ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2003
Commission Registrants, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
----------- ----------------------------------- ------------------
333-32170 PNM Resources, Inc. 85-0468296
(A New Mexico Corporation)
Alvarado Square
Albuquerque, New Mexico 87158
(505) 241-2700
1-6986 Public Service Company of New Mexico 85-0019030
(A New Mexico Corporation)
Alvarado Square
Albuquerque, New Mexico 87158
(505) 241-2700
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Securities Registered Pursuant To Section 12(b) Of The Act:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
---------- ------------------- -----------------------
PNM Resources, Inc. Common Stock, No Par Value New York Stock Exchange
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Securities Registered Pursuant To Section 12(g) Of The Act:
Registrant Title of Each Class ---------- ------------------- Public Service Company 1965 Series, 4.58% Cumulative Preferred Stock of New Mexico ($100 stated value without sinking fund) |
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO
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 registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __
The total number of shares of Common Stock of PNM Resources, Inc. outstanding as of January 31, 2004 was 40,258,997.
On June 30, 2003, the aggregate market value of the voting stock held by non-affiliates of PNM Resources, Inc. as computed by reference to the New York Stock Exchange composite transaction closing price of $26.75 per share reported by The Wall Street Journal, was $1,076,401,115.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into the indicated part of this report:
Proxy Statement to be filed by PNM Resources, Inc. with the Securities and Exchange Commission pursuant to Regulation 14A relating to the annual meeting of stockholders of PNM Resources, Inc. to be held on May 18, 2004 - PART III.
This combined Form 10-K represents separate filings by PNM Resources, Inc. and Public Service Company of New Mexico ("PNM"). Information combined herein relating to an individual registrant is filed by that registrant on its own behalf. PNM makes no representations as to the information relating to PNM Resources, Inc. and its subsidiaries other than PNM. When this combined Form 10-K is incorporated by reference into any filing with the SEC made by PNM, the portions of this Form 10-K that relate to PNM Resources, Inc. and its subsidiaries other than PNM are not incorporated by reference therein.
TABLE OF CONTENTS
Page
GLOSSARY.................................................................... v
PART I
ITEM 1. BUSINESS........................................................... 1
THE COMPANY................................................... 1
COMPANY WEBSITE............................................... 1
UTILITY OPERATIONS............................................ 2
Electric.................................................. 2
Gas....................................................... 3
Transmission.............................................. 4
WHOLESALE OPERATIONS.......................................... 4
Power Sales................................................ 5
CORPORATE AND OTHER...........................................
Sources of Power........................................... 6
Market Reach............................................... 7
Fuel and Water Supply...................................... 7
RATES AND REGULATION.......................................... 8
SEC Ruling/Enron (PUHCA of 1935)..........................
Mandated Regional Transmission Organizations.............. 9
El Paso Electric - Afton Generating Station Matter........ 10
FERC Rulemakings.......................................... 11
Renewable Resources Rulemakings........................... 13
ENVIRONMENTAL MATTERS......................................... 13
COMPETITION................................................... 15
EMPLOYEES..................................................... 15
ITEM 2. PROPERTIES......................................................... 16
ELECTRIC...................................................... 16
Fossil-Fueled Plants...................................... 16
Nuclear Plant............................................. 17
TRANSMISSION AND DISTRIBUTION................................. 18
GAS........................................................... 19
OTHER INFORMATION............................................. 19
ITEM 3. LEGAL PROCEEDINGS.................................................. 19
Navajo Nation Environmental Issues......................... 19
PVNGS Water Supply Litigation.............................. 20
San Juan River Adjudication................................ 20
Former AG&E Manufactured Gas Plant Site.................... 20
Santa Fe Generating Station ("Santa Fe Station")........... 21
Natural Gas Royalties Qui Tam Litigation................... 21
Citizen Suit Under the Clean Air Act....................... 21
California Attorney General Complaint...................... 21
California Antitrust Litigation............................ 21
San Angelo Electric Service Company ("SESCO") Matter....... 21
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 22
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS................................. 25
ITEM 6. SELECTED FINANCIAL DATA.......................................... 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.......................... 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK................................................. 63
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.........................E-1
ITEM 9A. CONTROLS AND PROCEDURES............................................E-1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY..................E-1
ITEM 11. EXECUTIVE COMPENSATION...........................................E-1
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENTAND RELATED STOCKHOLDER MATTERS...................E-1
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................E-1
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES...........................E-1
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.................................................E-2
SIGNATURES.................................................................E-25
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GLOSSARY
Act................................... The Clean Air Act Amendments of 1990
Afton................................. Afton Generating Station
Avistar............................... Avistar, Inc., an unregulated
subsidiary of PNM Resources, Inc.
AG.................................... New Mexico Attorney General
AG&E.................................. Albuquerque Gas and Electric Company
Anaheim............................... City of Anaheim, California
APS................................... Arizona Public Service Company
BHP................................... BHP Billiton
BLM................................... Bureau of Land Management
BNCC.................................. BHP Navajo Coal Company
BTU................................... British Thermal Unit
COA................................... City of Albuquerque, New Mexico
Decatherm............................. 1,000,000 BTUs
Delta................................. Delta-Person Limited Partnership, a
New Mexico limited partnership
DOE................................... United States Department of Energy
EIP................................... Eastern Interconnection Project
El Paso............................... El Paso Electric Company
EPA................................... United States Environmental Protection
Agency
Exchange Act.......................... SEC Exchange Act of 1934
FASB.................................. Financial Accounting Standards Board
Farmington............................ City of Farmington, New Mexico
FERC.................................. Federal Energy Regulatory Commission
Four Corners.......................... Four Corners Power Plant
FPL................................... FPL Energy LLC
Gathering Company..................... Sunterra Gas Gathering Company, a
wholly-owned subsidiary of PNM
Resources, Inc.
ISO................................... Independent System Operator
Kv.................................... Kilovolt
KW.................................... Kilowatt
KWh................................... Kilowatt Hour
Lordsburg............................. Lordsburg Generating Station
Los Alamos............................ The County of Los Alamos, New Mexico
MW.................................... Megawatt
MWh................................... Megawatt Hour
NMED.................................. New Mexico Environment Department
NMPUC................................. New Mexico Public Utility Commission
NMWE.................................. New Mexico Wind Energy Center
NOPR.................................. Notice of Proposed Rulemaking
NRC................................... United States Nuclear Regulatory
Commission
NSPS.................................. New Source Performance Standards
NSR................................... New Source Review
OMOI.................................. Office of Market Oversight and
Investigation
PGAC.................................. PNM's Purchased Gas Adjustment Clause
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PG&E.................................. Pacific Gas and Electric Co.
PPA................................... Power Purchase Agreement
PRC................................... New Mexico Public Regulation
Commission, successor to the NMPUC
Processing Company.................... Sunterra Gas Processing Company, a
wholly-owned subsidiary of PNM
Resources, Inc.
PSD................................... Prevention of Significant Deterioration
PVNGS................................. Palo Verde Nuclear Generating Station
RCRA.................................. Resource Conservation and Recovery Act
RTO................................... Regional Transmission Organization
Reeves Station........................ Reeves Generating Station
Salt River Project.................... Salt River Project Agricultural
Improvement and Power District
SCE................................... Southern California Edison Company
SCPPA................................. Southern California Public Power
Authority
SDG&E................................. San Diego Gas and Electric Company
SEC................................... Securities and Exchange Commission
SJCC.................................. San Juan Coal Company
SJGS.................................. San Juan Generating Station
SO2................................... Sulfur Dioxide
SPS................................... Southwestern Public Service Company
TNP................................... Texas-New Mexico Power Company
Throughput............................ Volumes of gas delivered, whether or
not owned by the Company
Tri-State............................. Tri-State Generation and Transmission
Association, Inc.
Tucson................................ Tucson Electric Power Company
UAMPS................................. Utah Associated Municipal Power Systems
USBR.................................. United States Bureau of Reclamation
USEC.................................. United States Enrichment Corporation
Waste Act............................. Nuclear Waste Policy Act of 1982, as
amended in 1987
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PART I
ITEM 1. BUSINESS
THE COMPANY
PNM Resources, Inc. ("Holding Company") was incorporated in the State of New Mexico on March 3, 2000. The Holding Company's principal subsidiary Public Service Company of New Mexico ("PNM") was incorporated in the State of New Mexico on May 9, 1917. This filing for PNM Resources, Inc. and Subsidiaries and PNM is presented on a combined basis. The Holding Company and PNM have their principal offices at Alvarado Square, Albuquerque, New Mexico 87158 (telephone number 505-241-2700). The Holding Company is an investor-owned holding company of energy and energy-related companies. PNM is a public utility primarily engaged in the generation, transmission, distribution, sale and marketing of electricity, and in the transmission, distribution and sale of natural gas within the State of New Mexico. The business of PNM constitutes substantially all of the business of the Holding Company and its subsidiaries. Therefore, the financial results and results of operations of PNM are virtually identical to the consolidated results of the Holding Company and all its subsidiaries. For ease of discussion, this report may use the term "Company" when referring to PNM or when discussing matters of common applicability to the Holding Company and PNM.
Upon the completion on December 31, 2001 of a one-for-one share exchange between PNM and the Holding Company, the Holding Company became the parent company of PNM. Prior to the share exchange, the Holding Company had existed as a subsidiary of PNM. The new parent company began trading on the New York Stock Exchange under the same PNM symbol beginning on December 31, 2001.
As it currently operates, the Company's principal business segments, whose operating results are regularly reviewed by the Company's management, are Utility Operations and Wholesale Operations ("Wholesale"). Utility Operations include Electric Services ("Electric"), Gas Services ("Gas") and Transmission Services ("Transmission"). The Company allocates its business and results between the Electric and Wholesale segments for financial reporting purposes based on the asset allocations mandated in the Global Electric Agreement (see Note 13 - "Commitments and Contingencies - Global Electric Agreement" in the Notes to Consolidated Financial Statements). Electric consists of the generation and distribution of electricity for retail electric customers in New Mexico. Gas consists of the transportation and distribution of natural gas to end-users. Transmission consists of the transmission of electricity for third parties as well as for Electric and Wholesale. Wholesale consists of the generation and sale of electricity into the wholesale market based on three product lines, that include long-term contracts, forward sales and short-term sales.
Financial information relating to amounts of sales, revenue, net income and total assets of the Company's reportable segments is contained in "Part II, Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 - "Segment Information" in the Notes to Consolidated Financial Statements.
COMPANY WEBSITE
The Company's internet address is http://www.pnm.com. The contents of this website address are not a part of this Form 10-K. The Company's filings
with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are accessible free of charge at http://www.pnm.com as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC, and, upon request, are available in print from the Company free of charge. Additionally, the Company's Corporate Governance Principles, code of ethics (Do the Right Thing-Principles of Business Conduct) and charters of the Company's Audit and Ethics Committee, Governance and Public Policy Committee, Human Resources and Compensation Committee and Finance Committee are available on the Company's website at http://www.pnm.com/governance and such information is available in print to any shareholder who requests it.
UTILITY OPERATIONS
Electric
The Company provides jurisdictional retail electric service to a large area of north central New Mexico, including the COA and the City of Santa Fe, and certain other areas of New Mexico. The largest retail electric customer served by the Company accounted for approximately 4.9% of the Company's total retail electric revenues for the year ended December 31, 2003.
For the years 2001 through 2003, retail MWh sales have grown at a compound annual rate of approximately 0.7%. The Company's system peak demands for its retail customers and firm requirements customers in the summer and the winter for the last three years are shown in the following table:
SYSTEM PEAK DEMANDS
(Megawatts)
2003 2002 2001
--------- --------- ---------
Summer............................. 1,661 1,478 1,431
Winter............................. 1,434 1,309 1,353
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The Company holds long-term, non-exclusive franchise agreements for its electric retail operations, which will expire between December 2005 and November 2028. These franchise agreements allow the Company to access public rights-of-way for placement of the Company's electric facilities. The COA, City of Santa Fe, Bernalillo County, Sandoval County, San Miguel County, Village of Bosque Farms, Pueblo de Cochiti, Village of Tijeras, McKinley County and the City of Las Vegas franchise agreements have expired. The Company remains obligated under New Mexico state law to provide service to customers in these franchise areas despite the absence of an effective franchise agreement. The COA metropolitan area accounted for approximately 54% of the Company's 2003 total electric utility operating revenues, and no other franchise area represents more than approximately 9%. The Company continues to collect and pay franchise fees to the COA, City of Santa Fe, the Town of Cochiti, Village of Bosque Farms, Village of Tijeras and the City of Las Vegas. The Company currently does not pay franchise fees to Bernalillo County, Luna County, Sandoval County, McKinley County, Pueblo de Cochiti and San Miguel County.
Gas
Gas operations distributes natural gas to most of the major communities in New Mexico, including the COA and the City of Santa Fe. The COA metropolitan area accounted for approximately 43% of the total gas revenues in 2003. No single sales-service customer accounted for more than 1.1% of the Company's therm sales in 2003. The Company holds long-term, non-exclusive franchises with varying expiration dates in all incorporated communities requiring franchise agreements except for the COA, City of Santa Fe, Aztec, Village of Bosque Farms, Town of Cochiti Lake, Los Ranchos de Albuquerque and Tatum. The Company remains obligated to serve these franchise areas pursuant to state law despite the absence of an effective franchise agreement.
The Company's customer base includes both sales-service customers and transportation-service customers. Sales-service customers purchase natural gas and receive transportation and delivery services from the Company for which the Company receives both cost-of-gas and cost-of-service revenues. Cost-of-gas revenues collected from sales-service customers are recovered in accordance with PRC regulations through the Company's PGAC and represent a pass-through of the Company's cost of natural gas to the customer. Therefore, the Company's operating results are not affected by an increase or decrease in natural gas prices. Additionally, the Company makes occasional gas sales to off-system sales customers. Off-system sales deliveries generally occur at pipeline interconnects with the Company's system and profits are shared between the Company and its customers on a 30%/70% sharing basis. A final order was issued in 2001 that approved an agreement among the parties regarding PNM's hedging strategy and the implementation of a price management fund program which includes a continuous monthly balancing account with a carrying charge. This carrying charge has the effect of keeping PNM whole on gas purchase transactions since it is now compensated for the time value of money.
The Company had approximately 40 transportation-service customers in 2003, which procure gas for their end users independently of the Company's end users. Transportation-service customers are gas marketers and producers contracting with the Company for transportation services to their end users and for other related services that provide the Company with cost-of-service revenues only. Transportation services are provided to transportation-service customers at locations throughout the Company's distribution systems, as well as points on and off the Company's transmission pipelines. The Company provided gas transportation deliveries to approximately 1,200 transportation end users during 2003.
In 2003, approximately 53% of the Company's total gas throughput was related to transportation gas deliveries. The Company's transportation rates are unbundled, and transportation customers only pay for the service they receive. In 2003, revenues from transportation customers accounted for approximately 5% of the Company's total gas revenue. Revenues from sales customers account for the remaining 95%. Of this percentage, 67% is related to the cost of gas on which the Company makes no margin. Because a major portion of the Company's load is related to heating, levels of therm sales are affected by the weather. Approximately 61% of the Company's total therm sales in 2003 occurred in the months of January, February, March and December.
The Company obtains its supply of natural gas primarily from sources within New Mexico by contracting with third party producers and marketers. These
contracts are generally sufficient to meet the Company's peak-day demand. The Company serves certain cities, which depend on El Paso Natural Gas Company or Transwestern Pipeline Company, for transportation of gas supplies. Because these cities are not directly connected to the Company's transmission facilities, gas transported by these companies is the sole supply source for those cities. Such transportation is regulated by FERC. As a result of FERC Order 636, the Company's options for transporting gas to these cities and other portions of its distribution system have increased.
Transmission
The Company owns or leases 2,902 circuit miles of transmission lines, interconnected with other utilities in New Mexico, east and south into Texas, west into Arizona, and north into Colorado and Utah. Due to rapid load growth in the Company's service territory in recent years and the lack of transmission development, most of the capacity on this transmission system is fully committed and there is very little or no additional access available on a firm commitment basis. These factors result in physical constraints on the system and limit the ability to wheel power into the Company's service area from outside of New Mexico.
WHOLESALE OPERATIONS
The Company's Wholesale Operations consist of the generation and sale of electricity into the wholesale market based on three product lines, which are long-term contracts, forward sales and short-term sales. Long-term contracts include sales to firm-requirements and other wholesale customers with multi-year arrangements. These contracts range from 2 to 17 year terms with an average term of 7.5 years. Forward sales include third party purchases in the forward market that range from 1 month to 3 years. These transactions do not qualify as normal sales and purchases as defined in SFAS 133 and as a result, are marked to market. Short-term sales generally include spot market, hour ahead, day ahead and week ahead contracts with terms of 30 days or less. Also included are sales of any excess generation not required to fulfill PNM's retail load and contractual commitments. Short-term sales also cover the revenue credit to retail customers as specified in the Global Electric Agreement (see Note 13 - "Commitments and Contingencies - Global Electric Agreement" in the Notes to Consolidated Financial Statements).
The Wholesale Operations strategy calls for increased net asset-backed energy sales supported by long-term contracts in the wholesale market, whereby the Company's aggregate net open forward electric sales position, including short term sales, forward sales and long-term contracts, is covered by its forecasted excess generation capacity. The net asset-backed sales are actively monitored by management by the use of stringent risk management policies. The Company's future growth plans call for approximately 75% of its new generation portfolio to be committed through long-term contracts, including sales to retail customers. The 75% threshold is in compliance with the Global Electric Agreement. Growth will be dependent on market development and on the Company's ability to generate funds for the Company's future expansion. Although the current economic environment has led the Company to scale back its expansion plans, the Company continues to operate in the wholesale market and seek appropriately priced asset additions. Expansion of the Company's generating portfolio will depend on the Company's ability to acquire favorably priced assets at strategic locations and to secure long-term commitments for the purchase of power from the acquired plants.
Power Sales
In 2003, the Company's revenues from the wholesale marketplace stabilized following the preceding years when volatility was high. The years 2000 and 2001 saw high volatility combined with high power prices. During 2002, power prices declined significantly due to lower natural gas prices, an average Pacific Northwest hydro generation year, an increase in new generation coming on-line, and a shift by various large California utilities to long-term contracts rather than spot market purchases. The year 2003 continued the trend of 2002, except that power prices were generally higher due primarily to higher natural gas prices and abnormally hot summer temperatures in the Southwestern United States. While price volatility has remained low over the years 2002 and 2003, the Company has been successful in developing its wholesale power marketing activities in the Western United States. Management believes this success is due to its niche business strategy of providing electric power customized to meet the special needs of its customers. This niche marketing strategy is based on the Company's net asset-backed methodology, which can help to mitigate the risks inherent in the Company's wholesale power marketing activities. The Company also utilizes long-term transactions to enhance its product offerings.
Certain Company generation assets are excluded from retail electric rates. As a result, the Company developed a wholesale power marketing strategy to sell the generation from its assets that are excluded from rate base. This strategy also includes the forward purchase and sale of electricity to take advantage of market price opportunities in the electric wholesale market. During 2003, 2002 and 2001, the Company's sales in the wholesale electric markets accounted for approximately 62%, 56% and 64% respectively, of its total MWh sales. Of the total wholesale electric sales made in 2003, 2002 and 2001, 82%, 77% and 77% respectively were transacted through purchases for resale.
In 1990, the NMPUC established an off-system sales methodology that provided for a sharing mechanism whereby a certain amount of revenues from off-system sales were credited to reduce retail cost of service. Off-system sales above the amounts credited to retail customers accrue to the benefit of shareholders. Subsequent rate cases continued to utilize this methodology.
In January 2003, the PRC approved the Global Electric Agreement which sets a rate path through 2007. PNM agreed to decrease retail electric rates by 6.5% in two phases over three years. The first phase of the rate reductions became effective in September 2003. In addition, certain plant and purchased power contracts previously excluded from retail rates are now included as generation resources to serve PNM's New Mexico retail and firm wholesale requirements customers' load. These resources include San Juan Unit 4 and PNM's contracts to purchase power from SPS, Tri-State and Delta. PVNGS Unit 3 remains excluded as are the Lordsburg and Afton plants. (See Note 13 - "Commitments and Contingencies - Global Electric Agreement" in the Notes to Consolidated Financial Statements).
The Company has entered into various firm wholesale electric sales contracts. These contracts contain fixed capacity charges in addition to energy charges. Capacity charges are fixed monthly payments for a commitment of resources to service the contract requirements. Energy charges are payments based on the amount of electricity delivered to the customer intended to compensate the Company for its variable costs incurred to provide the energy. The Company's firm-requirements demand was 254 MW in 2003, and is expected to be
261 MW in 2004, 252 MW in 2005, 262 MW in 2006 and 267 MW in 2007. No firm-requirements wholesale customer accounted for more than 7% of the Company's total electric sales for resale revenues for the year ended December 31, 2003.
CORPORATE AND OTHER
The Holding Company performs substantially all of the corporate activities of PNM. These activities are billed to PNM on a cost basis to the extent they are for the corporate management of PNM and these costs are allocated to the operating segments. The Holding Company's wholly-owned subsidiary, Avistar, was formed in August 1999 as a New Mexico corporation and is currently engaged in certain unregulated and non-utility businesses. In January 2002, Avistar was dividended by PNM to the Holding Company pursuant to an order from the PRC.
Sources of Power
As of December 31, 2003, the total net generation capacity of facilities owned or leased by the Company was 1,742 MW, or 2,074 MW including the operating lease and wind generation facility discussed below. The Company is committed to increasing the utilization of the major generation capacity at SJGS, Four Corners and PVNGS. SJGS is operated by the Company. SJGS's equivalent availability and capacity factor were 82.1% and 77.8% respectively, for the twelve months ended December 31, 2003, as compared to 89.7% and 85.3%, respectively for 2002. Capacity factors for Four Corners and PVNGS were 89.8% and 87.3%, respectively, in 2003, as compared to 73.3% and 94.4%, respectively, in 2002. Four Corners and PVNGS are operated by APS. (See "Item 2. Properties".)
The Company's Lordsburg and Afton plants became fully operational in 2002. These plants were not built to serve New Mexico retail customers and, therefore, are not currently included in the rate base. However, it is possible that these plants may be needed in the future to serve the growing retail load. If so, these plants would have to be certified by the PRC and would then be subject to inclusion in the Company's rate base in the following rate case. These plants were built in furtherance of the Company's ongoing strategy of increasing generation capacity over time to serve increasing retail load, sales under long-term contracts and other sales.
In addition to generating its own power, the Company purchases power in the market. The Company's purchase contract capacity, including the contracts described below, was 594 MW in 2003 and is expected to be 798 MW in 2004, 653 MW in 2005, 603 MW in 2006, and 536 MW in 2007. The Company also purchases power in the forward, day-ahead and real-time market.
In 1996, the Company entered into an operating lease agreement for the rights to all the output of the Delta gas-fired generating plant for 20 years. The plant received FERC approval for "exempt wholesale generator" status. The maximum dependable capacity under the lease is 132 MW. In July 2000, the plant went into operation. The gas turbine generating unit is operated by Delta and is located on the Company's retired Person Generating Station site in the COA. The site for the generating unit was chosen, in part, to provide needed benefits to the Company's constrained transmission system. Primary fuel for the gas turbine generating unit is natural gas provided by wholesale gas purchases. In addition, the unit has the capability to utilize low sulfur fuel oil if natural gas is neither available nor cost effective.
In 2002, the Company entered into an agreement with FPL, a subsidiary of FPL Group, Inc., to develop a 200 MW wind generation facility in New Mexico. The Company began receiving commercial power from the project in June 2003. FPL Energy owns and operates the NMWE, which consists of 136 wind-powered turbines on a site in eastern New Mexico. The Company has a contract to purchase all the power generated by the NMWE for 25 years. In 2003, the Company received approval from the PRC for a voluntary tariff that allows PNM retail customers to buy wind-generated electricity for a small monthly premium. Power from the facility is used to service load under the voluntary tariff and as part of the Company's electric supply mix for meeting retail load. Any wind-generated electricity in excess of these amounts is sold on the wholesale power market, either within New Mexico or outside the state.
Market Reach
In addition to owning purchased power contracts, the Company owns firm transmission capacity to the Mead market hub in the amount of 240 MW, which serves various wholesale power markets and loads in the greater Las Vegas, Nevada area, and serves as an injection point for the California ISO. In addition, the Company owns transmission capacity to serve major load centers in the Phoenix, Arizona area in the amount of 140 MW.
Fuel and Water Supply
The percentages of the Company's generation of electricity (on the basis of KWh) fueled by coal, nuclear fuel and gas and oil, and the average costs to the Company of those fuels (in cents per million BTU), during the past three years were as follows:
Coal Nuclear Gas and Oil
Percent of Average Percent of Average Percent of Average
Generation Cost Generation Cost Generation Cost
---------- ------- ---------- ------- ---------- -------
2003........... 68.0 163.8 29.5 44.5 2.5 625.2
2002........... 67.7 171.0 30.7 46.1 1.6 505.6
2001........... 66.9 179.6 28.4 45.7 4.7 524.5
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The generation mix for 2004 is expected to be 66.8% coal, 29.9% nuclear and 3.3% gas and oil. Due to locally available natural gas and oil supplies, the utilization of locally available coal deposits and the generally abundant supply of nuclear fuel, the Company believes that adequate sources of fuel are available for its generating stations into the foreseeable future.
Coal
See Note 13 - "Commitments and Contingencies - Coal Supply" in the Notes to Consolidated Financial Statements.
Natural Gas
The natural gas used as fuel for the electric generating plant located in COA (Reeves Station and the Delta operating lease) is procured on the open market and delivered by Gas through its transportation services. The Company's Wholesale Operations procures its gas supply independently of Gas but obtains gas transportation services from Gas.
Nuclear Fuel
The Company is one of several participants in PVNGS. See Note 11 - "Construction Program and Jointly-Owned Plants" in the Notes to Consolidated Financial Statements. The fuel cycle for PVNGS is comprised of the following stages:
o mining and milling of uranium ore to produce uranium concentrates;
o conversion of uranium concentrates to uranium hexafluoride;
o enrichment of uranium hexafluoride;
o fabrication of fuel assemblies;
o utilization of fuel assemblies in reactors; and
o storage and disposal of spent nuclear fuel.
The PVNGS participants have contracted for all of PVNGS requirements for uranium, uranium concentrates and conversion services through 2008. The PVNGS participants have also contracted for all of PVNGS enrichment services through 2010 and fuel assembly fabrication services until at least 2015.
The plant used by PVNGS for conversion services has been shut down due to operational problems. It is not currently known when that plant will resume operations. PVNGS is working to assure that adequate amounts of uranium hexafluoride are available to support the Unit 3 fall 2004 refueling and subsequent refueling.
Water Supply
See Note 13 - "Commitments and Contingencies - Water Supply" in the Notes to Consolidated Financial Statements.
RATES AND REGULATION
PNM is subject to the jurisdiction of the PRC, with respect to its retail electric and gas rates, service, accounting, issuance of securities, construction of major new generation and transmission facilities and other matters regarding retail utility services provided in New Mexico. The FERC has jurisdiction over rates and other matters related to wholesale electric sales and cost recovery for a portion of its transmission network. The FERC has begun to take more aggressive action with regard to the exercise of its jurisdictional authority over wholesale electric sales. In February 2000, in response in part to the allegations of wrong-doing in the California spot market, the FERC announced it was establishing the OMOI as one prong of its strategic plan. The stated purpose of the FERC OMOI is to engage in the vigilant oversight of energy markets to ensure effective regulation and remediation of market problems, while vigorously enforcing compliance with the FERC's rules and regulations. The FERC has moved forward to staff its OMOI and it is now a fully functioning branch of the FERC.
SEC Ruling/Enron (PUHCA of 1935)
On December 29, 2003, the SEC issued an order affirming an Administrative Law Judge ("ALJ") decision that Enron was not entitled to an exemption from the Public Utility Holding Company Act because it had failed to establish that its utility subsidiary, Portland General Electric ("PGE"), was predominantly intrastate in character and operates substantially in a single State. In reaching its decision, the SEC considered a number of factors, including the
amount of generating and transmission plant owned, the percentage of gross revenues earned from out of state operations in the previous three years and the impact of the holding company on state regulation. PNM Resources has claimed an exemption from PUHCA since it was established as a holding company. Filings for continued exemption must be made annually. The Company filed its claim for exemption on February 27, 2004.
Electric Rates and Regulation
FERC
Mandated Regional Transmission Organizations
With the passage of the Public Utility Regulatory Policies Act of 1978 and the Energy Policy Act of 1992, there has been a significant increase in the level of competition in the market for the generation and sale of electricity. Barriers have been reduced for companies wishing to build, own and operate electric generating facilities. In 1996, the FERC issued Order 888 requiring electric utilities controlling transmission facilities to file open access transmission tariffs, which opened the utility transmission systems to wholesale sellers and buyers of electric energy on a non-discriminatory basis.
Order 888 also encouraged utilities to investigate the formation of ISOs to operate transmission assets and provided guidance for the formation, operation and governance of ISOs. In 1999, the FERC issued Order 2000 on RTOs, which established timelines for transmission-owning entities to join an RTO and defined the minimum characteristics and functions of an RTO.
PNM, along with other RTOs, originally pursued the formation of an RTO through Desert STAR, a non-profit organization. Because of the FERC's subsequent acceptance of a for-profit RTO model and because a for-profit RTO was viewed as having the proper motivation to efficiently facilitate competitive markets, PNM, together with the RTOs, in October 2001, filed a request with FERC seeking a declaratory order. That filing sought an order that a proposed for-profit transmission company that adopted the procedures and tariff set forth in the filing would meet the criteria of Order 2000. The proposed company would be a limited liability company named WestConnect RTO, LLC ("WestConnect"). There were over 50 intervenors in the WestConnect docket, including the New Mexico Attorney General, New Mexico Industrial Energy Consumers and the PRC, which filed comments or concerns regarding WestConnect's declaratory order petition. In October 2002, the FERC issued its Declaratory Order in the case providing guidance and conditions under which the proposal for formation of the WestConnect RTO would be deemed to satisfy the FERC's requirements for RTO status under its Order 2000. Several parties to the proceeding, including PNM as a proposed member of WestConnect, filed motions for rehearing and clarification of the FERC's Declaratory Order. On December 23, 2002, the FERC issued its order granting in part and denying in part the requests for rehearing and provided clarification on certain issues raised by the parties in the case. This order on rehearing provided for certain filings that need to be made by WestConnect's proposed participants. On January 22, 2003, the WestConnect participants requested further clarification and rehearing of the FERC's order of December 23, 2002. On September 15, 2003, FERC issued its order granting clarification and rehearing in part.
In July 2002, the FERC issued a Notice of Proposed Rulemaking, which if approved, would modify Order 888 by instituting a Standard Market Design ("SMD") for electric wholesale markets. The WestConnect participants and many other
interested parties filed comments that questioned the assumptions supporting the SMD proposal and objected to many of its provisions. Prior to any additional action on the SMD proposal, the FERC, issued a "white paper" that expressed flexibility from the SMD proposal in April 2003. Based on the white paper, the WestConnect participants are evaluating several options they may pursue in order to comply with Orders 888 and 2000. As a result of the white paper, technical conferences are being held throughout the United States. The WestConnect participants, including PNM, and other interested parties participated in such a technical conference in September 2003. In addition, the white paper stated that if it is demonstrated that the costs of implementing any feature of the SMD outweigh its benefits, the FERC would not require the RTO to implement that feature. The WestConnect participants and other utilities have authorized a cost benefit study to be completed to examine the cost/benefit of the various features of the SMD. The cost/benefit study has commenced with the initial findings expected to be completed during the first quarter of 2004. The FERC has not set a schedule for additional proceedings involving the SMD issues as modified by the white paper.
As part of the cost/benefit evaluation, the WestConnect applicants and others are studying a phased approach to implementing an RTO. Under the phased approach, the cost/benefit relation of each phase would be studied to determine if the benefits for each phase would justify the costs associated with the implementation of that phase.
Uncertainty continues to exist regarding the FERC's evolving RTO policy. PNM, together with the WestConnect participants, is continuing to monitor the various activities and exploring its options.
El Paso Electric - Afton Generating Station Matter
With the Company's construction of Afton, PNM representatives have been engaged in a FERC proceeding with El Paso to obtain transmission capacity on El Paso's transmission system to transmit 135 MW of power generated at Afton, north to PNM's load center. El Paso had originally executed an agreement to transmit only 30 MW of power on a firm service basis and offered to supply an additional 20 MW of contingent transmission service. At PNM's request in the FERC proceeding, El Paso filed with the FERC an unexecuted transmission service agreement to provide 20 MW of contingent transmission service to PNM. In November 2002, PNM filed a protest with the FERC, challenging El Paso's denial of PNM's request for the full 135 MW of transmission service. In an order issued by the FERC in December 2002, FERC ordered the matter to be set for hearing.
In July 2003, El Paso and PNM jointly moved to suspend the procedural schedule advising that they had reached a settlement in principle that would resolve all issues in this proceeding.
In November 2003, El Paso and PNM reached agreement on the terms under which the issues in this proceeding would be settled, and a settlement agreement ("settlement") between El Paso and PNM was filed at the FERC. Under the terms of the settlement, El Paso will provide PNM with 135 MW of Firm Transmission Service (as defined in the settlement) from Afton to El Paso's point of interconnection with PNM at the West Mesa Switching Station. In addition, El Paso will determine whether it can provide an additional 6 MW of transmission service without facility upgrades. The settlement provides for 30 MW of the transmission service to be provided under the existing 30 MW Service Agreement
under the El Paso Open Access Transmission Tariff ("OATT"), and the remaining 105 MW of transmission service (subject to increase to 111 MW) to be provided in accordance with the rates, terms and conditions of El Paso's OATT, except as specified in the settlement. Additionally, the settlement specifies that the 105 MW of service is generation dependent, under the terms of the settlement.
The FERC Commission Trial Staff filed comments in support of the settlement stating it achieves a reasonable resolution of the issue for the customer's benefit. Peoples Energy Resources Company, LLC ("Peoples Energy"), which had previously tried but was unsuccessful in an attempt to intervene in this proceeding, filed comments opposing the settlement arguing that it violates the FERC's policy on non-discriminatory, open access transmission because the settlement provides PNM with generation dependent transmission service that is different from the services available to all transmission customers under El Paso's OATT. PNM filed reply comments in opposition to the Peoples Energy comments. The FERC Commission Trial Staff also filed reply comments to People's Energy comments arguing that since Peoples' Energy is not a party to the proceeding, the settlement should be certified as an uncontested settlement.
On December 17, 2003, the FERC ALJ issued a Certification of Uncontested Settlement stating that the settlement provides a reasonable solution to the issues in the proceeding. He also advised the FERC that a non-party (i.e., Peoples Energy) raised policy issues with the settlement that may influence whether it should be adopted, even though it is uncontested. On February 11, 2004, the FERC approved the settlement.
FERC Rulemakings
Over the past couple of years, the FERC has issued numerous rulemakings that have an impact on the wholesale energy business. PNM has followed the rulemakings and either has or will submit comments either individually or in conjunction with the Edison Electric Institute ("EEI") or the American Gas Association ("AGA"). The WestConnect members have also followed these rulemakings, attended workshops and commented on the rulemakings, which affect the member companies, including PNM. One rulemaking of particular interest to PNM is the SMD rule, in which the FERC is attempting to remedy what it sees as undue discrimination in the provision of interstate transmission services, and to ensure just and reasonable rates for electric energy within and among regional power markets. The proposed rule would put all transmission customers, including bundled retail customers, under new pro forma transmission rates for new transmission service. All transmission would be operated under independent transmission providers (including RTOs) and congestion management would be handled under locational marginal pricing with tradable congestion revenue rights. See "Mandated Regional Transmission Organization" above for further discussion.
In addition, the FERC has issued final rules in other pending rulemakings that PNM monitored and participated in, either alone or in conjunction with the WestConnect participants. These FERC rules likewise have an impact on the wholesale energy business and participants in the wholesale energy markets, including PNM. The FERC issued its final rule on standardized generator interconnection procedures, which requires electric utilities that own or control electric transmission facilities to set out standard procedures and a standard agreement for interconnecting generators larger than 20 MW, and to make such revisions as necessary to its OATT to comply with the requirements of the new rule. In October 2003, the FERC issued an order delaying the effective date
of its final rule until January 20, 2004, and delaying the date for companies to make their compliance filings to the same date. PNM has made its compliance filing and will continue to monitor the implementation of the requirements.
In November 2003, the FERC issued two orders amending blanket sales certificates to establish what it termed market behavior rules for resellers of natural gas and electricity. The orders apply to all holders of blanket market certificates, which allow them to engage in the resale of natural gas or electricity in interstate commerce, including PNM. The orders require all holders of blanket market certificates to comply with the FERC's rules for engaging in wholesale sales in interstate commerce as a condition of their market based rate authority. The orders establish rules that prohibit certain market conduct that the FERC deemed to be market manipulation, and established reporting and record keeping requirements. The order required holders of blanket market certificates to notify the FERC whether they report transaction information to publishers of electric or natural gas price indices. PNM complied with the notification requirement under the order and has been, and continues to be, in compliance with the requirements of the market behavior rules.
In November 2003, the FERC issued its final rule adopting standards of conduct for electric and natural gas transmission providers. The final rule expands on the FERC's prior orders establishing standards of conduct and combines the prior electric and natural gas standards so that there is now one standard for both electric and natural gas transmission providers. The revised standards of conduct generally continue the requirement of transmission providers, including PNM, to treat all transmission customers, affiliated or non-affiliated, on a non-discriminatory basis, and prohibits transmission providers from operating their system to preferentially benefit an energy or marketing affiliate. The rule became effective on February 9, 2004, and all entities are to be in compliance by June 1, 2004. The FERC's order established a requirement for transmission providers to make a filing, indicating whether they believe they are in compliance with the final rule by February 9, 2004, and if not, identify a plan and schedule for implementing the requirements of the final rule, and the projected costs to come into compliance. PNM made the required February 9, 2004 compliance filing stating that under its current organizational structure, it is in compliance with the FERC order and the accompanying regulations as currently drafted.
In cases involving several regional utilities, the FERC in November 2001 announced a new test it was planning to use as a screen to determine if applicants for market based rate ("MBR") authority could potentially exercise horizontal generation based market power. For those applicants that failed the screen, known as the supply margin assessment ("SMA") screen, the FERC would deny the MBR application or condition its approval with certain mitigation requirements to address the market power concern. After motions for rehearing and concerns expressed by industry groups, including EEI, the FERC did not immediately implement the SMA screen. In December 2003, the FERC staff issued a White Paper that contained alternatives to the SMA screen test and FERC held a technical conference wherein market participants had an opportunity to provide comments on the staff White Paper. The Company participated in the comments filed by EEI identifying concerns with the SMA screen and proposed alternatives. FERC has not, to date, revised its SMA screen to be applied to make market power determinations in MBR applications. The Company will be making its three-year market power study as part of its application to renew its MBR authority in March 2004. The Company is unable to predict at this time whether FERC will move forward to change its SMA screen or if PNM's MBR authority will be granted or conditionally renewed.
PRC
Renewable Resources Rulemakings
The PRC issued a Renewable Resources Rule in December 2002 to encourage the development of renewable energy in New Mexico. The rule includes a provision requiring the use of a minimum of 5% renewable energy by January 1, 2006, with the minimum amount to increase 1% per year for each year until a renewable portfolio standard of 10% is reached in the year 2011. The rule also provides that each kilowatt hour of electricity generated by solar technology will count as three KWhs and each kilowatt hour generated by bio-mass, geothermal landfill gas, or fuel cell sources will count as two KWhs. All remaining sources of renewable energy, including wind and hydroelectric technologies, will count as one KWh for each KWh generated. The rule also requires utilities to offer a voluntary renewable energy tariff. El Paso Electric filed an appeal with the New Mexico Supreme Court seeking to reverse the final order. PNM did not join the appeal. PNM expects the appeal will be withdrawn as a result of legislation passed by the New Mexico Legislature in 2004.
The New Mexico Legislature has passed legislation that would establish a mandatory renewable energy portfolio standard similar to the structure established by the PRC in its rulemaking. Senate Bill 43, the Renewable Energy Act, would provide for streamlined proceedings for utilities to get approval of procurement plans and would require the PRC to establish a reasonable cost threshold for the procurement of renewable energy to prevent excessive costs being added to rates. Under the bill, if renewable energy cannot be acquired under the threshold, the mandate would be suspended. The bill provides certainty to utilities and protection for customers. PNM has collaborated with environmental groups, the PRC, the Governor's office, other state agencies, consumer groups, and renewable energy producers in drafting the bill. The bill would require the PRC to revise its rule to eliminate any inconsistencies with the new law. The Governor signed the bill on March 4, 2004. It becomes effective May 19, 2004.
Gas Rates and Regulation
Gas Rate Case
See Note 13 - "Commitments and Contingencies - Gas Rate Case" in the Notes to Consolidated Financial Statements.
ENVIRONMENTAL MATTERS
The Company, in common with other electric and gas utilities, is subject to stringent laws and regulations for protection of the environment by local, state, Federal and tribal authorities. In addition, PVNGS is subject to the jurisdiction of the NRC, which has the authority to issue permits and licenses and to regulate nuclear facilities in order to protect the health and safety of the public from radioactive hazards and to conduct environmental reviews pursuant to the National Environmental Policy Act. The liabilities under these laws and regulations can be material and, in some instances, may be imposed without regard to fault, or may be imposed for past acts, whether or not such acts may have been lawful at the time they occurred. (See "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Contingent Liabilities - Environmental Issues" for a discussion of applicable accounting policies.)
The Clean Air Act
On July 1, 1999, the EPA published its final regional haze regulations. The purpose of the regional haze regulations is to address regional haze visibility impairment in the 156 Class 1 areas in the nation, which consist of national parks, wilderness areas and other similar areas. The final rule calls for all states to establish goals and emission reduction strategies for improving visibility in all the Class 1 areas. The Company cannot predict at this time what the impact of the implementation of the regional haze rule will be on the Company's coal-fired power plant operations. Potentially, additional SO2 emission reductions could be required in the 2013-2018 timeframe. The nature and cost of compliance with these potential requirements cannot be determined at this time. However, the Company does not anticipate any material adverse impact on the Company's financial condition or results of operations.
Person Station
The Company, in compliance with a Corrective Action Directive issued by the NMED, determined that groundwater contamination existed in the deep and shallow groundwater at the Company's Person Station site. The Company is required to delineate the extent of the contamination and remediate the contaminants in the groundwater at the Person Station site. The extent of shallow and deep groundwater contamination was assessed and the results were reported to the NMED. The Company has received the renewal of the RCRA post-closure care permit for the facility. Remedial actions for the shallow and deep groundwater were incorporated into the new permit. The Company has installed and is operating a pump and treatment system for the shallow groundwater. The renewed RCRA post-closure care permit allows remediation of the deep groundwater contamination through natural attenuation. The Company's current estimate to decommission its retired fossil-fueled plants (discussed below) includes approximately $3.7 million in additional expenses to complete the groundwater remediation program at Person Station. The remediation program continues on schedule.
Retired Fossil-Fueled Plant Decommissioning Costs
The Company's retired fossil-fueled generating stations, Person, Prager and Santa Fe Stations, have incurred dismantling and reclamation costs as they are decommissioned. The Company's decommissioning costs for these fossil-fueled generating stations is projected to be approximately $24 million stated in 2002 dollars (of which $19.0 million has already been expended).
New Source Review Rules
See Note 13 - "Commitments and Contingencies" in the Notes to Consolidated Financial Statements.
Citizen Suit Under the Clean Air Act
See Note 13 - "Commitments and Contingencies" in the Notes to Consolidated Financial Statements.
COMPETITION
Under current law, the Company is not in any direct retail competition with any other regulated electric and gas utility, except for sales of natural gas. Nevertheless, the Company is subject to varying degrees of competition in certain territories adjacent to or within the areas it serves with other utilities in its region as well as with rural electric cooperatives and municipal utilities.
The Company's wholesale operations is involved in the generation and sale of electricity into the wholesale market. It is subject to competition from regional utilities with similar opportunities to generate and sell energy at market-based prices and larger trading entities that do not own or operate generating assets. The Company believes that it is well positioned to compete in this market due to its long history in the marketplace, its niche product offerings, and stringent risk management practices. The Company's energy marketers are operationally trained and maintain effective marketing relationships with its competitors and counterparties. Additionally, the Company has maintained an investment-grade rating despite turbulent wholesale markets, which enables the Company to fully participate in the marketplace.
EMPLOYEES
As of December 31, 2003, the Company had 2,637 full-time employees. The following table sets forth the number of employees by business segment as of December 31, 2003:
Number
----------
Corporate (1)................................... 496
Electric Services............................... 1,041
Transmission Services........................... 58
Gas Services.................................... 495
Wholesale Operations............................ 531
Corporate and Other............................. 16
----------
Total........................................ 2,637
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(1) These employees resided at the Holding Company level at December 31, 2003.
The number of employees of the Company who are represented by unions or
other collective bargaining groups include (i) Electric, 239; (ii) Gas, 55; and
(iii) Wholesale, 336.
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ITEM 2. PROPERTIES
ELECTRIC
PNM's ownership and capacity in electric generating stations in commercial service as of December 31, 2003 were as follows:
Total Net
Generation
Capacity
Type Name Location (MW)
------------------- ------------------ ----------------------- ------------
Coal............... SJGS (a) Waterflow, New Mexico 765
Coal............... Four Corners (b) Fruitland, New Mexico 192
Gas/Oil............ Reeves Albuquerque, New Mexico 154
Gas/Oil............ Las Vegas (c) Las Vegas, New Mexico 20
Gas/Oil............ Afton La Mesa, New Mexico 141
Gas................ Lordsburg Lordsburg, New Mexico 80
Nuclear............ PVNGS (d) Wintersburg, Arizona 390 (e)
-------
1,742
Delta Operating Lease (f) 132
New Mexico Wind Energy Center (g) 200
-------
2,074
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(a) SJGS Units 1, 2 and 3 are 50% owned by PNM; SJGS Unit 4 is 38.5%
owned by the Company.
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(b) Four Corners Units 4 and 5 are 13% owned by PNM.
(c) The Company anticipates the closure of the Las Vegas generating
station in 2005.
(d) PNM is entitled to 10.2% of the power and energy generated by
PVNGS. PNM has a 10.2% ownership interest in Unit 3 and has
leasehold interests in approximately 7.9% of Units 1 and 2 and an
ownership interest in approximately 2.3% of Units 1 and 2.
(e) For load and resource purposes, the Company has notified the PRC
that it recognizes the maximum dependable capacity rating for
PVNGS to be 381 MW.
(f) The Company has an operating lease for the rights to all output
of a gas fired generating plant with maximum dependable capacity
of 132 MW. The agreement expires in June 2020.
(g) The Company has a contract to purchase all the power generated by
the New Mexico Wind Energy Center for 25 years, expiring July
2028.
Fossil-Fueled Plants
SJGS is located in northwestern New Mexico, and consists of four units operated by PNM. Units 1, 2, 3 and 4 at SJGS have net rated capacities of 327 MW, 316 MW, 497 MW and 507 MW, respectively. SJGS Units 1 and 2 are owned on a 50% shared basis with Tucson. SJGS Unit 3 is owned 50% by the Company, 41.8% by SCPPA and 8.2% by Tri-State. SJGS Unit 4 is owned 38.457% by the Company, 28.8% by M-S-R, 10.04% by Anaheim, 8.475% by Farmington, 7.2% by Los Alamos and 7.028% by UAMPS.
PNM also owns 192 MW of net rated capacity derived from its 13% interest in Units 4 and 5 of Four Corners located in northwestern New Mexico on land leased from the Navajo Nation and adjacent to available coal deposits. Units 4 and 5 at Four Corners are jointly owned with SCE, APS, Salt River Project, Tucson and El Paso and are operated by APS.
Four Corners and a portion of the facilities adjacent to SJGS are located on land held under easements from the United States and also under leases from the Navajo Nation. The enforcement of these leases could require Congressional consent. The Company does not deem the risk that is associated with the enforcement of these easements and leases to be material. However, the Company is dependent in some measure upon the willingness and ability of the Navajo Nation to protect these leased properties.
The Company owns 154 MW of generation capacity at Reeves Station in COA and 20 MW of generation capacity at Las Vegas Station in Las Vegas, New Mexico. During 2002, the Company added Afton, a 141 MW gas or oil fired combustion turbine plant in La Mesa, New Mexico, and Lordsburg, an 80 MW of gas fired combustion turbine generator in Lordsburg, New Mexico. In addition, the Company has 132 MW of generation capacity in COA under an operating lease. These power sources are used primarily for peaking and transmission support. During times of excess capacity, resources have been used to augment the Company's wholesale power trading activities.
Nuclear Plant
The Company's Interest in PVNGS
The Company is participating in the three 1,270 MW units of PVNGS, also known as the Arizona Nuclear Power Project, with APS (the operating agent), Salt River Project, El Paso, SCE, SCPPA and the Department of Water and Power of the City of Los Angeles. The Company has a 10.2% undivided interest in PVNGS, with portions of its interests in Units 1 and 2 held under leases.
Nuclear Safety Performance Rating on PVNGS
In 2000, the NRC began using a new, objective oversight process that is more focused on safety. The new process includes objective performance thresholds based on insights from safety studies and 30 years of plant operating experience in the United States. It is more timely to move from the 18 to 24-month time lag of the previous oversight process for assessing plant performance to a quarterly review. The NRC also hopes the process will be more accessible to, and readily understood by, the public. In its most recent review, PVNGS had all 38 indicators green (the best possible of the four indicator levels).
Sale and Leaseback Transactions of PVNGS Units 1 and 2
In 1985 and 1986, the Company entered into a total of eleven sale and lease back transactions with owner trusts under which it sold and leased back its entire 10.2% interest in PVNGS Units 1 and 2, together with portions of the Company's undivided interest in certain PVNGS common facilities. The leases under each of the sale and leaseback transactions have initial lease terms expiring either on January 15, 2015 (with respect to the Unit 1 leases) or on January 15, 2016 (with respect to the Unit 2 leases). Each of the leases allows
the Company to extend the term of the lease and includes a repurchase option. The lease expense for the Company's PVNGS leases is approximately $66.3 million per year. Throughout the terms of the leases, the Company continues to have full and exclusive authority and responsibility to exercise and perform all of the rights and duties of a participant in PVNGS under the Arizona Nuclear Power Project Participation Agreement and retains the exclusive right to sell and dispose of its 10.2% share of the power and energy generated by PVNGS Units 1 and 2. The Company also retains its responsibility to pay its share of all taxes, insurance premiums, operating and maintenance costs, costs related to capital improvements and decommissioning and all other similar costs and expenses associated with the leased facilities. In 1992, the Company purchased approximately 22% of the beneficial interests in the PVNGS Units 1 and 2 leases through the purchase of ownership interest in the trusts which held the leases. The related ownership interests were subsequently reacquired by the Company when the Company's trust ownership was collapsed and the Company assumed direct ownership. In connection with the $30 million retail rate reduction approved by the NMPUC in 1994, the Company wrote down the purchased beneficial interests in PVNGS Units 1 and 2 leases to $46.7 million.
Each lease describes certain events, "Events of Loss" or "Deemed Loss Events", the occurrence of which could require the Company to, among other things, (i) pay the lessor and the equity investor, in return for the investor's interest in PVNGS, cash in the amount provided in the lease and (ii) assume debt obligations relating to the PVNGS lease. The "Events of Loss" generally relate to casualties, accidents and other events at PVNGS, which would severely, adversely affect the ability of the operating agent, APS, to operate, and the ability of the Company to earn a return on its interests in, PVNGS. The "Deemed Loss Events" consist mostly of legal and regulatory changes (such as changes in law making the sale and leaseback transactions illegal, or changes in law making the lessors liable for nuclear decommissioning obligations). The Company believes that the probability of such "Events of Loss" or "Deemed Loss Events" occurring is remote for the following reasons: (i) to a large extent, prevention of "Events of Loss" and some "Deemed Loss Events" is within the control of the PVNGS participants, including the Company, and the PVNGS operating agent, through the general PVNGS operational and safety oversight process and (ii) with respect to other "Deemed Loss Events," which would involve a significant change in current law and policy, the Company is unaware of any pending proposals or proposals being considered for introduction in Congress, or in any state legislative or regulatory body that, if adopted, would cause any of those events.
Other PVNGS Matters
See Note 13 in the Notes to Consolidated Financial Statements for information on PVNGS Decommissioning Funding, Nuclear Spent Fuel and Waste Disposal and PVNGS Liability and Insurance Matters.
TRANSMISSION AND DISTRIBUTION
As of December 31, 2003, the Company owned, jointly owned or leased, 2,902 circuit miles of electric transmission lines, 4,232 miles of distribution overhead lines, 4,093 cable miles of underground distribution lines (excluding street lighting) and 249 substations.
GAS
The natural gas properties as of December 31, 2003, consisted primarily of natural gas storage, transmission and distribution systems. Provisions for storage made by the Company include ownership and operation of an underground storage facility located near Albuquerque, New Mexico. The transmission systems consisted of approximately 1,543 miles of pipe with appurtenant compression facilities. The distribution systems consisted of approximately 11,553 miles of pipe.
OTHER INFORMATION
The electric and gas transmission and distribution lines are generally located within easements and rights-of-way on public, private and Indian lands. The Company leases interests in PVNGS Units 1 and 2 and related property, EIP and associated equipment, data processing, communication, office and other equipment, office space, utility poles (joint use), vehicles and real estate. The Company also owns and leases service and office facilities in Albuquerque and in other areas throughout its service territory.
ITEM 3. LEGAL PROCEEDINGS
Navajo Nation Environmental Issues
Four Corners is located on the Navajo Reservation and is held under an easement granted by the federal government as well as a lease from the Navajo Nation. APS is the Four Corners operating agent and PNM owns a 13% ownership interest in Units 4 and 5 of Four Corners.
In July 1995, the Navajo Nation enacted the Navajo Nation Air Pollution Prevention and Control Act, the Navajo Nation Safe Drinking Water Act, and the Navajo Nation Pesticide Act (collectively, the "Navajo Acts"). The Navajo Acts purport to give the Navajo Nation Environmental Protection Agency authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. On October 17, 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation, Window Rock District, challenging the applicability of the Navajo Nation as to Four Corners. The Court has stayed these proceedings pursuant to a request by the parties, and the parties are seeking to negotiate a settlement.
In February 1998, the EPA issued regulations identifying those Clean Air Act provisions for which it is appropriate to treat Native American tribes in the same manner as states. The EPA has announced that it has not yet determined whether the Clean Air Act would supersede pre-existing binding agreements between the Navajo Nation and the Four Corners participants that could limit the Navajo Nation's environmental regulatory authority over Four Corners. The Company believes that the Clean Air Act does not supersede these pre-existing agreements. The Company cannot currently predict the outcome of this matter.
In April 2000, the Navajo Tribal Council approved operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. The Four Corners participants believe that the regulations fail to recognize that the Navajo Nation did not intend to assert jurisdiction over Four Corners. On July 12, 2000, each of the Four Corners participants filed a petition with the Navajo Supreme Court for review of the operating permit regulations. Those
proceedings have been stayed, pending the settlement negotiations mentioned above. The Company cannot currently predict the outcome of this matter.
PVNGS Water Supply Litigation
The Company understands that a summons served on APS in 1986 required all water claimants in the Lower Gila River Watershed of Arizona to assert any claims to water on or before January 20, 1987, in an action pending in the Maricopa County Superior Court. PVNGS is located within the geographic area subject to the summons and the rights of the PVNGS participants, including the Company, to the use of groundwater and effluent at PVNGS are potentially at issue in this action. APS, as the PVNGS project manager, filed claims that dispute the court's jurisdiction over the PVNGS participants' groundwater rights and their contractual rights to effluent relating to PVNGS and, alternatively, seek confirmation of those rights. In November 1999, the Arizona Supreme Court issued a decision confirming that certain groundwater rights may be available to the federal government and Indian tribes. In addition, the Arizona Supreme Court issued a decision in September 2000 affirming the lower court's criteria for resolving groundwater claims. Litigation on both these issues will continue in the trial court. No trial date concerning the PVNGS participants water rights claims has been set in this matter. Although this matter remains subject to further evaluation, the Company expects that the described litigation will not have a material adverse impact on its financial position, results of operations or liquidity.
San Juan River Adjudication
In 1975, the State of New Mexico filed an action entitled "State of New
Mexico v. United States, et al.", in the District Court of San Juan County, New
Mexico, to adjudicate all water rights in the "San Juan River Stream System".
The Company was made a defendant in the litigation in 1976. The action is
expected to adjudicate water rights used at Four Corners and at SJGS (See Note
13 - "Commitment and Contingencies - Water Supply" in the Notes to Consolidated
Financial Statements). Recently, the Navajo Nation and various parties announced
a preliminary settlement of the Nation's reserved surface water rights.
Discussions are still ongoing and Congressional legislation as well as other
approvals will be required to implement the settlement, if it is finalized. The
Company cannot at this time anticipate the effect, if any, of any water rights
adjudication on the present arrangements for water at SJGS and Four Corners. It
is PNM's understanding that final resolution of the case cannot be expected for
several years. PNM is unable to predict the ultimate outcome.
Former AG&E Manufactured Gas Plant Site
On December 8, 1999, PNM received a letter from the NMED notifying PNM that it had been designated as a "responsible person" under the New Mexico Water Quality Control abatement regulations. PNM submitted an abatement plan to investigate alleged contamination detected in the vicinity of a former manufactured gas plant ("MGP") owned and operated by AG&E in southeast Albuquerque. The contamination identified in the December 8 letter was described as "tar" and "Volatile Organic Compounds." PNM agreed to conduct voluntary abatement.
By letter dated November 30, 2000, the NMED conditionally approved PNM's voluntary stage 1 abatement plan. PNM submitted its voluntary stage 1 abatement plan report ("Report") on October 12, 2001. Completion of remedial activities occurred in the second quarter 2003.
Santa Fe Generating Station ("Santa Fe Station")
See Note 13 - "Commitments and Contingencies - Santa Fe Generating Station" in the Notes to Consolidated Financial Statements.
Natural Gas Royalties Qui Tam Litigation
See Note 13 - "Commitments and Contingencies - Natural Gas Royalties Qui Tam Litigation" in the Notes to Consolidated Financial Statements.
Citizen Suit Under the Clean Air Act
See Note 13 - "Commitments and Contingencies - Citizen Suit Under the Clean Air Act" in the Notes to Consolidated Financial Statements.
California Attorney General Complaint
See Note 13 - "Commitments and Contingencies - Western United States Wholesale Power Market - California Attorney General Complaint" in the Notes to Consolidated Financial Statements.
California Antitrust Litigation
See Note 13 - "Commitments and Contingencies - Western United States Wholesale Power Market - California Antitrust Litigation" in the Notes to Consolidated Financial Statements.
San Angelo Electric Service Company ("SESCO") Matter
See Note 13 - "Commitments and Contingencies - San Angelo Electric Service Company ("SESCO") Matter" in the Notes to Consolidated Financial Statements.
(Intentionally left blank)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF PNM RESOURCES
Executive officers, their ages, offices held with PNM Resources since December 31, 2001 (effective date of the Holding Company):
Name Age Office Initial Effective Date
---- --- ------ ----------------------
J. E. Sterba........... 48 Chairman, President and Chief Executive
Officer December 31, 2001
R. J. Flynn............ 61 Executive Vice President and Chief
Operating Officer July 23, 2002
Executive Vice President, Electric and Gas
Services December 31, 2001
A. A. Cobb............. 56 Senior Vice President, Peoples Services and
Development December 31, 2001
J. R. Loyack........... 40 Senior Vice President and Chief
Financial Officer January 1, 2003
Vice President, Controller and
Chief Accounting Officer December 31, 2001
M. H. Maerki*.......... 64 Senior Vice President, Corporate Strategy
and Development and President and
Chief Executive Officer, Avistar, Inc. January 1, 2003
Senior Vice President and Chief Financial
Officer and President and Chief
Executive Officer, Avistar, Inc. December 31, 2001
P. T. Ortiz............ 54 Senior Vice President, General Counsel and
Secretary December 31, 2001
E. Padilla, Jr......... 50 Senior Vice President, Bulk Power
Marketing and Development December 31, 2001
W.J. Real.............. 55 Senior Vice President, Public Policy July 23, 2002
Executive Vice President, Power Production
and Marketing December 31, 2001
T. G. Sategna.......... 50 Vice President and Corporate Controller, October 31,2003
Controller, Utility Operations August 22, 2002
Controller, Electric and Gas December 31, 2001
|
(See Public Service Company of New Mexico on pages 23-24 for prior positions held).
All officers are elected annually by the Board of Directors of the Holding Company.
* As of February 27, 2004, M. H. Maerki retired from the company.
EXECUTIVE OFFICERS OF PUBLIC SERVICE COMPANY OF NEW MEXICO
Executive officers, their ages, offices held with Public Service Company of New Mexico in the past five years, (or other companies if less than five years with PNM) and initial effective dates thereof, except as otherwise noted:
Name Age Office Initial Effective Date
---- --- ------ ----------------------
J. E. Sterba........... 48 Chairman, President and Chief Executive
Officer October 1, 2000
President and Chief Executive Officer June 6, 2000
President March 1, 2000
Executive Vice President, USEC, Inc. December 31, 1998
Executive Vice President and Chief
Operating Officer (of the Company) March 11, 1997
Senior Vice President, Bulk Power Services
(of the Company) December 6, 1994
R. J. Flynn............ 61 Executive Vice President and Chief
Operating Officer July 23, 2002
Executive Vice President, Electric and Gas
Services January 18, 1999
Senior Vice President, Electric Services December 1, 1994
A. A. Cobb............. 56 Senior Vice President, Peoples Services and
Development September 11, 2001
Global Human Resources Officer,
Clientlogic November 22, 1999
Executive Vice President, Human
Resources, Aames Financial February 2, 1999
Senior Vice President, Human Resources,
Aames Financial November 1, 1996
J. R. Loyack........... 40 Senior Vice President and Chief
Financial Officer January 1, 2003
Vice President, Controller and
Chief Accounting Officer July 19, 1999
Director, Financial Reporting,
Union Pacific Corporation October 1, 1998
P. T. Ortiz............ 54 Senior Vice President, General Counsel
and Secretary August 10, 1999
Senior Vice President and General Counsel January 18, 1999
Senior Vice President, Regulatory Policy,
General Counsel and Secretary December 7, 1993
|
Name Age Office Initial Effective Date
---- --- ------ ----------------------
M. H. Maerki*........... 64 Senior Vice President, Corporate Strategy
and Development and President and
Chief Executive Officer, Avistar, Inc. January 1, 2003
Senior Vice President and Chief Financial
Officer, and President and Chief
Executive Officer, Avistar, Inc. eptember 14, 2001
Senior Vice President and Chief Financial
Officer December 7, 1993
E. Padilla, Jr.......... 50 Senior Vice President, Bulk Power
Marketing and Development February 8, 2000
Vice President, Bulk Power Marketing
and Development December 14, 1996
W. J. Real.............. 55 Senior Vice President, Public Policy July 23, 2002
Executive Vice President, Power
Production and Marketing January 18, 1999
Senior Vice President, Gas Services December 6, 1994
T. G. Sategna........... 50 Vice President and Corporate Controller October 31, 2003
Controller, Utility Operations August 22, 2002
Controller, Electric and Gas Services May 4, 2000
Assistant Controller June 4, 1993
|
The President is elected annually by the Holding Company Board of Directors. All other officers are elected annually by the Board of Directors of PNM.
* As of February 27, 2004, M. H. Maerki retired from the company.
(Intentionally left blank)
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange. Ranges of sales prices of the Company's common stock, reported as composite transactions (Symbol: PNM), and dividends declared on the common stock for 2003 and 2002, by quarters, are as follows:
Range of
Quarter Ended Sales Prices
---------------------- -------------------------- Dividends
High Low Per Share
-------------------------- -----------
2003
December 31 ....................... 29.47 26.29 $0.23
September 30 ...................... 28.97 25.31 0.23
June 30 ........................... 27.85 21.85 0.23
March 31 .......................... 23.99 18.95 0.23
-----
Fiscal Year ..................... 29.47 18.95 $0.92
=====
2002
December 31 ....................... 24.67 17.47 $0.22
September 30 ...................... 24.33 17.25 0.22
June 30 ........................... 30.55 23.30 0.22
March 31 .......................... 30.76 25.33 0.22
-----
Fiscal Year ..................... 30.76 17.25 $0.88
=====
|
On December 17, 2003, the Company's Board of Directors ("Board") declared a quarterly cash dividend of $0.23 per share of common stock payable February 13, 2004 to the Company's shareholders of record as of February 2, 2004.
On January 31, 2004, there were 14,762 holders of record of the Company's common stock.
On February 17, 2004, the Holding Company's board of directors approved a 4.3% increase in the common stock dividend. The increase raised the quarterly dividend to $0.24 per share, for an indicated annual dividend of $0.96 per share.
See "Part II. Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition - Liquidity and Capital Resources - Dividends," for a discussion on the payment of future dividends.
See Part III. Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters".
Cumulative Preferred Stock
Although isolated sales of PNM's cumulative preferred stock have occurred in the past, PNM is not aware of any active trading market for its cumulative preferred stock. Quarterly cash dividends were paid on PNM's cumulative preferred stock at the stated rates during 2003 and 2002.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data and comparative operating statistics should be read in conjunction with the consolidated financial statements, the notes to consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.
PNM RESOURCES INC. AND SUBSIDIARIES
2003 2002 2001 2000 1999
------------- ------------- ------------- ------------ -------------
(In thousands except per share amounts and ratios)
Total Operating Revenues............................. $1,455,714 $1,118,694 $2,254,178 $1,526,835 $1,121,362
Earnings from Continuing Operations.................. $ 58,552 $ 63,686 $ 149,847 $ 100,360 $ 79,028
Net Earnings......................................... $ 95,173 $ 63,686 $ 149,847 $ 100,360 $ 82,569
Earnings per Common Share:
Continuing Operations.............................. $ 1.47 $ 1.63 $ 3.83 $ 2.54 $ 1.93
Basic.............................................. $ 2.39 $ 1.63 $ 3.83 $ 2.54 $ 2.01
Diluted............................................ $ 2.37 $ 1.61 $ 3.77 $ 2.53 $ 2.01
Cash Flow Data:
Net cash flows provided from operating activities.. $ 228,692 $ 97,359 $ 327,346 $ 239,515 $ 213,045
Net cash flows used in investing activities........ $ (101,567) $ (200,427) $ (407,014) $ (157,500) $ (55,886)
Net cash flows generated (used)
by financing activities......................... $ (118,133) $ 78,362 $ 385 $ (94,723) $ (98,040)
Total Assets......................................... $3,378,629 $3,247,227 $3,127,602 $3,092,494 $2,911,731
Long-Term Debt, including current maturities......... $ 987,210 $ 980,092 $ 953,884 $ 953,823 $ 988,489
Common Stock Data:
Market price per common share at year end.......... $ 28.100 $ 23.820 $ 27.950 $ 26.813 $ 16.250
Book value per common share at year end............ $ 27.09 $ 24.90 $ 25.87 $ 23.42 $ 21.79
Average number of common shares outstanding........ 39,747 39,118 39,118 39,487 41,038
Cash dividend declared per common share............ $ 0.92 $ 0.88 $ 0.80 $ 0.80 $ 1.00
Return on Average Common Equity.................... 9.3% 6.4% 15.5% 11.1% 9.4%
Capitalization:
Common stock equity................................ 51.9% 49.5% 50.8% 48.6% 46.7%
Preferred stock without mandatory redemption
Requirements..................................... 0.6 0.7 0.6 0.7 0.7
Long-term debt, less current maturities............ 47.5 49.8 48.6 50.7 52.6
------------- ------------- -------------- ------------ -------------
100.00% 100.00% 100.00% 100.00% 100.00%
============= ============= ============== ============ =============
|
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
2003 2002 2001 2000 1999
------------- ------------- ------------- ------------ -------------
(In thousands except per share amounts and ratios)
Total Operating Revenues...................... $1,455,403 $1,117,290 $2,254,178 $1,526,835 $1,121,362
Earnings from Continuing Operations........... $ 59,978 $ 62,216 $ 150,433 $ 100,360 $ 79,028
Net Earnings.................................. $ 96,013 $ 61,630 $ 149,847 $ 100,360 $ 82,569
Earnings per Common Share:
Continuing Operations....................... N/A N/A $ 3.83 $ 2.54 $ 1.93
Basic....................................... N/A N/A $ 3.83 $ 2.54 $ 2.01
Diluted..................................... N/A N/A $ 3.77 $ 2.53 $ 2.01
Total Assets.................................. $3,299,304 $3,074,768 $3,127,602 $3,092,494 $2,911,731
Long-Term Debt, including current maturities.. $ 987,210 $ 953,940 $ 953,884 $ 953,823 $ 988,489
Cash dividend declared per common share..... N/A N/A $ 0.80 $ 0.80 $ 1.00
|
(Intentionally left blank)
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
COMPARATIVE OPERATING STATISTICS
2003 2002 2001 2000 1999
--------------- -------------- -------------- -------------- -------------
Utility Operations Sales:
Energy Sales--KWh (in thousands):
Residential............................... 2,405,488 2,298,542 2,197,889 2,171,945 2,027,589
Commercial................................ 3,379,147 3,254,576 3,213,208 3,133,996 2,981,656
Industrial................................ 1,346,940 1,612,723 1,603,266 1,544,367 1,559,155
Other ultimate customers.................. 221,137 240,665 240,934 238,635 235,183
--------------- -------------- -------------- -------------- -------------
Total KWh sales......................... 7,352,712 7,406,506 7,255,297 7,088,943 6,803,583
=============== ============== ============== ============== =============
Gas Throughput--Decatherms (in thousands):
Residential............................... 27,416 29,627 27,848 28,810 32,121
Commercial................................ 10,810 12,009 10,421 9,859 11,106
Industrial................................ 485 749 3,920 5,038 2,338
Other..................................... 5,510 4,807 4,355 6,426 6,538
--------------- -------------- -------------- -------------- -------------
Total gas sales......................... 44,221 47,192 46,544 50,133 52,103
Transportation throughput................. 50,756 44,889 51,395 44,871 40,161
--------------- -------------- -------------- -------------- -------------
Total gas throughput.................... 94,977 92,081 97,939 95,004 92,264
=============== ============== ============== ============== =============
Revenues (in thousands):
Electric Revenues:
Residential............................... $ 203,710 $ 197,174 $ 187,600 $ 186,133 $ 184,088
Commercial................................ 252,876 247,800 242,372 238,243 238,830
Industrial................................ 67,388 82,009 82,752 79,671 85,828
Other ultimate customers.................. 14,069 14,942 14,795 14,618 13,777
--------------- -------------- -------------- -------------- -------------
Total revenues to ultimate customers.... 538,043 541,925 527,519 518,665 522,523
Transmission revenues..................... 19,453 23,150 26,553 16,855 15,519
Miscellaneous electric revenues........... 5,807 5,014 5,154 3,163 2,826
--------------- -------------- -------------- -------------- -------------
Total electric revenues................. $ 563,303 $ 570,089 $ 559,226 $ 538,683 $ 540,868
--------------- -------------- -------------- -------------- -------------
Gas Revenues:
Residential............................... $ 226,799 $ 176,284 $ 221,409 $ 203,208 $ 160,311
Commercial................................ 72,269 53,734 65,654 56,283 39,311
Industrial................................ 2,820 2,872 27,519 24,206 8,550
Other..................................... 37,473 26,781 36,495 37,360 26,168
--------------- -------------- -------------- -------------- -------------
Revenues from gas sales................... 339,361 259,671 351,077 321,057 234,340
Transportation............................ 18,906 17,735 20,188 14,163 12,390
--------------- -------------- -------------- -------------- -------------
Total gas revenues...................... $ 358,267 $ 277,406 $ 371,265 $ 335,220 $ 246,730
--------------- -------------- -------------- -------------- -------------
Total Utility Revenues............. $ 921,570 $ 847,495 $ 930,491 $ 873,903 $ 787,598
=============== ============== ============== ============== =============
|
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
COMPARATIVE OPERATING STATISTICS
2003 2002 2001 2000 1999
--------------- -------------- -------------- -------------- -------------
Utility Customers at Year End:
Electric:
Residential............................... 358,099 345,588 340,656 332,332 321,949
Commercial................................ 42,391 41,092 40,065 39,525 38,435
Industrial................................ 296 311 377 371 375
Other ultimate customers.................. 822 796 924 625 625
--------------- -------------- -------------- -------------- -------------
Total ultimate customers................ 401,608 387,787 382,022 372,853 361,384
Sales for Resale.......................... 72 76 79 81 83
--------------- -------------- -------------- -------------- -------------
Total customers......................... 401,680 387,863 382,101 372,934 361,467
=============== ============== ============== ============== =============
Gas:
Residential............................... 421,104 411,642 404,753 398,623 390,428
Commercial................................ 34,645 35,194 32,894 32,626 32,116
Industrial................................ 46 58 50 50 51
Other..................................... 2,983 3,664 3,528 3,612 3,688
Transportation............................ 40 27 34 32 32
--------------- -------------- -------------- -------------- -------------
Total customers......................... 458,818 450,585 441,259 434,943 426,315
=============== ============== ============== ============== =============
Wholesale Operations Sales:
Energy Sales--MWh:
Long-term contracts....................... 2,719,432 844,168 1,463,031 330,003 1,185,916
Forward sales............................. 3,237,525 - - - -
Short-term sales.......................... 5,531,019 7,269,242 10,596,004 10,213,725 8,585,705
--------------- -------------- -------------- -------------- -------------
Total sales to ultimate customers....... 11,487,976 8,113,410 12,059,035 10,543,728 9,771,621
=============== ============== ============== ============== =============
Revenues (in thousands):
Long-term contracts....................... $ 147,447 $ 58,546 $ 77,250 $ 87,731 $ 66,353
Forward sales............................. 151,543 3,575 (2,572) (14,768) (2,300)
Short-term sales.......................... 234,843 207,674 1,247,471 577,811 260,856
--------------- -------------- -------------- -------------- -------------
Total wholesale revenues................ $ 533,833 $269,795 $1,322,149 $ 650,774 $ 324,909
=============== ============== ============== ============== =============
Customers at Year End:
Wholesale................................... 72 76 79 81 83
=============== ============== ============== ============== =============
Generation Statistics:
Reliable Net Capability--KW................. 1,742,000 1,734,000 1,521,000 1,521,000 1,521,000
Coincidental Peak Demand--KW................ 1,661,000 1,456,000 1,397,000 1,368,000 1,291,000
Average Fuel Cost per Million BTU........... $ 1.4120 $ 1.3910 $ 1.6007 $ 1.3827 $ 1.3169
BTU per KWh of Net Generation............... 10,854 10,568 10,549 10,547 10,490
|
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of Operations for PNM Resources, Inc. ("Holding Company") and Subsidiaries and Public Service Company of New Mexico ("PNM") and Subsidiaries is presented on a combined basis. The Holding Company performs substantially all of the corporate activities of PNM. These activities are billed to PNM on a cost basis to the extent they are for the corporate management of PNM and are allocated to the operating segments. In January 2002, Avistar and certain inactive subsidiaries were dividended by PNM to the Holding Company pursuant to an order from the PRC. The business of PNM constitutes substantially all of the business of the Company. Therefore, the results of operations of PNM are virtually identical to the consolidated results of the Holding Company and all its subsidiaries. For discussion purposes, this report will use the term "Company" when discussing matters of common applicability to the Holding Company and Subsidiaries and PNM. Readers of Management's Discussion and Analysis of Financial Condition and Results of Operations should assume that the information presented applies to consolidated results of operations of both the Holding Company and its subsidiaries, including PNM, except where the context or references clearly indicate otherwise. Discussions regarding specific contractual obligations generally reference the company that is legally obligated. In the case of contractual obligations of PNM, these obligations are consolidated with the Holding Company and its subsidiaries under GAAP. Broader operational discussions refer to the Company.
The following is management's assessment of the Company's financial condition and the significant factors affecting the results of operations. This discussion should be read in conjunction with the Company's consolidated financial statements and related notes. Trends and contingencies of a material nature are discussed to the extent known.
OVERVIEW
The Holding Company is an investor-owned holding company of energy and energy related companies. Its principal subsidiary, PNM, is an integrated public utility primarily engaged in the generation, transmission and distribution of electricity; transmission, distribution and sale of natural gas within the State of New Mexico; and the sale and marketing of electricity in the Western United States.
COMPETITIVE STRATEGY
The Company is positioned as a "merchant utility," primarily operating as a regulated energy service provider. The Company is also engaged in the sale and marketing of electricity in the competitive energy marketplace. As a utility, PNM has an obligation to serve its customers under the jurisdiction of the PRC. As a wholesale electricity provider, PNM markets excess production from the utility, as well as unregulated generation, into a competitive marketplace. As part of its electric wholesale power operation, it purchases wholesale electricity in the open market for future resale or to provide energy to retail customers in New Mexico when the Company's generation assets cannot satisfy demand. The wholesale operations utilize a net asset-backed strategy, whereby
the Company's aggregate net open position for the sale of electricity is covered by the Company's forecasted excess generation capabilities.
As it currently operates, the Company's principal business segments, whose operating results are regularly reviewed by the Company's management, are Utility Operations and Wholesale Operations ("Wholesale"). Utility Operations include Electric Services ("Electric"), Gas Services ("Gas") and Transmission Services ("Transmission"). These segments model the resource allocations as mandated in the Global Electric Agreement (see Note 13 - "Commitments and Contingencies - Global Electric Agreement" in the Notes to Consolidated Financial Statements). Electric consists of the distribution and generation of electricity for retail electric customers in New Mexico. Gas includes the transportation and distribution of natural gas to end-users. Transmission consists of the transmission of electricity to third parties as well as to Electric and Wholesale. Wholesale consists of the generation and sale of electricity into the wholesale market based on three product lines, that include long-term contracts, forward sales and short-term sales.
The Utility Operations strategy is directed at supplying reasonably priced and reliable energy to retail customers through customer-driven operational excellence, high quality customer service, cost efficient processes, and improved overall organizational performance.
The Wholesale Operations strategy calls for increased net asset-backed energy sales supported by long-term contracts and the wholesale market, whereby the Company's aggregate net open forward electric sales position, including short term sales, forward sales and long-term contracts, is covered by its forecasted excess generation capacity. The net asset-backed sales are actively monitored by management by the use of stringent risk management policies. The Company's future growth plans call for approximately 75% of its new generation portfolio to be committed through long-term contracts as required by the Global Electric Agreement. Growth will be dependent on market development and on the Company's ability to generate funds for the Company's future expansion. Although the current economic environment has led the Company to scale back its expansion plans, the Company will continue to operate in the wholesale market and seek reasonably priced asset additions. Expansion of the Company's generating portfolio will depend on the Company's ability to acquire favorably priced assets at strategic locations and to secure long-term commitments for the purchase of power from the acquired plants.
OVERALL OUTLOOK
Earnings growth in 2003 was primarily due to the addition of new long-term power contracts, coupled with customer growth in the Company's Utility Operations and the Company's ongoing cost control efforts. The gains made in the Company's Wholesale Operations more than offset a retail electric rate reduction that took effect in September and a reduction in gas utility revenues due to warmer weather in 2003.
Wholesale Operations was the biggest contributor to the Company's earnings growth in 2003, aided by a more stable price environment. The Company continued to grow its wholesale sales by adding long-term contracts to ensure a reliable and sustainable revenue source to support its Wholesale Operations. In 2003, the Company added more than 330 MW's of new long-term contracts, of which
contracts for 57 MW's were added in late 2003 or do not commence until 2004. In addition, the Company added 200 MW of generating capacity in 2003 to support retail and enhance wholesale operations. These developments allowed the Company to improve its velocity, the Company's ability to repurchase and remarket previously sold capacity. The Company's velocity ratio, which is defined as total electric wholesale and retail sales divided by total output of its generation plants, increased to 1.9 in 2003 from 1.6 in 2002. These gains were partially offset by extended scheduled outages and unplanned outages at SJGS and PVNGS and the associated increases in purchase power costs.
Retail Operations also contributed to the Company's earnings growth with increased load growth of 3% in Electric and 2% in Gas. The Company benefited from improved efficiencies and cost cutting measures, including lower power production costs. On an operations and maintenance expense ("O&M") per revenue unit of sale basis, the Company's O&M costs decreased significantly from $0.0172 in 2002 to $0.0154 in 2003. The year 2003 was one of the warmest in recent New Mexico history. The warmer temperatures increased retail electric sales during the summer months but significantly reduced demand for natural gas during the colder months.
Certain developments affecting the Company, and which will have a more meaningful impact on its operating results in 2004 are as follows:
o On January 13, 2004, PRC approved a $22 million revenue increase for
the Company's gas utility. Increased rates for commercial customers
took effect immediately, while the increase for residential customers
will begin April 1, 2004.
o On December 22, 2003, the Company entered into an agreement to
provide an Arizona municipal utility with up to 35 MW of power. The
ten year contract is expected to produce about $6.5 million in
revenues for the Company in 2004.
o In the fourth quarter of 2003, the coal mine operations that supply
SJGS reached commercial operation status. In addition, the mine
completed on schedule its first long-wall mine change-over to a new
area of the coal seam. Coal costs in 2003 were significantly lower
than in 2002, and although coal costs cannot be predicted with
certainty, the Company currently estimates that coal costs will
remain lower in 2004 than average 2002 levels.
In 2004, the Company intends to continue its efforts to expand its wholesale business by building on existing relationships and forming new relationships with long-term contract customers. The Company expects its 2004 earnings to benefit from higher gas rates, forecasted lower fuel costs from the new SJGS underground mine and planned productivity improvements. Other factors that will be critical to achieving earnings goals in 2004 include continued stable wholesale market prices and improved plant performance.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
Consolidated
The Company's net earnings for the year ended December 31, 2003 were $95.2 million or $2.37 per diluted share of common stock, a 49.5% increase in net earnings compared to $63.7 million or $1.61 per diluted share of common stock in 2002. This increase primarily reflects the cumulative effect of a change in accounting principle for the adoption of SFAS 143 of $37.4 million, net of income taxes, and improved operating performance. This increase was partially offset by the write-off of transition costs of $16.7 million, net of income taxes, that resulted from the repeal of electric deregulation in New Mexico in the first quarter of 2003 and a write-off of $16.6 million, net of income taxes, for costs related to long-term debt refinancing.
The following discussion is based on the methodology that the Company's management uses for making operating decisions and assessing performance of its various business activities. As such, these statements report operating results without regard to the effect of accounting or regulatory changes, and similar one-time items not related to normal operations. See Note 2 - "Segment Information" in the Notes to Consolidated Financial Statements for additional information regarding these results and the consolidated financial statements.
In addition, adjustments related to EITF Issue 02-03 "Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities" and 03-11 "Reporting Realized Gains and Losses on Derivative Instruments that are subject to FASB statement No. 133 and Not Held for Trading Purposes" are excluded. These accounting pronouncements require a net presentation of trading gains and losses and realized gains and loss for certain non-trading derivatives. Management evaluates wholesale operations on a gross presentation basis due to its net-asset-backed marketing strategy and the importance it places on velocity.
Corporate costs, income taxes and non-operating items are discussed only on a consolidated basis and are in conformity with the presentation in the consolidated financial statements.
(Intentionally left blank)
Utility Operations
Electric
The table below sets forth the operating results for Electric.
Year Ended
December 31,
-----------------------------------
2003 2002 Variance
---------------- ---------------- -------------
(In thousands)
Operating revenues: $543,850 $ 546,939 $(3,089)
Less: Cost of energy....................... 204,610 194,138 10,472
Intersegment energy transfer........ (32,474) (29,155) (3,319)
---------------- --------------- -------------
Gross margin............................... 371,714 381,956 (10,242)
---------------- --------------- -------------
Energy production costs.................... 107,683 113,257 (5,574)
Distribution O&M........................... 19,249 19,987 (738)
Customer related expense................... 15,524 17,372 (1,848)
Administrative and general................. 5,362 5,408 (46)
---------------- --------------- -------------
Total non-fuel O&M....................... 147,818 156,024 (8,206)
Corporate allocation....................... 65,071 52,878 12,193
Depreciation and amortization.............. 63,428 59,654 3,774
Taxes other than income taxes.............. 17,937 18,251 (314)
Income taxes............................... 20,873 26,779 (5,906)
---------------- --------------- -------------
Total non-fuel operating expenses........ 315,127 313,586 1,541
---------------- --------------- -------------
Operating income........................... $ 56,587 $ 68,370 $(11,783)
---------------- --------------- -------------
|
The following table shows electric revenues by customer class and average customers:
Electric Retail Revenues
Year Ended
December 31,
2003 2002 Variance
------------- ------------- --------------
(In thousands)
Residential................ $ 203,710 $ 197,174 $ 6,536
Commercial................. 252,876 247,800 5,076
Industrial................. 67,388 82,009 (14,621)
Other...................... 19,876 19,956 (80)
------------- ------------- --------------
$ 543,850 $546,939 $(3,089)
============= ============= ==============
Average customers.......... 396,303 384,478 11,825
============= ============= ==============
|
The following table shows electric sales by customer class:
Electric Sales
Year Ended
December 31,
2003 2002 Variance
------------- ------------- --------------
(Megawatt hours)
Residential............... 2,405,488 2,298,542 106,946
Commercial................ 3,379,147 3,254,576 124,571
Industrial................ 1,346,940 1,612,723 (265,783)
Other..................... 247,255 267,070 (19,815)
------------- ------------- --------------
7,378,830 7,432,911 (54,081)
============= ============= ==============
|
Operating revenues decreased $3.1 million or 0.6% over the prior year period primarily due to the transfer of a significant customer from retail to wholesale electric rates in the first quarter of 2003 and a 4% retail electric rate reduction, which became effective in September 2003. Rates will decrease again by 2.5% in September 2005 and remain at that level through 2007. The customer transfer reduced retail revenues $14.3 million. The rate reduction resulted in a decrease in revenues of approximately $6.9 million. These decreases were partially offset by average customer growth of approximately 3.1%. After adjusting 2002 MWh sales for the transfer of the significant customer from retail to wholesale for comparative purposes, retail electric MWh sales increased due to customer growth.
The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $10.2 million or 2.7% over the prior year period. This decrease is due primarily to the rate decrease, an increase in cost of energy due to outages at Palo Verde Nuclear Generating Station ("PVNGS") Unit 2 during the fourth quarter of 2003 for a steam-generator replacement project, and the customer transfer described above of $12.8 million. These decreases were partially offset by customer growth and lower cost of generation.
Total non-fuel O&M expenses decreased $8.2 million or 5.3% over the prior year period. Energy production costs decreased $5.6 million or 4.9% primarily due to 2002 outages at the Four Corners Power Plant ("Four Corners") and Reeves Generating Station ("Reeves"), which did not recur in 2003, for $1.3 million and $1.0 million, respectively and reduced PVNGS plant maintenance costs of $0.5 million due to increased capitalized expenditures related to the steam-generator replacement project. Customer-related expense decreased $1.8 million or 10.6% due to decreased bad debt expense as a result of continued collection efforts and the favorable outcome of a customer bankruptcy proceeding. Depreciation and amortization increased $3.8 million or 6.3% due to a higher depreciable plant base for new service delivery. In addition, lower energy production costs related to decreased decommissioning expenses of $2.7 million were mostly offset by an increase in depreciation expense of $2.2 million for the change in accounting for costs related to asset retirement obligations as required by SFAS 143
Gas
The table below sets forth the operating results for Gas.
Year Ended
December 31,
--------------------------------
2003 2002 Variance
--------------- -------------- ---------------
(In thousands)
Operating revenues....................... $358,267 $277,406 $ 80,861
Less: Cost of energy..................... 228,345 144,333 84,012
--------------- -------------- ---------------
Gross margin............................. 129,922 133,073 (3,151)
--------------- -------------- ---------------
Energy production costs.................. 1,930 1,937 (7)
Transmission and distribution O&M........ 29,515 29,306 209
Customer related expense................. 16,832 16,607 225
Administrative and general............... 2,040 2,943 (903)
--------------- -------------- ---------------
Total non-fuel O&M..................... 50,317 50,793 (476)
Corporate allocation..................... 40,363 33,516 6,847
Depreciation and amortization............ 22,186 20,673 1,513
Taxes other than income taxes............ 6,886 7,716 (830)
Income taxes............................. (1,281) 2,703 (3,984)
--------------- -------------- ---------------
Total non-fuel operating expenses...... 118,471 115,401 3,070
--------------- -------------- ---------------
Operating income......................... $ 11,451 $ 17,672 $ (6,221)
--------------- -------------- ---------------
|
The following table shows gas revenues by customer and average customers:
Gas Revenues
Year Ended
December 31,
2003 2002 Variance
------------- ------------- --------------
(In thousands)
Residential............... $226,799 $176,284 $ 50,515
Commercial................ 72,269 53,734 18,535
Industrial................ 2,820 2,872 (52)
Transportation*........... 18,906 17,735 1,171
Other..................... 37,473 26,781 10,692
------------- ------------- --------------
$358,267 $277,406 $ 80,861
============= ============= ==============
Average customers......... 452,328 443,396 8,932
============= ============= ==============
|
*Customer-owned gas.
The following table shows gas throughput by customer class:
Gas Throughput
Year Ended
December 31,
2003 2002 Variance
------------- ------------- --------------
(Thousands of decatherms)
Residential............... 27,416 29,627 (2,211)
Commercial................ 10,810 12,009 (1,199)
Industrial................ 485 749 (264)
Transportation*........... 50,756 44,889 5,867
Other..................... 5,510 4,807 703
------------- ------------- --------------
94,977 92,081 2,896
============= ============= ==============
|
*Customer-owned gas.
Operating revenues increased $80.9 million or 29.2% over the prior year period to $358.3 million, primarily because of higher natural gas prices in 2003 as compared to 2002. PNM purchases natural gas in the open market and resells it at cost of purchase to its retail gas distribution customers. As a result, increases or decreases in gas revenues driven by gas costs do not impact the Company's consolidated gross margin or earnings.
The gross margin, or operating revenues minus cost of energy sold, decreased $3.2 million or 2.4% over the prior year period. This decrease is due mainly to the expiration in January 2003 of a rate rider for the recovery of certain costs of $4.1 million. The price decrease was offset by an increase in volume. Transportation throughput increased by 5.9 million decatherms, or 13.1% driven by gas pipe line extensions, increasing off-system sales. Despite customer growth of 2.0%, volume from other customers decreased 3.0 million decatherms, or 6.3% caused by warmer weather in 2003. In January 2004, the PRC approved a cost of service gas rate increase, which will improve gas earnings by approximately $22 million annually. The Company estimates that approximately two-thirds of this increase will be realized in 2004 earnings due to a delay in implementing the residential increase until April 2004.
Total non-fuel O&M expenses decreased $0.5 million or 0.9% over the prior year period. Administrative and general costs decreased $0.9 million or 30.7% primarily due to lower consulting costs of $1.0 million. Depreciation and amortization increased $1.5 million or 7.3% due to a higher depreciable plant base for new service delivery and transportation gas line extensions. Taxes other than income taxes decreased $0.8 million or 10.8% due to a decrease in property tax of $0.2 million as a result of a change in assessed values and a decrease in PRC supervision and lower inspection fees of $0.6 million.
Transmission
The table below sets forth the operating results for Transmission.
Year Ended
December 31,
-----------------------------------
2003 2002 Variance
----------------- -------------- --------------
(In thousands)
Operating revenues:
External customers..................... $ 19,453 $ 23,150 $ (3,697)
Intersegment revenues.................. 32,499 31,950 549
----------------- --------------- --------------
Total revenues......................... 51,952 55,100 (3,148)
Less: Cost of energy..................... 4,255 3,888 367
----------------- --------------- --------------
Gross margin............................. 47,697 51,212 (3,515)
----------------- --------------- --------------
Energy production costs.................. 1,051 690 361
Transmission O&M......................... 12,347 14,531 (2,184)
Customer related expense................. 19 9 10
Administrative and general............... 1,610 2,216 (606)
----------------- --------------- --------------
Total non-fuel O&M..................... 15,027 17,446 (2,419)
Corporate allocation..................... 5,387 4,703 684
Depreciation and amortization............ 10,104 8,741 1,363
Taxes other than income taxes............ 2,583 2,464 119
Income taxes............................. 3,179 4,699 (1,520)
----------------- --------------- --------------
Total non-fuel operating expenses...... 36,280 38,053 (1,773)
----------------- --------------- --------------
Operating income......................... $ 11,417 $ 13,159 $ (1,742)
----------------- --------------- --------------
|
Operating revenues decreased $3.1 million or 5.7% over the prior year period primarily due to lower demand for wheeling of $7.4 million to California from Arizona as a result of lower demand in the California market, partially offset by increased demand for wheeling in New Mexico of $1.7 million and $2.3 million in new 2003 contract revenue. This contract was not renewed for 2004. Cost of energy represents purchased transmission to support transmission offerings. This cost and the resulting gross margin do not fully represent cost of services as these purchases are incidental to the services provided.
Total non-fuel O&M expenses decreased $2.4 million or 13.9% over the prior year period. Transmission O&M decreased $2.2 million or 15.0% due to a decrease in lease costs of $3.3 million for the EIP transmission line, a portion of which was repurchased in April 2003, offset by increased maintenance costs incurred for reliability purposes. Depreciation and amortization increased $1.4 million or 15.6% primarily due to the purchase of additional transmission lines.
Wholesale
The table below sets forth the operating results for Wholesale.
Year Ended
December 31,
----------------------------------
2003 2002 Variance
--------------- -------------- ---------------
(In thousands)
Operating revenues:
External sales........................... $548,847 $ 343,780 $205,067
Intersegment sales....................... 1,535 - 1,535
--------------- --------------- ---------------
Total revenues........................... 550,382 343,780 206,602
Less: Cost of energy....................... 414,550 262,517 152,033
Intersegment energy transfer........ 32,474 29,155 3,319
--------------- --------------- ---------------
Gross margin............................... 103,358 52,108 51,250
--------------- --------------- ---------------
Energy production costs.................... 29,919 32,507 (2,588)
Transmission and distribution O&M.......... 59 45 14
Customer related expense................... 711 754 (43)
Administrative and general................. 8,390 3,199 5,191
--------------- --------------- ---------------
Total non-fuel O&M....................... 39,079 36,505 2,574
Corporate allocation....................... 5,673 4,023 1,650
Depreciation and amortization.............. 14,230 8,808 5,422
Taxes other than income taxes.............. 3,263 2,619 644
Income taxes............................... 10,116 (3,245) 13,361
--------------- --------------- ---------------
Total non-fuel operating expenses........ 72,361 48,710 23,651
--------------- --------------- ---------------
Operating income........................... $ 30,997 $ 3,398 $ 27,599
--------------- --------------- ---------------
|
The following table shows revenues by customer class:
Wholesale Revenues
Year Ended
December 31,
2003 2002 Variance
------------- ------------- --------------
(In thousands)
Long-term contracts....... $147,447 $58,546 $88,901
Forward sales*............ 166,557 77,560 88,997
Short-term sales.......... 234,843 207,674 27,169
Intersegment sales........ 1,535 - 1,535
------------- ------------- --------------
$550,382 $343,780 $206,602
============= ============= ==============
|
*Includes mark-to-market gains/(losses).
The following table shows sales by customer class:
Wholesale Sales
Year Ended
December 31,
2003 2002 Variance
-------------- -------------- --------------
(Megawatt hours)
Long-term contracts....... 2,719,432 844,169 1,875,263
Forward sales............. 3,597,325 1,336,745 2,260,580
Short-term sales.......... 5,531,019 7,269,240 (1,738,221)
-------------- -------------- --------------
11,847,776 9,450,154 2,397,622
============== ============== ==============
|
Operating revenues increased $206.6 million or 60.1% over the prior year period to $550.4 million. This increase in wholesale electric sales primarily reflects additional long-term contract sales and more stable wholesale market conditions. The Company sold wholesale (bulk) power of 11.8 million MWh of electricity for the year ended December 31, 2003, compared to 9.5 million MWh for 2002.
The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, increased $51.3 million or 98.4% over the prior year period. A higher gross margin was achieved primarily by additional long-term sales under new and existing contracts, a return to more stable market prices and improved market liquidity. The addition of 273 MW of long-term contracts added $37.4 million or 72.9% of the total gross margin increase for the year. In December 2003 and January 2004, the Company added an additional 57 MW of long-term contracts. In addition, long-term contract margin increased due to the transfer of a significant customer from retail to wholesale. Forward sales margin increased $14.3 million or 27.9% of the total gross margin increase reflecting higher prices. The average price realized by the Company on its forward sales was $46 per MWh in 2003, compared to $37 per MWh in 2002. Liquidity returning to the market helped drive improvement of forward sales, as the Company had velocity of 1.9 vs. 1.6 a year ago. Short-term sales margin decreased $0.4 million or 0.8% of total gross margin due to lower volume from retail growth, increased long-term sales contracts and fewer available resources caused by a significant outage schedule in 2003, mostly offset by higher prices. The average price realized by the Company on its short-term sales was $42 per MWh in 2003, compared to $29 per MWh in 2002. Overall open market sales (forward and short-term sales) averaged $44 per MWh in 2003 versus $33 per MWh in 2002. This increase was partially offset by increased purchased power costs resulting fromthe 2003 outage schedule, which reduced availability of generation for wholesale sales. In addition, the Company had to buy power in the open market at higher prices to cover its contractual obligations, which resulted in increased purchased power costs of $20.5 million. The Company had a favorable change in the unrealized mark-to-market position of the forward sales portfolio of $1.0 million period-over-period ($3.5 million gain in 2003 versus $2.5 million gain in 2002).
Total non-fuel O&M expenses increased $2.6 million or 7.1% over the prior year period. Energy production costs decreased $2.6 million or 8.0% primarily due to decreased decommissioning costs of $3.1 million and prior period, non-recurring engineering costs of $4.0 million related to the start-up of the
Afton plant. These cost decreases were offset by increases of $2.3 million for
the operation of the new Afton and Lordsburg gas fired facilities and $1.8
million due to increased Palo Verde Unit 3 outages. Administrative and general
costs increased $5.2 million or 162.3% primarily due to transportation and
storage costs of $1.2 million turbines that will be utilized in future
construction for merchant plant growth and increased pension and benefits costs
of $4.0 million at SJGS and PVNGS. Depreciation and amortization increased $5.4
million or 61.6% primarily due to the addition of Lordsburg and Afton, which
added $3.6 million of depreciation expense and an increase of $1.6 million for
the change in accounting for asset retirement obligations as required by SFAS
143. Taxes other than income taxes increased $0.6 million or 24.6% primarily due
to increased property taxes from the addition of Afton and Lordsburg.
Corporate and Other
Corporate administrative and general expenses, which represent costs that are driven primarily by corporate-level activities, is allocated to the business segments and is presented in the corporate allocation line item in the segment statements. These costs increased $19.7 million or 22.4% over the prior year period to $107.9 million. This increase was due to increased pension and benefits expense of $17.9 million, resulting from lower prior-year returns on pension investments and increasing healthcare costs. Consulting expenses increased $1.5 million primarily for Sarbanes-Oxley Act compliance and other strategic corporate initiatives.
Taxes other than income decreased $2.5 million, or 79.6% over the prior year period due to the favorable resolution of certain outstanding tax issues and a decrease in social security taxes from lower payroll costs.
Consolidated
Other Income and Deductions
Other income increased $4.3 million or 9.0% over the prior year period reflecting higher year-over-year returns on investments of $6.3 million, and an increase in the equity component of AFUDC of $2.6 million. These increases were offset by decreased interest income of $4.5 million due to the redemption of short-term investments early in 2003. Cash from the redemption of these investments was primarily used for the Company's retirement of the EIP long-term debt, debt refinancing, repayment of short-term debt and pension funding (see "Liquidity" below).
Other deductions increased $33.8 million over the prior year period primarily due to a charge of $16.7 million in 2003 for the write-off of transition costs due to the repeal of deregulation in New Mexico and a write-off of $16.6 million for costs related to long-term debt refinancing (see "Financing Activities" below).
Interest Expense
Interest expense increased $4.8 million or 7.8% over the prior year period primarily due to decreased capitalized interest of $3.9 million from the completion of the Afton and Lordsburg gas-fired plants in southern New Mexico. Higher average short term borrowing levels also contributed to the increase.
Income Taxes
The Company's consolidated income tax expense before the cumulative effect of a change in accounting principle was $27.9 million for the year ended December 31, 2003, compared to $33.0 million for the prior year period. The decrease was due to the impact of lower pre-tax earnings. The Company's effective income tax rates for the years ended December 31, 2003 and 2002 were 32.05% and 33.95%, respectively. The decrease in the effective tax rate, year-over-year, was due to an increase in permanent tax differences, resulting from AFUDC and research and development credits in 2003.
Cumulative Effect of a Change in Accounting Principle
Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). The effect of the initial application of the new standard is reported as a cumulative effect of a change in accounting principle. As a result, the Company recorded income, net of income taxes, of approximately $37.4 million, or $0.93 per diluted common share, representing amounts expensed in prior years for its asset retirement obligations in excess of the actual legal obligations as established under the new accounting standard.
In 2003, the Company changed its valuation date for its pension and post retirement benefits plans from September 30 to December 31 to better reflect the actual plan balances as of the Company's year end balance sheet date. The effect of the change in the pension plans' valuation date is reported as a cumulative effect of a change in accounting principle. The Company recorded additional expense, net of income taxes, of approximately $0.8 million, or $0.02 per diluted common share reflecting the effect of changing the valuation date.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Consolidated
The Company's net earnings available to common shareholders for the year ended December 31, 2002 were $63.7 million, a 57.5% decrease in net earnings from $149.8 million in 2001. This decrease primarily reflected the slowdown in the wholesale electric market, where both prices and market liquidity were significantly lower than the prior year. Despite the slowdown in the wholesale electric market, PNM's electric utility operations recorded a gross margin growth of 4.5%. This growth came from a combination of load growth and utilization of lower cost generation demonstrating the balance that the regulated utility can provide in the Company's "merchant utility" strategy.
The following discussion is based on the methodology that the Company's management uses for making operating decisions and assessing performance of its various business activities. As such, these statements report operating results without regard to the effect of accounting or regulatory changes, and similar
one-time items not related to normal operations. See Note 2 - "Segment Information" in the Notes to Consolidated Financial Statements for reconciliation between these results and the consolidated financial statements.
Corporate costs, income taxes and non-operating items are discussed only on a consolidated basis and are in conformity with the presentation in the consolidated financial statements.
Electric
The table below sets forth the operating results for Electric.
Year Ended December 31,
---------------------------------
2002 2001 Variance
-------------- -------------- -------------
(In thousands)
Operating revenues....................... $ 546,939 $532,673 $14,266
Less: Cost of energy..................... 194,138 189,055 5,083
Energy transfer................... (29,155) (21,999) (7,156)
-------------- -------------- --------------
Gross margin............................. 381,956 365,617 16,339
-------------- -------------- --------------
Energy production costs.................. 113,257 120,353 (7,096)
Distribution O&M......................... 19,987 20,712 (725)
Customer related expense................. 17,372 19,388 (2,016)
Administrative and general............... 5,408 8,398 (2,990)
-------------- -------------- --------------
Total non-fuel O&M..................... 156,024 168,851 (12,827)
Corporate allocation..................... 52,878 54,488 (1,610)
Depreciation and amortization............ 59,654 59,352 302
Taxes other than income taxes............ 18,251 16,272 1,979
Income taxes............................. 26,779 13,788 12,991
-------------- -------------- --------------
Total non-fuel operating expenses...... 313,586 312,751 835
-------------- -------------- --------------
Operating income......................... $ 68,370 $52,866 $15,504
-------------- -------------- --------------
|
The following table shows electric revenues by customer class and average customers:
Electric Revenues
Year Ended
December 31,
--------------------------------
2002 2001 Variance
-------------- -------------- --------------
(In thousands)
Residential.............. $ 197,174 $ 187,600 $9,574
Commercial............... 247,800 242,372 5,428
Industrial............... 82,009 82,752 (743)
Other.................... 19,956 19,949 7
-------------- -------------- --------------
$ 546,939 $ 532,673 $14,266
============== ============== ==============
Average customers........ 384,478 377,589 6,889
============== ============== ==============
|
The following table shows electric sales by customer class:
Electric Sales
(Megawatt hours)
Year Ended
December 31,
--------------------------------
2002 2001 Variance
--------------- -------------- ---------------
(In thousands)
Residential.............. 2,298,542 2,197,889 100,653
Commercial............... 3,254,576 3,213,208 41,368
Industrial............... 1,612,723 1,603,266 9,457
Other.................... 267,070 265,668 1,402
--------------- -------------- ---------------
7,432,911 7,280,031 152,880
=============== ============== ===============
|
Operating revenues increased $14.3 million or 2.7% for the period to $546.9 million. Retail electricity delivery grew 2.4% to 7.4 million MWh in 2002 compared to 7.3 million MWh delivered in the prior year, resulting in increased revenues of $14.3 million year-over-year. This volume increase was the result of a weather-driven increase in consumption and continued customer growth. Year over year, customer growth was 1.8%.
The gross margin, or operating revenues minus cost of energy sold, increased $16.3 million or 4.5%, which reflects the increased energy sales and the utilization of lower cost purchased power to serve jurisdictional needs based on a change in negotiated contract rates. Electric exclusively purchases transmission services from Transmission. These intercompany revenues and expenses are eliminated in the consolidated results.
Total non-fuel O&M decreased $12.8 million or 7.6%. Energy production costs decreased $7.1 million or 5.9% for the period reflecting the benefits of $2.0 million for the acceleration into 2001 of a planned outage at SJGS, decreased costs of $3.0 million for planned outages at SJGS and an adjustment of $3.1 million to prior year PVNGS billings from Arizona Public Service Company, the operator of PVNGS. These cost decreases were partially offset by costs of $1.2 million for planned and unplanned outages at Four Corners. Distribution costs decreased $0.7 million or 3.5% primarily due to maintenance performed in 2001 to improve system reliability, which did not recur in 2002. Customer related expense decreased $2.0 million or 10.4% due to lower bad debt expense as a result of collection improvements and the absence of losses from the bankruptcy of a significant customer in 2001. Administrative and other costs decreased $3.0 million or 35.6% due to an adjustment of $1.4 million to prior year SJGS participant billings and lower labor due to the transfer of employees from Electric to Corporate. Taxes other than income increased $2.0 million or 12.2% reflecting adjustments recorded in the prior year for favorable audit outcomes by certain tax authorities.
Gas
The table below sets forth the operating results for Gas.
Year Ended December 31,
---------------------------------
2002 2001 Variance
--------------- -------------- ---------------
(In thousands)
Operating revenues......................... $277,406 $371,265 $ (93,859)
Cost of energy............................. 144,333 237,143 (92,810)
--------------- -------------- ---------------
Gross margin............................... 133,073 134,122 (1,049)
--------------- -------------- ---------------
Energy production costs.................... 1,937 1,946 (9)
Distribution O&M........................... 29,306 31,064 (1,758)
Customer related expense................... 16,607 19,814 (3,207)
Administrative and general................. 2,943 6,736 (3,793)
--------------- -------------- ---------------
Total non-fuel O&M....................... 50,793 59,560 (8,767)
Corporate allocation....................... 33,516 30,908 2,608
Depreciation and amortization.............. 20,673 20,362 311
Taxes other than income taxes.............. 7,716 6,768 948
Income taxes............................... 2,703 1,867 836
--------------- -------------- ---------------
Total non-fuel operating expenses........ 115,401 119,465 (4,064)
--------------- -------------- ---------------
Operating income........................... $ 17,672 $14,657 $ 3,015
--------------- -------------- ---------------
|
The following table shows gas revenues by customer and average customers:
Gas Revenues
Year Ended
December 31,
--------------------------------
2002 2001 Variance
-------------- -------------- --------------
(In thousands)
Residential............... $ 176,284 $ 221,409 $(45,125)
Commercial................ 53,734 65,654 (11,920)
Industrial................ 2,872 27,519 (24,647)
Transportation*........... 17,735 20,188 (2,453)
Other..................... 26,781 36,495 (9,714)
-------------- -------------- --------------
$ 277,406 $ 371,265 $(93,859)
============== ============== ==============
Average customers......... 443,396 434,591 8,805
============== ============== ==============
|
The following table shows gas throughput by customer class:
Gas Throughput
Year Ended
December 31,
--------------------------------
2002 2001 Variance
-------------- --------------- --------------
(Thousands of decatherms)
Residential.............. 29,627 27,848 1,779
Commercial............... 12,009 10,421 1,588
Industrial............... 749 3,920 (3,171)
Transportation*.......... 44,889 51,395 (6,506)
Other.................... 4,807 4,355 452
-------------- --------------- --------------
92,081 97,939 (5,858)
============== =============== ==============
|
* Customer owned gas
Operating revenues decreased $93.9 million or 25.3% for the period to $277.4 million, primarily because of lower natural gas prices in 2002 as compared to 2001. PNM purchases natural gas in the open market and resells it at cost of purchase to its retail gas distribution customers. As a result, increases or decreases in gas revenues driven by gas costs do not impact the Company's consolidated gross margin or earnings.
The gross margin, or operating revenues minus cost of energy sold, decreased $1.0 million or 0.8%. This decrease is due mainly to lower consumption of gas for electric generation of $6.0 million partially offset by a 2.0% growth in customer base of $5.0 million.
Total non-fuel O&M decreased $8.8 million or 14.7%. Distribution costs decreased $1.8 million or 5.7% primarily due to maintenance performed in 2001 to improve system reliability, which did not recur in 2002. Customer related expense decreased $3.2 million or 16.2% due to lower bad debt expense because of collection improvements and the absence of losses from the bankruptcy of a significant customer in 2001. Administrative and other costs decreased $3.8 million due to lower amortization costs of $1.2 million for SFAS 106 deferred costs (which were fully amortized in 2001), and lower consulting expenses of $0.5 million in connection with cost control and process improvement initiatives in 2001 and lower legal expenses of $0.5 million for routine business matters. Taxes other than income taxes increased $0.9 million or 14.0% due to the absence of favorable audit outcomes by certain tax authorities recognized in 2001.
Transmission
The table below sets forth the operating results for Transmission.
Year Ended December 31,
-----------------------------------
2002 2001 Variance
---------------- ---------------- --------------
(In thousands)
Operating revenues
External customers................... $ 23,150 $26,553 $(3,403)
Intersegment revenues................ 31,950 31,273 677
---------------- ---------------- --------------
Total revenues..................... 55,100 57,826 (2,726)
Cost of energy......................... 3,888 5,102 (1,214)
---------------- ---------------- --------------
Gross margin........................... 51,212 52,724 (1,512)
---------------- ---------------- --------------
Energy production costs................ 690 924 (234)
Transmission O&M ...................... 14,531 17,141 (2,610)
Customer related expense............... 9 - 9
Administrative and general............. 2,216 2,155 61
---------------- ---------------- --------------
Total non-fuel O&M................... 17,446 20,220 (2,774)
---------------- ---------------- --------------
Corporate allocation................... 4,703 4,596 107
Depreciation and amortization.......... 8,741 7,328 1,413
Taxes other than income taxes.......... 2,464 2,252 212
Income taxes........................... 4,699 5,442 (743)
---------------- ---------------- --------------
Total non-fuel operating expenses.... 38,053 39,838 (1,785)
---------------- ---------------- --------------
Operating income....................... $ 13,159 $12,886 $ 273
---------------- ---------------- --------------
|
Operating revenues decreased $2.7 million or 4.7% and gross margin decreased $1.5 million or 2.9% primarily due to a decrease in third party sales of the Company's transmission capacity due to the slowdown in the wholesale market.
Total non-fuel O&M decreased $2.8 million or 13.7%. Transmission costs decreased $2.6 million or 15.2% primarily due to maintenance performed in 2001 to improve system reliability, which did not recur in 2002. Depreciation and amortization increased $1.4 million or 19.3% for the year due to the purchase of transmission plant assets in early 2002.
Wholesale
The table below sets forth the operating results for Wholesale.
Year Ended December 31,
----------------------------------
2002 2001 Variance
---------------- --------------- ----------------
(In thousands)
Operating revenues......................... $ 343,780 $1,411,500 $(1,067,720)
Less: Cost of energy...................... 262,517 1,127,970 (865,453)
Energy Transfer................. 29,155 21,999 7,156
---------------- --------------- ----------------
Gross margin............................... 52,108 261,531 (209,423)
---------------- --------------- ----------------
Energy production costs.................... 32,507 29,232 3,275
Transmission and distribution O&M.......... 45 77 (32)
Customer related expense................... 754 821 (67)
Administrative and general................. 3,199 4,748 (1,549)
---------------- --------------- ----------------
Total non-fuel O&M....................... 36,505 34,878 1,627
Corporate allocation....................... 4,023 4,042 (19)
Depreciation and amortization.............. 8,808 5,774 3,034
Taxes other than income taxes.............. 2,619 2,498 121
Income taxes............................... (3,245) 78,102 (81,347)
---------------- --------------- ----------------
Total non-fuel operating expenses........ 48,710 125,294 (76,584)
---------------- --------------- ----------------
Operating income........................... $ 3,398 $ 136,237 $ (132,839)
---------------- --------------- ----------------
|
The following table shows revenues by customer class:
Wholesale Revenues
Year Ended
December 31,
--------------------------------
2002 2001 Variance
-------------- -------------- -----------------
(In thousands)
Long-term contracts........ $ 58,546 $ 77,250 $ (18,704)
Forward sales.............. 77,560 86,779 (9,219)
Short-term sales........... 207,674 1,247,471 (1,039,797)
-------------- -------------- -----------------
$343,780 $1,411,500 $(1,067,720)
============== ============== =================
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(Intentionally left blank)
The following table shows sales by customer class:
Wholesale Sales
Year Ended
December 31,
--------------------------------
2002 2001 Variance
-------------- --------------- --------------
(Megawatt hours)
Long-term contracts......... 844,169 1,463,031 (618,862)
Forward sales............... 1,336,745 537,665 799,080
Other merchant sales........ 7,269,240 10,596,004 (3,326,764)
-------------- --------------- --------------
9,450,154 12,596,700 (3,146,546)
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Operating revenues declined $1.1 billion or 75.6% for the year to $343.8 million. This decrease in wholesale electricity sales primarily reflects the slowdown in the wholesale electric market, which resulted from steep declines in wholesale prices and market liquidity as compared to the prior year period.
The significantly higher wholesale pricing in 2001 was driven by increased demand in California, a lack of generating assets to serve the market and the impact of warm weather. By contrast, 2002 saw relatively mild weather in the West, an abundance of low cost hydropower and weak economic conditions in the region. As a result, the average price realized by the Company fell to approximately $31 per MWh in 2002 versus $108 per MWh in 2001.
The decline in merchant sales volumes reflect the reduction in market participants in the wholesale market caused by bankruptcy, reduced credit quality of firms in the market and firms exiting the wholesale market. There are also significant unresolved legal, political and regulatory issues that had a dampening effect on activity in the marketplace. As a result, the Company's spot market and short-term sales declined significantly in 2002. The Company delivered wholesale (bulk) power of 9.5 million MWh of electricity for the year ended December 31, 2002, compared to 12.6 million MWh for the same period in 2001.
The gross margin, or operating revenues minus cost of energy sold, decreased $209.4 million or 80.1%. Lower margins were created primarily by weak pricing, less price volatility and lower market liquidity. In addition, unexpected outages at Four Corners reduced availability of power for wholesale sales. These lower margins were partially offset by a favorable change in the mark-to-market position of the marketing portfolio of $55.3 million year-over-year ($29.5 million gain in 2002 versus $25.8 million loss in 2001). A majority of the gain in 2002 represents the reversal of previously recognized mark-to-market losses.
Total non-fuel O&M increased $1.6 million or 4.7%. Energy production costs increased $3.3 million or 11.2% for the period due to costs of $4.0 million related to the future expansion of Afton. This cost increase was partially offset by decreased costs of $0.5 million for planned outages at SJGS. Depreciation and amortization expense increased $3.0 million or 52.5% for the period due to a higher depreciable plant base.
Corporate and Other
Corporate administrative and general costs, which represent costs that are driven primarily by corporate-level activities, decreased $3.7 million or 4.0% for the period to $88.2 million. This decrease was due to lower bonus expense of $11.9 million in 2002 resulting from lower earnings projections. This decrease was partially offset by higher labor costs of $8.2 million resulting from a transfer of employees from operations to corporate.
Consolidating Non-Operating
Other Income and Deductions
Other income decreased by $3.8 million or 7.3% reflecting lower year-over-year returns on investments reflecting market conditions.
Other deductions decreased $55.0 million or 81.7% primarily due to charges in 2001 that did not recur in 2002. In 2001, the Company recognized charges for the write-off of an Avistar investment of $13.1 million, the write-off of non-recoverable coal mine decommissioning costs of $13.0 million, non-recoverable regulatory costs of $11.1 million, a contribution to the PNM Foundation of $5.0 million, and certain costs related to the Company's now terminated acquisition of Western Resources' electric utility operations of $18.0 million. In 2002, the Company recognized a gain from the reversal of a reserve of $2.4 million to reflect the early, successful resolution of the litigation stemming from the terminated Western Resources transaction and a charge of $4.8 million for the cancellation of a transmission line project.
Income Taxes
The Company's consolidated income tax expense was $33.0 million for the year ended December 31, 2002, compared to $81.1 million for the year ended December 31, 2001. The decrease was due to the impact of lower earnings and a decline in the effective tax rate. The Company's effective income tax rates for the years ended December 31, 2002 and 2001 were 33.95% and 35.02%, respectively. The decrease in the effective rate year over year was due to the reduction in earnings in 2002 without a corresponding reduction in permanent tax benefits and the recognition of certain affordable housing and research and development credits in 2002.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with Generally Accepted Accounting Principles ("GAAP") requires management to select and apply accounting policies that best provide the framework to report the Company's results of operations and financial position. The selection and application of those policies require management to make difficult subjective or complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. The judgments and uncertainties inherent in this process affect the application of those policies. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions. Management has identified the
following accounting policies that it deems critical to the portrayal of the Company's financial condition and results and that involve significant subjectivity. Management believes that its selection and application of these policies best represent the operating results and financial position of the Company. The following discussion provides information on the processes utilized by management in making judgments and assumptions as they apply to its critical accounting policies.
Revenue Recognition
Operating revenues are recorded as services are rendered to customers. The Company's Utility Operations records unbilled revenues representing the estimated amount customers will be billed for services rendered between the meter-reading dates in a particular month and the end of that month. The unbilled revenues estimate is reversed in the following month. To the extent the estimated amount differs from the amount subsequently billed, revenues will be affected. At December 31, 2003 and 2002, unbilled revenues in the consolidated balance sheet included estimates of $58.6 million and $58.5 million, respectively, from the Company's Utility Operations.
Regulatory Assets and Liabilities
The Company is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS No. 71"). Accordingly, the Company has recorded assets and liabilities on its balance sheet resulting from the effects of the ratemaking process, which would not be recorded under GAAP for non-regulated entities. Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in customer rates. Regulatory liabilities generally represent probable future reductions in revenue or refunds to customers. The Company's continued ability to meet the criteria for application of SFAS No. 71 may be affected in the future by competitive forces and restructuring in the electric industry. In the event that SFAS No. 71 no longer applied to all, or a separable portion, of Company's operations, the related regulatory assets and liabilities would be written off unless an appropriate regulatory recovery mechanism is provided.
Substantially all of the Company's regulatory assets and regulatory liabilities are reflected in rates charged to retail customers or have been addressed in a regulatory proceeding. To the extent that the Company concludes that the recovery of a regulatory asset is no longer probable due to regulatory treatment, the effects of competition or other factors, the amount would be recorded as a charge to earnings as recovery is no longer probable. The Company regularly assesses whether its regulatory assets are probable of future recovery by considering factors such as applicable regulatory environment changes, recent rate orders to other regulated entities in the same jurisdiction, anticipated future regulatory decisions and their impact, developments in the ratemaking process and the ability to recover costs.
As the Company's electric rates are fixed, the opportunity to recover increased costs and the costs of new investment in facilities through rates during the five-year rate freeze period is also limited. As a result, the Company defers certain costs based on its expectation that it will recover these costs in future rate cases. If future recovery of these costs ceases to be probable, the Company would be required to record a charge in current period earnings for the portion of the costs that were not recoverable.
Asset Impairment
The Company evaluates its tangible long-lived assets for impairment whenever indicators of impairment exist pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 144"). These potential impairment triggers would include fluctuating market conditions as a result of industry deregulation; planned and scheduled customer purchase commitments; future market penetration; fluctuating market prices (resulting from changing fuel costs, other economic conditions, etc.); weather patterns, and other market trends. Accounting rules require that if the sum of the undiscounted expected future cash flows from a company's asset (without interest charges that will be recognized as expenses when incurred), is less than the carrying value of the asset, an asset impairment must be recognized in the financial statements. The amount of impairment recognized is the difference between the fair value of the asset and the carrying value of the asset.
The Company determined that no triggering events occurred during the period in regards to its generation assets. At December 31, 2003, the Company analyzed three turbines, which are currently in storage, with a combined carrying value of approximately $79.1 million. These assets were intended for planned build-outs that have been delayed or canceled. Based on the Company's various plans to make these turbines operational, the Company concluded that it will fully recover its investment. The Company expects to begin construction utilizing these assets over the next several years. If the Company were unable to realize these plans, the Company would be forced to recognize a loss with respect to the carrying value of these assets depending on prevailing market conditions. The Company will continue to analyze the turbines for impairment in accordance with SFAS 144.
Pension Plan
The Company and its subsidiaries maintain a qualified defined benefit pension plan ("pension plan"), which covers eligible non-union and union employees including officers. The pension plan was frozen at the end of 1997 with regard to new participants, salary levels and benefits. The Company's policy is to fund actuarially-determined contributions.
The Company's expense for its pension plan approximated $2.4 million for the year ended December 31, 2003, and is calculated based upon a number of actuarial assumptions, including an expected long-term rate of return on the pension plan assets of 9%. In developing the expected long-term rate of return assumption, the Company evaluated input from its actuaries and its investment consultant, including their review of asset class return expectations as well as long-term inflation assumptions. This long-term rate of return assumption compares to the historical 10-year compounded return of 9.86% through the end of December 2003. The expected long-term rate of return on the pension plan assets is based on an asset allocation assumption of 58% with equity managers, 22% with fixed income managers, and 20% with alternative investments that are primarily real estate, private equity, and absolute return strategies. The pension plan's actual asset allocation as of December 31, 2003 was 65% with equity managers, 25% with fixed income managers, and 10% with alternative investments. The Company reviews the actual asset allocation and periodically rebalances the
asset allocation to the targeted allocation. The Company continues to believe that 9% is a reasonable long-term rate of return on the pension plan's assets, despite the recent market upturn in which the pension plan assets had a gain of 21.0% for the twelve months ended December 31, 2003. The Company will continue to evaluate its actuarial assumptions, including expected rate of return, at least annually, and will adjust as necessary.
The Company bases its determination of pension expense or income on a market-related valuation of assets, which reduces year-to-year volatility. If investment return is outside a range of 5% to 13% (expected long-term rate of return plus or minus 4%), this market-related valuation recognizes the portion of return that is outside the range over a five-year period from the year in which the return occurs. Since the market-related value of assets recognizes the portion of return that is outside the range over a five-year period, the future value of assets will be impacted as previously deferred returns are recorded.
The discount rate that the Company utilizes for determining future pension obligations is based on a review of long-term high-grade bonds and management's expectation. As a result of this review, the Company adjusted the rate to 6.5% at December 31, 2003 from 6.75% at September 30, 2002. Based on an expected rate of return on the pension plan assets of 9%, a discount rate of 6.5% and various other assumptions, it is estimated that the pension income for the pension plan will approximate $0.7 million in fiscal year 2004 and $1.4 million in fiscal year 2005. Future actual pension income or expense will depend on future investment performance, changes in future discount rates and various other factors related to the populations participating in the Company's pension plans.
Lowering the pension plan's expected long-term rate of return on pension assets by 0.5% (from 9% to 8.5%) would have raised pension expense for fiscal year 2003 by approximately $1.8 million. Lowering the discount rate by 0.5% would have increased pension expense for fiscal year 2003 by approximately $2.6 million.
The value of the pension plan assets has increased from $326.5 million at December 31, 2002 to $425.7 million at December 31, 2003 including $48.9 million of contributions during 2003. The Company does not expect to make any contributions for the 2004 plan year.
Self-Insurance
The Company self-insures for certain losses related to general liability, workers' compensation and automobile claims. The Company maintains insurance with third-party insurers in excess of the Company's self-insured retentions to limit the Company's exposure per occurrence or accident, as applicable. The Company's self-insurance liabilities reflect the estimated ultimate cost of claims incurred as of the balance sheet date. The estimated liabilities are not discounted and are established based upon claims filed, estimated claims incurred but not reported, and analyses of industry and historical data.
Beginning January 1, 2004, the Company began to self-insure certain health care costs of its employees. The Company self-insures for certain medical and dental benefits for active employees and retirees under the benefit programs. The Company maintains stop-loss insurance with third-party insurers in excess of the Company's self-insured retentions to limit the Company's exposure per participant, as applicable.
Management reviews the amounts recorded for these liabilities on a quarterly basis to ensure that they are appropriate. While management believes that these estimates are reasonable based on the information available, the Company's financial results could be impacted if actual trends, including the severity or frequency of claims or fluctuations in premiums, differ from the Company's estimates.
Contingent Liabilities
There are various claims and lawsuits pending against the Company and certain of its subsidiaries. The Company has recorded a liability when the effect of litigation can be estimated and where an outcome is considered probable. Management's estimates are based on its knowledge of the relevant facts at the time of the issuance of the Company's consolidated financial statements. Subsequent developments could materially alter management's assessment of a matter's probable outcome and the estimate of liability.
Environmental Issues
The Company records its environmental liabilities when site assessments or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. The Company reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, current laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring and site closure. Unless there is a probable amount, the Company records the lower end of this reasonably likely range of costs (classified as other long-term liabilities at undiscounted amounts). Subsequent developments could materially alter management's assessment of a matter's probable outcome and the estimate of liability.
See "Item 7A. Quantitative and Qualitative Disclosure About Market Risk - Interest Rate Risk" for discussion regarding the Company's accounting policies and sensitivity analysis for the Company's financial instruments and derivative energy and other derivative contracts. See also "Financing Activities" below for additional discussion regarding the Company's accounting policies for forward interest swaps.
EFFECTS OF CERTAIN EVENTS ON FUTURE REVENUES
The Company's long-term contracts to supply power expire from 2006 through 2013. The ability of the Company to renew these contracts at terms comparable to those currently in place is dependent upon prevailing market conditions at the time of negotiations. Currently, the Company has a long-term firm commitment contract of 114 MW set to expire in 2006. The contract is priced significantly above current market prices; however, the Company believes that it will be able to significantly mitigate any revenue loss due to a rising forward market.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, the Company had cash and short-term investments of $12.7 million compared to $83.3 million in cash and short-term investments at December 31, 2002.
Cash provided by operating activities for the year ended December 31, 2003 was $228.7 million compared to $97.4 million for the year ended December 31, 2002. This increase in cash flows was due to increased profitability in the Company's wholesale power operations, higher gas sales volumes and lower tax payments. Also contributing to the increase were payments in 2002 which did not recur in 2003. The Company did not make its first quarter 2001 estimated federal income tax payment of $32.0 million until January 2002 because of an extension granted by the IRS to taxpayers in several counties in New Mexico as a result of wildfires in 2000. In addition, the Company made payments in 2002 of $36.0 million for the termination of the surface coal contract and $23.2 million to secure a long-term wholesale contract. This increase in operating cash flows was offset by higher wholesale electric prices and volume and higher gas prices in the current year. The Company's Gas working capital is negatively affected by the timing difference in gas purchases and collections. The Company pays for gas in the month following purchase. Recovery of gas costs has typically taken up to three months. The negative effect of this mismatch in cash flows was greater in 2003 due to the increase in gas prices. The increase in accounts receivable also reflects higher wholesale electric prices in 2003. In addition, electric retail collections decreased due to the rate reduction.
Cash used for investing activities was $101.6 million in 2003 compared to $200.4 million in 2002. Cash used in 2002 for investing activities included construction expenditures for new generating plants of $67.4 million. Payments for combustion turbines were $11.1 million in 2003 compared to $30.0 million in 2002. Cash used for investing activities in 2003 also included the purchase of certain long-term debt underlying leased assets in the open market for $6.7 million (see "Liquidity" below). The cash used for investing activities in 2003 was largely offset by the redemption of short-term investments of $80.3 million in 2003 at the Holding Company level as compared to $45.6 million in 2002 at PNM. These redemptions were primarily used for the Company's retirement of the EIP long-term debt underlying the lease assets, repayment of short-term debt, debt refinancing and pension funding.
Cash used for financing activities was $118.1 million in 2003 compared to cash generated by financing activities of $78.4 million in 2002. Financing activities in 2003 primarily consisted of the retirement of long-term debt of $26.1 million, costs associated with the refunding and refinancing of long-term debt of $55.3 million and short-term debt repayments of $24.1 million. In 2002, the Company had short-term borrowings of $115.0 million for short-term liquidity needs.
Pension and Other Post-Retirement Benefits
In May 2003, the board of directors approved the use of Holding Company stock in the funding of the Company's pension plan as well as its retiree medical trust. Corporate plan sponsors may make contributions of common stock to their defined benefit plans of up to 10% of the value of the portfolio without Department of Labor ("DOL") approval, provided that the contribution does not otherwise constitute a prohibited transaction under the Employee Retirement
Income Security Act ("ERISA"). In June 2003, a contribution of 1,121,495 shares of Holding Company common stock (approximately $28.9 million in market value) was made to the Company's pension plan. The shares of Holding Company common stock were sold over a period of time and there were no shares of common stock remaining in the defined benefit trust on December 31, 2003. Due to the appreciation in stock value, the net proceeds realized by the pension plan from the sale of Holding Company common stock was $31.0 million.
Capital Requirements
Total capital requirements include construction expenditures as well as other major capital requirements and cash dividend requirements for both common and preferred stock. The main focus of the Company's current construction program is upgrading generation systems, upgrading and expanding the electric and gas transmission and distribution systems and purchasing nuclear fuel. To preserve a strong financial position, the Company announced in 2002 its plans to delay capital expenditures for previously planned generation expansion. Projections for total capital requirements for 2004 are $172 million and projections for construction expenditures for 2004 are $154 million. Total capital requirements are projected to be $720 million and construction expenditures are projected to be $624 million for 2004-2008. These estimates are under continuing review and subject to on-going adjustment. This projection excludes any generation fleet expansion capital, including any plans for the utilization of the turbines in storage. The Company continues to look for appropriately priced generation acquisition and expansion opportunities to support retail electric load growth, the continued expansion of its long-term contract business and to supplement its natural transmission position in the Southwest and West.
In the year ended December 31, 2003, the Company utilized cash generated from operations and cash on hand, as well as its liquidity arrangements, to cover its capital requirements and construction expenditures. The Company anticipates that internal cash generation and current debt capacity will be sufficient to meet all of its capital requirements and construction expenditures for the years 2004 through 2008. To cover the difference in the amounts and timing of cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements.
Liquidity
As of March 1, 2004, PNM had $413.0 million of liquidity arrangements. The liquidity arrangements consist of $300.0 million from an unsecured revolving credit facility ("Credit Facility"), $90.0 million from an accounts receivable securitization program ("AR Securitization") and $23.0 million in local lines of credit. PNM entered into a new revolving credit facility on November 21, 2003, which increased borrowing capacity from $195.0 million to $300.0 million. This facility will mature November 21, 2006. As of March 1, 2004, there were no borrowings against the Credit Facility, PNM was using $60.0 million of the AR Securitization capacity and no borrowings under its local lines of credit. PNM had $50.0 million of commercial paper outstanding as of March 1, 2004. In addition, the Holding Company has $15.0 million in local lines of credit with no usage at December 31, 2003 or March 1, 2004.
On April 8, 2003, the Company entered into the AR Securitization providing for the securitization of PNM's retail electric service accounts receivable and retail gas services accounts receivable. The total capacity under the AR Securitization is $90.0 million. Under the AR Securitization, PNM will periodically sell its accounts receivable, principally retail receivables, to a bankruptcy remote subsidiary, PNM Receivables Corp, which in turn pledges an undivided interest in the receivables to an unaffiliated conduit commercial paper issuer.
On April 1, 2003, PNM exercised its early buyout option related to a 60% interest in the EIP transmission line and related facilities held under lease. Through the exercise of the early buyout option, PNM was able to retire all $26.2 million of secured facility bonds, which were issued to originally finance the sale-leaseback transaction. The secured facility bonds had previously been disclosed as off balance sheet lease obligations in the notes to the Company's financial statements. The Company will continue to exclude approximately $4.0 million of lease obligations relating to the 40% interest the Company does not own from the consolidated balance sheet.
On June 12, 2003, the Holding Company and PNM each filed universal shelf registration statements with the SEC for a combination of debt and equity securities for $500.0 million and $285.0 million, respectively. The PNM shelf registration statement when combined with a previously filed shelf registration statement, provides $500.0 million of capacity. The PNM and Holding Company shelf registration statements were declared effective June 28, 2003 and August 28, 2003, respectively. On September 9, 2003, PNM issued and sold $300.0 million of debt under its shelf registration statement (see "Financing Activities" below). As of December 31, 2003, the Holding Company and PNM had remaining unissued securities registered under the shelf registration statements of $500.0 million and $200.0 million, respectively.
On August 27, 2003, the Company entered into an unrated private issuance commercial paper program. The Company will periodically issue up to $50.0 million in unrated commercial paper for the shorter of 120 days or the maturity of the Company's Credit Facility. The commercial paper is unsecured and the proceeds will be used to reduce revolving credit borrowings. The Company's Credit Facility serves as a backstop for the outstanding commercial paper.
The Company's ability to access the capital markets, if required, at a reasonable cost and to provide for other capital needs is largely dependent upon its ability to earn a fair return on equity, its results of operations, its credit ratings, obtaining required regulatory approvals and financial and wholesale market conditions. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities and to obtain short-term credit.
PNM's credit outlook is considered stable by Moody's Investor Services, Inc. ("Moody's") and Standard and Poor's Ratings Services ("S&P"). The Company is committed to maintaining or improving its investment grade ratings. On June 13, 2003, S&P improved PNM's business position to a five from its previous position of six. On February 27, 2004, S&P upgraded PNM's ratings on its senior unsecured notes ("SUNs") to "BBB" with a stable outlook and its preferred stock to "BB+". On March 9, 2004, Moody's upgraded PNM's SUNs, senior unsecured pollution control revenue bonds and $300 million 3 year credit facility to "Baa2" and its preferred stock "Ba1". Fitch rated PNM's SUNs and senior
unsecured pollution control revenue bonds "BBB-" and its preferred stock "BB-" at December 31, 2003. Beginning in 2004, Fitch will no longer be rating PNM debt. Investors are cautioned that a security rating is not a recommendation to buy, sell or hold securities, that it is subject to revision or withdrawal at any time by the assigning rating organization, and that each rating should be evaluated independently of any other rating.
Off Balance Sheet Arrangements
The Company's off balance sheet arrangements consist primarily of operating lease obligations for PVNGS Units 1 and 2, EIP and the Delta operating lease. The total capitalization in relation to these obligations was $179.4 million as of December 31, 2003 and $195.8 million as of December 31, 2002 (see "Commitments and Contractual Obligations" below).
Commitments and Contractual Obligations
The following tables show the Company's long-term obligations and
commitments as of December 31, 2003.
Payments Due
-----------------------------------------------------------------------
(In thousands)
Less than After
Contractual Obligations Total 1 year 2-3 years 4-5 years 5 years
----------------------------------- -------------- ------------ ------------ ------------- ------------
Short-Term Debt (a)................ $ 125,918 $ 125,918 $ - $ - $ -
Long-Term Debt..................... 987,210 407 814 300,170 685,819
Operating Leases................... 425,540 29,068 62,266 65,796 268,410
Purchased Power Agreements......... 203,282 27,733 50,870 35,233 89,446
Coal Contract (b).................. 1,395,926 109,309 192,456 182,359 911,802
-------------- ------------ ------------ ------------- ------------
Total Contractual Cash
Obligations..................... $3,137,876 $ 292,435 $ 306,406 $ 583,558 $1,955,477
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(a) Represents the actual outstanding balance of the various credit facilities as of December 31, 2003. (b) Assumes normal deliveries under the coal contract. If no deliveries are made, certain minimum payments may be required under the coal contract.
Amount of Commitment Expiration Per Period
------------------------------------------------------------------------
(In thousands)
Total
Other Commercial Amounts After
Commitments Committed 1 year 2-3 years 4-5 years 5 years
-------------------------------- --------------- ------------ ------------ ------------ -------------
Short-Term Debt (c)............. $ 335,500 $ - $ 335,500 $ - $ -
Local Lines of Credit........... 38,500 38,500 - - -
Letters of Credit............... 4,500 4,500 - - -
--------------- ------------ ------------ ------------ -------------
Total Commercial
Commitments.................. $ 378,500 $ 43,000 $ 335,500 $ - $ -
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(c) Represents the unused borrowing capacity of the various credit facilities less outstanding letters of credit of $4.5 million as of December 31, 2003.
PNM leases interests in Units 1 and 2 of PVNGS, certain transmission facilities, office buildings and other equipment under operating leases. The lease expense for PVNGS is $66.3 million per year over base lease terms expiring in 2015 and 2016. In 1998, PNM established PVNGS Capital Trust ("Capital Trust") for the purpose of acquiring all the debt underlying the PVNGS leases. PNM consolidates Capital Trust in its consolidated financial statements. The purchase was funded with the proceeds from the issuance of $435 million of SUNs, which were loaned to Capital Trust. Capital Trust then acquired and now holds the debt component of the PVNGS leases. For legal and regulatory reasons, the PVNGS lease payment continues to be recorded and paid gross with the debt component of the payment returned to PNM through Capital Trust. As a result, the net cash outflows for the PVNGS lease payment were $14.2 million for the year ended December 31, 2003. The table above reflects the net lease payment.
PNM's other significant operating lease obligations include the EIP, a leased interest in transmission line with annual lease payments of $2.9 million (see "Financing Activities" below), and an operating lease for the entire output of Delta, a gas fired generating plant in Albuquerque, New Mexico, with imputed annual lease payments of $6.0 million.
The Company's off-balance sheet obligations are limited to PNM's operating leases and certain financial instruments related to the purchase and sale of energy (see below). The present value of PNM's operating lease obligations for PVNGS Units 1 and 2, EIP and the Delta operating lease was $179.4 million as of December 31, 2003.
PNM has entered into various long-term power purchase agreements ("PPAs") obligating it to buy electricity for aggregate fixed payments of $203.3 million plus the cost of production and a return. These contracts expire December 2005 through December 2020. In addition, PNM is obligated to sell electricity for $191.5 million in fixed payments plus the cost of production and a return. These contracts expire through May 2013. PNM's marketing portfolio as of December 31, 2003 included open forward contract positions to buy $30.6 million of electricity and to sell $28.6 million of electricity. In addition, PNM had open forward contract positions classified as normal sales of electricity under the derivative accounting rules of $153.3 million and normal purchases of electricity of $64.1 million.
PNM contracts for the purchase of gas to serve its retail customers. These contracts are short-term in nature, supplying the gas needs for the current heating season and the following off-season months. The price of gas is a pass-through, whereby PNM recovers 100% of its cost of gas.
Contingent Provisions of Certain Obligations
The Holding Company and PNM have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. The Holding Company or PNM could be required to provide security, immediately pay outstanding obligations or be prevented from drawing on unused capacity under certain credit agreements
if the contingent requirements were to be triggered. The most significant consequences resulting from these contingent requirements are detailed in the discussion below.
PNM's master purchase agreement for the procurement of gas for its retail customers contains a contingent requirement that could require PNM to provide security for its gas purchase obligations if the seller were to reasonably believe that PNM was unable to fulfill its payment obligations under the agreement.
The master agreement for the sale of electricity in the Western Systems Power Pool ("WSPP") contains a contingent requirement that could require PNM to provide security if its debt were to fall below investment grade rating. The WSPP agreement also contains a contingent requirement, commonly called a material adverse change ("MAC") provision, which could require PNM to provide security if a material adverse change in its financial condition or operations were to occur.
PNM's committed Credit Facility contains a "ratings trigger," for pricing purposes only. If PNM is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost, respectively. PNM's committed Credit Facility contains a MAC provision which, if triggered, could prevent PNM from drawing on its unused capacity under the Credit Facility. In addition, the Credit Facility contains a contingent requirement that requires PNM to maintain a debt-to-capital ratio, inclusive of off-balance sheet debt, of less than 65% as well as maintenance of an earnings before interest, taxes, depreciation and amortization ("EBITDA")/interest coverage ratio of three times. If PNM's debt-to-capital ratio, inclusive of off-balance sheet debt, were to exceed 65% or its interest coverage ratio falls below 3.0, PNM could be required to repay all borrowings under the Credit Facility, be prevented from drawing on the unused capacity under the Credit Facility, and be required to provide security for all outstanding letters of credit issued under the Credit Facility.
If a contingent requirement were to be triggered under the Credit Facility resulting in an acceleration of the outstanding loans under the Credit Facility, a cross-default provision in the PVNGS leases could occur if the accelerated amount is not paid. If a cross-default provision is triggered, the lessors have the ability to accelerate their rights under the leases, including acceleration of all future lease payments.
Financing Activities
Pursuant to PRC approval, on September 9, 2003, PNM issued and sold $300.0 million aggregate principal amount of its senior unsecured notes with a 4.40% interest rate that mature September 15, 2008. The transaction closed on September 17, 2003 and the proceeds were used to retire $268.4 million of long-term debt that would otherwise have matured in August 2005, pay the transaction costs, and improve working capital. All other long-term debt of PNM matures in 2016 or later. The premium paid to refinance the long-term debt was $23.9 million of which $16.6 million was charged against earnings based on prior regulatory agreements. The remaining balance was capitalized as loss on reacquired debt and will be amortized over the life of the new debt.
On May 13, 2003, the Company priced $182.0 million of tax exempt pollution control bonds. The bonds were priced at an initial interest rate of 2.75%. The bond sale closed on May 23, 2003. By April 1, 2004, $146.0 million of bonds will need to be remarketed and $36.0 million of bonds will need to be remarketed by July 1, 2004. A portion of the proceeds were used to redeem the $46.0 million of pollution control bonds, which became callable on December 15, 2002. The remaining $136.0 million was used to redeem $136.0 million of pollution control bonds in August 2003. The Company had previously entered into various forward swaps in 2001 and 2002, to hedge the interest rate on the refinancing (see Note 6 - "Fair Value of Financial Instruments - Forward Starting Interest Rate Swaps" in the Notes to Consolidated Financial Statements).
The Company could enter into other long-term financings or hedging transactions for the purpose of strengthening its balance sheet, funding growth and reducing its cost of capital. The Company continues to evaluate its investment and debt retirement options to optimize its financing strategy and earnings potential. No additional first mortgage bonds may be issued under PNM's mortgage. The amount of SUNs that may be issued is not limited by the SUNs indenture. However, debt-to-capital requirements in certain of PNM's financial instruments and regulatory agreements would ultimately limit the amount of additional debt PNM would issue.
Dividends
The Holding Company's board of directors regularly reviews the dividend policy. The declaration of common dividends is dependent upon a number of factors including the ability of the Holding Company's subsidiaries to pay dividends. Currently, PNM is the Holding Company's primary source of dividends. As part of the order approving the formation of the Holding Company, the PRC placed certain restrictions on the ability of PNM to pay dividends to the Holding Company. PNM cannot pay dividends that will cause its debt rating to go below investment grade. PNM also cannot pay dividends in any year, as determined on a rolling four-quarter basis, in excess of net earnings for that year without prior PRC approval. PNM has dividended all eligible amounts under the pre-2003 agreement to its parent. In January 2003, with the signing of the Global Electric Agreement, the PRC modified the PNM dividend restriction to allow PNM to dividend earnings as well as equity contributions made by the Holding Company back to the Holding Company. Additionally, PNM has various financial covenants, which limit the transfer of assets, whether through dividends or other means.
In addition, the ability of the Holding Company to declare dividends is dependent upon the extent to which cash flows will support dividends, the availability of earnings, its financial circumstances and performance, the effect of regulatory decisions and legislative activities, future growth plans, the related capital requirements, standard business considerations and market and economic conditions generally.
Consistent with the PRC's holding company order, PNM paid dividends of $49.6 million to the Holding Company for the year ended December 31, 2003.
On February 17, 2004, the Holding Company's board of directors approved a 4.3% increase in the common stock dividend. The increase raised the quarterly dividend to $0.24 per share, for an indicated annual dividend of $0.96 per share.
Capital Structure
The Company's capitalization, including current maturities of long-term debt, is shown below:
December 31,
2003 2002
--------------- --------------
Common Equity...................... 51.9% 49.5%
Preferred Stock.................... 0.6 0.7
Long-term Debt..................... 47.5 49.8
--------------- --------------
Total Capitalization*........... 100.0% 100.0%
=============== ==============
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* Total capitalization does not include as debt the present value of PNM's operating lease obligations for PVNGS Units 1 and 2, EIP and the Delta operating lease which was $179.4 million as of December 31, 2003 and $195.8 million as of December 31, 2002.
OTHER ISSUES FACING THE COMPANY
See Note 13 - "Commitments and Contingencies" in the Notes to Consolidated Financial Statements.
NEW AND PROPOSED ACCOUNTING STANDARDS
See Note 18 - "New and Proposed Accounting Standards" in the Notes to Consolidated Financial Statements.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Statements made in this filing that relate to future events or the Company's expectations, projections, estimates, intentions, goals, targets and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and are subject to risk and uncertainties. The Company assumes no obligation to update this information.
Because actual results may differ materially from expectations, projections, estimates, goals and targets, the Company cautions readers not to place undue reliance on these forward-looking statements. Future financial results will be affected by a number of factors, including interest rates, weather, fuel costs, changes in supply and demand in the market for electric power, wholesale power prices, market liquidity, the competitive environment in the electric and natural gas industries, the performance of generating units and transmission system, state and federal regulatory and legislative decisions and actions, the recoverability of regulatory assets, the outcome of legal proceedings, changes in applicable accounting principles and the performance of state, regional and national economies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company uses derivative financial instruments to manage risk as it relates to changes in natural gas and electric prices, changes in interest rates and, historically, adverse market changes for investments held by the Company's various trusts. Additionally, the Company uses derivative instruments based on certain financial composite indices as part of its enhanced cash management program. The Company also uses certain derivative instruments for wholesale power marketing transactions in order to take advantage of favorable price movements and market timing activities in the wholesale power markets. The following additional information is provided.
Risk Management
The Company controls the scope of its various forms of risk through a comprehensive set of policies and procedures and oversight by senior level management and the Holding Company Board of Directors. The Board's Finance Committee sets the risk limit parameters. The Risk Management Committee ("RMC"), comprised of corporate and business segment officers and other managers, oversees all of the activities, which include commodity price, credit, equity, interest rate and business risks. The RMC has oversight for the ongoing evaluation of the adequacy of the risk control organization and policies. The Company has a risk control organization, headed by the Director of Financial Risk Management ("Risk Manager"), which is assigned responsibility for establishing and enforcing the policies, procedures and limits and evaluating the risks inherent in proposed transactions, on an enterprise-wide basis.
The RMC's responsibilities specifically include: establishment of a general policy regarding risk exposure levels and activities in each of the business segments; recommendation of the types of instruments permitted; authority to establish a general policy regarding counterparty exposure and limits; authorization and delegation of transaction limits; review and approval of controls and procedures; review and approval of models and assumptions used to calculate mark-to-market and risk exposure; authority to approve and open brokerage and counterparty accounts; review of hedging and risk activities; and quarterly reporting to the Finance Committee and the Board of Directors on these activities.
The RMC also proposes Value at Risk ("VAR") limits to the Finance Committee. The Finance Committee ultimately sets the aggregate VAR limits.
It is the responsibility of each business segment to create its own
control procedures and policies within the parameters established by the Finance
Committee. The RMC reviews and approves these policies, which are created with
the assistance of the Corporate Controller, Director of Internal Audit and the
Risk Manager. Each business segment's policies address the following controls:
authorized risk exposure limits; authorized instruments and markets; authorized
personnel; policies on segregation of duties; policies on mark-to-market
accounting; responsibilities for deal capture; confirmation procedures;
responsibilities for reporting results; statement on the role of derivative
transactions; and limits on individual transaction size (nominal value).
To the extent an open position exists, fluctuating commodity prices can impact financial results and financial position, either favorably or unfavorably. As a result, the Company cannot predict with certainty the impact that its risk management decisions may have on its businesses, operating results or financial position.
Commodity Risk
Marketing and procurement of energy often involves market risks associated with managing energy commodities and establishing open positions in the energy markets, primarily on a short-term basis. These risks fall into three different categories: price and volume volatility, credit risk of counterparties and adequacy of the control environment. PNM routinely enters into forward contracts and options to hedge purchase and sale commitments, fuel requirements and to enhance returns and minimize the risk of market fluctuations on the Wholesale Operations.
The Company's Wholesale Operations, including long-term contracts, forward sales and short-term sales, are managed through a net asset-backed marketing strategy, whereby PNM's aggregate net open forward contract position is covered by its forecasted excess generation capabilities. PNM is exposed to market risk if its generation capabilities were disrupted or if its retail load requirements were greater than anticipated. If PNM were required to cover all or a portion of its net open contract position, it would have to meet its commitments through market purchases.
Under the derivative accounting rules and the related accounting rules for energy contracts, the Company accounts for its various financial derivative instruments for the purchase and sale of energy differently based on management's intent when entering into the contract. Energy contracts which meet the definition of a derivative under SFAS 133 and do not qualify for a normal purchase or sale designation are recorded on the balance sheet at fair market value at each period end. The changes in fair market value are recognized in earnings unless specific hedge accounting criteria are met. Should an energy transaction qualify as a hedge under SFAS 133, fair market value changes from year to year are recognized on the balance sheet with a corresponding charge to other comprehensive income. Gains or losses are recognized when the hedged transaction settles. Derivatives that meet the normal sales and purchases exceptions within SFAS 133 as amended, are not marked to market but rather recorded in results of operations when the underlying transaction settles.
(Intentionally left blank)
The following table shows the net fair value of mark-to-market energy contracts included in the balance sheet:
December 31,
2003 2002
------------- -------------
(In thousands)
Mark-to-Market Energy Contracts:
Current asset...................................... $ 2,098 $ 4,531
Long-term asset.................................... 1,359 267
------------- -------------
Total mark-to-market assets................... 3,457 4,798
------------- -------------
Current liability.................................. (1,941) (5,725)
Long-term liability................................ (1,083) -
------------- -------------
Total mark-to-market liabilities.............. (3,024) (5,725)
------------- -------------
Net fair value of mark-to-market energy contracts.... $ 433 $(927)
============= =============
|
The mark-to-market energy portfolio positions represent net assets at December 31, 2003 and represent net liabilities at December 31, 2002 after netting all applicable open purchase and sale contracts.
The market prices used to value PNM's mark-to-market energy portfolio are based on closing exchange prices and broker quotations. As of December 31, 2003 and December 31, 2002, PNM did not have any outstanding contracts that were valued using methods other than quoted prices. The Company did not change its methods for valuing its mark-to-market energy portfolio in 2003 as compared to 2002.
The following table provides detail of changes in the Company's mark-to-market energy portfolio net asset or liability balance sheet position from one period to the next:
Twelve Months Ended
December 31,
2003 2002
--------------- -------------
(In thousands)
Sources of Fair Value Gain/(Loss)
Fair value at beginning of year.............. $ (927) $(30,440)
Amount realized on contracts delivered
during period............................. (2,113) 26,336
Changes in fair value........................ 3,473 3,177
--------------- -------------
Net fair value at end of period.............. $ 433 $ (927)
=============== =============
Net change recorded as mark-to-market........ $ 1,360 $29,513
=============== =============
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The following table provides the maturity of the net assets/(liabilities) of the Company, giving an indication of when these mark-to-market amounts will settle and generate/(use) cash. The following values were determined using broker quotes:
Fair Value at December 31, 2003
Maturities
------------------------------------------------------
Less than
1 year 1-3 Years Total
------------------ --------------- ----------------
(In thousands)
$ 157 $ 276 $ 433
|
As of December 31, 2003, a decrease in market pricing of PNM's mark-to-market energy portfolio by 10% would have resulted in a decrease in net earnings of less than 1%. Conversely, an increase in market pricing of this portfolio by 10% would have resulted in an increase in net earnings of less than 1%.
The Company assesses the risk of these long-term contracts and wholesale sales activities using the VAR method to maintain the Company's total exposure within management-prescribed limits. The Company utilizes the variance/covariance model of VAR, which is a probabilistic model that measures the risk of loss to earnings in market sensitive instruments. The variance/covariance model relies on statistical relationships to analyze how changes in different markets can affect a portfolio of instruments with different characteristics and market exposure. VAR models are relatively sophisticated. The quantitative risk information, however, is limited by the parameters established in creating the model. The instruments being evaluated may trigger a potential loss in excess of calculated amounts if changes in commodity prices exceed the confidence level of the model used. The VAR methodology employs the following critical parameters: volatility estimates, market values of open positions, appropriate market-oriented holding periods and seasonally adjusted correlation estimates. The Company's portfolio VAR calculation considers the Company's forward position for the preceding eighteen months. The mark-to-market VAR is calculated through the contract periods. The Company uses a holding period of three days as the estimate of the length of time that will be needed to liquidate the positions. The volatility and the correlation estimates measure the impact of adverse price movements both at an individual position level as well as at the total portfolio level. The two-tailed confidence level established is 99%. For example, if VAR is calculated at $10.0 million, it is estimated at a 99% confidence level that if prices move against PNM's positions, the Company's pre-tax gain or loss in liquidating the portfolio would not exceed $10.0 million in the three days that it would take to liquidate the portfolio.
The Company's VAR is regularly monitored by the Company's RMC. The RMC has put in place procedures to ensure that increases in VAR are reviewed and, if deemed necessary, acted upon to reduce exposures. The VAR represents an estimate of the potential gains or losses that could be recognized on PNM's wholesale power marketing portfolios given current volatility in the market, and is not necessarily indicative of actual results that may occur, since actual future gains and losses will differ from those estimated. Actual gains and losses may differ due to actual fluctuations in market rates, operating exposures, and the timing thereof, as well as changes to PNM's wholesale power marketing portfolios during the year.
The Company accounts for the sale of electric generation in excess of its retail needs or the purchase of power for retail needs as normal purchases and sales under SFAS 133. Transactions that do not meet the normal purchase or sale exception or the definition of a hedge under SFAS 133 are accounted for as energy marketing contracts and comprise PNM's mark-to-market portfolio. The VAR for the mark-to-market portfolio was $56 thousand at December 31, 2003. The Company also calculates a portfolio VAR for the preceding 18 months, which in addition to its mark-to-market portfolio includes all contracts designated as normal sales and purchases, hedges, and its estimated excess generation assets. This excess is determined using average peak forecasts for the respective block of power in the forward market. The Company's portfolio VAR was $9.2 million at December 31, 2003.
The following table shows the high, average and low market risk as measured by VAR on the Company's mark-to-market portfolio:
Twelve Months Ended
December 31, 2003
Period
High Average Low End
---------- ------------ ------------ -----------
(In thousands)
Three day holding period, 99%
two-tailed confidence level.......... $ 727 $ 122 $ 1 $56
One day holding period, 99%
two-tailed confidence level.......... $ 420 $ 70 $ - $32
Ten day holding period, 95%
two-tailed confidence level.......... $1,012 $ 170 $ 1 $78
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Credit Risk
PNM is exposed to credit losses in the event of non-performance or non-payment by counterparties. The Company uses a credit management process to assess and monitor the financial conditions of counterparties. Credit exposure is also regularly monitored by the RMC. The Company provides for losses due to market and credit risk. PNM's credit risk with its largest counterparty as of December 31, 2003 was $23.5 million.
The following table provides information related to PNM's credit exposure as of December 31, 2003. The Company does not hold any credit collateral as of December 31, 2003. The table further delineates that exposure by the credit worthiness (credit rating) of the counterparties and provides guidance as to the concentration of credit risk to individual counterparties PNM may have. Also provided is an indication of the maturity of a company's credit risk by credit ratings of the counterparties.
Schedule of Wholesale Operations Credit Risk Exposure December 31, 2003
(b) Net
Net Number of Exposure of
Credit Counter- Counter-
Risk parties parties
Rating (a) Exposure >10% >10%
---------------------------------- ------------ ---------- -------------
(Dollars in thousands)
Investment grade.................. $46,799 2 $23,536
Non-investment grade.............. 162 - -
Split rating...................... 43 - -
Internal ratings
Investment grade............... 71 - -
Non-investment grade........... 18,678 1 7,055
------------ -------------
Total..................... $65,753 $30,591
============ =============
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(a) Rating - Included in "Investment Grade" are counterparties with a minimum S&P rating of BBB- or Moody's rating of Baa3. If the counterparty has provided a guarantee by a higher rated entity (e.g., its parent), determination is based on the rating of its guarantor. The "Internal Ratings - Investment Grade" includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company's credit policy.
(b) The Net Credit Risk Exposure is the net credit exposure to PNM from its Wholesale Operations. This includes long-term contracts, forward sales and short-term sales. The exposure captures the net amounts due to PNM from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses (pursuant to contract terms). Exposures are offset according to legally binding netting arrangements and reduced by credit collateral. Credit collateral includes cash deposits, letters of credit and performance bonds received from counterparties. Amounts are presented before those reserves that are determined on a portfolio basis.
Maturity of Credit Risk Exposure As of December 31, 2003
Less than Total Net
Rating 2 Years 2-5 Years Exposure
--------------------------- -------------- -------------- --------------
(In thousands)
Investment grade........... $34,795 $12,004 $46,799
Non-investment grade....... 162 - 162
Split rating............... 43 - 43
Internal ratings
Investment grade........ 71 - 71
Non-investment grade.... 18,678 - 18,678
-------------- -------------- --------------
Total.............. $53,749 $12,004 $65,753
============== ============== ==============
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Natural Gas Supply Contracts
PNM hedges certain portions of natural gas supply contracts in order to protect its retail customers from adverse price fluctuations in the natural gas market. The financial impact of all hedge gains and losses, including the related costs of the program, is recoverable through the purchased gas adjustment clause. As a result, earnings are not affected by gains and losses generated by these instruments.
Interest Rate Risk
As of December 31, 2003 the Company had liquidated its investment portfolio of fixed-rate government obligations and corporate securities.
PNM has long-term debt which subjects it to the risk of loss associated with movements in market interest rates. The majority of the Company's long-term debt is fixed-rate debt, and therefore, does not expose the Company's earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of all long-term debt instruments would increase by approximately 3.25% or $33.2 million if interest rates were to decline by 50 basis points from their levels at December 31, 2003. As of December 31, 2003, the fair value of PNM's long-term debt was $1,029 million as compared to a book-value of $987 million. In general, an increase in fair value would impact earnings and cash flows if PNM were to re-acquire all or a portion of its debt instruments in the open market prior to their maturity.
During the twelve months ended December 31, 2003, PNM contributed cash of $20.0 million and approximately $28.9 million in Holding Company common shares for plan year 2002 and 2003 to the trust for the Company's pension plan. In addition, the Company contributed cash of approximately $6.2 million to other post retirement benefits for plan year 2003. The securities held by the trusts had an estimated fair value of $563.7 million as of December 31, 2003, of which approximately 29% were fixed-rate debt securities that subject the Company to
risk of loss of fair value with movements in market interest rates. If rates were to increase by 50 basis points from their levels at December 31, 2003, the decrease in the fair value of the securities would be 2.8% or $4.6 million. PNM does not currently recover or return through rates any losses or gains on these securities. The Company, therefore, is at risk for shortfalls in its funding of its obligations due to investment losses. The Company does not believe that long-term market returns over the period of funding will be less than required for the Company to meet its obligations. However, this belief is based on assumptions about future returns that are inherently uncertain.
Equity Market Risk
PNM contributes to trusts established to fund its share of the decommissioning costs of PVNGS and pension and other post-retirement benefits. The trusts hold certain equity securities as of December 31, 2003. These equity securities also expose the Company to losses in fair value. Approximately 63% of the securities held by the various trusts were equity securities as of December 31, 2003. The Company is currently implementing a change in the asset allocation in the pension portfolio, which will reduce the domestic equity exposure from 55% to 47.5%. Similar to the debt securities held for funding decommissioning and certain pension and other post-retirement costs, PNM does not recover or earn a return through rates on any losses or gains on these equity securities.
In 2001, the Company implemented an enhanced cash management strategy using derivative instruments based on the S&P 100, S&P 500, and Nasdaq composite indices. The strategy is designed to capitalize on high market volatility or benefit from market direction. An investment manager is utilized to execute the program. The risk related to the program is carefully managed by the RMC and has VAR and stop-loss limits established. Trades are typically closed-out before the end of a reporting period and within the same day of execution. In January 2004, the Company terminated the use of this derivative trading strategy for the enhanced cash management program.
(Intentionally left blank)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
Management's Responsibility for Financial Statements..................... F-1
Independent Auditors' Report (PNM Resources, Inc.)....................... F-3
Independent Auditors' Report (Public Service Company of New Mexico)...... F-4
Financial Statements:
PNM Resources, Inc. and Subsidiaries
Consolidated Statements of Earnings............................... F-5
Consolidated Statements of Retained Earnings...................... F-6
Consolidated Balance Sheets....................................... F-7
Consolidated Statements of Cash Flows............................. F-9
Consolidated Statements of Capitalization......................... F-11
Consolidated Statements of Comprehensive Income (Loss)............ F-12
Public Service Company of New Mexico and Subsidiaries
Consolidated Statements of Earnings............................... F-13
Consolidated Statements of Retained Earnings...................... F-14
Consolidated Balance Sheets....................................... F-15
Consolidated Statements of Cash Flows............................. F-17
Consolidated Statements of Capitalization......................... F-19
Consolidated Statements of Comprehensive Income (Loss)............ F-20
Notes to Consolidated Financial Statements............................ F-21
Supplementary Data:
Quarterly Operating Results........................................... F-89
Independent Auditors' Report on Schedules............................. F-91
Schedule I Condensed Financial Information of Parent Company.......... F-91
Schedule II Valuation and Qualifying Accounts......................... F-95
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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying financial statements of PNM Resources, Inc. and its subsidiaries and Public Service Company of New Mexico and its subsidiaries, a wholly owned subsidiary of PNM Resources, Inc., have been prepared in conformity with accounting principles generally accepted in the United States of America.
The integrity and objectivity of data in these financial statements and accompanying notes, including estimates and judgments related to matters not concluded by year-end, are the responsibility of management as is all other information in this Annual Report. Management devotes ongoing attention to review and appraisal of its system of internal controls. This system is designed
to provide reasonable assurance, at an appropriate cost, that PNM Resources, Inc.'s and Public Service Company of New Mexico's assets are protected, that transactions and events are recorded properly and that financial reports are reliable. The system is augmented by a staff of corporate auditors; careful attention to selection and development of qualified financial personnel; and programs to further timely communication and monitoring of policies, standards and delegated authorities.
The Audit and Ethics Committee of the Board of Directors of PNM Resources, Inc., composed entirely of outside directors who meet the independence criteria established by the NYSE, meets regularly with the financial managers, the corporate auditors and the independent auditors to review the work of each. The independent auditors and corporate auditors have free access to the Committee, without management representatives present, to discuss the results of their audits and their comments on the adequacy of internal controls and the quality of financial reporting.
(Intentionally left blank)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of PNM Resources, Inc.
We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of PNM Resources, Inc. and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of earnings, retained earnings, comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003. As discussed in Note 9 to the consolidated financial statements, during 2003, the Company changed the actuarial valuation measurement date for the pension plan and other post-retirement benefit plans from September 30 to December 31.
/s/ DELOITTE & TOUCHE LLP Omaha, Nebraska March 8, 2004 |
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Public Service Company of New Mexico
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Public Service Company of New Mexico and
subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related
consolidated statements of earnings, retained earnings, comprehensive income
(loss), and cash flows for each of the three years in the period ended December
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003. As discussed in Note 9 to the consolidated financial statements, during 2003, the Company changed the actuarial valuation measurement date for the pension plan and other post-retirement benefit plans from September 30 to December 31.
/s/ DELOITTE & TOUCHE LLP Omaha, Nebraska March 8, 2004 |
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
--------------------------------------------------
2003 2002 2001
--------------- --------------- ---------------
(In thousands, except per share amounts)
Operating Revenues: (notes 1 and 2)
Electric.............................................. $ 1,097,136 $ 839,884 $ 1,881,375
Gas................................................... 358,267 277,406 371,265
Other................................................. 311 1,404 1,538
--------------- --------------- ---------------
Total operating revenues........................... 1,455,714 1,118,694 2,254,178
--------------- --------------- ---------------
Operating Expenses:
Cost of energy sold................................... 802,731 499,751 1,438,646
Administrative and general............................ 158,706 146,231 155,392
Energy production costs............................... 140,584 149,528 152,455
Depreciation and amortization......................... 115,649 102,409 96,936
Transmission and distribution costs................... 60,070 63,870 69,001
Taxes, other than income taxes........................ 31,310 34,244 30,302
Income taxes (notes 1 and 8).......................... 28,072 20,887 88,769
--------------- --------------- ---------------
Total operating expenses........................... 1,337,122 1,016,920 2,031,501
--------------- --------------- ---------------
Operating income................................... 118,592 101,774 222,677
--------------- --------------- ---------------
Other Income and Deductions (note 16):
Other income.......................................... 52,705 48,360 52,147
Other deductions...................................... (46,153) (12,306) (67,257)
Income tax (expense) benefit (notes 1 and 8)......... 183 (12,144) 7,706
--------------- --------------- ---------------
Net other income and deductions.................... 6,735 23,910 (7,404)
--------------- --------------- ---------------
Earnings before interest charges................... 125,327 125,684 215,273
--------------- --------------- ---------------
Interest Charges:
Interest on long-term debt (note 4)................... 59,429 56,409 62,716
Other interest charges................................ 6,760 5,003 2,124
--------------- --------------- ---------------
Net interest charges............................... 66,189 61,412 64,840
--------------- --------------- ---------------
Preferred Stock Dividend Requirements of Subsidiary..... 586 586 586
--------------- --------------- ---------------
Net Earnings Before Cumulative Effect of Changes in
Accounting Principles................................. 58,552 63,686 149,847
Cumulative Effect of Changes in Accounting Principles
Net of Tax of $23,999 (notes 9, 12 and 17)............ 36,621 - -
--------------- --------------- ---------------
Net Earnings............................................ $ 95,173 $ 63,686 $ 149,847
=============== =============== ===============
Net Earnings per Common Share (note 7):
Basic................................................ $ 2.39 $ 1.63 $ 3.83
Diluted.............................................. $ 2.37 $ 1.61 $ 3.77
=============== =============== ===============
Dividends Paid per Share of Common Stock................ $ 0.91 $ 0.86 $ 0.80
=============== =============== ===============
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The accompanying notes are an integral part of these financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31,
--------------------------------------------------
2003 2002 2001
--------------- --------------- ---------------
(In thousands)
Balance at Beginning of Year............................ $ 444,651 $ 415,388 $ 296,843
Net earnings.......................................... 95,173 63,686 149,847
Dividends (note 4):
Common stock....................................... (36,755) (34,423) (31,302)
--------------- --------------- ---------------
Balance at End of Year.................................. $ 503,069 $ 444,651 $ 415,388
=============== =============== ===============
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The accompanying notes are an integral part of these financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
As of December 31,
-------------------------------
2003 2002
--------------- -------------
(In thousands)
Utility Plant: (notes 1, 11 and 13)
Electric plant in service................................................... $2,419,162 $2,301,673
Gas plant in service........................................................ 630,949 615,907
Common plant in service and plant held for future use....................... 48,735 79,987
--------------- -------------
3,098,846 2,997,567
Less accumulated depreciation and amortization.............................. 1,063,645 1,102,443
--------------- -------------
2,035,201 1,895,124
Construction work in progress............................................... 133,317 173,248
Nuclear fuel, net of accumulated amortization of $15,995 and $16,568........ 25,917 26,832
--------------- -------------
Net utility plant........................................................ 2,194,435 2,095,204
--------------- -------------
Other Property and Investments:
Investment in lessor notes (notes 5 and 6).................................. 330,339 350,479
Other investments (notes 1 and 6)........................................... 114,273 92,225
Non-utility property, net of accumulated depreciation of $1,755 and $1,750.. 1,455 1,528
--------------- -------------
Total other property and investments..................................... 446,067 444,232
--------------- -------------
Current Assets:
Cash and cash equivalents................................................... 12,694 3,702
Accounts receivables, net of allowance for uncollectible accounts
of $9,284 and $15,575................................................... 68,258 46,914
Unbilled revenues (note 1).................................................. 82,899 88,438
Other receivables........................................................... 47,042 53,052
Inventories (note 1)........................................................ 40,799 37,230
Regulatory assets (note 3).................................................. 15,436 1,061
Short-term investments (notes 1 and 6)...................................... - 79,630
Other current assets........................................................ 38,835 32,753
--------------- -------------
Total current assets..................................................... 305,963 342,780
--------------- -------------
Deferred charges:
Regulatory assets (note 3).................................................. 215,416 196,283
Prepaid retirement cost (note 9)............................................ 85,782 39,665
Other deferred charges...................................................... 130,966 129,063
--------------- -------------
Total deferred charges................................................... 432,164 365,011
--------------- -------------
$3,378,629 $3,247,227
=============== =============
|
The accompanying notes are an integral part of these financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
As of December 31,
-------------------------------
2003 2002
--------------- --------------
(In thousands)
Capitalization:
Common stockholders' equity:
Common stock outstanding 40,259 and 39,118 shares, no par value (note 4).. $ 647,722 $ 624,119
Accumulated other comprehensive loss, net of tax (note 1)................. (73,487) (94,721)
Retained earnings......................................................... 503,069 444,651
--------------- --------------
Total common stockholders' equity...................................... 1,077,304 974,049
Minority interest (notes 1 and 5)........................................... - 11,760
Cumulative preferred stock without mandatory redemption
requirements (note 4)..................................................... 12,800 12,800
Long-term debt (note 4)..................................................... 987,210 980,092
--------------- --------------
Total capitalization..................................................... 2,077,314 1,978,701
--------------- --------------
Current Liabilities:
Short-term debt............................................................. 125,918 150,000
Accounts payable............................................................ 86,155 90,355
Accrued interest and taxes (notes 1 and 8).................................. 23,477 46,189
Other current liabilities................................................... 110,031 99,019
--------------- --------------
Total current liabilities................................................ 345,581 385,563
--------------- --------------
Deferred Credits:
Accumulated deferred income taxes (notes 1 and 8)........................... 250,098 139,732
Accumulated deferred investment tax credits (notes 1 and 8)................. 38,462 41,583
Regulatory liabilities (note 3)............................................. 316,384 279,952
Asset retirement obligations (note 12)...................................... 46,416 -
Minimum pension liability................................................... 128,825 141,175
Accrued post-retirement benefit cost (note 9)............................... 20,638 17,335
Other deferred credits (note 14)............................................ 154,911 263,186
--------------- --------------
Total deferred credits................................................... 955,734 882,963
--------------- --------------
Commitments and Contingencies (note 13)....................................... - -
--------------- --------------
$3,378,629 $3,247,227
=============== ==============
|
The accompanying notes are an integral part of these financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------------------
2003 2002 2001
-------------- -------------- --------------
(In thousands)
Cash Flows From Operating Activities:
Net earnings................................................... $ 95,173 $ 63,686 $149,847
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization.............................. 144,854 115,415 106,768
Allowance for equity funds used during construction........ (2,589) - -
Accumulated deferred income tax............................ 90,175 44,138 (36,066)
Transition costs write-off................................. 16,720 - -
Loss on reacquired debt.................................... 16,576 - -
Cumulative effect of a change in accounting principle...... (60,620) - -
Asset write-offs........................................... - 4,817 36,496
Merger costs............................................... - (2,436) 17,975
Net unrealized losses on trading and investment contracts.. (1,360) (29,513) 26,172
Wholesale credit reserve................................... (2,433) - (5,406)
Other, net................................................. - 2,083 (4,297)
Changes in certain assets and liabilities:
Accounts receivables..................................... (21,344) 2,830 36,297
Unbilled revenues........................................ 5,539 3,936 22,765
Accrued post-retirement benefit costs.................... (14,962) (18,986) 2,873
Other assets............................................. (5,972) (41,152) 17,841
Accounts payable......................................... (7,317) 34,597 (91,378)
Accrued interest and taxes............................... (22,712) (25,833) 35,133
Other liabilities........................................ (1,036) (56,223) 12,326
-------------- -------------- --------------
Net cash flows from operating activities............... 228,692 97,359 327,346
-------------- -------------- --------------
Cash Flows From Investing Activities:
Utility plant additions........................................ (167,701) (229,629) (253,899)
Nuclear fuel additions......................................... (9,503) (10,596) (10,945)
Redemption of available-for-sale investments................... 80,291 76,633 (150,000)
Combustion turbine payments.................................... (11,136) (29,975) -
Bond purchase.................................................. (6,675) (5,572) -
Return of principal PVNGS lessor notes......................... 18,360 17,531 16,674
Merger acquisition costs....................................... - - (11,567)
Other.......................................................... (5,203) (18,819) 2,723
-------------- -------------- --------------
Net cash flows from investing activities............... (101,567) (200,427) (407,014)
-------------- -------------- --------------
|
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------------------
2003 2002 2001
-------------- -------------- --------------
(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net (note 4)............ (24,082) 115,000 35,000
Long-term debt borrowings................................... 483,882 - -
Long-term debt repayments................................... (476,572) - -
Premium on long-term debt refinancing....................... (23,905) - -
Refund costs of pollution control bonds..................... (31,427) - -
Exercise of employee stock options (note 10)................ (9,639) (2,412) (2,179)
Dividends paid.............................................. (36,702) (34,226) (31,876)
Other....................................................... 312 - (560)
-------------- -------------- --------------
Net cash flows from financing activities........ (118,133) 78,362 385
-------------- -------------- --------------
Increase (Decrease) in Cash and Cash Equivalents.............. 8,992 (24,706) (79,283)
Beginning of Year............................................. 3,702 28,408 107,691
-------------- -------------- --------------
End of Year................................................... $ 12,694 $ 3,702 $ 28,408
============== ============== ==============
Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest.................. $ 69,046 $ 53,041 $ 62,216
============== ============== ==============
Income taxes paid (refunded), net........................... $(23,154) $ 13,541 $ 72,146
============== ============== ==============
Non Cash Transactions:
Long-term debt assumed for transmission line................ $ - $ 26,152 $ -
============== ============== ==============
Pension contribution of PNM Resources, Inc. common shares... $ 28,950 $ - $ -
============== ============== ==============
|
The accompanying notes are an integral part of these financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
As of December 31,
---------------------------------
2003 2002
--------------- --------------
(In thousands)
Common Stock Equity:
Common Stock, no par value (note 4).................................. $ 647,722 $ 624,119
Accumulated other comprehensive income, net of tax (note 1).......... (73,487) (94,721)
Retained earnings.................................................... 503,069 444,651
--------------- --------------
Total common stock equity........................................ 1,077,304 974,049
--------------- --------------
Minority Interest (notes 1 and 5)........................................ - 11,760
--------------- --------------
Cumulative Preferred Stock: (note 4)
Without mandatory redemption requirements:
1965 Series, 4.58% with a stated value of $100.00 and a
current redemption price of $102.00. Outstanding shares
at December 31, 2003 and 2002 were 128,000...................... 12,800 12,800
--------------- --------------
Long-Term Debt: (note 4)
Issue and Final Maturity
First Mortgage Bonds, Pollution Control Revenue Bonds:
5.7% due 2016................................................... 65,000 65,000
6.375% due 2022................................................. - 46,000
--------------- --------------
Total First Mortgage Bonds 65,000 111,000
--------------- --------------
Senior Unsecured Notes, Pollution Control Revenue Bonds:
6.30% due 2016................................................ 77,045 77,045
5.75% due 2022................................................ 37,300 37,300
5.80% due 2022................................................ 100,000 100,000
6.375% due 2022................................................. 90,000 90,000
6.375% due 2023................................................. - 36,000
6.40% due 2023................................................ - 100,000
6.30% due 2026................................................ 23,000 23,000
6.60% due 2029................................................ 11,500 11,500
2.75% due 2033................................................. 46,000 -
2.75% due 2033................................................. 100,000 -
2.75% due 2038................................................. 36,000 -
--------------- --------------
Total Senior Unsecured Notes, Pollution Control Revenue Bonds... 520,845 474,845
--------------- --------------
Senior Unsecured Notes:
7.10% due 2005.................................................. - 268,420
4.40% due 2008.................................................. 300,000 -
7.50% due 2018.................................................. 100,025 100,025
EIP debt............................................................ - 26,152
Other, including unamortized discounts.............................. 1,340 (350)
--------------- --------------
Total long-term debt........................................ 987,210 980,092
--------------- --------------
Total Capitalization..................................................... $ 2,077,314 $ 1,978,701
=============== ==============
|
The accompanying notes are an integral part of these financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31,
--------------------------------------------
2003 2002 2001
------------- -------------- -------------
(In thousands)
Net Earnings.............................................................. $95,173 $ 63,686 $149,847
------------- -------------- -------------
Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities:
Unrealized holding gains arising during the period,
net of tax expense of $1,256, $853 and $46....................... 1,916 1,303 70
Reclassification adjustment for losses included in net income,
net of tax benefit of $440, $602 and $345........................ (672) (919) (526)
Minimum pension liability adjustment, net of tax expense (benefit)
of $6,284, $(36,085) and $(18,912)............................ 9,589 (55,061) (28,858)
Mark-to-market adjustment for certain derivative transactions:
Initial implementation of SFAS 133 designated cash flow hedges,
net of tax expense of $4,029..................................... - - 6,148
Change in fair market value of designated cash flow hedges,
net of tax expense (benefit) of $6,816, $(6,790) and $226........ 10,401 (10,361) 345
Reclassification adjustment for losses included in net income,
net of tax benefit of $450 and $4,029............................ - (687) (6,148)
------------- -------------- -------------
Total Other Comprehensive Income (Loss)................................... 21,234 (65,725) (28,969)
------------- -------------- -------------
Total Comprehensive Income (Loss)......................................... $116,407 $(2,039) $120,878
============= ============== =============
|
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
--------------------------------------------------
2003 2002 2001
--------------- --------------- ---------------
(In thousands, except per share amounts)
Operating Revenues: (notes 1 and 2)
Electric................................................. $1,097,136 $ 839,884 $1,881,375
Gas...................................................... 358,267 277,406 371,265
Other.................................................... - - 1,538
--------------- --------------- ---------------
Total operating revenues.............................. 1,455,403 1,117,290 2,254,178
--------------- --------------- ---------------
Operating Expenses:
Cost of energy sold...................................... 802,711 498,941 1,438,646
Administrative and general............................... 160,200 140,500 155,392
Energy production costs.................................. 140,584 149,528 152,455
Depreciation and amortization............................ 113,921 101,689 96,936
Transmission and distribution costs...................... 61,169 63,870 69,001
Taxes, other than income taxes........................... 29,670 31,333 30,302
Income taxes (notes 1 and 8)............................. 28,262 22,774 88,769
--------------- --------------- ---------------
Total operating expenses.............................. 1,336,517 1,008,635 2,031,501
--------------- --------------- ---------------
Operating income...................................... 118,886 108,655 222,677
--------------- --------------- ---------------
Other Income and Deductions (note 16):
Other income............................................. 48,755 40,446 52,147
Other deductions......................................... (39,625) (15,059) (67,257)
Income tax (expense) benefit (notes 1 and 8)............ (2,328) (10,096) 7,706
--------------- --------------- ---------------
Net other income and deductions....................... 6,802 15,291 (7,404)
--------------- --------------- ---------------
Earnings before interest charges...................... 125,688 123,946 215,273
--------------- --------------- ---------------
Interest Charges:
Interest on long-term debt (note 4)...................... 59,013 56,409 62,716
Other interest charges................................... 6,697 5,321 2,124
--------------- --------------- ---------------
Net interest charges.................................. 65,710 61,730 64,840
--------------- --------------- ---------------
Net Earnings Before Cumulative Effect of Changes in
Accounting Principles................................... 59,978 62,216 150,433
Cumulative Effect of Changes in Accounting Principles,
Net of tax of $23,999 (notes 9, 12 and 17).............. 36,621 - -
--------------- --------------- ---------------
Net Earnings Before Preferred Stock Dividends.............. 96,599 62,216 150,433
Preferred Stock Dividend Requirements...................... 586 586 586
--------------- --------------- ---------------
Net Earnings............................................... $ 96,013 $ 61,630 $ 149,847
=============== =============== ===============
|
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31,
--------------------------------------------------
2003 2002 2001
--------------- --------------- ---------------
(In thousands)
Balance at Beginning of Year............................. $256,157 $288,388 $296,843
Net earnings before preferred stock dividends.......... 96,599 62,216 150,433
Dividends (note 4):
Cumulative preferred stock.......................... (586) (586) (586)
Common stock........................................ - - (31,302)
Dividends to Parent (note 4):
Assets.............................................. - (34,880) -
Cash................................................ (49,581) (58,981) (127,000)
--------------- --------------- ---------------
Balance at End of Year................................... $302,589 $256,157 $288,388
=============== =============== ===============
|
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
As of December 31,
-------------------------------
2003 2002
-------------- ---------------
(In thousands)
Utility Plant: (notes 1, 11 and 13)
Electric plant in service................................................ $2,419,162 $2,301,048
Gas plant in service..................................................... 630,949 615,907
Common plant in service and plant held for future use.................... 10,997 18,137
-------------- ---------------
3,061,108 2,935,092
Less accumulated depreciation and amortization........................... 1,055,251 1,098,353
-------------- ---------------
2,005,857 1,836,739
Construction work in progress............................................ 120,340 159,435
Nuclear fuel, net of accumulated amortization of $15,995 and $16,568..... 25,917 26,832
-------------- ---------------
Net utility plant..................................................... 2,152,114 2,023,006
-------------- ---------------
Other Property and Investments:
Investment in lessor notes (notes 5 and 6)............................... 330,339 350,479
Other investments (notes 1 and 6)........................................ 91,273 78,344
Non-utility property..................................................... 966 966
-------------- ---------------
Total other property and investments.................................. 422,578 429,789
-------------- ---------------
Current Assets:
Cash and cash equivalents................................................ 11,607 3,094
Accounts receivables, net of allowance for uncollectible accounts
of $9,284 and $15,575............................................... 68,258 46,914
Unbilled revenue (note 1)................................................ 82,899 88,438
Intercompany receivable.................................................. - 4,593
Other receivables........................................................ 45,814 52,783
Inventories (note 1)..................................................... 40,791 37,228
Regulatory assets (note 3)............................................... 15,436 1,061
Other current assets..................................................... 28,089 22,872
-------------- ---------------
Total current assets.................................................. 292,894 256,983
-------------- ---------------
Deferred charges:
Regulatory assets (note 3)............................................... 215,416 196,242
Prepaid retirement cost (note 9)......................................... 85,782 39,665
Other deferred charges................................................... 130,520 129,083
-------------- ---------------
Total deferred charges................................................ 431,718 364,990
-------------- ---------------
$3,299,304 $3,074,768
============== ===============
|
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
As of December 31,
---------------------------------
2003 2002
---------------- ---------------
(In thousands)
Capitalization:
Common Stockholder's Equity:
Common stock outstanding 39,118 shares (note 4)..................... $ 195,589 $ 195,589
Paid-in capital..................................................... 556,608 430,043
Accumulated other comprehensive loss, net of tax (note 1)........... (73,487) (94,130)
Retained earnings................................................... 302,589 256,157
---------------- ---------------
Total common stockholders' equity................................ 981,299 787,659
Minority interest (notes 1 and 5)..................................... - 11,760
Cumulative preferred stock without mandatory redemption
requirements (note 4)............................................... 12,800 12,800
Long-term debt (note 4)............................................... 987,210 953,940
---------------- ---------------
Total capitalization............................................... 1,981,309 1,766,159
---------------- ---------------
Current Liabilities:
Short-term debt....................................................... 124,900 150,000
Intercompany debt..................................................... - 28,436
Accounts payable...................................................... 78,313 88,101
Intercompany accounts payable......................................... 73,571 34,468
Accrued interest and taxes (notes 1 and 8)............................ 8,879 36,450
Other current liabilities............................................. 83,823 87,701
---------------- ---------------
Total current liabilities.......................................... 369,486 425,156
---------------- ---------------
Deferred Credits:
Accumulated deferred income taxes (notes 1 and 8)..................... 246,282 142,520
Accumulated deferred investment tax credits (notes 1 and 8)........... 38,462 41,583
Regulatory liabilities (note 3)....................................... 316,384 279,952
Asset retirement obligations (note 12)................................ 46,416 -
Minimum pension liability............................................. 128,825 141,175
Accrued post-retirement benefit cost (note 9)......................... 20,638 17,335
Other deferred credits (note 14)...................................... 151,502 260,888
---------------- ---------------
Total deferred credits............................................. 948,509 883,453
---------------- ---------------
Commitments and Contingencies (note 13)................................. - -
---------------- ---------------
$ 3,299,304 $ 3,074,768
================ ===============
|
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------------------
2003 2002 2001
-------------- -------------- --------------
(In thousands)
Cash Flows From Operating Activities:
Net earnings.......................................................... $ 96,013 $ 61,630 $149,847
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization..................................... 143,940 114,695 106,768
Allowance for equity funds used during construction............... (2,551) - -
Accumulated deferred income tax................................... 82,799 46,207 (36,066)
Transition costs write-off........................................ 16,720 - -
Loss on reacquired debt........................................... 16,576 - -
Cumulative effect of a change in accounting principle............. (60,620) - -
Asset write-offs.................................................. - 4,817 36,496
Merger costs...................................................... - (2,436) 17,975
Net unrealized (gains) losses on trading and investment contracts. (1,360) (29,513) 26,172
Wholesale credit reserve.......................................... (2,433) - (5,406)
Other, net........................................................ - 3,924 (4,297)
Changes in certain assets and liabilities:
Accounts receivables............................................ (21,344) 2,830 36,297
Unbilled revenues............................................... 5,539 3,936 22,765
Accrued post-retirement benefit costs........................... (14,962) (18,986) 2,873
Other assets.................................................... (3,716) (93,863) 27,792
Accounts payable................................................ (12,905) 30,510 (91,378)
Accrued interest and taxes...................................... (27,572) (35,572) 35,133
Other liabilities............................................... (20,225) (27,785) 11,740
-------------- -------------- --------------
Net cash flows from operating activities.................. 193,899 60,394 336,711
-------------- -------------- --------------
Cash Flows From Investing Activities:
Utility plant additions............................................... (159,322) (209,225) (253,899)
Nuclear fuel additions................................................ (9,503) (10,596) (10,945)
Redemption of available-for-sale investments.......................... - 45,621 (45,000)
Combustion turbine payments........................................... (11,136) (29,975) -
Eastern Interconnect Project buyout................................... (36,925) - -
Return of principal PVNGS lessor notes................................ 18,360 17,531 16,674
Merger acquisition costs.............................................. - - (11,567)
Other................................................................. (3,697) (2,122) 3,392
-------------- -------------- --------------
Net cash flows from investing activities.................. (202,223) (188,766) (301,345)
-------------- -------------- --------------
|
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------------
2003 2002 2001
-------------- ------------- ---------------
(In thousands)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net.................... (25,100) - -
Long-term debt borrowings.................................. 483,780 115,000 35,000
Long-term debt repayments.................................. (450,420) - -
Premium on long-term debt refinancing...................... (23,905) - -
Refund costs of pollution control bonds.................... (31,427) - -
Equity contribution from parent............................ 126,053 - -
Exercise of employee stock options (note 10)............... - - (2,179)
Dividends paid............................................. (49,581) (58,981) (158,302)
Other...................................................... (223) 108 (548)
Change in intercompany accounts............................ (12,340) 58,311 -
-------------- -------------- --------------
Net cash flows from financing activities....... 16,837 114,438 (126,029)
-------------- -------------- --------------
Increase (Decrease) in Cash and Cash Equivalents............. 8,513 (13,934) (90,663)
Beginning of Year............................................ 3,094 17,028 107,691
-------------- -------------- --------------
End of Year.................................................. $ 11,607 $ 3,094 $ 17,028
============== ============== ==============
Supplemental Cash Flow Disclosures:
Interest paid, net of capitalized interest................. $ 67,500 $ 53,350 $ 62,216
============== ============== ==============
Income taxes paid (refunded), net.......................... $ (5,084) $ 9,901 $ 72,146
============== ============== ==============
Non Cash Transactions:
Non-cash dividends to parent............................... $ - $ 34,880 $ -
============== ============== ==============
|
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
As of December 31,
---------------------------------
2003 2002
--------------- ---------------
(In thousands)
Common Stock Equity:
Common stock outstanding, par value $5 per share (note 4).............. $ 195,589 $ 195,589
Paid-in capital........................................................ 556,608 430,043
Accumulated other comprehensive income, net of tax (note 1)............ (73,487) (94,130)
Retained earnings...................................................... 302,589 256,157
--------------- --------------
Total equity....................................................... 981,299 787,659
--------------- --------------
Minority Interest (notes 1 and 5).......................................... - 11,760
--------------- --------------
Cumulative Preferred Stock: (note 4)
Without mandatory redemption requirements:
1965 Series, 4.58% with a stated value of $100.00 and a
current redemption price of $102.00. Outstanding shares
at December 31, 2003 and 2002 were 128,000........................ 12,800 12,800
--------------- --------------
Long-Term Debt: (note 4)
Issue and Final Maturity
First Mortgage Bonds, Pollution Control Revenue Bonds:
5.7% due 2016...................................................... 65,000 65,000
6.375% due 2022.................................................... - 46,000
--------------- --------------
Total First Mortgage Bonds 65,000 111,000
--------------- --------------
Senior Unsecured Notes, Pollution Control Revenue Bonds:
6.30% due 2016.................................................. 77,045 77,045
5.75% due 2022.................................................. 37,300 37,300
5.80% due 2022.................................................. 100,000 100,000
6.375% due 2022................................................... 90,000 90,000
6.375% due 2023................................................... - 36,000
6.40% due 2023.................................................. - 100,000
6.30% due 2026.................................................. 23,000 23,000
6.60% due 2029.................................................. 11,500 11,500
2.75% due 2033................................................... 46,000 -
2.75% due 2033................................................... 100,000 -
2.75% due 2038................................................... 36,000 -
--------------- --------------
Total Senior Unsecured Notes, Pollution Control Revenue Bonds..... 520,845 474,845
--------------- --------------
Senior Unsecured Notes:
7.10% due 2005.................................................... - 268,420
4.40% due 2008..................................................... 300,000 -
7.50% due 2018.................................................... 100,025 100,025
Other, including unamortized discounts................................ 1,340 (350)
--------------- --------------
Total long-term debt.......................................... 987,210 953,940
--------------- --------------
Total Capitalization....................................................... $ 1,981,309 $ 1,766,159
=============== ==============
|
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31,
--------------------------------------------
2003 2002 2001
------------- -------------- -------------
(In thousands)
Net Earnings............................................................. $96,013 $61,630 $149,847
------------- -------------- -------------
Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities:
Unrealized holding gains arising from the period,
net of tax expense of $1,545, $563 and $46...................... 2,357 861 70
Reclassification adjustment for gains included in net income,
net of tax benefit of $440, $602 and $345....................... (672) (919) (526)
Minimum pension liability adjustment, net of tax expense (benefit)
of $6,284, $(36,085) and $(18,912).................................. 9,589 (55,061) (28,858)
Mark-to-market adjustment for certain derivative transactions:
Initial implementation of SFAS 133 designated cash flow hedges,
net of tax expense of $4,029.................................... - - 6,148
Change in fair market value of designated cash flow hedges,
net of tax expense (benefit) of $6,140, $(6,113) and $226....... 9,369 (9,328) 345
Reclassification adjustment for losses included in net income,
net of tax benefit of $450 and $4,029........................... - (687) (6,148)
------------- -------------- -------------
Total Other Comprehensive Income (Loss).................................. 20,643 (65,134) (28,969)
------------- -------------- -------------
Total Comprehensive Income (Loss)........................................ $116,656 $(3,504) $120,878
============= ============== =============
|
The accompanying notes are an integral part of these financial statements.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
(1) Summary of the Business and Significant Accounting Policies
Nature of Business
PNM Resources, Inc. (the "Holding Company") is an investor-owned holding company of energy and energy related businesses. Its principal subsidiary, Public Service Company of New Mexico ("PNM"), is an integrated public utility primarily engaged in the generation, transmission, distribution and sale and marketing of electricity; transmission, distribution and sale of natural gas within the State of New Mexico and the sale and marketing of electricity in the Western United States. The business of PNM constitutes substantially all of the business of Holding Company and its subsidiaries. Therefore, the financial results and results of operations of PNM are virtually identical to the consolidated results of the Holding Company and its subsidiaries. For ease of discussion, these notes may use the term "Company" when referring to PNM or when discussing matters of common applicability to the Holding Company and PNM. In addition, the Holding Company provides energy and utility related services under its wholly-owned subsidiary, Avistar, Inc. ("Avistar").
Upon the completion on December 31, 2001, of a one-for-one share exchange between PNM and the Holding Company, the Holding Company became the parent company of PNM. Prior to the share exchange, the Holding Company had existed as a subsidiary of PNM. The new parent company began trading on the New York Stock Exchange under the same PNM symbol beginning on December 31, 2001.
Presentation
The Notes to Consolidated Financial Statements of the Company are presented on a combined basis. The Holding Company assumed substantially all of the corporate activities of PNM on December 31, 2001. These activities are billed to PNM on a cost basis to the extent they are for the corporate management of PNM and are allocated to the operating segments. In January 2002, Avistar and certain inactive subsidiaries of PNM were transferred by way of a dividend to the Holding Company pursuant to an order from the New Mexico Public Regulation Commission ("PRC"). Readers of the Notes to Consolidated Financial Statements should assume that the information presented applies to the consolidated results of operations and financial position of both the Holding Company and its subsidiaries and PNM, except where the context or references clearly indicate otherwise. Discussions regarding specific contractual obligations generally reference the company that is legally obligated. In the case of contractual obligations of PNM, these obligations are consolidated with the Holding Company and its subsidiaries under generally accepted accounting principles ("GAAP"). Broader operational discussions refer to the Company.
Accounting Principles
The Company maintains its accounting records in accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Commission ("FERC") and the National Association of Regulatory Utility Commissioners, and adopted by the New Mexico Public Regulation Commission ("PRC").
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The Company's accounting policies conform to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). SFAS 71 requires a rate-regulated entity to reflect the effects of certain regulatory decisions in its financial statements. In accordance with SFAS 71, the Company has deferred certain costs and recorded certain liabilities pursuant to the rate actions of the FERC, and the PRC and its predecessor. These "regulatory assets" and "regulatory liabilities" are enumerated and discussed in Note 3.
The Company discontinued the application of SFAS 71 as of December 31, 1999, for the generation portion of its business effective with the passage of the Electric Utility Industry Restructuring Act of 1999 ("Restructuring Act") in accordance with Statement of Financial Accounting Standards No. 101, "Accounting for the Discontinuation of Application of FASB Statement No. 71" ("SFAS 101"). In October 2002, the Company and several other parties signed the Global Electric Agreement that provided for a five-year rate path for the Company's New Mexico jurisdictional customers beginning in September of 2003 (see Note 13 for further discussion). In response to the Global Electric Agreement, the New Mexico Legislature repealed the Restructuring Act. As a result, the Company re-applied SFAS 71 to its generation portion of its business during the first quarter of 2003 as a result of the PRC approving the Global Electric Agreement in January 2003.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and subsidiaries in which it owns a majority voting interest. Corporate administrative and general expenses, which represent costs that are driven primarily by corporate level activities, are allocated to the business segments. There were no other significant intercompany transactions between the Holding Company and PNM in 2003 and 2002, except for the common dividend, consolidation of PVNGS capital trust and minority interest described in Note 5. All significant intercompany transactions and balances have been eliminated.
The Company adopted Statement of Financial Accounting Standards No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 established standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity. Under SFAS 150, issuers are required to classify as liabilities a financial instrument that is within its scope as a liability because that financial instrument embodies an obligation of the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003. The FASB has indefinitely deferred the classification and measurement provisions and adoption of SFAS 150 in relation to limited life entities. Upon adoption, the Company reclassified approximately $10 million from minority interest to other deferred credits on its consolidated balance sheets at December 31, 2003.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Financial Statement Preparation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual recorded amounts could differ from those estimated.
Cash and Cash Equivalents
All liquid investments with maturities of three months or less at the date of purchase are considered cash equivalents.
Utility Plant
Utility plant is stated at cost, which includes capitalized payroll-related costs such as taxes, pension and other fringe benefits, administrative costs, an allowance for funds used during construction and any carrying value adjustment as deemed appropriate.
It is Company policy to charge repairs and minor replacements of property to maintenance expense and to charge major replacements to utility plant. Gains or losses resulting from retirements or other dispositions of regulated property in the normal course of business are credited or charged to the accumulated provision for depreciation.
Allowance For Funds Used During Construction ("AFUDC")
As provided by the uniform systems of accounts, AFUDC is charged to utility plant. AFUDC represents the cost of borrowed funds (allowance for borrowed funds used during construction) and a return on other funds (allowance for equity funds used during construction).
The calculation of AFUDC should be performed if its subsequent inclusion in allowable costs for rate-making purposes is probable. In 2003, PNM recorded $3.9 million of AFUDC on certain construction projects. PNM did not record AFUDC on construction projects in 2002 and 2001.
Capitalized Interest
SFAS 34, "Capitalization of Interest Costs," requires that interest cost be capitalized as part of the historical cost of acquiring certain assets and is calculated using only the cost of borrowing. Under GAAP, interest can only be capitalized on non-SFAS 71 assets. PNM capitalizes interest on its generation projects not included in rate base that are under construction and software
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
costs. The interest cost to be capitalized is theoretically that portion of interest expense that could have been avoided if construction expenditures were not made. The rate used for capitalization is the rate for borrowings specific to the project. If there are no specific borrowings, the weighted average borrowing rate for the Company is used. PNM has not borrowed any funds specifically for any projects; therefore interest was being capitalized at the overall weighted average borrowing rate of 6.4%. PNM's capitalized interest was $1.2 million and $6.4 million in 2003 and 2002, respectively. No interest was capitalized in 2001.
Inventories
Inventory consists principally of materials and supplies, natural gas held in storage for eventual resale, and coal held for use in electric generation.
Generally, materials and supplies include the costs of transmission, distribution and generating plant materials. Materials and supplies are charged to inventory when purchased and are expensed or capitalized as appropriate when issued. Materials and supplies are valued using an average costing method. Obsolete materials and supplies are immediately expensed when identified.
Gas in underground storage is valued using a weighted average inventory method. Withdrawals are charged to sales service customers through the Purchased Gas Adjustment Clause ("PGAC"). Adjustments to gas in underground storage due to migration are charged to the PGAC and are based on a PRC pre-approved percentage of injections.
Coal is valued using a rolling weighted average costing method that is updated based on the current period cost per tons. Periodic aerial surveys are performed and any material adjustments are recorded as identified.
Inventories consisted of the following at December 31, (in thousands).
2003 2002
------------- -------------
Coal................................. $11,282 $12,678
Gas in underground storage........... 4,295 2,001
Materials and supplies............... 25,222 22,551
------------- -------------
$40,799 $37,230
============= =============
|
Investments
The Company's investments are comprised of U.S., state, and municipal government obligations and corporate securities. Investments with maturities of less than one year are considered short-term and are carried at fair value. All investments are held in the Company's name and are in the custody of major financial institutions. The specific identification method is used to determine
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
the cost of securities disposed of, with realized gains and losses reflected in other income and expense. At December 31, 2003 and 2002, all of the Company's investments were classified as available for sale. Unrealized gains and losses on these investments are included in other comprehensive income, net of any related tax effect.
Revenue Recognition
The Company's Utility Operations record electric and gas operating revenues in the period of delivery, which includes estimated amounts for service rendered but unbilled at the end of each accounting period.
The determination of the energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is estimated. Unbilled electric revenue is estimated based on the daily generation volumes, estimated customer usage by class, weather factors, line losses and applicable customer rates based on regression analyses reflecting historical trends and experience.
The Company purchases gas on behalf of sales-service customers while other marketers or producers purchase gas on behalf of transportation-service customers. The Company collects a cost of service revenue for the transportation, delivery, and customer service provided to these customers. Sales-service tariffs are subject to the terms of the PGAC while transportation service customers are metered and billed on the last day of the month. Therefore, the Company estimates unbilled decatherms and records cost of service and PGAC revenues for sales-service customers only.
The Company's Wholesale Operations revenues are recognized in the month the energy is delivered to the customer and are based on the actual amounts supplied to the customer. However, in accordance with the Western Systems Power Pool contract, these revenues are billed in the month subsequent to their delivery. Consequently, wholesale revenues for the last month in any reporting period are unbilled when reported.
These electricity sales are recorded as operating revenues while the electricity purchases are recorded as costs of energy sold. These amounts were recorded on a gross basis, because the Company does not act as an agent or broker for these merchant energy contracts but takes title and has the risks and rewards of ownership. Effective October 1, 2003, non-normal derivative contracts that are net settled or "booked-out" are recorded net in operating revenues. A book-out is the unplanned netting of off-setting purchase and sale transactions. A book-out is a transmission mechanism to reduce congestion on the transmission system or administrative burden (see further discussion in Financial Instruments in this same footnote). Specifically, adopting EITF Issue 03-11 "Reporting Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and Not Held for Trading Purposes" ("EITF 03-11") affected the comparability of 2003 Consolidated
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Financial Statements to those of prior years. The Consolidated Statements of Income for 2002 and 2001 were not reclassified.
The Company enters into merchant energy contracts to take advantage of market opportunities associated with the purchase and sale of electricity. Unrealized gains and losses resulting from the impact of price movements on the Company's derivative energy contracts that are not designated normal purchases and sales or hedges are recognized as adjustments to Wholesale Operations operating revenues. The market prices used to value these transactions reflect management's best estimate considering various factors including closing exchange and over-the-counter quotations, time value and volatility factors underlying the commitments.
Depreciation and Amortization
Provision for depreciation and amortization of utility plant is made based upon rates approved by the PRC. The average rates used are as follows:
2003 2002 2001
----------- ---------- ----------
Electric plant.................. 3.33% 3.42% 3.39%
Gas plant....................... 2.96% 3.02% 3.21%
Common plant.................... 8.38% 7.34% 6.92%
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The provision for depreciation of certain equipment is charged to depreciation expense and allocated to construction projects based on the use of the equipment. Depreciation of non-utility property is computed based on the straight-line method. Amortization of nuclear fuel is computed based on the units of production method.
Decommissioning Costs
Accounting for decommissioning costs for nuclear and fossil-fuel generation involves significant estimates related to costs to be incurred many years in the future after plant closure. Changes in these estimates could significantly impact the Company's financial position, results of operation and cash flows. The Company owns and leases nuclear and fossil-fuel facilities that are within and outside of its retail service areas. The Company adopted the accounting requirements of Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143") on January 1, 2003 (see Note 12). Under SFAS 143, the Company is only required to recognize and measure decommissioning liabilities for tangible long-lived assets for which a legal obligation exists. Adoption of the statement changed the Company's method of accounting for both nuclear generation decommissioning and fossil-fuel generation decommissioning. Nuclear decommissioning costs are based on site-specific estimates of the costs for removing all radioactive and other structures at the site. PVNGS Unit 3 is currently excluded from the Company's retail rates base while Units 1 and 2 are included in the Company's retail rates. The Company collects a provision for ultimate decommissioning of Units 1 and 2 in its rates and recognizes a corresponding expense and liability for
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
these amounts. Fossil-fuel decommissioning costs are also approved by the PRC as a component of the Company's depreciation rates. The Company believes that it will continue to be able to collect for its legal asset retirement obligations for nuclear and fossil-fuel generation activities included in the ratemaking process.
In addition, the Company has a contractual obligation with the PVNGS participants to fund separately the nuclear decommissioning at a level in excess of what the Company has identified as its legal asset retirement obligation under SFAS 143. The contractual funding obligation is based on a site-specific estimate prepared by a third party. The Company's most recent site-specific estimates for nuclear decommissioning costs were developed in 2001, using 2001 cost factors, and are based on prompt dismantlement decommissioning, reflecting the costs of removal discussed above, with such removal occurring shortly after operating license expiration. The Company's share of the contractual funding obligation through the end of the licensing terms is approximately $201 million (measured in 2001 dollars). The estimates are subject to change based on a variety of factors, including cost escalation, changes in technology applicable to nuclear decommissioning and changes in federal, state or local regulations. The operating licenses for PVNGS Units 1, 2 and 3 will expire in 2025, 2026, and 2027, respectively. The Company does not have a similar contractual funding obligation related to its fossil-fuel plants.
Amortization of Debt Acquisition Costs
Discount, premium and expense related to the issuance of long-term debt are amortized over the lives of the respective issues. In connection with the early retirement of long-term debt, such amounts associated with resources subject to PRC regulation are amortized over the lives of the respective issues. Amounts associated with the Company's firm-requirements wholesale customers and its resources excluded from PRC retail rates are recognized immediately as expense or income as they are incurred.
Financial Instruments
Effective January 1, 1999, the Company adopted EITF Issue No. 98-10 which requires that energy trading contracts be marked-to-market (measured at fair value determined as of the balance sheet date with the gains and losses included in earnings).
The Company implemented SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133"), as amended, on January 1, 2001. SFAS 133, as amended, establishes accounting and reporting standards requiring derivative instruments to be recorded in the balance sheet as either an asset or liability measured at their fair value. SFAS 133, as amended, also requires that changes in the derivatives' fair value be recognized currently in earnings unless specific hedge accounting or normal purchase and sale criteria are met. Special accounting for qualifying hedges allows derivative gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
effectiveness of transactions that receive hedge accounting. SFAS 133, as amended, provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument be reported as a component of other comprehensive income and be reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. The results of hedge ineffectiveness and the change in fair value of a derivative that an entity has chosen to exclude from hedge effectiveness are required to be presented in current earnings. All energy contracts marked-to-market under EITF 98-10 were subject to mark-to-market accounting upon adoption of SFAS 133.
On October 25, 2002, the EITF reached a final consensus on EITF 02-3 "Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities", EITF 98-10 "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" and Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") that rescinded EITF 98-10 and required that all energy contracts held for trading purposes be presented on a net margin basis in the statement of earnings. The rescission of EITF 98-10 requires that energy contracts which do not meet the definition of a derivative under SFAS 133 no longer be marked to market and recognized in current earnings. As a result, all contracts which were marked to market under EITF 98-10 and must now be accounted for under the accrual method and written back to cost with any difference included as a cumulative effect of a change in accounting principle in the period of adoption. This transition provision was effective January 1, 2003. The rescission of EITF 98-10 did not have a material impact on the Company's financial condition or results of operations as all contracts previously marked to market under the definition provided in EITF 98-10 also met the definition of a derivative under SFAS 133 and are properly recorded at fair value with gains and losses recorded in earnings. The Company reviewed its energy contract portfolio to determine whether its contracts meet the definition of trading activities under EITF 02-3. As a result, the Company has reclassified those contracts previously accounted for under EITF 98-10 to a net margin basis for the fiscal years ended December 31, 2002 and 2001. The Company will not report revenues and cost of energy sold on a net margin basis on a prospective basis as a result of the application of EITF 02-3 as none of the Company's marketing activities meet the definitions of trading activities as prescribed by EITF 02-3. For the years ended December 31, 2002 and 2001, wholesale purchases of $74.0 million and $89.4 million were netted with electric revenues in the consolidated statement of earnings (see Note 2).
Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149") was effective for all electricity contracts entered into by the Company or modified after June 30, 2003. Under SFAS 149, the Company treats all forward electric purchases and sales contracts subject to unplanned netting or book-out by the transmission provider as derivative instruments subject to mark-to-market accounting, unless the contract qualifies for the normal exception by meeting SFAS 149's definition of a capacity contract. Under this definition, the contract cannot permit net settlement, the seller must have the resources to serve the contract and the buyer must be a load serving entity. Upon adoption, SFAS 149 did not have a material impact on the Company's financial condition or results of operation.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
EITF 03-11 was effective for the Company on October 1, 2003. EITF 03-11 gives guidance on whether realized gains and losses on derivative contracts not held for trading purposes should be reported on a net or gross basis and concludes such classification is a matter of judgment that depends on the relevant facts and circumstances. The Company nets all realized gains and losses on non-normal derivative transactions that do not physically deliver and that are offset by similar transactions during settlement. For the year ended December 31, 2003, wholesale purchases of $15.0 million were netted with electric revenues in the consolidated statement of earnings (see Note 2).
Stock Based Compensation
The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Company's stock at the date of grant over the exercise price of the granted stock option. Restricted stock is recorded as compensation cost over the requisite vesting periods based on the market value on the date of grant.
At December 31, 2003, the Company had three stock-based employee compensation plans of which stock options continue to be granted under only two of the plans. These plans are described more fully in Note 10. Had compensation expense for the Company's stock options been recognized based on the fair value on the grant date under the methodology prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the effect on the Company's pro forma net earnings and pro forma earnings per share would be as follows (in thousands, except per share data):
Year Ended December 31,
------------------------------------------
2003 2002 2001
------------- ------------ -------------
Net earnings:.................................. $95,173 $63,686 $149,847
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects.................. (2,200) (4,402) (3,351)
------------- ------------ -------------
Pro forma net earnings......................... $92,973 $59,284 $146,496
============= ============ =============
Earnings per share:
Basic - as reported........................ $ 2.39 $ 1.63 $ 3.83
============= ============ =============
Basic - pro forma.......................... $ 2.34 $ 1.52 $ 3.74
============= ============ =============
Diluted - as reported...................... $ 2.37 $ 1.61 $ 3.77
============= ============ =============
Diluted - pro forma........................ $ 2.32 $ 1.50 $ 3.69
============= ============ =============
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PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) reports a measure for
accumulated changes in equity of the Company that results from transactions and
other economic events other than transactions with shareholders. The following
table sets forth the changes in each component of accumulated other
comprehensive income (loss):
Mark-to-
Unrealized market for Accumulated
gain (loss) Minimum certain other
on pension Derivative comprehensive
securities liability transactions income (loss)
------------ ------------ ------------ --------------
Balance at December 31, 2000 $ (1,518) $ 1,545 $ - $ 27
Period change in:
Minimum pension liability adjustment................. - 28,858 - 28,858
Unrealized holding gains arising from the period..... (70) - - (70)
Reclassification adjustment for losses included in
net income........................................ 526 - - 526
Initial implementation of SFAS 133 designated
cash flow hedges................................... - - 6,148 6,148
Change in fair market value of designated cash
flow hedges........................................ - - (345) (345)
Reclassification adjustment for losses included
in net income...................................... - - (6,148) (6,148)
------------ ------------ ------------ --------------
Balance at December 31, 2001 (1,062) 30,403 (345) 28,996
Period change in:
Minimum pension liability adjustment................. - 55,061 - 55,061
Unrealized holding gains arising from the period..... (1,303) - - (1,303)
Reclassification adjustment for losses included in
net income........................................ 919 - - 919
Change in fair market value of designated cash
flow hedges........................................ - - 10,361 10,361
Reclassification adjustment for losses included
in net income...................................... - - 687 687
------------ ------------ ------------ --------------
Balance at December 31, 2002 (1,446) 85,464 10,703 94,721
Period change in:
Minimum pension liability adjustment................. - (9,589) - (9,589)
Unrealized holding gains arising from the period .... (1,916) - - (1,916)
Reclassification adjustment for losses included in
net income........................................ 672 - - 672
Change in fair market value of designated cash
flow hedges........................................ - - (10,401) (10,401)
------------ ------------ ------------ --------------
Balance at December 31, 2003 $ (2,690) $ 75,875 $ 302 $ 73,487
============ ============ ============ ==============
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PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Income Taxes
The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which uses the asset and liability method for accounting for income taxes. Under SFAS 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying value of existing assets and liabilities and their respective tax basis. Current PRC approved rates include the tax effects of the majority of these differences. SFAS No. 109 requires that rate-regulated enterprises record deferred income taxes for temporary differences accorded flow-through treatment at the direction of a regulatory commission. The resulting deferred tax assets and liabilities are recorded at the expected cash flow to be reflected in future rates. Because the PRC has consistently permitted the recovery of previously flowed-through tax effects, the Company has established regulatory liabilities and assets offsetting such deferred tax assets and liabilities. Items accorded flow-through treatment under PRC orders, deferred income taxes and the future ratemaking effects of such taxes, as well as corresponding regulatory assets and liabilities, are recorded in the financial statements.
Asset Impairment
The Company evaluates its tangible long-lived assets in relation to their
future undiscounted cash flows to assess recoverability in accordance with SFAS
144. Impairment testing of power generation assets is performed periodically in
response to changes in market conditions. The Company considers its power
generation assets used to supply jurisdictional and wholesale markets as a
combined group due to its joint dispatch of these assets. Generation assets used
primarily for reliability purposes are evaluated separately as a group. The
Company did not recognize any impairment on its long-lived assets for the years
2001 through 2003.
Change in Presentation
Certain prior year amounts have been reclassified to conform to the 2003 financial statement presentation.
(2) Segment Information
The Holding Company is an investor-owned holding company of energy and energy related businesses. Its principal subsidiary, PNM, is an integrated public utility primarily engaged in the generation, transmission and distribution of electricity; transmission, distribution and sale of natural gas within the State of New Mexico; and the sale and marketing of electricity in the Western United States. In addition, the Holding Company provides energy and technology related services through its wholly owned subsidiary, Avistar.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
As it currently operates, the Company's principal business segments, whose operating results are regularly reviewed by the Company's management, are Utility Operations and Wholesale Operations ("Wholesale"). Utility Operations include Electric Services ("Electric"), Gas Services ("Gas") and Transmission Services ("Transmission"). In 2003, the Company began allocating its business and results between the Electric and Wholesale segments for financial reporting purposes based on the assets allocations as mandated in the Global Electric Agreement (see Note 13 - Commitments and Contingencies - Global Electric Agreement). Certain prior period amounts have been reclassified to conform to the current year presentation. In addition, Transmission was reclassified from Electric and disclosed as its own business segment during the second quarter of 2003.
The following segment presentation is based on the methodology that the Company's management uses for making operating decisions and assessing performance of its various business activities. As such, the following presentation reports operating results without regard to the effect of accounting or regulatory changes and similar one-time items not related to normal operations. Reconciliation to the consolidated financial statements is provided.
In addition, adjustments related to EITF Issue 02-03 "Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities" and 03-11 "Reporting Realized Gains and Losses on Derivative Instruments that are subject to FASB statement No. 133 and Not Held for Trading Purposes" are excluded. These accounting pronouncements require a net presentation of trading gains and losses and realized gains and loss for certain non-trading derivatives. Management evaluates wholesale operations on a gross presentation basis due to its net asset-backed marketing strategy and the importance it places on the Company's ability to repurchase and remarket previously sold capacity. The Company has publicly referred to this as "velocity".
UTILITY OPERATIONS
Electric
Electric consists of the distribution and generation of electricity for retail electric customers in New Mexico. The Company provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque and Santa Fe, and certain other areas of New Mexico. Customer rates for retail electric service are set by the PRC based on the provisions of the Global Electric Agreement.
Gas
Gas distributes natural gas to most of the major communities in New Mexico, including two of New Mexico's three largest metropolitan areas, Albuquerque and Santa Fe. The Company's customer base includes both sales-service customers and transportation-service customers. PNM purchases natural gas in the open market and resells it at cost to its distribution customers. As a result, increases or decreases in gas revenues resulting from wholesale gas price fluctuations do not impact the Company's consolidated gross margin or earnings.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Transmission
The Company owns or leases transmission lines, interconnected with other utilities in New Mexico and south and east into Texas, west into Arizona, and north into Colorado and Utah. Transmission revenues consist of sales to third parties as well as to Electric and Wholesale.
WHOLESALE OPERATIONS
Wholesale consists of the generation and sale of electricity into the wholesale market based on three product lines that include long-term contracts, forward sales and short-term sales. The source of these sales is supply created by selling the unused capacity of jurisdictional assets as well as the capacity of the Company's wholesale, plants excluded from retail rates. Both regulated and unregulated generation is jointly dispatched in order to improve reliability, provide the most economic power to retail customers and maximize profits on any wholesale transactions.
Long-term contracts include sales to firm-requirements and other wholesale customers with multi-year arrangements. These contracts range from 2 to 17 years with an average of 7.5 years. Forward sales include third party purchases in the forward market that range from 1 month to 3 years. These transactions do not qualify as normal sales and purchases as defined in SFAS 133, and thus are generally marked to market. Short-term sales generally include spot market, hour ahead, day ahead and week ahead contracts with terms of 30 days or less. Also included in short-term sales are sales of any excess generation not required to fulfill PNM's retail load and contractual commitments. Short-term sales also cover the revenue credit to retail customers as specified in the Global Electric Agreement.
CORPORATE AND OTHER
The Holding Company performs substantially all of the corporate activities of PNM. These activities are billed to PNM on a cost basis to the extent they are for the corporate management of PNM and are allocated to the operating segments. The Holding Company's wholly-owned subsidiary, Avistar, was formed in August 1999 as a New Mexico corporation and is currently engaged in certain unregulated and non-utility businesses. In January 2002, Avistar was dividended by PNM to the Holding Company pursuant to an order from the PRC.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Summarized financial information by business segment for the year ended
December 31, 2003 is as follows:
Utility
-----------------------------------------------------------------------------------
Electric Gas Transmission Eliminations Total
--------------- --------------- ---------------- ----------------- --------------
(In thousands)
2003:
Operating revenues:
External customers.................... $ 543,850 $ 358,267 $ 19,453 $ - $ 921,570
Intersegment revenues................. - - 32,499 (32,499) -
Depreciation and amortization............ 63,428 22,186 10,104 - 95,718
Interest income.......................... 28,703 2,437 (34) - 31,106
Interest charges......................... 24,737 13,406 6,566 - 44,709
Total income tax expense (benefit)....... 34,649 (84) 3,233 - 37,798
Operating income......................... 56,587 11,451 11,417 - 79,455
Segment net income (loss)................ 51,435 (128) 4,933 - 56,240
Total assets............................. 1,429,291 509,111 275,301 - 2,213,703
Gross property additions................. 74,922 45,616 33,901 - 154,439
Corporate
Wholesale and Other Consolidated
--------------- --------------- ----------------
(In thousands)
2003:
Operating revenues:
External customers.................... $ 548,847 $ (14,703) (a) $1,455,714
Intersegment revenues................. 1,535 (1,535) -
Depreciation and amortization............ 14,230 5,701 115,649
Interest income.......................... 5,493 3,922 40,521
Interest charges......................... 15,562 5,918 66,189
Total income tax expense (benefit)....... 12,725 (22,634) (b) 27,889
Operating income......................... 30,997 8,140 118,592
Segment net income (loss)................ 19,416 (17,104) (b) 58,552
Total assets............................. 425,372 739,554 3,378,629
Gross property additions................. 14,620 8,145 177,204
|
(a) Reflects EITF 03-11 impact, under which wholesale revenues and the
associated cost of energy of $15.0 million are reclassified to a net
margin basis in accordance with GAAP.
(b) Includes $9.5 million write-off of transition costs, net of tax benefit of
$7.2 million, due to the repeal of deregulation in New Mexico, and the
$10.0 million write-off related to refinancing of long-term debt, net of
tax benefit of $6.6 million, reduced consolidated net earnings.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Summarized financial information by business segment for the year ended
December 31, 2002 is as follows:
Utility
------------------------------------------------------------------------------------
Electric Gas Transmission Eliminations Total
--------------- --------------- ---------------- ------------------ --------------
(In thousands)
2002:
Operating revenues:
External customers.................... $ 546,939 $ 277,406 $ 23,150 $ - $ 847,495
Intersegment revenues................. - - 31,950 (31,950) -
Depreciation and amortization............ 59,654 20,673 8,741 - 89,068
Interest income.......................... 30,790 436 29 - 31,255
Interest charges......................... 27,509 13,546 5,988 - 47,043
Total income tax expense (benefit)....... 37,482 3,755 4,475 - 45,712
Operating income......................... 68,370 17,672 13,159 - 99,201
Segment net income....................... 57,194 5,731 6,827 - 69,752
Total assets............................. 1,442,104 563,395 224,637 - 2,230,136
Gross property additions................. 134,483 46,676 15,472 - 196,631
Corporate
Wholesale and Other Consolidated
--------------- --------------- ----------------
(In thousands)
2002:
Operating revenues:
External customers................... $ 343,780 $ (72,581) (a) $1,118,694
Intersegment revenues................ - - -
Depreciation and amortization............ 8,808 4,533 102,409
Interest income.......................... 4,946 8,753 44,954
Interest charges......................... 8,348 6,021 61,412
Total income tax expense (benefit)....... (1,613) (11,068) (b,c) 33,031
Operating income (loss).................. 3,398 (825) (b) 101,774
Segment net income (loss)................ (2,461) (3,605) (c) 63,686
Total assets............................. 380,436 636,655 3,247,227
Gross property additions................. 23,190 20,404 240,225
|
(a) Reflects EITF 02-3 impact, under which wholesale revenues and the
associated cost of energy of $74.0 million are reclassified to a net
margin basis in accordance with GAAP.
(b) Includes re-alignment costs due to the negative impact on the wholesale
market uncertainty of $5.3 million, net of tax benefit of $3.5 million,
and severance costs due to a workforce reduction of $0.9 million, net of
tax benefit of $0.6 , which reduced consolidated operating income and net
earnings.
(c) The Company recognized a $1.5 million gain, net of tax expense of $1.0
million, from the reversal of a reserve due to the successful resolution
of litigation stemming from the terminated Western Resources transaction,
which was offset by a $2.7 write-off, net of tax benefit of $1.9 million,
of a transmission line project.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Summarized financial information by business segment for the year ended
December 31, 2001 is as follows:
Utility
-----------------------------------------------------------------------------------
Electric Gas Transmission Eliminations Total
--------------- --------------- ----------------- ---------------- -------------
(In thousands)
2001:
Operating revenues:
External customers...................... $ 532,673 $371,265 $ 26,553 $ - $ 930,491
Intersegment revenues................... - - 31,273 (31,273) -
Depreciation and amortization.............. 59,352 20,362 7,328 - 87,042
Interest income............................ 33,751 596 24 - 34,371
Interest charges........................... 31,828 11,807 4,582 - 48,217
Total income tax expense (benefit)......... 24,986 1,605 4,475 - 31,066
Operating income........................... 52,866 14,657 12,886 - 80,409
Segment net income......................... 38,124 2,451 6,828 - 47,403
Total assets............................... 1,751,481 524,130 209,504 - 2,485,115
Gross property additions................... 159,223 48,978 18,067 - 226,268
Corporate
Wholesale and Other Consolidated
--------------- --------------- -----------------
2001: (In thousands)
Operating revenues:
External customers...................... $1,411,500 $ (87,813) (a) $ 2,254,178
Intersegment revenues................... - - -
Depreciation and amortization.............. 5,774 4,120 96,936
Interest income............................ 5,234 9,137 48,742
Interest charges........................... 17,063 (440) 64,840
Total income tax expense (benefit)......... 79,404 (29,407) (b) 81,063
Operating income........................... 136,237 6,031 222,677
Segment net income (loss).................. 121,161 (18,717) (b) 149,847
Total assets............................... 377,585 264,902 3,127,602
Gross property additions................... 23,631 14,945 264,844
|
(a) Reflects EITF 02-3 impact, under which wholesale revenues and the
associated cost of energy of $89.4 million are reclassified to a net
margin basis in accordance with GAAP.
(b) Includes a Company contribution of $3.0 million, net of tax benefit of
$2.0 million, to the PNM Foundation, a $7.9 million write-off, net of tax
benefit of $5.1 million, of nonrecoverable coal mine decommissioning
costs, the $7.8 million write-off, net of tax benefit of $5.2 million, of
impaired Avistar investments, and the costs associated with the terminated
acquisition of Western Resources of $10.9 million, net of tax benefit of
$7.1 million, reduced consolidated net earnings.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
(3) Regulatory Assets and Liabilities
The Company is subject to the provisions of SFAS 71 with respect to operations regulated by the PRC and the FERC. Regulatory assets represent probable future recovery of previously incurred costs, which will be collected from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and liabilities reflected in the Consolidated Balance Sheets as of December 31, relate to the following:
2003 2002
------------- --------------
(In thousands)
Assets:
Current:
PGAC.................................................. $10,416 $ 941
Gas Take-or-Pay Costs................................. 5,020 120
------------- --------------
Subtotal........................................... 15,436 1,061
------------- --------------
Deferred:
Mine Reclamation Costs................................ 92,521 100,877
Deferred Income Taxes................................. 70,576 69,029
Financing Costs....................................... 26,368 -
Transition Costs...................................... - 16,720
Loss on Reacquired Debt............................... 20,936 7,345
Other................................................. 5,015 2,312
------------- --------------
Total Deferred Assets.............................. 215,416 196,283
------------- --------------
Total Assets....................................... 230,852 197,344
------------- --------------
Liabilities:
Deferred:
Asset retirement obligation........................... (27,976) -
Deferred Income Taxes................................. (35,974) (38,941)
Cost of Removal....................................... (235,992) (227,933)
Unrealized loss on PVNGS decommissioning trust........ (6,479) (3,813)
Gain on Reacquired Debt............................... (1,351) (1,503)
PVNGS Prudence Audit.................................. (4,306) (4,682)
Settlement due Customers.............................. (1,242) (1,325)
Other................................................. (3,064) (1,755)
------------- --------------
Total Deferred Liabilities......................... (316,384) (279,952)
------------- --------------
Net Regulatory Liabilities......................... $ (85,532) $(82,608)
============= ==============
|
Substantially all of the Company's regulatory assets and regulatory liabilities are reflected in rates charged to customers or have been addressed in a regulatory proceeding. The Company receives or pays a rate of return on
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
these regulatory assets and regulatory liabilities, except for mine reclamation costs, deferred income taxes, interest rate hedging costs, and unrealized loss on PVNGS decommissioning trust.
In 2001, the Company wrote off $11.1 million of regulatory assets of which $8.1 million related to non-recoverable transition costs and $3.0 million for other non-recoverable regulatory assets. See Note 13 - "Commitments and Contingencies - Global Electric Agreement" regarding 2003 write-off of transition costs.
In August 2001, the Company signed an agreement with San Juan Coal Company ("SJCC") and Tucson Electric Power Company ("Tucson") to replace two surface mining operations with a single underground mine located adjacent to the SJGS. The Company recorded a regulatory asset of $113 million for the estimated costs anticipated to close the surface mining operation. In 2001, the Company wrote off $13.0 million for the portion of coal mine decommissioning costs associated with the Company's FERC firm requirements customers and a portion of SJGS Unit 4. The Company will recover the remaining $100 million of costs associated with coal mine decommissioning that are attributed to New Mexico retail customers pursuant to its Global Electric Agreement which provides for a 17-year recovery of these costs beginning in September 2003. In 2003, the Company completed a comprehensive review of these costs and costs related to the decommissioning of the current underground mine and made adjustments to the liability and the related regulatory asset based on the resulting changes in estimate (see Note 12).
The Company is permitted, under SFAS 71, to accrue the estimated cost of removal and salvage associated with certain of its assets through depreciation expense. Cost of removal, net of salvage, allowed under rate regulations was included in accumulated depreciation. The amounts accrued in depreciation are not associated with AROs recorded in accordance with SFAS 143. With the adoption of SFAS 143, the Company has reclassified $236.0 million and $227.9 million of removal costs from accumulated depreciation to regulatory liabilities as of December 31, 2003 and 2002, respectively.
The Company accounts for its postretirement benefits other than pensions ("OPEB") costs on an accrual basis. Therefore, the Company does not defer any OPEB costs as regulatory assets.
PNM had $46.0 million of tax-exempt bonds outstanding that were callable at a premium beginning December 15, 2002, and an additional $136.0 million that became callable at a premium in August 2003. With the intention of refinancing these bonds, PNM had hedged the entire planned refinancing by entering into five forward starting interest rate swaps in the fourth quarter of 2001 and the first quarter of 2002. The Company received regulatory approval to refund the tax-exempt bonds on October 29, 2002. The refinancings were completed on May 23, 2003.
The forward starting interest rate swaps were terminated on May 13, 2003 for a cash settlement of $27.1 million. This amount has been capitalized by the Company as a financing cost and will be amortized over the life of the bonds.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Based on a current evaluation of the various factors and conditions that are expected to impact future cost recovery, the Company believes that its regulatory assets are probable of future recovery.
(4) Capitalization
Changes in common stock for PNM Resources, Inc. and Subsidiaries are as follows:
Common Stock
-------------------------------
Number Aggregate
Of Shares Par Value
--------------- --------------
(Dollars in thousands)
Balance at December 31, 2001................... 39,117,799 $ 625,632
Exercise of stock options...................... - (2,412)
Tax benefit from exercise of stock options..... - 899
--------------- --------------
Balance at December 31, 2002................... 39,117,799 624,119
Restricted stock rights........................ - 31
Exercise of stock options...................... - (9,130)
Tax benefit from exercise of stock options..... - 3,637
Pension contribution........................... 1,121,495 28,609
ESPP purchase.................................. 19,703 456
--------------- --------------
Balance at December 31, 2003................... 40,258,997 $ 647,722
=============== ==============
|
Changes in common stock and additional paid-in capital for Public Service Company of New Mexico and Subsidiaries are as follows:
Common Stock
-------------------------------
Additional
Number Aggregate Paid-In
Of Shares Par Value Capital
--------------- -------------- ----------------
(Dollars in thousands)
Balance at December 31, 2001............ 39,117,799 $ 195,589 $ 430,043
--------------- -------------- ----------------
Balance at December 31, 2002............ 39,117,799 195,589 430,043
Equity contribution from parent......... - - 126,053
Exercise of stock options............... - - 512
--------------- -------------- ----------------
Balance at December 31, 2003............ 39,117,799 $ 195,589 $ 556,608
=============== ============== ================
|
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Common Stock
The number of authorized shares of common stock of the Holding Company is 120 million shares with no par value. The number of shares issued and outstanding was 40,258,997 and 39,117,799 as of December 31, 2003 and 2002. In 2003, the Holding Company issued 19,703 common shares for the Employee Stock Purchase Plan for $0.5 million. On June 11, 2003, a contribution of 1,121,495 Holding Company common shares (approximately $28.6 million) was made to the Company's retirement plan (see Note 9 for further discussion). Also, $6.0 million of stock options, net of taxes, were exercised in 2003. The only change to common stock of the Holding Company in 2002 was for the exercise of stock options of $1.5 million, net of taxes.
The declaration of common dividends is dependent upon a number of factors including the ability of the Holding Company's subsidiaries to pay dividends. Currently, PNM is the Holding Company's primary source of dividends. As part of the order approving the formation of the Holding Company, the PRC placed certain restrictions on the ability of PNM to pay dividends to its parent.
The PRC order imposed the following conditions regarding dividends paid by PNM to the holding company: PNM can not pay dividends which cause its debt rating to go below investment grade; and PNM can not pay dividends in any year, as determined on a rolling four quarter basis, in excess of net earnings without prior PRC approval. In January 2003, with the signing of the Global Electric Agreement, the PRC modified the PNM dividend restriction to allow PNM to dividend earnings as well as equity contributions made by the Holding Company. Additionally, PNM has various financial covenants which limit the transfer of assets, through dividends or other means.
In addition, the ability of the Company to declare dividends is dependent upon the extent to which cash flows will support dividends, the availability of retained earnings, the financial circumstances and performance, the PRC's decisions in various regulatory cases currently pending and which may be docketed in the future, the effect of federal regulatory decisions, Congressional and legislative acts, and market economic conditions generally. Conditions imposed by the PRC on holding company formation, future growth plans and the related capital requirements and standard business considerations may also affect the Company's ability to pay dividends.
Consistent with the PRC's holding company order, PNM paid cash dividends of $49.6, $59.0 and $127.0 million to the Holding Company for the years ended December 31, 2003, 2002 and 2001 respectively.
On February 18, 2003, the Holding Company's board of directors approved a 4.5% increase in the common stock dividend. The increase raised the quarterly dividend to $0.23 per share, for an indicated annual dividend of $0.92 per share.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
On February 17, 2004, the Holding Company's board of directors approved a 4.3% increase in the common stock dividend. The increase raised the quarterly dividend to $0.24 per share, for an indicated annual dividend of $0.96 per share.
Cumulative Preferred Stock
No Holding Company preferred stock is outstanding. The Holding Company's restated articles of incorporation authorize 10 million shares of preferred stock, which may be issued without restriction. The number of authorized shares of PNM cumulative preferred stock is 10 million shares. PNM has 128,000 shares, 1965 Series, 4.58%, par value of $100 per share, of cumulative preferred stock outstanding. The 1965 Series does not have a mandatory redemption requirement but may be redeemable at 102% of the par value with accrued dividends. The holders of the 1965 Series are entitled to payment before the holders of common stock in the event of any liquidation or dissolution or distribution of assets of PNM. In addition, the 1965 Series is not entitled to a sinking fund and cannot be converted into any other class of stock of PNM.
Long-Term Debt
On March 11, 1998, PNM modified its 1947 Indenture of Mortgage and Deed of Trust so that no future bonds can be issued under the mortgage. While first mortgage bonds continue to serve as collateral for Pollution Control Bonds ("PCBs") in the outstanding principal amount of $65.0 million, the lien of the mortgage covers only PNM's ownership interest in PVNGS. Senior unsecured notes ("SUNs"), which were issued under a senior unsecured note indenture, serve as collateral for PCBs in the outstanding principal amount of $520.8 million. With the exception of the $65.0 million of PCBs secured by first mortgage bonds, the SUNs are and will be the senior debt of PNM.
On May 13, 2003, the Company priced $182.0 million of tax-exempt
pollution control bonds at an initial interest rate of 2.75%. The bond sale
closed on May 23, 2003. By April 1, 2004, $146.0 million of bonds will need to
be remarketed and $36.0 million of bonds will need to be remarketed by July 1,
2004. A portion of the proceeds were used to redeem the $46.0 million of
pollution control bonds, which became callable on December 15, 2002. The
remaining $136.0 million was used to redeem $136.0 million of pollution control
bonds in August 2003. The Company had previously entered into various forward
swaps in 2001 and 2002, to hedge the interest rate on the refinancing (see Note
6 - Fair Value of Financial Instruments - Forward Starting Interest Rate Swaps).
The premium paid to refinance the pollution control bonds was $3.6 million. The balance of the unamortized debt issuance costs associated with the pollution control bonds that were retired was $3.8 million. These amounts were capitalized as loss on reacquired debt. The portion of unamortized loss on reacquired debt associated with the FERC firm requirements customers and plant excluded from ratebase of $1.0 million was written off in conjunction with the
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
refinancing of the pollution control bonds. The remaining balance will be amortized over the life of the new bonds and is expected to be recovered through PRC approved retail rates.
Pursuant to PRC approval, on September 9, 2003, PNM issued and sold $300.0 million aggregate principal amount of its senior unsecured notes with a 4.40% interest rate that will mature September 15, 2008. The transaction closed on September 17, 2003 and the proceeds were used to retire $268.4 million of long-term debt with a 7.10% interest rate that would otherwise have matured in August 2005, pay the transaction costs, and improve working capital. The premium paid to refinance the long-term debt was $23.9 million of which $16.6 million was charged against earnings based on prior regulatory agreements. The remaining balance was capitalized as loss on reacquired debt and will be amortized over the life of the new debt.
On December 20, 2002, the Holding Company acquired the equity interest of the grantor trust that owns 60% of the EIP transmission line and related facilities held under an operating lease. As a result, the Company capitalized the 60% interest and $26.2 million of related debt was consolidated on the Company's balance sheet. This debt was previously disclosed and reported as an off balance sheet lease obligation. The EIP debt bore interest at the rate of 10.25%, requires semi-annual principal and interest payments and matures on April 1, 2012. On April 1, 2003, PNM exercised its early buyout option of this 60% interest and related lease. Through the exercise of the early buyout, PNM was able to retire the $26.2 million of debt. The Company will continue to exclude $4.0 million of lease obligations relating to the 40% interest that the Company does not own from the consolidated balance sheet.
Revolving Credit Facility and Other Credit Facilities
At December 31, 2003, PNM had a $300.0 million unsecured revolving credit facility (the "Facility") with an expiration date of November 21, 2006. PNM must pay commitment fees of 0.275% per year on the unused amount of the Facility. PNM must also pay a utilization fee of .125% for all borrowings in excess of 33% of the committed amount. PNM also had $23.0 million in local lines of credit. In addition, the Holding Company has a $20.0 million reciprocal borrowing agreement with PNM and $15.0 million in local lines of credit.
There were $20.0 million in outstanding borrowings bearing interest at an interest rate of 2.275% under the Facility as of December 31, 2003. On January 20, 2004, this amount was reduced to $10.0 million outstanding at an interest rate of 2.225%. PNM was in compliance with all covenants under the Facility.
Commercial Paper
On August 27, 2003, the Company entered into an unrated private issuance commercial paper program. The Company will periodically issue up to $50.0 million in unrated commercial paper for the shorter of 120 days or the maturity of the Company's Credit Facility. The commercial paper is unsecured and the proceeds were used to reduce revolving credit borrowings. The Company's Credit
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Facility serves as a backstop for the outstanding commercial paper. As of December 31, 2003, $50.0 million was outstanding.
Asset Securitization
On April 8, 2003, PNM entered into a transaction providing for the securitization of PNM's retail electric service accounts receivable and retail gas service accounts receivable ("AR Securitization"). The total capacity under the AR Securitization is $90.0 million. Under the AR Securitization, PNM will periodically sell its accounts receivable, principally retail receivables, to a bankruptcy remote subsidiary, PNM Receivables Corp., which in turn pledges an undivided interest in the receivables to an unaffiliated conduit commercial paper issuer. This transaction was previously approved by the PRC on December 17, 2002. As of December 31, 2003, the Company had borrowed $54.9 million under the AR Securitization, which was secured by $114.5 million of accounts receivable. PNM Receivables Corp. is consolidated in the Company's financial statements.
(5) Lease Commitments
PNM leases interests in Units 1 and 2 of PVNGS, certain transmission facilities, office buildings and other equipment under operating leases. The lease expense for PVNGS is $66.3 million per year over base lease terms expiring in 2015 and 2016. Covenants in PNM's PVNGS Units 1 and 2 lease agreements limit PNM's ability, without consent of the owner participants in the lease transactions, (i) to enter into any merger or consolidation, or (ii) except in connection with normal dividend policy, to convey, transfer, lease or dividend more than 5% of its assets in any single transaction or series of related transactions.
In 1985 and 1986, the Company entered into a total of eleven sale and lease back transactions with owner trusts under which it sold and leased back its entire 10.2% interest in PVNGS Units 1 and 2, together with portions of the Company's undivided interest in certain PVNGS common facilities. In 1998, PNM established PVNGS Capital Trust ("Capital Trust") for the purpose of acquiring all the debt underlying the PVNGS leases. PNM consolidates Capital Trust in its consolidated financial statements. The purchase was funded with the proceeds from the issuance of $435 million of SUNS (see Note 4), which were loaned to Capital Trust. Capital Trust then acquired and holds the debt component of the PVNGS leases. For legal and regulatory reasons, the PVNGS lease payment continues to be recorded and paid gross with the debt component of the payment returned to PNM via Capital Trust. As a result, the net cash outflows for the PVNGS lease payment were $14.2, $13.2 and $12.4 million in 2003, 2002 and 2001, respectively. The summary of PNM's future minimum operating lease payments below reflects the net cash outflow related to the PVNGS leases.
PNM's other significant operating lease obligations include a leased interest in the EIP transmission line with annual lease payments of $2.9 million and a power purchase agreement for the entire output of a gas-fired generating plant in Albuquerque, New Mexico, with imputed annual lease payments of $6.0 million.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Future minimum operating lease payments (in thousands) at December 31, 2003 are:
2004.......................................... $ 29,068
2005.......................................... 30,724
2006.......................................... 31,542
2007.......................................... 32,426
2008.......................................... 33,370
Later years................................... 268,410
---------------
Total minimum lease payments............... $425,540
===============
|
Operating lease expense, inclusive of the net PVNGS lease payment, was approximately $33.4 million in 2003, $34.9 million in 2002 and $32.7 million in 2001. Aggregate minimum payments to be received in future periods under non-cancelable subleases are approximately $3.6 million.
(6) Fair Value of Financial Instruments
GAAP defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current transaction. Fair value is based on market quotes provided by the Company's investment bankers and trust advisors. The market prices used to value PNM's mark-to-market energy portfolio are based on closing exchange prices and over-the-counter quotations.
The carrying amounts reflected on the consolidated balance sheets approximate fair value for cash, temporary instruments, receivables, and payables due to the short period of maturity. The carrying amount and fair value of the Company's financial instruments (including current maturities) at December 31 are:
2003 2002
---------------------------------- -------------------------------
Carrying Amount Fair Value Carrying Fair Value
Amount
---------------- ---------------- --------------- ---------------
(In thousands)
Long-Term Debt....................... $987,210 $1,029,349 $ 980,092 $1,027,435
Investment in PVNGS Lessors' Notes $347,870 $ 424,731 $ 368,010 $ 436,345
Available for sale investments....... $86,456 $ 86,456 $ 152,352 $ 152,352
|
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The Company's available-for-sale securities include assets held in trust for its share of decommissioning costs of PVNGS and its executive retirement program. The trusts hold equity and fixed income securities. These amounts are included in other investments on the balance sheet. The carrying value, gross unrealized gains and losses and estimated fair value of investments in available-for-sale securities are as follows:
2003
--------------------------------------------------------------------
Carrying Value Unrealized Unrealized Fair Value
Gains Losses
---------------- ---------------- --------------- ----------------
(In thousands)
Available-for-sale:
Equity securities................... 42,269 13,893 (344) 55,818
U.S. Government securities.......... 4,858 361 (31) 5,188
Corporate bonds..................... 11 - - 11
Municipal bonds..................... 19,250 1,316 (13) 20,553
Other investments................... 4,895 - (9) 4,886
---------------- ---------------- --------------- ----------------
71,283 15,570 (397) 86,456
================ ================ =============== ================
2002
--------------------------------------------------------------------
Carrying Value Unrealized Unrealized Fair Value
Gains Losses
---------------- ---------------- --------------- ----------------
(In thousands)
Available-for-sale:
Mortgage-backed securities.......... $ 32,643 $4,134 $ (1,514) $ 35,263
Equity securities................... 33,145 410 (93) 33,462
U.S. Government securities.......... 32,466 438 (19) 32,885
Corporate bonds..................... 21,229 1,394 (24) 22,599
Municipal bonds..................... 12,725 702 - 13,427
Other investments................... 14,716 - - 14,716
---------------- ---------------- --------------- ----------------
$ 146,924 $7,078 $(1,650) $ 152,352
================ ================ =============== ================
|
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
At December 31, 2003, the available-for-sale securities held by the Company had the following maturities (in thousands):
Carrying Value Fair Value
---------------- ----------------
(In thousands)
Within 1 year............................. $1,513 $1,482
After 1 year through 5 years.............. 2,857 2,889
After 5 years through 10 years............ 2,997 3,126
Over 10 years............................. 17,024 18,518
Equity securities......................... 42,269 55,818
Other investments......................... 4,623 4,623
---------------- ----------------
$71,283 $86,456
================ ================
|
The proceeds and gross realized gains and losses on the disposition of available-for-sale investments are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold. The short-term investment balance was fully redeemed in the year ended December 31, 2003 and included in proceeds from sales.
2003 2002 2001
------------ ---------------- -------------
(In thousands)
Proceeds from sales............ $123,030 $219,880 $80,943
Gross realized gains........... 7,685 2,537 3,077
Gross realized losses.......... (5,694) (7,624) (7,476)
|
The Company uses derivative financial instruments to manage risk as it relates to changes in natural gas and electricity prices, interest rates of future debt issuances and adverse market changes for investments held by the Company's various trusts. The Company also uses certain derivative instruments for wholesale electricity sales in order to take advantage of favorable price movements and market timing activities in the wholesale power markets.
Natural Gas Contracts
Pursuant to a 1997 order issued by the New Mexico Public Utility Commission, the predecessor to the PRC, the Company is allowed to hedge certain portions of natural gas supply contracts to protect the Company's natural gas customers from the risk of adverse price fluctuations in the natural gas market. All hedge gains and losses from these hedges are recoverable through the Company's purchased gas adjustment clause ("PGAC") if deemed prudently incurred by the PRC. As a result, earnings are not affected by gains or losses generated by these instruments.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
PNM purchased gas options to protect its natural gas customers from the risk of price fluctuations during the 2003-2004 heating season. PNM expended $9.5 million to purchase gas options that limit the maximum amount the Company would pay for gas during the winter heating season. The Company recovered its actual hedging expenditures as a component of the PGAC during the months of October 2003 through February 2004 in equal monthly allotments of $1.9 million.
In 2002, PNM purchased gas options to protect its natural gas customers from the risk of price fluctuation during the 2002-2003 heating season. PNM expended $6.0 million to purchase options that limit the maximum amount the Company would pay for gas during the winter heating season. The Company recovered its actual hedging expenditures as a component of the PGAC during the months of October 2002 through February 2003 in equal allotments of $1.2 million.
Electricity Contracts
The Company's wholesale operations entered into various forward physical contracts for the purchase and sale of electricity with the intent to optimize its net generation position. These contracts do not qualify for normal purchase and sale designation pursuant to SFAS 133, and are considered derivatives and marked to market as required by SFAS 133.
For the year ended December 31, 2003, the Company's Wholesale Operations settled derivative forward contracts for the sale of electricity that generated $165.9 million of electric revenues by delivering 3.5 million megawatt hours ("MWh"). The Company settled derivative forward contracts for the purchase of electricity of $157.7 million or 3.5 million MWh of electricity to support these contractual sales and other open market sales opportunities. For the year ended December 31, 2002, the Company's Wholesale Operations settled forward contracts for the sale of electricity that generated $43.9 million of electric revenues by delivering 1.2 million MWh. The Company settled derivative forward contracts for the purchase of electricity of $74.5 million or 1.4 million MWh of electricity to support these contractual sales and other open market sales opportunities. For the year ended December 31, 2001, the Company's Wholesale Operations settled derivative forward contracts for the sale of electricity that generated $77.9 million of electric revenues by delivering 2.1 million MWh. The Company settled derivative forward contracts for the purchase of electricity of $76.7 million or 1.9 million MWh of electricity to support these contractual sales and other open market sales opportunities.
As of December 31, 2003, the Company had open derivative forward contract positions to buy $30.6 million and to sell $28.6 million of electricity. At December 31, 2003, the Company had a gross mark-to-market gain (asset position) on these derivative forward contracts of $3.4 million and a gross mark-to-market loss (liability position) of $3.0 million, with a net mark-to-market gain (asset position) of $0.4 million recorded in other current assets and liabilities, respectively. The change in mark-to-market valuation is recognized in earnings each period and is recorded in operating revenues.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The Company's Wholesale Operations also entered into forward physical contracts for the sale of the Company's electric capacity in excess of its retail and wholesale firm requirement needs, including reserves. In addition, the Company entered into forward physical contracts for the purchase of retail needs, including reserves, when resource shortfalls exist. The Company generally accounts for these financial instruments as normal sales and purchases as defined by SFAS 133, as amended. From time to time the Company makes forward purchases to serve its retail needs when the cost of purchased power is less than the incremental cost of its generation. At December 31, 2003, the Company had open forward positions classified as normal sales of electricity of $236.0 million and normal purchases of electricity of $115.6 million, both of which are not recorded in the financial statements.
The Company's Wholesale Operations, including both firm commitments and other wholesale sale activities, are managed through a net asset-backed strategy, whereby the Company's aggregate net open position is covered by its own excess generation capabilities. The Company is exposed to market risk if its generation capabilities were disrupted or if its retail load requirements were greater than anticipated. If the Company were required to cover all or a portion of its net open contract position, it would have to meet its commitments through market purchases.
The Company is exposed to credit risk in the event of non-performance or non-payment by counterparties of its financial and physical derivative instruments. The Company uses a credit management process to assess and monitor the financial conditions of counterparties. The Company's credit risk with its largest counterparty as of December 31, 2003 and December 31, 2002 was $23.5 million and $18.7 million, respectively.
(Intentionally left blank)
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
(7) Earnings Per Share
In accordance with SFAS No. 128, Earnings per Share, dual presentation of basic and diluted earnings per share has been presented in the Consolidated Statements of Earnings. The following reconciliation illustrates the impact on the share amounts of potential common shares and the earnings per share amounts:
2003 2002 2001
------------- -------------- --------------
(In thousands, except per share amounts)
Basic:
Net Earnings Before Cumulative Effect of a Change in $ 58,552 $ 63,686 $ 149,847
Accounting Principle.......................................
Cumulative Effect of a Change in Accounting Principle,
net of tax of $23,999...................................... 36,621 - -
------------- -------------- --------------
Net Earnings.................................................. $ 95,173 $ 63,686 $ 149,847
============= ============== ==============
Average Number of Common Shares Outstanding................... 39,747 39,118 39,118
============= ============== ==============
Net Earnings per Share of Common Stock (Basic)................ $ 2.39 $ 1.63 $ 3.83
============= ============== ==============
Earnings Before Cumulative Effect of Changes in
Accounting Principles...................................... 1.47 1.63 3.83
Cumulative Effect of Changes in Accounting Principles,
net of tax................................................. 0.92 - -
------------- -------------- --------------
Net Earnings per Share of Common Stock (Basic)................ $ 2.39 $ 1.63 $ 3.83
============= ============== ==============
Diluted:
Net Earnings Before Cumulative Effect of a Change in
Accounting Principle....................................... $ 58,552 $ 63,686 $ 149,847
Cumulative Effect of a Change in Accounting Principle,
net of tax of $23,999...................................... 36,621 - -
------------- -------------- --------------
Net Earnings.................................................. $ 95,173 $ 63,686 $ 149,847
============= ============== ==============
Average Number of Common Shares Outstanding................... 39,747 39,118 39,118
Diluted Effect of Common Stock Equivalents (a)................ 390 325 613
------------- -------------- --------------
Average Common and Common Equivalent Shares
Outstanding................................................. 40,137 39,443 39,731
============= ============== ==============
Net Earnings per Share of Common Stock (Diluted).............. $ 2.37 $ 1.61 $ 3.77
============= ============== ==============
Earnings Before Cumulative Effect of Changes in
Accounting Principles...................................... 1.46 1.61 3.77
Cumulative Effect of Changes in Accounting Principles,
net of tax................................................. 0.91 - -
------------- -------------- --------------
Net Earnings per Share of Common Stock (Diluted).............. $ 2.37 $ 1.61 $ 3.77
============= ============== ==============
|
(a) Excludes the effect of average anti-dilutive common stock equivalents related to out of-the-money options of 871,493 and 1,602,277 for the years ended December 31, 2003 and 2002, respectively. There were no anti-dilutive common stock equivalents in 2001.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
(8) Income Taxes
Income taxes before cumulative effect of changes in accounting principles
consist of the following components:
2003 2002 2001
------------ ------------ ------------
(In thousands)
Current Federal income tax............................. $ (27,621) $(9,327) $ 97,661
Current state income tax............................... (6,169) (1,780) 21,220
Deferred Federal income tax............................ 52,154 38,413 (28,967)
Deferred state income tax.............................. 12,646 8,856 (5,712)
Amortization of accumulated investment tax credits..... (3,121) (3,131) (3,139)
------------ ------------ ------------
Total income taxes.................................. $27,889 $ 33,031 $ 81,063
Charged to operating expenses.......................... $28,072 $ 20,887 $ 88,769
Charged to other income and deductions................. (183) 12,144 (7,706)
------------ ------------ ------------
Total income taxes.................................. $27,889 $ 33,031 $ 81,063
============ ============ ============
|
The Company's provision for income taxes, before cumulative effect of changes in accounting principles, differed from the Federal income tax computed at the statutory rate for each of the years shown. The differences are attributable to the following factors:
2003 2002 2001
------------- ------------ ------------
(In thousands)
Federal income tax at statutory rates................. $ 30,459 $ 34,056 $ 81,024
Investment tax credits ............................... (3,121) (3,131) (3,139)
Depreciation of flow-through items.................... 2,033 2,112 2,249
Gains on the sale and leaseback of PVNGS
Units 1 and 2...................................... (527) (527) (527)
Equity income from passive investments................ - - (1,180)
Annual reversal of deferred income taxes accrued
at prior tax rates................................. (1,963) (1,963) (1,963)
Valuation reserve..................................... - - (6,552)
Research and development credit....................... (966) (551) -
Affordable housing credit............................. (969) (947) -
Allowance for funds used during construction.......... (906) - -
State income tax...................................... 4,161 4,715 10,706
Other ................................................ (312) (733) 445
------------- ------------ ------------
Total income taxes................................. $ 27,889 $ 33,031 $ 81,063
============= ============ ============
Effective tax rate.................................... 32.05% 33.95% 35.02%
============= ============ ============
|
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The components of the net accumulated deferred income tax liability were:
2003 2002
------------- -------------
(In thousands)
Deferred Tax Assets:
Nuclear decommissioning costs................... $ 32,181 $ 32,192
Regulatory liabilities related to income taxes . 34,725 37,656
Minimum pension liability....................... 49,692 56,008
Other .......................................... 44,225 57,373
------------- -------------
Total deferred tax assets ................... 160,823 183,229
------------- -------------
Deferred Tax Liabilities:
Depreciation ................................... (245,145) (216,425)
Investment tax credit .......................... (38,462) (41,583)
Regulatory assets related to income taxes....... (69,327) (67,744)
Asset retirement obligations.................... (24,524) -
Other .......................................... (71,925) (38,792)
------------- -------------
Total deferred tax liabilities .............. (449,383) (364,544)
------------- -------------
Net Accumulated deferred income tax liabilities.... $(288,560) $(181,315)
============= =============
|
The following table reconciles the change in the net accumulated deferred income tax liability to the deferred income tax expense included in the consolidated statement of earnings for the period:
Net change in deferred income tax liability per above table...................... $107,245
Change in tax effects of income tax related regulatory assets and liabilities.... (4,514)
Tax effect of mark-to-market on investments available for sale................... (10,863)
Tax effect of excess pension liability........................................... (6,316)
Tax effect of cumulative effect of changes in accounting principles.............. (23,999)
Other............................................................................ 126
--------------
Deferred income tax expense for the period.................................... $ 61,679
==============
|
The Company has no net operating loss carryforwards as of December 31, 2003.
The Company defers investment tax credits related to rate regulated assets and amortizes them over the estimated useful lives of those assets.
All federal income tax years prior to 2000 are closed. Tax years 2000 and 2001 are currently under examination by the IRS. Although the Company does not expect any significant adjustments to the tax provision as a result of the IRS examination, management is unable to determine the final outcome of the IRS examination at this time.
There are no material differences between the provision for income taxes and deferred income taxes between the Company and PNM.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
(9) Pension and Other Post-retirement Benefits
In 2003, the Company changed the actuarial valuation measurement date for the pension plan and other post-retirement benefits from September 30 to December 31 to better reflect the actual pension balances as of the Company's balance sheet dates and recognized a cumulative effect of a change in accounting principle of $0.8 million, net of taxes at $0.5 million (see Note 17).
Pension Plan
The Company and its subsidiaries maintain a qualified defined benefit pension plan which covers eligible union and non-union employees, including officers. The pension plan was frozen at the end of 1997 with regard to new participants. The pension plan is non-contributory and provides for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Company and the average of their highest annual base salary for three consecutive years. The Company's policy is to fund actuarially-determined contributions. Contributions to the plan reflect benefits attributed to employees' years of service to date and also for services expected to be provided in the future. Pension plan assets primarily consist of common stock, fixed income securities, cash equivalents and real estate.
In December 1996, the Board of Directors approved changes to the Company's pension plan and the implementation of a 401(k) defined contribution plan effective January 1, 1998. Salaries used in pension plan benefit calculations were frozen as of December 31, 1997. Additional credited service can be accrued under the pension plan up to a limit determined by age and years of service. The Company contributions to the 401(k) plan consist of a discretionary contribution equal to 3% of eligible compensation, and a discretionary matching contribution equal to 75% of the first 6% of eligible compensation contributed by the employee on a before-tax basis. Beginning January 1, 2004, the Company will make a non-matching contribution ranging from 3% to 10% of eligible compensation based on the eligible employee's age. The Company contributed $9.0, $9.5 and $9.0 million in the years ended December 31, 2003, 2002 and 2001, respectively.
In January 2002, the Company made an aggregate contribution of $23.5 million to fund pension and other post-retirement benefit plans. An additional aggregate contribution of $1.1 million was made in September 2002 and $1.5 million in December 2002. On May 13, 2003, the board of directors approved the use of Holding Company common stock in the funding of the Company's pension plan as well as its retiree medical trust. Corporate plan sponsors may make contributions of common stock to their defined benefit plans of up to 10% of the value of the portfolio without the approval of the United States Department of Labor ("DOL") provided that the contribution does not otherwise constitute a prohibited transaction under the Employee Retirement Income Security Act ("ERISA"). On June 11, 2003, a contribution of 1,121,495 Holding Company common shares (approximately $28.9 million in market value) was made to the Company's pension plan. The Company does not plan to make any contributions in 2004 to the pension plan.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The pension plan and other post-retirement benefits have in place a policy that defines the investment objectives; establishes performance goals of the asset managers, and provides procedures for the manner in which investments are to be reviewed. The Plan implements its investments strategies to achieve the following objectives:
o Maximize the return on assets, commensurate with the risk that the Corporate Investment Committee deem appropriate to: meet the obligations of the pension plan and other post-retirement benefits; minimize the volatility of the pension expense; and account for contingencies; and
o Generate a rate of return for the total portfolio that equals or exceeds the actuarial investment rate assumption.
Management is responsible for the determination of the asset target mix and the rate of return. The Company's current target asset mix was applied to an investment consultant's asset model to determine the assumption of a 9% rate of return. The investment consultant's asset model assumption set consists of forward looking mean returns, standard deviations, and a correlation matrix for asset classes of interest to institutional clients. The investment consultant's asset model evaluates asset assumptions on an annual basis and more frequently when substantial changes in market conditions indicate.
(Intentionally left blank)
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The following sets forth the pension plan's funded status, components of pension costs and amounts (in thousands) at the pension plan measurement date of December 31, 2003 and September 30, 2002:
Pension Benefits
-----------------------------
2003 2002
-------------- --------------
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year.................... $426,885 $373,434
Service cost......................................................... 5,189 5,539
Interest cost........................................................ 28,089 27,238
Actuarial loss....................................................... 26,166 37,632
Benefits paid........................................................ (22,535) (20,518)
Plan change.......................................................... - 3,560
-------------- --------------
Projected benefit obligation at end of period.................... 463,794 426,885
-------------- --------------
Change in Plan Assets:
Fair value of plan assets at beginning of year....................... 319,113 339,838
Actual return on plan assets......................................... 80,126 (20,207)
Contributions........................................................ 48,950 20,000
Benefits paid........................................................ (22,535) (20,518)
-------------- --------------
Fair value of plan assets at end of year......................... 425,654 319,113
-------------- --------------
Funded Status........................................................ (38,140) (107,772)
Unrecognized net actuarial loss...................................... 120,995 144,328
Unrecognized prior service cost...................................... 2,927 3,109
-------------- --------------
Prepaid pension cost............................................. $ 85,782 $ 39,665
============== ==============
The amounts recognized in the Consolidated Balance Sheet consist of:
Prepaid benefit costs................................................ $ 85,782 $ 39,665
Additional minimum liability......................................... (123,922) (147,437)
-------------- --------------
$ (38,140) $ (107,772)
============== ==============
Weighted - Average Assumptions Used to Determine Projected Benefit
Obligation as of December 31, 2003
and September 30, 2002 2003 2002
-------------- --------------
Discount rate........................................................ 6.50% 6.75%
Expected return on plan assets....................................... 9.00% 9.00%
|
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Pension Benefits
-----------------------------------------
2003 2002 2001
------------ ------------ ------------
Components of Net Periodic Benefit Cost:
Service cost.............................................. $ 5,189 $ 5,539 $ 5,544
Interest cost............................................. 28,089 27,238 25,758
Expected return on plan assets............................ (35,109) (34,497) (29,488)
Amortization of net loss (gain)........................... 3,910 - (847)
Amortization of transition obligation..................... - - (1,158)
Amortization of prior service cost........................ 317 326 34
------------ ------------ ------------
Net periodic pension benefit cost/(income)............ $2,396 $ (1,394) $ (157)
============ ============ ============
Weighted - Average Assumptions Used to Determine Net
Periodic Benefit Cost as of December 31, 2003
and September 30, 2002 and 2001 2003 2002 2001
------------ ------------ ------------
Discount rate............................................. 6.75% 7.50% 8.25%
Expected return on plan assets............................ 9.00% 9.00% 7.750%
Rate of compensation increase............................. N/A N/A N/A
|
The following table outlines the asset allocation for the pension plan as of December 31:
2003 2002
----------- -----------
Equity securities.......... 65% 61%
Debt securities............ 25% 29%
Real estate................ 8% 10%
Other...................... 2% -
|
The pension plan is currently targeting the following asset allocation for 2004:
Domestic Equity........... 47.5% Non-US Equity............. 10.0% Fixed Income.............. 22.5% Real Estate............... 5.0% Private Equity............ 5.0% Absolute Return........... 10.0% |
Other Post-Retirement Benefits
The Company provides medical and dental benefits to eligible retirees. Currently, retirees are offered the same benefits as active employees after taking Medicare into consideration. The following sets forth the other post-retirement benefits' funded status, components of net periodic benefit cost (in thousands) at the measurement date of December 31, 2003 and September 30, 2002:
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Other Benefits
------------------------------
2003 2002
------------- ---------------
Change in Benefit Obligation:
Benefit obligation at beginning of year.................. $117,796 $109,408
Service cost............................................. 3,086 2,694
Interest cost............................................ 7,840 8,082
Plan participant's contributions......................... 1,534 795
Amendments............................................... (18,720) (31,960)
Unrecognized actuarial loss.............................. 10,187 32,623
Expected benefit paid.................................... (6,911) (3,846)
------------- ---------------
Benefit obligation at end of period.................. 114,812 117,796
------------- ---------------
Change in Plan Assets:
Fair value of plan assets at beginning of year............ 37,387 40,594
Actual return on plan assets.............................. 11,055 (6,478)
Employer contribution..................................... 7,892 6,322
Participant contribution.................................. 1,534 795
Benefits paid............................................. (6,911) (3,846)
------------- --------------
Fair value of plan assets at end of year.............. 50,957 37,387
------------- --------------
Funded Status............................................. (63,855) (80,409)
Employer contribution after measurement date.............. - 1,538
Unrecognized net transition obligation.................... 16,354 18,171
Unrecognized net actuarial loss........................... 72,987 74,048
Unrecognized prior service cost........................... (48,087) (31,960)
------------- --------------
Accrued post-retirement costs........................ $ (22,601) $ (18,612)
============= ==============
Weighted - Average Assumptions Used to Determine
Projected Benefit Obligation as of December
31, 2003 and September 30, 2002 2003 2002
------------- --------------
Discount rate............................................. 6.50% 6.75%
Expected return on plan assets............................ 9.00% 9.00%
|
Other Benefits
----------------------------------------------
2003 2002 2001
-------------- -------------- --------------
Components of Net Periodic Benefit Cost:
Service cost........................................ $ 3,086 $ 2,694 $ 2,644
Interest cost....................................... 7,840 8,082 7,906
Expected return on plan assets...................... (4,592) (4,505) (3,412)
Prior service cost amortization..................... (2,593) - -
Amortization of net loss............................ 4,124 1,320 799
Amortization of transition obligation............... 1,817 1,817 1,817
-------------- -------------- --------------
Net periodic post-retirement benefit cost....... $ 9,682 $ 9,408 $ 9,754
============== ============== ==============
|
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Weighted - Average Assumptions Used to Determine Net Periodic Benefit Cost as of December 31, 2003
and September 30, 2002 and 2001 2003 2002 2001
---------- ---------- ----------
Discount rate............................. 6.75% 7.50% 8.25%
Expected return on plan assets:
401 (h) and union VEBA............... 9.00% 9.00% 7.75%
Non-union VEBA....................... 9.00% 7.50% 6.25%
Rate of compensation increase............. N/A N/A N/A
|
In 2003, the other post-retirement benefits plan was amended to reflect the changes to the benefit coverage provided to both current and future retirees. In 2002, the other post-retirement benefits plan was amended to reflect the charge in cost-sharing provisions of the retiree's contribution made toward medical costs and the elimination of a tobacco surcharge.
The effect of a 1% increase in the health care trend rate assumption would increase the accumulated post-retirement benefit obligation as of December 31, 2003, by approximately $9.2 million and the aggregate service and interest cost components of net periodic post-retirement benefit cost for 2003 by approximately $2.2 million. The health care cost trend rate is expected to decrease to 6.0% by 2010 and to remain at that level thereafter.
The following table outlines the asset allocation for the other post-retirement benefits as of December 31:
2003 2002
------------- --------------
Equity securities.......... 43% 100%
Debt securities............ 57% -
|
The Company is currently targeting an asset allocation of 50% equity securities and 50% debt securities in 2004.
Executive Retirement Program
The Company has an executive retirement program for a group of management employees. The program was intended to attract, motivate and retain key management employees. The Company's projected benefit obligation for this program, as of the plan measurement date of December 31, 2003 and 2002, was $19.9 million and $19.0 million, respectively. As of December 31, 2003 and 2002, the Company has recognized an additional minimum liability of $4.7 million and $4.1 million, respectively, for the amount of unfunded accumulated benefits in excess of accrued pension costs. The net periodic cost for 2003, 2002 and 2001 was $1.6 million, $1.7 million and $1.7 million, respectively. In 1989, the Company established an irrevocable grantor trust in connection with the executive retirement program. Under the terms of the trust, the Company may, but is not obligated to, provide funds to the trust, which was established with an independent trustee, to aid it in meeting its obligations under the program. Marketable securities in the amount of approximately $6.9 million (fair market value of $7.8 million) are presently in the trust. No additional funds have been provided to the trust since 1989.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
(10) Stock-Based Compensation Plans
The Company's Performance Stock Plan ("PSP") expired on December 31, 2000. The PSP was a non-qualified stock option plan, covering a group of management employees. Options to purchase shares of the Holding Company's common stock were granted at the fair market value of the shares at the close of business on the date of the grant. Options granted through December 31, 1995 vested on June 30, 1996 and have an exercise term of up to 10 years. All subsequent awards granted between December 31, 1995 and February 2000, vest three years from the grant date of the awards. All options vest upon death, disability, retirement, impaction or involuntary termination other than for cause. Awards granted in December 2000 vest ratably over three years on the anniversary of the grant date. The maximum number of options authorized that could be granted through December 31, 2000 was 5.0 million shares of Holding Company common stock. Although the authority to grant options under the PSP expired on December 31, 2000, the options that were granted continue to be effective according to their terms.
A new employee stock incentive plan, the Omnibus Performance Equity Plan ("PEP"), became effective with the formation of the Holding Company on December 31, 2001. The PEP provides for the granting of non-qualified stock options, incentive stock options, restricted stock rights, performance shares, performance units and stock appreciation rights to officers and key employees. The total number of shares of Holding Company common stock subject to all awards under the PEP may not exceed 2.5 million, subject to adjustment under certain circumstances defined in the PEP. The number of shares of Holding Company common stock subject to the grant of restricted stock rights, performance shares and units and stock appreciation rights is limited to 500,000 shares. Re-pricing of stock options is prohibited unless specific shareholder approval is obtained. In 2003, 811,900 options were awarded. Under the PEP, 47,157 options were exercised in 2003. The number of options and restricted stock rights outstanding as of December 31, 2003 were 1,586,409 and 1,620, respectively.
Stock options may also be provided to non-employee directors of the Company under the Company's Director Retainer Plan ("DRP"). The number of options granted in 2003 under the DRP was 40,000 shares with an exercise price of $24.07 and 10,000 shares with an exercise price of $25.90. Under the DRP plan, vesting occurs on the date of the next annual meeting after the award. Under the DRP 1,500 options were exercised in 2003, 4,000 in 2002 and 4,000 in 2001. The number of options outstanding as of December 31, 2003, was 121,500. Restricted stock issuances were based on the fair market value of the Company's common stock at the close of business on the date of grant and vest ratably three years on the anniversary of the grant date. Amendments to the DRP were approved by the shareholders on July 3, 2001 and the amended plan became the DRP for the new Holding Company on December 31, 2001. Under the DRP, the maximum number of authorized shares was 200,000 (including shares previously granted) through July 1, 2005. The annual retainer is payable in cash and stock options. The exercise price of stock options granted under the DRP is determined by the fair market value of the stock at the close of business on the grant date.
All stock incentives (options, restricted stock and performance shares) issued to employees are awarded under the initial amount of shares authorized according to the PEP and DRP plan. Exercised stock options are purchased and sold on the open-market on the date of exercise.
A summary of the status of the Company's stock option plans at December 31, and changes during the years then ended is presented below.
2003 2002 2001
-------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
--------------------------------------- ------------ ------------ ----------- ------------- ------------- ------------
Outstanding at beginning of year....... 3,510,622 $20.906 2,981,301 $19.100 3,336,221 $19.120
Granted................................ 861,900 $19.833 901,620 $25.745 6,000 $22.610
Exercised.............................. 1,057,725 $17.578 356,132 $18.044 299,951 $19.610
Forfeited.............................. 24,451 $19.963 16,167 $21.390 60,969 $17.961
------------- ------------- -------------
Outstanding at end of year............. 3,290,346 3,510,622 2,981,301
============= ============= =============
Options exercisable at year-end........ 1,528,749 1,525,345 981,197
============= ============= =============
Options available for future grant..... 990,471 1,777,880 2,500,000
============= ============= =============
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(Intentionally left blank)
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The following table summarizes information about stock options
outstanding at December 31, 2003:
Options Outstanding Options Exercisable
--------------------------------------------- ------------------------------
Weighted-
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices At 12/31/03 Life Prices At 12/31/03 Prices
------------------------- --------------- -------------- ------------ --------------- -------------
DRP $ 0 - $27.35 121,500 7.07 years $21.152 76,835 $19.016
PSP $11.50 - $24.313 1,580,817 5.56 years $20.724 1,227,959 $21.039
PEP $ 0 - $28.22 1,588,029 8.45 years $22.665 223,955 $25.803
--------------- ---------------
3,290,346 7.02 years $21.676 1,528,749 $21.635
=============== ===============
|
The following table summarizes weighted-average fair value of options granted during the year:
2003 2002 2001
------------ ------------ ------------
EP $4.91 $7.42 $ -
============ ============ ============
DRP $5.14 $7.03 $13.94
============ ============ ============
Total fair market value of all options
granted (in thousands)....................... $1,414 $6,677 $ 83
============ ============ ============
|
The fair value of each option grant is determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
2003 2002 2001
------------- ------------- -------------
Dividend yield................................. 5.88% 3.43% 3.10%
Expected volatility............................ 45.49% 33.62% 33.99%
Risk-free interest rates....................... 4.00% 4.87% 5.38%
Expected life.................................. 10.0 years 10.0 years 10.0 years
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(11) Construction Program and Jointly-Owned Plants
The Company's construction expenditures for 2003 were approximately $177.2 million, including expenditures on jointly-owned projects. The Company's proportionate share of operating and maintenance expenses for the jointly-owned plants is included in operating expenses in the consolidated statements of earnings.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
At December 31, 2003, the Company's interests and investments in jointly-owned generating facilities are:
Construction
Plant in Accumulated Work in Composite
Station (Fuel Type) Service Depreciation Progress Interest
------------------------ ------------- ---------------- ---------------- ---------------
(In thousands)
San Juan Generating Station (Coal)...... $693,524 $362,864 $ 4,697 46.30%
Palo Verde Nuclear Generating
Station (Nuclear)*.................... $238,168 $ 62,138 $ 18,787 10.20%
Four Corners Power Plant Units 4
and 5 (Coal) ........................ $120,593 $ 86,079 $ 5,436 13.00%
|
* Includes the Company's interest in PVNGS Unit 3, the Company's interest in common facilities for all PVNGS units and the Company's owned interests in PVNGS Units 1 and 2.
San Juan Generating Station ("SJGS")
The Company operates and jointly owns SJGS. At December 31, 2003, SJGS Units 1 and 2 are owned on a 50% shared basis with Tucson Electric Power Company, Unit 3 is owned 50% by the Company, 41.8% by Southern California Public Power Authority ("SCPPA") and 8.2% by Tri-State Generation and Transmission Association, Inc. Unit 4 is owned 38.457% by the Company, 28.8% by M-S-R Public Power Agency, ("M-S-R"), 10.04% by the City of Anaheim, California, 8.475% by the City of Farmington, 7.2% by the County of Los Alamos, and 7.028% by Utah Associated Municipal Power Systems.
Palo Verde Nuclear Generating Station ("PVNGS")
The Company is a participant in the three 1,270 MW units of PVNGS, also
known as the Arizona Nuclear Power Project, with Arizona Public Service Company
("APS") (the operating agent), Salt River Project, El Paso Electric Company ("El
Paso"), Southern California Edison Company, SCPPA and The Department of Water
and Power of the City of Los Angeles. The Company has a 10.2% undivided interest
in PVNGS, with portions of its interests in Units 1 and 2 held under leases.
(See Note 12 for additional discussion.)
Four Corners Power Plant ("Four Corners")
The Company is a participant in two 755 MW units of Four Corners with APS (the operating agent), El Paso, Salt River Project, Southern California Edison Company, and Tucson Electric Power Company. The Company has a 13% undivided interest in Units 4 and 5 of Four Corners.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
(12) Asset Retirement Obligations
The Company identified the asset retirement obligation ("ARO") liability on the decommissioning of the Company's nuclear generation facilities and fossil fuel generation plants. The Company's transmission and distribution facilities are also subject to SFAS 143. The majority of these assets, however, have an indeterminable useful life and settlement date. As such, an ARO liability for transmission and distribution assets would not be recognized until a reasonable estimate of the fair value of these assets can be made and a settlement date becomes known. In 2003, the Company did not identify any material AROs associated with the transmission and distribution assets.
Previously, the Company had recognized decommissioning costs for its fossil fuel and nuclear generation facilities ratably over approved cost recovery periods. Upon implementation of SFAS 143 the net difference between the amounts determined to represent legal AROs under SFAS 143 and the Company's previous method of accounting for decommissioning costs, has been recognized as a cumulative effect of a change in accounting principle, net of related income taxes (see Note 17). Additionally, certain amounts accrued for nuclear decommissioning costs over the Company's legal AROs for its nuclear generation facilities have been reclassified as regulatory liabilities.
The effects of adoption of SFAS 143 standard are based on the Company's interpretation of the standard and determination of underlying assumptions, such as the Company's discount rate, estimates of the future costs for decommissioning and the timing of the removal activities to be performed. Any changes in these assumptions underlying the required calculations may require revisions to the estimated ARO when identified.
A reconciliation of the Company's asset retirement obligations is as follows:
December 31, 2003
-----------------
(In thousands)
Upon adoption at January 1, 2003................ $42,201
Liabilities incurred............................ 623
Liabilities settled............................. -
Accretion expense............................... 3,592
Revisions to estimate........................... -
--------------
$46,416
==============
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PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
(13) Commitments and Contingencies
Long-Term Power Contracts
PNM has a power purchase contract with Southwestern Public Service Company ("SPS"), which originally provided for the purchase of up to 200 MW, expiring in May 2011. PNM may reduce its purchases from SPS by 25 MW annually upon three years' notice. PNM provided such notice to reduce the purchase by 25 MW in 1999 and by an additional 25 MW in 2000. PNM also is party to a master power purchase and sale agreement with SPS, dated August 2, 1999, pursuant to which PNM has agreed to purchase 72 MW of firm power from SPS from 2002 through 2005. Beginning May 2004, PNM will purchase an additional 45 MW of firm energy through 2005, increasing to 67 MW in 2006. PNM has 70 MW of contingent capacity obtained from El Paso under a transmission capacity for generation capacity trade arrangement through September 2004. Beginning October 2004 and continuing through June 2005, the capacity amount is 39 MW. PNM holds a purchased power agreement ("PPA") with Tri-State for 50 MW through June 30, 2010. In addition, PNM is interconnected with various utilities for economy interchanges and mutual assistance in emergencies.
In 1996, PNM entered into an operating lease for the rights to all the output of a new gas-fired generating plant for 20 years. The operating lease's maximum dependable capacity is 132 MW. In July 2000, the plant went into operation. The gas turbine generating unit is operated by Delta-Person Limited Partnership ("Delta") and is located on PNM 's retired Person Generating Station site in Albuquerque, New Mexico. Primary fuel for the gas turbine generating unit is natural gas, which is procured by Wholesale on the open market and delivered by Gas through its transportation services. In addition, the unit has the capability to utilize low sulfur fuel oil in the event natural gas is not available or cost effective.
In July 2001, PNM entered into a long-term wholesale power contract with Texas-New Mexico Power ("TNP") to provide power to serve a portion of TNP`s New Mexico retail load. The contract, which commenced July 1, 2001, expires December 31, 2006. PNM provided varying amounts of firm power on demand to complement existing contracts for the first two years of the agreement. As those contracts expired at the end of 2002, PNM became TNP's sole supplier for its load in New Mexico. In the last year of the contract, it is estimated that TNP will need 114 MW of firm power.
In December 2002, PNM entered into a 27 month contract to supply 80 MW of power to U.S. Navy facilities in San Diego, California. PNM began delivering power under the contract January 1, 2003. The contract runs through March 2005.
In 2002, PNM entered into an agreement with FPL Energy LLC ("FPL"), a subsidiary of FPL Group, Inc., to develop a 200 MW wind generation facility in New Mexico. PNM began receiving commercial power from the project in June 2003. FPL Energy owns and operates the New Mexico Wind Energy Center ("NMWE"), which
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
consists of 136 wind-powered turbines on a site in eastern New Mexico. PNM has a contract to purchase all the power generated by the NMWE for 25 years. In 2003, PNM received approval from the PRC for a voluntary tariff that allows PNM retail customers to buy wind-generated electricity for a small monthly premium. Power from the facility not subscribed by PNM retail customers under the voluntary program is sold on the wholesale market, either within New Mexico or outside the state.
PNM successfully completed a number of long-term contracts during 2003. In September 2003, PNM entered into a long-term contract to supply between 15 and 25 MW of power to Overton Power District Number 5 in Southern Nevada. The contract began October 1, 2003 and runs through December 31, 2007. In October of 2003, PNM completed a five-year contract to sell Salt River 50 megawatts of wind power and associated renewable energy credits from the NMWE for the third quarter of each year from 2004 through 2008. In December 2003, PNM completed an agreement to supply up to 35 megawatts of power to the Mesa, Arizona, municipal utility. PNM is replacing Ohio-based American Electric Power (AEP) as supplier under a contract that runs through 2013.
Coal Supply
The coal requirements for the SJGS are being supplied by San Juan Coal Company ("SJCC"), a wholly-owned subsidiary of BHP Billiton. SJCC holds certain Federal, state and private coal leases under an underground coal sales agreement ("coal agreement") pursuant to which it will supply processed coal for operation of the SJGS until 2017. The coal agreement is a cost plus contract. SJCC is reimbursed for all costs for mining and delivering the coal plus an allocated portion of administrative costs. In addition, SJCC receives a return on its investment. BHP Minerals International, Inc. has guaranteed the obligations of SJCC under the coal agreement. This guarantee is with respect to SJCC's obligations as defined in the coal agreement and protects against contingencies such as SJCC non-performance, insolvency, bankruptcy, reorganization, dissolution, and other corporate or organizational adversities. The coal agreement contemplates the delivery of approximately 91 million tons of coal during its remaining term. That amount would supply substantially all the requirements of the SJGS through approximately 2017.
In August 2001, the Company and Tucson Electric Power Company ("Tucson") signed the coal agreement with SJCC to replace two surface mining operations with a single underground mine located adjacent to the plant. The initial development of the underground mine began in the fourth quarter of 2000. After the longwall equipment became operational in October 2002, the mine was expected to achieve full station supply in March of 2003. It did not achieve this production level until December 2003, necessitating partial coal supply from existing inventory. Despite geological issues that impeded the underground mine production rates and efficiencies that were expected, SJGS fuel costs declined by 3.5% between 2002 and 2003. SJCC and the Company continually review coal cost projections and work with the Company's mine consultants to incorporate the experience gained from the first full year mining operations.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
Four Corners Power Plant ("Four Corners") is supplied with coal under a fuel agreement between the owners and BHP Navajo Coal Company ("BNCC"), under which BNCC agreed to supply all the coal requirements for the life of the plant. The current fuel agreement which has been recently extended, expires July 6, 2016. The extension of the agreement did not materially affect the coal cost forecast. BNCC holds a long-term coal mining lease, with options for renewal, from the Navajo Nation and operates a surface mine adjacent to Four Corners with the coal supply expected to be sufficient to supply the units for their estimated useful lives.
In connection with both the SJGS coal agreement and the Four Corners fuel agreement, the owners are required to reimburse SJCC and BNCC for the cost of coal mine decommissioning or reclamation. Final mine reclamation occurs when mining production activities conclude. The Company considers these costs part of the cost of delivered coal costs over the life of the respective mine. This liability is recorded at estimated fair value based on the expected cash out-flows to be made to reimburse SJCC and BNCC for their reclamation activities. These cash flows are discounted at a credit adjusted risk-free rate. The liability is accreted and an appropriate incremental cost is recognized using the interest method.
In 2003, the Company completed a comprehensive review with the help of an outside consulting firm of the final reclamation costs for both the surface mines that previously provided coal to SJGS and the current underground mine providing coal. Based on this study, the Company revised its estimates of the final reclamation of the surface mine. In addition, the mining contract with BNCC supplying Four Corners was renewed until 2016. Previously the Company had recognized obligations related to these surface mines of $113.9 million. Based on these changes in estimate, the final cost of reclamation is expected to be $139.3 million in accreted dollars. In 2002 and 2003, the Company made payments of $36.6 million and $12.9 million, respectively, against this liability. As of December 31, 2003, $56.9 million was recognized as the Company's obligation for reclamation using the fair value method to determine the liability.
In the Global Electric Agreement (see "Global Electric Agreement" below), the Company was allowed to collect $100 million of surface mine final reclamation costs over the next 17 years. The Company expects to recover the remaining amount in a future rate case. In addition, the Company expects to recover the portion of final underground mine reclamation costs related to New Mexico ratepayers in future rate cases.
The underground mine began commercial operation in January 2003. The Company recognized a reclamation liability of $0.6 million related to mining activities in 2003.
Natural Gas Supply
The Company contracts for the purchase of gas to serve its retail customers. These contracts are short-term in nature supplying the gas needs for the current heating season and the following off-season months. The price of gas is a pass-through, whereby the Company recovers 100% of its cost of gas.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The natural gas used as fuel by Electric and Wholesale was delivered by Gas. In the second quarter of 2001, Electric and Wholesale began procuring its gas supply independent of the Company and contracting with Gas for transportation services only.
Steam Generator Tubes
APS, as the operating agent of PVNGS, has encountered tube cracking in the steam generators and has taken, and will continue to take, remedial actions that it believes have slowed the rate of tube degradation. The projected service life of steam generators is assessed on an on-going basis. Two replacement steam generators were installed in Unit 2 during its Fall 2003 refueling outage. The Company's share of the fabrication and installation costs were approximately $24.7 million as of December 31, 2003.
The PVNGS participants ("Participants") have approved the purchase of replacement steam generators for Units 1 and 3. Preliminary work for the installation of the replacement steam generators has also been approved by the Participants. These actions will provide the Participants with options regarding the replacement of steam generators in Unit 1 and Unit 3. Unit 1 could be replaced as early as Fall 2005, should the Participants choose to do so. The Company estimates that its portion of the fabrication and installation costs and associated power upgrade modifications for Units 1 and 3, will be approximately $46 million over the period 2002-2008 (exclusive of replacement power costs), should installation of the ordered replacement steam generators be approved.
PVNGS Decommissioning Funding
PNM has a program for funding its share of decommissioning costs for PVNGS. The nuclear decommissioning funding program is invested in equities and fixed income instruments in qualified and non-qualified trusts. The results of the 2001 decommissioning cost study indicated that PNM's share of the PVNGS decommissioning costs, excluding spent fuel disposal, would be approximately $201 million (measured in 2001 dollars).
PNM provided an additional $3.1 million, $10.7 million and $6.1 million funding for the year ended December 31, 2003, 2002 and 2001, respectively, into the qualified and non-qualified trust funds. The estimated market value of the trusts for the year ended December 31, 2003 was approximately $78.7 million.
Nuclear Spent Fuel and Waste Disposal
Pursuant to the Nuclear Waste Policy Act of 1982, as amended in 1987 (the "Waste Act"), the United States Department of Energy ("DOE") is obligated to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Under the Waste Act, the DOE was to develop facilities necessary for the storage and disposal of spent nuclear fuel and to have the first facility in operation by 1998. The DOE has announced that such a repository cannot be completed before 2010.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The operator of PVNGS has fuel storage pools at PVNGS, which accommodates fuel from normal operation of PVNGS. To continue to allow full core offload capability, older fuel is being placed in dry storage casks and removed from the Units. Through December 31, 2003, the operator of PVNGS has loaded 10 dry storage casks and placed the casks in the completed dry storage facility. Fuel from Unit 3 will be removed from the Unit 3 fuel storage pool during the first quarter of 2004. PNM currently estimates that it will incur approximately $41.0 million (in 2001 dollars) over the life of PVNGS for its share of the fuel costs related to the on-site interim storage of spent nuclear fuel during the operating life of the plant. PNM accrues these costs as a component of fuel expense, meaning that the charges are accrued as the fuel is burned. The Company has accrued $1.0 million in each of 2003 and 2002 for interim storage costs. The operator of PVNGS currently believes that spent fuel storage or disposal methods will be available for use by PVNGS to allow its continued operation. The dry storage facility has the space to hold all fuel anticipated to be used during the licensed life of PVNGS.
PVNGS Liability and Insurance Matters
The Participants have financial protection for public liability resulting from nuclear energy hazards to the full limit of liability under federal law. This potential liability is covered by primary liability insurance provided by commercial insurance carriers in the amount of $300.0 million and the balance by an industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the programs exceed the primary liability insurance limit, the Company could be assessed retrospective adjustments. Effective August 20, 2003, the maximum assessment per reactor under the program for each nuclear incident increases from approximately $88 million to approximately $101 million. The retrospective assessment is subject to an annual limit of $10.0 million per reactor per incident. Based upon the Company's 10.2% interest in the three PVNGS units, the Company's maximum potential assessment per incident for all three units is approximately $31 million, with an annual payment limitation of approximately $3 million per incident. If the funds provided by this retrospective assessment program prove to be insufficient, Congress could impose revenue-raising measures on the nuclear industry to pay claims.
Possible Price-Anderson Act Changes
Versions of comprehensive energy bills proposed for adoption by Congress contain provisions that would amend Federal Law (the "Price-Anderson Act") addressing public liability from nuclear energy hazards in ways that would increase the annual limit on retrospective assessments (see "PVNGS Liability and Insurance Matters" above) from $10.0 million to $15.0 million per reactor per incident with the Company's annual exposure per incident increasing from approximately $3.0 million to $4.5 million.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The Company believes that such changes in applicable law, if enacted, would not result in a "deemed loss event" being declared by the equity investors in respect of the Company's sale and leaseback transactions of PVNGS Units 1 and 2.
Global Electric Agreement
On October 10, 2002, PNM announced that it had agreed with the PRC staff, the New Mexico Attorney General ("AG"), and other consumer groups on a Global Electric Agreement that provided for joint support for the repeal of a majority of the New Mexico Electric Utility Industry Restructuring Act of 1999, as amended ("Restructuring Act"), a fixed rate path, procedures for the Company's participation in unregulated generating plant activities and other regulatory issues. The ratepath is effective for services rendered September 1, 2003 through December 31, 2007. Based on the normal time frame for rate proceedings in New Mexico of ten months, a change in rates would not happen until late 2008. The Global Electric Agreement was approved by the PRC in January 2003. Legislation repealing the Restructuring Act and continuing the authorization for utilities to participate in unregulated generating plant activities for a limited time according to the Global Electric Agreement was passed by the New Mexico Legislature and signed into law by the Governor on April 8, 2003. In the Global Electric Agreement, PNM agreed to forego recovery of the costs incurred in preparing to transition to a competitive retail market in New Mexico under the repealed law. This resulted in a charge of $16.7 million, pre-tax, in the first quarter of 2003. As a result of the repeal of the Restructuring Act, PNM has re-applied the accounting requirements of SFAS 71 to its regulated generation activities effective January 2003, which did not have a material effect on the Company's financial condition or results of operations.
Gas Rate Case
On January 10, 2003, PNM filed a general gas rate case, requesting that the PRC approve an increase in the service fees charged to its 441,000 natural-gas customers. PNM's proposal would have increased both the set monthly service fee and the charge tied to monthly usage. Such fees are separate from the cost of gas charged to customers. The monthly cost of gas charge would not be affected by the fee increase.
On June 25, 2003, PNM, the PRC Staff, and a group of industrial consumers filed a settlement allowing the Company a $20.0 million annual revenue increase in base cost of service rates, a $1.6 million annual increase in miscellaneous fees and charges and the recovery of $4.4 million in previously approved costs. The settlement rates were proposed to go into effect for bills rendered in November 2003. A final order disapproving the settlement was issued on November 3, 2003.
The Company successfully sought rehearing of the final order disapproving the stipulation. In its request for rehearing, the Company proposed two alternatives for delaying the residential rate increase. The rehearing was held on November 25, 2003. As a result of the rehearing, the PRC in January 2004 unanimously approved the stipulation. Under the stipulation, the residential
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
rate increase will go into effect with bills rendered in April 2004. The approved rates will increase gas revenues approximately $22.0 million annually. The Company will forego the recovery of any revenue lost as a result of the delay. All other rate increases go into effect with the first billing cycle after the date of the final order approving the amended stipulation, January 13, 2004.
Water Supply
Because of New Mexico's arid climate and current drought conditions, there is a growing concern in New Mexico about the use of water for power plants. The availability of sufficient water supplies to meet all the needs of the state, including growth, is a major issue. The Company has secured water rights in connection with the Afton and Lordsburg plants and water availability does not appear to be an issue for these plants at this time.
The Four Corners region, in which SJGS and Four Corners are located, has been experiencing drought conditions that may affect the water supply for the Company's generation plants. If adequate precipitation is not received in the watershed that supplies the Four Corners areas, the plants may be affected in 2004 and the future. The United States Bureau of Reclamation ("USBR") has been requested to approve a supplemental contract for 8,300 acre feet per year for a one-year term ending December 31, 2004. Environmental approvals are also in the process of being obtained for the supplemental contract. PNM has also signed a voluntary shortage sharing agreement with tribes and other water users in the San Juan Basin for a one-year term ending December 31, 2004. Environmental approvals for that agreement are pending. A similar agreement was entered into in 2003. Although PNM does not believe that its operations will be materially affected by the drought conditions at this time, it cannot forecast the weather situation or its ramifications, or how regulations and legislation may impact PNM's situation in the future, should the drought continue.
Western United States Wholesale Power Market
Various circumstances, including electric power supply shortages, weather conditions, gas supply costs, transmission constraints, and alleged market manipulation by certain sellers, resulted in the well-publicized "California energy crisis" and in the bankruptcy filings of the California Power Exchange ("Cal PX") and of Pacific Gas and Electric Company ("PG&E"). However, since the third quarter of 2001, conditions in the Western wholesale power market have changed substantially because of regulatory actions, conservation measures, the construction of additional generation, a decline in natural gas prices relative to levels reached during the California energy crisis and regional economic conditions.
As a result of the foregoing conditions in the Western market, the FERC and other federal and state governmental authorities are conducting investigations and other proceedings relevant to the Company and other sellers. The more significant of these in relation to the Company are summarized below.
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
California Refund Proceeding
San Diego Gas and Electric Company ("SDG&E") and other California buyers have filed a complaint with the FERC against sellers into the California wholesale electric market. Hearings were held in September 2002, and the administrative law judge ("ALJ") issued the "Proposed Findings on California Refund Liability" in December 2002, in which it was determined that the Cal ISO had, for the most part, correctly calculated the amounts of the potential refunds owed by sellers. The ALJ identified what were termed "ballpark" figures for the amount of refunds due under the order in an appendix to the proposed findings document. PNM was identified as having a refund liability of approximately $4.3 million, while being owed approximately $7 million from the Cal ISO. Pursuant to the FERC's order, PNM filed, in conjunction with the competitive supplier group, initial comments in January 2003 to the ALJ's preliminary findings addressing errors the Company believes the ALJ made in the proposed findings, and filed reply comments in February 2003.
Prior to the December 2002 ALJ decision, the Ninth Circuit Court of Appeals ordered the FERC to allow the parties in the case to provide additional evidence regarding alleged market manipulation by sellers. Several California parties submitted additional evidence in March 2003 to support their position that virtually all market participants, including PNM, either engaged in specific market manipulation strategies or facilitated such strategies. PNM maintains that it did not engage in improper wholesale activities, and filed reply evidence in March 2003, denying the allegations against it.
In March 2003, the FERC issued an order substantially adopting the ALJ's findings in his December 2002 decision, but requiring a change to the formula used to calculate refunds. The FERC raised concerns that the indices for California gas prices, a major element in the formula, had been subject to potential manipulation and were unverifiable. The effect of this change, which is not yet final, would be to increase PNM's refund liability. In October 2003, the FERC issued its order on rehearing in which it affirmed its decision to change the gas price indices used to calculate the refund amounts. This has the effect of increasing the Company's amount of refund. The precise amounts, however, will not be certain until the Cal ISO and Cal PX recalculate refund amounts which FERC required that they do as soon as possible, but no later than five months after its October 2003 Order. The Company is currently awaiting the filing of additional refund information by the Cal ISO and Cal PX and is unable to predict the ultimate outcome of this FERC proceeding, or whether PNM will be directed to make any refunds as the result of the FERC order.
Pacific Northwest Refund Proceeding
In addition to the California refund proceedings, Puget Sound Energy, Inc. filed a complaint at the FERC alleging that spot market prices in the Pacific Northwest wholesale electric market were unjust and unreasonable. In September 2001, the ALJ issued a recommended decision and declined to order refunds associated with wholesale electric sales in the Pacific Northwest. In a ruling similar to the one issued in the California refund proceeding, the FERC
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
allowed additional discovery to take place and the submission of additional evidence in the case in March 2003. In June 2003, the FERC issued an order terminating the proceeding and adopting the ALJ's recommendation that no refunds should be ordered. Several parties in the proceeding filed requests for rehearing and in November 2003, FERC denied rehearing and reaffirmed its prior ruling that refunds were not appropriate for spot market sales in the Pacific Northwest during the first half of 2001. In November 2003, the Port of Seattle filed an appeal of FERC's order denying rehearing in the Ninth Circuit Court of Appeals. As a participant in the proceedings before FERC, the Company is also participating in the appeal proceedings. The Company is unable to predict the ultimate outcome of this appeal, or whether PNM will ultimately be directed to make any refunds.
FERC Show Cause Orders
The FERC initiated a market manipulation investigation, partially in response to the bankruptcy filing of the Enron Corporation ("Enron") and to allegations that Enron may have engaged in manipulation of portions of the Western wholesale power market. In connection with that investigation, all sellers into Western electric and gas markets were required to submit data regarding short-term transactions in 2000-2001. In March 2003, the FERC staff issued its final report, which addressed various types of conduct that the FERC staff believed may have violated market monitoring protocols in the Cal ISO and Cal PX tariffs. Based on the final report, the FERC issued orders to certain companies, including Enron, requiring them to show cause why the FERC should not revoke their authorizations to sell electricity at market-based rates. In addition, the FERC staff recommended that the FERC issue orders requiring certain entities to show cause why they should not be required to disgorge profits associated with conduct deemed to violate the Cal ISO and Cal PX tariffs, or be subject to other remedial action.
In June 2003, the FERC issued two separate orders to show cause against PNM and over sixty other companies. In the first order (the "Gaming Practices Order"), the FERC asserted that certain entities, including PNM, appeared to have participated in activities that constitute gaming and/or anomalous market behavior in violation of the Cal ISO and Cal PX tariffs during the period January 1, 2000 to June 20, 2001. Specifically, PNM is alleged to have engaged in a practice termed "False Import," which FERC defined as the practice of exporting power generated by California and then reimported into California in order to avoid price caps on in-California generation. These allegations are based primarily on an initial Cal ISO report and the additional evidentiary submission by California parties. The Cal ISO was ordered to submit additional information on which the entities subject to the Show Cause Order should respond. For PNM, the potential disgorgement for alleged "False Import" transactions covers the period May 1, 2000 to October 1, 2000. After review of the additional Cal ISO data and consultation with PNM, the FERC trial staff filed a motion to dismiss PNM from the case in August 2003. In September 2003, the California parties filed their objection to the dismissal of PNM from the case. In January 2004, the FERC issued an order granting trial staff's motion to dismiss PNM from the Gaming Partnerships docket on grounds that FERC staff's investigation did not reveal that PNM engaged in the practice of "False Import." As a result, the Company has been dismissed from the Gaming Practices proceedings.
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In the second order to show cause (the "Gaming Partnerships Order"), the FERC asserts that certain entities, including PNM, acted in concert with Enron and other market participants to engage in activities that constitute gaming and/or anomalous market behavior in violation of the Cal ISO and Cal PX tariffs during the period January 1, 2000 to June 20, 2001. Specifically, PNM is alleged to have entered into "partnerships, alliances or other arrangements" with thirteen of its customers that allegedly may have been used as market manipulation schemes. The precise basis for certain of the FERC's allegations is not clear from the Gaming Partnerships Order, although it appears that most arise out of PNM's provision of "parking and lending" services to the identified companies. The potential remedies include disgorgement of unjust profits, as well as non-monetary remedies such as revocation of a seller's market-based rate authority.
In September 2003, PNM filed its responses to the Gaming Partnerships Order indicating that it did not engage in the alleged "partnerships, alliances or other arrangements" with the alleged parties. In October 2003, PNM filed testimony and exhibits in the case reasserting its response previously filed. The FERC ALJ has set the case for hearing on June 28, 2004. In January 2004, the FERC issued an order granting FERC staff's motion to dismiss seven of the thirteen PNM customers on grounds that there was no evidence to conclude that these companies used their commercial relationship with PNM to game the California ISO and PX markets. Of the six remaining PNM customers in the docket, the FERC staff has filed motions to dismiss or enter into settlement agreements with five of them. On February 27, 2004, the FERC staff and the California parties filed their testimony. The FERC staff did not identify any improper conduct by PNM. The California parties allege that PNM provided false information regarding parking transactions that allowed other parties to game the California market. They claim PNM should be required to disgorge unjust profits that they variously calculate as between approximately $6 million and $26 million in addition to non-monetary penalties. PNM believes that it has not engaged in improper conduct and intends to defend itself vigorously against these allegations. PNM continues to have discussions with the FERC Staff regarding possible dismissal of the charges against PNM.
Investigation of Anomalous Bidding Behavior and Practices in the Western Markets
In June 2003, the FERC issued an order finding that certain bids into the Cal ISO and Cal PX markets during the period May 1 through October 1, 2000 appear to have been excessive, in violation of the prohibitions against anomalous market behavior in the market monitoring protocols of the Cal ISO and Cal PX tariffs. The order directed the FERC's Office of Market Oversight and Investigation ("OMOI") to conduct a further investigation into bids in excess of $250 per MW during that period. In July 2003, PNM received a data request from OMOI to all sellers into the Cal ISO and Cal PX markets that submitted bids in excess of $250 per MW to the Cal ISO and Cal PX during the period covered by the investigation. In July 2003, PNM submitted its response to OMOI's data request, in which PNM provided justification of its bidding strategies during that period. In July 2003, PNM joined with other sellers in filing a request for rehearing of the June 2003 order, challenging the FERC's determination that bids
above $250 per MW into the Cal ISO and Cal PX markets during the period May 1 through October 1, 2000 were prima facie excessive or in violation of the Cal ISO and Cal PX tariffs. PNM has received additional requests for information and data from OMOI, to which PNM responded. The investigation is currently pending and PNM cannot predict the outcome of OMOI's investigation, but intends to vigorously defend itself against any allegation of wrongdoing.
California Power Exchange and Pacific Gas and Electric Bankruptcies
In January and February 2001, Southern California Edison ("SCE") and PG&E, major purchasers of power from the Cal PX and Cal ISO, defaulted on payments due to Cal PX for power purchased from the Cal PX in 2000. These defaults caused the Cal PX to seek bankruptcy protection. PG&E subsequently also sought bankruptcy protection. PNM has filed its proofs of claims in the Cal PX and PG&E bankruptcy proceedings. Amounts due to PNM from the Cal PX or Cal ISO for power sold to them in 2000 and 2001 total approximately $7 million. The Company has provided allowances for the total amount due from the Cal PX and Cal ISO.
California Attorney General Complaint
In March 2002, the California Attorney General filed a complaint with the FERC against numerous sellers regarding prices for wholesale electric sales into the Cal ISO and Cal PX and to the California Department of Water Resources ("Cal DWR"). PNM was among the sellers identified in this complaint and filed its answer and motion to intervene. In its answer, PNM defended its pricing and challenged the theory of liability underlying the California Attorney General's complaint. In May 2002, the FERC entered an order denying the California Attorney General's request to initiate a refund proceeding, but directed sellers, including PNM, to comply with additional reporting requirements with regard to certain wholesale power transactions. PNM has made filings required by the May 2002 order. The California Attorney General filed a petition for review in the United States Court of Appeals for the Ninth Circuit. PNM intervened in the Ninth Circuit appeal and is participating as a party in that proceeding. The Ninth Circuit held oral arguments in the case in October 2003. The Company cannot predict the outcome of this appeal. As addressed below, the California Attorney General has also threatened litigation against PNM in state court in California based on similar allegations.
California Attorney General Threatened Litigation
The California Attorney General has filed several lawsuits in California state court against certain power marketers for alleged unfair trade practices involving overcharges for electricity. In April 2002, the California Attorney General notified PNM of his intention to file a complaint in California state court against PNM concerning PNM's alleged failure to file rates for wholesale electricity sold in California and for allegedly charging unjust and unreasonable rates in the California markets. The letter invited PNM to contact the California Attorney General's office before the complaint was filed, and PNM has met several times with representatives of the California Attorney General's office. Further discussions are contemplated. To date, a lawsuit has not been filed by the California Attorney General and the Company cannot predict the outcome of this matter.
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California Antitrust Litigation
Several class action lawsuits have been filed in California state courts against electric generators and marketers, alleging that the defendants violated the law by manipulating the market to grossly inflate electricity prices. Named defendants in these lawsuits include Duke Energy Corporation ("Duke") and related entities along with other named sellers into the California market and numerous other "unidentified defendants." Certain of these lawsuits were consolidated for hearing in state court in San Diego, California. In May 2002, the Duke defendants served a cross-claim on PNM. Duke also cross-claimed against many of the other sellers into California. Duke asked for declaratory relief and for indemnification for any damages that might ultimately be imposed on Duke. Several defendants removed the case to federal court in California. The federal judge has entered an order remanding the matter to state court, but the effect of that ruling has been stayed pending appeal. PNM has joined with other cross-defendants in motions to dismiss the cross-claim. The Company believes it has meritorious defenses but cannot predict the outcome of this matter.
Block Forward Agreement Litigation
In February 2002, PNM was served with a declaratory relief complaint filed by the State of California in California state court. The state's declaratory relief complaint seeks a determination that the state is not liable for its commandeering of certain energy contracts known as "Block Forward Agreements". The Block Forward Agreements were a form of futures contracts for the purchase of electricity at below-market prices and served as security for payment by PG&E and SCE for their electricity purchases through the Cal PX. When PG&E and SCE defaulted on payment obligations incurred through the Cal PX, the Cal PX moved to liquidate the Block Forward Agreements to satisfy in part the obligations owed by PG&E and SCE. Before the Cal PX could liquidate the Block Forward Agreements, California commandeered them for its own purposes. In March 2001, PNM and other similarly situated sellers of electricity through the Cal PX filed claims for damages with the California state Victims Compensation and Government Claims Board ("Victims Claims Board") on the theory that the state, by commandeering the Block Forward Agreements, had deprived them of security to which they were entitled under the terms of the Cal PX's tariff. The Victims Claims Board denied PNM `s claim in March 2002. PNM filed a complaint against the State of California in California state court in September 2002, seeking damages for the state's commandeering of the Block Forward Agreements and requesting judicial coordination with the state's declaratory relief action filed in February 2002 on the basis that the two actions raise essentially the same issues. The judge delayed establishing a procedural schedule for the case pending a determination of the Cal PX's status in the litigation. The judge has since held that the Cal PX could represent the interests of Cal PX participants in the litigation. The judge declined to set a procedural schedule because of his impending retirement. A new judge has now been appointed.
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New Source Review Rules
In November 1999, the United States Department of Justice ("DOJ"), at the request of the Environmental Protection Agency ("EPA"), filed complaints against seven companies, alleging that the companies over the past 25 years had made modifications to their plants in violation of the New Source Review ("NSR") requirements and in some cases the New Source Performance Standard ("NSPS") regulations, which could result in the requirement to make costly environmental additions to older power plants. Whether or not the EPA will ultimately prevail is uncertain at this time. The EPA has reached settlements with several of the companies sued by the DOJ. In August 2003, in one of the pending enforcement cases against Ohio Edison Company, a federal district judge in Ohio ruled in favor of the EPA and against Ohio Edison. The judge accepted the legal theories advanced by the government and in particular found that eleven construction projects undertaken by the utility in that case between 1984 and 1998 were "modifications" of the plants within the meaning of the Clean Air Act, not "routine maintenance, repair or replacement" ("RMRR"). That case now proceeds to a remedy phase. By contrast, in a separate federal district court proceeding against Duke Energy Company, the court has made certain rulings in summary judgment motions that appeared to potentially validate elements of the industry position. If the EPA prevails in the position advanced in the pending litigation, PNM may be required to make significant capital expenditures, which could have a material adverse effect on the Company's financial position and results of operations.
No complaint has been filed against PNM by the EPA, and the Company believes that all of the routine maintenance, repair, and replacement work undertaken at its power plants was and continues to be in accordance with the requirements of NSR and NSPS. However, in October 2000, the New Mexico Environmental Department ("NMED") made an information request of PNM, advising PNM that the NMED was in the process of assisting the EPA in the EPA's nationwide effort "of verifying that changes made at the country's utilities have not inadvertently triggered a modification under the Clean Air Act's Prevention of Significant Deterioration ("PSD") policies." PNM has responded to the NMED information request. In late June 2002, PNM received another information request from the NMED for a list of capital projects budgeted or completed in 2001 or 2002. PNM has responded to the additional NMED information request.
The National Energy Policy Development Group released the National Energy Policy in May 2001 which called for a review of the pending EPA enforcement actions. As a result of that review, in June 2002, the EPA announced its intention to pursue steps to increase energy efficiency, encourage emissions reductions and make improvements and reforms to the NSR program. The EPA announced that, among other things, the NSR program had impeded or resulted in the cancellation of projects that would maintain or improve reliability, efficiency and safety of existing power plants. The EPA's June 2002 announcement contemplated further rulemakings on NSR-related issues and expressly cautioned that the announcement was not intended to affect pending NSR enforcement actions. Thereafter, in December 2002, the EPA promulgated certain long-awaited revisions to the NSR rules, along with proposals to revise the RMRR exclusion
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contained in the regulations. In August 2003, the EPA issued its rule regarding
RMRR. The new RMRR rule clarifies what constitutes RMRR of damaged or worn
equipment, subject to safeguards to assure consistency with the Clean Air Act.
It provides that replacements of equipment are routine only if the new equipment
is (i) identical or functionally equivalent to the equipment being replaced;
(ii) does not cost more than 20% of the replacement value of the unit of which
the equipment is a part; (iii) does not change the basic design parameters of
the unit; and (iv) does not cause the unit to exceed any of its permitted
emissions limits. Legal challenges to the RMRR rule have been filed by several
states; other states have intervened in support of the rule. How such challenges
will ultimately be resolved cannot be predicted but an appellate court order has
stayed the effect of the RMRR rule pending the outcome of the litigation.
Citizen Suit Under the Clean Air Act
Following required notification, the Grand Canyon Trust and the Sierra Club (collectively "GCT") filed a so-called "citizen suit" in federal district court in New Mexico against PNM (but not against the other SJGS co-owners) in May 2002. The suit alleged two violations of the Clean Air Act and related regulations and permits. First, GCT argued that the plant has violated, and is currently in violation of, the federal Prevention of Significant Deterioration ("PSD") rules, as well as the corresponding provisions of the New Mexico Administrative Code, at SJGS Units 3 and 4. Second, GCT alleged that the plant has "regularly violated" the 20% opacity limit contained in SJGS's operating permit and set forth in federal and state regulations at Units 1, 3 and 4. The lawsuit seeks penalties as well as injunctive and declaratory relief. PNM denied the material allegations in the complaint.
Both sides in the litigation filed motions for partial summary judgment and the court entered an order granting PNM's motion for summary judgment on the PSD issues, dismissing that portion of the case against PNM. A trial on certain preliminary liability issues on the opacity claims was held in November 2003. At this trial, the plaintiffs presented their case and PNM presented certain defenses, including that the measurement methods relied on by GCT are contradicted by other measurement methods or by other qualified scientific data. On February 2, 2004 the court entered a Memorandum Opinion on PNM's general defenses. The Memorandum Opinion rejected PNM's arguments concerning the proper method for determining opacity compliance, but allowed PNM to present evidence in the next part of the liability trial addressing and defending against liability for specific alleged opacity violations. A status conference was held on March 5, 2004. The court advised that the next phase of the liability trial would likely be scheduled in August or September 2004. A trial on remedy issues, if necessary, would be scheduled at a later date. PNM was directed to make a written settlement offer by April 1, 2004 with the plaintiffs directed to respond by April 16, 2004. The Company believes that it has meritorious defenses and continues to vigorously dispute the allegations. PNM's corporate policy continues to be to adhere to high environmental standards as evidenced by its ISO 14001 certification. The Company is, however, unable to predict the ultimate outcome of the matter.
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Archeological Site Disturbance
The Company hired a contractor, Great Southwestern Construction, Inc. ("Great Southwestern"), to conduct certain "climb and tighten" activities on a number of electric transmission lines in New Mexico between July 2001 and December 2001. Those lines traverse a combination of federal, state, tribal and private properties in New Mexico. In late May 2002, the U.S. Forest Service ("USFS") notified PNM that apparent disturbances to archeological sites had been discovered in and around the rights-of-way for PNM's transmission lines in the Carson National Forest in New Mexico. Great Southwestern had performed "climb and tighten" activities on those transmission lines.
PNM has confirmed the existence of the disturbances, as well as disturbances associated with certain arroyos that may raise issues under section 404 of the Clean Water Act. PNM has given the Corps of Engineers notice concerning the disturbances in arroyos. The Corps of Engineers has acknowledged the Company's notice and asked PNM to cooperate in addressing these disturbances. The USFS verbally instructed PNM to undertake an assessment and possible related mitigation measures with respect to the archeological sites in question. PNM contracted for an archeological assessment and a proposed remediation plan with respect to the disturbances and has provided the assessment to the USFS and the federal Bureau of Land Management ("BLM"). The Santa Fe Forest issued a notice of non-compliance to PNM for alleged non-compliance with the terms and conditions of PNM's special use authorization relating to maintenance of PNM's power lines on USFS land.
A subsequent preliminary investigation into other transmission lines that were covered by the "climb and tighten" project indicated that there are disturbances on lands governed by other federal agencies and Indian tribes. PNM and Great Southwestern have provided notice of the potential disturbances to these other agencies and tribes. The Company had been informed that the USFS and BLM had commenced a criminal investigation into Great Southwestern's activities on this project. However, the Company received verbal confirmation that the USFS and the BLM have decided to decline criminal prosecution under the Archeological Resources Protection Act ("ARPA") against PNM and Great Southwestern. The State of New Mexico requested information from PNM concerning the location of potential disturbances on state lands. The Navajo Nation has also requested further information concerning disturbances on Navajo land, but has provided written declination of criminal charges under ARPA against PNM and Great Southwestern. The Navajo Nation has indicated that it may pursue civil damages under ARPA. PNM and Great Southwestern are seeking the consent of BLM and the USFS to address impacted drainages under these agencies jurisdiction. PNM has provided Great Southwestern with notice and a demand for indemnity. Zurich Insurance, the insurer for Great Southwestern, has denied coverage and indemnity to PNM for this claim but has agreed to share the cost of a portion of the investigation of this claim. The Company is unable to predict the outcome of this matter and cannot estimate with any certainty the potential impact on the Company's operations.
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Excess Emissions Reports
As required by law, whenever there are excess emissions from SJGS, due to such causes as start-up, shutdown, upset, breakdown or certain other conditions, PNM makes filings with the NMED. For some three years, PNM has been in discussions with NMED concerning excess emissions reports for the period after January 1997. During this period, NMED investigated the circumstances of these excess emissions and whether these emissions involve any violation of applicable permits and regulations. PNM and NMED have entered into several agreements tolling the running of the statute of limitations in order to allow NMED to complete its review of these filings. The present tolling agreement expires July 1, 2004. By letter dated September 12, 2003, the NMED advised PNM that NMED would not excuse certain of the emissions exceeding the operation permit emission permits. The NMED also stated that PNM had violated the opacity limits in the operating permit and articulated a construction of the standards that NMED would apply in evaluating opacity exceedances. Attached to the September 12, 2003 letter was what was identified as a "draft" compliance order assessing unspecified civil penalties. The NMED invited PNM to enter into discussions concerning the contents of the letter and of the draft compliance order and PNM and NMED have entered into such discussions. The compliance order has not yet been finalized and no proceeding against PNM has yet been commenced by NMED. PNM disagrees with the construction of its operating permit that is contained in the September 12, 2003 letter which represents a construction of the operating permit never previously advanced by NMED. PNM is unable to predict the outcome of this matter and cannot estimate the potential impact on the Company's operations.
Santa Fe Generating Station
PNM and the NMED conducted investigations of the gasoline and chlorinated solvent groundwater contamination detected beneath PNM's former Santa Fe Generating Station ("Santa Fe Station") site to determine the source of the contamination pursuant to a 1992 Settlement Agreement ("Settlement Agreement") between PNM and the NMED. The Settlement Agreement has been amended on several occasions to modify the scope of the investigation and remediation activities. No source of gasoline contamination in the groundwater was identified as originating from the site.
PNM is of the opinion that the data compiled indicates observed groundwater contamination originated from off-site sources. However, in August 2003, PNM elected to enter into a fifth amendment ("Fifth Amendment") to the Settlement Agreement with the NMED to avoid a prolonged legal dispute whereby PNM agreed to install additional remediation facilities consisting of an additional extraction well and two additional monitoring wells to address remaining gasoline contamination in the groundwater at and in the vicinity of the site. PNM will continue to operate the remediation facilities until the groundwater is cleaned up to applicable federal standards or until such time as the NMED determines that additional remediation is not required, whichever is earlier. The City of Santa Fe, the NMED and PNM entered into an amended
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Memorandum of Understanding relating to the continued operation of the Santa Fe Well and the remediation facilities called for under the latest Amended Settlement Agreement.
The Fifth Amendment notes the continued presence of chlorinated solvents in the groundwater under the former Santa Fe Generating Station and provides that once the remediation standards are met, the NMED anticipates that it will not require PNM to undertake any further investigation or remediation with respect to chlorinated solvents. In the event that chlorinated solvent concentrations remain at levels requiring further action, the NMED will not require PNM to take any further action with respect to the chlorinated solvent contamination until the NMED has reviewed any new data relating to the chlorinated solvent contamination and undertaken a good faith investigation into other potential sources. The NMED has acknowledged that at least a portion of the chlorinated solvent contamination observed beneath the Santa Fe Generating Station site has originated from off-site sources. In September 2003, PNM was verbally informed that the Superfund Oversight Section of the NMED is conducting an investigation into the chlorinated solvent contamination at the former Santa Fe Generating Station site, including other possible sources for the chlorinated solvents in the groundwater. The NMED states that it expects to have the results of its investigation complete by September of 2004.
Natural Gas Royalties Qui Tam Litigation
In 1999, a complaint was served on the Company alleging violations of the False Claims Act by PNM and its subsidiaries, Gathering Company and Processing Company (collectively, the "Company" for purposes of this discussion), by purportedly failing to properly measure natural gas from Federal and tribal properties in New Mexico, and consequently, underpaying royalties owed to the Federal government. A private relator is pursuing the lawsuit. The complaint was served after the United States Department of Justice declined to intervene to pursue the lawsuit. The complaint seeks actual damages, treble damages, costs and attorneys fees, among other relief.
Currently the parties are engaged in discovery on the issue of whether the relator meets the requirements for bringing a claim under the False Claims Act. The Company expects to participate with other defendants in a motion to dismiss on the ground that the relator does not meet those requirements.
The Company is vigorously defending this lawsuit and is unable to estimate the potential liability, if any, or to predict the ultimate outcome of this lawsuit.
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Dugan Production Corporation Litigation
In July 2002, Dugan Production Corp. filed a lawsuit in the County of San Juan, New Mexico, against the SJCC. In September 2002, the SJCC removed the lawsuit to the United States District Court for the District of New Mexico. The lawsuit seeks to enjoin the underground mining of coal from a portion of the land that is to be used for the underground mine. The plaintiff also seeks monetary damages.
The SJCC, through leases with the federal government and the State of New Mexico, owns coal interests with respect to the underground mine. The plaintiff, through leases with the federal government, the State of New Mexico and certain private parties, claims to own certain oil and gas interests in portions of the land that is to be used for the underground mine. The plaintiff alleges that the SJCC's underground coal mining operations have or will interfere with plaintiff's gas production and result in the dissipation of natural gas that it otherwise would be entitled to recover. The plaintiff also alleges, and seeks a declaration by the court, that the rights under its leases are senior and superior to the rights of the SJCC.
The SJCC has informed the Company that SJCC intends to vigorously dispute the litigation. In September 2002, the SJCC filed a motion to dismiss the claims against it on several grounds. Discovery for the lawsuit has not yet started. The Company cannot predict the ultimate outcome of the litigation or whether the litigation will adversely affect the amount of coal available, or its price for SJGS.
Richardson Matter
Another gas leaseholder, Richardson Operating Company ("Richardson"), has leases in the area of the San Juan Mine and has asserted claims against SJCC. The Company understands that discussions with Richardson are ongoing, although no formal litigation has been filed.
Asbestos Cases
The Company was named in 2003 as one of a number of defendants in 21 personal injury lawsuits relating to alleged exposure to asbestos. All of these cases involve claims of individuals, or their descendents, who worked for contractors building, or working at, Company power plants. Some of the claims relate to construction activities during the 1950's and 1960's, while other claims generally allege exposure during the last 30 years. The Company has never manufactured, sold or distributed products containing asbestos. All of these cases involve multiple defendants. The state district judge in six of these cases recently entered a stay of all proceedings due to the bankruptcy of one of defendants; however, the plaintiffs in these cases have moved to modify the stay so that the cases can proceed against the remaining defendants. The Company was insured by a number of different insurance policies during the time period at
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issue in these cases. The Company intends to vigorously defend against these lawsuits. Although the Company is unable to fully predict the outcome of this litigation, the Company believes that it has adequate reserves and insurance coverage such that the outcome of these legal proceedings would not have a material impact on the financial condition of the Company.
San Angelo Electric Service Company ("SESCO") Matter
In October 2003, the Texas Commission on Environmental Quality ("TCEQ") requested information from PNM concerning any involvement that PNM had with the SESCO of San Angelo, Texas. PNM is informed that the TCEQ is conducting a site investigation of a SESCO facility in San Angelo, Texas pursuant to the Texas Solid Waste Act and that the SESCO site has been referred to the Superfund Site Discovery and Assessment Program. The primary concern appears to be polychlorinated biphenals ("PCBs"). The TCEQ is conducting the site investigation to determine what remediation activities are required at the SESCO site and to identify potentially responsible parties ("PRPs"). In January 2004, PNM submitted its preliminary response to the TCEQ request for information. The response states that PNM previously had a "requirements" contract with SESCO for the repair of electric transformers. It appears that a number of transformers were sent to SESCO for repair. In addition, it appears that PNM sold a number of retired transformers to SESCO. PNM has not received a response from the TCEQ concerning the information provided in PNM's response. PNM has not been named as a PRP for the SESCO site. PNM is unable to predict the outcome of this matter.
Other
There are various claims and lawsuits pending against the Company. The Company is also subject to federal, state and local environmental laws and regulations, and is currently participating in the investigation and remediation of numerous sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. It is not possible at this time for the Company to determine fully the effect of all litigation on its consolidated financial statements. However, the Company has recorded a liability where the litigation effects can be estimated and where an outcome is considered probable. The Company does not expect that any known lawsuits, environmental costs and commitments will have a material adverse effect on its financial condition or results of operations.
The Company is involved in various legal proceedings in the normal course of its business. The associated legal costs for these legal matters are accrued when incurred. It is also the Company's policy to accrue for legal costs expected to be incurred in connection with Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies" ("SFAS 5") legal matters when it is probable that a SFAS 5 liability has been incurred and the amount of expected legal costs to be incurred is reasonably estimable. These estimates include costs for external counsel professional fees.
Risks and Uncertainties
The Company's future results may be affected by various factors outside of its control, including: changes in regional economic conditions; the outcome of labor negotiations with unionized employees; fluctuations in fuel, purchased
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power and gas prices; the actions of utility regulatory commissions; changes in law and environmental regulations; the success of its planned generation expansion; the cost and outcome of litigation and other legal proceedings and investigations; the performance of generation facilities; changes in accounting rules and standards; and external factors such as weather and water supply. Because of pending federal regulatory reforms, the public utility industry is undergoing a fundamental change. New Mexico has repealed the Electric Utility Industry Restructuring Act of 1999 and therefore has abandoned its plans to transform the industry from one of vertically-integrated monopolies to one with deregulated, competitive generation. However, the FERC has proposed a "Standard Market Design" ("SMD") to establish rules for a market-based approach for wholesale transactions over the transmission grid. The FERC's efforts have been opposed by a number of states, primarily in the West and in the Southeast, because of concern that the SMD does not adequately take into account regional differences. Moreover, Congress is currently debating energy legislation which could affect the FERC's activities. In an attempt to ease concerns, on April 28, 2003, the FERC issued a White Paper on "Wholesale Power Market Platform" describing changes it intended to make to its SMD proposed rules. The Company's future results will be impacted by the form of the FERC rules, if adopted; the costs of complying with rules and legislation that may call for regulatory reforms for the industry; and the resulting market prices for electricity and natural gas. In addition, the Company has in place a retail electric rate freeze through 2007 so that the Company's financial results will depend on its ability to control costs and grow revenues, and the implications of uncontrollable factors such as weather, water supply, litigation and economic conditions.
(14) Environmental Issues
The normal course of operations of the Company necessarily involves activities and substances that expose the Company to potential liabilities under laws and regulations protecting the environment. Liabilities under these laws and regulations can be material and in some instances may be imposed without regard to fault, or may be imposed for past acts, even though the past acts may have been lawful at the time they occurred. Sources of potential environmental liabilities include the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980 and other similar statutes.
The Company records its environmental liabilities when site assessments or remedial actions are probable and a range of reasonably likely cleanup costs can be estimated. The Company reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring and site closure. Unless there is a probable amount, the Company records the lower end of such reasonably likely range of costs (classified as other long-term liabilities at undiscounted amounts).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The Company's recorded minimum liability estimated to remediate its identified sites was $6.8 million and $8.5 million as of December 31, 2003 and 2002, respectively. The ultimate cost to clean up the Company's identified sites may vary from its recorded liability due to numerous uncertainties inherent in the estimation process, such as: the extent and nature of contamination; the scarcity of reliable data for identified sites; and the time periods over which site remediation is expected to occur.
For the year ended December 31, 2003, 2002 and 2001, the Company spent $3.2 million, $0.7 million and $1.7 million, respectively, for remediation. The majority of the December 31, 2003 environmental liability is expected to be paid over the next five years, funded by cash generated from operations. Future environmental obligations are not expected to have a material impact on the results of operations or financial condition of the Company.
(15) Company Realignment
On August 22, 2002, the Company was realigned due to the changes in the electric industry and particularly, the negative impact on the Company's earnings and growth prospects from wholesale market uncertainty. The changes included consolidation of similar functions. A total of 85 salaried and hourly employees were notified of their termination as part of the realignment. In accordance with EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity", the Company incurred a liability of $8.8 million for severance and other related costs associated with the involuntary termination of employees, which was charged to operations in the quarter ended September 30, 2002 and is included in administrative and general in the consolidated statements of earnings for the year ended December 31, 2002. The Company paid $8.6 million through December 31, 2003.
(Intentionally left blank)
(16) Other Income and Deductions
The following table details the components of other income and deductions for PNM Resources, Inc. and subsidiaries:
Year Ended December 31,
-------------------------------------------
2003 2002 2001
------------- ------------ -------------
(In thousands)
Other income:
Investment income................................... $41,826 $44,954 $48,742
AFUDC............................................... 2,589 - -
Gross receipts tax credits.......................... 2,893 - -
Miscellaneous non-operating income.................. 5,397 3,406 3,405
------------- ------------ -------------
$52,705 $48,360 $52,147
============= ============ =============
Other deductions:
Loss on reacquired debt write off................... $16,576 $ - $ -
Transition costs write off.......................... 16,720 - -
Merger costs and related legal costs................ - (2,436) 17,975
Write-off of Avistar investments.................... - - 13,089
Nonrecoverable coal mine decommissioning costs...... - - 12,979
Write-off of regulatory assets...................... - - 11,100
Contribution to PNM Foundation...................... - - 5,000
Transmission line project write-off................. - 4,818 -
Miscellaneous non-operating deductions.............. 12,857 9,924 7,114
------------- ------------ -------------
$46,153 $12,306 $67,257
============= ============ =============
|
(Intentionally left blank)
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
The following table details the components of other income and deductions for Public Service Company of New Mexico and subsidiaries:
Year Ended December 31,
-------------------------------------------
2003 2002 2001
------------- ------------ -------------
(In thousands)
Other income:
Investment income.................................. $38,918 $37,632 $48,742
AFUDC.............................................. 2,551 - -
Gross receipts tax credits......................... 2,548 - -
Miscellaneous non-operating income................. 4,738 2,814 3,405
------------- ------------ -------------
$48,755 $40,446 $52,147
============= ============ =============
Other deductions:
Loss on reacquired debt write-off.................. $16,576 $ - $ -
Transition costs write-off......................... 16,720 - -
Merger costs and related legal costs............... - - 17,975
Write-off of Avistar investments................... - - 13,089
Nonrecoverable coal mine decommissioning costs..... - - 12,979
Write-off of regulatory assets..................... - - 11,100
Contribution to PNM Foundation..................... - - 5,000
Transmission line project write-off................ - 4,818 -
Miscellaneous non-operating deductions............. 6,329 10,241 7,114
------------- ------------ -------------
$39,625 $15,059 $67,257
============= ============ =============
|
(Intentionally left blank)
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
(17) Pro Forma Effect of Changes in Accounting Principles
The following table, presented for comparative purposes, shows the pro-forma effect assuming the adoption of SFAS 143 and the change in measurement date of the pension and other post-retirement benefit plans applied retroactively to the Company's earnings.
Year Ended
December 31,
2002 2001
--------------- --------------
(In thousands)
Net Earnings as previously reported......................... $ 63,686 $ 149,847
Change of Pension Measurement Date, net of tax
expense (benefit) of $(167) and $144 (note 9)........... (255) 219
Adoption of Asset Retirement Obligations, net of tax
benefit of $3,048 and $3,088 (note 12)................... 4,651 4,712
--------------- --------------
Net Earnings Available to Common Stock...................... $ 68,082 $ 154,778
=============== ==============
Earnings per Share:
Net Earnings as previously reported......................... $ 1.63 $ 3.83
Change of Pension Measurement Date (note 9)................. (0.01) (0.01)
Adoption of Asset Retirement Obligations,
net of tax of $0.08 and $0.08 (note 12).................. 0.12 0.12
--------------- --------------
Net Earnings Available to Common Stock...................... $ 1.74 $ 3.94
=============== ==============
Diluted Earnings Per Share as previously reported........... $ 1.61 $ 3.77
=============== ==============
Diluted Earnings Per Share net of tax of
$0.08 and $0.07.......................................... $ 1.73 $ 3.88
=============== ==============
|
(18) New and Proposed Accounting Standards
Financial Accounting Standards Board Interpretation No. 46, "Consolidation of Variable Interest Entities", an interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements" (revised December 2003) ("FIN 46R"). In January 2003, the Financial Accounting Standards Board ("FASB") issued FIN 46 to address the consolidation of variable interest entities ("VIEs"). FIN 46 applied immediately to VIEs created after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. It applied in the first fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that it acquired before February 1, 2003. Upon adoption of FIN 46, the Company did not identify any VIEs for which it is the primary beneficiary or has significant involvement. In December 2003, the FASB issued FIN 46R to clarify provisions of FIN 46 and exempt certain entities from its requirements. The Company must apply the provisions of FIN 46R for special purpose entities (SPEs) created prior to February 1, 2003, at the end of the annual reporting period ending after December 15, 2003. The Company evaluated all its interests in entities that may be deemed SPEs under the provisions of FIN 46R and concluded that no additional
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
entities need to be consolidated. The Company is required to adopt FIN 46R for non-SPEs at the end of the first interim reporting period ending after March 15, 2004. The Company is currently evaluating the impact of adopting FIN 46R applicable to non-SPEs created prior to February 1, 2003 and is unable to predict its impact on the Company's operating results and financial position at this time.
Statement of Financial Accounting Standards No. 132 (revised 2003)
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS
132(R)"). This statement was issued in December of 2003 and replaces FASB
statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). SFAS 132(R) addresses disclosure only and
does not change the measurement and recognition provisions of FASB Statement No.
87, "Employers' Accounting for Pensions", Statement No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits", and Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". Additional disclosures to be
included in the annual report include additional information regarding plan
assets, the accumulated benefit obligations (for defined benefit pension plans),
projected benefit payments, estimated expected contributions, assumptions used
in the calculations and the measurement date of the plan (see Note 9 - Pension
and Other Post-retirement Benefits for additional disclosures). Disclosures to
be included in interim reports include the amount of net periodic benefit cost
recognized (showing the components separately) and contributions paid and
expected to be paid during the current fiscal year, if significantly different
from amounts previously disclosed. This statement is effective for fiscal years
ending after December 15, 2003 and interim periods beginning after December 15,
2003. The disclosure regarding estimated future benefit payments shall be
effective for fiscal years ending after June 15, 2004.
EITF 01-8 "Determining Whether an Arrangement Contains a Lease." EITF 01-8 provides guidance on how to determine whether an arrangement contains a lease that is within the scope of Statement of Financial Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13"). The guidance is based on whether the arrangement conveys to the purchaser (lessee) the right to use a specific asset. A consensus was reached on the accounting for substantial services provided by the lessor in these arrangements in which these services are not executory costs as the term is used in SFAS 13. The guidance provides as to when an arrangement should be reassessed to determine whether it contains a lease and how to account for these subsequent changes in lease classification. EITF 01-8 must be applied to arrangements agreed to, committed to, modified, or acquired in business combinations initiated after April 1, 2003. Upon adoption, EITF 01-8 did not have a material impact on the Company's financial condition or results of operation.
EITF 02-9 "Accounting for Changes That Result in a Transferor Regaining Control of Financial Assets Sold." EITF 02-9 addresses how to apply the accounting requirements of paragraph 55 of Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 140"), with respect to beneficial interests held by the transferor and loans that do not meet the definition of a security, including whether the transferor should recognize a gain or loss when
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2003, 2002 and 2001
the provisions of paragraph 55 are applied. Paragraph 55 of SFAS No. 140 requires a transferor to recognize in its financial statements assets previously accounted for appropriately as having been sold when one or more of the conditions regarding control of the assets are no longer met. EITF 02-9 must be applied to events occurring after April 2, 2003. Upon adoption, EITF 02-9 did not have a material impact on the Company's financial condition or results of operation.
FASB Staff Position No. 106-1 "Accounting and Disclosure Requirements Related to Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act")" ("FSP 106-1"). The Act introduces a prescription drug benefit under Medicare ("Medicare Part D") as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP 106-1 permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act. Authoritative guidance on accounting for the federal subsidy is pending and could require a change in previously reported information. Disclosures are required regardless of whether the sponsor elects deferral. FSP 106-1 is effective for fiscal years or interim periods ending after December 7, 2003 and interim periods beginning after December 15, 2003. Because of various uncertainties related to the Company's response to this litigation and the appropriate accounting methodology for this event, the Company has elected to defer financial recognition of this legislation until the FASB issues final accounting guidance. When issued, that final guidance could require the Company to change previously reported information. This deferral election is permitted under FSP 106-1.
(Intentionally left blank)
PNM RESOURCES, INC. AND SUBSIDIARIES AND
PUBLIC SERVICE COMPANY OF NEW MEXICO
QUARTERLY OPERATING RESULTS
The unaudited operating results by quarters for 2003 and 2002 are as
follows:
Quarter Ended
---------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- ---------------- ----------------- -----------------
(In thousands, except per share amounts)
2003:
Operating Revenues......................... $387,691 $ 340,211 $ 385,161 $ 342,651
Operating Income........................... 33,426 29,914 35,881 19,371
Net Earnings Before Cumulative Effect
of Changes in Accounting Principles...... 10,748 17,596 16,568 13,640
Net Earnings............................... 48,170 (A) 17,596 16,568 (B) 12,839
Net Earnings Per Share (Basic):
Net Earnings Before Cumulative Effect
of Changes in Accounting Principles...... 0.28 0.45 0.41 0.34
Net Earnings............................... 1.23 0.45 0.41 0.32
Net Earnings Per Share (Diluted):
Net Earnings Before Cumulative Effect
of Changes in Accounting Principles...... 0.27 0.44 0.41 0.34
Net Earnings............................... 1.22 0.44 0.41 0.32
2002:
Operating Revenues......................... $301,817 $ 250,189 $ 274,675 $ 292,013
Operating Income........................... 32,687 19,449 29,135 20,503
Net Earnings Before Cumulative Effect
of Changes in Accounting Principles...... 24,803 11,010 17,650 10,223
Net Earnings .............................. 24,803 11,010 17,650 (C) 10,223
Net Earnings Per Share (Basic):
Net Earnings Before Cumulative Effect
of Changes in Accounting Principles...... 0.63 0.28 0.45 0.26
Net Earnings............................... 0.63 0.28 0.45 0.26
Net Earnings Per Share (Diluted):
Net Earnings Before Cumulative Effect
of Changes in Accounting Principles...... 0.63 0.28 0.45 0.26
Net Earnings............................... 0.63 0.28 0.45 0.26
|
In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for such periods have been included.
(A) Effective January 1, 2003, the Company adopted SFAS 143, Accounting for Asset Retirement Obligations. The effect was reported as a cumulative effect of a change in accounting principle, which increased the Company's net earnings by approximately $37.4 million, net of tax expense of approximately $24.5 million, or $0.93 per diluted common share. In the first quarter of 2003, the Company wrote-off transition costs previously capitalized in anticipation of deregulation, which decreased the
Company's net earnings by approximately $9.5 million, net of tax benefit
of $7.2 million, or $0.24 per diluted common share.
(B) In the third quarter of 2003, the Company recognized a loss on reacquired
debt, which decreased the Company's net earnings by $10.0 million, net of
tax benefit of $6.6 million, or $0.25 per diluted common share.
(C) In the third quarter of 2002, the Company was realigned due to changes in
the industry, which decreased the Company's net earnings by $5.3 million,
net of tax benefit of $3.5 million, or $0.14 per diluted common share.
(Intentionally left blank)
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors and Stockholders of PNM Resources, Inc. and Public Service Company of New Mexico
We have audited the consolidated financial statements of PNM Resources, Inc. and subsidiaries and Public Service Company of New Mexico and subsidiaries (collectively, the "Companies") as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, and have issued our reports thereon dated March 8, 2004 (which reports express unqualified opinions and include explanatory paragraphs referring to the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, effective January 1, 2003 and the change in actuarial valuation measurement date for the pension plan and other post-retirement benefits from September 30 to December 31); such financial statements and reports are included in this Annual Report on Form 10-K of PNM Resources, Inc. and Public Service Company of New Mexico. Our audits also included the consolidated financial statement schedules listed in Item 15. These financial statement schedules are the responsibility of each of the respective Companies' management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP Omaha, Nebraska March 8, 2004 |
SCHEDULE I
The PNM Resources, Inc. holding company structure was effected through a one-for-one share exchange between the shareholders of Public Service Company of New Mexico ("PNM") and PNM Resources, Inc. (the "Holding Company") on December 31, 2001, whereby the shareholders of PNM became shareholders of the Holding Company and the Holding Company acquired all of PNM's common stock. The Holding Company has no significant operations other than billings of corporate activities to PNM on a cost basis and its equity interest in PNM. There were no material Holding Company operations in 2001; therefore, a statement of earnings is not presented for 2001.
PNM RESOURCES, INC.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE SHEET
As of December 31,
2003 2002
--------------- ---------------
(In thousands)
Assets
Cash and cash equivalents................................ $ 845 $ -
Intercompany receivables................................. 54,094 48,736
Short-term investments................................... - 79,630
Other current assets..................................... 11,881 10,091
--------------- ---------------
Total current assets.................................. 66,820 138,457
--------------- ---------------
Property, plant and equipment, net of accumulated
depreciation of $8,394 and $5,839...................... 42,321 72,068
Long-term investments.................................... 21,183 -
Investment in subsidiaries............................... 1,047,933 864,152
Other long-term assets................................... 927 15,694
--------------- ---------------
Total long-term assets................................ 1,112,364 951,914
--------------- ---------------
Total Assets.......................................... $1,179,184 $1,090,371
=============== ===============
Liabilities and Shareholder's Equity
Current liabilities...................................... $ 51,493 $ 23,300
Long-term debt........................................... - 26,152
Other long-term liabilities.............................. 6,316 1,737
--------------- ---------------
Total Liabilities..................................... 57,809 51,189
--------------- ---------------
Common stock outstanding 40,259 and 39,118 shares........ 1,033,694 1,010,510
Accumulated other comprehensive income, net of tax....... - (591)
Retained earnings........................................ 87,681 29,263
--------------- ---------------
Total common stockholder's equity..................... 1,121,375 1,039,182
--------------- ---------------
Total Liabilities and Shareholder's Equity............ $1,179,184 $1,090,371
=============== ===============
|
See notes to the consolidated financial statements.
PNM RESOURCES, INC.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF EARNINGS
Year ended December 31,
2003 2002
-------------- ---------------
(In thousands)
Operating revenues.......................... $ 24,999 $ 72,865
Operating expenses.......................... 22,775 79,543
-------------- ---------------
Operating income (loss).................. 2,224 (6,678)
-------------- ---------------
Other income and deductions:
Equity in earnings of subsidiaries.......... 94,105 60,456
Other income................................ 2,600 11,289
Other deductions............................ (5,207) (450)
-------------- ---------------
Net other income and deductions.......... 91,498 71,295
Income before income taxes.................. 93,722 64,617
Income tax (benefit) expense................ (1,451) 931
-------------- ---------------
Net Earnings................................ $ 95,173 $ 63,686
-------------- ---------------
|
See notes to the consolidated financial statements.
SCHEDULE I
PNM RESOURCES, INC.
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENT OF CASH FLOWS
Year Ended December 31,
2003 2002
--------------------------------
(In thousands)
Cash Flows From Operating Activities:
Net earnings..................................................... $95,173 $ 63,686
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization................................ 1,735 715
Accumulated deferred income tax.............................. 6,213 (2,542)
Equity in earnings of subsidiaries........................... (94,105) (60,456)
Changes in certain assets and liabilities:
Other assets............................................... (1,591) (3,882)
Accounts payable........................................... 4,328 2,579
Other liabilities.......................................... 27,184 22,458
--------------- ---------------
Net cash flows from operating activities............. 38,937 22,558
--------------- ---------------
Cash Flows From Investing Activities:
Property plant and equipment..................................... (9,401) (20,405)
Redemption of short-term investments............................. 80,291 31,012
Cash dividends from subsidiaries................................. 49,581 58,981
Eastern Interconnect Project Sale................................ 36,925 -
Equity Contribution to Subsidiaries.............................. (139,257) -
Other............................................................ (8,207) (18,581)
--------------- ---------------
Net cash flows from investing activities............. 9,932 51,007
--------------- ---------------
Cash Flows From Financing Activities:
Long-term debt repayments........................................ (26,152) -
Exercise of employee stock options (note 10)..................... (9,639) (1,785)
Dividends paid................................................... (36,115) (34,424)
Change in intercompany accounts.................................. 23,592 (48,736)
Other............................................................ 290 -
--------------- ---------------
Net cash flows from financing activities............. (48,024) (84,945)
--------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents................... 845 (11,380)
Beginning of Year.................................................. - 11,380
--------------- ---------------
End of Year........................................................ $ 845 $ -
=============== ===============
Supplemental cash flow disclosures:
Interest paid.................................................... $ 576 $ -
=============== ===============
Income taxes paid (refunded), net................................ $(18,070) $ 3,640
=============== ===============
Non-cash dividends from subsidiaries............................. $ - $ 34,880
=============== ===============
Long-term debt assumed for transmission line..................... $ - $ 26,152
=============== ===============
|
See notes to the consolidated financial statements.
SCHEDULE II
PNM RESOURCES, INC.
PUBLIC SERVICE COMPANY OF NEW MEXICO
VALUATION AND QUALIFYING ACCOUNTS
Additions Deductions
---------------------------------- ---------------
Balance at Charged to Charged to
beginning of costs and other Write off Balance at
Description year expenses accounts adjustments end of year
--------------------------------------- -------------- ---------------- -------------- --------------- ---------------
(In thousands)
Allowance for doubtful accounts,
year ended December 31:
2001 $13,279 $ 10,312 $ - $ 5,566 $ 18,025
2002 $18,025 $ (2,450) $ - $ - $ 15,575
2003 $15,575 $ (3,540) $ - $ 2,751 $ 9,284
(A) Allowance for market and credit
volatility year ended December 31:
2001 $ 4,139 $ (1,090) $ - $ - $ 3,049
2002 $ 3,049 $ (616) $ - $ - $ 2,433
2003 $ 2,433 $ (2,433) $ - $ - $ -
(A) Recorded in Other Deferred Credits on
the Consolidated Balance Sheets.
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Information has been previously reported as defined in SEC Rule 12b-2.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
The Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures, based on their evaluation of these disclosure controls and procedures, as of the end of the period covered by this report, are effective to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which the periodic reports are being prepared. There was no change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Reference is hereby made to "Proposal 1: Election of Directors" in the
Company's Proxy Statement relating to the annual meeting of stockholders to be
held on May 18, 2004 (the "2004 Proxy Statement"), to PART I, SUPPLEMENTAL ITEM
- "EXECUTIVE OFFICERS OF THE COMPANY", "Other Matters" - "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Code of Ethics" in the 2004
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Reference is hereby made to "Executive Compensation", "Retirement Plan and Related Matters", "Employment Contracts, Termination of Employment and Change in Control Agreements" and "Director Compensation" in the 2004 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Reference is hereby made to "PNM Resources Common Stock Owned by Executive Officers and Directors", "Ownership of More Than Five Percent of PNM Resources Common Stock" and "Equity Compensation Plan Information" in the 2004 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the 2004 Proxy Statement for such disclosure, if any, as may be required by this item.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Reference is hereby made to "Audit and Ethics Committee Report" and "Independent Auditor Fees" in the 2004 Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) - 1. See Index to Financial Statements under Item 8.
(a) - 2. Financial Statement Schedules for the years 2002, 2001, and
2000 are omitted for the reason that they are not
required or the information is otherwise supplied.
(a) - 3-A. Exhibits Filed:
Exhibit No. Description
----------- -----------
10.9.1 Amendment One to Underground Coal Sales Agreement dated
December 15, 2003 among San Juan Coal Company, PNM and Tucson
Electric Coal Company (Confidential treatment was requested for
portions of this exhibit and such portions were omitted from
the exhibit filed and were filed separately with the Securities
and Exchange Commission)
10.23.6** Sixth Amendment dated December 9, 2003 to Restated and
Amended PNM Resources, Inc. Accelerated Management
Performance Plan
10.43.1** 2004 Officer Incentive Plan
10.45.5** Fifth Amendment dated December 9, 2003 to the Service Bonus
Plan
10.48.3** Third Amendment dated December 9, 2003 to the OBRA '93
Retirement Plan
10.50.2** Fourth Amendment dated December 9, 2003 to the PNM Resources,
Inc. Section 415 Plan
10.51** Officer Retention Plan dated October 21, 2003
10.52** PNM Resources, Inc. Executive Spending Account Plan dated
December 9, 2003
10.68.2 Amendment Number Two to the Public Service Company of New
Mexico Master Decommissioning Trust Agreement for Palo Verde
Nuclear Generating Station
10.72 Credit Agreement dated as of November 21, 2003 among PNM, the
Lenders identified therein and Bank of America, N.A. as
administrative agent
|
Exhibit No. Description
----------- -----------
10.75** PNM Resources, Inc. Executive Savings Plan dated December 29,
2003
10.83** Retention Bonus Agreement executed October 31, 2003 for Jeffry
Sterba
18.1 Letter from Deloitte & Touche LLP regarding change in
accounting principle for PNM Resources, Inc.
18.2 Letter from Deloitte & Touche LLP regarding change in
accounting principle for Public Service Company of New Mexico
23.1 Consent of Deloitte & Touche LLP for PNM Resources, Inc.
23.2 Consent of Deloitte & Touche LLP for Public Service Company of
New Mexico.
31.1 Chief Executive Officer Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
(a) - 3-B. Exhibits Incorporated By Reference:
In addition to those Exhibits shown above, PNM and PNM Resources hereby incorporate the following Exhibits pursuant to Exchange Act Rule 12b-32 and Regulation S-K section 10, paragraph (d) by reference to the filings set forth below:
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
Articles of Incorporation and By-laws
3.1 Restated Articles of Incorporation of PNM 3.1 to the Company's Annual 333-32170
Resources dated February 22, 2002 Report on Form 10-K for the
year ended December 31, 2001
3.1.1 Restated Articles of Incorporation of 3.1.1 to the Company's 1-6986
PNM, as amended through Quarterly Report on Form 10-Q
May 31, 2002 for the quarter ended June 30,
2002
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
3.2 Bylaws of PNM Resources, Inc. 3.2 to the Company's Annual 333-32170
with all Amendments to and Report on Form 10-K for the
including February 18, 2003 year ended December 31, 2002
3.2.1 By-laws of PNM with All 3.2 to the Company's Report on 1-6986
Amendments to and including Form 10-Q for the fiscal
May 31, 2002 quarter ended June 30, 2002
Instruments Defining the Rights of Security Holders, Including Indentures
4.1 Indenture of Mortgage and Deed of 4-(d) to PNM's 2-99990
Trust dated as of June 1, 1947, between Registration Statement
PNM and The Bank of New York No. 2-99990
(formerly Irving Trust Company), as
Trustee, together with the Ninth
Supplemental Indenture dated as of
January 1, 1967, the Twelfth
Supplemental Indenture dated as of
September 15, 1971, the Fourteenth
Supplemental Indenture dated as of
December 1, 1974 and the Twenty-
Second Supplemental Indenture dated
as of October 1, 1979 thereto relating to
First Mortgage Bonds of PNM
4.3 Fifty-third Supplemental Indenture, 4.3 to PNM's Quarterly 1-6986
dated as of March 11, 1998, Report on Form 10-Q for
supplemental to Indenture of Mortgage the quarter ended March
and Deed of Trust, dated as of June 1, 31, 1998
1947, between PNM and The Bank of
New York(formerly Irving Trust
Company), as trustee
4.4 Indenture (for Senior Notes), dated 4.4 to PNM's Quarterly 1-6986
as of March 11, 1998, between PNM Report on Form 10-Q
and The Chase Manhattan Bank, as for the quarter ended
Trustee March 31, 1998
4.5 First Supplemental Indenture, dated 4.5 to PNM's Quarterly 1-6986
as of March 11, 1998, supplemental to Report on Form 10-Q for
Indenture, dated as of March 11, 1998, the quarter ended March
Between PNM and The Chase 31, 1998
Manhattan Bank, as Trustee
4.6 Second Supplemental Indenture, dated 4.6 to PNM's Quarterly 1-6986
as of March 11, 1998, supplemental to Report on Form 10-Q for
Indenture, dated as of March 11, 1998, the quarter ended March
Between PNM and The Chase 31, 1998
Manhattan Bank, as Trustee
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
4.6.1 Third Supplemental Indenture, dated as of 4.6.1 to PNM's Annual Report on 1-6986
October 1, 1999 to Indenture dated as of March Form 10-K for the fiscal year
11, 1998, between PNM and The Chase Manhattan ended December 31, 1999
Bank, as Trustee
4.6.2 Fourth Supplemental Indenture, dated 4.6.2 to PNM's Quarterly 1-6986
as of May 1, 2003 to Indenture Report on Form 10-Q
dated as of March 11, 1998, between For the quarter ended
PNM and JPMorgan Chase Bank (formerly The Chase June 30, 2003
Manhattan
Bank), as Trustee
4.6.3 Fifth Supplemental Indenture, dated 4.6.3 to PNM's Quarterly 1-6986
as of May 1, 2003 to Indenture Report on Form 10-Q
dated as of March 11, 1998, between For the quarter ended
PNM and JPMorgan Chase Bank, as Trustee June 30, 2003
4.6.4 Sixth Supplemental Indenture, dated 4.6.4 to PNM's Quarterly 1-6986
as of May 1, 2003 to Indenture Report on Form 10-Q
dated as of March 11, 1998, between For the quarter ended
PNM and JPMorgan Chase Bank, as Trustee June 30, 2003
4.7 Indenture (for Senior Notes), dated 4.1 to PNM's 33-53367
as of August 1, 1998, between PNM Registration Statement
and The Chase Manhattan Bank, as No. 33-53367
Trustee
4.8 First Supplemental Indenture, dated 4.3 to PNM's Current 1-6986
August 1, 1998, supplemental to Report on Form 8-K
Indenture, dated as of August 1, 1998, Dated August 7, 1998
between PNM and The Chase
Manhattan Bank, as Trustee
4.9 Second Supplemental Indenture, dated September 4.7.1 to PNM's Quarterly Report 1-6986
1, 2003, supplemental to Report on Form 10-Q for the
Indenture, dated as of August 1, 1998, quarter ended September 30, 2003
between PNM and JPMorgan Chase Bank (formerly,
The Chase
Manhattan Bank), as Trustee
Material Contracts
10.1 Supplemental Indenture of Lease 4-D to PNM's 2-26116
dated as of July 19, 1966 between Registration Statement
PNM and other participants in the No. 2-26116
Four Corners Project and the Navajo
Indian Tribal Council.
10.1.1 Amendment and Supplement No. 1 10.1.1 to PNM's 1-6986
to Supplemental and Additional Indenture of Annual Report on
Lease dated April 25, Form 10-K for fiscal
1985 between the Navajo Tribe of year ended December
Indians and Arizona Public Service 31, 1995
Company, El Paso Electric Company,
Public Service Company of New
Mexico, Salt River Project Agricultural
Improvement and Power District,
Southern California Edison Company,
and Tucson Electric Power Company
(refiled)
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.4 Contract between the United States 5-L to PNM's 2-41010
and PNM dated April 11, 1968, for Registration Statement
furnishing water No. 2-41010
10.4.1 Amendatory Contract between the 5-R to PNM's 2-60021
United States and PNM dated Registration Statement
September 29, 1977, for furnishing No. 2-60021
Water
10.5 Water Supply Agreement between 10.5 to PNM's Quarterly 1-6986
the Jicarilla Apache Tribe and Public Report of Form 10-Q for
Service Company of New Mexico, the quarter ended
dated July 20, 2000 September 30, 2001
10.8 Arizona Nuclear Power Project 5-T to PNM's 2-50338
Participation Agreement among PNM Registration Statement
and Arizona Public Service Company, No. 2-50338
Salt River Project Agricultural
Improvement and Power District,
Tucson Gas & Electric Company and
El Paso Electric Company, dated
August 23, 1973
10.8.1 Amendments No. 1 through No. 6 to 10.8.1 to PNM's Annual 1-6986
Arizona Nuclear Power Project Report on Form 10-K
Participation Agreement for fiscal year ended
December 31, 1991
10.8.2 Amendment No. 7 effective April 1, 10.8.2 to PNM's Annual 1-6986
1982, to the Arizona Nuclear Power Report on Form 10-K
Project Participation Agreement for fiscal year ended
(refiled) December 31, 1991
10.8.3 Amendment No. 8 effective September 10.58 to PNM's Annual 1-6986
12, 1983, to the Arizona Nuclear Power Report on Form 10-K
Project Participation Agreement for fiscal year ended
(refiled) December 31, 1993
10.8.4 Amendment No. 9 to Arizona Nuclear 10.8.4 to PNM's Annual 1-6986
Power Project Participation Agreement Report of the Registrant
dated as of June 12, 1984 (refiled) on Form 10-K for fiscal
year ended December
31, 1994
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.8.5 Amendment No. 10 dated as of 10.8.5 to PNM's Annual 1-6986
November 21, 1985 and Amendment Report of the Registrant
No. 11 dated as of June 13, 1986 and on Form 10-K for fiscal
effective January 10, 1987 to Arizona year ended December
Nuclear Power Project Participation 31, 1994
Agreement (refiled)
10.8.7 Amendment No. 12 to Arizona Nuclear 19.1 to PNM's Quarterly Report 1-6986
Power Project Participation Agreement on Form 10-Q for the quarter
dated June 14, 1988, and effective ended September 30, 1990
August 5, 1988
10.8.8 Amendment No. 13 to the Arizona 10.8.10 to PNM's Annual Report 1-6986
Nuclear Power Project Participation on Form 10-K for the fiscal
Agreement dated April 4, 1990, and year ended December 31, 1990
effective June 15, 1991
10.8.9 Amendment No. 14 to the Arizona Nuclear Power 10.8.9 to PNM's Annual Report
Project Participation Agreement effective June on Form 10-K for the fiscal
20, 2000 year ended December 31, 2000
10.9 Underground Coal Sales Agreement, dated August 10.85 to PNM's Quarterly Report 1-6986
31, 2001 among San Juan Coal Company, PNM and on Form 10-Q for the quarter
Tucson Electric Power Company ending September 31, 2001
(Confidential treatment
was requested for portions of
this exhibit, and such
portions were omitted
from this exhibit filed and
were filed separately with
the Securities and Exchange
Commission)
10.9.1 Amendment One to Underground Coal 10.9.1 to PNM's Amended Report 1-6986
Sales Agreement dated December 15, 2003 on Form 10-K for fiscal year
among San Juan Coal Company, PNM and Tucson ended December 31, 2003
Electric Coal Company (Confidential treatment
was requested for portions of
this exhibit, and such
portions were omitted
from this exhibit filed and
were filed separately with
the Securities and Exchange
Commission)
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.11 San Juan Unit 4 Early Purchase and Participation 10.11 to PNM's Quarterly Report 1-6986
Agreement dated as of September 26, 1983 between on Form 10-Q for the quarter
PNM and M-S-R Public Power Agency, and ended March 31, 1994
Modification No. 2 to the San Juan Project
Agreements dated December 31, 1983 (refiled)
10.11.1 Amendment No. 1 to the Early Purchase and 10.11.1 to PNM's Annual Report 1-6986
Participation Agreement between Public Service on Form 10-K for fiscal year
Company of New Mexico and M-S-R Public Power ended December 31, 1997
Agency, executed as of December 16, 1987, for San
Juan Unit 4 (refiled)
10.11.3 Amendment No. 3 to the San Juan Unit 4 Early 10.11.3 to PNM's Annual Report 1-6986
Purchase and Participation Agreement between on Form 10-K for fiscal year
Public Service Company of New Mexico and M-S-R ended December 31, 1999
Public Power Agency, dated as of October 27, 1999
10.12 Amended and Restated San Juan Unit 4 Purchase and 10.12 to PNM's Annual Report on 1-6986
Participation Agreement dated as of December 28, Form 10-K for fiscal year ended
1984 between PNM and the Incorporated December 31, 1994
County of Los Alamos (refiled)
10.12.1 Amendment No. 1 to the Amended and Restated San 10.12.1 to PNM's Annual Report 1-6986
Juan Unit 4 Purchase and Participation Agreement Form 10-K for fiscal year ended
between Public Service Company of New Mexico and December 31, 1999
M-S-R Public Power Agency, dated as of
October 27, 1999
10.13 Amendment No. 2 to the San Juan Unit 4 Purchase 10.13 to PNM's Annual Report on 1-6986
Agreement and Participation Agreement between Form 10-K for fiscal year ended
Public Service Company of New Mexico and The December 31, 1999
Incorporated County of Los Alamos, New Mexico,
dated October 27, 1999
10.14 Participation Agreement among PNM, Tucson 10.14 to PNM's Annual Report on 1-6986
Electric Power Company and certain financial Form 10-K for fiscal year ended
institutions relating to the San Juan Coal Trust December 31, 1992
dated as of December 31, 1981 (refiled)
10.16 Interconnection Agreement dated November 23, 10.16 to PNM's Annual Report on 1-6986
1982, between PNM and Southwestern Public Service Form 10-K for fiscal year ended
Company (refiled) December 31, 1992
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.18* Facility Lease dated as of December 16, 1985 10.18 to PNM's Annual Report on 1-6986
between The First National Bank of Boston, as Form 10-K for fiscal year ended
Owner Trustee, and Public Service Company of New December 31, 1995
Mexico together with Amendments No. 1, 2 and 3
thereto (refiled)
10.18.4* Amendment No. 4 dated as of March 8, 1995, to 10.18.4 to the PNM's Quarter 1-6986
Facility Lease between Public Service Report on Form 10-Q for the
Company of New Mexico and the First National quarter ended March 31, 1995
Bank of Boston, dated as of December 16, 1985
10.19 Facility Lease dated as of July 31, 1986, between 10.19 to PNM's Annual Report on 1-6986
the First National Bank of Boston, as Owner Form 10-K for fiscal year ended
Trustee, and Public Service Company of New Mexico December 31, 1996
together with Amendments No. 1, 2 and 3 thereto
(refiled)
10.20* Facility Lease dated as of August 12, 1986, 10.20 to PNM's Annual Report on 1-6986
between The First National Bank of Boston, as Form 10-K for fiscal year ended
Owner Trustee, and Public Service Company of New December 31, 1996
Mexico together with Amendments No. 1 and 2
thereto (refiled)
10.20.2 Amendment No. 2 dated as of April 10, 1987 to 10.20.2 to PNM's Annual Report 1-6986
Facility Lease dated as of August 12, 1986, as on Form 10-K for fiscal year
amended, between The First National Bank of ended December 31, 1998
Boston, not in its individual capacity, but
solely as Owner Trustee under a Trust Agreement,
dated as of August 12, 1986, with MFS Leasing
Corp., Lessor and Public Service Company of New
Mexico, Lessee (refiled)
10.20.3 Amendment No. 3 dated as of March 8, 1995, to 10.20.3 to PNM's Quarterly 1-6986
Facility Lease between Public Service Company of Report on Form
New Mexico and the First National Bank of Boston, 10-Q for the quarter ended
dated as of August 12, 1986 March 31, 1995
10.21 Facility Lease dated as of December 15, 1986, 10.21 to PNM's Annual Report 1-6986
between The First National Bank of Boston, as on Form 10-K for fiscal year
Owner Trustee, and Public Service Company of New ended December 31, 1996
Mexico (Unit 1 Transaction) together with
Amendment No. 1 thereto (refiled)
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.22 Facility Lease dated as of December 15, 1986, 10.22 to PNM's Annual Report 1-6986
between The First National Bank of Boston, as of the Registrant on Form 10-K
Owner Trustee, and Public Service Company of New for fiscal year ended December
Mexico Unit 2 Transaction) together with 31, 1996
Amendment No. 1 thereto (refiled)
10.23** Restated and Amended Public Service Company of 10.23 to PNM's Annual Report 1-6986
New Mexico Accelerated Management Performance on Form 10-K for fiscal year
Plan (1988) (August 16, 1988) (refiled) ended December 31, 1998
10.23.1** First Amendment to Restated and Amended Public 10.23.1 to PNM's Annual Report 1-6986
Service Company of New Mexico Accelerated on Form 10-K for fiscal year
Management Performance Plan (1988) (August 30, ended December 31, 1998
1988) (refiled)
10.23.2** Second Amendment to Restated and Amended Public 10.23.2 to PNM's Annual Report 1-6986
Service Company of New Mexico Accelerated on Form 10-K for fiscal year
Management Performance Plan (1988) (December 29, ended December 31, 1998
1989) (refiled)
10.23.4** Fourth Amendment to the Restated and Amended 10.23.4 to PNM's Quarterly 1-6986
Public Service Company of New Mexico Accelerated Report on Form 10-Q for the
Management Performance Plan, as amended quarter ended March 31, 1999
effective December 7, 1998
10.23.5** Fifth Amendment dated November 27, 2002 to the 10.23.5 to the Company's 333-32170
Restated and Amended PNM Resources, Inc. Annual Report on Form 10-K for
Accelerated Management Plan the fiscal year ended December
31, 2002
10.23.6** Sixth Amendment dated December 9, 2003 to the 10.23.6 to the Company's 333-32170
Restated and Amended Accelerated Management Plan Annual Report on Form 10-K for
the fiscal year ended December
31, 2003
10.24** Management Life Insurance Plan (July 1985) of the 10.24 to PNM's Annual Report 1-6986
Company (refiled) on Form 10-K for fiscal year
ended December 31, 1995
10.27 Amendment No. 2 dated as of April 10, 1987, to 10.53 to PNM's Annual Report 1-6986
the Facility Lease dated as of August 12, 1986, on Form 10-K for fiscal year
between The First National Bank of Boston, as ended December 31, 1987
Owner Trustee, and Public Service Company of New
Mexico. (Unit 2 Transaction.) (This is an
amendment to a Facility Lease which is
substantially similar to the Facility Lease filed
as Exhibit 28.1 to the Company's Current Report
on Form 8-K dated August 18, 1986)
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.32** Supplemental Employee Retirement Agreement dated 10.32 to PNM's Annual Report 1-6986
August 4, 1989, Between PNM and Max Maerki on Form 10-K for fiscal year
(refiled) ended December 31, 1999
10.32.1** First Amendment to the Supplemental Employee 10.32.1 to PNM's Quarterly 1-6986
Retirement Agreement for Max H. Maerki, as Report on Form 10-Q for the
amended effective August 10, 1998 quarter ended September 30,
1998
10.32.2** Second Amendment to the Supplemental Employee 10.32.2 to PNM's Quarterly 1-6986
Retirement Agreement for Max H. Maerki, as Report on Form 10-Q for the
amended effective December 7, 1998 quarter ended March 31, 1999
10.34 Settlement Agreement between Public Service 10.34 to PNM's Quarterly 1-6986
Company of New Mexico and Creditors of Meadows Report on Form 10-Q for
Resources, Inc. dated November 2, 1989 (refiled) quarter ended June 30, 2000
10.34.1 First amendment dated April 24, 1992 to the 10.34.1 to PNM's Quarterly 1-6986
Settlement Agreement dated November 2, 1989 among Report on Form 10-Q for
Public Service Company of New Mexico, the lender quarter ended June 30, 2000
parties thereto and collateral agent (refiled)
10.35 Amendment dated April 11, 1991 among Public 19.1 to PNM's Quarterly Report 1-6986
Service Company of New Mexico, certain banks and on Form 10-Q for the quarter
Chemical Bank and Citibank, N.A., as agents for ended September 30, 1991
the banks
10.36 San Juan Unit 4 Purchase and Participation 19.2 to PNM's Quarterly Report 1-6986
Agreement Public Service Company of New Mexico on Form 10-Q for the quarter
and the City of Anaheim, California dated April ended March 31, 1991
26, 1991
10.36.1 Amendment No. 1 to the San Juan Unit 4 Purchase 10.36.1 to Annual Report PNM's 1-6986
and Participation Agreement between Public on Form 10-K for fiscal year
Service Company of New Mexico and The City of ended
Anaheim, California, dated October 27, 1999 December 31, 1999
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.38 Restated and Amended San Juan Unit 4 Purchase and 10.2.1 to PNM's Quarterly 1-6986
Participation Agreement between Public Service Report on Form 10-Q for the
Company of New Mexico and Utah Associated quarter ended September 30,
Municipal Power Systems 1993
10.38.1 Amendment No. 1 to the Restated and Amended San 10.38.1 to PNM's Annual Report 1-6986
Juan Unit 4 Purchase And Participation Agreement on Form 10-K for fiscal year
between Public Service Company of New Mexico And ended December 31, 1999
Utah Associated Municipal Power Systems, dated
October 27, 1999
10.40** PNM Resources, Inc. Director Retainer Plan, dated 4.3 to PNM Resources, Inc. 333-03289
December 31, 2001 Post-Effective Amendment No.
1 to Form 8 Registration
Statement filed December 31,
2001
10.40.1** First Amendment dated February 17, 2003 to PNM 10.40.1 to the Company's 333-32170
Resources, Inc. Director Retainer Plan Quarterly Report on Form
10-Q for the quarter ended
March 31, 2003
10.42 Stipulation in the matter of the application of Gas 10.42 to PNM's Annual Report 1-6986
Company of New Mexico for an order authorizing on Form 10-K for fiscal year
recovery of MDL costs through Rate Rider Number 8 ended December 31, 1992
10.43** 2003 Officer Incentive Plan 10.43.2 to the Company's 333-32170
Annual Report on Form 10-K
for the year ended December
31, 2002
10.43.1** 2004 Officer Incentive Plan 10.43.1 to the Company's 333-32170
Annual Report on Form 10-K
for the year ended December
31, 2003
10.44.2** Second Restated and Amended Non-Union Severance Pay 10.44.2 to PNM's Quarterly 1-6986
Plan of Public Service Company of New Mexico dated Report on Form 10-Q for the
August 1, 1999 quarter ended September 30,
1999
10.45** PNM Service Bonus Plan dated October 23, 1984 19.4 to PNM's Quarterly 1-6986
Report on Form 10-Q or the
quarter ended September 30,
1988
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.45.1** First Amendment dated November 20, 1985 to Service 10.11.1 to PNM's Annual 1-6986
Bonus Plan Report on Form 10-K for the
fiscal year ending December
31, 1985
10.45.2** Second Amendment dated December 29, 1989 to Service 10.27.2 to PNM's Annual 1-6986
Bonus Plan Report on Form 10-K for the
fiscal year ending December
31, 1989
10.45.3** Second [Third] Amendment dated December 7, 1998 to 10.45 to PNM's Quarterly 1-6986
Service Bonus Plan Report on Form 10-Q for the
quarter ended March 31, 1999
10.45.4** Fourth Amendment dated November 27, 2002 to PNM 10.45.4 to the Company's 333-32170
Resources, Inc. Service Bonus Plan Annual Report on Form 10-K
for the fiscal year ended
December 31, 2002
10.45.5** Fifth Amendment dated December 9, 2003 to Service 10.45.5 to the Company's 333-32170
Bonus Plan Annual Report on Form 10-K
for the fiscal year ended
December 31, 2003
10.48** Public Service Company of New Mexico OBRA `93 10.4 to PNM's Quarterly 1-6986
Retirement Plan Report on Form 10-Q for the
quarter ended September 30,
1993
10.48.1** First Amendment to the Public Service Company of 10.48.1 to PNM's Quarterly 1-6986
New Mexico OBRA '93 Retirement Plan, as amended Report on Form 10-Q for the
effective December 7, 1998 quarter ended March 31, 1999
10.48.2** Second Amendment dated November 27, 2002 to the PNM 10.48.2 to the Company's 333-32170
Resources, Inc. OBRA '93 Retirement Plan Annual Report on Form 10-K
for the year ended December
31, 2002
10.48.3** Third Amendment dated December 9, 2003 to the OBRA 10.48.3 to the Company's 333-32170
'93 Retirement Plan Annual Report on Form 10-K
for the year ended December
31, 2003
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.49** Employment Contract By and Between Public Service 10.49 to PNM's Annual Report 1-6986
Company of New Mexico and Roger J. Flynn on Form 10-K for fiscal year
ended December 31, 1994
10.50** Public Service Company of New Mexico Section 415 10.50 to PNM's Annual Report 1-6986
Plan dated January 1, 1994 on Form 10-K for fiscal year
ended December 31, 1993
10.50.1** First Amendment dated December 7, 1998, Second 10.50.1 to the Company's 333-32170
Amendment dated August 7, 1999 and Third Amendment Annual Report in Form 10-K
dated November 22, 2002 to the PNM Section 415 Plan for the fiscal year ended
December 31, 2002
10.50.2** Fourth Amendment dated December 9, 2003 to the PNM 10.50.2 to the Company's 333-32170
Resources, Inc. Section 415 Plan Annual Report in Form 10-K
for the fiscal year ended
December 31, 2003
10.51** Officer Retention Plan dated October 21, 2003 10.51 to the Company's 333-32170
Annual Report in Form 10-K
for the fiscal year ended
December 31, 2003
10.52** PNM Resources, Inc. Executive Spending Account Plan 10.52 to the Company's 333-32170
dated December 9, 2003 Annual Report on Form 10-K
for the year ended December
31, 2003
10.53 January 12, 1994 Stipulation 10.53 to PNM's Annual Report 1-6986
on Form 10-K for fiscal year
ended December 31, 1993
10.59* Amended and Restated Lease dated as of September 1, 10.59 to PNM's Annual 1-6986
1993, between The First National Bank of Boston, Report on Form 10-K for
Lessor, and PNM, Lessee (EIP Lease) fiscal year ended December
31, 1993
10.61 Participation Agreement dated as of June 30, 1983 10.61 to PNM's Annual 1-6986
among Security Trust Company, as Trustee, PNM, Report on Form 10-K for
Tucson Electric Power Company and certain financial fiscal year ended December
institutions relating to the San Juan Coal Trust 31, 1993
(refiled)
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.62 Agreement of PNM pursuant to Item 601(b)(4)(iii) of 10.62 to PNM's Annual 1-6986
Regulation S-K (refiled) Report on Form 10-K for
fiscal year ended December
31, 1993
10.67 New Mexico Public Service Commission Order dated July 10.67 to PNM's Annual 1-6986
30, 1987, and Exhibit I thereto, in NMPUC Case No. Report on Form 10-K for
2004, regarding the PVNGS decommissioning trust fund fiscal year ended December
(refiled) 31, 1997
10.68 Master Decommissioning Trust Agreement for Palo Verde 10.68 to PNM's Quarterly 1-6986
Nuclear Generating Station dated March 15, 1996, Report on Form 10-Q for the
between Public Service Company of New Mexico and quarter ended March 31, 1996
Mellon Bank, N.A.
10.68.1 Amendment Number One to the Master Decommissioning 10.68.1 to PNM's Annual 1-6986
Trust Agreement for Palo Verde Nuclear Generating Report of the Registrant on
Station dated January 27, 1997, between Public Service Form 10-K for fiscal year
Company of New Mexico and Mellon Bank, N.A. ended December 31, 1997
10.69* Refunding Agreement No. 3 dated as of September 27, 10.69 to PNM's Quarterly 1-6986
1996 between Public Service Company of New Mexico, The Report on Form 10-Q for the
Owner Participant named therein, State Street Bank and quarter ended September 30,
Trust Company, as Owner Trustee, The Chase Manhattan, 1996
Bank, as Indenture Trustee, and First PV Funding
Corporation
10.72 Credit Agreement dated as of November 21, 2003, 10.72 to PNM's Annual 1-6986
among PNM, the Lenders identified therein and Bank Report on Form 10-K for the
of America, N.A., as administrative agent year ended December 31, 2003
10.73 Refunding Agreement No. 8A, dated as 10.73 to PNM's Quarterly 1-6986
of December 23, 1997, among PNM, the Owner Report on Form 10-Q for the
Participant Named quarter ended March 31, 1998
Therein, State Street Bank and Trust
Company, as Owner Trustee, The Chase
Manhattan Bank, as Indenture Trustee,
and First PV Funding Corporation
10.74** Third Restated and Amended Public 10.74 to PNM's Quarterly 1-6986
Service Company of New Mexico Report on Form 10-Q for the
Performance Stock Plan effective March 10, 1998 quarter ended March 31, 1998
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.74.1** First Amendment to the Third Restated 10.74.1 to PNM's Quarterly 1-6986
and Amended Public Service Company Report on Form 10-Q for the
of New Mexico Performance Stock Plan quarter ended March 31, 2000
Dated February 7, 2000
10.74.2** Second Amendment to the Third Restated and Amended 10.74.2 to PNM's Annual
Public Service Company of New Mexico Performance Report on Form 10-K for the
Stock Plan, effective December 7, 1998 fiscal year ended December
31, 2000
10.74.3** Third Amendment to the Third Restated and Amended 10.74.3 to PNM's Annual
Public Service Company of New Mexico Performance Report on Form 10-K for the
Stock Plan, effective December 10, 2000 fiscal year ended December 31, 2000
10.74.4** Fourth Amendment to Third Restated and Amended 4.3.5 to PNM Resources' 333-03303
Public Service Company of New Mexico Performance Post-Effective Amendment
Stock Plan dated December 31, 2001 No. 1 to Form 8
Registration Statement
filed December 31, 2001
10.74.5** Fifth Amendment to the Third Restated and Amended 10.74.5 to the Company's 333-32170
PNM Resources, Inc. Performance Stock Plan dated Quarterly Report on Form
September 6, 2002 10-Q for the quarter ended
September 30, 2002
10.75** PNM Resources, Inc. Executive Savings Plan dated 10.75 to PNM Resources and 333-32170
December 29, 2003 PNM's Annual Report on Form
10-K for the fiscal year
ended December 31, 2003
10.76 PVNGS Capital Trust--Variable Rate 10.76 to PNM's Quarterly 1-6986
Trust Notes--PVNGS Note Agreement Report on Form 10-Q for the
dated as of July 31, 1998 quarter ended September 30,
1998
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.77 San Juan Project Participation Agreement dated as 10.77 to PNM's Quarterly 1-6986
of October 27, 1999, among Public Service Company Report on Form 10-Q for the
of New Mexico, Tucson Electric Power Company, The quarter ended September 30,
City of Farmington, New Mexico, M-S-R Public Power 1999
Agency, The Incorporated County of Los Alamos,
New Mexico, Southern California Public Power
Authority, City of Anaheim, Utah Associated
Municipal Power System and Tri-State Generation
and Transmission Association, Inc.
10.78 Stipulation in the matter of the Commission's 10.78 to PNM's Quarterly 1-6986
investigation of the rates for electric service of Report on Form 10-Q for the
Public Service Company of New Mexico, Rate Case No. quarter ended September 30,
2761, dated May 21, 1999 1999
10.78.1 Stipulation in the matter of the Commission's 10.78.1 to PNM's Quarterly 1-6986
investigation of the rates for electric service of Report on Form 10-Q for the
Public Service Company of New Mexico, Rate Case No. quarter ended September 30,
2761, dated May 27, 1999 1999
10.79 Asset Sale Agreement between Tri-State Generation 10.79 to PNM's Quarterly 1-6986
and Transmission Association, Inc., a Colorado Report on Form 10-Q for the
Cooperative Association and Public Service Company quarter ended September 30,
of New Mexico, a New Mexico Corporation, dated 1999
September 9, 1999
10.80** Supplemental Employee Retirement 10.80 to PNM's Quarterly 1-6986
Agreement, dated March 14, 2000 for Report on Form 10-Q for the
Patrick T. Ortiz quarter ended March 31, 2000
10.81** Supplemental Employee Retirement 10.81 to PNM's Quarterly 1-6986
Agreement, dated March 22, 2000 for Report on Form 10-Q for the
Jeffry E. Sterba quarter ended March 31, 2000
10.82** PNM Resources, Inc. Omnibus Performance Equity Plan 4.3 to PNM Resources' Form 333-76288
dated 8 Registration Statement
December 31, 2001 filed January 4, 2001
10.83 Retention Bonus Agreement executed October 31, 2003 10.83 to the Company's 333-32170
for Jeffry Sterba Annual Report on Form 10-K
for the year ended December
31, 2003
10.86 Stipulation in the matter of PNM's transition plan 10.86 to the Company's 1-6986
Utility Case No. 3137, dated October 10, 2002 as Annual Report on Form 10-K
amended by Amendment to Stipulated Agreement dated for the year ended December
October 18, 2002 31, 2002
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
10.87** Long Term Care Insurance Plan effective January 1, 10.87 to the Company's 333-32170
2003 Annual Report on Form 10-K
for the year ended December
31, 2002
10.88** Executive Long Term Disability effective January 1, 10.88 to the Company's 333-32170
2003 Annual Report on Form 10-K
for the year ended December
31, 2002
10.89 Receivables Sale Agreement, dated as of April 8, 10.89 to the Company's 333-32170
2003, between PNM Receivables Corp., as buyer and Quarterly Report on Form
PNM as originator 10-Q for the quarter ended
June 30, 2003
10.90 Receivables Purchase Agreement, dated as of April 10.90 to the Company's 333-32170
8, 2003, among PNM Receivables Corp., as seller, Quarterly Report on Form
PNM, as servicer, EagleFunding Capital Corporation, 10-Q for the quarter ended
as conduit investor, Fleet National Bank, as an June 30, 2003
alternate investor and Fleet Securities, Inc., as
managing agent and deal agent.
21 Certain subsidiaries of PNM Resources 21 to the Company's Annual 333-32170
Report on Form 10-K for the
year ended December 31, 2001
Additional Exhibits
99.2* Participation Agreement dated as of 99.2 to PNM's Annual Report 1-6986
December 16, 1985, among the Owner on Form 10-K for fiscal
Participant named therein, First PV year ended December 31, 1995
Funding Corporation. The First National
Bank of Boston, in its individual capacity
and as Owner Trustee (under a Trust
Agreement dated as of December 16, 1985
with the Owner Participant), Chemical
Bank, in its individual capacity and as
Indenture Trustee (under a Trust
Indenture, Mortgage, Security Agreement
and Assignment of Rents dated as of December 16, 1985 with the
Owner Trustee), and Public Service Company of New Mexico,
including Appendix A
definitions together with Amendment No. 1 dated July
15, 1986 and Amendment No. 2 dated November 18, 1986
(refiled)
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
99.3 Trust Indenture, Mortgage, Security 99.3 to PNM's Quarterly 1-6986
Agreement and Assignment of Rents Report on Form 10-Q for the
dated as of December 16, 1985, between quarter ended March 31, 1996
the First National Bank of Boston, as
Owner Trustee, and Chemical Bank, as
Indenture Trustee together with
Supplemental Indentures Nos. 1 and 2
(refiled)
99.3.3 Supplemental Indenture No. 3 dated as 99.3.3 to PNM's Quarterly 1-6986
of March 8, 1995, to Trust Indenture Report on Form 10-Q for the
Mortgage, Security Agreement and quarter ended March 31, 1995
Assignment of Rents between The First
National Bank of Boston and Chemical
Bank dated as of December 16, 1985
99.4* Assignment, Assumption and Further 99.4 to PNM's Annual Report 1-6986
Agreement dated as of December 16, on Form 10-K for fiscal
1985, between Public Service Company year ended December 31, 1995
of New Mexico and The First National
Bank of Boston, as Owner Trustee
(refiled)
99.5 Participation Agreement dated as of July 99.5 to PNM's Annual Report 1-6986
31, 1986, among the Owner Participant on Form 10-K for fiscal
named herein, First PV Funding year ended December 31, 1996
Corporation, The First National Bank of Boston,
in its individual capacity and as Owner Trustee
(under a Trust Agreement dated as of July 31, 1986,
with the Owner Participant), Chemical Bank, in its
individual capacity and as Indenture Trustee (under
a Trust Indenture, Mortgage, Security Agreement and
Assignment of Rents dated as of July 31, 1986, with
the Owner Trustee), and Public Service Company of
New Mexico, including Appendix A definitions
together with Amendment No. 1 thereto (refiled)
99.6 Trust Indenture, Mortgage, Security 99.6 to PNM's Annual Report 1-6986
Agreement and Assignment of Rents on Form 10-K for fiscal
dated as of July 31, 1986, between The year ended December 31, 1996
First National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Indenture
Trustee together with Supplemental
Indenture No. 1 thereto (refiled)
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
99.7 Assignment, Assumption, and Further 99.7 to PNM's Annual Report 1-6986
Agreement dated as of July 31, 1986, on Form 10-K for fiscal
between Public Service Company of year ended December 31, 1996
New Mexico and The First National Bank
of Boston, as Owner Trustee (refiled)
99.8 Participation Agreement dated as of 99.8 to PNM's Quarterly 1-6986
August 12, 1986, among the Owner Report on Form 10-Q for the
Participant named therein, First PV quarter ended March 31, 1997
Funding Corporation. The First National
Bank of Boston, in its individual capacity
and as Owner Trustee (under a Trust
Agreement dated as of August 12, 1986,
with the Owner Participant), Chemical
Bank, in its individual capacity and as
Indenture Trustee (under a Trust
Indenture, Mortgage, Security Agreement
and Assignment of Rents dated as of August
12, 1986, with the Owner Trustee), and Public
Service Company of New Mexico, including
Appendix A definitions (refiled)
99.8.1* Amendment No. 1 dated as of November 99.8.1 to PNM's Quarterly 1-6986
18, 1986, to Participation Agreement Report on Form 10-Q for the
dated as of August 12, 1986 (refiled) quarter ended March 31, 1997
99.9* Trust Indenture, Mortgage, Security 99.9 to PNM's Annual Report 1-6986
Agreement and Assignment of Rents of the Registrant on Form
dated as of August 12, 1986, between the 10-K for fiscal year ended
First National Bank of Boston, as Owner December 31, 1996
Trustee, and Chemical Bank, as Indenture
Trustee together with Supplemental
Indenture No. 1 thereto (refiled)
99.9.2 Supplemental Indenture No. 2 dated as 99.9.1 to PNM's Quarterly 1-6986
of March 8, 1995, to Trust Indenture, Report on Form 10-Q for the
Mortgage, Security Agreement and quarter ended March 31, 1995
Assignment of Rents between The First
National Bank of Boston and Chemical
Bank dated as of August 12, 1986
99.10* Assignment, Assumption, and Further 99.10 to PNM's Quarterly 1-6986
Agreement dated as of August 12, 1986, Report on Form 10-Q for the
between Public Service Company of New quarter ended March 31, 1997
Mexico and The First National Bank of
Boston, as Owner Trustee (refiled)
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
99.11* Participation Agreement dated as of December 15, 1986, 99.1 to PNM's Quarterly 1-6986
among the Owner Participant named therein, First PV Report on Form 10-Q for the
Funding Corporation, The First National Bank of quarter ended March 31, 1997
Boston, in its individual capacity and as Owner Trustee
(under a Trust Agreement dated as of December 15, 1986,
with the Owner Participant), Chemical Bank, in its
individual capacity and as Indenture Trustee (under a
Trust Indenture, Mortgage, Security Agreement and
Assignment of Rents dated as of December 15, 1986,
with the Owner Trustee), and Public Service Company
of New Mexico, including Appendix A definitions
(Unit 1 Transaction) (refiled)
99.12 Trust Indenture, Mortgage, Security 99.12 to PNM's Quarterly 1-6986
Agreement and Assignment of Rents Report on Form 10-Q for the
dated as of December 15, 1986, between quarter ended March 31, 1997
The First National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Indenture Trustee
(Unit 1 Transaction) (refiled)
99.13 Assignment, Assumption and Further 99.13 to PNM's 1-6986
Agreement dated as of December 15, Quarterly Report on Form
1986, between Public Service Company 10-Q for the quarter ended
of New Mexico and The First National March 31, 1997
Bank of Boston, as Owner Trustee
(Unit 1 Transaction) (refiled)
99.14 Participation Agreement dated as of December 15, 1986, 99.14 to PNM's 1-6986
among the Owner Participant named therein, First PV Quarterly Report on Form
Funding Corporation, The First National Bank of 10-Q for the quarter ended
Boston, in its individual capacity and as Owner March 31, 1997
Trustee (under a Trust Agreement dated as of December
15, 1986, with the Owner Participant), Chemical Bank,
in its individual capacity and as Indenture Trustee
(under a Trust Indenture, Mortgage, Security Agreement
and Assignment of Rents dated as of December 15, 1986,
with the Owner Trustee), and Public Service Company of
New Mexico, including Appendix A definitions (Unit 2
Transaction) (refiled)
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
99.15 Trust Indenture, Mortgage, Security 99.15 to PNM's Annual 1-6986
Agreement and Assignment of Rents dated Report on Form 10-K for
as of December 31, 1986, between the fiscal year ended December
First National Bank of Boston, as Owner 31, 1996
Trustee, and Chemical Bank, as Indenture
Trustee (Unit 2 Transaction) (refiled)
99.16 Assignment, Assumption, and Further 99.16 to PNM's Quarterly 1-6986
Agreement dated as of December 15, Report on Form 10-Q for the
1986, between Public Service Company quarter ended March 31, 1997
of New Mexico and The First National
Bank of Boston, as Owner Trustee
(Unit 2 Transaction) (refiled)
99.17* Waiver letter with respect to "Deemed 99.17 to PNM's Annual 1-6986
Loss Event" dated as of August 18, 1986, Report on Form 10-K for
between the Owner Participant named fiscal year ended December
therein, and Public Service Company of 31, 1996
New Mexico (refiled)
99.18* Waiver letter with respect to Deemed 99.18 to PNM's Annual 1-6986
Loss Event" dated as of August 18, 1986, Report on Form 10-K for
between the Owner Participant named fiscal year ended December
therein, and Public Service Company of 31, 1996
New Mexico (refiled)
99.19 Agreement No. 13904 (Option and Purchase of Effluent), 99.19 to PNM's Annual 1-6986
dated April 23, 1973, among Arizona Public Service Report on Form 10-K for
Company, Salt River Project Agricultural Improvement fiscal year ended December
and Power District, the Cities of Phoenix, Glendale, 31, 1996
Mesa, Scottsdale, and Tempe, and the Town of Youngtown
(refiled)
99.20 Agreement for the Sale and Purchase of 99.20 to PNM's Annual 1-6986
Wastewater Effluent, dated June 12, 1981, Report on Form 10-K for
Among Arizona Public Service Company, fiscal year ended December
Salt River Project Agricultural 31, 1996
Improvement and Power District and the
City of Tolleson, as amended (refiled)
99.21* 1996 Supplemental Indenture dated as of 99.21 to PNM's Quarterly 1-6986
September 27, 1996 to Trust Indenture, Report on Form 10-Q for the
Mortgage, Security Agreement and quarter ended September 30,
Assignment of Rents dated as of December 1996
16, 1985 between State Street Bank and
Trust Company, as Owner Trustee, and
The Chase Manhattan Bank, as Indenture
Trustee
|
Exhibit No. Description of Exhibit Filed as Exhibit: File No:
----------- ---------------------- ----------------- -------
99.22 1997 Supplemental Indenture, dated as of 99.22 to PNM's Quarterly 1-6986
December 23, 1997, to Trust Indenture, Report on Form 10-Q for the
Mortgage, Security Agreement and quarter ended March 30, 1998
Assignment of Rents, dated as of August
12, 1986, between State Street Bank and
Trust, as Owner Trustee, and The Chase
Manhattan Bank, as Indenture Trustee
|
** Designates each management contract or compensatory plan or arrangement required to be identified pursuant to paragraph 3 of Item 15(a) of Form 10 -K.
(b) Reports on Form 8-K:
During the quarter ended December 31, 2003 the Company filed, on the date indicated, the following reports on Form 8-K.
Report dated and filed November 5, 2003 pursuant to Item 5 of Form 8-K that the Company announces that regulators reject PNM gas rate settlement.
Report dated and filed December 17, 2003 pursuant to Item 5 of Form 8-K reporting the Company's Comparative Operating Statistics for the months of November 2003 and 2002 and the years ended November 2003 and 2002.
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.
PNM RESOURCES, INC.
(Registrant)
Date: March 10, 2004 By /s/ T. G. SATEGNA
--------------------------------------
T. G. Sategna
Vice President and
Corporate Controller
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ J. E. STERBA Principal Executive Officer March 10, 2004
|
--------------------------------- and Chairman of the Board
J. E. Sterba
Chairman, President and
Chief Executive Officer
/s/ J. R. LOYACK Principal Financial Officer March 10, 2004
---------------------------------
J. R. Loyack
Senior Vice President and
Chief Financial Officer
/s/ T. G. SATEGNA Principal Accounting Officer March 10, 2004
---------------------------------
T. G. Sategna
Vice President and
Corporate Controller
/s/ A. E. ARCHULETA Director March 10, 2004
---------------------------------
A. E. Archuleta
/s/ R. G. ARMSTRONG Director March 10, 2004
---------------------------------
R. G. Armstrong
/s/ R. M. CHAVEZ Director March 10, 2004
---------------------------------
R. M. Chavez
/s/ J. A. DOBSON Director March 10, 2004
---------------------------------
J. A. Dobson
/s/ M. T. PACHECO Director March 10, 2004
---------------------------------
M. T. Pacheco
/s/ T. F. PATLOVICH Director March 10, 2004
---------------------------------
T. F. Patlovich
/s/ R. M. PRICE Director March 10, 2004
---------------------------------
R. M. Price
/s/ B. S. REITZ Director March 10, 2004
---------------------------------
B. S. Reitz
/s/ J. B. WOODARD Director March 10, 2004
---------------------------------
J. B. Woodard
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW MEXICO
(Registrant)
Date: March 10, 2004 By /s/ T. G. SATEGNA
--------------------------------------
T. G. Sategna
Vice President and
Corporate Controller
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ J. E. STERBA Principal Executive Officer March 10, 2004
|
--------------------------------- and Chairman of the Board
J. E. Sterba
Chairman, President and
Chief Executive Officer
/s/ J. R. LOYACK Principal Financial Officer March 10, 2004
---------------------------------
J. R. Loyack
Senior Vice President and
Chief Financial Officer
/s/ T. G. SATEGNA Principal Accounting Officer March 10, 2004
---------------------------------
T. G. Sategna
Vice President and
Corporate Controller
/s/ R. J. FLYNN Director March 10, 2004
---------------------------------
R. J. Flynn
/s/ W. J. REAL Director March 10, 2004
---------------------------------
W. J. Real
/s/ E. PADILLA, JR. Director March 10, 2004
---------------------------------
E. Padilla, Jr.
/s/ A. A. COBB Director March 10, 2004
---------------------------------
A. A. Cobb
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EXHIBIT 10.9.1
[*] Indicates that the confidential portion has been omitted from this filed exhibit and filed separately with the Securities and Exchange Commission
AMENDMENT ONE TO UNDERGROUND COAL SALES AGREEMENT
This AMENDMENT ONE TO UNDERGROUND COAL SALES AGREEMENT ("Amendment One"), by and between SAN JUAN COAL COMPANY, a Delaware corporation (referred to herein as "SJCC") and PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation, and TUCSON ELECTRIC POWER COMPANY, an Arizona corporation (collectively referred to herein as the "Utilities") (with SJCC and Utilities herein sometimes collectively referred to as "Parties"), effective as of December 15, 2003, amends that certain Underground Coal Sales Agreement dated August 31, 2001 (the "UGCSA") between SJCC and the Utilities.
RECITALS
A. AU Mines, Inc. ("AU") has withdrawn as a partner of Cimarron Coal Company ("Cimarron") in exchange for an undivided 31% interest in the assets of Cimarron, and Cimarron has been reorganized into a partnership in which AU has no further interest.
B. SJCC has agreed to enter into with Cimarron the Installment Sale Agreement and Release, pursuant to which SJCC will purchase all of the remaining rights and interest of Cimarron in the La Plata leases and the La Plata mine created or reserved under the Cimarron Assignment Agreement dated October 30, 1979, originally between Cimarron and Western Coal Company and assigned to SJCC, as amended and modified over time by various agreements.
C. SJCC has agreed to enter into the AU Letter Agreement dated as of December 15, 2003 with AU amending the Cimarron Assignment Agreement dated October 30, 1979, as amended and modified.
NOW THEREFORE, in consideration of the terms, covenants and agreements contained in this Amendment One and for other good and valuable consideration, the Utilities jointly and severally agree with SJCC as follows:
AGREEMENT
1. The UGCSA is amended by deleting the text of Section 1.2 in its entirety and replacing it with "[intentionally omitted]". The remaining sections following 1.2 shall not be renumbered.
2. The UGCSA is amended by adding the following definitions to Section 1.15:
SS) "Cimarron Coal Assignment" defined in Section 2.1.E.
TT) "Installment Sale Agreement" defined in Section 2.1.E
UU) "Utility Payment Stream" defined in Section 8.5.C.
3. The UGCSA is amended by adding a new Section 2.1.E as follows:
E) To perform all of the obligations contained in (i) the Cimarron Coal Assignment dated October 30, 1979, originally between Cimarron Coal Company and Western Coal Company and assigned to SJCC, as amended and modified, including but not limited to the letter amendment dated as of December 15, 2003 between AU Mines, Inc. and SJCC ("Cimarron Coal Assignment") and (ii) the Installment Sale Agreement and Release between Cimarron Coal Company and SJCC, dated as of December 15, 2003 ("Installment Sale Agreement").
4. The UGCSA is amended by adding after the title line of Section 8.5, "Other Costs", the new line:
Other Costs shall be the following:
5. The UGCSA is amended by replacing the existing text of Section 8.5.C in its entirety with the following:
C) Payment of the Utility Payment Stream
For purposes of this Section 8.5.C, the following definitions apply:
"Y1" is the final Implicit Price Deflator Index of the Gross Domestic Product ("IPD-GDP") (defined below) for the fourth quarter of 2002, presently equal to 111.25
"Y2" is the final IPD-GDP for the fourth quarter of 1979, presently equal to 53.90.
"Xl" is the most recently published quarterly IPD-GDP as of the Calculation Date. The Calculation Date is the 5th day of the month following the month for which each Utility Payment Stream payment is being made (e.g., February 5 for the January payment).
The factors X1/Y1 and X1/Y2 as applied below in this Section 8.5.C are utilized to recognize the effects of inflation and deflation on certain relevant base amounts.
The IPD-GDP as utilized in this Section 8.5.C refers to the Implicit Price Deflator of the Gross Domestic Product Index ("Index") published quarterly by the Bureau of Economic Analysis of the U.S. Department of Commerce ("BEA"). Calculations for this Section 8.5.C shall be made based upon the most recent Index published on the BEA website (if the BEA
website no longer publishes the Index, then the Index as most
recently published in the Survey of Current Business shall be
utilized), at the applicable Calculation Date. Presently,
information concerning the Index is disseminated by the BEA by
means of the Survey of Current Business, (a magazine published
monthly by the U.S. Department of Commerce, Economic and
Statistics Administration, Bureau of Economic Analysis, and
printed by the Government Printing Office) in a Selected NIPA
Table designated as "Quantity and Price Indexes for Gross
Domestic Product" and, also, via BEA's website on the
Internet, as line 4 of Table 7.1 at:
www.bea.doc.gov/bea/dn/nipaweb/SelectTable.asp?Selected=N#S7.
At present, the Index is calculated and based on the reference year of 1996 = 100. The Selected NIPA Tables are presented through quarterly estimates, updated monthly; the Parties agree that any update to the Index after the Calculation Date, caused by BEA adjusting its estimates, shall not result in a recalculation of the amount of a Utility Payment Stream payment.
If, in the future, the BEA should change the reference year utilized to calculate the IPD-GDP then: Y1 shall be the IPD-GDP shown for the fourth quarter of 2002; and Y2 shall be the JPD-GDP shown for the fourth quarter of 1979, in conversion tables prepared by the BEA in respect to the new reference year and Xl for each succeeding Utility Payment Stream payment becoming due after the date of the change of reference years shall be determined by reference to the most recently published IPD-GDP, as of the Calculation Date, based on the new reference year.
If the IPD-GDP should cease to be published by the BEA but another comparable index is published by another governmental agency then such index shall be utilized in the same manner as provided in this Section 8.5.C in order to establish the amounts of the Utility Payment Stream becoming due for required future Utility Payment Stream payments. If no such index is published by governmental agencies, then such other index which may be available shall be utilized in a manner which will fairly and reasonably reflect the effects of inflation or deflation on the dollar amounts of the Utility Payment Stream payments.
The Utilities shall pay to SJCC the Utility Payment Stream calculated in two parts as follows ("Utility Payment Stream"):
1) i) [*] ("Initial Payment") paid on January 22, 2004 to the account described in Section 8.7.C; and
ii) one hundred sixty nine (169) monthly payments
("Payment(s)") each in the amount calculated in this
Section 8.5.C(l) below, with the first Payment for
the month of December 2003 due on January 22, 2004,
and the final Payment for the month of December 2017
due on January 22, 2018. The terms Initial Payment
and Payment(s) as defined in this Section 8.5.C(1)
apply only in this Section 8.5.C(1).
The amount of each Payment shall be calculated utilizing [*] as the base amount to be subject to inflation and deflation adjustment and calculated mathematically by the following formula applied separately for each Payment:
[*] x (X1/Y1) = amount of Payment
Utilities shall make the Payments specified in this
Section 8.5.C(1) to an SJCC bank account designated
as [*] (or such other account as either of the
Parties may designate upon 30 days written notice to
the other party) and due on the 22nd of the month
following the month for which the Payment is being
made. Payments due on a Saturday will be payable on
the previous Friday. Payments due on a Sunday will be
payable on the following Monday. Payments due on a
bank holiday will be payable on the next bank
workday.
2) i) [*] ("Initial Payment") paid on January 22, 2004 to the account described in Section 8.7.C; and
ii) one hundred sixty nine (169) monthly payments
("Payment(s)") each in the amount calculated in this
Section 8.5.C(2) below, with the first Payment for
the month of December 2003 due on January 22, 2004,
and the final Payment for the month of December 2017
due on January 22, 2018. The terms Initial Payment
and Payment(s) as defined in this Section 8.5.C(2)
apply only in this Section 8.5.C(2). The amount of
each Payment shall be calculated by adding certain
payment amounts as follows:
Tier 1 shall be calculated utilizing [*] as the base amount to be subject to inflation and deflation adjustment and calculated mathematically by the following formula applied separately for each Payment:
[*] x (X1/Y2) = Tier 1 payment
If the LPM Annual Production (the total tons mined and delivered to the Utilities in a calendar year from the La Plata Mine) is zero, no payments are due for Tier 2 and Tier 3. Only if the LPM Annual Production exceeds [*] tons in any year after 2003, payments from at least Tier 2, and possibly Tier 3, shall he added to the December Tier 1 payment, as described below. Tier 2 and Tier 3 payments are only calculated and applied to the December payment of each year and shall be calculated utilizing [*] as the base amount to be subject to inflation and deflation adjustment.
Tier 2 only applies when LPM Annual Production exceeds [*] tons in any year after 2003. If LPM Annual Production exceeds [*] tons, the Tier 2 payment amount calculation is initiated by multiplying [*] by the lesser of: i) the LPM Annual
Production minus [*] tons or ii) [*] tons, and then multiplying the product by [*], multiplied further by X1/Y2. This product multiplied by [*] is the Tier 2 payment amount, and it shall be added to the Tier 1 payment amount for December each year that Tier 2 applies.
Tier 3 only applies when LPM Annual Production
exceeds [*] tons in any year after 2003. If LPM
Annual Production exceeds [*] tons, the Tier 3
payment amount calculation is initiated by
multiplying [*] by: (the LPM Annual Production minus
[*] tons), and then multiplying the product by [*],
multiplied further by XI/Y2. This product multiplied
by [*] is the Tier 3 payment amount, and it shall be
added to the sum of the Tier 1 and Tier 2 payment
amounts for December each year that Tier 3 applies.
Utilities shall make the Payments specified in this
Section 8.5.C(2) to the SJCC bank account designated
as [*] (or such other account as either of the
Parties may designate upon 30 days written notice to
the other party) and due on the 22nd of the month
following the month for which the Payment is being
made. Payments due on a Saturday will be payable on
the previous Friday. Payments due on a Sunday will be
payable on the following Monday. Payments due on a
bank holiday will be payable on the next bank
workday.
By the tenth (10th) day of each month, SJCC shall provide to the Utilities a detailed calculation of the Utility Payment Stream due for the previous month. In the event of a dispute between the Parties or with a third party over calculation of payments set out in Section 8.5.C(1) or Section 8.5.C(2), the Utilities shall submit their written position statement regarding the disputed calculation to SJCC. A determination of the same issue in a dispute resolution process involving a third party, in which the Utilities' position statement is presented in good faith by SJCC, shall be binding upon SJCC and the Utilities for purposes of this Agreement.
6. The UGCSA is amended by adding the following new Section 8.5.F:
F) Dispute Costs
In addition to the Utility Payment Stream set forth in Sections 8.5.C(l) and 8.5.C(2) above, the Utilities shall pay to SJCC legal fees and costs arising from disputes, if any, under the Cimarron Coal Assignment and/or the Installment Sale Agreement.
7. Section 6.1 of the UGCSA is amended by adding the following paragraph at the end of the current Section 6.1:
"SJCC shall not mine and sell coal to any third party from the coal leases described in the Cimarron Coal Assignment."
8. Section 8.1 of the UGCSA is amended by replacing, in the first paragraph, the term "reimburse" with the phrase "reimburse or pay, as applicable,".
9. The UGCSA is amended by deleting the text of Section 8.7.A(2).iii in its entirety and replacing it with "[intentionally omitted]". The remaining sections following Section 8.7.A(2).iii shall not be renumbered.
10. The UGCSA is amended by replacing the existing text of Section 8.7.A(2).v in its entirety with the following: Other Miscellaneous Costs
11. The UGCSA is amended by adding the following new Section 8.7.A(2).vi:
vi. Dispute Costs
12. Section 8.7.C of the UGCSA is amended by replacing the existing text in its entirety with the following:
Invoices submitted by SJCC in accordance with Section 8.7 "Invoicing and Settlement" and any supplemental or true-up invoices shall be due and payable by Utilities on the twenty-second (22nd) day of the month succeeding the month for which such invoice is submitted, or on the twelfth (12th) day after receipt of the invoice by Utilities, whichever date is later; provided, however, that payment of the Utility Payment Stream by the Utilities is due the twenty-second (22nd) day of the month, regardless of whether, or when, a detailed calculation thereof as specified in Section 8.5.C is received by the Utilities. Payment pursuant to this Agreement, except for payments under Sections 8.5.C.(1) (ii) and 8.5.C.(2)(ii), shall be made to SJCC by electronic funds transfer to such bank accounts as SJCC may from time to time designate.
13. The UGCSA is amended by deleting the text of Section 12.5.D.(1) in its entirety and replacing it with "[intentionally omitted]". The remaining sections following Section 12.5.D.(1) shall not be renumbered.
14. The UGCSA is amended by replacing Section 14.10.A in its entirety with the following:
A) This Agreement may not be assigned or subcontracted by SJCC without the consent of Utilities, except that no consent shall be required in event of an assignment of amounts receivable hereunder to a bank or lending institution, or a collateral assignment for purposes of securing indebtedness, or a transfer under or pursuant to a mortgage, deed of trust or indenture (including, without limitation, a transfer by foreclosure or a sale under the power of sale contained in any such mortgage, deed of trust or indenture), or a transfer to a successor in interest, by merger, consolidation, sale and transfer, or otherwise, acquiring all or substantially all of
the assets and business of SJCC, and except for transfer to a subsidiary as herein below provided; provided, however, that any assignee, successor in interest or transferee hereunder shall first guarantee performance of this Agreement in a manner satisfactory to Utilities. Notwithstanding anything to the contrary contained in this Agreement, a collateral assignment of the Utility Payment Stream (including, without limitation, a transfer by foreclosure or a sale under a power of sale contained in any such collateral assignment) shall not require the assignee or transferee to guarantee performance of this Agreement, and any claims or rights of setoff against the Utility Payment Stream shall be subordinate to any such collateral assignment (including, without limitation, a transfer by foreclosure or a sale under a power of sale contained in any such collateral assignment).
15. The UGCSA is amended by replacing the second sentence of
Section 14.18 with the following:
In addition, those provisions and Exhibits referenced in, or necessary to implement, the provisions that describe the Parties' post-termination or post-expiration rights and obligations also shall survive, including, but not limited to, Sections 2.1.E, 8.5.C, 8.5.E, 8.5.F and 14.10.
16. The UGCSA is amended by replacing Section 1.5 with the following:
1.5 Guarantee "Guarantee" shall mean the Guarantee, of even date herewith, as modified from time to time by the consent of Guarantor, made by BHP Minerals International Inc. and guaranteeing to Utilities SJCC's performance of its obligations hereunder.
17. Section 14.13 of the UGCSA is amended by replacing the existing text in its entirety with the following:
This Agreement may be amended only by written instrument executed by all of the Parties. Any such amendments may be executed in any number of counterparts, and it shall not be necessary that the signatures of all Parties be contained on any counterpart. Each counterpart shall be deemed an original, but all counterparts together shall constitute one and the same instrument.
18. All other provisions of the UGCSA not specifically amended by this Amendment One remain in full force and effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed on their behalf by their respective officers, thereunto duly authorized. Public Service Company of New Mexico
By: /s/ Edward Padilla Jr.
--------------------------------------
Name: Edward Padilla Jr.
--------------------------------------
Title: Senior Vice President Date: December 15, 2003
-------------------------------------- ----------------------
|
Tucson Electric Power Company
By: /s/ Michael J. Deloncini
----------------------------------------
Name: Michael J. Deloncini
--------------------------------------
Title: Senior Vice President Date: December 15, 2003
-------------------------------------- ----------------------
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San Juan Coal Company
By: /s/ John W. Grubb
----------------------------------------
Name: John W. Grubb
--------------------------------------
Title: President Date: December 15, 2003
-------------------------------------- ----------------------
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CONSENT OF GUARANTOR
BHP Minerals International Inc., a Delaware corporation (formerly BHP-Utah International Inc.), the guarantor of the obligations of San Juan Coal Company under the Underground Coal Sales Agreement pursuant to the Guarantee dated September 25, 2001 (the "Guarantee"), hereby consents to the foregoing Amendment One to the Underground Coal Sales Agreement and agrees that all references in the Guarantee to the Underground Coal Sales Agreement shall be deemed to be references to the Underground Coal Sales Agreement as amended by this Amendment One.
BHP MINERALS INTERNATIONAL INC.
By: /s/ Earl K. Moore
----------------------------------------
Name: Earl K. Moore
--------------------------------------
Title: President Date: 12/9/03
-------------------------------------- --------------------
By: /s/ M. Ruth Rhodes
----------------------------------------
Name: M. Ruth Rhodes
--------------------------------------
Title: Secretary Date: 12/9/03
-------------------------------------- --------------------
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JAM2789
EXHIBIT 10.23.6
SIXTH AMENDMENT
TO THE
PNM RESOURCES, INC.
ACCELERATED MANAGEMENT PERFORMANCE PLAN
Effective as of January 14, 1981, Public Service Company of New Mexico ("PNM") established the Public Service Company of New Mexico Accelerated Management Performance Plan (the "Plan"). The Plan was subsequently restated, with the restatement being effective, generally, as of August 1, 1988. The restated Plan has been amended on five previous occasions. The Fifth Amendment to the restated Plan transferred sponsorship of the Plan from PNM to PNM Resources, Inc. (the "Company") and changed the name of the Plan to the "PNM Resources, Inc. Accelerated Management Performance Plan." The purpose of this Amendment is to make certain provisions of the Plan more consistent with the other benefit plans and programs sponsored by the Company.
1. This Amendment shall be effective as of the date set forth
below, unless otherwise specified herein.
2. This Amendment amends only the provisions of the Plan as set
forth herein. Those provisions not expressly amended by this Amendment shall
continue in full force and effect.
3. Section 2.22 (Plan Administrator) of the Plan is hereby
amended in its entirety to read as follows:
2.22 "Plan Administrator" means the PNM Resources, Inc. Benefits Governance Committee or other such person or committee designated by the Company as the Plan Administrator.
4. Section 6.03 (Change in Control) of the Plan is hereby amended in its entirety to read as follows:
6.03 Change in Control. As a condition to the closing of a "Change in Control" transaction (as defined in the PNM Resources, Inc. Officer Retention Plan, as it may be amended from time to time), the Company shall fully fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement and the Trust Agreement between PNM Resources, Inc. Deferred Compensation Trust Agreement and the Trust Agreement between PNM Resources, Inc. and Fiduciary Trust International of Delaware (commonly known as the "Rabbi Trusts"), which provide a funding mechanism for certain plans sponsored by the Company or its affiliates.
5. Section 8.01 of the Plan is hereby amended in its entirety to read
as follows:
8.01 Administration of Plan. The Board of Directors hereby
vests the Plan Administrator with all powers and authority necessary to
administer the Plan as herein provided, and with the authority to make
such rules and regulations of uniform application as the Plan
Administrator may deem necessary to carry out the provisions of the
Plan. The Plan Administrator shall have the exclusive discretion and
authority to interpret the provisions of the Plan and to determine any
questions arising thereunder or in connection with the administration
thereof. Any decision or action of the Plan Administrator shall be
conclusive and binding upon all Participating Employees and Terminated
Participants. The Plan Administrator may delegate some (or all) of its
authority hereunder to the organizational unit of the Company
responsible for administering benefits programs (the "Benefits
Department"). The Plan Administrator also may engage agents and obtain
other assistance from the Company, including Company counsel. The Plan
Administrator shall not be responsible for any action taken or not
taken on the advice of legal counsel. The Plan Administrator is given
specific authority to allocate and revoke responsibilities among its
members or designees. When the Plan Administrator has allocated
authority pursuant to the foregoing, the Plan Administrator shall not
be liable for the acts or omissions of the party to whom such
responsibility has been allocated, except to the extent provided by
law.
6. Article 8 (Plan Administration) of the Plan is hereby amended by adding the following Section 8.03 to the end thereof:
8.03 Claims Procedure.
8.03.1 Review. If a Participant, beneficiary or any other person (all of whom are referred to in this Section as a "Claimant") is dissatisfied with the determination of his benefits, eligibility, participation, service or any other right or interest under this Plan,
the Claimant may file a written request with the Benefits Department in
a manner prescribed by the Benefits Department. The Benefits Department
will notify the Claimant of the disposition of the claim within ninety
(90) days after the request is filed with Benefits Department. The
Benefits Department may have an additional period of up to ninety (90)
days to decide the claim if the Plan Administrator determines that
special circumstances require an extension of time to decide the claim
and the Benefits Department advises the Claimant in writing of the need
for an extension (including an explanation of the special circumstances
requiring the extension) and the date on which the Benefits Department
expects to decide the claim. If, following the review, the claim is
denied, in whole or in part, the notice of disposition shall set forth:
(a) the specific reason(s) for denial of the claim;
(b) reference to the specific Plan provisions upon which the determination is based;
(c) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary;
(d) an explanation of the Plan's appeal procedures, and an explanation of the time limits applicable to the Plan's appeal procedures, including a statement of the Claimant's right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as it may be amended from time to time (the "Act").
8.03.2 Appeal of Adverse Benefit Determination.
(a) Within sixty (60) days after receiving the
written notice of the disposition of the claim described in Section
8.03.1, the Claimant, or the Claimant's authorized representative, may
appeal such denied claim. The Claimant may submit a written statement
of his claim (including any written comments, documents, records and
other information relating to the claim) and the reasons for granting
the claim to the Benefits Governance Committee. The Benefits Governance
Committee shall have the right to request of and receive from the
Claimant such additional information, documents or other evidence as
the Benefits Governance Committee may reasonably require. If the
Claimant does not request an appeal of the denied claim within sixty
(60) days after receiving written notice of the disposition of the
claim as described in Section 8.03.1, the Claimant shall be deemed to
have accepted the disposition of the claim and such written disposition
will be final and binding on the Claimant and anyone claiming benefits
through the Claimant, unless the Claimant shall have been physically or
mentally incapacitated so as to be unable to request review within the
sixty (60) day period. The appeal shall take into account all comments,
documents, records and other information submitted by the Claimant
relating to the claim, without regard to whether such documents,
records or other information were submitted or considered in the
initial benefit determination or the initial review.
(b) A decision on appeal to the Benefits Governance Committee shall be rendered in writing by the Benefits Governance Committee ordinarily not later than sixty (60) days after the Claimant requests review. A written copy of the decision shall be delivered to the Claimant. If special circumstances require an extension of the ordinary period, the Benefits Governance Committee shall so notify the Claimant of the extension with such notice containing an explanation of the special circumstances requiring the extension and the date by which the Benefits Governance Committee expects to render a decision. Any such extension shall not extend beyond sixty (60) days after the ordinary period. The period of time within which a benefit determination on review is required to be made shall begin at the time an appeal is filed in accordance with the provisions of Section 8.03.2(a) above, without regard to whether all the information necessary to make a decision on appeal accompanies the filing.
If the appeal to the Benefits Governance Committee is denied, in whole or in part, the decision on appeal referred to in the first sentence of this Section 8.03.2(b) shall set forth:
(i) the specific reason(s) for denial of the
claim;
(ii) reference to the specific Plan
provisions upon which the denial is based;
(iii) a statement that the Claimant is
entitled to receive, upon request and free of charge, reasonable access to,
and copies of, all documents, records, and other information relevant
to the Claimant's claim for benefits; and
|
(iv) a statement of the Claimant's right to bring a civil action under Section 502(a) of the Act.
8.03.3 Special Rules For Disability Claims. Claims involving a determination of disability shall be administered in accordance with this Section 8.03 except as otherwise provided in this Section 8.03.3.
(a) Special Timing Rules. With respect to Section 8.03.1 above, the Benefits Department will notify the Claimant of the disposition of the claim within forty-five (45) days after the request is filed with the Benefits Department. This forty-five (45) day period may be extended by the Benefits Department for up to thirty (30) days, provided that the Benefits Department both determines that such an extension is necessary due to matters beyond the control of the Benefits Department and notifies the Claimant, prior to the expiration of the initial forty-five (45) day period, of the circumstances requiring the extension and the day by which it expects to render a decision. If, prior to the end of this thirty (30) day extension
period, the Benefits Department determines that, due to matters beyond
the control of the Plan, a decision cannot be rendered within such
extension period, the period for making the determination may be
extended for up to an additional thirty (30) days, provided that the
Benefits Department notifies the Claimant prior to the expiration of
the first thirty (30) day extension period of the circumstances
requiring the extension and the date as of which it expects to render a
decision. In addition, for purposes of paragraph 8.03.2(a) above, the
number sixty (60) shall be replaced with the number one hundred eighty
(180). For purposes of paragraph 8.03.2(b) above, the number sixty (60)
shall be replaced with the number forty-five (45).
(b) Special Information Rules. With respect to Sections 8.03.1 and 8.03.2, notice of the denial of a claim for disability benefits shall set forth the following additional information:
(i) A statement whether any internal rule, guideline, protocol or other similar criterion was relied upon in denying the claim, and if so, that such internal rule, guideline, protocol or other similar criterion will be provided free of charge upon request;
(ii) A statement that the Claimant is entitled to receive, upon request and free of charge, the names of any experts whose advice was sought with respect to the claim without regard to whether the advice was relied upon in deciding the appeal;
(iii) A statement that the Claimant is entitled to receive, upon request and free of charge, an explanation of any medical and/or vocational findings, if the denial was based, in whole or in part, on such findings;
(iv) The following statement: "You and your plan may have other voluntary alternative dispute resolution options such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency"; and
(v) A statement describing any voluntary appeal procedures offered by the Plan and the Claimant's right to receive information about such voluntary procedures.
(c) Special Appeal Consultation Rules. If an appeal is based in whole or in part on a medical judgment, a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment, other than the health care professional who was consulted in connection with the initial benefit determination or a subordinate of such health care professional, must be consulted.
(d) No Deference To Original Decision. A decision on an appeal shall not afford deference to the initial adverse benefit determination and must be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.
8.03.4 Right To Examine Plan Documents And To Submit
Materials. In connection with the determination of a claim, or in
connection with review of a denied claim or appeal pursuant to this
Section 8.03, the Claimant may examine this Plan and any other
pertinent documents generally available to Participants relating to the
claim and may submit written comments, documents, records and other
information relating to the claim for benefits. The Claimant also will
be provided, upon request and free of charge, reasonable access to, and
copies of, all documents, records, and other information relevant to
the Claimant's claim for benefits with such relevance to be determined
in accordance with Section 8.03.5.
8.03.5 Relevance. For purpose of this Section 8.03, documents, records, or other information shall be considered "relevant" to a Claimant's claim for benefits if such documents, records or other information:
(a) were relied upon in making the benefit determination;
(b) were submitted, considered, or generated in the course of making the benefit determination, without regard to whether such documents, records or other information were relied upon in making the benefit determination; or
(c) demonstrate compliance with the administrative processes and safeguards required pursuant to this Section 8.03 regarding the making of the benefit determination.
(d) Decisions Final; Procedures Mandatory. To the
extent permitted by law, a decision on review or appeal shall be
binding and conclusive upon all persons whomsoever. To the extent
permitted by law, completion of the claims procedures described in this
Section 8.03 shall be a mandatory precondition that must be complied
with prior to commencement of a legal or equitable action in connection
with the Plan by a person claiming rights under the Plan or by another
person claiming rights through such a person. The Benefits Governance
Committee may, in its sole discretion, waive these procedures as a
mandatory precondition to such an action.
(e) Time For Filing Legal Or Equitable Action. Any
legal or equitable action filed in connection with the Plan by a person
claiming rights under the Plan or by another person claiming rights
through such a person must be commenced not later than the earlier of:
(i) the shortest applicable statute of limitations provided by law; or
(ii) two years from the date the written copy of the Benefits
Governance Committee's decision on review is delivered to the claimant
in accordance with Section 8.03.2(b), as modified by Section 8.03.3(a),
as applicable.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed as of this _9th_ day of December, 2003.
PNM RESOURCES, INC.
By: /s/ Alice A. Cobb
----------------------------------------------
Its: Senior Vice President,
------------------------------------------
People Services & Development
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EXHIBIT 10.43.1
This document serves as a comprehensive single source of information about the PNM Resources, Inc. Officer Incentive Plan (the "Plan"). It describes the objectives of the Plan, its various elements, and how they function. If you have questions that are not addressed by this document, please direct them to the Compensation Department.
The Plan is designed to motivate and reward participants for achieving and exceeding annual company, business unit and individual goals, and the company-wide earnings per share ("EPS") goal.
The Plan is effective from January 1, 2004 through December 31, 2004 (the "Plan Year"). Management reserves the right, however, to adjust, amend or suspend the Plan at its discretion during the Plan Year, with the approval of the Human Resources and Compensation Committee (the "Committee") of the Board of Directors (the "Board").
Individual goal sets (e.g. combined company, business unit, and individual) will be established for each Officer. After considering the recommendations of management, the Committee will approve the company-wide EPS goals against which performance will be measured for the Plan Year.
Shortly after the end of the Plan Year, the Committee or the Board will, in its sole discretion, determine the final performance results which will be used to calculate awards, if any. Awards will be distributed by check to eligible participants following such approval during the first quarter following the end of the Plan Year.
The purpose of the Plan is to fairly reward performance achievement. Any employee who manipulates or attempts to manipulate the Plan for personal gain at the expense of customers, other employees or company objectives will be subject to appropriate disciplinary action, up to and including termination of employment.
All officers are eligible to participate in the Plan. For purposes of this Plan, officer means any employee of the company with the title of Chief Executive Officer, President, Executive Vice President, Senior Vice President or Vice President.
Pro rata awards for the number of months actively employed at each eligibility level during the Plan Year will be paid to the following participants at the time awards are paid to all participants: (Note: Any month in which a participant is actively on the payroll for at least one day will count as a full month.)
- Participants who are newly hired during the Plan Year.
- Participants who are promoted, transferred or demoted during the Plan Year.
- Participants who are on leave of absence for any full months during the Plan Year.
- Participants who are impacted or leave the company due to retirement or disability during the Plan Year. (Note: For purposes of the Plan, "retirement" means termination of employment with the company and all affiliates after the employee has attained: (1) age forty-five and twenty years of service; (2) age fifty-five and ten years of service; (3) the age at which the early distribution penalty of Section 72(t) of the Internal Revenue Code no longer applies and five years of service; or (4) any age and thirty years of service.)
- Participants who die during the Plan Year, in which case the award will be paid to the spouse of a married participant or the legal representative of an unmarried participant.
Any participant who terminates employment on or before awards are distributed for the Plan Year for any reason other than death, impaction or retirement (e.g., voluntary separation, termination for performance or misconduct - even if the terminated participant elects to take retirement) will not be eligible for payment of an award.
Please refer to the PNM Resources, Inc. Officer Retention Plan for additional information.
For the purpose of incentive calculations, the applicable salary grade midpoint is the participant's salary grade midpoint effective December 31 of the Plan Year unless the participant has been demoted during the Plan Year. In this event, the participant's salary grade midpoint may be prorated based on the period of time worked at each level.
Awards may be earned for performance that provides additional value to our shareholders. The incremental performance needed to fund awards is taken into consideration in establishing performance thresholds and goals under the Plan.
In order to be eligible for incentive awards, the following performance threshold must be met for 2004 (Individual Award):
- Overall combined company, business unit, and individual goal performance that at least achieves the threshold performance level. If this performance threshold is not met, no award will be paid for the Plan Year.
In order to be eligible for the award enhancement, the following performance threshold must be met for 2004:
- Company-wide EPS that at least achieves $1.90. If this performance threshold is not met, no award enhancement will be applied.
o Combined Company, Business Unit, and Individual Performance Award Opportunity
For the 2004 Plan Year, the combined company, business unit, and individual performance (Individual Award) opportunities are as follows:
----------------------------------- -------------------------------------
Award Eligibility Level Individual Goal Set
----------------------------------- -------------------------------------
Threshold* Stretch* Optimal*
----------------------------------- ------------ ------------ -----------
Vice-President 4.0% 7.0% 10.0%
----------------------------------- ------------ ------------ -----------
Senior Vice-President 4.8% 8.4% 12.0%
----------------------------------- ------------ ------------ -----------
Executive Vice-President 5.6% 9.8% 14.0%
----------------------------------- ------------ ------------ -----------
Chairman, President, and CEO 11.2% 19.6% 28.0%
----------------------------------- ------------ ------------ -----------
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* Award calculated as a percentage of salary grade midpoint
For the 2004 Plan Year, the EPS award enhancement opportunities are as follows:
------------------------------- ------------------------------------ -----------------------------------------
EPS Threshold Target = $1.90 EPS = $1.91 to $2.14 EPS Optimal Target = $2.15
------------------------------- ------------------------------------ -----------------------------------------
Individual Award is enhanced 2x Workgroup Award is enhanced 2x to 5x Individual Award is enhanced a maximum of
using straight-line interpolation 5x
------------------------------- ------------------------------------ -----------------------------------------
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For this Plan, EPS is defined as net income related to running the business (excluding certain extraordinary items or events that result in windfalls or penalties which are not in keeping with the spirit of the Plan) divided by the number of shares of PNM Resources, Inc. common stock outstanding.
Note: See Appendix for award opportunity matrix.
Combined company, business unit, and individual goal performance that meets or exceeds the threshold target level will be eligible for an award. The amount of each participant's award is determined by the participant's eligibility level and the level of combined company, business unit, and individual goal performance in the "Combined Company, Business Unit, and Individual Performance Award Opportunity" table above.
Company EPS performance that meets or exceeds the threshold target will serve as an enhancement to the award paid for workgroup performance. As identified in the "EPS Award Enhancement" table above, the award enhancement will be a minimum of 2x at the EPS threshold target, a maximum of 5x at the EPS optimal target, and interpolated between the EPS threshold and optimal targets.
The resulting percent is multiplied by the participant's eligible salary grade midpoint to determine the amount of the participant's award.
For Example: Assume that overall workgroup results are at the optimal performance level and company-wide EPS performance is $2.03 (halfway point between EPS threshold and optimal targets). A participant who is eligible
for an award at the Vice-President eligibility level would receive an award of 35% of salary grade midpoint for the Plan Year. That is, workgroup optimal performance resulting in an award of 10%, which is then enhanced 3.5x (halfway point between threshold and optimal multipliers) for EPS performance. Assuming the participant's salary grade midpoint is $160,000 the award would be $56,000 ($160,000 x 35.0%).
Appendix 2004 Officer Incentive Plan Award Matrix
CEO
Payout as Percent of Midpoint
Workgroup Goals EPS Multiplier
Level Payout Threshold (2x) Stretch Optimal (5x)
(3.5x)
---------------- ------------ --------------- ------------- -------------
Threshold 11.2% 22.4% 39.2% 56.0%
Stretch 19.6% 39.2% 68.6% 98.0%
Optimal 28.0% 56.0% 98.0% 140.0%
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EVP
Payout as Percent of Midpoint
Workgroup Goals EPS Multiplier
Level Payout Threshold (2x) Stretch Optimal (5x)
(3.5x)
---------------- ------------ --------------- ------------- -------------
Threshold 5.6% 11.2% 19.6% 28.0%
Stretch 9.8% 19.6% 34.3% 49.0%
Optimal 14.0% 28.0% 49.0% 70.0%
|
SVP
Payout as Percent of Midpoint
Workgroup Goals EPS Multiplier
Level Payout Threshold (2x) Stretch Optimal (5x)
(3.5x)
---------------- ------------ --------------- ------------- -------------
Threshold 4.8% 9.6% 16.8% 24.0%
Stretch 8.4% 16.8% 29.4% 42.0%
Optimal 12.0% 24.0% 42.0% 60.0%
|
VP
Payout as Percent of Midpoint
Workgroup Goals EPS Multiplier
Level Payout Threshold (2x) Stretch Optimal (5x)
(3.5x)
---------------- ------------ --------------- ------------- -------------
Threshold 4.0% 8.0% 14.0% 20.0%
Stretch 7.0% 14.0% 24.5% 35.0%
Optimal 10.0% 20.0% 35.0% 50.0%
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Exhibit 10.45.5
Fifth AMENDMENT
TO THE
PNM Resources, Inc.
Service Bonus Plan
Effective as of October 23, 1984, Public Service Company of New Mexico ("PNM") established the Public Service Company of New Mexico Service Bonus Plan (the "Plan"). The Plan has been amended on four occasions. The Fourth Amendment to the Plan transferred sponsorship of the Plan from PNM to PNM Resources, Inc. (the "Company") and changed the name of the Plan to the "PNM Resources, Inc. Service Bonus Plan." The purpose of this Amendment is to make certain provisions of the Plan more consistent with the other benefit plans and programs sponsored by the Company.
1. This Amendment shall be effective as of date set forth below, unless otherwise specified herein.
2. This Amendment amends only the provisions of the Plan as set forth herein. Those provisions not expressly amended by this Amendment shall continue in full force and effect.
3. Section 3.21 (Plan Administrator) of the Plan is hereby amended in its entirety to read as follows:
3.21 "Plan Administrator" means the PNM Resources, Inc. Benefits Governance Committee or other such person or committee designated by the Company as the Plan Administrator.
4. Section 6.02 (Company Liability) of the Plan is hereby amended and restated in its entirety to read as follows:
6.02 Company Liability. The Company shall create and credit to a special account on its books such amounts as may be necessary to effectuate and maintain the Plan on a sound actuarial basis. At its own discretion, the Company may purchase such insurance or annuity contract or other types of investments, as the PNM Resources, Inc. Corporate
Investment Committee deems desirable in order to accumulate the necessary funds to provide for the future benefit payments under the Plan. Notwithstanding anything to the contrary herein, the Company shall be under no obligation to fund in advance the benefits provided under this Plan nor shall the investment of Company funds credited to a special account established hereunder be restricted in any way and such funds shall be available for any purpose the Company may choose.
5. Section 6.04 (Change in Control) of the Plan is hereby amended in its entirety to read as follows:
6.04 Change in Control. As a condition to the closing of a "Change in Control" transaction (as defined in the PNM Resources, Inc. Officer Retention Plan, as it may be amended from time to time), the Company shall fully fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement and the Trust Agreement between PNM Resources, Inc. Deferred Compensation Trust Agreement and the Trust Agreement between PNM Resources, Inc. and Fiduciary Trust International of Delaware (commonly known as the "Rabbi Trusts"), which provide a funding mechanism for certain plans sponsored by the Company or its affiliates.
6. Section 8.01 of the Plan is hereby amended in its entirety to read as follows:
8.01 Administration of Plan. The Board of Directors hereby vests the Plan Administrator with all powers and authority necessary to administer the Plan as herein provided, and with the authority to make such rules and regulations of uniform application as the Plan Administrator may deem necessary to carry out the provisions of the Plan. The Plan Administrator shall have the exclusive right to interpret the provisions of the Plan and to determine any questions arising thereunder or in connection with the administration thereof. Any decision or action of the Plan Administrator shall be conclusive and binding upon all Participating Employees and Beneficiaries. The Plan Administrator may delegate some (or all) of its authority hereunder to the organizational unit of the Company responsible for administering benefits programs (the "Benefits Department"). The Plan Administrator also may engage agents and obtain other assistance from the Company, including Company counsel. The Plan Administrator shall not be responsible for any action taken or not taken on the advice of legal counsel. The Plan Administrator is given specific authority to allocate and revoke responsibilities among its members or designees. When the Plan Administrator has allocated authority pursuant to the foregoing, the Plan Administrator shall not be liable for the acts or omissions of the party to whom such responsibility has been allocated, except to the extent provided by law.
7. Article VIII (Plan Administration) of the Plan is hereby amended by adding the following Section 8.03 to the end thereof:
8.03 Claims Procedure.
8.03.1 Review. If a Participant, beneficiary or any other
person (all of whom are referred to in this Section as a "Claimant") is
dissatisfied with the determination of his benefits, eligibility,
participation, service or any other right or interest under this Plan,
the Claimant may file a written request with the Benefits Department in
a manner prescribed by the Benefits Department. The Benefits Department
will notify the Claimant of the disposition of the claim within ninety
(90) days after the request is filed with Benefits Department. The
Benefits Department may have an additional period of up to ninety (90)
days to decide the claim if the Plan Administrator determines that
special circumstances require an extension of time to decide the claim
and the Benefits Department advises the Claimant in writing of the need
for an extension (including an explanation of the special circumstances
requiring the extension) and the date on which the Benefits Department
expects to decide the claim. If, following the review, the claim is
denied, in whole or in part, the notice of disposition shall set forth:
(a) the specific reason(s) for denial of the claim;
(b) reference to the specific Plan provisions upon which the determination is based;
(c) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary;
(d) an explanation of the Plan's appeal procedures, and an explanation of the time limits applicable to the Plan's appeal procedures, including a statement of the Claimant's right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as it may be amended from time to time (the "Act").
8.03.2 Appeal Of Adverse Benefit Determination.
(a) Within sixty (60) days after receiving the written notice of the disposition of the claim described in Section 8.03.1, the Claimant, or the Claimant's authorized representative, may appeal such denied claim. The Claimant may submit a written statement of his claim (including any written comments, documents, records and other information relating to the claim) and the reasons for granting the claim to the Benefits Governance Committee. The Benefits Governance Committee shall have the right to request of and receive from the Claimant such additional information, documents or other evidence as the
Benefits Governance Committee may reasonably require. If the Claimant does not request an appeal of the denied claim within sixty (60) days after receiving written notice of the disposition of the claim as described in Section 8.03.1, the Claimant shall be deemed to have accepted the disposition of the claim and such written disposition will be final and binding on the Claimant and anyone claiming benefits through the Claimant, unless the Claimant shall have been physically or mentally incapacitated so as to be unable to request review within the sixty (60) day period. The appeal shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such documents, records or other information were submitted or considered in the initial benefit determination or the initial review.
(b) A decision on appeal to the Benefits Governance Committee shall be rendered in writing by the Benefits Governance Committee ordinarily not later than sixty (60) days after the Claimant requests review. A written copy of the decision shall be delivered to the Claimant. If special circumstances require an extension of the ordinary period, the Benefits Governance Committee shall so notify the Claimant of the extension with such notice containing an explanation of the special circumstances requiring the extension and the date by which the Benefits Governance Committee expects to render a decision. Any such extension shall not extend beyond sixty (60) days after the ordinary period. The period of time within which a benefit determination on review is required to be made shall begin at the time an appeal is filed in accordance with the provisions of Section 8.03.2(a) above, without regard to whether all the information necessary to make a decision on appeal accompanies the filing.
If the appeal to the Benefits Governance Committee is denied, in whole or in part, the decision on appeal referred to in the first sentence of this Section 8.03.2(b) shall set forth:
(i) the specific reason(s) for denial of the claim;
(ii) reference to the specific Plan provisions upon which the denial is based;
(iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits; and
(iv) a statement of the Claimant's right to bring a civil action under Section 502(a) of the Act.
8.03.3 Special Rules For Disability Claims. Claims involving a determination of disability shall be administered in accordance with this Section 8.03 except as otherwise provided in this Section 8.03.3.
(a) Special Timing Rules. With respect to Section 8.03.1 above, the Benefits Department will notify the Claimant of the disposition of the claim within forty-five (45) days after the request is filed with the Benefits Department. This forty-five (45) day period may be extended by the Benefits Department for up to thirty (30) days, provided that the Benefits Department both determines that such an extension is necessary due to matters beyond the control of the Benefits Department and notifies the Claimant, prior to the expiration of the initial forty-five (45) day period, of the circumstances requiring the extension and the day by which it expects to render a decision. If, prior to the end of this thirty (30) day extension period, the Benefits Department determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within such extension period, the period for making the determination may be extended for up to an additional thirty (30) days, provided that the Benefits Department notifies the Claimant prior to the expiration of the first thirty (30) day extension period of the circumstances requiring the extension and the date as of which it expects to render a decision. In addition, for purposes of paragraph 8.03.2(a) above, the number sixty (60) shall be replaced with the number one hundred eighty (180). For purposes of paragraph 8.03.2(b) above, the number sixty (60) shall be replaced with the number forty-five (45).
(b) Special Information Rules. With respect to Sections 8.03.1 and 8.03.2, notice of the denial of a claim for disability benefits shall set forth the following additional information:
(i) A statement whether any internal rule, guideline, protocol or other similar criterion was relied upon in denying the claim, and if so, that such internal rule, guideline, protocol or other similar criterion will be provided free of charge upon request;
(ii) A statement that the Claimant is entitled to receive, upon request and free of charge, the names of any experts whose advice was sought with respect to the claim without regard to whether the advice was relied upon in deciding the appeal;
(iii) A statement that the Claimant is entitled to receive, upon request and free of charge, an explanation of any medical and/or vocational findings, if the denial was based, in whole or in part, on such findings;
(iv) The following statement: "You and your plan may have other voluntary alternative dispute resolution options such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency"; and
(v) A statement describing any voluntary appeal procedures offered by the Plan and the Claimant's right to receive information about such voluntary procedures.
(c) Special Appeal Consultation Rules. If an appeal is based in whole or in part on a medical judgment, a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment, other than the health care professional who was consulted in connection with the initial benefit determination or a subordinate of such health care professional, must be consulted.
(d) No Deference To Original Decision. A decision on an appeal shall not afford deference to the initial adverse benefit determination and must be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.
8.03.4 Right To Examine Plan Documents And To Submit
Materials. In connection with the determination of a claim, or in
connection with review of a denied claim or appeal pursuant to this
Section 8.03, the Claimant may examine this Plan and any other
pertinent documents generally available to Participants relating to the
claim and may submit written comments, documents, records and other
information relating to the claim for benefits. The Claimant also will
be provided, upon request and free of charge, reasonable access to, and
copies of, all documents, records, and other information relevant to
the Claimant's claim for benefits with such relevance to be determined
in accordance with Section 8.03.5.
8.03.5 Relevance. For purpose of this Section 8.03, documents, records, or other information shall be considered "relevant" to a Claimant's claim for benefits if such documents, records or other information:
(a) were relied upon in making the benefit determination;
(b) were submitted, considered, or generated in the course of making the benefit determination, without regard to whether such documents, records or other information were relied upon in making the benefit determination; or
(c) demonstrate compliance with the administrative processes and safeguards required pursuant to this Section 8.03 regarding the making of the benefit determination.
(d) Decisions Final; Procedures Mandatory. To the
extent permitted by law, a decision on review or appeal shall be
binding and conclusive upon all persons whomsoever. To the extent
permitted by law, completion of the claims procedures described in this
Section 8.03 shall be a mandatory precondition that must be complied
with prior to commencement of a legal or equitable action in connection
with the Plan by a person claiming rights under the Plan or by another person claiming rights through such a person. The Benefits Governance Committee may, in its sole discretion, waive these procedures as a mandatory precondition to such an action.
(e) Time For Filing Legal Or Equitable Action. Any
legal or equitable action filed in connection with the Plan by a person
claiming rights under the Plan or by another person claiming rights
through such a person must be commenced not later than the earlier of:
(i) the shortest applicable statute of limitations provided by law; or
(ii) two years from the date the written copy of the Benefits
Governance Committee's decision on review is delivered to the claimant
in accordance with Section 8.03.2(b), as modified by Section 8.03.3(a),
as applicable.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed as of this _9th_ day of December, 2003.
PNM RESOURCES, INC.
By: /s/ Alice A. Cobb
-----------------------------------------
Its: Senior Vice President,
-----------------------------------------
People Services & Development
-----------------------------------------
|
Exhibit 10.48.3
THIRD AMENDMENT TO THE
PNM RESOURCES, INC. OBRA '93 RETIREMENT PLAN
Effective as of November 15, 1993, Public Service Company of New Mexico ("PNM") established the Public Service Company of New Mexico OBRA '93 Retirement Plan (the "Plan"). The Plan has been amended on two occasions. The Second Amendment to the Plan transferred sponsorship of the Plan from PNM to PNM Resources, Inc. (the "Company") and changed the name of the Plan to the "PNM Resources, Inc. OBRA '93 Retirement Plan." The purpose of this Amendment is to make certain provisions of the Plan more consistent with the other benefit plans and programs sponsored by the Company.
1. This Amendment shall be effective as of the date set forth below, unless otherwise specified herein.
2. This Amendment amends only the provisions of the Plan as set forth herein. Those provisions not expressly amended by this Amendment shall continue in full force and effect.
3. Article IV (Source of Payments) of the Plan is hereby amended by deleting the last paragraph (as added by the First Amendment to the Plan) and replacing it with the following new paragraph:
Notwithstanding the above, as a condition to the closing of a "Change in Control" transaction (as defined in the PNM Resources, Inc. Officer Retention Plan, as it may be amended from time to time), the Company shall fully fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement and the Trust Agreement between PNM Resources, Inc. Deferred Compensation Trust Agreement and the Trust Agreement between PNM Resources, Inc. and Fiduciary Trust International of Delaware (commonly known as the "Rabbi Trusts"), which provide a funding mechanism for certain plans sponsored by the Company or its affiliates.
4. Article VI (Claims Procedure) of the Plan is hereby amended in its entirety to read as follows:
ARTICLE VI
Claims Procedures
6.01 Review. If a Participant, Participant's beneficiary or any other person (all of whom are referred to in this Section as a "Claimant") is dissatisfied with the determination of his benefits, eligibility, participation, service or any other right or interest under this Plan, the Claimant may file a written request with the organizational unit of the Company responsible for administering benefit programs (the "Benefits Department") in a manner prescribed by the Benefits Department. The Benefits Department will notify the Claimant of the disposition of the claim within ninety (90) days after the request is filed with Benefits Department. The Benefits Department may have an additional period of up to ninety (90) days to decide the claim if the Benefits Department determines that special circumstances require an extension of time to decide the claim and the Benefits Department advises the Claimant in writing of the need for an extension (including an explanation of the special circumstances requiring the extension) and the date on which the Benefits Department expects to decide the claim. If, following the review, the claim is denied, in whole or in part, the notice of disposition shall set forth:
A. the specific reason(s) for denial of the claim;
B. reference to the specific Plan provisions upon which the determination is based;
C. a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary;
D. an explanation of the Plan's appeal procedures, and an explanation of the time limits applicable to the Plan's appeal procedures, including a statement of the Claimant's right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as it may be amended from time to time (the "Act").
6.02 Appeal of Adverse Benefit Determination.
A. Within sixty (60) days after receiving the written notice of the disposition of the claim described in Section 6.01, the Claimant, or the Claimant's authorized representative, may appeal such denied claim. The Claimant may submit a written statement of his claim (including any written comments, documents, records and other information relating to the claim) and the reasons for granting the claim to the Benefits Governance Committee. The Benefits Governance
Committee shall have the right to request of and receive from the
Claimant such additional information, documents or other evidence as
the Benefits Governance Committee may reasonably require. If the
Claimant does not request an appeal of the denied claim within sixty
(60) days after receiving written notice of the disposition of the
claim as described in 6.01, the Claimant shall be deemed to have
accepted the disposition of the claim and such written disposition will
be final and binding on the Claimant and anyone claiming benefits
through the Claimant, unless the Claimant shall have been physically or
mentally incapacitated so as to be unable to request review within the
sixty (60) day period. The appeal shall take into account all comments,
documents, records and other information submitted by the Claimant
relating to the claim, without regard to whether such documents,
records or other information were submitted or considered in the
initial benefit determination or the initial review.
B. A decision on appeal to the Benefits Governance Committee shall be rendered in writing by the Benefits Governance Committee ordinarily not later than sixty (60) days after the Claimant requests review. A written copy of the decision shall be delivered to the Claimant. If special circumstances require an extension of the ordinary period, the Benefits Governance Committee shall so notify the Claimant of the extension with such notice containing an explanation of the special circumstances requiring the extension and the date by which the Benefits Governance Committee expects to render a decision. Any such extension shall not extend beyond sixty (60) days after the ordinary period. The period of time within which a benefit determination on review is required to be made shall begin at the time an appeal is filed in accordance with the provisions of 6.02A. above, without regard to whether all the information necessary to make a decision on appeal accompanies the filing.
If the appeal to the Benefits Governance Committee is denied, in whole or in part, the decision on appeal referred to in the first sentence of this paragraph B. shall set forth:
(1) the specific reason(s) for denial of the claim;
(2) reference to the specific Plan provisions upon which the denial is based;
(3) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits; and
(4) a statement of the Claimant's right to bring a civil action under Section 502(a) of the Act.
6.03 Special Rules For Disability Claims. Claims
involving a determination of disability shall be administered in
accordance with this Article VI except as otherwise provided in this
Section 6.03.
A. Special Timing Rules. With respect to Section 6.01 above, the Benefits Department will notify the Claimant of the disposition of the claim within forty-five (45) days after the request is filed with the Benefits Department. This forty-five (45) day period may be extended by the Benefits Department for up to thirty (30) days, provided that the Benefits Department both determines that such an extension is necessary due to matters beyond the control of the Benefits Department and notifies the Claimant, prior to the expiration of the initial forty-five (45) day period, of the circumstances requiring the extension and the day by which it expects to render a decision. If, prior to the end of this thirty (30) day extension period, the Benefits Department determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within such extension period, the period for making the determination may be extended for up to an additional thirty (30) days, provided that the Benefits Department notifies the Claimant prior to the expiration of the first thirty (30) day extension period of the circumstances requiring the extension and the date as of which it expects to render a decision. In addition, for purposes of Section 6.02A. above, the number sixty (60) shall be replaced with the number one hundred eighty (180). For purposes of Section 6.02B. above, the number sixty (60) shall be replaced with the number forty-five (45).
B. Special Information Rules. With respect to Sections 6.01 and 6.02, notice of the denial of a claim for disability benefits shall set forth the following additional information:
(1) A statement whether any internal rule, guideline, protocol or other similar criterion was relied upon in denying the claim, and if so, that such internal rule, guideline, protocol or other similar criterion will be provided free of charge upon request;
(2) A statement that the Claimant is entitled to receive, upon request and free of charge, the names of any experts whose advice was sought with respect to the claim without regard to whether the advice was relied upon in deciding the appeal;
(3) A statement that the Claimant is entitled to receive, upon request and free of charge, an explanation of any medical and/or vocational findings, if the denial was based, in whole or in part, on such findings;
(4) The following statement: "You and your plan may have other voluntary alternative dispute resolution options such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency"; and
(5) A statement describing any voluntary appeal procedures offered by the Plan and the Claimant's right to receive information about such voluntary procedures.
C. Special Appeal Consultation Rules. If an appeal is based in whole or in part on a medical judgment, a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment, other than the health care professional who was consulted in connection with the initial benefit determination or a subordinate of such health care professional, must be consulted.
D. No Deference To Original Decision. A decision on an appeal shall not afford deference to the initial adverse benefit determination and must be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.
6.04 Right To Examine Plan Documents And To Submit Materials. In connection with the determination of a claim, or in connection with review of a denied claim or appeal pursuant to this Article VI, the Claimant may examine this Plan and any other pertinent documents generally available to Participants relating to the claim and may submit written comments, documents, records and other information relating to the claim for benefits. The Claimant also will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits with such relevance to be determined in accordance with Section 6.05.
6.05 Relevance. For purpose of this Article VI, documents, records, or other information shall be considered "relevant" to a Claimant's claim for benefits if such documents, records or other information:
A. were relied upon in making the benefit determination;
B. were submitted, considered, or generated in the course of making the benefit determination, without regard to whether such documents, records or other information were relied upon in making the benefit determination; or
C. demonstrate compliance with the administrative processes and safeguards required pursuant to this Article VI regarding the making of the benefit determination.
6.06 Decisions Final; Procedures Mandatory. To the extent permitted by law, a decision on review or appeal shall be binding and conclusive upon all persons whomsoever. To the extent permitted by law, completion of the claims procedures described in this Article VI shall be a mandatory precondition that must be complied with prior to commencement of a legal or equitable action in connection with the Plan
by a person claiming rights under the Plan or by another person claiming rights through such a person. The Benefits Governance Committee may, in its sole discretion, waive these procedures as a mandatory precondition to such an action.
6.07 Time For Filing Legal Or Equitable Action. Any legal or equitable action filed in connection with the Plan by a person claiming rights under the Plan or by another person claiming rights through such a person must be commenced not later than the earlier of: A. the shortest applicable statute of limitations provided by law; or B. two years from the date the written copy of the Benefits Governance Committee's decision on review is delivered to the claimant in accordance with Section 6.02B, as modifed by Section 6.03A, as applicable.
5. Section 7.03, (Administrator), of the Plan is hereby amended in its entirety to read as follows:
Section 7.03 Administrator. The PNM Resources, Inc. Benefits Governance Committee (the "Benefits Governance Committee") shall administer the Plan. The Benefits Governance Committee shall be the "named fiduciary" for purposes of the ERISA and shall have the discretion and authority to control, interpret and construe the Plan and manage the operations thereof. Any such interpretation and construction of any provisions of this Plan by the Benefits Governance Committee shall be final. The Benefits Governance Committee shall, in addition to the foregoing, exercise such other powers and perform such other duties as it may deem advisable in the administration of the Plan. The Benefits Governance Committee may delegate some (or all) of its authority hereunder to the PNM Resources, Inc. Benefits Department (the "Benefits Department"). The Committee also may engage agents and obtain other assistance from the Company, including Company counsel. The Benefits Governance Committee shall not be responsible for any action taken or not taken on the advice of legal counsel. The Benefits Governance Committee is given specific authority to allocate and revoke responsibilities among its members or designees. When the Benefits Governance Committee has allocated authority pursuant to the foregoing, the Benefits Governance Committee shall not be liable for the acts or omissions of the party to whom such responsibility has been allocated, except to the extent provided by law.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed as of this _9th__ day of December, 2003.
PNM RESOURCES, INC.
By: /s/ Alice A. Cobb
----------------------------------------
Its: Senior Vice President,
----------------------------------------
People Services & Development
|
Exhibit 10.50.2
Fourth AMENDMENT
TO THE
PNM Resources, Inc. Section 415 Plan
Effective as of January 1, 1994, Public Service Company of New Mexico ("PNM") established the Public Service Company of New Mexico Section 415 Plan (the "Plan") to provide supplemental retirement benefits for certain employees. The Plan has been amended on three occasions. The Third Amendment to the Plan transferred sponsorship of the Plan from PNM to PNM Resources, Inc. (the "Company") and changed the name of the Plan to the "PNM Resources, Inc. Section 415 Plan." The purpose of this Amendment is to make certain provisions of the Plan more consistent with the other benefit plans and programs sponsored by the Company.
1. This Amendment shall be effective as of date set forth below, unless otherwise specified herein.
2. This Amendment amends only the provisions of the Plan as set forth herein. Those provisions not expressly amended by this Amendment shall continue in full force and effect.
3. Section 5.02 (Change in Control) of the Plan is hereby amended in its entirety to read as follows:
5.02 Change in Control. As a condition to the closing of a "Change in Control" transaction (as defined in the PNM Resources, Inc. Officer Retention Plan, as it may be amended from time to time), the Company shall fully fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement and the Trust Agreement between PNM Resources, Inc. Deferred Compensation Trust Agreement and the Trust Agreement between PNM Resources, Inc. and Fiduciary Trust International of Delaware (commonly known as the "Rabbi Trusts"), which provide a funding mechanism for certain plans sponsored by the Company or its affiliates.
4. Section 6.01 (Administrators) of the Plan is hereby amended in its entirety to read as follows:
6.01 Administrators. This Section 415 Plan shall be administered by the PNM Resources, Inc. Benefits Governance Committee or such other individual or committee appointed by the Company to administer the Plan. The Benefits Governance Committee shall have the discretion and authority to interpret provisions of the Section 415 Plan, and to determine any and all issues pertaining thereto, including but not limited to, eligibility for participation or benefits, the amount, form and timing of benefits, and beneficiary designations. The Benefits Governance Committee may delegate some (or all) of its authority hereunder to the organizational unit of the Company responsible for administering benefit programs (the "Benefits Department"). The Benefits Governance Committee also may engage agents and obtain other assistance from the Company, including Company counsel. The Benefits Governance Committee shall not be responsible for any action taken or not taken on the advice of legal counsel. The Benefits Governance Committee is given specific authority to allocate and revoke responsibilities among its members or designees. When the Benefits Governance Committee has allocated authority pursuant to the foregoing, the Benefits Governance Committee shall not be liable for the acts or omissions of the party to whom such responsibility has been allocated, except to the extent provided by law.
5. Section 6.02 (Claims Procedure) of the Plan is hereby amended in its entirety to read as follows:
6.02 Claims Procedure.
(a) Review. If a Participant, beneficiary or any other person (all of whom are referred to in this Section as a "Claimant") is dissatisfied with the determination of his benefits, eligibility, participation, service or any other right or interest under this Section 415 Plan, the Claimant may file a written request with the Benefits Department in a manner prescribed by the Benefits Department. The Benefits Department will notify the Claimant of the disposition of the claim within ninety (90) days after the request is filed with Benefits Department. The Benefits Department may have an additional period of up to ninety (90) days to decide the claim if the Benefits Department determines that special circumstances require an extension of time to decide the claim and the Benefits Department advises the Claimant in writing of the need for an extension (including an explanation of the special circumstances requiring the extension) and the date on which the Benefits Department expects to decide the claim. If, following the review, the claim is denied, in whole or in part, the notice of disposition shall set forth:
(1) the specific reason(s) for denial of the claim;
(2) reference to the specific Section 415 Plan provisions upon which the determination is based;
(3) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary;
(4) an explanation of the Section 415 Plan's appeal procedures, and an explanation of the time limits applicable to the Section 415 Plan's appeal procedures, including a statement of the Claimant's right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as it may be amended from time to time (the "Act").
(b) Appeal of Adverse Benefit Determination.
(1) Within sixty (60) days after receiving the
written notice of the disposition of the claim described in paragraph
(a), the Claimant, or the Claimant's authorized representative, may
appeal such denied claim. The Claimant may submit a written statement
of his claim (including any written comments, documents, records and
other information relating to the claim) and the reasons for granting
the claim to the Benefits Governance Committee. The Benefits Governance
Committee shall have the right to request of and receive from the
Claimant such additional information, documents or other evidence as
the Benefits Governance Committee may reasonably require. If the
Claimant does not request an appeal of the denied claim within sixty
(60) days after receiving written notice of the disposition of the
claim as described in paragraph (a), the Claimant shall be deemed to
have accepted the disposition of the claim and such written disposition
will be final and binding on the Claimant and anyone claiming benefits
through the Claimant, unless the Claimant shall have been physically or
mentally incapacitated so as to be unable to request review within the
sixty (60) day period. The appeal shall take into account all comments,
documents, records and other information submitted by the Claimant
relating to the claim, without regard to whether such documents,
records or other information were submitted or considered in the
initial benefit determination or the initial review.
(2) A decision on appeal to the Benefits Governance Committee shall be rendered in writing by the Benefits Governance Committee ordinarily not later than sixty (60) days after the Claimant requests review. A written copy of the decision shall be delivered to the Claimant. If special circumstances require an extension of the ordinary period, the Benefits Governance Committee shall so notify the Claimant of the extension with such notice containing an explanation of the special circumstances requiring the extension and the date by which the Benefits Governance Committee expects to render a decision. Any such extension shall not extend beyond sixty (60) days after the ordinary period. The period of time within which a benefit determination on review is required to be made shall begin at the time an appeal is filed in accordance with the provisions of paragraph (b)(1) above, without regard to whether all the information necessary to make a decision on appeal accompanies the filing.
If the appeal to the Benefits Governance Committee is denied, in whole or in part, the decision on appeal referred to in the first sentence of this paragraph (2) shall set forth:
(A) the specific reason(s) for denial of the claim;
(B) reference to the specific Section 415 Plan provisions upon which the denial is based;
(C) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits; and
(D) a statement of the Claimant's right to bring a civil action under Section 502(a) of the Act.
(c) Special Rules For Disability Claims. Claims involving a determination of disability shall be administered in accordance with this Section 6.02 except as otherwise provided in this paragraph (c).
(1) Special Timing Rules. With respect to
paragraph (a) above, the Benefits Department will notify the Claimant
of the disposition of the claim within forty-five (45) days after the
request is filed with the Benefits Department. This forty-five (45) day
period may be extended by the Benefits Department for up to thirty (30)
days, provided that the Benefits Department both determines that such
an extension is necessary due to matters beyond the control of the
Benefits Department and notifies the Claimant, prior to the expiration
of the initial forty-five (45) day period, of the circumstances
requiring the extension and the day by which it expects to render a
decision. If, prior to the end of this thirty (30) day extension
period, the Benefits Department determines that, due to matters beyond
the control of the Section 415 Plan, a decision cannot be rendered
within such extension period, the period for making the determination
may be extended for up to an additional thirty (30) days, provided that
the Benefits Department notifies the Claimant prior to the expiration
of the first thirty (30) day extension period of the circumstances
requiring the extension and the date as of which it expects to render a
decision. In addition, for purposes of paragraph (b)(1) above, the
number sixty (60) shall be replaced with the number one hundred eighty
(180). For purposes of paragraph (b)(2) above, the number sixty (60)
shall be replaced with the number forty-five (45).
(2) Special Information Rules. With respect to paragraphs (a) and (b) above, notice of the denial of a claim for disability benefits shall set forth the following additional information:
(A) A statement whether any internal rule, guideline, protocol or other similar criterion was relied upon in denying the claim, and if so, that such internal rule, guideline, protocol or other similar criterion will be provided free of charge upon request;
(B) A statement that the Claimant is entitled to receive, upon request and free of charge, the names of any experts whose advice was sought with respect to the claim without regard to whether the advice was relied upon in deciding the appeal;
(C) A statement that the Claimant is entitled to receive, upon request and free of charge, an explanation of any medical and/or vocational findings, if the denial was based, in whole or in part, on such findings;
(D) The following statement: "You and your plan may have other voluntary alternative dispute resolution options such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency"; and
(E) A statement describing any voluntary appeal procedures offered by the Plan and the Claimant's right to receive information about such voluntary procedures.
(3) Special Appeal Consultation Rules. If an appeal is based in whole or in part on a medical judgment, a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment, other than the health care professional who was consulted in connection with the initial benefit determination or a subordinate of such health care professional, must be consulted.
(4) No Deference To Original Decision. A decision on an appeal shall not afford deference to the initial adverse benefit determination and must be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual.
(d) Right To Examine Plan Documents And To Submit Materials. In connection with the determination of a claim, or in connection with review of a denied claim or appeal pursuant to this Section 6.02, the Claimant may examine this Section 415 Plan and any other pertinent documents generally available to Participants relating to the claim and may submit written comments, documents, records and other information relating to the claim for benefits. The Claimant also will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits with such relevance to be determined in accordance with Section 6.02(e).
(e) Relevance. For purpose of this Section 6.02, documents, records, or other information shall be considered "relevant" to a Claimant's claim for benefits if such documents, records or other information:
(1) were relied upon in making the benefit determination;
(2) were submitted, considered, or generated in the course of making the benefit determination, without regard to whether such documents, records or other information were relied upon in making the benefit determination; or
(3) demonstrate compliance with the administrative processes and safeguards required pursuant to this Section 6.02 regarding the making of the benefit determination.
(f) Decisions Final; Procedures Mandatory. To the extent permitted by law, a decision on review or appeal shall be binding and conclusive upon all persons whomsoever. To the extent permitted by law, completion of the claims procedures described in this Section 6.02 shall be a mandatory precondition that must be complied with prior to commencement of a legal or equitable action in connection with the Plan by a person claiming rights under the Section 415 Plan or by another person claiming rights through such a person. The Benefits Governance Committee may, in its sole discretion, waive these procedures as a mandatory precondition to such an action.
(g) Time For Filing Legal Or Equitable Action. Any legal or
equitable action filed in connection with the Plan by a person claiming
rights under the Section 415 Plan or by another person claiming rights
through such a person must be commenced not later than the earlier of:
(1) the shortest applicable statute of limitations provided by law; or
(2) two years from the date the written copy of the Benefits Governance
Committee's decision on review is delivered to the claimant in
accordance with Section 6.02(b)(2), as modified by Section 6.2(c)(1),
as applicable.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed as of this _9th_ day of December, 2003.
PNM RESOURCES, INC.
By: /s/ Alice A. Cobb
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Its: Senior Vice President,
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People Services & Development
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Exhibit 10.51
PNM RESOURCES, INC.
OFFICER RETENTION PLAN
Effective as of July 14, 2003
(f.k.a. PNM Resources, Inc.
First Restated and Amended
Executive Retention Plan)
PNM Resources, Inc. OFFICER Retention Plan
Effective December 7, 1998, Public Service Company of New Mexico established the Public Service Company of New Mexico First Restated and Amended Executive Retention Plan (the "Plan"). By an amendment dated November 27, 2002, sponsorship of the Plan was transferred to PNM Resources, Inc. (the "Company") and the Plan was renamed the "PNM Resources, Inc. First Restated and Amended Executive Retention Plan." By this instrument, the Company hereby amends and restates the Plan in its entirety and changes the name of the Plan to the "PNM Resources, Inc. Officer Retention Plan."
The provisions of this Plan document shall be effective as of July 14, 2003 (the "Effective Date"). Except as provided in Section 3.2 (Reversion to Prior Provisions of the Plan), on and after the Effective Date, this Plan shall only apply to Officers. Those current employees who were covered by this Plan prior to the Effective Date and who are not Officers are covered by the PNM Resources, Inc. Employee Retention Plan on and after the Effective Date.
1.1 General. The Company considers it essential to its best interests and the best interests of its customers and stockholders to foster the continuous employment of its key management employees. The Company also recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control may exist. The possibility of a Change in Control, and the uncertainty and the questions which it may raise among employees, may result in the departure or distraction of key management employees to the detriment of the Company and its ability to continue to provide efficient and reliable utility services to its customers.
The Company has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of the Company's key management to their assigned duties and to facilitate recruitment of future employees without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control of the Company. The Company also has concluded that one of the necessary steps is to provide competitive and fair compensation and benefits to employees terminated under these circumstances.
The purpose of this Plan is to address these concerns for the Company's Officers, who are the sole participants. A separate plan, the PNM Resources, Inc. Employee Retention Plan, provides retention benefits for the remaining members of management and other employees.
2.1 General. When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be a term defined in this Section 2.1 or in the Introduction. The following words and phrases utilized in the Plan with the initial letter capitalized shall have the meanings set forth below, unless a clearly different meaning is required by the context in which the word or phrase is used:
(a) "Affiliate" means any member a "controlled group of
corporations" (within the meaning of Section 414(b) of the Code as modified by
Section 415(h) of the Code) that includes the Company as a member of the group;
any member of an "affiliated service group" (within the meaning of Section
414(m)(2) of the Code) that includes the Company as a member of the group; any
member of a group of trades or businesses under common control (within the
meaning of Section 414(c) of the Code as modified by Section 415(h) of the Code)
that includes the Company as a member of the group; and any other entity
required to be aggregated with the Company pursuant to regulations issued by the
United States Treasury Department pursuant to Section 414(o) of the Code.
(b) "Base Compensation" means the sum of the (1) Participant's
highest annual salary from the Company in effect during the Protection Period,
(2) any cash award paid as a merit increase in lieu of an increase in base
salary received during the twelve (12) month period immediately preceding the
Participant's Termination Date and (3) the "target" Officer Incentive Plan
award. Unless otherwise stated in the Officer Incentive Plan, the "target" award
is fifty percent (50%) of the Participant's highest maximum award opportunity
under the Officer Incentive Plan during the Protection Period.
(c) "Base Salary" means the Participant's highest annual salary from the Company in effect during the Protection Period.
(d) "Board" or "Board of Directors" means the Board of Directors of the Company. The Board may delegate its responsibilities in accordance with its standard practices and procedures.
(e) "Cause" means, for purposes of termination of a Participant's employment:
(1) The willful and continued failure of a Participant to substantially perform his or her duties with the Company after written demand for substantial performance is delivered to the Participant which specifically identifies the manner in which the Participant has not substantially performed his or her duties;
(2) The willful failure to report to work for more than thirty (30) days; or
(3) The willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, including acts of fraud, misappropriation, violence or embezzlement for personal gain at the expense of the Company, conviction of a felony, or conviction of a misdemeanor involving immoral acts.
Cause shall not be deemed to exist on the basis of clauses (1) or (2) if the failure results from such Participant's incapacity due to verifiable physical or Mental Illness substantiated by appropriate medical evidence. An act, or failure to act, by a Participant shall not be deemed "willful" for purposes of clause (1) or (2) if it is an anticipated or actual failure that occurs after the issuance of a Notice of Termination by the Participant due to Constructive Termination. An act, or failure to act, by a Participant shall not be deemed "willful" if done or omitted to be done by the Participant in good faith and with a reasonable belief that his or her action was in the best interests of the Company.
(f) "Change in Control" means any of the following:
(1) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 becoming directly or indirectly the "beneficial owner" as defined in Rule 13d-3 under the Securities Exchange Act, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities unless such person is, or shall be, a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company;
(2) During any period of two (2) consecutive years, excluding any period prior to the Effective Date of this Plan, the following individuals ceasing, for any reason, to constitute a majority of the Board of Directors:
(i) directors who were directors at the beginning of such period; and
(ii) any new directors whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3rds) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, such new directors being referred to as "Approved New Directors."
For purposes of determining whether a Change in Control has occurred pursuant to this clause (2), a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (1), (3) or (4) of this section (f) shall not be considered to be an "Approved New Director."
(3) The shareholders of the Company approving a merger or consolidation of the Company with another company, corporation or subsidiary that is not affiliated with the Company immediately before the Change in Control provided, however, that if the merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent, either by remaining outstanding or by being converted into voting securities of the surviving entity, at least sixty percent (60%) of
the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, the merger or consolidation will be disregarded; or
(4) The adoption of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control will not be deemed to have occurred until: (1) any required regulatory approval, including any final non-appealable regulatory order, has been obtained and (2) the transaction that would otherwise be considered a Change in Control closes.
(g) "Class I Officer" means all employees with the title Chief Executive Officer (CEO), Executive Vice President (EVP), or Senior Vice President (SVP).
(h) "Class II Officer" means all Officers with the title Vice President (VP).
(i) "Code" means the Internal Revenue Code of 1986, as amended.
(j) "Committee" means the Benefits Governance Committee appointed by the Company.
(k) "Company" means PNM Resources, Inc. As used in this Plan, "Company" also means any successor to its assets, as described in Sections 2.1(e)(3) and 2.1(f)(4) (Definitions - Change in Control) that assumes and agrees to perform the Company's obligations hereunder, by operation of law or otherwise. "Company" may also include any holding company owning the Company or subsidiary of such holding company, depending on the context of the reference under this Plan.
(l) "Constructive Termination" means, without a Participant's express written consent, the occurrence after the commencement of the Protection Period of any of the following circumstances, subject to the exceptions and modifications below:
(1) A reduction in the Participant's Base Salary.
(2) A significant degradation in the Participant's employment status, duties or responsibilities with the Company as compared to the Participant's employment status, duties or responsibilities immediately prior to the Protection Period, or a substantial adverse alteration in the nature or status of his or her responsibilities from those in effect immediately prior to the Protection Period;
(3) The relocation of the Participant's principal office to a location more than fifty (50) miles from the location of such office during the Protection Period;
(4) The failure of the Company to obtain a timely written agreement from any successor to assume and agree to perform the Company's obligations as required by Section 7.1 (Successors). In such case, the date as of which any such succession becomes effective shall then be deemed the Termination Date;
(5) Any purported Termination of the Participant's employment by the Company which is not effected by a Notice of Termination satisfying the requirements of Section 2.1(p) (Notice of Termination) below; or
(6) The requirement, for continued employment with the Company, that the Participant maintain a residence more than fifty (50) miles from the location of his or her residence during the Protection Period.
A Participant's employment will not be deemed to be Constructively Terminated if such circumstances are fully corrected prior to the Termination Date specified in the Notice of Termination.
Any purported Termination as set forth in clause (5) above, which is not effected by a Notice of Termination satisfying the requirements of Section 2.1(p) (Notice of Termination) below, shall not be effective.
A Participant's right to terminate his or her employment due to Constructive Termination shall not be affected by his or her incapacity due to a verifiable physical or Mental Illness substantiated by appropriate medical evidence.
A Participant's continued employment, for a period exceeding sixty (60) days following an event that constitutes Constructive Termination shall constitute the Participant's consent to, or a waiver of rights with respect to, such Constructive Termination event. Consent to or waiver of any rights with respect to one Constructive Termination event shall not constitute a waiver of the Participant's rights with respect to any other event that constitutes Constructive Termination.
(m) "Disability" shall have the same meaning as provided in the Company's long-term disability plan for the provision of long-term disability benefits.
(n) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
(o) "Mental Illness" means any disorder, other than a disorder induced by alcohol or drug abuse, which impairs the behavior, emotional reaction or thought process of a person.
(p) "Notice of Termination" means a notice from either the Company or a Participant, as applicable. If the termination is for Cause or based on Constructive Termination, the notice shall indicate the specific termination provision in this Plan relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Termination of the Participant's employment. However, the Company retains its rights as an at will employer to terminate any employee at any time and for any reason.
(q) "Officer" means any employee of the Company with the title Chief Executive Officer (CEO), Executive Vice President (EVP), Senior Vice President (SVP), or Vice President (VP).
(r) "Officer Incentive Plan" means the incentive compensation plan maintained by the Company for Officers.
(s) "Participant" means any Officer of the Company who has satisfied the eligibility requirements of this Plan.
(t) "Protection Period" means the period beginning with the date on which a Change in Control occurs and ending twenty-four (24) months after the Change in Control.
(u) "Termination Date" means if a Participant's employment is terminated for any reason, the date specified in the Notice of Termination. In the case of a termination for Cause, the Termination Date shall be immediately upon receipt of the Notice of Termination. In the case of involuntary termination of employment by the Company for any reason other than Cause, death or Disability, the Termination Date shall not be less than fifteen (15) days from the date the Notice of Termination is given. In the case of Constructive Termination, the Termination Date shall be not less than fifteen (15) or more than sixty (60) days from the date the Notice of Termination is given.
(v) "Year of Service" means a twelve (12) month period during which a Participant performs services for the Company, counting each month as one-twelfth (1/12th) of a year if the Participant was employed by the Company on any day of that calendar month. If the Participant's employment with the Company includes a break in employment, then only the Years of Service in the last period of employment will be considered Years of Service.
2.2 Other Defined Terms. In addition to the definitions included in
Section 2.1 (Definitions) and the Introduction, other terms may be defined in
the primary Plan provisions to which they are applicable.
3.1 Term of Plan. The Plan is effective as of the Effective Date and shall continue in effect until terminated by the Board, subject to the limitations on termination set forth in Section 9.1 (Amendment and Termination).
3.2 Reversion to Prior Provisions of the Plan. Pursuant to Section IX (Amendment) of the Plan document in effect prior to the Effective Date, if a Change in Control occurs within the twenty-four (24) month period following the Effective Date, the provisions of the Plan as in effect prior to the Effective Date will revive and will control with respect to determining retention benefits with respect to such Change in Control if the benefits provided by the provisions of the Plan in effect prior to the Effective Date are greater than the benefits provided under this Plan document.
4.1 Eligibility to Participate.
To be eligible for benefits under this Plan, an employee must be an Officer of the Company at the beginning of the Protection Period. If a Participant's employment with the Company terminates for any reason (whether voluntary or involuntary) before the commencement of the Protection Period, he or she shall not be eligible to receive the benefits provided by this Plan. In addition, if a Participant voluntarily terminates his or her employment during the Protection Period for reasons other than those that constitute Constructive Termination, or if a Participant dies or becomes Disabled during the Protection Period, the Participant will not be entitled to receive any benefits under this Plan.
4.2 Eligibility for Benefits.
(a) General Rule. A Participant shall be entitled to the benefits described in Article V if such Participant's employment is terminated during the Protection Period by: (1) the Company for any reason other than Cause, death or Disability; or (2) the Participant due to Constructive Termination following the Participant's giving of a Notice of Termination to the Company. The requirement that a Notice of Termination be given by the Participant shall be waived if such Constructive Termination occurs due to the failure of the Company to obtain a written agreement from any successor to assume and agree to perform the Company's obligations under this Plan as required by Section 7.1 (Successors).
(b) Exceptions. A Participant shall not be entitled to receive the retention benefits offered by the Plan (with the possible exception of the Officer Incentive Plan benefit referred to in Section 5.7 (Minimum Officer Incentive Plan Payout) for Participants who are not terminated), even if the Participant meets the requirements of paragraph (a), in the following circumstances:
(1) If a Participant's employment is Terminated or
Constructively Terminated during the Protection Period, but such Participant is
immediately re-employed by the surviving entity or the party acquiring the
assets of Company in connection with the Change in Control, then such
Participant shall not be entitled to the benefits under this Plan, unless the
Company fails to obtain a written agreement from any successor to assume and
agree to perform the Company's obligations under the Plan as required by Section
7.1 (Successors).
(2) Any Participant who without express authority actively participates in advancing a Change in Control, whether on their own behalf or on behalf of someone else, shall not be eligible for the benefits provided by this Plan. Participants who, by virtue of their position and duties with the Company, are involved in facilitating an orderly transition to a successor company shall remain eligible to receive benefits.
(3) If a Participant's employment is terminated or Constructively Terminated as a result of the acquisition of the Company by a holding company formed in connection with a corporate restructuring initiated by the Company, and the Participant is immediately re-employed by the Company or an affiliate of the Company, then the Participant shall not be entitled to benefits under the Plan.
(4) Transfers between and within the Company and Affiliates shall not be considered to be a termination of employment or result in the payment of benefits under this Plan unless the transfer results in a Constructive Termination.
4.3 Release Agreement.
(a) General. In order to receive any retention benefits under this Plan, the Participant must sign and deliver to the Company a Release Agreement containing such terms and conditions as are satisfactory to the Company, including, but not limited to, the release of any and all claims that the Participant may then have, as of the signing of such release, against the Company, its employees, officers and directors. The Participant shall generally have up to forty-five (45) days following the date the Release Agreement is given to the Participant to sign and return the Release Agreement to the Company.
(b) Revocation of the Release Agreement. Within seven (7) calendar days after delivery of the Release Agreement to the Company by the Participant, the Participant shall be entitled to revoke the Release Agreement by returning the signed copy or counterpart original of the Release Agreement to the Company, which includes the Participant's written signature in a space provided thereon, indicating his or her decision to revoke the Release Agreement.
(c) Impact of Revocation. The revocation of a previously signed and delivered Release Agreement pursuant to the above shall be deemed to constitute an irrevocable election by the Participant to have declined the election of retention benefits.
4.4 No Duplication of Benefits. The right to receive any benefits under this Plan by any Participant is specifically conditioned upon such Participant either waiving or being ineligible for any and all benefits under the PNM Resources, Inc. Employee Retention Plan, including any amendments thereto, or any successor change in control severance benefit plans otherwise available to the Participant. The Company does not intend to provide any Participant with benefits under both this Plan and benefits under any other severance, retention or change in control plans or agreements sponsored by the Company or any affiliate.
5.1 Retention Benefits. Participants satisfying the eligibility requirements set forth in Section 4.2 (Eligibility for Benefits) who sign the Release Agreement required by Section 4.3 (Release Agreement) shall be entitled to the following retention benefits:
(a) Severance Pay. The Company shall pay the Participant, as a retention benefit, an amount as set forth below based upon the Participant's highest position held with the Company during the Protection Period:
POSITION SEVERANCE PAY -------- ------------- Class I Officer 3.0 times Base Compensation Class II Officer 2.0 times Base Compensation |
(b) Officer Incentive Plan. Upon termination, a Participant shall receive a pro-rata award of the Participant's highest target incentive under the Officer Incentive Plan as in effect during the Protection Period. Unless otherwise stated in the Officer Incentive Plan, the "target" award is 50% of the maximum award.
(c) Medical, Dental and Vision Coverage. The Company shall arrange to provide medical, dental and vision coverages substantially similar to those the Participant was receiving prior to the Notice of Termination for a period of thirty (30) months for Class I Officers and a period of twenty-four (24) months for Class II Officers. Participant contributions that were required for participation in the Benefits My Way Plan Program 2 (Medical Program), Program 3 (Dental Program) and Program 14 (Vision Program) will continue to be required during the continuation period.
(d) Credit for Non-participation in Benefits My Way Plan, Program 2 (Medical Program). A Participant receiving a credit for not participating in Program 2 (Medical Program) will continue to receive such credit for the applicable continuation period.
(e) Life and Accidental Death and Dismemberment Insurance Benefits. The Company shall provide life and accidental death and dismemberment insurance benefits substantially similar to those the Participant was receiving prior to the Notice of Termination for a period of thirty (30) months for Class I Officers and a period of twenty-four (24) months for Class II Officers.
(f) Supplemental Retirement Benefits. As of the Termination Date, Participants shall receive the following supplemental retirement benefits payable in one lump sum:
(1) The cash equivalent of the present value of the
incremental benefit the Participant would receive under the PNM Resources, Inc.
Employees' Retirement Plan if his or her service and age were increased by the
number of years equal to the multiplier used to determine severance pay in
Section 5.1(a) (Retention Benefits - Severance Pay), above; plus
(2) The cash equivalent of the present value of the early retirement reduction based on the number of years equal to the multiplier used to determine severance pay in Section 5.1(a) (Retention Benefits - Severance Pay), above; plus
(3) The cash equivalent of Company contributions to the
Participant's Retirement Savings Plan account in the amount of seven and a half
percent (7.5%) of eligible compensation times the period which corresponds to
the number of years equal to the multiplier used to determine severance pay in
Section 5.1(a) (Retention Benefits - Severance Pay), above.
5.2 Payment Form and Date. The payments provided for herein shall be made in the form of a lump sum distribution not later than the fifth (5th) day following the later of the Participant's Termination Date, or the date of delivery by the Participant of an executed and unrevoked Release Agreement. If the amount of such payment cannot be finally determined on or before such day, the Company shall pay to the Participant on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payment and shall pay the remainder of such payments, together with interest at a rate equal to the applicable federal rate determined pursuant to Section 1274(b)(2)(B) compounded semiannually (the "Semiannual AFR") as soon as the amount thereof can be determined but in no event later than one (1) month after the Participant's Termination Date. If the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Participant. This loan shall be payable on the tenth (10th) day after demand by the Company, together with interest at a rate equal to the Semiannual AFR.
5.3 Full Funding of Certain Nonqualified Retirement Benefits. As a condition to the closing of a Change in Control transaction, the Company shall fully fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement and the Trust Agreement between PNM Resources, Inc. and Fiduciary International of Delaware (commonly known as the "Rabbi Trusts"), which provide a funding mechanism for certain plans. Such plans include, but are not limited to the following: the Executive Savings Plan, the Accelerated Management Performance Plan, the Service Bonus Plan, the OBRA '93 Plan, the Section 415 Plan, and various individual supplemental employee retirement agreements.
5.4 Reimbursement of Legal Fees. The Company also shall pay to a Participant who is entitled to receive benefits pursuant to Section 4.2 (Eligibility for Benefits) reasonable legal fees and expenses incurred as a result of a termination or Constructive Termination under the terms of this Plan (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or constructive termination or in seeking to obtain or enforce any right or benefit provided by this Plan or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). Such payments shall be made at the later of the: (a) applicable twenty-four (24) month or thirty (30) month period specified above; or (b) within five (5) days after a Participant's notice of request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.
5.5 Offsetting Benefits. Benefits otherwise receivable by the Participant pursuant to this Article 5 shall be reduced to the extent comparable benefits are actually received by the Participant from another employer of the Participant during the applicable twenty-four (24) or thirty (30) month period following his or her Termination Date. Any such benefits actually received by the Participant from another employer shall be reported by the Participant to the Company.
5.6 Tax Gross-Up.
(a) General Rule. If the "Total Payments" made to a
Participant under this Plan result in an excise tax being imposed pursuant to
Section 4999 of the Code, the Company will provide the Participant with a
"Gross-Up Payment," calculated in accordance with the provisions of this Section
5.6.
(1) Total Payments. Total Payments as used in this Section
5.6, means any payments in the nature of compensation (as defined in Code
Section 280G and the regulations adopted thereunder), made pursuant to this Plan
or otherwise, to or for the Participant's benefit, the receipt of which is
contingent on a "change in the ownership or effective control" of the Company,
or a "change in the ownership of a substantial portion of the assets" of the
Company (as these phrases are defined in Code Section 280G and the regulations
adopted thereunder) and to which Code Section 280G applies.
(2) Gross-Up Payment. Except as otherwise noted below, the Gross-Up Payment will consist of a single lump sum payment and will be in such an amount that after the Participant has paid (1) the "total presumed federal and state taxes" and (2) the excise taxes imposed by Code Section 4999 with respect to the Gross-Up Payment (and any interest or penalties actually imposed), the Participant retains an amount of the Gross-Up Payment equal to the remaining excise taxes imposed by Code Section 4999 on the Participant's Total Payments (calculated before the Gross-Up Payment). For purposes of calculating the Gross-Up Payment, a Participant's actual federal and state income taxes will not be used. Instead, the Company will use the Participant's "total presumed federal and state taxes." For purposes of this Plan, a Participant's "total presumed federal and state taxes" shall be conclusively calculated using a combined tax rate equal to the sum of the maximum marginal federal and applicable state income tax rates and the hospital insurance (or "HI") portion of F.I.C.A. Based on the rates in effect for 2003 for a New Mexico resident, the "total presumed federal and state tax rate" is 44.15% (35% federal income tax rate plus 7.7% New Mexico state income tax rate plus 1.45% HI tax rate). The state tax rate for the Participant's actual principal place of residence will be used and no adjustments will be made for the deduction of state taxes on the federal return, any deduction of federal taxes on a state return, the loss of itemized deductions or exemptions, or for any other purpose.
(b) Calculations. The Company, at its sole expense, will retain a "Consultant" to advise the Company with respect to the applicability of any Code Section 4999 excise tax with respect to a Participant's Total Payments. The Consultant shall be a law firm, a certified public accounting firm, and/or a firm nationally recognized as providing executive compensation consulting services. All determinations concerning whether a Gross-Up Payment is required pursuant to Section 5.6(a) (Tax Gross-up - General Rule) and the amount of any Gross-Up Payment (as well as any assumptions to be used in making such determinations) shall be made by the Consultant selected pursuant to this Section. The Consultant shall provide the Participant and the Company with a written notice of the amount of the excise taxes that the Participant is required to pay and the amount of the Gross-Up Payment. The notice from the Consultant shall include any necessary calculations in support of its conclusions. All fees and expenses of the Consultant shall be borne by the Company. Any Gross-Up Payment shall be made by the Company within ten (10) calendar days after the mailing of such notice.
(c) Determination Binding. As a general rule, the Consultant's determination shall be binding on the Participant and the Company. The application of the excise tax rules of Code Section 4999, however, is complex
and uncertain and, as a result, the Internal Revenue Service may disagree with the Consultant concerning the amount, if any, of the excise taxes that are due. If the Internal Revenue Service determines that excise taxes are due, or that the amount of the excise taxes that are due is greater than the amount determined by the Consultant, the Gross-Up Payment will be recalculated by the Consultant to reflect the actual excise taxes that the Participant is required to pay (and any related interest and penalties). Any deficiency will then be paid to the Participant by the Company within fifteen (15) calendar days of the receipt of the revised calculations from the Consultant. If the Internal Revenue Service determines that the amount of excise taxes that the Participant paid exceeds the amount due, the Participant shall return the excess to the Company (along with any interest paid to the Participant on the overpayment) immediately upon receipt from the Internal Revenue Service or other taxing authority.
(d) Right to Challenge Reserved. The Company reserves the right to challenge any excise tax determinations made by the Internal Revenue Service. If the Company agrees to indemnify the Participant from any taxes, interest and penalties that may be imposed upon the Participant (including any taxes, interest and penalties on the amounts paid pursuant to the Company's indemnification agreement), the Participant must cooperate fully with the Company in connection with any such challenge. The Company shall bear all costs associated with the challenge of any determination made by the Internal Revenue Service and the Company shall control all such challenges. The additional Gross-Up Payments called for by Section 5.6(c) (Tax Gross-Up Determination Binding) shall not be made until the Company has either exhausted its (or Participant's) rights to challenge the determination or indicated that it intends to concede or settle the excise tax determination.
(e) Notification. The Participant shall notify the Company in writing of any claim or determination by the Internal Revenue Service that, if upheld, would result in the payment of excise taxes in amounts different from the amount initially specified by the Consultant. Such notice shall be given as soon as possible but in no event later than fifteen (15) calendar days following your receipt of notice of the Internal Revenue Service's position.
(f) Effect of Repeal or Inapplicability. If the provisions of Code Sections 280G and 4999 are repealed without succession, then this Section 5.6 shall be of no further force or effect. Moreover, if the provisions of Code Sections 280G and 4999 do not apply to impose the excise tax on payments made under this Plan, then the provisions of this Section 5.6 shall not apply.
5.7 Minimum Officer Incentive Plan Payout. Notwithstanding anything in this Plan to the contrary, for purposes of the retention benefits provided by this Plan, a Participant who is not terminated shall receive an annualized award equal to the Participant's target incentive under the Officer Incentive Plan at the end of the year in which a Change in Control occurs.
5.8 Additional Benefits Under Other Plans. Additional benefits may be provided to Participants upon a Change in Control through other programs sponsored by the Company.
6.1 Plan Administration. The Committee shall administer the Plan. The Committee shall be the "Named Fiduciary" for purposes of ERISA and shall have the authority to control, interpret and construe the Plan and manage the operations thereof. Any such interpretation and construction of any provisions of this Plan by the Committee shall be final. The Committee shall, in addition to the foregoing, exercise such other powers and perform such other duties as it may deem advisable in the administration of the Plan. The Committee may delegate some (or all) of its authority hereunder to the Benefits Department. The Committee also may engage agents and obtain other assistance from the Company, including Company counsel. The Committee shall not be responsible for any action taken or not taken on the advice of legal counsel. The Committee is given specific authority to allocate and revoke responsibilities among its members or designees. When the Committee has allocated authority pursuant to the foregoing, the Committee shall not be liable for the acts or omissions of the party to whom such responsibility has been allocated, except to the extent provided by law.
6.2 Claims Procedures.
(a) Initial Claim. A claim for benefits under this Plan must be submitted to the senior human resources office of the Company (the "Human Resources officer"). If the claimant is the Human Resources Officer, a claim for benefits under this Plan must b submitted to President o the Company and the term "Human Resources Officer" as used in paragraph (1) below shall be replaced with the term "President."
(1) Notice of Decision. Written notice of the disposition of the claim shall be furnished to the claimant within a reasonable period of time, but not later than ninety (90) days after receipt of the claim by the Human Resources Officer, unless the Human Resources Officer determines that special circumstances require an extension of time for processing the claim. If the Human Resources Officer determines that an extension is required, written notice (including an explanation of the special circumstances requiring an extension and the date by which the Human Resources Officer expects to render the benefits determination) shall be furnished to the claimant prior to the termination of the original ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of the initial ninety (90) day period. If the claim is denied, the notice required pursuant to this Section shall set forth the following:
(i) The specific reason or reasons for the adverse determination;
(ii) Special reference to the specific Plan provisions upon which the determination is based;
(iii) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and
(iv) An explanation of the Plan's appeal procedure and the time limits applicable to an appeal, including a statement of the claimant's right to bring a civil action under Section 502(a) of ERISA.
(b) Appeal Procedures. Every claimant shall have the right to appeal an adverse benefits determination to the Committee (including, but not limited to, whether the Participant's termination was for Cause). Such appeal may be accomplished by a written notice of appeal filed with the Committee within sixty (60) days after receipt by the claimant of written notification of the adverse benefits determination. Claimants shall have the opportunity to submit written comments, documents, records, and other information relating to the claim for benefits. Claimants will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant's claim for benefits, such relevance to be determined in accordance with Section 6.2(c) (Claims Procedures - Definition of Relevant). The appeal shall take into account all comments, documents, records, and other information submitted by claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
(1) Notice of Decision. Notice of a decision on appeal shall
be furnished to the claimant within a reasonable period of time, but not later
than sixty (60) days after receipt of the appeal by the Committee unless the
Committee determines that special circumstances (such as the need to hold a
hearing if the Committee determines that a hearing is required) require an
extension of time for processing the claim. If the Committee determines that an
extension is required, written notice (including an explanation of the special
circumstances requiring an extension and the date by which the Committee expects
to render the benefits determination) shall be furnished to the claimant prior
to the termination of the original sixty (60) day period. In no event shall such
extension exceed a period of sixty (60) days from the end of the initial sixty
(60) day period. The notice required by the first sentence of this Section shall
be in writing, shall be set forth in a manner calculated to be understood by the
claimant and, in the case of an adverse benefit determination, shall set forth
the following:
(i) The specific reason or reasons for the adverse determination;
(ii) Reference to the specific Plan provisions upon which the determination is based;
(iii) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant's claim for benefits, such relevance to be determined in accordance with Section 6.2(c) (Claims Procedures - Definition of Relevant), below; and
(iv) An explanation of the claimant's right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on appeal.
(c) Definition of Relevant. For purposes of this Section, a document, or other information shall be considered "relevant" to the claimant's claim if such document, record or other information:
(1) Was relied upon in making the benefit determination;
(2) Was submitted, considered or generated in the course of making the benefit determination, without regard to whether such document, record or other information was relied upon in making the benefit determination; or
(3) Demonstrates compliance with the administrative processes and safeguards required pursuant to this Section 6.2 on making the benefit determination.
(d) Decisions Final; Procedures Mandatory. To the extent permitted by law, a decision on review or appeal shall be binding and conclusive upon all persons whomsoever. To the extent permitted by law, completion of the claims procedures described in this Section shall be a mandatory precondition that must be complied with prior to commencement of a legal or equitable action in connection with the Plan by a person claiming rights under the Plan. The Committee may, in its sole discretion, waive these procedures as a mandatory precondition to such an action.
(e) Time For Filing Legal Or Equitable Action. Any legal or equitable action filed in connection with the Plan by a person claiming rights under the Plan must be commenced not later than the earlier of: (1) the shortest applicable statute of limitations provided by law; or (2) two (2) years from the date the written copy of the Committee's decision on review is delivered to the claimant in accordance with Section 6.2(b)(1)(i) (Claims Procedures - Appeal Procedures - Notice of Decision).
7.1 Successors. The Company will negotiate to require any independent successor to all or substantially all of the assets of the Company to provide written confirmation, within thirty (30) days of the effective date of the Change in Control, of its agreement to assume and perform the Company's obligations pursuant to this Plan.
7.2 Binding Agreement. Subject to the right of the Company to amend or terminate this Plan, and the Committee's right to interpret this Plan, this Plan shall be for the benefit of and be enforceable by, a Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
8.1 General. For the purpose of this Plan, and except as specifically set forth herein, notices and all other communications provided for in the Plan shall be in writing and shall be deemed to have been duly given when hand-delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to the Participant at his or her last known address, and to the Company at Alvarado Square, Albuquerque, New Mexico, 87158, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company; or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
9.1 Amendment and Termination. The Plan may be amended, in whole or in part, or terminated at any time, subject to the following exceptions:
(a) No amendment or termination of this Plan shall impair or abridge the obligations of the Company already incurred.
(b) No amendment or termination of this Plan shall affect the rights of a Participant who terminated employment before the effective date of such amendment or termination and who subsequently satisfied the eligibility provisions of this Plan.
(c) If a Change in Control occurs within twenty-four (24) months following the later of the adoption or effective date of the amendment or termination of the Plan, or during the Protection Period triggered by that Change in Control, the amendment or termination shall be disregarded and this Plan will revive and continue for the Protection Period to the extent that such amendment or termination impairs or abridges the rights or benefits of an employee of the Company who was a Participant upon the effective date of such Plan amendment or termination.
(d) If the Protection Period has begun, the Plan shall continue and may not be terminated during the Protection Period.
(e) Notwithstanding the foregoing, the Plan may be amended at will at any time and from time to time by the Company to reflect changes necessary due to revisions to, or interpretations of: (1) ERISA, as amended; (2) Code Sections 280G or 4999; or (3) any other provision of applicable state or federal law.
10.1 Governing Law. The laws of the State of New Mexico shall govern the validity, interpretation, construction and performance of this Plan, except to the extent preempted by federal law.
10.2 Withholding. Any payments provided for hereunder shall be paid subject to any applicable withholding required under federal, state or local law.
10.3 No Right of Assignment. Neither a Participant nor any person taking on behalf of a Participant may anticipate, assign or alienate (either by law or equity) any benefit provided under the Plan and the Company shall not recognize any such anticipation, assignment or alienation. Furthermore, to the extent permitted by law, a benefit under the Plan is not subject to attachment, garnishment, levy, execution or other legal or equitable process.
10.4 Survival of Rights. In addition to the limitations on termination of this Plan set forth in Section 9.1 (Amendment and Termination), any obligations of the Company to make payments that have been due to Participants who have, at the time of expiration of the Plan, satisfied the eligibility requirements pursuant to Articles 4 and 5 above during the term hereof, shall survive the termination of this Plan.
10.5 No Employment Contract. Notwithstanding anything to the contrary contained in this Plan, by the execution of this Plan the Company does not intend to change the employment-at-will relationship with any of its employees. Instead, the Company retains its absolute right to terminate any employee at any time.
10.6 Mitigation of Benefits. A Participant shall not be required to mitigate the amount of payment provided for in Article 5 by seeking other employment or otherwise, nor, except as specifically provided in Article 5, shall the amount of any payment or benefit provided for in Article 5 be reduced by: (a) any compensation earned by the Participant as the result of employment by another employer; (b) by retirement benefits; or (c) offsets against any amount claimed to be owed by the Participant to the Company.
10.7 Service of Process. The Secretary of the Company shall be the agent for service of process in matters relating to this Plan.
10.8 Headings. The headings and subheadings in this Plan are inserted for convenience and reference only and are not to be used in construing this Plan or any provision hereof.
10.9 Gender and Number. Where the context so requires, words in the masculine gender shall include the feminine and neutral genders, the plural shall include the singular, and the singular shall include the plural.
10.10 ERISA Plan. This Plan shall be interpreted as, and is intended to qualify as, a severance pay plan under ERISA, and therefore does not constitute an employee pension benefit plan pursuant to Section 3(2) of ERISA.
10.11 Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Plan document to be executed by its duly authorized representative on this _21st__ day of _October__, 2003.
PNM RESOURCES, INC.
By: ___/s/ Alice A. Cobb_____________________ Its:___Senior Vice President,_________________ |
___People Services & Development__________
TABLE OF CONTENTS
ARTICLE I
PURPOSE
1.1 GENERAL...........................................................1
ARTICLE II
DEFINITIONS
2.1 GENERAL...........................................................2
2.2 OTHER DEFINED TERMS...............................................6
ARTICLE III
TERM OF PLAN
3.1 TERM OF PLAN......................................................6
3.2 REVERSION TO PRIOR PROVISIONS OF THE PLAN.........................6
ARTICLE IV
ELIGIBILITY FOR RETENTION BENEFITS
4.1 ELIGIBILITY TO PARTICIPATE........................................7
4.2 ELIGIBILITY FOR BENEFITS..........................................7
4.3 RELEASE AGREEMENT.................................................8
4.4 NO DUPLICATION OF BENEFITS........................................8
ARTICLE V
RETENTION BENEFITS
5.1 RETENTION BENEFITS................................................8
5.2 PAYMENT FORM AND DATE............................................10
5.3 FULL FUNDING OF CERTAIN NONQUALIFIED RETIREMENT BENEFITS.........10
5.4 REIMBURSEMENT OF LEGAL FEES......................................10
5.5 OFFSETTING BENEFITS..............................................10
5.6 TAX GROSS-UP.....................................................10
5.7 MINIMUM OFFICER INCENTIVE PLAN PAYOUT............................12
5.8 ADDITIONAL BENEFITS UNDER OTHER PLANS............................12
ARTICLE VI
PLAN ADMINISTRATION
6.1 PLAN ADMINISTRATION..............................................13
6.2 CLAIMS PROCEDURES................................................13
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ARTICLE VII
SUCCESSORS, BINDING AGREEMENT
(continued)
7.1 SUCCESSORS.......................................................15
7.2 BINDING AGREEMENT................................................15
ARTICLE VIII
NOTICE
8.1 GENERAL..........................................................15
ARTICLE IX
AMENDMENT AND TERMINATION
9.1 AMENDMENT AND TERMINATION........................................16
ARTICLE X
MISCELLANEOUS
10.1 GOVERNING LAW....................................................16
10.2 WITHHOLDING......................................................16
10.3 NO RIGHT OF ASSIGNMENT...........................................16
10.4 SURVIVAL OF RIGHTS...............................................16
10.5 NO EMPLOYMENT CONTRACT...........................................17
10.6 MITIGATION OF BENEFITS...........................................17
10.7 SERVICE OF PROCESS...............................................17
10.8 HEADINGS.........................................................17
10.9 GENDER AND NUMBER................................................17
10.10 ERISA PLAN.......................................................17
10.11 VALIDITY.........................................................17
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EXHIBIT 10.52
PNM RESOURCES, INC.
EXECUTIVE SPENDING ACCOUNT PLAN
Effective January 1, 2004
TABLE OF CONTENTS
Page
INTRODUCTION............................................................... 1 DEFINED TERMS.............................................................. 2 GENERAL INFORMATION ABOUT THE PLAN......................................... 5 ELIGIBILITY AND PARTICIPATION REQUIREMENTS................................. 6 SUMMARY OF PLAN BENEFITS................................................... 9 HOW THE PLAN IS ADMINISTERED............................................... 10 CLAIMS PROCEDURES.......................................................... 11 AMENDMENT OR TERMINATION OF THE PLAN....................................... 14 NO CONTRACT OF EMPLOYMENT.................................................. 14 |
ARTICLE 1
INTRODUCTION
Public Service Company of New Mexico ("PNM") adopted the "Amended and Restated Medical Reimbursement Plan of Public Service Company of New Mexico" (the "MERP") effective January 1, 1980. The MERP was amended and restated in its entirety effective September 1, 1991 at which time it was renamed the "Second Restated and Amended Public Service Company of New Mexico Executive Medical Plan." Effective November 30, 2002, PNM transferred sponsorship of the MERP to PNM Resources, Inc. ("PNM Resources"). Effective January 1, 2002, PNM Resources initiated an Executive Spending Account (the "ESA").
From March 1, 2001 through April 30, 2002, the MERP was fully insured and the benefits were provided by Connecticut General Life Insurance Company ("CIGNA"). Effective May 1, 2002, a decision was made that benefits under the MERP should again be provided on a self-funded basis. The benefits provided under the ESA are, and always have been, self-funded.
Effective December 1, 2002, PNM Resources merged the MERP with and into the ESA and amended and restated both plans in the form of a combined program known as the "PNM Resources, Inc. Executive Spending Account Plan" (the "Plan").
Effective February 15, 2003, PNM Resources amended and restated the Plan in its entirety in order to: (1) eliminate the Tier A and Tier B Benefit Limits, and instead provide for one overall Benefit Limit; (2) eliminate the gross-up feature that applied to Tier A Covered Expenses; (3) increase the overall Benefit Limit in order to replace the gross-up feature that applied to Tier A; and (4) allow long-term care insurance premiums for the Participant and certain members of the Participant's family to be reimbursed under the Plan.
Effective January 1, 2004, PNM Resources, by this document, intends to amend and restate the Plan in its entirety in order to make certain provisions of the Plan more consistent with the other benefits plans and programs sponsored by the Company.
PNM Resources maintains the Plan to provide a select group of Company executives with additional remuneration in the form of reimbursements for: (i) medical benefits beyond the medical benefits available to the executives under any medical insurance under which they are covered; and (2) other expenses such as income tax preparation costs, costs for estate planning and financial counseling services, and insurance premiums for health, accident, disability, life, dependent life, long-term care, home, auto and personal umbrella insurance. The benefits provided under the Plan are paid from the general assets of PNM Resources and those of its affiliates that have adopted the Plan with each Company bearing the costs and expenses of providing benefits accrued by its Employee-Participants during periods while they are employed by that Company. Such costs and expenses are allocated among the Companies in accordance with (i) agreements entered into between PNM Resources and any participating affiliate, or (ii) in the absence of such an agreement, procedures adopted by PNM Resources. Because benefits are paid from the general assets of the Company, pursuant to Department of Labor regulation Section 2520.104-24 the Plan is exempt from most of the reporting and disclosure requirements of Part 1 of Title I of ERISA, including the requirement to provide a summary plan description and the requirement to file a Form 5500 - Annual Report.
ARTICLE 2
DEFINED TERMS
Capitalized terms used in the Plan have the following meanings:
Benefit Limit: The maximum amount for which you and your
Dependents, together, may seek reimbursement each
Paycheck Year for Covered Expenses. Shortly before
each Paycheck Year, you will be notified of your
Benefit Limit for the Paycheck Year. Any portion of
the Benefit Limit that remains unused at the end of a
Paycheck Year may not be carried over to the
following Paycheck Year.
Prior to February 15, 2003, the Plan had Tier A and
Tier B Benefit Limits. Effective February 15, 2003,
the Tier A and Tier B Benefit Limits are eliminated
and replaced with one overall Benefit Limit. Due to
the elimination of the Tier A Benefit Limit and the
gross-up feature that applied to that limit, the
Benefit Limit for each Participant who is a
vice-president will be increased by $2,000 and the
Benefit Limit for all other Participants will be
increased by $3,000. The Benefit Limit increase
described in the preceding sentence is effective
February 15, 2003. On or shortly thereafter, each
Participant will be notified of his or her new
overall Benefit Limit, which will include the $2,000
or $3,000 increase, as applicable.
Benefits Department: The organizational unit of the Company responsible
for administering benefit programs.
Code: The Internal Revenue Code of 1986, as amended.
Company: PNM Resources, Inc. ("PNM Resources") and any
affiliate that has adopted the Plan with the approval
of PNM Resources. Any affiliate that adopted the Plan
prior to the assumption of the sponsorship of the
Plan by PNM Resources, including Public Service
Company of New Mexico, shall continue to participate
in the Plan.
Covered Expense: Expenses incurred by the Participant or a
Dependent during the current or preceding Paycheck
Year, while covered by the Plan, for any of the
following: (1) medical care as defined in Section
213(d) of the Code to the extent that no benefits are
payable for such medical care under the Participant's
Medical Insurance (by way of example, and not
limitation, medical care, dental care, vision care,
premiums for medical care and qualified long-term
care (whether paid on a pre-tax or after-tax basis),
transportation primarily for and essential to medical
care, and amounts paid for lodging (not lavish or
extraordinary under the circumstances) while away
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from home primarily for and essential to medical care
would all be treated as Covered Expenses under this
item (1)); (2) income tax preparation; (3) estate
planning (including preparation of wills and trusts);
(4) financial counseling, but excluding brokerage
fees or commissions; (5) financial management
services (this would include, for example, the
services provided by a management firm that manages
your real estate investments); (6) premiums covering
the Participant and his or her Dependents for
accident, disability, life, dependent life, and/or
supplemental insurance (similar to AFLAC), whether
paid for by the Participant as a private party or
deducted from the Participant's salary under a PNM
Resources benefit program; (7) premiums for home,
auto or personal liability umbrella insurance; or (8)
premiums covering the Participant or Family Members
for long-term care insurance, whether paid for by the
Participant as a private party or deducted from the
Participant's salary under a PNM Resources benefit
program. An expense that qualifies as a Covered
Expense pursuant to item (1) above, is "incurred"
when the underlying medical care is provided,
regardless of when you are billed or pay for such
medical care, unless the medical care for which you
are seeking reimbursement is for insurance premiums
covering medical care or qualified long-term care, in
which case such expense is "incurred" on the date on
which you are billed for the premium. An expense that
qualifies as a Covered Expense pursuant to items (2),
(3), (4), (5), (6), (7) or (8) above, is "incurred"
as of the date on which you are billed for the
expense or premium.
Dependent: A Participant's "Dependents" as defined by the
Medical Plan who are eligible to be enrolled in the
Medical Plan regardless of whether they are actually
enrolled in that plan.
Effective Date: January 1, 2004.
Employee: A full-time employee of the Company scheduled to
work at least 32 hours per week, or a regular
part-time or job share employee scheduled to work at
least 20 hours per week. Employee does not include:
leased employees or workers; independent contractors,
consultants or similar self-employed workers;
temporary employees or workers; interns; co-op
employees or workers; seasonal employees or workers,
other contingent workers, or any employee of any
affiliate or related entity unless specifically
approved by the Company.
ERISA: The Employee Retirement Income Security Act of 1974,
as amended.
Family Members: Any of the following individuals between the ages of
18 and 80:
o the legally married spouse of a Participant;
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o the natural, adoptive or
step-parents/grandparents of a Participant
and their spouse;
o the natural, adoptive or step-siblings of a
Participant and their spouse;
o the natural, adoptive or stepchildren of a
Participant and their spouse.
HIPAA: The Health Insurance Portability and Accountability
Act of 1996, as amended.
Medical Insurance: Medical insurance coverage under any of
the following: (1) The PNM Resources, Inc. Benefits
My Way Plan, Program 2, Medical Plan, effective
January 1, 2003, as amended from time to time, or any
successor plan; (2) any other employer maintained
medical plan covering the Participant and his or her
Dependants; and (3) any other medical insurance
covering the participant and/or his or her
Dependents.
NMHPA: The Newborns' and Mothers' Health Protection Act of
1996, as amended.
Participant: An Employee who is eligible to participate in this
Plan pursuant to Article 4.
Paycheck Year: The Paycheck Year commences on the third
Saturday before the final paycheck for a calendar
year is paid and ends on the third Friday before the
final paycheck for the next calendar year is paid.
For example, the final paycheck for the 2003 calendar
year will be issued on Wednesday, December 24, 2003.
This means that the 2004 Paycheck Year will commence
on December 6, 2003 and end on December 3, 2004.
Plan: The PNM Resources, Inc. Executive Spending Account
Plan, as set forth in this document.
Plan Administrator: PNM Resources, Inc. Benefits Governance
Committee or other such person or committee
designated by the Company as the Plan Administrator.
Plan Sponsor: PNM Resources.
PNM Resources: PNM Resources, Inc.
Qualifying Event: A Participant's termination of employment,
reduction in hours, divorce, legal separation, death
or becoming eligible for Medicare, and a child
ceasing to meet the Plan's definition of Dependent.
WHCRA: The Women's Health and Cancer Rights Act of 1998, as
amended.
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ARTICLE 3
GENERAL INFORMATION ABOUT THE PLAN
Plan Name: PNM Resources, Inc. Executive Spending Account Plan.
Plan Year: January 1 through December 31
Plan Number: 601
Original Effective Date: The MERP was originally effective January 1, 1980.
The ESA was first effective January 1, 2002.
Funding Medium: The Plan is self-funded. This means that the
Company pays benefits out of its general assets.
Participants are not required to pay a premium in
order to participate in the Plan.
Plan Sponsor: PNM Resources, Inc.
Alvarado Square, Mail Stop 3101
Albuquerque, NM 87158
(505) 241-2700
Plan Sponsor's Employer 85-0468296
Identification Number:
Plan Administrator & PNM Resources, Inc.
Named Fiduciary: Alvarado Square, Mail Stop 3101
Albuquerque, NM 87158
(505) 241-2700
Attention: Benefits Governance Committee
The Plan is administered by the Benefits Governance
Committee or other such person or committee
designated by the Company as the Plan Administrator.
Agent for Service of Patrick Ortiz, General Counsel
Legal Process: Public Service Company of New Mexico
Alvarado Square, Mail Stop 2822
Albuquerque, NM 87158
(505) 241-2700
Applicable Law: The validity, interpretation, construction and
performance of the Plan shall be governed by the laws
of the State of New Mexico, unless preempted by
ERISA.
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ARTICLE 4
ELIGIBILITY AND PARTICIPATION REQUIREMENTS
Eligibility: You are eligible to participate in the Plan if
you are an Employee of the Company and you are a
vice-president or higher-ranking officer of the
Company. Your spouse and "Dependents," as defined
in Article 2 are eligible to participate in the
Plan if you are.
Termination of Your participation in the Plan terminate as of
Participation: the earliest of: (1) the date you terminate
employment with the Company; (2) the date you cease
to be a vice-president or higher ranking officer of
the Company; (3) the date your coverage under all
other Medical Insurance ceases; or (4) the date the
Plan is terminated.
Coverage for your Dependents (including your
spouse) stops when your coverage stops. Their
coverage will also stop if they cease being your
Dependent.
COBRA: If coverage for you or your Dependents (including
your spouse) ceases because of certain "Qualifying
Events," specified in a federal law called COBRA,
then you or your Dependents may have the right to
purchase continuing coverage under the Plan for a
limited period of time. As permitted by law, the
Company may impose an administrative fee (usually
2%) for this coverage. This right to continue
coverage only applies to the portions of the Plan
that reimburse medical care expenses.
Effect of If a Participant or Dependent's participation in
Termination of the Plan terminates, any Covered Expenses incurred
Participation on by the Participant or Dependent before his or her
Reimbursements: participation terminated will be eligible for
reimbursement even though such reimbursement is not
requested or processed before such termination
date. Except as required by COBRA, Covered Expenses
incurred after such termination date will not be
eligible for reimbursement even though the
Participant may not have used all or some portion
of his or her Benefit Limit. The following examples
illustrate how these rules operate:
Example 1: Assume that a Participant terminates
employment on June 30, and as of such date has been
reimbursed $2,500 under the Plan. Before
terminating employment, while still covered by the
Plan, the Participant incurred an additional $750
of Covered Expenses. The Participant is entitled to
receive a reimbursement in the amount of $750.
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Example 2: Assume that a Participant ceases to be a
vice president or higher-ranking officer on
September 30, and as of such date has been
reimbursed $500 under the Plan. After changing
employment status, while no longer covered by the
Plan, the Participant incurs an additional $1,750
of Covered Expenses. The Participant is not
entitled to receive a reimbursement for the amounts
incurred after her participation is terminated.
Effect of If a Participant is promoted during a Paycheck Year
Promotion or and such promotion causes the Participant to be
Demotion on subject to a higher Benefit Limit, Covered Expenses
Reimbursements: incurred before the increased limit takes effect
will be eligible for reimbursement as long as they
were incurred while the Participant was covered by
the Plan. If a Participant is demoted during a
Paycheck Year and such demotion causes the
Participant to be subject to a lower Benefit Limit,
Covered Expenses incurred before the decreased
limit takes effect will be subject to reimbursement
as long as they were incurred while the Participant
was covered by the Plan. The following examples
illustrate how these rules operate:
Example 1: Assume that a Participant is promoted
from vice president to senior vice president on
October 1st. Assume further that as vice president,
the Participant's Benefit Limit was $13,000 and as
senior vice president, the Participant's Benefit
Limit is $18,000. Before being promoted, and while
covered by the Plan, the Participant incurred
$19,000 of Covered Expenses but has only been
reimbursed for $13,000. As of October 1st, the
Participant is entitled to be reimbursed an
additional $5,000 because of the $18,000 Benefit
Limit to which the Participant is now subject.
Example 2: Assume that a Participant is demoted
from senior vice president to vice president on
July 1st. Assume further that as senior vice
president, the Participant's Benefit Limit was
$18,000 and as vice president, the Participant's
Benefit Limit is $13,000. Before being demoted, and
while covered by the Plan, the Participant incurred
$15,000 of Covered Expenses but has only been
reimbursed for $13,000. As of October 1st, the
Participant is entitled to be reimbursed for the
$2,000 of Covered Expenses that were incurred
before October 1st, even though the Participant is
now subject to a $13,000 Benefit Limit.
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Example 3: Assume that a Participant is demoted
from senior vice president to vice president on
November 1st. Assume further that as senior vice
president, the Participant's Benefit Limit was
$18,000 and as vice president, the Participant's
Benefit Limit is $13,000. Before being demoted, and
while covered by the Plan, the Participant incurred
$10,000 of Covered Expenses and had been reimbursed
for the full $10,000. After being demoted, the
Participant incurs an additional $8,000 of Covered
Expenses. The Participant is entitled to receive a
reimbursement of $3,000 because as of November 1st,
the Participant is now subject to a $13,000 Benefit
Limit.
Effect of Benefit Effective February 15, 2003, the Benefit Limit
Limit Increase: for each Participant who is a vice-president
will be increased by $2,000 and the Benefit Limit
for all other Participants will be increased by
$3,000. If a Participant or Dependent's
participation in the Plan terminates before such
date, he or she will not be eligible to receive the
increase. The increased Benefit Limit may be used
to pay Covered Expenses incurred before February
15, 2003. The following examples illustrate how
these rules operate:
Example 1: Assume that a Participant terminated
employment on February 10, 2003. Assume further
that the Participant's Tier A plus Tier B Benefit
Limits equaled $10,000. Before terminating
employment, and while covered by the Plan, the
Participant incurred $14,000 of Covered Expenses,
and had been reimbursed for $10,000. Because the
Participant's participation in the Plan stopped on
February 10, 2003, he is not entitled to receive an
additional reimbursement.
Example 2: Assume that a Participant's Tier A plus
Tier B Benefit Limits equaled $10,000. On February
15, 2003, the Participant's overall Benefit Limit
is increased by $3,000 for an overall Benefit Limit
of $13,000. During January 2003, the Participant,
while covered by the Plan, incurred $14,000 of
Covered Expenses and was reimbursed in the amount
of $10,000. Of the $10,000 reimbursement, $3,000
was grossed-up for income taxes so the Participant
received a total reimbursement of $12,000. Even
though the Participant incurred the Covered
Expenses before February 15, 2003, she is entitled
to receive an additional reimbursement of $1,000
due to the increased Benefit Limit.
|
ARTICLE 5
SUMMARY OF PLAN BENEFITS
Benefit If an expense qualifies as a Covered Expense, the Company
Structure: will reimburse you for 100% of the Covered Expense under
the Plan up to the Benefit Limit. Once you and your
Dependents, together, reach the Benefit Limit, no benefits
will be paid to you under the Plan for the remainder of
the Paycheck Year. Before you submit a claim for
reimbursement under the Plan, you must first submit it for
payment under your Medical Insurance if the underlying
expense is for medical care.
Tax Treatment The expenses reimbursed under the Plan must be included in
of Benefits: the Participant's taxable income for the calendar year in
which the Participant receives the reimbursement, rather
than the calendar year in which the underlying expense is
incurred. Reimbursements approved by the Benefits
Department will be added to your regular paycheck. The
additional income will be reflected on your W-2 for the
calendar year in which the additional income is paid to
you. Prior to May 1, 2002, the benefits provided under the
MERP were not includable in the Participant's taxable
income because the benefits provided under the MERP were
fully insured by CIGNA. Accordingly, any reimbursements
received from CIGNA are not includable in the
Participant's taxable income.
Compliance with The Plan will provide benefits in accordance with the
Federal Laws: applicable requirements of federal laws, such as COBRA,
HIPAA, NMHPA and the WHRCA. For example, the Plan, as
required by the WHCRA provides benefits for
mastectomy-related services including reconstruction and
surgery to achieve symmetry between breasts, prostheses,
and complications from mastectomy (including lymphedema).
Call the Benefits Department for more information.
Qualified The Plan will also provide benefits to an Employee's
Medical non-custodial Dependent child as required by any qualified
Child medical child support order, or "QMCSO" (as defined in
Support ERISA Section 609(a)). The Plan has detailed procedures
Orders: for determining whether an order qualifies as a QMCSO.
Participants and beneficiaries can obtain, without charge,
a copy of such procedures from the Benefits Department.
Benefits for The Plan will provide benefits to Dependent children
Adopted Children: placed with an Employee for adoption under the same terms
and conditions as apply in the case of Dependent children
who are natural children, in accordance with ERISA Section
609(c).
Special The Plan may not, under Federal law, restrict benefits for
Rights Upon any hospital length of stay in connection with childbirth
Childbirth: for the mother or newborn child to less than 48 hours
following a normal vaginal delivery, or less than 96 hours
following a cesarean section. However, Federal law
generally does not prohibit the mother's or newborn's
attending provider, after consulting with the mother, from
discharging the mother or her newborn earlier than the
above periods. In any case, the Plan may not, under
Federal law, require that a provider obtain authorization
from the Plan for prescribing a length of stay not in
excess of the above periods.
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ARTICLE 6
HOW THE PLAN IS ADMINISTERED
Plan Administration: The Plan is administered by the Plan Administrator.
The Plan Administrator may delegate some (or all) of
its authority hereunder to the Benefits Department or
other person or committee designated by the Company.
The Plan Administrator also may engage agents and obtain other assistance from the Company, including Company counsel. The Plan Administrator shall not be responsible for any action taken or not taken on the advice of legal counsel. The Plan Administrator is given specific authority to allocate and revoke responsibilities among its members or designees. When the Plan Administrator has allocated authority pursuant to the foregoing, the Plan Administrator shall not be liable for the acts or omissions of the party to whom such responsibility has been allocated, except to the extent provided by law.
The principal duty of the Plan Administrator is to see that the Plan is carried out, in accordance with its terms, for the exclusive benefit of persons entitled to participate in the Plan without discrimination among them. The administrative duties of the Plan Administrator include, but are not limited to, interpreting the Plan, and prescribing applicable procedures. The Plan Administrator is also responsible for determining eligibility for and the amount of any benefits payable under the Plan and prescribing claims procedures to be followed and the claims forms to be used by employees for making claims under the Plan. The Plan Administrator also has the authority to require Employees to furnish it with such information as it determines necessary for the proper administration of the Plan.
If you have any questions regarding the Plan, please contact the Benefits Department or the Plan Administrator.
Discretionary The Plan Administrator shall have the Authority discretionary authority to perform its to Act: administrative responsibilities described in this Plan as necessary or appropriate to enable the Plan Administrator to properly carry out such responsibilities. The decisions of the Plan Administrator upon all matters within the scope of the Plan Administrator's respective authority shall be binding and conclusive upon all persons.
ARTICLE 7
Claims Procedures
Reimbursement The Benefits Department is responsible for evaluating
Requests: all reimbursement requests under the Plan. You must
submit all reimbursement requests to the Benefits
Department in accordance with its procedures;
provided, however, that each December (or more
frequently if you request), the Benefits Department
will calculate the insurance deductions that have been
taken from your pay during the Paycheck Year, and will
submit these for reimbursement on your behalf.
Reimbursement requests should be submitted as soon as
possible after the underlying expense is "incurred,"
although, for repetitive expenses, you may want to
submit your request when you have other expenses, or
at some fixed interval, such as every three or six
months. See the definition "Covered Expense" to
determine when an expense is incurred. Please keep in
mind that to be reimbursed, an expense must be
submitted for reimbursement no later than the end of
the Paycheck Year following the Paycheck Year in which
the expense was incurred.
In order to count against the Benefit Limit for a
given Paycheck Year, a properly documented
reimbursement request must be sent to the Benefits
Department on or before the last day of such Paycheck
Year. Any properly submitted reimbursement requests
submitted to the Benefits Department during a Paycheck
Year will be taxable income to the Participant for the
calendar year that commences during the Paycheck Year.
For example, the 2004 Paycheck Year will commence on
December 6, 2003 and end on December 3, 2004. Thus any
requests submitted from December 6, 2003 through
December 3, 2004 will be taxable income to the
Participant for the 2004 calendar year.
To facilitate recordkeeping and reimbursements,
expenses submitted at least 3 days before pay period
end will be processed and reimbursed during that same
payroll period. Expenses submitted after such deadline
will be processed and paid during the following
payroll period.
If a reimbursement request is for medical care, you
must first submit the claim for payment to your
Medical Insurance, and submit a copy of the resulting
explanation of benefits ("EOB") to the Benefits
Department as documentation of the expense. On all
reimbursement requests, be sure to include the name of
the provider, the nature of the service rendered, and
your name on the receipt or invoice. If the claim is
in the category of health (other than for prescription
drugs), the ICD-9 code assigned by the provider will
suffice in place of the nature of the service
rendered. Cancelled checks and credit card receipts
cannot be used as the sole documentation of an expense
submitted for reimbursement.
11
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Dissatisfaction with If a you are dissatisfied with the
Decision: determination of your benefits, eligibility,
participation or any other right or interest under
this Plan, you may file a written statement setting
forth the basis of the claim with the Benefits
Department in a manner prescribed by the Benefits
Department. In connection with the determination of a
claim, or in connection with the review of a denied
claim, you may examine this Plan and any other
pertinent documents generally available to
Participants relating to the claim and you may submit
written comments, documents, records and other
information relating to the claim for benefits.
Notice A written notice of the disposition of any such claim
of Decision: will be furnished to you within 90 days after the
claim is filed with the Benefits Department, provided
that the Benefits Department may have an additional
period of up to 90 days to decide the claim if it
determines that special circumstances require an
extension of time to decide the claim and it advises
you in writing of the need for an extension (including
an explanation of the special circumstances requiring
the extension) and the date on which it expects to
decide the claim.
Content of Notice: The notice of disposition of a claim shall set forth:
o the specific reasons for denial of the claim;
o reference to the specific Plan provisions
upon which the determination is based;
o a description of any additional material
or information necessary for you to perfect
the claim and an explanation of why such
material or information is necessary; and
o an explanation of the Plan's appeal procedure
and an explanation of the time limits
applicable to the Plan's appeal procedures,
including a statement of your right to bring
a civil action under Section 502(a) of ERISA,
following an adverse benefit determination on
review.
Appeal of Within 60 days after receiving the written notice of
Denied Claim: the Benefits Department's disposition of the claim,
you, or your duly authorized representative, may
request in writing that the Plan Administrator review
the denied claim. You may submit a written statement
of your claim (including any written comments,
documents, records and other information relating to
the claim) and the reasons for granting the claim. The
Plan Administrator shall have the right to request of
and receive from a claimant such additional
information, documents or other evidence as the Plan
Administrator may reasonably require. If you do not
request a review of the denied claim within 60 days
after receiving written notice of the Plan
Administrator's disposition of the claim, you will be
deemed to have accepted the Benefits Department's
written disposition, unless you have been physically
or mentally incapacitated so as to be unable to
request review within the 60-day period. The review
12
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shall take into account all comments, documents,
records and other information submitted by you
relating to the claim, without regard to whether such
documents, records or other information were submitted
or considered in the initial benefit determination.
Decision A decision on appeal shall be rendered, in writing,
on Appeal: by the Plan Administrator ordinarily not later than
60 days after you request review of a denied claim,
and a written copy of such decision shall be delivered
to you. If special circumstances require an extension
of the ordinary period, the Plan Administrator will
notify you of the extension with such notice
containing an explanation of the special circumstances
requiring the extension and the date by which the Plan
Administrator expects to render a decision. Any such
extension will not extend beyond 60 days after the end
of the ordinary period.
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The denial notice shall set forth:
o the specific reasons for denial of the claim;
o reference to the specific Plan provisions
upon which the denial is based;
o a statement that you are is entitled to
receive, upon request and free of charge,
reasonable access to, and copies of, all
documents, records, and other information
relevant to the your claim for benefits; and
o a statement of your right to bring a civil
action under Section 502(a) of ERISA.
Right to Examine In connection with the determination of a claim, or in
Plan Documents connection with review of a denied claim or appeal,
and to you may examine the Plan and any other pertinent
Submit documents generally available to Participants relating
Materials: to the claim and you may submit written comments,
documents, records and other information relating to
your claim for benefits. Upon request and free of
charge, you will be provided reasonable access to, and
copies of, all documents, records, and other
information relevant to your claim for benefits, with
such relevance to be determined as set forth below
under "Relevance of Documents."
Relevance For purpose of this Article 7, documents, records,
of Documents: or other information shall be considered "relevant"
to your claim for benefits if such documents, records
or other information:
o were relied upon in making the benefit
determination;
o were submitted, considered, or generated in
the course of making the benefit
determination, without regard to whether such
13
|
documents, records or other information were
relied upon in making the benefit
determination; or
o demonstrate compliance with the
administrative processes and safeguards
required by this Article 7 regarding the
making of the benefit determination.
Decisions Final and To the extent permitted by law, a decision on review
Procedures Mandatory: by the Plan Administrator shall be binding and
conclusive upon all persons whomsoever. To the extent
permitted by law, completion of the claims procedures
described in this Article shall be a mandatory
precondition that must be complied with prior to
commencement of a legal or equitable action in
connection with the Plan by a person claiming rights
under the Plan or by another person claiming rights
through such a person. The Plan Administrator may, in
its sole discretion, waive these procedures as a
mandatory precondition to such an action.
Time for Filing Legal Any legal or equitable action filed in connection
or Equitable Action: with the Plan by you or by another person claiming
rights through you must be commenced not later than
the earlier of: (1) the shortest applicable statute of
limitations provided by law; or (2) two years from the
date the written copy of the Plan Administrator's
decision on appeal is delivered as described above.
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ARTICLE 8
AMENDMENT OR TERMINATION OF THE PLAN
PNM Resources, as Plan Sponsor, has the right to amend or terminate the Plan at any time. The Plan may be amended or terminated by a written instrument duly adopted by PNM Resources or any of its delegates.
ARTICLE 9
NO CONTRACT OF EMPLOYMENT
The Plan is not intended to be, and may not be construed as constituting, a contract or other arrangement between you and the Company to the effect that you will be employed for any specific period of time.
IN WITNESS WHEREOF, PNM Resources, Inc. has caused this Plan to be executed as of this __9th__ day of December, 2003.
PNM RESOURCES, INC.
By: /s/ Alice A. Cobb ------------------------------------------------------ Its: Senior Vice President, People Services & Development ------------------------------------------------------ |
EXHIBIT 10.68.2
AMENDMENT NUMBER TWO
TO THE
PUBLIC SERVICE COMPANY OF NEW MEXICO
MASTER DECOMMISSIONING TRUST AGREEMENT
FOR
PALO VERDE NUCLEAR GENERATING STATION
This Amendment Number Two to the Public Service Company of New Mexico Master Decommissioning Trust Agreement for Palo Verde Nuclear Generating Station (the "Agreement') made this 16th day of December, 2003, by and between Public Service Company of New Mexico, a corporation organized and existing under the laws of the State of New Mexico (the "Company"), and Mellon Bank, N.A., a national banking association having trust powers (the "Trustee").
WITNESSETH:
WHEREAS, the Company entered into the Agreement with the Trustee on March 15, 1996 to satisfy the Company's obligation to accumulate funds for the payment of its share of Termination Costs for Palo Verde Unit 1, Palo Verde Unit 2 and Palo Verde Unit 3, in accordance with the requirements of Section 8A.7.2 of the ANPP Participation Agreement; and
WHEREAS, the Company and Trustee amended the Agreement on January 24, 1997; and
WHEREAS, the Company is subject to regulation by the Nuclear Regulatory Commission ("NRC"); and
WHEREAS, the NRC has issued amendments (the "NRC Amendments") to its regulations relating to disbursements or payments, as published in the Federal Register and to become effective on December 24, 2003; and
WHEREAS, Section 2.11 of the Agreement allows the Trustee and the Company to amend the Agreement consistent with the purposes of the Agreement; and
WHEREAS, it is appropriate at this time to amend the Agreement to conform to the NRC Amendments prior to the NRC deadline.
NOW THEREFORE, the Company and the Trustee hereby amend the Agreement, as amended, to include said amendments to NRC regulations:
1. The following Paragraph (5) shall be added to Section 2.01:
Notwithstanding anything to the contrary in this Agreement, except for
(i) payments of ordinary administrative costs (including taxes) and
other incidental expenses of the Funds (including legal, accounting,
actuarial, and trustee expenses) in connection with the operation of
the Funds, (ii) withdrawals being made under 10 CFR 50.82(a)(8), and
(iii) transfers between Qualified and Nonqualified Funds in accordance
with the provisions of this Agreement, no disbursement or payment may
be made from the Funds until written notice of the intention to make a
disbursement or payment has been given to the Director, Office of
Nuclear Reactor Regulation, or the Director, Office of Nuclear Material
Safety and Safeguards, as applicable, at least 30 working days before
the date of the intended disbursement or payment. The disbursement or
payment from the Funds, if it is otherwise in compliance with the terms
and conditions of this Agreement, may be made following the 30-working
day notice period if no written notice of objection from the Director,
Office of Nuclear Reactor Regulation, or the Director, Office of
Nuclear Material Safety and Safeguards, as applicable, is received by
the Trustee or the Company within the notice period. The required
notice may be made by the Trustee or on the Trustee's behalf. This
Paragraph 2.01(5) is intended to qualify each and every provision of
this Agreement allowing distributions from the Funds, and in the event
of any conflict between any such provision and this Paragraph, this
Paragraph shall control.
2. Except as set forth herein, the Agreement is hereby ratified and confirmed and remains in full force and effect.
3. Each of the parties represents and warrants to the other parties that it has full authority to enter into this Amendment upon the terms and conditions hereof and that the individual executing this Amendment on its behalf has the requisite authority to bind the respective parties to this Amendment.
IN WITNESS WHEREOF, the parties hereto, each intending to be legally bound hereby, have hereunto set their hands and seals as of the day and year first above written.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/ Terry R. Horn -------------------------------------- Name: Terry R. Horn Title: Vice President & Treasurer |
MELLON BANK, N.A.
By: /s/Thomas J. McNally -------------------------------------- Name: Thomas J. McNally Title: Vice President |
EXHIBIT 10.72
$300,000,000
CREDIT AGREEMENT
among
PUBLIC SERVICE COMPANY OF NEW MEXICO
as Borrower,
THE LENDERS IDENTIFIED HEREIN,
BANK OF AMERICA, N.A.,
as Administrative Agent
AND
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Syndication Agent
DATED AS OF NOVEMBER 21, 2003
BANC OF AMERICA SECURITIES LLC
and
WACHOVIA CAPITAL MARKETS, LLC,
as Joint Lead Arrangers and Co-Book Managers
TABLE OF CONTENTS
-----------------
SECTION 1 DEFINITIONS AND ACCOUNTING TERMS...................................1
1.1 Definitions.................................................1
-----------
1.2 Computation of Time Periods
and Other Definitional Provisions..........................17
---------------------------------
1.3 Accounting Terms/Calculation of Financial Covenants........17
---------------------------------------------------
1.4 Time.......................................................18
----
1.5 Rounding of Financial Covenants............................18
-------------------------------
1.6 References to Agreements and Requirement of Laws...........18
------------------------------------------------
SECTION 2 CREDIT FACILITY...................................................18
2.1 Revolving Loans............................................18
---------------
2.2 Letter of Credit Subfacility...............................20
----------------------------
2.3 Continuations and Conversions..............................28
-----------------------------
2.4 Minimum Amounts............................................28
---------------
SECTION 3....................................................................29
GENERAL PROVISIONS APPLICABLE TO REVOLVING LOANS.............................29
3.1 Interest...................................................29
--------
3.2 Payments Generally.........................................29
------------------
3.3 Prepayments................................................31
-----------
3.4 Fees.......................................................31
----
3.5 Payment in full at Maturity................................32
---------------------------
3.6 Computations of Interest and Fees..........................32
---------------------------------
3.7 Pro Rata Treatment.........................................33
------------------
3.8 Sharing of Payments........................................34
-------------------
3.9 Capital Adequacy...........................................34
----------------
3.10 Eurodollar Provisions......................................35
---------------------
3.11 Illegality.................................................35
----------
3.12 Requirements of Law; Reserves on Eurodollar Loans..........35
-------------------------------------------------
3.13 Taxes......................................................36
-----
3.14 Compensation...............................................39
------------
3.15 Determination and Survival of Provisions...................40
----------------------------------------
SECTION 4 CONDITIONS PRECEDENT TO CLOSING...................................40
4.1 Closing Conditions.........................................40
------------------
SECTION 5 CONDITIONS TO ALL EXTENSIONS OF CREDIT............................42
5.1 Funding Requirements.......................................42
--------------------
SECTION 6 REPRESENTATIONS AND WARRANTIES....................................43
6.1 Organization and Good Standing.............................43
------------------------------
6.2 Due Authorization..........................................43
-----------------
6.3 No Conflicts...............................................44
------------
6.4 Consents...................................................44
--------
6.5 Enforceable Obligations....................................44
-----------------------
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6.6 Financial Condition........................................44
-------------------
6.7 No Material Change.........................................45
------------------
6.8 No Default.................................................45
----------
6.9 Litigation.................................................45
----------
6.10 Taxes......................................................45
-----
6.11 Compliance with Law........................................45
-------------------
6.12 ERISA......................................................46
-----
6.13 Use of Proceeds; Margin Stock..............................47
-----------------------------
6.14 Government Regulation......................................47
---------------------
6.15 Solvency...................................................47
--------
6.16 Disclosure.................................................47
----------
6.17 Environmental Matters......................................47
---------------------
6.18 Material Leases............................................48
---------------
6.19 Material Lease Interest Payments and Discount Rate.........48
--------------------------------------------------
6.20 Tax Shelter Regulations....................................48
-----------------------
SECTION 7 AFFIRMATIVE COVENANTS.............................................48
---------------------
7.1 Information Covenants......................................48
---------------------
7.2 Financial Covenants........................................50
-------------------
7.3 Preservation of Existence and Franchises...................51
----------------------------------------
7.4 Books and Records..........................................51
-----------------
7.5 Compliance with Law........................................51
-------------------
7.6 Payment of Taxes and Other Indebtedness....................51
---------------------------------------
7.7 Insurance..................................................52
---------
7.8 Performance of Obligations.................................52
--------------------------
7.9 Use of Proceeds............................................52
---------------
7.10 Audits/Inspections.........................................52
------------------
SECTION 8 NEGATIVE COVENANTS................................................52
------------------
8.1 Nature of Business.........................................53
------------------
8.2 Consolidation and Merger...................................53
------------------------
8.3 Sale or Lease of Assets....................................53
-----------------------
8.4 Affiliate Transactions.....................................53
----------------------
8.5 Liens......................................................53
-----
8.6 Accounting Changes.........................................55
------------------
SECTION 9 EVENTS OF DEFAULT.................................................55
-----------------
9.1 Events of Default..........................................55
-----------------
9.2 Acceleration; Remedies.....................................57
----------------------
9.3 Allocation of Payments After Event of Default..............58
---------------------------------------------
SECTION 10 AGENCY PROVISIONS................................................59
10.1 Appointment and Authorization of Administrative Agent......59
-----------------------------------------------------
10.2 Delegation of Duties.......................................60
--------------------
10.3 Liability of Administrative Agent..........................60
---------------------------------
10.4 Reliance by Administrative Agent...........................60
--------------------------------
10.5 Notice of Default..........................................61
-----------------
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10.6 Credit Decision; Disclosure of Information by
the Administrative Agent...................................61
------------------------
10.7 Indemnification of Administrative Agent....................62
---------------------------------------
10.8 Administrative Agent in its Individual Capacity............62
-----------------------------------------------
10.9 Successor Administrative Agent.............................63
------------------------------
10.10 Administrative Agent May File Proofs of Claim..............63
---------------------------------------------
10.11 Other Agents; Arrangers and Managers.......................64
------------------------------------
SECTION 11 MISCELLANEOUS....................................................65
11.1 Notices and Other Communications; Facsimile Copies.........65
--------------------------------------------------
11.2 Right of Set-Off...........................................66
----------------
11.3 Successors and Assigns.....................................66
----------------------
11.4 No Waiver; Remedies Cumulative.............................70
------------------------------
11.5 Attorney Costs, Expenses, Taxes and Indemnification
by Borrower................................................70
-----------
11.6 Amendments, Waivers and Consents...........................72
--------------------------------
11.7 Counterparts...............................................73
------------
11.8 Headings...................................................73
--------
11.9 Survival of Indemnification and Representations
and Warranties.............................................73
--------------
11.10 Governing Law; Venue; Service..............................73
------------------------------
11.11 Waiver of Jury Trial; Waiver of Consequential Damages......74
-----------------------------------------------------
11.12 Severability...............................................74
------------
11.13 Further Assurances.........................................74
------------------
11.14 Confidentiality............................................74
---------------
11.15 Entirety...................................................75
--------
11.16 Binding Effect; Continuing Agreement.......................75
------------------------------------
11.17 Regulatory Statement.......................................76
--------------------
11.18 USA Patriot Act Notice.....................................76
----------------------
iii
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SCHEDULES --------- Schedule 1.1(a) Pro Rata Shares Schedule 1.1(c) Existing Letters of Credit Schedule 6.18 Material Leases Schedule 6.19 Material Lease Interest Payments and Discount Rate Schedule 11.1 Notices EXHIBITS -------- Exhibit 2.1(b) Form of Notice of Borrowing Exhibit 2.1(e) Form of Revolving Note Exhibit 2.3 Form of Notice of Continuation/Conversion Exhibit 7.1(c) Form of Compliance Certificate Exhibit 11.3(b) Form of Assignment and Assumption |
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Credit Agreement") is entered into as of November 21, 2003 among PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico corporation, as Borrower, the Lenders and BANK OF AMERICA, N.A., as Administrative Agent.
RECITALS
WHEREAS, the Borrower has requested the Lenders to provide a senior credit facility to the Borrower in an aggregate principal amount of $300,000,000; and
WHEREAS, the Lenders party hereto have agreed to make the requested senior credit facility available to the Borrower on the terms and conditions hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions.
The following terms shall have the meanings specified herein unless the context otherwise requires. Defined terms herein shall include in the singular number the plural and in the plural the singular:
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the Applicable Percentage.
"Administrative Agent" means Bank of America or any successor administrative agent appointed pursuant to Section 10.9.
"Administrative Agent's Office" means the Administrative Agent's address and, as appropriate, account as set forth on Schedule 11.1 or such other address or account with as the Administrative Agent may from time to time notify the Borrower and the Lenders.
"Administrative Fees" has the meaning set forth in Section 3.4(d).
"Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (b) to direct or cause direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.
"Agent-Related Persons" means the Administrative Agent, together with its Affiliates and the officers, directors, employees, agents and attorneys-in-fact of the Administrative Agent and its Affiliates.
"Applicable Percentage" means, for Eurodollar Loans, L/C Fees, Commitment Fees and Utilization Fees, the appropriate applicable percentages, in each case, corresponding to the Debt Rating in effect as of the most recent Calculation Date as shown below:
------- ---------------- --------------------- ---------------- ----------------
Applicable Percentage Applicable Applicable
Pricing for Eurodollar Rate Percentage for Percentage for
Level Debt Rating Loans and L/C Fees Commitment Fees Utilization Fees
------- ---------------- --------------------- ---------------- ----------------
I > BBB+/Baa1 0.875% 0.150% 0.125%
-
------- ---------------- --------------------- ---------------- ----------------
II BBB/Baa2 1.000% 0.200% 0.125%
------- ---------------- --------------------- ---------------- ----------------
III BBB-/Baa3 1.125% 0.275% 0.125%
------- ---------------- --------------------- ---------------- ----------------
IV BB+/Ba1 1.375% 0.400% 0.375%
------- ---------------- --------------------- ---------------- ----------------
V < BB+/Ba1 2.000% 0.500% 0.500%
------- ---------------- --------------------- ---------------- ----------------
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The Applicable Percentages shall be determined and adjusted on the date (each a "Calculation Date") one Business Day after the date on which the Borrower's Debt Rating is upgraded or downgraded in a manner which requires a change in the then applicable Pricing Level set forth above. If at any time there is a split in the Borrower's Debt Ratings between S&P and Moody's, (i) if both Debt Ratings are BBB-/Baa3 or higher, the Applicable Percentages shall be determined by the higher of the two Debt Ratings (i.e. the lower pricing), provided that if the two Debt Ratings are more than one level apart, the Applicable Percentage shall be based on the Debt Rating which is one level lower than the higher rating and (ii) if either Debt Rating is BB+/Ba1 or lower, the Applicable Percentages shall be determined by the lower of the two Debt Ratings (i.e. the higher pricing). Each Applicable Percentage shall be effective from one Calculation Date until the next Calculation Date. Any adjustment in the Applicable Percentage shall be applicable to all existing Eurodollar Loans as well as any new Eurodollar Loans made.
"Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
"Arranger" means Banc of America Securities LLC, together with its successors and/or assigns.
"Assignment and Assumption" means an Assignment and Assumption substantially in the form of Exhibit 11.3(b).
"Authorized Officer" means any of the president, chief executive officer, chief financial officer or treasurer of the Borrower.
"Bank of America" means Bank of America, N.A., together with its successors and/or assigns.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.
"Base Rate" means for any day a fluctuating rate per annum
equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and
(b) the rate of interest in effect for such day as publicly announced
from time to time by Bank of America as its "prime rate" (the "Prime
Rate"). The Prime Rate is a rate set by Bank of America based upon
various factors including Bank of America's costs and desired return,
general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above,
or below such announced rate. Any change in such rate announced by Bank
of America shall take effect at the opening of business on the day
specified in the public announcement of such change.
"Base Rate Loan" means any Revolving Loan bearing interest at a rate determined by reference to the Base Rate.
"Borrower" means Public Service Company of New Mexico, a New Mexico corporation, together with its successors and permitted assigns.
"Borrower Obligations" means, without duplication, all of the obligations of the Borrower to the Lenders and the Administrative Agent, whenever arising, under this Credit Agreement, the Revolving Notes, or any of the other Credit Documents.
"Borrowing" means a borrowing consisting of simultaneous
Revolving Loans of the same Type and, in the case of Eurodollar Loans,
having the same Interest Period made by each of the Lenders pursuant to
Section 2.1.
"Business Day" means any day other than a Saturday, a Sunday, a legal holiday or a day on which banking institutions are authorized or required by Law or other governmental action to close in New York, New York or Charlotte, North Carolina; provided that in the case of Eurodollar Loans such day is also a day on which dealings are conducted by and between banks in the London interbank market.
"Capital Stock" means (a) in the case of a corporation, all classes of capital stock of such corporation, (b) in the case of a partnership, partnership interests (whether general or limited), (c) in
the case of a limited liability company, membership interests and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person; including, in each case, all warrants, rights or options to purchase any of the foregoing.
"Cash Collateralize" means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the applicable L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the applicable L/C Issuer.
"Change of Control" means the failure of PNM Resources, Inc., a New Mexico corporation, to own and control less than 100% of the Voting Stock of the Borrower.
"Closing Date" means the date of this Credit Agreement, which is the first date all the conditions precedent in Section 5.1 are satisfied or waived in accordance with Section 5.1.
"Code" means the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder, as amended, modified, succeeded or replaced from time to time.
"Commitment" means, as to each Lender, its obligation to (a)
make Revolving Loans to the Borrower pursuant to Section 2.1 and (b)
fund or purchase Participation Interests in L/C Obligations pursuant to
Section 2.2, in an aggregate principal amount at any one time
outstanding not to exceed such Lender's Pro Rata Share of the Revolving
Committed Amount as set forth opposite such Lender's name on Schedule
1.1(a) or in the Assignment and Assumption pursuant to which such
Lender becomes a party hereto, as applicable, as such amount may be
adjusted from time to time in accordance with this Credit Agreement.
"Compensation Period" has the meaning set forth in Section 3.2(c)(ii).
"Compliance Certificate" means a fully completed and duly executed officer's certificate in the form of Exhibit 7.1(c), together with a Covenant Compliance Worksheet.
"Consolidated Capitalization" means the sum of (a) all of the shareholders' equity or net worth of the Borrower and its Subsidiaries, as determined in accordance with GAAP plus (b) Consolidated Indebtedness.
"Consolidated EBITDA" means, for any period, an amount equal to (a) Consolidated Net Income (excluding any extraordinary gains and extraordinary losses) for such period plus (b) an amount which in the determination of Consolidated Net Income for such period was deducted for (i) Consolidated Interest Expense, (ii) income tax expense, (iii) depreciation expense and (iv) amortization expense plus (c) non-cash items reducing Consolidated Net Income for such period less (d) non-cash items increasing Consolidated Net Income for such period.
"Consolidated Indebtedness" means, as of any date of determination, with respect to the Borrower and its Subsidiaries on a consolidated basis, an amount equal to all Indebtedness of the Borrower and its Subsidiaries as of such date.
"Consolidated Interest Expense" means, for any period, with respect to the Borrower and its Subsidiaries on a consolidated basis, an amount equal to total interest expense of the Borrower and its Subsidiaries for such period (including, without limitation, all such interest expense accrued or capitalized during such period, whether or not actually paid during such period), as determined in accordance with GAAP.
"Consolidated Net Income" means the consolidated net income of the Borrower and its Subsidiaries, as determined in accordance with GAAP.
"Contingent Obligation" means, with respect to any Person, any
direct or indirect liability of such Person with respect to any
Indebtedness, liability or other obligation (the "primary obligation")
of another Person (the "primary obligor"), whether or not contingent,
(a) to purchase, repurchase or otherwise acquire such primary
obligation or any property constituting direct or indirect security
therefor, (b) to advance or provide funds (i) for the payment or
discharge of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of
income or financial condition of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary
obligor in respect thereof to make payment of such primary obligation
or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in
respect thereof; provided, however, that, with respect to the Borrower
and its Subsidiaries, the term Contingent Obligation shall not include
endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation of any Person shall
be deemed to be an amount equal to the maximum amount of such Person's
liability with respect to the stated or determinable amount of the
primary obligation for which such Contingent Obligation is incurred or,
if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to
perform thereunder).
"Covenant Compliance Worksheet" shall mean a fully completed worksheet in the form of Attachment A to Exhibit 7.1(c).
"Credit Agreement" has the meaning set forth in the Preamble hereof.
"Credit Documents" means this Credit Agreement, the Revolving Notes, any Notice of Borrowing, any Notice of Continuation/Conversion, and any other document, agreement or instrument entered into or executed in connection with the foregoing.
"Credit Extension" means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
"Debt Rating" means the long term unsecured senior non-credit enhanced debt rating of the Borrower by S&P and Moody's.
"Debtor Relief Laws" means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
"Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.
"Default Rate" means an interest rate equal to two percent (2%) plus the rate that otherwise would be applicable (or if no rate is applicable, the Base Rate plus two percent (2%) per annum).
"Defaulting Lender" means, at any time, any Lender that, (a) has failed to make a Revolving Loan or purchase or fund a Participation Interest (but only for so long as such Revolving Loan is not made or such Participation Interest is not purchased or funded), (b) has failed to pay to the Administrative Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement (but only for so long as such amount has not been repaid) or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar official.
"Dollars" and "$" means dollars in lawful currency of the United States of America.
"Eligible Assignee" means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund and (d) any other Person approved by the Administrative Agent and the Borrower (such approval not to be unreasonably withheld or delayed); provided that (i) the Borrower's consent is not required during the existence and continuation of a Default or an Event of Default, (ii) approval by the Borrower shall be deemed given if no objection is received by the assigning Lender and the Administrative Agent from the Borrower within five Business Days after notice of such proposed assignment has been delivered to the Borrower and (iii) neither the Borrower nor any Subsidiary or Affiliate of the Borrower shall qualify as an Eligible Assignee.
"Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, accusations, allegations, notices of noncompliance or violation, investigations (other than internal reports prepared by any Person in the ordinary course of its business and not in response to any third party action or request of any kind) or proceedings relating in any way to any actual or alleged violation of or liability under any Environmental Law or relating to any permit issued, or any approval given, under any such Environmental Law (collectively, "Claims"), including, without limitation, (a) any and all Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Substances or arising from alleged injury or threat of injury to human health or the environment.
"Environmental Laws" shall mean any and all federal, state and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, rules of common law and orders of courts or Governmental Authorities, relating to the protection of human health or occupational safety or the environment, now or hereafter in effect and in each case as amended from time to time, including, without limitation, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute, and all rules and regulations from time to time promulgated thereunder.
"ERISA Affiliate" means any Person (including any trade or
business, whether or not incorporated) that would be deemed to be under
"common control" with, or a member of the same "controlled group" as,
the Borrower or any of its Subsidiaries, within the meaning of Sections
414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.
"ERISA Event" means: (a) a Reportable Event with respect to a
Plan or a Multiemployer Plan, (b) a complete or partial withdrawal by
the Borrower, any of its Subsidiaries or any ERISA Affiliate from a
Multiemployer Plan, or the receipt by the Borrower, any of its
Subsidiaries or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section 4241 or
4245 of ERISA or that it intends to terminate or has terminated under
Section 4041A of ERISA, (c) the distribution by the Borrower, any of
its Subsidiaries or any ERISA Affiliate under Section 4041 or 4041A of
ERISA of a notice of intent to terminate any Plan or the taking of any
action to terminate any Plan, (d) the commencement of proceedings by
the PBGC under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the receipt by the
Borrower, any of its Subsidiaries or any ERISA Affiliate of a notice
from any Multiemployer Plan that such action has been taken by the PBGC
with respect to such Multiemployer Plan, (e) the institution of a
proceeding by any fiduciary of any Multiemployer Plan against the
Borrower, any of its Subsidiaries or any ERISA Affiliate to enforce
Section 515 of ERISA, which is not dismissed within thirty (30) days,
(f) the imposition upon the Borrower, any of its Subsidiaries or any
ERISA Affiliate of any liability under Title IV of ERISA, other than
for PBGC premiums due but not delinquent under Section 4007 of ERISA,
or the imposition or threatened imposition of any Lien upon any assets
of the Borrower, any of its Subsidiaries or any ERISA Affiliate as a
result of any alleged failure to comply with the Code or ERISA in
respect of any Plan, (g) the engaging in or otherwise becoming liable
for a nonexempt Prohibited Transaction by the Borrower, any of its
Subsidiaries or any ERISA Affiliate, (h) a violation of the applicable
requirements of Section 404 or 405 of ERISA or the exclusive benefit
rule under Section 401(a) of the Code by any fiduciary of any Plan for
which the Borrower, any of its Subsidiaries or any ERISA Affiliate may
be directly or indirectly liable, (i) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Borrower, any of its Subsidiaries or any ERISA Affiliate fails to timely provide security to such Plan in accordance with the provisions of such sections or (j) the withdrawal of the Borrower, any of its Subsidiaries or any ERISA Affiliate from a Multiple Employer Plan during a play year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan.
"Eurodollar Loan" means a Revolving Loan bearing interest based at a rate determined by reference to the Adjusted Eurodollar Rate.
"Eurodollar Rate" means for any Interest Period with respect to any Eurodollar Loan:
(a) the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate that appears on the page of the Telerate screen (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
(b) if the rate referenced in the preceding clause (i) does not appear on such page or service or such page or service shall not be available, the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or
(c) if the rates referenced in the preceding clauses (i) and (ii) are not available, the rate per annum reasonably determined by the Administrative Agent as the rate of interest at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America's London Branch to major banks in the London interbank eurodollar market at their request at approximately 4:00 p.m. (London time) two Business Days prior to the first day of such Interest Period.
"Event of Default" has the meaning set forth in Section 9.1.
"Exchange Act" means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as amended, modified, succeeded or replaced from time to time.
"Existing Credit Agreement" means that certain Credit Agreement, dated as of December 19, 2002, among the Borrower, the lenders party thereto, and Bank of America, N.A., as administrative agent, as previously amended, modified or supplemented prior to the Closing Date.
"Existing Letters of Credit" means the letters of credit set forth on Schedule 1.1(c).
"Federal Funds Rate" means, for any day, the rate per annum equal to the weighted average (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.
"Fee Letter" means that certain letter agreement, dated as of October 15, 2003, among the Borrower, Bank of America and the Arranger, as amended, modified, supplemented or restated from time to time.
"Financial Officer" means the chief financial officer, vice president-finance, principal accounting officer or treasurer of the Borrower.
"First Mortgage Bonds" means those first mortgage bonds issued pursuant to the FMB Indenture.
"Fleet Accounts Receivable Securization" means the electric and gas accounts receivable securitization program that was approved by the New Mexico Public Regulation Commission in Case 3838 and was executed by the Borrower and Fleet National Bank (or an Affiliate thereof) on April 8, 2003.
"FMB Indenture" means the Indenture of Mortgage and Deed of Trust, dated as of June 1, 1947, between the Borrower and The Bank of New York (formerly Irving Trust Company), as trustee thereunder, as supplemented and amended.
"Foreign Lender" has the meaning set forth in Section 3.13(f).
"Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
"GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession) or that are promulgated by any Governmental Authority having appropriate jurisdiction.
"Government Acts" has the meaning set forth in Section 2.2(k).
"Governmental Authority" means any domestic or foreign nation or government, any state or other political subdivision thereof and any central bank thereof, any municipal, local, city or county government, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, any state dental board) and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
"Granting Lender" has the meaning specified in Section 11.3(g).
"Hazardous Substances" means any substances or materials (a) that are or become defined as hazardous wastes, hazardous substances, pollutants, contaminants or toxic substances under any Environmental Law, (b) that are defined by any Environmental Law as toxic, explosive, corrosive, ignitable, infectious, radioactive, mutagenic or otherwise hazardous, (c) the presence of which require investigation or response under any Environmental Law, (d) that constitute a nuisance, trespass or health or safety hazard to Persons or neighboring properties, (e) that consist of underground or aboveground storage tanks, whether empty, filled or partially filled with any substance, or (f) that contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas.
"Hedging Agreements" means, collectively, interest rate protection agreements, equity index agreements, foreign currency exchange agreements, option agreements or other interest or exchange rate or commodity price hedging agreements (other than forward contracts for the delivery of power or gas written by the Borrower to its jurisdictional and wholesale customers in the ordinary course of business).
"Indebtedness" means, with respect to any Person (without duplication), (a) all indebtedness and obligations of such Person for borrowed money or in respect of loans or advances of any kind, (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (c) all reimbursement obligations of such Person with respect to surety bonds, letters of credit and bankers' acceptances (in each case, whether or not drawn or matured and in the stated amount thereof), (d) all obligations of such Person to pay the deferred purchase price of property or services, (e) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, (f) all obligations of such Person as lessee under leases that are or are
required to be, in accordance with GAAP, recorded as capital leases, to the extent such obligations are required to be so recorded, (g) the net termination obligations of such Person under any Hedging Agreements, calculated as of any date as if such agreement or arrangement were terminated as of such date in accordance with the applicable rules under GAAP, (h) all Contingent Obligations of such Person, (i) all obligations and liabilities of such Person incurred in connection with any transaction or series of transactions providing for the financing of assets through one or more securitizations or in connection with, or pursuant to, any synthetic lease or similar off-balance sheet financing, (j) the aggregate amount of uncollected accounts receivable of such Person subject at the time of determination to a sale of receivables (or similar transaction) to the extent such transaction is effected with recourse to such Person (whether or not such transaction would be reflected on the balance sheet of such Person in accordance with GAAP), (k) all obligations, contingent or otherwise, under the Material Leases and (l) all indebtedness referred to in clauses (a) through (k) above secured by any Lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby shall have been assumed by such Person or is nonrecourse to the credit of such Person.
"Indemnified Liabilities" has the meaning set forth in Section 11.5(b).
"Indemnitees" has the meaning set forth in Section 11.5(b).
"Insured Series First Mortgage Bonds" means First Mortgage Bonds in the aggregate principal amount of $65,000,000 pledged by the Borrower to secure guarantees of $65,000,000 principal amount of pollution control revenue bonds issued by the City of Farmington, New Mexico, for the benefit of the Borrower, which pollution control revenue bonds are also supported by a municipal bond insurance policy issued by AMBAC Indemnity Corporation.
"Interest Payment Date" means, (a) as to any Eurodollar Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates and (b) as to any Base Rate Loan, the last Business Day of each fiscal quarter of the Borrower and the Maturity Date.
"Interest Period" means, as to each Eurodollar Loan, the period commencing on the date such Eurodollar Loan is disbursed or converted to or continued as a Eurodollar Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Notice of Borrowing or Notice of Continuation/Conversion; provided that:
(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the Maturity Date.
"Laws" means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
"L/C Credit Extension" means, with respect to any Letter of Credit, the issuance thereof, the extension of the expiry date thereof, the renewal or increase of the amount thereof or any extension of credit resulting from a drawing thereunder that has not been reimbursed.
"L/C Fees" has the meaning set forth in Section 3.4(c).
"L/C Fronting Fee" has the meaning set forth in Section 2.2(i).
"L/C Issuer" means either of Bank of America or Wachovia Bank, National Association, in each case, in its capacity as an issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.
"L/C Obligations" means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit plus the aggregate of all unreimbursed drawings under any Letter of Credit.
"Lender" means any of the Persons identified as a "Lender" on the signature pages hereto, and any Eligible Assignee which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns.
"Lending Office" means, as to any Lender, the office or offices of such Lender described as such in such Lender's Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
"Letter of Credit" means any letter of credit issued hereunder and shall include the Existing Letters of Credit.
"Letter of Credit Application" means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the applicable L/C Issuer.
"Letter of Credit Expiration Date" means the day that is ten days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).
"Letter of Credit Sublimit" means an amount equal to SEVENTY-FIVE MILLION DOLLARS ($75,000,000). The Letter of Credit Sublimit is part of, and not in addition to, the Revolving Committed Amount.
"Lien" means any mortgage, pledge, hypothecation, assignment, security interest, lien (statutory or otherwise), preference, priority, charge or other encumbrance of any nature, whether voluntary or involuntary, including, without limitation, the interest of any vendor or lessor under any conditional sale agreement, title retention agreement, capital lease or any other lease or arrangement having substantially the same effect as any of the foregoing.
"Mandatory Borrowing" has the meaning set forth in Section 2.2(d).
"Margin Stock" has the meaning ascribed to such term in Regulation U.
"Material Adverse Change" means a material adverse change in the condition (financial or otherwise), operations, business, performance, properties or assets of the Borrower and its Subsidiaries, taken as a whole.
"Material Adverse Effect" means a material adverse effect upon
(a) the business, assets, liabilities (actual or contingent),
operations, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries, taken as a whole, (b) the ability of the
Borrower to perform its obligations under this Credit Agreement or any
of the other Credit Documents or (c) the legality, validity or
enforceability of this Credit Agreement or any of the other Credit
Documents or the rights and remedies of the Administrative Agent and
the Lenders hereunder and thereunder.
"Material Lease" means any lease to the Borrower of its leasehold interests in (i) Unit 1 or Unit 2, and related common facilities, of the Palo Verde Nuclear Generating Station or (ii) the electric transmission line, and related facilities, known as the Eastern Interconnection Project, including, without limitation, any lease set forth on Schedule 6.18 hereto.
"Maturity Date" means November 21, 2006.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Multiemployer Plan" means any "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA to which the Borrower, any of
its Subsidiaries or any ERISA Affiliate makes, is making or is obligated to make contributions or has made or been obligated to make contributions.
"Multiple Employer Plan" means a Single Employer Plan to which the Borrower, any of its Subsidiaries or any ERISA Affiliate and at least one employer other than the Borrower, any of its Subsidiaries or any ERISA Affiliate are contributing sponsors.
"Nonrenewal Notice Date" has the meaning set forth in Section 2.2(b)(iii).
"Notice of Borrowing" means a request by the Borrower for a Revolving Loan in the form of Exhibit 2.1(b).
"Notice of Continuation/Conversion" means a request by the Borrower to continue an existing Eurodollar Loan to a new Interest Period or to convert a Eurodollar Loan to a Base Rate Loan or a Base Rate Loan to a Eurodollar Loan, in the form of Exhibit 2.3.
"Other Taxes" has the meaning set forth in Section 3.13(b).
"PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto.
"Participant" has the meaning set forth in Section 11.3(d).
"Participation Interest" means (a) the purchase by a Lender of
a participation in Letters of Credit or L/C Obligations as provided in
Section 2.2 or (b) the purchase by a Lender of a participation in any
Revolving Loan as provided in Section 3.8.
"Person" means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated), or any Governmental Authority.
"Plan" means any "employee benefit plan" (within the meaning
of Section 3(3) of ERISA) which is covered by ERISA and with respect to
which the Borrower, any of its Subsidiaries or any ERISA Affiliate is
(or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" within the meaning of
Section 3(5) of ERISA.
"Prime Rate" has the meaning set forth in the definition of Base Rate in this Section 1.1.
"Pro Rata Share" means, with respect to each Lender at any time, a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Commitment of such Lender at such time and the denominator of which is the amount of the Revolving Committed Amount at such time; provided that if the Commitment of each Lender to make Revolving Loans and the obligation of
the L/C Issuers to make L/C Credit Extensions have been terminated pursuant to Section 9.2 or otherwise, then the Pro Rata Share of each Lender shall be determined based on such Lender's percentage ownership of the sum of the aggregate amount of outstanding Revolving Loans plus the aggregate amount of outstanding L/C Obligations. The initial Pro Rata Share of each Lender is set forth opposite the name of such Lender on Schedule 1.1(a) or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
"Prohibited Transaction" means any transaction described in
(a) Section 406 of ERISA that is not exempt by reason of Section 408 of
ERISA or by reason of a Department of Labor prohibited transaction
individual or class exemption or (b) Section 4975(c) of the Code that
is not exempt by reason of Section 4975(c)(2) or 4975(d) of the Code.
"Property" means any right, title or interest in or to any property or asset of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.
"Register" has the meaning set forth in Section 11.3(c).
"Regulations T, U and X" means Regulations T, U and X, respectively, of the Federal Reserve Board, and any successor regulations.
"Reportable Event" means (a) any "reportable event" within the meaning of Section 4043(c) of ERISA for which the notice under Section 4043(a) of ERISA has not been waived by the PBGC (including any failure to meet the minimum funding standard of, or timely make any required installment under, Section 412 of the Code or Section 302 of ERISA, regardless of the issuance of any waivers in accordance with Section 412(d) of the Code), (b) any such "reportable event" subject to advance notice to the PBGC under Section 4043(b)(3) of ERISA, (c) any application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code, and (d) a cessation of operations described in Section 4062(e) of ERISA.
"Required Lenders" means Lenders whose aggregate Credit Exposure (as hereinafter defined) constitutes more than 50% of the Credit Exposure of all Lenders at such time; provided, however, that if any Lender shall be a Defaulting Lender at such time then there shall be excluded from the determination of Required Lenders the aggregate principal amount of Credit Exposure of such Lender at such time. For purposes of the preceding sentence, the term "Credit Exposure" as applied to each Lender shall mean (a) at any time prior to the termination of the Commitments, the Pro Rata Share of such Lender of the Revolving Committed Amount multiplied by the Revolving Committed Amount and (b) at any time after the termination of the Commitments, the sum of (i) the principal balance of the outstanding Revolving Loans of such Lender plus (ii) such Lender's Participation Interests in the face amount of the outstanding Letters of Credit.
"Requirement of Law" means, with respect to any Person, the organizational documents of such Person and any Law applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject or otherwise pertaining to any or all of the transactions contemplated by this Credit Agreement and the other Credit Documents.
"Responsible Officer" means the president, the chief executive officer, the co-chief executive officer, the chief financial officer, any executive officer, vice president-finance, principal accounting officer or treasurer of the Borrower, and any other officer or similar official thereof responsible for the administration of the obligations of the Borrower in respect of this Credit Agreement and the other Credit Documents.
"Revolving Committed Amount" means THREE HUNDRED MILLION DOLLARS ($300,000,000) or such lesser amount, as it may be reduced from time to time in accordance with Section 2.1(d).
"Revolving Loans" or "Loans" has the meaning set forth in
Section 2.1(a).
"Revolving Notes" or "Notes" means the promissory notes of the Borrower in favor of each of the Lenders evidencing the Revolving Loans provided pursuant to Section 2.1, individually or collectively, as appropriate, as such promissory notes may be amended, modified, supplemented, extended, renewed or replaced from time to time and as evidenced in the form of Exhibit 2.1(e).
"S&P" means Standard & Poor's Rating Service, a division of The McGraw-Hill Companies, Inc. and its successors.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Single Employer Plan" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan or Multiple Employer Plan.
"Solvent" means, with respect to any Person as of a particular date, that on such date (a) such Person is able to pay its debts and other liabilities, Contingent Obligations and other commitments as they mature in the normal course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person's assets would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the assets of such Person is greater than the total amount of liabilities, including, without limitation, Contingent Obligations, of such Person and (e) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured.
"SPC" has the meaning set forth in Section 11.3(g).
"Subsidiary" means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity in which such person directly or indirectly through Subsidiaries has more than a 50% equity interest at any time. Any reference to Subsidiary herein, unless otherwise identified, shall mean a Subsidiary, direct or indirect, of the Borrower. Any reference to a Subsidiary of the Borrower herein shall not include any Subsidiary that is inactive, has minimal or no assets and does not generate revenues.
"Taxes" has the meaning set forth in Section 3.13(a).
"Total Assets" means all assets of the Borrower as shown on its most recent quarterly consolidated balance sheet, as determined in accordance with GAAP.
"Type" means, with respect to a Revolving Loan, its character as a Base Rate Loan or a Eurodollar Loan.
"Unused Revolving Commitment" means, for any date of determination, the amount by which (a) the aggregate Revolving Committed Amount on such date exceeds (b) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations on such date.
"Utilization Fees" has the meaning set forth in Section 3.4(b).
"Voting Stock" means the Capital Stock of a Person that is then outstanding and normally entitled to vote in the election of directors and other securities of such Person convertible into or exercisable for such Capital Stock (whether or not such securities are then currently convertible or exercisable).
1.2 Computation of Time Periods and Other Definitional Provisions.
For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." References in this Credit Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Credit Agreement unless otherwise specifically provided.
1.3 Accounting Terms/Calculation of Financial Covenants.
Except as otherwise expressly provided herein, all accounting terms used herein or incorporated herein by reference shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis. Notwithstanding anything to the contrary in this Credit Agreement, for purposes of calculation of the financial covenants set forth in Section 7.2, all
accounting determinations and computations thereunder shall be made in accordance with GAAP as in effect as of the date of this Credit Agreement applied on a basis consistent with the application used in preparing the most recent financial statements of the Borrower referred to in Section 4.1(d). In the event that any changes in GAAP after such date are required to be applied to the Borrower and would affect the computation of the financial covenants contained in Section 7.2, such changes shall be followed only from and after the date this Credit Agreement shall have been amended to take into account any such changes.
1.4 Time.
All references to time herein shall be references to Central Standard Time or Central Daylight time, as the case may be, unless specified otherwise.
1.5 Rounding of Financial Covenants.
Any financial ratios required to be maintained by the Borrower pursuant to this Credit Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.6 References to Agreements and Requirement of Laws.
Unless otherwise expressly provided herein: (a) references to organization documents, agreements (including the Credit Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Credit Document and (b) references to any Requirement of Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Requirement of Law.
SECTION 2
CREDIT FACILITY
2.1 Revolving Loans.
(a) Revolving Loan Commitment. Subject to the terms and conditions set forth herein, each Lender severally agrees to make revolving loans (each a "Revolving Loan" or "Loan" and collectively the "Revolving Loans" or "Loans") in Dollars to the Borrower, at any time and from time to time, during the period from and including the Closing Date to but not including the Maturity Date (or such earlier date if the Commitments have been terminated as provided herein); provided, however, that after giving effect to any Borrowing (i) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations shall not
exceed the Revolving Committed Amount and (ii) with respect to each individual Lender, the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations of such Lender shall not exceed such Lender's Pro Rata Share of the Revolving Committed Amount. Subject to the terms of this Credit Agreement (including Section 3.3), the Borrower may borrow, repay and reborrow Revolving Loans.
(b) Method of Borrowing for Revolving Loans. By no later than
11:00 a.m. (i) on the date of the requested Borrowing of Revolving
Loans that will be Base Rate Loans and (ii) three Business Days prior
to the date of the requested Borrowing of Revolving Loans that will be
Eurodollar Loans, the Borrower shall telephone the Administrative Agent
as well as submit a written Notice of Borrowing in the form of Exhibit
2.1(b) to the Administrative Agent setting forth (A) the amount
requested, (B) the date of the requested Borrowing, (C) the Type of
Revolving Loan, (D) with respect to Revolving Loans that will be
Eurodollar Loans, the Interest Period applicable thereto, and (E)
certification that the Borrower has complied in all respects with
Section 5. If the Borrower shall fail to specify (1) an Interest Period
in the case of a Eurodollar Loan, then such Eurodollar Loan shall be
deemed to have an Interest Period of one month or (2) the Type of
Revolving Loan requested, then such Revolving Loan shall be deemed to
be a Base Rate Loan. All Revolving Loans made on the Closing Date shall
be Base Rate Loans. Thereafter, all or any portion of the Revolving
Loans may be converted into Eurodollar Loans in accordance with the
terms of Section 2.3.
(c) Funding of Revolving Loans. Upon receipt of a Notice of
Borrowing, the Administrative Agent shall promptly inform the Lenders
as to the terms thereof. Each such Lender shall make its Pro Rata Share
of the requested Revolving Loans available to the Administrative Agent
in immediately available funds at the Administrative Agent's Office not
later than 1:00 p.m. on the Business Day specified in the applicable
Notice of Borrowing. Upon satisfaction of the conditions set forth in
Section 5, the amount of the requested Revolving Loans will then be
made available to the Borrower by the Administrative Agent either by
(i) crediting the account of the Borrower on the books of the
Administrative Agent with the amount of such funds or (ii) wire
transfer of such funds, in each case in accordance with instructions
provided to (and reasonably acceptable to) the Administrative Agent by
the Borrower.
(d) Reductions of Revolving Committed Amount. Upon at least three Business Days' notice, the Borrower shall have the right to permanently terminate or reduce the aggregate unused amount of the Revolving Committed Amount at any time or from time to time; provided that (i) each partial reduction shall be in an aggregate amount at least equal to $5,000,000 and in integral multiples of $1,000,000 above such amount and (ii) no reduction shall be made which would reduce the Revolving Committed Amount to an amount less than the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations. Any reduction in (or termination of) the Revolving Committed Amount shall be permanent and may not be reinstated.
(e) Revolving Notes. The Revolving Loans made by each Lender shall be evidenced by a duly executed promissory note of the Borrower to such Lender in substantially the form of Exhibit 2.1(e).
2.2 Letter of Credit Subfacility.
(a) The Letter of Credit Commitment.
(i) Subject to the terms and conditions set forth herein and other terms and conditions that the applicable L/C Issuer may reasonably require, (A) each L/C Issuer agrees, in reliance upon the agreements of the other Lenders set forth in this Section 2.2, from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue standby Letters of Credit in Dollars for the account of the Borrower and to amend Letters of Credit previously issued by it, in each case in accordance with subsection (b) below and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower; provided, however, that after giving effect to the issuance of any Letter of Credit (1) the sum of the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations shall not exceed the Revolving Committed Amount, (2) with respect to each individual Lender, the sum of the aggregate principal amount of outstanding Revolving Loans of such Lender plus the aggregate principal amount of outstanding L/C Obligations of such Lender shall not exceed such Lender's Pro Rata Share of the Revolving Committed Amount and (3) the aggregate amount of L/C Obligations shall not at any time exceed the Letter of Credit Sublimit. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
(ii) An L/C Issuer shall be under no obligation to issue or amend any Letter of Credit if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such L/C Issuer from issuing such Letter of Credit, or any Requirement of Law applicable to such L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such L/C Issuer shall prohibit, or request that such L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon such L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which such L/C Issuer in good faith deems material to it;
(B) the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance, unless the Required Lenders have approved such expiry date;
(C) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date;
(D) the issuance of such Letter of Credit would violate one or more policies of such L/C Issuer; or
(E) such Letter of Credit is in an initial amount less than $100,000 (unless otherwise agreed to by such L/C Issuer), is to be used for a purpose other than as permitted by Section 7.11, or is denominated in a currency other than Dollars.
(iii) An L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) such L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
(b) Procedures for Issuance and Amendment of Letters of Credit.
(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to an L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower. The Letter of Credit Application must be received by the applicable L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as such L/C Issuer may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as applicable. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the applicable L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day), (B) the amount thereof, (C) the expiry date thereof, (D) the name and address of the beneficiary thereof, (E) the documents to be presented by such beneficiary in case of any drawing thereunder, (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder and (G) such other matters as such L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the applicable L/C Issuer (1) the Letter of Credit to be amended, (2) the proposed date of amendment thereof (which shall be a Business Day), (3) the nature of the proposed amendment and (4) such other matters as such L/C Issuer may require.
(ii) Promptly after receipt of any Letter of Credit Application, the applicable L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, such L/C Issuer will provide the Administrative Agent with a copy thereof. Upon receipt by the applicable L/C Issuer of confirmation from the Administrative Agent that the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, such L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be, in each case in accordance with such L/C Issuer's usual and customary business practices.
(iii) If the Borrower so requests in any applicable Letter of Credit Application, the applicable L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic renewal provisions (each, an "Auto-Renewal Letter of Credit"); provided that any such Auto-Renewal Letter of Credit must permit such L/C Issuer to prevent any such renewal at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the "Nonrenewal Notice Date") in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the applicable L/C Issuer, the Borrower shall not be required to make a specific request to such L/C Issuer for any such renewal. Once an Auto-Renewal Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the applicable L/C Issuer to permit the renewal of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that such L/C Issuer shall not permit any such renewal if (A) such L/C Issuer has determined that it would have no obligation at such time to issue such Letter of Credit in its renewed form under the terms hereof (by reason of the provisions of Section 2.2(a)(ii) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is two Business Days before the Nonrenewal Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such renewal or (2) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in Section 5 is not then satisfied.
(iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the applicable L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
(c) Participations.
(i) On the Closing Date, each Lender shall be deemed to have purchased without recourse a risk participation from the applicable L/C Issuer in each Existing Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its Pro Rata Share of the obligations under such Existing Letter of Credit, and shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and be obligated to pay to such L/C Issuer therefor and discharge when due, its Pro Rata Share of the obligations arising under such Existing Letter of Credit.
(ii) Each Lender, upon issuance of a Letter of Credit, shall be deemed to have purchased without recourse a risk participation from the applicable L/C Issuer in such Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its Pro Rata Share of the obligations under such Letter of Credit, and shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and be obligated to pay to such L/C Issuer therefor and discharge when due, its Pro Rata Share of the obligations arising under such Letter of Credit.
(d) Reimbursement.
(i) In the event of any drawing under any Letter of Credit, the applicable L/C Issuer will promptly notify the Borrower. The Borrower shall reimburse the applicable L/C Issuer on the day of drawing under any Letter of Credit either with the proceeds of a Revolving Loan obtained hereunder or otherwise in immediately available funds. If the Borrower shall fail to reimburse the applicable L/C Issuer as provided hereinabove, the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Base Rate plus two percent (2%).
(ii) Subsequent to a drawing under any Letter of Credit, unless the Borrower shall immediately notify the applicable L/C Issuer of its intent to otherwise reimburse such L/C Issuer, the Borrower shall be deemed to have requested a Base Rate Loan in the amount of the drawing as described herein, the proceeds of which will be used to satisfy the reimbursement obligations. On any day on which the Borrower shall be deemed to have requested a Revolving Loan borrowing to reimburse a drawing under a Letter of Credit, the Administrative Agent shall give notice to the Lenders that a Revolving Loan has been deemed requested in connection with a drawing under a Letter of Credit, in which case a Revolving Loan borrowing comprised solely of Base Rate Loans (each such borrowing, a "Mandatory Borrowing") shall be immediately made from all Lenders (without giving effect to any termination of the Commitments pursuant to Section 9.2 or otherwise) pro rata based on each Lender's respective Pro Rata Share and the proceeds thereof shall be paid directly to the applicable L/C Issuer for application to the respective L/C Obligations. Each Lender hereby irrevocably agrees to make such Revolving Loans
immediately upon any such request or deemed request on account of each such Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the same such date notwithstanding (A) the amount of Mandatory Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise required hereunder, (B) the failure of any conditions specified in Section 5.2 to have been satisfied, (C) the existence of a Default or an Event of Default, (D) the failure of any such request or deemed request for Revolving Loans to be made by the time otherwise required hereunder, (E) the date of such Mandatory Borrowing, or (F) any reduction in the Revolving Committed Amount or any termination of the Commitments.
(iii) In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code with respect to the Borrower), then each such Lender hereby agrees that it shall forthwith fund (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) its Pro Rata Share in the outstanding L/C Obligations; provided, that in the event any Lender shall fail to fund its Pro Rata Share on the day the Mandatory Borrowing would otherwise have occurred, then the amount of such Lender's unfunded participation interest therein shall bear interest payable to the applicable L/C Issuer upon demand, at the rate equal to, if paid within two Business Days of such date, the Federal Funds Rate, and thereafter at a rate equal to the Base Rate. Simultaneously with the making of each such payment by a Lender to such L/C Issuer, such Lender shall, automatically and without any further action on the part of such L/C Issuer or such Lender, acquire a participation in an amount equal to such payment (excluding the portion of such payment constituting interest owing to such L/C Issuer) in the related unreimbursed drawing portion of the L/C Obligation and in the interest thereon and shall have a claim against the Borrower with respect thereto. Any payment by the Lenders pursuant to this clause (iii) shall not relieve or otherwise impair the obligations of the Borrower to reimburse the applicable L/C Issuer under a Letter of Credit.
(e) Obligations Absolute. The obligation of the Borrower to reimburse the applicable L/C Issuer for each drawing under each Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Credit Agreement under all circumstances, including the following:
(i) any lack of validity or enforceability of such Letter of Credit, this Credit Agreement, or any other agreement or instrument relating thereto;
(ii) the existence of any claim, counterclaim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), such L/C Issuer or any other Person, whether in connection with this Credit Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv) any payment by such L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by such L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or
(v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower.
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower's instructions or other irregularity, the Borrower will immediately notify the applicable L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the applicable L/C Issuer and its correspondents unless such notice is given as aforesaid.
(f) Role of L/C Issuers. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the applicable L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuers, any Agent-Related Person nor any of the respective correspondents, participants or assignees of the L/C Issuers shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable, (ii) any action taken or omitted in the absence of gross negligence or willful misconduct or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Letter of Credit Application. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrower's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuers, any Agent-Related Person, nor any of the respective correspondents, participants or assignees of the L/C Issuers, shall be
liable or responsible for any of the matters described in clauses (i) through (v) of Section 2.2(e). In furtherance and not in limitation of the foregoing, an L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation and such L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.
(g) Cash Collateral. If, as of the Letter of Credit Expiration Date, any Letter of Credit for any reason remains outstanding and partially or wholly undrawn, the Borrower shall immediately Cash Collateralize the then aggregate principal amount of all L/C Obligations (in an amount equal to such aggregate principal amount determined as of the Letter of Credit Expiration Date). The Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuers and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash collateral shall be maintained in blocked, non-interest bearing deposit accounts at Bank of America.
(h) Applicability of ISP98 and UCP. Unless otherwise expressly agreed by the applicable L/C Issuer and the Borrower when a Letter of Credit is issued (including any such agreement applicable to an Existing Letter of Credit), the rules of the "International Standby Practices 1998" published by the Institute of International Banking Requirement of Law & Practice (or such later version thereof as may be in effect at the time of issuance) and the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce (the "ICC") at the time of issuance (including the ICC decision published by the Commission on Banking Technique and Practice on April 6, 1998 regarding the European single currency (euro)) shall apply to each Letter of Credit.
(i) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuers. The Borrower shall pay directly to the applicable L/C Issuer for its own account a fronting fee with respect to each Letter of Credit in an amount equal to 0.125% times the daily maximum amount available to be drawn under such Letter of Credit (the "L/C Fronting Fee"). The L/C Fronting Fee shall be computed on a quarterly basis in arrears and shall be due and payable on the last Business Day of each fiscal quarter of the Borrower (as well as on the Letter of Credit Expiration Date) for the fiscal quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the issuance of such Letter of Credit. In addition, the Borrower shall pay directly to the applicable L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
(j) Conflict with Letter of Credit Application. In the event of any conflict between the terms hereof and the terms of any Letter of Credit Application, the terms hereof shall control.
(k) Indemnification of L/C Issuers.
(i) In addition to its other obligations under this Credit Agreement, the Borrower hereby agrees to protect, indemnify, pay and hold each L/C Issuer harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) that such L/C Issuer may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit or (B) the failure of such L/C Issuer to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority (all such acts or omissions, herein called "Government Acts").
(ii) As between the Borrower and the L/C Issuers, the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. In the absence of gross negligence or willful misconduct, no L/C Issuer shall be responsible for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to draw upon a Letter of Credit; (D) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (G) any consequences arising from causes beyond the control of such L/C Issuer, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of an L/C Issuer's rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by an L/C Issuer, under or in connection with any Letter of Credit or the related certificates, if taken or omitted in good faith, shall not put such L/C Issuer under any resulting liability to the Borrower. It is the intention of the parties that this Credit Agreement shall be construed and applied to protect and indemnify the L/C Issuers against any and all risks involved in the issuance of the Letters of Credit, all of which risks are hereby assumed by the Borrower, including, without limitation, any and all risks of the acts or omissions, whether rightful or wrongful, of any present or future Government Acts. No L/C Issuer shall, in any way, be liable for any failure by such L/C Issuer or anyone else to pay any drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of such L/C Issuer.
(iv) Nothing in this subsection (l) is intended to limit the reimbursement obligation of the Borrower contained in this Section 2.2. The obligations of the Borrower under this subsection (l) shall survive the termination of this Credit Agreement. No act or omission of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the applicable L/C Issuer to enforce any right, power or benefit under this Credit Agreement.
(l) Letter of Credit Amounts. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to mean the maximum face amount of such Letter of Credit after giving effect to all increases thereof contemplated by such Letter of Credit or the Letter of Credit Application therefor, whether or not such maximum face amount is in effect at such time.
2.3 Continuations and Conversions.
Subject to the terms below, the Borrower shall have the option, on any Business Day prior to the Maturity Date, to continue existing Eurodollar Loans for a subsequent Interest Period, to convert Base Rate Loans into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans. By no later than 11:00 a.m. (a) on the date of the requested conversion of a Eurodollar Loan to a Base Rate Loan and (b) three Business Days prior to the date of the requested continuation of a Eurodollar Loan or conversion of a Base Rate Loan to a Eurodollar Loan, the Borrower shall provide telephonic notice to the Administrative Agent, followed promptly by a written Notice of Continuation/Conversion in the form of Exhibit 2.3, setting forth whether the Borrower wishes to continue or convert such Revolving Loans. Notwithstanding anything herein to the contrary, (A) except as provided in Section 3.11, Eurodollar Loans may only be continued or converted into Base Rate Loans on the last day of the Interest Period applicable thereto, (B) Eurodollar Loans may not be continued nor may Base Rate Loans be converted into Eurodollar Loans during the existence and continuation of a Default or an Event of Default and (C) any request to continue a Eurodollar Loan that fails to comply with the terms hereof or any failure to request a continuation of a Eurodollar Loan at the end of an Interest Period shall be deemed a request to convert such Eurodollar Loan to a Base Rate Loan on the last day of the applicable Interest Period.
2.4 Minimum Amounts.
Each request for a borrowing, conversion or continuation shall be
subject to the requirements that (a) each Eurodollar Loan shall be in a minimum
amount of $5,000,000 and in integral multiples of $1,000,000 in excess thereof,
(b) each Base Rate Loan shall be in a minimum amount of $3,000,000 and in
integral multiples of $100,000 in excess thereof (or the remaining amount of
outstanding Revolving Loans) and (c) no more than five Eurodollar Loans shall be
outstanding hereunder at any one time. For the purposes of this Section 2.4,
separate Eurodollar Loans that begin and end on the same date, as well as
Eurodollar Loans that begin and end on different dates, shall all be considered
as separate Eurodollar Loans.
SECTION 3
GENERAL PROVISIONS APPLICABLE
TO REVOLVING LOANS
3.1 Interest.
(a) Interest Rate. Subject to Sections 3.1(b), (i) all Base Rate Loans shall accrue interest at the Base Rate and (ii) all Eurodollar Loans shall accrue interest at the Adjusted Eurodollar Rate.
(b) Default Rate of Interest. After the occurrence, and during the continuation, of an Event of Default, the principal of and, to the extent permitted by Law, interest on the Revolving Loans and any other amounts owing hereunder or under the other Credit Documents (including without limitation fees and expenses) shall bear interest, payable on demand, at the Default Rate.
(c) Interest Payments. Interest on Revolving Loans shall be due and payable in arrears on each Interest Payment Date.
3.2 Payments Generally.
(a) No Deductions; Place and Time of Payments. All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent's Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender's Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.
(b) Payment Dates. Subject to the definition of "Interest Period," if any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(c) Advances by Administrative Agent. Unless the Borrower or any Lender has notified the Administrative Agent, prior to the date any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon,
make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in immediately available funds, then:
(i) if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in immediately available funds at the Federal Funds Rate from time to time in effect; and
(ii) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent (the "Compensation Period") at a rate per annum equal to the Federal Funds Rate from time to time in effect. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Revolving Loan included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to such Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Administrative Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error.
(d) Several Obligations. The obligations of the Lenders hereunder to make Revolving Loans and to fund or purchase Participation Interests are several and not joint. The failure of any Lender to make any Revolving Loan or to fund or purchase any Participation Interest on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Revolving Loan or fund or purchase its Participation Interest.
(e) Funding Offices. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Revolving Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Revolving Loan in any particular place or manner.
3.3 Prepayments.
(a) Voluntary Prepayments. The Borrower shall have the right to prepay the Revolving Loans in whole or in part from time to time without premium or penalty; provided, however, that (i) all prepayments under this Section 3.3(a) shall be subject to Section 3.14, (ii) Eurodollar Loans may only be prepaid on three Business Days' prior written notice to the Administrative Agent, (iii) each such partial prepayment of Eurodollar Loans shall be in the minimum principal amount of $5,000,000 and integral multiples of $1,000,000 and (iv) each such partial prepayment of Base Rate Loans shall be in the minimum principal amount of $500,000 and integral multiples of $100,000 or, in the case of clauses (iii) and (iv), if less than such minimum amounts, the entire principal amount thereof then outstanding. Amounts prepaid pursuant to this Section 3.3(a) shall be applied as the Borrower may elect based on the Lenders' Pro Rata Shares; provided, however, if the Borrower fails to specify, such prepayment shall be applied by the Administrative Agent, subject to Section 3.7, in such manner as it deems reasonably appropriate.
(b) Mandatory Prepayments. If at any time (i) the sum of the aggregate principal amount of Revolving Loans outstanding plus the aggregate principal amount of L/C Obligations outstanding exceeds the Revolving Committed Amount or (ii) the aggregate principal amount of L/C Obligations outstanding exceeds the Letter of Credit Sublimit, the Borrower shall immediately make a principal payment to the Administrative Agent and/or Cash Collateralize outstanding L/C Obligations in a manner, in an amount and in Dollars as is necessary to be in compliance with Sections 2.1 and 2.2, as applicable, and as directed by the Administrative Agent. All amounts required to be prepaid pursuant to this Section 3.3(b) shall be applied first to Base Rate Loans, second to Eurodollar Loans in direct order of Interest Period maturities and third to Cash Collateralize outstanding L/C Obligations. All prepayments pursuant to this Section 3.3(b) shall be subject to Section 3.14.
3.4 Fees.
(a) Commitment Fees. In consideration of the Revolving Committed Amount being made available by the Lenders hereunder, the Borrower agrees to pay to the Administrative Agent, for the pro rata benefit of each Lender based on its Pro Rata Share, a per annum fee equal to the daily average sum of the Applicable Percentage for Commitment Fees for each day during the period of determination multiplied by the Unused Revolving Commitment for each such day (the "Commitment Fees"). The Commitment Fees shall commence to accrue on the Closing Date and shall be due and payable in arrears on the last Business Day of each fiscal quarter of the Borrower (as well as on the Maturity Date and on any date that the Revolving Committed Amount is reduced) for the fiscal quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the Closing Date.
(b) Utilization Fees. If at any time the aggregate principal amount of outstanding Revolving Loans exceeds an amount equal to thirty-three percent (33%) of the Revolving Committed Amount, the Borrower shall pay to the Administrative Agent, for the ratable benefit of the Lenders, a utilization fee (the "Utilization Fees") equal to the
product of (i) the average daily aggregate principal amount of outstanding Revolving Loans, calculated from the date the aggregate principal amount of outstanding Revolving Loans exceeds an amount equal to thirty-three percent (33%) of the Revolving Committed Amount but excluding the date the aggregate principal amount of outstanding Revolving Loans falls below an amount equal to thirty-three percent (33%), times (ii) a per annum percentage equal to the Applicable Percentage for Utilization Fees. The Utilization Fees shall be payable in arrears on the last Business Day of each fiscal quarter of the Borrower (as well as on the Maturity Date and on any date that the Revolving Committed Amount is reduced) for the fiscal quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the Closing Date.
(c) L/C Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Pro Rata Share a fee for each Letter of Credit equal to the Applicable Percentage for L/C Fees times the daily maximum amount available to be drawn under such Letter of Credit (the "L/C Fees"). The L/C Fees shall be computed on a quarterly basis in arrears and shall be due and payable on the last Business Day of each fiscal quarter of the Borrower (as well as on the Letter of Credit Expiration Date) for the fiscal quarter (or portion thereof) then ending, beginning with the first of such dates to occur after the issuance of such Letter of Credit.
(d) Administrative Fees. The Borrower agrees to pay to the Administrative Agent, for its own account, an annual fee as agreed to between the Borrower and the Administrative Agent (the "Administrative Fees") in the Fee Letter.
3.5 Payment in full at Maturity.
On the Maturity Date, the entire outstanding principal balance of all Revolving Loans, together with accrued but unpaid interest and all fees and other sums owing under the Credit Documents, shall be due and payable in full, unless accelerated sooner pursuant to Section 9.2; provided that if the Maturity Date is not a Business Day, then such principal, interest, fees and other sums shall be due and payable in full on the next preceding Business Day.
3.6 Computations of Interest and Fees.
(a) Calculation of Interest. Except for Base Rate Loans that are based upon the Prime Rate, in which case interest shall be computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, all computations of interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Interest shall accrue from and including the first date of Borrowing (or continuation or conversion) to but excluding the last day occurring in the period for which such interest is payable.
(b) Usury. It is the intent of the Lenders and the Borrower to conform to and contract in strict compliance with applicable usury Law from time to time in effect. All agreements between the Lenders and the Borrower are hereby limited by the provisions of this subsection which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any
event or contingency (including but not limited to prepayment or acceleration of the maturity of any Borrower Obligation), shall the interest taken, reserved, contracted for, charged, or received under this Credit Agreement, under the Revolving Notes or otherwise, exceed the maximum nonusurious amount permissible under applicable Law. If, from any possible construction of any of the Credit Documents or any other document, interest would otherwise be payable in excess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this subsection and such documents shall be automatically reduced to the maximum nonusurious amount permitted under applicable Law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest on the Revolving Loans under applicable Law and which would, apart from this provision, be in excess of the maximum nonusurious amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Revolving Loans and not to the payment of interest, or refunded to the Borrower or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal amount of the Revolving Loans. The right to demand payment of the Revolving Loans or any other Indebtedness evidenced by any of the Credit Documents does not include the right to accelerate the payment of any interest which has not otherwise accrued on the date of such demand, and the Lenders do not intend to charge or receive any unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Revolving Loans shall, to the extent permitted by applicable Law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Revolving Loans so that the amount of interest on account of the Revolving Loans does not exceed the maximum nonusurious amount permitted by applicable Law.
3.7 Pro Rata Treatment.
Except to the extent otherwise provided herein, each Borrowing, each
payment or prepayment of principal of any Revolving Loan, each L/C Credit
Extension, each payment of interest, each payment of fees (other than
administrative fees paid to the Administrative Agent and fronting, documentary
and processing fees paid to the L/C Issuers), each conversion or continuation of
any Revolving Loans and each reduction in the Revolving Committed Amount, shall
be allocated pro rata among the relevant Lenders in accordance with their Pro
Rata Shares; provided that, if any Lender shall have failed to pay its Pro Rata
Share of any Revolving Loan or fund or purchase its Participation Interest, then
any amount to which such Lender would otherwise be entitled pursuant to this
Section 3.7 shall instead be payable to the Administrative Agent until the share
of such Revolving Loan or such Participation Interest not funded or purchased by
such Lender has been repaid. In the event any principal, interest, fee or other
amount paid to any Lender pursuant to this Credit Agreement or any other Credit
Document is rescinded or must otherwise be returned by the Administrative Agent,
(a) such principal, interest, fee or other amount that had been satisfied by
such payment shall be revived, reinstated and continued in full force and effect
as if such payment had not occurred and (b) such Lender shall, upon the request
of the Administrative Agent, repay to the Administrative Agent the amount so
paid to such Lender, with interest for the period commencing on the date such
payment is returned by the Administrative Agent until the date the
Administrative Agent receives such repayment at a rate per annum equal to the
Federal Funds Rate if repaid within two (2) Business Days after such request and
thereafter the Base Rate.
3.8 Sharing of Payments.
The Lenders agree among themselves that, except to the extent otherwise provided herein, in the event that any Lender shall obtain payment in respect of any Revolving Loan, any L/C Obligations or any other obligation owing to such Lender under this Credit Agreement through the exercise of a right of setoff, banker's lien or counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable Debtor Relief Law or other similar Law or otherwise, or by any other means, in excess of its Pro Rata Share of such payment as provided for in this Credit Agreement, such Lender shall promptly pay in cash or purchase from the other Lenders a participation in such Revolving Loans, L/C Obligations and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their Pro Rata Shares. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker's lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be returned, each Lender which shall have shared the benefit of such payment shall, by payment in cash or a repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise returned. The Borrower agrees that (a) any Lender so purchasing such a participation may, to the fullest extent permitted by Law, exercise all rights of payment, including setoff, banker's lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Revolving Loan, L/C Obligations or other obligation in the amount of such participation and (b) the Borrower Obligations that have been satisfied by a payment that has been rescinded or otherwise returned shall be revived, reinstated and continued in full force and effect as if such payment had not occurred. Except as otherwise expressly provided in this Credit Agreement, if any Lender or the Administrative Agent shall fail to remit to any other Lender an amount payable by such Lender or the Administrative Agent to such other Lender pursuant to this Credit Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Administrative Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable Debtor Relief Law or other similar Law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.8 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.8 to share in the benefits of any recovery on such secured claim.
3.9 Capital Adequacy.
If any Lender determines that the introduction after the Closing Date of any Law, rule or regulation or other Requirement of Law regarding capital adequacy or any change therein or in the interpretation thereof, or compliance by such Lender (or its Lending Office) therewith, has or would have the effect of reducing the rate of return on the capital or assets of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder (taking into consideration its policies with respect to
capital adequacy and such Lender's desired return on capital), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such reduction.
3.10 Eurodollar Provisions.
If the Administrative Agent determines (which determination shall be conclusive and binding upon the Borrower) in connection with any request for a Eurodollar Loan or a conversion to or continuation thereof that (i) deposits in Dollars are not being offered to banks in the applicable offshore interbank market for the applicable amount and Interest Period of such Eurodollar Loan, (ii) adequate and reasonable means do not exist for determining the Eurodollar Rate for such Eurodollar Loan, or (iii) the Eurodollar Rate for such Eurodollar Loan in such does not adequately and fairly reflect the cost to the Lenders of funding such Eurodollar Loan, the Administrative Agent will promptly notify the Borrower and the Lenders. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Loans shall be suspended until the Administrative Agent revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending Notice of Borrowing or Notice of Continuation/Conversion with respect to Eurodollar Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of or, to the extent permitted hereunder, conversion into a Base Rate Loan in the amount specified therein.
3.11 Illegality.
If any Lender determines that any Requirement of Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Loans, or materially restricts the authority of such Lender to purchase or sell, or to take deposits of Dollars in the London interbank market, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Loans or to convert Base Rate Loans to Eurodollar Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand to the Borrower from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period thereof, if such Lender may lawfully continue to maintain such Eurodollar Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Loans. Upon any such prepayment or conversion, the Borrower shall also pay interest on the amount so prepaid or converted, together with any amounts due with respect thereto pursuant to Section 3.14.
3.12 Requirements of Law; Reserves on Eurodollar Loans.
(a) Changes in Law. If any Lender determines that as a result of the introduction of or any change in, or in the interpretation of, any Requirement of Law, or such Lender's compliance therewith, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurodollar Loans, or a reduction in the
amount received or receivable by such Lender in connection with any of the foregoing (excluding for purposes of this Section 3.12 any such increased costs or reduction in amount resulting from (i) Taxes or Other Taxes (as to which Section 3.13 shall govern) and (ii) reserve requirements contemplated by subsection (b) below), then from time to time, upon demand of such Lender (through the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such increased cost or reduction in yield.
(b) Reserves. The Borrower shall pay to each Lender (to the extent such Lender has not otherwise been compensated therefor hereunder), as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurodollar funds or deposits (currently known as "Eurodollar liabilities"), additional interest on the unpaid principal amount of each Eurodollar Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive absent demonstrable error), which shall be due and payable on each date on which interest is payable on such Loan; provided that the Borrower shall have received at least 15 days' prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 15 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 15 days from receipt of such notice.
3.13 Taxes.
(a) Payment of Taxes. Any and all payments by the Borrower to or for the account of the Administrative Agent or any Lender under any Credit Document shall be made free and clear of and without deduction for any and all present or future income, stamp or other taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and all liabilities with respect thereto, but excluding, in the case of the Administrative Agent and each Lender, taxes imposed on or measured by its net income, and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the Laws of which the Administrative Agent or such Lender, as the case may be, is organized or maintains its Lending Office (all such non-excluded present or future income, stamp or other taxes, duties, levies, imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by any Requirement of Law to deduct any Taxes from or in respect of any sum payable under any Credit Document to the Administrative Agent or any Lender, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.13(a)), the Administrative Agent or such Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other Governmental Authority in accordance with applicable Requirements of Law, and (iv) within 30 days after the date of such payment, the Borrower shall furnish to the Administrative Agent (which shall forward the same to such Lender, if applicable) the original or a certified copy of a receipt evidencing payment thereof, to the extent such receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Administrative Agent.
(b) Additional Taxes. In addition, the Borrower agrees to pay any and all present or future stamp, court or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under any Credit Document or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, any Credit Document (hereinafter referred to as "Other Taxes").
(c) No Deduction for Taxes. If the Borrower shall be required to deduct or pay any Taxes or Other Taxes from or in respect of any sum payable under any Credit Document to the Administrative Agent or any Lender, the Borrower shall also pay to the Administrative Agent (for the account of such Lender) or to such Lender, at the time interest is paid, such additional amount that such Lender specifies as necessary to preserve the after-tax yield (after factoring in all taxes, including taxes imposed on or measured by net income) such Lender would have received if such Taxes or Other Taxes had not been imposed.
(d) Indemnification. The Borrower agrees to indemnify the Administrative Agent and each Lender for (i) the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 3.13(d)) paid by the Administrative Agent and such Lender, and (ii) any liability (including penalties, interest and expenses) arising therefrom or with respect thereto.
(e) Exemption from Taxes. In the case of any payment hereunder or under any other Credit Document by or on behalf of the Borrower through an account or branch outside the United States, or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Administrative Agent, an opinion of counsel reasonably acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this subsection (e), the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Code.
(f) Foreign Lenders. Each Lender that is a foreign corporation, foreign partnership or foreign trust within the meaning of the Code (a "Foreign Lender") shall deliver to the Administrative Agent, prior to receipt of any payment subject to withholding under the Code, two duly signed completed copies of either IRS Form W-8BEN or any successor thereto (relating to such Lender and entitling it to an exemption from, or reduction of, withholding tax on all payments to be made to such Lender by the Borrower pursuant to this Credit Agreement), as appropriate, or IRS Form W-8ECI or any successor thereto (relating to all payments to be made to such Lender by the Borrower pursuant to this Credit Agreement) or such other evidence satisfactory to the Borrower and the Administrative Agent that such Lender is entitled to an exemption from, or reduction of, United States withholding tax.
Thereafter and from time to time, each such Lender shall (i) promptly
submit to the Administrative Agent such additional duly completed and
signed copies of one of such forms (or such successor forms as shall be
adopted from time to time by the relevant United States taxing
authorities), as appropriate, as may reasonably be requested by the
Borrower or the Administrative Agent and then be available under then
current United States Laws and regulations to avoid, or such evidence
as is satisfactory to the Borrower and the Administrative Agent of any
available exemption from or reduction of, United States withholding
taxes in respect of all payments to be made to such Lender by the
Borrower pursuant to this Credit Agreement, (ii) promptly notify the
Administrative Agent of any change in circumstances which would modify
or render invalid any claimed exemption or reduction, and (iii) take
such steps as shall not be materially disadvantageous to it, in the
reasonable judgment of such Lender, and as may be reasonably necessary
(including the re-designation of its Lending Office) to avoid any
Requirement of Law that the Borrower make any deduction or withholding
for taxes from amounts payable to such Lender. If the forms or other
evidence provided by such Lender at the time such Lender first becomes
a party to this Credit Agreement indicate a United States interest
withholding tax rate in excess of zero, withholding tax at such rate
shall be considered excluded from Taxes unless and until such Lender
provides the appropriate forms certifying that a lesser rate applies,
whereupon withholding tax at such lesser rate only shall be considered
excluded from Taxes for periods governed by such forms; provided,
however, that, if at the date of any assignment pursuant to which a
Lender becomes a party to this Credit Agreement, the assignor Lender
was entitled to payments under Section 3.13(a) in respect of United
States withholding tax with respect to interest paid at such date,
then, to such extent, the term Taxes shall include (in addition to
withholding taxes that may be imposed in the future or other amounts
otherwise includable in Taxes) United States withholding tax, if any,
applicable with respect to the assignee Lender on such date. If such
Lender fails to deliver the above forms or other evidence, then the
Administrative Agent may withhold from any interest payment to such
Lender an amount equal to the applicable withholding tax imposed by
Sections 1441 and 1442 of the Code, without reduction. If any
Governmental Authority asserts that the Administrative Agent did not
properly withhold any tax or other amount from payments made in respect
of such Lender, such Lender shall indemnify the Administrative Agent
therefor, including all penalties and interest, any taxes imposed by
any jurisdiction on the amounts payable to the Administrative Agent
under this Section 3.13(f), and costs and expenses (including the
reasonable fees and expenses of legal counsel) of the Administrative
Agent. For any period with respect to which a Lender has failed to
provide the Borrower with the above forms or other evidence (other than
if such failure is due to a change in the applicable Law, or in the
interpretation or application thereof, occurring after the date on
which such form or other evidence originally was required to be
provided or if such form or other evidence otherwise is not required),
such Lender shall not be entitled to indemnification under subsection
(a) or (c) of this Section 3.13 with respect to Taxes imposed by the
United States by reason of such failure; provided, however, that should
a Lender become subject to Taxes because of its failure to deliver such
form or other evidence required hereunder, the Borrower shall take such
steps as such Lender shall reasonably request to assist such Lender in
recovering such Taxes. The obligation of the Lenders under this Section
3.13(f) shall survive the payment of all Borrower Obligations and the
resignation or replacement of the Administrative Agent.
(g) Reimbursement. In the event that an additional payment is made under Section 3.13(a) or (c) for the account of any Lender and such Lender, in its reasonable judgment, determines that it has finally and irrevocably received or been granted a credit against or release or remission for, or repayment of, any tax paid or payable by it in respect of or calculated with reference to the deduction or withholding giving rise to such payment, such Lender shall, to the extent that it determines that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to the Borrower such amount as such Lender shall, in its reasonable judgment, have determined to be attributable to such deduction or withholding and which will leave such Lender (after such payment) in no worse position than it would have been in if the Borrower had not been required to make such deduction or withholding. Nothing herein contained shall interfere with the right of a Lender to arrange its tax affairs in whatever manner it thinks fit nor oblige any Lender to claim any tax credit or to disclose any information relating to its tax affairs or any computations in respect thereof or require any Lender to do anything that would prejudice its ability to benefit from any other credits, reliefs, remissions or repayments to which it may be entitled.
3.14 Compensation.
Upon the written demand of any Lender, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Eurodollar Loan on a day other than the last day of the Interest Period for such Eurodollar Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or
(b) any failure by a Borrower (for a reason other than the failure of such Lender to make a Eurodollar Loan) to prepay, borrow, continue or convert any Eurodollar Loan on the date or in the amount previously requested by such Borrower.
The amount each such Lender shall be compensated pursuant to this Section 3.14 shall include, without limitation, (i) any loss incurred by such Lender in connection with the re-employment of funds prepaid, repaid, not borrowed or paid, as the case may be and (ii) any reasonable out-of-pocket expenses (including the reasonable fees and expenses of legal counsel) incurred and reasonably attributable thereto.
For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.14, each Lender shall be deemed to have funded each Eurodollar Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank market for a comparable amount and for a comparable period, whether or not such Eurodollar Loan was in fact so funded.
3.15 Determination and Survival of Provisions.
All determinations by the Administrative Agent or a Lender of amounts owing under Sections 3.9 through 3.14, inclusive, shall, absent manifest error, be conclusive and binding on the parties hereto and all amounts owing thereunder shall be due and payable within ten Business Days of demand therefor. In determining such amount, the Administrative Agent or such Lender may use any reasonable averaging and attribution methods. Section 3.9 through 3.14, inclusive, shall survive the termination of this Credit Agreement and the payment of all Borrower Obligations.
SECTION 4
CONDITIONS PRECEDENT TO CLOSING
4.1 Closing Conditions.
The obligation of the Lenders to enter into this Credit Agreement and make the initial Revolving Loans is subject to satisfaction of the following conditions:
(a) Executed Credit Documents. Receipt by the Administrative Agent of duly executed copies of: (i) this Credit Agreement, (ii) the Revolving Notes, and (iii) all other Credit Documents, each in form and substance reasonably acceptable to the Lenders in their sole discretion.
(b) Authority Documents. Receipt by the Administrative Agent of the following:
(i) Organizational Documents. Copies of the articles of incorporation of the Borrower certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its formation and copies of the bylaws of the Borrower certified by a secretary or assistant secretary (or the equivalent) of the Borrower to be true and correct as of the Closing Date.
(ii) Resolutions. Copies of resolutions of the board of directors of the Borrower approving and adopting this Credit Agreement and the other Credit Documents to which it is a party, the transactions contemplated herein and therein and authorizing execution and delivery hereof and thereof, certified by a secretary or assistant secretary (or the equivalent) of the Borrower to be true and correct and in full force and effect as of the Closing Date.
(iii) Good Standing. Copies of certificates of good standing, existence or its equivalent with respect to the Borrower certified as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its formation.
(iv) Incumbency. An incumbency certificate of the Borrower certified by a secretary or assistant secretary (or the equivalent) of the Borrower to be true and correct as of the Closing Date.
(c) Opinions of Counsel. Receipt by the Administrative Agent of opinions of counsel from outside counsel to the Borrower, in form and substance acceptable to the Administrative Agent, addressed to the Administrative Agent and the Lenders and dated as of the Closing Date.
(d) Financial Statements. Receipt by the Administrative Agent
of a copy of (i) the annual consolidated financial statements
(including balance sheets, income statements and cash flow statements)
of the Borrower and its Subsidiaries for fiscal years 2001 and 2002,
audited by independent public accountants of recognized national
standing, (ii) the consolidated balance sheet and income statement of
the Borrower and its Subsidiaries for the fiscal quarter ended
September 30, 2003, together with the related consolidated statement of
income for such fiscal quarter and a year to date statement of cash
flows and (iii) such other financial information regarding the Borrower
as the Administrative Agent may reasonably request.
(e) Due Diligence. The Administrative Agent and the Lenders shall have completed all due diligence with respect to the Borrower and its Subsidiaries and the transactions contemplated by this Credit Agreement and the other Credit Documents, in scope and determination reasonably satisfactory to the Administrative Agent and the Lenders.
(f) Material Adverse Effect. Since December 31, 2002, there shall have been no development or event relating to or affecting the Borrower or any of its Subsidiaries that has had or could be reasonably expected to have a Material Adverse Effect and no Material Adverse Change in the facts and information regarding the Borrower and its Subsidiaries as represented to date.
(g) Absence of Market Disruption. There shall not have occurred a material adverse change in or material disruption of conditions in the financial, banking or capital markets which the Administrative Agent and the Arranger, in their sole discretion, deem material in connection with the syndication of the Credit Agreement.
(h) Litigation. There shall not exist any material order, decree, judgment, ruling or injunction or any material pending or threatened action, suit, investigation or proceeding against the Borrower or any of its Subsidiaries.
(i) Consents. All necessary governmental, shareholder and third party consents and approvals, if any, with respect to this Credit Agreement and the Credit Documents and the transactions contemplated herein and therein have been received and no condition or Requirement of Law exists which would reasonably be likely to restrain, prevent or impose any material adverse conditions on the transactions contemplated hereby and by the other Credit Documents.
(j) Officer's Certificates. Receipt by the Administrative Agent of a certificate or certificates executed by an Authorized Officer of the Borrower as of the Closing Date stating that (i) the Borrower and each of its Subsidiaries are in compliance in all material respects with all existing material financial obligations and all material Requirements of Law, (ii) there does not exist any material order, decree, judgment, ruling or injunction or any material pending or threatened action, suit, investigation or proceeding against the Borrower or any of its Subsidiaries, (iii) the financial statements and information delivered to the Administrative Agent on or before the Closing Date were prepared in good faith and in accordance with GAAP and (iv) immediately after giving effect to this Credit Agreement, the other Credit Documents and all the transactions contemplated herein or therein to occur on such date, (A) the Borrower is Solvent, (B) no Default or Event of Default exists, (C) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects, (D) since December 31, 2002, there has been no development or event relating to or affecting the Borrower or any of its Subsidiaries that has had or could be reasonably expected to have a Material Adverse Effect and there exists no event, condition or state of facts that could result in or reasonably be expected to result in a Material Adverse Change and (E) the Borrower is in compliance with each of the financial covenants set forth in Section 7.2, as of September 30, 2003, as demonstrated in Covenant Compliance Worksheets attached to such certificate.
(k) Existing Credit Agreement. Receipt by the Administrative Agent of evidence that all amounts outstanding under the Existing Credit Agreement have been paid in full and the commitments thereunder terminated or that such payments will be made and commitments terminated simultaneously with the execution and delivery of the Credit Documents.
(l) Fees and Expenses. Unless waived by the Person entitled thereto, payment by the Borrower of all fees and expenses owed by them to the Administrative Agent, the Arranger and the Lenders on or before the Closing Date, including, without limitation, as set forth in the Fee Letter.
(m) Other. Receipt by the Lenders of such other documents, instruments, agreements or information as reasonably requested by any Lender.
SECTION 5
CONDITIONS TO ALL EXTENSIONS OF CREDIT
5.1 Funding Requirements.
In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be obligated to make Revolving Loans and the L/C Issuers shall not be obligated to issue Letters of Credit unless:
(a) Notice. The Borrower shall have delivered (i) in the case of any new Revolving Loan, a Notice of Borrowing, duly executed and completed, by the time specified in Section 2.1 and (ii) in the case of any Letter of Credit, a Letter of Credit Application, duly executed and completed, by the time specified in Section 2.2.
(b) Representations and Warranties. The representations and warranties made by the Borrower in any Credit Document are true and correct in all material respects at and as if made as of such date except to the extent they expressly and exclusively relate to an earlier date.
(c) No Default. No Default or Event of Default shall exist and be continuing either prior to or after giving effect to such Credit Extension.
(d) Availability. Immediately after giving effect to such Credit Extension (and the application of the proceeds thereof), (i) the aggregate principal amount of outstanding Revolving Loans plus the aggregate principal amount of outstanding L/C Obligations shall not exceed the Revolving Committed Amount, (ii) with respect to each individual Lender, the sum of outstanding principal amount of Revolving Loans of such Lender and outstanding principal amount of L/C Obligations of such Lender shall not exceed such Lender's Pro Rata Share of the Revolving Committed Amount and (iii) the aggregate amount of L/C Obligations shall not exceed the Letter of Credit Sublimit.
The delivery of each Notice of Borrowing or a Letter of Credit Application shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in subsections (b), (c) and (d) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this Credit Agreement and to induce the Lenders to extend the credit contemplated hereby, the Borrower represents and warrants to the Administrative Agent and the Lenders as follows:
6.1 Organization and Good Standing.
Each of the Borrower and its Subsidiaries (a) is a corporation, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) is duly qualified and in good standing as a foreign entity authorized to do business in every other jurisdiction where the failure to so qualify would have a Material Adverse Effect and (c) has the requisite power and authority to own its properties and to carry on its business as now conducted and as proposed to be conducted.
6.2 Due Authorization.
The Borrower (a) has the requisite power and authority to execute, deliver and perform this Credit Agreement and the other Credit Documents and to incur the obligations herein and therein provided for and (b) has been authorized by all necessary action to execute, deliver and perform this Credit Agreement and the other Credit Documents.
6.3 No Conflicts.
Neither the execution and delivery of this Credit Agreement and the other Credit Documents, nor the consummation of the transactions contemplated herein and therein, nor performance of and compliance with the terms and provisions hereof and thereof by the Borrower will (a) violate or conflict with any provision of its organizational documents, (b) violate, contravene or conflict with any law (including without limitation, the Public Utility Holding Company Act of 1935, as amended), regulation (including without limitation, Regulation U and Regulation X), order, writ, judgment, injunction, decree or permit applicable to it, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it may be bound, the violation of which would have or would be reasonably expected to have a Material Adverse Effect or (d) result in or require the creation of any Lien upon or with respect to its properties.
6.4 Consents.
Other than the approval of the New Mexico Public Regulation Commission (which has been obtained), no consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required in connection with the execution, delivery or performance of this Credit Agreement or any of the other Credit Documents that has not been obtained or completed.
6.5 Enforceable Obligations.
This Credit Agreement and the other Credit Documents have been duly executed and delivered and constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as may be limited by Debtor Relief Laws or similar laws affecting creditors' rights generally or by general equitable principles.
6.6 Financial Condition.
The financial statements delivered to the Lender pursuant to Section
4.1(d) and pursuant to Sections 7.1(a) and (b): (i) have been prepared in
accordance with GAAP except that the quarterly financial statements are subject
to year-end adjustments and have fewer footnotes than annual statements and (ii)
present fairly the financial condition, results of operations and cash flows of
the Borrower and its Subsidiaries as of such date and for such periods. No
opinion provided with respect to the Borrower's financial statements pursuant to
Section 7.1 (or as to any prior annual financial statements) has been withdrawn.
6.7 No Material Change.
(a) Since December 31, 2002, there has been no development or event relating to or affecting the Borrower which would have or would reasonably be expected to have a Material Adverse Effect.
(b) Since December 31, 2002, there has been no sale, transfer or other disposition by the Borrower of any material part of its business or property, and no purchase or other acquisition by the Borrower of any business or property (including the Capital Stock of any other Person) material in relation to the financial condition of the Borrower, in each case which is not (i) reflected in the most recent financial statements delivered to the Lender pursuant to Section 4.1(d) or 7.1 or in the notes thereto or (ii) otherwise permitted by the terms of this Credit Agreement and communicated to the Lender.
6.8 No Default.
Neither the Borrower nor any of its Subsidiaries is in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound which default would have or would reasonably be expected to have a Material Adverse Effect. No Default or Event of Default presently exists and is continuing.
6.9 Litigation.
There are no actions, suits, investigations or legal, equitable, arbitration or administrative proceedings, pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect.
6.10 Taxes.
Each of the Borrower and its Subsidiaries has filed, or caused to be filed, all material tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes shown thereon to be due (including interest and penalties) and has paid all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes which are not yet delinquent or that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP.
6.11 Compliance with Law.
Each of the Borrower and its Subsidiaries is in compliance with all laws, rules, regulations, orders and decrees applicable to it or to its properties, unless such failure to comply would not have or would not reasonably be expected to have a Material Adverse Effect.
6.12 ERISA.
Except as would not result or reasonably be expected to result in a Material Adverse Effect:
(a) During the five-year period prior to the date on which this representation is made or deemed made: (i) no ERISA Event has occurred, and, to the best knowledge of the Borrower, no event or condition has occurred or exists as a result of which any ERISA Event would be reasonably expected to occur, with respect to any Plan; (ii) no "accumulated funding deficiency," as such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or not waived, has occurred with respect to any Plan; (iii) each Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws; and (iv) no Lien in favor or the PBGC or a Plan has arisen or is reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities"
under each Single Employer Plan (determined within the meaning of
Section 401(a)(2) of the Code, utilizing the actuarial assumptions used
to fund such Plans), whether or not vested, did not, as of the last
annual valuation date prior to the date on which this representation is
made or deemed made, exceed the current value of the assets of such
Plan allocable to such accrued liabilities, except as disclosed in the
Borrower's financial statements.
(c) Neither the Borrower nor any ERISA Affiliate has incurred, or, to the best knowledge of the Borrower, is reasonably expected to incur, any withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization (within the meaning of Section 4241 of ERISA), is insolvent (within the meaning of Section 4245 of ERISA), or has been terminated (within the meaning of Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge of the Borrower, reasonably expected to be in reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has occurred with respect to a Plan which has subjected or would be reasonably likely to subject the Borrower or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability.
(e) The present value (determined using actuarial and other assumptions which are reasonable with respect to the benefits provided and the employees participating) of the liability of the Borrower and each ERISA Affiliate for post-retirement welfare benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA), net of all assets under all such Plans allocable to such benefits, are reflected on the financial statements referenced in Section 7.1 in accordance with FASB 106.
(f) Each Plan which is a welfare plan (as defined in Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects with such sections.
6.13 Use of Proceeds; Margin Stock.
The proceeds of the Credit Extensions hereunder will be used solely for the purposes specified in Section 7.9. None of such proceeds will be used for the purpose of (a) (i) purchasing or carrying any Margin Stock or (ii) reducing or retiring any Indebtedness which was originally incurred to purchase or carry Margin Stock, or (iii) for any other purpose that might constitute this transaction a "purpose credit" within the meaning of Regulation U or (b) for the acquisition of another Person unless the board of directors (or other comparable governing body) or stockholders, as appropriate, of such Person has approved such acquisition.
6.14 Government Regulation.
(a) The Borrower is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended ("PUHCA"). The issuance of the Note by the Borrower and the Credit Extensions contemplated by this Credit Agreement are not subject to regulation under PUHCA or subject to regulation by the Securities and Exchange Commission
(b) The Borrower is not an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended, or controlled by such a company.
6.15 Solvency.
The Borrower is and, after the consummation of the transactions contemplated by this Credit Agreement, will be Solvent.
6.16 Disclosure.
Neither this Credit Agreement nor any financial statements delivered to the Lender nor any other document, certificate or statement furnished to the Lender by or on behalf of the Borrower in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein, taken as a whole, not misleading.
6.17 Environmental Matters.
Except as would not result or reasonably be expected to result in a Material Adverse Effect: (a) each of the properties of the Borrower and its Subsidiaries (the "Properties") and all operations at the Properties are in substantial compliance with all applicable Environmental Laws, (b) there is no undocumented or unreported violation of any Environmental Law with respect to the Properties or the businesses operated by the Borrower and its Subsidiaries (the "Businesses") that the Borrower is aware of, and (c) there are no conditions relating to the Businesses or Properties that have given rise to or would reasonably be expected to give rise to a liability under any applicable Environmental Laws.
6.18 Material Leases.
Set forth on Schedule 6.18 hereto is a complete and accurate list of the Material Leases on the date hereof, showing the expiration date and annual rental cost thereof. The Borrower is entitled to exercise all of the rights of lessee purported to be granted to the Borrower under each such Material Lease.
6.19 Material Lease Interest Payments and Discount Rate.
Schedule 6.19 hereto, as most recently provided to the Administrative Agent, sets forth the same (a) amounts with respect to the interest portion of payments under the Material Leases and (b) discount rate used to calculate the net present value of all amounts payable under the Material Leases as have been most recently provided (or that the Borrower intends to provide shortly) to Moody's and S&P or as have otherwise been agreed to by the Required Lenders.
6.20 Tax Shelter Regulations.
The Borrower does not intend to treat the Loans and/or Letters of Credit and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation section 1.6011-4). If the Borrower determines to take any action inconsistent with such intention, it will promptly notify the Administrative Agent thereof. The Borrower acknowledges that the Administrative Agent and/or one or more of the Lenders may treat the Loans and/or Letters of Credit as part of a transaction that is subject to Treasury Regulation section 1.6011-4 or section 301.6112-1, and the Administrative Agent and such Lender or Lenders, as applicable, may file such IRS forms or maintain such lists and other records as they may determine is required by such Treasury Regulations.
SECTION 7
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, until the termination of the Commitments, the termination or expiration of all Letters of Credit and the payment in full of all Borrower Obligations:
7.1 Information Covenants.
The Borrower will furnish, or cause to be furnished, to the Lenders:
(a) Annual Financial Statements. As soon as available, and in any event within 120 days after the close of each fiscal year of the Borrower, a consolidated balance sheet and income statement of the Borrower and its Subsidiaries, as of the end of such fiscal year, together with the related consolidated statements of income and of cash
flows for such fiscal year, setting forth in comparative form figures for the preceding fiscal year, all such financial information described above to be in reasonable form and detail and, in each case, audited by independent certified public accountants of recognized national standing reasonably acceptable to the Required Lenders and whose opinion shall be furnished to the Lenders, and shall be to the effect that such financial statements have been prepared in accordance with GAAP (except for changes with which such accountants concur) and shall not be limited as to the scope of the audit or qualified in any respect.
(b) Quarterly Financial Statements. As soon as available, and in any event within 60 days after the close of each fiscal quarter of the Borrower (other than the fourth fiscal quarter), a consolidated balance sheet and income statement of the Borrower and its Subsidiaries as of the end of such fiscal quarter, together with the related consolidated statement of income for such fiscal quarter and a year to date statement of cash flows, in each case setting forth in comparative form figures for the corresponding period of the preceding fiscal year, all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Required Lenders, and, in each case, accompanied by a certificate of a Financial Officer of the Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of such Person and have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end audit adjustments and except that the quarterly financial statements have fewer footnotes than annual statements.
(c) Officer's Certificate. At the time of delivery of the financial statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of a Financial Officer substantially in the form of Exhibit 7.1(c): (i) setting forth calculations demonstrating compliance by the Borrower with the financial covenants set forth in Section 7.2 as of the end of such fiscal period and (ii) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto.
(d) Reports. Notice of the filing by the Borrower of any Form 10-Q, Form 10-K or Form 8-K with the SEC promptly upon the filing thereof and copies of all financial statements, proxy statements, notices and reports as the Borrower shall send to its shareholders concurrently with the mailing of any such statements, notices or reports to its shareholders.
(e) Notices. Upon the Borrower obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent within ten days of (i) the occurrence of a Default or Event of Default, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto and (ii) the occurrence of any of the following with respect to the Borrower or any of its Subsidiaries (A) the pendency or commencement of any litigation, arbitration or governmental proceeding against the Borrower or any of its Subsidiaries which, if adversely determined, would have or would reasonably be expected to have a Material Adverse Effect, (B) one or more judgments, orders, or decrees shall be entered against the Borrower or any of its Subsidiaries involving a liability of $5,000,000 or more, in the aggregate or (C) the institution of any proceedings against the Borrower or any of its Subsidiaries with respect to, or the receipt of
notice by such Person of potential liability or responsibility for violation or alleged violation of, any federal, state or local law, rule or regulation (including, without limitation, any Environmental Law), the violation of which would have or would reasonably be expected to have a Material Adverse Effect.
(f) ERISA. Upon the Borrower or any ERISA Affiliate obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent promptly (and in any event within ten days) of any of the following which would result in or reasonably would be expected to result in a Material Adverse Effect: (i) any event or condition, including, but not limited to, any Reportable Event, that constitutes, or would be reasonably expected to lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Borrower or any of its ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); (iii) the failure to make full payment on or before the due date (including extensions) thereof of all amounts which the Borrower or any of its Subsidiaries or ERISA Affiliates is required to contribute to each Plan pursuant to its terms and as required to meet the minimum funding standard set forth in ERISA and the Code with respect thereto; or (iv) a change in the funding status of any Plan, in each case together with a description of any such event or condition or a copy of any such notice and a statement by an officer of the Borrower briefly setting forth the details regarding such event, condition, or notice, and the action, if any, which has been or is being taken or is proposed to be taken with respect thereto. Promptly upon request, the Borrower shall furnish the Lenders with such additional information concerning any Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each "plan year" (within the meaning of Section 3(39) of ERISA).
(g) Debt Ratings. Prompt notice of any change in its Debt Ratings.
(h) Reportable Transactions. Promptly after the Borrower has notified the Administrative Agent of any intention by the Borrower to treat the Loans and/or Letters of Credit and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4), a duly completed copy of IRS Form 8886 or any successor form.
(i) Other Information. With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of the Borrower as the Lenders may reasonably request.
7.2 Financial Covenants.
(a) Debt Capitalization. At all times the ratio of (i) Consolidated Indebtedness to (ii) Consolidated Capitalization shall be less than or equal to .65 to 1.0. For purposes of such calculation, the portion of Consolidated Indebtedness attributable to obligations under Material Leases shall be the net present value (using (i) the discount rate (A) set forth in Schedule 6.19, so long as Schedule 6.19 specifies
the same relevant discount rate as is used in calculating such net
present value provided to Moody's and S&P or (B) the discount rate used
in calculating such net present value provided to Moody's and S&P or
(ii) any such other rate as shall be proposed by the Borrower (and
agreed upon by the Required Lenders) of all amounts payable under the
Material Leases.
(b) Interest Coverage Ratio. As of the last day of each fiscal quarter of the Borrower, for the twelve month period ending on such date, the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense shall be greater than or equal to 3.0 to 1.0.
7.3 Preservation of Existence and Franchises.
(a) The Borrower will do (and will cause each of its Subsidiaries to do) all things necessary to preserve and keep in full force and effect its existence and rights, franchises and authority.
(b) The Borrower will maintain (and will cause each of its Subsidiaries to maintain) its properties in good condition and not waste or otherwise permit such properties to deteriorate, reasonable wear and tear excepted.
7.4 Books and Records.
The Borrower will keep (and will cause each of its Subsidiaries to keep) complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP (including the establishment and maintenance of appropriate reserves).
7.5 Compliance with Law.
The Borrower will comply (and will cause each of its Subsidiaries to comply) with all laws (including, without limitation, all Environmental Laws and ERISA laws), rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its properties, if the failure to comply would have or would reasonably be expected to have a Material Adverse Effect.
7.6 Payment of Taxes and Other Indebtedness.
The Borrower will (and will cause each of its Subsidiaries to) pay, settle or discharge (a) all taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent, (b) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties, and (c) all of its other Indebtedness as it shall become due (to the extent such repayment is not otherwise prohibited by this Credit Agreement); provided, however, that the Borrower and its Subsidiaries shall not be required to pay any such tax, assessment, charge, levy, claim or Indebtedness which is being contested in good faith by appropriate proceedings and as to which adequate reserves therefor have been established in accordance with GAAP, unless the failure to make any such payment (i) would give rise to an immediate right to foreclose or collect on a Lien securing such amounts or (ii) would have or would be reasonably expected to have a Material Adverse Effect.
7.7 Insurance.
The Borrower will (and will cause each of its Subsidiaries to) at all times maintain in full force and effect insurance (including worker's compensation insurance and general liability insurance) in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice.
7.8 Performance of Obligations.
The Borrower will perform (and will cause each of its Subsidiaries to perform) in all material respects all of its obligations under the terms of all material agreements, indentures, mortgages, security agreements or other debt instruments to which it is a party or by which it is bound.
7.9 Use of Proceeds.
The proceeds of the Credit Extensions may be used solely (a) to repay amounts under the Existing Credit Agreement, (b) to pay fees and expenses required by the Credit Document, and (c) for general corporate purposes of the Borrower (including working capital and capital expenditures).
7.10 Audits/Inspections.
Upon reasonable notice and during normal business hours, the Borrower will permit representatives appointed by the Administrative Agent or the Lenders, including, without limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect the Borrower's property, including its books and records, its accounts receivable and inventory, the Borrower's facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Administrative Agent or such Lender or its representatives to investigate and verify the accuracy of information provided to it and to discuss all such matters with the officers, employees and representatives of the Borrower; provided, that an officer or authorized agent of the Borrower shall be present during any such discussions between the officers, employees or representatives of the Borrower and the representatives of the Administrative Agent or any Lender.
SECTION 8
NEGATIVE COVENANTS
Unless otherwise approved in writing by the Required Lenders, the Borrower covenants and agrees that, until the termination of the Commitments, the termination or expiration of all Letters of Credit and the payment in full of all Borrower Obligations:
8.1 Nature of Business.
The Borrower will not materially alter the character of its business from that conducted as of the Closing Date.
8.2 Consolidation and Merger.
The Borrower will not (a) enter into any transaction of merger or (b) consolidate, liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); provided that, so long as no Default or Event of Default shall exist or be caused thereby, a Person may be merged or consolidated with or into the Borrower so long as the Borrower shall be the continuing or surviving corporation.
8.3 Sale or Lease of Assets.
The Borrower will not (nor will it permit its Subsidiaries to) sell, lease, transfer or otherwise dispose of, any of its assets (including, without limitation, all or substantially all of its assets, whether in one transaction or a series of related transactions) except (a) sales of accounts receivable and energy services contract revenues in connection with the Fleet Accounts Receivable Securitization and other sales of accounts receivable and energy services contract revenues so long as such other sales are non-recourse to the Borrower and are otherwise on customary market terms; (b) sales of assets (excluding those permitted in clause (a) hereof) for fair value, if the aggregate value of all such transactions in any calendar year, does not exceed 25% of the book value of Total Assets, as calculated as of the end of the most recent fiscal quarter; and (c) sale, lease, transfer or other disposition, at less than fair value, of any other assets, provided that the aggregate book value of such assets shall not exceed $10,000,000 in any calendar year.
8.4 Affiliate Transactions.
The Borrower will not enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any Affiliate other than on terms and conditions substantially as favorable as would be obtainable in a comparable arm's-length transaction with a Person other than an Affiliate.
8.5 Liens.
The Borrower will not (and will not permit its Subsidiaries to)
contract, create, incur, assume or permit to exist any Lien with respect to any
of its property or assets of any kind (whether real or personal, tangible or
intangible), whether now owned or hereafter acquired, securing any Indebtedness
other than the following: (a) Liens securing Borrower Obligations, (b) Liens for
taxes not yet due or Liens for taxes being contested in good faith by
appropriate proceedings for which adequate reserves determined in accordance
with GAAP have been established (and as to which the property subject to any
such Lien is not yet subject to foreclosure, sale or loss on account thereof),
(c) Liens in respect of property imposed by law arising in the ordinary course
of business such as materialmen's, mechanics', warehousemen's, carrier's,
landlords' and other nonconsensual statutory Liens which are not yet due and
payable, which have been in existence less than 90 days or which are being
contested in good faith by appropriate proceedings for which adequate reserves
determined in accordance with GAAP have been established (and as to which the
property subject to any such Lien is not yet subject to foreclosure, sale or
loss on account thereof), (d) pledges or deposits made in the ordinary course of
business to secure payment of worker's compensation insurance, unemployment
insurance, pensions or social security programs, (e) Liens arising from good
faith deposits in connection with or to secure performance of tenders, bids,
leases, government contracts, performance and return-of-money bonds and other
similar obligations incurred in the ordinary course of business (other than
obligations in respect of the payment of borrowed money), (f) Liens arising from
good faith deposits in connection with or to secure performance of statutory
obligations and surety and appeal bonds, (g) easements, rights-of-way,
restrictions (including zoning restrictions), minor defects or irregularities in
title and other similar charges or encumbrances not, in any material respect,
impairing the use of the encumbered property for its intended purposes, (h)
judgment Liens that would not constitute an Event of Default, (i) Liens arising
by virtue of any statutory or common law provision relating to banker's liens,
rights of setoff or similar rights as to deposit accounts or other funds
maintained with a creditor depository institution, (j) any Lien created or
arising over any property which is acquired, constructed or created by the
Borrower or its Subsidiaries, but only if (i) such Lien secures only principal
amounts (not exceeding the cost of such acquisition, construction or creation)
raised for the purposes of such acquisition, construction or creation, together
with any costs, expenses, interest and fees incurred in relation thereto or a
guarantee given in respect thereof, (ii) such Lien is created or arises on or
before 180 days after the completion of such acquisition, construction or
creation, (iii) such Lien is confined solely to the property so acquired,
constructed or created and any improvements thereto and (iv) the aggregate
principal amount of all Indebtedness secured by such Liens shall not exceed
$25,000,000 at any one time outstanding, (k) any Lien on Margin Stock, (l) the
FMB Indenture, but only to the extent of the Insured Series First Mortgage
Bonds, and the "permitted encumbrances" under the FMB Indenture, (m) the
assignment of, or Liens on, accounts receivable in connection with Fleet
Accounts Receivable Securitization and the filing of related financing
statements under the Uniform Commercial Code of the applicable jurisdictions,
(n) the assignment of, or Liens on, demand, energy or wheeling revenues, or on
capacity reservation or option fees, payable to the Borrower with respect to any
wholesale electric service or transmission agreements, the assignment of, or
Liens on, revenues from energy services contracts, and the assignment of, or
Liens on, capacity reservation or option fees payable to the Borrower with
respect to asset sales permitted herein, (o) any extension, renewal or
replacement (or successive extensions, renewals or replacements), as a whole or
in part, of any Liens referred to in the foregoing clauses (a) through (n), for
amounts not exceeding the principal amount of the Indebtedness secured by the
Lien so extended, renewed or replaced, provided that such extension, renewal or
replacement Lien is limited to all or a part of the same property or assets that
were covered by the Lien extended, renewed or replaced (plus improvements on
such property or assets), (p) Liens on Property that is subject to a Material
Lease that is classified as an operating lease as of the Closing Date but which
is subsequently converted into a capital lease, and (q) Liens on Property, in
addition to those otherwise permitted by clauses (a) through (p) above,
securing, directly or indirectly, Indebtedness or obligations arising pursuant
to other agreements entered into in the ordinary course of business which do not
exceed, in the aggregate at any one time outstanding, $25,000,000.
8.6 Accounting Changes.
The Borrower will not make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as required by GAAP, or as permitted by GAAP, if the amounts involved are not material.
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"):
(a) Payment. The Borrower shall: (i) default in the payment when due of any principal of any of the Revolving Loans; or (ii) default, and such default shall continue for three or more Business Days, in the payment when due of any interest on the Loans or of any fees or other amounts owing hereunder, under any of the other Credit Documents or in connection herewith or therewith.
(b) Representations. Any representation, warranty or statement made or deemed to be made by the Borrower herein, in any of the other Credit Documents, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove untrue in any material respect on the date as of which it was deemed to have been made.
(c) Covenants. The Borrower shall:
(i) default in the due performance or observance of any term, covenant or agreement contained in Sections 7.1(e)(i), 7.2, 7.3(a) (solely with respect to the existence of the Borrower), 7.9, 7.10 or 8.1 through 8.6, inclusive; or
(ii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c)(i) of this Section 9.1) contained in this Credit Agreement or any other Credit Document and such default shall continue unremedied for a period of at least 10 days after the earlier of the Borrower becoming aware of such default or notice thereof given by the Administrative Agent.
(d) Credit Documents. Any Credit Document shall fail to be in force and effect or the Borrower shall so assert or any Credit Document shall fail to give the Administrative Agent or the Lenders the rights, powers, liens and privileges purported to be created thereby.
(e) Bankruptcy, etc. The occurrence of any of the following with respect to the Borrower or any of its Subsidiaries (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of its Subsidiaries in an involuntary case under any applicable Debtor Relief Law now or hereafter in effect, or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Borrower or any of its Subsidiaries or for any substantial part of their property or ordering the winding up or liquidation of its affairs; or (ii) an involuntary case under any applicable Debtor Relief Law now or hereafter in effect is commenced against the Borrower or any of its Subsidiaries and such petition remains unstayed and in effect for a period of 60 consecutive days; or (iii) the Borrower or any of its Subsidiaries shall commence a voluntary case under any applicable Debtor Relief Law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Person or any substantial part of its property or make any general assignment for the benefit of creditors; or (iv) the Borrower or any of its Subsidiaries shall admit in writing its inability to pay its debts generally as they become due or any action shall be taken by any Person in furtherance of any of the aforesaid purposes.
(f) Defaults under Other Agreements.
(i) The Borrower or any of its Subsidiaries shall default in the due performance or observance (beyond the applicable grace period with respect thereto) of any material obligation or condition of any contract or lease to which it is a party, if such default would have or would reasonably be expected to have a Material Adverse Effect.
(ii) With respect to any Indebtedness of the Borrower or any of its Subsidiaries (other than Indebtedness outstanding under this Credit Agreement) in excess of $20,000,000 in the aggregate (A) the Borrower or such Subsidiary shall (x) default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to such Indebtedness, or (y) default (after giving effect to any applicable grace period) in the observance or performance of any covenant or agreement relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause or permit the holder or the holders of such Indebtedness (or any trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required) such Indebtedness to become due prior to its stated maturity; or (B) such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment prior to the stated maturity thereof; or (C) such Indebtedness shall mature and remain unpaid.
(g) Judgments. Any judgment, order or decree involving a liability of $20,000,000 or more, or one or more judgments, orders, or decrees involving a liability of $40,000,000 or more, in the aggregate, shall be entered against the Borrower or any of its Subsidiaries and
such judgments, orders or decrees shall continue unsatisfied,
undischarged and unstayed for a period ending on the first to occur of
(i) the last day on which such judgment, order or decree becomes final
and unappealable and, where applicable, with the status of a judicial
lien or (ii) 60 days; provided that if such judgment, order or decree
provides for periodic payments over time then the Borrower or such
Subsidiary shall have a grace period of 30 days with respect to each
such periodic payment.
(h) ERISA. The occurrence of any of the following events or
conditions if any of the same would have or would be reasonably
expected to have a Material Adverse Effect: (i) any "accumulated
funding deficiency," as such term is defined in Section 302 of ERISA
and Section 412 of the Code, whether or not waived, shall exist with
respect to any Plan, or any lien shall arise on the assets of the
Borrower or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an
ERISA Event shall occur with respect to a Single Employer Plan which
is, in the reasonable opinion of the Required Lenders, likely to result
in the termination of such Plan for purposes of Title IV of ERISA;
(iii) an ERISA Event shall occur with respect to a Multiemployer Plan
or Multiple Employer Plan which is, in the reasonable opinion of the
Required Lenders, likely to result in (A) the termination of such Plan
for purposes of Title IV of ERISA, or (B) the Borrower or any ERISA
Affiliate incurring any liability in connection with a withdrawal from,
reorganization of (within the meaning of Section 4241 of ERISA), or
insolvency (within the meaning of Section 4245 of ERISA) of such Plan;
or (iv) any prohibited transaction (within the meaning of Section 406
of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility shall occur which would be reasonably expected to
subject the Borrower or any ERISA Affiliate to any liability under
Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the
Code, or under any agreement or other instrument pursuant to which the
Borrower or any ERISA Affiliate has agreed or is required to indemnify
any person against any such liability.
(i) Change of Control. There shall occur a Change of Control.
9.2 Acceleration; Remedies.
Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent may or, upon the request and direction of the Required Lenders, shall take the following actions without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against the Borrower, except as otherwise specifically provided for herein:
(a) Termination of Commitments. Declare the Commitments and the obligation of the L/C Issuers to make L/C Credit Extensions terminated whereupon the Commitments and the obligation of the L/C Issuers to make L/C Credit Extensions shall be immediately terminated.
(b) Acceleration of Revolving Loans. Declare the unpaid principal of and any accrued interest in respect of all Revolving Loans, all L/C Obligations and any and all other Borrower Obligations of any and every kind owing by the Borrower to the Administrative Agent or the Lenders under the Credit Documents to be due, whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
(c) Cash Collateral. Direct the Borrower to Cash Collateralize (and the Borrower agrees that upon receipt of such notice, or upon the occurrence of an Event of Default under Section 9.1(e), it will immediately Cash Collateralize) L/C Obligations in respect of subsequent drawings under all then outstanding Letters of Credit in an amount equal to the then outstanding principal amount of L/C Obligations.
(d) Enforcement of Rights. To the extent permitted by Law enforce any and all rights and interests created and existing under applicable Law and under the Credit Documents, including, without limitation, all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(e) shall occur, then the Commitments and any obligation of the L/C Issuers to make L/C Credit Extensions shall automatically terminate and all Revolving Loans, all L/C Obligations, all accrued interest in respect thereof, all accrued and unpaid fees and other Borrower Obligations owing to the Administrative Agent and the Lenders hereunder shall immediately become due and payable without the giving of any notice or other action by the Administrative Agent or the Lenders, which notice or other action is expressly waived by the Borrower.
Notwithstanding the fact that enforcement powers reside primarily with the Administrative Agent, each Lender has, to the extent permitted by Law, a separate right of payment and shall be considered a separate "creditor" holding a separate "claim" within the meaning of Section 101(5) of the Bankruptcy Code or any other insolvency statute.
9.3 Allocation of Payments After Event of Default.
Notwithstanding any other provisions of this Credit Agreement, after the occurrence and during the continuation of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender on account of amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including the reasonable fees and expenses of legal counsel) of the Administrative Agent, the L/C Issuers or any of the Lenders in connection with enforcing the rights of the Administrative Agent, the L/C Issuers and the Lenders under the Credit Documents, ratably among them in proportion to the amounts described in this clause "FIRST" payable to them;
SECOND, to payment of any fees owed to the Administrative Agent, the L/C Issuers or any Lender, ratably among them in proportion to the amounts described in this clause "SECOND" payable to them;
THIRD, to the payment of all accrued interest payable to the Lenders, and the L/C Issuers hereunder, ratably among them in proportion to the amounts described in this clause "THIRD" payable to them;
FOURTH, to the payment of the outstanding principal amount of the Revolving Loans and L/C Obligations, ratably among them in proportion to the amounts described in this clause "FOURTH" payable to them;
FIFTH, to the Administrative Agent, for the account of the L/C Issuers, to Cash Collateralize that portion of the L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit;
SIXTH, to all other Borrower Obligations which shall have become due and payable under the Credit Documents and not repaid pursuant to clauses "FIRST" through "FIFTH" above, ratably among the holders of such Borrower Obligations in proportion to the amounts described in this clause "SIXTH" payable to them; and
SEVENTH, the payment of the surplus, if any, to whomever may be lawfully entitled to receive such surplus.
Amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause "FIFTH" above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as cash collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Borrower Obligations, if any, in the order set forth above.
SECTION 10
AGENCY PROVISIONS
10.1 Appointment and Authorization of Administrative Agent.
(a) Each Lender hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Credit Agreement and each other Credit Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Credit Agreement or any other Credit Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Credit Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Credit Agreement or any other Credit Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" herein and in the other Credit Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Requirement of Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.
(b) Each L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and such L/C Issuer shall have all of the benefits and immunities (i) provided to the Administrative Agent in this Section 10 with respect to any acts taken or omissions suffered by such L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and the applications and agreements for letters of credit pertaining to such Letters of Credit as fully as if the term "Administrative Agent" as used in this Section 10 and in the definition of "Agent-Related Person" included such L/C Issuer with respect to such acts or omissions, and (ii) as additionally provided herein with respect to such L/C Issuer.
10.2 Delegation of Duties.
The Administrative Agent may execute any of its duties under this Credit Agreement or any other Credit Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct.
10.3 Liability of Administrative Agent.
No Agent-Related Person shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Credit Agreement or any other Credit Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by the Borrower or any officer thereof, contained herein or in any other Credit Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Credit Agreement or any other Credit Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Credit Agreement or any other Credit Document, or for any failure of the Borrower or any other party to any Credit Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or participant to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Credit Agreement or any other Credit Document, or to inspect the properties, books or records of the Borrower or any Affiliate thereof.
10.4 Reliance by Administrative Agent.
(a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any action under any Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Credit Agreement or any other Credit Document in accordance with a request or consent of the Required Lenders (or such greater number of Lenders as may be expressly required hereby in any instance) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.
(b) For purposes of determining compliance with the conditions specified in Section 4.1, each Lender that has signed this Credit Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
10.5 Notice of Default.
The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default, except with respect
to defaults in the payment of principal, interest and fees required to be paid
to the Administrative Agent for the account of the Lenders, unless the
Administrative Agent shall have received written notice from a Lender or the
Borrower referring to this Credit Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." The
Administrative Agent will notify the Lenders of its receipt of any such notice.
The Administrative Agent shall take such action with respect to such Default or
Event of Default as may be directed by the Required Lenders in accordance with
Section 9; provided, however, that unless and until the Administrative Agent has
received any such direction, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable or in the best
interest of the Lenders.
10.6 Credit Decision; Disclosure of Information by the Administrative Agent.
Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by the Administrative Agent hereafter taken, including any consent to and acceptance of any assignment or review of the affairs of the Borrower or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower and their respective Subsidiaries, and all applicable bank or other regulatory Requirement of Laws relating to the
transactions contemplated hereby, and made its own decision to enter into this Credit Agreement and to extend credit to the Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Credit Agreement and the other Credit Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent herein, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrower or any of their respective Affiliates which may come into the possession of any Agent-Related Person.
10.7 Indemnification of Administrative Agent.
Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of the Borrower and without limiting the obligation of the Borrower to do so), pro rata, and hold harmless each Agent-Related Person from and against any and all Indemnified Liabilities incurred by it; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities to the extent determined in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Agent-Related Person's own gross negligence or willful misconduct; it being understood and agreed that no action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including, without limitation, the reasonable fees and expenses of legal counsel) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Credit Agreement, any other Credit Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section shall survive termination of the Commitments, the payment of all Borrower Obligations and the resignation of the Administrative Agent.
10.8 Administrative Agent in its Individual Capacity.
Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Borrower and its Affiliates as though Bank of America were not the Administrative Agent or an L/C Issuer hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, Bank of America or its Affiliates may receive information regarding the Borrower or its Affiliates (including information that may be subject to
confidentiality obligations in favor of the Borrower or an Affiliate) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to its Revolving Loans, Bank of America shall have the same rights and powers under this Credit Agreement as any other Lender and may exercise such rights and powers as though it were not the Administrative Agent or an L/C Issuer, and the terms "Lender" and "Lenders" include Bank of America in its individual capacity. The foregoing provisions of this Section 10.8 shall apply equally to Lenders and their Affiliates to the extent such Lenders are acting in their individual capacities and not in their capacities as Lenders hereunder.
10.9 Successor Administrative Agent.
The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Lenders; provided that any such resignation by Bank of America shall also constitute its resignation as L/C Issuer. If the Administrative Agent resigns under this Credit Agreement, the Required Lenders shall appoint from among the Lenders a successor Administrative Agent for the Lenders, which successor Administrative Agent shall be consented to by the Borrower at all times other than during the existence of an Event of Default (which consent of the Borrower shall not be unreasonably withheld or delayed). If no successor Administrative Agent is appointed prior to the effective date of the resignation of the retiring Administrative Agent, the retiring Administrative Agent may appoint, after consulting with the Lenders and the Borrower, a successor Administrative Agent from among the Lenders. Upon the acceptance of its appointment as successor Administrative Agent hereunder, the Person acting as such successor Administrative Agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the retiring L/C Issuer and the respective terms "Administrative Agent" and "L/C Issuer" shall mean such successor Administrative Agent and L/C Issuer and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated and the retiring L/C Issuer's rights, powers and duties as such shall be terminated, without any other or further act or deed on the part of such retiring Administrative Agent or L/C Issuer or any other Lender, other than the obligation of the successor L/C Issuer to issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or to make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 10 and Sections 11.5 and 11.6 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Credit Agreement. If no successor Administrative Agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above.
10.10 Administrative Agent May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Borrower, the Administrative Agent (irrespective of whether the principal of any Revolving Loan or L/C Obligation
shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Revolving Loans, L/C Obligations and all other Borrower Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and its respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 3.4 and 11.5) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 3.4 and 11.5.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Borrower Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
10.11 Other Agents; Arrangers and Managers.
None of the Lenders or other Persons identified on the facing page or signature pages of this Credit Agreement as a "syndication agent," "documentation agent," "co-agent," "book manager," "lead manager," "arranger," "lead arranger" or "co-arranger" shall have any right, power, obligation, liability, responsibility or duty under this Credit Agreement other than, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Credit Agreement or in taking or not taking action hereunder.
SECTION 11
MISCELLANEOUS
11.1 Notices and Other Communications; Facsimile Copies.
(a) General. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including by facsimile transmission). All such written notices shall be mailed, faxed or delivered to the applicable address, facsimile number or (subject to subsection (c) below) electronic mail address, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i) if to the Borrower, the Administrative Agent or the L/C Issuers, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 11.1 or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties; and
(ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the Borrower and the Administrative Agent.
All such notices and other communications shall be deemed to be given or made
upon the earlier to occur of (i) actual receipt by the relevant party hereto and
(ii) (A) if delivered by hand or by courier, when signed for by or on behalf of
the relevant party hereto; (B) if delivered by mail, four Business Days after
deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent
and receipt has been confirmed by telephone; and (D) if delivered by electronic
mail (which form of delivery is subject to the provisions of subsection (c)
below), when delivered; provided, however, that notices and other communications
to the Administrative Agent and the L/C Issuers pursuant to Section 2 shall not
be effective until actually received by such Person. In no event shall a
voicemail message be effective as a notice, communication or confirmation
hereunder.
(b) Effectiveness of Facsimile Documents and Signatures. Credit Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Requirement of Law, have the same force and effect as manually-signed originals and shall be binding on the Borrower, the Administrative Agent and the Lenders. The Administrative Agent may also require that any such documents and signatures be confirmed by a manually-signed original thereof; provided, however, that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature.
(c) Limited Use of Electronic Mail. Electronic mail and Internet and intranet websites may be used only to distribute routine communications, such as financial statements and other information as
provided in Section 7.1 and 7.2, and to distribute Credit Documents for execution by the parties thereto, and may not be used for any other purpose.
(d) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Notices of Borrowing) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify each Agent-Related Person and each Lender from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
11.2 Right of Set-Off.
In addition to any rights now or hereafter granted under applicable Law
or otherwise, and not by way of limitation of any such rights, upon the
occurrence of an Event of Default and the commencement of remedies described in
Section 9.2, each Lender is authorized at any time and from time to time,
without presentment, demand, protest or other notice of any kind (all of which
rights being hereby expressly waived), to set-off and to appropriate and apply
any and all deposits (general or special) and any other indebtedness at any time
held or owing by such Lender (including, without limitation, branches, agencies
or Affiliates of such Lender wherever located) to or for the credit or the
account of the Borrower against obligations and liabilities of the Borrower to
the Lenders hereunder, under the Revolving Notes, the other Credit Documents or
otherwise, irrespective of whether the Administrative Agent or the Lenders shall
have made any demand hereunder and although such obligations, liabilities or
claims, or any of them, may be contingent or unmatured, and any such set-off
shall be deemed to have been made immediately upon the occurrence of an Event of
Default even though such charge is made or entered on the books of such Lender
subsequent thereto. The Borrower hereby agrees that any Person purchasing a
participation in the Revolving Loans and Commitments hereunder pursuant to
Sections 3.8 or 11.3(e) may exercise all rights of set-off with respect to its
participation interest as fully as if such Person were a Lender hereunder.
11.3 Successors and Assigns.
(a) The provisions of this Credit Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) or (i) of this Section, or (iv) to an SPC in accordance with the provisions of
subsection (g) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Credit Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Credit Agreement.
(b) Any Lender may at any time assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this
Credit Agreement (including all or a portion of its Commitment and the
Loans (including for purposes of this subsection (b), participations in
L/C Obligations) at the time owing to it); provided that (i) except in
the case of an assignment of the entire remaining amount of the
assigning Lender's Commitment and the Loans at the time owing to it or
in the case of an assignment to a Lender or an Affiliate of a Lender or
an Approved Fund (as defined in subsection (g) of this Section) with
respect to a Lender, the aggregate amount of the Commitment (which for
this purpose includes Loans outstanding thereunder) subject to each
such assignment, determined as of the date the Assignment and
Assumption with respect to such assignment is delivered to the
Administrative Agent or, if "Trade Date" is specified in the Assignment
and Assumption, as of the Trade Date, shall not be less than $5,000,000
unless each of the Administrative Agent and, so long as no Event of
Default has occurred and is continuing, the Borrower otherwise consents
(each such consent not to be unreasonably withheld or delayed); (ii)
each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and obligations
under this Credit Agreement with respect to the Loans or the Commitment
assigned, (iii) any assignment of a Commitment must be approved by the
Administrative Agent and the L/C Issuers (such approval not to be
unreasonably withheld or delayed) unless the Person that is the
proposed assignee is itself a Lender (whether or not the proposed
assignee would otherwise qualify as an Eligible Assignee); and (iv) the
parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a
processing and recordation fee of $3,500. Subject to acceptance and
recording thereof by the Administrative Agent pursuant to subsection
(c) of this Section, from and after the effective date specified in
each Assignment and Assumption, the Eligible Assignee thereunder shall
be a party to this Credit Agreement and, to the extent of the interest
assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Credit Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this
Credit Agreement (and, in the case of an Assignment and Assumption
covering all of the assigning Lender's rights and obligations under
this Credit Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of Sections 3.9, 3.12,
3.13, 3.14, and 11.5(b) with respect to facts and circumstances
occurring prior to the effective date of such assignment). Upon
request, the Borrower (at its expense) shall execute and deliver a Note
to the assignee Lender. Any assignment or transfer by a Lender of
rights or obligations under this Credit Agreement that does not comply
with this subsection shall be treated for purposes of this Credit
Agreement as a sale by such Lender of a participation in such rights
and obligations in accordance with subsection (d) of this Section.
(c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent's Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Credit Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(d) Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower's Affiliates or Subsidiaries) (each, a "Participant") in all or a portion of such Lender's rights and/or obligations under this Credit Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender's participations in L/C Obligations) owing to it); provided that (i) such Lender's obligations under this Credit Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Credit Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Credit Agreement and to approve any amendment, modification or waiver of any provision of this Credit Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 11.6 that directly affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.9, 3.12, 3.13 and 3.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by Law, each Participant also shall be entitled to the benefits of Section 3.7 as though it were a Lender, provided such Participant agrees to be subject to Section 3.8 as though it were a Lender.
(e) A Participant shall not be entitled to receive any greater payment under Section 3.9, 3.12, 3.13 or 3.14 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.13 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.13(f) as though it were a Lender.
(f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Credit Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g) Notwithstanding anything to the contrary contained herein,
any Lender (a "Granting Lender") may grant to a special purpose funding
vehicle identified as such in writing from time to time by the Granting
Lender to the Administrative Agent and the Borrower (an "SPC") the
option to provide all or any part of any Loan that such Granting Lender
would otherwise be obligated to make pursuant to this Credit Agreement;
provided that (i) nothing herein shall constitute a commitment by any
SPC to fund any Loan, and (ii) if an SPC elects not to exercise such
option or otherwise fails to make all or any part of such Loan, the
Granting Lender shall be obligated to make such Loan pursuant to the
terms hereof. Each party hereto hereby agrees that (A) neither the
grant to any SPC nor the exercise by any SPC of such option shall
increase the costs or expenses or otherwise increase or change the
obligations of the Borrower under this Credit Agreement (including its
obligations under Sections 3.9, 3.12, 3.13 and 3.14), (B) no SPC shall
be liable for any indemnity or similar payment obligation under this
Credit Agreement for which a Lender would be liable, and (C) the
Granting Lender shall for all purposes, including the approval of any
amendment, waiver or other modification of any provision of any Credit
Document, remain the lender of record hereunder. The making of a
Committed Loan by an SPC hereunder shall utilize the Commitment of the
Granting Lender to the same extent, and as if, such Loan were made by
such Granting Lender. In furtherance of the foregoing, each party
hereto hereby agrees (which agreement shall survive the termination of
this Credit Agreement) that, prior to the date that is one year and one
day after the payment in full of all outstanding commercial paper or
other senior debt of any SPC, it will not institute against, or join
any other Person in instituting against, such SPC any bankruptcy,
reorganization, arrangement, insolvency, or liquidation proceeding
under the Laws of the United States or any State thereof.
Notwithstanding anything to the contrary contained herein, any SPC may
(i) with notice to, but without prior consent of the Borrower and the
Administrative Agent and without paying any processing fee therefor,
assign all or any portion of its right to receive payment with respect
to any Loan to the Granting Lender and (ii) disclose on a confidential
basis any non-public information relating to its funding of Loans to
any rating agency, commercial paper dealer or provider of any surety or
guarantee or credit or liquidity enhancement to such SPC.
(i) Notwithstanding anything to the contrary contained herein, any Lender that is a Fund may create a security interest in all or any portion of the Loans owing to it and the Note, if any, held by it to the trustee for holders of obligations owed, or securities issued, by such Fund as security for such obligations or securities, provided that unless and until such trustee actually becomes a Lender in compliance with the other provisions of this Section 11.3, (i) no such pledge shall release the pledging Lender from any of its obligations under the Credit Documents and (ii) such trustee shall not be entitled to
exercise any of the rights of a Lender under the Credit Documents even though such trustee may have acquired ownership rights with respect to the pledged interest through foreclosure or otherwise.
(j) Notwithstanding anything to the contrary contained herein, if at any time a Lender that is also an L/C Issuer assigns all of its Commitment and Loans pursuant to subsection (b) above, such Lender may upon 30 days' notice to the Borrower and the Lenders, resign as L/C Issuer. In the event of any such resignation as L/C Issuer, the Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer hereunder; provided, however, that no failure by the Borrower to appoint any such successor shall affect the resignation of such Lender as L/C Issuer. If a Lender resigns as L/C Issuer, it shall retain all the rights and obligations of an L/C Issuer hereunder with respect to all Letters of Credit issued by it and outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Loans or fund risk participations pursuant to Section 2.2.
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand.
11.5 Attorney Costs, Expenses, Taxes and Indemnification by Borrower.
(a) The Borrower agrees (i) to pay or reimburse the Administrative Agent and the Arranger for all costs and expenses incurred in connection with the development, preparation, negotiation and execution of this Credit Agreement and the other Credit Documents and any amendment, waiver, consent or other modification of the provisions hereof and thereof (whether or not the transactions contemplated hereby or thereby are consummated), and the consummation and administration of the transactions contemplated hereby and thereby, including all reasonable fees and expenses of legal counsel, and (ii) to pay or reimburse the Administrative Agent and each Lender for all costs and expenses incurred in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Credit Agreement or the other Credit Documents (including all such costs and expenses incurred during any "workout" or restructuring in respect of the Borrower Obligations and during any legal proceeding, including any proceeding under any Debtor Relief Law), including all reasonable fees and expenses of legal counsel. The foregoing costs and
expenses shall include all search, filing, recording, and appraisal
charges and fees and taxes related thereto, and other out-of-pocket
expenses incurred by the Administrative Agent and the Arranger and the
cost of independent public accountants and other outside experts
retained by the Administrative Agent, the Arranger or any Lender. Other
than costs and expenses payable in connection with the closing of the
transactions contemplated by this Credit Agreement pursuant to Section
11.5(a) (which shall be payable on the Closing Date unless otherwise
agreed by the Administrative Agent and the Arranger), all amounts due
under this Section 11.5 shall be payable within ten Business Days after
demand therefor. The agreements in this Section shall survive the
termination of the Commitments and repayment of all other Borrower
Obligations.
(b) Whether or not the transactions contemplated hereby are consummated, the Borrower shall indemnify and hold harmless each Agent-Related Person, each Lender and their respective Affiliates, directors, officers, employees, counsel, agents and attorneys-in-fact (collectively the "Indemnitees") from and against any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses and disbursements (including the reasonable fees and expenses of legal counsel) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any such Indemnitee in any way relating to or arising out of or in connection with (i) the execution, delivery, enforcement, performance or administration of any Credit Document or any other agreement, letter or instrument delivered in connection with the transactions contemplated thereby or the consummation of the transactions contemplated thereby, (ii) any Commitment, Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by an L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), or (iii) any actual or alleged presence or release of Hazardous Substances on or from any property currently or formerly owned or operated by the Borrower, any Subsidiary of the Borrower, or any Environmental Claim related in any way to the Borrower or any Subsidiary of the Borrower, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding) and regardless of whether any Indemnitee is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"), in all cases, whether or not caused by or arising, in whole or in part, out of the negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Credit Agreement, nor shall any Indemnitee have any liability for any indirect or consequential damages relating to this Credit Agreement or any other Credit Document or arising out of its activities in connection herewith or therewith (whether before or
after the Closing Date). All amounts due under this Section 11.5 shall be payable within ten Business Days after demand therefor. The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all the other Borrower Obligations.
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement nor any other Credit Document nor any of the terms hereof or thereof may be amended, changed, waived, discharged or terminated unless such amendment, change, waiver, discharge or termination is in writing and signed by the Required Lenders and the Borrower; provided that no such amendment, change, waiver, discharge or termination shall, without the consent of each Lender directly affected thereby:
(a) extend the Maturity Date;
(b) reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates on the Revolving Loans or fees hereunder;
(c) reduce or waive the principal amount of any Revolving Loan or extend the time of payment thereof;
(d) increase or extend the Commitment of a Lender (it being understood and agreed that a waiver of any Default or Event of Default or a waiver of any mandatory reduction in the Commitments shall not constitute a change in the terms of any Commitment of any Lender);
(e) release the Borrower from its obligations or consent to the assignment or transfer by the Borrower of any of its rights and obligations under (or in respect of) the Credit Documents;
(f) amend, modify or waive any provision of this Section 11.6 or Sections 3.7, 3.8, 9.1(a), 11.2, 11.3 or 11.5; or
(g) reduce any percentage specified in, or otherwise modify, the definition of Required Lenders.
Notwithstanding the above, (i) no provision of Section 3.4(d) or
Section 10 may be amended or modified without the consent of the Administrative
Agent, (ii) no provision of this Credit Agreement or any other Credit Document
that addresses the rights or obligations of the Administrative Agent may be
amend or modified without prior written consent of the Administrative Agent and
(iii) no provision of Section 2.2 and no other provision of this Credit
Agreement or any other Credit Document that addresses the rights or obligations
of the L/C Issuers may be amended or modified without the prior written consent
of the L/C Issuers.
Each Lender understands and agrees that if such Lender is a Defaulting Lender then, notwithstanding the provisions of this Section 11.6, it shall not be entitled to vote on any matter requiring the consent of the Required Lenders or to object to any matter requiring the consent of all the Lenders; provided, however, that all other benefits and obligations under the Credit Documents shall apply to such Defaulting Lender.
Notwithstanding the fact that the consent of all the Lenders is
required in certain circumstances as set forth above, (A) each Lender is
entitled to vote as such Lender sees fit on any reorganization plan that affects
the Borrower Obligations, and each Lender acknowledges that the provisions of
Section 1126(c) of the Bankruptcy Code supersede the unanimous consent
provisions set forth herein and (B) the Required Lenders may consent to allow a
Borrower to use cash collateral in the context of a bankruptcy or insolvency
proceeding.
11.7 Counterparts.
This Credit Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument.
11.8 Headings.
The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Credit Agreement.
11.9 Survival of Indemnification and Representations and Warranties.
(a) Survival of Indemnification. All indemnities set forth herein shall survive the execution and delivery of this Credit Agreement, the making of any Credit Extension and the repayment of the Revolving Loans and other Borrower Obligations and the termination of the Commitments hereunder.
(b) Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Credit Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or Event of Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Borrower Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
11.10 Governing Law; Venue; Service.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES). Any legal action or proceeding with respect to this Credit Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Credit Agreement, the Borrower hereby irrevocably accepts for itself and in respect of its Property, generally and unconditionally, the jurisdiction of such courts.
(b) The Borrower irrevocably consents to the service of process in any action or proceeding with respect to this Credit Agreement or any other Credit Document by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address for notices pursuant to Section 11.1, such service to become effective ten days after such mailing. Nothing herein shall affect the right of a Lender to serve process in any other manner permitted by Law.
11.11 Waiver of Jury Trial; Waiver of Consequential Damages.
EACH OF THE PARTIES TO THIS CREDIT AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. Each of the parties to this Credit Agreement agrees not to assert any claim against any other party hereto, Administrative Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to any of the transactions contemplated herein and in the other Credit Documents.
11.12 Severability.
If any provision of any of the Credit Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
11.13 Further Assurances.
The Borrower agrees, upon the request of the Administrative Agent, to promptly take such actions, as reasonably requested, as is necessary to carry out the intent of this Credit Agreement and the other Credit Documents.
11.14 Confidentiality.
Each Lender agrees that it will use reasonable efforts to keep confidential any non-public information from time to time supplied to it under any Credit Document; provided, however, that nothing herein shall prevent the disclosure of any such information to (a) the extent a Lender in good faith
believes such disclosure is required by Law or judicial process, (b) counsel for
a Lender or to its accountants, (c) bank examiners or auditors or comparable
Persons, (d) any Affiliate of a Lender, (e) any other Lender, or any assignee,
transferee or Participant, or any potential assignee, transferee or Participant,
of all or any portion of any Lender's rights under this Credit Agreement who is
notified of the confidential nature of such information or (f) any other Person
in connection with (i) any litigation to which any one or more of the Lenders is
a party if required by a court of Law of competent jurisdiction or (ii) any
proceeding to enforce such Lender's rights hereunder, under any other Credit
Document or under any Hedging Agreement. No Lender shall have any obligation
under this Section 11.14 to the extent any such information becomes available on
a non-confidential basis from a source other than a Borrower or that any
information becomes publicly available other than by a breach of this Section
11.14 by any Lender or representative thereof. Notwithstanding anything herein
to the contrary, "Information" shall not include, and the Borrower, the
Administrative Agent, each Lender and the respective Affiliates of each of the
foregoing (and the respective partners, directors, officers, employees, agents,
advisors and other representatives of each of the foregoing and their
Affiliates) may disclose to any and all Persons, without limitation of any kind
(a) any information with respect to the U.S. federal and state income tax
treatment of the transactions contemplated hereby and any facts that may be
relevant to understanding such tax treatment, which facts shall not include for
this purpose the names of the parties or any other Person named herein, or
information that would permit identification of the parties or such other
Persons, or any pricing terms or other nonpublic business or financial
information that is unrelated to such tax treatment or facts, and (b) all
materials of any kind (including opinions or other tax analyses) relating to
such tax treatment or facts that are provided to any of the Persons referred to
above.
11.15 Entirety.
This Credit Agreement together with the other Credit Documents, the Fee Letter and any confidentiality agreements between the Borrower and any Lender represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Credit Documents or the transactions contemplated herein and therein.
11.16 Binding Effect; Continuing Agreement.
(a) This Credit Agreement shall become effective at such time when all of the conditions set forth in Section 5.1 have been satisfied or waived by the Lenders and it shall have been executed by the Borrower and the Administrative Agent, and the Administrative Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter this Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns.
(b) This Credit Agreement shall be a continuing agreement and shall remain in full force and effect until all Revolving Loans, interest, fees and other Borrower Obligations have been paid in full and all Letters of Credit and Commitments have been terminated. Upon termination, the Borrower shall have no further obligations (other than the indemnification provisions and other provisions that by their terms survive) under the Credit Documents; provided that should any payment,
in whole or in part, of the Borrower Obligations be rescinded or otherwise required to be restored or returned by the Administrative Agent or any Lender, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, then the Credit Documents shall automatically be reinstated and all amounts required to be restored or returned and all costs and expenses incurred by the Administrative Agent or any Lender in connection therewith shall be deemed included as part of the Borrower Obligations.
11.17 Regulatory Statement.
Pursuant to the terms of an order issued by the New Mexico Public Regulation Commission, the Borrower is required to include the following separateness covenants in any debt instrument:
(a) The Borrower and its corporate parent, PNM Resources, Inc. ("Parent") are being operated as separate corporate and legal entities. In agreeing to make loans to Parent, Parent's lenders are relying solely on the creditworthiness of Parent based on the assets owned by Parent, and the repayment of the loan will be made solely from the assets of Parent and not from any assets of the Borrower; and the Parent's lenders will not take any steps for the purpose of procuring the appointment of an administrative receiver or the making of an administrative order for instituting any bankruptcy, reorganization, insolvency, wind up or liquidation or any like proceeding under applicable law in respect of the Borrower.
(b) Notwithstanding any of the foregoing set forth in this Section
11.17, the Borrower and the Lenders hereby acknowledge and agree that (i) this
Credit Agreement and the Revolving Notes evidence Indebtedness of the Borrower
and not of the Parent, (ii) the Lenders are not, and shall not at any time be
deemed to be, "Parent's lenders" under this Credit Agreement and the Revolving
Notes and the foregoing covenants are therefore wholly inapplicable and
ineffective under the terms of this Credit Agreement and the Revolving Notes,
(iii) as set forth in this Credit Agreement and the Revolving Notes, the
Borrower is responsible for the repayment of all amounts outstanding hereunder,
(iv) the Lenders reserve all rights to pursue any and all remedies available at
law and otherwise (including, without limitation, in bankruptcy) should the
Borrower breach any of the its obligations under this Credit Agreement and/or
the Revolving Notes.
11.18 USA Patriot Act Notice.
Each Lender and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Signature Page to Credit Agreement Public Service Company of New Mexico
Each of the parties hereto has caused a counterpart of this Credit Agreement to be duly executed and delivered as of the date first above written.
BORROWER:
PUBLIC SERVICE COMPANY OF NEW MEXICO,
a New Mexico corporation
By: /s/ T. R. Horn
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Name: T.R. Horn
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Title: Vice President and Treasurer
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Signature Page to Credit Agreement Public Service Company of New Mexico
BANK OF AMERICA, N.A.,
individually in its capacity as a Lender and in
its capacity as Administrative Agent and L/C Issuer
By: /s/ Michelle A. Schoenfeld
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Name: Michelle A. Schoenfeld
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Title: Principal
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WACHOVIA BANK, NATIONAL ASSOCIATION,
individually in its capacity as a Lender and L/C Issuer
By: /s/ Mark D. Weir
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Name: Mark D. Weir
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Title: Vice President
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|
Exhibit 10.75
PNM RESOURCES, INC.
EXECUTIVE SAVINGS PLAN
(Restatement and Amendment, January 1, 2004)
PNM RESOURCES, INC.
EXECUTIVE SAVINGS PLAN
The Public Service Company of New Mexico Executive Savings Plan (the "Plan") was originally effective as of July 1, 1998. PNM Resources, Inc. (the "Company") became the parent holding company for Public Service Company of New Mexico as of December 31, 2001. Effective as of November 27, 2002, the Company assumed the sponsorship of the Plan and renamed it the "PNM Resources, Inc. Executive Savings Plan." Most recently, the Plan was amended and restated in its entirety, effective as of January 1, 2003.
The Plan is maintained for the purpose of permitting certain key employees of the Company and its affiliates who participate in the PNM Resources, Inc. Retirement Savings Plan (the "RSP") to defer compensation and receive credits under this Plan without reference to the limitations on contributions in the RSP or those imposed by the Internal Revenue Code of 1986, as amended. By this document, the Company amends and restates the Plan in its entirety, effective as of January 1, 2004.
ARTICLE I
DEFINITIONS
When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not begin a sentence, the word or phrase shall generally be a term defined in this Article I. The following words and phrases used in the Plan with the initial letter capitalized shall have the meanings set forth in this Article I, unless a clearly different meaning is required by the context in which the word or phrase is used or the word or phrase is defined for a limited purpose elsewhere in this Plan document:
1.1 "Benefits Department" means the organizational unit of the Company with responsibility for administering benefit programs.
1.2 "Board" means the Board of Directors of the Company, or any authorized committee of the Board.
1.3 "Change in Control" shall have the meaning ascribed to that term in the Employee Retention Plan.
1.4 "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.
1.5 "Committee" means the committee appointed pursuant to
Section 6.1 (Appointment of Committee) to assume certain designated
responsibilities in connection with the Plan.
1.6 "Company" means PNM Resources, Inc., or any affiliate of the Company that is authorized by the Board of Directors to adopt the Plan and which has adopted the Plan, and, to the extent provided in Section 8.8 (Successors) below, any successor corporation or other entity resulting from a merger or consolidation into or with the Company or a transfer or sale of substantially all of the assets of the Company. Affiliates that adopted the Plan prior to the
assumption of the sponsorship of the Plan by the Company, including Public Service Company of New Mexico, shall continue to participate in the Plan.
1.7 "Company Stock" means common stock issued by the Company.
1.8 "Company Stock Fund" means the hypothetical Investment Fund described in Section 4.3 (Special Company Stock Fund Provisions).
1.9 "Compensation" for purposes of determining the Matching and Standard Credits, means the Participant's base salary and other elements of compensation that are considered under the RSP (as it may be amended from time to time) for purposes of calculating the Participant's RSP Employer and Matching Contributions, respectively. For purposes of determining the amount of a Participant's permissible Supplemental Deferrals, "Compensation" means the Participant's base salary and other elements of compensation that are considered under the RSP (as it may be amended from time to time) for purposes of calculating the Participant's RSP pre-tax contributions.
1.10 "Discretionary Credit Account" means the account maintained under the Plan to record the amounts credited to a Participant in accordance with Section 3.4 (Discretionary Credits).
1.11 "Discretionary Credits" means the Discretionary Credits
allocated to a Participant's Discretionary Credit Account in accordance with
Section 3.4 (Discretionary Credits).
1.12 "Distribution Election Form" means the election form by which a Participant elects the manner in which his Accounts shall be distributed pursuant to Section 5.2 (Form of Distribution).
1.13 "Employee Retention Plan" means the PNM Resources, Inc. Employee Retention Plan, as it may be amended or replaced from time to time.
1.14 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulations promulgated thereunder.
1.15 "Investment Fund" means the hypothetical investment fund or funds established by the Plan Administrator pursuant to Article IV (Investment of Accounts).
1.16 "Matching Credit Account" means the account maintained under the Plan to record the amounts credited to a Participant in accordance with Section 3.3(a) (Matching and Standard Credits - Matching Credit).
1.17 "Matching Credits" means the Matching Credits allocated to a Participant's Matching Credit Account in accordance with Section 3.3(a) (Matching and Standard Credits - Matching Credit).
1.18 "Normal Retirement Date" means the date on which a Participant attains the age of 62 years.
1.19 "Participant" means an employee of the Company or any affiliate who has been designated or selected for participation in the Plan pursuant to Section 2.2 (Selection of Participants) and to whom or with respect to whom amounts may be credited under the Plan.
1.20 "Plan" means the PNM Resources, Inc. Executive Savings Plan, as set forth herein.
1.21 "Plan Administrator" means the Company. Any action to be taken by the Plan Administrator may be taken by the Company's senior human resources officer. In addition, the Company's senior human resources officer may delegate such authority to the Benefits Department.
1.22 "Plan Year" means the calendar year.
1.23 "Recordkeeper" means the entity selected by the Company to keep Plan records and to adjust Accounts pursuant to Section 4.1 (Adjustment of Accounts) of the Plan.
1.24 "RSP" means the PNM Resources, Inc. Retirement Savings Plan, as it may be amended from time to time.
1.25 "RSP Employer Contribution" means the discretionary contributions made by the Company for the benefit of a Participant under and in accordance with the terms of the RSP in any Plan Year.
1.26 "Standard Credit Account" means the account maintained under the Plan to record the amounts credited to a Participant in accordance with Section 3.3(b) (Matching and Standard Credits - Standard Credit).
1.27 "Standard Credits" means the Standard Credits allocated to a Participant's Standard Credit Account in accordance with Section 3.3(b) (Matching and Standard Credits - Standard Credit).
1.28 "Supplemental Deferral Account" means the account maintained under the Plan to record amounts deferred under Section 3.2 (Supplemental Deferrals) of the Plan.
1.29 "Supplemental Deferral Agreement" means the written deferral agreement described in Section 3.1 (Supplemental Deferral Agreement) that is entered into by a Participant with the Company pursuant to this Plan.
1.30 "Supplemental Deferrals" means the deferrals made by a Participant in accordance with Section 3.2 (Supplemental Deferrals).
1.31 "Valuation Date" shall mean each business day of the Plan Year.
ARTICLE II
ELIGIBILITY; ADOPTION BY AFFILIATES
2.1 The Eligible Class. The purpose of the Plan is to provide deferred compensation to a select group of management or highly compensated employees. This group of eligible employees is sometimes referred to as the "top hat group."
2.2 Selection of Participants. Any employees of the Company or an adopting affiliate who are Participants in the Plan on the date of adoption of this amended and restated Plan document will continue as such, subject to the provisions of Section 2.3 (Discontinuance of Participation). Effective January 1, 2002, any employee who is classified as an "officer" of the Company or an adopting affiliate shall be a Participant. For this purpose, an "officer" is someone who occupies the position of Vice President or higher. The Plan Administrator, in the exercise of its discretion, and with the concurrence of the Company and/or its Board of Directors, may select as Participants any other employees of the Company or an adopting affiliate who the Plan Administrator concludes, in the exercise of its discretion, are properly included in the top hat group. As noted in Section 2.1 (The Eligible Class), this Plan is intended to provide benefits only to members of the top hat group. The Company has determined that all of the current officers are properly includible in the top hat group.
2.3 Discontinuance of Participation. As a general rule, once an individual is a Participant, he will continue as such for all future Plan Years until his retirement or other termination of employment. The Plan Administrator shall discontinue an individual's participation in the Plan if the Plan Administrator concludes, in the exercise of its discretion, that the individual is no longer properly included in the top hat group. If an individual's participation is discontinued, the individual will no longer be eligible to make deferrals or receive credits under this Plan. The individual will not be entitled to receive a distribution, however, until the termination of his employment, unless the Plan Administrator, in the exercise of its discretion, directs that a distribution be made as of an earlier date, in which case the individual's Accounts shall be distributed on the same basis as if the individual's employment had been terminated. The Participant's Accounts will continue to be adjusted to reflect hypothetical investment earnings or losses in accordance with Section 4.1 (Adjustment of Accounts) until the Accounts are distributed.
2.4 Adoption by Affiliates. An employee of an affiliate may not become a Participant in the Plan unless the affiliate has previously adopted the Plan. An affiliate of the Company may adopt this Plan only with the approval of the Board. By adopting this Plan, the affiliate shall be deemed to have agreed to assume the obligations and liabilities imposed upon it by this Plan, agreed to comply with all of the other terms and provisions of this Plan, delegated to the Plan Administrator, the Benefits Department, and the Committee the power and responsibility to administer this Plan with respect to the affiliate's employees, and delegated to the Company the full power to amend or terminate this Plan with respect to the affiliate's employees.
ARTICLE III
DEFERRALS AND CREDITS
3.1 Supplemental Deferral Agreement. In order to make Supplemental Deferrals, a Participant must execute a Supplemental Deferral Agreement in the form prescribed by the Benefits Department from time to time. In the Supplemental Deferral Agreement, the Participant shall agree to reduce his Compensation in exchange for a Supplemental Deferral in the same amount. The Supplemental Deferral Agreement shall be delivered to the Benefits Department by the time specified in Section 3.2(b) (Supplemental Deferrals - Timing of Elections).
3.2 Supplemental Deferrals.
(a) Amount. Any Participant may elect to defer, pursuant to a Supplemental Deferral Agreement, the receipt of all or any portion (designated in whole percentages) of the Compensation otherwise payable to him or her by the Company or an adopting affiliate in any Plan Year. The amount deferred pursuant to this paragraph (a) shall be allocated to the Supplemental Deferral Account maintained for the Participant for such Plan Year.
(b) Timing of Elections. As a general rule, the Supplemental Deferral Agreement shall be signed by the Participant and delivered to the Benefits Department prior to January 1 of the Plan Year in which the Compensation to be deferred is otherwise payable to the Participant. The Supplemental Deferral Agreement will indicate whether it is to be effective for a single Plan Year or will remain in effect until properly changed by the Participant. For the Plan Year in which a Participant first becomes eligible to participate in the Plan, the Participant may elect to make Supplemental Deferrals from Compensation otherwise payable in the future during the then current Plan Year by signing and delivering a Supplemental Deferral Agreement within 30 days after the date on which he or she is notified by the Benefits Department that he or she is eligible to participate. Subject to the following, an election made by a Participant shall be irrevocable with respect to the Plan Year covered by the election. One time per Plan Year, a Participant may modify or revoke the election effective for the subsequent calendar quarters of the Plan Year by delivering to the Benefits Department a written instrument prior to the first day of the next calendar quarter of the Plan Year (i.e., April 1, July 1, or October 1) for which such modification or revocation is to be effective. Notwithstanding the foregoing sentence, the elections contained in a Supplemental Deferral Agreement shall be irrevocable for the Plan Year covered by the election for purposes of the election to defer Compensation attributable to annual bonuses, awards, or incentive compensation paid to a Participant.
3.3 Matching and Standard Credits. Each Plan Year (or more frequently), the Recordkeeper shall allocate Matching and Standard Credits to the Participant's Matching Credit Account and Standard Credit Account.
(a) Matching Credit. The Matching Credit shall be in an amount equal to 75% of the first six percent of Compensation deferred by the Participant to the Plan pursuant to a Supplemental Deferral Agreement. A Participant shall be eligible to receive a Matching Credit under this Plan only if such Participant has met the service requirements necessary to receive matching contributions under the terms of the RSP.
(b) Standard Credit. The Standard Credit shall equal (i) the RSP Employer Contribution that would have been made on the Participant's behalf to the RSP for the Plan Year if the contributions were not limited by the Code (including, particularly, the limitations imposed by Sections 401(a)(17) and 415 of the Code), reduced by (ii) the RSP Employer Contribution actually made to the RSP on behalf of the Participant in the Plan Year.
3.4 Discretionary Credits. In its sole and absolute discretion, the Human Resources and Compensation Committee may instruct the Recordkeeper to allocate Discretionary Employer Credits to a Participant's Discretionary Credit Account at any time during a Plan Year in any amount that the Human Resources and Compensation Committee deems appropriate.
3.5 Termination During the Plan Year. A Participant need not be employed by the Company on the last day of the Plan Year in order to receive the credits called for by this Article III (Deferrals and Credits).
3.6 Benefits Not Contingent. Deferrals and credits for any Participant under this Plan are not increased or decreased to the extent a Participant makes or does not make deferrals under the RSP.
3.7 Allocation Among Affiliates. Each affiliate that participates in the Plan shall bear the costs and expenses of providing benefits accrued by its employee-Participants during periods while they are employed by that affiliate. Such costs and expenses shall be allocated among the participating affiliates in accordance with (a) agreements entered into between the Company and any participating affiliate, or (b) in the absence of such an agreement, procedures adopted by the Company.
ARTICLE IV
INVESTMENT OF ACCOUNTS
4.1 Adjustment of Accounts. Except as otherwise provided elsewhere in the Plan, as of each Valuation Date, each Participant's Accounts will be adjusted to reflect deferrals and credits under Article III (Deferrals and Credits) and the positive or negative rate of return on the Investment Funds selected by the Participant pursuant to Section 4.2(b) (Investment Direction - Participant Directions). The rate of return will be determined by the Recordkeeper pursuant to Section 4.2(f) (Investment Direction - Rate of Return) and will be credited or charged in accordance with written policies applied to all Participants. While the Accounts will be adjusted as of each Valuation Date, the Recordkeeper shall only post the adjustments as of the last business day of each month.
4.2 Investment Direction.
(a) Investment Funds. Each Participant may direct the hypothetical investment of amounts credited to his Accounts in one or more of the Investment Funds. The Investment Funds shall include a Company Stock Fund and such other investment funds as may be available under the RSP. The Investment Funds may be changed from time to time by the Company's Corporate Investment Committee, in its discretion.
(b) Participant Directions. Upon becoming a Participant in the Plan, each Participant may direct that all of the amounts attributable to his Accounts be invested in a single Investment Fund or may direct that fractional (percentage) increments of his Accounts be invested in such fund or funds as he shall desire in accordance with such procedures as may be established by the Company's Corporate Investment Committee. Unless such committee prescribes otherwise, such procedures shall mirror the procedures established under the RSP for participant investment direction. A Participant's ability to direct investments into or out of the Company Stock Fund shall be subject to such procedures as the Company's General Counsel (or his delegate) may prescribe from time to time to assure compliance with Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended, and other applicable requirements. Such procedures also may limit or restrict a Participant's ability to make (or modify previously made) elections.
(c) Changes and Intra-Fund Transfers. Participant
investment directions may be changed, and amounts may be transferred from one
hypothetical Investment Fund to another, in accordance with the procedures
established by the Company's Corporate Investment Committee (or, in the case of
the Company Stock Fund, the Company's General Counsel) pursuant to Section
4.2(b) (Investment Direction - Participant Directions). The designation will
continue until changed by the timely submission of a new designation.
(d) Default Selection. In the absence of any designation, a Participant will be deemed to have directed the investment of his Accounts in such Investment Funds as the Company's Corporate Investment Committee, in its sole and absolute discretion, shall determine.
(e) Impact of Election. The Participant's selection of
Investment Funds shall serve only as a measurement of the value of the
Participant's Accounts pursuant to Section 4.1 (Adjustment of Accounts) and this
Section 4.2 and neither the Company nor the Committee are required to actually
invest a Participant's Accounts in accordance with the Participant's selections.
(f) Rate of Return. Accounts shall be adjusted on each Valuation Date to reflect investment gains and losses as if the Accounts were invested in the hypothetical Investment Funds selected by the Participants in accordance with this Section 4.2 and charged with any and all reasonable expenses related to the administration of the Plan including, but not limited to, the reasonable expenses of carrying out the hypothetical investment directions related to each account. The earnings and losses determined by the Recordkeeper in good faith and in its discretion pursuant to this Section shall be binding and conclusive on the Participant, the Participant's beneficiary and all parties claiming through them.
(g) Charges. The Committee may direct the Recordkeeper to charge each Participant's Accounts for the reasonable expenses of carrying out investment instructions directly related to such Accounts.
4.3 Special Company Stock Fund Provisions.
(a) General. A Participant's interest in the Company Stock Fund shall be expressed in whole and fractional hypothetical units of the
Company Stock Fund. As a general matter, the Company Stock Fund shall track an investment in Company Stock in the same manner as the RSP's company stock fund. Accordingly, the value of a unit in the Plan's Company Stock Fund shall be the same as the value of a unit in the RSP's company stock fund.
(b) Dividends and Stock Splits. If a cash dividend is declared on Company Stock, the hypothetical equivalent cash dividends attributable to the notional shares held in the Company Stock Fund shall be "reinvested" into the Company Stock Fund. If a stock dividend or share split is declared with respect to Company Stock, a hypothetical equivalent stock dividend or stock split attributable to the notional shares held in the Company Stock Fund, or any hypothetical securities issued with respect to the Company Stock Fund shall be allocated to the Company Stock Fund. All such hypothetical dividends (cash or stock) or stock splits shall be reflected appropriately in the Participant's Accounts.
4.4 Compliance with Securities Laws. Any election by a Participant to hypothetically invest any amount in the Company Stock Fund, and any elections to transfer amounts from or to the Company Stock Fund to or from any other Investment Fund, shall be subject to all applicable securities law requirements, including but not limited to Rule 16b-3 promulgated by the Securities Exchange Commission. To the extent that any election violates any securities law requirement, the election shall be void.
ARTICLE V
DISTRIBUTIONS
5.1 Right to Receive Distribution. Following a Participant's termination of employment for any reason, the Participant's interest in this Plan will be distributed to the Participant at the time and in the manner provided in Sections 5.4 (Timing of Distribution) and 5.2 (Form of Distribution). A transfer of a Participant from the Company to an affiliate that is authorized by the Board of Directors to adopt the Plan and that has adopted the Plan shall not be deemed a termination and such transfer shall not trigger a distribution of benefits under this Plan.
5.2 Form of Distribution.
(a) Company Stock Fund. Subject to Section 5.2(c) (Form of Distribution - Limitations on Distributions and Intra-Fund Transfers), the portion of a Participant's Accounts that is allocated to the Company Stock Fund shall be distributed in a single lump sum cash payment or in whole shares of Company Stock (with fractional shares paid for in cash) as elected by the Participant. The election to receive cash or Company Stock shall be made at the time and in the manner provided in the form prescribed by the Benefits Department from time to time for that purpose. Any election made by a Participant pursuant to this Section with respect to a distribution from the Company Stock Fund shall be subject to all applicable securities law requirements, including but not limited to, Rule 16b-3. Any election that may not be implemented due to the lack of any available exemption shall be void. The Benefits Department may then make the distribution in any fashion that will not result in a violation of any applicable securities law requirements. The Benefits Department also may delay the distribution if necessary. An exemption to the securities law requirements that is only available with the prior approval of the Board, the shareholders, or some other individual or individuals, shall not be considered to be available unless such approval is actually granted in a timely manner.
(b) Non-Company Stock Investment Funds. Subject to Section
5.2(c) (Form of Distribution - Limitations on Distributions and Intra-Fund
Transfers), the portion of a Participant's Accounts that is not allocated to the
Company Stock Fund shall be distributed in cash in a single lump sum payment,
installments, or in the form of an annuity. Installments and annuity
distributions shall be subject to such uniform rules and procedures as may be
adopted by the Plan Administrator from time to time. The method of payment shall
be selected by the Participant in the initial Distribution Election Form (which
may be contained in a Supplemental Deferral Agreement) submitted by the
Participant to the Benefits Department on entry into the Plan or following the
adoption of this amended and restated Plan, whichever is later. A Participant
may change his distribution election by filing a new Distribution Election Form
with the Benefits Department. A revised Distribution Election Form will be
honored only if at least one year elapses between (1) the date on which such new
Distribution Election Form is filed with the Benefits Department and (2) the
date on which the Participant terminates employment with the Company. If a
revised Distribution Election Form is not honored because it was not timely
filed, distributions shall be made pursuant to the most recent Distribution
Election Form filed by the Participant at least one year prior to the
Participant's termination. If no valid Distribution Election Form exists (or if
the only valid form was filed within the one year period described above), the
Participant's Accounts will be distributed in a single lump sum.
(c) Limitations on Distributions and Intra-Fund Transfers. Amounts transferred pursuant to Section 4.2(c) (Investment Direction - Changes and Intra-Fund Transfers) to or from the Company Stock Fund shall, for a one-year period, continue to be subject to the distribution elections applicable to such amounts (as adjusted for earnings or losses) pursuant to Sections 5.2(a) (Form of Distribution - Company Stock Fund) and 5.2(b) (Form of Distribution - Non-Company Stock Investment Funds) as if no transfer had taken place. For example, if a Participant transfers $25,000 to the Company Stock Fund from other Investment Funds on January 1, 2004, then that transferred $25,000, as adjusted for subsequent earnings or losses, shall continue to be distributable in cash pursuant to the distribution method elected pursuant to Section 5.2(b) until January 1, 2005. If the Participant had transferred $25,000 from the Company Stock Fund into the other Investment Funds, then the transferred amount, as adjusted for subsequent earnings or losses, could be distributable in cash in the form of a lump sum pursuant to Section 5.2(a) (Form of Distribution - Company Stock Fund) until January 1, 2005. Only amounts actually invested in the Company Stock Fund, for the requisite one-year period, however, may be distributable in Company Stock.
5.3 Amount of Distribution. The amount distributed to a Participant shall equal the sum of the amounts credited to the Participant's Accounts as of the quarterly Valuation Date next following the Participant's termination of employment. For purposes of this Plan, a "quarterly Valuation Date" is a Valuation Date that coincides with the last business day of a calendar quarter. Amounts invested in the Company Stock Fund that are distributed in cash shall be valued at the fair market value of the Company Stock on the relevant Valuation Date. Similarly, amounts that are distributed in the form of Company Stock shall be valued at the fair market value of the Company Stock on the relevant Valuation Date.
5.4 Timing of Distribution. As a general rule, funds will be distributed within an administratively reasonable period of time (generally ten working days) following the appropriate quarterly Valuation Date, unless prohibited by the Company's cash position.
5.5 Accelerated Withdrawals. A Participant who is a current
employee may elect to receive an accelerated withdrawal of the entire portion of
his Accounts that is subject to accelerated withdrawal pursuant to Section
5.5(a) (Accelerated Withdrawals - Amount of Withdrawal) by filing a written
election with the Benefits Department. Only one accelerated withdrawal may be
elected during any 12-month period. Accelerated withdrawals of amounts allocated
to the Company Stock Fund may be limited as described in paragraph (a).
Participants who have terminated employment, regardless of whether they have
elected or begun receiving installment or annuity payments pursuant to Section
4.2(b) (Investment Direction - Participant Directions), may not elect to receive
an accelerated withdrawal.
(a) Amount of Withdrawal. An accelerated withdrawal pursuant to this Section 5.5 shall be limited to the lesser of (1) 50% of the value of the Participant's Accounts, including any amounts invested in the Company Stock Fund, or (2) the amount that may be charged against the Participant's Accounts pursuant to Section 5.5(d) (Accelerated Withdrawals - Allocation of Amount Withdrawn and Forfeiture). For purposes of determining the amount to be distributed, the Participant's Accounts shall be valued as of the effective date of the withdrawal and shall be paid as soon as reasonably possible thereafter.
(b) Forfeiture. A Participant who elects an accelerated withdrawal pursuant to this Section 5.5 shall forfeit an amount equal to 10% of the amount withdrawn as of the day on which the accelerated withdrawal is distributed to the Participant.
(c) Suspension of Participation. Any Participant who elects to receive an accelerated withdrawal pursuant to this Section 5.5 shall be suspended from making Supplemental Deferrals or receiving Supplemental Matching or Employer Credits for 12 months from the date that the accelerated withdrawal is paid to the Participant. Upon expiration of the 12-month suspension period, the Participant shall be permitted to execute a new Supplemental Deferral Agreement pursuant to Section 3.2(b) (Supplemental Deferrals - Timing of Elections) and to begin making Supplemental Deferrals as of the first day of the first payroll period in any subsequent calendar quarter of the Plan Year.
(d) Allocation of Amount Withdrawn and Forfeiture. The amount withdrawn and any forfeiture will be charged to the Participant's Accounts in accordance with such procedures as may be adopted from time to time by the Plan Administrator. Withdrawals from the Company Stock Fund, however, shall be subject to such procedures as the Company's General Counsel (or his delegate) may prescribe from time to time to assure compliance with Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended, and other applicable securities law requirements. If the Participant is unable, pursuant to the preceding sentence, to withdraw amounts invested in the Company Stock Fund, then (1) no portion of the withdrawal or forfeiture will be charged against the amount allocated to the Company Stock Fund, and (2) the withdrawal and forfeiture shall be limited to the amount of the Participant's Accounts that are invested in Investment Funds other than the Company Stock Fund.
5.6 Beneficiary Designation. If a Participant should die before receiving a full distribution of his or her Accounts, distribution shall be made to the beneficiary designated by the Participant. If a Participant has
not designated a beneficiary, or if no designated beneficiary is living on the date of distribution, such amounts shall be distributed to those persons entitled to receive distributions of the Participant's Accounts under the RSP. The distributions made under this Plan shall be made in a lump sum.
5.7 Withholding. All distributions will be subject to all applicable tax and withholding requirements.
5.8 Deductibility. All amounts distributed from the Plan are intended to be deductible by the Company or the appropriate adopting affiliate. If all or any portion of a distribution will not be deductible, the payment of the nondeductible portion will be postponed until the first year in which it may be deducted. The distribution will be made during the first 60 days of such year. The unpaid amounts will continue to be adjusted pursuant to Article IV (Investment of Accounts) until the Accounts have been distributed.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.1 Appointment of Committee. The Company's Benefits Governance Committee, referred to in this Plan as the "Committee," shall have authority to administer the Plan. The Committee shall consist of such members as may be appointed by the Company. The Company may remove any member of the Committee at any time and a member may resign by written notice to the Company. Any vacancy in the membership of the Committee shall be filled by appointment made by the Company, but pending the filling of such vacancy the existing members of the Committee may act hereunder as though they alone constitute the full Committee. The Company may delegate its authority under this Section 6.1 to the Company's Chief Executive Officer.
6.2 Majority Rule and Delegation of Ministerial Acts. Any and all acts and decisions of the Committee shall, if there is more than one member, be by at least a majority of the current members, but the Committee may delegate to any one or more of its members or any other person the authority to sign notices or other documents on its behalf or to perform ministerial acts for it, in which event any other person may accept such notice, document or act without question as having been authorized by the Committee. If the majority of the current members of the Committee are unable to agree to an act or decision, the Committee shall seek instructions from the Company.
6.3 Meetings. The Committee may, but need not, call or hold formal meetings, and any decisions made or actions taken pursuant to written approval of a majority of the current members shall be sufficient. The Committee shall maintain adequate records of its decisions and those records shall be subject to inspection by the Company. Also, the Committee may designate one of its members as Chairman, and one of its members as Secretary, and may establish policies and procedures governing it so long as the same are not inconsistent with the terms of this Plan.
6.4 General Powers and Duties.
(a) General. The Committee shall perform the duties and exercise the powers and discretion given to it in this Plan document and its decisions and actions shall be final and conclusive as to all persons affected
thereby. The Company and the adopting affiliates shall furnish the Committee with all data and information that the Committee may reasonably require in order to perform its functions. The Committee may rely without question upon any such data or information.
(b) Disputes. Any and all disputes that may arise involving Participants or beneficiaries shall be referred to the Committee and its decision shall be final. Furthermore, if any question arises as to the meaning, interpretation or application of any provisions of this Plan, the decision of the Committee shall be final.
(c) Conflicts of Interests. Notwithstanding any other provision of this Plan, during any period in which two or more Committee members are acting, no member of the Committee shall vote or act as a member of the Committee upon any matter involving the member's own rights, benefits or other participation hereunder. If a member of the Committee is recused pursuant to the preceding sentence, then the remaining Committee members may act as if they alone constitute the full Committee.
(d) Agents. The Committee may engage agents, including actuaries, to assist it and may engage legal counsel who may be counsel for the Company. The Committee shall not be responsible for any action taken or omitted to be taken on the advice of such counsel, including written opinions or certificates of any agent, counsel, actuary or physician.
(e) Insurance. At the Committee's request, the Company shall purchase liability insurance to cover the members of the Committee in their activities as the Committee.
(f) Allocations. The Committee is given specific authority to allocate and revoke responsibilities among its members. When the Committee has allocated authority pursuant to this paragraph, the Committee is not to be liable for the acts or omissions of the party to whom such responsibility has been allocated.
(g) Records. The Benefits Department shall supervise the establishment and maintenance of records by the Recordkeeper, the Company and each adopting affiliate containing all relevant data pertaining to any person affected hereby and his or her rights under this Plan. In addition, the Committee may, in its discretion, establish a system for complete or partial electronic administration of the Plan and may replace any written documents described in this Plan with electronic counterparts as it deems appropriate.
(h) Interpretations. The Committee, in its sole discretion, shall interpret and construe the provisions of the Plan (and any underlying documents or policies).
(i) Accounts. The Committee (or Recordkeeper, as appropriate) shall combine the various Accounts of a Participant if it deems such action appropriate. Furthermore, the Committee (or Recordkeeper, as appropriate) shall divide a Participant's Accounts into sub-accounts if it deems such action appropriate.
The foregoing list of powers and duties is not intended to be exhaustive, and the Committee shall, in addition, exercise such other powers and perform such other duties as it may deem advisable in the administration of the Plan, unless such powers or duties are assigned to another pursuant to the provisions of the Plan.
6.5 Claims.
(a) Initial Claim. A claim for benefits by a Participant,
beneficiary or any other person (all of whom are referred to in this Section as
a "Claimant") under this Plan must be submitted to the Benefits Department. The
Benefits Department will notify the Claimant of the disposition of the claim
within ninety (90) days after the request is filed with the Benefits Department.
The Benefits Department may have an additional period of up to ninety (90) days
to decide the claim if the Benefits Department determines that special
circumstances require an extension of time to decide the claim and the Benefits
Department advises the Claimant in writing of the need for an extension
(including an explanation of the special circumstances requiring the extension)
and the date on which it expects to decide the claim. If, following the review,
the claim is denied, in whole or in part, the notice of disposition shall set
forth:
(1) the specific reason(s) for denial of the claim;
(2) reference to the specific Plan provisions upon which the determination is based;
(3) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary;
(4) an explanation of the Plan's appeal procedures, and an explanation of the time limits applicable to the Plan's appeal procedures, including a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA.
(b) Appeal of Adverse Benefit Determination.
(1) Within sixty (60) days after receiving the written notice of the disposition of the claim described in paragraph (a), the Claimant, or the Claimant's authorized representative, may appeal such denied claim. The Claimant may submit a written statement of his claim (including any written comments, documents, records and other information relating to the claim) and the reasons for granting the claim to the Committee. The Committee shall have the right to request of and receive from the Claimant such additional information, documents or other evidence as the Committee may reasonably require. If the Claimant does not request an appeal of the denied claim within sixty (60) days after receiving written notice of the disposition of the claim as described in paragraph (a), the Claimant shall be deemed to have accepted the disposition of the claim and such written disposition will be final and binding on the Claimant and anyone claiming benefits through the Claimant, unless the Claimant shall have been physically or mentally incapacitated so as to be unable to request review within the sixty (60) day period. The appeal shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such documents, records or other information were submitted or considered in the initial benefit determination or the initial review.
(2) A decision on appeal to the Committee shall be rendered in writing by the Committee ordinarily not later than sixty (60) days after the Claimant requests review. A written copy of the decision shall be delivered to the Claimant. If special circumstances require an extension of the ordinary period, the Committee shall so notify the Claimant of the extension with such notice containing an explanation of the special circumstances requiring the extension and the date by which the Committee expects to render a decision. Any such extension shall not extend beyond sixty (60) days after the ordinary period. The period of time within which a benefit determination on review is required to be made shall begin at the time an appeal is filed in accordance with the provisions of paragraph (b)(1) above, without regard to whether all the information necessary to make a decision on appeal accompanies the filing.
If the appeal to the Committee is denied, in whole or in part, the decision on appeal referred to in the first sentence of this paragraph (2) shall set forth:
(i) the specific reason(s) for denial of the claim;
(ii) reference to the specific Plan provisions upon which the denial is based;
(iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits; and
(iv) a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA.
(c) Right to Examine Plan Documents and to Submit Materials. In connection with the determination of a claim, or in connection with review of a denied claim or appeal pursuant to this Section 6.5, the Claimant may examine this Plan and any other pertinent documents generally available to Participants relating to the claim and may submit written comments, documents, records and other information relating to the claim for benefits. The Claimant also will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits with such relevance to be determined in accordance with Section 6.5(d) (Claims - Relevance).
(d) Relevance. For purpose of this Section 6.5, documents, records, or other information shall be considered "relevant" to a Claimant's claim for benefits if such documents, records or other information:
(1) were relied upon in making the benefit determination;
(2) were submitted, considered, or generated in the course of making the benefit determination, without regard to whether such documents, records or other information were relied upon in making the benefit determination; or
(3) demonstrate compliance with the administrative processes and safeguards required pursuant to this Section 6.5 regarding the making of the benefit determination.
(e) Decisions Final; Procedures Mandatory. To the extent permitted by law, a decision on review or appeal shall be binding and conclusive upon all persons whomsoever. To the extent permitted by law, completion of the claims procedures described in this Section 6.5 shall be a mandatory precondition that must be complied with prior to commencement of a legal or equitable action in connection with the Plan by a person claiming rights under the Plan or by another person claiming rights through such a person. The Committee may, in its sole discretion, waive these procedures as a mandatory precondition to such an action.
(f) Time For Filing Legal Or Equitable Action. Any legal or equitable action filed in connection with the Plan by a person claiming rights under the Plan or by another person claiming rights through such a person must be commenced not later than the earlier of: (1) the shortest applicable statute of limitations provided by law; or (2) two years from the date the written copy of the Committee's decision on review is delivered to the Claimant in accordance with Section 6.5(b) (Claims - Appeal of Adverse Benefit Determination).
ARTICLE VII
AMENDMENT OR TERMINATION
7.1 Amendment or Termination. The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole discretion of the Company, such amendment or termination is advisable. Any such amendment or termination shall be made pursuant to a resolution of the Board (or its delegate) and shall be effective as of the date of such resolution.
7.2 Effect of Amendment or Termination. Any amendment or termination of this Plan shall apply prospectively only and shall not directly or indirectly reduce the balance of any Plan account as of the effective date of such amendment or termination. Upon termination of the Plan, distribution of amounts in a Participant's Supplemental Deferral Account, Matching Credit Account, Standard Credit Account and Discretionary Credit Account shall be made to the Participant or his or her beneficiary in the manner and at the time described in Article V (Distributions) of the Plan. No additional credits of Supplemental Deferrals Matching, Standard or Discretionary Credits shall be made to the Accounts of a Participant after termination of the Plan, but the Company may continue to credit or charge gains and losses to such Accounts, until the balance of such Accounts has been fully distributed to the Participant or his beneficiary.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Participant's Rights Unsecured. The Plan at all times shall be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of the Company for payment of any distributions hereunder. The right of a Participant or his or her designated beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company, and neither the Participant nor a designated beneficiary shall have any rights in or against any specific assets of the Company. All amounts credited to a Participant's Accounts shall constitute general assets of the Company and may be disposed of by the Company at such time and for such purposes as it may deem appropriate. Nothing in this
Section shall preclude the Company from establishing a "Rabbi Trust," but the assets in the Rabbi Trust must be available to pay the claims of the Company's general creditors in the event of the Company's insolvency.
8.2 Funding Upon A Change In Control. As a condition to the closing of any transaction that constitutes a Change in Control, the Company shall transfer to the trustee of a "Rabbi Trust" an amount equal to the aggregate value of all Participants' Accounts. If it is discovered at any time that the amount initially transferred is less than the total amount called for by the initial sentence of this Section, the shortfall shall be transferred to the trustee immediately upon the discovery of such error.
8.3 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a guaranty by the Company or any other person or entity that the assets of the Company will be sufficient to pay any benefit hereunder.
8.4 No Enlargement of Employee Rights. No Participant shall have any right to receive a distribution from the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the service of the Company.
8.5 Spendthrift Provision. No interest of any person or entity in, or right to receive a distribution under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor shall any such interest or right to receive a distribution be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims in bankruptcy proceedings. This Section shall not preclude arrangements for the withholding of taxes from deferrals, credits, or benefit payments, arrangements for the recovery of benefit overpayments, arrangements for the transfer of benefit rights to another plan, or arrangements for direct deposit of benefit payments to an account in a bank, savings and loan association or credit union (provided that such arrangement is not part of an arrangement constituting an assignment or alienation).
8.6 Applicable Law. The Plan shall be construed and administered under the laws of the State of New Mexico, except to the extent preempted by ERISA.
8.7 Incapacity of Recipient. If the Benefits Department is served with a court order holding that a person entitled to a distribution under the Plan is incapable of personally receiving and giving a valid receipt for such distribution, the Benefits Department shall postpone payment until such time as a claim therefore shall have been made by a duly appointed guardian or other legal representative of such person. The Benefits Department is under no obligation to inquire or investigate as to the competency of any person entitled to a distribution. Any payment to an appointed guardian or other legal representative under this Section shall be a payment for the account of the incapacitated person and a complete discharge of any liability of the Company and the Plan therefore.
8.8 Successors. This Plan shall be binding upon the successors and assigns of the Company and upon the heirs, beneficiaries and personal representatives of the individuals who become Participants hereunder.
8.9 Unclaimed Benefit. Each Participant shall keep the Benefits Department informed of his or her current address and the current address of his or her designated beneficiary. The Benefits Department shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Benefits Department within three years after the date on which payment of the Participant's Supplemental Deferral and Supplemental Employer Accounts may first be made, payment may be made as though the Participant had died at the end of the three year period. If, within one additional year after such three year period has elapsed, or, within three years after the actual death of a Participant, the designated beneficiary of the Participant has not been located, then there shall be no further obligation to pay any benefit hereunder to such Participant or designated beneficiary and such benefit shall be irrevocably forfeited.
8.10 Limitations on Liability. Notwithstanding any of the preceding provisions of the Plan, neither the Plan Administrator, the Benefits Department or the Committee, nor any individual acting as the Plan Administrator's, the Benefits Department's, the Committee's, or the Company's employee, agent, or representative shall be liable to any Participant, former Participant or other person for any claim, loss, liability or expense incurred in connection with the Plan.
8.11 Headings for Convenience Only. The headings and subheadings of this Plan are inserted for convenience and reference only and are not to be used in construing this instrument or any provision herein.
8.12 Severability. If any provision of this Plan is held to be illegal or invalid, such illegality or invalidity shall not affect the remaining provisions of this Plan, and the remaining provisions shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.
8.13 Conflicts. If any person holds a position under this Plan through which he or she is charged with making a decision about his or her own (or any immediate family member's) Plan participation, including, without limitation, eligibility, account valuation, or investments, then such person shall be recused and the decision shall be made by the Committee.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer as of the _29th_ day of December, 2003.
PNM RESOURCES, INC.
By: /s/ Alice A. Cobb
-------------------------------------------
Its: Senior Vice President,
-------------------------------------------
People Services & Development
-------------------------------------------
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS............................................1
1.1 "Benefits Department"......................................1
1.2 "Board"....................................................1
1.3 "Change in Control"........................................1
1.4 "Code".....................................................1
1.5 "Committee"................................................1
1.6 "Company"..................................................1
1.7 "Company Stock"............................................2
1.8 "Company Stock Fund".......................................2
1.9 "Compensation".............................................2
1.10 "Discretionary Credit Account".............................2
1.11 "Discretionary Credits"....................................2
1.12 "Distribution Election Form"...............................2
1.13 "Employee Retention Plan"..................................2
1.14 "ERISA"....................................................2
1.15 "Investment Fund"..........................................2
1.16 "Matching Credit Account"..................................2
1.17 "Matching Credits".........................................2
1.18 "Normal Retirement Date"...................................2
1.19 "Participant"..............................................3
1.20 "Plan".....................................................3
1.21 "Plan Administrator".......................................3
1.22 "Plan Year"................................................3
1.23 "Recordkeeper".............................................3
1.24 "RSP"......................................................3
1.25 "RSP Employer Contribution"................................3
1.26 "Standard Credit Account"..................................3
1.27 "Standard Credits".........................................3
1.28 "Supplemental Deferral Account"............................3
1.29 "Supplemental Deferral Agreement"..........................3
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TABLE OF CONTENTS
(Continued)
1.30 "Supplemental Deferrals"...................................3
1.31 "Valuation Date"...........................................3
ARTICLE II ELIGIBILITY; ADOPTION BY AFFILIATES....................4
2.1 The Eligible Class.........................................4
2.2 Selection of Participants..................................4
2.3 Discontinuance of Participation............................4
2.4 Adoption by Affiliates.....................................4
ARTICLE III DEFERRALS AND CREDITS..................................5
3.1 Supplemental Deferral Agreement............................5
3.2 Supplemental Deferrals.....................................5
3.3 Matching and Standard Credits..............................5
3.4 Discretionary Credits......................................6
3.5 Termination During the Plan Year...........................6
3.6 Benefits Not Contingent....................................6
3.7 Allocation Among Affiliates................................6
ARTICLE IV INVESTMENT OF ACCOUNTS.................................6
4.1 Adjustment of Accounts.....................................6
4.2 Investment Direction.......................................6
4.3 Special Company Stock Fund Provisions......................7
4.4 Compliance with Securities Laws............................8
ARTICLE V DISTRIBUTIONS..........................................8
5.1 Right to Receive Distribution..............................8
5.2 Form of Distribution.......................................8
5.3 Amount of Distribution.....................................9
5.4 Timing of Distribution.....................................9
5.5 Accelerated Withdrawals...................................10
5.6 Beneficiary Designation...................................10
5.7 Withholding...............................................11
5.8 Deductibility.............................................11
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TABLE OF CONTENTS
(Continued)
ARTICLE VI ADMINISTRATION OF THE PLAN............................11
6.1 Appointment of Committee..................................11
6.2 Majority Rule and Delegation of Ministerial Acts..........11
6.3 Meetings..................................................11
6.4 General Powers and Duties.................................11
6.5 Claims....................................................13
ARTICLE VII AMENDMENT OR TERMINATION..............................15
7.1 Amendment or Termination..................................15
7.2 Effect of Amendment or Termination........................15
ARTICLE VIII GENERAL PROVISIONS....................................15
8.1 Participant's Rights Unsecured............................15
8.2 Funding Upon A Change In Control..........................16
8.3 No Guaranty of Benefits...................................16
8.4 No Enlargement of Employee Rights.........................16
8.5 Spendthrift Provision.....................................16
8.6 Applicable Law............................................16
8.7 Incapacity of Recipient...................................16
8.8 Successors................................................17
8.9 Unclaimed Benefit.........................................17
8.10 Limitations on Liability..................................17
8.11 Headings for Convenience Only.............................17
8.12 Severability..............................................17
8.13 Conflicts.................................................17
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Exhibit 10.83
Retention Plan Document
October 7, 2003
Mr. Jeffry E. Sterba
Chief Executive Officer
PNM Resources, Inc.
Alvarado Square, MS-3101
Albuquerque, NM 87158
Re: Retention Bonus Agreement
Dear Jeff:
In order to secure your continued commitment, we have decided to provide you with an incentive bonus (the "Retention Bonus"), which is designed to encourage you to remain a part of the PNM Resources, Inc. (the "Company") for many years to come. The Retention Bonus has the following terms and conditions:
The amount of the Retention Bonus will be the sum of $1,600,000 plus any amounts forfeited pursuant to the PNM Resources, Inc. Executive Savings Plan. The Retention Bonus will be paid out of the Company's general assets. It will not be held in trust or in a separate account. You will not receive any interest on this amount.
You will be eligible to receive the Retention Bonus if you continuously work for the Company as Chief Executive Officer ("CEO") from the date of this Agreement until the end of the calendar year in which you attain age 55, or upon your death or "Disability," if earlier.
Jeffry E. Sterba
October 7, 2003
Although your continuous employment is a condition that must be satisfied in order to receive the Retention Bonus, the Company also must reserve the right to terminate your employment or alter your responsibilities at any time and for any or no reason, subject to any other contractual commitments of the Company to you. With that in mind, we have decided to provide you with the Retention Bonus even if, prior to the end of the calendar year in which you attain age 55, you are terminated by the Company without "Cause" or if you terminate under circumstances that constitute "Constructive Termination."
The terms "Cause," "Constructive Termination" and "Disability" have the same meaning as set forth in the PNM Resources, Inc. Officer Retention Plan, as amended from time to time. Please let us know if you need a copy of that Plan.
Payment of the Retention Bonus will be made to you in two equal installments. The first installment will be paid to you at the end of the calendar year in which you attain age 55. The second installment will be paid to on the first anniversary of the date that the first installment payment was made. You may change the dates on which these payments are made provided that the company agrees in writing to such change.
In the event of your death, payment of the Retention Bonus (or the remaining installment if the first installment has been paid) will be made to your estate. If you prefer, you may designate a beneficiary to receive the Retention Bonus. The designation must be signed, notarized and delivered to the Company prior to your death.
You may also change a beneficiary designation. To do so, simply follow the same procedures for submitting the initial designation.
The laws of the state of New Mexico shall govern the validity, interpretation, construction and performance of this Agreement.
Jeffry E. Sterba
October 7, 2003
Any controversy or claim arising out of or relating to this Agreement shall be settled by mediation, and if mediation is unsuccessful binding arbitration, by a single mediator or arbitrator conducted in accordance with the then current rules of the American Arbitration Association, strictly in accordance with the terms of this Agreement and the substantive law of the State of New Mexico. The mediation and arbitration shall be held at a time and place agreed to by you and the Company, or at a time and place determined by the mediator or arbitrator in the absence of an agreement. The judgment and award rendered by the arbitrator may be entered and enforced in any court of competent jurisdiction.
No provision of this Retention Bonus Agreement may be modified or amended unless agreed to in writing by both parties.
If you are in agreement with these terms, please so indicate by signing and returning to me the enclosed copy of this letter, which will constitute our binding agreement.
Very truly yours,
PNM RESOURCES, INC.
By: /s/ Robert M. Price
---------------------------------------------
Robert M. Price, Chairman of the Board
Governance and Human Resources Committee
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Agreed:
/s/ Jeffry Sterba 10/31/03 -------------------------- --------------- Jeffry E. Sterba Date |
EXHIBIT 18.1
PNM Resources Inc.
Alvarado Square
Albuquerque, NM 87158
Dear Sirs/Madams:
We have audited the consolidated financial statements of PNM Resources Inc. and subsidiaries as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, included in your Annual Report on Form 10-K to the Securities and Exchange Commission and have issued our report thereon dated March 8, 2004, which expresses an unqualified opinion and includes an explanatory paragraph referring to the adoption of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations and your change in measurement dates used to account for your pensions and other post-retirement benefits from September 30 to December 31. Note 9 to such consolidated financial statements contains a description of your change in measurement dates used to account for your pensions and other post-retirement benefits from September 30 to December 31. In our judgment, such change is to an alternative accounting principle that is preferable under the circumstances.
Yours truly,
/s/ DELOITTE & TOUCHE LLP Omaha, NE March 8, 2004 |
EXHIBIT 18.2
Public Service Company of New Mexico
Alvarado Square
Albuquerque, NM 87158
Dear Sirs/Madams:
We have audited the consolidated financial statements of Public Service Company of New Mexico and subsidiaries as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, included in your Annual Report on Form 10-K to the Securities and Exchange Commission and have issued our report thereon dated March 8, 2004, which expresses an unqualified opinion and includes an explanatory paragraph referring to the adoption of Statement of Financial Accounting Standards No. 143,"Accounting for Asset Retirement Obligations" and your change in measurement dates used to account for your pensions and other post-retirement benefits from September 30 to December 31. Note 9 to such consolidated financial statements contains a description of your change in measurement dates used to account for your pensions and other post-retirement benefits from September 30 to December 31. In our judgment, such change is to an alternative accounting principle that is preferable under the circumstances.
Yours truly,
/s/ DELOITTE & TOUCHE LLP Omaha, NE March 8, 2004 |
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 333-10993, 333-100186, 333-106054 and 333-106080 of PNM Resources, Inc. on Form S-3 and Registration Statement Nos. 333-03303, 333-03289, 333-61598, 333-76316, 333-76288, 333-88372 and 333-100184 of PNM Resources, Inc. on Form S-8 of our reports dated March 8, 2004 (which express an unqualified opinion and include explanatory paragraphs referring to the adoption of Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003 and the change in actuarial valuation measurement date for the pension plan and other post-retirement benefits from September 30 to December 31), appearing in this Annual Report on Form 10-K of PNM Resources, Inc. for the year ended December 31, 2003.
/s/ DELOITTE & TOUCHE LLP Omaha, Nebraska March 10, 2004 |
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 333-53367 and 333-106079 of Public Service Company of New Mexico on Form S-3 of our reports dated March 8, 2004 (which express an unqualified opinion and include explanatory paragraphs referring to the adoption of Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003 and the change in actuarial valuation measurement date for the pension plan and other post-retirement benefits from September 30 to December 31), appearing in this Annual Report on Form 10-K of Public Service Company of New Mexico for the year ended December 31, 2003.
/s/ DELOITTE & TOUCHE LLP Omaha, Nebraska March 10, 2004 |
EXHIBIT 31.1
Certification
I, Jeffry E. Sterba, certify that:
1. I have reviewed this annual report on Form 10-K of each of PNM Resources, Inc. and Public Service Company of New Mexico;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of each registrant as of, and for, the periods presented in this report;
4. Each registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for such registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to such registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of such registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during each registrant's most recent fiscal quarter (each registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. Each registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to such registrant's auditors and the audit committee of such registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect such registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in such registrant's internal control over financial reporting.
March 10, 2004
/s/Jeffry E. Sterba ---------------------------------- Jeffry E. Sterba, Chairman, President and Chief Executive Officer |
EXHIBIT 31.2
Certification
I, John R. Loyack, certify that:
1. I have reviewed this annual report on Form 10-K of each of PNM Resources, Inc. and Public Service Company of New Mexico;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of each registrant as of, and for, the periods presented in this report;
4. Each registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for such registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to such registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of such registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during each registrant's most recent fiscal quarter (each registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. Each registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to such registrant's auditors and the audit committee of such registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect such registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in such registrant's internal control over financial reporting.
March 10, 2004
/s/ John R. Loyack ---------------------------------- John R. Loyack, Senior Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350, AS ADOPTED PURSUANT TOss.906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2003, for each of PNM Resources, Inc. and Public Service Company of New Mexico ("Companies"), as filed with the Securities and Exchange Commission on March 10, 2004 ("Report"), I, Jeffry E. Sterba, Chief Executive Officer of the Companies, certify pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements ofss.13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies.
Date: March 10, 2004 By: /s/ Jeffry E. Sterba
---------------------------------
Jeffry E. Sterba
Chairman, President and
Chief Executive Officer
|
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350, AS ADOPTED PURSUANT TOss.906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2003, for each of PNM Resources, Inc. and Public Service Company of New Mexico ("Companies"), as filed with the Securities and Exchange Commission on March 10, 2004 ("Report"), I, John R. Loyack, Chief Financial Officer of the Companies, certify pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements ofss.13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies.
Date: March 10, 2004 By: /s/ John R. Loyack
---------------------------------
John R. Loyack
Senior Vice President and
Chief Financial Officer
|