[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 0-296
EL PASO ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
TEXAS 74-0607870
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
KAYSER CENTER, 100 NORTH STANTON, EL PASO, TEXAS 79901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (915) 543-5711
|
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, NO PAR VALUE AMERICAN STOCK EXCHANGE |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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. [X]
AS OF MARCH 13, 1998, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT WAS $399,107,460.
AS OF MARCH 13, 1998, THERE WERE OUTSTANDING 60,276,784 SHARES OF COMMON
STOCK, NO PAR VALUE.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF ITS SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT.
DEFINITIONS
The following abbreviations, acronyms or defined terms used in this report are defined below:
Abbreviations,
Acronyms or Defined Terms Terms
------------------------- -----
Agreed Order.......................... Agreed Order of the Texas Commission
entered August 30, 1995 implementing
certain provisions of the Rate
Stipulation
ANPP Participation Agreement.......... Arizona Nuclear Power Project
Participation Agreement dated August
23, 1973, as amended
APS................................... Arizona Public Service Company
Bankruptcy Case....................... The case commenced January 8, 1992 by El
Paso Electric Company in the United
States Bankruptcy Court for the Western
District of Texas, Austin Division, as
Case No. 92-10148-FM
CFE................................... Comision Federal de Electricidad de
Mexico, the national electric utility
of Mexico
Common Plant or Common Facilities..... Facilities at or related to Palo Verde
that are common to all three Palo Verde
Units
Company............................... El Paso Electric Company
DOE................................... United States Department of Energy
Effective Date........................ February 12, 1996, the date the
Reorganization became effective
FERC.................................. Federal Energy Regulatory Commission
Four Corners.......................... Four Corners Generating Station
Freeze Period......................... Ten-year period beginning August 2,
1995, during which base rates for most
Texas retail customers are expected to
remain frozen pursuant to the Rate
Stipulation
IID................................... Imperial Irrigation District, an
irrigation district in Southern
California
KV.................................... Kilovolt(s)
KW.................................... Kilowatt(s)
KWH................................... Kilowatt-hour(s)
MW.................................... Megawatt(s)
MWH................................... Megawatt-hour(s)
New Mexico Commission................. New Mexico Public Utility Commission
NRC................................... Nuclear Regulatory Commission
OPC................................... Texas Office of Public Utility Counsel
Palo Verde............................ Palo Verde Nuclear Generating Station
Palo Verde Leases..................... Leases and other documents entered into
in connection with a series of sale and
leaseback transactions in 1986 and 1987
involving a portion of the Company's
interest in Palo Verde
Palo Verde Participants............... Those utilities who share in power and
energy entitlements, and bear certain
allocated costs, with respect to Palo
Verde pursuant to the ANPP
Participation Agreement
Plan.................................. The Company's Fourth Amended Plan of
Reorganization dated November 7, 1995,
pursuant to which the Company emerged
from bankruptcy on the Effective Date
PNM................................... Public Service Company of New Mexico
Predecessor Company................... The Company prior to the Reorganization
Rate Stipulation...................... Stipulation and Settlement Agreement
dated as of July 27, 1995, between the
Company, the City of El Paso, OPC and
most other parties to the Company's
rate proceedings before the Texas
Commission providing for a ten-year
rate freeze and other matters
Reorganization........................ Reorganization and the emergence from
bankruptcy by the Company pursuant to
the Plan
Reorganized Company................... The Company following the Reorganization
SFAS.................................. Statement of Financial Accounting
Standards
SPS................................... Southwestern Public Service Company
Texas Commission...................... Public Utility Commission of Texas
TNP................................... Texas-New Mexico Power Company
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TABLE OF CONTENTS
Item Description Page
---- ----------- ----
PART I
1 Business............................................. 1
2 Properties........................................... 19
3 Legal Proceedings.................................... 19
4 Submission of Matters to a Vote of Security Holders.. 22
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters................................. 23
6 Selected Financial Data.............................. 25
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 26
8 Financial Statements and Supplementary Data.......... 33
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 82
PART III
10 Directors and Executive Officers of the Registrant... 82
11 Executive Compensation............................... 82
12 Security Ownership of Certain Beneficial Owners and
Management.......................................... 82
13 Certain Relationships and Related Transactions....... 82
PART IV
14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................... 82
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PART I
ITEM 1. BUSINESS
GENERAL
El Paso Electric Company is a public utility engaged in the generation, transmission and distribution of electricity in an area of approximately 10,000 square miles in west Texas and southern New Mexico. The Company also serves wholesale customers in Texas, New Mexico, California and Mexico. The Company owns or has significant ownership interests in five electrical generating facilities providing it with a total capacity of approximately 1,500 MW. For the twelve months ended December 31, 1997, the Company's energy sources consisted of approximately 53% nuclear fuel, 34% natural gas, 6% coal and 7% purchased power.
The Company serves approximately 284,000 residential, commercial, industrial and wholesale customers. The Company distributes electricity to retail customers principally in El Paso, Texas and the City of Las Cruces ("Las Cruces"), New Mexico (representing approximately 58% and 8%, respectively, of the Company's revenues for the twelve months ended December 31, 1997). In addition, the Company sells electricity to wholesale customers, including Texas- New Mexico Power Company, the Imperial Irrigation District (a southern California electric power agency), and the Comision Federal de Electricidad de Mexico (the national electric utility of Mexico). Principal industrial and other large customers of the Company include steel production, copper and oil refining, garment manufacturing concerns and United States military installations, including the United States Army Air Defense Center at Fort Bliss in Texas and White Sands Missile Range and Holloman Air Force Base in New Mexico.
The Company's principal offices are located at Kayser Center, 100 North Stanton, El Paso, Texas 79901 (telephone 915-543-5711). The Company was incorporated in Texas in 1901. As of February 23, 1998, the Company had approximately 1,100 employees, approximately 31% of whom are covered by a collective bargaining agreement that expires in June 2000.
FACILITIES
The Company currently has a net installed generating capacity of approximately 1,500 MW, consisting of an entitlement of 600 MW from Palo Verde Units 1, 2 and 3, 482 MW from its Newman Power Station, 246 MW from its Rio Grande Power Station, 104 MW from Four Corners Units 4 and 5, and 68 MW from its Copper Power Station.
PALO VERDE STATION
The Company owns a 15.8% interest in each of the three nuclear generating units and Common Plant at Palo Verde, located west of Phoenix, Arizona. The Palo Verde Participants include the Company and six other utilities: APS, Southern California Edison Company, PNM, Southern California Public Power Authority, Salt River Project Agricultural Improvement and Power District and the Los Angeles Department of Water and Power. APS serves as operating agent for Palo Verde.
The NRC has granted facility operating licenses and full power operating licenses for all three units at Palo Verde for terms of forty years each. In addition, the Company is separately licensed by the NRC to own its proportionate share of Palo Verde.
Pursuant to the ANPP Participation Agreement, the Palo Verde Participants share costs and generating entitlements in the same proportion as their percentage interests in the generating units and each Palo Verde Participant is required to fund its proportionate share of fuel, other operation, maintenance and capital costs. The Company's total monthly share of these costs was approximately $7.3 million in 1997. The ANPP Participation Agreement provides that, if a participant fails to meet its payment obligations, each non- defaulting participant shall pay its proportionate share of the payments owed by the defaulting participant.
Decommissioning. Pursuant to the ANPP Participation Agreement and federal law, the Company is required to fund its share of the estimated costs to decommission Palo Verde over the estimated service life of forty years. The Company's funding requirements are determined periodically based upon engineering cost estimates performed by outside engineers retained by the ANPP.
In December 1995, the Palo Verde Participants approved a decommissioning study performed by an outside engineering firm. The 1995 study determined that the Company will have to fund approximately $229 million (stated in 1995 dollars) to cover its share of decommissioning costs. The 1995 study assumed that (i) maintenance expense for spent fuel storage will be incurred for ten years after the shutdown of the last unit (estimated to be in 2024); (ii) a national interim spent fuel storage facility will be available; and (iii) as a result of such national spent fuel storage facility, the amount of spent fuel stored on-site will be reduced from all spent fuel assemblies to the final core plus fuel assemblies from approximately three refuelings. See "Spent Fuel Storage" below.
Cost estimates for decommissioning have increased with each study. The previous cost estimate from a 1993 study determined that the Company would have to fund approximately $221 million (stated in 1993 dollars). The 1993 estimate, however, reflected an 84% increase from the previous estimate made in 1989, primarily related to increases in estimated costs for low-level radioactive waste disposal.
Although the 1995 study was based on the latest available information, there can be no assurance that decommissioning cost estimates will not continue to increase in the future or that regulatory requirements will not change. In addition, until a new low-level radioactive waste repository opens and operates for a number of years, estimates of the cost to dispose of low-level radioactive waste are subject to significant uncertainty. The decommissioning study is updated every three years and a new study will be completed in 1998. See "Disposal of Low-Level Radioactive Waste" below.
The rate freeze under the Rate Stipulation would preclude the Company from seeking a rate increase in Texas during the Freeze Period to recover increases in decommissioning cost estimates. Additionally, there can be no assurance that the Company could increase its rates in any of its other jurisdictions to recover such increased costs. See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Operational Prospects and Challenges."
Steam Generators. Palo Verde has experienced degradation in the steam generator tubes of each unit. The degradation includes axial tube cracking in the upper regions of the two steam generators in Unit 2 and, to a lesser degree, in Units 1 and 3. This form of steam generator tube degradation, while less common than other types, has also been seen at other United States nuclear generating stations. The units also have experienced circumferential cracking at the tube sheet, a more common type of tube cracking. The axial tube cracking was discovered following a steam generator tube rupture in Unit 2 in
March 1993. Since that time, APS has undertaken an ongoing investigation and analysis and has performed corrective actions designed to mitigate further degradation. Corrective actions have included changes in operational procedures designed to lower the operating temperatures of the units, chemical cleaning and the implementation of other technical improvements. APS has stated that it believes its remedial actions have slowed the rate of tube degradation.
Steam generator tubes in each of the Palo Verde units have been inspected during regularly scheduled refueling outages and mid-cycle inspection outages. If tube cracks are detected during an inspection, the affected tubes are taken out of service by plugging. This may impair the performance of a unit if sufficient numbers of steam generator tubes are affected.
The projected service lives of the units' steam generators are reassessed by APS periodically in conjunction with inspections made during outages of the Palo Verde units. APS has determined that it will be economically desirable to replace the Unit 2 steam generators, which have been the most affected by tube cracking. In 1997, the Palo Verde Participants unanimously approved the purchase of one set of spare steam generators for delivery in May 2002. The Company's share of the cost is approximately $12.9 million. APS has indicated that in 1998 it will request that the participants approve installation of the spare generators in Unit 2 in 2003. The Company believes that such installation would require the unanimous approval of the Palo Verde Participants. The Company will continue to analyze the economic feasibility of steam generator replacement, or other options that may be available in connection with the operation of Unit 2. Also, the Company cannot predict whether the Palo Verde Participants will agree to replace the Unit 2 steam generators. The costs for the construction and shipping of the spare steam generators are expected to be incurred between 1998 and 2002. Installation costs, if they are approved, would be expected to be incurred between 1999 and 2003, with the bulk of the expenditures after 2000. The Company's portion of total costs associated with construction and potential installation of new steam generators in Unit 2, including replacement power costs and costs that would otherwise have been expended through the operation and maintenance budget, is currently estimated not to exceed $36 million. APS has also stated that, based on the latest available data, it estimates that the steam generators in Units 1 and 3 should operate for their designated lives of 40 years (to 2025 and 2027, respectively). APS will reassess the expected lives of these steam generators periodically.
The Rate Stipulation precludes the Company from seeking a rate increase in Texas during the Freeze Period to recover capital costs associated with such replacement of steam generators. It is uncertain whether the costs associated with replacing the Unit 2 steam generators would be approved by the New Mexico Commission and included in the Company's rate base in New Mexico. See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Operational Prospects and Challenges."
Disposal of Low-Level Radioactive Waste. Congress has established requirements for the disposal of radioactive waste by each state generated within its borders. Arizona, California, North Dakota and South Dakota have entered into a compact (the "Southwestern Compact") for the disposal of low- level radioactive waste. California will act as the first host state of the Southwestern Compact, and Arizona will serve as the second host state. The construction and opening of the California low-level radioactive waste disposal site in Ward Valley has been delayed due to extensive public hearings, disputes over environmental issues and review of technical issues related to the proposed site. Despite being licensed by the State of California, the Department of the Interior has not transferred the land to the state.
Following a report by the National Academy of Sciences, the Department of the Interior announced that, if certain environmental conditions were implemented prior to the transfer, it was prepared to convey the land. On January 16, 1998, the Department of the Interior announced that further scientific drilling had been approved for the Ward Valley site with testing to be performed by the federal government first, followed by testing by the State of California. No dates for the commencement of federal government testing have been established.
Although Palo Verde is projected to undergo decommissioning during the period in which Arizona will act as host for the Southwestern Compact, the opposition, delays, uncertainty and costs experienced in California demonstrate possible roadblocks that may be encountered when Arizona seeks to open its own waste repository.
Spent Fuel Storage. The spent fuel storage facilities at Palo Verde have sufficient capacity to store all fuel expected to be discharged from normal operation of all three Palo Verde units through at least 1999. APS anticipates requesting approval from the NRC to use more of the space in the existing spent fuel storage facilities to extend the available storage capacity through 2001. Alternative on-site storage facilities are expected to be constructed by 2001 to supplement the existing facilities.
Pursuant to the Nuclear Waste Policy Act of 1982, as amended in 1987 (the "Waste Act"), the DOE is obligated to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by all domestic power reactors. In accordance with the Waste Act, the DOE entered into a spent nuclear fuel contract with the Company and all other Palo Verde Participants. In November 1989, the DOE reported that its spent nuclear fuel disposal facilities would not be in operation until 2010. Subsequent judicial decisions required the DOE to start accepting spent nuclear fuel no later than January 31, 1998. The DOE did not meet that deadline. As a result, under the DOE's current criteria for shipping allocation rights, it is estimated that Palo Verde could not ship spent fuel to the DOE's permanent disposal facility until approximately 2025. APS has indicated that alternative interim spent fuel storage methods will be available on-site or off-site for use by Palo Verde to allow its continued operation and to store spent fuel safely until shipments to the DOE's permanent disposal facility begin. APS's recommendation is to establish an on-site facility initially capable of storing approximately one-fourth of the total amount of spent fuel expected to be produced by Palo Verde, utilizing a dual purpose (storage and transport) dry storage system. The facility will be designed to be expandable in phases to accommodate additional amounts of spent fuel as needed. This facility is planned to be completed by May 2001. In January 1997, the Texas Commission established a project to evaluate what, if any, action it should take with regard to payments made to the DOE for funding of the DOE's obligation to start accepting spent nuclear fuel by January 31, 1998. After receiving initial comments, no further action has been taken in the project.
Liability and Insurance Matters. The Palo Verde Participants have public liability insurance against nuclear energy hazards up to the full limit of liability under federal law. The insurance consists of $200 million of primary liability insurance provided by commercial insurance carriers, with the balance being provided by an industry-wide retrospective assessment program, pursuant to which industry participants would be required to pay an assessment to cover any loss in excess of $200 million. The maximum assessment per reactor for each nuclear incident is approximately $79.2 million, subject to an annual limit of $10 million per incident. Based upon the Company's 15.8% interest in Palo Verde, the Company's maximum potential assessment per incident is approximately $37.6 million for all three units with an annual payment limitation of approximately $4.7 million.
The Palo Verde Participants maintain "all risk" (including nuclear hazards) insurance for property damage to, and decontamination of, property at Palo Verde in the aggregate amount of $2.7 billion, a substantial portion of which must first be applied to stabilization and decontamination. Finally, the Company has obtained insurance against a portion of any increased cost of generation or purchased power which may result from an accidental outage of any of the three Palo Verde units if the outage exceeds 23 weeks.
NEWMAN POWER STATION
The Company's Newman Power Station, located in El Paso, Texas, consists of four generating units with an aggregate capacity of 482 MW. The units operate primarily on natural gas, but can also operate on fuel oil.
RIO GRANDE POWER STATION
The Company's Rio Grande Power Station, located in Sunland Park, New Mexico, adjacent to El Paso, Texas, consists of three steam-electric generating units with an aggregate capacity of 246 MW. The units operate primarily on natural gas, but can also operate on fuel oil.
FOUR CORNERS STATION
The Company owns an undivided 7% interest in Units 4 and 5 at Four Corners, located in northwestern New Mexico. The two coal-fired generating units each have a generating capacity of 739 MW. The Company shares power entitlements and certain allocated costs of the two units with APS (the Four Corners operating agent) and the other participants.
Four Corners is located on land held under easements from the federal government and a lease from the Navajo Nation that expires in 2016. Certain of the facilities associated with Four Corners, including transmission lines and almost all of the contracted coal sources, are also located on Navajo land. Units 4 and 5 are located adjacent to a surface-mined supply of coal. See "Environmental Matters-Coal Mine Reclamation" below.
COPPER POWER STATION
The Company's Copper Power Station, located in El Paso, Texas, consists of a 68 MW combustion turbine used primarily to meet peak demands. The unit operates primarily on natural gas, but can also operate on fuel oil. The Company leases the combustion turbine and other generation equipment at the station under a lease that expires in July 2000, with renewal options for up to seven additional years.
TRANSMISSION AND DISTRIBUTION LINES AND AGREEMENTS
The Company owns or has significant ownership interests in four major transmission lines and owns the distribution network within its retail service area. The Company is also a party to various transmission and power exchange agreements that, together with its owned transmission lines, enable the Company to obtain its energy entitlements from its remote generation at Palo Verde and Four Corners.
Springerville-Diablo Line. The Company owns a 310-mile, 345 KV transmission line from Tucson Electric Power Company's ("TEP") Springerville Generating Plant near Springerville, Arizona, to the Luna Substation near Deming, New Mexico, and to the Diablo Substation near Sunland Park, New Mexico, providing an interconnection with TEP for delivery of the Company's generation entitlements from Palo Verde and, if necessary, Four Corners.
Arroyo-West Mesa Line. The Company owns a 202-mile, 345 KV transmission line from the Arroyo Substation located near Las Cruces, New Mexico, to PNM's West Mesa Substation located near Albuquerque, New Mexico. This is the delivery point for the Company's generation entitlement from Four Corners, which is transmitted to the West Mesa Substation over approximately 150 miles of transmission lines owned by PNM. This transmission line also carries power from the region to the west and north of Four Corners, where the Company has a major interconnection with the other Four Corners participants.
Greenlee-Newman Line. The Company owns an undivided interest in a 196- mile, 345 KV transmission line from the Newman Power Station to TEP's Greenlee Substation in Arizona. This line provides an interconnection with TEP for delivery of the Company's entitlements from Palo Verde and, if necessary, Four Corners.
AMRAD-Eddy County Line. The Company owns an undivided 66.7% interest in a 125-mile, 345 KV transmission line from the AMRAD Substation near Oro Grande, New Mexico, to the Company's and TNP's high voltage direct current terminal at the Eddy County substation near Artesia, New Mexico. This terminal enables the Company to connect its transmission system to that of SPS, providing the Company with access to power markets to the east.
Issues Regarding Operation of Transmission System. As previously reported, the Company experienced four system-wide outages between September 1995 and March 1996. As a result of remedial actions begun in November 1995, however, the Company has not experienced a system outage since March 1996. The remedial actions included relay equipment replacements, transmission structure reconfigurations and implementation of load-shedding schemes designed to limit the extent of system instability under certain atypical conditions. The Company continues to import normal amounts of power over its transmission system and believes that it has identified and corrected the root causes of the outages to such a degree as to preclude, to the extent possible, similar future occurrences.
ENVIRONMENTAL MATTERS
The Company is subject to regulation with respect to air, soil and water quality, solid waste disposal and other environmental matters by federal, state and local authorities. These authorities govern current facility operations and exercise continuing jurisdiction over facility modifications. Environmental regulations can change rapidly and are difficult to predict. Because construction of new facilities is subject to standards imposed by environmental regulation, substantial expenditures may be required to comply with such regulations. The Company analyzes the costs of its obligations arising from environmental matters on an ongoing basis, and management believes it has made adequate provision in its financial statements to meet such obligations. However, unforeseen expenses associated with compliance could have a material adverse effect on the future operations and financial condition of the Company.
PCB Treatment, Inc. The Company received a request from the U.S. Environmental Protection Agency ("EPA") to participate in the remediation of polychlorinated biphenyls ("PCBs") at two facilities in Kansas and Missouri, which had been operated by PCB Treatment, Inc. ("PTI"). Presently, PTI has discontinued operations and the EPA has determined that PTI's abandoned facilities require remediation.
The Company and the PTI Steering Committee, which consists of the largest generators of the PCBs sent to PTI, have executed a settlement agreement. In consideration for the payment of approximately $0.2 million, the settlement agreement excuses any further liability by the Company to the Steering Committee and indemnifies the Company for any liabilities to other parties as may be asserted in the future.
On September 16, 1997, the EPA sent the Company a "general notice of liability" wherein the agency formally notified the Company that it was considered a Potentially Responsible Party at the sites. The Company believes any liability it may face at the sites is covered by the settlement agreement. Accordingly, the Company immediately notified the Steering Committee and demanded it defend and indemnify the Company as provided in the settlement agreement. The Steering Committee informed the Company that it intends to honor this indemnity obligation.
The Company may still face liability for possible deliveries of PCBs by PTI to a third site which is also subject to remedial action by the federal authorities, except to the extent that those PCBs were transferred from the first site. The Company's records do not indicate any deliveries of PCBs to this third site. The Company believes it is unlikely to face substantial unindemnified liabilities associated with this third site.
Coal Mine Reclamation. The Company has been informed by APS that the Company's estimated financial obligation for coal mine reclamation at Four Corners is not being fully reflected in the costs for which the Company is billed. APS, the operating agent for Four Corners, is performing an analysis to establish an appropriate revised cost estimate. Based on preliminary estimates from APS and the coal provider, the Company recorded a liability of approximately $12 million in 1996 which reflects the present value of the estimated future costs of reclamation for its share of the coal mine reclamation obligation.
CONSTRUCTION PROGRAM
The Company has no current plans to construct any new generating facilities through at least 2004. Utility construction expenditures reflected in the table below consist primarily of expanding and updating the electric transmission and distribution systems and the cost of improvements and purchases of new steam generators at Palo Verde. The Company's estimated cash construction costs for 1998 through 2001 are approximately $220 million. Actual costs may vary from the construction program estimates set forth below. Such estimates are reviewed and updated periodically to reflect changed conditions.
BY YEAR (1) BY FUNCTION
(IN MILLIONS) (IN MILLIONS)
------------------------------------- -------------------------------------
1998........................ $ 51 Production (1)............... $ 57
1999........................ 57 Transmission................. 22
2000........................ 56 Distribution................. 105
2001........................ 56 General...................... 36
---- ----
Total..................... $220 Total........................ $220
==== ====
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(1) Does not include acquisition costs for nuclear fuel. See "Energy Sources--Nuclear Fuel."
ENERGY SOURCES
GENERAL
The following table summarizes the percentage contribution of nuclear fuel, natural gas, coal and purchased power to the total KWH energy mix of the Company:
YEARS ENDED DECEMBER 31,
--------------------------------------------
POWER SOURCE 1997 1996 1995
------------ ------------ ------------
Nuclear Fuel............................................. 53% 53% 53%
Natural Gas.............................................. 34 32 30
Coal..................................................... 6 7 9
Purchased Power.......................................... 7 8 8
---- --- ----
Total.................................................. 100% 100% 100%
==== === ====
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Fuel and purchased power costs are generally passed through directly to customers in Texas and New Mexico pursuant to currently applicable regulations. Historical fuel costs and revenues are reconciled periodically in proceedings before the appropriate commission to establish the applicable fuel rate to be charged customers and to determine whether a refund or surcharge based on such historical costs and revenues is necessary. See "Regulation-Texas Rate Matters- Fuel" and "-New Mexico Rate Matters-Fuel."
NUCLEAR FUEL
The Palo Verde Participants have contracts for uranium concentrate which should be sufficient to meet Palo Verde's operational requirements through at least 2000. The Company made spot purchases of uranium during 1997 to take advantage of low market prices. Additional spot purchases may be made as appropriate. The Palo Verde Participants have contracted for up to 100% of conversion services required through 2000. The Palo Verde Participants have an enrichment services contract with the United States Enrichment Corporation ("USEC") which obligates USEC to furnish the enrichment services required for the operation of the three Palo Verde units through 2002, with an option for five additional years. A new contract provides fuel assembly fabrication services for each Palo Verde unit through 2016.
Nuclear Fuel Financing. Pursuant to the ANPP Participation Agreement, the Company owns an undivided interest in nuclear fuel purchased in connection with Palo Verde. The Company has available a $100 million credit facility that provides for working capital and up to $60 million for the financing of nuclear fuel. At December 31, 1997, approximately $52.0 million had been drawn to finance nuclear fuel. This financing is effected through a trust that borrows under the facility to acquire and process the nuclear fuel. The Company is obligated to repay the trust's borrowings, and has secured this obligation with First Mortgage Collateral Series Bonds. In the Company's financial statements, the assets and liabilities of the trust are reported as assets and liabilities of the Company.
NATURAL GAS
In 1997, the Company's natural gas requirements at the Rio Grande Power Station were met solely with spot natural gas purchases from various suppliers. Interstate gas is delivered under a firm ten-year transportation agreement, which expires in 2001. Based on the current availability of economical and reliable spot natural gas, the Company anticipates it will continue to purchase spot natural gas for a portion of the fuel needs for the Rio Grande Power Station for the near term. To complement the spot purchases in 1998, the Company has entered into a one-year fixed-price gas supply contract. In addition, the Company has entered into a partial-year gas supply contract (April through October 1998). For the long term, the Company will evaluate the availability of spot natural gas versus other supplies in obtaining a reliable and economical supply for the Rio Grande Power Station.
In 1997, natural gas for the Newman and Copper Power Stations was supplied pursuant to an intrastate natural gas contract which became effective January 1, 1997 and which expires December 31, 2001. To supplement this contract, the Company entered into a second natural gas supply agreement, which runs through 2001.
COAL
APS, as operating agent for Four Corners, purchases Four Corners' coal requirements from a supplier with a long-term lease of coal reserves owned by the Navajo Nation. The Company, based upon information from the operating agent, believes that Four Corners has sufficient reserves of coal to meet the plant's operational requirements for its useful life.
PURCHASED POWER
To supplement its own generation and operating reserves, the Company has a firm power purchase agreement with SPS for amounts ranging from 50 MW to 110 MW for 1998.
OPERATING STATISTICS
DECEMBER 31,
-------------------------------------------------------
1997 1996 (A) 1995 (B)
------------- ------------- -------------
Operating revenues (In thousands):
Base revenues:
Retail:
Residential............................................... $ 146,412 $ 141,719 $ 128,295
Commercial and industrial, small.......................... 143,395 138,910 128,715
Commercial and industrial, large.......................... 45,581 43,483 40,870
Sales to public authorities............................... 64,328 65,534 59,613
---------- ---------- ----------
Total retail............................................ 399,716 389,646 357,493
Wholesale sales for resale.................................. 59,263 71,254 74,557
---------- ---------- ----------
Total base revenues..................................... 458,979 460,900 432,050
Fuel revenues and economy sales............................... 130,172 114,042 68,823
Other......................................................... 4,887 3,981 3,744
---------- ---------- ----------
Total operating revenues................................ $ 594,038 $ 578,923 $ 504,617
========== ========== ==========
Number of customers (End of year):
Residential................................................... 254,348 250,209 245,245
Commercial and industrial, small.............................. 25,900 25,304 24,615
Commercial and industrial, large.............................. 115 102 89
Other......................................................... 3,811 3,711 3,674
---------- ---------- ----------
Total................................................... 284,174 279,326 273,623
========== ========== ==========
Average annual KWH use per residential customer................. 6,285 6,238 6,057
========== ========== ==========
Energy supplied, net, KWH (In thousands):
Generated..................................................... 8,186,187 7,920,675 7,439,404
Purchased and interchanged.................................... 617,651 711,791 584,853
---------- ---------- ----------
Total................................................... 8,803,838 8,632,466 8,024,257
========== ========== ==========
Energy sales, KWH (In thousands):
Retail:
Residential................................................. 1,587,733 1,545,274 1,473,349
Commercial and industrial, small............................ 1,834,953 1,779,986 1,754,176
Commercial and industrial, large............................ 1,271,449 1,216,941 1,121,329
Sales to public authorities................................. 1,090,312 1,110,706 1,068,048
---------- ---------- ----------
5,784,447 5,652,907 5,416,902
Wholesale:
Sales for resale............................................ 1,897,885 1,753,553 1,646,357
Economy sales............................................... 640,017 757,999 538,102
---------- ---------- ----------
Total sales............................................. 8,322,349 8,164,459 7,601,361
Losses and company use........................................ 481,489 468,007 422,896
---------- ---------- ----------
Total................................................... 8,803,838 8,632,466 8,024,257
========== ========== ==========
Native system:
Peak load, KW................................................. 1,122,000 1,105,000 1,088,000
Net generating capacity for peak, KW.......................... 1,500,000 1,500,000 1,500,000
Load factor................................................... 64.0% 63.4% 61.6%
========== ========== ==========
Total system:
Peak load, KW................................................. 1,442,000 1,387,000 1,374,000
Net generating capacity for peak, KW.......................... 1,500,000 1,500,000 1,500,000
Load factor................................................... 64.0% 64.2% 62.0%
========== ========== ==========
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(A) Financial data is based on the combined results for the Predecessor Company for the period January 1, 1996 to February 11, 1996 and the Reorganized Company for the period February 12, 1996 to December 31, 1996. (B) Predecessor Company.
REGULATION
TEXAS RATE MATTERS
The rates and services of the Company in Texas municipalities are regulated by those municipalities, and in unincorporated areas by the Texas Commission. The largest municipality in the Company's service area is the City of El Paso. The Texas Commission has exclusive appellate jurisdiction to review municipal orders and ordinances regarding rates and services in Texas and jurisdiction over certain other activities of the Company. The decisions of the Texas Commission are subject to judicial review.
Rate Stipulation and Agreed Order. The Company's rates for its Texas customers are governed by a rate order entered by the Texas Commission in Docket 12700 adopting a Rate Stipulation and Agreed Order entered into by the Company, the Texas Commission staff, the City of El Paso and virtually all other intervenors in the case. The Agreed Order implemented certain provisions of the Rate Stipulation and set rates consistent with the Rate Stipulation. Among other things, under the Rate Stipulation: (i) the Company's base rates for most customers in Texas were fixed for the ten-year Freeze Period which began in August 1995; (ii) the City of El Paso granted the Company a new franchise that extends through the Freeze Period; (iii) the Company will retain 75% during the first five years of the Freeze Period and 50% during the remainder of the Freeze Period of (A) the net revenues generated by providing third-party transmission services and (B) profit margins from certain off-system power sales; (iv) the Company's reacquisition of the Palo Verde leased assets was deemed to be in the public interest; and (v) all appeals of Texas Commission orders concerning the Company and all outstanding Texas Commission dockets concerning the Company's rates were resolved.
Neither the Rate Stipulation nor the Agreed Order deprives the Texas regulatory authorities of their jurisdiction over the Company during the Freeze Period. However, the Texas Commission determined in the Agreed Order that the rate freeze is in the public interest and results in just and reasonable rates. Further, the signatories to the Rate Stipulation (other than the General Counsel, OPC and the State of Texas) agreed not to seek to initiate an inquiry into the reasonableness of the Company's rates during the Freeze Period and to support the Company's entitlement to rates at the freeze level throughout the Freeze Period. The Company believes, but cannot assure, that its cost of service will support rates at or above the freeze level throughout the Freeze Period and, therefore, does not believe any attempt to reduce the Company's rates would be successful. However, during the Freeze Period, the Company is precluded from seeking rate increases in Texas, even in the event of increased operating or capital costs. In the event of a merger, the parties to the Rate Stipulation retain all rights provided in the Rate Stipulation, their rights to participate as a party in any proceeding related to the merger, and the right to pursue a reduction in rates below the freeze level to the extent of post-merger synergy savings.
Fuel. Pursuant to Texas Commission rules, the Company periodically must make a filing reconciling the revenues collected from Texas customers under its fixed fuel factor with the fuel and purchased power expenses actually incurred for the period covered by the reconciliation. A fuel and purchased power reconciliation must include not less than twelve months nor more than thirty-six months of reconcilable data. The Company has not filed a reconciliation for any period since June 1995. Differences between revenues collected and expenses incurred are subject to a refund to customers (in the case of an overrecovery of fuel costs) or surcharge (in the case of an underrecovery of fuel costs). The Texas Commission staff, local regulatory authorities such as the City of El Paso, and
customers are entitled to intervene in a fuel reconciliation proceeding and to challenge the recovery of fuel and purchased power expenses.
Higher than expected natural gas prices were experienced in December 1996, continued in the first quarter of 1997 and remained at higher levels through the remainder of 1997 compared to 1996. These higher natural gas prices have increased the Company's underrecovered fuel costs, which will be reviewed in the next Texas fuel reconciliation. A significant disallowance of fuel costs in this reconciliation could have an adverse effect on the Company's financial results. In January 1998, the Company filed a request with the Texas Commission to increase its Texas fixed fuel factor and implement a surcharge, subject to reconciliation, of its underrecovered fuel costs. The Company entered into a stipulation with all parties to the docket to implement the surcharge and a new fixed fuel factor. Both the fixed fuel factor and surcharge are expected to go into effect in April 1998.
Palo Verde Performance Standards. The Texas Commission has established performance standards for the operation of Palo Verde, pursuant to which each Palo Verde unit is evaluated annually to determine whether its three-year rolling average capacity factor entitles the Company to a reward or subjects it to a penalty. There are five performance bands based around a target capacity factor of 70%. The capacity factor is calculated as the ratio of actual generation to maximum possible generation. If the capacity factor, as measured on a station-wide basis for any consecutive 24-month period, should fall below 35%, the Texas Commission could reconsider the rate treatment of Palo Verde, regardless of the provisions of the Rate Stipulation. The removal of Palo Verde from rate base could have a significant negative impact on the Company's revenues and financial condition. For the three-year rolling average period ended December 31, 1997, Palo Verde Units 1, 2 and 3 achieved capacity factors of 83.75%, 83.04% and 88.70%, respectively. These capacity factors result in the Company's entitlement to a combined reward of $2.8 million pursuant to the formula established by the Texas Commission for the Palo Verde units.
NEW MEXICO RATE MATTERS
The New Mexico Commission has jurisdiction over the Company's rates and services in New Mexico and over certain other activities of the Company, including prior approval of the issuance, assumption or guarantee of securities. The New Mexico Commission's decisions are subject to judicial review. Current base rates in New Mexico were established in 1990 and have not increased since. The Company does not have an agreement with New Mexico regulatory authorities or parties to past New Mexico regulatory proceedings comparable to the Rate Stipulation. The largest city in the Company's New Mexico service territory is Las Cruces, which in 1997 accounted for 8% of the Company's total revenue. See Item 3, "Legal Proceedings-Litigation with Las Cruces."
Pending Rate Case. In October 1996, the New Mexico Commission issued an order in Case No. 2722, requiring the Company to answer certain ratepayer complaints and to file a rate filing package, including cost of service data and supporting testimony. On March 3, 1997, the Company filed with the New Mexico Commission all of the rate filing package data required by the Commission's order. Although the Company's filing demonstrates a revenue deficiency of approximately $8.6 million under current rates, the Company did not request a rate change to recover the deficiency. The New Mexico Commission could order a rate reduction or, alternatively, in response to economic factors and regulatory, political and competitive pressures, the Company could agree to a rate reduction as part of an overall settlement of all issues in New Mexico. Prosecution of the rate case before the New Mexico
Commission is expected to be completed before the end of 1998. The Company is unable at this time to predict the outcome of this proceeding.
Fuel. The Company is required to make annual filings with the New Mexico Commission to reconcile the revenues collected under its fixed fuel factor with its fuel and purchased power expenses actually incurred, and to report the results of Palo Verde performance standards. These reports are due by January 31 of each year for the preceding calendar year, and are filed along with the Company's request to revise its fixed fuel factor to reflect current projections of fuel and purchased power costs and to include the over or underrecovery reflected in the reconciliation report and the reward or penalty reflected in the performance standards report. On October 31, 1997, the Company filed testimony and evidence supporting its continued use of the methodology and manner of collecting fuel and purchased power costs reflected in its tariffs. A hearing on this filing is scheduled for July 1998.
The Company's 1998 annual filing reflects a significant increase in the monthly fuel charge. This increase is necessary because of (i) significant increases in the spot price of natural gas and (ii) the delayed implementation of the 1997 change, effective with bills rendered on or after August 1, 1997, which has caused the Company to underrecover its fuel costs in New Mexico by approximately $5.3 million for the year ended December 31, 1997. The recovery of this amount, coupled with continued higher gas costs for 1998, results in an increase in the proposed 1998 fixed fuel factor of approximately 24% over the present factor. The Company believes it has fully justified its fuel and purchased power costs and recovery methodology. In March 1998, the New Mexico Commission consolidated the 1998 annual filing and the October 1997 filing for hearing in July 1998. There can be no assurance that the New Mexico Commission will accept the Company's proposed fixed fuel factor. As in Texas, interested parties are allowed to intervene and challenge the recoverability of fuel expenses. A significant disallowance of fuel costs could have an adverse effect on the Company's financial results.
Palo Verde Performance Standards. The New Mexico Commission has established performance standards for the operation of Palo Verde, pursuant to which the entire Palo Verde station is evaluated annually to determine if its achieved capacity factor allows the Company to claim a reward or subjects it to a penalty. There are five performance bands based around a target capacity factor of 67.5%. Because Unit 3 is not included in the Company's New Mexico rate base, any penalty or reward calculated on a total station basis is limited to two-thirds of such penalty or reward. The capacity factor is calculated as the ratio of actual generation to maximum possible generation. If the annual capacity factor is 35% or less, the New Mexico Commission is required to initiate a proceeding to reconsider the rate base treatment of Palo Verde Units 1 and 2. The removal of Palo Verde from rate base could have a significant negative impact on the Company's revenues and financial condition. For the year ended December 31, 1997, the Palo Verde station capacity factor was 88.43%. This capacity factor results in the Company's entitlement to a reward of $1.1 million, pursuant to the formula established by the New Mexico Commission for the Palo Verde units.
FEDERAL REGULATORY MATTERS
Federal Energy Regulatory Commission. The Company is subject to regulation by the FERC in certain matters, including rates for wholesale power sales, transmission of electric power and the issuance of securities.
The Company has a long-term firm power sales agreement with IID providing for the sale of 100 MW of firm capacity and 50 MW of contingent capacity through April 2002. The agreement
generally provides for level sales prices over the life of the agreement. The Company also has a firm power sales agreement with TNP, providing for sales to TNP in the minimum amount of 25 MW through 2002. Sales prices are essentially level for the remaining life of the agreement. Rate tariffs currently applicable to IID and TNP contain fuel and purchased power cost adjustment provisions designed to recover the Company's fuel and purchased power costs.
In July 1996, the Company filed its open access transmission tariffs (Docket No. OA96-200-000) (the "Open Access Case"), in compliance with FERC Order No. 888, Promoting Wholesale Competition Through Open Access Non- Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities ("Order No. 888"), covering network and point-to-point transmission services and the six specifically required ancillary services. Several parties, including Las Cruces, other utilities and several wholesale power marketers, intervened and filed protests to the Company's tariffs. Issues raised by the intervenors included rates and the terms and conditions of the Company's tariffs, including the treatment of and costs related to, certain facilities making access to the CFE more available to parties other than the Company. In February 1997, the Company entered into a stipulated agreement among the various parties settling all rate issues related to the Open Access Case. Under the settlement, the Company will provide transmission service, to the extent transmission capacity is available, to any party for firm or interruptible service to the CFE until the earlier of the end of 1998 or the date the FERC rules on the complaint filed by one of the wholesale power marketers that submitted a bid in 1996 to the CFE. See "Department of Energy" below.
Intervenors in the Open Access Case also raised certain issues relating to the criteria by which the Company will determine the amount of transmission capacity that is available for use by third parties desiring to use its transmission system. Hearings related to these issues were conducted before a FERC administrative law judge in January 1998. A final decision from the FERC on these issues is not expected until the fourth quarter of 1998. The Company does not expect a material financial impact to result from a FERC ruling.
In July 1996, Las Cruces exercised its right under Order No. 888 to request that the Company calculate Las Cruces' stranded cost obligation should it leave the Company's system and operate its own municipal utility. For a discussion of this proceeding, see Item 3, "Legal Proceedings-Litigation with Las Cruces."
Department of Energy. The DOE regulates the Company's exports of power to the CFE in Mexico pursuant to a license granted by the DOE and a presidential permit. In addition, the DOE is authorized to assess operators of nuclear generating facilities for a share of the costs of decommissioning the DOE's uranium enrichment facilities and for the ultimate costs of disposal of spent nuclear fuel. See "Facilities-Palo Verde Station-Spent Fuel Storage."
In September 1996, one of the wholesale power marketers that submitted a bid in 1996 to the CFE in connection with renewal of the interchange agreement for the supply of power during 1997 to Ciudad Juarez, Mexico, filed a complaint against the Company with the FERC. The complaint sought emergency relief and requested the FERC to direct the Company to enter into an agreement to provide firm point-to-point transmission service to the CFE under the Company's open access transmission tariff. In October 1996, the FERC issued an order requiring the Company to provide point-to-point transmission service over the Company's transmission system to substation facilities near the United States/Mexico border. The FERC, however, concurred with the Company's position that the FERC does not have jurisdiction to order transmission across the border, suggesting that the DOE has such jurisdiction. The DOE subsequently issued a Notice of Delegation and Assignment which delegated
to the FERC the DOE's authority to carry out its duties in this case. The FERC has docketed the Delegation and Assignment and the process is expected to continue throughout 1998.
Nuclear Regulatory Commission. The NRC has jurisdiction over the Company's licenses for Palo Verde and regulates the operation of nuclear generating stations to protect the health and safety of the public from radiation hazards and has authority to conduct environmental reviews pursuant to the National Environmental Policy Act.
OTHER WHOLESALE CUSTOMERS
The term of the Company's previous one-year 1997 sales agreement for firm capacity and associated energy to the CFE terminated December 31, 1997. Pursuant to a bidding process, the Company was selected by the CFE to provide varying amounts of power during 1998 ranging from 90 to 200 MW. The price is stable throughout the twelve-month term of the agreement and includes charges for capacity and energy as well as transmission and any required ancillary services. Under the new agreement, the Company's revenues in 1998 related to power sales to the CFE are expected to be similar to 1997 revenues. There can be no assurance that the CFE will remain a customer after 1998. The agreement requires payment in United States dollars.
RECENT CHANGES IN UTILITY REGULATION
General. The electric utility industry faces increasing pressure to become more competitive as legislative, regulatory, economic and technological changes occur. Federal and state legislation, regulatory initiatives, and proposed initiatives in Texas and New Mexico encourage competition in the industry, and ultimately in the Company's service area. Together with increasing customer demand for lower priced electricity and other energy services, these measures have accelerated the industry's movement toward more competitive pricing and cost structures. Such competitive pressures could result in the loss of customers and could diminish the ability of the Company to fully recover its investment in generation assets, as well as the cost of operating these assets. This issue is particularly important to the Company because its rates are significantly higher than national and regional averages. In the face of increased competition, there can be no assurance that the future operations, cash flows and financial condition of the Company will not be adversely affected, or that the Company will be able to sustain retail rates at the levels established by the Rate Stipulation during the Freeze Period.
Of particular importance to the Company is the issue of ultimate recoverability of "stranded costs," or costs previously found by regulatory authorities to be reasonable and prudent, but which at the same time are higher than would be recovered under immediate, full competition. There is substantial discussion and debate on this issue on both a national and state level and, at this time, there appears to be no clear solution. At the federal level, the FERC has announced, through a formal rulemaking, its intention to allow 100% recovery of all legitimate verifiable stranded costs attributable to FERC jurisdictional customers. Texas and New Mexico commissions and legislatures are engaged in various activities which are attempting to address the issue of stranded cost recovery from customers subject to their jurisdictions.
FERC. In April 1996, the FERC issued its Order No. 888, requiring all public utilities owning, operating or controlling facilities used for transmitting electricity in interstate commerce to (i) file open access transmission tariffs containing minimum terms and conditions of non- discriminatory service and (ii) take transmission service (including ancillary services) for their own new wholesale sales and
purchases of electric energy under the open access tariffs. Additionally, Order No. 888 permits public utilities to seek recovery of legitimate, prudent and verifiable stranded costs and provides a mechanism for the recovery of such costs. Order No. 888 also provides for recovery of costs associated with former power customers and new municipally-owned entities becoming transmission-only customers as a result of providing open access transmission if the utility had a reasonable expectation of continuing to provide service to the departing customer. Order No. 888 established criteria under which stranded costs will be evaluated for contracts entered into prior to July 11, 1994, and for stranded costs resulting from the formation of any new municipal utilities. Recovery of stranded costs under contracts entered into after July 10, 1994, will be governed by the terms of those contracts.
In April 1996, the FERC also issued Order No. 889, Open Access Same-Time Information System (formerly Real-Time Information Networks) and Standards of Conduct ("Order No. 889"). Order No. 889 requires all public utilities owning, operating or controlling facilities used for transmitting electricity in interstate commerce to develop and maintain an Open Access Same-Time Information System that will give existing and potential transmission users access to transmission-related information on a basis consistent with that available to a utility's employees engaged in the buying and selling of power. Order No. 889 further requires public utilities to separate their transmission and generation marketing functions and adopt standards of conduct ensuring that all open access transmission customers are treated in a non-discriminatory manner.
Texas. During 1996, the Texas Commission conducted projects to evaluate the (i) scope of competition in the electric industry in Texas and (ii) potential stranded investment, procedures for allocating stranded costs, and acceptable methods of stranded cost recovery. The Texas Commission's report, which was issued in January 1997, recommended a careful and deliberate approach to continued expansion of competition in the Texas electric market, ultimately leading to retail competition with certain safeguards, and recommended against any legislation that would introduce broad-based retail competition before 2000. The Texas Commission also quantified the potential retail "excess of cost over market" ("ECOM") under several scenarios. In February 1998, the Texas Commission requested all Texas utilities to revise the ECOM estimates based on certain updated assumptions. Using the Texas Commission's revised model inputs, the Company's revised ECOM estimates range from a high of $1.5 billion to a low of $843 million, with an expected value of $1.2 billion, assuming full retail access in 1999. Although several pieces of legislation were offered during the 1997 Texas legislative session, no significant deregulation legislation was passed.
In August 1997, the Lieutenant Governor appointed seven senators to serve on a special interim committee to study the various issues involved in a possible transition to a competitive electric market. The committee is receiving testimony from various parties, including environmental advocates, consumer advocates, power marketers, public power entities, electric cooperatives and investor-owned utilities, as well as testimony and comments from the public at large, and is holding public hearings across the state on various aspects of the electric industry restructuring debate. The Association of Electric Companies of Texas (the "AECT") testified on behalf of all investor-owned utilities in Texas, including the Company. The AECT testified that it would support retail competition that provides benefits to all consumers, maintains electric system reliability, provides for equitable treatment of all competitors and provides for the preservation of prior regulatory commitments. The committee is expected to file a final report in late 1998. Recently, the Lieutenant Governor asked the Texas Comptroller of Public Accounts to initiate a study to review the impact of a deregulated electric market on state and local tax systems.
New Mexico. In 1995, the New Mexico Commission initiated a notice of inquiry regarding competition and the restructuring of regulation of the electric industry. The New Mexico Commission received comments from numerous parties representing various interests and conducted workshops in an attempt to arrive at a consensus with respect to the need for regulatory change, the nature of such change and the timing/transition of any changes. No consensus was reached by the participants. The New Mexico Commission also commenced a collaborative process with the assistance of facilitators in an attempt to reach consensus. Although that collaborative process failed to reach a consensus around which restructuring legislation could be drafted, the New Mexico investor-owned utilities, including the Company, have agreed to support legislation that would permit retail competition provided: (i) all customers have the opportunity to benefit, (ii) reliability of electric service is maintained, (iii) all energy suppliers are subject to the same laws and regulations, (iv) the price of electric generating capacity and electric energy is determined solely by market forces, (v) unbundled transmission and distribution functions remain subject to regulation, and (vi) each electric utility must have a reasonable opportunity to recover its stranded costs. The 1998 legislative session concluded without the passage of any significant deregulation legislation.
REORGANIZATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
On February 12, 1996, the Company emerged from a bankruptcy proceeding which it instituted in January 1992. As a result of the Reorganization, the Company significantly reduced its debt and simplified its capital structure. The Company's total obligations subject to compromise (including obligations related to the Palo Verde Leases, which represented $700 million of allowed claims in the Bankruptcy Case) prior to its Reorganization was $2,007 million. Under the Plan, this debt and the Palo Verde Lease obligations were extinguished and the creditors received a combination of $212 million cash and newly issued debt and equity securities of the Reorganized Company consisting of $1,189 million of long-term bonds and financing and capital lease obligations, $100 million of redeemable preferred stock and $255 million of common stock.
Under the Plan, all of the Predecessor Company's common and preferred stock was canceled and the holders of such securities received approximately $45 million (15%) of the Reorganized Company's common stock and the right to receive certain potential litigation recoveries which ultimately amounted to $20 million. In addition, on the Effective Date, the Palo Verde Leases were terminated and the Company reacquired such interests. See Part II, Item 8, "Financial Statements and Supplementary Data-Note H of Notes to Financial Statements."
The Reorganized Company's financial statements for periods after February 12, 1996 are not comparable to the Predecessor Company's financial statements for periods before February 12, 1996. A vertical line is shown in the accompanying selected financial data and financial statements to separate the Reorganized Company from the Predecessor Company because the respective financial information has not been prepared on a consistent basis of accounting.
EXECUTIVE OFFICERS OF THE COMPANY
Current Position and
Name Age Business Experience
---- --- ---------------------
James S. Haines..................... 51 Chief Executive Officer, President and Director since
May 1996; Executive Vice President and Chief Operating
Officer of Western Resources, Inc. from June 1995 to May
1996; Executive Vice President and Chief Administrative
Officer of Western Resources, Inc. from April 1992 to
June 1995.
Eduardo A. Rodriguez................ 42 Senior Vice President - Customer and Corporate Services
since August 1996; Senior Vice President since January
1994; Vice President from April 1992 to January 1994;
General Counsel from 1988 to August 1996; Secretary from
January 1989 to January 1994.
J. Frank Bates...................... 47 Vice President - Transmission and Distribution since
August 1996; Vice President - Operations from May 1994 to
August 1996; Vice President - Customer Services Texas
Division from June 1989 to May 1994.
Michael L. Blough................... 42 Vice President - Administration since August 1996; Vice
President since May 1995; Controller and Chief
Accounting Officer from November 1994 to August 1996;
Assistant Vice President - Financial Planning from
September 1990 to November 1994.
Gary R. Hedrick..................... 43 Vice President, Chief Financial Officer and Treasurer
since August 1996; Treasurer since March 1996; Vice
President - Financial Planning and Rate Administration
from September 1990 to August 1996.
John C. Horne....................... 49 Vice President - Power Generation since August 1996; Vice
President - Power Supply from May 1994 to August 1996;
Vice President - Transmission Systems Division from
August 1989 to May 1994.
Robert C. McNiel.................... 51 Vice President - New Mexico Affairs since December 1997;
Vice President - Public Affairs and Marketing from August
1996 to December 1997; Vice President - New Mexico
Division from December 1989 to August 1996.
Terry Bassham....................... 37 General Counsel since August 1996; Shareholder with
Clark, Thomas & Winters, P.C. from May 1993 to August
1996; Shareholder with Moreno, Fry & Bassham from
February 1992 to May 1993.
Guillermo Silva, Jr................. 44 Secretary since January 1994; Assistant Secretary from
June 1989 to January 1994.
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The executive officers of the Company are elected annually and serve at the discretion of the Board of Directors.
ITEM 2. PROPERTIES
The principal properties of the Company are described in Item 1, "Business," and such descriptions are incorporated herein by reference. Transmission lines are located either on private rights-of-way, easements or on streets or highways by public consent. See Part II, Item 8, "Financial Statements and Supplementary Data-Note F of Notes to Financial Statements" for information regarding encumbrances against the principal properties of the Company.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION WITH LAS CRUCES
Las Cruces is attempting to replace the Company as the electric service provider in Las Cruces by acquiring, through condemnation or a negotiated purchase, the distribution assets and other facilities used to provide electric service to customers in Las Cruces. Sales to customers in Las Cruces represent approximately 8% of the Company's operating revenues.
In April 1995, Las Cruces filed a complaint against the Company in New Mexico state court, seeking a declaratory judgment that Las Cruces has a right of eminent domain to condemn the electric distribution system and related facilities owned and operated by the Company within and adjacent to the city limits. In May 1995, the Company removed the case to federal district court in New Mexico. Following a trial on the merits, the Federal Magistrate granted the Company's motion to certify to the New Mexico Supreme Court the question of whether Las Cruces possesses the authority to condemn the Company's property for use as a municipal utility when that property is already devoted to public use. Prior to a ruling by the New Mexico Supreme Court, the New Mexico legislature enacted a bill which purports to give Las Cruces the authority to condemn the Company's distribution system within its city limits and a territory extending five miles beyond the municipal boundary. On February 11, 1998, the New Mexico Supreme Court ruled that the subsequent legislation rendered moot the certified question before the Supreme Court. On February 26, 1998, the Company received notice from Las Cruces of its intent to file a condemnation action in New Mexico district court. At this time the Company is unable to predict the outcome of this litigation.
If Las Cruces succeeds in its efforts to condemn the Company's distribution system, the Company could lose its Las Cruces customer base, although the Company would be entitled to receive "just compensation" as established by the court under New Mexico law. "Just compensation" is generally defined as the amount of money that would fairly compensate the party whose property is condemned. It is the Company's opinion that this amount would be the difference between the value of the Company's entire system prior to the taking, as compared to the value of the entire system after the taking. See Item 1, "Business-Regulation-Federal Regulatory Matters" for a full discussion of stranded costs.
Las Cruces has taken several actions to position itself to acquire portions of the Company's distribution system and certain related facilities. In August 1994, SPS and Las Cruces entered into a fifteen-year contract granting SPS the right to provide all of the electric power and energy required by Las Cruces during the term of the contract. In addition, Las Cruces sold approximately $73 million in revenue bonds in October 1995 to provide funding to finance the acquisition by condemnation or
negotiated purchase of the Company's electrical distribution assets within and adjacent to the Las Cruces city limits.
The Company has filed a lawsuit in the Dona Ana County District Court and is pursuing a complaint simultaneously before the New Mexico Commission challenging the legality of the sale of the revenue bonds. In addition, the New Mexico Commission is investigating the agreement between SPS and Las Cruces which, under certain circumstances, would grant Las Cruces an option to sell to SPS electric utility assets acquired through condemnation. In August 1996, the Dona Ana County District Court issued an opinion letter stating that Section 3- 23-3 of the New Mexico Municipal Code is inapplicable to home rule municipalities and Las Cruces, therefore, was not required to acquire the New Mexico Commission's approval before issuing revenue bonds to acquire utility property. However, the Court did agree with the Company that the revenue bonds, in this case backed by utility revenues, are subject to the same requirements as those imposed on other revenue bonds backed by gross receipts tax revenues. Therefore, if the Court's finding of the applicability of Las Cruces' home rule authority is overturned on appeal, the Company's position that the issuance of the bonds required prior approval could be upheld. The Company filed an appeal with the New Mexico Court of Appeals and Las Cruces requested an expedited ruling from the Court of Appeals. In August 1997, the New Mexico Court of Appeals certified to the New Mexico Supreme Court the issues related to Las Cruces' authority to issue the revenue bonds. Oral argument before the Supreme Court was held in November 1997.
In July 1996, Las Cruces exercised its right under Order No. 888 to request that the Company calculate Las Cruces' stranded cost obligation should it leave the Company's system and operate its own municipal utility. The Company's initial non-binding calculation was provided within the statutory period. Las Cruces subsequently filed a request at the FERC for a determination that Las Cruces would have no stranded cost obligation to the Company or, in the alternative, that the FERC convene a hearing to establish the amount of any stranded costs. In August 1997, the FERC issued an order denying Las Cruces' request for a determination that Las Cruces would have no stranded cost obligation, and providing for evidentiary hearings on the following stranded costs issues: (i) whether the Company has met the "reasonable expectation" standard so as to justify recovery of stranded costs from Las Cruces; and (ii) if so, the amount of stranded costs that the Company may recover from Las Cruces. The Company filed testimony in support of its recovery and calculation of stranded costs, calculated pursuant to the FERC formula. After removal of all distribution and transmission related expenses, the Company's testimony reflects a generation stranded cost request of approximately $101 million. In November 1997, Las Cruces filed testimony which takes the position that the Company is entitled to stranded costs in the range of $0 to $19 million. On December 19, 1997, the FERC staff filed testimony estimating the Company's stranded cost to be $29.4 million. Hearings of all issues were conducted at the FERC in February 1998. A final decision from the FERC is not expected before late 1998 or early 1999.
In April 1997, Las Cruces announced its plan to build a substation and distribution lines to serve a new customer in a city-owned industrial park. Las Cruces stated that SPS would construct, operate and maintain the new substation facility, and that the rates for this new customer would be significantly lower than the Company's current rates. Las Cruces has approved a contract with SPS to provide operation and maintenance services for the proposed Las Cruces electric distribution system, substations and associated transmission facilities.
The Company continues to believe that it can provide lower cost electric service to customers in Las Cruces than can be achieved through a municipal takeover. Accordingly, the Company has stated its strong preference for a resolution of its differences with Las Cruces through negotiation rather than litigation and condemnation. A negotiated settlement of the Company's pending rate case in New Mexico could include a reduction in rates and settlement of all issues in New Mexico, which would be likely to create increased political and economic pressure on the Company to reduce rates in Texas.
The Company is unable to predict the outcome of Las Cruces' efforts to replace the Company as its electric service provider or the effects it may have on the Company's financial position, results of operations and cash flows. The Company does not believe it is probable that a loss has been incurred and, therefore, has made no provision in the accompanying financial statements related to these matters.
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"). In October 1995, the Four Corners participants requested that the United States Secretary of the Interior resolve their dispute with the Navajo Nation regarding whether the Acts apply to operation of Four Corners. The Four Corners participants subsequently filed a lawsuit in the District Court of the Navajo Nation, Window Rock District, seeking, among other things, 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. On October 18, 1995, the Navajo Nation and the Four Corners participants agreed to stay the proceedings indefinitely so the parties may attempt to resolve the dispute without litigation. This matter remains inactive and the Company is unable to predict the outcome of this case.
WATER CASES
San Juan River System. The Four Corners participants are among the defendants in a suit filed by the State of New Mexico in 1975 in state district court in New Mexico against the United States of America, the City of Farmington, New Mexico, the Secretary of the Interior as Trustee for the Navajo Nation and other Indian tribes and certain other defendants (State of New Mexico ex rel. S. E. Reynolds, New Mexico State Engineer v. United States of America, et al., Eleventh Judicial District Court, County of San Juan, State of New Mexico, Cause No. 75-184). The suit seeks adjudication of the water rights of the San Juan River Stream System in New Mexico, which, among other things, supplies the water used at Four Corners. An agreement reached with the Navajo Nation in 1985 provides that if Four Corners loses a portion of its water rights in the adjudication, the tribe will provide sufficient water from its allocation to offset the loss. The case has been inactive for many years and the Company is unable to predict the outcome of this case.
Gila River System. In connection with the construction and operation of Palo Verde, APS entered into contracts with certain municipalities granting APS the right to purchase effluent for cooling purposes at Palo Verde. In 1986, a summons was served on APS that required all water claimants in the Lower Gila River Watershed in Arizona to assert any claims to water in an action pending in Maricopa County Superior Court, titled In re The General Adjudication of All Rights to Use Water in the Gila River System and Source. Palo Verde is located within the geographic area subject to the summons and the rights of the
Palo Verde Participants to the use of groundwater and effluent at Palo Verde is potentially at issue in this action. APS, as operating agent, filed claims that dispute the Court's jurisdiction over the Palo Verde Participants' groundwater rights and their contractual rights to effluent relating to Palo Verde and, alternatively, seek confirmation of such rights. In December 1992, the Arizona Supreme Court heard oral argument on certain issues in this matter that are pending on interlocutory appeal. Issues important to the Palo Verde Participants' claims were remanded to the trial court for further action and the trial court certified its decision for another interlocutory appeal to the Arizona Supreme Court. The Arizona Supreme Court will hear argument on these issues in October 1998 and subsequently render a decision. The Company is unable to predict the outcome of this case.
OTHER LEGAL PROCEEDINGS
The Company is a party to various other claims, legal actions and complaints. In many of these matters, the Company has excess casualty liability insurance which is applicable. Based upon a review of these claims and applicable insurance coverage, the Company believes that none of these claims will have a material adverse effect on the operations, financial position or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock began trading on the American Stock Exchange on February 16, 1996 under the symbol "EE." The high and low sales prices for the Company's common stock, as reported in the consolidated reporting system of the American Stock Exchange, for the periods indicated below, were as follows:
SALES PRICE
------------------------
HIGH LOW
--------- -----------
1997
----
First Quarter................................ $7 15/16 $5 7/8
Second Quarter............................... 7 5/8 5 1/2
Third Quarter................................ 7 1/16 5 13/16
Fourth Quarter............................... 7 1/2 5 1/2
1996
----
February 16 - March 31....................... $6 1/4 $4 3/4
Second Quarter............................... 6 1/8 5
Third Quarter................................ 6 1/8 5 1/4
Fourth Quarter............................... 6 5/8 4 15/16
|
At March 17, 1998, there were 6,141 holders of record of the Company's common stock.
The Company's ability to pay dividends on the common stock for the next several years will be limited by applicable law and by the financing arrangements entered into pursuant to the Reorganization. Pursuant to the resolutions creating the Company's Series A Preferred Stock, no dividends can be paid on the common stock if there are dividends in arrears on the Series A Preferred Stock. Pursuant to the First and Second Supplemental Indentures, so long as the Company's First Mortgage Bonds, are outstanding and the series with the longest maturity is not rated "investment grade" by either Standard & Poor's Rating Service or Moody's Investors Service, Inc., the Company may not declare any dividend on the common stock, other than in additional shares of common stock, or make any other distribution on, or acquire for value any shares of common stock (with certain limited exceptions) unless, after giving effect thereto, the aggregate of all such dividends, distributions and certain other payments made by the Company since February 12, 1996 would be less than the sum of (i) 50% of the consolidated net income (as defined in the mortgage indenture) of the Company minus dividends paid in respect of the Series A Preferred Stock for the period from February 13, 1996 to the most recently ended fiscal quarter for which quarterly financial statements are available (or, if such consolidated net income is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net proceeds received by the Company from the issuance or sale since February 12, 1996 of equity securities or debt securities that have been converted into equity securities, plus (iii) $10.0 million. Currently, the Company's First Mortgage Bonds are not rated investment grade.
Pursuant to the terms of the reimbursement agreements related to four letters of credit issued with respect to the four series of pollution control revenue bonds, so long as a drawing is available under any of the letters of credit, the same limitation contained in the First and Second Supplemental
Indentures on the declaration of dividends would apply to the Company. In addition to the restriction contained in the mortgage indenture, the credit agreement for the working capital and fuel financing facility limits to $15.0 million the aggregate amount of dividends that can be paid on the common stock during the three years after its initial issuance on February 12, 1996.
ITEM 6. SELECTED FINANCIAL DATA
As of and for the following periods (In thousands except for share data):
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY
ENDED TO | TO
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, YEARS ENDED DECEMBER 31,
| --------------------------------------
1997 1996 | 1996 1995 1994 1993
------------ ------------ | ----------- ------------- ------------ ---------
|
Operating revenues.......................... $ 594,038 $ 523,974 | $ 54,949 $ 504,617 $ 536,760 $ 543,594
Operating income............................ 161,667 144,491 | 1,639 49,874 54,997 57,035
Income (loss) before extraordinary items |
and cumulative effect of a change |
in accounting principle.................... 54,568 41,919 | 118,198 (33,319) (28,153) (41,855)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit.......... (2,775) - | - - - -
Extraordinary gain on discharge of debt..... - - | 264,273 - - -
Cumulative effect of a change in |
accounting principle....................... - - | - - - (96,044)(1)
|
Net income (loss) applicable to common |
stock...................................... 38,649 31,431 | 382,471 (33,319) (28,153) (137,899)
Basic earnings per common share: |
Income (loss) before extraordinary items |
and cumulative effect of a change in |
accounting principle...................... 0.689 0.523 | 3.325 (0.937) (0.792) (1.178)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit......... (0.046) - | - - - -
Extraordinary gain on discharge of debt.... - - | 7.435 - - -
Cumulative effect of a change in |
accounting principle...................... - - | - - - (2.702)(1)
|
Net income (loss).......................... 0.643 0.523 | 10.760 (0.937) (0.792) (3.880)
Weighted average number of common |
shares outstanding......................... 60,128,505 60,073,808 | 35,544,330 35,544,330 35,544,330 35,539,480
Diluted earnings per common share: |
Income (loss) before extraordinary items |
and cumulative effect of a change in |
accounting principle...................... 0.685 0.523 | 3.325 (0.937) (0.792) (1.178)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit......... (0.046) - | - - - -
Extraordinary gain on discharge of debt.... - - | 7.435 - - -
Cumulative effect of a change in |
accounting principle...................... - - | - - - (2.702)(1)
|
Net income (loss).......................... 0.639 0.523 | 10.760 (0.937) (0.792) (3.880)
Weighted average number of common shares |
and common share equivalents outstanding... 60,437,632 60,116,709 | 35,544,330 35,544,330 35,544,330 35,539,480
Additions to utility plant.................. 75,431 53,346 | 8,176 87,937 59,976 57,806
Total assets................................ 1,812,613 1,846,190 1,910,354 | 1,809,891 1,730,851 1,715,406
Long-term debt and financing and capital |
lease obligations.......................... 966,810 1,046,173 1,164,328 | - - -
Debt and obligations subject to compromise.. - - - | 1,608,091 1,537,303 1,495,315
Preferred stock............................. 121,319 108,426 100,000 | 81,464 81,464 81,464
Common stock equity (deficit)............... 369,640 331,257 300,000 | (418,763) (385,966) (357,463)
========= ========= ======== | ========= ========= =========
|
(1) Reflects the change in accounting for income taxes due to the implementation of SFAS No. 109, "Accounting for Income Taxes."
The selected financial data should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Item 8, "Financial Statements and Supplementary Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements in this document, other than statements of historical information, are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, as well as other oral and written forward-looking statements made by or on behalf of the Company from time to time, including statements contained in the Company's filings with the Securities and Exchange Commission and its reports to stockholders, involve known and unknown risks and other factors which may cause the Company's actual results in future periods to differ materially from those expressed in any forward-looking statements. Any such statement is qualified by reference to the risks and factors discussed below under the headings "Operational Prospects and Challenges" and "Liquidity and Capital Resources" and in the Company's filings with the Securities and Exchange Commission, which are available from the Securities and Exchange Commission or which may be obtained upon request from the Company. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.
OPERATIONAL PROSPECTS AND CHALLENGES
While the Company prepares for a new era of deregulation and competition in
the electric utility industry, the Rate Stipulation provides a certain level of
stability in the rates that the Company currently charges the majority of its
customers. During the Freeze Period, the Company's strategic goals include (i)
serving the growing need for electricity within its retail service territory;
(ii) continuing to focus on its strategic location on the border with Mexico;
(iii) enhancing long-term relationships with its largest retail customers; (iv)
continuing to reduce operating costs; and (v) developing an energy-related
services business.
The Company faces a number of challenges which could negatively impact its operations during the Freeze Period. The primary challenge is the risk of increased costs, including the risk of additional or unanticipated costs at Palo Verde resulting from (i) increases in operation and maintenance expenses; (ii) the possible replacement of steam generators; (iii) an extended outage of any of the Palo Verde units; (iv) increases in estimates of decommissioning costs; (v) the storage of radioactive materials; and (vi) compliance with the various requirements and regulations governing commercial nuclear generating stations. There can be no assurance that the Company's revenues will be sufficient to recover any increased costs incurred during the Freeze Period, including any such increased costs in connection with Palo Verde or increases in other costs of operation, whether as a result of higher than anticipated levels of inflation, changes in tax laws or regulatory requirements, or other causes.
In December 1996 and the first quarter of 1997, rapid escalation in natural gas prices increased concern over price levels for energy, including electricity. The Company's recovery of fuel expense is subject to challenges regarding reasonableness and prudence through periodic fuel reconciliation proceedings. See Part I, Item 1, "Business-Regulation-Texas Rate Matters -Fuel" and "-Regulation-New Mexico Rate Matters-Fuel."
Another risk to the Company's operations is the potential loss of customers. The Company's wholesale and large retail customers have, in varying degrees, additional alternate sources of economical
power, including co-generation of electric power. For example, a 504 MW combined-cycle generating plant located in Samalayuca, Chihuahua, which is scheduled to be fully operational by the end of 1998, will give the CFE the current capacity to supply electricity to portions of northern Chihuahua, including the geographic area currently served by the Company. If the Company loses a significant portion of its retail customer base or wholesale sales, the Company may not be able to replace such revenues through either the addition of new customers or an increase in rates to remaining customers. The New Mexico State Legislature has passed legislation which gives Las Cruces the apparent legal authority to condemn the Company's distribution system and related assets located within its city limits, and the Company has received notice from Las Cruces of its intent to file an eminent domain proceeding. If Las Cruces succeeds in its efforts, the Company could lose its Las Cruces customer base, although the Company would receive "just compensation" as established by the court. See Part I, Item 3, "Legal Proceedings-Litigation with Las Cruces."
In recent years, the United States has closed a large number of military bases and there can be no assurance that Holloman Air Force Base ("Holloman"), White Sands Missile Range ("White Sands") or the United States Army Air Defense Center at Fort Bliss ("Ft. Bliss") will not be closed in the future or that the Company will not lose all or some of its military base sales. The Company's sales to the military bases represented approximately $19.6 million or 3% of operating revenues for the year ended December 31, 1997. The Company signed a new contract with Ft. Bliss in August 1996, under which Ft. Bliss will take service from the Company through 1999, with the right thereafter to continue service on a year-to-year basis for an additional two years. The Company has a contract to provide retail electric service to Holloman for a ten-year term which began in December 1995. In August 1996, the Army advised the Company White Sands would continue to purchase retail electric service from the Company pursuant to the existing retail service contract for an indefinite period. The Army will provide the Company written notice of termination of such contract not less than one year in advance of the termination date.
The Company does not currently have an agreement with New Mexico regulatory authorities or parties to past New Mexico regulatory proceedings comparable to the Rate Stipulation. Pursuant to an order from the New Mexico Commission, the Company filed rate data with the Commission in March 1997. Although the Company's filing demonstrates a revenue deficiency of approximately $8.6 million under current rates, the Company did not request a rate change to recover the deficiency. The New Mexico Commission could, after hearing, order a rate reduction or, alternatively, in response to regulatory, political and competitive pressures, the Company could agree to a rate reduction as part of an overall settlement of all issues in New Mexico, which would be likely to create increased political and economic pressure on the Company to reduce rates in Texas. Prosecution of the case before the New Mexico Commission is expected to be completed in 1998. The Company is unable at this time to predict with certainty the outcome of this proceeding currently pending before the New Mexico Commission. See Part I, Item 1, "Business-Regulation-New Mexico Rate Matters."
The Company faces the same concerns as most other companies that use computers relating to the Year 2000 problem. The problem is that many computer applications do not correctly differentiate a one year difference between the years 1999 and 2000. Applications that are date sensitive may not properly calculate information or may not function.
The Company began working on the Year 2000 computer concern during the last quarter of 1996 and is attempting to either revise current computer systems to be Year 2000 compliant, or replace
systems with new ones that are Year 2000 compliant by the end of 1998, to allow adequate time for additional testing and correction. Incremental costs of the project are anticipated to be immaterial as the Company is using internal resources to modify and test programs. The Company anticipates spending approximately $1.8 million on this project and is expensing such amount as incurred over the life of the project.
Because of the integrated nature of the Company's business with other utilities and its joint facilities operated by other utilities, the Company is inquiring about and reviewing the activities of the other utilities which comprise the integrated system. In addition, the Company is inquiring about and reviewing the activities of its financial institutions and major suppliers to determine their compliance with Year 2000 issues. Given the complex nature of this problem and the potential overlap with systems beyond the Company's control, the Company cannot assure that it will not experience some difficulty relating to the Year 2000 problem.
Finally, the electric utility industry in general is facing significant challenges and increased competition as a result of changes in federal provisions relating to third-party transmission services and independent power production, as well as potential changes in state regulatory provisions relating to wholesale and retail service. Both the Texas and New Mexico Commissions have conducted proceedings related to industry restructuring and stranded cost recovery; however, restructuring legislation has yet to be passed in either state. See Part I, Item 1, "Business-Regulation-Recent Changes in Utility Regulation." The potential effects of deregulation are particularly important to the Company because its rates are significantly higher than the national and regional averages. In the face of increased competition, there can be no assurance that such competition will not adversely affect the future operations, cash flow and financial condition of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements through the end of the decade are expected to consist of interest payments on the Company's indebtedness and capital expenditures related to the Company's generating facilities and transmission and distribution systems. The Company expects that cash flows from operations will be sufficient for such purposes.
Long-term capital requirements of the Company will consist primarily of construction of electric utility plant, payment of interest on and retirement of debt, and payment of dividends on and redemption of preferred stock. The Company has no current plans to construct any new generating capacity through at least 2004. Utility construction expenditures will consist primarily of expanding and updating the transmission and distribution systems and the cost of betterments and improvements to Palo Verde and other generating facilities.
The Company anticipates that internally generated funds will be sufficient to meet its construction requirements, provide for the retirement of debt at maturity and enable the Company to meet other contingencies that may exist, such as compliance with environmental regulation, pending litigation and any claims for indemnification. At December 31, 1997, the Company had approximately $111.2 million in cash and cash equivalents. The Company also has a $100 million revolving credit facility, which provides up to $60 million for nuclear fuel purchases and up to $50 million (depending on the amount of borrowings outstanding for nuclear fuel purchases) for working capital needs. At
December 31, 1997, approximately $52.0 million had been drawn for nuclear fuel purchases. No amounts have been drawn on this facility for working capital needs.
The Company has a high debt to capitalization ratio and significant debt service obligations. Due to the Rate Stipulation and competitive pressures, the Company does not expect to be able to raise its base rates in the event of increases in non-fuel costs or loss of revenues. Accordingly, soon after its emergence from bankruptcy, the Company established debt reduction as a high priority in order to gain additional financial flexibility to address the evolving competitive market.
The Company has significantly reduced its long-term debt following the Reorganization. From June 1, 1996 through March 18, 1998, the Company repurchased approximately $230.3 million of first mortgage bonds as part of an aggressive deleveraging program and has reduced its annual interest expense by approximately $17.9 million. Long-term indebtedness as a percentage of capitalization was reduced from 74% at June 30, 1996 to 66% at December 31, 1997.
The Company continues to believe that the orderly reduction of debt with a goal of achieving a capital structure that is more typical in the electric utility industry and, ultimately, an investment grade rating, is a significant component of long-term shareholder value creation. Accordingly, the Company will regularly evaluate market conditions and, when appropriate, use a portion of its available cash to reduce its fixed obligations through open market purchases of first mortgage bonds. However, the significant amount of debt reduction that the Company has achieved since the Reorganization, and the need for cash both to meet upcoming bond maturities and, if appropriate, to redeem early the Series A Preferred Stock, may result in a lower volume of repurchases in the future. Accordingly, the Company may experience a net increase in cash as it evaluates the comparative economic value of using excess cash for purposes other than open market purchases of its first mortgage bonds.
The degree to which the Company is leveraged could have important
consequences on the Company's liquidity, including (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate or other purposes could be limited in the
future; (ii) a substantial portion of the Company's cash flow from operations
will be dedicated to the payment of principal and interest on its indebtedness
and, if appropriate, the early redemption of its Series A Preferred Stock; and
(iii) the Company's substantial leverage may place the Company at a competitive
disadvantage by limiting its financial flexibility to respond to the demands of
the competitive market and make it more vulnerable to adverse economic or
business changes.
HISTORICAL RESULTS OF OPERATIONS
Financial comparisons herein for the years ended December 31, 1997, 1996 and 1995 are based on the results of operations of the Reorganized Company for the year ended December 31, 1997, combined results of the Reorganized Company for the period February 12, 1996 to December 31, 1996 and the Predecessor Company for the period January 1, 1996 to February 11, 1996, and results of the Predecessor Company for the year ended December 31, 1995.
Net income applicable to common stock before extraordinary item in 1997 was approximately $41.4 million, or $0.69 per diluted common share, compared with combined net income applicable to common stock before reorganization items and extraordinary item of $27.4 million for the same period a
year ago, and net loss before reorganization items of $23.3 million, or $0.66 per diluted common share in 1995.
Operating revenues net of energy expenses increased $4.7 million in 1997 compared to 1996, primarily due to increased KWH sales, partially offset by reduced revenue per KWH from the CFE. Operating revenues net of energy expenses increased $43.8 million in 1996 compared to 1995, primarily due to an increase in Texas base rates associated with the implementation of the Rate Stipulation and increased KWH sales.
Comparisons of KWH sales and operating revenues are shown below (In thousands):
INCREASE/(DECREASE)
-------------------------
YEARS ENDED DECEMBER 31: 1997 1996 AMOUNT PERCENT
------------------------ ---- ---- --------- -----------
Electric KWH Sales:
Retail Customers..................... 5,784,447 5,652,907 131,540 2.3%
Other Utilities...................... 1,897,885 1,753,553 144,332 8.2
---------- ---------- -----------
Total............................... 7,682,332 7,406,460 275,872 3.7
========== ========== ===========
Operating Revenues:
Retail Customers..................... $ 497,868 $ 471,824 $ 26,044 5.5%
Other Utilities...................... 96,170 107,099 (10,929) (10.2)
---------- ---------- -----------
Total............................... $ 594,038 $ 578,923 $ 15,115 2.6
========== ========== ===========
INCREASE/(DECREASE)
------------------------
YEARS ENDED DECEMBER 31: 1996 1995 AMOUNT PERCENT
------------------------ ---- ---- --------- -----------
Electric KWH Sales:
Retail Customers..................... 5,652,907 5,416,902 236,005 4.4%
Other Utilities...................... 1,753,553 1,646,357 107,196 6.5
---------- ---------- -----------
Total............................... 7,406,460 7,063,259 343,201 4.9
========== ========== ===========
Operating Revenues:
Retail Customers..................... $ 471,824 $ 405,316 $ 66,508 16.4%
Other Utilities...................... 107,099 99,301 7,798 7.9
---------- ---------- -----------
Total............................... $ 578,923 $ 504,617 $ 74,306 14.7
========== ========== ===========
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Other operations and maintenance expense decreased $12.0 million in 1997 compared to 1996, and $73.1 million in 1996 compared to 1995. The decreases were primarily the result of a reduction in Palo Verde costs of approximately $8.7 million and $67.3 million, respectively, due to the lease accruals by the Predecessor Company, with no corresponding accrual by the Reorganized Company as a result of the reacquisition of the leased portion of Palo Verde in the Reorganization.
Depreciation expense increased $2.4 million to $88.7 million in 1997 compared to $86.3 million in 1996. The effect of an increase in depreciable plant following the reacquisition in the Reorganization of a portion of Palo Verde and the depreciation of such amounts over the period of the Rate Stipulation
was partially offset by the decrease in the book value of depreciable plant from fresh-start reporting adjustments.
Combined depreciation expense increased $29.5 million to $86.3 million in 1996 compared to $56.8 million in 1995. The effect of an increase in depreciable plant following the reacquistion in the Reorganization of a portion of Palo Verde was partially offset by the decrease in the book value of depreciable plant from fresh-start reporting adjustments. The effect of the implementation of fresh-start reporting and the accelerated depreciation of a portion of such amounts over the period of the Rate Stipulation resulted in increased depreciation expense of $37.2 million for the period February 12, 1996 to December 31, 1996, which was partially offset by decreased nuclear decommissioning amortization. As part of the adoption of fresh-start reporting, the Company recognized the net present value of estimated future expenditures for nuclear decommissioning of approximately $84.9 million.
Taxes other than income taxes decreased $1.2 million in 1997 compared to 1996 and $9.0 million in 1996 compared to 1995, due to reduced Arizona property taxes. The decreases in Arizona property taxes resulted from a decrease in taxable nuclear plant based on plant reductions on the Company's regulatory books in 1997 and a new state property tax law which reduced the Company's property taxes by approximately $8.8 million in 1996.
Other income increased $3.8 million in 1997 compared to 1996 due to the favorable litigation settlement in 1997 of $7.5 million, net of legal fees and expenses, partially offset by a gain on sale of investment of $3.8 million and an additional $2.3 million due to favorable settlement of bankruptcy professional fees in 1996. There was no comparable activity in 1995. Also, in 1996, investment income was classified as Other Income, whereas investment income in 1995 was included in Reorganization Items (Expense) for the Predecessor Company. Investment income decreased $6.9 million in 1996 compared to 1995 due to reduced levels of cash resulting from repurchases of debt and the payment of bankruptcy-related claims.
Interest charges decreased $8.9 million in 1997 compared to 1996, primarily due to a reduction in outstanding debt as a result of open market purchases of the Company's first mortgage bonds and the extinguishment of certain debt in conjunction with the Reorganization. Interest charges increased $7.2 million in 1996 compared to 1995, primarily due to (i) increased interest on mortgage bonds due to a greater amount of bonds being outstanding subsequent to the Reorganization and (ii) accretion of the increased nuclear decommissioning liability as a result of implementing fresh-start reporting. This increase was partially offset by decreased interest charges due to the extinguishment of certain debt in conjunction with the Reorganization.
Income tax expense, excluding income tax benefits of $1.5 million related to the loss on repurchases of debt, increased $11.5 million in 1997 compared to 1996, primarily due to changes in pre-tax income, including a favorable litigation settlement and certain permanent differences. Income tax expense, excluding the deferred income tax effects of fresh-start reporting, reorganization items and income taxes on interest income during bankruptcy, increased $39.1 million in 1996 compared to 1995, primarily due to changes in pre-tax income and certain differences in book and taxable income.
The reorganization items benefit recorded by the Predecessor Company upon the emergence from bankruptcy consisted of the effects of the Rate Stipulation and deferred income tax benefits related to the Reorganization. These benefits were partially offset by (i) the adjustments of assets to their
reorganization value and liabilities to their fair market values; (ii) provisions for settlement of claims; and (iii) professional fees and other expenses. There were no comparable amounts in 1997.
Extraordinary loss on repurchases of debt represents the payment of premiums on debt repurchased and the recognition of unamortized issuance expenses on that debt of $2.8 million, net of federal income tax benefits of $1.5 million, with no comparable amounts in 1996.
Extraordinary gain on discharge of debt for the Predecessor Company for the period January 1, 1996 to February 11, 1996 consisted of forgiven indebtedness upon the Reorganization, primarily related to the extinguishment of Palo Verde lease obligations with no comparable amounts in 1997.
For the last several years, inflation has been relatively low and, therefore, has had little impact on the Company's results of operations and financial condition.
In 1997, the Company implemented SFAS No. 128, "Earnings Per Share," SFAS No. 129, "Disclosure of Information about Capital Structure," and SFAS No. 130, "Reporting Comprehensive Income," none of which had a material effect on the Company's financial statements. See Item 8, "Financial Statements and Supplementary Data-Note A of Notes to Financial Statements." There are no new accounting standards pending implementation by the Company which would have a material effect on the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
------
Independent Auditors' Report................................................................. 35
Balance Sheets at December 31, 1997 and 1996................................................. 36
Statements of Operations for the year ended December 31, 1997, the period from February 12
to December 31, 1996, the period from January 1 to February 11, 1996 and the year ended
December 31, 1995........................................................................... 38
Statements of Comprehensive Operations for the year ended December 31, 1997, the period from
February 12 to December 31, 1996, the period from January 1 to February 11, 1996 and the
year ended December 31, 1995................................................................ 39
Statements of Changes in Common Stock Equity (Deficit) for the year ended December 31, 1995,
the period from January 1 to February 11, 1996, the period from February 12 to December 31,
1996 and the year ended December 31, 1997................................................... 40
Statements of Cash Flows for the year ended December 31, 1997, the period from February 12
to December 31, 1996, the period from January 1 to February 11, 1996 and the year ended
December 31, 1995........................................................................... 41
Notes to Financial Statements................................................................ 42
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INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
El Paso Electric Company
We have audited the accompanying balance sheets of El Paso Electric Company (the "Company") as of December 31, 1997 and 1996 and the related statements of operations, comprehensive operations, changes in common stock equity (deficit), and cash flows for the year ended December 31, 1997, the period February 12, 1996 to December 31, 1996, the period January 1, 1996 to February 11, 1996, and the year ended December 31, 1995. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note A of Notes to Financial Statements, on February 12, 1996, the Company emerged from bankruptcy. The financial statements of the reorganized Company reflect assets at reorganization value and liabilities at fair value under fresh-start reporting as of February 12, 1996. As a result, the financial statements of the reorganized Company are presented on a different basis than those prior to the reorganization and, therefore, are not comparable in all respects.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of El Paso Electric Company as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the year ended December 31, 1997, the period February 12, 1996 to December 31, 1996, the period January 1, 1996 to February 11, 1996, and the year ended December 31, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
El Paso, Texas
February 6, 1998
EL PASO ELECTRIC COMPANY
BALANCE SHEETS
ASSETS DECEMBER 31,
(IN THOUSANDS) -------------------------
1997 1996
---------- ----------
UTILITY PLANT (Notes A, B, C and F )
Electric plant in service........................................ $1,538,572 $1,492,737
Less accumulated depreciation and amortization................... 164,283 77,976
---------- ----------
Net plant in service.......................................... 1,374,289 1,414,761
Construction work in progress.................................... 43,761 44,432
Nuclear fuel; includes fuel in process of $9,910 and
$5,084, respectively.......................................... 86,609 60,014
Less accumulated amortization.................................... 40,142 18,651
---------- ----------
Net nuclear fuel.............................................. 46,467 41,363
---------- ----------
Net utility plant........................................... 1,464,517 1,500,556
---------- ----------
CURRENT ASSETS:
Cash and temporary investments................................... 111,227 68,767
Accounts receivable, principally trade, net of allowance for
doubtful accounts of $5,124 and $6,161, respectively.......... 58,960 57,587
Federal income tax receivable.................................... - 20,713
Inventories, at cost............................................. 27,130 28,322
Net undercollection of fuel revenues............................. 13,870 1,925
Prepayments and other............................................ 6,930 8,727
---------- ----------
Total current assets........................................ 218,117 186,041
---------- ----------
LONG-TERM CONTRACT RECEIVABLE (Note B)............................. 27,659 31,057
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Accumulated deferred income taxes, net (Note G).................. 43,208 73,884
Decommissioning trust fund (Note C).............................. 38,438 33,054
Other............................................................ 20,674 21,598
---------- ----------
Total deferred charges and other assets..................... 102,320 128,536
---------- ----------
TOTAL ASSETS................................................ $1,812,613 $1,846,190
========== ==========
|
See accompanying notes to financial statements.
EL PASO ELECTRIC COMPANY
BALANCE SHEETS (CONTINUED)
CAPITALIZATION AND LIABILITIES DECEMBER 31,
(IN THOUSANDS EXCEPT FOR SHARE DATA) ----------------------------
1997 1996
---------- ----------
CAPITALIZATION (Notes D and E):
Common stock, stated value $1 per share, 100,000,000 shares authorized,
60,060,034 and 59,999,981 shares issued and outstanding; and
196,404 and 180,000 restricted shares, respectively....................... $ 60,256 $ 60,180
Capital in excess of stated value........................................... 241,222 240,768
Unearned compensation - restricted stock awards............................. (1,138) (758)
Accumulated earnings........................................................ 69,484 30,835
Accumulated other comprehensive income (loss) (unrealized gains (losses)
on marketable securities)................................................ (184) 232
---------- ----------
Common stock equity..................................................... 369,640 331,257
Preferred stock, cumulative, no par value, 2,000,000 shares authorized:
Redemption required - 1,213,188 and 1,084,264 shares issued and
outstanding, respectively; at liquidation preference...................... 121,319 108,426
Long-term debt (Note F)..................................................... 938,562 1,021,749
Financing and capital lease obligations (Note F)............................ 28,248 24,424
---------- ----------
Total capitalization.................................................. 1,457,769 1,485,856
---------- ----------
CURRENT LIABILITIES:
Current maturities of financing and capital lease obligations (Note F)...... 28,463 28,333
Accounts payable, principally trade......................................... 24,957 37,215
Taxes accrued other than federal income taxes............................... 19,292 21,296
Interest accrued............................................................ 21,172 23,150
Other....................................................................... 17,439 15,000
---------- ----------
Total current liabilities............................................. 111,323 124,994
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Decommissioning (Note C).................................................... 94,917 89,544
Accrued postretirement benefit liability (Note J)........................... 75,531 71,313
Accrued pension liability (Note J).......................................... 33,909 34,550
Other....................................................................... 39,164 39,933
---------- ----------
Total deferred credits and other liabilities.......................... 243,521 235,340
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes B, C, H, I and J)
TOTAL CAPITALIZATION AND LIABILITIES.................................. $1,812,613 $1,846,190
========== ==========
|
See accompanying notes to financial statements.
EL PASO ELECTRIC COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------ ------------ | ------------ ------------
|
OPERATING REVENUES: |
Base revenues................................................ $ 458,979 $ 416,221 | $ 44,679 $ 432,050
Fuel revenues and economy sales.............................. 130,172 104,193 | 9,849 68,823
Other........................................................ 4,887 3,560 | 421 3,744
----------- ----------- | ----------- -----------
594,038 523,974 | 54,949 504,617
----------- ----------- | ----------- -----------
ENERGY EXPENSES: |
Fuel......................................................... 113,457 92,899 | 10,125 76,005
Purchased and interchanged power............................. 20,130 17,821 | 2,282 16,568
----------- ----------- | ----------- -----------
133,587 110,720 | 12,407 92,573
----------- ----------- | ----------- -----------
OPERATING REVENUES NET OF ENERGY EXPENSES...................... 460,451 413,254 | 42,542 412,044
----------- ----------- | ----------- -----------
OTHER OPERATING EXPENSES: |
Other operations............................................. 131,916 115,742 | 23,559 208,445
Maintenance.................................................. 34,782 34,702 | 4,743 43,412
Depreciation and amortization................................ 88,735 79,772 | 6,577 56,762
Taxes other than income taxes................................ 43,351 38,547 | 6,024 53,551
----------- ----------- | ----------- -----------
298,784 268,763 | 40,903 362,170
----------- ----------- | ----------- -----------
OPERATING INCOME............................................... 161,667 144,491 | 1,639 49,874
----------- ----------- | ----------- -----------
OTHER INCOME (DEDUCTIONS): |
Litigation settlement, net................................... 7,500 - | - -
Investment income............................................ 6,095 4,796 | - -
Gain on sale of investment................................... - 3,844 | - -
Settlement of bankruptcy professional fees................... 362 2,305 | - -
Other, net................................................... 162 (681) | 50 (910)
----------- ----------- | ----------- -----------
14,119 10,264 | 50 (910)
----------- ----------- | ----------- -----------
INCOME BEFORE INTEREST CHARGES................................. 175,786 154,755 | 1,689 48,964
----------- ----------- | ----------- -----------
INTEREST CHARGES (CREDITS): |
Interest on long-term debt................................... 86,117 85,633 | - -
Other interest............................................... 6,200 5,722 | - -
Interest during reorganization............................... - - | 9,569 91,923
Interest capitalized and deferred............................ (5,875) (5,189) | (412) (3,820)
----------- ----------- | ----------- -----------
86,442 86,166 | 9,157 88,103
----------- ----------- | ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.............................. 89,344 68,589 | (7,468) (39,139)
INCOME TAX EXPENSE (BENEFIT) (Note G).......................... 34,776 26,670 | (3,415) (15,798)
----------- ----------- | ----------- -----------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS |
(EXPENSE) AND EXTRAORDINARY ITEMS............................ 54,568 41,919 | (4,053) (23,341)
REORGANIZATION ITEMS (EXPENSE), NET OF INCOME |
TAX BENEFIT (EXPENSE)........................................ - - | 122,251 (9,978)
----------- ----------- | ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS....................... 54,568 41,919 | 118,198 (33,319)
----------- ----------- | ----------- -----------
EXTRAORDINARY ITEMS: |
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................ (2,775) - | - -
Extraordinary gain on discharge of debt...................... - - | 264,273 -
----------- ----------- | ----------- -----------
(2,775) - | 264,273 -
----------- ----------- | ----------- -----------
NET INCOME (LOSS).............................................. 51,793 41,919 | 382,471 (33,319)
PREFERRED STOCK DIVIDEND REQUIREMENTS.......................... 13,144 10,488 | - -
----------- ----------- | ----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK................... $ 38,649 $ 31,431 | $ 382,471 $ (33,319)
=========== =========== | =========== ===========
|
BASIC EARNINGS PER COMMON SHARE (Note A): |
Income (loss) before extraordinary items..................... $ 0.689 $ 0.523 | $ 3.325 $ (0.937)
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................ (0.046) - | - -
Extraordinary gain on discharge of debt...................... - - | 7.435 -
----------- ----------- | ----------- -----------
Net income (loss)......................................... $ 0.643 $ 0.523 | $ 10.760 $ (0.937)
=========== =========== | =========== ===========
DILUTED EARNINGS PER COMMON SHARE (Note A): |
Income (loss) before extraordinary items..................... $ 0.685 $ 0.523 | $ 3.325 $ (0.937)
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit................................ (0.046) - | - -
Extraordinary gain on discharge of debt...................... - - | 7.435 -
----------- ----------- | ----------- -----------
Net income (loss)......................................... $ 0.639 $ 0.523 | $ 10.760 $ (0.937)
=========== =========== | =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES |
OUTSTANDING.................................................. 60,128,505 60,073,808 | 35,544,330 35,544,330
=========== =========== | =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES |
AND COMMON SHARE EQUIVALENTS OUTSTANDING..................... 60,437,632 60,116,709 | 35,544,330 35,544,330
=========== =========== | =========== ===========
|
See accompanying notes to financial statements.
EL PASO ELECTRIC COMPANY
STATEMENTS OF COMPREHENSIVE OPERATIONS
(IN THOUSANDS)
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------ ------------ | ------------ ------------
|
|
NET INCOME (LOSS)............................................... $ 51,793 $ 41,919 | $382,471 $(33,319)
OTHER COMPREHENSIVE INCOME (LOSS) (Note A): |
Net unrealized gain (loss) on marketable securities, less |
applicable income tax benefit (expense) of $223, |
$(125), $ - and $(282), respectively..................... (416) 232 | - 522
Reclassification adjustment included in net |
income, net of income tax of $93........................... - - | (172) -
-------- -------- | -------- --------
COMPREHENSIVE INCOME (LOSS)..................................... 51,377 42,151 | 382,299 (32,797)
PREFERRED STOCK DIVIDEND REQUIREMENTS........................... 13,144 10,488 | - -
|
-------- -------- | -------- --------
COMPREHENSIVE INCOME (LOSS) APPLICABLE TO COMMON STOCK.......... $ 38,233 $ 31,663 | $382,299 $(32,797)
======== ======== | ======== ========
|
See accompanying notes to financial statements.
EL PASO ELECTRIC COMPANY
STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT FOR SHARE DATA)
UNEARNED
COMPENSATION-
COMMON STOCK CAPITAL IN RESTRICTED
--------------------------- EXCESS OF STOCK
SHARES AMOUNT STATED VALUE AWARDS
----------- ----------- ------------ ------------
BALANCES AT DECEMBER 31, 1994.......... 35,544,330 $ 339,097 $ - $ -
Net loss..............................
Other comprehensive income............
----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1995.......... 35,544,330 339,097 - -
Net income............................
Elimination of predecessor equity
accounts............................ (35,544,330) (339,097)
Effects of fresh-start reporting
adjustment to common stock equity...
----------- ----------- ----------- -----------
BALANCES AT FEBRUARY 11, 1996.......... - - - -
-------------------------------------------------------------------------------------------------------
Issuance of common stock upon
reorganization...................... 59,999,981 60,000 240,000
Capital stock expense.................
Grants of restricted common
stock............................... 180,000 180 768 (948)
Amortization of unearned
compensation........................ 190
Preferred stock dividends.............
Net income............................
Other comprehensive income............
----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1996.......... 60,179,981 60,180 240,768 (758)
Grants of restricted common
stock............................... 84,255 84 491 (575)
Amortization of unearned
compensation........................ 195
Repurchase of unrestricted
common stock........................ (7,798) (8) (37)
Preferred stock dividends.............
Net income............................
Other comprehensive loss..............
----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1997.......... 60,256,438 $ 60,256 $ 241,222 $ (1,138)
=========== =========== =========== ============
|
TOTAL
ACCUMULATED COMMON
ACCUMULATED OTHER STOCK
EARNINGS COMPREHENSIVE EQUITY
(DEFICIT) INCOME (LOSS) (DEFICIT)
----------- ------------- -----------
BALANCES AT DECEMBER 31, 1994.......... $ (724,713) $ (350) $ (385,966)
Net loss.............................. (33,319) (33,319)
Other comprehensive income............ 522 522
----------- ----------- -----------
BALANCES AT DECEMBER 31, 1995.......... (758,032) 172 (418,763)
Net income............................ 382,471 382,471
Elimination of predecessor equity
accounts............................ 339,097 -
Effects of fresh-start reporting
adjustment to common stock equity... 36,464 (172) 36,292
----------- ----------- -----------
BALANCES AT FEBRUARY 11, 1996.......... - - -
--------------------------------------------------------------------------------------
Issuance of common stock upon
reorganization...................... 300,000
Capital stock expense................. (596) (596)
Grants of restricted common
stock............................... -
Amortization of unearned
compensation........................ 190
Preferred stock dividends............. (10,488) (10,488)
Net income............................ 41,919 41,919
Other comprehensive income............ 232 232
----------- ----------- -----------
BALANCES AT DECEMBER 31, 1996.......... 30,835 232 331,257
Grants of restricted common
stock............................... -
Amortization of unearned
compensation........................ 195
Repurchase of unrestricted
common stock........................ (45)
Preferred stock dividends............. (13,144) (13,144)
Net income............................ 51,793 51,793
Other comprehensive loss.............. (416) (416)
----------- ----------- -----------
BALANCES AT DECEMBER 31, 1997.......... $ 69,484 $ (184) $ 369,640
=========== =========== ===========
|
See accompanying notes to financial statements.
EL PASO ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------- ------------- | ------------- -------------
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net income (loss)......................................... $ 51,793 $ 41,919 | $ 382,471 $ (33,319)
Adjustments to reconcile net income (loss) to net cash |
provided by operating activities: |
Depreciation and amortization........................... 111,622 99,355 | 8,246 69,444
Deferred income taxes and investment tax credit, net.... 32,394 41,341 | (3,116) (26,744)
Other operating activities.............................. 2,552 2,487 | (805) (6,795)
Extraordinary loss on repurchases of debt, net of |
federal income tax benefit............................ 2,775 - | - -
Gain on sale of investment.............................. - (3,844) | - -
Reorganization items, net of income tax benefit......... - - | (122,251) -
Extraordinary gain on discharge of debt................. - - | (264,273) -
Change in: |
Accounts receivable..................................... (1,373) 3,513 | 5,429 (4,866)
Federal income tax receivable........................... 20,713 (20,713) | - -
Inventories............................................. 1,192 (32) | 90 1,590
Prepayments and other................................... 1,797 (1,974) | 34 2,214
Long-term contract receivable........................... 3,398 2,333 | 293 (80)
Accounts payable........................................ (12,258) (4,038) | (6,859) 11,885
Interest accrued........................................ (1,978) 23,034 | - -
Net under/overcollection of fuel revenues............... (11,945) (12,709) | 417 16,581
Other current liabilities............................... 386 (1,242) | (152) 1,027
Deferred charges and credits............................ 5,520 (1,117) | 1,994 21,187
Obligations subject to compromise....................... - - | 9,430 71,839
Revenues subject to refund.............................. - - | 2,785 24,107
-------- --------- | ----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 206,588 168,313 | 13,733 148,070
-------- --------- | ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES: |
Additions to utility plant................................ (75,431) (53,346) | (8,176) (87,937)
Investment in decommissioning trust fund.................. (6,023) (5,960) | (553) (5,159)
Proceeds from sale of investment.......................... - 20,183 | - -
-------- --------- | ----------- ----------
NET CASH USED FOR INVESTING ACTIVITIES................ (81,454) (39,123) | (8,729) (93,096)
-------- --------- | ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES: |
Repurchases of and payments on long-term debt............. (86,771) (117,528) | - -
Net proceeds from financing obligations................... 5,369 3,320 | 43,309 -
Redemption of capital lease obligations................... (1,272) (364) | - -
Capital stock expense..................................... - (596) | - -
Proceeds from issuance of preferred stock................. - - | 97,500 -
Proceeds from issuance of long-term debt.................. - - | 778,120 -
Redemption of obligations subject to compromise........... - - | (1,131,695) (1,051)
-------- --------- | ----------- ----------
NET CASH USED FOR FINANCING ACTIVITIES................ (82,674) (115,168) | (212,766) (1,051)
-------- --------- | ----------- ----------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS... 42,460 14,022 | (207,762) 53,923
|
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD....... 68,767 54,745 | 262,507 208,584
-------- --------- | ----------- ----------
CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD............. $111,227 $ 68,767 | $ 54,745 $ 262,507
======== ========= | =========== ==========
|
See accompanying notes to financial statements.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. El Paso Electric Company (the "Company") is a public utility engaged in the generation, transmission and distribution of electricity in an area of approximately 10,000 square miles in west Texas and southern New Mexico. The Company also serves wholesale customers in Texas, New Mexico, California and Mexico.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Bankruptcy Reorganization. On February 12, 1996 (the "Effective Date"), the Company emerged (the "Reorganization") from a bankruptcy proceeding which it instituted in January 1992 (the "Bankruptcy Case"). As a result of the Reorganization, the Company significantly reduced its debt and simplified its capital structure. The Company prior to the Reorganization (the "Predecessor Company") had total obligations subject to compromise of $2,007 million (including obligations related to leases on portions of the Palo Verde Nuclear Generating Station ("Palo Verde") (the "Palo Verde Leases"), which represented $700 million of allowed claims in the Bankruptcy Case). Under the Company's Fourth Amended Plan of Reorganization (the "Plan"), this debt and the Palo Verde Lease obligations were extinguished and the creditors received a combination of $212 million cash and newly issued debt and equity securities of the Company following the Reorganization (the "Reorganized Company") consisting of $1,189 million of long-term bonds and financing and capital lease obligations, $100 million of redeemable preferred stock and $255 million of common stock.
Under the Plan, all of the Predecessor Company's common and preferred stock was canceled and the holders of such securities received approximately $45 million (15%) of the Reorganized Company's common stock and the right to receive certain potential litigation recoveries which ultimately amounted to $20 million. In addition, on the Effective Date, the Palo Verde Leases were terminated and the Company reacquired such interests. See Note H.
Basis of Presentation. The Company maintains its accounts in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (the "FERC"). The Company had determined that it does not meet the criteria for the application of Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation," and accordingly does not report the effects of certain actions of regulators as assets or liabilities unless such actions result in assets or liabilities under generally accepted accounting principles for commercial enterprises in general.
The Company accounted for all transactions related to its Reorganization in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). As of the Effective Date of the Reorganization, the Company applied "fresh-start"
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
reporting in accordance with SOP 90-7 resulting in the creation of a new reporting entity having no retained earnings or accumulated deficit. In applying fresh-start reporting, the Company determined its reorganization value, which was allocated to the Company's assets, and recorded its liabilities at fair value. Reorganization value was determined as the value of the Company's capital structure, based on management's estimates of future operating results, less operational liabilities.
Because of the effects of fresh-start reporting, the Reorganized Company's financial statements for periods after February 12, 1996 are not comparable to the Predecessor Company's financial statements for periods before February 12, 1996. A vertical line is shown in the accompanying financial statements to separate the Reorganized Company from the Predecessor Company because the respective financial statements have not been prepared on a consistent basis of accounting.
Comprehensive Income. In 1997, the Company implemented SFAS No. 130, "Reporting Comprehensive Income." Under this standard, certain gains and losses that are not recognized currently in the statement of operations are reported as other comprehensive income.
Utility Plant. Upon adoption of fresh-start reporting, the Company revalued its utility plant. As of February 12, 1996, the value allocated to the assets used in the Company's generation, transmission and distribution operations was based on the Company's estimate of the replacement cost less depreciation ("RCLD") and was derived from the value of the Company as a going concern rather than on an appraisal or other professional valuation of its assets. The RCLD of generation assets was calculated based on estimates of the current cost of gas-fired combined-cycle and combustion turbine power plants, adjusted for certain economic factors. Additions to utility plant subsequent to February 12, 1996 are reported at historical cost. Depreciation is provided on a straight-line basis over the estimated remaining lives of the assets (ranging from 11 years to 31 years), except for approximately $384 million of reorganization value allocated to net transmission, distribution and general plant in service. This amount is being depreciated over the ten-year period of a rate settlement (the "Rate Stipulation") dated July 27, 1995 among the Company and substantially all of the other parties to Docket No. 12700.
The Company charges the cost of repairs and minor replacements to the appropriate operating expense accounts and capitalizes the cost of renewals and betterments. 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.
The Company accrued a liability for the present value of the estimated decommissioning costs for the Company's interest in Palo Verde using an escalation rate of 3% and a discount rate of 6%. Accretion of the decommissioning liability is charged to interest charges in the statements of operations.
The cost of nuclear fuel is amortized to fuel expense on a unit-of- production basis. A provision for spent fuel disposal costs is charged to expense based on requirements of the Department of Energy (the "DOE") for disposal cost of approximately one-tenth of one cent on each kilowatt hour generated.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Impairment of Long-Lived Assets. The Company evaluates impairment of its long-lived assets and certain intangible assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An asset is deemed impaired if the sum of the expected future cash flows is less than the carrying amount of the asset.
Capitalized Interest. The Company capitalizes, to construction work in progress, interest cost calculated in accordance with SFAS No. 34, "Capitalization of Interest Cost."
Cash and Cash Equivalents. All temporary cash investments with an original maturity of three months or less are considered cash equivalents.
Investments. The Company's marketable securities, included in decommissioning trust funds in the balance sheets, are reported at fair market value and consist primarily of municipal bonds in trust funds established for decommissioning of its interest in Palo Verde which had a fair market value of approximately $38.4 million at December 31, 1997. Such marketable securities are classified as "available-for-sale" securities and as such unrealized gains and losses are included in accumulated other comprehensive income as a separate component of capitalization.
Inventories. Inventories, primarily parts, materials and supplies are stated at average cost not to exceed recoverable cost.
Operating Revenues. The Company accrues revenues for services rendered but unbilled.
The regulations of the Public Utility Commission of Texas (the "Texas Commission"), the New Mexico Public Utility Commission (the "New Mexico Commission") and the FERC and the agreements with individual customers generally provide for fuel and purchased and interchanged power expenses to be recovered from customers. Fuel revenues reflect the Company's estimate of recoverable fuel and purchased and interchanged power expenses net of a percentage of (i) profit margins from certain off-system sales and (ii) revenues from third-party transmission services, which are credited to customers. Economy sales relate to spot market sales and are included in fuel revenues. Base revenues refer to the Company's revenues from the sale of electricity, excluding such fuel revenues.
Federal Income Taxes. The Company accounts for federal income taxes under the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the estimated future tax consequences of "temporary differences" by applying enacted statutory tax rates for each taxable jurisdiction applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company records a valuation allowance to reduce its deferred tax assets to the extent it is more likely than not that such deferred tax assets will not be realized. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date.
Earnings per Share. The Company adopted the provisions of SFAS No. 128, "Earnings per Share," which establishes standards for computing and presenting earnings per share, for the year ended
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1997. All per share amounts reported in prior periods presented have been restated to conform to the new standard. Basic earnings (loss) per common share is computed by dividing net income or loss, after deducting the preferred dividend requirements, by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share is computed by dividing net income or loss, after deducting the preferred dividend requirements, by the weighted average number of common shares and dilutive common shares outstanding.
Benefit Plans. See Note J for accounting policies regarding the Company's retirement plans and postretirement benefits.
Stock Options and Restricted Stock. The Company has a long-term incentive plan which reserves shares of common stock for issuance to officers, key employees and non-employee directors through the award or grant of stock options and restricted stock. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Accordingly, compensation expense is recognized for the intrinsic value, if any, of option grants at measurement date ratably over the vesting period of the options. Compensation expense for the restricted stock awards is recognized for the fair value of the shares at the award date ratably over the restriction period. Unearned compensation related to stock options and restricted stock awards is shown as a reduction of common stock equity.
Reclassifications. Certain amounts in the financial statements for 1996 and 1995 have been reclassified to conform with the 1997 presentation.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL STATEMENTS OF CASH FLOW DISCLOSURES (IN THOUSANDS)
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
----------- ----------- | ----------- -----------
|
Cash (refunded) paid for: |
Income taxes, net............................ $(17,812) $ (2,504) | $ - $ 12,950
Interest..................................... 76,477 53,000 | 8,580 80,688
Reorganization items - professional |
fees and other............................. 3,264 8,910 | 2,279 15,207
|
Non-cash investing and financing activities: |
Issuance of preferred stock for |
pay-in-kind dividends...................... 12,893 8,426 | - -
Grants of restricted shares of |
common stock............................... 575 948 | - -
Property purchased through issuance |
of promissory note......................... - 964 | - -
Reorganized common stock |
exchanged for Predecessor |
common and preferred stock................. - - | 45,000 -
Reorganized common stock |
exchanged for settlement of |
obligations subject to |
compromise................................. - - | 255,000 -
Long-term debt exchanged for |
settlement of obligations subject |
to compromise.............................. - - | 151,834 -
Plant in service reacquired through |
incurring obligation subject to |
compromise................................. - - | 227,656 -
|
B. RATE MATTERS
TEXAS RATE MATTERS
The rates and services of the Company in Texas municipalities are regulated by those municipalities, and in unincorporated areas by the Texas Commission. The largest municipality in the Company's service area is the City of El Paso. The Texas Commission has exclusive appellate jurisdiction to review municipal orders and ordinances regarding rates and services in Texas and
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
jurisdiction over certain other activities of the Company. The decisions of the Texas Commission are subject to judicial review.
Rate Stipulation and Agreed Order. The Company's rates for its Texas customers are governed by a rate order entered by the Texas Commission in Docket 12700 (the "Agreed Order") adopting a Rate Stipulation. The Agreed Order and Rate Stipulation were entered into by the Company, the Texas Commission staff, the City of El Paso and virtually all other intervenors in the case. The Agreed Order implemented certain provisions of the Rate Stipulation and set rates consistent with the Rate Stipulation. Among other things, under the Rate Stipulation: (i) the Company's base rates for most customers in Texas were fixed for ten years beginning in August 1995 (the "Freeze Period"); (ii) the City of El Paso granted the Company a new franchise that extends through the Freeze Period; (iii) the Company will retain 75% during the first five years of the Freeze Period and 50% during the remainder of the Freeze Period of (A) the net revenues generated by providing third-party transmission services and (B) profit margins from certain off-system power sales; (iv) the Company's reacquisition of the Palo Verde leased assets was deemed to be in the public interest; and (v) all appeals of Texas Commission orders concerning the Company and all outstanding Texas Commission dockets concerning the Company's rates were resolved.
Neither the Rate Stipulation nor the Agreed Order deprives the Texas regulatory authorities of their jurisdiction over the Company during the Freeze Period. However, the Texas Commission determined in the Agreed Order that the rate freeze is in the public interest and results in just and reasonable rates. Further, the signatories to the Rate Stipulation (other than the General Counsel, the Texas Office of Public Utility Counsel and the State of Texas) agreed not to seek to initiate an inquiry into the reasonableness of the Company's rates during the Freeze Period and to support the Company's entitlement to rates at the freeze level throughout the Freeze Period. The Company believes, but cannot assure, that its cost of service will support rates at or above the freeze level throughout the Freeze Period and, therefore, does not believe any attempt to reduce the Company's rates would be successful. However, during the Freeze Period, the Company is precluded from seeking rate increases in Texas, even in the event of increased operating or capital costs. In the event of a merger, the parties to the Rate Stipulation retain all rights provided in the Rate Stipulation, their rights to participate as a party in any proceeding related to the merger, and the right to pursue a reduction in rates below the freeze level to the extent of post-merger synergy savings.
Fuel. Pursuant to Texas Commission rules, the Company periodically must make a filing reconciling the revenues collected from Texas customers under its fixed fuel factor with the fuel and purchased power expenses actually incurred for the period covered by the reconciliation. A fuel and purchased power reconciliation must include not less than twelve months nor more than thirty-six months of reconcilable data. The Company has not filed a reconciliation for any period since June 1995. Differences between revenues collected and expenses incurred are subject to a refund to customers (in the case of an overrecovery of fuel costs) or surcharge (in the case of an underrecovery of fuel costs). The Texas Commission staff, local regulatory authorities such as the City of El Paso, and customers are entitled to intervene in a fuel reconciliation proceeding and to challenge the recovery of fuel and purchased power expenses.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Higher than expected natural gas prices were experienced in December 1996, continued in the first quarter of 1997 and remained at higher levels through the remainder of 1997 compared to 1996. These higher natural gas prices have increased the Company's underrecovered fuel costs, which will be reviewed in the next Texas fuel reconciliation. A significant disallowance of fuel costs in this reconciliation could have an adverse effect on the Company's financial results. In January 1998, the Company filed a request with the Texas Commission to increase its Texas fixed fuel factor and implement a surcharge, subject to reconciliation, of its underrecovered fuel costs. The Company entered into a stipulation with all parties to the docket to implement the surcharge and a new fixed fuel factor. Both the fixed fuel factor and surcharge are expected to go into effect in April 1998.
Palo Verde Performance Standards. The Texas Commission has established performance standards for the operation of Palo Verde, pursuant to which each Palo Verde unit is evaluated annually to determine whether its three-year rolling average capacity factor entitles the Company to a reward or subjects it to a penalty. There are five performance bands based around a target capacity factor of 70%. The capacity factor is calculated as the ratio of actual generation to maximum possible generation. If the capacity factor, as measured on a station-wide basis for any consecutive 24-month period, should fall below 35%, the Texas Commission could reconsider the rate treatment of Palo Verde, regardless of the provisions of the Rate Stipulation. The removal of Palo Verde from rate base could have a significant negative impact on the Company's revenues and financial condition. For the three-year rolling average period ended December 31, 1997, Palo Verde Units 1, 2 and 3 achieved capacity factors of 83.75%, 83.04% and 88.70%, respectively. These capacity factors result in the Company's entitlement to a combined reward of $2.8 million pursuant to the formula established by the Texas Commission for the Palo Verde units.
NEW MEXICO RATE MATTERS
The New Mexico Commission has jurisdiction over the Company's rates and services in New Mexico and over certain other activities of the Company, including prior approval of the issuance, assumption or guarantee of securities. The New Mexico Commission's decisions are subject to judicial review. Current base rates in New Mexico were established in 1990 and have not increased since. The Company does not have an agreement with New Mexico regulatory authorities or parties to past New Mexico regulatory proceedings comparable to the Rate Stipulation. The largest city in the Company's New Mexico service territory is Las Cruces, which in 1997 accounted for 8% of the Company's total revenue. See Note I.
Pending Rate Case. In October 1996, the New Mexico Commission issued an order in Case No. 2722, requiring the Company to answer certain ratepayer complaints and to file a rate filing package, including cost of service data and supporting testimony. On March 3, 1997, the Company filed with the New Mexico Commission all of the rate filing package data required by the Commission's order. Although the Company's filing demonstrates a revenue deficiency of approximately $8.6 million under current rates, the Company did not request a rate change to recover the deficiency. The New Mexico Commission could order a rate reduction or, alternatively, in response to economic factors
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
and regulatory, political and competitive pressures, the Company could agree to a rate reduction as part of an overall settlement of all issues in New Mexico. Prosecution of the rate case before the New Mexico Commission is expected to be completed before the end of 1998. The Company is unable at this time to predict the outcome of this proceeding.
Fuel. The Company is required to make annual filings with the New Mexico Commission to reconcile the revenues collected under its fixed fuel factor with its fuel and purchased power expenses actually incurred, and to report the results of Palo Verde performance standards. These reports are due by January 31 of each year for the preceding calendar year, and are filed along with the Company's request to revise its fixed fuel factor to reflect current projections of fuel and purchased power costs and to include the over or underrecovery reflected in the reconciliation report and the reward or penalty reflected in the performance standards report. On October 31, 1997, the Company filed testimony and evidence supporting its continued use of the methodology and manner of collecting fuel and purchased power costs reflected in its tariffs. A hearing on this filing is scheduled for July 1998.
The Company's 1998 annual filing reflects a significant increase in the monthly fuel charge. This increase is necessary because of (i) significant increases in the spot price of natural gas and (ii) the delayed implementation of the 1997 change, effective with bills rendered on or after August 1, 1997, which has caused the Company to underrecover its fuel costs in New Mexico by approximately $5.3 million for the year ended December 31, 1997. The recovery of this amount, coupled with continued higher gas costs for 1998, results in an increase in the proposed 1998 fixed fuel factor of approximately 24% over the present factor. The Company believes it has fully justified its fuel and purchased power costs and recovery methodology. In March 1998, the New Mexico Commission consolidated the 1998 annual filing and the October 1997 filing for hearing in July 1998. There can be no assurance that the New Mexico Commission will accept the Company's proposed fixed fuel factor. As in Texas, interested parties are allowed to intervene and challenge the recoverability of fuel expenses. A significant disallowance of fuel costs could have an adverse effect on the Company's financial results.
Palo Verde Performance Standards. The New Mexico Commission has established performance standards for the operation of Palo Verde, pursuant to which the entire Palo Verde station is evaluated annually to determine if its achieved capacity factor allows the Company to claim a reward or subjects it to a penalty. There are five performance bands based around a target capacity factor of 67.5%. Because Unit 3 is not included in the Company's New Mexico rate base, any penalty or reward calculated on a total station basis is limited to two-thirds of such penalty or reward. The capacity factor is calculated as the ratio of actual generation to maximum possible generation. If the annual capacity factor is 35% or less, the New Mexico Commission is required to initiate a proceeding to reconsider the rate base treatment of Palo Verde Units 1 and 2. The removal of Palo Verde from rate base could have a significant negative impact on the Company's revenues and financial condition. For the year ended December 31, 1997, the Palo Verde station capacity factor was 88.43%. This capacity factor results in the Company's entitlement to a reward of $1.1 million, pursuant to the formula established by the New Mexico Commission for the Palo Verde units.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
FEDERAL REGULATORY MATTERS
Federal Energy Regulatory Commission. The Company is subject to regulation by the FERC in certain matters, including rates for wholesale power sales, transmission of electric power and the issuance of securities.
The Company has a long-term firm power sales agreement with Imperial Irrigation District ("IID") providing for the sale of 100 megawatts ("MW") of firm capacity and 50 MW of contingent capacity through April 2002. The agreement generally provides for level sales prices over the life of the agreement. The Company also has a firm power sales agreement with Texas-New Mexico Power Company ("TNP"), providing for sales to TNP in the minimum amount of 25 MW through 2002. Sales prices are essentially level for the remaining life of the agreement. Rate tariffs currently applicable to IID and TNP contain fuel and purchased power cost adjustment provisions designed to recover the Company's fuel and purchased power costs.
In July 1996, the Company filed its open access transmission tariffs (Docket No. OA96-200-000) (the "Open Access Case"), in compliance with FERC Order No. 888, Promoting Wholesale Competition Through Open Access Non- Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities ("Order No. 888"), covering network and point-to-point transmission services and the six specifically required ancillary services. Several parties, including the City of Las Cruces, New Mexico ("Las Cruces"), other utilities and several wholesale power marketers, intervened and filed protests to the Company's tariffs. Issues raised by the intervenors included rates and the terms and conditions of the Company's tariffs, including the treatment of and costs related to, certain facilities making access to the Comision Federal de Electricidad de Mexico ("CFE") more available to parties other than the Company. In February 1997, the Company entered into a stipulated agreement among the various parties settling all rate issues related to the Open Access Case. Under the settlement, the Company will provide transmission service, to the extent transmission capacity is available, to any party for firm or interruptible service to the CFE until the earlier of the end of 1998 or the date the FERC rules on the complaint filed by one of the wholesale power marketers that submitted a bid in 1996 to the CFE. See "Department of Energy" below.
Intervenors in the Open Access Case also raised certain issues relating to the criteria by which the Company will determine the amount of transmission capacity that is available for use by third parties desiring to use its transmission system. Hearings related to these issues were conducted before a FERC administrative law judge in January 1998. A final decision from the FERC on these issues is not expected until the fourth quarter of 1998. The Company does not expect a material financial impact to result from a FERC ruling.
In July 1996, Las Cruces exercised its right under Order No. 888 to request that the Company calculate Las Cruces' stranded cost obligation should it leave the Company's system and operate its own municipal utility. For a discussion of this proceeding, see Note I.
Department of Energy. The DOE regulates the Company's exports of power to the CFE in Mexico pursuant to a license granted by the DOE and a presidential permit. In addition, the DOE is authorized
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
to assess operators of nuclear generating facilities for a share of the costs of decommissioning the DOE's uranium enrichment facilities and for the ultimate costs of disposal of spent nuclear fuel.
In September 1996, one of the wholesale power marketers that submitted a bid in 1996 to the CFE in connection with renewal of the interchange agreement for the supply of power during 1997 to Ciudad Juarez, Mexico, filed a complaint against the Company with the FERC. The complaint sought emergency relief and requested the FERC to direct the Company to enter into an agreement to provide firm point-to-point transmission service to the CFE under the Company's open access transmission tariff. In October 1996, the FERC issued an order requiring the Company to provide point-to-point transmission service over the Company's transmission system to substation facilities near the United States/Mexico border. The FERC, however, concurred with the Company's position that the FERC does not have jurisdiction to order transmission across the border, suggesting that the DOE has such jurisdiction. The DOE subsequently issued a Notice of Delegation and Assignment which delegated to the FERC the DOE's authority to carry out its duties in this case. The FERC has docketed the Delegation and Assignment and the process is expected to continue throughout 1998.
Nuclear Regulatory Commission. The Nuclear Regulatory Commission (the "NRC") has jurisdiction over the Company's licenses for Palo Verde and regulates the operation of nuclear generating stations to protect the health and safety of the public from radiation hazards and has authority to conduct environmental reviews pursuant to the National Environmental Policy Act.
OTHER WHOLESALE CUSTOMERS
The term of the Company's previous one-year 1997 sales agreement for firm capacity and associated energy to the CFE terminated December 31, 1997. Pursuant to a bidding process, the Company was selected by the CFE to provide varying amounts of power during 1998 ranging from 90 to 200 MW. The price is stable throughout the twelve-month term of the agreement and includes charges for capacity and energy as well as transmission and any required ancillary services. Under the new agreement, the Company's revenues in 1998 related to power sales to the CFE are expected to be similar to 1997 revenues. There can be no assurance that the CFE will remain a customer after 1998. The agreement requires payment in United States dollars.
RECENT CHANGES IN UTILITY REGULATION
General. The electric utility industry faces increasing pressure to become more competitive as legislative, regulatory, economic and technological changes occur. Federal and state legislation, regulatory initiatives, and proposed initiatives in Texas and New Mexico encourage competition in the industry, and ultimately in the Company's service area. Together with increasing customer demand for lower priced electricity and other energy services, these measures have accelerated the industry's movement toward more competitive pricing and cost structures. Such competitive pressures could result in the loss of customers and could diminish the ability of the Company to fully recover its investment in generation assets, as well as the cost of operating these assets. This issue is particularly important to the Company because its rates are significantly higher than national and regional averages. In the face of
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
increased competition, there can be no assurance that the future operations, cash flows and financial condition of the Company will not be adversely affected, or that the Company will be able to sustain retail rates at the levels established by the Rate Stipulation during the Freeze Period.
Of particular importance to the Company is the issue of ultimate recoverability of "stranded costs," or costs previously found by regulatory authorities to be reasonable and prudent, but which at the same time are higher than would be recovered under immediate, full competition. There is substantial discussion and debate on this issue on both a national and state level and, at this time, there appears to be no clear solution. At the federal level, the FERC has announced, through a formal rulemaking, its intention to allow 100% recovery of all legitimate verifiable stranded costs attributable to FERC jurisdictional customers. Texas and New Mexico commissions and legislatures are engaged in various activities which are attempting to address the issue of stranded cost recovery from customers subject to their jurisdictions.
FERC. In April 1996, the FERC issued its Order No. 888, requiring all public utilities owning, operating or controlling facilities used for transmitting electricity in interstate commerce to (i) file open access transmission tariffs containing minimum terms and conditions of non- discriminatory service and (ii) take transmission service (including ancillary services) for their own new wholesale sales and purchases of electric energy under the open access tariffs. Additionally, Order No. 888 permits public utilities to seek recovery of legitimate, prudent and verifiable stranded costs and provides a mechanism for the recovery of such costs. Order No. 888 also provides for recovery of costs associated with former power customers and new municipally-owned entities becoming transmission-only customers as a result of providing open access transmission if the utility had a reasonable expectation of continuing to provide service to the departing customer. Order No. 888 established criteria under which stranded costs will be evaluated for contracts entered into prior to July 11, 1994, and for stranded costs resulting from the formation of any new municipal utilities. Recovery of stranded costs under contracts entered into after July 10, 1994, will be governed by the terms of those contracts.
In April 1996, the FERC also issued Order No. 889, Open Access Same-Time Information System (formerly Real-Time Information Networks) and Standards of Conduct ("Order No. 889"). Order No. 889 requires all public utilities owning, operating or controlling facilities used for transmitting electricity in interstate commerce to develop and maintain an Open Access Same-Time Information System that will give existing and potential transmission users access to transmission-related information on a basis consistent with that available to a utility's employees engaged in the buying and selling of power. Order No. 889 further requires public utilities to separate their transmission and generation marketing functions and adopt standards of conduct ensuring that all open access transmission customers are treated in a non-discriminatory manner.
Texas. During 1996, the Texas Commission conducted projects to evaluate the (i) scope of competition in the electric industry in Texas and (ii) potential stranded investment, procedures for allocating stranded costs, and acceptable methods of stranded cost recovery. The Texas Commission's report, which was issued in January 1997, recommended a careful and deliberate approach to continued expansion of competition in the Texas electric market, ultimately leading to retail competition with
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
certain safeguards, and recommended against any legislation that would introduce broad-based retail competition before 2000. The Texas Commission also quantified the potential retail "excess of cost over market" ("ECOM") under several scenarios. In February 1998, the Texas Commission requested all Texas utilities to revise the ECOM estimates based on certain updated assumptions. Using the Texas Commission's revised model inputs, the Company's revised ECOM estimates range from a high of $1.5 billion to a low of $843 million, with an expected value of $1.2 billion, assuming full retail access in 1999. Although several pieces of legislation were offered during the 1997 Texas legislative session, no significant deregulation legislation was passed.
In August 1997, the Lieutenant Governor appointed seven senators to serve on a special interim committee to study the various issues involved in a possible transition to a competitive electric market. The committee is receiving testimony from various parties, including environmental advocates, consumer advocates, power marketers, public power entities, electric cooperatives and investor-owned utilities, as well as testimony and comments from the public at large, and is holding public hearings across the state on various aspects of the electric industry restructuring debate. The Association of Electric Companies of Texas (the "AECT") testified on behalf of all investor-owned utilities in Texas, including the Company. The AECT testified that it would support retail competition that provides benefits to all consumers, maintains electric system reliability, provides for equitable treatment of all competitors and provides for the preservation of prior regulatory commitments. The committee is expected to file a final report in late 1998. Recently, the Lieutenant Governor asked the Texas Comptroller of Public Accounts to initiate a study to review the impact of a deregulated electric market on state and local tax systems.
New Mexico. In 1995, the New Mexico Commission initiated a notice of inquiry regarding competition and the restructuring of regulation of the electric industry. The New Mexico Commission received comments from numerous parties representing various interests and conducted workshops in an attempt to arrive at a consensus with respect to the need for regulatory change, the nature of such change and the timing/transition of any changes. No consensus was reached by the participants. The New Mexico Commission also commenced a collaborative process with the assistance of facilitators in an attempt to reach consensus. Although that collaborative process failed to reach a consensus around which restructuring legislation could be drafted, the New Mexico investor-owned utilities, including the Company, have agreed to support legislation that would permit retail competition provided: (i) all customers have the opportunity to benefit, (ii) reliability of electric service is maintained, (iii) all energy suppliers are subject to the same laws and regulations, (iv) the price of electric generating capacity and electric energy is determined solely by market forces, (v) unbundled transmission and distribution functions remain subject to regulation, and (vi) each electric utility must have a reasonable opportunity to recover its stranded costs. The 1998 legislative session concluded without the passage of any significant deregulation legislation.
C. PALO VERDE AND OTHER JOINTLY-OWNED UTILITY PLANT
The Company has a 15.8% undivided interest in the three nuclear generating units at Palo Verde. The Palo Verde Participants include the Company, five other utilities and Arizona Public
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Service Company ("APS"), which serves as the operating agent for Palo Verde. The operation of Palo Verde and the relationship among the Palo Verde Participants is governed by the Arizona Nuclear Power Project Participation Agreement (the "ANPP Participation Agreement").
Other jointly-owned utility plant includes a 7% undivided interest in Units 4 and 5 of Four Corners Generating Station ("Four Corners") and certain other transmission facilities. A summary of the Company's investment in jointly-owned utility plant, excluding fuel, at December 31, 1997 and 1996 is as follows (In thousands):
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
PALO VERDE PALO VERDE
STATION OTHER STATION OTHER
---------------------- ----------------------
Electric plant in service........... $573,218 $180,815 $568,957 $180,366
Accumulated depreciation............ (46,589) (27,078) (22,162) (12,747)
Construction work in progress....... 12,545 2,249 8,545 985
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Pursuant to the ANPP Participation Agreement, the Palo Verde Participants share costs and generating entitlements in the same proportion as their percentage interests in the generating units and each Palo Verde Participant is required to fund its proportionate share of fuel, other operation, maintenance and capital costs, which, except capital costs, are included in the corresponding expense captions in the statements of operations. The Company's total monthly share of these costs was approximately $7.3 million in 1997. The ANPP Participation Agreement provides that if a participant fails to meet its payment obligations, each non-defaulting participant shall pay its proportionate share of the payments owed by the defaulting participant.
Decommissioning. Pursuant to the ANPP Participation Agreement and federal law, the Company is required to fund its share of the estimated costs to decommission Palo Verde over the estimated service life of forty years. The Company's funding requirements are determined periodically based upon engineering cost estimates performed by outside engineers retained by the ANPP.
In December 1995, the Palo Verde Participants approved a decommissioning study performed by an outside engineering firm. The 1995 study determined that the Company will have to fund approximately $229 million (stated in 1995 dollars) to cover its share of decommissioning costs. The 1995 study assumed that (i) maintenance expense for spent fuel storage will be incurred for ten years after the shutdown of the last unit (estimated to be in 2024); (ii) a national interim spent fuel storage facility will be available; and (iii) as a result of such national spent fuel storage facility, the amount of spent fuel stored on-site will be reduced from all spent fuel assemblies to the final core plus fuel assemblies from approximately three refuelings.
Cost estimates for decommissioning have increased with each study. The previous cost estimate from a 1993 study determined that the Company would have to fund approximately $221 million (stated
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
in 1993 dollars). The 1993 estimate, however, reflected an 84% increase from the previous estimate made in 1989, primarily related to increases in estimated costs for low-level radioactive waste disposal.
Although the 1995 study was based on the latest available information, there can be no assurance that decommissioning cost estimates will not continue to increase in the future or that regulatory requirements will not change. In addition, until a new low-level radioactive waste repository opens and operates for a number of years, estimates of the cost to dispose of low-level radioactive waste are subject to significant uncertainty. The decommissioning study is updated every three years and a new study will be completed in 1998.
The rate freeze under the Rate Stipulation would preclude the Company from seeking a rate increase in Texas during the Freeze Period to recover increases in decommissioning cost estimates. Additionally, there can be no assurance that the Company could increase its rates in any of its other jurisdictions to recover such increased costs.
The Company has established external trusts with independent trustees, which enable the Company to record a current deduction for federal income tax purposes of a portion of amounts funded. As of December 31, 1997, the aggregate balance of the trust funds was approximately $38.4 million, which is reflected in the Company's balance sheets in deferred charges and other assets.
Steam Generators. Palo Verde has experienced degradation in the steam generator tubes of each unit. The degradation includes axial tube cracking in the upper regions of the two steam generators in Unit 2 and, to a lesser degree, in Units 1 and 3. This form of steam generator tube degradation, while less common than other types, has also been seen at other United States nuclear generating stations. The units also have experienced circumferential cracking at the tube sheet, a more common type of tube cracking. The axial tube cracking was discovered following a steam generator tube rupture in Unit 2 in March 1993. Since that time, APS has undertaken an ongoing investigation and analysis and has performed corrective actions designed to mitigate further degradation. Corrective actions have included changes in operational procedures designed to lower the operating temperatures of the units, chemical cleaning and the implementation of other technical improvements. APS has stated that it believes its remedial actions have slowed the rate of tube degradation.
Steam generator tubes in each of the Palo Verde units have been inspected during regularly scheduled refueling outages and mid-cycle inspection outages. If tube cracks are detected during an inspection, the affected tubes are taken out of service by plugging. This may impair the performance of a unit if sufficient numbers of steam generator tubes are affected.
The projected service lives of the units' steam generators are reassessed by APS periodically in conjunction with inspections made during outages of the Palo Verde units. APS has determined that it will be economically desirable to replace the Unit 2 steam generators, which have been the most affected by tube cracking. In 1997, the Palo Verde Participants unanimously approved the purchase of one set of spare steam generators for delivery in May 2002. The Company's share of the cost is approximately $12.9 million. APS has indicated that in 1998 it will request that the participants approve installation of
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
the spare generators in Unit 2 in 2003. The Company believes that such installation would require the unanimous approval of the Palo Verde Participants. The Company will continue to analyze the economic feasibility of steam generator replacement, or other options that may be available in connection with the operation of Unit 2. Also, the Company cannot predict whether the Palo Verde Participants will agree to replace the Unit 2 steam generators. The costs for the construction and shipping of the spare steam generators are expected to be incurred between 1998 and 2002. Installation costs, if they are approved, would be expected to be incurred between 1999 and 2003, with the bulk of the expenditures after 2000. The Company's portion of total costs associated with construction and potential installation of new steam generators in Unit 2, including replacement power costs and costs that would otherwise have been expended through the operation and maintenance budget, is currently estimated not to exceed $36 million. APS has also stated that, based on the latest available data, it estimates that the steam generators in Units 1 and 3 should operate for their designated lives of 40 years (to 2025 and 2027, respectively). APS will reassess the expected lives of these steam generators periodically.
The Rate Stipulation precludes the Company from seeking a rate increase in Texas during the Freeze Period to recover capital costs associated with such replacement of steam generators. It is uncertain whether the costs associated with replacing the Unit 2 steam generators would be approved by the New Mexico Commission and included in the Company's rate base in New Mexico.
Liability and Insurance Matters. The Palo Verde Participants have public liability insurance against nuclear energy hazards up to the full limit of liability under federal law. The insurance consists of $200 million of primary liability insurance provided by commercial insurance carriers, with the balance being provided by an industry-wide retrospective assessment program, pursuant to which industry participants would be required to pay an assessment to cover any loss in excess of $200 million. The maximum assessment per reactor for each nuclear incident is approximately $79.2 million, subject to an annual limit of $10 million per incident. Based upon the Company's 15.8% interest in Palo Verde, the Company's maximum potential assessment per incident is approximately $37.6 million for all three units with an annual payment limitation of approximately $4.7 million.
The Palo Verde Participants maintain "all risk" (including nuclear hazards) insurance for property damage to, and decontamination of, property at Palo Verde in the aggregate amount of $2.7 billion, a substantial portion of which must first be applied to stabilization and decontamination. Finally, the Company has obtained insurance against a portion of any increased cost of generation or purchased power which may result from an accidental outage of any of the three Palo Verde units if the outage exceeds 23 weeks.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
D. COMMON STOCK
OVERVIEW
The Company issued approximately 60 million shares of new common stock on February 12, 1996. The common stock has a stated value of $1 per share, with no cumulative voting rights or preemptive rights. Holders of the common stock have the right to elect the Company's directors and to vote on other matters.
Pursuant to the resolutions creating the Series A Preferred Stock, no dividends can be paid on the common stock if there are dividends in arrears on the Series A Preferred Stock. So long as the Company's First Mortgage Bonds are outstanding and the series with the longest maturity is not rated "investment grade" by either Standard & Poor's Rating Service or Moody's Investors Service, Inc., the Company may not declare any dividend on the common stock, other than in additional shares of common stock, or make any other distribution on, or acquire for value any shares of common stock (with certain limited exceptions) unless, after giving effect thereto, the aggregate of all such dividends, distributions and certain other payments made by the Company since February 12, 1996 would be less than the sum of (i) 50% of the consolidated net income (as defined in the mortgage indenture) of the Company minus dividends paid in respect of the Series A Preferred Stock for the period from February 13, 1996 to the most recently ended fiscal quarter for which quarterly financial statements are available (or, if such consolidated net income is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net proceeds received by the Company from the issuance or sale since February 12, 1996 of equity securities or debt securities that have been converted into equity securities, plus (iii) $10.0 million. Currently, the Company's First Mortgage Bonds are not rated investment grade.
Pursuant to the terms of the reimbursement agreements related to four letters of credit issued with respect to the four series of pollution control revenue bonds, so long as a drawing is available under any of the letters of credit, the same limitation on the declaration of dividends would apply to the Company. In addition to the restriction contained in the mortgage indenture, the credit agreement for the working capital and fuel financing facility limits to $15.0 million the aggregate amount of dividends that can be paid on the common stock during the three years after its initial issuance on February 12, 1996.
1996 LONG-TERM INCENTIVE PLAN
The 1996 Long-Term Incentive Plan (the "1996 Plan") authorized the issuance of up to 3,500,000 shares of common stock for the benefit of officers, key employees and non-employee directors through the award or grant of non-statutory stock options, incentive stock options, stock appreciation rights, restricted stock, bonus stock and performance stock.
Stock Options. Stock options have been granted at prices equal to or greater than the market value of the shares at the date of grant. The options expire ten years from the date of grant unless terminated
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
earlier by the Board of Directors. The following table summarizes the transactions of the Company's stock options for 1996 and 1997:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- ----------
Unexercised options outstanding at February 12, 1996..... - $ -
Options granted..................................... 1,900,000 5.69
Options exercised................................... - -
Options forfeited................................... - -
---------
Unexercised options outstanding at December 31, 1996..... 1,900,000 5.69
Options granted..................................... 55,000 6.56
Options exercised................................... - -
Options forfeited................................... (5,000) 6.56
---------
Unexercised options outstanding at December 31, 1997..... 1,950,000 5.71
=========
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Certain stock options awarded vest ratably over a four or five-year period. Stock options outstanding at December 31, 1997 are as follows:
EXERCISE NUMBER REMAINING NUMBER
PRICE OUTSTANDING LIFE, IN YEARS EXERCISABLE
-------- ----------- -------------- -----------
$ 5.32 800,000 8.3 320,000
5.56 800,000 8.4 320,000
6.56 50,000 9.3 50,000
7.00 300,000 8.4 300,000
--------- -------
1,950,000 990,000
========= =======
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The Company has adopted the disclosure-only provisions of SFAS No. 123. Accordingly, because the stock option grants had no intrinsic value at the measurement date, no compensation cost has been recognized. Had compensation cost for the plan been determined based on the fair value at
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
the grant date, consistent with the provisions of SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts presented below:
PERIOD FROM
FEBRUARY 12
TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------- ------------
Net income applicable to common stock (In thousands):
As reported......................................... $38,649 $31,431
Pro forma........................................... 38,093 30,337
Basic earnings per share:
As reported......................................... 0.643 0.523
Pro forma........................................... 0.634 0.505
Diluted earnings per share:
As reported......................................... 0.639 0.523
Pro forma........................................... 0.630 0.505
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The fair value for these options was estimated at the grant date using the Black-Scholes option pricing model. Weighted average assumptions and grant-date fair value for 1997 and 1996 are presented below:
1997 1996
------ ------
Risk-free interest rate 6.76% 6.85%
Expected life, in years 10 10
Expected volatility 10.86% 4.24%
Expected dividend yield - -
Fair value $ 3.24 $2.60
|
Restricted Stock. The Company has awarded vested and unvested restricted stock awards under the 1996 Plan. Restrictions from resale generally lapse, and unvested awards vest, over periods of four to five years. During 1997 and 1996, approximately $0.5 million and $0.2 million, respectively, relating to
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
restricted stock awards were charged to expense. The following table summarizes the vested and unvested restricted stock awards for 1997 and 1996:
VESTED UNVESTED TOTAL
---------------- ---------------- ----------------
Restricted shares outstanding at February 12, 1996.... - - -
Restricted stock awards............................ 80,000 100,000 180,000
Lapsed restrictions................................ - - -
--------------- --------------- ---------------
Restricted shares outstanding at December 31, 1996... 80,000 100,000 180,000
Restricted stock awards............................ 47,440 36,815 84,255
Lapsed restrictions and vesting.................... (40,488) (27,363) (67,851)
--------------- --------------- ---------------
Restricted shares outstanding at December 31, 1997... 86,952 109,452 196,404
=============== =============== ===============
|
The holder of a restricted stock award has rights as a shareholder of the Company, including the right to vote and, if applicable, receive cash dividends on restricted stock, except that certain restricted stock awards require any cash dividend on restricted stock to be delivered to the Company in exchange for additional shares of restricted stock of equivalent market value.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
RECONCILIATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
The reconciliation of basic and diluted earnings per common share before extraordinary items is presented below:
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
PER
COMMON
INCOME SHARES SHARE
---------------- ----------------- ---------------
(IN THOUSANDS)
Income before extraordinary items............. $54,568
Less: Preferred stock dividends............. 13,144
-------
Basic earnings per common share:
Income applicable to common stock............ 41,424 60,128,505 $0.689
=========
Effect of dilutive securities:
Unvested restricted stock.................... - 16,041
Stock options................................ - 293,086
------- ----------
Diluted earnings per common share:
Income applicable to common stock............ $41,424 60,437,632 $0.685
======= ========== =========
|
PERIOD FROM FEBRUARY 12 TO
DECEMBER 31, 1996
----------------------------------------------------
PER
COMMON
INCOME SHARES SHARE
---------------- ----------------- ---------------
(IN THOUSANDS)
Income before extraordinary items............. $41,919
Less: Preferred stock dividends............. 10,488
-------
Basic earnings per common share:
Income applicable to common stock............ 31,431 60,073,808 $0.523
======
Effect of dilutive securities:
Unvested restricted stock.................... - 3,912
Stock options................................ - 38,989
------- ----------
Diluted earnings per common share:
Income applicable to common stock............ $31,431 60,116,709 $0.523
======= ========== ======
|
Options to purchase 300,000 shares of common stock at $7.00 per share were outstanding during 1997 and the second half of 1996 but were excluded from the computation of diluted earnings per common share for all periods except the first quarter of 1997 because the options' exercise price was greater than the average market price of the common shares for those periods. The options, which expire on June 11, 2006, were still outstanding at the end of 1997. Also excluded from the computation
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
of diluted earnings per common share were options to purchase 525,000 shares of common stock at $7.50 per share, granted on January 2, 1998.
The reconciliation of basic and diluted earnings per common share for the Predecessor Company are not presented herein as there were no reconciling items for periods prior to February 12, 1996.
E. PREFERRED STOCK
The Company issued one million shares of new Series A Preferred Stock on February 12, 1996. The preferred stock has a liquidation preference of $100 per share, has no sinking fund requirements and must be redeemed by the Company in 2008. The preferred stock has an annual dividend rate of 11.40%, which is to be paid through the issuance of additional shares of preferred stock for the first three years and in cash thereafter. The Company issued a total of 213,188 additional shares between November 1, 1996 and December 31, 1997 to satisfy pay- in-kind dividends. Also, on January 22, 1998, the Company's Board of Directors declared a scheduled pay-in-kind dividend which was paid on February 1, 1998, through the issuance of 34,559 additional shares to shareholders of record as of January 22, 1998.
Following is a summary of the changes in the preferred stock of the Predecessor and Reorganized Company:
REDEMPTION REQUIRED REDEMPTION NOT REQUIRED
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
(IN THOUSANDS) (IN THOUSANDS)
Balance at December 31, 1994 and 1995.............. 639,600 $ 67,266 142,450 $ 14,198
Redemption of Predecessor preferred stock........ (639,600) (67,266) (142,450) (14,198)
Issuance of Reorganized preferred stock.......... 1,000,000 100,000 - -
Issuance of dividends............................ 84,264 8,426 - -
--------- -------- --------- ------------
Balance at December 31, 1996....................... 1,084,264 108,426 - -
Issuance of dividends............................ 128,924 12,893 - -
--------- -------- --------- ------------
Balance at December 31, 1997....................... 1,213,188 $121,319 - $ -
========= ======== ========= ============
|
Optional Redemption. The Series A Preferred Stock is not redeemable at the Company's option prior to February 1, 1999; provided, however, that upon the occurrence of a change of control on or prior to February 1, 1999, the Company shall have the right to redeem the outstanding Series A Preferred Stock, in whole or in part, no earlier than 30 days nor later than 60 days from the date the change of control offer is mailed to the holders of Series A Preferred Stock, in cash, at a price per share equal to the sum of (i) 108% of the liquidation preference plus (ii) accrued and unpaid dividends (including an amount equal to a prorated dividend from the immediately preceding dividend accrual date), if any, to the redemption date. Thereafter, the outstanding Series A Preferred Stock may be redeemed, in whole or in part, at the option of the Company, in cash at the redemption prices set forth in the table below, plus all accrued and unpaid dividends (including an amount equal to a prorated
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
dividend from the immediately preceding dividend accrual date to the date of redemption), if any, if redeemed during the twelve-month period beginning on February 1 of the years indicated below:
OPTIONAL
REDEMPTION
YEAR PRICE
---- ----------
1999....................................... 105.70%
2000....................................... 104.56
2001....................................... 103.42
2002....................................... 102.28
2003....................................... 101.14
2004 and thereafter........................ 100.00
|
Mandatory Redemption. On February 1, 2008, the Company will be required to redeem (subject to the legal availability of funds therefor) all outstanding shares of Series A Preferred Stock at a price in cash equal to the sum of (i) the liquidation preference thereof plus (ii) all accrued and unpaid dividends, if any, to the date of redemption.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
F. LONG-TERM AND FINANCING AND CAPITAL LEASE OBLIGATIONS
Outstanding long-term and financing and capital lease obligations are as follows:
DECEMBER 31,
--------------------------------
1997 1996
--------------- ---------------
(IN THOUSANDS)
Long-Term Obligations:
----------------------
First Mortgage Bonds (1):
7.25% Series A, issued 1996, due 1999.................................. $ 66,261 $ 78,266
7.75% Series B, issued 1996, due 2001.................................. 62,698 78,771
8.25% Series C, issued 1996, due 2003.................................. 119,292 148,989
8.90% Series D, issued 1996, due 2006.................................. 223,132 235,957
9.40% Series E, issued 1996, due 2011.................................. 273,398 285,900
Pollution Control Bonds (2):
Secured by First Mortgage Collateral Series Bonds:
Variable rate bonds, due 2014........................................ 63,500 63,500
Variable rate refunding bonds, due 2013.............................. 33,300 33,300
Variable rate refunding bonds, due 2014.............................. 37,100 37,100
Variable rate refunding bonds, due 2015.............................. 59,235 59,235
Promissory note due 2007 ($84,000 due in 1998) (3)......................... 730 958
-------- ----------
Total long-term obligations........................................ 938,646 1,021,976
-------- ----------
Financing and Capital Lease Obligations:
----------------------------------------
Turbine lease ($1,722,000 due in 1998) (4)................................. 4,628 5,900
Nuclear fuel ($26,657,000 due in 1998) (5)................................. 51,999 46,630
-------- ----------
Total financing and capital lease obligations...................... 56,627 52,530
-------- ----------
Total long-term and financing and capital lease obligations........ 995,273 1,074,506
Current maturities (Amount due within one year).............................. (28,463) (28,333)
-------- ----------
$966,810 $1,046,173
======== ==========
-------------
|
(1) First Mortgage Bonds
Substantially all of the Company's utility plant is subject to liens under the First Mortgage Indenture.
The First Mortgage Indenture imposes certain limitations on the ability of the Company to (i) declare or pay dividends on common stock; (ii) incur additional indebtedness or liens on mortgaged property; and (iii) enter into a consolidation, merger or sale of assets.
Series A, B, C and D Bonds may not be redeemed by the Company prior to maturity. Series E Bonds may be redeemed at the option of the Company, in whole or in part, on or after February 1, 2006.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The Company is not required to make mandatory redemption or sinking fund payments with respect to the bonds prior to maturity.
Repurchases of First Mortgage Bonds made during 1997 and 1996 are as follows (In thousands):
PERIOD FROM
FEBRUARY 12
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
7.25% Series A............................ $12,005 $ 46,726
7.75% Series B............................ 16,073 71,217
8.25% Series C............................ 29,697 8
8.90% Series D............................ 12,825 -
9.40% Series E............................ 12,502 -
------- --------
Total................................... $83,102 $117,951
======= ========
|
(2) Pollution Control Bonds
The Company has four series of tax exempt Pollution Control Bonds in an aggregate principal amount of approximately $193.1 million. Each of the tax exempt issues is enhanced by a letter of credit. The Company's obligation to the issuing banks pursuant to the letter of credit reimbursement agreements are secured by First Mortgage Collateral Series Bonds (the "Collateral Series Bonds") issued pursuant to the First Mortgage Indenture in the amount of the letters of credit. The effective annual interest rate on the bonds is calculated to be 5.65% at December 31, 1997. The bonds may be required to be repurchased at the holder's option or are subject to mandatory redemption upon the occurrence of certain events, and are redeemable at the option of the Company under certain circumstances.
(3) Promissory Note
The note has an annual interest rate of 5.5% and is secured by certain furniture and fixtures.
(4) Capitalized Lease Obligation, Copper Turbine
The Company leases a turbine and certain other related equipment under a lease which expires in July 2000, with renewal options for up to seven additional years. Semiannual lease payments, including interest, are approximately $0.9 million through July 2000. The effective annual interest rate implicit in this lease is calculated to be 9.6%.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
(5) Nuclear Fuel Financing
The Company has available a $100 million credit facility that provides for working capital and up to $60 million for the financing of nuclear fuel. This financing is effected through a trust that borrows under the facility to acquire and process the nuclear fuel. The Company is obligated to repay the trust's borrowings, and has secured this obligation with Collateral Series Bonds. In the Company's financial statements, the assets and liabilities of the trust are reported as assets and liabilities of the Company.
The letter of credit reimbursement agreements which enhance the Company's Pollution Control Bonds and the $100 million credit facility require compliance with certain total debt and interest coverage ratios. The Company maintained the required compliance throughout 1997.
Scheduled maturities of long-term and financing and capital lease obligations at December 31, 1997 are as follows (In thousands):
1998.............................................. $28,463 1999.............................................. 93,412 2000.............................................. 1,815 2001.............................................. 62,797 2002.............................................. 104 |
The table above does not reflect nuclear fuel purchase commitments and related obligations and maturities.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
G. INCOME TAXES
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are presented below (In thousands):
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
Deferred tax assets:
Reorganization expenses financed with bonds............ $ 18,308 $ 22,526
Capital leases......................................... 2,633 2,873
Benefits of tax loss carryforwards..................... 222,764 256,510
Investment tax credit carryforward..................... 20,410 20,410
Alternative minimum tax credit carryforward............ 11,954 9,627
Other (including state deferred taxes)................. 82,929 92,643
--------- ---------
Total gross deferred tax assets..................... 358,998 404,589
--------- ---------
Less valuation allowance:
Federal............................................. 12,661 12,661
State............................................... 17,149 17,941
--------- ---------
Total valuation allowance......................... 29,810 30,602
--------- ---------
Net deferred tax assets........................ 329,188 373,987
--------- ---------
Deferred tax liabilities:
Plant, principally due to differences in depreciation
and basis differences............................... (275,531) (288,416)
Other.................................................. (10,449) (11,687)
--------- ---------
Total gross deferred tax liabilities................ (285,980) (300,103)
--------- ---------
Net accumulated deferred income taxes.......... $ 43,208 $ 73,884
========= =========
|
The deferred tax asset valuation allowance decreased by approximately $0.8 million in 1997, $226.7 million in 1996 and $4.5 million in 1995. The decrease in 1997 was due to a reduction of unused state net operating loss ("NOL") carryforward benefits, which had valuation allowances recorded against them. The decrease in 1996 was primarily due to the Company's belief that, because of the Rate Stipulation, Reorganization, and other factors, it is more likely than not that the Company will have sufficient taxable income in the future to utilize most of the tax NOL carryforward benefits that had valuation allowances recorded against them. The Company believes that the net deferred tax assets would be fully realized at current levels of taxable income. Prior to the effective date of the Reorganization, the Predecessor Company did not assume future taxable income for the utilization of NOL carryforwards. Approximately $27.1 million of the Company's valuation allowance at December 31, 1997, if subsequently recognized as a tax benefit, would be credited directly to capital in excess of stated value in accordance with SOP 90-7.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The Company recognized income taxes as follows (In thousands):
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
YEAR ENDED TO | TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------- ------------- | ------------- -------------
|
Income tax expense (benefit): |
Federal: |
Current......................................... $ 2,382 $(17,203) | $ - $ 13,757
Deferred........................................ 28,087 38,828 | (2,340) (21,703)
Investment tax credit amortization.............. - - | (325) (2,828)
--------- -------- | ------------ --------
Subtotal current operations................... 30,469 21,625 | (2,665) (10,774)
Deferred tax benefit on extraordinary loss...... (1,494) - | - -
Adjustment of assets to reorganization value |
and liabilities to fair value (eliminatio |
of accumulated deferred investment |
tax credits).................................. - - | (77,950) -
Deferred included in reorganization items....... - - | (172,899) (1,194)
Income tax expense on interest income |
during bankruptcy............................. - - | 583 4,633
--------- -------- | ------------ --------
Total....................................... $28,975 $ 21,625 | $(252,931) $ (7,335)
========= ======== | ============ ========
|
State: |
Current......................................... $ - $ 278 | $ 116 $ 935
Deferred........................................ 4,307 4,767 | (866) (5,959)
--------- -------- | ------------ --------
Subtotal current operations................... 4,307 5,045 | (750) (5,024)
Deferred included in reorganization items....... - - | (17,494) -
--------- -------- | ------------ --------
Total....................................... $ 4,307 $ 5,045 | $ (18,244) $ (5,024)
========= ======== | ============ ========
|
The current federal income tax expense for 1997 results primarily from the accrual of alternative minimum tax ("AMT") for 1997. Deferred federal income tax includes an offsetting AMT benefit of approximately $2.4 million.
The current federal income tax benefit for 1996 resulted primarily from the carryback of 1996 AMT NOL to the 1993, 1994 and 1995 tax years and decreased by an expense for the reduction of investment tax credits ("ITC") utilized. Deferred federal income tax includes an offsetting AMT deferred expense of approximately $24.0 million and a benefit for an increase in ITC carryforward of approximately $6.8 million.
The current federal income tax expense for 1995 results primarily from the accrual of AMT expense. The deferred federal income tax benefit recorded in 1995 includes offsetting AMT credits of approximately $18.3 million. ITC utilized of approximately $4.6 million was recorded as a reduction to current tax and included as a deferred tax expense.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Federal income tax provisions differ from amounts computed by applying the statutory rate of 35% to book income (loss) before federal income tax as follows (In thousands):
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
YEAR ENDED TO | TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
----------------- --------------- | ------------ -----------
|
Federal income tax expense (benefit) computed |
on income (loss) at statutory rate................ $28,269 $ 22,240 | $ 45,339 $(14,229)
Difference due to: |
ITC amortization (net of deferred taxes).......... - - | (211) (1,838)
Nondeductible bankruptcy costs.................... - - | 3,604 5,925
Federal valuation allowance....................... - - | (204,848) (4,461)
Adjustment of assets to reorganization value |
and liabilities to fair value (elimination |
of accumulated deferred ITCs)................... - - | (77,950) -
Reorganization costs (including the nontaxable |
extraordinary gain on discharge of debt)........ - - | (27,745) -
Other............................................. 706 (615) | 8,880 7,268
------- -------- | --------- --------
Total federal income tax expense (benefit)...... $28,975 $ 21,625 | $(252,931) $ (7,335)
======= ======== | ========= ========
Effective federal income tax rate................. 35.9% 34.0% | (195.3)% 18.0%
======= ======== | ========= ========
|
The Company had approximately $636.5 million of tax NOL carryforwards, approximately $20.4 million of ITC carryforwards and approximately $12.0 million of AMT credit carryforwards as of December 31, 1997. If unused, the NOL carryforwards would expire at the end of the year 2011, the ITC carryforwards would expire in the years 2001 through 2005 and the AMT credit carryforwards have an unlimited life.
The Reorganization and the associated implementation of fresh-start reporting gave rise to significant items of income and expense for financial reporting purposes that are not included in taxable income. These reorganization items resulted in an effective tax rate for the period from January 1 to February 11, 1996 that is significantly different than the current statutory rate of 35%.
H. COMMITMENTS AND CONTINGENCIES
SALE/LEASEBACK INDEMNIFICATION OBLIGATIONS
Pursuant to the Palo Verde sale/leaseback participation agreements and leases, if the lessors incur additional tax liability or other loss as a result of federal or state tax assessments related to the sale/leaseback transactions, the lessors may have claims against the Company for indemnification. Pursuant to settlement agreements entered into under the Plan, certain of these indemnity obligations related to tax matters have continued after the Effective Date.
One of the lessors in the sale/leaseback transactions related to Unit 2 of Palo Verde has notified the Company that the Internal Revenue Service ("IRS") has raised issues, primarily related to ITC
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
claims by the lessor, regarding the income tax treatment of the sale/leaseback transactions. The Company estimates that the total amount of potential claims for indemnification from all lessors related to the issues raised by the IRS could approximate $10.0 million, exclusive of any applicable interest, if the IRS prevails. Although the Company believes the lessor has meritorious defenses to the IRS' position, the Company cannot predict the outcome of the matter or the Company's liability for any resulting claim for indemnification. The Company does not believe it is probable that a loss has been incurred and, therefore, has made no provision in the accompanying financial statements related to this matter.
ENVIRONMENTAL MATTERS
The Company is subject to regulation with respect to air, soil and water quality, solid waste disposal and other environmental matters by federal, state and local authorities. These authorities govern current facility operations and exercise continuing jurisdiction over facility modifications. Environmental regulations can change rapidly and are difficult to predict. Because construction of new facilities is subject to standards imposed by environmental regulation, substantial expenditures may be required to comply with such regulations. The Company analyzes the costs of its obligations arising from environmental matters on an ongoing basis, and management believes it has made adequate provision in its financial statements to meet such obligations. However, unforeseen expenses associated with compliance could have a material adverse effect on the future operations and financial condition of the Company.
PCB Treatment, Inc. The Company received a request from the U.S. Environmental Protection Agency ("EPA") to participate in the remediation of polychlorinated biphenyls ("PCBs") at two facilities in Kansas and Missouri, which had been operated by PCB Treatment, Inc. ("PTI"). Presently, PTI has discontinued operations and the EPA has determined that PTI's abandoned facilities require remediation.
The Company and the PTI Steering Committee, which consists of the largest generators of the PCBs sent to PTI, have executed a settlement agreement. In consideration for the payment of approximately $0.2 million, the settlement agreement excuses any further liability by the Company to the Steering Committee and indemnifies the Company for any liabilities to other parties as may be asserted in the future.
On September 16, 1997, the EPA sent the Company a "general notice of liability" wherein the agency formally notified the Company that it was considered a Potentially Responsible Party at the sites. The Company believes any liability it may face at the sites is covered by the settlement agreement. Accordingly, the Company immediately notified the Steering Committee and demanded it defend and indemnify the Company as provided in the settlement agreement. The Steering Committee informed the Company that it intends to honor this indemnity obligation.
The Company may still face liability for possible deliveries of PCBs by PTI to a third site which is also subject to remedial action by the federal authorities, except to the extent that those PCBs were
transferred from the first site. The Company's records do not indicate any deliveries of PCBs to this third site. The Company believes it is unlikely to face substantial unindemnified liabilities associated with this third site.
Coal Mine Reclamation. The Company has been informed by APS that the Company's estimated financial obligation for coal mine reclamation at Four Corners is not being fully reflected in the costs for which the Company is billed. APS, the operating agent for Four Corners, is performing an analysis to establish an appropriate revised cost estimate. Based on preliminary estimates from APS and the coal provider, the Company recorded a liability of approximately $12 million in 1996 which reflects the present value of the estimated future costs of reclamation for its share of the coal mine reclamation obligation.
I. LITIGATION
LITIGATION WITH LAS CRUCES
Las Cruces is attempting to replace the Company as the electric service provider in Las Cruces by acquiring, through condemnation or a negotiated purchase, the distribution assets and other facilities used to provide electric service to customers in Las Cruces. Sales to customers in Las Cruces represent approximately 8% of the Company's operating revenues.
In April 1995, Las Cruces filed a complaint against the Company in New Mexico state court, seeking a declaratory judgment that Las Cruces has a right of eminent domain to condemn the electric distribution system and related facilities owned and operated by the Company within and adjacent to the city limits. In May 1995, the Company removed the case to federal district court in New Mexico. Following a trial on the merits, the Federal Magistrate granted the Company's motion to certify to the New Mexico Supreme Court the question of whether Las Cruces possesses the authority to condemn the Company's property for use as a municipal utility when that property is already devoted to public use. Prior to a ruling by the New Mexico Supreme Court, the New Mexico legislature enacted a bill which purports to give Las Cruces the authority to condemn the Company's distribution system within its city limits and a territory extending five miles beyond the municipal boundary. On February 11, 1998, the New Mexico Supreme Court ruled that the subsequent legislation rendered moot the certified question before the Supreme Court. On February 26, 1998, the Company received notice from Las Cruces of its intent to file a condemnation action in New Mexico district court. At this time the Company is unable to predict the outcome of this litigation.
If Las Cruces succeeds in its efforts to condemn the Company's distribution system, the Company could lose its Las Cruces customer base, although the Company would be entitled to receive "just compensation" as established by the court under New Mexico law. "Just compensation" is generally defined as the amount of money that would fairly compensate the party whose property is condemned. It is the Company's opinion that this amount would be the difference between the value of the Company's entire system prior to the taking, as compared to the value of the entire system after the taking. See Note B for a full discussion of stranded costs.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Las Cruces has taken several actions to position itself to acquire portions of the Company's distribution system and certain related facilities. In August 1994, Southwestern Public Service Company ("SPS") and Las Cruces entered into a fifteen-year contract granting SPS the right to provide all of the electric power and energy required by Las Cruces during the term of the contract. In addition, Las Cruces sold approximately $73 million in revenue bonds in October 1995 to provide funding to finance the acquisition by condemnation or negotiated purchase of the Company's electrical distribution assets within and adjacent to the Las Cruces city limits.
The Company has filed a lawsuit in the Dona Ana County District Court and is pursuing a complaint simultaneously before the New Mexico Commission challenging the legality of the sale of the revenue bonds. In addition, the New Mexico Commission is investigating the agreement between SPS and Las Cruces which, under certain circumstances, would grant Las Cruces an option to sell to SPS electric utility assets acquired through condemnation. In August 1996, the Dona Ana County District Court issued an opinion letter stating that Section 3- 23-3 of the New Mexico Municipal Code is inapplicable to home rule municipalities and Las Cruces, therefore, was not required to acquire the New Mexico Commission's approval before issuing revenue bonds to acquire utility property. However, the Court did agree with the Company that the revenue bonds, in this case backed by utility revenues, are subject to the same requirements as those imposed on other revenue bonds backed by gross receipts tax revenues. Therefore, if the Court's finding of the applicability of Las Cruces' home rule authority is overturned on appeal, the Company's position that the issuance of the bonds required prior approval could be upheld. The Company filed an appeal with the New Mexico Court of Appeals and Las Cruces requested an expedited ruling from the Court of Appeals. In August 1997, the New Mexico Court of Appeals certified to the New Mexico Supreme Court the issues related to Las Cruces' authority to issue the revenue bonds. Oral argument before the Supreme Court was held in November 1997.
In July 1996, Las Cruces exercised its right under Order No. 888 to request that the Company calculate Las Cruces' stranded cost obligation should it leave the Company's system and operate its own municipal utility. The Company's initial non-binding calculation was provided within the statutory period. Las Cruces subsequently filed a request at the FERC for a determination that Las Cruces would have no stranded cost obligation to the Company or, in the alternative, that the FERC convene a hearing to establish the amount of any stranded costs. In August 1997, the FERC issued an order denying Las Cruces' request for a determination that Las Cruces would have no stranded cost obligation, and providing for evidentiary hearings on the following stranded costs issues: (i) whether the Company has met the "reasonable expectation" standard so as to justify recovery of stranded costs from Las Cruces; and (ii) if so, the amount of stranded costs that the Company may recover from Las Cruces. The Company filed testimony in support of its recovery and calculation of stranded costs, calculated pursuant to the FERC formula. After removal of all distribution and transmission related expenses, the Company's testimony reflects a generation stranded cost request of approximately $101 million. In November 1997, Las Cruces filed testimony which takes the position that the Company is entitled to stranded costs in the range of $0 to $19 million. On December 19, 1997, the FERC staff filed testimony estimating the Company's stranded cost to be $29.4 million. Hearings of all issues were conducted at the
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
FERC in February 1998. A final decision from the FERC is not expected before late 1998 or early 1999.
In April 1997, Las Cruces announced its plan to build a substation and distribution lines to serve a new customer in a city-owned industrial park. Las Cruces stated that SPS would construct, operate and maintain the new substation facility, and that the rates for this new customer would be significantly lower than the Company's current rates. Las Cruces has approved a contract with SPS to provide operation and maintenance services for the proposed Las Cruces electric distribution system, substations and associated transmission facilities.
The Company continues to believe that it can provide lower cost electric service to customers in Las Cruces than can be achieved through a municipal takeover. Accordingly, the Company has stated its strong preference for a resolution of its differences with Las Cruces through negotiation rather than litigation and condemnation. A negotiated settlement of the Company's pending rate case in New Mexico could include a reduction in rates and settlement of all issues in New Mexico, which would be likely to create increased political and economic pressure on the Company to reduce rates in Texas.
The Company is unable to predict the outcome of Las Cruces' efforts to replace the Company as its electric service provider or the effects it may have on the Company's financial position, results of operations and cash flows. The Company does not believe it is probable that a loss has been incurred and, therefore, has made no provision in the accompanying financial statements related to these matters.
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"). In October 1995, the Four Corners participants requested that the United States Secretary of the Interior resolve their dispute with the Navajo Nation regarding whether the Acts apply to operation of Four Corners. The Four Corners participants subsequently filed a lawsuit in the District Court of the Navajo Nation, Window Rock District, seeking, among other things, 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. On October 18, 1995, the Navajo Nation and the Four Corners participants agreed to stay the proceedings indefinitely so the parties may attempt to resolve the dispute without litigation. This matter remains inactive and the Company is unable to predict the outcome of this case.
WATER CASES
San Juan River System. The Four Corners participants are among the defendants in a suit filed by the State of New Mexico in 1975 in state district court in New Mexico against the United States of America, the City of Farmington, New Mexico, the Secretary of the Interior as Trustee for the Navajo Nation and other Indian tribes and certain other defendants (State of New Mexico ex rel. S. E. Reynolds,
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
New Mexico State Engineer v. United States of America, et al., Eleventh Judicial District Court, County of San Juan, State of New Mexico, Cause No. 75-184). The suit seeks adjudication of the water rights of the San Juan River Stream System in New Mexico, which, among other things, supplies the water used at Four Corners. An agreement reached with the Navajo Nation in 1985 provides that if Four Corners loses a portion of its water rights in the adjudication, the tribe will provide sufficient water from its allocation to offset the loss. The case has been inactive for many years and the Company is unable to predict the outcome of this case.
Gila River System. In connection with the construction and operation of Palo Verde, APS entered into contracts with certain municipalities granting APS the right to purchase effluent for cooling purposes at Palo Verde. In 1986, a summons was served on APS that required all water claimants in the Lower Gila River Watershed in Arizona to assert any claims to water in an action pending in Maricopa County Superior Court, titled In re The General Adjudication of All Rights to Use Water in the Gila River System and Source. Palo Verde is located within the geographic area subject to the summons and the rights of the Palo Verde Participants to the use of groundwater and effluent at Palo Verde is potentially at issue in this action. APS, as operating agent, filed claims that dispute the Court's jurisdiction over the Palo Verde Participants' groundwater rights and their contractual rights to effluent relating to Palo Verde and, alternatively, seek confirmation of such rights. In December 1992, the Arizona Supreme Court heard oral argument on certain issues in this matter that are pending on interlocutory appeal. Issues important to the Palo Verde Participants' claims were remanded to the trial court for further action and the trial court certified its decision for another interlocutory appeal to the Arizona Supreme Court. The Arizona Supreme Court will hear argument on these issues in October 1998 and subsequently render a decision. The Company is unable to predict the outcome of this case.
OTHER LEGAL PROCEEDINGS
The Company is a party to various other claims, legal actions and complaints. In many of these matters, the Company has excess casualty liability insurance which is applicable. Based upon a review of these claims and applicable insurance coverage, the Company believes that none of these claims will have a material adverse effect on the operations, financial position or cash flows of the Company.
J. EMPLOYEE BENEFITS
PENSION PLAN
The Company's Retirement Income Plan (the "Retirement Plan") covers employees who have completed one year of service with the Company, are 21 years of age and work at least a minimum number of hours each year. The Retirement Plan is a qualified noncontributory defined benefit plan. Upon retirement or death of a vested plan participant, assets of the Retirement Plan are used to pay benefit obligations under the Retirement Plan. Contributions from the Company are based on the minimum funding amounts required by the Department of Labor and IRS under provisions of the Retirement Plan, as actuarially calculated. The assets of the Retirement Plan are invested in equity
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
securities, fixed income instruments and cash equivalents and are managed by professional investment managers appointed by the Company.
The Company's Non-Qualified Retirement Income Plan is a non-funded defined benefit plan which covers certain former employees of the Company. The pension cost for the Non-Qualified Retirement Income Plan is based on substantially the same actuarial methods and economic assumptions as those used for the Retirement Plan.
During 1996, as part of the Reorganization, the Company terminated the Non- Qualified Retirement Income Plan with respect to all active employees resulting in a curtailment gain of approximately $2.0 million. In conjunction therewith, the Company entered into retirement agreements with ten officers who had been participants in the Non-Qualified Retirement Income Plan resulting in an increase in the accumulated benefit obligation of approximately $10.2 million. This increase in the accumulated benefit obligation and the curtailment gain were recognized as reorganization items by the Predecessor Company.
Net periodic pension cost for the Retirement Plan and the Non-Qualified Retirement Income Plan under SFAS No. 87, "Employers' Accounting for Pensions," is made up of the components listed below as determined using the projected unit credit actuarial cost method (In thousands):
PERIOD FROM | PERIOD FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
------------------ ----------------- | ----------------- -----------------
|
Service costs for benefits earned during the |
period........................................... $ 2,402 $ 2,148 | $ 354 $ 2,011
Interest costs on projected benefit obligation.... 6,737 5,774 | 749 5,157
Actual return on plan assets...................... (12,469) (5,019) | (570) (9,267)
Net amortization and deferral..................... 7,375 842 | 113 6,008
Recognition of previously unrecognized items...... - - | 21,738 -
-------- ------- | ------- -------
Net periodic pension cost recognized............ $ 4,045 $ 3,745 | $22,384 $ 3,909
======== ======= | ======= =======
|
The assumed annual discount rates used in determining the net periodic pension cost were 7.50%, 7.25% and 8.50% for 1997, 1996 and 1995, respectively.
The pension cost includes amortization of unrecognized items. In the application of fresh-start reporting, the Company recorded the then existing unrecognized items as of February 11, 1996 in the amount of approximately $21.7 million.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The funded status of the plans and amount recognized in the Company's balance sheets at December 31, 1997 and 1996 are presented below (In thousands):
DECEMBER 31,
----------------------------------------------------------------------
1997 1996
--------------------------------- ----------------------------------
NON- NON-
QUALIFIED QUALIFIED
RETIREMENT RETIREMENT RETIREMENT RETIREMENT
INCOME INCOME INCOME INCOME
PLAN PLAN PLAN PLAN
------------- ------------- ------------- -------------
Actuarial present value of benefit obligations:
Vested benefit obligation........................... $(65,523) $(19,324) $(57,366) $(18,171)
======== ======== ======== ========
Accumulated benefit obligation...................... $(68,481) $(19,324) $(59,883) $(18,171)
======== ======== ======== ========
Projected benefit obligation........................ $(83,812) $(19,324) $(72,951) $(18,171)
Plan assets at fair value............................. 74,114 - 61,460 -
-------- -------- -------- --------
Projected benefit obligation in excess of plan assets. (9,698) (19,324) (11,491) (18,171)
Unrecognized net (gain) loss from past experience..... (4,887) 162 (3,520) (1,368)
Adjustment required to recognize minimum liability.... - (162) - -
-------- -------- -------- --------
Accrued pension liability........................... $(14,585) $(19,324) $(15,011) $(19,539)
======== ======== ======== ========
|
Actuarial assumptions used in determining the actuarial present value of projected benefit obligations are as follows:
1997 1996
--------- ---------
Discount rate............................................ 7.00% 7.50%
Rate of increase in compensation levels.................. 5.00% 5.00%
Expected long-term rate of return on plan assets......... 8.50% 8.50%
|
OTHER POSTRETIREMENT BENEFITS
The Company provides certain health care benefits for retired employees and their eligible dependents and life insurance benefits for retired employees only. Substantially all of the Company's employees may become eligible for those benefits if they reach retirement age while working for the Company. Those benefits are accounted for under SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Contributions from the Company are based on the funding amounts required by the Texas Commission in the Rate Stipulation. The assets of the Other Postretirement Benefits Plan are invested in fixed income instruments and cash equivalents and are managed by professional investment managers appointed by the Company.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The benefit cost includes amortization of unrecognized items. In the application of fresh-start reporting, the Company recorded the then existing unrecognized items as of February 11, 1996 in the amount of approximately $52.3 million.
Net periodic postretirement benefit cost is made up of the components listed below (In thousands):
PERIOD | PERIOD
FROM | FROM
YEAR FEBRUARY 12 | JANUARY 1 YEAR
ENDED TO | TO ENDED
DECEMBER 31, DECEMBER 31, | FEBRUARY 11, DECEMBER 31,
1997 1996 | 1996 1995
--------------- --------------- | -------------- ---------------
|
Service costs for benefits earned during |
the period................................... $2,538 $2,209 | $ 279 $1,603
Interest costs on accumulated postretirement |
benefit obligation........................... 5,254 4,723 | 607 4,046
Actual return on plan assets.................. (250) (146) | - -
Amortization of transition obligations........ - - | 263 2,363
Amortization of (gain) loss................... (7) - | 60 (54)
Recognition of previously unrecognized |
items........................................ - - | 52,340 -
------ ------ | ------- ------
Net periodic postretirement benefit cost |
recognized................................. $7,535 $6,786 | $53,549 $7,958
====== ====== | ======= ======
|
The funded status of the plan and amount recognized in the Company's balance sheets at December 31, 1997 and 1996 are presented below (In thousands):
DECEMBER 31,
-------------------------------
1997 1996
-------- --------
Accumulated postretirement benefit obligation:
Retirees................................................................ $(35,846) $(29,908)
Active participants:
Fully eligible....................................................... (10,171) (10,964)
Other................................................................ (37,956) (36,727)
-------- --------
(83,973) (77,599)
Plan assets at fair value................................................. 8,822 8,050
-------- --------
Accumulated postretirement benefit obligation in excess of plan assets.... (75,151) (69,549)
Unrecognized net gain from past experience different from that assumed.... (380) (1,764)
-------- --------
Accrued postretirement benefit liability................................ $(75,531) $(71,313)
======== ========
|
For measurement purposes, a 10.9% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1998; the rate was assumed to decrease gradually to 6% for 2004
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1997 by $10.5 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1997 by $1.2 million.
Actuarial assumptions used in determining the actuarial present value of accumulated postretirement benefit obligations are as follows:
1997 1996
----------- -----------
Discount rate..................................... 7.00% 7.50%
Rate of increase in compensation levels........... 5.00% 5.00%
Rate of return on plan assets..................... 4.50% 4.50%
|
ALL EMPLOYEE CASH BONUS PLAN
The All Employee Cash Bonus Plan (the "Bonus Plan"), introduced in early 1997, was established to reward employees for their contribution in helping the Company attain its corporate goals. Eligible employees below officer level would receive a cash bonus if the Company attained established levels of safety, customer satisfaction and deleveraging (or cash flow) during 1997. The cash flow goal had to be met before any bonus amounts would be paid, and improvement in cash flow must be greater than any bonus amounts paid. The Company was able to surpass the required minimum levels of improvement in two out of the three performance measures. As a result of the Company's success, the Company distributed approximately $2.3 million in cash bonuses to all eligible employees in early February 1998. The bonus was expensed in the fourth quarter of 1997. The Company has renewed the Bonus Plan in 1998 with similar goals.
K. FRANCHISES AND SIGNIFICANT CUSTOMERS
CITY OF EL PASO FRANCHISE
The Company's major franchise is with the City of El Paso, Texas. The franchise agreement provides an arrangement for the Company's utilization of public rights-of-way necessary to serve its retail customers within the City of El Paso. The franchise with the City of El Paso extends through August 1, 2005.
LAS CRUCES FRANCHISE
The Company's franchise with Las Cruces expired in March 1994. The Company has continued to provide electric service to customers within Las Cruces; however, Las Cruces is attempting to replace the Company as the electric service provider in Las Cruces. Recently, the New Mexico legislature has passed legislation which purports to give Las Cruces the authority to condemn the
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
Company's distribution system and related assets. If Las Cruces succeeds in its efforts to condemn the Company's distribution system, the Company could lose its Las Cruces customer base. See Note I.
MILITARY INSTALLATIONS
The Company currently serves Holloman Air Force Base ("Holloman"), White Sands Missile Range ("White Sands") and the United States Army Air Defense Center at Fort Bliss ("Ft. Bliss"). The Company's sales to the military bases represented approximately $19.6 million or 3% of operating revenues in 1997. The Company signed a new contract with Ft. Bliss in August 1996, which provides that Ft. Bliss will take service from the Company through 1999, with the right thereafter to continue service on a year-to-year basis for an additional two years. The Company has a contract for service to Holloman for a ten-year term which began in December 1995. In August 1996, the Army advised the Company that White Sands would continue to purchase retail electric service from the Company pursuant to the existing retail service contract for an indefinite period, until written termination of such contract by the Army not less than one year in advance of the termination date.
L. FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," requires the Company to disclose estimated fair values for its financial instruments. The Company has determined that cash and temporary investments, accounts receivable, long-term contract receivable, accounts payable, customer deposits, decommissioning trust funds, long-term debt, and preferred stock meet the definition of financial instruments. The carrying amounts of cash and temporary investments, accounts receivable, accounts payable, and customer deposits approximate fair value because of the short maturity of these items. Based on prevailing interest rates, the fair value of the long-term contract receivable approximates its carrying value. Decommissioning trust funds are carried at market value.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
The fair values of the Company's long-term debt, including the current portion thereof, and preferred stock, are based on estimated market prices for similar issues at December 31, 1997 and 1996 and are presented in the table below (In thousands):
1997 1996
------------------------------- --------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ---------------- ------------ ----------------
First Mortgage Bonds...................... $744,781 $ 814,857 $ 827,883 $ 864,047
Pollution Control Bonds................... 193,135 193,135 (2) 193,135 193,135 (2)
Nuclear Fuel Financing(1)................. 51,999 51,999 (3) 46,630 46,630 (3)
-------- ----------- ---------- -----------
Total................................. $989,915 $ 1,059,991 $1,067,648 $ 1,103,812
======== =========== ========== ===========
Preferred Stock........................... $121,319 $ 131,752 $ 108,426 $ 119,377
======== =========== ========== ===========
|
(1) Includes current maturities.
(2) The interest rate on the Company's pollution control bonds is reset weekly
to reflect current market rates. Consequently, the carrying value
approximates fair value.
(3) The interest rate on the Company's financing and capital lease obligations
for nuclear fuel purchases is reset every quarter to reflect current market
rates. Consequently, the carrying value approximates fair value.
EL PASO ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
M. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1997 QUARTERS 1996 QUARTERS
-------------------------------------------------- ------------------------------------
4th(1) 3rd 2nd 1st 4th 3rd 2nd
-------- -------- ---------- ---------- --------- --------- --------
(IN THOUSANDS EXCEPT FOR SHARE DATA)
Operating revenues.................. $143,766 $170,140 $144,275 $135,857 $143,023 $166,656 $144,388
Operating income.................... 31,210 59,179 40,045 31,233 29,958 57,964 40,730
Income (loss) before reorganization
items and extraordinary items...... 8,743 23,988 16,245 5,592 7,960 22,770 9,500
Reorganization items, net of income
tax benefit........................ - - - - - - -
Extraordinary loss on repurchases
of debt,
net of federal income tax benefit.. (35) (69) (427) (2,244) - - -
Extraordinary gain on discharge of
debt............................... - - - - - - -
Net income applicable to common
stock.............................. 5,282 20,588 12,580 199 4,898 19,793 6,603
Basic earnings per common share:
Income before extraordinary items.. 0.089 0.343 0.216 0.040 0.082 0.329 0.110
Extraordinary loss on repurchases
of debt, net of federal income tax
benefit........................... (0.001) (0.001) (0.007) (0.037) - - -
Extraordinary gain on discharge of
debt.............................. - - - - - - -
Net income......................... 0.088 0.342 0.209 0.003 0.082 0.329 0.110
Diluted earnings per common share:
Income before extraordinary items.. 0.088 0.342 0.216 0.040 0.081 0.329 0.110
Extraordinary loss on repurchases
of debt, net of federal income tax
benefit........................... (0.001) (0.001) (0.007) (0.037) - - -
Extraordinary gain on discharge of
debt.............................. - - - - - - -
Net income......................... 0.087 0.341 0.209 0.003 0.081 0.329 0.110
|
PERIOD FROM | PERIOD FROM
FEBRUARY 12 | JANUARY 1
TO | TO
MARCH 31, | FEBRUARY 11,
1996 | 1996
----------- | -------------
|
Operating revenues.................. $69,907 | $ 54,949
Operating income.................... 15,839 | 1,639
Income (loss) before reorganization |
items and extraordinary items...... 1,689 | (4,053)
Reorganization items, net of income |
tax benefit........................ - | 122,251
Extraordinary loss on repurchases |
of debt, |
net of federal income tax benefit.. - | -
Extraordinary gain on discharge of |
debt............................... - | 264,273 (2)
Net income applicable to common |
stock.............................. 137 | 382,471
Basic earnings per common share: |
Income before extraordinary items.. 0.002 | 3.325
Extraordinary loss on repurchases |
of debt, net of federal income tax |
benefit........................... - | -
Extraordinary gain on discharge of |
debt.............................. - | 7.435 (2)
Net income......................... 0.002 | 10.760
Diluted earnings per common share: |
Income before extraordinary items.. 0.002 | 3.325
Extraordinary loss on repurchases |
of debt, net of federal income tax |
benefit........................... - | -
Extraordinary gain on discharge of |
debt.............................. - | 7.435 (2)
Net income......................... 0.002 | 10.760
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is incorporated herein by reference from the Company's definitive proxy statement for the 1998 Annual Meeting of Shareholders (the "1998 Proxy Statement"). Information regarding executive officers of the Company, included herein under the caption "Executive Officers of the Registrant" in Part I, Item 1 above, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the 1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
See Index to Financial Statements......... 33
2. Financial Statement Schedules:
All schedules are omitted as the required information is not applicable or is included in the financial statements or related notes thereto.
3. Exhibits
Certain of the following documents are filed herewith. Certain other of the following exhibits have heretofore been filed with the Securities and Exchange Commission, and, pursuant to Rule 12b-32 and Regulation 201.24, are incorporated herein by reference.
INDEX TO EXHIBITS
Exhibit Number Title ------ ----- |
Exhibit 2 - Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2.01 - Fourth Amended Plan of Reorganization, dated November 7, 1995. (Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)
2.02 - Disclosure Statement to Fourth Amended Plan of Reorganization of El Paso Electric Company. (Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)
Exhibit 3 - Articles of Incorporation and Bylaws:
3.01 - Restated Articles of Incorporation of the Company, dated February 7, 1996 and effective February 12, 1996. (Exhibit 3.01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
3.01-01 - Statement of Resolution Establishing Series of Preferred Stock, dated February 7, 1996 and effective February 12, 1996, amending Exhibit 3.01. (Exhibit 3.01-01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
3.02 - Bylaws of the Company, dated February 6, 1996. (Exhibit 3.02 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
Exhibit 4 - Instruments Defining the Rights of Security Holders, including Indentures:
4.01 - General Mortgage Indenture and Deed of Trust, dated as of February 1, 1996, and First Supplemental Indenture, dated as of February 1, 1996, including form of Series A through H First Mortgage Bonds. (Exhibit 4.01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
4.01-01 - Second Supplemental Indenture, dated as of August 19, 1997, to Exhibit 4.01. (Exhibit 4.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997)
4.02 - Statement of Resolution Establishing Series of Preferred Stock, dated February 7, 1996 and effective February 12, 1996. (Exhibit 4.02 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
4.03 - Indenture of Trust, dated as of July 1, 1994, between Maricopa County, Arizona Pollution Control Corporation and Texas Commerce Bank National Association, as Trustee, related to $63,500,000 principal amount of Maricopa County, Arizona Pollution Control Corporation Adjustable Tender Pollution Control Revenue Bonds, 1994 Series A (El Paso Electric Company Palo Verde Project). (Exhibit 4.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994)
4.03-01 - Supplemental Indenture of Trust No. 1, dated as of December 12, 1995, related to Exhibit 4.03, including form of bond. (Exhibit 4.03-01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
4.04 - Loan Agreement, dated as of July 1, 1994, between Maricopa
County, Arizona Pollution Control Corporation and the Company,
related to the Pollution Control Bonds referred to in Exhibit
4.03. (Exhibit 4.02 to the Company's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1994)
4.04-01 - Supplemental Loan Agreement No. 1, dated as of February 12, 1996, related to Exhibit 4.04. (Exhibit 4.04-01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
4.05 - Remarketing Agreement, dated as of July 1, 1994, between the Company and Smith Barney Inc., related to the Pollution Control Bonds referred to in Exhibit 4.03. (Exhibit 4.04 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994)
4.06 - Tender Agreement, dated as of July 1, 1994, between the Company and Smith Barney Inc., related to the Pollution Control Bonds referred to in Exhibit 4.03. (Exhibit 4.05 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994)
4.07 - Ordinance No. 94-1018 adopted by the City Council of the City of Farmington, New Mexico, on October 18, 1994, authorizing and providing for the issuance by the City of Farmington, New Mexico, of $33,300,000 principal amount of its Adjustable Tender Pollution Control Revenue Refunding Bonds, 1994 Series A (El Paso Electric Company Four Corners Project). (Exhibit 4.07 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994)
4.07-01 - Ordinance No. 96-1035 adopted by the City Council of the City of Farmington, New Mexico, on January 23, 1996 as Supplemental Ordinance No. 1, related to Exhibit 4.07. (Exhibit 4.07-01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
4.08 - Resolution No. 94-798 adopted by the City Council of the City of
Farmington, New Mexico, on October 18, 1994, relating to the
issuance of the Pollution Control Bonds referred to in Exhibit
4.07. (Exhibit 4.08 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994)
4.09 - Amended and Restated Installment Sale Agreement, dated as of November 1, 1994, between the Company and the City of Farmington, New Mexico, relating to the Pollution Control Bonds referred to in Exhibit 4.07. (Exhibit 4.09 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994)
4.10 - Representation and Indemnity Agreement, dated as of October 31, 1994, between the Company, the City of Farmington, New Mexico, and Smith Barney Inc., relating to the Pollution Control Bonds referred to in Exhibit 4.07. (Exhibit 4.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994)
4.11 - Remarketing Agreement, dated as of November 1, 1994, between the Company and Smith Barney Inc., relating to the Pollution Control Bonds referred to in Exhibit 4.07. (Exhibit 4.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994)
4.12 - Tender Agreement, dated as of November 1, 1994, between the Company and Smith Barney Inc., relating to the Pollution Control Bonds referred to in Exhibit 4.07. (Exhibit 4.12 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994)
4.13 - Letter of Credit and Reimbursement Agreement dated as of August 27, 1997, between the Company, the Creditors named therein, Barclays Bank PLC, New York Branch, as Issuing Bank and Agent for the Creditors, and Union Bank of California, N.A., as Documentation Agent, relating to the Pollution Control Bonds referred to in Exhibit 4.07. (Exhibit 4.03 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997)
4.14 - Loan Agreement, dated as of December 1, 1984, between Maricopa County, Arizona Pollution Control Corporation and the Company, relating to $37,100,000 principal amount of Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 1984 Series E (El Paso Electric Company Palo Verde Project). (Exhibit 4.27 to the Company's Annual Report on Form 10-K for the year ended December 31, 1984)
4.14-01 - Supplemental Loan Agreement, dated as of June 1, 1986, to Exhibit
4.14. (Exhibit 4.29-01 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1986)
4.14-02 - Supplemental Loan Agreement No. 3, dated as of February 12, 1996, to Exhibit 4.14. (Exhibit 4.14-02 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
4.15 - Trust Indenture, dated as of December 1, 1984, by and between Maricopa County, Arizona Pollution Control Corporation and MBank El Paso, National Association, as Trustee, securing the Pollution Control Refunding Revenue Bonds referred to in Exhibit 4.14. (Exhibit 4.27-01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1984)
4.15-01 - Supplemental Trust Indenture No. 2, dated as of June 1, 1986, to Exhibit 4.15. (Exhibit 4.29-03 to the Company's Annual Report on Form 10-K for the year ended December 31, 1986)
4.15-02 - Supplemental Trust Indenture No. 3, dated as of May 6, 1994, to Exhibit 4.15. (Exhibit 4.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994)
4.15-03 - Supplemental Trust Indenture No. 4, dated as of November 30, 1995, to Exhibit 4.15, including form of bond. (Exhibit 4.15-03 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
4.16 - Indexing Agent's Agreement among Maricopa County, Arizona Pollution Control Corporation, the Company and Smith Barney, Harris Upham & Co., Incorporated, relating to the Pollution Control Refunding Revenue Bonds referred to in Exhibit 4.14. (Exhibit 4.27-03 to the Company's Annual Report on Form 10-K for the year ended December 31, 1984)
4.17 - Remarketing Agent Agreement, dated as of May 6, 1994, between
Smith Barney Shearson Inc., and the Company, relating to the
Pollution Control Refunding Revenue Bonds referred to in Exhibit
4.14. (Exhibit 4.02 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994)
4.18 - Loan Agreement, dated as of February 12, 1996, between Maricopa County, Arizona Pollution Control Corporation and the Company, relating to $59,235,000 principal amount of Maricopa County, Arizona Pollution Control Corporation Pollution Control Refunding Revenue Bonds, 1985 Series A (El Paso Electric Company Palo Verde Project). (Exhibit 4.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
4.19 - Indenture of Trust, dated as of February 12, 1996, by and between
Maricopa County, Arizona Pollution Control Corporation and Texas
Commerce Bank National Association, as Trustee, relating to the
Pollution Control Refunding Revenue Bonds referred to in Exhibit
4.18. (Exhibit 4.19 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
4.20 - Tender Agent Agreement, dated as of February 12, 1996, between the Company and Smith Barney Inc., relating to the Pollution Control Refunding Revenue Bonds referred to in Exhibit 4.18. (Exhibit 4.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
4.21 - Remarketing Agent Agreement, dated as of February 12, 1996,
between the Company and Smith Barney Inc., relating to the
Pollution Control Refunding Revenue Bonds referred to in Exhibit
4.18. (Exhibit 4.21 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
4.22 - Letter of Credit and Reimbursement Agreement, dated as of August 27, 1997, between the Company, the Creditors named therein, Barclays Bank PLC, New York Branch, as Issuing Bank and Agent for the Creditors, and Union Bank of California, N.A., as Documentation Agent, relating to the Pollution Control Bonds referred to in Exhibits 4.03, 4.14 and 4.18. (Exhibit 4.02 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997)
Exhibit 10 - Material Contracts:
10.01 - Co-Tenancy Agreement, dated July 19, 1966, and Amendments No. 1 through 5 thereto, between the Participants of the Four Corners Project, defining the respective ownerships, rights and obligations of the Parties. (Exhibit 10.01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.02 - Supplemental and Additional Indenture of Lease, dated May 27, 1966, including amendments and supplements to original Lease Four Corners Units 1, 2 and 3, between the Navajo Tribe of Indians and Arizona Public Service Company, and including new Lease Four Corners Units 4 and 5, between the Navajo Tribe of Indians and Arizona Public Service Company, the Company, Public Service Company of New Mexico, Salt River Project Agricultural Improvement and Power District, Southern California Edison Company and Tucson Gas & Electric Company. (Exhibit 4-e to Registration Statement No. 2-28692 on Form S-9)
10.02-01 - Amendment and Supplement No. 1, dated March 21, 1985, to Exhibit
10.02. (Exhibit 19.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1985)
10.03 - El Paso Electric Company 1996 Long-Term Incentive Plan (Exhibit 4.1 to Registration Statement No. 333-17971 on Form S-8)
10.04 - Four Corners Project Operating Agreement, dated May 15, 1969, between Arizona Public Service Company, the Company, Public Service Company of New Mexico, Salt River Project Agricultural Improvement and Power District, Southern California Edison Company and Tucson Gas & Electric Company, and Amendments 1 through 10 thereto. (Exhibit 10.04 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.04-01 - Amendment No. 11, dated May 23, 1997, to Exhibit 10.04. (Exhibit 10.04-01 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997)
10.05 - Arizona Nuclear Power Project Participation Agreement, dated August 23, 1973, between Arizona Public Service Company, Public Service Company of New Mexico, Salt River Project Agricultural Improvement and Power District, Tucson Gas & Electric Company and the Company, describing the respective participation ownerships of the various utilities having undivided interests in the Arizona Nuclear Power Project and in general terms defining the respective ownerships, rights, obligations, major construction and operating arrangements of the Parties, and Amendments No. 1 through 13 thereto. (Exhibit 10.05 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.06 - ANPP Valley Transmission System Participation Agreement, dated August 20, 1981, and Amendments No. 1 and 2 thereto. APS Contract No. 2253-419.00. (Exhibit 10.06 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.07 - Arizona Nuclear Power Project High Voltage Switchyard Participation Agreement, dated August 20, 1981. APS Contract No. 2252-419.00. (Exhibit 20.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1981)
10.07-01 - Amendment No. 1, dated November 20, 1986, to Exhibit 10.07.
(Exhibit 10.11-01 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1986)
10.08 - Firm Palo Verde Nuclear Generating Station Transmission Service Agreement, between Salt River Project Agricultural Improvement and Power District and the Company, dated October 18, 1983. (Exhibit 19.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983)
10.09 - Trust Agreement, dated as of May 1, 1980, between The Bank of New
York, as Beneficiary, and First Security Bank of Utah, N.A., and
Robert S. Clark, as Owner Trustees, establishing a trust
designated as El Paso Electric Company (1980) Equipment Trust No.
2. (Exhibit 5-p-1 to Registration Statement No. 2-68414 on Form
S-7)
10.10 - Trust Indenture, dated as of May 1, 1980, between The Connecticut Bank and Trust Company, as Indenture Trustee, and First Security Bank of Utah, N.A., and Robert S. Clark, Owner Trustees. (Exhibit 5-p-2 to Registration Statement No. 2-68414 on Form S-7)
10.11 - Lease Agreement, dated as of May 1, 1980, between First Security Bank of Utah, N.A., and Robert S. Clark, the Owner Trustees, as Lessor, and the Company, as Lessee, providing for the lease of a combustion turbine and related generation equipment. (Exhibit 5-p-3 to Registration Statement No. 2-68414 on Form S-7)
10.12 - Participation Agreement, dated as of May 1, 1980, among the
Company, as Lessee, The Bank of New York, as Beneficiary, First
Security Bank of Utah, N.A., and Robert S. Clark, as Owner
Trustees, The Connecticut Bank and Trust Company, as Indenture
Trustee, Franklin Life Insurance Company, Woodmen of the World
Life Insurance Society, Minnesota Mutual Life Insurance Company,
MacCabees Mutual Life Insurance Company and Mutual Service
Insurance Company, as Lenders, pertaining to Exhibit 10.11.
(Exhibit 5-p-4 to Registration Statement No. 2-68414 on Form S-7)
10.13 - Interconnection Agreement, as amended, dated December 8, 1981, between the Company and Southwestern Public Service Company, and Service Schedules A through F thereto. (Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.13-01 - Letter Agreement, dated December 19, 1996, modifying Service Schedule E, relating to Exhibit 10.13. (Exhibit 10.13-01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
10.14 - Amrad to Artesia 345 KV Transmission System and DC Terminal Participation Agreement, dated December 8, 1981, between the Company and Texas-New Mexico Power Company, and the First through Third Supplemental Agreements thereto. (Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.15 - Interconnection Agreement and Amendment No. 1, dated July 19, 1966, between the Company and Public Service Company of New Mexico. (Exhibit 19.01 to the Company's Annual Report on Form 10-K for the year ended December 31, 1982)
10.16 - Southwest New Mexico Transmission Project Participation Agreement, dated April 11, 1977, between Public Service Company of New Mexico, Community Public Service Company and the Company, and Amendments 1 through 5 thereto. (Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.17 - Tucson-El Paso Power Exchange and Transmission Agreement, dated April 19, 1982, between Tucson Electric Power Company and the Company. (Exhibit 19.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1982)
*10.18 - Southwest Reserve Sharing Group Participation Agreement, dated January 1, 1998, between the Company, Arizona Electric Power Cooperative, Arizona Public Service Company, City of Farmington, Los Alamos County, Nevada Power Company, Plains Electric G&T Cooperative, Inc., Public Service Company of New Mexico, Tucson Electric Power and Western Area Power Administration.
10.19 - Power Sales Agreement No. 2, dated December 2, 1986, between the Company and Imperial Irrigation District, and Amendment No. 1 thereto. (Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.20 - Arizona Nuclear Power Project Transmission Project Westwing Switchyard Amended Interconnection Agreement, dated August 14, 1986, between The United States of America; Arizona Public Service Company; Department of Water and Power of the City of Los Angeles; Nevada Power Company; Public Service Company of New Mexico; Salt River Project Agricultural Improvement and Power District; Tucson Electric Power Company; and the Company. (Exhibit 10.72 to the Company's Annual Report on Form 10-K for the year ended December 31, 1986)
10.21 - Power Sales Agreement, dated April 29, 1987, between the Company and Texas-New Mexico Power Company, and Amendment No. 1 thereto. (Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.22 - Form of Indemnity Agreement, between the Company and its directors and officers. (Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.23 - Interchange Agreement, executed April 14, 1982, between Comision Federal de Electricidad and the Company. (Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991)
10.23-01 - Interchange Service D Agreement Firm Capacity, executed April 3, 1991, to Exhibit 10.23. (Exhibit 19.2-04 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991) [At the Company's request, confidential treatment has been granted by the Securities and Exchange Commission to portions of this document.]
*10.23-02 - Contract for the Purchase, Sale or Exchange of Economy Energy, executed December 19, 1997, between Comision Federal de Electricidad and the Company. [The Company has requested confidential treatment from the Securities and Exchange Commission for certain portions of this document.]
10.24 - Credit Agreement, dated as of February 12, 1996, between the Company, Chemical Bank, as agent, and Texas Commerce Bank National Association, as Trustee. (Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.24-01 - Amendment No. 1, dated as of February 12, 1996, to Exhibit 10.24.
(Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996)
*10.24-02 - Amendment No. 2, dated as of July 31, 1997, to Exhibit 10.24.
10.25 - Amended and Restated Executive Services Agreement for David H.
Wiggs, Jr., dated February 27, 1996. (Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
10.26 - Retirement Agreement for Curtis L. Hoskins, dated October 26, 1995. (Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.27 - Retirement Agreement for John E. Droubay, dated February 22, 1996. (Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.28 - Employment Agreement for Eduardo A. Rodriguez, dated October 26, 1995. (Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.29 - Employment Agreement for Gary R. Hedrick, dated February 12, 1996. (Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.30 - Employment Agreement for James S. Haines, Jr., dated April 30, 1996. (Exhibit 10.30 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996)
10.31 - Restatement of Decommissioning Trust Agreement, dated as of
February 12, 1996, between the Company and Boatmen's Trust
Company of Texas, as Decommissioning Trustee for Palo Verde Unit
1. (Exhibit 10.30 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995)
10.32 - Restatement of Decommissioning Trust Agreement, dated as of
February 12, 1996, between the Company and Boatmen's Trust
Company of Texas, as Decommissioning Trustee for Palo Verde Unit
2. (Exhibit 10.31 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995)
10.33 - Restatement of Decommissioning Trust Agreement, dated as of
February 12, 1996, between the Company and Boatmen's Trust
Company of Texas, as Decommissioning Trustee for Palo Verde Unit
3. (Exhibit 10.32 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995)
10.34 - Spent Fuel Trust Agreement, dated as of February 12, 1996, between the Company and Boatmen's Trust Company of Texas, as Spent Fuel Trustee. (Exhibit 10.33 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.35 - Trust Agreement, dated as of February 12, 1996, between the Company and Texas Commerce Bank National Association, as Trustee of the Rio Grande Resources Trust II. (Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.36 - Purchase Contract, dated as of February 12, 1996, between the Company and Texas Commerce Bank National Association, as Trustee of the Rio Grande Resources Trust II. (Exhibit 10.35 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.37 - Registration Rights Agreement, dated as of February 12, 1996, among the Company, Fidelity Management & Research Company and Fidelity Management Trust Company. (Exhibit 10.01 to Registration Statement No. 333-32030 on Form S-1)
*Exhibit 11 - Statement re Computation of Per Share Earnings
Exhibit 23 - Consent of Experts:
*23.01 - Consent of KPMG Peat Marwick LLP (set forth on page 96 of this report).
Exhibit 24 - Power of Attorney:
*24.01 - Powers of Attorney (set forth on page 95 of this report).
*24.02 - Certified copy of resolution authorizing signatures pursuant to power of attorney.
*Exhibit 27 - Financial Data Schedule (EDGAR filing only)
Exhibit 99 - Additional Exhibits:
99.01 - Agreed Order, entered August 30, 1995, by the Public Utility Commission of Texas. (Exhibit 99.31 to Registration Statement No.
33-99744 on Form S-1)
99.02 - Restricted Stock Award Agreement, dated as of January 17, 1997, with James S. Haines, Jr. (Exhibit 99.02 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
99.03 - Stock Option Agreement, dated as of January 17, 1997, with James S. Haines, Jr. (Exhibit 99.03 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
*99.03-01 - Amendment No. 1, dated April 30, 1997, to Exhibit 99.03.
99.04 - Stock Option Agreement, dated as of January 17, 1997, with David H. Wiggs, Jr. (Exhibit 99.04 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
99.05 - Directors' Restricted Stock Award Agreement, dated as of January 17, 1997, with George H. Edwards, Jr. (Exhibit 99.05 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
99.06 - Form of Directors' Restricted Stock Award Agreement between the Company and certain directors of the Company. (Exhibit 99.06 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
99.07 - Form of Stock Option Agreement between the Company and certain key officers of the Company. (Exhibit 99.07 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
*+99.08 - Form of Restricted Stock Award Agreement between the Company and certain key officers of the Company.
*99.09 - Restricted Stock Award Agreement, dated as of June 9, 1997, with Eduardo A. Rodriguez.
*99.10 - Restricted Stock Award Agreement, dated as of June 15, 1997, with Robert C. McNiel.
*99.11 - Restricted Stock Award Agreement, dated as of June 12, 1997, with Susanne M. Sickles.
*99.12 - Restricted Stock Award Agreement, dated as of June 16, 1997, with Guillermo Silva, Jr.
*99.13 - Restricted Stock Award Agreement, dated as of June 16, 1997, with Pedro Serrano, Jr.
*99.14 - Restricted Stock Award Agreement, dated as of June 16, 1997, with Thomas L. Newsom.
*99.15 - Restricted Stock Award Agreement, dated as of June 16, 1997, with John A. Whitacre.
*99.16 - Restricted Stock Award Agreement, dated as of June 9, 1997, with Terry D. Bassham.
*++99.17 - Form of Stock Option Agreement between the Company and certain directors of the Company.
*99.18 - Directors' Restricted Stock Award Agreement, dated as of November 13, 1997, with George H. Edwards, Jr.
* Filed herewith.
+ Four agreements, substantially identical in all material respects to this Exhibit, have been entered into with J. Frank Bates; Michael L. Blough; Gary R. Hedrick; and John C. Horne, officers of the Company.
++ Eleven agreements, substantially identical in all material respects to this Exhibit, have been entered into with George W. Edwards, Jr.; Ramiro Guzman; James W. Harris; Kenneth R. Heitz; Edward C. Houghton; Michael K. Parks; Eric B. Siegel; Stephen Wertheimer; Charles A. Yamarone; James A. Cardwell; and Wilson K. Cadman, directors of the Company.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the last quarter of 1997:
FINANCIAL STATEMENTS
DATE OF REPORT ITEM NUMBER REQUIRED TO BE FILED
-------------- ----------- --------------------
None
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UNDERTAKING
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of El Paso Electric Company, a Texas corporation, and the undersigned directors and officers of El Paso Electric Company, hereby constitutes and appoints James S. Haines, Eduardo A. Rodriguez, Gary R. Hedrick, Terry D. Bassham and Guillermo Silva, Jr., its, his or her true and lawful attorneys-in-fact and agents, for it, him or her and its, his or her name, place and stead, in any and all capacities, with full power to act alone, to sign this report and any and all amendments to this report, and to file each such amendment to this report, with all exhibits thereto, and any and all documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as it, he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof.
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, on the 26th day of March 1998.
EL PASO ELECTRIC COMPANY
By: /s/ JAMES S. HAINES
-------------------------------------
James S. Haines,
Chief Executive Officer and President
(Principal 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 date indicated.
SIGNATURE TITLE DATE
--------- ------ ----
Chief Executive Officer, President |
/s/ JAMES S. HAINES (Principal Executive Officer) and Director |
--------------------------------------- |
(James S. Haines) |
Vice President, Chief Financial Officer and Treasurer |
/s/ GARY R. HEDRICK (Principal Financial Officer and Principal Accounting |
--------------------------------------- Officer) |
(Gary R. Hedrick) |
|
/s/ WILSON K. CADMAN Director |
--------------------------------------- |
(Wilson K. Cadman) |
|
/s/ JAMES A. CARDWELL Director |
--------------------------------------- |
(James A. Cardwell) |
|
/s/ JAMES W. CICCONI Director |
--------------------------------------- |
(James W. Cicconi) |
|
/s/ GEORGE W. EDWARDS, JR. Director |
--------------------------------------- |
(George W. Edwards, Jr.) |
|
/s/ RAMIRO GUZMAN Director } March 26, 1998
--------------------------------------- |
(Ramiro Guzman) |
|
/s/ JAMES W. HARRIS Director |
--------------------------------------- |
(James W. Harris) |
|
/s/ KENNETH R. HEITZ Director |
--------------------------------------- |
(Kenneth R. Heitz) |
|
/s/ PATRICIA Z. HOLLAND-BRANCH Director |
--------------------------------------- |
(Patricia Z. Holland-Branch) |
|
/s/ MICHAEL K. PARKS Director |
--------------------------------------- |
(Michael K. Parks) |
|
/s/ ERIC B. SIEGEL Director |
--------------------------------------- |
(Eric B. Siegel) |
|
/s/ STEPHEN WERTHEIMER Director |
--------------------------------------- |
(Stephen Wertheimer) |
|
/s/ CHARLES A. YAMARONE Director |
--------------------------------------- |
(Charles A. Yamarone) |
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EXHIBIT 10.18
LETTER OF UNDERSTANDING
This Letter of Understanding (Letter) is entered into by and between ARIZONA ELECTRIC POWER COOPERATIVE, INC., an incorporated cooperative association organized and existing under the laws of the State of Arizona; ARIZONA PUBLIC SERVICE COMPANY, an Arizona corporation; CITY OF FARMINGTON, an incorporated municipality existing as a political subdivision under the laws of the State of New Mexico; EL PASO ELECTRIC COMPANY, a Texas corporation; INCORPORATED, COUNTY OF LOS ALAMOS, a political subdivision of the State of New Mexico; NEVADA POWER COMPANY, a Nevada corporation; PLAINS ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE, INC., an incorporated cooperative association organized and existing under the laws of the State of New Mexico; PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation; SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, an agricultural improvement district organized and existing under the laws of the State of Arizona; TUCSON ELECTRIC POWER COMPANY, an Arizona corporation; and THE UNITED STATES OF AMERICA, WESTERN AREA POWER ADMINISTRATION, DESERT SOUTHWEST REGION represented by the officer executing this Agreement, a duly appointed successor or a duly authorized representative, pursuant to the Acts of Congress dated June 17, 1902 (32 Stat. 388), and August 4, 1977 (91 Stat. 565), and acts amendatory thereof or supplementary thereto. The entities listed above are hereinafter referred to collectively as "Parties" and individually as "Party."
IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES HEREIN SET FORTH, THE
PARTIES AGREE AS FOLLOWS:
In accordance with Section 5.1 of the Southwest Reserve Sharing Group (SRSG) Participation Agreement, the Parties agree to shorten the notice period required to withdraw from the SRSG Participation Agreement from one (1) year to thirty (30) days advance written
Southwest Reserve Sharing Group
Letter of Understanding
notice. This interim notice requirement shall apply to the period of January 1, 1998 through June 30, 1998.
The Parties agree to direct the Operating Committee to create an Operating Procedure to address penalties associated with non-compliance of the SRSG Participation Agreement by April 1, 1998. In the event the Operating Committee is unsuccessful in creating such Operating Procedure by April 1, 1998, the Operating Committee shall recommend to the Executive Committee a list of options. The Executive Committee shall make a final determination relating to penalties prior to May 1, 1998. The final determination of the Operating or Executive Committee shall be binding on all Parties. In any event, any and all penalty assessments shall be waived for the period of January 1, 1998 through June 30, 1998.
Upon the execution of this Letter, the Parties agree that the following Operating Procedures, issued November 3, 1997, shall become effective January 1, 1998:
* Resource Reserve Qualification
* Data Submittals
* After the Fact Hourly Reserve Calculations
* Activation of Reserves for Emergency Assistance
* Emergency Communication Procedure
* Suspension or Termination of Membership
The terms and conditions of this Letter of Understanding shall terminate on July 1, 1998.
\\\
\\\
\\\
Southwest Reserve Sharing Group
Letter of Understanding
Each Party hereto represents and warrants that the person executing this Letter has been duly authorized to act on its behalf.
ARIZONA ELECTRIC POWER COOPERATIVE, INC.
By: /s/ MILES H. OLDFATHER
------------------------------------
TITLE: Board Vice President
---------------------------------
DATE: November 11, 1997
---------------------------------
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ARIZONA PUBLIC SERVICE COMPANY
By: /s/ JACK DAVIS
------------------------------------
TITLE: Executive V.P. Commercial
---------------------------------
Operations
---------------------------------
DATE: November 7, 1997
---------------------------------
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CITY OF FARMINGTON
ATTEST: By: /s/ MAUDE GRANTHAM RICHARDS
------------------------------------
TITLE: Electric Utility Director
---------------------------------
---------------------------------- DATE: November 14, 1997
---------------------------------
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EL PASO ELECTRIC COMPANY
By: /s/ JOHN A. WHITACRE
------------------------------------
TITLE: Assistant VP-System Operations
---------------------------------
DATE: November 24, 1997
---------------------------------
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Southwest Reserve Sharing Group
Letter of Understanding
INCORPORATED COUNTY OF LOS ALAMOS
By: /s/ D. CHRISTOPHER ORTEGA
------------------------------------
TITLE: Utilities Manager
---------------------------------
DATE: November 13, 1997
---------------------------------
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NEVADA POWER COMPANY
By: /s/ MATT H. DAVIS
------------------------------------
TITLE: Division Director, System
---------------------------------
Planning & Operations
---------------------------------
DATE: November 6, 1997
---------------------------------
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PLAINS ELECTRIC GENERATION AND
TRANSMISSION COOPERATIVE, INC.
ATTEST: By: /s/ MICHAEL S. McINNES
------------------------------------
TITLE: Executive VP/General Manager
---------------------------------
---------------------------------- DATE: November 10, 1997
Assistant Secretary ---------------------------------
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PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ R. FLYNN
------------------------------------
TITLE: Sr. Vice President, Electric
---------------------------------
Services
---------------------------------
DATE: November 10, 1997
---------------------------------
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Southwest Reserve Sharing Group
Letter of Understanding
SALT RIVER PROJECT AGRICULTURAL
IMPROVEMENT AND POWER DISTRICT
By: /s/ MARK B. BONSALL
------------------------------------
TITLE: Associate General Manager
---------------------------------
Marketing, Customer Service,
---------------------------------
Finance and Planning
---------------------------------
DATE: November 13, 1997
---------------------------------
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TUCSON ELECTRIC POWER COMPANY
By: /s/ N. A. DELAWDER
------------------------------------
TITLE: Vice President
---------------------------------
DATE: November 12, 1997
---------------------------------
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WESTERN AREA POWER ADMINISTRATION
DESERT SOUTHWEST REGION
By: /s/ J. T. CARLSON
------------------------------------
TITLE: Regional Manager
---------------------------------
DATE: November 17, 1997
---------------------------------
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SOUTHWEST RESERVE SHARING GROUP
PARTICIPATION AGREEMENT
Execution Copy
SECTION TITLE PAGE
------- ----- ----
1. PARTIES........................................................ 1
2. RECITALS....................................................... 2
3. AGREEMENT...................................................... 3
4. DEFINITIONS.................................................... 3
4.1 Administrative Costs..................................... 3
4.2 Administrator Site System................................ 3
4.3 Agreement................................................ 3
4.4 Agreement Developmental Fee.............................. 3
4.5 Area Control Error (ACE)................................. 3
4.6 Capacity................................................. 3
4.7 Capital Expenditures..................................... 4
4.8 Contingency Reserve...................................... 4
4.9 Control Area............................................. 4
4.10 Developmental Costs...................................... 4
4.11 Disturbance.............................................. 4
4.12 Emergency................................................ 4
4.13 Emergency Assistance..................................... 5
4.14 Energy................................................... 5
4.15 Executive Committee...................................... 5
4.16 Exhibits................................................. 5
4.17 Firm Commitment.......................................... 5
4.18 Firm Load................................................ 5
4.19 Funding Agreement No. 2.................................. 5
4.20 Interim Funding Agreement No. 1.......................... 5
4.21 Load..................................................... 5
4.22 Most Severe Single Contingency........................... 5
4.23 NERC Disturbance Control Standard (DCS).................. 6
4.24 Non-Spinning Reserve..................................... 6
4.25 Operating Committee...................................... 6
4.26 Operating Procedure...................................... 6
4.27 Operating Reserve........................................ 6
4.28 Peak Commitment.......................................... 6
4.29 Service Schedule......................................... 6
4.30 Single Contingency....................................... 6
4.31 Spinning Reserve......................................... 7
4.32 SRSG..................................................... 7
4.33 SRSG Administrator....................................... 7
4.34 SRSG Emergency Assistance Matrices....................... 7
4.35 SRSG Firm Deliveries..................................... 7
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4.36 SRSG Firm Receipts....................................... 7
4.37 System................................................... 7
4.38 WSCC Minimum Operating Reliability Criteria.............. 7
5. EFFECTIVE DATE AND TERM........................................ 7
6. RESOLUTION OF CONFLICTS........................................ 8
7. PARTY OBLIGATIONS.............................................. 8
8. ORGANIZATION AND ADMINISTRATION................................ 10
8.1 SRSG Administrator........................................ 10
8.2 Executive Committee....................................... 12
8.3 Operating Committee....................................... 14
8.4 General................................................... 15
9. MEMBERSHIP ELIGIBILITY AND CERTIFICATION....................... 16
10. COST RESPONSIBILITIES.......................................... 18
11. DISBURSEMENT OF FUNDS.......................................... 19
11.1 Application Fees......................................... 19
11.2 Entrance Fees............................................ 19
11.3 Penalty Funds............................................ 19
11.4 Administrative Costs..................................... 19
12. VOTING AND APPROVALS........................................... 19
12.1 Amendments............................................... 20
12.2 Operating Procedures..................................... 20
12.3 Committee Voting......................................... 20
13. BILLING AND PAYMENTS........................................... 21
14. AUDITS......................................................... 23
15. DISPUTE RESOLUTION............................................. 24
16. UNCONTROLLABLE FORCES.......................................... 26
17. WAIVERS........................................................ 27
18. NOTICES........................................................ 27
19. APPROVALS...................................................... 28
20. TRANSFER OF INTEREST IN AGREEMENT.............................. 29
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21. SEVERABILITY................................................... 30 22. RELATIONSHIPS OF PARTIES....................................... 30 23. NO DEDICATION OF FACILITIES.................................... 30 24. THIRD PARTY BENEFICIARIES...................................... 30 25. LIABILITY...................................................... 31 26. DEFAULTS....................................................... 31 27. OTHER AGREEMENTS............................................... 33 28. PROPRIETARY INFORMATION........................................ 33 29. PARTICIPATION BY THE UNITED STATES............................. 33 30. CONTINGENT UPON APPROPRIATIONS................................. 34 31. OFFICIALS NOT TO BENEFIT....................................... 34 32. EXECUTION BY COUNTERPART....................................... 34 33. SIGNATURE CLAUSE............................................... 35 EXHIBITS -------- A. Official Mailing Titles and Addresses of the Parties..........Ex A-1 B. Official Billing Addresses................................... Ex B-1 C Agreement Developmental Fee.................................. Ex C-1 SERVICE SCHEDULES ----------------- A. RESERVE OBLIGATIONS............................................ A-1 B. ACTIVATION OF RESERVES FOR EMERGENCY ASSISTANCE................ B-1 |
SOUTHWEST RESERVE SHARING GROUP
PARTICIPATION AGREEMENT
1. PARTIES:
The Parties to this SOUTHWEST RESERVE SHARING GROUP PARTICIPATION AGREEMENT are: ARIZONA ELECTRIC POWER COOPERATIVE, INC., an incorporated cooperative association organized and existing under the laws of the State of Arizona (hereinafter called "AEPC"); ARIZONA PUBLIC SERVICE COMPANY, an Arizona corporation (hereinafter called "APS"); CITY OF FARMINGTON, an incorporated municipality existing as a political subdivision under the laws of the State of New Mexico (hereinafter called "FARM"); EL PASO ELECTRIC COMPANY, a Texas corporation (hereinafter called "EPE"); INCORPORATED COUNTY OF LOS ALAMOS, a political subdivision of the State of New Mexico (hereinafter called "LAC"); NEVADA POWER COMPANY, a Nevada corporation (hereinafter called "NEVP"); PLAINS ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE, INC., an incorporated cooperative association organized and existing under the laws of the State of New Mexico (hereinafter called "PEGT"); PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation (hereinafter called "PNM"); SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, an agricultural improvement district organized and existing under the laws of the State of Arizona (hereinafter called "SRP"); TUCSON ELECTRIC POWER COMPANY, an Arizona corporation (hereinafter called "TEP"); and THE UNITED STATES OF AMERICA, WESTERN AREA POWER ADMINISTRATION, DESERT SOUTHWEST REGION represented by the officer executing this Agreement, a duly appointed successor or a duly authorized representative, pursuant to the Acts of Congress dated June 17, 1902 (32 Stat. 388), and August 4, 1977 (91 Stat. 565), and acts amendatory thereof or supplementary
thereto (hereinafter called "WALC"). The entities listed above are hereinafter referred to collectively as "Parties" and individually as "Party."
2. RECITALS:
2.1 Parties from Arizona, Nevada, New Mexico, and West Texas have developed a conceptual framework for a regional reserve sharing group that for some Parties will replace their Inland Power Pool membership when the Amended and Restated Inland Power Pool Agreement expires on December 31, 1997.
2.2 The Southwest Reserve Sharing Group (SRSG) will allow for sharing of Contingency Reserves among the Parties in order to realize a more efficient and economic power system operation while maintaining the reliability of the interconnected system. Any other reserve obligation necessary to meet North American Electric Reliability Council (NERC) and Western Systems Coordinating Council (WSCC) criteria will continue to be the responsibility of each Party.
2.3 It is the intent of the Parties to meet or exceed all WSCC and NERC reliability criteria, as such criteria may be amended, modified, or revised.
2.4 The Parties believe that this Agreement will yield important benefits to their respective customers or members. Such benefits include the following:
2.4.1 The combined Loads of the Parties can be supplied and protected
with less aggregate Contingency Reserve resulting in a net
savings in operating expenses.
2.4.2 Emergency conditions can be met with less likelihood of
curtailment or impairment of electric service to customers or
members of the Parties.
2.4.3 The Parties can promote, facilitate, and coordinate the
operation of the respective Systems of the Parties, to the
benefit of the interconnected system.
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2.5 Each Party is willing to utilize its respective electric generation and transmission systems to the extent of its respective obligations which are set forth in this Agreement.
3. AGREEMENT:
IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES HEREIN SET FORTH, THE
PARTIES AGREE AS FOLLOWS:
4. DEFINITIONS:
The following terms, whether in the singular or in the plural, when initially capitalized in this Agreement, shall have the meanings specified:
(MW) or megavoltamperes (MVA) of generation, transmission, or other electrical equipment.
anticipated mode of operation.
5. EFFECTIVE DATE AND TERM:
5.1 This Agreement shall become effective on the later of: (i) when duly executed by all Parties, (ii) when filed with the Federal Energy Regulatory Commission for acceptance, or (iii) January 1, 1998. This Agreement shall continue in effect for a period of ten (10) years from said effective date and thereafter on a year to year basis until terminated by the Parties; provided, however, that any Party may withdraw its participation at any time after the effective date of this Agreement by providing written notice to the Executive Committee at least one (1) year in advance of its effective date of withdrawal, unless a shorter period of time is agreed to by all Parties.
5.2 As of the effective date of withdrawal, the withdrawing Party shall have no further rights or obligations under this Agreement, except payment of amounts then or previously due. Such amounts shall include any financial obligation incurred hereunder prior to the effective date of withdrawal and any amounts incurred by the SRSG Administrator in processing the withdrawal of such Party.
5.3 Neither expiration, termination nor voiding of this Agreement shall relieve a Party of its obligation to make payment of amounts due hereunder.
5.4 No Party shall oppose before any regulatory agencies having jurisdiction, a Party's withdrawal from this Agreement, so long as the provisions of Sections 5.1 and 5.2 herein have been met.
6. RESOLUTION OF CONFLICTS:
In the event of a conflict between the terms and conditions of this Agreement and a Service Schedule, the terms and conditions of the Service Schedule shall prevail.
7. PARTY OBLIGATIONS:
7.1 It is the intent of the Parties to meet or exceed the WSCC Minimum Operating Reliability Criteria and the NERC Control Performance And Disturbance Control Standards, as they may be adopted, modified, or revised.
7.2 The SRSG has been formed for the purpose of sharing Contingency Reserves. Each Party shall maintain, or cause to be maintained, an amount of Contingency Reserve equal to or greater than its Contingency Reserve requirement, as such requirement shall be determined in accordance with Service Schedules A and B attached hereto.
7.3 Each Party shall activate and provide its Contingency Reserves to other Parties, as requested, in accordance with Service Schedule B attached hereto.
7.4 Each Party shall operate its System continuously in parallel; provided, however, that each Party shall have the right to temporarily separate the facilities of its System from the System of any other Party when, in the judgment of the separating Party, abnormal operating conditions exist which require such separation to prevent damage to its facilities, injuries to personnel or impairment of service to its customers or members; and for necessary inspection, maintenance, repair or replacement of its facilities, or additional construction.
7.5 Each Party shall exercise reasonable efforts to construct, operate and maintain its System to avoid the likelihood of a Disturbance originating within its System causing an impairment of service in the Systems of other Parties and to minimize the exposure to damage resulting from Disturbances on the System of other Parties.
7.6 The Parties shall comply with all SRSG Operating Procedures.
7.7 Any Party within a Control Area may make arrangements with the host Control Area to provide or share reserve responsibilities between themselves or third parties, to include billings for reserve deficiency, or any other services rendered, so long as the total reserve responsibility is accommodated.
7.8 Each Party shall be responsible to provide and maintain hardware and software which is compatible with the Administrator Site System for complying with the reporting requirements of this Agreement.
7.9 Each Party is responsible for any financial obligation derived from its membership herein.
7.10 Each Party shall be responsible for its share of costs and expenses attributable to the SRSG Administrator performing its functions pursuant to this Agreement.
7.11 Each Party shall cooperate with the SRSG Administrator and provide the SRSG Administrator information necessary for the performance of its duties herein.
8. ORGANIZATION AND ADMINISTRATION:
As a means of securing effective and timely cooperation within the
activities of the SRSG and a means of facilitating the administration,
coordination, operations and problem solving, the Parties hereby establish
(i) the role of a SRSG Administrator, (ii) an Executive Committee, and
(iii) an Operating Committee.
8.1.1 The SRSG Administrator shall be designated by the Operating
Committee from among the Parties of the SRSG; provided,
however, that the Operating Committee, with the approval of the
Executive Committee, may designate an entity other than a Party
to serve as SRSG Administrator.
8.1.2 The SRSG Administrator may resign by providing written notice
to both the Executive Committee and the Operating Committee at
least one (1) year in advance of the effective date of its
resignation, unless a shorter period of time is agreed to by
all Parties.
8.1.3 The SRSG Administrator may be removed at any time by the
Executive Committee, with or without cause.
8.1.4 Upon resignation or removal of the SRSG Administrator pursuant
to Section 8.1.2 or Section 8.1.3 herein, the outgoing SRSG
Administrator shall:
8.1.4.1 Transfer and provide technical training regarding all
hardware, software, and all other material owned by
the SRSG or owned on behalf of the SRSG to the new
SRSG Administrator; and
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8.1.4.2 Settle all outstanding financial obligations
corresponding with its term as SRSG Administrator and
transfer any remaining SRSG funds to the new SRSG
Administrator.
8.1.5 The SRSG Administrator shall be responsible for performing its
assigned duties in accordance with Operating Procedures
established by the Operating Committee. Such duties shall
include, but not be limited to the following:
8.1.5.1 Data - Data collection, data monitoring, and data
----
processing.
8.1.5.2 Preparation and Consolidation of Reports
----------------------------------------
8.1.5.2.1 Maintenance and preservation of all records
(including both the Executive Committee and
Operating Committee meeting minutes and
Operating Procedures) reasonably necessary
for the performance of the duties
hereunder.
8.1.5.2.2 Submission of an annual budget to the
Operating Committee and the tracking of
SRSG related expenses.
8.1.5.2.3 Preparation and distribution of SRSG
reports required by NERC, WSCC, and the
Operating Committee.
8.1.5.3 Administrator Site System - The SRSG Administrator
-------------------------
shall be responsible for the procurement, operation,
maintenance, and the coordination of the Administrator
Site System.
8.1.5.4 Payments - The SRSG Administrator shall be
--------
responsible for the payment of invoices and the
distribution of funds in accordance with this
Agreement.
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8.1.5.5 Other Duties as Assigned - Such other duties shall
------------------------
include but not be limited to the following:
8.1.5.5.1 Training and consulting for the Parties in
association with questions or problems
relating to SRSG reserves and SRSG data
reporting;
8.1.5.5.2 Certify that an applicant has met all
membership eligibility criteria as set
forth in Section 9 herein;
8.1.5.5.3 Notify the Executive Committee and all
Parties that an applicant has met all
membership criteria and is now a Party to
the SRSG;
8.1.5.5.4 Notify all Parties when an existing
Party(ies) is not in compliance with this
Agreement.
8.1.5.5.5 Bill each Party for its share of expenses
incurred pursuant to Section 13 herein.
8.1.5.5.6 Cooperate with an audit request of the
Operating Committee pursuant to Section 14
herein.
8.1.5.5.7 Make available during its normal business
hours all the records and accounts
maintained by the SRSG Administrator
pertaining to the requesting Party(ies) and
pursuant to activities and responsibilities
hereunder. Such records shall be made
available in a timely manner and at the
requesting Party's expense.
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The Executive Committee shall consist of one representative from each Party designated pursuant to Section 8.4 herein. The responsibilities of the
Executive Committee are as follows:
8.2.1 To establish additional subcommittees as it may from time to
time deem necessary;
8.2.2 To review at least annually the activities of all committees to
ensure their activities are coordinated and consistent with the
spirit and intent of this Agreement;
8.2.3 To review unresolved disputes which may arise within the SRSG
and resolve the disputes pursuant to Section 15 herein;
8.2.4 To review and approve the annual budget of the SRSG;
8.2.5 To review and recommend to the Parties for approval additions
or amendments to this Agreement;
8.2.6 To receive, review, and process an applicant's written request
to become a Party, in accordance with Section 9 herein and
where applicable, notify entities of their SRSG eligibility in
accordance with Section 10.2 herein;
8.2.7 To establish, review, approve, and maintain procedures for the
determination and recertification of creditworthiness for new
applicants and existing members respectively;
8.2.8 To establish procedures for the allocation to and payment by
any new Party to the existing Parties for the past, current and
future cost of facilities, equipment, services, or other costs
such as software that are of benefit to all Parties;
8.2.9 To review and process, in accordance with Section 5 herein, the
notice by a Party to withdraw as a Party to this Agreement;
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8.2.10 To review and process the termination of a Party's rights and obligations under this Agreement;
8.2.11 To provide minutes for all Executive Committee meetings and distribute copies of such minutes to all committee members and to the SRSG Administrator; and
8.2.12 To do such other things and carry out such duties as specifically required or authorized by this Agreement.
The Operating Committee shall consist of one representative from each Party designated pursuant to Section 8.4 herein. The responsibilities of the Operating Committee are as follows:
8.3.1 To establish Operating Procedures for the sharing of
Contingency Reserves such that the SRSG will meet or exceed the
WSCC Minimum Operating Reliability Criteria and NERC's
Disturbance Control Standards relative to Contingency Reserves,
as they may be amended, modified, or revised;
8.3.2 To establish, review, approve, and modify Operating Procedures,
consistent with the provisions herein, for the guidance of
operating employees in the Parties' Systems as to matters
affecting the ability to maintain Contingency Reserves, the
delivery and receipt of Emergency Assistance, and other similar
operating matters;
8.3.3 To establish, review, approve, and modify Operating Procedures
for determining the ratings of the generating facilities of the
Parties;
8.3.4 To establish, review, approve and modify Operating Procedures
for calculating Contingency Reserves within the SRSG;
8.3.5 To establish, review, approve, and modify Operating Procedures
relating to Contingency Reserve deficiencies;
8.3.6 To establish, review, approve, and modify Operating Procedures
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relating to suspension or termination of a Party from this
Agreement;
8.3.7 To establish a "Disturbance Review" task force to review all
SRSG Disturbances to ensure that all SRSG and individual Party
reliability obligations are being met;
8.3.8 To ensure the proper level and location of reserves;
8.3.9 To designate a SRSG Administrator to function under the
direction of the Operating Committee;
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8.3.10 To review and recommend, as necessary, the types and arrangement of equipment and associated communication facilities needed for SRSG operations;
8.3.11 To review and recommend approval of the annual budget, prepared by the SRSG Administrator, to the Executive Committee;
8.3.12 To develop, review, approve, and recommend changes to the SRSG Emergency Assistance Matrices;
8.3.13 To review and process the suspension of all benefits of reserve sharing and applicable reserve sharing obligations of a Party;
8.3.14 To recommend the termination of a Party from the Agreement to the Executive Committee;
8.3.15 To provide minutes for all Operating Committee meetings and distribute copies of such minutes to all committee members and to the SRSG Administrator; and
8.3.16 To do such other things and carry out such duties as specifically required or authorized by this Agreement.
8.4.1 Each Party shall designate, in accordance with Section 18
herein, its representative and alternate representative (to act
in the absence of
15
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the designated representative) on each committee within thirty
(30) days after the execution of this Agreement. Notice of any
change of representation shall be given by written notice to
the other Parties and the SRSG Administrator. Each Party's
designated representatives or alternate representatives will be
authorized to act on its behalf with respect to those committee
responsibilities provided herein.
8.4.2 Each committee shall meet at least annually.
8.4.3 Each committee will elect a chairperson and establish a meeting
protocol at its first meeting.
8.4.4 Each committee shall elect a new chairperson at least every two
(2) years thereafter, provided, that a succeeding chairperson
may not be from the same Party.
8.4.5 No committee shall have the authority to amend this Agreement.
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9. MEMBERSHIP ELIGIBILITY AND CERTIFICATION:
An entity may apply and become a Party to this Agreement by submitting to the Executive Committee a written request for membership to the SRSG, accompanied by a non-refundable application fee of five thousand dollars ($5,000), and by demonstrating to the satisfaction of the Executive Committee that the entity can continuously meet the criteria and certification requirements set forth below:
9.1 It is eligible to file a request for transmission service pursuant to
Section 211 of the Federal Power Act.
9.2 It can maintain, provide and receive reserves, by contractual arrangement or otherwise, as required pursuant to this Agreement, and is able to deliver and receive Energy associated with these reserves at one or more of the following high voltage switchyards:
(a) Four Corners 230 kV or 345 kV Switchyards;
(b) Navajo 500 kV Switchyard;
(c) Palo Verde 500 kV Switchyard;
(d) San Juan 345 kV Switchyard;
(e) Westwing 500 kV Switchyard;
(f) Shiprock 345 kV Switchyard;
(g) Mead 230 kV, 345 kV, or 500 kV Switchyards;
(h) Greenlee 345kV Switchyard;
(i) West Mesa 345kV, Switchyard;
(j) Other switchyards as may be determined by the Operating
Committee.
9.3 It has established appropriate creditworthiness consistent with the criteria established in accordance with Section 8.2.7 herein.
9.4 It has the ability to provide documentation of an ACE or ACE equivalent measurement. The SRSG will operate using all individual Party's ACE data for Disturbance evaluation.
9.5 It has the ability to comply with all applicable terms and conditions established pursuant to Service Schedules A and B hereto.
9.6 Upon demonstrating to the satisfaction of the Executive Committee that such entity meets the criteria set forth in Sections 9.1 through 9.5 herein, the entity shall be deemed eligible to become a Party.
9.7 Once the entity has been deemed eligible to become a Party, the Executive Committee shall direct the SRSG Administrator to begin the certification process.
9.8 The certification process shall consist of the following: (i) execution of this Agreement or a counterpart hereof; (ii) verification from the SRSG Administrator that such entity is current with all its payment obligations relative
to the SRSG, and (iii) verification from the SRSG Administrator that such entity has provided the required data to the SRSG Administrator and has in place the required facilities to effectively transmit and receive data with the Administrator Site System.
9.9 Upon successful completion of the certification process, the entity shall be deemed a Party and the SRSG Administrator shall provide notification to the Executive Committee and all Parties.
10. COST RESPONSIBILITIES:
10.1 The costs of the SRSG shall be allocated as follows:
10.1.1 All Developmental Costs and Capital Expenditures, approved by
the Executive Committee, will be allocated equally among all
Parties. Payments made by a Party pursuant to the Interim
Funding Agreement No. 1 and the Funding Agreement No. 2 shall
be credited towards such Party's share of Developmental Costs.
10.1.2 Annual Administrative Costs, as set forth in the annual
operating budget, will be allocated to the Parties as follows:
10.1.2.1 One-half (1/2) of the on-going Administrative Costs
incurred shall be allocated equally among all
Parties;
10.1.2.2 One-half (1/2) of the on-going Administrative Costs
incurred shall be allocated to each Party in
accordance with the ratio of its Firm Commitments to
the total Firm Commitments of the SRSG at the time
of the SRSG annual coincident Peak Commitment for
the previous calendar year.
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10.2 Each entity eligible to become a Party shall be notified by the Executive Committee and shall, as a condition of the certification process, pay, within thirty (30) calendar days following such notification, an entrance fee equal to
the sum of:
10.2.1 Its share of Developmental Costs and Capital Expenditures in
accordance with Section 10.1.1 herein; plus
10.2.2 An Agreement Developmental Fee determined in accordance with
Exhibit C attached hereto; plus
10.2.3 Administrative Costs for incorporating the entity into the
SRSG.
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10.3 A new Party shall begin incurring its share of ongoing Administrative
Costs upon completion of the certification process set forth in
Section 9.8 herein.
11. DISBURSEMENT OF FUNDS:
12. VOTING AND APPROVALS:
All matters requiring approval as provided in this Agreement, shall be approved through the following procedures:
12.3.1 A Party casting an abstention vote shall be deemed in
attendance for purposes of determining whether a quorum
exists; provided, however, that determination of whether a
three-quarter (75%) majority agreement of the Parties exists
with respect to any issue shall be made
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by counting the votes of only the non-abstaining Parties.
12.3.2 If a vote is taken by telephone or other direct communication
at the direction of the committee chairperson, all committee
representatives or alternate(s) shall be contacted and given
an opportunity to vote. A three-quarters (75%) majority vote
shall be required for approval and the results documented in
writing by the committee chairperson. A record of all such
votes shall be distributed to all designated committee
representative(s) and the SRSG Administrator.
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13. BILLING AND PAYMENTS:
All billing and payments associated with this Agreement, shall be in accordance with this Section 13, and as set forth in the applicable Operating Procedure(s).
13.1 The accounting and billing period associated with all charges shall be for one (1) calendar month, unless otherwise specified herein, or agreed to by the Parties in writing. Each bill shall include an itemized list of expenses. Bills sent to any Party shall be sent to the official billing address specified in Exhibit B.
13.2 Charges associated with this Agreement are listed below, but are not limited to:
13.2.1 Administrative Costs - Administrative Costs shall be billed
--------------------
on an annual basis to each Party by the SRSG Administrator.
13.2.2 Capital Expenditures - Capital Expenditures shall be billed
--------------------
monthly to the Parties by the SRSG Administrator, or as
otherwise agreed to by the Operating Committee.
13.2.3 Emergency Assistance - Emergency Assistance shall be billed
--------------------
between the Parties on a monthly basis, or as otherwise agreed
to among the Parties in writing.
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13.3 Bills issued by any Party, or the SRSG Administrator, shall be issued
within the first ten (10) days of the month following the month(s) in
which services were furnished. Payments for amounts billed shall be
due and payable on or before the close of business on the twentieth
(20) calendar day after the date of receipt of the bill.
13.4 Payments shall be made by electronic transfer to a bank designated by the Party to which payment is due, or any other method which provides immediately available funds on the date payment is due. Payments shall be considered paid when payment is received by the billing Party.
13.5 Bills not paid in full on or before the due date shall thereafter accrue an interest charge equal to the prime rate of interest plus two percent (2%) per annum, or the maximum interest rate permitted by law, if any, whichever is less, prorated daily from the date due to the date the amount due is paid in full. The prime rate shall be as established by the Bank of America, or any other institution mutually agreed to by the Parties in writing, on the last business day of the month for which the bill was submitted.
13.6 In case any portion of any bill is in dispute, the entire bill shall be paid in full when due. Any excess amount, which as a result of a dispute may have been overpaid, shall be returned by the owing Party upon determination of the correct amount, with interest accrued at the rate specified in Section 13.5 herein, prorated by the number of days from the date of overpayment to the date of refund.
13.7 There shall be no interest accrued on overpayments resulting from inadvertent errors in payment. Refunds on overpayments shall be limited to a period of time not to exceed two (2) years from the date payment is received by the billing Party.
14. AUDITS:
14.1 Each Party, at reasonable times and at its normal places of business, shall at no charge make available its records and supporting documentation of any cost, payment, settlement, or data submittal, not subject to a confidentiality agreement with a third party, pertaining to any bill rendered to a Party hereunder for the inspection of that Party for a period of time not to exceed two (2) years from the date such bills were rendered, unless such data is the subject of an ongoing audit.
14.1.1 A Party requesting to review another Party's records will give
such Party sufficient notice of its intent, but in no event
less than thirty (30) days prior to the date of the review.
14.1.2 The requesting Party, using personnel from its own staff or
its agent, may perform this review.
14.1.3 All costs incurred in performing this review will be at the
requesting Party's expense.
14.1.4 The Party performing the review shall not release the other
Party's records or disclose any information contained therein
to any other Party or third party without written consent of
the Party whose records were reviewed, unless otherwise
required by law.
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14.2 The Operating Committee, at reasonable times and at its normal places of business, may audit a Party's records and supporting documentation of any information submitted to the Administrator Site System, and Disturbance data when applicable. Unless such data is subject to an ongoing audit, no Party shall be required to maintain its records and supporting documentation for any data submitted hereunder for a period of time in excess of two (2) years from the date such data was submitted. Audits shall be limited to a period of time
not to exceed two (2) years from the date of the audit request.
15. DISPUTE RESOLUTION:
15.1 Any controversy, dispute or claim arising out of, in connection with, or relating to the interpretation of this Agreement, or the alleged breach hereof, shall:
15.1.1 First be submitted to the Operating Committee for resolution.
If the Operating Committee representatives are unable to reach
resolution within three (3) calendar months or if the
aggrieved Party is not satisfied with the resolution of the
Operating Committee, such dispute, controversy or claim shall
be forwarded to the Executive Committee.
15.1.2 Upon receipt of a dispute, controversy or claim forwarded in
accordance with Section 15.1.1 herein, the Executive Committee
shall meet or confer within thirty (30) days (or such other
period of time as mutually agreed upon by the representatives
of the Executive Committee) to discuss and attempt to reach a
resolution of the dispute controversy or claim. If the
Executive Committee cannot resolve the dispute, controversy or
claim within thirty (30) days after its initial meeting or
conference (or within such other period of time mutually
agreed upon by the representatives of the Executive Committee)
or if the aggrieved Party is not satisfied with the resolution
of the Executive Committee, the aggrieved Party may request
and file a petition for arbitration within thirty (30) days.
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15.2 If all Parties to the controversy, dispute or claim consent to arbitration, such arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The Parties agree to cooperate and use best efforts to arbitrate in a
timely manner. The arbitration is subject to the following:
15.2.1 The arbitration shall be heard by one arbitrator. Such
arbitrator shall have experience in the electric utility
industry, shall not be a customer of any Party involved in the
dispute, and shall not have any current or past substantial
business or financial relationships with any Party involved in
the dispute.
15.2.2 The arbitrator shall have the discretion to order a pre-
hearing exchange of information by the Parties involved in the
dispute, including, without limitation, production of
requested documents, exchange of summaries of testimony of
proposed witnesses, and examination by deposition of Parties
involved in the dispute.
15.2.3 The arbitration shall be conducted in accordance with the
American Arbitration Association's Commercial Arbitration
Rules ("Rules") in effect at the time of the arbitration.
15.2.4 The arbitrator shall have the authority to award any remedy or
relief that a state or federal court which would have
jurisdiction over the dispute could grant.
15.2.5 The arbitration award shall be in writing and shall specify
the factual and legal basis for the award. The award shall be
final and binding upon the Parties involved in the dispute
except with respect to issues over which FERC, RUS, or other
entities having jurisdictional authority have retained
ultimate authority to resolve, in which case, an aggrieved
Party may appeal the decision of the arbitrator to that entity
having jurisdiction for review.
15.2.6 No Party nor the arbitrator may disclose the existence,
content, or results of any arbitration hereunder without the
prior written consent of
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all Parties involved in the dispute, unless otherwise required
by law.
15.2.7 Each Party involved in the dispute shall pay for an equal
share of the arbitrator's fee including travel and lodging.
15.2.8 The arbitration shall be governed by the Federal Arbitration
Act ("FAA"). If terms and conditions of this Section 15
conflict with the FAA, then the FAA shall prevail.
15.2.9 The prevailing Party in an arbitration proceeding shall be
entitled to reasonable attorneys' fees, expert witness fees,
and other incidental costs incurred in the proceeding, as
determined by the arbitrator.
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15.3 In the event that all such Parties do not consent to arbitration, any one or more of such Parties shall be free to seek resolution of the controversy, dispute or claim in such manner as may be provided by law, or in equity.
15.4 To the extent a dispute, controversy or claim involves the SRSG Administrator, this Agreement, and the rights and obligations hereunder shall be construed in accordance with the applicable federal laws and laws of the state in which the SRSG Administrator's principal headquarters is located.
16. UNCONTROLLABLE FORCES:
No Party shall be considered to be in default in performance of any of its obligations under this Agreement, except to pay amounts due under this Agreement, when a failure of performance is due to an uncontrollable force. The term "uncontrollable force" means any cause beyond the control of the Party affected, including but not restricted to flood, drought, earthquake, storm, fire, lightning, epidemic, war, riot, civil disturbance or disobedience, labor dispute, sabotage, changes in law or regulation, restraint by court order or public authority and action or non-action by or failure to obtain the necessary authorizations or approvals from any governmental agency or authority which by exercise of due diligence such Party could not reasonably have
been expected to avoid and which by exercise of due diligence it has been unable to overcome. No Party shall, however, be relieved of liability for failure of performance if such failure is due to causes arising out of its own gross negligence or willful misconduct or due to removable or remediable causes which it fails to remove or remedy within a reasonable time period. Nothing contained herein shall be construed to require a Party to settle any strike or labor dispute in which it may be involved. A Party rendered unable to fulfill its obligations under this Agreement by reason of an uncontrollable force shall give prompt written notice of such fact to the other Parties and shall exercise due diligence to remove such inability within a reasonable time period. Nothing contained herein shall excuse a Party from all or any portion of its obligations to maintain Contingency Reserve hereunder, so long as such Party is serving Load.
17. WAIVERS:
A Party's waiver of its rights with respect to a default hereunder, or any other matter hereunder, shall not be deemed a waiver with respect to any subsequent default of the same or any other matter.
18. NOTICES:
18.1 A formal notice, demand or request provided for in this Agreement, shall be in writing and shall be properly served, given or made if delivered in person, or sent by either registered or certified mail, postage prepaid, or prepaid telegram or facsimile or E-mail followed by a written original, to the persons specified in Exhibit A attached hereto and hereby made a part of this Agreement.
18.2 The designation of any person specified in either Exhibit A or Exhibit B, or the address of any such person, may be changed at any time with ten (10) days prior written notice to the other Parties and to the SRSG Administrator given in the same manner as provided in Section 18.1 herein, for other notices.
18.3 Notices and requests of a routine nature in connection with delivery or receipt of power or Energy or in connection with operation of facilities shall be given in such manner as the committees from time to time shall prescribe.
19. APPROVALS:
19.1 This Agreement is subject to valid laws, orders, rules and regulations of duly constituted authorities having jurisdiction. Nothing contained in this Agreement shall be construed as a grant of jurisdiction over any Party by a state, federal, or regulatory agency not otherwise having jurisdiction by law.
19.2 This Agreement requires execution by the Parties, acceptance for filing by the Federal Energy Regulatory Commission (FERC), or other regulatory bodies having jurisdiction thereof, and with respect to any Party subject to the jurisdiction of the Rural Utility Services (RUS), is subject to the approval of the RUS. If a regulatory body having jurisdiction, grants or orders a hearing or orders changes or modifications to this Agreement, then the Parties shall negotiate in good faith to change or modify the Agreement, so as to be acceptable to the Parties, the FERC, the RUS, or other regulatory bodies having jurisdiction.
19.3 An amendment or change in rates established pursuant to this Agreement and which is subject to the FERC, the RUS, or other regulatory bodies having jurisdiction with regard to any Party, shall become effective hereunder upon execution by the Parties. If a regulatory body having jurisdiction, grants or orders a hearing or orders changes or modifications to such amendment or change in rates, then the Parties shall negotiate in good faith to change or modify such amendment, so as to be acceptable to the Parties, the FERC, the RUS, or other regulatory bodies having jurisdiction.
19.4 Nothing contained herein shall be construed as affecting in any way the right
of the Parties furnishing service under this Agreement, to unilaterally make application to the FERC for a change in rates, charges, classifications, or service, or in any rule, regulation, contract, or provision of any appendix relating thereto under Section 205 of the Federal Power Act and pursuant to the FERC's rules and regulations promulgated thereunder. Provided, however, that the Party making application to the FERC shall give the other Parties to the Agreement at least sixty (60) days advance written notice of its intent to initiate such filing so that the Parties can, if possible, reach a mutually acceptable change to the Agreement through the negotiation of the Parties.
20. TRANSFER OF INTEREST IN AGREEMENT:
No voluntary transfer of interest, rights, or obligations of any Party under this Agreement, shall be made without the written consent and approval of all other Parties except to a successor in operation of the System, or any component thereof. Written approval when required shall not be unreasonably withheld. Any successor or assignee of the rights of any Party, whether by voluntary transfer, judicial or foreclosure sale or otherwise, shall be subject to all the provisions and conditions of this Agreement, to the same extent as though such successor or assignee were the original Party hereunder, and no assignment or transfer of any rights hereunder shall be effective unless and until the assignee or transferee agrees in writing to assume all of the obligations of the assignor or transferor and to be bound by all of the provisions and conditions of this Agreement; provided, that the execution of a mortgage or trust deed or a judicial or foreclosure sale made thereunder, or if through the disposition by the Administrator of the RUS, shall not be deemed a voluntary transfer within the meaning of this Section 20. If, due to reorganization, sale/purchase, or other means, a Party changes its relationship to the SRSG, its membership(s) will be evaluated by the Executive Committee and any appropriate change in representation will be
subject to approval of the Executive Committee.
21. SEVERABILITY:
In the event that any of the terms, covenants or conditions of this Agreement, or the application of any such term, covenant, or condition, shall be held invalid as to any person or circumstance by any court having jurisdiction, all other terms, covenants, or conditions of this Agreement, and their application shall not be affected thereby, but shall remain in force and effect unless a court holds that the provisions are not separable from all other provisions of this Agreement.
22. RELATIONSHIP OF PARTIES:
22.1 Nothing contained herein shall be construed to create an association, joint venture, trust, or partnership, or impose a trust, partnership, covenant, obligation, or liability on or with regard to any one or more of the Parties. Each Party shall be individually responsible for its own covenants, obligations, and liabilities under this Agreement.
22.2 All rights of the Parties are several, not joint. No Party shall be under the control of or shall be deemed to control another Party. Except as expressly provided in this Agreement, no Party shall have a right or power to bind another Party without its express written consent.
23. NO DEDICATION OF FACILITIES:
Any undertaking by one Party to another Party under any provision of this Agreement, shall not constitute the dedication of the System or any portion thereof of the undertaking Party to the public or to the other Party, and it is understood and agreed that any such undertaking, by a Party shall cease upon the termination of such Party's obligations under this Agreement.
24. THIRD PARTY BENEFICIARIES:
This Agreement shall not be construed to create rights in, or to grant remedies to, any
third party as a beneficiary of this Agreement, or of any duty, obligation or undertaking established herein.
25. LIABILITY:
25.1 Subject to any applicable state and federal law which specifically prevents a Party from complying with the provisions hereof, and except for the obligation to pay amounts due in accordance with Section 13 herein, no Party, its directors, members of its governing bodies, officers or employees, shall be liable to any other Party or Parties for loss or damage to property, loss of earnings or revenues, personal injury, or any other direct, indirect, or consequential damages or injury which may occur or result from the performance or non- performance of this Agreement, including any negligence arising hereunder, unless actions or claims and resulting liability, judgments and costs were caused by or resulted from action taken or not taken by a Party or Parties at the direction of its or their directors, members of its governing bodies, officers or employees with management or administrative responsibility affecting its or their performance under this Agreement, which is knowingly or intentionally taken or not taken with conscious indifference to the consequences thereof or with the intent that injury or damage would result or would probably result therefrom. For the purposes of this Section 25 herein, a "Party" shall include the SRSG Administrator; if the SRSG Administrator is a Party to this Agreement.
25.2 The benefits of Section 25.1 herein, shall not extend to a Party prevented by state or federal law from complying with the provisions thereof.
26. DEFAULTS:
26.1 A Party shall be in default in payment when payment is not received within ten (10) days after its final due date. A default by any Party in its payment
obligations under this Agreement, shall be cured by payment of all overdue amounts together with interest accrued at the rate set forth in Section 13.5 herein, prorated daily from the due date to the date the payment curing the default is made.
26.2 Notwithstanding Section 25 herein, a defaulting Party shall be liable to the non-defaulting Parties for all costs, including costs of collection and reasonable attorney fees incurred by such non- defaulting Parties, plus interest as provided in Section 26.1 hereof. The proceeds paid by a defaulting Party to remedy any such default shall be distributed to the non-defaulting Parties in proportion to the additional costs and expenses actually paid by the non-defaulting Parties as a result of the default.
26.3 The rights of a Party who is in default of any of its payment or other material obligations herein, may be suspended by a vote of the non- defaulting Parties' representatives on the Operating Committee or terminated by a vote of the non-defaulting Parties' representatives on the Executive Committee. This provision allowing the non-defaulting Parties to suspend or terminate such rights is in addition to any other remedies provided in this Agreement, at law, or in equity, and shall in no way limit the non-defaulting Parties' ability to seek judicial enforcement of the defaulting Party's obligations under this Agreement. Upon the effective date of such suspension or termination of rights, all rights of the defaulting Party and all obligations of non-defaulting Parties to the defaulting Party imposed by this Agreement, except payment obligations, shall immediately be suspended or terminated.
26.4 Upon suspension or termination of the rights of a defaulting Party under this Agreement, the Operating Committee shall review reserve responsibility and cost allocations of the non-defaulting Parties and make adjustments thereto as
it deems necessary.
27. OTHER AGREEMENTS:
No provision of this Agreement, shall preclude a Party from entering into other agreements or conducting transactions under existing agreements with other Parties or third parties. This Agreement, shall not be deemed to modify or change any rights or obligations under any prior contracts or agreements between or among any of the Parties.
28. PROPRIETARY INFORMATION:
All material of any nature originated or developed hereunder by the
committees, SRSG Administrator, or any Party including, but not limited to,
reports and computer printouts, shall remain the sole property of the
Parties despite distribution, if any, to participating Parties or third
parties. It is hereby agreed that such material shall be deemed to contain
confidential or proprietary information and shall not be released by any
Party to any other Party or third party without the originating Party's
consent, unless required by law, or such material has subsequently been
made available to the public by the Party owning such material. Prior to
releasing such records, to the extent applicable law allows, at least ten
(10) working days notice shall be given to the Party whose records are
being released.
29. PARTICIPATION BY THE UNITED STATES:
The participation by the United States in this Agreement is subject in all respects to acts of Congress and to lawful and valid regulations established thereunder and rate schedules promulgated by the delegates of the Secretary of Energy thereunder. Reference to any Federal statute, regulation or executive order in this Agreement, shall be for the purpose of identification only and all Parties agree that performance by the United States will require compliance with all current laws, regulations, or executive orders. Updates, revisions, reissuances, or a new enactment of law, regulation, or executive order may also be applicable by the terms of such law,
regulation, or executive order to performance by the United States hereunder.
30. CONTINGENT UPON APPROPRIATIONS:
The United States shall make every effort to obtain appropriations as
necessary for continued participation in this Agreement; however, it is
understood that the participation of the United States is contingent upon
obtaining the necessary appropriations and, if such necessary
appropriations are not obtained from Congress, then the other Parties
hereby agree to release and discharge the United States from any financial
liability or responsibility in connection with the continued participation
and associated rights in this Agreement; provided, that if the United
States is unable to continue participation as a result of non-
appropriation of funds, the United States will, at the time sufficient
funds are appropriated, make payment to the appropriate Party or Parties
equal to the amount plus interest calculated pursuant to Section 13.5
herein, which become due under this Agreement, if funds had been timely
appropriated. Payment by the United States shall constitute performance by
the United States as if funds had been appropriated and payment made as
scheduled. Full reinstatement of the United States under the terms of this
Agreement shall be granted only if funds are appropriated in amounts to
cover any obligations which might arise by virtue of the application of
Section 26 herein.
31. OFFICIALS NOT TO BENEFIT:
No Member of or Delegate to Congress or Resident Commissioner shall be admitted to any share or part of this Agreement, or to any benefit that may arise herefrom, but this restriction shall not be construed to extend to this Agreement if made with a corporation or company for its general benefit.
32. EXECUTION BY COUNTERPART:
This Agreement may be executed in any number of counterparts, and upon execution
of this Agreement by all Parties, each executed counterpart shall be binding, and all executed counterparts shall together have the same force and effect as an original instrument as if all Parties had signed the same instrument. Any signature page of this Agreement may be detached from any counterpart of this Agreement without impairing the legal effect of any signature thereon, and may be attached to another counterpart of this Agreement identical in form hereto but having attached to it one or more signature pages.
33. SIGNATURE CLAUSE:
Each Party hereto represents and warrants that the person executing this Agreement has been duly authorized to act on its behalf.
ARIZONA ELECTRIC POWER COOPERATIVE, INC.
BY: /s/ MILES H. OLDFATHER
-------------------------------------------
TITLE: Board Vice President
----------------------------------------
DATE: November 11, 1997
-----------------------------------------
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ARIZONA PUBLIC SERVICE COMPANY
BY: /s/ JACK DAVIS
--------------------------------------------
TITLE: Executive V.P. Commercial Operations
-----------------------------------------
DATE: November 7, 1997
------------------------------------------
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CITY OF FARMINGTON
ATTEST:
BY: /s/ MAUDE GRANTHAM RICHARDS
--------------------------------------------
TITLE: Electric Utility Director
------------------------ --------------------------------------------
DATE: November 14, 1997
--------------------------------------------
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EL PASO ELECTRIC COMPANY
BY: /s/ JOHN A. WHITACRE
--------------------------------------------
TITLE: Assistant VP-System Operations
-----------------------------------------
DATE: November 24, 1997
------------------------------------------
INCORPORATED COUNTY OF LOS ALAMOS
ATTEST:
BY: /s/ D. CHRISTOPHER ORTEGA
--------------------------------------------
TITLE: Utilities Manager
------------------------ -----------------------------------------
DATE: November 13, 1997
------------------------------------------
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NEVADA POWER COMPANY
BY: /s/ MATT H. DAVIS
--------------------------------------------
TITLE: Division Director, System Planning &
Operations
-----------------------------------------
DATE: November 6, 1997
------------------------------------------
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PLAINS ELECTRIC GENERATION AND
TRANSMISSION COOPERATIVE, INC.
ATTEST:
BY: /s/ MICHAEL S. McINNES
--------------------------------------------
TITLE: Executive VP/General Manager
------------------------ -----------------------------------------
Assistant Secretary DATE: November 10, 1997
------------------------------------------
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PUBLIC SERVICE COMPANY OF NEW MEXICO
BY: /s/ R. FLYNN
--------------------------------------------
TITLE: Sr. Vice President, Electric Services
-----------------------------------------
DATE: November 10, 1997
------------------------------------------
|
SALT RIVER PROJECT AGRICULTURAL
IMPROVEMENT AND POWER DISTRICT
BY: /s/ MARK B. BONSALL
--------------------------------------------
TITLE: Associated General Manager
-----------------------------------------
Marketing, Customer Service, Finance
-----------------------------------------
and Planning
-----------------------------------------
DATE: November 13, 1997
------------------------------------------
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TUCSON ELECTRIC POWER COMPANY
BY: /s/ N. A. DELAWDER
--------------------------------------------
TITLE: Vice President
-----------------------------------------
DATE: November 12, 1997
------------------------------------------
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WESTERN AREA POWER ADMINISTRATION
DESERT SOUTHWEST REGION
BY: /s/ J. T. CARLSON
--------------------------------------------
TITLE: Regional Manager
-----------------------------------------
DATE: November 17, 1997
------------------------------------------
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Ex A-1
Ex A-2
Ex B-1
Ex B-2
The Agreement Developmental Fee allocated to new members shall be determined as follows:
Agreement Development Cost = [Labor Cost + Travel Cost] X [(Number of Meetings) X (Number of attendees) X (8-hours/day)]
Number of Meetings = Total number of meetings held in regards to the initial formation and development of the SRSG.
Labor Cost = Average labor cost per man-hour ($50/man-hour), this average includes labor and overheads
Travel Cost = Average cost per man-hour ($25/man-hour), this is based on an average of $200 per person per day for travel, room, and meals.
From July, 1996 through October 23, 1997, the Agreement Developmental Fee is:
Ex C-1
SERVICE SCHEDULE A
RESERVE OBLIGATIONS
This Service Schedule A is agreed upon as part of the Agreement.
A-2. GENERAL:
A-2.1 The purpose of this Service Schedule A is to define the aggregate
reserve requirements of the SRSG and to specify the apportionment
thereof among the Parties. Specific reserve requirements of the
individual Parties are described and settlement provisions for
reserve deficiencies are also established herein.
A-2.2 All reserve requirement calculations derived herein shall be rounded
up to the nearest whole Megawatt.
A-2.3 It is the intent of the Parties to meet or exceed the WSCC Minimum
Operating Reliability Criteria, and the NERC control performance and
disturbance control standards, as they may be adopted, modified, or
revised.
A-2.4 The SRSG has been formed for the purpose of sharing Contingency
Reserves only. Any reserve obligation necessary to meet NERC and
WSCC criteria for regulation, interruptible imports, and on-demand
contracts will continue to be the responsibility of each Party.
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A.3. TERM:
This Service Schedule A shall continue in effect concurrently with the Agreement unless and until terminated by the Parties in accordance with the provisions of Section 5 of the Agreement.
A-4. SRSG CONTINGENCY RESERVE REQUIREMENT:
A-4.1 Consistent with this Agreement, the Parties shall ensure the proper
level and location of the Contingency Reserves. The scheduling of
these Contingency
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Reserves shall be in accordance with Operating Procedures
established by the Operating Committee.
A-4.2 The amount of Contingency Reserve to be maintained jointly for the
SRSG shall be the greater of either:
A-4.2.1 The loss of generating Capacity due to forced outage of
generation or transmission equipment that would result from
the Most Severe Single Contingency of the SRSG (at least
half of which must be Spinning Reserve); or
A-4.2.2 The sum of five percent (5%) of the aggregate Firm
Commitment responsibility served by the Parties with hydro
generation, plus seven percent (7%) of the aggregate Firm
Commitment responsibility served by the Parties with thermal
generation (at least half of which must be Spinning
Reserve).
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A graphic representation of the SRSG Contingency Reserve calculation is depicted in Attachment 1 to this Service Schedule A.
A-5. SRSG SPINNING RESERVE REQUIREMENT:
The amount of Spinning Reserve to be maintained jointly for the SRSG shall be equal to fifty percent (50%) of the SRSG Contingency Reserve requirement determined in accordance with Section A-4.2 herein. All SRSG Spinning Reserve shall be responsive to WSCC frequency deviations.
A-6. RESERVE RESPONSIBILITY VALUE/RESERVE RESPONSIBILITY RATIO:
A-6.1 Reserve Responsibility Value (RRV)
----------------------------------
A Party's RRV is equal to twenty-five percent (25%) of its Firm
Commitment, plus one-hundred percent (100%) of the number of
megawatts associated with its Most Severe Single Contingency.
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\\\
A-6.2 Reserve Responsibility Ratio (RRR)
----------------------------------
A Party's RRR is equal to its RRV divided by the sum of the RRV's
for each Party.
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Graphic representations of the Reserve Responsibility Value and Reserve Responsibility Ratio calculations are depicted in Attachment 2 to this Service Schedule A.
A-7. PARTY RESERVE QUOTAS:
Each Party is responsible for supplying its quota for Contingency Reserve, which is made up of Spinning Reserve and Non-Spinning Reserve, for all hours based on the following reserve quotas. Contingency Reserves activated due to the occurrence of any event shall be restored by the affected Party or Parties in as short a period of time as possible, but not longer than sixty (60) minutes from the start of the event, unless and until the Operating Committee shall establish a different time period.
A-7.1 Contingency Reserve -The hourly Contingency Reserve quota for a
-------------------
Party shall be equal to the product of the SRSG Contingency Reserve
requirement for that hour, as determined in accordance with Section
A-4.2 herein, multiplied by its RRR, as determined in accordance
with Section A-6.2 herein; provided, however, each Party shall
maintain at least 5 MW of Contingency Reserve at all times.
A-7.2 Spinning Reserve - The hourly Spinning Reserve quota for a Party
----------------
shall be equal to fifty percent (50%) of its hourly Contingency
Reserve quota, as determined in accordance with Section A-7.1
herein; provided, however, each Party shall maintain at least 3 MW
of Spinning Reserve at all times.
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Graphic representations of the Party's Contingency Reserve and Spinning
Reserve calculations are depicted in Attachment 3 to this Service Schedule
A.
A-8. PENALTIES:
A-8.1 At the end of each hour, the SRSG Administrator shall compare the
actual
A-3
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amount of Contingency Reserve and Spinning Reserve carried by each
Party to that Party's respective reserve quotas. A Party shall be
deficient in Contingency Reserve if the actual amount of reserve
carried by the Party is less than that Party's respective reserve
quotas. If a Party is deficient in the amount of Contingency
Reserve, the deficient Party shall be assessed a penalty as set
forth in the applicable Operating Procedure(s).
A-8.2 Penalties imposed by NERC or WSCC on the SRSG for failure to carry
required Contingency Reserves shall be applied only to the
Party(ies) that caused the Contingency Reserve deficiency in
proportion to which such Party(ies) contributed to the Contingency
Reserve deficiency.
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A-9. BILLING AND PAYMENT
All billings and payments associated with this Service Schedule A shall be made in accordance with Section 13 of the Agreement.
Plus
----------------------------
SRSG Contingency Reserve Greater of
Requirement
----------------------------
------------------------------------
SRSG's
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Where:
---------------------------- ----------------------------
SRSG Spinning Reserve SRSG Non-Spinning Reserve
---------------------------- ----------------------------
----------------------------
---------------------------- SRSG Contingency Reserve
50% of
SRSG Contingency Reserve Less
Requirement
---------------------------- SRSG Spinning Reserve
-----------------------------
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Where:
Plus
Plus
SRSG Contingency Reserve
Requirement
Multiplied by
Party's RRR
Party's Contingency Greater of
Reserve Requirement
5 MW
50% of Party's Contingency Reserve Requirement
Party's Spinning Greater of
Reserve Requirement
3 MW
SERVICE SCHEDULE B
ACTIVATION OF RESERVES
FOR
EMERGENCY ASSISTANCE
B-1. PARTIES:
This Service Schedule B is agreed upon as part of the Agreement.
B-2. GENERAL:
The purpose of this Service Schedule B is to define the terms and conditions under which a Party is obligated to activate its reserves for another Party requesting Emergency Assistance.
B-3. TERM:
This Service Schedule B shall continue in effect concurrently with the Agreement unless and until terminated by the Parties in accordance with provisions of Section 5 of the Agreement.
B-4. PARTY OBLIGATIONS:
Each Party is responsible for the activation of reserves as follows:
B-4.1 Party Experiencing a Disturbance
--------------------------------
The Party experiencing a Disturbance shall immediately activate its
own Contingency Reserves and initiate a system disturbance message
(which shall include a request for Emergency Assistance if
required), in accordance with Operating Procedures established by
the Operating Committee.
B-4.2 Party Supplying Emergency Assistance
------------------------------------
A Party supplying Emergency Assistance shall activate its reserves
in accordance with Operating Procedures established by the Operating
Committee.
B-4.3 All Parties
-----------
B-4.3.1 Each Party shall be required to complete the activation of
its reserves within ten (10) minutes from the time of the
Disturbance.
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B-4.3.2 When supplying Emergency Assistance a Party has no
obligation to supply more than its Contingency Reserve
quota.
B-4.3.3 A Party has no obligation to supply Emergency Assistance
to another Party beyond a period of sixty (60) minutes
from the time of the Disturbance.
B-4.4 Pursuant to WSCC and NERC criteria, each Party shall maintain
sufficient transmission to support the activation of its own
Contingency Reserves and its Emergency Assistance obligations in
accordance with the Agreement.
B-4.4.1 The amount of non-recallable transmission required to
predetermined points of delivery shall be determined using
matrices for all major contingencies specifying the
transmission paths necessary to deliver SRSG reserves in
accordance with the applicable Operating Procedures as
established by the Operating Committee.
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B-5. SETTLEMENT FOR EMERGENCY ASSISTANCE:
B-5.1 Transmission - Charges associated with the transmission utilized in
------------
accordance with Section B-4.4 herein, shall be the responsibility of
the Party reserving such transmission.
B-5.2 Capacity - There shall be no Capacity (demand) charge associated
--------
with the supply or receipt of Emergency Assistance.
B-5.3 Energy - The Party receiving Emergency Assistance shall pay the
------
supplying Party or Parties for the Energy received at a rate of one-
hundred percent (100%) of the supplying Party's cost incurred. For
the purpose of this Agreement, the term "cost incurred" shall mean
the expense incurred by the supplying Party in supplying Emergency
Assistance, as such cost is determined in accordance with the
applicable Operating Procedures as established by the Operating
Committee. Such costs shall include, but not be
B-2
|
limited to, the following:
B-5.3.1 The cost of fuel which was consumed in generating Energy
for Emergency Assistance; plus
B-5.3.2 Startup and incremental cost of unit operation and
maintenance.
|
B-6. PENALTIES:
Penalties imposed by NERC or WSCC on the SRSG for failure to recover from a Disturbance shall be applied only to the Party(ies) that caused such failure.
B-7. BILLING AND PAYMENT
All billings and payments associated with this Service Schedule B shall be made in accordance with Section 13 of the Agreement.
EXHIBIT 10.23-02
CONTRACT FOR THE PURCHASE, SALE OR
EXCHANGE OF ECONOMY ENERGY
BETWEEN
COMISION FEDERAL DE ELECTRICIDAD
AND
EL PASO ELECTRIC COMPANY
LEGEND: PORTIONS OF THIS DOCUMENT HAVE
BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL
TREATMENT AND SUCH OMITTED
MATERIAL HAS BEEN FILED
SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION
Pag. 1 de 19
CONTRACT FOR THE PURCHASE OF FIRM CAPACITY AND ASSOCIATED POWER ENTERED INTO BY COMISION FEDERAL DE ELECTRICIDAD, HEREINAFTER REFERRED TO AS "CFE", REPRESENTED BY LIC. LUIS R. ALMEIDA DURAN AND BY ING. RAYMUNDO CAMPOS MILAN IN THEIR CAPACITY AS PROGRAMMING SUBDIRECTOR; AND TRANSMISSION, TRANSFORMATION AND CONTROL SUBDIRECTOR RESPECTIVELY AND BY "EL PASO ELECTRIC COMPANY", HEREINAFTER REFERRED TO AS "EPE", REPRESENTED BY JOHN C. HORNE, IN HIS CAPACITY AS VICE PRESIDENT-POWER GENERATION, PURSUANT TO THE FOLLOWING RECITALS AND CLAUSES.
R E C I T A L S
I. CFE STATES THAT:
I.1 It is a decentralized organization of the Federal Public Administration of
the United Mexican States, possessing its own legal personality and assets,
and regulated by the Electric Power Public Service Law, published in the
Official Federal Daily Journal on December 22, 1975.
I.2 Part of its objective is the import of electric power, exclusively for the
provision of public service.
I.3 Its objective also includes the execution of agreements or contracts with
private entities, to carry out acts related to the provision of public
service of electric power, as well as to carry out the acts and execute the
contracts necessary for the fulfillment of its objective.
I.4 It is currently authorized by the Federal Department of Energy to import
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*SEE LEGEND ON FIRST PAGE OF EXHIBIT* electric power monthly from the United States of America. Copies of the permits are included as Attachment I.
I.5 Award of the present CONTRACT was the result of competition through direct
invitation, as for by Constitutional article 134th; 9th,
Pag. 3 de 19
|
Section III of the Electric Power Public Service Law, and Article 7th of
the Regulation of said law. A copy of the decision of the competition
held, appears in Attachment I-BIS.
I.6 This CONTRACT is not subject to the dispositions of the North American Free
Trade Agreement, insofar as it refers to acts that lead to the provision of
electric power public service, pursuant to the provisions contained in
appendix 1001.1B-2, section B Mexico list, section 2, and in official
document No. 202'94'90 dated June 29, 1994 by the General Direction of
International Institutions Headquarters of the Federal Department of
Commerce and Industrial Promotion.
I.7 It possesses the necessary funds, authorized by the Federal Department of
the Treasury, to effect the disbursements arising from this CONTRACT.
I.8 Lic. Luis Almeida and Ing. Raymundo Campos Milan have the necessary
authority to represent it in this act, same as has not been revoked to
date.
I.9 It is domiciled at Don Manuelito No. 32, Col. Olivar de los Padres 01780
Mexico, D.F. Mexico, being this the same given for all legal purposes
pertaining to this CONTRACT.
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II. EPE STATES THAT:
II.1 It is a company constituted and existing pursuant to the laws of the State of Texas of the United States of North America as evidenced by the legal documents added to the present CONTRACT as Attachment II.
II.2 Its purpose consists of the generation, purchase, sale and transmission of electric power in the United States of America, in accordance with that established in Attachment II.
II.3 It received the direct invitation sent to it by CFE to participate in the competition for the purchase of FIRM CAPACITY and ASSOCIATED
pag. 4 de 19
POWER, agreeing to participate in the competition, for which reason it submitted its offer.
II.4 It has the legal status to contract, and meets the technical and economic conditions to obligate itself pursuant to the terms of the present CONTRACT.
II.5 It is familiar with the contents of the Electric Power Public Service Law and its Regulations.
II.6 Its representative Mr. John C. Horne verifies his capacity and authority to appear at this act by means of a certified copy of the protocolized power granted him, which is added to this CONTRACT as Attachment III.
II.4 It is domiciled at 123 West Mills, El Paso, Texas 79901-1341 being this the same given for all legal purposes pertaining to this CONTRACT.
III. THE PARTIES STATE THAT:
III.1 Hereinafter, CFE and EPE may also be individually called "PARTY" or jointly called "PARTIES".
The foregoing having been declared, the PARTIES execute the following:
CLAUSES
FIRST.- SUBJECT MATTER OF THE CONTRACT
The subject matter of the present CONTRACT is to establish the terms and conditions pursuant to which EPE commits to sell and deliver to CFE, and the latter commits to purchase and receive FIRM, CAPACITY and ASSOCIATED POWER, as provided for in this CONTRACT.
Pag.5 de 19
SECOND.- DEFINITIONS
For the purpose of the present CONTRACT the PARTIES agree to establish
the following conventional definitions, which shall be used with no
distinction in singular or plural. The terms defined shall be written
in bold type and upper case letters.
2.1 CONTRACTED CAPACITY
The amount of FIRM CAPACITY in MW, that EPE commits to have at
the disposal of CFE at the POINT OF DELIVERY.
Period Demand (MW)
------ -----------
98/01/01 - 98/03/31 *SEE
98/04/01 - 98/04/30 LEGEND
98/05/01 - 98/08/31 ON FIRST
98/09/01 - 98/12/31 PAGE OF EXHIBIT*
2.2 CAPACITY CHARGE
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The monthly charge in dollars of the United States of America for each kW with CONTRACT CAPACITY, specified in the Fifth Clause of this CONTRACT.
2.3 TRANSMISSION CHARGE
The monthly charge in dollars of the United States of America for each of CONTRACT CAPACITY associated with the use of the transmission system of EPE or with third parties and specified in the Fifth Clause of this CONTRACT.
2.4 ASSOCIATED POWER CHARGE
The charge in dollars of the United States of America for each kW of ASSOCIATED POWER, specified in the Fifth Clause of this CONTRACT.
Pag. 6 de 19
2.5 FORTUITOUS CASES AND FORCE MAJEURE CAUSES
As established in the Twelfth Clause, section 12.3
2.6 CFE-JUAREZ
Is the electric system property of CFE which supplies the northern part of the state of Chihuahua and adjoins the border of the United States of America, and interconnects with the rest of the SINAL at the Moctezuma Substation.
2.7 EMERGENCY
The loss or interruption of generating capacity or TRANSMISSION CAPACITY in the system of either of the PARTIES, which degrades system safety to the point of placing service in risk to its native users or the integrity of the system, as a result of any other cause other than:
(1) scheduled maintenance or;
(2) an expected shortage in the fuel supply.
2.8 ASSOCIATED POWER
The energy delivery to CFE expressed in kWh, associated with
CONTRACTED CAPACITY.
2.9 POINT OF DELIVERY.
Point at which the electric power transmission lines which connect the Azcarate and Diablo Substations, property of EPE, with the Riverena and Insurgentes Substations, property of CFE, cross the international border of the United States of America and the United Mexican States.
Pag. 7 de 19
2.10 SERVICE RESTRICTIONS
Partial or total interruption of the supply of electric power to
CFE.
2.11 NATIONAL INTERCONNECTED SYSTEM (SINAL)
CFE'S principal electric power system, of which CFE-JUAREZ is a part.
2.12 WESTERN SYSTEMS COORDINATING COUNCIL (WSCC)
Is an organization made up of different interconnected electric
power companies, located in the western part of the United
States of America and Canada, and of which EPE is a member.
THIRD.- TERM
This CONTRACT shall take effect on the date on which it is signed by
the PARTIES; the services to be provided pursuant to same shall
commence on January 1st of 1998 and conclude on December the 31st of
1998.
The present CONTRACT shall take effect under the condition that CFE
obtains the budgetary authorization mentioned in statement 1.7.
FOURTH.- TECHNICAL ASPECTS
4.1 INTERCONNECTION
The INTERCONNECTION between the CFE-JUAREZ and EPE systems is by
means of two 115 kV connections in the border which connect the
Riverena and Insurgentes substations, property of CFE, with the
Azcarate and Diablo substations, property of EPE. CFE shall
receive the power of EPE via these lines at the POINT OF
DELIVERY
Pag. 8 de 19
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Transmission of power up to the POINT OF DELIVERY will be the
exclusive responsibility of EPE.
4.2 TRANSFERRED LOAD
Both PARTIES acknowledge that the reception of energy is not
practical or convenient during the time the CFE-JUAREZ is
interconnected to the SINAL of CFE.
For the above stated, in order for an exchange of electric power
to take place between the PARTIES, they agree to separate a part
of the CFE-JUAREZ system, and to continue applying the
procedures established, between the PARTIES, for that purpose.
4.3 DELIVERY CONDITIONS
EPE may not interrupt the delivery of ASSOCIATED POWER, except
under EMERGENCY conditions, FORTUITOUS CASES or FORCE MAJEURE
CAUSES.
4.4 OPERATING PROCEDURES
Both PARTIES agree to continue operating, during the term of
this CONTRACT, according to *SEE LEGEND ON FIRST PAGE OF
EXHIBIT*
4.5 MEASUREMENTS
For billing purposes, the measurements of energy demand and
supply by EPE to CFE will be taken by the Azcarate and Diablo
Substations, property of EPE, according to the operating
procedures established for that purpose between the PARTIES.
Pag. 9 de 19
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FIFTH.- BASIS FOR THE DETERMINATION OF BENEFITS
5.1 PRICES
EPE shall supply the CONTRACTED CAPACITY and ASSOCIATED POWER to
CFE which shall pay to EPE in dollars of the United States of
America, during the term this CONTRACT is in effect, the prices
offered by EPE in the bidding process, and which are stated as
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follows:
*SEE LEGEND ON FIRST PAGE OF EXHIBIT*
5.2 BILLING
Monthly billing for the services will be the sum of the Billing for CONTRACTED CAPACITY, Billing for Transmission, plus the Billing for ASSOCIATED POWER, and the Billing for Other Charges, as stated below:
*SEE LEGEND ON FIRST PAGE OF EXHIBIT*
Pag. 10 de 19
5.3 PRICE CHARACTERISTICS
The prices established in Section 5.1 of this Clause, represent
the total payment required from CFE, up to the POINT OF
DELIVERY, and include all taxes, duties and other fiscal
contributions or payments, arising in the United States of
America, consequently, EPE may not claim, for any reason,
greater benefits other than those agreed and described in
Section 5.1
CFE shall be responsible for the payment of all taxes, duties and other fiscal contributions, arising in the United Mexican States arising by the import of electric power.
SIXTH.- BILLING AND PAYMENT
6.1 INVOICE
The invoice which EPE presents to CFE *SEE LEGEND ON FIRST PAGE
OF EXHIBIT*.
Pag. 11 de 19
6.2 PERIOD FOR BILLING
EPE shall present CFE within 10 calendar days subsequent to the end of each month, the invoices to be charged, in dollars of the United States of America, for the sales made pursuant to this CONTRACT, for the months in which such sales take place. The monthly invoices presented shall be paid by CFE to EPE, within the 20 calendar days subsequent to the date the invoice was received.
6.3 BILLING DISCREPANCIES
In the event of a discrepancy between the PARTIES, regarding the amount stated in an invoice, the invoice must be paid entirely within the period agreed, in the understanding that the amount subject to dispute between the PARTIES, is being paid under protest. If it is determined that any part of the protested amount charged is incorrect, EPE must reimburse CFE the amount of the overcharge, including a 1% monthly interest, calculated as of the day on which the overcharge was paid until the amount and its interest are reimbursed.
6.4 ACCOUNTS FOR PAYMENTS
All payments made by CFE to EPE shall be made in dollars of the United States of America, by electronic means, in a Banking Institution outside the United Mexican States, designated by EPE.
SEVENTH.- TAXES AND DUTIES
The taxes and duties legally arising as a consequence of this CONTRACT in the United States of America and in the United Mexican States, shall be paid respectively by EPE and CFE, as set forth in their respective fiscal regulations.
Pag. 12 de 19
EIGHT.- REPRESENTATION
Within thirty calendar days commencing as of the date on which the
present CONTRACT is executed, each PARTY shall designate a
representative and an alternate, and shall notify the other PARTY in
writing, within the same period, their names and duties.
The representatives of the PARTIES shall basically have the function
of contributing to the satisfactory performance of the operational
aspects arising out of this CONTRACT, as well as to serve as a liaison
between the PARTIES, in order to achieve an adequate implementation of
it.
The PARTIES may change their representatives at any time, subject to
prior notification there of by one PARTY to the other.
All decisions taken by the representatives of the PARTIES must be
recorded in minutes which must be signed by them. The representatives,
however, are not authorized to modify what has been agreed to in this
CONTRACT.
The salaries and expenses of these representatives shall be borne by
the represented PARTY.
NINTH.- DEFAULT
9.1 EVENT OF DEFAULT
In the Event of Default or breach, the conforming PARTY shall
notify the other PARTY, in writing, of such event, the non
complying PARTY shall explain and remedy the non-compliance or
otherwise prove that no event of Default has occurred.
Once the PARTY has been notified of the non-compliance, if there
were such non-compliance, the PARTY in non-compliance shall
correct its fault, as soon as reasonably
Pag. 13 de 19
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possible without exceeding three (3) calendar days commencing on
the date in which notification took place. If due to its nature
it were not possible to remedy the situation within three (3)
calendar days, the non-complying PARTY shall submit, within such
period, a schedule of activities which fully satisfies the other
PARTY, to remedy the non-compliance. If no agreement is reached
by the PARTIES, they shall submit the disputed issues to
arbitration, as established in the Fifteenth Clause of the
present CONTRACT. The PARTIES shall abide by the arbitral
verdict, which shall be definitive.
9.2 RESCISSION
The present CONTRACT may be rescinded due to serious or repeated
non-compliances of either of the PARTIES, regarding the
obligations provided in the present CONTRACT.
TENTH.- PENALTIES
When EPE fails to make the CONTRACTED CAPACITY partially or totally
available to CFE, and this not be due to an EMERGENCY, a FORTUITOUS
CASE OR FORCE MAJEURE CAUSE, or caused by CFE, EPE must pay the
positive difference, duly documented by CFE, between the cost to CFE
for the amount of energy not supplied and the contracted price with
EPE, CFE shall not pay the charge for CONTRACTED CAPACITY and the
charge for TRANSMISSION CAPACITY in proportion to the amount and time
of the non-compliance.
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ELEVENTH.-RESPONSIBILITIES
Each of the PARTIES shall indemnify and hold the other PARTY harmless from any responsibility, loss, damage or destruction of property as a result of dolus, fault or negligence of its officers, advisors, employees, workers and other personnel.
Pag. 14 de 19
Claims or indemnifications of employees or workers of either PARTY as a result of work accidents shall be the sole liability of that PARTY.
Each PARTY shall assume responsibility to its consumers, for claims caused by interruptions or deficiencies of service. Each PARTY agrees to hold the other PARTY safe and harmless if a consumer of one of the PARTIES files suit against the other PARTY.
TWELFTH.- GENERAL MATTERS
12.1 NOTIFICATIONS
Any notification, petition or request relative to this CONTRACT, shall be deemed duly delivered to CFE, if it is sent by certified mail with return receipt requested, by messenger service, or by fax, obtaining confirmations of its reception by the Jefe del Area de Control Norte at Guanacevi No. 131, Parque Industrial Lagunero, Gomez Palacio, Dgo. C.P. 35078, Mexico; if the notification is to EPE, it must be sent to the Assistant Vice President of Resource and Planning Department at 123 West Mills, El Paso, Texas 79901.
The designation of the person to whom notifications shall be sent, or the address of said person may be changed at any time by means of written notification. Every notification and request related to the delivery or reception of electric power or to the operation of facilities, shall be deemed valid if it is transmitted by telephone and recorded in the system operators logs of both PARTIES.
12.2 SUCCESSORS AND ASSIGNEES
The present CONTRACT shall be effective in benefit of and binding on the successors and assignees of both PARTIES; however it shall not be transferable by either of the PARTIES without prior written consent from the other, which shall not be denied without just cause.
Pag. 15 de 19
12.3 FORTUITOUS CASE OR FORCE MAJEURE CAUSE
Neither EPE nor CFE shall be liable for default in their obligations arising out of the present CONTRACT, when said default is due to a FORTUITOUS CASE or FORCE MAJEURE CAUSE, provided that the PARTY which finds itself unable to comply has not contributed or given cause to the occurrence of said FORTUITOUS CASE or FORCE MAJEURE CAUSE.
A FORTUITOUS CASE or FORCE MAJEURE CAUSE shall be understood to mean any natural phenomenon or human act that is unexpected or unavoidable, even when proceeding with due diligence, and that prevents fulfillment of any of its obligations arising out of this CONTRACT. Included among but not limited to FORTUITOUS CASES or FORCE MAJEURE CAUSES are the following: Flooding, earthquake, storm, fire, lightning, epidemic, war, revolt, strike, not attributable to the affected PARTY, acts by authorities not promoted or caused by the affected PARTY.
When a FORTUITOUS CASE or FORCE MAJEURE CAUSE occurs, the PARTY subjected to it must notify and confirm its existence to the other PARTY.
The PARTY subjected to a FORTUITOUS CASE or FORCE MAJEURE CAUSE shall indicate to the other PARTY how long it is expected to last and the measures it is taking to resolve it.
12.4 PARTIAL INVALIDITY
The invalidity or nullity of any part of this CONTRACT, provided said invalidity or nullity does not affect essential elements of same, allowing it to remain in effect, shall not affect the validity of any other provision contained herein.
12.5 DISPUTES
Any dispute arising out this CONTRACT, shall be discussed and resolved by the representatives of the
Pag. 16 de 19
PARTIES, who shall make their best efforts to resolve said dispute in a friendly and opportune manner. If they are unable to resolve such disputes, they shall submit them for consideration and resolution by their respective superior executives, without prejudice to the provisions contained in the Fifteenth Clause.
THIRTEENTH.- AUTHORIZATIONS
All authorizations required by either PARTY for the execution of this CONTRACT, whether in their own country or any country, shall be obtained by the PARTY and be in effect at the time of this CONTRACT is to be signed.
FOURTEENTH.- LANGUAGE
The PARTIES signing this CONTRACT do so in two (2) originals in Spanish and (2) two originals in English. It is agreed that the two versions in Spanish and English of this CONTRACT are valid and binding. In the event of any discrepancy in the interpretation of either of these versions, the version in Spanish shall prevail.
FIFTEENTH.-ARBITRATION
In the event of disputes of a technical or economic nature related to this CONTRACT, which the PARTIES are unable to overcome within a period of thirty (30) calendar days, said dispute shall be resolved by means of arbitration. The arbitration procedure shall be subject to the Rules of Conciliation and Arbitration of the International Chamber of Commerce of Paris. The arbitral tribunal must be comprised by three arbiters selected according to said Rule, unless the PARTIES agree to appoint only one arbiter. The arbitration shall take place in Mexico City, in the Spanish language. The costs and expenses which arise by reason of the arbitration shall be paid by the losing PARTY. The arbitral veredict shall be unappealable and definitive. If during the course of the arbitration
Pag. 17 de 19
proceeding it is determined that the dispute in question is not of a technical or economic nature, said dispute shall be submitted to the jurisdiction of the Federal Tribunals indicated in the Sixteenth Clause.
SIXTEENTH.-REGULATORY LAW
The present CONTRACT shall be governed by and interpreted pursuant to the federal laws of the United Mexican States, therefore, the PARTIES agree that whatever disputes may arise from the present CONTRACT, other than those indicated in clause Fifteenth, shall be of the competency of the Federal Tribunals, and for the purpose, the PARTIES submit to the jurisdiction of said Tribunals in Mexico City, D.F. therefore they waive any forum which might pertain to them by reason of their current or future address or any other reason.
This CONTRACT is executed in Mexico city, Distrito Federal in two issues in English and two issues in Spanish on the 19th day of December of the year 1997.
Pag. 18 de 19
COMISION FEDERAL DE EL PASO ELECTRIC
ELECTRICIDAD COMPANY
/s/ LUIS R. ALMEIDA /s/ JOHN C. HORNE
-------------------------------------- ---------------------------------------
Lic. Luis R. Almeida John C. Horne
Programming Subdirector Vice President-Power Generation
/s/ RAYMUNDO CAMPOS MILAN
--------------------------------------
Ing. Raymundo Campos Milan
Transmission, Transformation and
Control Subdirector
Revised in its Legal Aspects
/s/ EMILIO REYES LAGUNES
--------------------------------------
Lic. Emilio Reyes Lagunes
Legal Business Department Manager
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The above signatures correspond to the Contract for the Purchase of Firm Capacity and Associated Power entered into by Comision Federal de Electricidad and El Paso Electric Company.
I, Josefina Sosa Santos Interpreter and Translator, duly certified by the Superior Court of Justice of the State of Baja California, do herby certify that the foregoing text is a true and correct translation from Spanish into English.
Mexicali, B.C. December 16, 1997
/s/ JOSEFINA SOSA SANTOS
Josefina Sosa Santos.
Pag. 19 de 19
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EXHIBIT 10.24-02
Execution Copy
The Borrowers have requested that restrictions on acquisitions of El Paso's capital stock contained in Section 6.06 be modified to allow the purchase or acquisition of shares of El Paso's capital stock by El Paso from members of management in amounts not exceeding $250,000 in the aggregate for any twelve- month period, and the Required Lenders are willing so to amend the Credit Agreement.
Capitalized terms used but not defined herein shall have the meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows:
El Paso during such twelve-month period from the reissuance of shares of any class of the capital stock by El Paso to members of management of El Paso and its Subsidiaries.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the date first above written.
EL PASO ELECTRIC COMPANY
By: /s/ GARY R. HEDRICK
------------------------------------------
Name: Gary R. Hedrick
Title: VP-Treasurer & CFO
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TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, not in
its individual capacity, but
solely in its capacity as
Trustee,
By: /s/ SARAH WILSON
------------------------------------------
Name: Sarah Wilson
Title: Vice President
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THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
Collateral Agent and
Issuing Bank
By: /s/ PAUL V. FARRELL
------------------------------------------
Name: Paul V. Farrell
Title: Vice President
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OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO, a unit of The Chase
Manhattan Bank
By: /s/ JOYCE C. DELUCCA
------------------------------------------
Name: Joyce C. Delucca
Title: Managing Director
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GUARANTY FEDERAL BANK
By: /s/ MARK L. WAYNE
------------------------------------------
Name: Mark L. Wayne
Title: Vice President
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CREDIT LYONNAIS NEW YORK
BRANCH
By: /s/ ROBERT IVOSEVICH
------------------------------------------
Name: Robert Ivosevich
Title: Sr. Vice President
|
El Paso Electric Company
Computation of Earnings Per Share
(In Thousands Except for Share Data)
EXHIBIT 11
Period From | Period From
Year February 12 | January 1 Year
Ended to | to Ended
December 31, December 31, | February 11, December 31,
1997 1996 | 1996 1995
------------- -------------- | ------------- -------------
|
Net income (loss) applicable to common stock: |
Income (loss) before extraordinary items $ 41,424 $ 31,431 | $ 118,198 $ (33,319)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit (2,775) - | - -
Extraordinary gain on discharge of debt - - | 264,273 -
------------- -------------- | ------------- -------------
Net income (loss) applicable to common stock $ 38,649 $ 31,431 | $ 382,471 $ (33,319)
============= ============== | ============= =============
|
Basic earnings per common share: |
Weighted average number of common |
shares outstanding 60,128,505 60,073,808 | 35,544,330 35,544,330
============= ============== | ============= =============
|
Net income (loss) per common share: |
Income (loss) before extraordinary items $ 0.689 $ 0.523 | $ 3.325 $ (0.937)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit (0.046) - | - -
Extraordinary gain on discharge of debt - - | 7.435 -
------------- -------------- | ------------- -------------
Net income (loss) $ 0.643 $ 0.523 | $ 10.760 $ (0.937)
============= ============== | ============= =============
|
Diluted earnings per common share: |
Weighted average number of common |
shares outstanding 60,128,505 60,073,808 | 35,544,330 35,544,330
------------- -------------- | ------------- -------------
Effect of potential dilutive common stock options |
based on the treasury stock method using |
average market price: |
First quarter 90,200 - | - -
Second quarter 72,847 4,564 | - -
Third quarter 55,103 16,826 | - -
Fourth quarter 74,936 17,599 | - -
Effect of potential dilutive restricted common stock |
based on the treasury stock method using |
average market price: |
First quarter 4,773 - | - -
Second quarter 3,985 563 | - -
Third quarter 3,159 1,651 | - -
Fourth quarter 4,124 1,698 | - -
------------- -------------- | ------------- -------------
Total effect of potential dilutive |
common stock 309,127 42,901 | - -
------------- -------------- | ------------- -------------
Weighted average number of common shares |
and common share equivalents outstanding 60,437,632 60,116,709 | 35,544,330 35,544,330
============= ============== | ============= =============
|
Net income (loss) per common share: |
Income (loss) before extraordinary items $ 0.685 $ 0.523 | $ 3.325 $ (0.937)
Extraordinary loss on repurchases of debt, |
net of federal income tax benefit (0.046) - | - -
Extraordinary gain on discharge of debt - - | 7.435 -
------------- -------------- | ------------- -------------
Net income (loss) $ 0.639 $ 0.523 | $ 10.760 $ (0.937)
============== ============== | ============= ==============
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EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
El Paso Electric Company:
We consent to incorporation by reference in the registration statement (No. 333- 17971) on Form S-8 of El Paso Electric Company of our report dated February 6, 1998, relating to the balance sheets of El Paso Electric Company as of December 31, 1997 and 1996 and the related statements of operations, comprehensive operations, changes in common stock equity (deficit), and cash flows for the year ended December 31, 1997, the period February 12, 1996 to December 31, 1996, the period January 1, 1996 to February 11, 1996, and the year ended December 31, 1995, which report appears in the December 31, 1997 annual report on Form 10-K of El Paso Electric Company.
KPMG Peat Marwick LLP
El Paso, Texas
March 25, 1998
EXHIBIT 24.02
EL PASO ELECTRIC COMPANY
CERTIFICATE OF RESOLUTION
I, Guillermo Silva, Jr., Secretary of El Paso Electric Company, a Texas corporation (the "Company"), do hereby certify that attached hereto is a true, correct and complete copy of the resolution authorizing signatures pursuant to the Power of Attorney for the 1997 Form 10-K, duly adopted by the Board of Directors of the Company at a meeting of said Board duly convened and held on January 22, 1998.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Company this 23rd day of March 1998.
/s/ GUILLERMO SILVA, JR.
------------------------
Guillermo Silva, Jr.
Secretary
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(Corporate Seal)
EL PASO ELECTRIC COMPANY
BOARD OF DIRECTORS
RESOLUTION
JANUARY 22, 1998
FURTHER RESOLVED, that James S. Haines, Eduardo A. Rodriguez, Gary R. Hedrick, Terry D. Bassham and Guillermo Silva, Jr. are each hereby duly appointed the Company's and its Officers' and Directors', true and lawful attorneys-in-fact and agents, for its place and stead, in any and all capacities, with full power to act alone, to sign the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K"), and any and all amendments thereto, and to file such 1997 Form 10-K and each such amendment, with all exhibits thereto, and any and all documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto each of the said attorneys-in-fact and agents, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in- fact and agents, or any of them, may lawfully do or cause to be done by virtue
hereof.
| ARTICLE UT |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET OF EL PASO ELECTRIC COMPANY AS OF DECEMBER 31, 1997 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD START | JAN 01 1997 |
| PERIOD END | DEC 31 1997 |
| BOOK VALUE | PER BOOK |
| TOTAL NET UTILITY PLANT | 1,464,517 |
| OTHER PROPERTY AND INVEST | 0 |
| TOTAL CURRENT ASSETS | 218,117 |
| TOTAL DEFERRED CHARGES | 102,320 |
| OTHER ASSETS | 27,659 |
| TOTAL ASSETS | 1,812,613 |
| COMMON | 60,256 |
| CAPITAL SURPLUS PAID IN | 240,084 |
| RETAINED EARNINGS | 69,300 |
| TOTAL COMMON STOCKHOLDERS EQ | 369,640 |
| PREFERRED MANDATORY | 121,319 |
| PREFERRED | 0 |
| LONG TERM DEBT NET | 938,562 |
| SHORT TERM NOTES | 0 |
| LONG TERM NOTES PAYABLE | 0 |
| COMMERCIAL PAPER OBLIGATIONS | 0 |
| LONG TERM DEBT CURRENT PORT | 84 |
| PREFERRED STOCK CURRENT | 0 |
| CAPITAL LEASE OBLIGATIONS | 28,248 |
| LEASES CURRENT | 28,379 |
| OTHER ITEMS CAPITAL AND LIAB | 326,381 |
| TOT CAPITALIZATION AND LIAB | 1,812,613 |
| GROSS OPERATING REVENUE | 594,038 |
| INCOME TAX EXPENSE | 29,206 |
| OTHER OPERATING EXPENSES | 432,371 |
| TOTAL OPERATING EXPENSES | 461,577 |
| OPERATING INCOME LOSS | 132,461 |
| OTHER INCOME NET | 8,549 |
| INCOME BEFORE INTEREST EXPEN | 141,010 |
| TOTAL INTEREST EXPENSE | 86,442 |
| NET INCOME | 51,793 1 |
| PREFERRED STOCK DIVIDENDS | 13,144 |
| EARNINGS AVAILABLE FOR COMM | 38,649 |
| COMMON STOCK DIVIDENDS | 0 |
| TOTAL INTEREST ON BONDS | 76,015 |
| CASH FLOW OPERATIONS | 206,588 |
| EPS PRIMARY | 0.643 2 |
| EPS DILUTED | 0.639 2 |
| 1 | NET INCOME IS NET OF EXTRAORDINARY LOSS ON REPURCHASES OF DEBT (NET OF FEDERAL INCOME TAX BENEFIT) OF ($2,775). |
| 2 | PRIMARY AND FULLY DILUTED EARNINGS PER SHARE ARE NO LONGER BEING CALCULATED, PER SFAS NO. 128. THE AMOUNTS SHOWN REPRESENT BASIC AND DILUTED EARNINGS PER SHARE, RESPECTIVELY. |
EXHIBIT 99.03-01
AMENDMENT NO. 1
TO STOCK OPTION AGREEMENT
This Amendment No. 1 to that certain Stock Option Agreement dated as of January 17, 1997 (the "Agreement") between El Paso Electric Company, a Texas corporation (the "Company") and James S. Haines, Jr. (the "Optionee").
WITNESSETH:
WHEREAS, the parties have heretofore entered into the Agreement;
WHEREAS, the Company has requested the Optionee to accept certain modifications to the Agreement in order to address issues that have been raised by the Company's auditors regarding the accounting treatment of the Agreement; and
WHEREAS, the Optionee is willing to accept the modifications requested by the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 2.5 of the Agreement shall be deleted in its entirety and replaced with the following:
2. Except as modified by this Amendment No. 1, the Agreement shall remain in full force and effect with no other modifications. The Compensation/Benefits Committee of the Board of Directors has approved this Amendment No. 1.
3. This Amendment No. 1 shall be effective as of January 17, 1997.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement No. 1 on the date set forth below.
Date: April 30, 1997 EL PASO ELECTRIC COMPANY
/s/ KENNETH R. HEITZ
------------------------------------------
By: Kenneth R. Heitz
Title: Chairman,
Compensation/Benefits
Committee of the Board of Directors
OPTIONEE
/s/ JAMES S. HAINES, JR.
------------------------------------------
James S. Haines, Jr.
|
EXHIBIT 99.08
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
EL Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to ___________________ (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 4,395 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1998 through 2001, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ -------------------------------------------- NAME: KENNETH R. HEITZ TITLE: DIRECTOR |
EXHIBIT 99.09
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Eduardo A. Rodriguez (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 6,705 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1998 through 2001, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ -------------------------------------------- Name: Kenneth R. Heitz Title: Director |
/s/ EDUARDO A. RODRIGUEZ
---------------------------------
Eduardo A. Rodriguez
|
EXHIBIT 99.10
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Robert C. McNiel (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 3,660 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1998 through 2001, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ -------------------------------------------- Name: Kenneth R. Heitz Title: Director |
/s/ ROBERT C. MCNIEL
---------------------------------
Robert C. McNiel
|
EXHIBIT 99.11
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Susanne M. Sickles (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,700 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1998 through 2001, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ -------------------------------------------- Name: Kenneth R. Heitz Title: Director |
/s/ SUSANNE M. SICKLES
---------------------------------
Susanne M. Sickles
|
EXHIBIT 99.12
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Guillermo Silva, Jr. (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,660 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1998 through 2001, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ -------------------------------------------- Name: Kenneth R. Heitz Title: Director |
/s/ GUILLERMO SILVA, JR.
---------------------------------
Guillermo Silva, Jr.
|
EXHIBIT 99.13
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Pedro Serrano, Jr. (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,565 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1998 through 2001, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ -------------------------------------------- Name: Kenneth R. Heitz Title: Director |
/s/ PEDRO SERRANO, JR.
---------------------------------
Pedro Serrano, Jr.
|
EXHIBIT 99.14
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Thomas L. Newsom (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,625 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1998 through 2001, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ -------------------------------------------- Name: Kenneth R. Heitz Title: Director |
/s/ THOMAS L. NEWSOM
---------------------------------
Thomas L. Newsom
|
EXHIBIT 99.15
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to John A. Whitacre (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,595 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1998 through 2001, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ -------------------------------------------- Name: Kenneth R. Heitz Title: Director |
/s/ JOHN A. WHITACRE
---------------------------------
John A. Whitacre
|
EXHIBIT 99.16
EL PASO ELECTRIC COMPANY
RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Terry D. Bassham (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 725 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1998 through 2001, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period").
(b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash payment to
the Company pursuant to Section 5.3(a), (2) delivery to the Company of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with the
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ -------------------------------------------- Name: Kenneth R. Heitz Title: Director |
/s/ TERRY D. BASSHAM
---------------------------------
Terry D. Bassham
|
EXHIBIT 99.17
EL PASO ELECTRIC COMPANY
STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
(NON-QUALIFIED STOCK OPTIONS)
(b) If the Optionee shall cease for any reason to serve as a Director of the Company, the Options may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 120 days after the termination of such person's service on the Board and (ii) the Expiration Date.
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the regulations promulgated thereunder. Any fraction of a share of Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid.
(b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, cancelled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, cancelled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be substantially similar to this Agreement in form and substance.
applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ --------------------------- Name: Kenneth R. Heitz Title: Director |
Accepted this 8th day of May, 1997
EXHIBIT 99.18
EL PASO ELECTRIC COMPANY
DIRECTORS' RESTRICTED STOCK AWARD AGREEMENT
El Paso Electric Company, a Texas corporation (the "Company"), hereby grants to George W. Edwards, Jr. (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 25,000 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan.
(b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned
whole shares of Stock (which the Holder has held for at least six months prior
to the delivery of such shares or which the Holder purchased on the open market
and for which the Holder has good title, free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date the
obligation to withhold or pay taxes first arises in connection with the Award
(the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax Payments,
(4) a cash payment by a broker-dealer acceptable to the Company through whom the
Holder has sold the shares with respect to which the Required Tax Payments have
arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove
an election pursuant to any of clauses (2)-(5) if the Committee determines,
based on the opinion of recognized securities counsel, that the method so
elected would result in liability to the Optionee under Section 16(b) of the
Securities Exchange Act of 1934, as amended, or the regulations promulgated
thereunder. Shares of Stock to be delivered or withheld may have a Fair Market
Value in excess of the minimum amount of the Required Tax Payments, but not in
excess of the amount determined by applying the Holder's maximum marginal tax
rate. Any fraction of a share of Stock which would be required to satisfy such
an obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
EL PASO ELECTRIC COMPANY
By: /s/ KENNETH R. HEITZ
--------------------------
Name: Kenneth R. Heitz
Title: Director
Accepted this 13th day of
November, 1997
/s/ GEORGE W. EDWARDS, JR.
--------------------------
Holder
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