UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File Number 1 - 6986
PUBLIC SERVICE COMPANY OF NEW MEXICO
(Exact name of Registrant as specified in its charter)
New Mexico 85-0019030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Alvarado Square 87158
Albuquerque, New Mexico (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (505) 241-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $5.00 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
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 and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO
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.
The total number of shares of the Company's Common Stock outstanding as of January 31, 2000 was 40,161,299. On such date, the aggregate market value of the voting stock held by non-affiliates of the Company, as computed by reference to the New York Stock Exchange composite transaction closing price of $15 7/8 per share reported by the Wall Street Journal, was $637,560,622.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into the indicated part of this report:
Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to the annual meeting of stockholders to be held on June 6, 2000 - PART III.
TABLE OF CONTENTS
Page
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GLOSSARY................................................................ iv
PART I
ITEM 1. BUSINESS....................................................... 1
THE COMPANY................................................. 1
ELECTRIC OPERATIONS......................................... 1
Service Area and Customers.............................. 1
Power Sales............................................. 2
Sources of Power........................................ 3
Fuel and Water Supply................................... 5
NATURAL GAS OPERATIONS...................................... 8
Service Area and Customers.............................. 8
Natural Gas Supply...................................... 8
Natural Gas Sales....................................... 9
UNREGULATED OPERATIONS.....................................
DEREGULATION AND FORMATION OF HOLDING COMPANY............... 11
PROPOSED RULEMAKINGS RELATED TO DEREGULATION................ 12
COMPETITION UNDER DEREGULATION ............................. 13
RATES AND REGULATION........................................ 14
Electric Rates and Regulation........................... 14
Federal Electric Initiatives............................ 15
Gas Rates and Regulation................................ 16
ENVIRONMENTAL FACTORS....................................... 17
ITEM 2. PROPERTIES..................................................... 21
ELECTRIC.................................................. 21
Fossil-Fueled Plants.................................. 21
Nuclear Plant......................................... 22
Other Electric Properties............................. 27
NATURAL GAS............................................... 27
OTHER INFORMATION......................................... 28
ITEM 3. LEGAL PROCEEDINGS.............................................. 28
PVNGS WATER SUPPLY LITIGATION............................. 28
SAN JUAN RIVER ADJUDICATION............................... 28
OTHER PROCEEDINGS......................................... 29
Republic Savings Bank Litigation...................... 29
Purported Navajo Environmental Regulation............. 29
Nuclear Decommissioning Trust......................... 30
Royalty Claims........................................ 31
KAFB Contract......................................... 32
City of Gallup Complaint.............................. 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 33
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SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY.................... 34
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS............................ 36
ITEM 6. SELECTED FINANCIAL DATA...................................... 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK ............................................... 62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................ E-1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.............. E-1
ITEM 11. EXECUTIVE COMPENSATION....................................... E-1
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ E-1
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... E-1
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K............................................... E-1
SIGNATURES.............................................................. E-21
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GLOSSARY
Act................................... The Clean Air Act - Amendments of 1990
Avistar............................... Avistar, Inc., an unregulated
subsidiary of Public Service Company
of New Mexico
AG.................................... New Mexico Attorney General
AMDAX................................. AMDAX.com, an equity investee of Avistar
Anaheim............................... City of Anaheim, California
APPA.................................. Arizona Power Pooling Association
APS................................... Arizona Public Service Company
BHP................................... BHP Minerals International, Inc.
BLM................................... Bureau of Land Management
BTU................................... British Thermal Unit
COA................................... City of Albuquerque, New Mexico
Decatherm............................. 1,000,000 BTUs
DOE................................... United States Department of Energy
EIP................................... Eastern Interconnection Project
El Paso............................... El Paso Electric Company
Energy................................ Manzano Energy Corporation, a proposed
subsidiary of Manzano that will
contain unregulated operations and
currently Public Service Company of
New Mexico
EPA................................... United States Environmental Protection
Agency
EPNG.................................. El Paso Natural Gas Company
FERC.................................. Federal Energy Regulatory Commission
FASB.................................. Financial Accounting Standards Board
Farmington............................ City of Farmington, New Mexico
FERC.................................. Federal Energy Regulatory Commission
FIP................................... Federal Implementation Plan
Four Corners.......................... Four Corners Power Plant
FPPCAC................................ Fuel and Purchased Power Cost
Adjustment Clause
Gallup................................ City of Gallup, New Mexico
Gathering Company..................... Sunterra Gas Gathering Company, a
wholly-owned subsidiary of Public
Service Company of New Mexico
ISO................................... Independent System Operator
KAFB.................................. Kirtland Air Force Base
Kv.................................... Kilovolt
KW.................................... Kilowatt
KWh................................... Kilowatt Hour
Los Alamos............................ The County of Los Alamos, New Mexico
mcf................................... Thousand cubic feet
Manzano............................... Manzano Corporation, the proposed
holding company of Public Service
Company of New Mexico
Meadows............................... Meadows Resources, Inc., a wholly-owned
subsidiary of Public Service Company
of New Mexico
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M-S-R................................. M-S-R Public Power Agency, a California
public power agency
MW.................................... Megawatt
MWh................................... Megawatt Hour
NMED.................................. New Mexico Environment Department
NMPUC................................. New Mexico Public Utility Commission
NRC................................... United States Nuclear Regulatory
Commission
OCD................................... New Mexico Oil Conservation Division
PGAC.................................. PNMGS' Purchased Gas Adjustment Clause
PLP................................... Cobisa-Person Limited Partnership
PNMGS................................. Public Service Company of New Mexico
Gas Services, a division of Public
Service Company of New Mexico
PPA................................... Power Purchase Agreement
PRC................................... New Mexico Public Regulation
Commission, predecessor of the NMPUC
Processing Company.................... Sunterra Gas Processing Company,
a wholly-owned subsidiary of Public
Service Company of New Mexico
PVNGS................................. Palo Verde Nuclear Generating Station
RCRA.................................. Resource Conservation and Recovery Act
RHC................................... Republic Holding Company
RSB................................... Republic Savings Bank
RTO................................... Regional Transmission Organization
Reeves Station........................ Reeves Generating Station
Salt River Project.................... Salt River Project Agricultural
Improvement and Power District
SCE................................... Southern California Edison Company
SCPPA................................. Southern California Public Power
Authority
SDG&E................................. San Diego Gas and Electric Company
SEC................................... Securities and Exchange Commission
SJCC.................................. San Juan Coal Company
SJGS.................................. San Juan Generating Station
SPS................................... Southwestern Public Service Company
TNP................................... Texas-New Mexico Power Company
Throughput............................ Volumes of gas delivered, whether or
not owned by PNMGS
Tri-State............................. Tri-State Generation and Transmission
Association, Inc.
Tucson................................ Tucson Electric Power Company
UAMPS................................. Utah Associated Municipal Power Systems
USBR.................................. United States Bureau of Reclamation
USEC.................................. United States Enrichment Corporation
WGA................................... Western Governors Association
WRAP.................................. Western Regional Air Partnership
Waste Act............................. Nuclear Waste Policy Act of 1982, as
amended in 1987
Western............................... Western Area Power Administration
Williams.............................. Williams Gas Processing-Blanco, Inc.,
a subsidiary of the Williams Field
Services Group, Inc., of Tulsa,
Oklahoma
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PART I
ITEM 1. BUSINESS
THE COMPANY
Public Service Company of New Mexico (the "Company") was incorporated in
the State of New Mexico in 1917 and has its principal offices at Alvarado
Square, Albuquerque, New Mexico 87158 (telephone number 505-241-2700). The
Company is a public utility primarily engaged in the generation, transmission,
distribution and sale of electricity and in the transmission, distribution and
sale of natural gas within the State of New Mexico. In addition, in pursuing new
business opportunities, the Company is focusing on energy and utility related
services under Avistar. Avistar also operates the City of Santa Fe's water
system. (See PART II, ITEM 7. - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OVERVIEW - Competitive
Strategy".)
The total population of the area served by one or more of the Company's utility services is estimated to be approximately 1.35 million, of which 52.2% live in the greater Albuquerque area.
For the year ended December 31, 1999, the Company derived 78.8% of its operating revenues from electric operations, 20.4% from natural gas operations and 0.8% from unregulated operations.
As of December 31, 1999, the Company employed 2,667 persons.
Financial information relating to amounts of revenue, net income and total assets of the Company's reportable segments is contained in note 1 of the notes to consolidated financial statements.
ELECTRIC OPERATIONS
Service Area and Customers
The Company's electric operations serve four principal markets. Sales to retail customers and sales to firm-requirements wholesale customers, sometimes referred to collectively as "system" sales, comprise two of these markets. The third market consists of other contracted sales to utilities for which the Company commits to deliver a specified amount of capacity (measured in MW) or energy (measured in MWh) over a given period of time. The fourth market consists of economy energy sales made on an hourly basis at fluctuating, spot-market rates. Sales to the third and fourth markets are sometimes referred to collectively as "off-system" sales.
The Company provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque, Santa Fe, Rio Rancho, Las Vegas, Belen and Bernalillo. The Company also provides retail electric service to Deming in southwestern New Mexico and to Clayton in northeastern New Mexico. As of December 31, 1999, approximately 361,000 retail electric customers were served by the Company, the largest of which accounted for approximately 4.7% of the Company's total retail electric revenues for the year ended December 31, 1999.
The Company holds long-term, non-exclusive franchise agreements for its electric retail operations, expiring between June 6, 2000, and November 2028. These franchise agreements provide the Company access to public rights-of-way for placement of the Company's electric facilities. The COA, City of Santa Fe, Town of Cochiti Lake, Bernalillo County, Luna County, Sandoval County and San Miguel County franchises have expired. Customers in the area covered by the expired franchises represent approximately 43.2 of the Company's 1999 total electric operating revenues, and no other franchise area represents more than 4.97%. The Company continues to collect and pay franchise fees to the COA, City of Santa Fe and the Town of Cochiti Lake. The Company currently does not pay franchise fees to Bernalillo County, Luna County, Sandoval County and San Miguel County. The Company remains obligated under state law to provide service to customers in the franchise area even in the absence of a franchise agreement.
Power Sales
For the years 1995 through 1999, retail KWh sales have grown at a compound annual rate of approximately 3.1%. The Company's system and off-system sales (revenues and energy consumption) and system peak demands in summer and winter are shown in the following tables:
ELECTRIC SALES BY MARKET
(Thousands of dollars)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail................................. $522,523 $536,417 $519,504 $507,821 $485,568
Firm-requirements wholesale............ $ 7,046 $ 10,708 $ 10,690 $ 12,359 $ 20,282
Other contracted off-system sales...... $226,773 $142,115 $118,876 $ 86,689 $ 43,158*
Economy energy sales................... $131,549 $122,156 $ 55,768 $ 22,281 $ 17,509*
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* Due to the provision for the loss associated with the M-S-R contingent power purchase contract recognized in 1992, revenues from other contracted off-system sales and economy energy sales were reduced by a total of $7.3 million in 1995.
ELECTRIC SALES BY MARKET
(Megawatt hours)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Retail................................... 6,803,583 6,739,874 6,534,899 6,406,296 6,029,365
Firm-requirements wholesale.............. 179,249 278,615 278,727 282,534 447,629
Other contracted off-system sales........ 6,196,499 4,033,931 3,790,081 2,928,321 594,367
Economy energy sales..................... 4,795,873 4,469,769 2,716,835 1,364,365 1,548,517
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SYSTEM PEAK DEMAND*
(Megawatts)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Summer.................................. 1,291 1,313 1,209 1,217 1,247
Winter.................................. 1,161 1,135 1,142 1,111 1,076
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*System peak demand relates to retail and firm-requirements wholesale customers only.
The Company's wholesale power marketing area continues to increase its trading activities. During 1999 and 1998, the Company's sales in the off-system markets accounted for approximately 61.2% and 54.8%, respectively, of its total KWh sales and approximately 40.3% and 32.6%, respectively, of its total revenues from energy sales. Of the total off-system sales made in 1999, 78.0% were transacted through purchases for resale as compared to 67.0% in 1998. However, the Company continues to be committed to increasing its utilization of its major generation capacity at SJGS, Four Corners and PVNGS. Capacity factors for these generating stations were 80.0%, 71.1% and 93.2%, respectively, in 1999, as compared to 81.8%, 87.2% and 92.5%, respectively, in 1998. During 1999, the Company's major off-system sales contracts in effect were with SDG&E and APPA.
The SDG&E contract requires SDG&E to purchase 100 MW from the Company
through April 2001. SDG&E has filed four separate complaints with the FERC
against the Company, alleging that certain charges under the 1985 power purchase
agreement are unjust, unreasonable and unduly discriminatory. See PART II, ITEM
7. - "MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - OTHER ISSUES FACING THE COMPANY - SAN DIEGO GAS AND ELECTRIC
("SDG&E") COMPLAINTS".
The APPA contract requires APPA to purchase varying amounts of power from the Company through May 2008 and allows APPA to make adjustments to the purchase amounts subject to certain notice provisions. APPA provided notice that it was invoking its option to reduce its power demand in 1999. This resulted in a peak demand in 1999 of 74 MW. APPA invoked the same option to reduce its peak demand in 2000 to 68 MW.
The Company furnished firm-requirements wholesale power in New Mexico in 1999 to the City of Gallup. The Company is committed to provide service to the City of Gallup through April 2003. Average monthly demands under the City of Gallup contract for 1999 were approximately 27 MW. No firm-requirements wholesale customer accounted for more than 0.8% of the Company's total electric operating revenues for the year ended December 31, 1999.
Sources of Power
As of December 31, 1999, the total net generation capacity of facilities owned or leased by the Company was 1,521 MW.
In addition to generation capacity, the Company purchases power in the market. The Company has a power purchase contract with SPS which originally provided for the purchase of up to 200 MW, expiring in May 2011. The Company may reduce its purchases from SPS by 25 MW annually upon three years' notice. The Company provided such notice to reduce the purchase by 25 MW in 2000 and by an additional 25 MW in 2001. The Company has 70 MW of contingent capacity obtained from El Paso under a transmission capacity for generation capacity trade arrangement through 2004 and 39 MW in 2005. In addition, the Company is interconnected with various utilities for economy interchanges and mutual assistance in emergencies. The Company has been actively trading in the wholesale power market and has entered into and anticipates that it will continue to enter into power purchases to accommodate its trading activity.
In 1996, the Company entered into a long-term PPA with PLP to purchase approximately 100 MW of unit contingent peaking capacity from a gas turbine generating unit for a period of 20 years, with an option to renew for an additional five years. In September 1997, the NMPUC approved the Company's and PLP's applications for the project. In December 1997, PLP also received FERC approval for "exempt wholesale generator" status with respect to the gas turbine generating unit. In March 1998, the Company and PLP executed amendments to the PPA and to the associated site lease and interconnection agreement, and executed a new water use lease. The PPA was amended to change the maximum capacity the Company was obligated to take to 132 MW and to change the commercial operation date from May 1999 to May 2000. The gas turbine generating unit will be constructed and operated by PLP and will be located on the Company's retired Person Generating Station site in Albuquerque, New Mexico. The site for the generating unit was chosen, in part, to provide needed benefits to the Company's constrained transmission system. Primary fuel for the gas turbine generating unit will be natural gas, which will be provided by the Company. In addition, the unit will have the capability to utilize low sulfur fuel oil in the event natural gas is not available.
In the September 1997 NMPUC order, the NMPUC approved the project application and a stipulated settlement agreement ("Stipulation") which had been entered into earlier among the Company, PLP and the NMPUC staff to resolve certain issues raised in this proceeding. The Stipulation included, among other things, a provision wherein the Company committed, in cooperation with the NMPUC staff, to the development and evaluation of a request for proposal ("RFP") for the purchase of approximately 5 MW of capacity from solar generation resources. The Company was not obligated to build such a unit or commit to such a solar power purchase agreement prior to the NMPUC approval of a full-cost recovery mechanism.
By order dated October 27, 1998, the NMPUC approved the Company's implementation of a rate rider to collect a 0.5 percent surcharge on all retail electric bills to pay for solar and other renewable resource projects. Under the NMPUC's order, one-half of the monies collected under the rider would have been used to purchase or acquire resources the Company had pursued through the solar RFP process, while the other half of the monies would have been used for other renewable resource projects.
In November 1998, the NMPUC adopted a rule that established a "renewable energy development program" and required New Mexico utilities to collect voluntary contributions to a renewable energy fund from their customers. The stated purpose of the rule was to support research, development, demonstration and deployment of renewable energy resources. Funds collected by each utility were to be spent by it on projects approved by the PRC based upon the recommendations of a Renewable Energy Advisory Board appointed by the PRC. The Company requested the PRC to exempt it from the rule on the grounds that the rule is more than satisfied by the renewable resource program and 0.5 percent surcharge specifically approved for the Company by the NMPUC in October 1998. The Company's request is pending. On August 25, 1999, the PRC suspended the proposed rule and issued an Order requiring the PRC staff to pursue a proposed rulemaking proceeding for the purpose of amending or repealing the rule as currently promulgated in order to conform with the requirements of the Restructuring Act.
In addition to the long-term power purchase contract with the PLP, the Company is pursuing other options to ensure its additional capacity needs are met.
Fuel and Water Supply
The percentages of the Company's generation of electricity (on the basis of KWh) fueled by coal, nuclear fuel and gas and oil, and the average costs to the Company of those fuels (in cents per million BTU), during the past five years were as follows:
---------- ------- ---------- ------- ---------- -------
1995...... 67.9 168.3 31.9 49.1 0.2 242.2
1996...... 68.9 159.3 30.4 49.7 0.7 238.2
1997...... 68.1 152.7 31.1 48.3 0.8 326.6
1998...... 68.2 155.3 30.8 46.5 1.0 324.6
1999...... 67.6 165.3 31.0 47.4 1.4 331.9
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The estimated generation mix for 2000 is 68.2% coal, 30.1% nuclear and 1.7% gas and oil. Due to locally available natural gas and oil supplies, the utilization of locally available coal deposits and the generally abundant supply of nuclear fuel, the Company believes that adequate sources of fuel are available for its generating stations.
Coal
The coal requirements for the SJGS are being supplied by SJCC, a wholly-owned subsidiary of BHP, from certain Federal, state and private coal leases under a Coal Sales Agreement, pursuant to which SJCC will supply processed coal for operation of the SJGS until 2017. BHP guaranteed the obligations of SJCC under the agreement, which contemplates the delivery of approximately 94 million tons of coal during its remaining term. Such amount would supply substantially all the requirements of the SJGS through approximately 2017. The primary sources of coal for current operations are a mine adjacent to the SJGS and a mine located approximately 25 miles northeast of the SJGS in the La Plata area of northwestern New Mexico. The Coal Sales Agreement contemplated that additional coal resources would be required during the remaining term of the agreement. The Company is currently in discussions with SJCC regarding alternatives for coal resource selection. For other information related to coal requirements, see PART II, ITEM 7. - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - OTHER ISSUES FACING THE COMPANY - COAL FUEL SUPPLY".
Four Corners is supplied with coal under a fuel agreement between the owners and BHP, under which BHP agreed to supply all the coal requirements for the life of the plant. BHP holds a long-term coal mining lease, with options for renewal, from the Navajo Nation and operates a surface mine adjacent to Four Corners with the coal supply expected to be sufficient to supply the units for their estimated useful lives.
Natural Gas
The natural gas used as fuel for the Company's Albuquerque electric generating plant (Reeves Station) is delivered by PNMGS. (See "NATURAL GAS OPERATIONS".) In addition to rate changes under filed tariffs, the Company's cost of gas increases or decreases according to the average cost of the available gas supply.
Nuclear Fuel
The fuel cycle for PVNGS is comprised of the following stages:
o The mining and milling of uranium ore to produce uranium concentrates,
o The conversion of uranium concentrates to uranium hexafluoride,
o The enrichment of uranium hexafluoride,
o The fabrication of fuel assemblies,
o The utilization of fuel assemblies in reactors and
o The storage of spent fuel and the disposal thereof.
The PVNGS participants have made contractual arrangements to obtain quantities of uranium concentrates anticipated to be sufficient to meet operational requirements through 2002. Existing contracts and options could be utilized to meet approximately 88% of requirements in 2003, 88% of requirements in 2004, 49% of requirements in 2005, and 16% of requirements from 2006 and beyond. Spot purchases on the uranium market will be made, as appropriate, in lieu of any uranium that might be obtained through contractual options.
The PVNGS participants have contracted for uranium conversion services. Existing contracts and options could be utilized to meet approximately 70% of requirements in 2000, 75% of requirements in 2001 and 80% of requirements in 2002. The PVNGS participants have an enrichment services contract and an enriched uranium product contract that furnish enrichment services required for the operation of the three PVNGS units through 2015. In addition, existing contracts will provide fuel assembly fabrication services until at least 2003 for each PVNGS unit.
Water Supply
Water for Four Corners and SJGS is obtained from the San Juan River.
(See ITEM 3. - "LEGAL PROCEEDINGS - SAN JUAN RIVER ADJUDICATION".) BHP holds
rights to San Juan River water and committed a portion of such rights to Four
Corners through the life of the project. The Company and Tucson have a contract
with the USBR ("USBR Contract") for consumption of 16,200 acre feet of water per
year for the SJGS, which contract expires in 2005, and in addition, the Company
was granted the authority to consume 8,000 acre feet of water per year under a
state permit that is held by BHP. The Company is of the opinion that sufficient
water is under contract for the SJGS through 2005.
In January 1993, the U.S. Fish and Wildlife Service proposed a portion of the San Juan River as critical habitat for two fish species. This designation may impact uses of the river and its flood plains and will require certain analysis under the Endangered Species Act of 1973 of all significant Federal actions. Renewal of the SJGS water contract is considered a significant Federal action.
Due to extensive lead times required to renew the water rights contract, the Company formally initiated the renewal and extension process for requesting rights through the year 2025. The Company is actively conducting an environmental assessment with the USBR and a biological assessment with the U.S. Fish and Wildlife Service. These studies are required by the Federal agencies before the existing water contract can be renewed.
In June 1996, the Navajo Nation requested that the USBR withhold renewal of the USBR Contract due to water shortages of the Navajo Indian Irrigation Project. Other tribes in the Four Corners area also voiced concern to the USBR about the renewal by the Company of the USBR Contract. Due to the tribal concerns expressed, the Company began four-way discussions with the Jicarilla Apache Tribe ("Jicarilla"), the Navajo Nation, and USBR in July 1999 to resolve any outstanding issues related to the Company's proposed renewal of the USBR Contract. Those discussions are ongoing but have resulted in the Company pursuing an alternative water supply to replace the USBR Contract when it expires in 2005.
Currently, the Company is in discussions with Jicarilla for a twenty-seven year contract, beginning in 2006, for the full 16,200 AF of water from the Jicarilla supply in Navajo Reservoir ("Jicarilla Contract"). The Jicarilla Contract is proposed to be essentially equivalent to a renewed USBR Contract, the only material difference being that Jicarilla as opposed to USBR would be the contract supplier. Jicarilla has contract water in Navajo Reservoir pursuant to a water rights settlement approved by Congress in 1992 and judicial decree that was entered February 24, 1999. Unlike a renewed USBR Contract, the Company would not be required to seek Congressional approval of a Jicarilla Contract.
Additionally, the Company is in discussion with the Navajo Nation to settle claims the tribe may assert in connection with any environmental approvals that may be required for a Jicarilla Contract. The Jicarilla Contract is considered a Federal action that will require National Environmental Policy Act compliance as well as a Section 7 consultation under the Endangered Species Act. At this time, although the Company cannot predict the outcome of these discussions, it does not believe that a settlement with the Navajo Nation will have a material impact on the Company or its operations.
The Company is actively involved in the San Juan River Recovery Implementation Program ("Recovery Program") to mitigate any concerns with the taking of the USBR Contract or proposed Jicarilla Contract water supply from a river that contains endangered fish species and their critical habitat. In April of 1999, the Recovery Program voted to fund modifications to the Company's weir to accommodate fish travel in that area of the river. Funding is expected to be supplied by USBR. Design studies are ongoing and the project is expected to commence in 2001.
Sewage effluent used for cooling purposes in the operation of the PVNGS units is obtained under contracts with certain municipalities in the area. The contracted quantity of effluent exceeds the amount required for the three PVNGS units. The validity of these effluent contracts is the subject of litigation in state court. (See ITEM 3. - "LEGAL PROCEEDINGS - PVNGS WATER SUPPLY LITIGATION".)
NATURAL GAS OPERATIONS
Service Area and Customers
The Company's gas operating division, PNMGS, distributes natural gas to most of the major communities in New Mexico, including Albuquerque and Santa Fe, serving approximately 426,000 customers as of December 31, 1999. The Albuquerque metropolitan area accounts for approximately 51.7% of the total sales-service customers. PNMGS holds long-term, non-exclusive franchises with varying expiration dates in all incorporated communities requiring franchise agreements except for the COA, which expired on January 28, 1998. PNMGS' customer base includes both sales-service customers and transportation-service customers. Sales-service customers purchase natural gas and receive transportation and delivery services from PNMGS for which PNMGS receives both cost-of-gas and cost-of-service revenues. Cost-of-gas revenues collected from on-system sales-service customers are recovered in accordance with PRC rules and regulations and do not affect the net earnings of the Company. Additionally, PNMGS makes occasional gas sales to off-system customers. Off-system sales deliveries generally occur at interstate pipeline interconnects with PNMGS' system. Transportation-service customers, who procure gas independently of PNMGS and contract with PNMGS for transportation and related services, provide PNMGS with cost-of-service revenues only. Transportation services are provided to gas marketers, producers and end users for delivery to locations throughout the PNMGS distribution systems, as well as for delivery to interstate pipelines. PNMGS provided gas transportation deliveries to approximately 1,244 gas marketers, producers and end users during 1999.
For the twelve months ended December 31, 1999, PNMGS had throughput of approximately 92.3 million decatherms, including sales of 52.1 million decatherms to both sales-service customers and off-system customers. No single sales-service customer accounted for more than 4.2% of PNMGS' therm sales in 1999. During 1999, approximately 43.6% of the PNMGS' total gas throughput was related to transportation gas deliveries. PNMGS' transportation rates are unbundled, and transportation customers only pay for the service they receive. PNMGS' total operating revenues for the year ended December 31, 1999, were approximately $236.7 million. Cost-of-gas revenues, received from sales-service and off-system customers, accounted for approximately 47.7% of PNMGS' total operating revenues. Since a major portion of PNMGS' load is related to heating, levels of therm sales are affected by weather. Approximately 43.3% of PNMGS' total therm sales in 1999 occurred in the months of January, February, November and December.
Natural Gas Supply
PNMGS obtains its supply of natural gas primarily from sources within New Mexico pursuant to contracts with producers and marketers. These contracts are generally sufficient to meet PNMGS' peak-day demand. PNMGS serves certain cities which depend on EPNG or Transwestern Pipeline Company for transportation of gas supplies. Because these cities are not directly connected to PNMGS transmission facilities, gas transported by these companies is the sole supply source for those cities. Such transportation is regulated by FERC. As a result of FERC Order 636, PNMGS' options for transporting gas to such cities and other portions of its distribution system have increased.
Natural Gas Sales
The following table shows gas throughput by customer class*:
GAS THROUGHPUT
(Millions of decatherms)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Residential.............. 29.3 30.3 30.7 27.4 25.9
Commercial............... 10.1 10.4 10.6 9.3 8.9
Industrial............... 2.3 1.5 1.3 2.1 0.7
Public authorities....... 2.9 3.4 4.2 2.6 2.4
Irrigation............... 1.4 1.9 1.6 1.4 1.2
Sales for resale......... 1.2 1.2 1.2 0.8 1.3
Unbilled................. 3.8 (1.3) (0.2) 1.4 (1.8)
Transportation**......... 40.2 36.4 34.0 47.1 69.8
Off-system sales......... 1.1 1.9 1.2 8.0 1.2
---- ---- ---- ----- -----
92.3 85.7 84.6 100.1 109.6
==== ==== ==== ===== =====
|
The following table shows gas revenues by customer class*:
GAS REVENUES
(Thousands of dollars)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Residential............... $148,968 $161,153 $187,563 $129,911 $125,290
Commercial................ 36,528 42,680 50,502 33,022 32,328
Industrial................ 8,550 4,887 4,536 5,179 1,873
Public authorities........ 9,782 12,610 17,577 8,018 7,939
Irrigation................ 4,229 5,780 5,041 3,252 3,077
Sales for resale.......... 2,530 3,596 4,465 2,106 3,114
Unbilled.................. 4,107 (955) (2,172) 2,678 (2,430)
Transportation**.......... 12,390 13,464 14,172 17,215 22,172
Liquids................... 1,867 1,463 4,451 7,608 13,414
Processing fees........... - - - - 5,180
Off-system sales.......... 2,357 3,816 1,926 14,352 1,927
Other..................... 5,403 7,481 6,708 3,960 4,101
-------- -------- -------- -------- --------
$236,711 $255,975 $294,769 $227,301 $217,985
======== ======== ======== ======== ========
|
* On June 30, 1995, the Company sold substantially all of the gas gathering and processing assets of the Company and its gas subsidiaries. The above information reflects the revenues and throughput of the gathering company and processing company through this date. ** Customer-owned gas.
UNREGULATED OPERATIONS
The Company, through its wholly-owned subsidiary Avistar, has initiated several unregulated service and information business lines to serve energy intensive customers. The Avistar business lines consist of Energy Partners, Pathways Integration and Phaser Advanced Metering Services. Energy Partners provides energy management solutions that assist customers in implementing cost effective procurement, distribution and consumption of energy. Pathways Integration is seeking opportunities in infrastructure and energy management with a specific focus on the municipal and Native American markets. Avistar currently has a contract with the City of Santa Fe to operate the Santa Fe water system through mid-2001. Phaser Advanced Metering Services provides electric meter installation, testing service and consulting expertise to energy service providers as well as commercial and industrial customers. On August 4, 1998, the Company adopted a plan to discontinue the natural gas trading operations of its Energy Marketing business segment of the Energy Services Business Unit. (See
PART II, ITEM 7. - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - RESULTS OF OPERATIONS - Discontinued Operations".)
In June 1999, the NMPUC issued a final order approving the Company's request to form and invest in a wholly-owned subsidiary, Avistar. Under the final order, the Company is permitted to invest a maximum of $50 million in the subsidiary, subject to the availability of the Company's retained earnings and to enter into reciprocal loan agreement for up to $30 million. While the terminology of "available unappropriated retained earnings" quoted in the order is subject to interpretation, the Company believes it currently has sufficient retained earnings to make the investments.
Avistar commenced operations starting on August 11, 1999. The business lines now contained in Avistar were operated in the Energy Services Business Unit of the Company prior to the formation and funding of Avistar. Since its inception, Avistar has entered into an exclusive license arrangement with Sandia Corporation in October 1999, to modify and market a reliability and predictive maintenance software suite. The Company anticipates marketing this product to utilities, manufacturers and a variety of other industry segments concerned about optimizing operational performance.
Avistar has also acquired approximately 25% ownership interest in AMDAX.com, a developer of an internet-based energy exchange, by agreement dated January 24, 2000. AMDAX has developed a proprietary, auction platform designed to efficiently bring together electricity buyers and sellers in the deregulated natural gas and electricity markets. Avistar has also entered into an agreement with AMDAX to provide metering, regulatory and information systems support to AMDAX.
DEREGULATION AND FORMATION OF HOLDING COMPANY
Introduction of competitive market forces and restructuring of the electric utility industry in New Mexico continue to be key issues facing the Company. The Electric Utility Industry Restructuring Act of 1999 (the "Restructuring Act"), was enacted into law on April 8, 1999, opening the state's electric power market to customer choice beginning in 2001. The law gives schools, residential and small business customers the opportunity to choose among competing power suppliers beginning in January 2001. Competition will be expanded to include all customers starting in January 2002. The PRC, however, can extend these dates by up to one year if necessary. Rural electric cooperatives and municipal electric systems have the option not to participate in the competitive market.
Residential and small business customers who do not select a power supplier in the open market can buy their electricity through their local utility through a "standard offer" whereby the local distribution utility will purchase power supplies through a competitive process approved by the PRC. The local distribution utility system and related services such as billing and metering will continue to be regulated by the PRC, while the interstate transmission system will remain subject to Federal regulation.
The law does not require utilities to divest their generating plants, but requires unregulated activities to be separated from the regulated activities through creation of at least two separate corporations.
The Company is required to file a transition plan with the PRC by June 1, 2000. The transition plan must include proposals for: (i) implementing customer choice and open access to the Company's transmission and distribution system; (ii) separating regulated and non-regulated business activities; (iii) recommended rates for distribution, transmission and related services; (iv) competitive procurement process for standard offer; and (v) the recovery of stranded costs and transition costs. The Company plans to reorganize its operations by forming a holding company structure as a means of achieving the corporate and asset separation required by the Restructuring Act. The holding company, which was incorporated in March 2000, as a minimally capitalized wholly-owned subsidiary, has been named Manzano Corporation.
Under the Company's restructuring plan, all of the outstanding shares of the Company's common stock will be exchanged on a share-for-share basis for shares of Manzano common stock. Thus, when the share exchange is completed, each shareholder of the Company's common stock immediately prior to the share exchange will own the same number of shares (and percentage) of Manzano common stock. Likewise, Manzano will own all of the outstanding shares of the Company's common stock. If the share exchange is implemented, shareholders will not be required to surrender their existing stock certificates for stock certificates of Manzano.
If the shareholders approve the agreement and plan of share exchange, and if the applicable regulatory approvals are obtained and other conditions are satisfied, the share exchange will become effective upon the filing of the Articles of Exchange relating to the share exchange with the Corporations Bureau of the PRC. The share exchange proposal requires the affirmative vote of the holders of two-thirds of the shares of the Company's common stock entitled to vote at the annual meeting.
If the Company receives all necessary regulatory and other approvals, pursuant to the Restructuring Act, all of the Company's electric and gas distribution and transmission assets and related liabilities will be transferred to a newly created subsidiary after completion of the share exchange. After this asset transfer, this subsidiary will acquire the name "Public Service Company of New Mexico" (for purposes of this discussion, the subsidiary will be referred to as "UtilityCo") and the corporation formerly named Public Service Company of New Mexico will be renamed Manzano Energy Corporation. Energy will continue to own the Company's existing electric generation and unregulated, competitive assets after completion of the transfer of the regulated business to the newly created utility subsidiary. Shareholder approval is not required for the asset and liability transfer to UtilityCo, which will occur after the completion of the share exchange if the Company receives all necessary approvals. UtilityCo and Energy will be wholly-owned subsidiaries of Manzano.
The share exchange itself will not result in any change in the outstanding indebtedness of the Company. In addition, the Company's preferred stock will remain an equity security of Energy after the share exchange unless an exchange offer for the preferred stock is made by UtilityCo and accepted by all the holders or the preferred stock is redeemed by the Company.
The Company is filing its transition plan with the PRC pursuant to the Restructuring Act in three parts. In November 1999, the Company filed the first two parts of the transition plan with the PRC. Part one requested approval by February 1, 2000 to create Manzano and UtilityCo as wholly-owned shell subsidiaries of the Company. In response to this request, the Company received an order from the PRC on February 15, 2000 authorizing it to form Manzano and UtilityCo as wholly-owned shell subsidiaries of the Company. Part two of the transition plan requested, by June 1, 2000, all PRC approvals necessary for the Company to implement the formation of the holding company structure and the share exchange and its separation plan pursuant to the Restructuring Act. However, the part two hearing was scheduled for May 15, 2000 which will make a June 1, 2000 approval unlikely. Therefore, the Company has assumed a July 1, 2000 approval date with an August 1, 2000 separation date. PRC staff filed a motion in February 2000 to delay the May 15, 2000 hearing date. The Company filed a motion in opposition in February 2000. As discussed, this separation plan involves the transfer of the regulated business of the Company (generally, electric and gas distribution and transmission assets) to UtilityCo so Energy will maintain ownership of the competitive, deregulated businesses (generally, generation and related assets). This transfer is expected to take place after the consummation of the share exchange assuming the receipt of all necessary regulatory and other approvals. Part three of the Company's transition plan will address transition costs, stranded costs, UtilityCo's cost of service, standard offer service and other issues required to be considered under the Restructuring Act.
The Company expects to file a Form S-4 Registration Statement for the share exchange discussed above with the Securities and Exchange Commission subsequent to the filing of this Form 10-K. The Form S-4 will provide additional detail on the proposed share exchange.
PROPOSED RULEMAKINGS RELATED TO DEREGULATION
Code of Conduct
On August 17, 1999, the PRC issued a notice of proposed rulemaking seeking comments on a Code of Conduct rule. The stated purpose of the proposed Code of Conduct rule is to establish procedures governing public utilities and the relationship and interactions between a public utility and an affiliate that has been licensed by the Commission to provide retail competitive power supply and energy related services as required by the Restructuring Act. The PRC has not finalized its proposed rule.
Standard Offer Service Rule
On August 17, 1999 the PRC issued a notice of proposed rulemaking seeking comments on a Standard Offer Service rule. The stated purpose of the proposed Standard Offer Service rule is to establish procedures governing utilities regarding the terms and conditions for acquisition and service by a public utility of generation service for standard offer service as required by the Restructuring Act (see PART II. - ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS - OVERVIEW - Restructuring the Electric Industry"). Numerous parties, including the Company, submitted comments on the proposed rule. Hearings were held on November 17, 1999. On January 18, 2000, PRC Staff filed its proposed final Standard Offer Service rule. The PRC has not yet issued the final Standard Offer Service rule.
Customer Protection Rule
On September 21, 1999 the PRC issued a notice of proposed rulemaking seeking comments on a Customer Protection rule. The stated purpose of the proposed Customer Protection rule is to carry out the requirements of the Restructuring Act to protect New Mexico electric service customers by providing for: 1) customer change of competitive power suppliers and authorization of service; 2) fair and reasonable marketing, sales, and billing practices, including truthful advertising and disclosure practices; and 3) an expeditious procedure for resolving disputes between customers and competitive power suppliers regarding compliance with this rule. Numerous parties, including the Company submitted comments on the proposed rule. Hearings were held on January 11, 2000. On January 18, 2000, PRC Staff filed its proposed final customer protection rule. Additional hearings will be held on March 22, 2000. The PRC has not yet issued the final Customer Protection rule.
COMPETITION UNDER DEREGULATION
Under current law, the Company is not in any direct retail competition with any other regulated electric and gas utility. Nevertheless, the Company is subject to varying degrees of competition in certain territories adjacent to or within areas it serves that are also currently served by other utilities in its region as well as cooperatives, municipalities, electric districts and similar types of government organizations.
The Restructuring Act in New Mexico, which was enacted into law on April 8, 1999, opened the state's electric power market to customer choice for certain customers beginning in 2001 and the balance of customers in 2002. These dates can be extended by one year under the law. As a result, the Company may face competition from companies with greater financial and other resources. There can be no assurance that the Company will not face competition in the future that would adversely affect its results.
It is the current intention to have the Company's competitive subsidiaries, including Avistar, engage primarily in energy-related businesses that will not be regulated by state or Federal agencies that currently regulate public utilities (other than the FERC and NRC). These competitive businesses, including the generation business, will encounter competition and other factors not previously experienced by the Company, and may have different, and perhaps greater, investment risks than those involved in the regulated business. Specifically, the passage of the Restructuring Act and deregulation in the electric utility industry generally are likely to have a significant impact on the price and margins for electric generation and thus, the recovery of the investment in electric generation assets. In response to competition and the need to gain economies of scale, electricity producers will need to control
costs to maintain margins, profitability and cash flow that will be adequate to support investments in new technology and infrastructure. The Company's current business plan includes a 300% increase in sales and a doubling of its generating capacity through the construction or acquisition of additional power generation assets in its surrounding region of operations. Such growth will be dependent upon the Company's ability to generate $400 to $600 million to fund the Company's expansion. There can be no assurance that these competitive businesses, particularly the generation business, will be successful or, if unsuccessful, that they will not have a direct or indirect adverse effect on the Company.
The Company's ability to obtain funds to invest in its competitive businesses depends upon recovery of stranded costs, borrowings and other financings, and any issuances of common or preferred stock.
RATES AND REGULATION
The Company is subject to the jurisdiction of the PRC, the successor of the NMPUC effective January 1, 1999, with respect to its retail electric and gas rates, service, accounting, issuance of securities, construction of major new generation and transmission facilities and other matters. The FERC has jurisdiction over rates and other matters related to wholesale electric sales.
Electric Rates and Regulation
Electric Rate Case
In November 1998, the NMPUC issued a final order in the Company's electric rate case, requiring the Company to reduce rates in 1999 by $60.2 million, by $25.6 million in 2000 and by an additional $25.6 million in 2001. The rate reduction order reflected, among other things, the revaluation of the Company's generation resources based on a so-called "market-based price" and the finding by the NMPUC that recovery of stranded costs is illegal. In December 1998, the Company appealed the rate case order to the New Mexico Supreme Court ("Supreme Court").
On March 15, 1999, the Supreme Court issued a ruling, vacating the NMPUC order on the Company's electric rate case and remanding the case to the PRC, the successor of the NMPUC, for further proceedings.
On August 25, 1999, the PRC issued an order approving a settlement. The PRC ordered the Company to reduce its electric rates by $34.0 million retroactive to July 30, 1999. In addition, the order includes a rate freeze until retail electric competition is fully implemented in New Mexico or until January 1, 2003. The settlement will reduce annual revenues by an estimated $37.0 million based on expected customer growth and will reduce electric distribution operating revenues in the year 2000 by approximately $20 million.
As part of the settlement, the Company agreed that certain language changes to the tariff KAFB currently takes service under be set for a separate hearing before the PRC. Hearings on this issue have not yet been scheduled. KAFB has not renewed its power service contract with the Company that expired in December 1999 (see ITEM 3. - "LEGAL PROCEEDINGS - OTHER PROCEEDINGS - Kirtland Air Force Base ("KAFB") Contract").
Net Metering Rule
In September 1998, the NMPUC issued a notice of proposed rulemaking
seeking comments on a Net Metering rule. "Net metering" refers to the
measurement of the difference between the electricity that is supplied by a
utility and the electricity that is generated by a customer's generator and fed
back into the utility's system. The stated purpose of the proposed net metering
rule was to actively promote the use of small-scale, customer-owned and other
renewable energy resources, distributed generation and alternative technology
energy resources and facilities. Comments on the proposed rule were submitted by
numerous parties, including the Company. After additional comments were filed
and a hearing held on April 19, 1999 the PRC promulgated the Net Metering rule
by final order dated September 7, 1999. The Net Metering rule is (1) limited to
facilities less than 10 kW; (2) applicable only to qualifying facilities; and
(3) provides for interconnection of customer-owned generation by qualifying
facilities with only a single bi-directional meter with no payment for excess
generation or demand credits.
Federal Electric Initiatives
Beginning with the passage of the Public Utility Regulatory Policies Act of 1978 and, subsequently, the Energy Policy Act, there has been a significant increase in the level of competition in the market for the generation and sale of electricity. The Energy Policy Act reduced barriers to market entry for companies wishing to build, own and operate electric generating facilities, and it also promoted competition by authorizing the FERC to require transmission service for wholesale power transactions. In this regard, in 1996, the FERC issued Order 888. Among other things, Order 888 required electric utilities controlling transmission facilities to file open access transmission tariffs that would make the utility transmission systems available to wholesale sellers and buyers of electric energy on a non-discriminatory basis.
Order 888 encouraged utilities to investigate the formation of independent system operators, or ISOs, to operate transmission assets and provided criteria under which the formation, operation and governance of ISOs would be reviewed. On December 20, 1999, the FERC issued its Order 2000 on RTOs. In this order, the FERC established timelines for transmission owning entities to join an RTO and defined the minimum characteristics and functions that an RTO must satisfy.
In January 1998, the Company entered into a development agreement with other transmission service providers and users to form an ISO in the southwest. The development agreement called for the development of the ISO to be separated into two phases. The first phase defined the operating, pricing, planning and legal parameters of the ISO. The second phase, still underway, was to develop the by-laws, articles of incorporation and various tariffs and agreements required.
Desert STAR, Inc. was incorporated as a non-profit organization in the State of Arizona on September 21, 1999. Desert STAR, Inc. is being developed to satisfy the FERC functions and characteristics for an approved RTO. The functions of Desert STAR RTO are envisioned to include the following: (1) tariff administration and design; (2) congestion management; (3) parallel flow internalization; (4) ancillary services; (5) OASIS management and total transmission capability and available transmission capability estimation; (6) market monitoring; (7) planning and expansion; and (8) inter-regional coordination.
The Company is currently unable to predict the ultimate timing of the formation or the ultimate outcome of the proposed Desert STAR RTO.
Gas Rates and Regulation
The 1995 Gas Rate Case Appeal
In 1995, the Company filed a request for a $13.3 million increase in its retail natural gas sales and transportation rates. On February 13, 1997, the NMPUC issued a final order in the gas rate case, ordering a rate decrease of approximately $6.9 million. The Company filed an appeal to the Supreme Court from the NMPUC's final order. The Company is awaiting a decision by the Supreme Court, but is unable to predict the timing or the ultimate outcome. While the appeal is pending, the NMPUC's final order remains in effect.
The 1997 Gas Rate Case
In October 1997, the Company filed a gas rate case in compliance with a NMPUC order. In April 1998, an uncontested stipulation settling the 1997 gas rate case was filed with the NMPUC. After a hearing on the stipulation held in May 1998, the NMPUC issued a final order in August 1998, accepting the stipulation with certain modifications. The order approved a program under which customers could choose between two cost of service rate options (either a $9.00 monthly fee with a higher volumetric cost of service charge or a $14.56 monthly fee with a lower volumetric cost of service charge). This option program became effective with the December 1998 billing cycle. Subsequent to the NMPUC's denial of the AG's request for rehearing, the AG appealed the order to the Supreme Court in October 1998. However, the AG did not request a stay and therefore the NMPUC's order remains in effect while the appeal is pending.
PGAC Continuation Filing
The Company's retail gas rate tariffs contain a PGAC that provides timely recovery for the cost of gas purchased for resale to its sales-service customers. In a NMPUC order issued November 1997, the Company was required to file its next PGAC continuation filing no later than November 23, 1999. In November 1999, the Company requested a variance to the filing requirement, which was granted by the PRC that deferred the filing until the issuance of a final order in either of two related cases concerning an investigation into the Company's gas hedging practices (see "Gas Hedging Investigation" below) and a notice of proposed rulemaking issued by the PRC that would rewrite the PGAC rule (see "PRC PGAC Rule Rewrite" below).
Gas Hedging Investigation
In response to a July 1999 request from the PRC staff, the Company provided information that included the costs for both financial and physical hedges and physical transactions entered into for the winter of 1998-1999 to levelize gas costs and protect against price spikes. The total cost was $7.6 million; about 7.5% of total annual purchased gas costs. The PRC staff and the AG filed a petition in May 1999, requesting a review of the Company's gas hedging program and that the PRC consider whether specific guidelines should be established. On August 13, 1999, the Company, staff and the AG jointly filed a proposal as to the scope for the proceeding and suggested that the Company file a white paper on its hedging practices. The hearing examiner adopted this proposal and on October 16, 1999, the Company filed a report on the history of the PRC's actions, the results of the Company's hedging activities, and a review of industry hedging practices. The heart of the case centers on an order from the former NMPUC, in the 1997 PGAC prudence case, in which the Company was ordered to engage in gas hedging in an effort to levelize and/or stabilize gas prices without detailing guidelines under which to do so. The current case appears to be heading in the direction of allowing the Company to hedge without ordering it to do so and providing general guidelines. A two-day workshop was held in early February 2000, and a hearing date is scheduled for March 27, 2000.
PRC PGAC Rule Rewrite
Throughout 1999 and continuing through the present, the Company has worked in a cooperative effort with the Commission staff, the AG, Zia Natural Gas and Raton Natural Gas to develop a proposed revision to the PRC PGAC rule. A joint filing was made proposing a new PGAC rule on September 30, 1999. The AG declined to sign the filing and filed an opposition to the petition for rulemaking due to the group's removal of the phrase "lowest reasonable cost" from the proposed PGAC rule. On October 19, 1999, the Commission issued a notice of proposed rulemaking to address the issue of rewriting the PRC's PGAC rule. Following a pre-hearing conference, the PRC issued a notice of further rulemaking in mid November 1999, that directed the parties to file comments in the case and to comment on the AG's filed opposition. The Company, Staff and Zia filed comments in support of the proposed rule with minor wording changes to the proposed rule and general comments regarding the AG's filed opposition in December 1999. All parties, including the AG, are in agreement to include the phrase "lowest reasonable cost" in the proposed rule so long as that phrase is adequately defined, providing clear direction to the gas utilities in their gas cost recovery efforts. Should this rule be adopted as proposed, the requirement that gas utilities make a biannual PGAC continuation filing would be replaced with a more timely and informative annual supply and demand forecast, planning, true-up reporting process, and a simplified PGAC continuation filing every four years. A hearing was held February 1, 2000 on this rulemaking. A workshop to discuss minor proposed rule revisions has been scheduled for March 27, 2000.
ENVIRONMENTAL MATTERS
The Company, in common with other electric and gas utilities, is subject to stringent laws and regulations for protection of the environment by local, state, Federal and tribal authorities. In addition, PVNGS is subject to the jurisdiction of the NRC, which has authority to issue permits and licenses and to regulate nuclear facilities in order to protect the health and safety of the public from radioactive hazards and to conduct environmental reviews pursuant to the National Environmental Policy Act. Liabilities under these laws and regulations can be material and, in some instances, may be imposed without regard to fault, or may be imposed for past acts, even though such acts may have been lawful at the time they occurred.
The Clean Air Act
The 1990 amendments to the Clean Air Act established the acid rain program which addresses SO2 and NOx emissions from fossil-fired power plants. All of the Company's power plants that are subject to the acid rain rules are Phase II units. Phase II of the acid rain program became effective on January 1, 2000.
Due to the existing air pollution control equipment on the coal-fired SJGS and Four Corners, the Company will not be faced with any material capital expenditures in order to comply with the acid rain provisions for sulfur dioxide and nitrogen dioxide. Under Title V of the Act, the Company is required to obtain operating permits for its coal- and gas-fired generating units and to pay annual fees associated with the operating permit program. The New Mexico operating permit program was approved by the EPA in November 1994. The Company received operating permits for SJGS and Reeves Station in August 1998 and March 1998, respectively.
On July 1, 1999, the EPA published the final regional haze regulations. The purpose of the regional haze regulations is to address regional haze visibility impairment in the 156 Class 1 areas in the nation. The final rule calls for all states to establish goals and emission reduction strategies for improving visibility in all the Class 1 areas. The rule contains specific provisions (section 309 of the rule) to allow the western states to implement the Grand Canyon Visibility Transport Commission's recommendations within the framework of the rule. The western states are not obligated to select section 309 of the rule; they may, instead, decide to use section 308 of the rule. The Company cannot predict at this time what the impact of the implementation of the regional haze rule (either section 308 or 309) will be on the Company's coal-fired power plant operations. Potentially, additional SO2 emission reductions could be required in the 2013-2018 timeframe. The nature and cost of the impacts of these requirements cannot be determined at this time. However, the Company does not anticipate any material adverse impact on the Company's financial condition or results of operations.
In July 1997, the EPA issued its final rules revising the National Ambient Air Quality Standards for ozone and particulate matter. In May 1999, the U.S. Court of Appeals for the D.C. Circuit remanded both of the standards to the EPA. In October 1999, the D.C. Circuit denied EPA's petition for rehearing. The nature and cost of the impacts of these revisions to the standards, if any, to the Company's operations cannot be determined at this time. However, the Company does not anticipate any material adverse impact on the Company's financial condition or results of operations.
APS, as the operating agent of Four Corners, previously filed a petition for review alleging EPA improperly classified Four Corners Unit 4 with respect to nitrogen oxides emission limitations. In December 1999, EPA issued a direct final rule, which classified Four Corners Unit 4 as APS proposed. APS does not currently expect this rule to have a material impact on the Four Corners operations.
In a related matter, in September 1999, the EPA proposed a FIP to set air quality standards at certain power plants, including Four Corners. The comment period on this proposal ended in November 1999. The FIP is similar to current New Mexico regulation of Four Corners with minor modifications. APS does not currently expect the FIP to have a material impact on the Four Corners operations.
The EPA has proposed changes to its New Source Review (NSR) rules that could result in many actions at power plants that have always been considered routine repair and maintenance activities (and hence not subject to the application of NSR requirements) as now being subject to NSR. The EPA has been holding stakeholder meetings to try to reach a resolution on this issue that is acceptable to the utility industry, regulatory agencies, and environmental groups. No agreement had been reached by the end of February 2000.
In November 1999, the Department of Justice at the request of the EPA filed complaints against eight companies alleging the companies over the past 25 years had made modifications to their plants in violation of the NSR requirements, and in some cases the New Source Performance Standards (NSPS) regulations. The activities cited in the complaints are all routine maintenance, repair, and replacement activities that are excluded from the permitting requirements of NSR and NSPS. Whether or not the EPA will prevail is unclear at this time. The Company believes that all of the routine maintenance, repair, and replacement work undertaken at its power plants was and continues to be in accordance with the requirements of NSR and NSPS.
The nature and cost of the impacts of EPA's changed interpretation of the application of the NSR and NSPS, together with proposed changes to these regulations, may be significant to the power production industry. However, the Company cannot quantify these impacts, and does not anticipate any material adverse impact on the Company's financial condition or results of operations at this time.
Santa Fe Generating Station ("Santa Fe Station")
The Company and the NMED have conducted investigations of the gasoline and chlorinated solvent groundwater contamination detected beneath the former Santa Fe Station site to determine the source of the contamination pursuant to a 1992 Settlement Agreement ("Settlement Agreement") between the Company and the NMED. In June 1996, the Company received a letter from the NMED, indicating that the NMED believes the Company is the source of gasoline contamination in a City of Santa Fe municipal supply well and of groundwater underlying the Santa Fe Station site. Further, the NMED letter stated that the Company was required to proceed with interim remediation of the contamination pursuant to the New Mexico Water Quality Control Commission regulations.
In October 1996, the Company and the NMED signed an amendment to the Settlement Agreement concerning the groundwater contamination underlying the site. As part of the amendment, the Company agreed to spend approximately $1.2 million for certain costs related to sampling, monitoring, and the development and implementation of a remediation plan.
The amended Settlement Agreement does not, however, provide the Company with a full and complete release from potential further liability for remediation of the groundwater contamination. After the Company has expended the settlement amount, if the NMED can establish through binding arbitration that the Santa Fe Station is the source of the contamination, the Company could be required to perform further remediation that is determined to be necessary. The Company continues to dispute any contention that the Santa Fe Station is the source of the groundwater contamination and believes that insufficient data exists to identify the sources of groundwater contamination. The Company's aquifer characterization and groundwater quality reports compiled from 1996 to 2000 strongly suggest groundwater contamination has been drawn under the site by the pumping of the Santa Fe supply well.
The Company and the NMED, with the cooperation of the City of Santa Fe, jointly selected a remediation plan proposed by a remediation contractor. The City of Santa Fe, the Company and the NMED entered into a memorandum of understanding concerning the selected remediation plan and the operation of the municipal well adjacent to the Santa Fe Station site in connection with carrying out that plan. Construction of a new Santa Fe well and booster station has been completed. The new system began operation on October 5, 1998, to treat groundwater produced by the Santa Fe well to drinking water standards for municipal distribution and the stimulation of naturally occurring bioremediation of groundwater contamination beneath the Santa Fe Station site. Since the reactivation of the Santa Fe well, the groundwater treatment and bioremediation systems have resulted in a marked reduction in contaminant concentrations at the wellhead. However, contaminant concentrations at the property boundary remain high.
Person Station
The Company, in compliance with a Corrective Action Directive issued by the NMED, determined that groundwater contamination exists in the deep and shallow groundwater at the Person Station site. The Company is required to delineate the extent of the contamination and remediate the contaminants in the groundwater at the Person Station site. The extent of shallow and deep groundwater contamination was assessed and the results were reported to the NMED. The Company currently is involved with the process to renew the RCRA post-closure care permit for the facility. Remedial actions for the shallow and deep groundwater will be incorporated into the new permit. The Company has installed and is operating a pump and treat system for the shallow groundwater. The Company has proposed a monitoring program in conjunction with natural attenuation processes as the most cost effective approach for the deep groundwater remediation. The Company's current estimate to decommission its retired fossil-fueled plants (discussed below) includes approximately $4.6 million in additional expenses to complete the groundwater remediation program at Person Station. As part of the financial assurance requirement of the Person Station Hazardous Waste Permit, the Company established a trust fund. The current value of the trust fund at December 31, 1999, was approximately $4.5 million. The remediation program continues on schedule.
Fossil-Fueled Plant Decommissioning Costs
The Company's six owned or partially owned, in service and retired, fossil-fueled generating stations are expected to incur dismantling and reclamation costs as they are decommissioned. The Company's share of decommissioning costs for all of its fossil-fueled generating stations is projected to be approximately $153.5 million stated in 1999 dollars, including approximately $24.0 million (of which $15.5 million has already been expended) for Person, Prager and Santa Fe Stations which have been retired. The Company is currently recovering estimated decommissioning costs for its in-service fossil-fueled generating facilities through rates charged to its retail customers.
ITEM 2. PROPERTIES
The Company's owned interests in PVNGS are mortgaged to secure its remaining first mortgage bonds.
ELECTRIC
The Company's ownership and capacity in electric generating stations in commercial service as of December 31, 1999, were as follows:
Total Net
Generation
Capacity
Type Name Location (MW)
--------------- ----------------- ------------------------- -----------
Nuclear........ PVNGS (a) Wintersburg, Arizona 390 *
Coal........... SJGS (b) Waterflow, New Mexico 765
Coal........... Four Corners (c) Fruitland, New Mexico 192
Gas/Oil........ Reeves Albuquerque, New Mexico 154
Gas/Oil........ Las Vegas Las Vegas, New Mexico 20
-----
1,521
=====
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* For load and resource purposes, the Company has notified the PRC that it recognizes the maximum dependable capacity rating for PVNGS to be 381 MW.
(a) The Company is entitled to 10.2% of the power and energy
generated by PVNGS. The Company has a 10.2% ownership interest in
Unit 3 and has leasehold interests in approximately 7.9% of Units
1 and 2 and an ownership interest in approximately 2.3% of Units
1 and 2.
(b) SJGS Units 1, 2 and 3 are 50% owned by the Company; SJGS Unit 4
is 38.5% owned by the Company.
(c) Four Corners Units 4 and 5 are 13% owned by the Company.
Fossil-Fueled Plants
SJGS is located in northwestern New Mexico, and consists of four units
operated by the Company. Units 1, 2, 3 and 4 at SJGS have net rated capacities
of 327 MW, 316 MW, 497 MW and 507 MW, respectively. SJGS Units 1 and 2 are owned
on a 50% shared basis with Tucson. Unit 3 is owned 50% by the Company, 41.8% by
SCPPA and 8.2% by Tri-State. Unit 4 is owned 38.457% by the Company, 28.8% by
M-S-R, 10.04% by Anaheim, 8.475% by Farmington, 7.2% by Los Alamos and 7.028% by
UAMPS.
In July 1996, the Company and other SJGS participants signed an agreement to convert the flue gas desulfurization (SO2 removal) system at the SJGS into a much simpler and cost effective limestone system. The conversion project was completed in January 1999 and cost the Company approximately $40 million.
The Company also owns 192 MW of net rated capacity derived from its 13% interest in Units 4 and 5 of Four Corners located in northwestern New Mexico on land leased from the Navajo Nation and adjacent to available coal deposits. Units 4 and 5 at Four Corners are jointly owned with SCE, APS, Salt River Project, Tucson and El Paso and are operated by APS.
Four Corners and a portion of the facilities adjacent to SJGS are located on land held under easements from the United States and also under leases from the Navajo Nation. The enforcement of these leases could require Congressional consent. The Company does not deem the risk with respect to the enforcement of these easements and leases to be material. However, the Company is dependent in some measure upon the willingness and ability of the Navajo Nation to protect these properties.
The Company owns 154 MW of generation capacity at Reeves Station in Albuquerque, New Mexico, and 20 MW of generation capacity at Las Vegas Station in Las Vegas, New Mexico. These stations are used primarily for peaking and transmission support.
Nuclear Plant
The Company's Interest in PVNGS
The Company is participating in the three 1,270 MW units of PVNGS, also known as the Arizona Nuclear Power Project, with APS (the operating agent), Salt River Project, El Paso, SCE, SCPPA and The Department of Water and Power of the City of Los Angeles. The Company has a 10.2% undivided interest in PVNGS, with portions of its interests in Units 1 and 2 held under leases. During 1999, PVNGS was operated at a capacity factor of 93.0% which was the highest yearly capacity factor attained at the plant. This capacity factor was primarily attributable to record setting low refueling outage days.
Nuclear Safety Performance Rating on PVNGS
On April 8, 1998, APS received its latest Systematic Assessment of
Licensee Performance ("SALP") rating from the NRC on the operations of the PVNGS
units. The SALP reports rate safety performance at nuclear plants in four
functional areas: (i) plant operations; (ii) maintenance; (iii) engineering; and
(iv) plant support. Ratings of category 1, 2, or 3 are assigned, reflecting
"superior," "good" or "adequate" performance. PVNGS was rated as "superior" in
maintenance, engineering and plant support categories, and was rated as "good"
in the area of plant operations.
In 2000, the NRC will begin using a new, objective oversight process that is more focused on safety. The new process includes objective performance thresholds based on insights from safety studies and 30 years of plant operating experience. It is more timely, moving from the 18 to 24 month time lag of the old process for assessing plant performance to a quarterly review. The NRC also hopes the process will prove to be more accessible to, and readily understood by, the public.
Steam Generator Tubes
APS, as the operating agent of PVNGS, has encountered tube cracking in the steam generators and has taken, and will continue to take, remedial actions that it believes have slowed the rate of tube degradation. The projected service life of steam generators is reassessed periodically and these analyses indicate that it will be economically desirable to replace the Unit 2 steam generators in 2003. In 1997, the PVNGS participants, including the Company, entered into a contract for the fabrication of two replacement steam generators. The cost of the new steam generators was updated in late 1999. The Company's share of the fabrication and installation costs will be approximately $22.5 million.
Based on later available data, APS estimates that the Unit 1 and Unit 3 steam generators should operate for the license periods (until 2025 and 2027, respectively), although APS will continue its normal periodic assessment of these generators. The Company expects that some tube degradation will occur through the licensed period.
Low Level Waste
A new low-level waste facility was built in 1995 on-site which could store an amount of waste equivalent to ten years of normal operation at PVNGS. Although some low-level waste has been stored on-site, APS is currently shipping low-level waste to off-site facilities. APS currently believes that interim low-level waste storage methods are or will be available to PVNGS to allow its continued operation and to safely store low-level waste until a permanent disposal facility is available.
Sale and Leaseback Transactions of PVNGS Units 1 and 2
In 1985 and 1986, the Company entered into a total of eleven sale and lease back transactions under which it sold and leased back its entire 10.2% interest in PVNGS Units 1 and 2, together with portions of the Company's undivided interest in certain PVNGS common facilities. The leases under each of the sale and leaseback transactions have initial lease terms expiring January 15, 2015 (with respect to the Unit 1 leases) or January 15, 2016 (with respect to the Unit 2 leases). Each of the leases allows the Company to extend the term of the lease as well as containing a repurchase option. The lease expense for the Company's PVNGS leases is approximately $66.3 million per year. Throughout the terms of the leases, the Company continues to have full and exclusive authority and responsibility to exercise and perform all of the rights and duties of a participant in PVNGS under the Arizona Nuclear Power Project Participation Agreement and retains the exclusive right to sell and dispose of its 10.2% share of the power and energy generated by PVNGS Units 1 and 2. The Company also retains responsibility for payment of its share of all taxes, insurance premiums, operating and maintenance costs, costs related to capital improvements and decommissioning and all other similar costs and expenses associated with the leased facilities. In 1992, the Company purchased approximately 22% of the beneficial interests in the PVNGS Units 1 and 2 leases. The related ownership interests were subsequently reacquired by the Company. In connection with the $30 million retail rate reduction stipulated with the NMPUC in 1994, the Company wrote down the purchased beneficial interests in PVNGS Units 1 and 2 leases to $46.7 million.
Each lease describes certain events, "Events of Loss" or "Deemed Loss Events", the occurrence of which could require the Company to, among other things, (i) pay the lessor and the equity investor, in return for such investor's interest in PVNGS, cash in the amount provided in the lease and (ii) assume debt obligations relating to the PVNGS lease. The "Events of Loss" generally relate to casualties, accidents and other events at PVNGS, which would severely adversely affect the ability of the operating agent, APS, to operate, and the ability of the Company to earn a return on its interests in, PVNGS. The "Deemed Loss Events" consist mostly of legal and regulatory changes (such as changes in law making the sale and leaseback transactions illegal, or changes in law making the lessors liable for nuclear decommissioning obligations). The Company believes the probability of such "Events of Loss" or "Deemed Loss Events" occurring is remote. Such belief is based on the following reasons: (i) to a large extent, prevention of "Events of Loss" and some "Deemed Loss Events" is within the control of the PVNGS participants, including the Company, and the PVNGS operating agent, through the general PVNGS operational and safety oversight process and (ii) with respect to other "Deemed Loss Events", which would involve a significant change in current law and policy, the Company is unaware of any pending proposals or proposals being considered for introduction in Congress, except as described below under "PVNGS Liability and Insurance Matters", or any state legislative or regulatory body that, if adopted, would cause any such events.
PVNGS Decommissioning Funding
The Company has a program for funding its share of decommissioning costs for PVNGS. (See ITEM 3. - "LEGAL PROCEEDINGS - Nuclear Decommissioning Trust".) The nuclear decommissioning funding program is invested in equities and fixed income investments in qualified and non-qualified trusts. The results of the 1998 decommissioning cost study indicated that the Company's share of the PVNGS decommissioning costs excluding spent fuel disposal will be approximately $163.1 million (in 1999 dollars).
The Company funded an additional $3.1 million, $3.0 million and $2.1 million in 1999, 1998 and 1997, respectively, into the qualified trust funds. The estimated market value of the trusts at the end of 1999 was approximately $51.8 million.
The NRC amended its rules on financial assurance requirements for the
decommissioning of nuclear power plants. The amended rules became effective on
November 23, 1998. The NRC has indicated that the amendments respond to the
potential rate deregulation in the power generating industry and NRC concerns
regarding whether decommissioning funding assurance requirements will need to be
modified. The amended rules provide that a licensee may use an external sinking
fund as the exclusive financial assurance mechanism if the licensee recovers
amounts equal to estimated total decommissioning costs through cost of service
rates or through a "non-bypassable charge". Other mechanisms are prescribed,
such as prepayment, surety methods, insurance and other guarantees, if the
requirements for exclusive reliance on the external sinking fund mechanism are
not met. The Company currently relies on the external sinking fund mechanism to
meet the NRC financial assurance requirements for its interests in PVNGS Units
1, 2 and 3. The costs of PVNGS Units 1 and 2 are currently included in PRC
jurisdictional rates, but the costs of PVNGS Unit 3 are excluded from PRC
jurisdictional rates. The Company filed a report with the NRC through APS, the
operating agent of PVNGS, at the end of March 1999, concerning decommissioning
funding assurance, and continues to use the external sinking fund method as the
sole financial assurance method for Unit 3 (see ITEM 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - The
Restructuring Act and the Formation of a Holding Company - NRC Prefunding").
Nuclear Spent Fuel and Waste Disposal
Pursuant to the Waste Act, the DOE is obligated to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. The NRC, pursuant to the Waste Act, requires operators of nuclear power reactors to enter into spent fuel disposal contracts with DOE. Under the Waste Act, DOE was to develop the facilities necessary for the storage and disposal of spent nuclear fuel and to have the first such facility in operation by 1998. That facility was to be a permanent repository. The DOE has announced that such a repository now cannot be completed before 2010. In July 1996, the United States Court of Appeals for the District of Columbia Circuit (D. C. Circuit) ruled that the DOE has an obligation to start disposing of spent nuclear fuel no later than January 31, 1998. By way of letter dated December 17, 1996, the DOE informed the Company and other contract holders that the DOE anticipates that it would be unable to begin acceptance of nuclear spent fuel for disposal in a repository or interim storage facility by January 31, 1998. In November 1997, the D. C. Circuit issued a Writ of Mandamus precluding the DOE from excusing its own delay on the grounds that the DOE has not yet prepared a permanent repository or interim storage facility. On May 5, 1998, the D. C. Circuit issued a ruling refusing to order the DOE to begin moving spent nuclear fuel. See note 12 of Notes to the Consolidated Financial Statements in Item 8 for a discussion of interim spent fuel storage costs.
Several bills have been introduced in Congress contemplating the construction of a central interim storage facility; however, there is resistance to certain features of these bills, both in Congress and the Administration.
Facility funding is a further complication. While all nuclear utilities pay into a so-called nuclear waste fund, an amount calculated on the basis of the output of their respective plants, the annual Congressional appropriations for the permanent repository have been for amounts less than the amounts paid into the waste fund (the balance of which is being used for other purposes). The DOE has stated the fund may now be at a level less than needed to achieve a 2010 operational date for a permanent repository. No funding will be available for a central interim facility until one is authorized by Congress.
APS has storage capacity in existing fuel storage pools at PVNGS which, with certain modifications, could accommodate all fuel expected to be discharged from normal operation of PVNGS through about 2002. Construction of a new facility for on-site dry storage of spent fuel is underway. Once this facility is completed and approvals are granted, APS believes that spent fuel storage or disposal methods will be available for use by PVNGS to allow its continued operation beyond 2002.
A new low-level waste facility was built in 1995 on site, which could store an amount of waste equivalent to ten years of normal operation at PVNGS. Although some low-level waste has been stored on site, APS is currently shipping low-level waste to off-site facilities. APS currently believes that interim low-level waste storage methods are or will be available for use by PVNGS to allow its continued operation and to safely store low-level waste until a permanent disposal facility is available.
The Company believes that scientific and financial aspects of the issues of spent fuel and low-level waste storage and disposal can be resolved satisfactorily. However, the Company also acknowledges that their ultimate resolution in a timely fashion will require political resolve and action on national and regional scales which the Company is unable to predict at this time.
PVNGS Liability and Insurance Matters
The PVNGS participants have insurance for public liability resulting from nuclear energy hazards to the full limit of liability under Federal law. This potential liability is covered by primary liability insurance provided by commercial insurance carriers in the amount of $200 million and the balance by an industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed the primary liability insurance limit, the Company could be assessed retrospective premium adjustments. The maximum assessment per reactor under the program for each nuclear incident is approximately $88 million, subject to an annual limit of $10 million per reactor per incident. Based upon the Company's 10.2% interest in the three PVNGS units, the Company's maximum potential assessment per incident for all three units is approximately $26.9 million, with an annual payment limitation of $3 million per incident. The insureds under this liability insurance include the PVNGS participants and "any other person or organization with respect to his legal responsibility for damage caused by the nuclear energy hazard". If the funds provided by this retrospective assessment program prove to be insufficient, Congress could impose revenue raising measures on the nuclear industry to pay claims.
The NRC announced that it had provided a report to Congress, making certain recommendations, with respect to the Federal law referred to above, which provides for payment of public liability claims in case of a catastrophic accident involving a nuclear power plant. One of the recommendations by the NRC would be that Congress consider amending the law to provide that the maximum a nuclear utility can be assessed per reactor per incident per year be doubled to $20 million. The $88 million maximum retrospective assessment per reactor per incident would be unchanged under the NRC proposal. The NRC also recommended that Congress investigate whether the $200 million now available from the private insurance market for liability claims per reactor can be increased to keep pace with inflation. The Company cannot predict whether or not Congress will act on the NRC's recommendations. However, if adopted, certain of the recommendations could possibly trigger "Deemed Loss Events" under the Company's PVNGS leases, absent waiver by the lessors.
The PVNGS participants maintain "all-risk" (including nuclear hazards) insurance for nuclear property damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.75 billion as of January 1, 2000, a substantial portion of which must be applied to stabilization and decontamination. The Company has also secured insurance against portions of the increased cost of generation or purchased power and business interruption resulting from certain accidental outages of any of the three units if the outages exceed 12 weeks. The insurance coverage discussed in this section is subject to certain policy conditions and exclusions. The Company is a member of an industry mutual insurer. This mutual insurer provides both the "all-risk" and increased cost of generation insurance to the Company. In the event of adverse losses experienced by this insurer, the Company is subject to an assessment. The Company's maximum share of any assessment is approximately $2.6 million per year.
Other Electric Properties
As of December 31, 1999, the Company owned, jointly owned or leased 2,803 circuit miles of electric transmission lines, 4,399 miles of distribution overhead lines, 3,590 cable miles of underground distribution lines (excluding street lighting) and 214 substations.
Acquisition of Certain Assets of Plains Electric Generation and Transmission Cooperative, Inc. ("Plains")
In July 1998, the Company and Tri-State Generation and Transmission Association, Inc. ("Tri-State") made a non-binding joint proposal in response to a request for proposals issued by Plains. The Company and Tri-State submitted a binding proposal in September 1998, and Plains announced that it would enter into exclusive negotiations with the Company and Tri-State regarding this joint proposal. In September 1999, Plains and Tri-State agreed to merge, with Tri-State being the surviving entity. Following the merger, Tri-State will sell certain assets to the Company consisting primarily of transmission assets, a fifty percent interest in an inactive power plant located near Albuquerque and the Plains headquarters building in Albuquerque. In addition, the Company entered into an agreement to become the power supplier of 50 MW to Navopache Electric Cooperative, Inc.
In early 1999, the Company, Tri-State and Plains filed applications with the PRC seeking approval of the various transactions. The parties to that proceeding entered into a stipulation that would have approved the transactions. On January 19, 2000, the hearing examiner issued a recommended decision disapproving the stipulation because, among other things, provisions of the stipulation, relating to the PRC's jurisdiction over Tri-State after the merger, were not in the public interest. On February 8, 2000, Plains and Tri-State filed exceptions to the recommended decision. In addition, on January 20, 2000, a bill was introduced in the New Mexico Legislature that would restrict the jurisdiction of the PRC over generation and transmission cooperatives like Tri-State. The bill passed both the House and the Senate and it has now been signed by the governor. On February 22, 2000, the PRC, noting that the Legislature had passed legislation containing jurisdictional restrictions similar to the stipulation, declined to adopt the recommended decision and instead adopted the stipulation with jurisdiction over Tri-State being in conformance with the laws of the State of New Mexico.
The Company and Tri-State entered into an asset sale agreement dated September 9, 1999, pursuant to which Tri-State has agreed to sell the above-referenced assets to the Company. The purchase price is $13.2 million, subject to adjustment at the time of closing. The asset sale agreement contains standard covenants and conditions for this type of agreement. Currently, the parties anticipate that the merger will occur in the summer of 2000 and with all asset transfers to the Company to be completed by approximately the fall of 2000.
NATURAL GAS
The natural gas properties as of December 31, 1999, consisted primarily of natural gas storage, transmission and distribution systems. Provisions for storage made by the Company include ownership and operation of an underground storage facility located near Albuquerque, New Mexico. The transmission systems consisted of approximately 1,334 miles of pipe with appurtenant compression facilities. The distribution systems consisted of approximately 10,693 miles of pipe.
On June 21, 1996, the Company entered into a purchase agreement with the DOE for the purchase of approximately 130 miles of transmission pipe for $3.1 million for the transmission of natural gas to Los Alamos and to certain other communities in northern New Mexico. The acquisition by the Company was approved by the NMPUC in December 1996. Final right-of-way clearances were obtained in July 1999. Effective August 1, 1999, the DOE delivered to the Company a Quit Claim Deed conveying the pipeline and all land interests associated with the pipeline. The transfer effectively terminated the Company's existing lease agreement with the DOE. The Company will pay the $3.1 million by providing transportation services to Los Alamos National Laboratory for a period not to exceed three years. Any part of the remaining purchase price still due after three years may either be remitted to the government in a final lump sum cash payment or used for additional transportation services.
OTHER INFORMATION
The electric and gas transmission and distribution lines are generally located within easements and rights-of-way on public, private and Indian lands. The Company leases interests in PVNGS Units 1 and 2 and related property, EIP and associated equipment, data processing, communication, office and other equipment, office space, utility poles (joint use), vehicles and real estate. The Company also owns and leases service and office facilities in Albuquerque and in other operating divisions throughout its service territory.
ITEM 3. LEGAL PROCEEDINGS
PVNGS WATER SUPPLY LITIGATION
The Company understands that a summons served on APS in 1986 required all water claimants in the Lower Gila River Watershed of Arizona to assert any claims to water on or before January 20, 1987, in an action pending in the Maricopa County Superior Court. PVNGS is located within the geographic area subject to the summons and the rights of the PVNGS participants, including the Company, to the use of groundwater and effluent at PVNGS are potentially at issue in this action. APS, as the PVNGS project manager, filed claims that dispute the court's jurisdiction over the PVNGS participants' groundwater rights and their contractual rights to effluent relating to PVNGS and, alternatively, seek confirmation of such rights. Issues important to the claims are pending in an interlocutory appeal to the Arizona Supreme Court. No trial date concerning the water rights claims has been set in this matter. Although the foregoing remains subject to further evaluation, APS expects that the described litigation will not have a material adverse impact on the operation of PVNGS.
SAN JUAN RIVER ADJUDICATION
In 1975, the State of New Mexico filed an action entitled State of New
Mexico v. United States, et al., in the District Court of San Juan County, New
Mexico, to adjudicate all water rights in the "San Juan River Stream System".
The Company was made a defendant in the litigation in 1976. The action is
expected to adjudicate water rights used at Four Corners and at SJGS. (See ITEM
1. "BUSINESS - ELECTRIC OPERATIONS - Fuel and Water Supply - Water Supply".) The
Company cannot at this time anticipate the effect, if any, of any water rights
adjudication on the present arrangements for water at SJGS and Four Corners. It
is the Company's understanding that final resolution of the case cannot be
expected for several years and is unable to predict the ultimate outcome.
OTHER PROCEEDINGS
Republic Savings Bank Litigation
In 1992, Meadows and RHC filed suit against the Federal government in the United States Court of Claims, alleging breach of contract arising from the seizure of RSB, a wholly-owned subsidiary of RHC. RSB was seized and liquidated after the Financial Institutions Reform, Recovery and Enforcement Act prohibited certain accounting practices authorized by contracts with the Federal government. The Federal government filed a counterclaim alleging breach by RHC of its obligation to maintain RSB's net worth and moved to dismiss Meadows' claims for lack of standing.
RSB filed a motion for partial summary judgment on the issue of
liability based on the United States Supreme Court's decision in United States
v. Winstar Corporation, decided in 1996. The Federal government filed a cross
motion for summary judgment and opposed RSB's motion. Decision on those motions
is still pending. The parties completed fact based discovery in 1999 and are in
the process of discovery of experts. No trial date has been established. RSB
amended its summary judgment motion in December 1999, to seek summary judgment
on the issue of damages. The Federal government will oppose RSB's amended
motion. It is premature to estimate the amount of recovery, if any, by Meadows
and RHC.
Purported Navajo Environmental Regulation
Four Corners is located on the Navajo Reservation and is held under easement granted by the Federal government as well as leases from the Navajo Nation. APS is the operating agent and the Company owns a 13% ownership interest in Units 4 and 5 of Four Corners. In July 1995, the Navajo Nation enacted the Navajo Nation Air Pollution Prevention and Control Act, the Navajo Nation Safe Drinking Water Act and the Navajo Nation Pesticide Act (collectively, the "Acts"). Pursuant to the Acts, the Navajo Nation Environmental Protection Agency is authorized to promulgate regulations covering air quality, drinking water and pesticide activities, including those that occur at Four Corners. By letter dated October 12, 1995, the Four Corners participants requested the United States Secretary of the Interior (the "Secretary") to resolve their dispute with the Navajo Nation regarding whether or not the Acts apply to operation of Four Corners. The Four Corners participants subsequently filed a lawsuit in the District Court of the Navajo Nation (the "Court"), Window Rock District, seeking a declaratory judgment that: (i) the Four Corners leases and Federal easements preclude the application of the Acts to the operation of Four Corners and (ii) the Navajo Nation and its agencies and courts lack adjudicatory jurisdiction to determine the enforceability of the Acts as applied to Four Corners. In October 1995, the Navajo Nation and the Four Corners participants agreed to indefinitely stay the proceedings so that the parties may attempt to resolve the dispute without litigation, and the Secretary and the Court stayed these proceedings pursuant to a request by the parties. The Company is unable to predict the outcome of this matter.
In February 1998, the EPA issued regulations specifying provisions of the Clean Air Act for which it is appropriate to treat Indian tribes in the same manner as states. The EPA indicated that it believes that the Clean Air Act generally would supersede pre-existing binding agreements that may limit the scope of tribal authority over reservations. APS and the Company have filed appeals, which have been consolidated, in the United States Circuit Court of Appeals for the District of Columbia ("D. C. Circuit") to contest EPA's authority under the regulations. The Navajo Nation has intervened in the consolidated appeal. The Navajo Nation is a tribe which could potentially assert its status as a state under the Act pursuant to the EPA rule in question. In the consolidated appeal, the Company's interests as operator and joint owner of the SJGS, owner of other facilities located on reservations located in New Mexico, and joint owner of Four Corners are involved.
In February 1999, the EPA issued regulations under which Federal operating permits for stationary sources in Indian country can be issued pursuant to Title V of the Clean Air Act. The regulations rely on authority contained in an earlier rule in which the EPA outlined treatment of tribes as states under the Clean Air Act. That rule is the subject of an appeal as described above. APS and the Company have filed appeals, which have also been consolidated in the D. C. Circuit to contest the EPA's authority under the regulations. In the consolidated appeal, the Company's interests as operator and joint owner of the SJGS, owner of other facilities located on reservations located in New Mexico, and joint owner of Four Corners are involved. This appeal has been stayed pending the outcome of the other appeal described above. The Company cannot predict the outcome of the consolidated appeal.
Nuclear Decommissioning Trust
In 1998, the Company and the trustee of the Company's master decommissioning trust filed a civil complaint and an amended complaint, respectively, against several companies and individuals for the under-performance of a corporate owned life insurance program. The program, which was approved by the NMPUC and set up in a trust in 1987, was used to fund a portion of the Company's nuclear decommissioning obligations for its 10.2% interest in PVNGS. In January 1999, the life insurance program was terminated, and the life insurance policies were surrendered by the trust in exchange for the cash surrender value of the policies. In the lawsuit, the Company asserted various tort, contract and equity theories against the defendants, seeking, among other things, an amount sufficient to compensate for the harm to the Company caused by the defendants' conduct. A defendant counterclaimed for indemnity based on its engagement contract with the Company, claiming that if it had injured the trustee, then the Company must pay the damages. The Company denied liability under the counterclaim and set forth numerous defenses. The case is proceeding in State District Court in Santa Fe County. The defendants' motions to dismiss were denied and the Company's motions to further amend the complaint to assert claims against two additional defendants, a law firm and an accounting firm, were granted.
On August 13, 1999, the Company appealed one of the trial court's decisions regarding pretrial discovery to the New Mexico Court of Appeals. While this decision is on appeal, all pretrial discovery is being stayed. The Company is currently unable to predict the ultimate outcome or amount of recovery, if any.
Royalty Claims
Natural Gas Royalties Qui Tam Litigation
On June 28, 1999, a complaint was served on the Company alleging violations of the False Claims Act by the Company and its subsidiaries, Gathering Company and Processing Company (collectively called Company, for purposes of this discussion), by purportedly failing to properly measure natural gas from Federal and tribal properties in New Mexico, and consequently, underpaid royalties owed to the Federal government. A private relator is pursuing the lawsuit. The complaint was served after the United States Department of Justice declined to intervene to pursue the lawsuit. The complaint seeks actual damages, treble damages, costs and attorneys fees, among other relief.
This case was consolidated with approximately 70 others, asserting similar claims against other defendants in other jurisdictions, and transferred to Federal District Court for the District of Wyoming by the Federal Multi-District Litigation panel (MDL Panel), recaptioned as In re: Natural Gas Royalties Qui Tam Litigation, MDL Docket No. 1293. The Company joined 250 other defendants in a motion to dismiss the complaint for failure to plead properly in November 1999. The motion is set for oral argument on March 17, 2000.
The Company is vigorously defending this lawsuit and is unable to estimate the potential liability, if any, or to predict the ultimate outcome of this lawsuit.
Quinque Operating Co. et al. v. Gas Pipelines, et al
A class action lawsuit against 233 defendants, including the Company, captioned Quinque Operating Co. et al. v. Gas Pipelines, et al., C.A. No. 99-CV-30, was filed in the state district court for Stevens County, Kansas by representatives of classes of gas producers, royalty owners, overriding royalty owners and working interest owners, alleging that the defendants, all engaged in various aspects of the natural gas industry, mismeasured natural gas and underpaid royalties for gas produced on non-federal and non-tribal lands. The claims for relief are based on Kansas state law, including a breach of contract claim. They are factually similar, however, to the allegations of In re: Natural Gas Royalties Qui Tam Litigation, described above. The Quinque complaint seeks actual damages, treble damages, costs and attorneys fees among other relief.
The Quinque case was removed to the United States District Court for the District of Kansas. Thereafter, several defendants moved the MDL Panel to transfer the case to the United States District Court for Wyoming and to consolidate it with the In re: Natural Gas Royalties Qui Tam Litigation. Plaintiffs have filed objections to the motions to consolidate and transfer and have filed with the U. S District Court in Kansas a motion to remand the case to state court. Both matters are awaiting decision.
The Company is vigorously defending this lawsuit and is unable to estimate the potential liability, if any, or to predict the ultimate outcome of this lawsuit.
KAFB Contract
The Company was informed that the DOE had entered into an agency agreement with Western on behalf of KAFB, one of the Company's largest retail electric customers, by which Western will competitively procure power for KAFB. The proposed wholesale power procurement would begin at the expiration of KAFB's power service contract with the Company in December 1999. On May 4, 1999, the Company received a request for network transmission service from Western pursuant to Section 211 of the Federal Power Act to facilitate the delivery of wholesale power to KAFB over the Company's transmission system. The Company denied Western's request, by letter dated June 30, 1999, citing the fact that KAFB is and will continue to be a retail customer until the effective date KAFB can elect customer choice service under the provisions of the Restructuring Act of 1999 (the effective date for customer choice for KAFB is January 1, 2002, unless extended by the PRC). The Company also cited several provisions of Federal law that prohibit the provision of such service to Western. On September 30, 1999, DOE/Western filed a petition at the FERC requesting the FERC to consider, on an expedited basis, ordering the Company to provide network transmission service to Western under the Company's Open Access Transmission Tariff on behalf of DOE and several other entities located on KAFB. The petition claims KAFB is a wholesale customer of the Company, not a retail customer. On October 8, 1999, Western filed a request at FERC for expedited consideration of its petition for an order to assure continued service by the Company to KAFB once the contract between the Company and KAFB expired on December 13, 1999. The Company filed a separate motion to intervene, protest, and motion to dismiss each of the petitions on October 25, 1999 and November 11, 1999, respectively. In a separate but related proceeding, the Company and the United States Executive Agencies on behalf of KAFB are involved in a PRC case regarding a dispute over the specific Company tariff language under which the Company provides retail service to KAFB. The Company agreed to continue to provide service to KAFB after expiration of the contract, pending resolution of all relevant issues. The Company has attempted to pursue a negotiated resolution of the issues regarding the provision of electric service to KAFB, but has been unsuccessful. On February 3, 2000, Western withdrew its petition for an Order to secure continuation of service.
The net revenue loss to the Company if the Company is replaced as the power supplier to KAFB is estimated to be approximately $7.0 million annually. The Company is currently unable to predict the ultimate outcome of these matters, and intends to continue to vigorously defend its position.
City of Gallup Complaint
In 1998, Gallup, Gallup Joint Utilities and the Pittsburg & Midway Coal Mining Co. ("Pitt-Midway") filed a joint complaint and petition ("Complaint") with the NMPUC (predecessor of the PRC). The Complaint sought an interim declaratory order stating, among other things, that Pitt-Midway is no longer an obligated customer of the Company, Gallup is entitled to serve Pitt-Midway and the Company must wheel power purchased by Gallup from other suppliers over the Company's transmission system. In September 1998, the NMPUC issued an order without conducting a hearing, granting the requests sought in the Complaint.
On October 13, 1999, issued an opinion and Order annulling and vacating the NMPUC Order, stating that: (1) Gallup does not qualify as an interested electric utility authorized to seek a wheeling order from the NMPUC; and (2) the NMPUC did not have the statutory authority to order Wheeling under the Public Utility Act.
On December 1, 1999, Gallup and Pitt-Midway submitted a Joint Request to the PRC for an expedited order to comply with the mandate of the Court, stating that the original NMPUC Order included several other findings not specifically overturned by the Court, and the Commission should issue an order to "affirm" the findings and issues not disposed of by the Supreme Court. On December 13, 1999, the Company filed a response stating that the Supreme Court had annulled and vacated the PRC remand order in its entirety, and the PRC has no jurisdiction to reconsider the issues raised. On January 28, 2000, Gallup filed a motion for leave to respond to the Company's response, which the company has opposed as untimely.
The PRC has taken no action on this case other than during a working session, in which (based on Gallup and Pitt-Midway joint motion for expedited order on remaining issues) they requested that PRC counsel write up a procedural order allowing the parties to resubmit the issues to the PRC. The PRC counsel charged with that task subsequently left the PRC and the procedural order was never completed.
Hearings were held at the FERC in late February 2000, regarding the issue of whether the Company-Gallup Agreement requires the Company to transmit power to Gallup for delivery at the Yah-Ta-Hey Substation. A decision on this issue is not expected until late summer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
Executive officers, their ages, offices held with the Company in the past
five years and initial effective dates thereof, were as follows on December 31,
1999, except as otherwise noted:
Name Age Office Initial Effective Date
---- --- ------ ----------------------
B. F. Montoya (1)......... 64 Chairman, President and Chief Executive
Officer June 15, 1999
President and Chief Executive Officer August 1, 1993
R. J. Flynn................ 57 Executive Vice President, Electric and Gas
Services January 18, 1999
Senior Vice President, Electric Services December 1, 1994
W. J. Real................. 51 Executive Vice President, Energy Services and
Power Production January 18, 1999
Senior Vice President, Gas Services December 6, 1994
Senior Vice President, Utility Operations December 7, 1993
Senior Vice President, Customer Service and
Operations March 2, 1993
Executive Vice President, Gas Operations June 19, 1990
B. L. Barsky............... 55 Senior Vice President, Corporate Strategy and
Investor Relations February 19, 2000
Senior Vice President and Corporate Secretary March 6, 1999
Vice President, Strategic Analysis and Investor
Relations February 14, 1996
Director, Investor Relations and Financial Analysis July 19, 1993
M. D. Christensen.......... 51 Senior Vice President, Shared Services October 1, 1999
Senior Vice President, New Mexico Retail Services November 3, 1997
Senior Vice President, Customer Service and
Public Affairs January 9, 1996
Vice President, Public Affairs December 7, 1993
Vice President, Communications July 22, 1991
M. H. Maerki............... 59 Senior Vice President and Chief Financial Officer December 7, 1993
Senior Vice President, Administration and Chief
Financial Officer March 2, 1993
Senior Vice President and Chief Financial Officer June 1, 1988
|
Name Age Office Initial Effective Date
---- --- ------ ----------------------
P. T. Ortiz................ 49 Senior Vice President, General Counsel and Secretary
Senior Vice President, Regulatory Policy, General
Counsel and Secretary December 7, 1993
Senior Vice President, Public Policy, General
Counsel and Secretary March 2, 1993
Senior Vice President, General Counsel and
Corporate Secretary February 4, 1992
E. Padilla, Jr............. 46 Senior Vice President, Bulk Power Marketing and
Development February 8, 2000
Vice President, Bulk Power Marketing and
Development December 14, 1996
Director, Marketing and Power Contracts January 14, 1991
R. B. Ridgeway............. 41 Senior Vice President, Energy Services December 14, 1996
Vice President, Corporate Planning August 10, 1996
Director, Corporate Strategy July 2, 1994
Consultant, Competitive Analysis October 5, 1992
---------------------
|
All officers are elected annually by the Board of Directors of the Company.
(1) Benjamin F. Montoya, Chief Executive Officer and Chairman of the Board, has announced his decision to retire sometime within the next 18 months. In January 2000, Jeffry E. Sterba was hired to succeed Mr. Monotya. Mr. Sterba was Executive Vice President for USEC, Inc., a provider of fuel for nuclear power plants, from January 1999 to March 2000. From March 1997 to December 31, 1998, Mr. Sterba was Executive Vice President and Chief Operating Officer of the Company. From December 1994 to March 1997, Mr. Sterba was Senior Vice President, Bulk Power Services for the Company. Mr. Sterba assumed the duties of President in March 2000. He will assume the duties of Chief Executive Officer in June 2000 and become Chairman of the Board upon Mr. Montoya's retirement.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange. Ranges of sales prices of the Company's common stock, reported as composite transactions (Symbol: PNM), and dividends declared on common stock for 1999 and 1998, by quarters, are as follows:
Range of
Quarter Ended Sales Prices
------------- ------------ Dividends
High Low Per Share
---- --- ---------
1999
December 31 ..................... 18 7/8 15 7/16 $0.20
September 30 .................... 21 1/2 16 3/4 0.20
June 30 ......................... 21 1/8 16 7/8 0.40
March 31 ........................ 20 5/8 14 27/32 0.20
-----
Fiscal Year .................. 21 1/2 14 27/32 $1.00
=====
1998
December 31 ..................... 23 5/16 17 3/8 $ - *
September 30 .................... 23 3/16 19 1/16 0.20
June 30 ......................... 24 3/4 20 15/16 0.20
March 31 ........................ 24 11/16 22 1/8 0.20
-----
Fiscal Year .................. 24 3/4 17 3/8 $0.60
=====
|
*On January 18, 1999, the Company's Board of Directors ("Board") declared a quarterly cash dividend of 20 cents per share of common stock payable February 19, 1999, to shareholders of record as of February 1, 1999.
On January 31, 2000, there were 16,013 holders of record of the Company's common stock.
The Board set the dividend payout ratio below the industry average to allow for dividend growth in the future and to sustain financial flexibility for the Company to respond to potential opportunities in the evolving energy marketplace. In establishing its dividend policy, the Board weighed the Company's current financial position and its future business plan, as well as the regulatory and business climate in New Mexico. Future dividend declaration will be reviewed for action by the Board. The payment of future dividends will depend on a number of factors, including the extent to which cash flows will support dividends, the availability of retained earnings, the financial circumstances and performance of the Company, the PRC's decisions on the Company's various regulatory cases currently pending, the effect of deregulating generation markets and market and economic conditions generally. In addition, the ability to recover stranded costs in deregulation, future growth plans and the related capital requirements and standard business considerations will also affect the Company's ability to pay dividends.
Cumulative Preferred Stock
While isolated sales of the Company's cumulative preferred stock have occurred in the past, the Company is not aware of any active trading market for its cumulative preferred stock. Quarterly cash dividends were paid on the Company's cumulative preferred stock at the stated rates during 1999 and 1998.
ITEM 6. SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995
---------- ----------- ---------- ---------- ----------
(In thousands except per share amounts and ratios)
Total Operating Revenues......................... $1,157,543 $ 1,092,445 $1,020,521 $ 873,778 $ 808,465
Earnings from Continuing Operations.............. $ 79,614 $ 95,119 $ 86,497 $ 72,969 $ 75,562
Net Earnings..................................... $ 83,155 $ 82,682 $ 80,995 $ 72,580 $ 75,562
Earnings per Common Share:
Continuing Operations.......................... $ 1.93 $ 2.27 $ 2.05 $ 1.73 $ 1.72
Basic.......................................... $ 2.01 $ 1.97 $ 1.92 $ 1.72 $ 1.72
Diluted........................................ $ 2.01 $ 1.95 $ 1.91 $ 1.71 $ 1.72
Total Assets..................................... $2,723,268 $ 2,668,603 $2,407,410 $2,313,334 $2,107,908
Long-Term Debt, including Current Maturities..... $ 988,489 $ 1,008,614 $ 714,345 $ 728,889 $ 728,989
Common Stock Data:
Market price per common share at year end...... $ 16.250 $ 20.438 $ 23.688 $ 19.625 $ 17.625
Book value per common share at year end........ $ 21.79 $ 20.63 $ 19.26 $ 18.06 $ 16.82
Average number of common shares outstanding.... 41,038 41,774 41,774 41,774 41,774
Cash dividend declared per common share........ $ 1.00 $ 0.60 $ 0.68 $ 0.48 $ -
Return on Average Common Equity.................. 9.5% 9.9% 10.2% 9.8% 10.7%
Capitalization:
Common stock equity............................ 46.7% 45.4% 52.6% 50.4% 48.6%
Preferred stock without mandatory redemption
Requirements................................. 0.7 0.7 0.8 0.9 0.9
Long-term debt, less current maturities........ 52.6 53.9 46.6 48.7 50.5
------------- ------------- ------------ ----------- ------------
100.0% 100.0% 100.0% 100.0% 100.0%
============= ============= ============ =========== ============
|
Due to the discontinuance of the natural gas trading operations of its Energy Services Business Unit (see note 13 of the notes to consolidated financial statements), certain prior year amounts have been reclassified as discontinued operations.
The selected financial data should be read in conjunction with the consolidated financial statements, the notes to consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's assessment of the Company's financial condition and the significant factors affecting the results of operations. This discussion should be read in conjunction with the Company's consolidated financial statements and PART I, ITEM 3. - Legal Proceedings. Trends and contingencies of a material nature are discussed to the extent known and considered relevant.
OVERVIEW
The Company is a public utility primarily engaged in the generation, transmission, distribution and sale of electricity and in the transmission, distribution and sale of natural gas within the State of New Mexico. In addition, in pursuing new business opportunities, the Company provides energy and utility related activities through its wholly owned subsidiary, Avistar.
ELECTRIC OPERATIONS
The Company's electric operations serve four principal markets. Sales to retail customers and sales to firm-requirements wholesale customers, sometimes referred to collectively as "system" sales, comprise two of these markets. The third market consists of other contracted sales to utilities for which the Company commits to deliver a specified amount of capacity (measured in megawatts-MW) or energy (measured in megawatt hours-MWh) over a given period of time. The fourth market consists of economy energy sales made on an hourly basis at fluctuating, spot-market rates. Sales to the third and fourth markets are sometimes referred to collectively as "off-system" sales.
The Company provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque and Santa Fe, and certain other areas of New Mexico.As of December 31, 1999, 1998 and 1997, approximately 361,000, 358,000 and 349,000, respectively, retail electric customers were served by the Company.
ELECTRIC SALES BY MARKET
(Thousands of dollars)
1999 1998 1997
--------- --------- ---------
Retail .................................... $522,523 $536,417 $519,504
Firm-requirements wholesale................. 7,046 10,708 10,690
Other contracted off-system sales........... 226,773 142,115 118,876
Economy energy sales........................ 131,549 122,156 55,768
Other .................................... 24,086 23,808 17,600
--------- --------- ---------
$911,977 $835,204 $722,438
========= ========= =========
|
ELECTRIC SALES BY MARKET
(Megawatt hours)
1999 1998 1997
---------- ---------- ----------
Retail ................................. 6,803,853 6,739,874 6,534,899
Firm-requirements wholesale.............. 179,249 278,615 278,727
Other contracted off-system sales........ 6,196,499 4,033,931 3,790,081
Economy energy sales..................... 4,795,873 4,469,769 2,716,835
---------- ---------- ----------
17,975,474 15,522,189 13,320,542
========== ========== ==========
|
The Company has ownership interests in certain generating facilities located in New Mexico, including Four Corners, a coal fired unit, and SJGS, a coal fired unit. In addition, the Company has ownership and leasehold interests in PVNGS located in Arizona. These generation assets are used to supply retail and wholesale customers. The Company also owns Reeves, a gas and oil fired unit and Las Vegas, a gas and oil fired unit that are used solely for reliability purposes or to generate electricity for the wholesale market during peak demand periods in the Company's wholesale power markets. As of December 31, 1999, the total net generation capacity of facilities owned or leased by the Company was 1,521 MW. In addition to generation capacity, the Company purchases power in the open market. The Company is also interconnected with various utilities for economy interchanges and the mutual assistance in emergencies. The Company has been actively trading in the wholesale power market and has entered into and anticipates that it will continue to enter into power purchase agreements to accommodate its trading activity.
NATURAL GAS OPERATIONS
The Company's gas operating division, PNMGS, distributes natural gas to most of the major communities in New Mexico, including Albuquerque and Santa Fe, serving approximately 426,000, 419,000 and 410,438 customers as of December 31, 1999, 1998 and 1997, respectively. PNMGS' customer base includes both sales-service customers and transportation-service customers. Sales-service customers purchase natural gas and receive transportation and delivery services from PNMGS for which PNMGS receives both cost-of-gas and cost-of-service revenues. Additionally, PNMGS makes occasional gas sales to off-system customers. Off-system sales deliveries generally occur at interstate pipeline interconnects with PNMGS' system. Transportation-service customers, who procure gas independently of PNMGS and contract with PNMGS for transportation and related services, provide PNMGS with cost-of-service revenues only.
PNMGS obtains its supply of natural gas primarily from sources within New Mexico pursuant to contracts with producers and marketers. These contracts are generally sufficient to meet PNMGS peak-day demand. PNMGS serves certain cities which depend on EPNG or Transwestern Pipeline Company for transportation of gas supplies. Because these cities are not directly connected to PNMGS transmission facilities, gas transported by these companies is the sole supply source for those cities. Such transportation is regulated by FERC.
The following table shows gas throughput by customer class:
GAS THROUGHPUT
(Millions of decatherms)
1999 1998 1997
------ ------ -------
Residential.................................... 29.3 30.3 30.7
Commercial..................................... 10.1 10.4 10.6
Industrial..................................... 2.3 1.5 1.3
Public authorities............................. 2.9 3.4 4.2
Irrigation..................................... 1.4 1.9 1.6
Sales for resale............................... 1.2 1.2 1.2
Unbilled....................................... 3.8 (1.3) (0.2)
Transportation*................................ 40.2 36.4 34.0
Off-system sales............................... 1.1 1.9 1.2
------ ------ -------
92.3 85.7 84.6
====== ====== =======
|
The following table shows gas revenues by customer:
GAS REVENUES
(Thousands of dollars)
1999 1998 1997
-------- --------- ----------
Residential.............................. $148,968 $161,153 $ 187,563
Commercial............................... 36,528 42,680 50,502
Industrial............................... 8,550 4,887 4,536
Public authorities....................... 9,782 12,610 17,577
Irrigation............................... 4,229 5,780 5,041
Sales for resale......................... 2,530 3,596 4,465
Unbilled................................. 4,107 (955) (2,172)
Transportation*.......................... 12,390 13,464 14,172
Liquids.................................. 1,867 1,463 4,451
Off-system sales......................... 2,357 3,816 1,926
Other.................................... 5,403 7,481 6,708
-------- --------- ----------
$236,711 $255,975 $294,769
======== ========= ==========
|
*Customer-owned gas.
AVISTAR
The Company's wholly-owned subsidiary, Avistar, was formed in August 1999 as a New Mexico corporation and is currently engaged in certain unregulated, non-utility businesses, including energy and utility-related services previously operated by the Company. The PRC authorized the Company to invest $50 million in equity in Avistar and to enter into a reciprocal loan agreement for up to $30 million. The Company has currently invested $25 million in Avistar. In February 2000, Avistar invested $3 million in AMDAX.com, a start-up company which will provide an on line auction service to bring together electricity buyers and sellers in the deregulated electric power market. In addition, Avistar entered into an agreement with Sandia Corporation to jointly develop and market new risk and reliability software for private industry. Avistar, also, operates and manages the City of Santa Fe's water system.
RESTRUCTURING THE ELECTRIC UTILITY INDUSTRY
Introduction of competitive market forces and restructuring of the electric utility industry in New Mexico continue to be key issues facing the Company. The Restructuring Act was enacted into law on April 8, 1999, opening the state's electric power market to customer choice beginning in 2001. The law gives schools, residential and small business customers the opportunity to choose among competing power suppliers beginning in January 2001. Competition will be expanded to include all customers starting in January 2002. The PRC, however, can extend these dates by up to one year if necessary. Rural electric cooperatives and municipal electric systems have the option not to participate in the competitive market.
Residential and small business customers who do not select a power supplier in the open market can buy their electricity through their local utility through a "standard offer" whereby the local distribution utility will purchase power supplies through a competitive process approved by the PRC. The local distribution utility system and related services such as billing and metering will continue to be regulated by the PRC, while the interstate transmission system will remain subject to Federal regulation.
The law does not require utilities to divest their generating plants, but requires unregulated activities to be separated from the regulated activities through creation of at least two separate corporations.
The law also provides for sharing of stranded costs between utility shareholders and customers, allowing utilities to recover at least half of such stranded costs. Stranded costs are defined in the law to include nuclear decommissioning costs, regulatory assets, leases and other costs recognized under existing regulation. Utilities could be allowed to recover more than half of their stranded costs if they meet the criteria specified in the law. Stranded costs will be recovered from customers over a five-year period. Utilities will also be allowed to recover through 2007 all transition costs reasonably incurred to comply with the new law.
The law, however, does not provide a guaranteed rate cut for residential customers. Electric rates during the transition to competition will be set by the PRC. The Company received a recent rate case order, which did result in a rate reduction. (See "Electric Rate Case" below.)
The Company is required to file a transition plan with the PRC by June 1, 2000. The transition plan must include proposals for: (i) implementing customer choice and open access to the Company's transmission and distribution system; (ii) separating regulated and non-regulated business activities; (iii) recommended rates for distribution, transmission and related services; (iv) competitive procurement process for standard offer; and (v) recovery of stranded costs and transition costs. The Company plans to reorganize its operations by forming a holding company structure as a means of achieving the corporate and asset separation required by the Restructuring Act. The proposed holding company will be called Manzano Corporation. On February 15, 2000, the PRC approved the Company's request to form a wholly-owned shell subsidiary which will become the holding company. The Company's plan for a holding company structure will separate the Company into two subsidiaries. Shareholders will be asked to approve the holding company structure. If the Company receives all necessary regulatory and other approvals, pursuant to the Restructuring Act, all of the Company's electric and gas distribution and transmission assets and related liabilities will be transferred to a newly created subsidiary. After this asset transfer, this subsidiary will acquire the name "Public Service Company of New Mexico" (for purposes of this discussion, the subsidiary will be referred to as "UtilityCo") and the corporation formerly named Public Service Company of New Mexico will be renamed Manzano Energy Corporation (for purposes of this discussion, the subsidiary will be referred to as "Energy"). Energy will continue to own the Company's existing electric generation and unregulated, competitive assets after completion of the transfer of the regulated business to the newly created utility subsidiary. UtilityCo and Energy will be wholly-owned subsidiaries of Manzano. (See "FORMATION OF HOLDING COMPANY" below.)
COMPETITIVE STRATEGY
The restructuring of the electric utility industry will provide new opportunities; however, the Company anticipates that it will experience downward pressure on the Company's utility earnings from their current levels. The reasons for the downward pressure include possible limits on return on equity, disallowance of some stranded costs and the potential loss of certain customers in a competitive environment.
Under a holding company structure, the regulated businesses (natural gas and electric transmission and distribution) will be grouped under a separate company and would focus on the core utility business in New Mexico. The unregulated businesses under the Restructuring Act (power production, bulk power marketing and energy services) would aggressively pursue efforts to expand energy marketing and utility related businesses into carefully targeted markets in an effort to increase shareholders' value. The Company believes that successful operations of its proposed unregulated business activities under a holding company structure will better position the Company in an increasingly competitive utility environment.
The Company's bulk power operations have contributed significant earnings to the Company in recent years as a result of increased off-system sales. The Company plans to expand its wholesale power trading functions which could include an expansion of its generation portfolio. The Company continuously evaluates its physical asset acquisition strategies to ensure an optimal mix of base-load generation, peaking generation and purchased power in its power portfolio.
In addition to the continued power trading operations, the Company will further focus on opportunities in the market place where excess capacity is disappearing and mid- to long-term market demands are growing.
The Company's current business plan includes a 300% increase in sales and a doubling of its generating capacity through the construction or acquisition of additional power generation assets in its surrounding region of operations. Such growth will be dependent upon the Company's ability to generate $400 to $600 million to fund the Company's expansion. There can be no assurance that these competitive businesses, particularly the generation business, will be successful or, if unsuccessful, that they will not have a direct or indirect adverse effect on the Company.
At the Federal level, there are a number of proposals on electric restructuring being considered with no concrete timing for definitive actions. It is expected that previously introduced restructuring bills will be re-introduced this year. Issues such as stranded cost recovery, market power, utility regulations reform, the role of states, subsidies, consumer protections and environmental concerns are expected to be at the forefront of the Congressional debate. In addition, the FERC has stated that if Congress mandates electric retail access, it should leave the details of the program to the states and the FERC has the authority to order the necessary transmission access for the delivery of power for the states' retail access programs.
Although it is unable to predict the ultimate outcome of retail competition in New Mexico, the Company has been and will continue to be active at both the state and Federal levels in the public policy debates on the restructuring of the electric utility industry. The Company will continue to work with customers, regulators, legislators and other interested parties to find solutions that bring benefits from competition while recognizing the importance of reimbursing utilities for past commitments.
RESULTS OF OPERATIONS
The following discussion is based on the financial information presented in Footnote 1 of the Consolidated Financial Statements - Nature of Business and Segment Information. The table below sets forth the operating results as percentages of total operating revenues for each business segment.
Year Ended December 31, 1999
Electric Gas Other Consolidated
--------- --------- -------- ------------
Operating revenues................... 100.00% 100.00% 100.00% 100.00%
Cost of energy sold.................. 45.95% 47.71% 0.00% 45.96%
Cost of sales and projects........... 0.00% 0.00% 91.35% 0.70%
--------- --------- --------- --------
Gross Margin......................... 54.05% 52.29% 8.65% 53.35%
--------- --------- --------- --------
Administrative and other costs....... 9.23% 22.15% 101.82% 12.58%
Energy production costs.............. 15.27% 0.63% 0.00% 12.16%
Depreciation and amortization........ 7.99% 8.35% 0.00% 8.00%
Transmission and distribution costs.. 3.40% 11.92% 0.00% 5.12%
Taxes other than income taxes........ 3.12% 2.98% (15.90)% 2.94%
Income taxes......................... 3.03% (0.14)% (25.53)% 2.16%
--------- --------- --------- --------
Total non-fuel operating expenses.... 42.04% 45.90% 60.38% 42.97%
--------- --------- --------- --------
Operating income..................... 12.01% 6.39% (51.73)% 10.37%
--------- --------- --------- --------
Year Ended December 31, 1998
Operating revenues.................. 100.00% 100.00% 100.00% 100.00%
Cost of energy sold................. 37.68% 52.64% 0.00% 41.14%
Cost of sales and projects.......... 0.00% 0.00% 73.93% 0.09%
--------- --------- --------- --------
Gross Margin........................ 62.32% 47.36% 26.07% 58.77%
--------- --------- --------- --------
Administrative and other costs...... 9.12% 19.13% 760.66% 12.34%
Energy production costs............. 17.90% 0.09% 0.00% 13.71%
Depreciation and amortization....... 8.41% 6.20% 4.98% 7.89%
Transmission and distribution costs. 3.85% 9.51% 0.00% 5.17%
Taxes other than income taxes....... 3.67% 2.78% 20.22% 3.48%
Income taxes........................ 4.83% 1.80% (288.94%) 3.78%
--------- --------- --------- --------
Total non-fuel operating expenses... 47.78% 39.50% 496.92% 46.36%
--------- --------- --------- --------
Operating income.................... 14.55% 7.85% (470.85%) 12.42%
--------- --------- --------- --------
Year Ended December 31, 1997
Operating revenues.................. 100.00% 100.00% 100.00% 100.00%
Cost of energy sold................. 33.22% 57.59% 0.00% 40.15%
Cost of sales and projects.......... 0.00% 0.00% 79.39% 0.26%
--------- --------- --------- --------
Gross Margin........................ 66.78% 42.41% 20.61% 59.59%
--------- --------- --------- --------
Administrative and other costs...... 9.48% 16.10% 180.21% 11.95%
Energy production costs............. 19.10% 0.10% 0.00% 13.55%
Depreciation and amortization....... 9.42% 4.95% 0.54% 8.10%
Transmission and distribution costs. 4.41% 8.53% 0.00% 5.58%
Taxes other than income taxes....... 4.17% 2.21% 4.62% 3.61%
Income taxes........................ 5.04% 2.57% (63.13%) 4.11%
--------- --------- --------- --------
Total non-fuel operating expenses... 51.63% 34.46% 122.24% 46.90%
--------- --------- --------- --------
Operating income.................... 15.15% 7.95% (101.63%) 12.69%
--------- --------- --------- --------
|
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Electric Operations - Operating revenues grew $76.8 million (9.2%) for the year to $912.0 million as a 32.9% improvement in wholesale electricity sales volume was only partially offset by the implementation of a new rate order in late July 1999 (which lowered rates by $18 million and will lower rates by $37 million annually based on expected customer growth). The Company delivered wholesale (bulk) power of 11.17 million MWh of electricity this year compared to 8.78 million MWh delivered last year, an increase of 27.2%. Retail electricity delivery was 6.8 million MWh compared to 6.7 million MWh delivered last year, a 1.5% improvement while revenues declined 2.6% as a result of the new rate order. Revenue growth for both the retail and wholesale businesses was negatively impacted by cooler temperatures in the southwest during the summer months and the availability of abundant hydro power which competes with the Company's wholesale business.
The gross margin, or operating revenues minus cost of energy, decreased $27.6 million reflecting a decrease in gross margin as a percentage of revenues of 8.3%. This decline reflects the rate reduction discussed above and higher fuel and purchased power costs.
Administrative and general increased $7.9 million (10.4%) for the year. This increase is due to Year 2000 ("Y2K") compliance costs (see "OTHER ISSUES FACING THE COMPANY - THE YEAR 2000 ISSUE") and costs related to the Company's implementation of its new customer billing system. In addition, the Company increased its bad debt accrual throughout 1999 by $5.5 million as a result of a significant increase in delinquent accounts due to system implementation problems (see Implementation of New Billing System below for additional discussion). These increases primarily occurred in the distribution business. As a percentage of revenues, administrative and other remained relatively constant at 9.2% and 9.1% for the years ended December 31, 1999 and 1998, respectively. This is a result of a decrease in administrative and other, as a percentage of revenues, in the generation and transmission businesses due to an increase in costs for 1998 and 1999 allocated to the partners in a jointly-owned generation plant following an audit of such costs.
Energy production costs decreased $10.2 million (6.8%) for the year. These costs are generation related. The decrease is primarily due to reduced nuclear fuel storage costs at PVNGS. In 1998, the Company recorded a charge of $12.1 million for spent nuclear fuel at PVNGS as it was determined that alternatives to the DOE storage and disposal facilities would be necessary due to the DOE's failure to complete such facilities by 1998 as required by law. The charge represents the cost of storage for spent fuel through 1998. As a percentage of revenues, energy production costs decreased form 17.9% to 15.3%. The decrease is due to cost control and the decreased nuclear fuel storage costs.
Depreciation and amortization increased $2.7 million (3.95%) for the year. The increase is due to pollution control improvements at certain generation plants and the impact of a new customer billing system. As a result of the additions, the Company revised its depreciation rates as required by the PRC. Depreciation and amortization as a percentage of revenues decreased from 8.4% to 8.0% reflecting an increase in energy production without a corresponding increase in plant additions.
Transmission and distribution costs decreased $1.1 million (3.4%) for the year. As a percentage of revenues, transmission and distribution costs decreased from 3.9% to 3.4%. These decreases were primarily the result of lower maintenance costs due to the milder weather.
Gas Operations - Operating revenues declined $19.3 million (7.5%) for the year to $236.7 million. This decline was driven by a 13.8% decline in the average rate charges per decatherm due to weak gas prices and a mild winter resulting in a 3.2% volume decrease to residential and commercial customers. Price declines were partially offset by a 7.7% volume improvement, as transportation volume posted double-digit growth of 10.3%.
The gross margin, or operating revenues minus cost of energy, increased $2.6 million (2.2%). As a percentage of revenues, gross margin increased 4.9%. These increases are due to lower gas costs.
Administrative and general increased $3.5 million (7.2%). This increase is mainly due to Y2K compliance costs of $2.6 million and costs related to the Company's implementation of its new customer billing system. In addition, the Company increased its bad debt accrual throughout 1999 by $2.7 million, as a result of a significant increase in delinquent accounts due to system implementation problems (see Implementation of New Billing System below for additional discussion). As a percentage of revenues, administrative and other costs increased from 19.1% to 22.5% reflecting primarily the effects of lower gas costs discussed above.
Depreciation and amortization increased $3.9 million (24.7%) for the year. The increase is due to the impact of the new customer billing system. As a result of the addition, the Company revised its depreciation rates as required by the PRC. Depreciation and amortization, as a percentage of revenues, increased from 6.2% to 8.4% reflecting the effects of lower gas costs discussed above and plant additions.
Transmission and distribution expenses increased $3.9 million (16.1%) for the year. The increase is primarily due to Y2K compliance costs (see "OTHER ISSUES FACING THE COMPANY - THE YEAR 2000 ISSUE"). Transmission and distribution expenses, as a percentage of revenues, increased from 9.5% to 11.9%, reflecting the effects of lower gas costs discussed above and the Y2K compliance costs.
Other - Other includes the Company's unregulated businesses, including Avistar and certain corporate functions. The unregulated businesses contributed $8.9 million in revenues in 1999 compared to $1.3 million in 1998. Operating loss for the unregulated businesses decreased from $5.8 million in 1998 to $4.6 million in 1999 reflecting their expansion.
Consolidated - Other income and deductions, net of taxes, increased $7.5 million for the year to $30.2 million due to the recording of interest income from the PVNGS Capital Trust. In addition, other income included certain one-time gains. The Company recognized $4.2 million of equity income from a passive investment and a gain of $1.2 million as a result of closing down of coal mining reclamation activities in an inactive subsidiary.
Net interest charges increased $7.5 million for the year to $70.7 million as a result of the issuance of $435 million in senior unsecured notes in August 1998, which replaced first mortgage bonds with a lower interest rate, and the issuance of pollution control revenue bonds of $11.5 million in October 1999. This was partially offset by the retirement of $31.6 million of senior unsecured notes in June and August 1999 and a decrease in short-term debt interest charges due to lower short-term borrowings in 1999.
The Company's consolidated income tax expense, before the cumulative effect of accounting change and discontinued operations, was $42.3 million, a decrease of $14 million for the year. The Company's income tax effective rate, before the cumulative effect of accounting change and discontinued operations, decreased from 37.2% to 34.7%. This decrease is primarily due to the favorable tax treatment received on the equity income discussed above. The investment income qualifies for the 80% dividends received deduction under Internal Revenue Service regulations.
The Company's net earnings from continuing operations for the year ended December 31, 1999, were $79.6 million compared to $95.1 million for the year ended December 31, 1998. Earnings per share from continuing operations on a diluted basis were $1.93 compared to $2.25 for the year ended December 31, 1998. Diluted weighted average shares outstanding were 41.1 million and 42.1 million in 1999 and 1998, respectively. The decrease reflects the common stock repurchase program in 1999. The 1999 results were negatively impacted by the electric rate reduction in the third quarter, increased fuel and purchased power costs, a weak gas market and cooler weather in the West during the summer months. In addition, costs related to Y2K compliance and the implementation of the new customer billing system increased costs. This impact was partially offset by the gains recorded in other income.
Discontinued Operations - In August 1998, the Company adopted a plan to discontinue the natural gas trading operations of its Energy Services Business Unit and completely discontinued these operations on December 31, 1998. Losses from discontinued operations, net of taxes, for the year ended December 31, 1998, were $12.4 million, or $0.30 per common share. These losses did not recur in 1999.
Cumulative Effect of a Change in Accounting Principle - Effective January 1, 1999, the Company adopted EITF Issue No. 98-10. The effect of the initial application of the new standard is reported as a cumulative effect of a change in accounting principle. As a result, the Company recorded additional earnings, net of taxes, of approximately $3.5 million, or $0.08 per common share, to recognize the gain on net open physical electricity purchase and sales commitments considered to be trading activities.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Electric Operations - Operating revenues grew $112.8 million (15.6%) for the year to $835.2 million. The Company delivered wholesale (bulk) power of 8.8 million MWh of electricity this year compared to 6.9 million MWh delivered last year, an increase of 27.5%. Retail electricity delivery was 6.7 million MWh compared to 6.5 million MWh delivered last year, a 3.1% improvement. Retail revenues increased 3.3%. Revenue growth for the wholesale business was positively impacted by an unusually hot summer in Arizona and California.
The gross margin or operating revenues minus cost of energy increased 38.0 million; however, gross margin as a percentage of revenues decreased by 4.5%. This is the result of increased purchases for resale as wholesale power marketing activities increased.
Administrative and general increased $7.7 million (11.2%) for the year as a result of increased Y2K compliance costs and an increase in certain benefit costs. As a percentage of revenues, administrative and other decreased from 9.5% to 9.1%.
Energy production costs increased 10.8 million (7.8%) for the year as a result of a charge of $12.1 million for spent nuclear fuel costs at PVNGS (See "Year Ended December 31, 1999, compared to Year Ended December 31, 1998--Electric Operations"). These costs are generation related. As a percentage of revenues, energy production costs decreased from 19.1% to 17.9%.
Depreciation and amortization increased 2.1 million (3.1%) for the year as a result of utility plant improvements and the write-off of certain unamortized computer software to depreciation and amortization expense. Depreciation and amortization as a percentage of revenues decreased from 9.4% to 8.4%.
Transmission and distribution costs decreased $1.2 million (3.8%) for the year as a result of lower maintenance costs. As a percentage of revenues, transmission and distribution costs decreased from 4.1% to 3.9%.
Gas Operations - Operating revenues declined $38.8 million (13.2%) for the year to $256.0 million. This decline was driven by a 13.8% decline in the average rate charges per decatherm. Total gas throughput volume increased 1.3%, while residential and commercial volume decreased 1.5%.
The gross margin or operating revenues minus cost of energy decreased $3.8 million (3.0%) as a result of warmer weather conditions in 1998. As a percentage of revenues, gross margin increased 4.9%.
Administrative and general increased $1.5 million (3.2%) for the year as a result of increased Y2K compliance costs and an increase in certain benefits costs. As a percentage of revenues, administrative and other costs increased from 16.1% to 19.1%.
Depreciation and amortization increased $1.0 million (6.7%) for the year as a result of the write-off of certain retired plant assets to depreciation and amortization expense. Depreciation and amortization, as a percentage of revenues, increased from 5.0% to 6.2%.
Transmission and distribution expenses decreased $0.8 million (3.2%) for the year as a result of higher maintenance costs in 1997 for items that did not reoccur in 1998. Transmission and distribution expenses, as a percentage of revenues, increased form 8.5% to 9.5%.
Other - Other includes the Company's unregulated business, which were incorporated as Avistar in 1999, and certain corporate functions. The unregulated businesses contributed $1.3 million in revenues in 1998 compared to $3.3 million in 1997. Operating loss for the unregulated businesses increased from $3.3 million in 1997 to $5.8 million in 1998. The remaining costs represent corporate administrative costs.
Consolidated - Net other income and deductions increased $9.5 million over a year ago as a result of the investment income, proceeds from a litigation settlement and the reversal of a gas rate case reserve.
Net interest charges increased $7.0 million in 1998 due to the issuance of $435 million of SUNs and increased short-term borrowings for the retirement of $140 million of first mortgage bonds.
The Company's consolidated income tax expense, before discontinued operations, was $56.3 million, an increase of $6.0 million for the year. The Company's income tax effective rate, before discontinued operations, increased from 36.8% to 37.2%.
The Company's net earnings from continuing operations for the year ended December 31, 1998, were $95.1 million compared to $86.5 million for the year ended December 31, 1997. Earnings per share from continuing operations on a diluted basis were $2.25 compared to $2.05 for the year ended December 31, 1997. Diluted weighted average shares outstanding were 42.1 million and 42.0 million in 1998 and 1997, respectively.
Discontinued Operations - In August 1998, the Company adopted a plan to discontinue the natural gas trading operations of its Energy Services Business Unit and completely discontinued these operations on December 31, 1998. Losses from discontinued operations, net of taxes, for the year ended December 31, 1998, were $12.4 million, including a charge of $5.1 million for estimated loss on disposal, compared to $5.5 million in 1997. Loss per share, net of tax benefit, on a diluted basis for the discontinued operations was $0.30 and $0.13 for 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital of $167 million including cash and cash equivalents of $120.4 million. This is an increase in working capital of $87.8 million. This increase is primarily the result of an increase in cash and cash equivalents of $59.1 million and a reduction in short-term debt of $26.6 million, partially offset by an increase in accounts payable, reflecting higher year-over-year business levels.
Cash generated from operating activities was $214.5 million, an increase of $3.5 million from 1998. This increase was offset by an increase in accounts receivable of $30.2 million due to billing problems associated with the new customer billing system (see Implementation of New Billing System below).
Cash used for investing activities was $55.9 million in 1999 compared to $340.1 million in 1998. This decreased spending reflects lower construction expenditures in 1999 of $32.3 million and the liquidation of insurance-based investments in the nuclear decommissioning trust of $26.6 million (see financing activities for the payment of decommissioning debt of $26.6 million). In addition, in 1998, the Company purchased $215.7 million of debt underlying certain of its leases of PVNGS.
Cash used for financing activities was $99.5 million in 1999. This increase is the result of the repurchase of $31.6 million of senior unsecured notes, $26.6 million of loan repayments associated with nuclear decommissioning trust activities and an $18.8 million stock repurchase by the Company. Cash provided from financing activities in 1998 was $173 million and included proceeds from the issuance of senior unsecured notes of $435 million and repayment of short-term borrowings of $231.3 million.
Capital Requirements
Total capital requirements include construction expenditures as well as other major capital requirements and cash dividend requirements for both common and preferred stock. The main focus of the Company's construction program is upgrading generating systems, upgrading and expanding the electric and gas transmission and distribution systems and purchasing nuclear fuel. Projections for total capital requirements and construction expenditures for 2000 are $250.9 million and $219.1 million, respectively. Such projections for the years 2000 through 2004 are $1.2 billion and $1.1 billion, respectively. These estimates are under continuing review and subject to on-going adjustment (see Competitive Strategy above).
The Company's construction expenditures for 1999 were entirely funded through cash generated from operations. The Company currently anticipates that internal cash generation and current debt capacity will be sufficient to meet capital requirements for the years 2000 through 2004. To cover the difference in the amounts and timing of cash generation and cash requirements, the Company intends to use short-term borrowings under its liquidity arrangements.
Liquidity
At the end of February 2000, the Company had $175 million of available liquidity arrangements, consisting of $150 million from a senior unsecured revolving credit facility ("Credit Facility"), and $25 million in local lines of credit. The Credit Facility will expire in March 2003. There were no outstanding borrowings as of February 29, 2000.
The Company's ability to finance its construction program at a reasonable cost and to provide for other capital needs is largely dependent upon its ability to earn a fair return on equity, results of operations, credit ratings, regulatory approvals and financial market conditions. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities, and to obtain short-term credit.
On August 26, 1999, two major credit rating agencies, Moody's Investors Services, Inc. ("Moody's") and Standard and Poor's Corp. ("S&P") upgraded the Company's securities following the rate order by the PRC (see "OTHER ISSUES FACING ATHE COMPANY - Electric Rate Case" below). The Company's rating outlook by both rating agencies is "stable". Moody's upgrades include the Company's senior unsecured notes and senior unsecured pollution control revenue bonds to "Baa3" from "Ba1"; and preferred stock to "ba1" from "b1". The EIP lease obligation bonds were also upgraded to "Ba1" from "Ba2". S&P also upgraded, among other things, the Company's senior unsecured debt and bank loan credit rating to BBB- from BB+. Investors are cautioned that a security rating is not a recommendation to buy, sell or hold securities, that it may be subject to revision or withdrawal at any time by the assigning rating organization, and that each rating should be evaluated independently of any other rating.
These rating actions reflect the resolution of the Company's litigious electric rate case that began in 1997 and the passage of the Restructuring Act (see "Overview" above) that allows utilities to recover no less than fifty percent of their stranded costs. If certain conditions identified in the state law are met, utilities may be allowed recovery of up to one hundred percent of stranded costs. The rating agencies believe that the combination of these two events reduces a large component of regulatory and legislative uncertainty, which collectively help to support the Company's long-term prospects for maintaining cash flow and earning stability. Future rating actions for the Company's securities will depend in large part on the filing with the PRC relating to numerous restructuring issues, including the Company's plan to separate the utility into a generation business and a distribution and transmission business as required by the recently enacted state law. The Company is required to file a transition plan with the PRC by June 1, 2000.
Covenants in the Company's PVNGS Units 1 and 2 lease agreements (see PART I, ITEM 2. - "PROPERTIES - Nuclear Plant") limit the Company's ability, without consent of the owner participants in the lease transactions: (i) to enter into any merger or consolidation, or (ii) except in connection with normal dividend policy, to convey, transfer, lease or dividend more than 5% of its assets in any single transaction or series of related transactions. The Credit Facility imposes similar restrictions regardless of credit ratings.
Financing Activities
In 1999, the Company retired $31.6 million of its 7.1% senior unsecured notes through open market purchases, utilizing the funds from operations and the funds from temporary investments. In January 2000, the Company reacquired $35.0 million of its 7.5% senior unsecured notes through open market purchases. On October 28, 1999, tax-exempt pollution control revenue bonds of $11.5 million with an interest rate of 6.60% were issued to partially reimburse the Company for expenditures associated with its share of a recently completed upgrade of the emission control system at SJGS.
The Company currently has no requirements for long-term financings during the period of 2000 through 2004 except as part of its implementation of its holding company plan. However, during this period, the Company could enter into long-term financings for the purpose of strengthening its balance sheet and reducing its cost of capital. The Company continues to evaluate its investment and debt retirement options to optimize its financing strategy and earnings potential. No additional first mortgage bonds may be issued under the Company's mortgage. The amount of SUNs that may be issued is not limited by the SUNs indenture. However, debt to capital requirements in certain of the Company's financial instruments would ultimately restrict the Company's ability to issue SUNs.
Implementation of the Company's holding company plan will not result in any change in the consolidated outstanding indebtedness of the Company. In connection with the transfer of the regulated business by the Company to UtilityCo and the permanent debt financing for the assets to be transferred, subject to the receipt of the necessary regulatory and other approvals, UtilityCo may make an offer to holders of the Company's public senior unsecured notes ($403 million outstanding as of December 31, 1999) to exchange these notes for newly-issued senior unsecured notes of UtilityCo with substantially the same terms as the existing notes. Alternatively, some or all of these notes could continue to be equity securities of Energy depending on the results of any exchange offer or if it is more appropriate to capitalize UtilityCo with newly issued debt and use the proceeds from this debt issue to purchase a portion of the assets to be transferred to UtilityCo from Energy. It is currently planned that $586 million of currently outstanding pollution control revenue bonds (secured by senior unsecured notes and first mortgage bonds) will remain as a debt obligation of Energy after the share exchange and corporation separation since these bonds were issued to finance the ownership and operation of electric generation assets.
The Company's preferred stock ($12.8 million outstanding as of December 31, 1999), will remain an equity security of Energy after the share exchange unless an exchange offer is made by UtilityCo and accepted by all holders or the preferred stock is redeemed by the Company. Depending on the results of any exchange for the Company's preferred stock, some or all of the preferred stock could remain an equity security of Energy or become a new equity security of UtilityCo.
Stock Repurchase
In March 1999, the Company's board of directors approved a plan to repurchase up to 1,587,000 shares of the Company's outstanding common stock with maximum purchase price of $19.00 per share. In December 1999, the Company's board of directors authorized the Company to repurchase up to an additional $20.0 million of the Company's common stock. As of December 31, 1999, the Company repurchased 1,070,700 shares of its previously outstanding common stock at a cost of $18.8 million. From January 2, 2000 through February 29, 2000, the Company repurchased an additional 963,284 shares of its outstanding common stock at a cost of $15.7 million. The Company may from time-to-time repurchase additional common stock for various corporate purposes.
Dividends
The Company resumed the payment of cash dividends on common stock in May 1996. The Company's board of directors reviews the Company's dividend policy on a continuing basis. The payment of future dividends will depend on a number of factors, including the extent to which cash flows will support dividends, the availability of retained earnings, the financial circumstances and performance of the Company, the PRC's decisions on the Company's various regulatory cases currently pending, the effect of deregulating generation markets and market economic conditions generally. In addition, the ability to recover stranded costs in deregulation, future growth plans and the related capital requirements and standard business considerations will also affect the Company's ability to pay dividends.
Capital Structure
The Company's capitalization, including current maturities of long-term debt, at December 31 is shown below:
1999 1998
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Common Equity.............................. 46.7% 45.4%
Preferred Stock............................ 0.7 0.7
Long-term Debt............................. 52.6 53.9
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Total Capitalization*................... 100.0% 100.0%
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*Total capitalization does not include as debt the present value ($161 million as of December 31, 1999) of the Company's lease obligations for PVNGS Units 1 and 2 and EIP.
OTHER ISSUES FACING THE COMPANY
THE RESTRUCTURING ACT AND THE FORMATION OF HOLDING COMPANY
The Restructuring Act requires that assets and activities subject to the PRC jurisdiction, primarily electric and gas distribution, and transmission assets and activities (collectively, the "Regulated Business"), be separated from other competitive business, primarily electric generation and service and certain other energy services (collectively, "the Deregulated Competitive Businesses"). Such separation is required to be accomplished through the creation of at least two separate corporations. The Company has decided to accomplish the mandated separation by the formation of a holding company and the transfer of the Regulated Businesses to a newly-created, wholly owned subsidiary of the holding company, subject to various regulatory approvals. The holding company structure is expressly authorized by the Restructuring Act. Corporate separation of the Regulated Business from the Deregulated Competitive Businesses must be completed by January 1, 2001, although the date may be extended by up to one year by the PRC. Completion of corporate separation will require a number of regulatory approvals by, among others, the PRC and the Nuclear Regulatory Commission.
Completion will also require shareholder approval and a number of other consents from creditors and lessors. Completion may also entail significant restructuring activities with respect to the Company's existing liquidity arrangements and the Company's publicly-held senior unsecured notes of which $403.4 million were outstanding as of December 31, 1999. Holders of the Company's senior unsecured notes, $135 million at 7.5% and $268.4 million at 7.1%, may be offered the opportunity to exchange their securities for similar senior unsecured notes of the newly created regulated business (see "Liquidity and Capital Resources - Financing Activities" above).
Regulated Business
The Regulated Business comprised approximately 47.9% of the Company's total assets and contributed approximately 39.6% of the Company's operating revenues and approximately 61.1% of the Company's operating income before interest charges in 1999.
Stranded Costs
The Restructuring Act recognizes that electric utilities should be permitted a reasonable opportunity to recover an appropriate amount of the costs incurred previously in providing electric service ("stranded costs"). Stranded costs include plant decommissioning costs, regulatory assets, lease and lease-related costs recognized under cost-of-service regulation. Utilities will be allowed to recover no less than 50% of such costs through a non-bypassable charge on all customer bills for five years after implementation of customer choice. The PRC could authorize a utility to recover up to 100% of its stranded costs if the PRC finds that recovery of more than 50%: (i) is in the public interest; (ii) is necessary to maintain the financial integrity of the public utility; (iii) is necessary to continue adequate and reliable service; and (iv) will not cause an increase in rates to residential or small business customers during the transition period. While recoverable stranded costs will be collected as part of the regulated business, it is anticipated that such collections would be paid to the Company and be part of the revenues available to the competitive businesses subsequent to restructuring. However, no determination and quantification of stranded cost recovery has yet been made by the PRC. Such determination will have a material impact on the consolidated financial results and position of the Company.
Transition Cost Recovery
Pursuant to the Restructuring Act, utilities will also be allowed to recover in full any prudent and reasonable costs incurred in implementing full open access ("transition costs"). The transition costs will be recovered through 2007 by means of a separate wires charge. The Company estimates that these costs will be in excess of $50 million. Transition costs include, but are not limited to, professional fees, financing costs including underwriting fees, consents relating to the transfer to assets, management information system changes including billing system changes and public and customer education and communications. Recoverable transition costs are currently being capitalized and will be amortized over the recovery period to match related revenues. Recovery of any transition costs, which are not deemed recoverable by the PRC, may be vigorously pursued through all remedies available to the Company with the ultimate outcome uncertain. Costs not recoverable will be expensed when incurred unless these costs are otherwise permitted to be capitalized under current and future accounting rules. If the amount of nonrecoverable transition costs is material, the resulting charge to earnings may have a material impact on the consolidated financial results and position of the Company.
Deregulated Competitive Businesses
The Deregulated Competitive Businesses which would be retained by the Company include the Company's interests in generation facilities, including PVNGS, Four Corners, and SJGS, together with the pollution control facilities which have been financed with pollution control revenue bonds. Approximately $586 million in pollution control revenue bonds would remain as obligations of the generation subsidiary, as would certain other of the Company's long-term obligations. The Deregulated Competitive Businesses would not be subject to regulation by the PRC. Under the Company's restructuring plan, the Company's bondholders will continue to hold obligations of the Company following restructuring. Since the Restructuring Act requires significant changes in the assets and businesses of the Company, the bondholders will be accepting the risks involved in those changes.
The Company will continue its Deregulated Competitive Business following the restructuring, which will be subject to market conditions. Following the separation as required by the Restructuring Act, in support of its wholesale trading operations, the Company is targeting to double its generating capacity and triple its sales volume. Recently, the Company formed a non-regulated subsidiary, Avistar, in August 1999, to implement competitive business strategies. Avistar provides services in the areas of utility management for municipalities and other communities, remote metering and development of energy conservation and supply projects for federal government facilities. The Company does not anticipate an earnings contribution from Avistar over the next few years.
NRC Prefunding
Pursuant to NRC rules on financial assurance requirements for the decommissioning of nuclear power plant, the Company has a program for funding its share of decommissioning costs for PVNGS through a sinking fund mechanism (see PART I - ITEM 2. PROPERTIES - ELECTRIC - Nuclear Plant - PVNGS Decommissioning Funding"). The NRC rules on financial assurance became effective on November 23, 1998. The amended rules provide that a licensee may use an external sinking fund as the exclusive financial assurance mechanism if the licensee recovers estimated decommissioning costs through cost of service rates or a "non-bypassable charge". Other mechanisms are prescribed, such as prepayment, surety methods, insurance and other guarantees, to the extent that the requirements for exclusive reliance on the fund mechanism are not met.
The Restructuring Act allows for the recoverability of 50% up to 100% of stranded costs including decommissioning costs (see "Stranded Costs"). If the Company is unable to meet the requirements of the NRC rules permitting the use of an external sinking fund because it is unable to recover all of its estimated decommissioning costs through a non-bypassable charge, the Company may have to pre-fund or find a similarly capital intensive means to meet the NRC rules. There can be no assurance that such an event will not negatively affect the funding of the Company's growth plans.
In addition, as part of the determination and quantification of the stranded costs related to the decommissioning, the Company will have to estimate future decommissioning costs. If the Company's estimate proves to be less than the actual costs of decommissioning, any cost in excess of the amount allowed through stranded cost recovery may not be recoverable. Such excess costs, if any, will also be subject to the pre-funding requirements discussed above.
Competition
Under current law, PNM is not in any direct retail competition with any other regulated electric and gas utility. Nevertheless, PNM is subject to varying degrees of competition in certain territories adjacent to or within areas it serves that are also currently served by other utilities in its region as well as cooperatives, municipalities, electric districts and similar types of government organizations.
The Restructuring Act opens the state's electric power market to customer choice for certain customers beginning in 2001 and the balance of customers in 2002. As a result, the Company may face competition from companies with greater financial and other resources. There can be no assurance that the Company will not face competition in the future that would adversely affect its results.
It is the current intention to have the Company's Deregulated Competitive Businesses engage primarily in energy-related businesses that will not be regulated by state or Federal agencies that currently regulate public utilities (other than the FERC and NRC). These competitive businesses, including the generation business, will encounter competition and other factors not previously experienced by the Company, and may have different, and perhaps greater, investment risks than those involved in the regulated business that will be engaged in by the Regulated Businesses. Specifically, the passage of the Restructuring Act and deregulation in the electric utility industry generally is likely to have an impact on the price and margins for electric generation and thus, the return on the investment in electric generation assets. In response to competition and the need to gain economies of scale, electricity producers will need to control costs to maintain margins, profitability and cash flow that will be adequate to support investments in new technology and infrastructure. The Company will have to compete directly with independent power producers, many of whom will be larger in scale, thus creating a competitive advantage for such producers due to scale efficiencies. The Company's current five year business plan includes a 300% increase in sales and through doubling the construction or acquisition of additional power generation assets in its surrounding region of operations. Such growth will be dependent upon the Company's ability to generate $400 to $600 million to fund the deregulated competitive expansion. There can be no assurance that these Deregulated Competitive Businesses, particularly the generation business, will be successful or, if unsuccessful, that they will not have a direct or indirect adverse effect on the Company.
IMPLEMENTATION OF NEW BILLING SYSTEM
On November 30, 1998, the Company implemented a new customer billing system. Due to a significant number of problems associated with the implementation of the new billing system, the Company was unable to generate appropriate bills for all its customers through the first quarter of 1999 and was unable to analyze delinquent accounts until November 1999.
Under PRC rules and PRC approved Company rules, the Company is required to issue customer bills on a monthly basis. The Company was granted a temporary variance, and the PRC began a hearing on whether the Company violated PRC rules, regulations or orders or the New Mexico Public Utility Act. The investigation was concluded on November 2, 1999, without the PRC imposing any civil penalty on the Company and with an approved stipulation that the Company be permitted to bill an additional service charge to customers who were not billed the appropriate electric service charge and/or gas access fee. The stipulation was limited to approximately $0.7 million in the November and December billing cycles.
Because of the implementation issues associated with the new billing system, the Company estimated retail gas and electric revenues through July 1999. Beginning with August 1999, the Company was able to determine actual revenues for all prior periods affected and began reconciling with previously estimated revenues. In December 1999, the Company completed its reconciliation of system revenues. As a result, 1999 revenues represented actual revenues as determined by the new billing system. The resulting reconciliation did not materially impact recorded revenues. However, a significant number of individual accounts required corrections.
As a result of the delay of normal collection activities, the Company incurred a significant increase in delinquent accounts, many of which occurred with customers that no longer have active accounts with the Company. As a result, the Company significantly increased its bad debt accrual throughout 1999.
The following is a summary of the allowance for doubtful accounts during 1999, 1998 and 1997:
1999 1998 1997
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(In thousands)
Allowance for doubtful accounts beginning
of year......................................... $ 836 $ 783 $ 709
Bad debt accrual.................................. 11,496 3,325 3,378
Less: Write off (adjustments) of
uncollectible accounts .................... (172) 3,272 3,304
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Allowance for doubtful accounts, end of year ..... $12,504 $ 836 $ 783
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ELECTRIC RATE CASE
In November 1998, the NMPUC issued a final order in the Company's electric rate case, requiring the Company to reduce rates in 1999 by $60.2 million, by $25.6 million in 2000 and by an additional $25.6 million in 2001. The rate reduction order reflected, among other things, the revaluation of the Company's generation resources based on a so-called "market-based price" and the finding by the NMPUC that recovery of stranded costs is illegal. In December 1998, the Company appealed the rate case order to the New Mexico Supreme Court ("Supreme Court").
On March 15, 1999, the Supreme Court issued a ruling, vacating the NMPUC order on the Company's electric rate case and remanding the case to the PRC, the successor of the NMPUC, for further proceedings.
On August 25, 1999, the PRC issued an order approving a settlement. The PRC ordered the Company to reduce its electric rates by $34.0 million retroactive to July 30, 1999. In addition, the order includes a rate freeze until retail electric competition is fully implemented in New Mexico or until January 1, 2003. The settlement will reduce annual revenues by an estimated $37.0 million based on expected customer growth and will reduce electric distribution operating revenues in the year 2000 by approximately $20 million.
As part of the settlement, the Company agreed that certain language changes to the tariff KAFB currently takes service under be set for a separate hearing before the PRC. Hearings on this issue have not yet been scheduled. KAFB has not renewed its power service contract with the Company that expired in December 1999 (see ITEM 3. - "LEGAL PROCEEDINGS - OTHER PROCEEDINGS - Kirtland Air Force Base ("KAFB") Contract").
EFFECTS OF CERTAIN PENDING EVENTS ON FUTURE REVENUES
The Company's contract with SDG&E to provide electricity will expire in April of 2001. SDG&E has notified the Company that it will not renew its contract. The Company currently estimates that the net revenue reduction resulting from the expiration of the SDG&E contract will be approximately $20 million annually. In addition, there is currently ongoing litigation between the Company and SDG&E regarding prior years' contract pricing.
On October 4, 1999, Western, filed a petition at the FERC requesting the FERC to consider, on an expedited basis, ordering the Company to provide network transmission service to Western under the Company's Open Access Transmission Tariff on behalf of the DOE as contracting agent for KAFB. The Company intends to litigate this matter vigorously. The net revenue reduction to the Company if the Company is replaced as the power supplier to KAFB is estimated to be approximately $7.0 million annually.
A further discussion of these and other legal proceedings can be found in PART I, ITEM 3. - "LEGAL PROCEEDINGS" in this Annual Report on Form 10-K.
THE YEAR 2000 ISSUE
The Company experienced no year 2000 failures of its electric generation or its gas and electric distribution and transmission systems during the critical year 2000 transition period. Further, the Company has experienced no failures in any of these systems in the ensuing period. As a result, no customers experienced a year 2000 related disruption to their gas or electric service.
The Company anticipates that minor, previously undetected, programming issues might surface during the year 2000. These are not expected to impact the Company's customers.
During 1999, the Company expended $15.3 million on the Year 2000 Project for a total expenditure of $20.7 million through the end of 1999. The Company expects to spend approximately $175 thousand in 2000 on efforts to finalize project documentation and to file reports with various regulatory agencies.
COAL FUEL SUPPLY
The coal requirements for the SJGS are being supplied by SJCC, a wholly owned subsidiary of BHP, from certain Federal, state and private coal leases under a Coal Sales Agreement, pursuant to which SJCC will supply processed coal for operation of the SJGS until 2017. The primary sources of coal for current operations are a mine adjacent to the SJGS and a mine located approximately 25 miles northeast of the SJGS in the La Plata area of northwestern New Mexico. Additional coal resources will be required. The Company is currently in discussions regarding alternatives.
In 1997, the Company was notified by SJCC of certain audit exceptions identified by the Federal Minerals Management Service ("MMS") for the period 1986 through 1997. These exceptions pertain to the valuation of coal for purposes of calculating the Federal coal royalty. Primary issues include whether coal processing and transportation costs should be included in the base value of La Plata coal for royalty determination. Administrative appeals of the MMS claims are pending.
The Company was notified during the fourth quarter of 1998 that the MMS agreed to a mediation of the claims. It is the Company's understanding that the mediation has not yet occurred. The Company is unable to predict the outcome of this matter and the Company's exposures have not yet been assessed.
In 1996, the Company was notified by SJCC that the Navajo Nation has proposed to select certain properties within the San Juan and La Plata Mines (the "mining properties") pursuant to the Navajo-Hopi Land Settlement Act of 1974 (the "Act"). The mining properties are operated by SJCC under leases from the BLM and comprise a portion of the fuel supply for the SJGS. An administrative appeal by SJCC is pending. In the appeal, SJCC expressed concern that transfer of the mining properties to the Navajo Nation may subject the mining operations to taxation and additional regulation by the Navajo Nation, both of which could increase the price of coal that might potentially be passed on to the SJGS through the existing coal sales agreement. The Company is monitoring the appeal and other developments on this issue and will continue to assess potential impacts to the SJGS and the Company's operations. The Company is unable to predict the ultimate outcome of this matter.
FUEL, WATER AND GAS NECESSARY FOR GENERATION OF ELECTRICITY
The Company's generation mix for 1999 was 69.0% coal, 30.0% nuclear and 1.0% gas and oil. Due to locally available natural gas and oil supplies, the utilization of locally available coal deposits and the generally abundant supply of nuclear fuel, the Company believes that adequate sources of fuel are available for its generating stations (see "COAL FUEL SUPPLY" above).
Water for Four Corners and SJGS is obtained from the San Juan River. BHP holds rights to San Juan River water and has committed a portion of such rights to Four Corners through the life of the project. The Company and Tucson have a contract with the USBR for consumption of 16,200 acre feet of water per year for the SJGS, which contract expires in 2005. In addition, the Company was granted the authority to consume 8,000 acre feet of water per year under a state permit that is held by BHP. The Company is of the opinion that sufficient water is under contract for the SJGS through 2005. Currently, the Company is in discussions with the Jicarilla Apache Tribe for a twenty-seven year contract, beginning in 2006, for a replacement of the current USBR contract for 16,200 AF of water. The Company cannot predict the outcome of these discussions but expects to obtain a replacement water supply for the USBR contract that expires in 2005. Various environmental approvals will likely be required for a replacement water supply. The Company is actively involved in the San Juan River Recovery Implementation Program to mitigate any concerns with the taking of the negotiated water supply from a river that contains endangered species and critical habitat. As a result, the Company believes that adequate sources of water are available for its generating stations.
PNMGS obtains its supply of natural gas primarily from sources within New Mexico pursuant to contracts with producers and marketers. These contracts are generally sufficient to meet PNMGS' peak-day demand. PNMGS serves certain cities which depend on EPNG or Transwestern Pipeline Company for transportation of gas supplies. Because these cities are not directly connected to PNMGS' transmission facilities, gas transported by these companies is the sole supply source for those cities. The Company believes that adequate sources of gas are available for its distribution systems.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
The Company's operations are subject to various federal, state, local and tribal environmental laws and regulations, including, but not limited to, those governing discharges into the air and water, the storage, handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by hazardous substances or wastes, and the health and safety of employees particularly as it relates to the Company's coal, gas and nuclear based electric generation assets. Compliance with environmental laws, stricter interpretations of or amendments to such laws, or more vigorous enforcement policies by regulatory agencies may require material expenditures by the Company. The nature of the Company's current and former operations and the history of industrial uses at some of its facilities result in exposure to the risk of liabilities or claims with respect to environmental and worker health and safety matters. In addition, under certain environmental laws, a current or previous owner or operator of property may be jointly and severally liable for the costs of investigation, removal or remediation of certain substances on, under, or in such property, without regard to negligence or fault. The presence of, or failure to remediate properly, such substances may adversely affect the ability to sell or rent such property or to borrow using such property as collateral. In addition, persons who generate, arrange for the disposal or treatment of, or dispose of, hazardous substances may be jointly and severally liable for the costs of investigation, remediation or removal of such hazardous substances at or from the disposal or treatment facility, regardless of whether the facility is owned or operated by such person. Responsible parties also may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site.
Labor Union Negotiations
The Company and the International Brotherhood of Electrical Workers ("IBEW") Local Union 611 will enter into negotiations for a successor agreement during the later part of the first quarter of 2000. The current collective bargaining agreement, which covers the 654 bargaining unit employees in the Company's regulated operations, expires on May 1, 2000. The Company's negotiating team is currently preparing for the upcoming negotiations. While the Company believes that its relations with its employees are satisfactory, a dispute between the Company and its employees' representative could have a material adverse effect on the Company.
Navajo Nation Tax Issues
APS, the operating agent for Four Corners, has informed the Company that in March 1999, APS initiated discussions with the Navajo Nation regarding various tax issues in conjunction with the expiration of a tax waiver, in July 2001, which was granted by the Navajo Nation in 1985. The tax waiver pertains to the possessory interest tax and the business activity tax associated with the Four Corners operations on the reservation. The Company believes that the resolution of these tax issues will require an extended process and could potentially affect the cost of conducting business activities on the reservation. The Company is unable to predict the ultimate outcome of discussions with Navajo Nation regarding these tax issues.
NEW AND PROPOSED ACCOUNTING STANDARDS
Decommissioning: The Staff of the Securities and Exchange Commission ("SEC") has questioned certain of the current accounting practices of the electric industry regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to these questions, the FASB has a project on its agenda to review the accounting for closure and removal costs, including decommissioning of nuclear power plants. If current electric industry accounting practices for nuclear power plant decommissioning are changed, the estimated cost for decommissioning could be recorded as a liability with recognition of an increase in the cost of the related nuclear power plant. The Company does not believe that such changes, if required, would have a material adverse effect on results of operations.
EITF Issue 99-14, Recognition of Impairment Losses on Firmly Committed Executory Contracts: The Emerging Issues Task Force ("EITF") has added an issue to its agenda to address impairment of leased assets. A significant portion of the Company's nuclear generating assets are held under operating leases. Based on the alternative accounting methods being explored by the EITF, the related financial impact of the future adoption of EITF Issue No. 99-14 should not have a material adverse effect on results of operations. However, a complete evaluation of the financial impact from the future adoption of EITF Issue No. 99-14 will be undeterminable until EITF deliberations are completed and stranded cost recovery issues are resolved.
Accounting for Derivative Instruments and Hedging Activities, SFAS 133:
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement also requires that changes
in the derivatives' fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows derivative gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. The Company is in the process of reviewing and identifying all
financial instruments currently existing in the Company in compliance with the
provisions of SFAS 133. It is likely that the adoption of SFAS 133 will add
volatility to the Company's operating results and/or asset and liability
valuations reflecting the impact of mark-to-market accounting for commodity
contracts. In June 1999, Financial Accounting Standards Board ("FASB") issued
SFAS 137 to amend the effective date for the compliance of SFAS 133 to January
1, 2001.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Words such as "estimates," "expects," "anticipates," "plans," "believes," "projects," and similar expressions identify forward-looking statements. Accordingly, the Company hereby identifies the following important factors which could cause the Company's actual financial results to differ materially from any such results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements: (i) adverse actions of utility regulatory commissions; (ii) utility industry restructuring; (iii) failure to recover stranded costs; (iv) the inability of the Company to successfully compete outside its traditional regulated market; (v) regional economic conditions, which could affect customer growth; (vi) adverse impacts resulting from environmental regulations; (vii) loss of favorable fuel supply contracts or inability to negotiate new fuel supply contracts; (viii) failure to obtain water rights and rights-of-way; (ix) operational and environmental problems at generating stations; (x) the cost of debt and equity capital; (xi) weather conditions; and (xii) technical developments in the utility industry.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company uses derivative financial instruments in limited instances to manage risk as it relates to changes in natural gas and electric prices and adverse market changes for investments held by the Company's various trusts. The Company is exposed to credit losses in the event of non-performance or non-payment by counterparties. The Company uses a credit management process to assess and monitor the financial conditions of counterparties. The Company also uses, on a limited basis, certain derivative instruments for bulk power electricity trading purposes in order to take advantage of favorable price movements and market timing activities in the wholesale power markets. Information about market risk is set forth in Note 5 to the Notes to the Consolidated Financial Statements and incorporated by reference. The following additional information is provided.
The Company uses value at risk ("VAR") to quantify the potential exposure to market movement on its open contracts and excess generating assets. The VAR is calculated utilizing the variance/co-variance methodology over a three day period within a 99% confidence level.
The Company's VAR as of December 31, 1999 from its electric trading contracts and gas purchase contracts was $2.4 million.
The VAR represents an estimate of the reasonably possible net losses that would be recognized on the portfolio of derivatives assuming hypothetical movements in future market rates, and is not necessarily indicative of actual results that may occur, since actual future gains and losses will differ from those estimated. Actual gains and losses may differ from estimates due to actual fluctuations in market rates, operating exposures, and the timing thereof, as well as changes to the portfolio of derivatives during the year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
----
Management's Responsibility for Financial Statements .................. F-1
Report of Independent Public Accountants .............................. F-2
Financial Statements:
Consolidated Statements of Earnings ................................ F-3
Consolidated Balance Sheets ........................................ F-4
Consolidated Statements of Cash Flows .............................. F-6
Consolidated Statements of Capitalization .......................... F-7
Notes to Consolidated Financial Statements ......................... F-8
Supplementary Data:
Quarterly Operating Results ........................................ F-42
Comparative Operating Statistics ................................... F-43
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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying financial statements, which consolidate the accounts of Public Service Company of New Mexico and its subsidiaries, have been prepared in conformity with generally accepted accounting principles.
The integrity and objectivity of data in these financial statements and accompanying notes, including estimates and judgments related to matters not concluded by year-end, are the responsibility of management as is all other information in this Annual Report. Management devotes ongoing attention to review and appraisal of its system of internal controls. This system is designed to provide reasonable assurance, at an appropriate cost, that the Company's assets are protected, that transactions and events are recorded properly and that financial reports are reliable. The system is augmented by a staff of corporate auditors; careful attention to selection and development of qualified financial personnel; programs to further timely communication and monitoring of policies, standards and delegated authorities; and evaluation by independent auditors during their audits of the annual financial statements.
The Audit Committee of the Board of Directors, composed entirely of outside directors, meets regularly with financial management, the corporate auditors and the independent auditors to review the work of each. The independent auditors and corporate auditors have free access to the Audit Committee, without management representatives present, to discuss the results of their audits and their comments on the adequacy of internal controls and the quality of financial reporting.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Public Service Company of New Mexico:
We have audited the accompanying consolidated balance sheets and statements of capitalization of Public Service Company of New Mexico (a New Mexico Corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of earnings, comprehensive income, retained earnings and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, the financial statements referred to above present fairly, in all material respects, the financial position of Public Service Company of New Mexico and subsidiaries as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
January 26, 2000
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
Year Ended December 31,
-----------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands, except per share amounts)
Operating Revenues: (note 1, 7)
Electric................................................... $ 911,977 $ 835,204 $722,438
Gas........................................................ 236,711 255,975 294,769
Unregulated businesses..................................... 8,855 1,266 3,314
---------- ---------- ----------
Total operating revenues................................ 1,157,543 1,092,445 1,020,521
---------- ---------- ----------
Operating Expenses:
Cost of energy sold........................................ 531,952 449,426 409,717
Administrative and general................................. 153,709 135,727 124,591
Energy production costs.................................... 140,784 149,747 138,245
Depreciation and amortization.............................. 92,661 86,141 82,694
Transmission and distribution costs........................ 59,264 56,457 56,983
Taxes, other than income taxes............................. 34,084 37,992 36,803
Income taxes (note 7)...................................... 25,010 41,306 41,941
---------- ---------- ----------
Total operating expenses................................ 1,037,464 956,796 890,974
---------- ---------- ----------
Operating income........................................ 120,079 135,649 129,547
---------- ---------- ----------
Other Income and Deductions:
Other...................................................... 47,500 37,672 21,548
Income tax expense (note 7)............................... (17,298) (14,985) (8,384)
---------- ---------- ----------
Net other income and deductions......................... 30,202 22,687 13,164
---------- ---------- ----------
Income before interest charges.......................... 150,281 158,336 142,711
---------- ---------- ----------
Interest Charges:
Interest on long-term debt (note 3)........................ 65,899 50,929 46,670
Other interest charges..................................... 4,768 12,288 9,544
---------- ---------- ----------
Net interest charges.................................... 70,667 63,217 56,214
---------- ---------- ----------
Net Earnings from Continuing Operations...................... 79,614 95,119 86,497
Discontinued Operations, Net of Tax (note 13)................ - (12,437) (5,502)
Cumulative Effect of a Change in Accounting..................
Principle, Net of Tax (note 14)........................... 3,541 - -
---------- ---------- ----------
Net Earnings................................................. 83,155 82,682 80,995
Preferred Stock Dividend Requirements........................ 586 586 586
---------- ---------- ----------
Net Earnings Applicable to Common Stock...................... $ 82,569 $ 82,096 $ 80,409
========== ========== ==========
Net Earnings per Share of Common Stock (Basic) (note 6)...... $ 2.01 $ 1.97 $ 1.92
========== ========== ==========
Net Earnings per Share of Common Stock (Diluted) (note 6).... $ 2.01 $ 1.95 $ 1.91
========== ========== ==========
Dividends Paid per Share of Common Stock..................... $ 0.80 $ 0.77 $ 0.63
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
As of December 31,
1999 1998
----------- -----------
(In thousands)
Utility Plant, at original cost except PVNGS: (notes 10, 11)
Electric plant in service................................................................. $1,976,009 $1,966,277
Gas plant in service...................................................................... 483,819 467,758
Common plant in service and plant held for future use..................................... 69,273 63,796
----------- -----------
2,529,101 2,497,831
Less accumulated depreciation and amortization............................................ 1,077,576 998,175
----------- -----------
1,451,525 1,499,656
Construction work in progress............................................................. 104,934 66,677
Nuclear fuel, net of accumulated amortization of $20,832 and $21,898...................... 25,923 27,426
----------- -----------
Net utility plant...................................................................... 1,582,382 1,593,759
----------- -----------
Other Property and Investments:
Other investments (notes 5, 12)........................................................... 483,008 518,959
Non-utility property, net of accumulated depreciation of $1,261 and $1,129................ 4,439 4,875
----------- -----------
Total other property and investments................................................... 487,447 523,834
----------- -----------
Current Assets:
Cash and cash equivalents................................................................. 120,399 61,280
Accounts receivables, net of allowance for uncollectible accounts of $12,504 and $836..... 147,746 130,809
Other receivables 68,911 59,745
Inventories............................................................................... 39,992 35,674
Regulatory assets (note 2)................................................................ 24,056 15,618
Other current assets...................................................................... 4,934 4,666
----------- -----------
Total current assets................................................................... 406,038 307,792
----------- -----------
Deferred charges:
Regulatory assets (note 2)................................................................ 195,898 186,383
Prepaid pension cost (note 8)............................................................. 16,126 16,714
Other deferred charges.................................................................... 35,377 40,121
----------- -----------
Total deferred charges................................................................. 247,401 243,218
----------- -----------
$2,723,268 $2,668,603
=========== ===========
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The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILIITES
As of December 31,
--------------------------
1999 1998
------------ -----------
(In thousands)
Capitalization: (note 3)
Common stock equity:
Common stock outstanding--40,703 and 41,774 shares.......................... $ 203,517 $ 208,870
Additional paid-in capital.................................................. 453,393 465,386
Accumulated other comprehensive income, net of tax (note 3)................. 2,352 1,127
Retained earnings........................................................... 227,829 186,220
------------ -----------
Total common stock equity................................................ 887,091 861,603
Minority interest............................................................. 12,771 13,405
Cumulative preferred stock without mandatory redemption requirements.......... 12,800 12,800
Long-term debt, less current maturities (note 3).............................. 988,489 1,008,614
------------ -----------
Total capitalization....................................................... 1,901,151 1,896,422
------------ -----------
Current Liabilities:
Short-term debt............................................................... - 26,620
Accounts payable.............................................................. 150,645 113,975
Accrued interest and taxes.................................................... 34,237 34,289
Other current liabilities..................................................... 54,137 45,169
------------ -----------
Total current liabilities.................................................. 239,019 220,053
------------ -----------
Deferred Credits:
Accumulated deferred income taxes (note 7).................................... 153,335 129,990
Accumulated deferred investment tax credits (note 7).......................... 50,996 54,404
Regulatory liabilities (note 2) .............................................. 88,497 89,559
Regulatory liabilities related to accumulated deferred income tax (note 2) ... 14,935 14,287
Accrued postretirement benefits cost (note 8)................................. 8,945 4,675
Other deferred credits (note 12).............................................. 266,390 259,213
------------ -----------
Total deferred credits..................................................... 583,098 552,128
------------ -----------
Commitments and Contingencies (note 11)......................................... - -
------------ -----------
$2,723,268 $2,668,603
============ ===========
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The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------
1999 1998 1997
---------- ---------- ---------
(In thousands)
Cash Flows From Operating Activities:
Net earnings............................................................. $ 83,155 $ 82,682 $ 80,995
Adjustments to reconcile net earnings to net cash flows..................
from operating activities:
Depreciation and amortization........................................ 103,891 98,154 94,924
Gain on cumulative effect of a change in
Accounting principle (note 14).................................... (5,862) - -
Other, net........................................................... 27,623 27,462 20,025
Changes in certain assets and liabilities:
Accounts receivables............................................... (16,937) 1,302 (14,038)
Other assets ...................................................... (20,189) 31,066 3,946
Accounts payable................................................... 36,670 (40,490) 23,808
Other liabilities.................................................. 6,147 10,812 3,462
---------- ---------- ---------
Net cash flows provided from operating activities............ 214,498 210,988 213,122
---------- ---------- ---------
Cash Flows From Investing Activities:
Utility plant additions.................................................. (95,298) (128,784) (128,371)
Return (purchase) of PVNGS lease obligation bonds........................ 16,903 (204,364) (23,882)
Other investing.......................................................... 22,509 (7,844) (29,814)
---------- ---------- ---------
Net cash flows used in investing activities.................. (55,886) (340,992) (182,067)
---------- ---------- ---------
Cash Flows From Financing Activities:
Borrowings (note 3)...................................................... 11,500 896,348 27,600
Repayments (note 3)...................................................... (58,200) (694,651) (28,870)
Exercise of employee stock options (note 9).............................. - (3,687) (1,285)
Common stock repurchase (note 3)......................................... (18,799) - -
Dividends paid........................................................... (33,359) (32,789) (26,864)
Other Financing.......................................................... (635) 7,868 (3,693)
---------- ---------- ---------
Net cash flows (used) generated by financing activities...... (99,493) 173,089 (33,112)
---------- ---------- ---------
Increase (Decrease) in Cash and Cash Equivalents........................... 59,119 43,085 (2,057)
Beginning of Year.......................................................... 61,280 18,195 20,252
---------- ---------- ---------
End of Year................................................................ $ 120,399 $ 61,280 $ 18,195
========== ========== =========
Supplemental cash flow disclosures:
Interest paid............................................................ $ 67,770 $ 50,109 $ 57,302
========== ========== =========
Income taxes paid, net of refunds........................................ $ 36,575 $ 49,048 $ 20,175
========== ========== =========
Acquired DOE pipeline in exchange for transportation services............ $ 3,100 - -
========== ========== =========
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The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
1999 1998
----------- -----------
(In thousands)
Common Stock Equity: (note 3)
Common Stock, par value $5 per share.................................. $ 203,517 $ 208,870
Additional paid-in capital............................................ 453,393 465,386
Accumulated other comprehensive income, net of tax 2,352 1,127
Retained earnings..................................................... 227,829 186,220
----------- -----------
Total common stock equity......................................... 887,091 861,603
----------- -----------
Minority Interest......................................................... 12,771 13,405
----------- -----------
Cumulative Preferred Stock: (note 3)
Without mandatory redemption requirements:
1965 Series, 4.58% with a stated value of $100.00 and a
current redemption price of $102.00. Outstanding shares
at December 31, 1999 were 128,000................................ 12,800 12,800
----------- -----------
Long-Term Debt: (note 3)
Issue and Final Maturity
First Mortgage Bonds, Pollution Control Revenue Bonds:
5.7% due 2016................................................... 65,000 65,000
6.375% due 2022................................................... 46,000 46,000
----------- -----------
Total First Mortgage Bonds 111,000 111,000
----------- -----------
Senior Unsecured Notes, Pollution Control Revenue Bonds:
6.30% due 2016................................................. 77,045 77,045
5.75% due 2022................................................. 37,300 37,300
5.80% due 2022................................................. 100,000 100,000
6.375% due 2022................................................. 90,000 90,000
6.375% due 2023................................................. 36,000 36,000
6.40% due 2023................................................. 100,000 100,000
6.30% due 2026................................................. 23,000 23,000
6.60% due 2029................................................. 11,500 -
----------- -----------
Total Senior Unsecured Notes, Pollution Control Revenue Bonds.... 474,845 463,345
----------- -----------
Senior Unsecured Notes:
7.10% due 2005................................................ 268,420 300,000
7.50% due 2018................................................ 135,000 135,000
Other, including unamortized premium and (discounted), net........... (776) (731)
----------- -----------
Total long-term debt......................................... 988,489 1,008,614
----------- -----------
Total Capitalization...................................................... $1,901,151 $1,896,422
=========== ===========
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The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
Summary of Significant Accounting Policies
Accounting Principles
The Company prepares its financial statements in accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Commission ("FERC") and the National Association of Regulatory Utility Commissioners, and adopted by the New Mexico Public Regulation Commission ("PRC"), the successor of the New Mexico Public Utility Commission ("NMPUC"), effective January 1, 1999.
The Company's accounting policies conform to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation ("SFAS 71"). SFAS 71 requires a rate-regulated entity to reflect the effects of regulatory decisions in its financial statements. In accordance with SFAS 71, the Company has deferred certain costs and recorded certain liabilities pursuant to the rate actions of the PRC, NMPUC and FERC. These "regulatory assets" and "regulatory liabilities" are enumerated and discussed in Note 2.
To the extent that the Company concludes that the recovery of a regulatory asset is no longer probable due to regulatory treatment, the effects of competition or other factors, the amount would be recorded as a charge to in earnings as recovery is no longer probable. The Company has discontinued the application of SFAS 71 as of December 31, 1999, for the generation portion of its business effective with the passage of the Electric Utility Industry Restructuring Act of 1999 ("Restructuring Act") in accordance with Financial Accounting Standards No. 101, "Accounting for the Discontinuation of Application of FASB Statement No. 71". The Company evaluated its regulatory assets under Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("FAS 121") and determined no impairment exists. The Company believes that it will recover costs associated with stranded assets including asset closure costs through a non-bypassable charge as permitted by the Restructuring Act. See Note 2 for additional discussion.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and subsidiaries in which it owns a majority voting interest. All significant intercompany transactions and balances have been eliminated.
Financial Statement Preparation and Presentation
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual recorded amounts could differ from those estimated.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
Summary of Significant Accounting Policies (Continued)
Utility Plant
Utility plant, with the exception of Palo Verde Nuclear Generating Station ("PVNGS") Unit 3 and the Company's owned interests in PVNGS Units 1 and 2, is stated at original cost, which includes capitalized payroll-related costs such as taxes, pension and other fringe benefits, administrative costs and an allowance for funds used during construction. Pursuant to a rate stipulation dated October 1993, the Company did not capitalize amounts relating to an allowance for funds used during construction in 1999, 1998 or 1997. Utility plant includes certain electric assets not subject to regulation.
It is Company policy to charge repairs and minor replacements of property to maintenance expense and to charge major replacements to utility plant. Gains or losses resulting from retirements or other dispositions of operating property in the normal course of business are credited or charged to the accumulated provision for depreciation.
Depreciation and Amortization
Provision for depreciation and amortization of utility plant is made at annual straight-line rates approved by the PRC. The average rates used are as follows:
1999 1998 1997
---- ---- ----
Electric plant ........................... 3.38% 3.32% 3.33%
Gas plant ................................ 3.37% 3.06% 3.23%
Common plant ............................. 7.73% 7.34% 7.60%
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The provision for depreciation of certain equipment is charged to clearing accounts and subsequently allocated to operating expenses or construction projects based on the use of the equipment. Depreciation of non-utility property is computed on the straight-line method. Amortization of nuclear fuel is computed based on the units of production method.
Nuclear Decommissioning
The Company accounts for nuclear decommissioning costs on a straight-line basis over the respective license period. Such amounts are based on the future value of expenditures estimated to be required to decommission the plant.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
Summary of Significant Accounting Policies (Continued)
Recoverable Fuel Costs
The Company's fuel and purchased power costs for its firm requirements wholesale customers that are above the levels included in base rates are recoverable under a fuel and purchased power cost adjustment approved by the FERC. Such costs are deferred until the period in which they are billed or credited to customers. The Company's gas purchase costs that are above levels included in base rates are recoverable under similar Purchased Gas Adjustment Clause administered by the PRC. For gas, the excess or deficiency is accumulated for refund or surcharge to customers on an annual basis. Future recovery of these costs is subject to approval by the PRC.
Amortization of Debt Acquisition Costs
Discount, premium and expense related to the issuance of long-term debt are amortized over the lives of the respective issues. In connection with the retirement of long-term debt, such amounts associated with resources subject to PRC regulation are amortized over the lives of the respective issues. Amounts associated with the Company's firm-requirements wholesale customers and its resources excluded from PRC retail rates are recognized immediately as expense or income as they are incurred.
Stock Options
The Company continues to apply Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized for this plan.
Income Taxes
The Company reports income tax expense in accordance with SFAS 109, Accounting for Income Taxes. SFAS 109 requires that deferred income taxes for temporary differences between financial and income tax reporting be recorded using the liability method. Therefore, deferred income taxes are computed using the statutory tax rates scheduled to be in effect when temporary differences reverse. Current PRC jurisdictional rates include the tax effects of the majority of these temporary differences (normalization). Recovery of reversing temporary differences previously accounted for under the flow-through method is also included in rates charged to customers. For regulated operations, any changes in tax rates applied to accumulated deferred income taxes may not be immediately recognized because of ratemaking and tax accounting provisions required by the Internal Revenue Code. Items accorded flow-through treatment under PRC orders, deferred income taxes and the future ratemaking effects of such taxes, as well as corresponding regulatory assets and liabilities, are recorded in the financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
Summary of Significant Accounting Policies (Continued)
Asset Impairment
The Company regularly evaluates the carrying value of its regulatory and tangible long-lived assets in relation to their future undiscounted cash flows to assess recoverability in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Impairment testing of power generation assets is performed quarterly in response to changes in market conditions resulting from industry deregulation. Power generation assets used to supply jurisdictional and wholesale markets are evaluated on a group basis using future undiscounted cash flows based on current open market price conditions. The Company also has generation assets that are used for the sole purpose of reliability. These assets are tested as an individual group. Power generation assets held under operating leases are not currently evaluated for impairment (see note 4).
Financial Instruments
The Company periodically enters into energy trading contracts to take advantage of market opportunities associated with the purchase and sale of electricity. Such contracts are marked-to-market each period end. In addition, the Company protected its decommissioning and retiree trust assets against market price volatility by purchasing financial put and call options. These instruments are also marked-to-market each period end. The Company also periodically hedges natural gas purchases to limit commodity price volatility. Unrealized gains and losses from natural gas-related swaps, futures and forward contracts are deferred and recognized as the natural gas is sold and is recovered through gas rates charged to customers (see Notes 5 and 14).
Accounting for Contracts Involved in Energy Trading and Risk Management Activities
In December 1998, the Emerging Issues Task Force ("EITF") of the FASB reached consensus on EITF Issue No. 98-10 which requires that energy trading contracts should be marked to market (measured at fair value determined as of the balance sheet date) with the gains and losses included in earnings. Effective January 1, 1999, the Company adopted EITF Issue No. 98-10. The effect of the initial application of the new standard is reported as a cumulative effect of a change in accounting principle.
Change in Presentation
Certain prior year amounts have been reclassified to conform to the 1999 financial statement presentation.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(1) Nature of Business and Segment Information
The Company is an investor-owned integrated utility engaged in the generation, transmission, distribution and sale of electricity and the transportation, distribution and sale of natural gas. In addition, the Company provides energy and utility related services under its wholly-owned subsidiary, Avistar, Inc. ("Avistar").
Under current law, the Company is not in any direct retail competition with any other regulated electric and gas utility. The Restructuring Act in New Mexico, which was enacted into law on April 8, 1999, opens the state's electric power market to customer choice for certain customers beginning as early as 2001 with the balance of customers obtaining open access as early as 2002. The Restructuring Act requires that assets and activities subject to the PRC jurisdiction, primarily electric and gas distribution, and transmission assets and activities (collectively, the "regulated business"), be separated from other competitive business, primarily electric generation and service and certain other energy services operations (collectively, "the competitive businesses"). Such separation is required to be accomplished through the creation of at least two separate corporations. The Company has decided to accomplish the mandated separation by the formation of a holding company and the transfer of the regulated businesses to a newly-created, wholly owned subsidiary of such holding company, subject to various regulatory and other approvals. Corporate separation of the regulated business from the competitive businesses must be completed by January 1, 2001, although such date may be extended by up to one year by the PRC.
As it currently operates, the Company's principal business segments are electric ("Electric") and gas ("Gas") operations. Electric consists of three major business lines that include the Electric Service Business Unit ("Distribution"), Transmission Service Business Unit ("Transmission") and Generation Business Unit ("Generation").
ELECTRIC OPERATIONS
The Company's electric operations serve four principal markets. Sales to retail customers and sales to firm-requirements wholesale customers, sometimes referred to collectively as "system" sales, comprise two of these markets. The third market consists of other contracted sales to utilities for which the Company commits to deliver a specified amount of capacity (measured in MW) or energy (measured in MWh) over a given period of time. The fourth market consists of economy energy sales made on an hourly basis at fluctuating, spot-market rates. Sales to the third and fourth markets are sometimes referred to collectively as "off-system" sales.
The Company provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque and Santa Fe and certain other areas of New Mexico. As of December 31, 1999, approximately 361,000 retail electric customers were served by the Company, the largest of which accounted for approximately 4.7% of the Company's total retail electric revenues for the year ended December 31, 1999.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(1) Nature of Business and Segment Information (Continued)
The Company has ownership interests in certain generating facilities located in New Mexico, including the Four Corners Power Plant, a coal fired unit ("Four Corners"), and San Juan Generating Station, a coal fired unit ("SJGS"). In addition, the Company has ownership and leasehold interests in PVNGS located in Arizona. These generation assets are used to supply retail and wholesale customers. The Company also owns Reeves Station, a gas and oil fired unit ("Reeves") and Las Vegas Generating Station, a gas and oil fired unit ("Las Vegas") that are used solely for reliability purposes or to generate electricity for the wholesale market during peak demand periods in the Company's wholesale power markets. As of December 31, 1999, the total net generation capacity of facilities owned or leased by the Company was 1,506 MW. In addition to generation capacity, the Company purchases power in the open market. The Company is also interconnected with various utilities for economy interchanges and the mutual assistance in emergencies. The Company has been actively trading in the wholesale power market and has entered into and anticipates that it will continue to enter into power purchase agreements to accommodate its trading activity.
GAS OPERATIONS
The Company's gas operating division, Public Service Company of New Mexico Gas Services, as division of the Company ("PNMGS"), distributes natural gas to most of the major communities in New Mexico, including Albuquerque and Santa Fe, serving approximately 426,000 customers as of December 31, 1999. PNMGS' customer base includes both sales-service customers and transportation-service customers. Sales-service customers purchase natural gas and receive transportation and delivery services from PNMGS for which PNMGS receives both cost-of-gas and cost-of-service revenues. Additionally, PNMGS makes occasional gas sales to off-system customers. Transportation-service customers, who procure gas independently of PNMGS and contract with PNMGS for transportation and related services, provide PNMGS with cost-of-service revenues only. Transportation services are provided to gas marketers, producers and end users for delivery to locations throughout the PNMGS distribution systems, as well as for delivery to interstate pipelines.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(1) Nature of Business and Segment Information (Continued)
PNMGS obtains its supply of natural gas primarily from sources within New Mexico pursuant to contracts with producers and marketers. These contracts are generally sufficient to meet PNMGS peak-day demand. PNMGS serves certain cities which depend on El Paso Natural Gas Company or Transwestern Pipeline Company for transportation of gas supplies. Because these cities are not directly connected to PNMGS transmission facilities, gas transported by these companies is the sole supply source for those cities. Such transportation is regulated by FERC. As a result of FERC Order 636, PNMGS' options for transporting gas to such cities and other portions of its distribution system have increased.
UNREGULATED
The Company's wholly-owned subsidiary, Avistar, was formed in August 1999 as a New Mexico corporation and is currently engaged in certain unregulated, non-utility businesses, including energy and utility-related services previously operated by the Company. The PRC authorized the Company to invest $50 million in equity in Avistar and to enter into a reciprocal loan agreement for up to $30 million. The Company has currently invested $25 million in Avistar. In February 2000, Avistar invested $3 million in AMDAX.com, a start-up company which will provide an on line auction service to bring together electricity buyers and sellers in the deregulated electric power market. Avistar also operates and manages the City of Santa Fe's water system.
RISKS AND UNCERTAINTIES
The Company's future results may be affected by changes in regional economic conditions; the outcome of labor negotiations with unionized employees; fluctuations in fuel, purchased power and gas prices; the actions of utility regulatory commissions; environmental regulations and external factors such as the weather. As a result of state and Federal regulatory reforms, the public utility industry is undergoing a fundamental change. As this occurs, the electric generation business is transforming into a competitive marketplace. The Company's future results will be impacted by its ability to recover its stranded costs, costs incurred previously in providing power generation to electric service customers, and the costs of transition to an unregulated status. In addition, as a result of deregulation, the Company may face competition from companies with greater financial and other resources.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(1) Nature of Business and Segment Information (Continued)
Summarized financial information by business segment for 1999, 1998 and 1997 is as follows:
Electric
-----------------------------------------------------
Distribution Transmission Generation Total Gas Unregulated Consolidated
------------ ------------ ---------- ----------- -------- ----------- ------------
(In thousands)
1999:
Operating revenues:
External customers.................. $ 525,348 $ 15,520 $ 371,109 $ 911,977 $ 236,711 $ 8,855 $1,157,543
Intersegment revenues............... - 29,801 318,872 348,673 - - 348,673
Depreciation and amortization.......... 23,564 8,373 40,949 72,886 19,775 92,661
Interest income........................ 13,731 4,569 20,681 38,981 9,093 6,095 54,169
Net interest charges................... 21,510 7,515 26,341 55,366 16,353 (1,052) 70,667
Income tax expense (benefit) from
Continuing operations................ 22,406 2,745 17,904 43,055 3,211 (3,958) 42,308
Operating income....................... 48,796 9,454 51,275 109,525 15,135 (4,581) 120,079
Cumulative effect of a change in
Accounting principle, net of tax..... - - 3,541 3,541 - - 3,541
Segment net income (loss).............. 34,939 4,615 41,644 81,198 4,171 (2,214) 83,155
Total assets........................... 593,485 207,132 1,394,283 2,194,900 502,838 25,530 2,723,268
Gross property additions............... 30,585 12,489 24,426 67,500 27,798 - 95,298
1998:
Operating revenues:
External customers.................. $ 539,972 $ 15,596 $ 279,636 $ 835,204 $ 255,975 $ 1,266 $1,092,445
Intersegment revenues............... - 29,091 362,722 391,813 - - 391,813
Depreciation and amortization.......... 23,396 8,527 38,292 70,215 15,863 63 86,141
Interest income........................ 9,200 4,286 15,001 28,487 6,130 424 35,041
Net interest charges................... 16,057 7,547 26,179 49,783 13,784 (350) 63,217
Income tax expense (benefit) from
Continuing operations................ 15,160 4,165 33,804 53,129 7,754 (4,592) 56,291
Operating income....................... 30,895 11,868 78,750 121,513 20,099 (5,963) 135,649
Discontinued operations, net of tax.... - - - - - (12,437) (12,437)
Segment net income (loss).............. 22,317 6,828 61,949 91,094 11,056 (19,468) 82,682
Total assets........................... 587,835 198,718 1,410,818 2,197,371 447,074 24,158 2,668,603
Gross property additions............... 50,399 9,156 30,969 90,524 38,260 - 128,784
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(1) Nature of Business and Segment Information (Continued)
Electric
-----------------------------------------------------
Distribution Transmission Generation Total Gas Unregulated Consolidated
------------ ------------ ---------- ----------- -------- ----------- ------------
(In thousands)
1997:
Operating revenues:
External customers.................. $522,835 - $ 199,603 $ 722,438 $294,769 $ 3,314 $1,020,521
Intersegment revenues............... - 370,019 370,019 - - 370,019
Depreciation and amortization.......... 21,754 - 46,335 68,089 14,587 18 82,694
Interest income........................ 6,715 - 12,714 19,429 4,313 34 23,776
Net interest charges................... 15,900 - 27,613 43,513 12,701 - 56,214
Income tax expense (benefit) from
Continuing operations................ 15,924 - 26,963 42,887 10,169 (2,731) 50,325
Operating income....................... 37,296 - 72,175 109,471 23,444 (3,368) 129,547
Discontinued operations, net of tax.... - - - - - (5,502) (5,502)
Segment net income (loss).............. 24,496 - 51,260 75,756 14,602 (9,363) 80,995
Total assets........................... 612,136 - 1,257,767 1,869,903 482,206 55,301 2,407,410
Gross property additions............... 45,302 - 51,661 96,963 31,408 - 128,371
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The unregulated segment includes Avistar and certain corporate activities which are not material.
The Transmission Service Business Unit was established in 1998. Prior to 1998, it was combined with the Bulk Power Business Unit. Prior periods information for the Transmission Service Business Unit is not available.
On August 4, 1998, the Company adopted a plan to discontinue the natural gas trading operations of its Energy Services Business Unit and completely discontinued these operations on December 31, 1998 (see note 13).
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(2) Regulatory Assets and Liabilities
The Company is subject to the provisions of SFAS 71, with respect to operations regulated by the PRC. Regulatory assets represent probable future revenue to the Company associated with certain costs which will be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and liabilities reflected in the Consolidated Balance Sheets as of December 31, relate to the following:
1999 1998
---- ----
(In thousands)
Assets:
Current:
PGAC ........................................... $ 19,310 $ 5,294
Gas Take-or-Pay Costs .......................... 4,746 10,324
-------- --------
Subtotal .................................... 24,056 15,618
-------- --------
Deferred:
Deferred Income Taxes .......................... 35,713 35,564
Loss on Reacquired Debt ........................ 8,133 8,499
Gas Imputed Revenues ........................... 7,290 6,726
Gas Reservation Fees ........................... 7,029 7,029
Deferred Customer Expense on Gas Assets Sale ... 6,468 5,260
Gas Retirees' Health Care Costs ................ 3,264 4,804
Proposed Transmission Line Costs ............... 2,432 2,660
Gas Rate Case Costs ............................ 1,571 1,571
Other .......................................... 331 471
-------- --------
Subtotal ................................... 72,731 72,584
-------- --------
Stranded and Transition Assets.................. 123,167 113,799
-------- --------
Total Assets................................. 219,454 202,001
-------- --------
Liabilities:
Deferred:
Deferred Income Taxes .......................... (31,880) (49,971)
Gas Regulatory Reserve ......................... (20,830) (21,308)
Customer Gain on Gas Assets Sale ............... (7,226) (7,226)
DOE Line Acquisition............................ (3,083) -
Gain on Reacquired Debt ........................ (708) (484)
Other........................................... (607) (774)
-------- --------
Subtotal..................................... (79,269) (70,763)
-------- --------
Stranded and Transition Liabilities............. (24,163) (24,083)
-------- --------
Total Liabilities............................ (103,432) (103,846)
-------- --------
Net Regulatory Assets ....................... $116,022 $ 98,155
======== ========
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(2) Regulatory Assets and Liabilities (Continued)
Substantially all of the Company's regulatory assets and regulatory liabilities are reflected in rates charged to customers or have been addressed in a regulatory proceeding.
In 1999, the State of New Mexico enacted the Restructuring Act that provides guidelines to deregulated power generation activities in New Mexico and opens the state's power markets to customer choice beginning as early as 2001. The Restructuring Act recognizes that electric utilities should be permitted a reasonable opportunity to recover an appropriate amount of the costs incurred previously in providing electric service ("stranded costs"). Stranded costs include plant decommissioning costs, regulatory assets, lease and lease-related costs recognized under cost-of-service regulation. As of December 31, 1999, the Company discontinued the use of the provisions of SFAS No. 71 for generation activities due to the passage of the Restructuring Act. Utilities will be allowed to recover no less than 50% of such costs through a non-bypassable charge on all customer bills for five years after implementation of customer choice. The PRC could authorize a utility to recover up to 100% of its stranded costs if the PRC finds that recovery of more than 50%: (i) is in the public interest; (ii) is necessary to maintain the financial integrity of the public utility; (iii) is necessary to continue adequate and reliable service; and (iv) will not cause an increase in rates to residential or small business customers during the transition period. The Restructuring Act also allows for the recovery of decommissioning costs by means of a separate wires charge. The Company expects to recover its regulatory assets associated with the deregulated business through its stranded costs recovery. As a result, a regulatory asset has been established to reflect the costs associated with discontinuation of SFAS 71 accounting and adoption of SFAS 101. The Company's estimate of its stranded costs, including nuclear and fossil fuel decommissioning costs, ranges from $530 million to $730 million which includes other operating costs in excess of its related regulatory assets. The Company believes that it will recover these costs as permitted under the restructuring act. Final determination and quantification of stranded cost recovery has not been made by the PRC. Such determination will have an impact on the recoverability of the related assets.
Pursuant to the Restructuring Act, utilities will also be allowed to recover in full any prudent and reasonable costs incurred in implementing full open access ("transition costs"). The transition costs will be recovered through 2007 by means of a separate wires charge. The Company estimates that these costs as being in excess of $50 million. Transition costs include, but are not limited to, professional fees, financing costs including underwriting fees, consents relating to the transfer to assets, management information system changes including billing system changes and public and customer communications. Recoverable transition costs will be capitalized and amortized over the recovery period to match related revenues. Costs not recoverable will be expensed when incurred unless otherwise capitalizable under the accounting rules.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(2) Regulatory Assets and Liabilities (Continued)
Regulatory assets and liabilities reflected in the Consolidated Balance
Sheets as of December 31, 1999, related to stranded or transitions costs are as
follows:
1999 1998
--------- ---------
(In thousands)
Assets
Transition Costs................................ $ 4,293 $ -
Mine Reclamation Costs.......................... 78,856 75,101
Deferred Income Taxes........................... 37,725 36,089
Loss on Reacquired Debt......................... 2,293 2,609
--------- ---------
Subtotal................................... 123,167 113,799
--------- ---------
Liabilities
Deferred Income Taxes........................... (14,935) (14,287)
PVNGS Prudence Audit............................ (5,809) (6,185)
Settlement Due Customers........................ (3,384) (3,564)
Gain on Reacquired Debt......................... (35) (47)
--------- ---------
Subtotal................................... (24,163) (24,083)
--------- ---------
Net Stranded Cost and Transition Cost...... $ 99,004 $ 89,716
========= =========
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Based on a current evaluation of the various factors and conditions that are expected to impact future cost recovery, the Company believes that its net regulatory assets are probable of future recovery.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(3) Capitalization
Changes in common stock, additional paid-in capital, retained earnings and comprehensive income are as follows:
Common Stock
-----------------------------
Additional
Number Aggregate Paid-In Retained Comprehensive
Of Shares Par Value Capital Earnings Income
--------- --------- ---------- -------- -------------
(Dollars in thousands)
Balance at December 31, 1997................. 41,774,083 $ 208,870 $469,073 $ 129,188 $ 486
Exercise of stock options.................... - - (3,687) - -
Net earnings................................. - - - 82,682 -
Dividends:
Cumulative preferred stock................ - - - (586) -
Common Stock.............................. - - - (25,064) -
Other Comprehensive Income, net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gains arising
During the period...................... - - - - 1,519
Less reclassification adjustment for
Gains included in net income............ - - - - (673)
Minimum pension liability adjustment....... - - - - (205)
----------- ----------- ---------- ----------- ---------
Balance at December 31, 1998................. 41,774,083 208,870 465,386 186,220 1,127
Stock Repurchase............................. (1,070,700) (5,353) (11,993) - -
Net earnings................................. - - - 83,155 -
Dividends:
Cumulative preferred stock................ - - - (586) -
Common Stock.............................. - - - (40,960) -
Other Comprehensive Income, net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gains arising
During the period...................... - - - - 4,120
Less reclassification adjustment for
Gains included in net income............ - - - - (4,282)
Minimum pension liability adjustment....... 1,387
----------- ----------- ---------- ----------- ---------
Balance at December 31, 1999................. 40,703,383 $ 203,517 $ 453,393 $ 227,829 $ 2,352
=========== =========== ========== =========== =========
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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(3) Capitalization (Continued)
Comprehensive Income
The Company's investments held in rabbi trust for nuclear decommissioning and certain retirement benefits are classified as available-for-sale, and accordingly unrealized holding gains and losses are recognized as a component of comprehensive income. Realized gains and losses are included in earnings. Net losses related to the Company's pension plans, not yet recognized as net periodic pension costs (or additional minimum liability) are reported as a component of comprehensive income. Changes in the liability are adjusted as necessary. All components of comprehensive income are recorded, net of any tax benefit or expense. A deferred asset or liability is established for the resulting temporary difference.
Common Stock
The number of authorized shares of common stock with par value of $5 per share is 80 million shares. The declaration of common dividends is dependent on a number of factors, including the extent to which cash flows will support dividends, the availability of retained earnings, the financial circumstances and performance of the Company, the PRC's decisions on the Company's various regulatory cases currently pending. The effect of deregulating generation markets and market and economic conditions generally. In addition, the ability to recover stranded costs in deregulation, future growth plans and the related capital requirements and standard business considerations will also affect the Company's ability to pay dividends.
In March 1999, the Company's Board of Directors approved a plan to repurchase up to 1,587,000 shares of the Company's outstanding common stock with maximum purchase price of $19.00 per share. The repurchase program was created to facilitate the Company's stock option program. In December 1999, the Company's Board of Directors authorized the Company to repurchase up to an additional $20.0 million of the Company's common stock. As of December 31, 1999, the Company had repurchased 1,070,700 shares of its previously outstanding common stock at a cost of $18.8 million. From January 2, 2000 through February 29, 2000, the Company repurchased an additional 963,284 shares of its previously outstanding common stock at a cost of $15.7 million. The Company may from time-to-time repurchase additional common stock for various corporate purposes.
On September 16, 1996, the Company implemented a dividend reinvestment and stock purchase plan for investors, including customers and employees. The plan, called PNM Direct, also includes safekeeping services and automatic investment features. The Company's stock is purchased in the open market to meet plan requirements.
Cumulative Preferred Stock
The number of authorized shares of cumulative preferred stock is 10 million shares. The Company has 128,000 shares, 1965 Series, 4.58%, stated value of $100 per share, of cumulative preferred stock outstanding. The 1965 Series does not have a mandatory redemption requirement but may be redeemable at 102% of the par value with accrued dividends. The holders of the 1965 Series are entitled to payment before holders of common stock in the event of any liquidation or dissolution or distribution of assets of the Company. In addition, the 1965 Series is not entitled to a sinking fund and cannot be converted into any other class of stock of the Company. The Company's restated articles of incorporation limit the amount of preferred stock which may be issued. The earnings test in the Company's restated articles of incorporation currently allows for the issuance of additional preferred stock.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(3) Capitalization (Continued)
Long-Term Debt
The Company has no long-term debt that matures from 2000 through 2004.
On March 11, 1998, the Company modified its 1947 Indenture of Mortgage and Deed of Trust; no future bonds can be issued under the mortgage. The first mortgage bonds continue to serve as collateral for the tax-exempt pollution control revenue bonds ("PCBs") in the outstanding principal amount of $111 million.
In March 1998, the Company replaced the first mortgage bonds collateralizing $463 million of PCBs with senior unsecured notes ("SUNs") which were issued under a new senior unsecured note indenture. Also, in March 1998, the Company retired $140 million principal amount of first mortgage bonds. While first mortgage bonds continue to serve as collateral for PCBs in the outstanding principal amount of $111 million, the lien of the mortgage was substantially reduced to cover only the Company's ownership interest in PVNGS. With the exception of the $111 million of PCBs secured by first mortgage bonds, the SUNs are and will be the senior debt of the Company.
In August 1998, the Company issued and sold $435 million of SUNs in two series, the 7.10% Series A due August 1, 2005, in the principal amount of $300 million, and the 7.50% Series B due August 1, 2018, in the principal amount of $135 million. These SUNs were issued under an indenture similar to the indenture under which the SUNs were issued in March 1998, and it is expected that future long-term debt financings will be similarly issued.
In 1999, the Company retired $31.6 million of its 7.1% senior unsecured notes through open market purchases, utilizing the funds from operations and the funds from temporary investments. On October 28, 1999, tax-exempt pollution control revenue bonds of $11.5 million with an interest rate of 6.60% were issued to partially reimburse the Company for expenditures associated with its share of a recently completed upgrade of the emission control system at SJGS. The gain recognized was immaterial. In January 2000, the Company reacquired $35.0 million of its 7.5% senior unsecured notes through open market purchases.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(3) Capitalization (Continued)
Revolving Credit Facility and Other Credit Facilities
At December 31, 1999, the Company had a $300 million unsecured revolving credit facility (the "Facility") with an expiration date of March 31, 2003. The Company must pay commitment fees of .1875% per year on the total amount of the Facility. The Company also had an $80 million credit facility, which expired on May 20, 2001, and was collateralized by the Company's electric and gas customer accounts receivable and certain amounts being recovered from gas customers relating to certain gas contract settlements. In addition, the Company had $25 million in local lines of credit. On February 15, 2000, the Company reduced the borrowing capacity under its $300 million revolving credit facility to $150 million and terminated its $80 million securitization facility.
(4) Lease Commitments
The Company leases interests in Units 1 and 2 of PVNGS, certain transmission facilities, office buildings and other equipment under operating leases. The lease expense for PVNGS is $66.3 million per year over base lease terms expiring in 2015 and 2016. Covenants in the Company's PVNGS Units 1 and 2 lease agreements limit the Company's ability, without consent of the owner participants and bondholders in the lease transactions, (i) to enter into any merger or consolidation, or (ii) except in connection with normal dividend policy, to convey, transfer, lease or dividend more than 5% of its assets in any single transaction or series of related transactions.
Future minimum operating lease payments (in thousands) at December 31, 1999 are:
2000 ................................................ $ 79,675
2001 ................................................ 78,726
2002 ................................................ 78,613
2003 ................................................ 78,610
2004 ................................................ 78,610
Later years ......................................... 799,197
----------
Total minimum lease payments ...................... $1,193,431
==========
|
Operating lease expense, inclusive of PVNGS leases, was approximately $81.1 million in 1999, $82.6 million in 1998 and $80.8 million in 1997. Aggregate minimum payments to be received in future periods under noncancelable subleases are approximately $4.6 million.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(5) Financial Instruments
The Company uses derivative financial instruments in limited instances to manage risk as it relates to changes in natural gas and electric prices and adverse market changes for investments held by the Company's various trusts. The Company also uses, on a limited basis, certain derivative instruments for bulk power electricity trading purposes in order to take advantage of favorable price movements and market timing activities in the wholesale power markets.
The estimated fair value of the Company's financial instruments (including current maturities) at December 31, is as follows:
1999 1998
------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- ---------- ----------
(In thousands)
Long-Term Debt ............................... $(988,489) $(932,687) $(1,008,614) $(1,042,557)
Decommissioning Trust Debt.................... - - 26,620 26,620
Investment in PVNGS Lessors' Notes............ 424,605 455,888 443,748 459,167
Derivatives .................................. - (25,921) - 11,307
Decommissioning Trust......................... 51,752 51,770 59,803 64,509
Fossil-Fueled Plant Decommissioning Trust..... 4,591 4,591 7,676 7,676
Rabbi Trust................................... 16,901 16,931 9,804 17,012
|
Fair value is based on market quotes provided by the Company's investment bankers and trust advisors.
The carrying amounts reflected on the consolidated balance sheets approximate fair value for cash, temporary investments, and receivables and payables due to the short period of maturity.
The Company is exposed to credit losses in the event of non-performance or non-payment by counterparties. The Company uses a credit management process to assess and monitor the financial conditions of counterparties.
Natural Gas Contracts
Pursuant to an order issued by the NMPUC, predecessor to the PRC, the Company has previously entered into swaps to hedge certain portions of natural gas supply contracts in order to protect the Company's natural gas customers from the risk of adverse price fluctuations in the natural gas market. The financial impact of all hedge gains and losses from swaps flowed through the Company's purchased gas adjustment clause and are fully recoverable by the Company. As a result, earnings were not affected by gains or losses generated by these instruments. The Company hedged 40% of its natural gas deliveries during the 1998-1999 heating season. Less than 15.5% of the 1998-1999 heating season portfolio was hedged using financial hedging contracts. The Company has hedged a portion of its 1999-2000 heating season gas supply portfolio through the use of both physical and financial hedging tools. Less than 9.1% of the Company's 1999-2000 heating season portfolio is hedged using financial hedging contracts. As of December 31, 1999, the Company had unrecognized mark-to-market losses of $1.1 million associated with its gas-related financial hedging activities.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(5) Financial Instruments (Continued)
Electricity Trading Contracts
To take advantage of market opportunities associated with the purchase and sale of electricity, the Company's wholesale power operation periodically enters into derivative financial instrument contracts. In addition, the Company enters into forward physical contracts and physical options. The Company accounts for these financial instruments as trading activities under the accounting guidelines set forth under The Emerging Issues Task Force ("EITF") Issue No. 98-10. As a result, all open contracts are marked to market at the end of each period. The physical contracts are subsequently recognized as revenues or purchased power when the actual physical delivery occurs. The effect of the initial application of the new standard is reported as a cumulative effect of a change in accounting principle. Accordingly, the Company recorded additional earnings, net of taxes, of approximately $3.5 million, or $0.08 per common share, to recognize the gain on net open physical electricity purchase and sales commitments considered to be trading activities.
Through December 31, 1999, the Company's wholesale electric trading operations settled trading contracts for the sale of electricity that generated $43.9 million of electric revenues by delivering 1.2 million KWh. The Company purchased $46.2 million or 1.4 million KWh of electricity to support these contractual sale and other open market sales opportunities.
As of December 31, 1999, the Company had open trading contract positions to buy $29.1 million and to sell $32.3 million of electricity. At December 31, 1999, the Company had a gross mark-to-market gain (asset position) on these trading contracts of $6.9 million and gross mark-to-market loss (liability position) of $6.8 million, with net mark-to-market gain (asset position) of $0.1 million. The mark-to-market valuation is recognized in earnings each period.
Corporate Hedge
The Company has about $62 million invested in domestic stocks in various trusts for nuclear decommissioning, executive retirement and retiree medical benefits. At the end of March 1999, the Company began using financial derivatives based on the Standard & Poor's ("S&P") 500 Index to limit potential loss on these investments due to adverse market fluctuations. The options are structured as a collar, protecting the portfolio against losses beyond a certain amount and balancing the cost of that downside protection by foregoing gains above a certain level. If the S&P 500 Index is within the specified range when the option contract expires, the Company will not be obligated to pay, nor will the Company have the right to receive cash. The Company accounts for the market value changes of these options under mark-to-market accounting on a quarterly basis. At December 31, 1999, the Company recorded an unrealized year-to-date loss of $2.6 million (pre-tax) on the market value of these options, although the S&P 500 Index is still within the specified range of the collar.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(6) Earnings Per Share
In accordance with SFAS No. 128, Earnings per Share, dual presentation of basic and diluted earnings per share has been presented in the Consolidated Statements of Earnings. The following reconciliation illustrates the impact on the share amounts of potential common shares and the earnings per share amounts:
1999 1998 1997
--------- --------- ---------
Basic:
Net Earnings from Continuing Operations.............................. $ 79,614 $ 95,119 $ 86,497
Discontinued Operations, net of tax (note 13): - (12,437) (5,502)
Cumulative Effect of a Change in Accounting
Principle, net of tax (note 14)................................... 3,541 - -
--------- --------- ---------
Net Earnings......................................................... 83,155 82,682 80,995
Preferred Stock Dividend Requirements................................ 586 586 586
--------- --------- ---------
Net Earnings Applicable to Common Stock.............................. $ 82,569 $ 82,096 $ 80,409
========= ========= =========
Average Number of Common Shares Outstanding.......................... 41,038 41,774 41,774
========= ========= =========
Net Earnings (Loss) per Share of Common Stock:
Earnings from continuing operations................................ $ 1.93 $ 2.27 $ 2.05
Discontinued operations (note 13).................................. - (0.30) (0.13)
Cumulative effect of a change in accounting principle (note 14).... 0.08 - -
--------- --------- ---------
Net Earnings per Share of Common Stock (Basic)....................... $ 2.01 $ 1.97 $ 1.92
========= ========= =========
Diluted:
Net Earnings from Continuing Operations.............................. $ 79,614 $ 95,119 $ 86,497
Discontinued Operations, net of tax (note 13)........................ - (12,437) (5,502)
Cumulative Effect of a Change in Accounting
Principle, net of tax (note 14)................................... 3,541 - -
--------- --------- ---------
Net Earnings......................................................... 83,155 82,682 80,995
Preferred Stock Dividend Requirements................................ 586 586 586
--------- --------- ---------
Net Earnings Applicable to Common Stock.............................. $ 82,569 $ 82,096 $ 80,409
========= ========= =========
Average Number of Common Shares Outstanding.......................... 41,038 41,774 41,774
Diluted effect of common stock equivalents (a)....................... 65 298 217
--------- --------- ---------
Average common and common equivalent shares
Outstanding........................................................ 41,103 42,072 41,991
========= ========= =========
Net Earnings (Loss) per Share of Common Stock:
Earnings from continuing operations................................ $ 1.93 $ 2.25 $ 2.05
Discontinued operations............................................ - (0.30) (0.13)
Cumulative effect of a change in accounting principle.............. 0.08 - -
--------- --------- ---------
Net Earnings per Share of Common Stock (Basic)....................... $ 2.01 $ 1.95 $ 1.91
========= ========= =========
|
(a) Excludes the effect of average anti-dilutive common stock equivalents related to out of-the-money options of 66,143; 23,794; and 36,310 for the years ended 1999, 1998 and 1997, respectively.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(7) Income Taxes
Income taxes before discontinued operations and cumulative effect of a change in accounting principle consist of the following components:
1999 1998 1997
---- ---- ----
(In thousands)
Current Federal income tax .................... $23,511 $32,785 $35,875
Current state income tax ...................... 8,502 11,451 10,502
Deferred Federal income tax ................... 13,494 15,797 8,781
Deferred state income tax ..................... 210 (324) (397)
Amortization of accumulated investment
tax credits ................................. (3,409) (3,418) (4,436)
------- ------- -------
Total income taxes ......................... $42,308 $56,291 $50,325
======= ======= =======
Charged to operating expenses ................. $25,010 $41,306 $41,941
Charged to other income and deductions ....... 17,298 14,985 8,384
------- ------- -------
Total income taxes........................ $42,308 $56,291 $50,325
======= ======= =======
|
The Company's provision for income taxes before discontinued operations and cumulative effect of a change in accounting principle differed from the Federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:
1999 1998 1997
---- ---- ----
(In thousands)
Federal income tax at statutory rates .......... $42,673 $52,993 $47,888
Investment tax credits ........................ (3,409) (3,418) (4,436)
Depreciation of flow-through items ............ 605 531 519
Gains on the sale and leaseback of PVNGS
Units 1 and 2 .............................. (527) (527) (527)
Dividends received deduction (1,301) - -
Annual reversal of deferred income taxes
accrued at prior tax rates (2,320) (1,905) (1,082)
State income tax .............................. 5,541 7,074 6,381
Other ......................................... 1,046 1,543 1,582
------- ------- -------
Total income taxes ......................... $42,308 $56,291 $50,325
======= ======= =======
Effective tax rate 34.70% 37.18% 36.78%
|
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(7) Income Taxes (Continued)
Deferred income taxes result from certain temporary differences between the recognition of income and expense for tax and financial reporting purposes, as described in the Summary of Significant Accounting Policies. The major sources of these differences for which deferred taxes have been provided and the tax effects of each are as follows:
1999 1998 1997
---- ---- ----
(In thousands)
Deferred fuel costs .......................... $ 3,176 $(11,097) $(9,133)
Depreciation and cost recovery ............... 5,111 7,526 6,390
Contributions in aid of construction ......... (1,709) (2,826) (3,185)
Alternative minimum tax in excess of
regular tax ................................ 15,634 21,144 12,482
PVNGS decommissioning costs .................. (793) (618) (1,512)
Contribution to 401(h) plan .................. (1,185) (763) 3,181
PVNGS spent fuel disposal costs .............. (5,202) - -
Other ........................................ (1,328) 2,107 161
------- -------- -------
Net deferred taxes provided ............... $13,704 $ 15,473 $ 8,384
======= ======== =======
|
The components of the net accumulated deferred income tax liability were:
1999 1998
---- ----
(In thousands)
Deferred Tax Assets:
Alternative minimum tax credit carryforward .... $ 18,420 $ 34,055
Nuclear decommissioning costs.................... 22,073 20,062
Regulatory liabilities related to income taxes .. 44,547 47,615
Other ........................................... 52,199 45,480
-------- --------
Total deferred tax assets .................... $137,239 $147,212
======== ========
Deferred Tax Liabilities:
Depreciation .................................... $184,687 $184,462
Investment tax credit ........................... 50,996 54,404
Fuel costs ...................................... 15,984 12,808
Regulatory assets related to income taxes........ 71,170 69,298
Other ........................................... 33,668 24,921
-------- --------
Total deferred tax liabilities ............... 356,505 345,893
-------- --------
Accumulated deferred income taxes, net ............. $219,266 $198,681
======== ========
|
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(7) Income Taxes (Continued)
The following table reconciles the change in the net accumulated deferred income tax liability to the deferred income tax expense included in the consolidated statement of earnings for the period:
Net change in deferred income tax liability per above table......... $20,585
Change in tax effects of income tax related regulatory
assets and liabilities ........................................... (4,940)
Tax effect of excess pension liability.............................. (910)
Tax effect of mark-to-market on investments available for sale...... (2,119)
Deferred tax expense relating to cumulative effect of a change
in accounting principle.......................................... (2,321)
-------
Deferred income tax expense from continuing operations
for the period................................................... $10,295
=======
|
The Company has no net operating loss carryforwards as of December 31, 1999.
The Company defers investment tax credits related to rate regulated assets and amortizes them over the estimated useful lives of those assets. The Company anticipates that this practice will continue after the generation assets are no longer rate regulated upon full implementation of the Restructuring Act in 2002.
(8) Pension and Other Postretirement Benefits
Pension Plan
The Company and its subsidiaries have a pension plan covering substantially all of their union and non-union employees, including officers. The plan is non-contributory and provides for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Company and the average of their highest annual base salary for three consecutive years. The Company's policy is to fund actuarially-determined contributions. Contributions to the plan reflect benefits attributed to employees' years of service to date and also for services expected to be provided in the future. Plan assets primarily consist of common stock, fixed income securities, cash equivalents and real estate.
In December 1996, the Board of Directors approved changes to the Company's non-contributory defined benefit plan ("Retirement Plan") and implementation of a 401(k) defined contribution plan effective January 1, 1998. Salaries used in Retirement Plan benefit calculations were frozen as of December 31, 1997. Additional credited service can be accrued under the Retirement Plan up to a limit determined by age and years of service. The Company contributions to the 401(k) plan consist of a 3 percent non-matching contribution, and a 75 percent match on the first 6 percent contributed by the employee on a before-tax basis. The Company contributed $8.4 million in the years ended December 31, 1999 and 1998.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(8) Pension and Other Postretirement Benefits (Continued)
The following sets forth the pension plan's funded status, components of pension costs and amounts (in thousands) at December 31:
Pension Benefits
--------------------
1999 1998
---------- ---------
Change in Benefit Obligation:
Benefit obligation at beginning of year............. $ 330,048 297,679
Service cost........................................ 7,407 6,660
Interest cost....................................... 21,777 20,101
Actuarial loss...................................... (12,797) 19,380
Benefits paid....................................... (15,374) (13,772)
---------- ---------
Benefit obligation at end of period............. 331,061 330,048
---------- ---------
Change in Plan Assets:
Fair value of plan assets at beginning of year...... 330,556 330,550
Actual return on plan assets........................ 46,458 13,593
Employer contribution............................... - 185
Benefits paid....................................... (15,374) (13,772)
---------- ---------
Fair value of plan assets at end of year........ 361,640 330,556
---------- ---------
Funded Status....................................... 30,579 508
Unamortized transition assets....................... (2,322) (3,486)
Unrecognized net actuarial loss..................... (12,209) 19,580
Unrecognized prior service cost..................... 78 112
---------- ---------
Prepaid pension cost............................ $ 16,126 $ 16,714
========== =========
Weighted - Average Assumptions as of December 31,
Discount rate....................................... 7.50% 6.75%
Expected return on plan assets...................... 8.50% 8.50%
Rate of compensation increase....................... N/A N/A
Pension Benefits
-----------------------------
1999 1998 1997
--------- -------- ---------
Components of Net Periodic Benefit Cost:
Service cost................................ $ 7,407 $ 6,660 $ 6,535
Interest cost............................... 21,777 20,101 19,592
Expected return on plan assets.............. (27,466) (26,755) (23,426)
Amortization of prior service cost.......... (1,130) (1,130) (1,130)
--------- --------- ---------
Net periodic pension expense (income)... $ 588 $ (1,124) $ 1,571
========= ========= =========
|
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(8) Pension and Other Postretirement Benefits (Continued)
Other Postretirement Benefits
The Company provides medical and dental benefits to eligible retirees. Currently, retirees are offered the same benefits as active employees after reflecting Medicare coordination. The following sets forth the plan's funded status, components of net periodic benefit cost (in thousands) at December 31:
Other Benefits
-------------------
1999 1998
-------- --------
Change in Benefit Obligation:
Benefit obligation at beginning of year............. $ 74,539 $ 59,084
Service cost........................................ 1,402 1,292
Interest cost....................................... 4,782 4,501
Actuarial loss (gain)............................... (6,958) 9,662
--------- ----------
Benefit obligation at end of period............. 73,765 74,539
--------- ----------
Change in Plan Assets:
Fair value of plan assets at beginning of year...... 37,602 33,158
Actual return on plan assets........................ 5,269 4,444
Employer contribution............................... 597 -
Benefits paid....................................... (1,643) -
--------- ----------
Fair value of plan assets at end of year........ $ 41,825 $ 37,602
--------- ----------
Funded Status....................................... $(31,940) $(36,937)
Unamortized transition assets....................... (622) 6,826
Unrecognized prior service cost..................... 23,617 25,436
Accrued postretirement benefits cost........... $ (8,945) $ (4,675)
Weighted - Average Assumptions as of December 31,
Discount rate....................................... 7.50% 6.75%
Expected return on plan assets...................... 8.75% 8.75%
Rate of compensation increase....................... N/A N/A
Pension Benefits
----------------------------
1999 1998 1997
-------- -------- --------
Components of Net Periodic Benefit Cost:
Service cost................................ $ 1,402 $ 1,292 $ 1,300
Interest cost............................... 4,782 4,501 4,452
Expected return on plan assets.............. (3,135) (2,943) (1,884)
Amortization of prior service cost.......... 1,817 1,817 1,817)
--------- -------- --------
Net periodic pension expense ........... $ 4,866 $ 4,667 $ 5,685
========= ======== ========
|
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(8) Pension and Other Postretirement Benefits (Continued)
The effect of a 1% increase in the health care trend rate assumption would increase the accumulated postretirement benefit obligation as of December 31, 1999, by approximately $12.1 million and the aggregate service and interest cost components of net periodic postretirement benefit cost for 1999 by approximately $1.4 million. The health care cost trend rate is expected to decrease to 5.0% by 2010 and to remain at that level thereafter.
Executive Retirement Program
The Company has an executive retirement program for a group of management employees. The program was intended to attract, motivate and retain key management employees. The Company's projected benefit obligation for this program, as of December 31, 1999, was $18.1 million, of which the accumulated and vested benefit obligation was $19.5 million. As of December 31, 1999, the Company has recognized an additional liability of $3.6 million for the amount of unfunded accumulated benefits in excess of accrued pension costs. The net periodic cost for 1999, 1998 and 1997 was $2.3 million, $2.3 million and $2.2 million, respectively. In 1989, the Company established an irrevocable grantor trust in connection with the executive retirement program. Under the terms of the trust, the Company may, but is not obligated to, provide funds to the trust, which was established with an independent trustee, to aid it in meeting its obligations under such program. Marketable securities in the amount of approximately $12.1 million (fair market value of $16.9 million) are presently in trust. No additional funds have been provided to the trust since 1989.
(9) Stock Option Plans
The Company's Performance Stock Plan ("PSP") is a non-qualified stock option plan, covering a group of management employees. Options to purchase shares of the Company's common stock are granted at the fair market value of the shares on the date of the grant. Options granted through December 31, 1995 vest on June 30, 1996 and have an exercise term of up to 10 years. All subsequent awards granted after December 31, 1995, vest three years from the grant date of the awards. Options granted or approved on or after February 9, 1998, can also vest upon retirement. The maximum number of options authorized are five million shares through December 31, 2000.
In addition, the Company has a Director Retainer Plan ("DRP") which provides for payment of the Directors' annual retainer in the form of cash, restricted stock or options to purchase shares of the Company's common stock. The number of options granted in 1999 under the DRP was 8,000 shares with an exercise price of $9.69. No options were exercised under the DRP during 1999. The maximum number of options authorized are 100,000 shares through April 30, 2002. The number of options outstanding as of December 31, 1999, was 29,000.
The fair value of each option grant is determined on the date of grant using the Black-Scholes option-pricing model with the following average assumptions used for grants in 1997, 1998 and 1999, respectively: dividend yield of 3.0%, 3.75% and 4.9%; expected volatility of 20%, 26.78% and 30.29%, risk-free interest rates of 5.69%, 4.65% and 6.43%; and expected lives of four years.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(9) Stock Option Plans (Continued)
A summary of the status of the Company's stock option plans at December 31, and changes during the years then ended is presented below. Prior periods have been restated for comparability purposes.
1999 1998 1997
---------------------- -------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
---------------------------------------- --------- -------- --------- --------- -------- --------
Outstanding at beginning of year........ 996,175 $18.819 1,539,214 $17.704 1,619,406 $15.905
Granted................................. 608,708 $17.397 10,000 $12.750 312,707 $23.033
Exercised............................... - N/A 473,063 $14.663 379,833 $14.453
Forfeited............................... 19,949 $18.649 79,976 $21.194 13,066 $19.450
---------- ---------- -----------
Outstanding at end of year.............. 1,584,934 996,175 $18.819 1,539,214 $17.704
========== ========== ===========
Options exercisable at year-end ........ 749,948 400,158 861,221
========== ========== ===========
Options available for future grant ..... 2,183,624 2,752,806 2,672,832
---------- ---------- -----------
Weighted-average fair value of
options granted during the year:
PSP................................ $3.89 N/A $4.21
========== ===========
DRP................................ $5.85 $7.32 $15.69
========== ========== ===========
|
The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable
---------------------------------------------------------------- ---------------------------------
Weighted-
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices At 12/31/99 Life Prices At 12/31/99 Prices
-------------------- -------------------- --------------------- ------------------ --------------- ----------------
$5.50 - $12.75 29,000 8.15 years $ 9.466 21,000 $ 9.381
$11.50 - $23.688 1,555,934 7.56 years $18.398 728,948 $17.343
------------ -----------
1,584,934 7.57 years $18.235 749,948 $17.120
============ ===========
|
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(9) Stock Option Plans (Continued)
Had compensation cost for the Company's performance stock plan been determined consistent with SFAS No. 123, Accounting for Stock-Based Compensation, the effect on the Company's pro forma net earnings and pro forma earnings per share would be as follows (in thousands, except per share data):
1999 1998 1997
------------------------- ------------------------ -------------------------
As Reported Pro forma As Reported Pro forma As Reported Pro forma
------------- ---------- ------------ ---------- ------------- -----------
Net earnings: (available for
Common)...................... $82,569 $81,573 $82,096 $81,554 $80,409 $80,018
Net earnings per share
Basic...................... $ 2.01 $ 1.99 $ 1.97 $ 1.95 $ 1.92 $ 1.92
Diluted.................... $ 2.01 $ 1.98 $ 1.95 $ 1.95 $ 1.91 $ 1.90
|
(10) Construction Program and Jointly-Owned Plants
The Company's construction expenditures for 1999 were approximately $95.3 million, including expenditures on jointly-owned projects. The Company's proportionate share of expenses for the jointly-owned plants is included in operating expenses in the consolidated statements of earnings.
At December 31, 1999, the Company's interests and investments in jointly-owned generating facilities are:
Construction
Plant in Accumulated Work in Composite
Station (Fuel Type) Service Depreciation Progress Interest
------------------- -------- ------------ ------------ ---------
(In thousands)
San Juan Generating Station (Coal).... $704,458 $330,457 $ 5,088 46.3%
Palo Verde Nuclear Generating
Station (Nuclear)*.................. $197,369 $ 49,284 $18,818 10.2%
Four Corners Power Plant
Units 4 and 5 (Coal) ............... $117,799 $ 66,755 $ 1,788 13.0%
|
* Includes the Company's interest in PVNGS Unit 3, the Company's interest in common facilities for all PVNGS units and the Company's owned interests in PVNGS Units 1 and 2.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(10) Construction Program and Jointly-Owned Plants (Continued)
San Juan Generating Station ("SJGS")
The Company operates and jointly owns SJGS. At December 31, 1999, SJGS Units 1 and 2 are owned on a 50% shared basis with Tucson Electric Power Company, Unit 3 is owned 50% by the Company, 41.8% by Southern California Public Power Authority ("SCPPA") and 8.2% by Tri-State Generation and Transmission Association, Inc. Unit 4 is owned 38.457% by the Company, 28.8% by M-S-R Public Power Agency, ("M-S-R"), 10.04% by the City of Anaheim, California, 8.475% by the City of Farmington, 7.2% by the County of Los Alamos, and 7.028% by Utah Associated Municipal Power Systems.
Palo Verde Nuclear Generating Station
The Company is a participant in the three 1,270 MW units of PVNGS, also
known as the Arizona Nuclear Power Project, with Arizona Public Service Company
("APS") (the operating agent), Salt River Project, El Paso Electric Company ("El
Paso"), Southern California Edison Company, SCPPA and The Department of Water
and Power of the City of Los Angeles. The Company has a 10.2% undivided interest
in PVNGS, with portions of its interests in Units 1 and 2 held under leases.
(See Note 11 for additional discussion.)
(11) Commitments and Contingencies
Long-Term Power Contracts
The Company has a power purchase contract with Southwestern Public Service Company ("SPS") which originally provided for the purchase of up to 200 MW, expiring in May 2011. The Company may reduce its purchases from SPS by 25 MW annually upon three years' notice. The Company provided such notice to reduce the purchase by 25 MW in 1999 and by an additional 25 MW in 2000. The Company has 39 MW of contingent capacity obtained from El Paso under a transmission capacity for generation capacity trade arrangement that increases to 70 MW from 1999 through 2003. In addition, the Company is interconnected with various utilities for economy interchanges and mutual assistance in emergencies.
In 1996, the Company entered into a long-term power purchase agreement ("PPA") with Cobisa-Person Limited Partnership ("PLP") to purchase approximately 100 MW of unit contingent peaking capacity from a gas turbine generating unit for a period of 20 years, with an option to renew for an additional five years. The agreement calls for PLP to construct and operate a gas turbine generating unit located on the Company's retired Person Generating Station site in Albuquerque, New Mexico.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(11) Commitments and Contingencies (Continued)
In 1998, the PPA was amended to change the maximum capacity the Company was obligated to take to 132 MW and to change the commercial operation date from May 1999 to May 2000. Primary fuel for the gas turbine generating unit will be natural gas, which will be provided by the Company. In addition, the unit will have the capability to utilize low sulfur fuel oil in the event natural gas is not available.
The Company has been actively trading in the wholesale power market and has entered into and anticipates that it will continue to enter into power purchases to accommodate its trading activity.
Construction Commitment
The Company has committed to purchase a combustion turbine for $36.0 million. In February 2000, the Company made a 10% deposit toward the purchase price. The turbine is for a planned power generation plant with an estimated cost of approximately $63.0 million for which a contract has not been finalized. The planned plant is part of the Company's ongoing competitive strategy of increasing generation capacity over time.
Plains Acquisition
The Company and Tri-State Generation and Transmission Cooperatives, Inc. ("Tri-State") entered into an asset sale agreement dated September 9, 1999, pursuant to which Tri-State has agreed to sell certain assets consisting primarily of transmission assets, a fifty percent interest in an inactive power plant located near Albuquerque, and an office building to the Company. The purchase price is $13.2 million, subject to adjustment at the time of closing. The asset sale agreement contains standard covenants and conditions for this type of agreement. Currently the Company anticipates that the purchase will be completed by approximately the fall of 2000.
New Customer Billing System
On November 30, 1998, the Company implemented a new customer billing system. Due to a significant number of problems associated with the implementation of the new billing system, the Company was unable to generate appropriate bills for all its customers through the first quarter of 1999 and was unable to analyze delinquent accounts until November 1999.
Because of the implementation issues associated with the new billing system, the Company estimated retail gas and electric revenues through July 1999. Beginning with August 1999, the Company was able to determine actual revenues for all prior periods affected and began reconciling with previously estimated revenues. In December 1999, the Company completed its reconciliation of system revenues. As a result, 1999 revenues represented actual revenues as determined by the new billing system. The resulting reconciliation did not materially impact recorded revenues. However, a significant number of individual accounts required corrections.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(11) Commitments and Contingencies (Continued)
As a result of the delay of normal collection activities, the Company incurred a significant increase in delinquent accounts, many of which occurred with customers that no longer have active accounts with the Company. As a result, the Company significantly increased its bad debt accrual throughout 1999.
The following is a summary of the allowance for doubtful accounts during 1999, 1998 and 1997:
1999 1998 1997
-------- ------- -------
(In thousands)
Allowance for doubtful accounts beginning
of year......................................... $ 836 $ 783 $ 709
Bad debt accrual.................................. 11,496 3,325 3,378
Less: Write off (adjustments) of
uncollectible accounts .................... (172) 3,272 3,304
-------- ------- -------
Allowance for doubtful accounts, end of year ..... $12,504 $ 836 $ 783
======== ======= =======
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Bad debt accruals for 1999 represent management's best estimate of potential uncollectible accounts based upon information available at December 31, 1999. The Company will make every reasonable effort to collect all amounts owed from delinquent customers. As new data becomes available from these efforts, management will re-evaluate the adequacy of the bad debt reserve. Any required change to the allowance for doubtful accounts will be reflected in operating results in the period new information becomes available. The Company will also provide additional disclosures as collection efforts progress over time.
Rate Case Settlement
On August 25, 1999, the PRC issued an order approving the rate case settlement resulting from the NMPUC's final order of November 30, 1998. The PRC ordered the Company to reduce its electric rates by $34.0 million annually retroactive to July 30, 1999. In addition, the order includes a rate freeze until electric competition is fully implemented in New Mexico or until January 1, 2003. The settlement will reduce annual revenues by an estimated $37.0 million based on expected customer growth.
PVNGS Liability and Insurance Matters
The PVNGS participants have insurance for public liability resulting from nuclear energy hazards to the full limit of liability under Federal law. This potential liability is covered by primary liability insurance provided by commercial insurance carriers in the amount of $200 million and the balance by an industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the programs exceed the primary liability insurance limit, the Company could be assessed retrospective premium adjustments. The maximum assessment per reactor under the program for each nuclear incident is approximately $88 million, subject to an annual limit of $10 million per reactor per incident. Based upon the Company's 10.2% interest in the three PVNGS units, the Company's maximum potential assessment per incident for all three units is
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(11) Commitments and Contingencies (Continued)
approximately $27.0 million, with an annual payment limitation of $3 million per incident. If the funds provided by this retrospective assessment program prove to be insufficient, Congress could impose revenue raising measures on the nuclear industry to pay claims. The United States Nuclear Regulatory Commission and Congress are reviewing the related laws. The Company cannot predict whether or not Congress will change the law. However, certain changes could possibly trigger "Deemed Loss Events" under the Company's PVNGS leases, absent waiver by the lessors.
The PVNGS participants maintain "all-risk" (including nuclear hazards) insurance for nuclear property damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.75 billion as of January 1, 2000. The Company is a member of an industry mutual insurer which provides both the "all-risk" and increased cost of generation insurance to the Company. In the event of adverse losses experienced by this insurer, the Company is subject to an assessment. The Company's maximum share of any assessment is approximately $2.6 million per year.
PVNGS Decommissioning Funding
The Company has a program for funding its share of decommissioning costs for PVNGS. The nuclear decommissioning funding program is invested in equities and fixed income instruments in qualified and non-qualified trusts. The results of the 1998 decommissioning cost study indicated that the Company's share of the PVNGS decommissioning costs excluding spent fuel disposal will be approximately $163.1 million (in 1999 dollars).
The Company funded an additional $3.1 million, $3.0 million and $2.1 million in 1999, 1998 and 1997, respectively, into the qualified trust funds. The estimated market value of the trusts at the end of 1999 was approximately $51.8 million.
Nuclear Spent Fuel and Waste Disposal
Pursuant to the Nuclear Waste Policy Act of 1982, as amended in 1987 (the "Waste Act"), the United States Department of Energy ("DOE") is obligated to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by all domestic power reactors. Under the Waste Act, DOE was to develop the facilities necessary for the storage and disposal of spent nuclear fuel and to have the first such facility in operation by 1998. DOE has announced that such a repository now cannot be completed before 2010.
The operator of PVNGS has capacity in existing fuel storage pools at PVNGS which, with certain modifications, could accommodate all fuel expected to be discharged from normal operation of PVNGS through 2002, and believes it could augment that storage with the new facilities for on-site dry storage of spent fuel for an indeterminate period of operation beyond 2002, subject to obtaining any required governmental approvals. The Company currently estimates that it will incur approximately $41.0 million (in 1999 dollars) over the life of PVNGS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(11) Commitments and Contingencies (Continued)
for its share of the costs related to the on-site interim storage of spent nuclear fuel. The Company accrues these costs as a component of fuel expense, meaning the charges are accrued as the fuel is burned. During 1999, the Company expensed approximately $1.0 million for on-site interim nuclear fuel storage costs related to nuclear fuel burned prior to 2000. The operator of PVNGS currently believes that spent fuel storage or disposal methods will be available for use by PVNGS to allow its continued operation beyond 2002.
Contingencies
There are various claims and lawsuits pending against the Company and certain of its subsidiaries. The Company is also subject to Federal, state and local environmental laws and regulations, and is currently participating in the investigation and remediation of numerous sites. In addition, the Company periodically enters into financial commitments in connection with business operations. It is not possible at this time for the Company to determine fully the effect of all litigation on its consolidated financial statements. However, the Company has recorded a liability where an outcome of such litigation can be estimated and where an outcome is considered probable. The Company does not expect that any known lawsuits, environmental costs and commitments will have a material adverse effect on its financial condition or results of operations.
(12) Environmental Issues
The normal course of operations of the Company necessarily involves activities and substances that expose the Company to potential liabilities under laws and regulations protecting the environment. Liabilities under these laws and regulations can be material and in some instances may be imposed without regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred. Sources of potential environmental liabilities include (but are not limited to) the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980 and other similar statutes.
The Company records its environmental liabilities when site assessments and/or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. The Company reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring and site closure. Unless there is a probable amount, the Company, records the lower end of this reasonably likely range of costs (classified as other long-term liabilities at undiscounted amounts).
The Company's recorded estimated minimum liability to remediate its identified sites is $8.3 million. The ultimate cost to clean up the Company's identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process, such as: the extent and nature of contamination; the scarcity of reliable data for identified sites; and the time periods over which site remediation is expected to occur. The Company believes that, due to these uncertainties, it is remotely possible that cleanup costs could exceed its recorded liability by up to $30.3 million. The upper limit of this range of costs was estimated using assumptions least favorable to the Company.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(12) Environmental Issues (Continued)
Remediation of identified sites previously used in operations, used by tenants or contaminated by former owners required spending of $4.4 million in 1999 and $1.0 million in 1998. In 2000, the Company anticipates spending $2.2 million for remediation and $6 million for control and prevention. The majority of the December 31, 1999 environmental liability is expected to be paid over the next five years, funded by cash generated from operations. Future environmental obligations are not expected to have a material impact on the results of operations or financial condition of the Company.
(13) Discontinued Operations
On August 4, 1998, the Company adopted a plan to discontinue the gas trading operations of its Energy Services Business Unit. Accordingly, the gas marketing operations of its Energy Services Business Unit are reported as discontinued operations. Estimated losses on the disposal of the gas marketing segment were $5.1 million (net of income tax benefit of $3.3 million), which includes a provision for anticipated operating losses prior to disposal.
Operating losses of the discontinued operations prior to the date of discontinuation were $7.4 million and $5.5 million in 1998 and 1997, respectively. Such amounts include income tax benefits related to the losses from discontinued operations of $4.8 million in 1998 and $3.6 million in 1997. Total sales from the discontinued operations were $159.2 million and $114.7 million in 1998 and 1997, respectively. Prior to the decision to discontinue non-utility operations, such total sales and income tax benefits were included in operating revenues and operating expenses in the consolidated statement of earnings.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1999, 1998 and 1997
(14) New and Proposed Accounting Standards
Decommissioning: The Staff of the Securities and Exchange Commission ("SEC") has questioned certain of the current accounting practices of the electric industry regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to these questions, the Financial Accounting Standards Board ("FASB") has a project on its agenda to review the accounting for closure and removal costs, including decommissioning of nuclear power plants. If current electric industry accounting practices for nuclear power plant decommissioning are changed, the estimated cost for decommissioning could be recorded as a liability with recognition of an increase in the cost of the related nuclear power plant. The Company does not believe that such changes, if required, would have a material adverse effect on results of operations.
EITF Issue 99-14, Recognition of Impairment Losses on Firmly Committed Executory Contracts: The EITF has added an issue to its agenda to address impairment of leased assets. A significant portion of the Company's nuclear generating assets are held under operating leases. Based on the alternative accounting methods being explored by the EITF, the related financial impact of the future adoption of EITF Issue No. 99-14 should not have a material adverse effect on results of operations. However, a complete evaluation of the financial impact from the future adoption of EITF Issue No. 99-14 will be undeterminable until EITF deliberations are completed and stranded cost recovery issues are resolved.
Accounting for Derivative Instruments and Hedging Activities, SFAS 133:
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement also requires that changes
in the derivatives' fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows derivative gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. The Company is in the process of reviewing and identifying all
financial instruments currently existing in the Company in compliance with the
provisions of SFAS 133. It is likely that the adoption of SFAS 133 will add
volatility to the Company's operating results and/or asset and liability
valuations reflecting the impact of mark-to-market accounting for commodity
contracts. In June 1999, FASB issued SFAS 137 to amend the effective date for
the compliance of SFAS 133 to January 1, 2001.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
QUARTERLY OPERATING RESULTS
The unaudited operating results by quarters for 1999 and 1998 are as follows:
Quarter Ended
------------------------------------------------------
March 31 June 30 September 30 December 31
------------- ----------- ------------ -----------
(In thousands, except per share amounts)
1999:
Operating Revenues........................... $272,818 $261,371 $ 340,604 $ 282,750
Operating Income............................. 35,068 29,247 30,275 25,489
Earnings from Continuing Operations.......... 23,130 18,172 21,401 16,911
Net Earnings (1)............................. 26,671 18,172 21,401 16,911
Net Earnings per share from Continuing
Operations................................ 0.55 0.44 0.52 0.41
Net Earnings per Share (Basic)............... 0.64 0.44 0.52 0.41
Net Earnings per Share (Diluted)............. 0.63 0.44 0.52 0.41
1998:
Operating Revenues........................... 282,560 230,478 320,438 258,969
Operating Income............................. 36,626 26,042 47,446 25,535
Earnings from Continuing Operations.......... 25,561 16,497 34,656 18,405
Net Earnings (2)............................. 21,214 14,778 31,989 14,701
Net Earnings per share from Continuing
Operations................................ 0.61 0.39 0.83 0.44
Net Earnings per Share (Basic)............... 0.50 0.35 0.76 0.36
Net Earnings per Share (Diluted)............. 0.50 0.35 0.76 0.34
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In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for such periods have been included.
(1) Effective January 1, 1999, the Company adopted EITF Issue No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk Management Activities. The effect of the initial application of EITF Issue No. 98-10 was reported as a cumulative effect of a change in accounting principle which increased the Company's consolidated net income by approximately $3.5 million (after related income tax expense of approximately $2.3 million), or $.08 per common share.
(2) On August 4, 1998, the Company adopted a plan to discontinue the gas trading operations of its Energy Services Business Unit. As a result, estimated losses of $1.4 million ($0.03 per common share) and $3.7 million ($0.09 per common share) for the third quarter and the fourth quarter, respectively, were recognized. (See note 13 of the notes to consolidated financial statements.) In addition, certain prior periods amounts have been restated.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
1999 1998 1997 1996 1995
---------- ----------- ---------- ----------- ----------
Electric Service
Energy Sales--KWh (in thousands):
Residential.................................. 2,027,099 2,007,852 1,976,434 1,892,290 1,795,371
Commercial................................... 2,980,935 2,888,539 2,841,831 2,698,087 2,578,243
Industrial................................... 1,559,155 1,571,824 1,556,264 1,505,801 1,434,974
Other ultimate customers..................... 236,394 271,659 160,370 310,118 220,777
---------- ----------- ---------- ----------- ----------
Total sales to ultimate customers.......... 6,803,583 6,739,874 6,534,899 6,406,296 6,029,365
Sales for resale............................. 11,171,621 8,782,315 6,785,643 4,575,220 2,590,513
---------- ----------- ---------- ----------- ----------
Total KWh sales............................ 17,975,204 15,522,189 13,320,542 10,981,516 8,619,878
========== =========== ========== =========== ==========
Electric Revenues (in thousands):
Residential.................................. $ 184,088 $ 187,681 $ 184,813 $ 177,220 $ 168,633
Commercial................................... 238,830 241,968 237,629 226,146 218,222
Industrial................................... 85,828 88,644 86,927 83,651 79,964
Other ultimate customers..................... 13,777 18,124 10,135 20,804 18,749
---------- ----------- ---------- ----------- ----------
Total revenues to ultimate customers....... 522,523 536,417 519,504 507,821 485,568
Sales for resale............................. 365,368 274,979 185,334 121,329 80,949
---------- ----------- ---------- ----------- ----------
Total revenues from energy sales........... 887,891 811,396 704,838 629,150 566,517
Miscellaneous electric revenues.............. 24,086 23,808 17,600 16,489 17,767
---------- ----------- ---------- ----------- ----------
Total electric revenues.................... $ 911,977 $ 835,204 $ 722,438 $ 645,639 $ 584,284
========== =========== ========== =========== ==========
Customers at Year End:
Residential.................................. 321,949 319,415 311,314 304,900 296,821
Commercial................................... 38,435 37,652 36,942 36,292 35,390
Industrial................................... 375 363 363 375 374
Other ultimate customers..................... 625 665 637 632 598
---------- ----------- ---------- ----------- ----------
Total ultimate customers................... 361,384 358,095 349,256 342,199 333,183
Sales for Resale............................. 83 83 66 56 37
---------- ----------- ---------- ----------- ----------
Total customers............................ 361,467 358,178 349,322 342,255 333,220
========== =========== ========== =========== ==========
Reliable Net Capability--KW.................... 1,521,000 1,506,000 1,506,000 1,506,000 1,506,000
Coincidental Peak Demand--KW................... 1,291,000 1,313,000 1,209,000 1,217,000 1,247,000
Average Fuel Cost per Million BTU.............. $ 1.3169 $ 1.2433 $ 1.2318 $ 1.2735 $ 1.3177
BTU per KWh of Net Generation.................. 10,490 10,784 10,927 10,768 10,811
Water Service**
Water Sales--Gallon (in thousands)........... - - - - 1,616,544
Revenues (in thousands)...................... - - - - $ 6,196
Customers at Year End........................ - - - - 23,752
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* Due to the provision for the loss associated with the M-S-R contingent power purchase contract recognized in 1992, operating revenues were reduced by $7.3 million for 1995.
** On July 3, 1995, the Company sold its water utility division. Water Service's comparative operating statistics for 1995 are through this date.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
Gas Throughput--Decatherms (in thousands)
PNMGS:
Residential............................. 29,309 30,258 30,755 27,387 25,865
Commercial.............................. 10,134 10,387 10,644 9,310 8,864
Industrial.............................. 2,338 1,553 1,280 2,136 661
Public authorities...................... 2,902 3,427 4,153 2,591 2,411
Irrigation.............................. 1,382 1,869 1,593 1,418 1,245
Sales for resale........................ 1,181 1,205 1,233 3,094 1,266
Off-system sales........................ 1,073 1,889 1,179 5,745 1,176
Unbilled................................ 3,784 (1,343) (202) 1,405 (1,764)
---------- ---------- ---------- ---------- ----------
PNMGS sales............................. 52,103 49,245 50,635 53,086 39,724
Transportation throughput............... 40,161 36,413 33,975 47,010 49,136
---------- ---------- ---------- ---------- ----------
PNMGS throughput......................... 92,264 85,658 84,610 100,096 88,860
Gathering Company:
Spot market sales....................... - - - - 39
Transportation throughput............... - - - - 20,695
---------- ---------- ---------- ---------- ----------
Total throughput................... 92,264 85,658 84,610 100,096 109,594
========== ========== ========== ========== ==========
Gas Revenues (in thousands)
PNMGS:
Residential............................. $ 148,968 $ 161,153 $ 187,563 $ 129,911 $ 125,290
Commercial.............................. 36,528 42,680 50,502 33,022 32,328
Industrial.............................. 8,550 4,887 4,536 5,179 1,873
Public authorities...................... 9,782 12,610 17,577 8,018 7,939
Irrigation.............................. 4,229 5,780 5,041 3,252 3,077
Sales for resale........................ 2,530 3,596 4,465 2,106 3,114
Off-system sales........................ 2,357 3,816 1,926 14,352 1,885
Imbalance penalties..................... 1,182 1,416 1,273 1,231 1,786
Unbilled................................ 4,107 (955) (2,172) 2,678 (2,430)
---------- ---------- ---------- ---------- ----------
Revenues from gas sales................. 218,233 234,983 270,711 199,749 174,862
Transportation.......................... 12,390 13,464 14,172 17,215 18,532
Liquids................................. 1,867 1,463 4,451 7,608 12,782
Other................................... 4,221 6,065 5,435 2,729 3,606
---------- ---------- ---------- ---------- ----------
PNMGS operating revenues................ 236,711 255,975 294,769 227,301 209,782
Gathering Company:
Spot market sales....................... - - - - 42
Transportation.......................... - - - - 3,640
Imbalance penalties..................... - - - - 418
Processing Company:
Liquids revenue......................... - - - - 632
Processing fees......................... - - - - 3,471
---------- ---------- ---------- ---------- ----------
Total operating revenues........... $ 236,711 $ 255,975 $ 294,769 $ 227,301 $ 217,985
========== ========== ========== ========== ==========
Customers at Year End
PNMGS:
Residential............................. 390,428 383,292 375,032 367,025 358,822
Commercial.............................. 32,116 32,004 31,560 30,757 30,493
Industrial.............................. 51 55 50 54 59
Public authorities...................... 2,547 2,429 2,735 2,462 2,444
Irrigation.............................. 1,026 1,078 1,027 1,076 886
Sales for resale........................ 3 3 3 3 2
Gas choice.............................. 112 112 - - -
Transportation.......................... 32 29 31 36 38
---------- ---------- ---------- ---------- ----------
Total customers.................... 426,315 419,002 410,438 401,413 392,744
========== ========== ========== ========== ==========
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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
Reference is hereby made to "Election of Directors" in the Company's Proxy Statement relating to the annual meeting of stockholders to be held on June 6, 2000 (the "2000 Proxy Statement"), to PART I, SUPPLEMENTAL ITEM - "EXECUTIVE OFFICERS OF THE COMPANY" and "Other Matters" - "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2000 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Reference is hereby made to "Executive Compensation" in the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is hereby made to "Voting Information", "Election of Directors" and "Stock Ownership of Certain Executive Officers" in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the 2000 Proxy Statement for such disclosure, if any, as may be required by this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) - 1. See Index to Financial Statements under Item 8.
(a) - 2. Financial Statement Schedules for the years 1999, 1998, and 1997 are omitted for the reason that they are not required or the information is otherwise supplied.
(a) - 3-A. Exhibits Filed:
3.2 By-laws of Public Service Company of New Mexico With All Amendments to and including February 8, 2000
Exhibit No. Description
----------- -----------
4.6.1 Third Supplement, dated as of October 1, 1999 to Indenture
dated as of March 11, 1998, between Public Service Company of
New Mexico and The Chase Manhattan Bank, as Trustee
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10.11.3 Amendment No. 3 to the San Juan Unit 4 Early Purchase and Participation Agreement between Public Service Company of New Mexico and M-S-R Public Power Agency, dated as of October 27, 1999
10.12.1 Amendment No. 1 to the Amended and Restated San Juan Unit 4
Purchase and Participation Agreement between Public Service
Company of New Mexico and The Incorporated County of Los
Alamos, New Mexico, dated October 27, 1999
10.13 Amendment No. 2 to the San Juan Unit 4 Purchase Agreement and
Participation Agreement between Public Service Company of New
Mexico and The City of Farmington, New Mexico, dated October
27, 1999
10.32** Supplemental Employee Retirement Agreements dated August 4,
1989, between Public Service Company of New Mexico and John
T. Ackerman and Max Maerki (refiled)
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10.36.1 Amendment No. 1 to the San Juan Unit 4 Purchase and Participation Agreement between Public Service Company of New Mexico and The City of Anaheim, California, dated October 27, 1999
10.38.1 Amendment No. 1 to the Restated and Amended San Juan Unit 4
Purchase and Participation Agreement between Public Service
Company of New Mexico and Utah Associated Municipal Power
Systems, dated October 27, 1999
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
----------
** Designates each management contract or compensatory plan or
arrangement required to be identified pursuant to paragraph 3 of
Item 14(a) of Form 10 -K.
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(a) - 3-B. Exhibits Incorporated By Reference:
In addition to those Exhibits shown above, the Company hereby incorporates the following Exhibits pursuant to Exchange Act Rule 12b-32 and Regulation S-K section 10, paragraph (d) by reference to the filings set forth below:
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
Articles of Incorporation and By-laws
3.1 Restated Articles of Incorporation of the 4-(b) to Registration Statement 2-99990
Company, as amended through May 10, No. 2-99990 of the Company.
1985.
Instruments Defining the Rights of Security Holders, Including Indentures
4.1 Indenture of Mortgage and Deed of 4-(d) to Registration Statement 2-99990
Trust dated as of June 1, 1947, between No. 2-99990 of the Company.
the Company and The Bank of New York (formerly
Irving Trust Company), as Trustee, together
with the Ninth Supplemental Indenture dated as
of January 1, 1967, the Twelfth Supplemental
Indenture dated as of September 15, 1971, the
Fourteenth Supplemental Indenture dated as of
December 1, 1974 and the Twenty- Second
Supplemental Indenture dated as of October 1,
1979 thereto relating to First Mortgage Bonds
of the Company.
4.2 Portions of sixteen supplemental 4-(e) to Registration Statement 2-99990
Indentures to the Indenture of Mortgage No. 2-99990 of the Company.
and Deed of Trust dated as of June 1,
1947, between the Company and The Bank of New
York (formerly Irving Trust Company), as
Trustee, relevant to the declaration or
payment of dividends or the making of other
distributions on or the purchase by the
Company of shares of the Company's Common
Stock.
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Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
4.3 Fifty-third Supplemental Indenture, dated 4.3 to the Company's Quarterly 1-6986
as of March 11, 1998, supplemental to Report on Form 10-Q for the
Indenture of Mortgage and Deed of Trust, quarter ended March 31, 1998.
dated as of June 1, 1947, between the
Company and The Bank of New York
(formerly Irving Trust Company), as
trustee.
4.4 Indenture (for Senior Notes), dated as of 4.4 to the Company's 1-6986
March 11, 1998, between the Company and The Quarterly Report on Form
Chase Manhattan Bank, as Trustee. 10-Q for the quarter ended March
31, 1998.
4.5 First Supplemental Indenture, dated as 4.5 to the Company's 1-6986
of March 11, 1998, supplemental to Quarterly Report on Form
Indenture, dated as of March 11, 1998, 10-Q for the quarter ended March
Between the Company and The Chase 31, 1998.
Manhattan Bank, as Trustee.
4.6 Second Supplemental Indenture, dated 4.6 to the Company's Quarterly 1-6986
as of March 11, 1998, supplemental to Report on Form
Indenture, dated as of March 11, 1998, 10-Q for the quarter ended March
Between the Company and The Chase 31, 1998.
Manhattan Bank, as Trustee.
4.7 Indenture (for Senior Notes), dated as of 4.1 to Registration 33-53367
August 1, 1998, between the Company Statement No. 33-53367 of the
and The Chase Manhattan Bank, as Company.
Trustee.
4.8 First Supplemental Indenture, dated 4.3 to the Company's 1-6986
August 1, 1998, supplemental to Current Report on Form 8-K
Indenture, dated as of August 1, dated August 7, 1998.
1998, between the Company and the
Chase Manhattan Bank, as Trustee.
Material Contracts
10.1 Supplemental Indenture of Lease dated as 4-D to Registration Statement No. 2-26116
of July 19, 1966 between the Company 2-26116 of the Company.
and other participants in the Four Corners
Project and the Navajo Indian Tribal
Council.
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Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.1.1 Amendment and Supplement No. 1 to 10.1.1 to Annual Report of the 1-6986
Supplemental and Additional Indenture of Registrant on Form 10-K for fiscal
Lease dated April 25, 1985 between the year ended December 31, 1995.
Navajo Tribe of Indians and Arizona
Public Service Company, El Paso Electric
Company, Public Service Company of
New Mexico, Salt River Project
Agricultural Improvement and Power
District, Southern California Edison
Company, and Tucson Electric Power
Company (refiled).
10.2 Fuel Agreement, as supplemented, dated 4-H to Registration Statement No. 2-35042
as of September 1, 1966 between Utah 2-35042 of the Company.
Construction & Mining Co. and the
participants in the Four Corners Project
including the Company.
10.3 Fourth Supplement to Four Corners Fuel 10.3 to Annual Report of the 1-6986
Agreement No. 2 effective as of January Registrant on Form 10-K for fiscal
1, 1981, between Utah International Inc. year ended December 31, 1991.
and the participants in the Four Corners
Project, including the Company.
10.4 Contract between the United States and 5-L to Registration Statement No. 2-41010
the Company dated April 11, 1968, for 2-41010 of the Company.
furnishing water.
10.4.1 Amendatory Contract between the United 5-R to Registration Statement No. 2-60021
States and the Company dated September 2-60021 of the Company.
29, 1977, for furnishing water.
10.8 Arizona Nuclear Power Project 5-T to Registration Statement 2-50338
Participation Agreement among the No. 2-50338 of the Company.
Company and Arizona Public Service
Company, Salt River Project Agricultural
Improvement and Power District, Tucson
Gas & Electric Company and El Paso
Electric Company, dated August 23, 1973.
10.8.1 Amendments No. 1 through No. 6 to 10.8.1 to Annual Report of the 1-6986
Arizona Nuclear Power Project Registrant on Form 10-K for
Participation Agreement. fiscal year ended December 31,
1991.
10.8.2 Amendment No. 7 effective April 1, 10.8.2 to Annual Report of the 1-6986
1982, to the Arizona Nuclear Power Registrant on Form 10-K for
Project Participation Agreement (refiled). fiscal year ended December 31,
1991.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.8.3 Amendment No. 8 effective September 12, 10.58 to Annual Report of the 1-6986
1983, to the Arizona Nuclear Power Registrant on Form 10-K for
Project Participation Agreement (refiled). fiscal year ended December 31,
1993.
10.8.4 Amendment No. 9 to Arizona Nuclear 10.8.4 to Annual Report of the 1-6986
Power Project Participation Agreement Registrant on Form 10-K for
dated as of June 12, 1984 (refiled). fiscal year ended December 31,
1994.
10.8.5 Amendment No. 10 dated as of November 10.8.5 to Annual Report of the 1-6986
21, 1985 and Amendment No. 11 dated as Registrant on Form 10-K for
of June 13, 1986 and effective January 10, fiscal year ended December 31,
1987 to Arizona Nuclear Power Project 1994.
Participation Agreement (refiled).
10.8.7 Amendment No. 12 to Arizona Nuclear 19.1 to the Company's Quarterly 1-6986
Power Project Participation Agreement Report on Form 10-Q for the
dated June 14, 1988, and effective quarter ended September 30, 1990.
August 5, 1988.
10.8.8 Amendment No. 13 to the Arizona 10.8.10 to Annual Report of 1-6986
Nuclear Power Project Participation Registrant on Form 10-K for the
Agreement dated April 4, 1990, and fiscal year ended December 31,
effective June 15, 1991. 1990.
10.9 Coal Sales Agreement executed August 18, 10.9 to Annual Report of the 1-6986
1980 among San Juan Coal Company, Registrant on Form 10-K for
the Company and Tucson Electric fiscal year ended December 31,
Power Company, together with 1991.
Amendments No. One, Two, Four, and
Six thereto.
10.9.1 Amendment No. Three to Coal Sales 10.9.1 to Annual Report of the 1-6986
Agreement dated April 30, 1984 among Registrant on Form 10-K for
San Juan Coal Company, the Company fiscal year ended December 31,
and Tucson Electric Power Company. 1994 (confidentiality treatment
was requested at the time of
filing the Annual Report of the
Registrant on Form 10-K for
fiscal year ended December 31,
1984; exhibit was not filed
therewith based on the same
confidentiality request).
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.9.2 Amendment No. Five to Coal Sales 10.9.2 to Annual Report of the 1-6986
Agreement dated May 29, 1990 among Registrant on Form 10-K for
San Juan Coal Company, the Company fiscal year ended December 31,
and Tucson Electric Power Company. 1991 (confidentiality treatment
was requested as to portions of
this exhibit, and such portions
were omitted from the exhibit
filed and were filed separately
with the Securities and Exchange
Commission).
10.9.3 Amendment No. Seven to Coal Sales 19.3 to the Company's Quarterly 1-6986
Agreement, dated as of July 27, 1992 Report on Form 10-Q for the
among San Juan Coal Company, the quarter ended September 30, 1992
Company and Tucson Electric Power (confidentiality treatment was
Company. requested as to portions of this
exhibit, and such portions were
omitted from the exhibit filed
and were filed separately with
the Securities and Exchange
Commission).
10.9.4 First Supplement to Coal Sales 19.4 to the Company's Quarterly 1-6986
Agreement, dated July 27, 1992 among Report on Form 10-Q for the
San Juan Coal Company, the Company quarter ended September 30, 1992
and Tucson Electric Power Company. (confidentiality treatment was
requested as to portions of this
exhibit, and such portions were
omitted from the exhibit as of
filed and were filed separately
with the Securities and Exchange
Commission).
10.9.5 Amendment No. Eight to Coal Sales 10.9.5 to Annual Report of the 1-6986
Agreement, dated as of September 1, Registrant on Form 10-K for
1995, among San Juan Coal Company, fiscal year ended December 31,
the Company and Tucson Electric 1995.
Power Company .
10.9.6 Amendment No. Nine to Coal Sales 10.9.6 to Annual Report of the 1-6986
Agreement, dated as of December 31, 1995, Registrant on Form 10-K for
among San Juan Coal Company, fiscal year ended December 31,
the Company and Tucson Electric Power 1996.
Company.
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Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.11 San Juan Unit 4 Early Purchase and 10.11 to the Company's Quarterly 1-6986
Participation Agreement dated as of Report on Form 10-Q for the
September 26, 1983 between the quarter ended March 31, 1994.
Company and M-S-R Public Power
Agency, and Modification No. 2 to the
San Juan Project Agreements dated
December 31, 1983 (refiled).
10.11.1 Amendment No. 1 to the Early Purchase 10.11.1 to Annual Report of the 1-6986
and Participation Agreement between Registrant on Form 10-K for
Public Service Company of New Mexico fiscal year ended December 31,
and M-S-R Public Power Agency, 1997.
executed as of December 16, 1987, for
San Juan Unit 4 (refiled).
10.12 Amended and Restated San Juan Unit 4 10.12 to Annual Report of the 1-6986
Purchase and Participation Agreement Registrant on Form 10-K for
dated as of December 28, 1984 between fiscal year ended December 31,
the Company and the Incorporated County 1994 (refiled).
of Los Alamos
10.14 Participation Agreement among the 10.14 to Annual Report of the 1-6986
Company, Tucson Electric Power Registrant on Form 10-K for
Company and certain financial institutions fiscal year ended December 31,
relating to the San Juan Coal Trust dated 1992.
as of December 31, 1981 (refiled).
10.16 Interconnection Agreement dated 10.16 to Annual Report of the 1-6986
November 23, 1982, between the Registrant on Form 10-K for
Company and Southwestern Public fiscal year ended December 31,
Service Company (refiled). 1992.
10.18* Facility Lease dated as of December 16, 10.18 to Annual Report of the 1-6986
1985 between The First National Bank Registrant on Form 10-K for
of Boston, as Owner Trustee, and Public fiscal year ended December 31,
Service Company of New Mexico 1995.
together with Amendments No. 1, 2 and 3
thereto (refiled).
10.18.4* Amendment No. 4 dated as of March 8, 10.18.4 to the Company's 1-6986
1995, to Facility Lease between Public Quarter Report on Form
Service Company of New Mexico and 10-Q for the quarter ended March
the First National Bank of Boston, dated 31, 1995.
as of December 16, 1985.
10.19 Facility Lease dated as of July 31, 1986, 10.19 to Annual Report of the 1-6986
between the First National Bank of Registrant on Form 10-K for
Boston, as Owner Trustee, and Public fiscal year ended December 31,
Service Company of New Mexico 1996.
together with Amendments No. 1, 2 and 3
thereto (refiled).
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.20* Facility Lease dated as of August 12, 10.20 to Annual Report of the 1-6986
1986, between The First National Bank Registrant on Form 10-K for
of Boston, as Owner Trustee, and Public fiscal year ended December 31,
Service Company of New Mexico 1996.
together with Amendments No. 1 and 2
thereto (refiled).
10.20.2 Amendment No. 2 dated as of April 10, 1987 to 10.20.2 to Annual Report of the 1-6986
Facility Lease dated as of August 12, 1986, as Registrant on Form 10-K for
amended, between The First National Bank of fiscal year ended December 31,
Boston, not in its individual capacity, but 1998.
solely as Owner Trustee under a Trust Agreement,
dated as of August 12, 1986, with MFS Leasing
Corp., Lessor and Public Service Company of New
Mexico, Lessee (refiled)
10.20.3 Amendment No. 3 dated as of March 8, 10.20.3 to the Company's 1-6986
1995, to Facility Lease between Public Quarterly Report on Form
Service Company of New Mexico and 10-Q for the quarter ended March
the First National Bank of Boston, 31, 1995.
dated as of August 12, 1986.
10.21 Facility Lease dated as of December 15, 10.21 to Annual Report of the 1-6986
1986, between The First National Bank Registrant on Form 10-K for
of Boston, as Owner Trustee, and Public fiscal year ended December 31,
Service Company of New Mexico (Unit 1 1996.
Transaction) together with Amendment No. 1
thereto (refiled).
10.22 Facility Lease dated as of December 15, 10.22 to Annual Report of the 1-6986
1986, between The First National Bank Registrant on Form 10-K for
of Boston, as Owner Trustee, and Public fiscal year ended December 31,
Service Company of New Mexico 1996.
Unit 2 Transaction) together with
Amendment No. 1 thereto (refiled).
10.23** Restated and Amended Public Service Company of 10.23 to Annual Report of the 1-6986
New Mexico Accelerated Management Performance Registrant on Form 10-K for
Plan (1988) (August 16, 1988) (refiled). fiscal year ended December 31,
1998.
10.23.1** First Amendment to Restated and Amended Public 10.23.1 to Annual Report of the 1-6986
Service Company of Registrant on Form 10-K for
New Mexico Accelerated Management Performance fiscal year ended December 31,
Plan (1988) (August 30, 1988) (refiled). 1998.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.23.2** Second Amendment to Restated and Amended Public 10.23.2 to Annual Report of the 1-6986
Service Company of New Mexico Accelerated Registrant on Form 10-K
Management Performance Plan (1988)(December 29, for fiscal year
1989) (refiled). ended December 31, 1998.
10.23.4** Fourth Amendment to the Restated and Amended 10.23.4 to the Company's 1-6986
Public Service Company of New Mexico Quarterly Report on Form 10-Q
Accelerated Management Performance Plan, as for the quarter ended March 31,
amended effective December 7, 1998 1999.
10.24** Management Life Insurance Plan (July 10.24 to Annual Report of the 1-6986
1985) of the Company (refiled). Registrant on Form 10-K for
fiscal year ended December 31,
1995.
10.25.1** Second Restated and Amended Public 10.25.1 to Annual Report for the 1-6986
Service Company of New Mexico Registrant on Form 10-K for
Executive Medical Plan as amended on fiscal year ended December 31,
December 28, 1995. 1997.
10.27 Amendment No. 2 dated as of April 10, 10.53 to Annual Report of the 1-6986
1987, to the Facility Lease dated as of Registrant on Form 10-K for
August 12, 1986, between The First fiscal year ended December 31,
National Bank of Boston, as Owner 1987.
Trustee, and Public Service Company of New
Mexico. (Unit 2 Transaction.) (This is an
amendment to a Facility Lease which is
substantially similar to the Facility Lease
filed as Exhibit 28.1 to the Company's
Current Report on Form 8-K dated August 18,
1986.)
10.32.1** First Amendment to the Supplemental 10.32.1 to the Company's 1-6986
Employee Retirement Agreement. Quarterly Report on Form 10-Q
for the quarter ended September
30, 1998.
10.32.2** Second Amendment to the Supplemental Employee 10.32.2 to the Company's 1-6986
Retirement Agreement for Max H. Maerki, as Quarterly Report on Form 10-Q
amended effective December 7, 1998 for the quarter ended March 31,
1999.
10.32.3** First Amendment to the Supplemental Employee 10.32.3 to the Company's 1-6986
Retirement Agreement for John T. Ackerman, as Quarterly Report on Form 10-Q
amended effective December 7, 1998 for the quarter ended March 31,
1999.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.34 Settlement Agreement between Public 10.48 to Annual Report of the 1-6986
Service Company of New Mexico and Registrant on Form 10-K for
Creditors of Meadows Resources, Inc. fiscal year ended December 31,
dated November 2, 1989. 1989.
10.34.1 First amendment dated April 24, 1992 to 19.1 to the Company's Quarterly 1-6986
the Settlement Agreement dated Report on Form 10-Q for the
November 2, 1989 among Public Service quarter ended September 30, 1992.
Company of New Mexico, the lender
parties thereto and collateral agent.
10.35 Amendment dated April 11, 1991 among 19.1 to the Company's Quarterly 1-6986
Public Service Company of New Mexico, Report on Form 10-Q for the
certain banks and Chemical Bank and quarter ended September 30, 1991.
Citibank, N.A., as agents for the banks.
10.36 San Juan Unit 4 Purchase and 19.2 to the Company's Quarterly 1-6986
Participation Agreement Public Service Report on Form 10-Q for the
Company of New Mexico and the City of quarter ended March 31, 1991.
Anaheim, California dated April 26, 1991.
10.38 Restated and Amended San Juan Unit 4 10.2.1 to the Company's 1-6986
Purchase and Participation Agreement Quarterly Report on Form 10-Q
between Public Service Company of for the quarter ended September
New Mexico and Utah Associated Municipal Power 30, 1993.
Systems.
10.40** First Restated and Amended Public Service 99.1 to Registration Statement 333-03303
Company of New Mexico Director Retainer Plan. No. 333-03303 filed May 8, 1996.
10.41 Waste Disposal Agreement, dated as of July 27, 19.5 to the Company's Quarterly 1-6986
1992 among San Juan Coal Company, the Company Report on Form 10-Q for the
and Tucson Electric Power Company. quarter ended September 30, 1992
(confidentiality treatment was
requested as to portions of this
exhibit, and such portions were
omitted from the exhibit and were
filed separately with the
Securities and Exchange
Commission).
10.42 Stipulation in the matter of the application 10.42 to Annual Report of the 1-6986
of Gas Company of New Mexico for an Registrant on Form 10-K for
order authorizing recovery of MDL costs fiscal year ended December 31,
through Rate Rider Number 8. 1992.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.43** Description of certain Plans which include 10.43 to Annual Report of the 1-6986
executive officers as participants. Registrant on Form 10-K for
fiscal year ended December 31,
1992.
10.44.2** Second Restated and Amended Non-Union Severance 10.44.2 to the Company's 1-6986
Pay Plan of Public Service Company of New Mexico Quarterly Report on Form 10-Q
dated August 1, 1999 for the quarter ended September
30, 1999.
10.45** Second Amendment to the Public Service Company 10.45 to the Company's Quarterly 1-6986
of New Mexico Service Bonus Plan, as Report on Form 10-Q for the
amended effective December 7, 1998 quarter ended March 31, 1999.
10.47** Compensation Arrangement with Chief 10.3 to the Company's Quarterly 1-6986
Executive Officer. Report on Form 10-Q for the
quarter ended June 30, 1993.
10.47.1** Pension Service Adjustment Agreement 10.3.1 to the Company's 1-6986
for Benjamin F. Montoya. Quarterly Report on Form 10-Q
for the quarter ended September
30, 1993.
10.47.2** Severance Agreement for Benjamin F. 10.3.2 to the Company's 1-6986
Montoya. Quarterly Report on Form 10-Q
for the quarter ended September
30, 1993.
10.47.4** First Amendment to the Pension Service 10.47.4 to the Company's 1-6986
Adjustment Agreement for Benjamin F. Quarterly Report on Form 10-Q
Montoya. for the quarter ended June 30,
1998.
10.47.6** Second Amendment to the Pension Service 10.47.6 to the Company's 1-6986
Adjustment Agreement for Benjamin F. Montoya, as Quarterly Report on Form 10-Q
amended effective December 7, 1998 for the quarter ended March 31,
1999.
10.48** Public Service Company of New Mexico 10.4 to the Company's Quarterly 1-6986
OBRA `93 Retirement Plan. Report on Form 10-Q for the
quarter ended September 30, 1993.
10.48.1** First Amendment to the Public Service Company of 10.48.1 to the Company's 1-6986
New Mexico OBRA '93 Retirement Plan, as amended Quarterly Report on Form 10-Q
effective December 7, 1998 for the quarter ended March 31,
1999.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.49** Employment Contract By and Between 10.49 to Annual Report of the 1-6986
Public Service Company of New Mexico and Roger Registrant on Form 10-K for
J. Flynn. fiscal year ended December 31,
1994.
10.50** Public Service Company of New Mexico 10.50 to Annual Report of the 1-6986
Section 415 Plan. Registrant on Form 10-K for
fiscal year ended December 31,
1993.
10.51.2** First Restated and Amended Executive Retention 10.51.2 to the Company's 1-6986
Plan, as amended effective December 7, 1998 Quarterly Report on Form 10-Q
for the quarter ended March 31,
1999.
10.53 January 12, 1994 Stipulation. 10.53 to Annual Report of the 1-6986
Registrant on
Form 10-K for
fiscal year
ended December
31, 1993.
10.54.1** Health Care and Retirement Benefit 10.54.1 to the Company's 1-6986
Agreement By and Between the Public Quarterly Report on Form 10-Q
Service Company of New Mexico and for the quarter ended March 31,
John T. Ackerman dated February 1, 1994. 1994.
10.56.1 Amended and Restated Receivables Purchase 10.56.1 to the Company's 1-6986
Agreement dated May 20, 1996, between Public Quarterly Report on
Service Company of New Mexico, Citibank and Form 10-Q for the
Citicorp North America, Inc. and Amended quarter ended June 30,
Restated Collection Agent Agreement dated 1996.
May 20, 1996, between Public Service Company
of New Mexico, Corporate Receivables
Corporation and Citibank, N.A.
10.59* Amended and Restated Lease dated as of 10.59 to Annual Report of the 1-6986
September 1, 1993, between The First Registrant on Form 10-K for
National Bank of Boston, Lessor, and fiscal year ended December
31, the Company, Lessee (EIP Lease). 1993.
10.61 Participation Agreement dated as of June 10.61 to Annual Report of the 1-6986
30, 1983 among Security Trust Company, Registrant on Form 10-K for
as Trustee, the Company, Tucson Electric fiscal year ended December 31,
Power Company and certain financial 1993.
institutions relating to the San Juan Coal
Trust (refiled).
10.62 Agreement of the Company pursuant to 10.62 to Annual Report of the 1-6986
Item 601(b)(4)(iii) of Regulation S-K Registrant on Form 10-K for
(refiled). fiscal year ended December 31,
1993.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.64** Results Pay 10.64 to the Company's Quarterly 1-6986
Report on Form 10-Q for the
quarter ended March 31, 1995.
10.65 Agreement for Contract Operation and 10.64 to the Company's Quarterly 1-6986
Maintenance of the City of Santa Fe Report on Form 10-Q for the
Water Supply Utility System, dated quarter ended June 30, 1995.
July 3, 1995.
10.67 New Mexico Public Service Commission 10.67 to Annual Report of the 1-6986
Order dated July 30, 1987, and Exhibit I Registrant on Form 10-K for
thereto, in NMPUC Case No. 2004, fiscal year ended December 31,
regarding the PVNGS decommissioning 1997.
trust fund (refiled).
10.68 Master Decommissioning Trust Agreement 10.68 to the Company's Quarterly 1-6986
for Palo Verde Nuclear Generating Station Report on Form 10-Q for the
dated March 15, 1996, between Public quarter ended March 31, 1996.
Service Company of New Mexico and
Mellon Bank, N.A.
10.68.1 Amendment Number One to the Master 10.68.1 to Annual Report of the 1-6986
Decommissioning Trust Agreement for Registrant on Form 10-K for
Palo Verde Nuclear Generating Station fiscal year ended December 31,
dated January 27, 1997, between Public 1997.
Service Company of New Mexico and
Mellon Bank, N.A.
10.69* Refunding Agreement No. 3 dated as 10.69 to the Company's 1-6986
of September 27, 1996 between Public Quarterly Report on Form
Service Company of New Mexico, The 10-Q for the quarter ended
Owner Participant named therein, September 30, 1996.
State Street Bank and Trust Company,
as Owner Trustee, The Chase Manhattan,
Bank, as Indenture Trustee, and First PV
Funding Corporation.
10.72 Revolving Credit Agreement dated as of 10.72 to the Company's Quarterly 1-6986
March 11, 1998, among the Company, Report on Form 10-Q for the
the Chase Manhattan Bank, Citibank, quarter ended March 31, 1998.
N.A., Morgan Guaranty Trust Company
of New York, and Chase Securities, Inc.,
and the Initial Lenders Named Therein.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.73 Refunding Agreement No. 8A, dated as 10.73 to the Company's Quarterly 1-6986
of December 23, 1997, among the Report on Form 10-Q for the
Company, the Owner Participant Named quarter ended March 31, 1998.
Therein, State Street Bank and Trust
Company, as Owner Trustee, The Chase
Manhattan Bank, as Indenture Trustee,
and First PV Funding Corporation.
10.74** Third Restated and Amended Public 10.74 to the Company's Quarterly 1-6986
Service Company of New Mexico Report on Form 10-Q for the
Performance Stock Plan. quarter ended March 31, 1998.
10.75** Executive Savings Plan 10.75 to the Company's Quarterly
Report on Form 10-Q for the
quarter ended June 30, 1998.
10.76 PVNGS Capital Trust--Variable Rate 10.76 to the Company's Quarterly 1-6986
Trust Notes--PVNGS Note Agreement Report on Form 10-Q for the
dated as of July 31, 1998. quarter ended September 30, 1998.
10.77 San Juan Project Participation Agreement dated 10.77 to the Company's Quarterly 1-6986
as of October 27, 1999, among Public Service Report on Form 10-Q for the
Company of New Mexico, Tucson Electric Power quarter ended September 30, 1999.
Company, The City of Farmington, New Mexico,
M-S-R Public Power Agency, The Incorporated
County of Los Alamos, New Mexico, Southern
California Public Power Authority, City of
Anaheim, Utah Associated Municipal Power
System and Tri-State Generation and
Transmission Association, Inc.
10.78 Stipulation in the matter of the Commission's 10.78 to the Company's Quarterly 1-6986
investigation of the rates for electric service Report on Form 10-Q for the
of Public Service Company of New Mexico, Rate quarter ended September 30, 1999.
Case No. 2761, dated May 21, 1999
10.78.1 Stipulation in the matter of the Commission's 10.78.1 to the Company's 1-6986
investigation of the rates for electric service Quarterly Report on Form
of Public Service Company of New Mexico, 10-Q the quarter ended
Rate for Case No. 2761, dated May 27, 1999 September 30, 1999.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
10.79 Asset Sale Agreement between Tri-State 10.79 to the Company's Quarterly 1-6986
Generation and Transmission Association, Inc., Report on Form 10-Q for the
a Colorado Cooperative Association and Public quarter ended September 30, 1999.
Service Company of New Mexico, a New Mexico
Corporation, dated September 9, 1999
Additional Exhibits
21 Certain subsidiaries of the registrant. 22 to Annual Report of the 1-6986
Registrant on
Form 10-K for
fiscal year
ended December
31, 1992.
99.2* Participation Agreement dated as of 99.2 to Annual Report of the 1-6986
December 16, 1985, among the Owner Registrant on Form 10-K for
Participant named therein, First PV fiscal year ended December 31,
Funding Corporation. The First National 1995.
Bank of Boston, in its individual capacity
and as Owner Trustee (under a Trust
Agreement dated as of December 16, 1985
with the Owner Participant), Chemical
Bank, in its individual capacity and as
Indenture Trustee (under a Trust
Indenture, Mortgage, Security Agreement
and Assignment of Rents dated as of
December 16, 1985 with the Owner
Trustee), and Public Service Company of
New Mexico, including Appendix A
definitions together with Amendment No.
1 dated July 15, 1986 and Amendment No.
2 dated November 18, 1986 (refiled).
99.3 Trust Indenture, Mortgage, Security 99.3 to the Company's Quarterly 1-6986
Agreement and Assignment of Rents Report on Form 10-Q for the
dated as of December 16, 1985, between quarter ended March 31, 1996.
the First National Bank of Boston, as
Owner Trustee, and Chemical Bank, as
Indenture Trustee together with
Supplemental Indentures Nos. 1 and 2
(refiled).
99.3.3 Supplemental Indenture No. 3 dated as 99.3.3 to the Company's 1-6986
of March 8, 1995, to Trust Indenture Quarterly Report on Form 10-Q
Mortgage, Security Agreement and for the quarter ended March 31,
Assignment of Rents between The First 1995.
National Bank of Boston and Chemical
Bank dated as of December 16, 1985.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
99.4* Assignment, Assumption and Further 99.4 to Annual Report of the 1-6986
Agreement dated as of December 16, Registrant on Form 10-K for
1985, between Public Service Company fiscal year ended December
of New Mexico and The First National 31, 1995.
Bank of Boston, as Owner Trustee (refiled).
99.5 Participation Agreement dated as of July 99.5 to Annual Report of the 1-6986
31, 1986, among the Owner Participant named Registrant on Form 10-K for
herein, First PV Funding Corporation, The fiscal year ended December 31,
First National Bank of Boston, in its 1996.
individual capacity and as Owner Trustee
(under a Trust Agreement dated as of July 31,
1986, with the Owner Participant), Chemical
Bank, in its individual capacity and as
Indenture Trustee (under a Trust Indenture,
Mortgage, Security Agreement and Assignment of
Rents dated as of July 31, 1986, with the
Owner Trustee), and Public Service Company of
New Mexico, including Appendix A definitions
together with Amendment No. 1 thereto
(refiled).
99.6 Trust Indenture, Mortgage, Security 99.6 to Annual Report of the 1-6986
Agreement and Assignment of Rents Registrant on Form 10-K for
dated as of July 31, 1986, between The fiscal year ended December
First National Bank of Boston, as Owner 31, 1996.
Trustee, and Chemical Bank, as Indenture
Trustee together with Supplemental Indenture
No. 1 thereto (refiled).
99.7 Assignment, Assumption, and Further 99.7 to Annual Report of the 1-6986
Agreement dated as of July 31, 1986, Registrant on Form 10-K for
between Public Service Company of fiscal year ended December 31,
New Mexico and The First National Bank 1996.
of Boston, as Owner Trustee (refiled).
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
99.8 Participation Agreement dated as of 99.8 to the Company's Quarterly 1-6986
August 12, 1986, among the Owner Report on Form 10-Q for the
Participant named therein, First PV quarter ended March 31, 1997.
Funding Corporation. The First National
Bank of Boston, in its individual capacity and
as Owner Trustee (under a Trust Agreement
dated as of August 12, 1986, with the Owner
Participant), Chemical Bank, in its individual
capacity and as Indenture Trustee (under a
Trust Indenture, Mortgage, Security Agreement
and Assignment of Rents dated as of August 12,
1986, with the Owner Trustee), and Public
Service Company of New Mexico, including
Appendix A definitions (refiled).
99.8.1* Amendment No. 1 dated as of November 99.8.1 to the Company's 1-6986
18, 1986, to Participation Agreement Quarterly Report on Form 10-Q
dated as of August 12, 1986 (refiled). for the quarter ended March 31,
1997.
99.9* Trust Indenture, Mortgage, Security 99.9 to Annual Report of the 1-6986
Agreement and Assignment of Rents Registrant on Form 10-K for
dated as of August 12, 1986, between the fiscal year ended
First National Bank of Boston, as Owner December 31,1996.
Trustee, and Chemical Bank, as Indenture
Trustee together with Supplemental Indenture
No. 1 thereto (refiled).
99.9.2 Supplemental Indenture No. 2 dated as 99.9.1 to the Company's 1-6986
of March 8, 1995, to Trust Indenture, Quarterly Report on Form 10-Q
Mortgage, Security Agreement and for the quarter ended March 31,
Assignment of Rents between The First 1995.
National Bank of Boston and Chemical
Bank dated as of August 12, 1986.
99.10* Assignment, Assumption, and Further 99.10 to the Company's Quarterly 1-6986
Agreement dated as of August 12, 1986, Report on Form 10-Q for the
between Public Service Company of New quarter ended March 31, 1997.
Mexico and The First National Bank of
Boston, as Owner Trustee (refiled).
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
99.11* Participation Agreement dated as of 99.1 to the Company's Quarterly 1-6986
December 15, 1986, among the Owner Report on Form 10-Q for the
Participant named therein, First PV quarter ended March 31, 1997.
Funding Corporation, The First National Bank
of Boston, in its individual capacity and as
Owner Trustee (under a Trust Agreement dated
as of December 15, 1986, with the Owner
Participant), Chemical Bank, in its individual
capacity and as Indenture Trustee (under a
Trust Indenture, Mortgage, Security Agreement
and Assignment of Rents dated as of December
15, 1986, with the Owner Trustee), and Public
Service Company of New Mexico, including
Appendix A definitions (Unit 1 Transaction)
(refiled).
99.12 Trust Indenture, Mortgage, Security 99.12 to the Company's Quarterly 1-6986
Agreement and Assignment of Rents Report on Form 10-Q for the
dated as of December 15, 1986, between quarter ended March 31, 1997.
The First National Bank of Boston, as
Owner Trustee, and Chemical Bank, as
Indenture Trustee (Unit 1 Transaction)
(refiled).
99.13 Assignment, Assumption and Further 99.13 to the Company's 1-6986
Agreement dated as of December 15, Quarterly Report on Form
1986, between Public Service Company 10-Q for the quarter ended
of New Mexico and The First National March 31, 1997.
Bank of Boston, as Owner Trustee
(Unit 1 Transaction) (refiled).
99.14 Participation Agreement dated as of 99.14 to the Company's 1-6986
December 15, 1986, among the Owner Quarterly Report on Form
Participant named therein, First PV 10-Q for the quarter ended
Funding Corporation, The First National March 31, 1997.
Bank of Boston, in its individual capacity and
as Owner Trustee (under a Trust Agreement
dated as of December 15, 1986, with the Owner
Participant), Chemical Bank, in its individual
capacity and as Indenture Trustee (under a
Trust Indenture, Mortgage, Security Agreement
and Assignment of Rents dated as of December
15, 1986, with the Owner Trustee), and Public
Service Company of New Mexico, including
Appendix A definitions (Unit 2 Transaction)
(refiled).
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
99.15 Trust Indenture, Mortgage, Security 99.15 to Annual Report of the 1-6986
Agreement and Assignment of Rents dated Registrant on Form 10-K
as of December 31, 1986, between the for fiscal year ended
First National Bank of Boston, as Owner December 31, 1996.
Trustee, and Chemical Bank, as Indenture
Trustee (Unit 2 Transaction) (refiled).
99.16 Assignment, Assumption, and Further 99.16 to the Company's Quarterly 1-6986
Agreement dated as of December 15, Report on Form 10-Q for the
1986, between Public Service Company quarter ended March 31, 1997.
of New Mexico and The First National
Bank of Boston, as Owner Trustee
(Unit 2 Transaction) (refiled).
99.17* Waiver letter with respect to "Deemed 99.17 to Annual Report of the 1-6986
Loss Event" dated as of August 18, 1986, Registrant on Form 10-K
between the Owner Participant named for fiscal year ended December
therein, and Public Service Company of 31, 1996.
New Mexico (refiled).
99.18* Waiver letter with respect to Deemed 99.18 to Annual Report of the 1-6986
Loss Event" dated as of August 18, 1986, Registrant on Form 10-K
for between the Owner Participant named for fiscal year ended December
therein, and Public Service Company of 31, 1996.
New Mexico (refiled).
99.19 Agreement No. 13904 (Option and 99.19 to Annual Report of the 1-6986
Purchase of Effluent), dated April 23, Registrant on Form 10-K for
1973, among Arizona Public Service fiscal year ended December 31,
Company, Salt River Project Agricultural 1996.
Improvement and Power District, the
Cities of Phoenix, Glendale, Mesa,
Scottsdale, and Tempe, and the Town of
Youngtown (refiled).
99.20 Agreement for the Sale and Purchase of 99.20 to Annual Report of the 1-6986
Wastewater Effluent, dated June 12, 1981, Registrant on Form 10-K
Among Arizona Public Service Company, for fiscal year ended
Salt River Project Agricultural Improvement December 31, 1996.
and Power District and the City of Tolleson,
as amended (refiled).
99.21* 1996 Supplemental Indenture dated as of 99.21 to the Company's Quarterly 1-6986
September 27, 1996 to Trust Indenture, Report on Form 10-Q for the
Mortgage, Security Agreement and quarter ended September 30, 1996.
Assignment of Rents dated as of December
16, 1985 between State Street Bank and
Trust Company, as Owner Trustee, and
The Chase Manhattan Bank, as Indenture
Trustee.
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- --------
99.22 1997 Supplemental Indenture, dated as of 99.22 to the Company's Quarterly 1-6986
December 23, 1997, to Trust Indenture, Report on Form 10-Q for the
Mortgage, Security Agreement and quarter ended March 30, 1998.
Assignment of Rents, dated as of August
12, 1986, between State Street Bank and
Trust, as Owner Trustee, and The Chase
Manhattan Bank, as Indenture Trustee.
-----------
|
* One or more additional documents, substantially identical in all material respects to this exhibit, have been entered into, relating to one or more additional sale and leaseback transactions. Although such additional documents may differ in other respects (such as dollar amounts and percentages), there are no material details in which such additional documents differ from this exhibit.
** Designates each management contract or compensatory plan or arrangement required to be identified pursuant to paragraph 3 of Item 14(a) of Form 10 -K.
(b) Reports on Form 8-K:
During the quarter ended December 31, 1999 and during the period beginning January 1, 2000 and ending March 8, 2000, the Company filed, on the date indicated, the following report on Form 8-K.
Dated: Filed: Relating to:
------ ------ ------------
November 18, 1999 November 17, 1999 The Company Seeks to Form Holding Company
December 8, 1999 December 7, 1999 The Company Announces $20 Million Common Stock
Repurchase and Quarterly Dividend
January 26, 2000 January 27, 2000 The Company Names New President
January 27, 2000 January 27, 2000 The Company Reports 1999 Earnings of $2.01 Per Share
February 10, 2000 February 17, 2000 The Company's wholly-owned subsidiary, Avistar
Invests in Internet Energy Exchange
February 11, 2000 February 17, 2000 The Company Names New Senior Vice President
February 22, 2000 March 7, 2000 The Company Subsidiary Announces Technology
Partnership with Sandia National Labs
February 23, 2000 March 7, 2000 The Company Picks Manzano for New Holding Company
|
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.
PUBLIC SERVICE COMPANY OF NEW MEXICO
(Registrant)
Date: March 9, 2000 By /s/ B. F. Montoya
-------------------------------
B. F. Montoya
Chairman, President and
Chief Executive Officer
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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 Capacity Date
--------- -------- ----
/s/ B. F. MONTOYA Principal Executive Officer and March 9, 2000
---------------------------------------------- Chairman of the Board
B. F. MONTOYA
Chairman, President and
Chief Executive Officer
/s/ M. H. MAERKI Principal Financial Officer March 9, 2000
----------------------------------------------
M. H. Maerki
Senior Vice President and
Chief Financial Officer
/s/ J. R. LOYACK Principal Accounting Officer March 9, 2000
----------------------------------------------
J. R. Loyack
Vice President, Corporate Controller
and Chief Accounting Officer
/s/ J. T. ACKERMAN Director March 9, 2000
----------------------------------------------
J. T. Ackerman
/s/ R. G. ARMSTRONG Director March 9, 2000
----------------------------------------------
R. G. Armstrong
/s/ J. A. GODWIN Director March 9, 2000
----------------------------------------------
J. A. Godwin
/s/ L. H. LATTMAN Director March 9, 2000
----------------------------------------------
L. H. Lattman
/s/ M. LUJAN JR. Director March 9, 2000
----------------------------------------------
M. Lujan Jr.
/s/ R. U. ORTIZ Director March 9, 2000
----------------------------------------------
R. U. Ortiz
/s/ R. M. PRICE Director March 9, 2000
----------------------------------------------
R. M. Price
/s/ P. F. ROTH Director March 9, 2000
----------------------------------------------
P. F. Roth
|
BYLAWS
OF
PUBLIC SERVICE COMPANY OF NEW MEXICO
BYLAWS
OF
PUBLIC SERVICE COMPANY OF NEW MEXICO
ARTICLE I.
Section 1. Meetings. The Annual Meeting of Stockholders shall be held on such date and at such time and place as may be fixed from time to time by the Board of Directors of the Company pursuant to a resolution adopted by a majority of the members of the Board then in office, for the election of directors and the transaction of such other business as may properly come before the meeting. Special meetings may be called by a majority of the Board of Directors, the Executive Committee, the Chairman of the Board or the President.
Section 2. Place of Meetings. The annual or any special meeting of stockholders shall be held at the principal office of the Company in the City of Albuquerque, Bernalillo County, State of New Mexico, or at such other places within or without the State of New Mexico as shall be specified in the notice of such meeting.
Section 3. Notice. Written notice of any meeting stating the time and place, and if a special meeting, the purpose or purposes of such meeting, shall be mailed to each stockholder of record entitled to vote at such meeting at the address of such stockholders as the same appears on the stock transfer books of the Company, except as otherwise provided by law. In the event of the transfer of a stockholder's stock after mailing of such notice and prior to the holding of the meeting, it shall not be necessary to mail notice of the meeting to any transferee. All notices of any special stockholder meeting shall be mailed not less than forty (40) days before the date of the meeting; however, notice of any such special meeting called by a majority of the Board of Directors, the Executive Committee, the Chairman of the Board or the President, and notice of any annual meeting, shall be mailed not less than ten (10) days before such meeting of stockholders.
Section 4. Quorum. At any meeting of the stockholders, except as otherwise provided by law, it shall be necessary that the holders of a majority of the issued and outstanding shares of the capital stock entitled to vote at such meeting shall be represented in person or by proxy to constitute a quorum for the transaction of business.
Section 5. Adjournment. Whenever at any meeting of the stockholders, notice of which shall have been duly given, a quorum shall not be present, or whenever for any reason it may be deemed desirable, a majority in interest of the stockholders present in person or by proxy may adjourn the meeting from time to time to any future day, without notice other than by announcement at the meeting or adjournment thereof. At any such adjourned meeting at which quorum shall be present, any business may be transacted which might have been transacted at the meeting on the date originally fixed.
Section 6. Organization. The Chairman, or in the absence of the Chairman, the President, or in the absence of both, a Vice President shall call meetings of the stockholders to order and shall act as Chairman of such meetings. The stockholders may appoint any stockholder or the proxy of any stockholder to act as Chairman of any meeting of the stockholders in the absence of the Chairman, President and Vice Presidents. The Secretary, or in the absence of the Secretary, an Assistant Secretary, shall act as Secretary at all meetings of the stockholders, but in the absence of the Secretary and Assistant Secretaries at any meeting of the stockholders the presiding officer may appoint any person to act as Secretary of such meeting.
Section 7. Inspectors. At each meeting of the stockholders at which a vote by ballot is taken, the polls shall be opened and closed, the proxies and ballots shall be received and be taken in charge, and the validity of proxies and the acceptance or rejection of votes shall be decided by two inspectors. No person who is a candidate for the office of director shall act as Inspector of any election for directors. Such inspectors shall be appointed by the Board of Directors before the meeting, or, if no such appointment shall have been made, then by the presiding officer of the meeting. If for any reason any of the inspectors previously appointed shall fail to attend or refuse or be unable to serve, inspectors in place of any so failing to attend or refusing or unable to serve shall be appointed in like manner.
Section 8. Voting. At each meeting of stockholders every stockholder, whether resident or nonresident, shall be entitled to one vote for each share of stock standing in the name of the stockholder on the books of the Company on the date on which stockholders entitled to vote are determined. Such stockholder may be represented and vote by a proxy or proxies appointed by an instrument in writing; in the event that such instrument in writing shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or if only one shall be present, then that one shall have and may exercise all of the powers conferred by such written instrument upon all of the persons so designated, unless the instrument shall otherwise provide. No proxy shall be voted at any meeting or adjournment thereof other than that for which the proxy is given.
In all elections for directors, voting shall be by written ballot.
The Board of Directors may fix a date in advance not exceeding fifty (50) days preceding the date of any meeting of stockholders as a record date for the determination of stockholders entitled to notice of and to vote at any such meeting, and in such case only stockholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting.
ARTICLE II.
Section 1. Number, Election and Terms. The business and property of the corporation shall be managed and controlled by a Board of Directors who, if and while so required by law, shall be stockholders in the Company, and none of whom need be a resident of the State of New Mexico. The directors shall be nine in number and shall be elected in classes in the manner provided in Article Fifth of the Articles of Incorporation as amended.
Section 2. Vacancies. Any vacancies occurring on the Board of Directors by death, resignation, or otherwise shall be filled by a majority of Directors then remaining in office.
Section 3. Meetings. The meetings of the Board of Directors shall be held at the times and places designated by the Board of Directors. There shall be no fewer than four regular meetings of the Board during any calendar year.
The Annual Meeting of the Board of Directors for the election of officers and of the Executive Committee, and such other business as may properly come before the meeting, shall be held immediately following the annual meeting of stockholders.
Special meetings of the Board of Directors shall be held whenever called at the direction of the Chairman of the Board of Directors, the President, any two directors, or the Executive Committee.
Section 4. Notice. No notice shall be required of any annual or regular meeting of the Board of Directors unless the place thereof shall be other than that last designated by the Board. Notice of any annual or regular meeting, when required, or of any special meeting of the Board of Directors shall be given to each director by mailing or delivering the same at least forty-eight hours, or by telephoning the same at least twenty-four hours before the time fixed for the meeting. Such notice may be waived by any director. Unless otherwise indicated in the notice thereof any and all business may be transacted at a special meeting. At any meeting at which every director shall be present, even without notice, any business may be transacted.
Section 5. Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business, and any action receiving the affirmative vote of a majority of the directors present at any meeting shall be effective.
Section 6. Adjournments. Any annual, regular or special meeting of the Board of Directors may be adjourned from time to time by the members present whether or not a quorum shall be present, and no notice shall be required of any adjourned meeting beyond the announcement of such adjournment at the meeting.
Section 7. Indemnification. Each person who shall have served as a director or an officer of the Company, or, at the request of the Company, as a director or an officer of any other corporation, partnership or joint venture, whether profit or nonprofit, in which the Company (a) owns shares of capital stock, (b) has an ownership interest, (c) is a member, or (d) is a creditor, and regardless of whether or not such person is then in office, and the heirs, executors, administrators and personal representatives of any such person shall be indemnified by the Company to the full extent of the authority of the Company to so indemnify as authorized by the law of New Mexico.
Section 8. Committees. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members one or more committees, in addition to the Executive Committee provided for in Article III hereof, each of which, to the extent provided in the resolution establishing such committee and designating the member or members thereof, shall have and may exercise all the authority of the Board of Directors, except as may be limited by law.
ARTICLE III.
Section 1. The Board of Directors may from time to time appoint by resolution adopted by a majority of the full Board of Directors from among its members an Executive Committee which may exercise the powers of the Board of Directors in the management of the business, affairs and property of the Company during intervals between the meetings of the Board of Directors unless and until the Board of Directors shall otherwise direct. The Board shall appoint the Chair of the Executive Committee, who will be a Director other than the Chairman of the Board.
Section 2. A majority of the Executive Committee shall constitute a quorum for the transaction of business and any action receiving the affirmative vote of a majority of the members of the Executive Committee present at any meeting shall be effective; provided, however, that the affirmative vote of not less than three members of the Executive Committee shall be required for any such action.
Section 3. Meetings of the Executive Committee shall be held whenever called by the direction of the Chairman of the Executive Committee, the Chairman of the Board of Directors, or any two members of the Executive Committee. Notice of any meeting of the Executive Committee shall be given each member of the Executive Committee in writing or by telephone at least 24 hours before the time fixed for the meeting. Such notice may be waived by any member of the Executive Committee.
ARTICLE IV.
Section 1. Number, Election and Term. The officers of the Company shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, and a Controller who shall be elected annually by the Board of Directors at the annual meeting thereof and who shall hold their respective offices until the next annual meeting or until their successor shall be elected and shall qualify. The Board of Directors may designate the Chairman of the Board or the President as Chief Executive Officer. The Board of Directors may elect one person to serve as both Chairman of the Board and President. The Board
of Directors may designate one or more Vice Presidents as "Executive" Vice Presidents and one or more Vice Presidents as "Senior" Vice Presidents. The title of any Vice President may include words indicative of the area of responsibility of such Vice President. The Board of Directors shall designate one of the Vice Presidents as the chief financial officer of the Company. The Board of Directors may from time to time appoint such additional officers as the interest of the Company may require and fix their terms and duties of office. A vacancy occurring in any office may be filled by the Board of Directors. All officers shall hold office subject to the Board of Directors and shall be subject to removal at any time by the affirmative vote of a majority of the whole Board of Directors. Election of any person as an officer of the Company shall not of itself create contract rights.
Section 2. Chairman of the Board. The Chairman shall be elected annually by the Board of Directors at the annual meeting thereof and shall hold that office until the next annual meeting or until a successor shall be elected and shall qualify. In the event of the incapacity of the Chairman of the Board, the Board of Directors shall, by a majority vote of the Board of Directors, designate an Acting Chairman who shall, during the incapacity of the Chairman, assume and perform all functions and duties which the Chairman is authorized or required by law to do. The Chairman of the Board shall have the power to call special meetings of the stockholders and of the Directors for any purpose or purposes. The Chairman shall preside at all meetings of the stockholders and of the Board of Directors unless the Chairman shall be absent or incapacitated. The Chairman of the Board, subject to the authority of the Board, shall generally do and perform all acts incident to the office of the Chairman of the Board and which are authorized or required by law.
Section 3. President. The President shall provide active management over all operations of the Company; subject, however, to control of the Board of Directors. The President shall have the power to appoint and discharge, subject to the general approval or review by the Board of Directors, employees and agents of the Company and to fix their compensation to make and sign contracts and agreements in the name of and on behalf of the Company and direct the general management and control of the business and affairs of the Company. The President may delegate from among the powers enumerated in the preceding sentence to officers of the Company, such responsibilities and authority as the President may determine. The President shall have the power to segregate the operations of the Company into areas of responsibility. The President shall see that the books, reports, statements and certificates required by the statute under which the Company is organized or any other laws applicable thereto are properly kept, made, and filed according to law; and the President shall generally do and perform all acts which are authorized or required by law. The President shall designate a Vice President who shall, during the absence or incapacity of the President, assume and perform all functions and duties which the President might lawfully do if present in person and not under any incapacity.
Section 4. Vice Presidents.
Section 5(a). Executive and Senior Vice Presidents. Each Vice President designated as "Executive" or "Senior Vice President" shall be responsible for such areas and activities as assigned by the President, shall be subject to the authority of the President and shall assist in the general control and management of the business and affairs of the Company.
Section 5(b). Other Vice Presidents. The Vice Presidents shall be responsible for such areas and activities as are assigned by the President and shall perform such duties as may be required.
Section 5(c). Assumption of Duties by a Vice President. A Vice President, consistent with the title or duty of such Vice President, shall assume and perform all functions and duties assigned to a superior executive during the absence or incapacity of such superior.
Section 6. Secretary. The Secretary shall be sworn to the faithful discharge of the duties of the Secretary. The Secretary shall keep a record in the proper books provided for that purpose of meetings and proceedings of the Board of Directors, Executive Committee and other Committees as may be designated by the Board and stockholders, and shall record all votes of the directors and stockholders in a book to be kept for that purpose. The Secretary shall notify the directors and stockholders of the respective meetings as required by law or by the bylaws of the Company and shall perform such other duties as may be required by law or the bylaws of the Company, or which may be assigned from time to time by the Board of Directors or Executive Committee. The Secretary is authorized to appoint one or more assistants from time to time as the Secretary deems advisable, the assistant or assistants to serve at the pleasure of the Secretary, and to perform the duties that are delegated by the Secretary. The assistant or assistants so appointed shall not be officers of the Company.
Section 7. Treasurer. The Treasurer shall have the custody of all the funds and securities of the Company, and shall have the power on behalf of the Company to sign checks, notes, drafts and other evidences of indebtedness, to borrow money for the current needs of the business of the Company and to make short-term investments of surplus funds of the Company. The Treasurer shall render to the President or directors, whenever required by them, an account of all transactions performed as Treasurer and of the financial conditions of the Company. The Treasurer shall perform such other duties as may be assigned from time to time by the Board of Directors, by the Executive Committee or by the President. The Treasurer is authorized to appoint one or more assistants from time to time as the Treasurer deems advisable, the assistant or assistants to serve at the pleasure of the Treasurer, and to perform the duties that are delegated by the Treasurer. The assistant or assistants so appointed shall not be officers of the Company.
Section 8. Controller. The Controller shall be the chief accounting officer of the Company and have full responsibility and control of the accounting department, which department shall include all accounting functions carried on throughout the Company and its subsidiaries. As such, the Controller shall, subject to the approval of the Board of Directors, the Executive Committee or the President, establish accounting policies. The Controller shall standardize
and coordinate accounting practices, supervise all accounting records and the presentation of all financial statements and tax returns. The Controller shall have such other powers and duties as, from time to time, may be conferred by the Board of Directors, by the Executive Committee or by the President. The Controller is authorized to appoint one or more assistants from time to time as the Controller deems advisable, the assistant or assistants to serve at the pleasure of the Controller, and to perform the duties that are delegated by the Controller. The assistant or assistants so appointed shall not be officers of the Company.
Section 9. Form of Appointment. In making any appointments of assistants the Secretary, Treasurer, and Controller shall use the following form:
I, (Name), the duly elected (Title) of Public Service Company of New Mexico, do hereby appoint (Name) to serve as Assistant (Title) for the period of (date) to (date), unless this appointment is terminated earlier in writing, to assume or perform all functions and duties which I might require and, in my absence or incapacity, which I might lawfully do if present and not under any incapacity.
Any appointments of assistants by the Secretary, Treasurer or Controller and any terminations of appointments shall be maintained in the records of the Secretary's office.
ARTICLE V.
Section 1. Unless the Board of Directors shall otherwise specifically direct, all contracts, instruments, documents or agreements of the Company shall be executed in the name of the Company by the President, or any Vice President, or any other employee, if approved by the President by either administrative policy letter or specific written designation. It shall not be necessary that the corporate seal be affixed to any contract.
Section 2. No contract or other transaction between the Company and any other corporation owning or holding stock in this Company shall be affected by the fact that the directors or officers of this Company are interested in, or are directors or officers of, such other corporation. No contract or transaction of this Company with any person or persons or firm or association or corporation (other than one owning or holding stock in this Company) shall be affected by the fact that any director or officer of this Company is a party thereto or interested therein, or in any way connected with such person or persons, firm or association, or corporation, provided that at the meeting of the Board of Directors of this Company, making, authorizing or confirming such contract or transaction, there shall be present a quorum of directors not so interested, and that such contract or transaction shall be approved or be ratified by the affirmative vote of at least three directors not so interested.
The Board of Directors in its discretion may submit any contract, or act, for approval or ratification at any annual meeting of the stockholders, or at any meeting of the stockholders called for the purpose of considering any such act or contract; and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the capital stock of the Company which is represented in person or by proxy at such meeting (provided that lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the Company and upon all the stockholders as though it had been approved or ratified by every stockholder of the Company.
ARTICLE VI.
Except as otherwise provided by the Board of Directors, all checks, drafts, bills of exchange, promissory notes and other negotiable instruments shall be signed by the Chairman of the Board, the President, any Vice President, Secretary or Treasurer.
ARTICLE VII.
Section 1. Certificates of Stock. All certificates of stock shall be in such form as the Board of Directors may approve and shall be signed by the President or a Vice President and by the Secretary and may be sealed with the seal of the Company or a facsimile thereof. The signatures of the President or Vice President and the Secretary of the Company upon a certificate may be facsimiles. In case any officer of the Company whose signature, whether facsimile or otherwise, shall have been placed upon any certificate shall cease to be such officer before any certificate so signed shall have been actually issued and delivered, such certificate may nevertheless be issued and delivered by the Company as though the person who had signed such certificate had not ceased to be an officer. All certificates shall be numbered for identification. The name of the person owning the shares represented thereby with the number of shares and the date of issue shall be entered on the Company's books. All certificates surrendered to the Company shall be cancelled, and no new certificates shall be issued until a certificate or certificates aggregating the same number of shares of the same class shall have been surrendered or cancelled; but the Board of Directors or Executive Committee may make proper provision, from time to time, for the issue of new certificates in place of lost or destroyed certificates.
Section 2. Transfer Agents and Registrars. The Company shall, if and whenever the Board of Directors shall so determine maintain one or more transfer offices or agencies, each in charge of a transfer agent designated by the Board of Directors, where the shares of the capital stock of the Company shall be directly transferable, and also one or more registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock shall be registered and no certificates for shares of the capital stock of the Company, in respect of which one or more transfer agents and registrars shall have been designated, shall be valid unless countersigned by one of such transfer agents and registered by one of such registrars. The Board of Directors may also make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Company.
Section 3. Transfer of Stock. Transfers of stock shall be made only upon the books of the Company by the holder in person or by the holder's attorney upon surrender of certificates for a like number of shares.
Section 4. Closing of Transfer Books. The Board of Directors shall have power to close the transfer books of the Company for a period not exceeding fifty (50) days preceding the date of any meeting of stockholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect; provided, however, that in lieu of closing the transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding fifty (50) days preceding the date of any meeting of stockholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of stockholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividend or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such cases only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at such meeting, or to receive the payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Company after any such record date fixed as aforesaid.
ARTICLE VIII.
Dividends upon the stock of the Company may be declared from time to time by the Board of Directors in its discretion and paid to stockholders from the surplus or net profits arising from the business of the Company.
ARTICLE IX.
The books of the Company, except as otherwise provided by law, may be kept outside of the State of New Mexico, at such place or places as may be from to time designated by the Board of Directors.
The Directors shall, from time to time determine whether and to what extent, and at what time and places, and under what conditions and regulations the accounts and the books of the Company, or any of them, shall be open to the inspection of stockholders; and no stockholder shall have any right to inspect any book or account or document of the Company except as conferred by the statutes of New Mexico, or authorized by the Directors.
ARTICLE X.
The common corporate seal is, and until otherwise ordered by the Board of Directors shall be, an impression circular in form upon paper or wax bearing the words "Public Service Company of New Mexico, Incorporated, 1917."
The seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or by the Executive Committee a duplicate of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.
ARTICLE XI.
The power to alter, amend or repeal the Bylaws of the Company or adopt new Bylaws for this Company shall be vested in the Board of Directors.
PUBLIC SERVICE COMPANY OF NEW MEXICO
TO
THE CHASE MANHATTAN BANK
Trustee
THIRD SUPPLEMENTAL INDENTURE
Dated as of October 1, 1999
To
INDENTURE
Dated as of March 11, 1998
Providing for
6.60% 1999 Pollution Control Series A Senior Unsecured Notes Due 2029
THIRD SUPPLEMENTAL INDENTURE, dated as of October 1, 1999, between PUBLIC SERVICE COMPANY OF NEW MEXICO, a corporation duly organized and existing under the laws of the State of New Mexico (the "Company"), having its principal office at Alvarado Square, Albuquerque, New Mexico 87158, and THE CHASE MANHATTAN BANK, a New York banking corporation, as Trustee (the "Trustee") under the Indenture dated as of March 11, 1998 between the Company and the Trustee (the "Indenture").
RECITALS OF THE COMPANY
The Company has executed and delivered the Indenture to the Trustee to provide for the issuance from time to time of its senior notes (the "Notes"), said Notes to be issued in one or more series as in the Indenture provided.
The Company has executed and delivered to the Trustee a First Supplemental Indenture, dated as of March 11, 1999, between the Company and the Trustee to establish the forms and terms of seven series of Notes and a Second Supplemental Indenture, dated as of March 11, 1998, between the Company and the Trustee to establish the forms and terms of three series of Notes (the Indenture, as supplemented by said First Supplemental Indenture and said Second Supplemental Indenture, collectively, the "Indenture, as heretofore supplemented").
Pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of Notes to be known as its 6.60% 1999 Pollution Control Series A Senior Unsecured Notes Due 2029 (the "1999 Notes"), the form and substance of the 1999 Notes and the terms, provisions, and conditions thereof to be set forth as provided in the Indenture and this Third Supplemental Indenture.
The Company and the City of Farmington, in the County of San Juan, an incorporated municipality, a body politic and corporate, existing under the constitution and laws of the State of New Mexico (together with its successors and assigns, the "City"), are concurrently herewith entering into an Installment Sale Agreement, dated as of October 1, 1999 (the "Sale Agreement"), whereby the City has agreed to cooperate with the Company and will issue and deliver pollution control revenue bonds under the Pollution Control Revenue Bond Act, NMSA 1978, ss.ss. 3-59-1 to 3-59-14 (1973), as amended.
Pursuant to Ordinance No. 99-1102, adopted by the City on October 12, 1999, as supplemented by Resolution No. 99-965, adopted by the City on October 12, 1999 (as so supplemented, the "Ordinance"), the City has (1) authorized and provided for the issuance of $11,500,000 principal amount of its Pollution Control Revenue Bonds, 1999 Series A (Public Service Company of New Mexico San Juan Project) (the "Revenue Bonds"), to bear interest at the rate of 6.60% per annum and to mature October 1, 2029; and (2) appointed First Security Bank of New Mexico, N.A., as trustee under the Ordinance (together with any successor trustee under the Ordinance, the "Revenue Bond Trustee").
Under the Sale Agreement, the Company is obligated to make certain payments to the City, which the City has pledged and assigned to the Revenue Bond Trustee by the terms of the Ordinance, to provide for the payment of the principal of, and premium, if any, and interest on, the Revenue Bonds.
The Company by the Guaranty Agreement, dated as of October 1, 1999 (the "Guaranty"), by and between the Company and the Revenue Bond Trustee, guarantees payment of the principal of and interest on the Revenue Bonds (the "Guaranteed Amounts") and agrees to issue its 1999 Notes, to be delivered to the Revenue Bond Trustee, as security for the performance of the Company's obligation under the Guaranty to pay the Guaranteed Amounts.
All things necessary to make this Third Supplemental Indenture a valid agreement of the Company, and to make the 1999 Notes, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been done.
NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the acceptance of the 1999 Notes by the Revenue Bond Trustee under the Ordinance as collateral security for the Revenue Bonds, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the 1999 Notes and the terms, provisions, and conditions thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the 1999 Notes, as follows:
ARTICLE ONE
SECTION 1.01. There shall be and is hereby authorized a new series of Notes designated the "6.60% 1999 Pollution Control Series A Senior Unsecured Notes Due 2029". The 1999 Notes shall be limited in aggregate principal amount to $11,500,000. The 1999 Notes shall mature, and the principal thereof shall be due and payable together with all accrued and unpaid interest thereon, on October 1, 2029. Subject to the provisions of Section 1.03 hereof, the 1999 Notes shall bear no interest until an Initial Interest Accrual Date, if any, has been determined in accordance with Section 1.03 hereof. The 1999 Notes shall be issued in the form of registered Notes without coupons, in denominations of $1,000 and any integral multiple thereof. Each of the 1999 Notes shall be dated as of the date of its authentication.
SECTION 1.02. The 1999 Notes shall be issued to and registered in the name of the Revenue Bond Trustee under the Ordinance and shall be non-transferable, except as may be required to effect transfer to any successor trustee to the Revenue Bond Trustee under the Ordinance. Principal of, and premium, if any, and interest on the 1999 Notes will be payable, and registration of transfer and exchanges of the 1999 Notes may be effected, and notices and demands to or upon the Company in respect of the 1999 Notes and the Indenture, as supplemented from time to time, may be served at the office or agency of the Company maintained for that purpose in The City and State of New York, which shall be the Corporate Trust Office of the Trustee. The 1999 Notes shall be deemed fully paid, and the obligation of the Company thereunder shall be terminated, to the extent and in the manner provided in Section 1.05 hereof.
SECTION 1.03. The 1999 Notes have been issued to the Revenue Bond Trustee to secure the obligations of the Company under the Guaranty to pay the Guaranteed Amounts. In the event of failure by the Company to make any payment of any Guaranteed Amounts when and as required by the Company under the Guaranty, the 1999 Notes shall bear interest at the rate of 6.60% per annum from the last day to which interest on the Revenue Bonds has been paid in full prior to the failure of the Company to pay such Guaranteed Amounts (such date being herein defined as the "Initial Interest Accrual Date"), and interest at such rate shall be payable on the semi-annual dates due with respect to such Revenue Bonds, i.e., April 1st and October 1st in each year (each an "Interest Payment Date") commencing on the first Interest Payment Date of the Revenue Bonds following the Initial Interest Accrual Date.
The Trustee may conclusively presume that no payments with respect to interest on the 1999 Notes are due unless and until the Trustee shall have received a written certificate from the Revenue Bond Trustee, signed by an authorized officer of the Revenue Bond Trustee, certifying that the Company has failed to make a payment of any Guaranteed Amount when and as required to be made by it under the Guaranty and specifying such Guaranteed Amount, the interest rate, the Initial Interest Accrual Date, the Interest Payment Date and such other terms as shall be applicable to the payment of interest on the 1999 Notes. The Trustee may rely and shall be fully protected in acting upon any such certificate and shall have no duty with respect to the terms specified in any such certificate other than to make them available for inspection by the Company.
SECTION 1.04. The 1999 Notes shall be redeemed, in whole or in part, at
the principal amount thereof plus any premium, as hereinafter provided, and any
accrued and unpaid interest from the Initial Interest Accrual Date to their
redemption date, if the Revenue Bond Trustee notifies the Trustee in writing
that Revenue Bonds are subject to redemption as provided in Section 3.02 of the
Ordinance. Any such notice must be received by the Trustee no later than five
days (unless a shorter period of time is acceptable to the Trustee) prior to any
redemption date fixed for the Revenue Bonds to be redeemed and shall specify the
principal amount of such Revenue Bonds anticipated as of the date of such notice
to be redeemed, the redemption date, the redemption premium, if any, and the
amount of accrued and unpaid interest anticipated to be paid thereon. In the
event such notice is given to the Trustee as provided above, the redemption date
of the 1999 Notes shall be the date on which the Revenue Bonds are fixed for
redemption, and on such date the said 1999 Notes shall become due and payable in
the same principal amount as the Revenue Bonds in fact redeemed pursuant to
Section 3.01 of the Ordinance. The redemption price payable in respect of the
1999 Notes shall include a premium in the event (and only in the event) that any
redemption premium is payable in respect of the corresponding Revenue Bonds in
fact redeemed pursuant to Section 3.01 of the Ordinance, and, in such event, the
amount of such premium in respect of the redemption price of the 1999 Notes
shall be an amount equal to the redemption premium so payable in respect of such
Revenue Bonds. The Company shall deposit in trust with the Trustee on the
redemption date an amount of money sufficient to pay the principal amount, plus
any premium and accrued and unpaid interest, if any, to the date fixed for redemption on the 1999 Notes to be redeemed (the "Redemption Price"). Upon presentation to the Trustee of any of the 1999 Notes by the Revenue Bond Trustee for payment of the Redemption Price, such 1999 Notes so presented shall be redeemed and paid in full. However, if, in lieu of presenting the 1999 Notes due for redemption, the Revenue Bond Trustee shall deliver such 1999 Notes to the Trustee for cancellation, then, and in that event, subject to Section 1.05 hereof, such of the 1999 Notes so presented for cancellation shall be deemed fully paid, and if any moneys shall have been deposited with the Trustee for such redemption, then such moneys shall be paid over to the Company, and the 1999 Notes so surrendered shall be canceled in accordance with Section 1.05 hereof.
SECTION 1.05 Upon surrender by the Revenue Bond Trustee or the Company to the Trustee hereunder of any of the 1999 Notes for cancellation, such notes shall be canceled by the Trustee and delivered to the Company and shall be deemed fully paid and the obligations of the Company thereunder terminated.
SECTION 1.06 The 1999 Notes shall be defeasible pursuant to Section 13.02 and Section 13.03 of the Indenture.
ARTICLE TWO
SECTION 2.01. The 1999 Notes and the Trustee's certificate of authentication to be endorsed thereon are to be substantially in the following form:
Pursuant to Section 1.02 of the Third Supplemental Indenture dated as of October 1, 1999, supplemental to the Indenture, dated as of March 11, 1998, between Public Service Company of New Mexico and The Chase Manhattan Bank, as Trustee, as supplemented, this Note is nontransferable, except as may be required to effect transfer to any successor trustee to the Revenue Bond Trustee (as defined herein).
PUBLIC SERVICE COMPANY OF NEW MEXICO
6.60% 1999 Pollution Control Series A Senior Unsecured Note Due 2029
No. $__________
PUBLIC SERVICE COMPANY OF NEW MEXICO, a corporation organized and existing under the laws of the State of New Mexico (herein called the "Company" which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to , as trustee under the Ordinance (as defined herein), on October 1, 2029 (unless this Note shall have been called for previous redemption and provision made for the payment of the redemption price thereof), the principal sum of ____ Dollars ($_______) and to pay interest thereon from the Initial Interest Accrual Date (as defined herein) to the date of payment of this Note at the rate of 6.60% per annum payable on the first Interest Payment Date of April 1st and October 1st following the Initial Interest Accrual Date.
Payment of the principal of, and premium, if any, and any such interest on this Note will be made at the office or agency of the Company maintained for that purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
This Note is one of a duly authorized issue of senior notes of the Company (herein called the "Notes"), issued and to be issued in one or more series under an Indenture, dated as of March 11, 1998 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), between the Company and The Chase Manhattan Bank, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Notes and of the terms upon which the Notes are, and are to be, authenticated and delivered, to all of which the Holder, by accepting this Note, assents. This Note is one of the series designated on the face hereof, limited in aggregate principal amount to $11,500,000.
The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee to enter into one or more supplemental indentures for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, the Indenture with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes of all series then Outstanding under the Indenture, considered as one class; provided, however, that if there shall be Notes of more than one series Outstanding under the Indenture and if a proposed supplemental indenture shall directly affect the rights of the Holders of Notes of one or more, but less than all, of such series, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Notes of all series so directly affected, considered as one class, shall be required. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Notes of each, or all series, as the case may be, then Outstanding under the Indenture, on behalf of the Holders of all Notes of such series, to waive compliance by the Company with certain provisions of the Indenture and permitting the Holders of specified percentages in principal amount of the Notes of each series Outstanding under the Indenture, on behalf of the Holders of all Notes of such series, to waive certain past defaults under the Indenture and their consequences, provided, however, that if any such past default affects more than one series of Notes, the Holders of a majority in aggregate principal amount of the Outstanding Notes of all such series, considered as one class, shall have the right to waive such past default, and not the Holders of the Notes of any one such series. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note.
As provided in and subject to the provisions of the Indenture, the Holder of this Note shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Notes of this series, the Holders of not less than a majority in aggregate principal amount of the Notes of all series at the time Outstanding in respect of which an Event of Default shall have occurred and be continuing, considered as one class, shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee shall not have received from the Holders of a majority in principal amount of Notes of all series at the time Outstanding in respect of which an Event of Default shall have occurred and be continuing, considered as one class, a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Note for the enforcement of any payment of principal hereof or interest hereon on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.
The Notes of this series have been issued to First Security Bank of New Mexico, N.A., Albuquerque, New Mexico, as trustee (the "Revenue Bond Trustee"), under Ordinance No. 99-1102 adopted by the City of Farmington, New Mexico (the "City"), on October 12, 1999, as supplemented by Resolution No. 99-965 adopted by the City on October 12, 1999 (as so supplemented, the "Ordinance"), to secure the guarantee by the Company under a Guaranty Agreement dated as of October 1, 1999 between the Company and the Revenue Bond Trustee (the "Guaranty"), of payment of the principal of and interest due (the "Guaranteed Amounts") on the Pollution Control Revenue Bonds, 1999 Series A (Public Service Company of New Mexico San Juan Project), issued by the City under the Ordinance (the "Revenue Bonds").
In the event of failure by the Company to make any payment of any Guaranteed Amount when and as required to be made by it under the Guaranty, this Note shall bear interest from the last date to which interest on such Revenue Bonds has been paid in full prior to the failure of the Company to pay such Guaranteed Amount (such date being herein defined as the "Initial Interest Accrual Date"), at the rate of 6.60% per annum payable on the first day of April and the first day of October of each year, commencing on the first Interest Payment Date following the Initial Interest Accrual Date.
The Trustee may conclusively presume that no payments with respect to interest on the Notes of this series are due unless and until the Trustee shall have received a written certificate from the Revenue Bond Trustee or successor trustee under the Ordinance, signed by an authorized officer of the Revenue Bond Trustee or such successor trustee, certifying that the Company has failed to make a payment of any Guaranteed Amount when and as required to be made by it under the Guaranty and specifying such Guaranteed Amount, the Initial Interest Accrual Date and such other matters, if any, as shall be pertinent to the payment of interest on the Notes of this series. The Trustee may rely and shall be fully protected in acting upon any such certificate and shall have no duty with respect to the matters specified in any such certificate other than to make it available for inspection by the Company.
Upon the surrender for cancellation, at any time or from time to time, of Notes of this series by the Revenue Bond Trustee, successor trustee under the Ordinance, or the Company to the Trustee, the Notes so surrendered shall be deemed fully paid and the obligations of the Company thereunder shall be terminated, and such Notes shall be canceled by the Trustee and delivered to the Company.
This Note is nontransferable except to effect transfer to any successor trustee to the Revenue Bond Trustee, any such transfer to be made as provided in the Indenture and subject to certain limitations therein set forth, by the registration of transfer of this Note in the Note Register, upon surrender of this Note for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Note are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the successor Revenue Bond Trustee.
If an Event of Default with respect to Notes of this series shall occur and be continuing, the principal of the Notes of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
No recourse shall be had for the payment of the principal of or premium, if any, or interest, if any, on any Notes, or any part thereof, or for any claim based thereon or otherwise in respect thereof, or of the indebtedness represented thereby, or upon any obligation, covenant or agreement under the Indenture, against any incorporator, stockholder, employee, officer or director, as such, past, present or future of the Company or of any predecessor or successor corporation (either directly or through the Company or a predecessor or successor corporation), whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly agreed and understood that the Indenture and all Notes are solely corporate obligations, and that no personal liability whatsoever shall attach to, or be incurred by, any incorporator, stockholder, employee, officer or director, past, present or future, of the Company or of any predecessor or successor corporation, because of the indebtedness hereby authorized or under or by reason of any of the obligations, covenants or agreements contained in the Indenture or in any of the Notes or to be implied herefrom or therefrom, and that any such personal liability is hereby expressly waived and released as a condition of, and as part of the consideration for, the execution of the Indenture and the issuance of the Notes.
The Notes of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Notes of this series are exchangeable for a like aggregate principal amount of Notes of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
The Notes of this series shall be redeemable as provided in the Third Supplemental Indenture, dated as of October 1, 1999, supplemental to the Indenture.
All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
Unless the certificate of authentication hereon has been executed by the Trustee referred to below by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.
PUBLIC SERVICE COMPANY OF NEW MEXICO
Attest:
This is one of the Notes of the series designated therein referred to in the within-mentioned Indenture.
Dated:
THE CHASE MANHATTAN BANK, as Trustee
ARTICLE THREE
SECTION 3.01. 1999 Notes in the aggregate principal amount of $11,500,000 may, upon execution of this Third Supplemental Indenture, or from time to time thereafter, be executed on behalf of the Company by any officer or employee authorized to do so by a Board Resolution under its corporate seal affixed thereto or reproduced thereon attested by its Secretary or by one of its Assistant Secretaries and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said 1999 Notes in accordance with a Company Order delivered to the Trustee by the Company.
ARTICLE FOUR
SECTION 4.01. The Chase Manhattan Bank will be the Paying Agent and Note Registrar for the 1999 Notes.
ARTICLE FIVE
SECTION 5.01. The Company hereby covenants that so long as any of the 1999 Notes shall remain outstanding, the Company shall deliver to the Trustee as soon as available copies (certified by an officer or employee of the Company to be true) of the Ordinance, the Sale Agreement, the Guaranty and copies of any supplements, amendments or replacements thereto, together with such other documents and instruments as the Trustee may reasonably request from time to time in connection with the transactions contemplated hereby. The Trustee shall have no duty to examine or take any other action with respect to any such documents or instruments so received by it, other than to retain in its files any of same which it so receives and to make same available for inspection during normal business hours by any owner of the 1999 Notes.
SECTION 5.02. Except as otherwise expressly provided in this Third Supplemental Indenture or in the form of the 1999 Notes or otherwise clearly required by the context hereof or thereof, all terms used herein or in said form of the 1999 Notes that are defined in the Indenture shall have the several meanings respectively assigned to them thereby.
SECTION 5.03. The Indenture, as heretofore supplemented and as supplemented by this Third Supplemental Indenture, is in all respects ratified and confirmed, and this Third Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided.
SECTION 5.04. The Trustee hereby accepts the trusts herein declared, provided, created, supplemented, or amended and agrees to perform the same upon the terms and conditions herein and in the Indenture set forth and upon the following terms and conditions:
The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Third Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article VI of the Indenture shall apply to and form part of this Third Supplemental Indenture with the same force and effect as if the same were herein set forth in full with such omissions, variations, and insertions, if any, as may be appropriate to make the same conform to the provisions of this Third Supplemental Indenture.
To the extent permitted by Section 6.01 of the Indenture, and without limitation of Section 6.03 of the Indenture, the Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness, or other paper or document (including, without limitation, the Ordinance, the Sale Agreement, the Guaranty, any notice, certificate, or other document provided for in the Ordinance, the Sale Agreement, the Guaranty) believed by the Trustee to be genuine and to have been signed or presented by the proper party or parties.
SECTION 5.05. This Third Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ T. R. Horn
-------------------------------
T. R. Horn
Vice President and Treasurer
Attest:
|
THE CHASE MANHATTAN BANK, as Trustee
By: /s/ T. J. Foley
---------------------------------
T. J. Foley
Vice President
Attest:
|
STATE OF NEW MEXICO )
) ss:
COUNTY OF BERNALILLO )
On the __ day of October, 1999 before me personally came T. R. Horn, to me known, who, being by me duly sworn, did depose and say that he is Vice President and Treasurer of Public Service Company of New Mexico, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority.
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
|
On the __ day of October, 1999 before me personally came T. J. Foley, to me known, who, being by me duly sworn, did depose and say that he is a Vice President of The Chase Manhattan Bank, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; and that he signed his name thereto by like authority.
TLH0199
AMENDMENT No. 3
To The
SAN JUAN UNIT 4
EARLY PURCHASE AND PARTICIPATION AGREEMENT
Between
Public Service Company of New Mexico
and
M-S-R Public Power Agency
1.0 PARTIES
This Amendment No. 3 to the San Juan Unit 4 Early Purchase and Participation Agreement ("Amendment No. 3") is made and entered into this 27th day of October 1999, by and between PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation ("PNM") and M-S-R PUBLIC POWER AGENCY, a joint exercise of powers agency organized under the laws of the State of California ("M-S-R"), hereinafter sometimes referred to individually as a "Party" or collectively as the "Parties."
2.0 RECITALS
This Amendment No. 3 is made with reference to the following facts, among others:
2.1 The San Juan Unit 4 Early Purchase and Participation Agreement was entered into by the Parties as of September 26, 1983, and was amended on December 16, 1987, and on October 31, 1989, (collectively, as thus amended, the "EPPA"). The EPPA governs the purchase by M-S-R of a 28.8 percent undivided ownership interest in San Juan Unit 4 and associated common facilities, supplies and inventories and the operation thereof by PNM as Operating Agent of the San Juan Project.
2.2 PNM and Tucson Electric Power Company ("TEP") only are parties to the San Juan Project Co-Tenancy Agreement (the "Co-Tenancy Agreement") and the San Juan Project Operating Agreement (the "Operating Agreement").
2.3 The Co-Tenancy Agreement and the Operating Agreement have been previously amended by action of PNM and TEP, through and including Amendments Number 10 to the Co-Tenancy Agreement and the Operating Agreement.
2.4 The San Juan Project Construction Agreement was terminated in 1995 by action of PNM and TEP.
2.5 PNM, TEP, Century Power Company, Southern California Public Power Authority ("SCPPA"), the City of Farmington, New Mexico ("Farmington"), M-S-R, the Incorporated County of Los Alamos, New Mexico ("Los Alamos") and the City of Anaheim, California ("Anaheim") entered into the San Juan Project Designated Representative Agreement ("DR Agreement") as of April 29, 1994, to implement the requirements of the federal Clean Air Act Amendments of 1990; the DR Agreement was thereafter accepted by Utah Associated Municipal Power Systems ("UAMPS") and Tri-State Generation and Transmission Association, Inc. ("Tri-State") at the time of their respective purchases of ownership interests in the San Juan Project.
2.6 The owners of the San Juan Project, including PNM and M-S-R, have negotiated a San Juan Project Participation Agreement among PNM, TEP, Farmington, M-S-R, Los Alamos, SCPPA, Anaheim, UAMPS and Tri-State (the "Participation Agreement") to amend, restate and replace in their entirety the Co-Tenancy Agreement and the Operating Agreement and to set out in one instrument all of the matters previously included in the Co-Tenancy Agreement and the Operating Agreement.
2.7 The Participation Agreement will, upon its effective date, provide M-S-R with all the rights, privileges and obligations of a "Participant," as that term is defined in the Participation Agreement, and is intended to supersede the rights, privileges and obligations of M-S-R as a "Unit Participant," as that term is defined in the Operating Agreement.
2.8 The Parties desire to amend the EPPA to harmonize the EPPA with the Participation Agreement.
NOW, THEREFORE, based on the foregoing recitals and in consideration of the mutual promises, terms and covenants of this Amendment No. 3, the Parties hereby agree as follows:
3.0 TERM AND TERMINATION
3.1 This Amendment No. 3 shall become effective as of the date on which the Participation Agreement becomes effective.
3.2 Section 1.2 of the EPPA is amended to read in its entirety as follows:
This Agreement shall continue in full force and effect from its Effective Date until the termination date of the San Juan Project Participation Agreement, dated as of _____________, 1999 (the "Participation Agreement").
4.0 CHANGES IN REFERENCES TO CO-TENANCY AGREEMENT AND OPERATING AGREEMENT
4.1 Section 5 of the EPPA is hereby amended to read in its entirety as follows:
5.1 Participation Agreement. Except as otherwise provided in this Agreement, the rights and obligations of the Parties with respect to the San Juan Project are as set forth in the Participation Agreement. Any reference in this Agreement to any provision of the San Juan Project Agreements shall be deemed to be a reference to the corresponding or successor provision of the Participation Agreement.
4.2 Exhibit A-1 to the EPPA, Definitional Cross-References, is hereby deleted in its entirety.
4.3 The phrase "PNM, as the Project Manager as that term is defined in
Section 5.41 of the Operating Agreement," as used in Section 24.1.1 of the EPPA,
is hereby deleted in its entirety and replaced with the following phrase: "PNM."
4.4 Except as otherwise provided herein, the Participation Agreement shall be applicable to all aspects of M-S-R's ownership interest in San Juan Unit 4.
5.0 VOTING
5.1 Section 9.4 of the EPPA is hereby deleted in its entirety.
6.0 PNM COOPERATION
6.1 Section 11.7 of the EPPA is hereby deleted in its entirety.
7.0 PNM AS OPERATING AGENT
7.1 Section 12 of the EPPA is hereby amended to read in its entirety as follows:
12.1 M-S-R recognizes that PNM is the Operating Agent, as that term is defined in Section 5.31 of the Participation Agreement, as of the effective date of the Participation Agreement.
12.2 PNM's responsibilities as Operating Agent to M-S-R are described in Section 28 of the Participation Agreement.
8.0 APPLICABILITY OF CERTAIN PROVISIONS OF CO-TENANCY AGREEMENT
8.1 Section 13 of the EPPA is hereby deleted in its entirety.
9.0 ENTITLEMENT TO AND SCHEDULING OF POWER AND ENERGY 9.1 Section 14 of the
EPPA is hereby deleted in its entirety.
10.0 START-UP AND AUXILIARY POWER
10.1 Section 15 of the EPPA, entitled "Start-up and Auxiliary Power and
|
Energy Requirement," is hereby amended to read as follows:
15.1 Each Party shall be obligated to provide its share of start-up and auxiliary power and energy in proportion to its Participation Share in San Juan Unit 4 as provided in Section 17 of the Participation Agreement. Any supplementary arrangements which may be required to facilitate M-S-R's supply of start-up and auxiliary power and energy shall be made in accordance with procedures established by the Interconnection Committee, as that term is defined in Section 7 of the Interconnection Agreement.
11.0 CAPITAL BETTERMENTS, ADDITIONS AND REPLACEMENTS
11.1 Section 16 of the EPPA is hereby deleted in its entirety.
12.0 DEFAULTS
12.1 All references to "the prime lending rate established and last published or quoted by Irving Trust Company" in Sections 21.3 and 21.4 of the EPPA are replaced by "ten percent (10%) per annum."
12.2 Section 21.5 and Section 21.6 of the EPPA are hereby deleted in their entirety.
13.0 DISPUTES; ARBITRATION
13.1 Section 22 of the EPPA is hereby amended to read in its entirety as follows:
22.1 In the event that a dispute between the Parties should arise under this Agreement, such dispute shall be first submitted to the PNM and M-S-R members on the Engineering and Operating Committee for resolution. In the event these members are unable to resolve such dispute within ninety (90) days after submission, the dispute shall be referred in writing to the President or a Vice President designated by PNM and the General Manager of M-S-R, or his or her designee. If such dispute has not been resolved within thirty (30) days after the referral made by either Party (unless such thirty (30) day period is extended by mutual agreement of the Parties), either Party may thereafter call for submission of such dispute to arbitration in the manner set forth in Section 37 of the Participation Agreement, which call shall be binding upon the Parties, except that the notices required under Section 37.1 of the Participation Agreement shall only be provided to the Parties to this Agreement unless the dispute between the Parties to this Agreement affects the interests of other parties to the Participation Agreement.
14.0 DESTRUCTION, DAMAGE OR CONDEMNATION OF SAN JUAN UNIT 4
14.1 Section 26 of the EPPA is hereby deleted in its entirety.
15.0 ASSIGNMENT, TRANSFER, CONVEYANCE OR OTHER DISPOSITION
15.1 Section 33 of the EPPA is hereby amended by deleting Sections 33.1, 33.1.1, 33.1.2, 33.1.3, 33.1.4, 33.1.5 and 33.1.6. In place of such deleted sections, new Sections 33.1 and 33.1.1 are added, to read as follows:
33.1 In any assignment, transfer, conveyance or other disposition of their respective interests under this Agreement, or in San Juan Unit 4, PNM and M-S-R shall have the following rights and obligations:
33.1.1 Except as provided in Section 10 of the Participation Agreement and subject to the provisions of Sections 33.1.2 and 33.1.3 of this Agreement, should either Party desire to assign, transfer, convey or otherwise dispose of ("Assign") any portion of or all of its rights, titles and interests in San Juan Unit 4, or any portion or all of its rights, titles and interests in, to and under this Agreement, or any portion or all of its rights, titles and interests in the fuel or water rights, lands or the improvements thereon or any part thereof or interest therein ("Transfer Interest"), to any person, company, corporation or government agency ("Outside Party"), the remaining Party shall have the right of first refusal to purchase such Transfer Interest in accordance with the terms and conditions and the procedures set out in Section 11 of the Participation Agreement.
15.2 Section 33.1.7 of the EPPA is renumbered as Section 33.1.2 and
Section 33.1.8 of the EPPA is renumbered as Section 33.1.3; and all internal
references within this Agreement to Sections 33.1.7 and 33.1.8 shall be deemed
to refer to renumbered Sections 33.1.2 and 33.1.3.
16.0 CONTINUATION IN EFFECT
16.1 Except as herein modified, all provisions of the EPPA are unchanged and continue in full force and effect.
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 3 to be executed by their duly authorized representatives as of the date set forth above.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ Patrick J. Goodman
--------------------------------------
Patrick J. Goodman
Vice President, Power Production
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M-S-R PUBLIC POWER AGENCY
By: /s/ William C. Walbridge
--------------------------------------
William C. Walbridge
General Manager
|
67078
AMENDMENT No. 1
To The
AMENDED AND RESTATED SAN JUAN UNIT 4
PURCHASE AND PARTICIPATION AGREEMENT
Between
Public Service Company of New Mexico
and
The Incorporated County of Los Alamos, New Mexico
1.0 PARTIES
This Amendment No. 1 to the Amended and Restated San Juan Unit 4 Purchase and Participation Agreement ("Amendment No. 1") is made and entered into this 27th day of October 1999, by and between PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation ("PNM") and THE INCORPORATED COUNTY OF LOS ALAMOS, NEW MEXICO, a body politic and corporate, existing as a political subdivision under the constitution and laws of the State of New Mexico (the "County"), hereinafter sometimes referred to individually as a "Party" or collectively as the "Parties."
2.0 RECITALS
This Amendment No. 1 is made with reference to the following facts, among others:
2.1 The Restated and Amended San Juan Unit 4 Purchase and Participation Agreement (the "Restated PPA") was entered into by the Parties as of December 28, 1984. The Restated PPA governs the purchase by the County of a 7.20 percent undivided ownership interest in San Juan Unit 4 and associated common facilities, supplies and inventories and the operation thereof by PNM as Operating Agent of the San Juan Project.
2.2 PNM and Tucson Electric Power Company ("TEP") only are parties to the San Juan Project Co-Tenancy Agreement (the "Co-Tenancy Agreement") and the San Juan Project Operating Agreement (the "Operating Agreement").
2.3 The Co-Tenancy Agreement and the Operating Agreement have been previously amended by action of PNM and TEP, through and including Amendments Number 10 to the Co-Tenancy Agreement and the Operating Agreement.
2.4 The San Juan Project Construction Agreement was terminated in 1995 by action of PNM and TEP.
2.5 PNM, TEP, Century Power Company, Southern California Public Power Authority ("SCPPA"), the City of Farmington, New Mexico ("Farmington"), M-S-R Public Power Agency ("M-S-R"), the County and the City of Anaheim, California ("Anaheim") entered into the San Juan Project Designated Representative Agreement ("DR Agreement") as of April 29, 1994, for the purpose of complying with the federal Clean Air Act Amendments of 1990; the DR Agreement was thereafter accepted by Utah Associated Municipal Power Systems ("UAMPS") and Tri-State Generation and Transmission Association, Inc. ("Tri-State") at the time of their respective purchases of ownership interests in the San Juan Project.
2.6 The owners of the San Juan Project, including PNM and the County, have negotiated a San Juan Project Participation Agreement among PNM, TEP, Farmington, M-S-R, the County, SCPPA, Anaheim, UAMPS and Tri-State (the "Participation Agreement") to amend, restate and replace in their entirety the Co-Tenancy Agreement and the Operating Agreement and to set out in one instrument all of the matters previously included in the Co-Tenancy Agreement and the Operating Agreement.
2.7 The Participation Agreement will, upon its effective date, provide the County with all the rights, privileges and obligations of a "Participant," as that term is defined in the Participation Agreement, and is intended to supersede the rights, privileges and obligations of the County as a "Unit Participant," as that term is defined in the Operating Agreement.
2.8 The Parties desire to amend the Restated PPA to harmonize the Restated PPA with the Participation Agreement.
NOW, THEREFORE, based on the foregoing recitals and in consideration of the mutual promises, terms and covenants of this Amendment No. 1, the Parties hereby agree as follows:
3.0 TERM AND TERMINATION
3.1 This Amendment No. 1 shall become effective as of the date on which the Participation Agreement becomes effective.
3.2 Section 1.2 of the Restated PPA is amended to read in its entirety as follows:
This Agreement shall continue in full force and effect from its Effective Date until the termination date of the San Juan Project Participation Agreement, dated as of _____________, 1999 (the "Participation Agreement").
4.0 CHANGES IN REFERENCES TO CO-TENANCY AGREEMENT AND OPERATING AGREEMENT
4.1 Section 5 of the Restated PPA is hereby amended to read in its entirety as follows:
5.1 Participation Agreement. Except as otherwise provided in this Agreement, the rights and obligations of the Parties with respect to the San Juan Project are as set forth in the Participation Agreement. Any reference in this Agreement to any provision of the San Juan Project Agreements shall be deemed to be a reference to the corresponding or successor provision of the Participation Agreement.
5.2 PNM-County Relationship. The relationship between PNM and the County with respect to Unit 4 shall be governed by this Agreement. As between PNM and the County, where a specific provision of this Agreement is in conflict with a provision in one or more of the San Juan Project Agreements, the provisions of this Agreement shall govern.
4.2 Except as otherwise provided herein, the Participation Agreement shall be applicable to all aspects of the County's ownership interest in San Juan Unit 4.
5.0 PNM AS PROJECT MANAGER
5.1 Section 6 of the Restated PPA is hereby deleted in its entirety.
6.0 PNM AS OPERATING AGENT
6.1 Section 7 of the Restated PPA is hereby amended to read in its entirety as follows:
7.1 The County recognizes that PNM is the Operating Agent, as that term is defined in Section 5.31 of the Participation Agreement.
7.2 PNM's responsibilities as Operating Agent to the County are described in Section 28 of the Participation Agreement.
7.0 APPLICABILITY OF CERTAIN PROVISIONS OF CO-TENANCY AGREEMENT
7.1 Section 8 of the Restated PPA is hereby deleted in its entirety.
8.0 ENTITLEMENT TO AND SCHEDULING OF POWER AND ENERGY
8.1 Section 9 of the Restated PPA is hereby deleted in its entirety.
9.0 START-UP AND AUXILIARY POWER
9.1 Section 10.2 of the Restated PPA is hereby amended to read as follows:
10.2 Each Party shall be obligated to provide its share of
start-up and auxiliary power and energy in proportion to its
Participation Share in San Juan Unit 4 as provided in Section 17
of the Participation Agreement. Any supplementary arrangements
which may be required to facilitate the County's supply of
start-up and auxiliary power and energy shall be made in
accordance with procedures established by the Engineering and
Operating Committee.
10.0 CAPITAL BETTERMENTS, ADDITIONS AND REPLACEMENTS
10.1 Section 11 of the Restated PPA is hereby deleted in its entirety.
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11.0 PNM'S RIGHT OF FIRST REFUSAL
11.1 Section 12 of the Restated PPA is hereby amended to read in its entirety as follows:
12.1 PNM shall have a right of first refusal with respect to the sale or disposition of the Transfer Interest or portion thereof. Such right of first refusal shall exist as of Closing and shall continue for the term of this Agreement. Such right shall be exercised in accordance with the terms and conditions and the procedures set out in Section 11 of the Participation Agreement.
12.0 DEFAULTS
12.1 All references to "the prime lending rate established and last published or quoted by Irving Trust Company" in Sections 15.3 and 15.4 of the Restated PPA are replaced by "ten percent (10%) per annum."
12.2 Sections 15.5 and 15.6 of the Restated PPA are hereby deleted in their entirety.
13.0 DISPUTES; ARBITRATION
13.1 Section 16 of the Restated PPA is hereby amended to read in its entirety as follows:
16.1 In the event that a dispute between the Parties should arise under this Agreement, such dispute shall be first submitted to the PNM and County members on the Engineering and Operating Committee for resolution. In the event these members are unable to resolve such dispute within ninety (90) days after submission, the dispute shall be referred in writing to the President or a Vice President designated by PNM and the Chairman, Board of Public Utilities, of the County, or his or her designee. If such dispute has not been resolved within thirty (30) days after the referral made by either Party (unless such thirty (30) day period is extended by mutual agreement of the Parties), either Party may thereafter call for submission of such dispute to arbitration in the manner set forth in Section 37 of the Participation Agreement, which call shall be binding upon the Parties, except that the notices required under Section 37.1 of the Participation Agreement shall only be provided to the Parties to this Agreement unless the dispute between the Parties to this Agreement affects the interests of other parties to the Participation Agreement.
14.0 RELATIONSHIP OF PARTIES
14.1 Sections 19.2 and 19.4 of the Restated PPA are hereby deleted in their entirety.
15.0 SUCCESSORS AND ASSIGNS
15.1 Section 25.2 of the Restated PPA is hereby deleted in its
entirety.
16.0 NOTICES
16.1 Section 26.1.2 of the Restated PPA is amended to read in its
entirety as follows:
26.1.2 Incorporated County of Los Alamos, New Mexico
c/o Utilities Manager
P.O. Drawer 1030
901 Trinity Drive
Los Alamos, NM 87544
17.0 DESTRUCTION, DAMAGE OR CONDEMNATION OF SAN JUAN UNIT 4
17.1 Section 35 of the Restated PPA is hereby deleted in its entirety.
18.0 CONTINUATION IN EFFECT
18.1 Except as herein modified, all provisions of the Restated PPA are
|
unchanged and continue in full force and effect.
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 1 to be executed by their duly authorized representatives as of the date set forth above.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ Patrick J. Goodman
--------------------------------------
Patrick J. Goodman
Vice President, Power Production
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THE INCORPORATED COUNTY OF
LOS ALAMOS, NEW MEXICO
Attest:
73310
AMENDMENT No. 2
To The
SAN JUAN UNIT 4
PURCHASE AGREEMENT AND PARTICIPATION AGREEMENT
Between
Public Service Company of New Mexico
and
The City of Farmington, New Mexico
1.0 PARTIES
This Amendment No. 2 to the San Juan Unit 4 Purchase Agreement and Participation Agreement ("Amendment No. 2") is made and entered into this 27th day of October 1999, by and between PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation ("PNM") and THE CITY OF FARMINGTON, NEW MEXICO, an incorporated municipality, a body politic and corporate, existing as a political subdivision under the constitution and laws of the State of New Mexico (the "City"), hereinafter sometimes referred to individually as a "Party" or collectively as the "Parties."
2.0 RECITALS
This Amendment No. 2 is made with reference to the following facts, among others:
2.1 The San Juan Unit 4 Purchase Agreement and Participation Agreement was entered into by the Parties as of November 17, 1981 and was amended by Amendment No. 1 thereto dated as of October 31, 1984 (collectively, as thus amended, the "PPA"). The PPA governs the purchase by the City of an 8.475 percent undivided ownership interest in San Juan Unit 4 and associated common facilities, supplies and inventories and the operation thereof by PNM as Operating Agent of the San Juan Project.
2.2 PNM and Tucson Electric Power Company ("TEP") only are parties to the San Juan Project Co-Tenancy Agreement (the "Co-Tenancy Agreement") and the San Juan Project Operating Agreement (the "Operating Agreement").
2.3 The Co-Tenancy Agreement and the Operating Agreement have been previously amended by action of PNM and TEP, through and including Amendments Number 10 to the Co-Tenancy Agreement and the Operating Agreement.
2.4 The San Juan Project Construction Agreement was terminated in 1995 by action of PNM and TEP.
2.5 PNM, TEP, Century Power Company, Southern California Public Power Authority ("SCPPA"), the City, M-S-R Public Power Agency ("M-S-R"), the County of Los Alamos, New Mexico ("County") and the City of Anaheim, California ("Anaheim") entered into the San Juan Project Designated Representative Agreement ("DR Agreement") as of April 29, 1994, for the purpose of complying with the federal Clean Air Act Amendments of 1990; the DR Agreement was thereafter accepted by Utah Associated Municipal Power Systems ("UAMPS") and Tri-State Generation and Transmission Association, Inc. ("Tri-State") at the time of their respective purchases of ownership interests in the San Juan Project.
2.6 The owners of the San Juan Project, including PNM and the City, have negotiated a San Juan Project Participation Agreement among PNM, TEP, the City, M-S-R, the County, SCPPA, Anaheim, UAMPS and Tri-State (the "Participation Agreement") to amend, restate and replace in their entirety the Co-Tenancy Agreement and the Operating Agreement and to set out in one instrument all of the matters previously included in the Co-Tenancy Agreement and the Operating Agreement.
2.7 The Participation Agreement will, upon its effective date, provide the City with all the rights, privileges and obligations of a "Participant," as that term is defined in the Participation Agreement, and is intended to supersede the rights, privileges and obligations of the City as a "Unit Participant," as that term is defined in the Operating Agreement.
2.8 The Parties desire to amend the PPA to harmonize the PPA with the Participation Agreement.
NOW, THEREFORE, based on the foregoing recitals and in consideration of the mutual promises, terms and covenants of this Amendment No. 2, the Parties hereby agree as follows:
3.0 TERM AND TERMINATION
3.1 This Amendment No. 2 shall become effective as of the date on which the Participation Agreement becomes effective.
3.2 Section 33.2 of the PPA is amended to read in its entirety as follows:
This Agreement shall continue in full force and effect from its Effective Date until the termination date of the San Juan Project Participation Agreement, dated as of October 27, 1999 (the "Participation Agreement").
4.0 CHANGES IN REFERENCES TO CO-TENANCY AGREEMENT AND OPERATING AGREEMENT
4.1 Subsection (2) of Section 2.3.1 of the PPA is hereby deleted in its entirety.
4.2 Section 8 of the PPA is hereby amended to read in its entirety as follows:
8.1 Participation Agreement. Except as otherwise provided in this Agreement, the rights and obligations of the Parties with respect to the San Juan Project are as set forth in the Participation Agreement. Any reference in this Agreement to any provision of the San Juan Project Agreements shall be deemed to be a reference to the corresponding or successor provision of the Participation Agreement.
8.2 PNM-City Relationship. The relationship between PNM and the City with respect to Unit 4 shall be governed by this Agreement. As between PNM and the City, where a specific provision of this Agreement is in conflict with a provision in one or more of the San Juan Project Agreements, the provisions of this Agreement shall govern.
4.3 Except as otherwise provided herein, the Participation Agreement shall be applicable to all aspects of the City's ownership interest in San Juan Unit 4.
5.0 PNM AS PROJECT MANAGER
5.1 Section 9 of the PPA is hereby deleted in its entirety.
6.0 PNM AS OPERATING AGENT
6.1 Section 10 of the PPA is hereby amended to read in its entirety as follows:
10.1 The City recognizes that PNM is the Operating Agent, as that term is defined in Section 5.31 of the Participation Agreement.
10.2 PNM's responsibilities as Operating Agent to the City are described in Section 28 of the Participation Agreement.
7.0 APPLICABILITY OF CERTAIN PROVISIONS OF CO-TENANCY AGREEMENT
7.1 Section 11 of the PPA is hereby deleted in its entirety.
8.0 ENTITLEMENT TO AND SCHEDULING OF POWER AND ENERGY
8.1 Section 12 of the PPA is hereby deleted in its entirety.
9.0 START-UP AND AUXILIARY POWER
9.1 Section 13 of the PPA is hereby amended to read as follows:
Each Party shall be obligated to provide its share of start-up and auxiliary power and energy in proportion to its Participation Share in San Juan Unit 4 as provided in Section 17 of the Participation Agreement. Any supplementary arrangements which may be required to facilitate the City's supply of start-up and auxiliary power and energy shall be made in accordance with procedures established by the Coordination Committee, as that term is defined in Section 7 of the Interconnection Agreement.
10.0 CAPITAL BETTERMENTS, ADDITIONS AND REPLACEMENTS
10.1 Section 14 of the PPA is hereby deleted in its entirety.
11.0 PNM'S RIGHT OF FIRST REFUSAL
11.1 Section 15 of the PPA is hereby amended to read in its entirety as
follows:
PNM shall have a right of first refusal with respect to the
sale or disposition of the Transfer Interest or portion thereof.
Such right shall be exercised in accordance with the terms and
conditions and the procedures set out in Section 11 of the
Participation Agreement.
12.0 DEFAULTS
12.1 The reference to "the prime lending rate established and published
|
by Irving Trust Company, or if the foregoing is not legally enforceable against the city, then at a rate of 18 percent per annum" in Section 19.3 of the PPA is replaced by "ten percent (10%) per annum."
12.2 The reference to "(i) the prime lending rate established and
published by Irving Trust Company, (ii) twelve percent (12%) per annum" in
Section 19.4 of the PPA is replaced by "ten percent (10%) per annum."
12.3 Sections 19.5 and 19.6 of the PPA are hereby deleted in their entirety.
13.0 DISPUTES; ARBITRATION
13.1 Section 20 of the PPA is hereby amended to read in its entirety as
follows:
In the event that a dispute between the Parties should arise
under this Agreement, such dispute shall be first submitted to the
PNM and City members on the Engineering and Operating Committee for
resolution. In the event these members are unable to resolve such
dispute within ninety (90) days after submission, the dispute shall
be referred in writing to the President or a Vice President
designated by PNM and the Mayor of the City, or his or her designee.
If such dispute has not been resolved within thirty (30) days after
the referral made by either Party (unless such thirty (30) day
period is extended by mutual agreement of the Parties), either Party
may thereafter call for submission of such dispute to arbitration in
the manner set forth in Section 37 of the Participation Agreement,
which call shall be binding upon the Parties, except that the
notices required under Section 37.1 of the Participation Agreement
shall only be provided to the Parties to this Agreement unless the
dispute between the Parties to this Agreement affects the interests
of other parties to the Participation Agreement.
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14.0 RELATIONSHIP OF PARTIES
14.1 Sections 25.2 and 25.4 of the PPA are hereby deleted in their entirety.
15.0 DESTRUCTION, DAMAGE OR CONDEMNATION OF SAN JUAN UNIT 4
15.1 Section 42 of the PPA is hereby deleted in its entirety.
16.0 AMENDMENT TO EXHIBIT A
16.1 The definition of "Unit Participant" is hereby deleted from Exhibit A to the PPA.
17.0 CONTINUATION IN EFFECT
17.1 Except as herein modified, all provisions of the PPA are unchanged and continue in full force and effect.
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 2 to be executed by their duly authorized representatives as of the date set forth above.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ Patrick J. Goodman
--------------------------------------
Patrick J. Goodman
Vice President, Power Production
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THE CITY OF FARMINGTON, NEW MEXICO
Attest:
73523
The Supplemental Employee Retirement Agreement is made and entered into this 4th day of August 1989, by and between Public Service Company of New Mexico ("Employer"), and JOHN T. ACKERMAN, ("Employee").
WHEREAS, Employer is the Plan Sponsor of the Public Service Company of New Mexico Restated and Amended Accelerated Management Performance Plan (1988) ("AMP") and the Public Service Company of New Mexico Employees' Retirement Plan ("Retirement Plan");
WHEREAS, it is the intent of this Agreement to provide for the payment of supplemental employee retirement benefits to Employee not otherwise available to Employee under the AMP and the Retirement Plan;
NOW, THEREFORE, it is agreed as follows:
1. Termination of Employment before November 1, 1990. If Employee's employment with Employer terminates before November 1, 1990, Employer agrees to pay Employee supplemental employee retirement benefits as if Employee had, on the date of termination of employment, attained his Early Retirement Date under the Retirement Plan.
2. Termination of Employment after October 31, 1990. If Employee's employment with Employer terminates after October 31, 1990, Employer hereby agrees to pay Employee supplemental employee retirement benefits as if Employee had, on the date of Employee's termination of employment, accumulated Maximum Performance Credits pursuant to the AMP.
3. Benefit Calculation. Benefits payable to Employee under either paragraph 1 or 2 above shall be the benefits as calculated under the AMP in effect on the date of this Agreement, as modified by either paragraph 1 or 2 above, as may be applicable. Such benefits shall be payable to Employee, at his election, at any time following such termination of employment with Employer, pursuant to any annuity form available under the Retirement Plan with appropriate actuarial adjustments for forms other than a single life annuity on Employee's life.
4. No Duplication of Benefits. The purpose of this Agreement is to accelerate the benefits that may be due under the AMP and the Retirement Plan. All payments due hereunder shall be reduced by all benefits deemed payable to Employee under the AMP and the Retirement Plan. The benefits deemed payable under the Retirement Plan and the AMP shall be calculated.
(a) assuming a deemed commencement date for the payment of such benefits being the later of: (i) the date Employee commences receiving benefits under the Agreement, or (ii) the earliest date Employee could have begun receiving benefits under the Retirement Plan and the AMP;
(b) using the same form of benefit (i.e. single life annuity, joint survivor annuity, etc.) as is selected for payment of benefits under this Agreement; and
(c) based upon the Retirement Plan and AMP in effect on the date such benefits are deemed to have commenced pursuant to Section 4(a) above.
5. Designation of Beneficiary. The designation of beneficiary form filed by Employer under the Retirement Plan shall also be deemed to be a designation of the person(s) or fiduciary to receive any amount payable upon Employee's death. Until the Employee and his spouse shall file a written, notarized designation to the contrary, the spouse of the Employee shall be deemed to have been designated as beneficiary or, in the event that Employee has no spouse, the Employee's estate shall be deemed to have designed his estate as beneficiary.
6. No Assignment. This Agreement shall inure only to the benefit of Employee, Employee's designated beneficiary, and Employee's estate or heirs and may not be assigned, transferred, pledged or hypothecated in any way by Employee or Employee's personal representative, heir, distributee, or other person claiming under Employee and shall not be subject to execution, attachment or similar process.
7. No Trust. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between Employer and Employee, or any designated beneficiary of Employee. Employer's obligation under this Agreement is and shall be and remain at all times unfunded and unsecured by any property, and shall at all times be a mere contractual obligation.
8. Administrator. This Agreement shall be administered by the Board of Directors of Employer or any individual or committee appointed by it with written notice to Employee.
9. Amendment. This Agreement may be amended only by written consent of both parties.
10. Controlling Law. This Agreement shall be interpreted under the laws of the State of New Mexico.
11. Binding Effect. This Agreement shall be binding upon any successor Employer and any such successor shall be deemed substituted for Employer under the terms of this Agreement. As used in this Agreement, the term "successor" shall include any person, firm, corporation or other business entity which at anytime, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of Employer.
IN WITNESS WHEREOF, the parties hereto, personally or by their authorized representatives, have executed this Supplemental Employee Retirement Agreement as of the date first above written.
EMPLOYER:
Public Service Company of
New Mexico
By /s/ J. D. Geist ------------------------------------ JERRY D. GEIST, Chairman and President |
EMPLOYEE:
/s/ J. T. Ackerman ------------------------------------- JOHN T. ACKERMAN |
This Supplemental Employee Retirement Agreement is made and entered into as of this 4th day of August, 1989, by and between Public Service Company of New Mexico, a New Mexico Corporation ("PNM"), and Max Maerki ("Maerki").
WITNESSETH
WHEREAS, Maerki is currently the Senior Vice President and Chief Financial Officer of PNM;
WHEREAS, Maerki has knowledge, experience, reputation and contacts the benefits of which PNM would like to continue receiving, and is willing to provide Maerki additional incentives for such services;
WHEREAS, PNM is the sponsoring employer of the Public Service Company of New Mexico Employees' Retirement Plan (the "Retirement Plan"); and
WHEREAS, it is the intent of this Agreement to provide for the payment of supplemental employee retirement benefits to Maerki not otherwise available to him under the Retirement Plan.
NOW THEREFORE, in consideration of the mutual promises contained herein, it is hereby agreed as follows:
1. Supplemental Employee Retirement Benefit. PNM shall pay to Maerki supplemental employee retirement benefits equal to the benefit which would be payable to Maerki under the Retirement Plan, calculated as though Maerki has been in continuous employment of PNM since February 15, 1974, reduced by benefits deemed payable to Maerki under the Retirement Plan.
2. Calculation of Supplemental Retirement Benefits. The benefits payable under this Agreement:
(a) shall be determined based upon the Retirement Plan in effect on January 1, 1989, including amendments that will be made to the Retirement Plan during the 1989 calendar year retroactively to January 1, 1989;
(b) shall assume 100% vesting; and
(c) shall be calculated without regard to any limitations that would otherwise be applicable pursuant to the Internal Revenue Code of 1986, as amended, ("Code") Section 415 and the $200,000 compensation limitation pursuant to Code Section 404 and 401(a)(17).
3. Form, Timing and Amount of Benefit.
(a) The benefits payable under paragraph 1 above shall be payable pursuant to any annuity form available under the Retirement Plan with appropriate actuarial adjustments for forms other than a single life annuity on Maerki's life. The form shall be selected prior to Maerki's termination of employment.
(b) The benefits payable under paragraph 1 shall commence at such time as Maerki shall elect following (x) Maerki's termination of employment with PNM, or (y) if later, the earliest date Maerki could commence receiving benefits under the Retirement Plan assuming his employment with PNM commenced February 15,1974.
4. Calculation of Plan Benefits. The benefits deemed payable under the Retirement Plan shall be calculated:
(a) assuming a deemed commencement date for the payment of such benefits being the later of: (i) the date Maerki commences receiving benefits under this Agreement, and (ii) the earliest date Maerki could have begun receiving benefits under the Retirement Plan;
(b) using the same form of benefit (i.e., single life annuity, joint survivor annuity, etc.) as is selected for payment of benefits under this Agreement; and
(c) based upon the Retirement Plan in effect on the date such benefits are deemed to have commenced pursuant to Section 4(a) above.
5. Designation of Beneficiary. The designation of beneficiary form filed by Maerki under the Retirement Plan shall also be deemed to be a designation of the person or persons or fiduciary to receive any amount payable under this Agreement upon Maerki's death. Until a written designation to the contrary is filed, any spouse of Maerki shall be deemed to have been designated as the beneficiary hereunder, or in the event that Maerki has no spouse, Maerki shall be deemed to have designated his estate as beneficiary. For purposes hereof, "spouse" shall mean "Eligible Spouse" as defined in the Retirement Plan.
6. No Assignment. This agreement shall inure only to the benefit of Maerki, Maerki's designated beneficiary, Maerki's estate, or heirs and may not be assigned, transferred, pledged, or hypothecated in any way by Maerki, Maerki's executor, administrator, heir, distributee, or other person claiming under Maerki, and shall not be subject to execution, attachment or similar process.
7. No Trust. Nothing contained in this Agreement and no action taken shall create or be construed to create a trust of any kind, or a fiduciary relationship between Maerki and PNM, or any designated beneficiary of Maerki. PNM's obligation under this Agreement is unfunded and unsecured by any property, and is a mere contractual obligation of PNM.
8. Administrator. This Agreement shall be administered by the Board of Directors of PNM or any individual or committee appointed by it with written notice to Maerki.
9. Amendment. This Agreement may be amended only by written consent of both parties. This Agreement constitutes the entire agreement between the parties as to supplemental retirement benefits and supersedes any and all prior agreements.
10. Controlling Law. This Agreement shall be interpreted under the laws of the State of New Mexico.
11. Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successor of PNM and any such successor shall be deemed substituted for PNM under the terms of this Agreement. As used in this Agreement, the term "successor" shall include any person, firm, corporation, or other business entity which at any time, whether by merger, purchase, or otherwise, acquires all or substantially all of the assets or business of PNM.
IN WITNESS WHEREOF, the parties hereto, personally or by their authorized representatives, have subscribed to this supplemental employee retirement agreement.
PUBLIC SERVICE COMPANY
OF NEW MEXICO
Date: August 4, 1989 By: /s/ J. D. Geist
---------------------------------------- ----------------------------------
Jerry Geist, President and
Chairman
Date: August 4, 1989 /s/ Max Maerki
---------------------------------------- ----------------------------------
Max Maerki
|
AMENDMENT No. 1
To The
SAN JUAN UNIT 4
PURCHASE AND PARTICIPATION AGREEMENT
Between
Public Service Company of New Mexico
and
The City of Anaheim, California
1.0 PARTIES
This Amendment No. 1 to the San Juan Unit 4 Purchase and Participation Agreement ("Amendment No. 1") is made and entered into this 27th day of October 1999, by and between PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation ("PNM") and THE CITY OF ANAHEIM, CALIFORNIA, a municipal corporation organized under the laws of the State of California ("Anaheim"), hereinafter sometimes referred to individually as a "Party" or collectively as the "Parties."
2.0 RECITALS
This Amendment No. 1 is made with reference to the following facts, among others:
2.1 The San Juan Unit 4 Purchase and Participation Agreement (the "PPA") was entered into by the Parties as of April 26, 1991. The PPA provides for the sale by PNM and the purchase by Anaheim of a 10.04 percent undivided ownership interest in San Juan Unit 4 and associated common facilities, supplies and inventories and the operation thereof by PNM as Operating Agent of the San Juan Project.
2.2 PNM and Tucson Electric Power Company ("TEP") only are parties to the San Juan Project Co-Tenancy Agreement (the "Co-Tenancy Agreement") and the San Juan Project Operating Agreement (the "Operating Agreement").
2.3 The Co-Tenancy Agreement and the Operating Agreement have been previously amended by action of PNM and TEP, through and including Amendments Number 1 through Number 10 to the Co-Tenancy Agreement and the Operating Agreement.
2.4 The San Juan Project Construction Agreement was terminated in 1995 by action of PNM and TEP.
2.5 PNM, TEP, Century Power Company, Southern California Public Power Authority ("SCPPA"), the City of Farmington, New Mexico ("Farmington"), M-S-R Public Power Agency ("M-S-R"), the Incorporated County of Los Alamos, New Mexico ("Los Alamos") and Anaheim entered into the San Juan Project Designated Representative Agreement ("DR Agreement") as of April 29, 1994, for the purpose of complying with the federal Clean Air Act Amendments of 1990; the DR Agreement was thereafter accepted by Utah Associated Municipal Power Systems ("UAMPS") and Tri-State Generation and Transmission Association, Inc. ("Tri-State") at the time of their respective purchases of ownership interests in the San Juan Project.
2.6 The owners of the San Juan Project, including PNM and Anaheim, have negotiated a San Juan Project Participation Agreement among PNM, TEP, Farmington, M-S-R, Los Alamos, SCPPA, Anaheim, UAMPS and Tri-State (the "Participation Agreement") to amend, restate and replace in their entirety the Co-Tenancy Agreement and the Operating Agreement and to set out in one instrument all of the matters previously included in the Co-Tenancy Agreement and the Operating Agreement.
2.7 The Participation Agreement will, upon its effective date, provide Anaheim with all the rights, privileges and obligations of a "Participant," as that term is defined in the Participation Agreement, and is intended to supersede the rights, privileges and obligations of Anaheim as a "Unit Participant," as that term is defined in the Operating Agreement.
2.8 The Parties desire to amend the PPA to make the PPA consistent with the Participation Agreement.
NOW, THEREFORE, based on the foregoing recitals and in consideration of the mutual promises, terms and covenants of this Amendment No. 1, the Parties hereby agree as follows:
3.0 TERM AND TERMINATION
3.1 This Amendment No. 1 shall become effective as of the date on which the Participation Agreement becomes effective.
3.2 Section 1 of the PPA is amended to read in its entirety as follows:
1.1 This Agreement shall become effective on the date (the "Effective Date") it is executed by both PNM and Anaheim and shall, unless terminated earlier by the Parties, remain in effect until July 1, 2022; provided, however, that if the term of the San Juan Project Participation Agreement, dated as of ________________, 1999 (the "Participation Agreement") is extended, the term of this Agreement shall be extended, without further action of the Parties, so that the terms of this Agreement and of the Participation Agreement shall be coterminous.
4.0 CHANGES IN REFERENCES TO CO-TENANCY AGREEMENT AND OPERATING AGREEMENT
4.1 Section 7 of the PPA is hereby amended to read in its entirety as follows:
7.1 Participation Agreement. Except as otherwise provided in this Agreement, the rights and obligations of the Parties with respect to the San Juan Project are as set forth in the Participation Agreement. Any reference in this Agreement to any provision of the San Juan Project Agreements shall be deemed to be a reference to the corresponding or successor provision of the Participation Agreement.
7.2 PNM/Anaheim Relationship. The relationship between PNM and Anaheim with respect to Unit 4 shall be governed by this Agreement and the Interconnection Agreement. As between PNM and Anaheim, where a specific provision of this Agreement is in conflict with a provision in one or more of the San Juan Project Agreements, the provisions of this Agreement shall govern.
4.2 Except as otherwise provided herein, the Participation Agreement shall be applicable to all aspects of Anaheim's ownership interest in San Juan Unit 4.
5.0 FINANCING
5.1 Section 10.3 of the PPA is hereby deleted in its entirety.
6.0 PNM AS OPERATING AGENT
6.1 Section 11 of the PPA is hereby amended to read in its entirety as follows:
11.1 Anaheim recognizes that PNM is the Operating Agent, as that term is defined in Section 5.31 of the Participation Agreement, as of the effective date of the Participation Agreement.
11.2 PNM's responsibilities as Operating Agent to Anaheim are described in Section 28 of the Participation Agreement.
7.0 APPLICABILITY OF CERTAIN PROVISIONS OF CO-TENANCY AGREEMENT
7.1 Section 12 of the PPA is hereby deleted in its entirety.
8.0 ENTITLEMENT TO AND SCHEDULING OF POWER AND ENERGY 8.1 Section 13.1 of the PPA is hereby deleted in its entirety.
9.0 START-UP AND AUXILIARY POWER
9.1 Section 14 of the PPA is hereby amended to read in its entirety as follows:
14.1 The provisions of this Section 14 shall apply after the Closing Date. Each Party shall be obligated to provide its share of start-up and auxiliary power and energy in proportion to its Participation Share in San Juan Unit 4 as provided in Section 17 of the Participation Agreement. Any supplementary arrangements which may be required to facilitate Anaheim's supply of start-up and auxiliary power and energy shall be made in accordance with procedures established by the Operating Representatives, as that term is defined in Section 7 of the Interconnection Agreement.
10.0 CAPITAL BETTERMENTS, ADDITIONS AND REPLACEMENTS
10.1 Section 15 of the PPA is hereby deleted in its entirety.
11.0 DEFAULTS
11.1 Section 19.5 and Section 19.6 of the PPA are hereby deleted in their entirety.
12.0 DISPUTES; ARBITRATION
12.1 Section 20 of the PPA is hereby amended to read in its entirety as
follows:
20.1 In the event that a dispute between the Parties should arise
under this Agreement, such dispute shall be first submitted to the
PNM and Anaheim members on the Engineering and Operating Committee
for resolution. In the event these members are unable to resolve
such dispute within thirty (30) days after submission, the dispute
shall be referred in writing to the President or a Vice President
designated by PNM and the Public Utilities General Manager of
Anaheim, or his or her designee. If such dispute has not been
resolved within thirty (30) days after the referral made by either
Party (unless such thirty (30) day period is extended by mutual
agreement of the Parties), either Party may thereafter call for
submission of such dispute to arbitration in the manner set forth in
Section 37 of the Participation Agreement, which call shall be
binding upon the Parties, except that the notices required under
Section 37.1 of the Participation Agreement shall only be provided
to the Parties to this Agreement unless the dispute between the
Parties to this Agreement affects the interests of other parties to
the Participation Agreement.
13.0 DESTRUCTION, DAMAGE OR CONDEMNATION OF SAN JUAN UNIT 4
13.1 Section 22 of the PPA is hereby deleted in its entirety.
14.0 NOTICES
14.1 Section 31.1.2 of the PPA is hereby revised to read in its
entirety as follows:
City of Anaheim, California
c/o City Clerk
200 South Anaheim Boulevard
Anaheim, CA 92805
|
with a copy to:
Public Utilities General Manager
201 South Anaheim Boulevard
Suite 1101
Anaheim, CA 92805
15.0 ASSIGNMENT, TRANSFER, CONVEYANCE OR OTHER DISPOSITION
15.1 Section 29.2 of the PPA is hereby amended to read in its entirety
|
as follows:
29.2 Except as provided in Section 10 of the Participation Agreement, and subject to any rights of first refusal of M-S-R or others existing on the Effective Date with respect to any ownership interest of PNM in Unit 4, should either Party desire after the Closing to Assign any portion of or all of its respective ownership interest in Unit 4 (the "Transfer Interest") to any person, company, corporation or government agency (the "Outside Party"), the remaining Party shall have the right of first refusal to purchase the Transfer Interest in accordance with the terms and conditions and the procedures set out in Section 11 of the Participation Agreement.
16.0 CONTINUATION IN EFFECT
16.1 Except as herein modified, all provisions of the PPA are unchanged and continue in full force and effect.
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 1 to be executed by their duly authorized representatives as of the date set forth above.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ Patrick J. Goodman
--------------------------------------
Patrick J. Goodman
Vice President, Power Production
|
THE CITY OF ANAHEIM, CALIFORNIA
73145
AMENDMENT No. 1
To The
RESTATED AND AMENDED SAN JUAN UNIT 4
PURCHASE AND PARTICIPATION AGREEMENT
Between
Public Service Company of New Mexico
and
Utah Associated Municipal Power Systems
1.0 PARTIES
This Amendment No. 1 to the Restated and Amended San Juan Unit 4 Purchase and Participation Agreement ("Amendment No. 1") is made and entered into this 27th day of October 1999, by and between PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation ("PNM") and UTAH ASSOCIATED MUNICIPAL POWER SYSTEMS, a political subdivision of the State of Utah ("UAMPS"), hereinafter sometimes referred to individually as a "Party" or collectively as the "Parties."
2.0 RECITALS
This Amendment No. 1 is made with reference to the following facts, among others:
2.1 The Restated and Amended San Juan Unit 4 Purchase and Participation Agreement (the "PPA") was entered into by the Parties as of May 27, 1993. The PPA governs the purchase by UAMPS of a 7.028 percent undivided ownership interest in San Juan Unit 4 and associated common facilities, supplies and inventories and the operation thereof by PNM as Operating Agent of the San Juan Project.
2.2 PNM and Tucson Electric Power Company ("TEP") only are parties to the San Juan Project Co-Tenancy Agreement (the "Co-Tenancy Agreement") and the San Juan Project Operating Agreement (the "Operating Agreement").
2.3 The Co-Tenancy Agreement and the Operating Agreement have been previously amended by action of PNM and TEP, through and including Amendments Number 10 to the Co-Tenancy Agreement and the Operating Agreement.
2.4 The San Juan Project Construction Agreement was terminated in 1995 by action of PNM and TEP.
2.5 PNM, TEP, Century Power Company, Southern California Public Power Authority ("SCPPA"), the City of Farmington, New Mexico ("Farmington"), M-S-R Public Power Agency ("M-S-R"), the Incorporated County of Los Alamos, New Mexico ("Los Alamos") and the City of Anaheim, California ("Anaheim") entered into the San Juan Project Designated Representative Agreement ("DR Agreement") as of April 29, 1994, for the purpose of complying with the federal Clean Air Act Amendments of 1990; the DR Agreement was thereafter accepted by UAMPS and Tri-State Generation and Transmission Association, Inc. ("Tri-State") at the time of their respective purchases of ownership interests in the San Juan Project.
2.6 The owners of the San Juan Project, including PNM and UAMPS, have negotiated a San Juan Project Participation Agreement among PNM, TEP, Farmington, M-S-R, Los Alamos, SCPPA, Anaheim, UAMPS and Tri-State (the "Participation Agreement") to amend, restate and replace in their entirety the Co-Tenancy Agreement and the Operating Agreement and to set out in one instrument all of the matters previously included in the Co-Tenancy Agreement and the Operating Agreement.
2.7 The Participation Agreement will, upon its effective date, provide UAMPS with all the rights, privileges and obligations of a "Participant," as that term is defined in the Participation Agreement, and is intended to supersede the rights, privileges and obligations of UAMPS as a "Unit Participant," as that term is defined in the Operating Agreement.
2.8 The Parties desire to amend the PPA to harmonize the PPA with the Participation Agreement.
NOW, THEREFORE, based on the foregoing recitals and in consideration of the mutual promises, terms and covenants of this Amendment No. 1, the Parties hereby agree as follows:
3.0 TERM AND TERMINATION
3.1 This Amendment No. 1 shall become effective as of the date on which the Participation Agreement becomes effective.
3.2 Sections 1.1, 1.2 and 1.3 of the PPA are amended to read in their entirety as follows:
1.1 This Agreement shall become effective on the Effective Date and shall, unless terminated earlier by the Parties, remain in effect until July 1, 2022; provided, however, that if the term of the San Juan Project Participation Agreement, dated as of ________________, 1999 (the "Participation Agreement") is extended, the term of this Agreement shall be extended, without further action of the Parties, so that the terms of this Agreement and of the Participation Agreement shall be coterminous.
3.3 Section 1.4 is renumbered as Section 1.2.
4.0 CHANGES IN REFERENCES TO CO-TENANCY AGREEMENT AND OPERATING AGREEMENT
4.1 Section 7 of the PPA is hereby amended to read in its entirety as follows:
7.1 Participation Agreement. Except as otherwise provided in this Agreement, the rights and obligations of the Parties with respect to the San Juan Project are as set forth in the Participation Agreement. Any reference in this Agreement to any provision of the San Juan Project Agreements shall be deemed to be a reference to the corresponding or successor provision of the Participation Agreement.
7.2 PNM/UAMPS Relationship. The relationship between PNM and UAMPS with respect to Unit 4 shall be governed by this Agreement and the Interconnection Agreement. As between PNM and UAMPS, where a specific provision of this Agreement is in conflict with a provision in one or more of the San Juan Project Agreements, the provisions of this Agreement shall govern.
4.2 Except as otherwise provided herein, the Participation Agreement shall be applicable to all aspects of UAMPS' ownership interest in San Juan Unit 4.
5.0 FINANCING
5.1 Section 8.2 of the PPA is hereby deleted in its entirety.
6.0 PNM AS OPERATING AGENT
6.1 Section 10 of the PPA is hereby amended to read in its entirety as follows:
10.1 UAMPS recognizes that PNM is the Operating Agent, as that term is defined in Section 5.31 of the Participation Agreement.
10.2 PNM's responsibilities as Operating Agent to UAMPS are described in Section 28 of the Participation Agreement.
7.0 APPLICABILITY OF CERTAIN PROVISIONS OF CO-TENANCY AGREEMENT
7.1 Section 11 of the PPA is hereby deleted in its entirety.
8.0 ENTITLEMENT TO AND SCHEDULING OF POWER AND ENERGY 8.1 Section 12 of the PPA is hereby deleted in its entirety.
9.0 START-UP AND AUXILIARY POWER
9.1 Section 13 of the PPA is hereby amended to read in its entirety as follows:
13.1 The provisions of this Section 13 shall apply after the Closing Date. Each Party shall be obligated to provide its share of start-up and auxiliary power and energy in proportion to its Participation Share in San Juan Unit 4 as provided in Section 17 of the Participation Agreement. Any supplementary arrangements which may be required to facilitate UAMPS' supply of start-up and auxiliary power and energy shall be made in accordance with procedures established by the Operating Committee, as that term is defined in Section 7 of the Interconnection Agreement.
10.0 CAPITAL BETTERMENTS, ADDITIONS AND REPLACEMENTS
10.1 Section 14 of the PPA is hereby deleted in its entirety.
11.0 DEFAULTS
11.1 Sections 19.5, 19.6 and 19.7 of the PPA are hereby deleted in their entirety.
12.0 DISPUTES; ARBITRATION
12.1 Section 20 of the PPA is hereby amended to read in its entirety as
follows:
20.1 In the event that a dispute between the Parties should
arise under this Agreement, such dispute shall be first submitted
to the PNM and UAMPS members on the Engineering and Operating
Committee for resolution. In the event these members are unable to
resolve such dispute within ninety (90) days after submission, the
dispute shall be referred in writing to the President or a Vice
President designated by PNM and the Chairman of the Board of
Directors of UAMPS, or his or her designee. If such dispute has not
been resolved within thirty (30) days after the referral made by
either Party (unless such thirty (30) day period is extended by
mutual agreement of the Parties), either Party may thereafter call
for submission of such dispute to arbitration in the manner set
forth in Section 37 of the Participation Agreement, which call
shall be binding upon the Parties, except that the notices required
under Section 37.1 of the Participation Agreement shall only be
provided to the Parties to this Agreement unless the dispute
between the Parties to this Agreement affects the interests of
other parties to the Participation Agreement.
13.0 DESTRUCTION, DAMAGE OR CONDEMNATION OF SAN JUAN UNIT 4
13.1 Section 22 of the PPA is hereby deleted in its entirety.
14.0 RELATIONSHIP OF THE PARTIES
|
14.1 Section 24.2 of the PPA is hereby deleted in its entirety.
15.0 ASSIGNMENT, TRANSFER, CONVEYANCE OR OTHER DISPOSITION
15.1 Section 29.2 of the PPA is hereby amended to read in its entirety as follows:
29.2 Except as otherwise specifically provided in this Section 29, should UAMPS desire to assign, transfer, convey or otherwise dispose of ("Assign") the Transfer Interest to any person, company, corporation, governmental agency or other entity other than PNM (an "Outside Party"), PNM shall have a right of first refusal to purchase the Transfer Interest. Such right shall be exercised in accordance with the terms and conditions and the procedures set out in Section 11 of the Participation Agreement.
15.2 Sections 29.3, 29.4, 29.5, 29.6, 29.7, 29.8 and 29.9 of the PPA are hereby deleted in their entirety.
15.3 Section 29.10 of PPA is hereby renumbered as Section 29.3, and is amended to read in its entirety as follows:
29.3 UAMPS shall have a right of first refusal with respect to any sale, transfer or other disposition of all or any part of any interest of PNM in Unit 4 (the "PNM Transfer Interest") by PNM. UAMPS shall have no right of first refusal with respect to any sale, transfer or other disposition by any party of any part of or interest in Unit 1, Unit 2 or Unit 3; or in any such sale, transfer or other disposition of any part of or interest in Unit 4 by a party other than PNM; provided further that the right of first refusal granted herein to UAMPS shall be subordinate to any rights of first refusal previously granted to other parties with respect to Unit 4. Such right of first refusal shall commence on the Closing Date, shall continue for the term of this Agreement and shall be exercised in accordance with the terms and conditions and the procedures set out in Section 11 of the Participation Agreement.
15.4 Sections 29.11, 29.12, 29.13, 29.14, 29.15, 29.16 and 29.17 of the PPA are hereby deleted in their entirety.
16.0 NOTICES
16.1 Section 30.1.2 of the PPA is hereby revised to read in its
entirety as follows:
30.1.2 Utah Associated Municipal Power Systems
c/o General Manager
2825 E. Cottonwood Parkway
Suite 200
Salt Lake City, UT 84121
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17.0 CONTINUATION IN EFFECT
17.1 Except as herein modified, all provisions of the PPA are unchanged and continue in full force and effect.
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 1 to be executed by their duly authorized representatives as of the date set forth above.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ Patrick J. Goodman
--------------------------------------
Patrick J. Goodman
Vice President, Power Production
|
UTAH ASSOCIATED MUNICIPAL POWER
SYSTEMS
[SEAL]
ATTEST:
73200
ARTHUR ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated January 26, 2000 included in Registration Statement File No. 33-65418, Registration Statement 333-03289, Registration Statement File No. 333-03303 and Registration Statement File No. 333-53367. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1999 or performed any audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP -------------------------- Arthur Andersen LLP Albuquerque, New Mexico March 8, 2000 |
| ARTICLE UT |
| This schedule contains summary financial information extracted from the Company's Consolidated Statement of Earnings, Consolidated Balance Sheets and Consolidated Statement of Cash Flows for the period ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. |
| CIK: 0000081023 |
| NAME: Public Service Company of New Mexico |
| MULTIPLIER: 1,000 |
| CURRENCY: US DOLLARS |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | JAN 01 1999 |
| PERIOD END | DEC 31 1999 |
| EXCHANGE RATE | 1 |
| BOOK VALUE | PER BOOK |
| TOTAL NET UTILITY PLANT | 1,582,382 |
| OTHER PROPERTY AND INVEST | 487,447 |
| TOTAL CURRENT ASSETS | 406,038 |
| TOTAL DEFERRED CHARGES | 326,257 |
| OTHER ASSETS | 0 |
| TOTAL ASSETS | 2,802,124 |
| COMMON | 203,517 |
| CAPITAL SURPLUS PAID IN | 455,745 |
| RETAINED EARNINGS | 227,829 |
| TOTAL COMMON STOCKHOLDERS EQ | 887,091 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 12,800 |
| LONG TERM DEBT NET | 111,000 |
| SHORT TERM NOTES | 0 |
| LONG TERM NOTES PAYABLE | 877,489 |
| COMMERCIAL PAPER OBLIGATIONS | 0 |
| LONG TERM DEBT CURRENT PORT | 0 |
| PREFERRED STOCK CURRENT | 0 |
| CAPITAL LEASE OBLIGATIONS | 0 |
| LEASES CURRENT | 0 |
| OTHER ITEMS CAPITAL AND LIAB | 913,744 |
| TOT CAPITALIZATION AND LIAB | 2,802,124 |
| GROSS OPERATING REVENUE | 1,157,543 |
| INCOME TAX EXPENSE | 44,629 |
| OTHER OPERATING EXPENSES | 1,012,454 |
| TOTAL OPERATING EXPENSES | 1,037,464 |
| OPERATING INCOME LOSS | 120,079 |
| OTHER INCOME NET | 30,202 |
| INCOME BEFORE INTEREST EXPEN | 150,281 |
| TOTAL INTEREST EXPENSE | 70,667 |
| NET INCOME | 83,155 |
| PREFERRED STOCK DIVIDENDS | 586 |
| EARNINGS AVAILABLE FOR COMM | 82,569 |
| COMMON STOCK DIVIDENDS | 32,820 |
| TOTAL INTEREST ON BONDS | 6,638 |
| CASH FLOW OPERATIONS | 214,498 |
| EPS BASIC | 2.01 |
| EPS DILUTED | 2.01 |