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<br />The Light <br />compa11y <br /> <br />Houston Lighting & Power <br /> <br />July 14, 1978 <br /> <br />Honorable Mayor and Board of Commissioners <br />City of La Porte <br />La Porte, Texas <br /> <br />Gentlemen: <br /> <br />In April of 1976 the Houston Lighting & Power Company <br />instituted a general increase in our rate schedules. It has been <br />more than two years since this change was made effective and <br />during that period, due to cost increases not within our control, <br />our rate of return has dropped below the level necessary to <br />provide sound financing of our Company's business. <br /> <br />The deterioration of our Company's return on investment has <br />been caused by such factors as general inflation, increases in <br />state and local taxes, environmental protection costs, and <br />similar items, which do not provide additional generating <br />capacity or efficiency for our system. It should be noted, <br />however, that the primary factor in our Company's declining <br />financial position has been the high cost of new construction. <br />In the past three years, 1975 through 1977, our generating <br />capacity has been increased by more than 16% from an expansion <br />program amounting to $1.1 billion, and the energy needs of this <br />area's growing economy are exerting an even greater demand for <br />reliable electric service which must be met in the immediate <br />future. In addition, we must continue the gradual transition <br />from gas and oil-fired generators to more abundant energy sources <br />such as coal, lignite and nuclear fuel. Just looking forward to <br />the next three years, 1978 through 1980, we are already co~~itted <br />to spend $1.6 billion to support our ongoing plant expansion. <br />The result of this is that within the six-year period, 1975 <br />through 1980, plant expansions will be more than double our total <br />investment in plant and other facilities in 1974. <br /> <br />An expanding entity, whether it be a municipality or an <br />electric company, must be kept in healthy financial condition if <br />it is to operate successfully. So far our Company has been able <br />to do a better job of keeping its rates down because its <br />securities have carried a good rating among electric utilities. <br /> <br />P.O. Box 597 . 2000 Nasa 1 . Seabrook, Texas 77586 . (713) 474-4151 <br />