve months after death during active employment and then 50% of salary
for nine years or until the deceased officer would have attained age 65, if
later, and (2) if the officer retires after attainment of age 65, an annual
post-retirement death benefit of 50% of the officer's preretirement annual
salary payable for six years.
Effective in 1994, the Company authorized an executive life insurance
plan providing for split-dollar life insurance to be
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maintained on the lives of certain officers and all members of the Board of
Directors. Pursuant to the plan, the Personnel Committee has authorized the
Company to obtain coverage for the Named Officers, except for Mr. Hall who has
retired. The amounts of their coverages are not finalized, pending completion
of arrangements with the insurance carrier and certain elections by
participants, but are expected to range from approximately two times current
salary to six times current salary, assuming single life coverage is elected.
The death benefit for the Company's nonemployee directors is six times
the annual retainer (assuming single life coverage is elected). 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 should in all cases 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 gross-up payments.
COMPENSATION OF DIRECTORS. Each nonemployee director receives an
annual retainer fee of $20,000, in his or her capacity as a director of the
Company, and a fee of $1,000 for each board meeting attended and a fee of $700
for each committee meeting attended. Directors may defer all or a part of their
annual retainer fees (minimum deferral $2,000) and meeting fees under the
Company's deferred compensation plan.
Nonemployee directors 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 the 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.
Nonemployee directors also participate in the Company's executive life
insurance plan effective January 1994, described above under "Retirement Plans,
Related Benefits and Other Agreements," under which the Company purchases split
dollar life insurance so as to provide each nonemployee director a death
benefit equal to six times his or her annual retainer (assuming single life
coverage is elected) with coverage continuing after termination of service as a
director. This plan also permits the Company to provide for a tax gross-up
payment to make the directors whole with respect to imputed income recognized
with respect to the term portion of the annual insurance premiums.
For a description of a consulting arrangement with Mr. Horne and a fee
paid to a company of which he is Vice Chairman, see Note 3 to Item 10(b).
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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 1994 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 is incorporated
herein by reference pursuant to Instruction G to Form 10-K.
(b) HL&P
As of the date of this Report, the Company owned 1,000 shares of
HL&P's Class A common stock, without par value, and Houston Industries
(Delaware) Incorporated owned 100 shares of HL&P's Class B common stock,
constituting all of the issued and outstanding shares of Class B common stock
of HL&P.
The following table shows the beneficial ownership reported as of the
date of this Report unless otherwise noted of shares of the Company's common
stock, including shares as to which a right to acquire ownership exists (for
example, through the exercise of stock options) within the meaning of Rule
13d-3(d)(1) under the Securities Exchange Act of 1934, of each current
director, the chief executive officer and the four other most highly
compensated executive officers of HL&P and, as a group, of 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 investment power with respect to the shares of Common Stock listed. No
ownership shown in the table represents 1% or more of the outstanding shares of
the Company's common stock.
Shares of Common Stock
Name Beneficially Owned
- ------------------------------------------- ----------------------
Milton Carroll . . . . . . . . . . . . . . 1,200
John T. Cater . . . . . . . . . . . . . . . 1,000 (1)
Robert J. Cruikshank . . . . . . . . . . . 1,000
Linnet F. Deily . . . . . . . . . . . . . . 1,000 (2)
Jack D. Greenwade . . . . . . . . . . . . . 9,703
Donald P. Hall . . . . . . . . . . . . . . 9,485 (3)(4)
Joseph M. Hendrie . . . . . . . . . . . . . 415 (2)(4)
Howard W. Horne . . . . . . . . . . . . . . 3,233 (4)
Don D. Jordan . . . . . . . . . . . . . . . 74,575 (5)(6)(7)
Hugh Rice Kelly . . . . . . . . . . . . . . 11,542 (4)(6)(7)
R. Steve Letbetter . . . . . . . . . . . . 11,942 (6)(7)
Thomas B. McDade . . . . . . . . . . . . . 3,193
Alexander F. Schilt . . . . . . . . . . . . 400
Kenneth L. Schnitzer, Sr. . . . . . . . . . 4,650
Don D. Sykora . . . . . . . . . . . . . . . 33,204 (4)(6)(7)
Jack T. Trotter . . . . . . . . . . . . . . 1,000
Bertram Wolfe . . . . . . . . . . . . . . . 110
All of the above and other executive
officers as a group (21 persons) . . . . . 179,754 (4)(6)(7)
- -----------------
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(1) Mr. Cater disclaims beneficial ownership of these shares, which are
owned by his adult children.
(2) Voting power and investment power with respect to the shares listed
for Ms. Deily and Dr. Hendrie are shared with the respective spouse of
each.
(3) Mr. Hall's ownership is reported as of December 31, 1993; he retired
effective January 1, 1994.
(4) Includes shares held under the Company's dividend reinvestment plan as
of December 31, 1993.
(5) Voting power and investment power with respect to 576 of the shares
listed are shared with Mr. Jordan's spouse.
(6) Includes shares held under the savings plan of the Company or KBLCOM
Incorporated as of December 31, 1993 (which plans merged January 1,
1994), as to which the participant has sole voting power (subject to
such power being exercised by the plan's trustees in the same
proportion as directed shares in the savings plans are voted in the
event the participant does not exercise voting power).
(7) 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 plans by each of the
persons and group, as follows: Mr. Jordan - 13,115 shares; Mr. Sykora
- 6,994 shares; Mr. Kelly - 2,652 shares; Mr. Letbetter - 2,150
shares; Mr. Hall - 2,333 shares; Mr. Greenwade - 1,921 shares and the
group - 31,976 shares.
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 1994 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 is incorporated herein
by reference pursuant to Instruction G to Form 10-K.
(b) HL&P
The information set forth in Notes 2, 3 and 5 to Item 10(b) above is
incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
PAGE
----
(a)(1) FINANCIAL STATEMENTS.
Statements of Consolidated Income for the Three Years
Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Statements of Consolidated Retained Earnings for the
Three Years Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Consolidated Balance Sheets at December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . 59
Consolidated Statements of Capitalization at December 31,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Statements of Consolidated Cash Flows for the Three Years
Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
HL&P Statements of Income for the Three Years
Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
HL&P Statements of Retained Earnings for the Three Years
Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
HL&P Balance Sheets at December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . 68
HL&P Statements of Capitalization at December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . 70
HL&P Statements of Cash Flows for the Three Years
Ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Notes to HL&P's Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Independent Auditors' Report - The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Independent Auditors' Report - HL&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
(a)(2) FINANCIAL STATEMENT SCHEDULES
THREE YEARS ENDED DECEMBER 31, 1993:
THE COMPANY:
V -- Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
VI -- Accumulated Provision for Depreciation, Depletion and
Amortization of Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . 126
VIII -- Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
IX -- Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
HL&P:
V -- Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
VI -- Accumulated Provision for Depreciation, Depletion and
Amortization of Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . 130
VIII -- Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
IX -- Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
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, VII, X, XI, XII and XIII.
(a)(3) EXHIBITS.
See Index of Exhibits on page 135, 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
-124-
125
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
=====================================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- ---------------------------------------------------------------------------------------------------------------------
Other
Balance at Additions Changes- Balance at
Beginning at Retire- Add End
Classification of Period Cost ments (Deduct) of Period
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Production Plant . . . . . . . . . $ 7,108,713 $ 66,724 $ 6,555 $ (3,071) $ 7,165,811
Transmission Plant . . . . . . . . 818,584 26,597 4,445 840,736
Distribution Plant . . . . . . . . 2,394,226 155,071 45,333 2,503,964
General Plant . . . . . . . . . . 978,998 40,147 49,412 969,733
Plant Acquisition Adjustments . . 3,166 3,166
Plant Held for Future Use . . . . 200,865 2,509 (7,044) 196,330
Cable Television Property . . . . 320,661 54,482 2,965 372,178
Other Property . . . . . . . . . . 21,687 26,823 781 (235) 47,494
----------- ----------- ----------- ----------- -----------
Total Property, Plant
and Equipment . . . . . . . . 11,846,900 372,353 109,491 (10,350) 12,099,412
Construction Work in Progress . . 205,214 34,376 3,071 242,661
Nuclear Fuel . . . . . . . . . . . 202,013 9,772 211,785
----------- ----------- ----------- ----------- -----------
Total . . . . . . . . . . . . $12,254,127 $ 416,501 $ 109,491 $ (7,279) $12,553,858
=========== =========== =========== ============ ===========
Year Ended December 31, 1992:
Production Plant . . . . . . . . . $ 6,977,296 $ 143,183 $ 13,272 $ 1,506 $ 7,108,713
Transmission Plant . . . . . . . . 801,049 20,352 2,817 818,584
Distribution Plant . . . . . . . . 2,302,657 126,417 34,848 2,394,226
General Plant . . . . . . . . . . 930,241 68,087 19,330 978,998
Plant Acquisition Adjustments . . 3,166 3,166
Plant Held for Future Use . . . . 275,719 9,221 (84,075) 200,865
Cable Television Property . . . . 278,052 43,236 627 320,661
Other Property . . . . . . . . . . 21,623 225 187 26 21,687
----------- ----------- ----------- ----------- -----------
Total Property, Plant
and Equipment . . . . . . . . 11,589,803 410,721 71,081 (82,543) 11,846,900
Construction Work in Progress . . 247,410 (42,196) 205,214
Nuclear Fuel . . . . . . . . . . . 181,853 20,160 202,013
----------- ----------- ----------- ----------- -----------
Total . . . . . . . . . . . . $12,019,066 $ 388,685 $ 71,081 $ (82,543) $12,254,127
=========== =========== =========== =========== ===========
Year Ended December 31, 1991:
Production Plant . . . . . . . . . $ 6,846,074 $ 136,105 $ 4,716 $ (167) $ 6,977,296
Transmission Plant . . . . . . . . 764,336 39,937 3,224 801,049
Distribution Plant . . . . . . . . 2,173,981 163,896 35,220 2,302,657
General Plant . . . . . . . . . . 898,820 68,655 37,234 930,241
Plant Acquisition Adjustments . . 3,166 3,166
Plant Held for Future Use . . . . 263,735 11,984 275,719
Cable Television Property . . . . 252,485 26,624 1,057 278,052
Other Property . . . . . . . . . . 11,995 9,606 77 99 21,623
----------- ----------- ----------- ----------- -----------
Total Property, Plant
and Equipment . . . . . . . . 11,214,592 456,807 81,528 (68) 11,589,803
Construction Work in Progress . . 293,773 (46,363) 247,410
Nuclear Fuel . . . . . . . . . . . 177,308 6,049 (1,504) 181,853
----------- ----------- ----------- ----------- -----------
Total . . . . . . . . . . . . $11,685,673 $ 416,493 $ 81,528 $ (1,572) $12,019,066
=========== =========== =========== =========== ===========
_______________
Notes:
(A) Substantially all electric utility additions are originally charged to
Construction Work in Progress and transferred to electric utility plant
accounts upon completion. Additions at cost give effect to such
transfers.
(B) Additions at cost include noncash charges for AFUDC for HL&P and
capitalized interest for other subsidiaries.
(C) Depreciation is computed using the straight-line method. The
depreciation provisions as a percentage of the depreciable cost of plant
were 3.4%, for 1993, 1992 and 1991.
(D) Other changes to Plant Held for Future Use in 1993 and 1992 represent the
deduction of $7.0 million and $84.1 million, respectively, of recoverable
costs related to Malakoff.
(E) 1992 and 1991 have been adjusted to reflect reclassifications due to the
merger of Utility Fuels into HL&P.
-125-
126
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED PROVISION FOR DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
===================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------------
Additions Deductions from Reserve
---------------------- -----------------------
Retirements,
Balance at Charged Charged Renewals, Balance
Beginning to to Other and at End
Description of Period Income Accounts Replacements Other of Period
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Depreciation and
amortization of property,
plant and equipment . . $2,971,844 $ 378,695 $ 12,806 $ 100,089 $3,263,256
Amortization of nuclear
fuel . . . . . . . . . 90,259 2,101 92,360
Year Ended December 31, 1992:
Depreciation and
amortization of property,
plant and equipment . . $2,658,973 $ 373,533 $ 11,887 $ 72,549 $2,971,844
Amortization of nuclear
fuel . . . . . . . . . 61,022 29,237 90,259
Year Ended December 31, 1991:
Depreciation and
amortization of property,
plant and equipment . . $2,368,505 $ 362,027 $ 11,867 $ 83,426 $2,658,973
Amortization of nuclear
fuel . . . . . . . . . 38,603 23,145 726 61,022
__________________________
Notes:
(1) 1992 and 1991 have been adjusted to reflect reclassifications due to the
merger of Utility Fuels into HL&P.
-126-
127
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
SCHEDULE VIII - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(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, 1993:
Accumulated provisions deducted
from related assets on balance
sheet:
Uncollectible accounts . . . . . $ 10,439 $ 4,803 $ (932) $ 12,628 $ 1,682
Cable television franchises
and intangible assets . . . . 145,856 38,201 184,057
Deferred tax asset valuation
allowance . . . . . . . . . . 56,638 1,023 57,661
Reserve 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
Year Ended December 31, 1992:
Accumulated provisions deducted
from related assets on balance
sheet:
Uncollectible accounts . . . . . $ 12,585 $ 16,634 $ 18,780 $ 10,439
Cable television franchises
and intangible assets . . . . 107,681 38,175 145,856
Deferred tax asset valuation
allowance . . . . . . . . . . 56,817 179 56,638
Reserves other than those
deducted from assets on
balance cheet:
Property insurance . . . . . . . (4,645) 2,187 363 (2,821)
Injuries and damages . . . . . . 5,847 4,154 6,090 3,911
Year Ended December 31, 1991:
Accumulated provisions deducted
from related assets on balance
sheet:
Uncollectible accounts . . . . . $ 10,018 $ 14,831 $ 204 $ 12,468 $ 12,585
Cable television franchises
and intangible assets . . . . 69,723 37,958 107,681
Deferred tax asset valuation
allowance . . . . . . . . . . 52,140 4,677 56,817
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . (1,539) 1,764 4,870 (4,645)
Injuries and damages . . . . . . 2,163 9,684 6,000 5,847
_______________
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) During 1992 and 1991, 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.
-127-
128
HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
======================================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- ----------------------------------------------------------------------------------------------------------------------
Weighted Maximum Average Weighted
Category of Average Amount Amount Average
Aggregate Balance Interest Rate Outstanding Outstanding Interest Rate
Short-Term at End of at End of During the During the During the
Description Borrowings Period Period Period Period Period
- ----------------------------------------------------------------------------------------------------------------------
Year Ended
December 31, 1993 ... Commercial
Paper $ 591,385 3.61% $ 591,385 $ 403,876 3.45%
Year Ended
December 31, 1992 ... Commercial
Paper $ 564,249 4.08% $ 661,300 $ 488,582 4.14%
Year Ended
December 31, 1991 ... Bank Loans $ 5,000 $ 521 7.75%
Commercial
Paper $ 330,294 5.37% 689,200 445,994 6.51%
_______________
Note: The weighted average interest rate during the period is calculated by
dividing interest by the weighted average proceeds from the borrowings.
-128-
129
HOUSTON LIGHTING & POWER COMPANY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
=====================================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- ---------------------------------------------------------------------------------------------------------------------
Other
Balance at Additions Changes- Balance at
Beginning at Retire- Add End
Classification of Period Cost ments (Deduct) of Period
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Production Plant . . . . . . . . . $ 7,108,713 $ 66,724 $ 6,555 $ (3,071) $ 7,165,811
Transmission Plant . . . . . . . . 818,584 26,597 4,445 840,736
Distribution Plant . . . . . . . . 2,394,226 155,071 45,333 2,503,964
General Plant . . . . . . . . . . 978,998 40,147 49,412 969,733
Plant Acquisition Adjustments . . 3,166 3,166
Plant Held for Future Use . . . . 200,865 2,509 (7,044) 196,330
----------- ---------- ----------- ----------- -----------
Total Plant . . . . . . . . . 11,504,552 291,048 105,745 (10,115) 11,679,740
Construction Work in Progress . . 205,214 34,376 3,071 242,661
Nuclear Fuel . . . . . . . . . . . 202,013 9,772 211,785
----------- ----------- ----------- ----------- -----------
Total . . . . . . . . . . . . $11,911,779 $ 335,196 $ 105,745 $ (7,044) $12,134,186
=========== =========== =========== =========== ===========
Year Ended December 31, 1992:
Production Plant . . . . . . . . . $ 6,977,296 $ 143,183 $ 13,272 $ 1,506 $ 7,108,713
Transmission Plant . . . . . . . . 801,049 20,352 2,817 818,584
Distribution Plant . . . . . . . . 2,302,657 126,417 34,848 2,394,226
General Plant . . . . . . . . . . 930,241 68,087 19,330 978,998
Plant Acquisition Adjustments . . 3,166 3,166
Plant Held for Future Use . . . . 275,719 9,221 (84,075) 200,865
----------- ----------- ----------- ----------- -----------
Total Plant . . . . . . . . . 11,290,128 367,260 70,267 (82,569) 11,504,552
Construction Work in Progress . . 247,410 (42,196) 205,214
Nuclear Fuel . . . . . . . . . . . 181,853 20,160 202,013
----------- ----------- ----------- ----------- -----------
Total . . . . . . . . . . . . $11,719,391 $ 345,224 $ 70,267 $ (82,569) $11,911,779
=========== =========== =========== =========== ===========
Year Ended December 31, 1991:
Production Plant . . . . . . . . . $ 6,846,074 $ 136,105 $ 4,716 $ (167) $ 6,977,296
Transmission Plant . . . . . . . . 764,336 39,937 3,224 801,049
Distribution Plant . . . . . . . . 2,173,981 163,896 35,220 2,302,657
General Plant . . . . . . . . . . 898,820 68,655 37,234 930,241
Plant Acquisition Adjustments . . 3,166 3,166
Plant Held for Future Use . . . . 263,735 11,984 275,719
----------- ----------- ----------- ----------- -----------
Total Plant . . . . . . . . . 10,950,112 420,577 80,394 (167) 11,290,128
Construction Work in Progress . . 293,773 (46,363) 247,410
Nuclear Fuel . . . . . . . . . . . 177,308 6,049 (1,504) 181,853
----------- ----------- ----------- ----------- -----------
Total . . . . . . . . . . . . $11,421,193 $ 380,263 $ 80,394 $ (1,671) $11,719,391
=========== =========== =========== =========== ===========
_______________
Notes:
(A) 1992 and 1991 have been restated for the merger of Utility Fuels into
HL&P.
(B) Other Changes in Plant Held for Future Use in 1993 and 1992 represent the
deduction of recoverable costs of $7.0 million and $84.1 million,
respectively, of recoverable costs related to Malakoff.
(C) Substantially all additions are originally charged to Construction Work
In Progress and transferred to electric utility plant accounts upon
completion. Additions at cost give effect to such transfers.
(D) Additions at cost include non-cash charges for an allowance for funds
used during construction.
(E) HL&P computes depreciation using the straight-line method. The
depreciation provisions as a percentage of the average depreciable cost
of plant was 3.1% for 1993, 3.2% for 1992 and 1991.
-129-
130
HOUSTON LIGHTING & POWER COMPANY
SCHEDULE VI - ACCUMULATED PROVISION FOR DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
====================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- --------------------------------------------------------------------------------------------------------------------
Additions Deductions from Reserve
---------------------- -----------------------
Retirements,
Balance at Charged Charged Renewals, Balance at
Beginning to to Other and End
Description of Period Income Accounts Replacements Other of Period
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Depreciation and
amortization of property,
plant and equipment . . $2,846,606 $ 339,650 $ 12,806 $ 97,295 $3,101,767
Amortization of nuclear
fuel . . . . . . . . . 90,259 2,101 92,360
Year Ended December 31, 1992:
Depreciation and
amortization of property,
plant and equipment . . $2,570,440 $ 336,445 $ 11,887 $ 72,048 $ 118 $2,846,606
Amortization of nuclear
fuel . . . . . . . . . 61,022 29,237 90,259
Year Ended December 31, 1991:
Depreciation and
amortization of property,
plant and equipment . . $2,311,989 $ 329,205 $ 11,867 $ 82,533 $ 88 $2,570,440
Amortization of nuclear
fuel . . . . . . . . . 38,603 23,145 726 61,022
_______________________
Notes:
(1) 1992 and 1991 have been restated for the merger of Utility Fuels into HL&P.
-130-
131
HOUSTON LIGHTING & POWER COMPANY
SCHEDULE VIII - RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(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, 1993:
Reserve 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
Year Ended December 31, 1992:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . $ (4,645) $ 2,187 $ 363 $ (2,821)
Injuries and damages . . . . . . 5,847 4,154 6,090 3,911
Year Ended December 31, 1991:
Reserves other than those
deducted from assets on
balance sheet:
Property insurance . . . . . . . $ (1,539) $ 1,764 $ 4,870 $ (4,645)
Injuries and damages . . . . . . 2,163 9,684 6,000 5,847
_______________
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.
-131-
132
HOUSTON LIGHTING & POWER COMPANY
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
========================================================================================================================
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------------------------------------------------------------------------------------------------------
Weighted Maximum Average Weighted
Category of Average Amount Amount Average
Aggregate Balance Interest Rate Outstanding Outstanding Interest Rate
Short-Term at End of at End of During the During the During the
Description Borrowings Period Period Period Period Period
- ------------------------------------------------------------------------------------------------------------------------
Year Ended
December 31, 1993 ... Commercial
Paper $ 171,100 3.69% $ 214,000 $ 105,801 3.31%
Year Ended
December 31, 1992 ... Commercial
Paper $ 139,440 3.97% $ 240,000 $ 84,919 4.21%
Year Ended
December 31, 1991 ... Commercial
Paper $ 342,900 $ 133,988 6.80%
_______________
Note:
(A) The Balance at End of Period excludes $19 million in notes payable to the
Company as of December 31, 1992.
(B) The weighted average interest rate is calculated by dividing interest by
the weighted average proceeds from the borrowings.
-132-
133
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 10TH DAY OF MARCH, 1994.
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 AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman and Chief Executive |
DON D. JORDAN Officer and Director |
- --------------------------------------------- (Principal Executive and |
(Don D. Jordan) Principal Financial Officer) |
|
|
MARY P. RICCIARDELLO 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 | March 10, 1994
- --------------------------------------------- |
(Joseph M. Hendrie) |
|
HOWARD W. HORNE Director |
- --------------------------------------------- |
(Howard W. Horne) |
|
THOMAS B. MCDADE Director |
- --------------------------------------------- |
(Thomas B. McDade) |
|
ALEXANDER F. SCHILT Director |
- --------------------------------------------- |
(Alexander F. Schilt) |
|
KENNETH L. SCHNITZER, SR. Director |
- --------------------------------------------- |
(Kenneth L. Schnitzer, Sr.) |
|
DON D. SYKORA Director |
- --------------------------------------------- |
(Don D. Sykora) |
|
JACK T. TROTTER Director |
- --------------------------------------------- |
(Jack T. Trotter) |
|
BERTRAM WOLFE Director |
- --------------------------------------------- |
(Bertram Wolfe) |
-133-
134
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 10TH DAY OF MARCH, 1994. 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 AND ON THE DATE INDICATED. 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 DATE
--------- ----- ----
Chairman and Chief Executive |
DON D. JORDAN Officer and Director |
- --------------------------------------------- (Principal Executive Officer) |
(Don D. Jordan) |
|
DAVID M. McCLANAHAN Group Vice President - Finance |
- --------------------------------------------- and Regulatory Relations |
(David M. McClanahan) (Principal Financial Officer) |
|
|
KEN W. NABORS Vice President and Comptroller |
- --------------------------------------------- (Principal Accounting Officer) |
(Ken W. Nabors) |
|
MILTON CARROLL Director |
- --------------------------------------------- |
(Milton Carroll) |
|
JOHN T. CATER Director |
- --------------------------------------------- |
(John T. Cater) |
|
ROBERT J. CRUIKSHANK Director |
- --------------------------------------------- |
(Robert J. Cruikshank) |
|
LINNET F. DEILY Director | March 10, 1994
- --------------------------------------------- |
(Linnet F. Deily) |
|
JOSEPH M. HENDRIE Director |
- --------------------------------------------- |
(Joseph M. Hendrie) |
|
HOWARD W. HORNE Director |
- --------------------------------------------- |
(Howard W. Horne) |
|
THOMAS B. MCDADE Director |
- --------------------------------------------- |
(Thomas B. McDade) |
|
ALEXANDER F. SCHILT Director |
- --------------------------------------------- |
(Alexander F. Schilt) |
|
KENNETH L. SCHNITZER, SR. Director |
- --------------------------------------------- |
(Kenneth L. Schnitzer, Sr.) |
|
DON D. SYKORA Director |
- --------------------------------------------- |
(Don D. Sykora) |
|
JACK T. TROTTER Director |
- --------------------------------------------- |
(Jack T. Trotter) |
|
BERTRAM WOLFE Director |
- --------------------------------------------- |
(Bertram Wolfe) |
-134-
135
HOUSTON INDUSTRIES INCORPORATED
HOUSTON LIGHTING & POWER COMPANY
EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
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 March 31, 1993
of May 1993)
3(b) Amended and Restated Form 8-K dated 1-7629 3
Bylaws of the Company June 29, 1992
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
Association, as successor
trustee), as Trustee, as
amended and supplemented
by 20 Supplemental
Indentures thereto
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 Deed 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
-135-
136
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
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
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% 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.
*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)
-136-
137
*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)
*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(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(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)
*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)
-137-
138
*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(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)
*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
Exhibit 10(h)(1)
(effective as of
June 2, 1993)
*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
Exhibit 10(i)(1)
(effective as of
June 2, 1993)
*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)
-138-
139
*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
Exhibit 10(j)(1)
(effective as of
June 2, 1993)
+*10(j)(5) Fourth Amendment to
Exhibit 10(j)(1)
(effective as of
December 1, 1993)
*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)
*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
Compensation Plan of
the Company (effective
as of January 1, 1994)
+*10(n)(2) Form of stock option
agreement for nonqualified
stock options granted
under the Company's
1994 Long-Term Incentive
Compensation 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
-139-
140
+*10(q) Executive Life
Insurance Plan of
the Company
(effective as of
January 1, 1994)
*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) Employment Agreement Form 10-K for the 1-7629 10(h)
between KBLCOM year ended
and Gary G. Weik December 31, 1989
+*10(s)(2) Employment Agreement
as of December 1993
between KBLCOM and
Gary G. Weik
*10(t)(1) Employment Agreement Form 10-K for the 1-7629 10(r)
dated as of November year ended
2, 1992 between HL&P December 31, 1992
and Donald P. Hall
+*10(t)(2) Supplemental Retirement
Agreement and Consulting
Agreement dated as of
December 8, 1993 between
HL&P and Donald P. Hall
10(u)(1) Houston Industries Form 10-K for the 1-7629 10(j)(1)
Master Savings Trust, year ended
effective as of July December 31, 1990
1, 1989, and First
Amendment thereto,
effective as of
October 4, 1989 and
Second Amendment there-
to, dated October 30,
1990 each between the
Company and Texas
Commerce Bank
National Association
10(u)(2) Third Amendment to Form 10-K for the 1-7629 10(s)(2)
Exhibit 10(u)(1) year ended
(effective as of December 31, 1992
September 1, 1991)
10(u)(3) 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(u)(4) 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(u)(5) 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(v)(1) Letter Agreement Form 10-K for the 1-7629 10(t)
between the Company year ended
and Howard W. Horne December 31, 1992
-140-
141
+*10(v)(2) Letter Agreement
modifying Exhibit
10(v)(1) among the
Company, Howard W. Horne
and Cushman & Wakefield
of Texas, Inc.
+11 Computation of
Earnings Per Share
+12 Computation of Ratios
of Earnings to Fixed
Charges
+21
Subsidiaries of the
Company
+23 Consent of Deloitte &
Touche
-141-
142
(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
Bylaws of HL&P
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
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 quarter ended
July 1, 1993 to HL&P June 30, 1993
Mortgage and Deed of
Trust
-142-
143
+4(a)(8) Sixty-First through
Sixty-Third Supplemental
Indentures 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% 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
*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(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(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)
-143-
144
*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(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(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
-144-
145
*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(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
*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(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(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
-145-
146
*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
Compensation 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
*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(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) Employment Agreement The Company's 1-7629 10(r)
dated as of November Form 10-K for the
2, 1992 between HL&P year ended
and Donald P. Hall December 31, 1992
*10(s)(2) Supplemental Retirement The Company's 1-7629 10(t)(2)
Agreement and Consulting Form 10-K for the
Agreement dated as of year ended
December 8, 1993 between December 31, 1993
HL&P and Donald P. Hall
10(t)(1) The Company's Master The Company's 1-7629 10(j)(1)
Savings Trust, effec- Form 10-K for the
tive as of July 1, year ended
1989, and First December 31, 1990
Amendment thereto,
effective as of
October 4, 1989 and
Second Amendment thereto,
dated October 30, 1990
each between the Company
and Texas Commerce Bank
National Association
-146-
147
10(t)(2) Third Amendment to The Company's 1-7629 10(s)(2)
Exhibit 10(s)(1) Form 10-K for the
effective as of year ended
September 1, 1991 December 31, 1992
10(t)(3) 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
10(t)(4) 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(t)(5) 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(u)(1) Letter Agreement The Company's 1-7629 10(t)
between the Company Form 10-K for the
and Howard W. Horne year ended
December 31, 1992
*10(u)(2) Letter Agreement The Company's 1-7629 10(v)(2)
modifying Exhibit Form 10-K for the
10(u)(1) among year ended
the Company, December 31, 1993
Howard W. Horne and
Cushman & Wakefield
of Texas, Inc.
+12 Computation of Ratios of
Earnings to Fixed Charges
+23 Consent of Deloitte
& Touche
-147-