ITEM 1. BUSINESS
GENERAL
Central Louisiana Electric Company, Inc. (the Company) was incorporated in 1934 under the laws of the State of Louisiana and is engaged principally in the generation, transmission, distribution and sale of electric energy to approximately 213,000 customers in 63 communities and contiguous rural areas in a 14,000 square mile region in the State of Louisiana. At December 31, 1993 the Company employed 1,224 persons. The Company's mailing address is P. O. Box 5000, Pineville, Louisiana 71361-5000, and its telephone number is (318) 484-7400.
ELECTRIC OPERATIONS
POWER GENERATION
The Company operates and either owns or has an ownership interest in four steam electric generating stations. The Company is the sole owner of the Coughlin Power Station, the Teche Power Station and Rodemacher Power Station Unit 1. The Company owns a 50% interest in Dolet Hills Power Station Unit 1 (Dolet Hills Unit 1), and a 30% interest in Rodemacher Power Station Unit 2 (Rodemacher Unit 2). At December 31, 1993, the Company's aggregate electric generating capacity at the four stations was 1,686,000 kilowatts. The following table sets forth certain information with respect to the Company's generating facilities.
FUEL
The following table sets forth, for the periods indicated, the percentages of power generated from various fuels at the Company's electric generating plants, the cost of fuel per kilowatt hour (KWH) attributable to each such fuel and the weighted average fuel cost per KWH.
For information with respect to the Company's ability to pass through changes in costs of generating fuel to its customers, see "Regulatory and Environmental Matters - Rates" hereunder.
Gas Supply
During 1993 the Company purchased a total of 28,083 billion British thermal units (MMMBtu) of natural gas for the generation of electricity. The annual and average per-day quantities of gas purchased by the Company from each supplier is shown in the table below.
Effective January 1, 1992 the Company entered into a new contract with Arkla General Supply Company (AGS), a division of Arkla Energy Marketing Company which is a subsidiary of Arkla, Inc., for the sale of natural gas to be delivered to the Company's four power stations. The contract provides for a firm gas supply through the year 2000 in quantities sufficient to meet the Company's internal system requirements and contains options designed to enable the Company to manage the natural gas component of its total fuel costs. Concurrently with the signing of the gas supply contract, AGS entered into a contract with Louisiana Intrastate Gas Corporation (LIG), which at the time was a wholly owned subsidiary
of Arkla, Inc., for the transportation of the gas purchased from AGS. Under the terms of the gas supply contract, AGS incurs the cost of transporting gas via LIG's pipelines to the Company's power stations. The gas supply contract with AGS allows the Company to select in advance, on an annual basis, how the Company will meet its internal system requirements for gas. One option allows the purchase of gas exclusively from AGS with transportation provided by LIG. Another option allows supply needs to be met with gas purchased from AGS and third party gas suppliers and transported by others or by LIG. The Company may continue to purchase gas under a prior contract with LL&E Gas Marketing, Inc. (described in further detail below) without such purchases being considered as purchases from a third party supplier, unless the Company has elected to purchase gas from third party suppliers.
The contract with AGS contains pricing mechanisms for gas purchased thereunder which are intended to approximate current market prices at the time of purchase and are designed to be competitive with prices paid by other Louisiana utility companies. In addition to standard contractual termination provisions, the contract may be terminated by either party, subject to acceptance by the other party, if the price calculated according to the contract is determined to be unacceptable. If notice of termination is given because of pricing, the contract will remain in effect for a period of twelve months, and LIG will remain obligated to transport replacement gas for an additional eighteen months.
The contract with AGS also contains minimum and maximum supply obligations which are based upon the Company's seasonal generation requirements and are dependent upon which option is selected by the Company. The supply obligations under either option may be increased if the Company's solid-fuel generating units are unavailable due to scheduled or unscheduled maintenance outages or for other reasons. The Company is obligated to purchase certain quantities of gas from AGS on an annual basis. A minimum or base quantity of 20,000 MMMBtu of gas must be purchased during a year, adjusted by plus or minus 10% at the option of the Company each year, if all gas is purchased from AGS. A minimum of 25,000 MMMBtu must be purchased during a year if any gas is purchased from third party suppliers. In 1993 the base quantity of gas to be purchased under the AGS contract was 20,000 MMMBtu. During 1993 the Company purchased a base quantity of 20,045 MMMBtu of gas, including gas purchased on behalf of Southwestern Electric Power Company (SWEPCO), joint owner of Dolet Hills Unit 1, and Louisiana Energy and Power Authority (LEPA) and Lafayette Public Power Authority (LPPA), joint owners of Rodemacher Unit 2. During 1993 the Company did not purchase any gas from third party suppliers under the terms of the contract with AGS.
During 1993 the Company entered into a separate contract with LIG for the sale and transportation of natural gas to the Company's
power stations. A total of 6,040 MMMBtu of "spot" and surplus gas was purchased from LIG during 1993 under an interim sale and transportation agreement. Gas purchased under the LIG contract is not considered to be purchases from third parties under the gas supply contract between the Company and AGS. The contract with LIG provides for the purchase of spot gas for the Company's internal system requirements when the price of such gas is less than that of energy purchases from other utilities and provides for the purchase of surplus gas, if and when it is available, for energy sales to other utilities. The Company has a separate contract with LIG which provides for the transportation of gas purchased by the Company from third party suppliers or under circumstances where AGS fails to meet its contract obligations.
The Company has contracted with LL&E Gas Marketing, Inc., an affiliate of Louisiana Land & Exploration Company, for the purchase of up to 5 MMMBtu of gas per day on a month-to-month basis, subject to termination by either party. The purchase price of the gas is based on a monthly index plus a markup and transportation fee. Purchased gas is transported via the intrastate pipeline system owned and operated by LIG.
The Company has never incurred a liability for any gas not taken under the take-or-pay provisions of its gas supply agreements.
Although natural gas has been relatively plentiful in recent years, supplies available to the Company and other consumers are vulnerable to disruption due to weather conditions, transportation disruption, 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. Thus, supplies of natural gas may become unavailable from time to time, or prices may increase rapidly in response to temporary supply disruptions. Such events may require the Company to 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. Currently, the Company anticipates that its alternative fuel capability, combined with its solid-fuel generating resources, are adequate to meet fuel needs during any temporary interruption of gas supplies.
Coal and Lignite Supply
Under the terms of a contract with Kerr-McGee Coal Corporation (Kerr-McGee), the supplier of coal used in Rodemacher Unit 2, the Company has agreed to purchase approximately 12.8 million tons of low- sulfur coal over a 25 year period which began in 1982. The Company estimates that this supply of coal will be sufficient to meet its share of the fuel requirements of Rodemacher Unit 2 during the same period. The price of coal under the contract is a base price per ton plus a "total escalation charge" to reflect changes
in certain indices specified in the contract. The contract also provides for adjustment of the price based on the heating value of coal delivered. After purchasing a given annual quantity of base coal, the Company has the right to purchase coal from third parties in the spot market, and Kerr-McGee has the right to meet the terms of the proposed purchase if it chooses to do so. The coal supplied by Kerr- McGee is surface-mined in Wyoming and transported to the Rodemacher Unit 2 site by railroad in unit trains which are leased by the Company pursuant to various long-term leases. The Company has contracted with rail carriers for the transportation of the coal. Although it is possible that the supply of coal could be curtailed because of rail transportation interruptions, the Company has not experienced any significant interruptions in the past. During 1993 the Company purchased 670,845 tons of coal from Kerr-McGee, including 160,847 tons of spot coal. As of December 31, 1993 the cumulative total of coal purchased by the Company since the inception of this contract, which is subject to the 12.8 million ton contract amount, was approximately 6.1 million tons. At December 31, 1993 the Company's coal inventory at Rodemacher Unit 2 was approximately 75,000 tons (about a 34-day supply).
Lignite is used as fuel for Dolet Hills Unit 1. The Company and SWEPCO, a co-owner of the unit, have entered into agreements pursuant to which each acquired an undivided 50% interest in the other's leased and owned lignite reserves in northwestern Louisiana. Prior to the commencement of mining operations in 1985, the estimated recoverable lignite reserves from such holdings within the lignite surface mine permit boundary totaled approximately 150 million tons. It is estimated that Dolet Hills Unit 1 will require approximately 75 million tons of lignite for 30 years of operation. The Company and SWEPCO have entered into an agreement with the Dolet Hills Mining Venture for the mining and delivery of lignite required to meet the fuel needs of the unit. No significant delivery disruptions have been experienced since mining operations began, and the Company does not expect any disruptions in the future. The price of lignite delivered pursuant to the agreement is a base price per ton, subject to escalation based on certain inflation indices, plus specified "pass-through" costs. The agreement terminates 25 years after initial operation of the unit, but may be extended up to an additional 20 years at the option of the Company and SWEPCO. During 1993 approximately 2.6 million tons of lignite were mined, bringing the cumulative total of lignite mined since mining operations began to approximately 21.8 million tons as of December 31, 1993.
In order to provide an additional source of lignite for Dolet Hills Unit 1, in 1988 the Company entered into a contract with Phillips Coal Company (Phillips) for the purchase of approximately 3.5 million tons of lignite over the life of the contract. Deliveries began during 1989, and the contract will expire on January 1, 2005. The contract was amended in 1988 and assigned by
Phillips to Red River Mining Co., a joint venture of the North American Coal Corp. and Phillips. The contract was also amended in 1989 to increase the maximum amount to be delivered during the life of the contract to 3.7 million tons and to increase the maximum amount to be delivered during any year to 430,000 tons. Of this volume, the Company will receive 94.14%, and SWEPCO will receive 5.86%. The minimum annual purchase requirement is 200,000 tons. The price of lignite under the contract is a base price per MMMBtu, subject to escalation, plus certain pass-through costs. The contract may be terminated, subject to penalty provisions, at the option of the Company at any time after January 1, 1995, with 60 days' written advance notice to Red River Mining Co. During 1993 the Company and SWEPCO purchased a total of 460,099 tons of lignite from Red River Mining Co. Of this amount, 205,001 tons were purchased under the base contract, bringing the cumulative total of lignite purchased under this contract as of December 31, 1993 to approximately 1.3 million tons. The remaining 255,098 tons were purchased as spot lignite under two separate amendments negotiated during 1992 and 1993. The spot lignite is purchased at a base price which is escalated in proportion to the escalation in Dolet Hills Mining Ventures' price. Purchases under these amendments are not applicable to the 3.7 million ton contract obligation.
The amount of lignite used by the Company during 1993 from both mining sources was approximately 1.5 million tons. The continuous supply of lignite from the mining sources may be subject to interruption due to adverse weather conditions or other factors which may disrupt mining operations. At December 31, 1993 the Company's lignite inventory was approximately 346,000 tons (about a 60-day supply).
Oil Supply
The Company has been able to obtain oil supplies by spot purchases as needed. Rodemacher Power Station has oil storage capacity of 762,000 barrels (approximately a 75-day supply), and the other generating stations have oil storage capacity aggregating 319,000 barrels (approximately a 20-day supply). The Company burned only 88 barrels of oil as a fuel source in 1993.
POWER PURCHASES
The Company purchases electric energy from neighboring utilities when the price of the energy purchased is less than the cost to the Company of generating such energy from its own facilities. Additionally, the Company has a long-term contract under which it purchases a small percentage of its total energy requirements from a hydroelectric generating plant. During 1993 the Company purchased 1,321 million KWH of electricity, or approximately 18% of its total energy requirements.
SALES
The Company is a "public utility" engaged principally in the generation, transmission, distribution and sale of electricity solely within Louisiana. For further information regarding the Company's generating stations and its transmission and distribution facilities, see "Power Generation" above and "Properties" in Item 2.
ITEM 2. PROPERTIES
All of the Company's electric generating stations and all other operating properties are located in the State of Louisiana. The Company considers all of its properties to be well maintained, in good operating condition and suitable for their intended purposes.
ELECTRIC GENERATING STATIONS
As of December 31, 1993, the Company either owned or had an ownership interest in four steam electric generating stations with a combined electric generating capacity of 1,686,000 kilowatts. For additional information regarding the Company's generating facilities, see "Power Generation" under the caption "Electric Operations" in Item 1.
SUBSTATIONS
As of December 31, 1993, the Company owned 77 transmission and 306 distribution substations.
ELECTRIC LINES
On December 31, 1993 the Company's transmission system consisted of approximately 67 circuit miles of 500 kilovolt (kV) lines; 450 circuit miles of 230 Kv lines; 646 circuit miles of 138 Kv lines; and 15 circuit miles of 69 Kv lines. The Company's distribution system consisted of approximately 1,950 circuit miles of 34.5 kV lines and 9,962 circuit miles of other lines.
GENERAL PROPERTIES
The Company owns various properties which include a seven-story headquarters office building, division offices, a central warehouse, service centers, telecommunications equipment and other facilities owned for general purposes.
TITLE
The Company's electric generating plants and certain other principal properties are owned in fee. Electric transmission and distribution lines are located either on private rights-of-way or along streets or highways by public consent.
Substantially all of the Company's property, plant and equipment is subject to liens securing obligations of the Company under an Indenture of Mortgage, none of which impairs the use of such properties in the operation of its business.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any legal proceeding to which it is a party which would have a material adverse effect on its financial condition or competitive position. For a discussion of various legal proceedings or regulatory matters involving the Company, see "Regulatory and Environmental Matters" in Item 1.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the executive officers of the Company, their positions held, five-year employment history, ages and years of service as of December 31, 1993 are presented below. Executive officers are appointed annually to serve for the ensuing year or until their successors have been appointed.
CURRENT POSITION AND FIVE-YEAR NAME OF EXECUTIVE OFFICER EMPLOYMENT HISTORY
Gregory L. Nesbitt........ President and Chief Executive Officer since April 1993; President and Chief Operating Officer from April 1992 to April 1993; Executive Vice President and Chief Operating Officer from July 1991 to April 1992; Executive Vice President from January 1988 to July 1991. (Age 55; 13 years of service)
Robert L. Duncan.......... Vice President-Customer Operations since July 1984. (Age 51; 28 years of service)
David M. Eppler........... Vice President-Finance since October 1993; Vice President and Treasurer from July 1987 to October 1993. (Age 43; 12 years of service)
Leonard G. Fontenot....... Vice President-Power Supply and Energy Transmission since April 1986. (Age 56; 31 years of service)
Catherine C. Scheffler.... Vice President-Human Resources since October 1993; General Manager-Human Resources from August 1993 to October 1993; Administrator-Compensation from May 1991 to August 1993; Vice President at Rapides Bank and Trust Company from December 1987 to April 1991. (Age 38; 2 years of service)
David K. Warner........... Vice President-Administrative Services since April 1988. (Age 43; 13 years of service)
John L. Baltes, Jr........ Controller since April 1989; Manager- Accounting Services from June 1988 to April 1989. (Age 47; 12 years of service)
Michael P. Prudhomme...... Secretary-Treasurer since January 1994; Secretary from October 1993 to January 1994; Vice President-Customer Services from May 1985 to October 1993. (Age 50; 24 years of service)
John E. Carroll........... Assistant Secretary since October 1993; Administrator-Benefits from February 1991 to October 1993; Supervisor- Compensation from October 1987 to February 1991. (Age 34; 9 years of service)
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed for trading on the New York Stock Exchange (NYSE) and the Pacific Stock Exchange. The following table sets forth high and low sales prices for the Company's common stock as reported on the NYSE Composite Transactions Tape and dividends paid per share during each calendar quarter of 1993 and 1992.
Subject to the prior rights of the holders of the respective series of the Company's preferred stock, such dividends as determined by the Board of Directors of the Company may be declared and paid on the common stock from time to time out of funds legally available therefor. The provisions of the Company's charter applicable to preferred stock and certain provisions contained in the debt instruments of the Company under certain circumstances restrict the amount of retained earnings available for the payment of dividends by the Company. The most restrictive covenant requires that common shareholders' equity be not less than 30% of total capitalization, including short-term debt. At December 31, 1993 approximately $129,000,000 of retained earnings was not restricted. On January 21, 1994 the Board of Directors of the Company declared a quarterly dividend of $.355 per share which was paid on February 15, 1994, to common shareholders of record on January 31, 1994. The Company currently expects that dividends of a comparable amount on its common stock will continue to be paid in the future.
As of February 22, 1994 there were 12,992 holders of record of the Company's common stock, and the closing price of the Company's common stock as reported on the NYSE Composite Transactions Tape was $22.25 per share.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for the respective periods presented and should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto set forth on pages 20 through 33 in the 1993 Annual Report to Shareholders, which information is filed as Exhibit 13 to this report and incorporated into Item 8 herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth on pages 14 through 18 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report to Shareholders for the year ended December 31, 1993, furnished to the Securities and Exchange Commission pursuant to Rule 14a - 3(b) under the Securities Exchange Act of 1934 (1993 Annual Report to Shareholders), is incorporated herein by reference; such information is filed as Exhibit 13 to this report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth on pages 20 through 33 in the 1993 Annual Report to Shareholders is incorporated herein by reference; such information is filed as Exhibit 13 to this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the subcaption "Directors" under the caption "Election of Directors" in the Company's definitive Proxy Statement dated March 9, 1994, filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 (1994 Proxy Statement), is incorporated herein by reference. See also "Executive Officers of the Registrant" on pages 16 and 17 of this report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the subcaption "Organization and Compensation of the Board of Directors" under the caption "Election of Directors" and under the caption "Executive Compensation" in the 1994 Proxy Statement (excluding the information required by paragraphs (i), (k) and (l) of Item 402 of Regulation S-K) is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Directors and Management" and under the caption "Security Ownership of Certain Beneficial Owners" in the 1994 Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the subcaption "Compensation Committee Interlocks and Insider Participation" under the caption "Election of Directors" in the 1994 Proxy Statement is incorporated herein by reference.
Page>
14(a)(3) List of Exhibits
The Exhibits designated by an asterisk are filed herewith. The Exhibits not so designated have been previously filed with the Securities and Exchange Commission, and are incorporated herein by reference. The Exhibits designated by two asterisks are management contracts and compensatory plans and arrangements required to be filed as Exhibits to this report.
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.
CENTRAL LOUISIANA ELECTRIC COMPANY, INC. (Registrant)
By /s/ GREGORY L. NESBITT (Gregory L. Nesbitt, President and Chief Executive Officer) Date: March 30, 1994
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 dates indicated.
Signature Title Date
/s/ GREGORY L. NESBITT (Gregory L. Nesbitt) President, and Chief March 30, 1994 Executive Officer (Principal Executive Officer) /s/ DAVID M. EPPLER (David M. Eppler) Vice President March 30, 1994 (Principal Financial Officer) /s/ JOHN L. BALTES, JR. (John L. Baltes, Jr.) Controller (Principal March 30, 1994 Accounting Officer)
SHERIAN G. CADORIA
J. PATRICK GARRETT
F. BEN JAMES, JR.
HUGH J. KELLY
WILLIAM A. LOCKWOOD Directors*
A. DELOACH MARTIN, JR.
ROBERT T. RATCLIFF
EDWARD D. SIMMONS
ERNEST L. WILLIAMSON
*By /s/ DAVID M. EPPLER (David M. Eppler, as Attorney-in-Fact) March 30, 1994