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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995 Commission File Number 1-6986
Public Service Company of New Mexico
(Exact name of Registrant as specified in its charter)
New Mexico 85-0019030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Alvarado Square 87158
Albuquerque, New Mexico (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (505) 241-2700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $5.00 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
1965 Series, 4.58% Cumulative Preferred Stock ($100 stated value and
without sinking fund)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES x/ NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The total number of shares of the Company's Common Stock outstanding as of
January 31, 1996 was 41,774,083. On such date, the aggregate market value of the
voting stock held by non-affiliates of the Company, as computed by reference to
the New York Stock Exchange composite transaction closing price of $17 7/8 per
share reported by the Wall Street Journal, was $746,711,733.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into the
indicated part of this report:
Proxy Statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A relating to the annual meeting of stockholders
to be held on April 30, 1996--PART III.
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TABLE OF CONTENTS
Page
----
GLOSSARY................................................................... iv
PART I
ITEM 1. BUSINES........................................................... 1
THE COMPANY..................................................... 1
ELECTRIC OPERATIONS............................................. 1
Service Area and Customers.................................. 1
Power Sales................................................. 2
Sources of Power............................................ 3
Fuel and Water Supply....................................... 4
NATURAL GAS OPERATIONS.......................................... 6
Service Area and Customers.................................. 6
Natural Gas Supply.......................................... 7
Natural Gas Sales........................................... 8
RATES AND REGULATION............................................ 9
FPPCAC...................................................... 9
Fossil-Fueled Plant Decommissioning Costs................... 9
Energy and Utility Related Subsidiaries..................... 9
Gas Rate Case............................................... 10
PGAC Continuation Filing.................................... 10
Consolidation Issues........................................ 10
Legislative Action............................................ 11
ENVIRONMENTAL FACTORS........................................... 11
ITEM 2. PROPERTIES......................................................... 12
ELECTRIC...................................................... 12
Fossil-Fueled Plants........................................ 12
Nuclear Plant............................................... 13
Other Electric Properties................................... 14
NATURAL GAS................................................... 15
OTHER INFORMATION............................................. 15
ITEM 3. LEGAL PROCEEDINGS.................................................. 15
PVNGS WATER SUPPLY LITIGATION................................. 15
SAN JUAN RIVER ADJUDICATION................................... 16
PVNGS PROPERTY TAXES.......................................... 16
OTHER PROCEEDINGS............................................. 16
Federal Deposit Insurance Corporation ("FDIC") Litigation... 16
Four Corners................................................ 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 18
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY........................ 19
ii
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 21
ITEM 6. SELECTED FINANCIAL DATA............................................ 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................ F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... E-1
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.................... E-1
ITEM 11. EXECUTIVE COMPENSATION............................................. E-1
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... E-1
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... E-1
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K...................................................... E-1
SIGNATURES..................................................................E-21
iii
GLOSSARY
AG ..................................... New Mexico Attorney General
Anaheim................................. City of Anaheim, California
APPA.................................... Arizona Power Pooling Association
APS..................................... Arizona Public Service Company
BCD..................................... Bellamah Community Development
BHP..................................... BHP Minerals International, Inc.
BLM..................................... Bureau of Land Management
BTU..................................... British Thermal Unit
Century................................. Century Power Corporation
decatherm............................... 1,000,000 BTUs
DOE..................................... United States Department of Energy
EIP..................................... Eastern Interconnection Project
El Paso................................. El Paso Electric Company
EPA..................................... United States Environmental Protection
Agency
EPNG.................................... El Paso Natural Gas Company
Farmington.............................. City of Farmington, New Mexico
FERC.................................... Federal Energy Regulatory Commission
Four Corners............................ Four Corners Power Plant
FPPCAC.................................. Fuel and Purchased Power Cost
Adjustment Clause
Gathering Company....................... Sunterra Gas Gathering Company, a
wholly-owned subsidiary of the
Company
Kv ..................................... Kilovolt
KW...................................... Kilowatt
KWh..................................... Kilowatt Hour
Los Alamos.............................. The County of Los Alamos, New Mexico
mcf..................................... Thousand cubic feet
Meadows................................. Meadows Resources, Inc., a wholly-owned
subsidiary of the Company
M-S-R................................... M-S-R Public Power Agency, a California
public power agency
MW ..................................... Megawatt
MWh..................................... Megawatt Hour
NMED.................................... New Mexico Environment Department
NMPUC................................... New Mexico Public Utility Commission
NRC..................................... United States Nuclear Regulatory
Commission
OCD..................................... New Mexico Oil Conservation Division
OLE..................................... Ojo Line Extension
PGAC.................................... PNMGS' Purchased Gas Adjustment Clause
Plains.................................. Plains Electric Generation and
Transmission Cooperative, Inc.
PNMGS................................... Public Service Company of New Mexico
Gas Services, a division of the
Company
Processing Company...................... Sunterra Gas Processing Company, a
wholly-owned subsidiary of the
Company
PVNGS................................... Palo Verde Nuclear Generating Station
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
iv
SJCC.................................... San Juan Coal Company
SJGS.................................... San Juan Generating Station
SPS..................................... Southwestern Public Service Company
TNP..................................... Texas-New Mexico Power Company
throughput.............................. Volumes of gas delivered, whether or
not owned by PNMGS
Tucson.................................. Tucson Electric Power Company
UAMPS................................... Utah Associated Municipal Power Systems
USEC.................................... United States Enrichment Corporation
Williams................................ Williams Gas Processing-Blanco, Inc., a
subsidiary of the Williams Field
Services Group, Inc., of Tulsa,
Oklahoma
v
PART I
ITEM 1. BUSINESS
THE COMPANY
Public Service Company of New Mexico (the "Company") was incorporated in
the State of New Mexico in 1917 and has its principal offices at Alvarado
Square, Albuquerque, New Mexico 87158 (telephone number 505-241-2700). The
Company is a public utility primarily engaged in the generation, transmission,
distribution and sale of electricity and in the transmission, distribution and
sale of natural gas within the State of New Mexico. The Company is also engaged
in the operation and management of the City of Santa Fe's water system and in
the development of new business activities in the energy and utility related
services area (see PART II, ITEM 7. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OVERVIEW -- Preparation for the
Changes") .
On June 30, 1995, the Company consummated the sale of substantially all
of the gas gathering and processing assets of the Company and its gas
subsidiaries to Williams. On July 3, 1995, the Company consummated the sale of
the Company's water division to the City of Santa Fe. (See note 12 of the notes
to consolidated financial statements.)
The total population of the area served by one or more of the Company's
utility services is estimated to be approximately 1.2 million, of which 55% live
in the greater Albuquerque area.
For the year ended December 31, 1995, the Company derived 72.3% of its
utility operating revenues from electric operations, 26.9% from natural gas
operations and .8% from water operations.
As of December 31, 1995, the Company employed 2,626 persons.
Financial information relating to amounts of revenue and operating income
and identifiable assets attributable to the Company's industry segments is
contained in note 13 of the notes to consolidated financial statements.
ELECTRIC OPERATIONS
Service Area and Customers
The Company's electric operations serve four principal markets. Sales to
retail customers and sales to firm-requirements wholesale customers, sometimes
referred to collectively as "system" sales, comprise two of these markets. The
third market consists of other contracted sales to utilities for which the
Company commits to deliver a specified amount of capacity (measured in MW) or
energy (measured in MWh) over a given period of time. The fourth market consists
of economy energy sales made on an hourly basis to utilities at fluctuating,
spot-market rates. Sales to the third and fourth markets are sometimes referred
to collectively as "off-system" sales.
The Company provides retail electric service to a large area of north
central New Mexico, including the cities of Albuquerque, Santa Fe, Rio Rancho,
Las Vegas, Belen and Bernalillo. The Company also provides retail electric
service to Deming in southwestern New Mexico and to Clayton in northeastern New
Mexico. As of December 31, 1995, approximately 333,000 retail electric customers
were served by the Company, the largest of which accounted for approximately
3.6% of the Company's total electric revenues for the year ended December 31,
1995.
1
The Company holds 23 long-term, non-exclusive franchise agreements for
its electric retail operations, expiring between August 1996 and November 2028.
The City of Albuquerque (the "City") franchise expired in early 1992. Customers
in the area covered by the City franchise represent approximately 46% of the
Company's 1995 total electric operating revenues, and no other franchise area
represents more than 6.9%. These franchises are agreements that provide the
Company access to public rights-of-way for placement of the Company's electric
facilities. The Company remains obligated under state law to provide service to
customers in the franchise area even in the absence of a franchise agreement
with the City. (See PART II, ITEM 7. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY
- -- ALBUQUERQUE FRANCHISE ISSUES".)
Power Sales
For the years 1991 through 1995, retail KWh sales have grown at a
compound annual rate of approximately 4.1%. The Company's system and off-system
sales (revenues and energy consumption) and system peak demands in summer and
winter are shown in the following tables:
ELECTRIC SALES BY MARKET
(Thousands of dollars)
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Retail .......................... $485,568 $506,286 $471,099 $455,387 $444,594
Firm-requirements wholesale ..... $ 20,282 $ 22,296 $ 18,468 $ 20,173 $ 22,390
Other contracted off-system sales $ 43,158+ $ 54,862+ $ 56,214+ $ 62,348 $ 55,581
Economy energy sales ............ $ 17,509+ $ 19,663+ $ 25,213+ $ 40,770 $ 29,665
ELECTRIC SALES BY MARKET
(Megawatt hours)
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Retail .................... 6,029,365 5,953,151 5,446,788 5,358,246 5,139,954
Firm-requirements wholesale 447,629 489,182 342,137 322,177 308,390
Other contracted off-system
sales .................. 594,367 1,403,480 1,450,966 1,198,250 1,223,212
Economy energy sales ...... 1,548,517 1,469,271 1,582,113 2,164,991 1,559,939
- -----------
+ Due to the provision for the loss associated with the M-S-R contingent
power purchase contract recognized in 1992, revenues from other
contracted off-system sales and economy energy sales were reduced by a
total of $7.3 million, $25.0 million and $20.5 million in 1995, 1994 and
1993, respectively.
SYSTEM PEAK DEMAND*
(Megawatts)
1995 1994 1993 1992 1991
--------- --------- --------- --------- --------
Summer.................... 1,247 1,189 1,104 1,053 1,018
Winter.................... 1,076 1,040 982 992 955
- -----------
* System peak demand relates to retail and firm-requirements wholesale
customers only.
2
During 1995 and 1994, the Company's sales in the off-system markets
accounted for approximately 24.9% and 30.8%, respectively, of its total KWh
sales and approximately 11.8% and 15.8% (before reduction of revenues from the
M-S-R contingent power purchase contract, which were accounted for in the
determination of the provision for loss recorded in 1992), respectively, of its
total revenues from energy sales. During 1995, the Company's major off-system
sale contracts in effect were with SDG&E and APPA.
The SDG&E contract requires SDG&E to purchase 100 MW from the Company
through April 2001. On October 27, 1993, SDG&E filed a complaint with the FERC
against the Company, alleging that certain charges under this 1985 power
purchase agreement are unjust, unreasonable and unduly discriminatory. SDG&E is
requesting that the FERC investigate the rates charged under the agreement. The
relief, if granted, would reduce annual demand charges paid by SDG&E by up to
$11 million per year from the date of the ruling through April 2001, and could
require a refund of up to approximately $14 million. The Company responded to
the complaint on December 8, 1993, and SDG&E and the Company filed subsequent
pleadings. The FERC has not issued a ruling in the case and has not indicated
when or if the complaint will be considered. The Company believes that the
complaint is without merit, and the Company intends to vigorously resist the
complaint.
The APPA contract requires APPA to purchase varying amounts of power from
the Company through May 2008 and allows APPA to make adjustments to the purchase
amounts subject to certain notice provisions. APPA provided notice that it was
invoking its option to reduce the power demand in 1995, resulting in a peak
demand of 89 MW.
The Company furnished firm-requirements wholesale power in New Mexico in
1995 to the cities of Farmington and Gallup, TNP and Plains. Plains terminated
its contract for 10 MW in 1995. The Company is committed to provide service to
the City of Gallup through April 2003. Average monthly demands under the City of
Gallup contract for 1995 were approximately 26 MW. TNP is currently purchasing
36 MW but has provided notice that it will reduce its purchase to 15 MW for 1996
and 1997. TNP may adjust its annual demand between 15 MW and 40 MW with one
year's notice and may terminate service with two years' notice. No
firm-requirements wholesale customer accounted for more than 1.6% of the
Company's total electric operating revenues for the year ended December 31,
1995.
Sources of Power
As of December 31, 1995, the total net generation capacity of facilities
owned or leased by the Company was 1,506 MW.
In addition, the Company has a power purchase contract with SPS for up to
200 MW from May 1995 through May 2011. The Company may reduce its purchases from
SPS by 25 MW annually upon three years' notice. The Company provided such notice
in 1995 to reduce the purchase by 25 MW in 1999. Also, the Company has 39 MW of
contingent capacity obtained from El Paso under a transmission capacity for
generation capacity trade arrangement that increases to 70 MW from 1998 through
2003. In addition, the Company is interconnected with various utilities for
economy interchanges and mutual assistance in emergencies.
The Company anticipates the need for approximately 100 to 200 MW of
additional generating capacity in the 1998 through 2000 timeframe, and is
currently pursuing its options to meet these capacity needs.
3
Fuel and Water Supply
The percentages of the Company's generation of electricity (on the basis
of KWh) fueled by coal, nuclear fuel and gas and oil, and the average costs to
the Company of those fuels (in cents per million BTU), during the past five
years were as follows:
Coal Nuclear Gas and Oil
------------------- ------------------- -------------------
Percent of Average Percent of Average Percent of Average
---------- ------- ---------- ------- ---------- -------
1991............ 67.1 167.9 32.9 67.9 -- 216.5
1992............ 69.2 161.7 30.5 59.8 0.3 239.7
1993............ 72.9 164.7 26.7 58.1 0.4 331.7
1994............ 72.0 162.9 27.8 58.5 0.2 321.7
1995............ 67.9 168.3 31.9 49.1 0.2 242.2
The estimated generation mix for 1996 is 71.5% coal, 28.4% nuclear and
0.1% gas and oil. Due to locally available natural gas and oil supplies, the
utilization of locally available coal deposits and the generally abundant supply
of nuclear fuel, the Company believes that adequate sources of fuel are
available for its generating stations.
Coal
The coal requirements for SJGS are being supplied by SJCC, a wholly-owned
subsidiary of BHP, from certain Federal, state and private coal leases under a
Coal Sales Agreement, pursuant to which SJCC will supply processed coal for
operation of SJGS until 2017. BHP guaranteed the obligations of SJCC under the
agreement, which contemplates the delivery of approximately 121 million tons of
coal during its remaining term. Such amount would supply substantially all the
requirements of SJGS through approximately 2017. The primary sources of coal are
a mine adjacent to SJGS and a mine located approximately 25 miles northeast of
SJGS in the La Plata area of northwestern New Mexico. The Company is currently
discussing with SJCC alternatives for securing both short and long term fuel
resource requirements which at this time are uncommitted. As a part of this
discussion, the Company is also negotiating other issues which may result in
modifications to certain Coal Sales Agreement terms and provisions which include
but are not limited to cost recovery and pricing. On September 1, 1995, the
parties executed an amendment to the Coal Sales Agreement. The amendment
provides for flexibility in coal sourcing. Mining operations are being shifted
over time to the La Plata Mine and several newly introduced sources including
expanded La Plata reserves and a new lease contiguous with the existing San Juan
Mine. While the savings in fuel cost over the life of the contract are
continuing to be developed, it is currently estimated that the Company will save
approximately $200 million of coal fuel costs during the period 1996 through
2004. The average cost of fuel, including ash disposal and land reclamation
costs, for SJGS for the years 1993, 1994 and 1995 was 177.4 cents, 172.1 cents
and 184.6 cents, respectively, per million BTU ($34.59, $33.62 and $35.75 per
ton, respectively).
Four Corners is supplied with coal under a fuel agreement between the
owners and BHP, under which BHP agreed to supply all the coal requirements for
the life of the plant. BHP holds a long-term coal mining lease, with options for
renewal, from the Navajo Nation and operates a strip mine adjacent to Four
Corners with the coal supply expected to be sufficient to supply the units for
their estimated useful lives. The average cost of fuel, including ash disposal
and land reclamation costs, for the years 1993, 1994 and 1995 at Four Corners
was 114.9 cents, 125.8 cents and 113.4 cents, respectively, per million BTU
($20.11, $22.03 and $20.04 per ton, respectively).
4
Natural Gas
The natural gas used as fuel for the Company's Albuquerque electric
generating plant (Reeves Station) is delivered by PNMGS. (See "NATURAL GAS
OPERATIONS".) In addition to rate changes under filed tariffs, the Company's
cost of gas increases or decreases according to the average cost of the gas
supply.
Nuclear Fuel
The fuel cycle for PVNGS is comprised of the following stages: (1) the
mining and milling of uranium ore to produce uranium concentrates, (2) the
conversion of uranium concentrates to uranium hexafluoride, (3) the enrichment
of uranium hexafluoride, (4) the fabrication of fuel assemblies, (5) the
utilization of fuel assemblies in reactors, and (6) the storage of spent fuel
and the disposal thereof. The Company has made arrangements through contract
flexibilities to obtain quantities of uranium concentrates anticipated to be
sufficient to meet its share of uranium concentrates requirements through 2000.
The Company's existing contracts and options could be utilized to meet 75% of
such requirements in 2001 and 2002 and 40% of requirements from 2003 through
2007. The Company understands that other PVNGS participants have made
arrangements for the uranium concentrate requirements through 2000. Their
existing contracts and options could be utilized to meet 80% of requirements in
1998 and 1999 and 70% of requirements from 2000 through 2006. The PVNGS
participants, including the Company, contracted for all conversion services
required through 2000 with options for up to 70% through 2002. The PVNGS
participants, including the Company, also have an enrichment services contract
with USEC which obligates USEC to furnish enrichment services required for the
operation of the three PVNGS units over a term expiring in September 2002, with
options to continue through September 2007.
Existing spent fuel storage facilities at PVNGS have sufficient capacity
with certain modifications to store all fuel expected to be discharged from
normal operation of all of the PVNGS units through at least the year 2005.
Pursuant to the Nuclear Waste Policy Act of 1982, as amended in 1987 (the "Waste
Act"), DOE is obligated to accept and dispose of all spent nuclear fuel and
other high-level radioactive wastes generated by all domestic power reactors.
The NRC, pursuant to the Waste Act, also requires operators of nuclear power
reactors to enter into spent fuel disposal contracts with DOE. APS, on its own
behalf and on behalf of the other PVNGS participants, executed a spent fuel
disposal contract with DOE. The Waste Act also obligates DOE to develop the
facilities necessary for the permanent disposal of all spent fuel generated and
to be generated by domestic power reactors and to have the first such facility
in operation by 1998 under prescribed procedures. In November 1989, DOE reported
that such a permanent disposal facility will not be in operation until 2010. As
a result, under DOE's current criteria for shipping allocation rights, PVNGS's
spent fuel shipments to the DOE permanent disposal facility would begin in
approximately 2025. In addition, APS believes that on-site storage of spent fuel
may be required beyond the life of the PVNGS Units. APS currently believes that
alternative interim spent fuel storage methods are or will be available on-site
or off-site for use by PVNGS to allow its continued operation beyond 2005 and to
safely store spent fuel until DOE's scheduled shipments from PVNGS begin.
Currently, low-level radioactive waste is being stored on-site. A new
low-level waste facility was built in 1995 on the PVNGS site. The new facility
has the capability to store an amount of waste equivalent to 10 years of normal
operation of PVNGS. APS, the operating agent of PVNGS, is currently evaluating
its options of shipping low-level waste to facilities that have reopened or
continuing to store the waste in the new facility.
While believing that scientific and financial aspects of the issues with
respect to spent fuel and low-level waste can be resolved satisfactorily, APS
acknowledges that their ultimate resolution in a timely fashion will require
political resolve and action on national and regional scales which it is less
able to predict.
5
Water Supply
Water for Four Corners and SJGS is obtained from the San Juan River. (See
ITEM 3. -- "LEGAL PROCEEDINGS -- SAN JUAN RIVER ADJUDICATION".) BHP holds rights
to San Juan River water and has committed a portion of such rights to Four
Corners through the life of the project. The Company and Tucson have a contract
with the United States Bureau of Reclamation for consumption of 16,200 acre feet
of water per year for SJGS, which contract expires in 2005, and in addition, the
Company was granted the authority to consume 8,000 acre feet of water per year
under a state permit that is held by BHP. The Company is of the opinion that
sufficient water is under contract for SJGS until 2005.
On January 29, 1993, the U.S. Fish and Wildlife Service proposed a
portion of the San Juan River as critical habitat for two fish species. This
designation may impact uses of the river and its flood plains and will require
certain analysis under the Endangered Species Act of 1973 of all significant
Federal actions. Renewal of the SJGS water contract is considered a significant
Federal action.
Due to extensive lead times required to renew the water rights contract,
the Company has formally initiated the renewal and extension process for
requesting rights through the year 2025. The Company is actively conducting an
environmental assessment with the Bureau of Reclamation and a biological
assessment with the U.S. Fish and Wildlife Service. These studies are required
by the Federal agencies before the existing water contract can be renewed. The
Company is currently unable to predict the outcome of these matters.
Sewage effluent used for cooling purposes in the operation of the PVNGS
units has been obtained under contracts with certain municipalities in the area.
The contracted quantity of effluent exceeds the amount required for the three
PVNGS units. The validity of these effluent contracts is the subject of
litigation in state and Federal courts. (See ITEM 3. -- "LEGAL PROCEEDINGS --
PVNGS WATER SUPPLY LITIGATION".)
NATURAL GAS OPERATIONS
On June 30, 1995, the Company, Gathering Company and Processing Company
sold substantially all of their gas gathering and processing facilities. The
Company believes that the sale allows the Company to focus on providing gas
transportation and retail gas services to New Mexico gas consumers while
maintaining its flexibility in accessing competitively priced, reliable and
secure gas supplies. (See PART II, ITEM 7. -- "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING
THE COMPANY -- SALE OF GAS GATHERING AND PROCESSING ASSETS".)
Service Area and Customers
The Company's gas operating division, PNMGS, distributes natural gas to
most of the major communities in New Mexico, including Albuquerque and Santa Fe,
serving approximately 393,000 customers as of December 31, 1995. The Albuquerque
metropolitan area accounts for approximately 54.7% of the total sales-service
customers. PNMGS holds long-term, non-exclusive franchises with varying
expiration dates in all incorporated communities requiring franchise agreements.
PNMGS completed franchise negotiations with the City of Santa Fe extending the
franchise through October 25, 2020. PNMGS' customer base includes both
"sales-service" customers and "transportation-service" customers. Sales-service
customers purchase natural gas and receive transportation and delivery services
from PNMGS for which PNMGS receives both cost-of-gas and cost-of-service
revenues. Cost-of-gas revenues collected from sales-service customers are a
recovery of the cost of purchased gas in accordance with NMPUC rules and
regulations and, in that sense, do not affect the net earnings of the Company.
6
Transportation-service customers, who procure gas independently of PNMGS and
contract with PNMGS for transportation and related services, provide PNMGS with
cost-of-service revenues only. Transportation services are provided to gas
marketers generally for delivery to locations throughout the PNMGS distribution
systems, to natural gas producers generally for delivery to interstate pipelines
and directly to end-users. PNMGS provided gas transportation deliveries to
approximately 1,200 gas marketers and producers during 1995.
For the twelve months ended December 31, 1995, PNMGS had throughput of
approximately 110 million decatherms, including sales of 37.3 million decatherms
to sales-service customers. No single "sales-service" customer accounted for
more than 1.5% of PNMGS' therm sales in 1995. During 1995, approximately 63.7%
of the PNMGS' total gas throughput was related to transportation gas deliveries.
PNMGS' transportation rates are unbundled, and transportation customers only pay
for the amount of transportation service they receive. PNMGS' total operating
revenues for the year ended December 31, 1995, were approximately $218.0
million. Cost-of-gas revenues, received from sales-service customers, accounted
for approximately 39.7% of PNMGS' total operating revenues. Since a major
portion of PNMGS' load is related to heating, levels of therm sales are affected
by the weather. Approximately 44.2% of PNMGS' total therm sales in 1995 occurred
in the months of January, February, November and December.
Natural Gas Supply
During the late 1980's, there were significant changes in the natural gas
industry brought about by Federal and state regulations which dramatically
altered the way gas is bought, transported and sold nationwide. These changes
required PNMGS to reform or terminate certain natural gas purchase contracts
which required PNMGS to take gas in excess of demand. This process resulted in
breach of contract claims from some producers. PNMGS has been able to resolve
substantially all of the producer litigation and reform its supply portfolio so
that it better matches the demands of PNMGS' sales-service customers. These
reformations have also allowed PNMGS to seek new sources of gas supplies through
pipeline interconnects which have created a more flexible and reliable supply
portfolio. PNMGS obtains its supply of natural gas primarily from sources within
New Mexico pursuant to contracts with producers and marketers. These contracts
are generally sufficient to meet the PNMGS's peak-day demand.
PNMGS serves certain cities which depend on EPNG or Transwestern Pipeline
Company for transportation of gas supplies. Because these cities are not
directly connected to PNMGS'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, PNMGS' options for
transporting gas to such cities and other portions of its distribution system
have increased.
7
Natural Gas Sales
The following table shows gas throughput by customer class**:
GAS THROUGHPUT
(Millions of decatherms)
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Residential ............ 25.9 27.1 28.0 27.1 26.2
Commercial ............. 8.9 9.8 10.4 10.6 11.4
Industrial ............. 0.7 0.8 0.9 0.7 0.8
Public authorities...... 2.4 2.5 2.5 4.2 4.9
Irrigation ............. 1.2 1.3 1.3 1.1 1.4
Sales for resale........ 2.5 0.7 1.0 2.0 1.4
Unbilled ............... (1.8) (0.3) (0.6) 0.6 --
Transportation* ........ 69.8 90.2 91.8 73.6 62.6
Spot market sale ....... -- -- -- 0.9 1.6
------ ------ ------ ------ ------
109.6 132.1 135.3 120.8 110.3
====== ====== ====== ====== ======
The following table shows gas revenues by customer class**:
GAS REVENUES
(Thousands of dollars)
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
Residential .......... $ 125,290 $ 149,439 $ 149,796 $ 125,313 $ 137,436
Commercial ........... 32,328 42,725 44,575 37,222 46,676
Industrial ........... 1,873 2,905 3,369 2,063 2,754
Public authorities.... 7,939 9,969 9,694 12,313 17,711
Irrigation ........... 3,077 4,061 4,418 2,713 4,495
Sales for resale ..... 4,999 2,462 3,137 4,460 3,848
Unbilled ............. (2,430) 267 (1,573) 716 --
Transportation* ...... 22,172 27,592 26,729 18,753 16,997
Liquids .............. 13,414 16,090 18,724 26,427 30,500
Processing fees ...... 5,180 10,638 9,761 6,795 5,819
Spot market sales..... 42 -- 4 1,410 1,771
Other ................ 4,101 3,362 2,453 4,974 9,062
--------- --------- --------- --------- ---------
$ 217,985 $ 269,510 $ 271,087 $ 243,159 $ 277,069
========= ========= ========= ========= =========
- --------------------
* Customer-owned gas
** On June 30, 1995, the Company sold substantially all of the gas gathering
and processing assets of the Company and its gas subsidiaries. The above
information reflects the revenues and throughput of the gathering company
and processing company through this date.
8
RATES AND REGULATION
The Company is subject to the jurisdiction of the NMPUC with respect to
its retail electric and gas rates, service, accounting, issuance of securities,
construction of major new generation and transmission facilities and other
matters. The FERC has jurisdiction over rates and other matters related to
wholesale electric sales.
FPPCAC
The Company's firm-requirements wholesale customers have a FPPCAC which
has an approximate 30-day time lag in implementation of the FPPCAC for billing
purposes. The Company's FPPCAC for its firm-requirement wholesale customers had
been at variance with the filed FERC tariffs. As a result, the Company filed a
petition with FERC on October 28, 1993 to request deviation from the filed FERC
tariffs for the period of July 1985 through January 1993. The Company's filing
indicated that the four firm-requirements wholesale customers benefitted during
that time period relative to the energy costs they would have been billed under
the application of the filed FERC tariffs. The four affected customers concur
with the Company's position and have filed a certificate of concurrence with
FERC. Discussions regarding the Company's filing with FERC staff have occurred,
but at this time no formal response has been given to the Company. The Company
has no indication of when a formal response will be received; however, the
Company does not anticipate any material adverse impact on the Company's
financial condition or results of operations as a result of this issue.
Fossil-Fueled Plant Decommissioning Costs
The Company's six owned or partially owned, in service and retired,
fossil-fueled generating stations are expected to incur dismantling and
reclamation costs as they are decommissioned. The Company's share of
decommissioning costs for all of its fossil-fueled generating stations is
projected to be approximately $141 million stated in 1995 dollars, including
approximately $24.0 million (of which $12.1 million has already been expended)
for Person, Prager and Santa Fe Stations which have been retired.
The Company is currently recovering estimated decommissioning costs from
NMPUC retail customers through its depreciation rates. Depreciation amounts for
the retired generating units are not being recovered.
Energy and Utility Related Subsidiaries
On June 23, 1995, the Company filed an application for authorization for
the creation of three wholly-owned subsidiaries to: (i) manage and operate water
and wastewater systems; (ii) pursue energy marketing, alternative fuel vehicle
services and energy management services; and (iii) pursue utility management
services and related energy management services for Federal installations and
large commercial customers. The Company sought approval to invest a maximum of
$50 million in the three subsidiaries over time and to enter into reciprocal
loan agreements for up to $30 million with these subsidiaries. The NMPUC Staff
filed a motion on September 20, 1995 to have the case dismissed. On January 31,
1996, the hearing examiner assigned to the case recommended that the NMPUC deny
the Staff's motion. On February 5, 1996, the Staff filed a motion seeking to
have the Company file an immediate report on its non-regulated activities being
conducted without prior NMPUC approval; explain why NMPUC approval is not
required; and explain why sanctions should not be considered if approval is
required. On February 19, 1996, the Company filed its response describing its
non-utility (energy and utility related) activities and presenting the legal
authority demonstrating that prior NMPUC approval is not required. The Company
currently cannot predict the ultimate outcome of this proceeding but intends to
vigorously defend against any allegation that it is in violation of any legal
requirements.
9
Gas Rate Case
On August 28, 1995, the Company filed a request for a $13.3 million
increase in its retail natural gas sales and transportation rates. NMPUC Staff
and intervenors in the case filed their testimony on January 16, 1996. The Staff
recommended a $2.5 million rate decrease and the AG recommended a $14.7 million
rate decrease. The major issues in the case center around the Company's request
to recover certain costs associated with reservation fees, discounts given to
large and industrial transportation customers and losses incurred to reacquire
debt. The Company anticipates that it will have deferred as regulatory assets
approximately $22 million related to these items through July 1, 1996, the date
when rates are anticipated to go into effect. The Company will file its rebuttal
testimony on February 23, 1996 and hearings will begin on March 4, 1996.
Although the Company cannot predict the ultimate outcome of this case, the
Company believes that it has meritorious claims and will vigorously pursue the
recovery of these assets.
PGAC Continuation Filing
Retail gas rate schedules contain a PGAC which provides for timely
recovery of the cost of gas purchased for resale to its sales-service customers.
On April 20, 1993, PNMGS filed its application requesting authority to continue
the use of its PGAC. An item included in this application was a request to
recover reservation fees as a cost of gas through the PGAC. On October 26, 1995,
the Hearing Examiner issued a Recommended Decision allowing, among other items,
the continued use of the PGAC but recommended that reservation fees not be
recoverable through the PGAC. PNMGS filed an exception to the portion of the
Recommended Decision relating to reservation fees. PNMGS is awaiting final NMPUC
approval. PNMGS is attempting to recover these same reservation fees in the
ongoing general rate proceeding (see "Gas Rate Case" above). On February 19,
1996, the NMPUC issued an order requiring PNMGS to file supplemental testimony
regarding the volatile nature of its gas costs.
In a related proceeding, the NMPUC on September 18, 1995, issued a Notice
of Inquiry seeking comments as to whether the NMPUC rule that governs the
operation of PGACs should be amended. In November 1995, the Company joined with
the NMPUC Staff and the AG in recommending that such rule be substantially
rewritten.
Consolidation Issues
Pursuant to a prior NMPUC order, the Company filed an application in
December 1993 for NMPUC approval to combine certain customer service functions
of its gas and electric utility divisions in order to achieve more efficient
operations and to improve service to customers. At the same time, the Company
filed a separate request for a declaratory order from the NMPUC confirming that
the Company's realignment of senior corporate officers' responsibilities during
1993 complies with a 1984 NMPUC order placing certain organizational
restrictions on the operation of the gas and electric divisions. In 1994, the
NMPUC consolidated the two proceedings.
In January 1995, the Company and the staff of the NMPUC entered into a
stipulation regarding the consolidated cases. The stipulation provides for the
approval of the consolidation of certain customer service functions of the gas
and electric divisions, as proposed by the Company. The stipulation also
provides for the dismissal of the declaratory order proceeding without a
determination that the Company's 1993 or 1994 organizational structure was
either in compliance or not in compliance with the 1984 NMPUC order. In May
1995, the NMPUC issued its final order approving the stipulation. In its order,
the NMPUC stated that it was explicitly not ruling at this time on whether the
Company's 1993-1994 organization has harmed the public interest. The NMPUC also
approved the phase-in of consolidation of certain customer services for one
year. During this period, the Company is required to submit semi-annual reports
to the NMPUC on the costs and savings of customer service consolidation.
10
Legislative Action
In the recent legislature session which ended February 15, 1996, the New
Mexico Legislature approved a constitutional amendment which would alter the
current state regulatory system relating to the electric utility industry in New
Mexico. If approved by voters at the next general election in November 1996, the
amendment to the state constitution would replace the existing NMPUC and State
Corporate Commission with a single, elected regulatory body. Beginning in 1999,
the new five-member "Public Regulation Commission" would regulate electric and
gas utilities as well as telecommunications, cable TV, insurance, trucking and
all other entities presently regulated under current state law. The Company is
neutral on this proposed change.
ENVIRONMENTAL FACTORS
The Company, in common with other electric and gas utilities, is subject
to stringent regulations for protection of the environment by both state and
Federal authorities. PVNGS is subject to the jurisdiction of the NRC, which has
authority to issue permits and licenses and to regulate nuclear facilities in
order to protect the health and safety of the public from radioactive hazards
and to conduct environmental reviews pursuant to the National Environmental
Policy Act. The Company believes that it is in compliance, in all material
respects, with the environmental laws. The Company does not currently expect
that material expenditures for environmental control facilities will be required
in 1996 and 1997.
The Clean Air Act
The Clean Air Act amendments of 1990 (the "Act") impose stringent limits
on emissions of sulfur dioxide and nitrogen oxides from fossil-fueled electric
generating plants. The Act is intended to reduce air contamination from every
sizeable source of air pollution in the nation. Electric utilities with
fossil-fueled generating units will be affected particularly by the section of
the Act which deals with acid rain. To be in compliance with the Act, many
utilities will be faced with installing expensive sulfur dioxide removal
equipment, securing low sulfur coal, buying sulfur dioxide emission allowances,
or a combination of these. Due to the existing air pollution control equipment
on the coal-fired SJGS and Four Corners, the Company believes that it will not
be faced with any material capital expenditures in order to be in compliance
with the acid rain provision of the Act. SJGS and Four Corners have installed
flow monitoring equipment and have completed certification testing of their
continuous emission monitoring equipment. Certification testing data was
submitted to the EPA on January 30, 1995, as required. Certification of the
monitoring systems by the EPA is expected. Under other provisions of the Act,
the Company will be required to obtain operating permits for its coal- and
gas-fired generating units and to pay annual fees associated with the operating
permit program. The New Mexico operating permit program was approved by the EPA
in November 1994. Operating permit applications were submitted to the state in
1995. The state has not issued any operating permits.
The Act also established the Grand Canyon Visibility Transport Commission
("Commission") and charged it with assessing adverse impacts on visibility at
the Grand Canyon. The Commission broadened its scope to assess visibility
impairment in mandatory Class I areas (parks and wilderness areas) located in
the Colorado Plateau ("Golden Circle"). The Commission must report to the EPA by
June 1996 on its findings and make recommendations regarding what actions, if
any, should be pursued in order to remedy the visibility impairment in the
Golden Circle. Depending on the recommendations of the Commission, the EPA may
require stricter controls on sources that may be contributing to the visibility
impairment. Both SJGS and Four Corners are located near the Golden Circle. The
exact nature and cost of additional controls, if any, that may be required as a
result of the recommendations cannot be estimated at this time.
11
For other environmental issues facing the Company, see PART II, ITEM 7.
- -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS --OTHER ISSUES FACING THE COMPANY -- ENVIRONMENTAL ISSUES -- Electric
Operations and ENVIRONMENTAL ISSUES -- Gas Operations".
ITEM 2. PROPERTIES
Substantially all of the Company's utility plant is mortgaged to secure
its first mortgage bonds.
ELECTRIC
The Company's electric generating stations in commercial service as of
December 31, 1995, were as follows:
Total Net
Generation
Type Name Location Capacity (MW)
- ---- ---- -------- -------------
Nuclear.......... PVNGS (a) Wintersburg, Arizona 390*
Coal............. SJGS (b) Waterflow, New Mexico 750
Coal............. Four Corners (c) Fruitland, New Mexico 192
Gas/Oil.......... Reeves Albuquerque, New Mexico 154
Gas/Oil.......... Las Vegas Las Vegas, New Mexico 20
-----
1,506
=====
* For load and resource purposes, the Company has notified the NMPUC
that it recognizes the maximum dependable capacity rating for PVNGS
to be 375 MW.
- -----------------
(a) The Company is entitled to 10.2% of the power and energy
generated by PVNGS. The Company has a 10.2% ownership interest
in Unit 3 and has leasehold interests in Units 1 and 2.
(b) SJGS Units 1, 2 and 3 are 50% owned by the Company; SJGS Unit 4
is 38.457% owned by the Company.
(c) Four Corners Units 4 and 5 are 13% owned by the Company.
Fossil-Fueled Plants
SJGS is located in northwestern New Mexico, and consists of four units
operated by the Company. Units 1, 2, 3 and 4 at SJGS have net rated capacities
of 316 MW, 312 MW, 488 MW and 498 MW, respectively. SJGS Units 1 and 2 are owned
on a 50% shared basis with Tucson. Unit 3 is owned 50% by the Company, 41.8% by
SCPPA and 8.2% by Tri-State Generation and Transmission Association, Inc. Unit 4
is owned 38.457% by the Company, 8.475% by Farmington, 28.8% by M-S-R, 7.2% by
Los Alamos, 10.04% by Anaheim and 7.028% by UAMPS. The Company's net aggregate
ownership in SJGS is 750 MW. In connection with the Company's sale to M-S-R in
December 1983 of a 28.8% interest in SJGS Unit 4, the Company agreed to purchase
under certain conditions 73.53% (105 MW) of M-S-R's capacity through April 30,
1995. The Company also agreed to market the energy associated with the remaining
26.47% portion of M-S-R's capacity through April 30, 1995.
The Company also owns 192 MW of net rated capacity derived from its 13%
interest in Units 4 and 5 of Four Corners located in northwestern New Mexico on
land leased from the Navajo Nation and adjacent to available coal deposits.
Units 4 and 5 at Four Corners are jointly owned with SCE, APS, Salt River
Project, Tucson and El Paso and are operated by APS.
12
The Company owns 154 MW of generation capacity at Reeves Station in
Albuquerque, New Mexico, and 20 MW of generation capacity at Las Vegas Station
in Las Vegas, New Mexico. These stations are used primarily for peaking and
transmission support.
Nuclear Plant
The Company's Interest in PVNGS
The Company is participating in the three 1,270 MW units of PVNGS, also
known as the Arizona Nuclear Power Project, with APS (the operating agent), Salt
River Project, El Paso, SCE, SCPPA and The Department of Water and Power of the
City of Los Angeles. The Company has a 10.2% undivided interest in PVNGS, with
its interests in Units 1 and 2 held under leases. In September 1992, the Company
purchased approximately 22% of the beneficial interests in the PVNGS Units 1 and
2 leases for approximately $17.5 million. The Company's ownership and leasehold
interests in PVNGS amount to 130 MW per unit, or a total of 390 MW. PVNGS Units
1, 2 and 3 were declared in commercial service by the Company in January 1986,
September 1986 and January 1988, respectively. Commercial operation of PVNGS
requires full power operating licenses which were granted by the NRC.
Maintenance of these licenses is subject to NRC regulation.
During 1995, PVNGS was operated at a capacity factor of 83.6%. This is
the highest yearly capacity factor that has been attained at the plant. In
addition, PVNGS operating costs declined and the length of refueling outages was
significantly reduced. Recently, an independent organization that reviews
nuclear plants for safety and effectiveness of operation awarded PVNGS the
highest rating possible.
Steam Generator Tubes
For information concerning steam generator tubes, see PART II, ITEM 7. --
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- PVNGS -- STEAM GENERATOR
TUBES".
Sale and Leaseback Transactions of PVNGS Units 1 and 2
In eleven transactions consummated in 1985 and 1986, the Company 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 each transaction, the Company sold interests to an owner trustee under an
owner trust agreement with an institutional equity investor. The owner trustees,
as lessors, leased the interests to the Company under lease agreements having
initial terms expiring January 15, 2015 (with respect to the Unit 1 leases) or
January 15, 2016 (with respect to the Unit 2 leases). Each lease provides an
option to the Company to extend the term of the lease as well as a repurchase
option. The lease expense for the Company's PVNGS leases is approximately $66.3
million per year. Throughout the terms of the leases, the Company continues to
have full and exclusive authority and responsibility to exercise and perform all
of the rights and duties of a participant in PVNGS under the Arizona Nuclear
Power Project Participation Agreement and retains the exclusive right to sell
and dispose of its 10.2% share of the power and energy generated by PVNGS Units
1 and 2. The Company also retains responsibility for payment of its share of all
taxes, insurance premiums, operating and maintenance costs, costs related to
capital improvements and decommissioning and all other similar costs and
expenses associated with the leased facilities. On September 2, 1992, the
Company purchased approximately 22% of the beneficial interests in the PVNGS
Units 1 and 2 leases for $17.5 million. For accounting purposes, this
transaction was recorded as a purchase with the Company recording approximately
$158.3 million as utility plant and $140.8 million as long-term debt on the
Company's consolidated balance sheet. In connection with the $30 million retail
rate reduction, the Company wrote down the purchased beneficial interests in
13
PVNGS Units 1 and 2 leases to $46.7 million. In March 1995, the Company retired
approximately $130 million of PVNGS lease obligation bonds ("LOBs").
Each lease describes certain events, "Events of Loss" or "Deemed Loss
Events", the occurrence of which could require the Company to, among other
things, (i) pay the lessor and the equity investor, in return for such
investor's interest in PVNGS, cash in the amount provided in the lease, which
amount, primarily because of certain tax consequences, would exceed such equity
investor's outstanding equity investment, and (ii) assume debt obligations
relating to the PVNGS lease. The "Events of Loss" generally relate to
casualties, accidents and other events at PVNGS, which would severely adversely
affect the ability of the operating agent, APS, to operate, and the ability of
the Company to earn a return on its interests in, PVNGS. The "Deemed Loss
Events" consist mostly of legal and regulatory changes (such as changes in law
making the sale and leaseback transactions illegal, or changes in law making the
lessors liable for nuclear decommissioning obligations). The Company believes
the probability of such "Events of Loss" or "Deemed Loss Events" occurring is
remote. Such belief is based on the following reasons: (i) to a large extent,
prevention of "Events of Loss" and some "Deemed Loss Events" is within the
control of the PVNGS participants, including the Company, and the PVNGS
operating agent, through the general PVNGS operational and safety oversight
process and (ii) with respect to other "Deemed Loss Events," which would involve
a significant change in current law and policy, the Company is unaware of any
pending proposals or proposals being considered for introduction in Congress or
any state legislative or regulatory body that, if adopted, would cause any such
events.
PVNGS Decommissioning Funding
For information concerning PVNGS decommissioning funding, see PART II,
ITEM 7. --"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- PVNGS NUCLEAR
DECOMMISSIONING".
PVNGS Liability and Insurance Matters
The PVNGS participants have insurance for public liability payments
resulting from nuclear energy hazards to the full limit of liability under
Federal law. This potential liability is covered by primary liability insurance
provided by commercial insurance carriers in the amount of $200 million and the
balance by an industry-wide retrospective assessment program. The maximum
assessment per reactor under the retrospective rating program for each nuclear
incident occurring at any nuclear power plant in the United States is
approximately $79.3 million, subject to an annual limit of $10 million per
incident. Based upon the Company's 10.2% interest in the three PVNGS units, the
Company's maximum potential assessment per incident is approximately $24.3
million, with an annual payment limitation of $3 million. The insureds under
this liability insurance include the PVNGS participants and "any other person or
organization with respect to his legal responsibility for damage caused by the
nuclear energy hazard". The PVNGS participants maintain "all-risk" (including
nuclear hazards) insurance for nuclear property damage to, and decontamination
of, property at PVNGS in the aggregate amount of approximately $2.75 billion as
of January 1, 1996, a substantial portion of which must be applied to
stabilization and decontamination. The Company has also secured insurance
against a portion of the increased cost of generation or purchased power
resulting from certain accidental outages of any of the three PVNGS units if the
outage exceeds 21 weeks.
Other Electric Properties
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 which leases might require Congressional
consent. The risk with respect to the enforcement of these easements
14
and leases is not deemed by the Company to be material. However, the Company is
dependent in some measure upon the willingness and ability of the Navajo Nation
to protect these properties. (See PART II, ITEM 7. -- "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- OTHER ISSUES
FACING THE COMPANY -- TRANSMISSION ISSUES -- Transmission Right-of-Way".)
As of December 31, 1995, the Company owned, jointly owned or leased 2,789
circuit miles of electric transmission lines, 5,279 miles of distribution
overhead lines, 3,109 cable miles of underground distribution lines (excluding
street lighting) and 225 substations.
NATURAL GAS
The natural gas property as of December 31, 1995 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 and an agreement with owners of a
unitized oil field located near Artesia, New Mexico, in which the Company has
injection and redelivery rights. The Company has agreed to terminate the storage
agreement with owners of the unitized oil field and plans to withdraw all gas
stored in that facility by April 1996. The transmission systems consisted of
approximately 1,256 miles of pipe with appurtenant compression facilities. The
distribution systems consisted of approximately 9,898 miles of pipe.
The Company leases approximately 98 miles of transmission pipe from the
DOE for transportation of natural gas to Los Alamos and to certain other
communities in northern New Mexico. The lease can be terminated by either party
on 30 days written notice, although the Company believes it has the right to use
the facility for two years after termination. The DOE has announced plans to
sell the pipeline and issued a draft Request for Proposal with a schedule to
complete the sale of the pipeline by September 30, 1996. Several right-of-way
and regulatory issues remain to be resolved making the scheduled completion date
questionable. The Company has been and will continue to be highly involved in
the process.
OTHER INFORMATION
The electric and gas transmission and distribution lines are generally
located within easements and rights-of-way on public, private and Indian lands.
The Company leases interests in PVNGS Units 1 and 2 and related property, EIP
and associated equipment, data processing, communication, office and other
equipment, office space, utility poles (joint use), vehicles and real estate.
The Company also owns and leases service and office facilities in Albuquerque
and in other operating divisions throughout its service territory.
ITEM 3. LEGAL PROCEEDINGS
PVNGS WATER SUPPLY LITIGATION
The validity of the primary effluent contract under which water necessary
for the operation of the PVNGS units is obtained was challenged in a suit filed
in January 1982 by the Salt River Pima-Maricopa Indian Community (the
"community") against the Department of the Interior, the Federal agency alleged
to have jurisdiction over the use of the effluent. The PVNGS participants,
including the Company, were named as additional defendants in the proceeding,
which is before the United States District Court for the District of Arizona.
The portion of the action challenging the effluent contract has been stayed
until the community litigates certain claims in the same action against the
Department of the Interior and other defendants. On October 21, 1988, Federal
legislation was enacted conforming to the requirements of a proposed settlement
that would terminate this case without affecting the validity of the primary
effluent contract. However, certain contingencies are to be performed before the
15
settlement is finalized and the suit is dismissed. One of these contingencies is
the approval of the settlement by the court in the Lower Gila River Watershed
litigation referred to below.
The Company understands that a summons served on APS in early 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 to the use
of groundwater and effluent at PVNGS are potentially at issue in this action.
APS, as the PVNGS project manager, filed claims that dispute the court's
jurisdiction over the PVNGS participants' groundwater rights and their
contractual rights to effluent relating to PVNGS and, alternatively, seek
confirmation of such rights. No trial date has been set in this matter.
Although the foregoing matters remain subject to further evaluation, APS
expects that the described litigation will not have a material adverse impact on
the operation of PVNGS.
SAN JUAN RIVER ADJUDICATION
In 1975, the State of New Mexico filed an action entitled State of New
Mexico v. United States, et al., in the District Court of San Juan County, New
Mexico, to adjudicate all water rights in the "San Juan River Stream System".
The Company was made a defendant in the litigation in 1976. The action was
expected to adjudicate water rights used at Four Corners and at SJGS. (See ITEM
1. "BUSINESS -- ELECTRIC OPERATIONS -- Fuel and Water Supply".) The Company
cannot at this time anticipate the effect, if any, of any water rights
adjudication on the present arrangements for water at SJGS and Four Corners. It
is the Company's understanding that final resolution of the case cannot be
expected for several years.
PVNGS PROPERTY TAXES
On June 29, 1990, an Arizona state tax law was enacted, effective as of
December 31, 1989, which adversely impacted the Company's earnings in the years
of 1990 through 1995 by approximately $5 million per year, before income taxes.
On December 20, 1990, the PVNGS participants, including the Company, filed a
lawsuit in the Arizona Tax Court, a division of the Maricopa County Superior
Court, against the Arizona Department of Revenue, the Treasurer of the State of
Arizona, and various Arizona counties, claiming, among other things, that
portions of the new tax law are unconstitutional. In December 1992, the court
granted summary judgment to the taxing authorities, holding that the law is
constitutional. The PVNGS participants appealed this decision to the Arizona
Court of Appeals. On November 21, 1995, the Arizona Court of Appeals ruled in
favor of the PVNGS participants. Due to the significance of this decision, it is
anticipated that the case will be further pursued through the courts. The
Company cannot currently predict the ultimate outcome of this matter.
OTHER PROCEEDINGS
FederalDeposit Insurance Corporation ("FDIC") Litigation, formerly Resolution
Trust Corporation ("RTC") Litigation ("MDL-995")
On March 31, 1993, certain individuals ("the New Mexico Plaintiffs"),
formerly affiliated with BCD, whose general partners include Meadows, filed suit
("the New Mexico suit") in the United States District Court for the District of
New Mexico against numerous parties, including the Company, current and former
employees of the Company or Meadows, and MCB Financial Group, Inc., a Delaware
corporation ("MCB"), 50% of which stock is owned by Meadows. The New Mexico
Plaintiffs did not request any monetary relief against the Company or certain
current and former employees of the Company and Meadows but have
16
joined those parties in connection with insurance coverage and bad faith
insurance practices alleged against the insurance company which had issued a
directors and officers liability policy to various entities, including MCB and
BCD. The insurance allegations are made in connection with claims which were
then threatened by the RTC, as receiver for Western Savings & Loan Association
("Western"), against the Company and others. The New Mexico Plaintiffs also sued
the RTC for a declaration that they are not liable for any claims asserted by
the RTC involving Western and BCD. The Company and the current and former
employees of the Company or Meadows counterclaimed against the New Mexico
Plaintiffs and cross-claimed against the insurance company and the RTC in
connection with insurance coverage and bad faith insurance practices. In
addition, the Company and the current and former employees of the Company or
Meadows cross-claimed against the RTC, seeking a declaration of non-liability.
The RTC moved to transfer the case to the United States District Court
for the District of Arizona. On February 7, 1994, an order was entered
transferring the case in its entirety. Prior to the transfer, however, the New
Mexico magistrate judge issued a proposed order which, if accepted by the
district judge, would require the parties to enter into mediation of all the
claims. The parties to the New Mexico suit reached agreement on a dismissal
without prejudice of the claims remaining in that suit, and on April 22, 1995,
the Court entered an order dismissing the case without prejudice. Under the
terms of the proposed order of dismissal, a motion for sanctions filed against
the RTC by the Company and other parties to the suit (which asserts that RTC
engaged in bad faith settlement negotiations) remains pending before the Arizona
court.
On April 16, 1993, the Company and certain current and former employees
of the Company or Meadows were named as defendants in an action filed in the
United States District Court for the District of Arizona by the RTC, as receiver
for Western. Three of the individuals sued by the RTC have indemnity agreements
with the Company. The claims relate to alleged actions of the Company's or
Meadows' employees in 1987 in connection with a loan procured by BCD, whose
general partners include Meadows, from Western and the purchase by that
partnership of property owned by Western. The RTC apparently claims that the
Company's liability stems from the actions of a former employee who allegedly
acted on behalf of the Company for the Company's benefit. The RTC is claiming in
excess of $40 million in actual damages from the BCD/Western transactions and is
also claiming damages substantially exceeding that amount on Arizona
racketeering, civil conspiracy and aiding and abetting theories. These
allegations involve claims against the Company for damages to Western caused by
other defendants and from other transactions to which BCD was not a party. The
Company is sued only on the Arizona racketeering claims. The RTC claims that
damages under the Arizona racketeering statute would be trebled under applicable
Arizona law. The prevailing parties on the Arizona racketeering claims could
seek their fees and costs from the parties who do not prevail.
In May 1994, the RTC filed a motion seeking to amend the complaint to
allege against the Company civil conspiracy, common law fraud, negligent
misrepresentation, aiding and abetting breach of fiduciary duties, aiding and
abetting common law fraud, aiding and abetting violation of Federal and Arizona
racketeering laws (all of which claims are already asserted against the
Company's current and former employees named in the suit) and claims seeking to
hold the Company liable on undisclosed principal and unjust enrichment theories.
The Company filed an opposition to the motion and, in September 1994, the Court
denied the RTC's motion to amend. Previously, the Court dismissed the RTC's
claims for aiding and abetting violations of the Federal and Arizona
racketeering laws against the Company, the current and former employees of the
Company or Meadows and others.
Subsequent to the Court's denial of the RTC's motion to amend the
complaint, the RTC filed a motion seeking to amend the case management order
previously entered by the Court. The purpose of the motion was to allow the RTC
to file an amended complaint which would include the allegations against the
17
Company sought by the motion to amend that was denied by the Court in September
1994. On November 7, 1994, the Court denied this new motion.
On December 31, 1995, the RTC ceased to exist and its duties and
responsibilities were transferred to the FDIC. The FDIC has been substituted for
the RTC as plaintiff in MDL-995.
The Company and the current and former employees of the Company or
Meadows sued by the RTC continued to have settlement negotiations with the RTC
during its existence, but those efforts were not successful. Settlement
discussions will continue with the FDIC.
The Company continues to investigate all of the claims made by the FDIC
in this litigation and is vigorously defending those claims. The Company cannot
predict the ultimate outcome of the case but believes that the FDIC's
contentions are without merit and currently believes that the outcome will not
result in a material adverse impact on the Company's results of operations or
financial condition.
Four Corners
The Company owns a 13% ownership interest in Units 4 and 5 of Four
Corners located in northwestern New Mexico on land leased from the Navajo
Nation. APS is the operating agent. In July 1995, the Navajo Nation enacted the
Navajo Nation Air Pollution Prevention and Control Act, the Navajo Nation Safe
Drinking Water Act and the Navajo Nation Pesticide Act (collectively, the
"Acts"). By letter dated October 12, 1995, the Four Corners participants
requested the United States Secretary of the Interior (the "Secretary") to
resolve their dispute with the Navajo Nation regarding whether or not the Acts
apply to operation of Four Corners. The Four Corners participants subsequently
filed a lawsuit in the District Court of the Navajo Nation (the "Court"), Window
Rock District, seeking, among other things, a declaratory judgment that: (i) the
Four Corners leases and Federal easements preclude the application of the Acts
to the operation of Four Corners; and (ii) the Navajo Nation and its agencies
and courts lack adjudicatory jurisdiction to determine the enforceability of the
Acts as applied to Four Corners. On October 18, 1995, the Navajo Nation and the
Four Corners participants agreed to indefinitely stay the proceedings referenced
above so that the parties may attempt to resolve the dispute without litigation,
and have requested that the Secretary and the Court stay these proceedings. The
Company is unable to predict the outcome of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
Executive officers, their ages, offices held with the Company in the past
five years and initial effective dates thereof, were as follows on December 31,
1995, except as otherwise noted:
Name Age Office Initial Effective Date
---- --- ------ ----------------------
B. F. Montoya...... 60 President and Chief Executive Officer August 1, 1993
M. P. Bourque...... 48 Senior Vice President, Energy Services December 6, 1994
Senior Vice President, Marketing and December 7, 1993
Customer Services
Senior Vice President, Marketing and March 2, 1993
Energy Management
Senior Vice President, Gas Management June 19, 1990
Services
M. D. Christensen.. 47 Senior Vice President, Customer Service January 9, 1996
and Public Affairs
Vice President, Public Affairs December 7, 1993
Vice President, Communications July 22, 1991
R. J. Flynn........ 53 Senior Vice President, Electric December 1, 1994
Services
M. H. Maerki....... 55 Senior Vice President and Chief December 7, 1993
Financial Officer
Senior Vice President, Administration March 2, 1993
and Chief Financial Officer
Senior Vice President and Chief June 1, 1988
Financial Officer
P. T. Ortiz........ 45 Senior Vice President, General December 6, 1994
Counsel and Secretary
Senior Vice President, Regulatory December 7, 1993
Policy, General Counsel and
Secretary
Senior Vice President, Public Policy, March 2, 1993
General Counsel and Secretary
Senior Vice President, General February 4, 1992
Counsel and Corporate Secretary
Senior Vice President and General October 14, 1991
Counsel
W. J. Real......... 47 Senior Vice President, Gas Services December 6, 1994
Senior Vice President, Utility December 7, 1993
Operations
Senior Vice President, Customer March 2, 1993
Service and Operations
Executive Vice President, Gas June 19, 1990
Operations
J. E. Sterba....... 40 Senior Vice President, Bulk Power December 6, 1994
Services
Senior Vice President, Corporate December 7, 1993
Development
Senior Vice President, Asset April 6, 1993
Restructuring
Senior Vice President, Retail January 29, 1991
Electric and Water Services
Senior Vice President, Business September 1, 1988
Development Group, Electric
and Water Operations
19
Name Age Office Initial Effective Date
---- --- ------ ----------------------
J. A. Zanotti...... 55 Senior Vice President, Human Resources January 9, 1996
Vice President, Human Resources March 2, 1993
Senior Vice President, Human Resources July 26, 1990
and Communications
- -----------
All officers are elected annually by the board of directors of the
Company.
All of the above executive officers have been employed by the Company
and/or its subsidiaries for more than five years in executive or management
positions, with the exception of P. T. Ortiz, M. D. Christensen, B. F. Montoya
and R. J. Flynn. Prior to employment with the Company, P. T. Ortiz was employed
by U S WEST Communications during the period of January 1988 to October 1991 as
Chief Counsel- New Mexico. The principal business of U S WEST Communications is
telecommunications. Prior to employment with the Company, M. D. Christensen was
employed with Southern California Gas. During the period 1990 through 1991, M.
D. Christensen was Vice President of Planning. Prior to employment with the
Company, B. F. Montoya was employed with Pacific Gas and Electric Company
("PG&E") since 1989. In 1991, he was promoted to Senior Vice President and
General Manager of the Gas Supply Business Unit of PG&E. Prior to his employment
with PG&E, B. F. Montoya spent 31 years in the Civil Engineer Corps of the U.S.
Navy, performing a wide range of management and utility-related assignments. B.
F. Montoya achieved the rank of Rear Admiral when he became Commander, Naval
Facilities Engineering Command and Chief of Civil Engineers. R. J. Flynn has a
30-year history in the utility industry working with PG&E. Since 1989, R. J.
Flynn held the position of Regional Vice President, responsible for all gas and
electric utility operations in the San Joaquin Valley.
20
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) for 1995 and 1994, by quarters, are as follows:
Range of
Quarter Ended Sales Prices
High Low
---- ---
1995:
December 31.............................................. 18 1/4 16 1/8
September 30............................................. 16 3/8 13 3/4
June 30.................................................. 14 1/4 12 3/8
March 31................................................. 13 7/8 12 1/4
Fiscal Year........................................... 18 1/4 12 1/4
1994:
December 31.............................................. 13 1/2 11 5/8
September 30............................................. 12 5/8 11 1/4
June 30.................................................. 13 3/8 11 3/8
March 31................................................. 13 5/8 11
Fiscal Year........................................... 13 5/8 11
On January 31, 1996, there were 20,382 holders of record of the Company's
common stock.
Cumulative Preferred Stock
While isolated sales of the Company's cumulative preferred stock have
occurred in the past, the Company is not aware of any active trading market for
its cumulative preferred stock. Quarterly cash dividends were paid on each
series of the Company's cumulative preferred stock at their stated rates during
1995 and 1994.
For a discussion of dividend restrictions on the Company's common and
preferred stock and the 1995 preferred stock redemption, see note 4 of the notes
to consolidated financial statements and ITEM 7. --"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND
CAPITAL RESOURCES -- Financing Capability and Dividend Restrictions".
21
ITEM 6. SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(In thousands except per share amounts and ratios)
Total Operating Revenues*............... $ 808,465 $ 904,711 $ 873,878 $ 851,953 $ 857,168
Net Earnings (Loss)..................... $ 75,562 $ 80,318 $ (61,486)** $ (104,255)+ $ 22,960
Earnings (Loss) per Common
Share................................ $ 1.72 $ 1.77 $ (1.64)** $ (2.67)+ $ 0.32
Total Assets............................ $ 2,035,669 $ 2,203,265 $ 2,212,189 $ 2,375,582 $ 2,344,332
Preferred Stock with Mandatory
Redemption Requirements.............. -- $ 17,975 $ 24,386 $ 25,700 $ 26,982
Long-Term Debt, less Current
Maturities........................... $ 728,843 $ 752,063 $ 957,622 $ 911,252 $ 786,279
Common Stock Data:
Market price per common
share at year end................. $ 17.625 $ 13.00 $ 11.25 $ 12.375 $ 9.75
Book value per common share
at year end....................... $ 16.82 $ 15.11 $ 13.29 $ 15.00 $ 17.69
Average number of common
shares outstanding................ 41,774 41,774 41,774 41,774 41,774
Return on Average Common
Equity............................... 10.7% 12.4% (10.7)% (15.0)% 1.8%
Capitalization:
Common stock equity.................. 48.6% 43.2% 34.8% 38.6% 45.8%
Preferred stock:
Without mandatory
redemption requirements......... 0.9 4.1 3.7 3.6 3.7
With mandatory redemption
requirements.................... -- 1.2 1.5 1.6 1.7
Long-term debt, less current
maturities........................ 50.5 51.5 60.0 56.2 48.8
------------ ------------ ------------ ------------ ------------
100.0% 100.0% 100.0% 100.0% 100.0%
============ ============ ============ ============ ============
- -----------
* The Company changed its method of accounting for unbilled revenues in 1992.
** Includes the write-down of the 22% beneficial interests in the PVNGS Units
1 and 2 leases purchased by the Company, the write-off of certain
regulatory assets and other deferred costs and the write-off of certain
PVNGS Units 1 and 2 common costs, aggregating $108.2 million, net of taxes
($2.59 per share).
+ Includes the write-down of the Company's investment in PVNGS Unit 3 and the
provision for loss associated with the M-S-R power purchase contract,
aggregating $126.2 million, net of taxes ($3.02 per share).
The selected financial data should be read in conjunction with the
consolidated financial statements, the notes to consolidated financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's assessment of the Company's financial
condition and the significant factors affecting the results of operations. This
discussion should be read in conjunction with the Company's consolidated
financial statements.
OVERVIEW
Competitive Electric Market
The electric utility industry is currently undergoing a period of
fundamental change intended to promote a competitive environment in the retail
and wholesale energy marketplaces. Legislators and regulators at both the state
and Federal level are considering whether, and how, to promote competition among
suppliers of electricity and how to provide customers with choice among
suppliers.
At the Federal level, the FERC promulgated a Notice of Proposed Rule Making
("Mega-NOPR") in March 1995, which proposes to require utilities to unbundle
their generation and transmission services and to provide open access
transmission. The Mega-NOPR also supplemented a prior NOPR concerning the
appropriate treatment of stranded asset costs associated with the transition.
Specifically, the FERC stated that recovery of legitimate and verifiable
stranded asset costs is critical to the successful transition of the electric
utility industry from a tightly regulated cost-of-service industry to an open
transmission access, competitively priced industry. The Company in its response
to the Mega-NOPR supported the FERC initiative toward open access transmission,
but requested that all transmission asset owners, including municipal and
Federal, be subject to the same requirements in order to establish a level
playing field for all participants in the electric utility industry. The Company
also agreed with the FERC regarding the proposed recovery of stranded asset
costs. A final decision on the Mega-NOPR is expected in the middle of 1996. On
January 22, 1996, a U.S. Senate bill, "Electricity Competition Act of 1996" was
introduced, providing a national framework for a competitive electric industry
by no later than the year 2010. The bill provides for recovery of stranded asset
costs. On February 14, 1996, the Council of Economic Advisors issued an economic
report to Congress in which it cautioned that electric industry competition
should ensure competitive benefits to all power buyers and should not aggravate
pollution or cause supply cuts to the poor. The report favors recovery of
stranded asset costs borne by all parties on whose behalf the stranded costs
were incurred, including customers that switch to other suppliers.
Representative Dan Schaeffer, Chairman of the Energy Subcommittee of the House
of Commerce Committee, has announced that he plans to conduct hearings on
electric industry restructuring, possibly beginning this summer. The Company
does not expect Congressional legislation to pass this year, but does expect
Congressional interest to continue next year.
In November 1995, after three years of study, the Integrated Water and
Resource Planning Committee of the New Mexico State Legislature (the "IWRPC")
issued a resolution reporting its findings on the advantages and disadvantages
of retail wheeling and alternative restructuring schemes applicable to the
electric power industry in New Mexico. The IWRPC's recommendation stated that
any proposed restructuring (i) must benefit all ratepayers in the state, (ii)
must maintain and possibly encourage the financial health and economic viability
of each of the state's utilities, (iii) must provide for appropriate protection
from unfair or advantaged competition from utilities or others from outside the
state, and (iv) must share equitably any costs, including stranded asset costs,
among the varied interests benefitted. The IWRPC also recommended that the
NMPUC, under legislative direction and guidance, should monitor and evaluate the
electric power industry and applicable market influences and factors and report
its findings, conclusions and recommendations to the New Mexico State
Legislature for legislative approval and action, as necessary, before any
proposed restructuring may be implemented. The resolution further indicated that
23
this continuing evaluation was necessary because of continuing changes even
though restructuring and retail wheeling are not justified or in the public
interest at this time. The IWRPC resolution was presented to the full
Legislature as a Senate Joint Memorial. It was unanimously passed by the Senate
and the House.
In November 1995, the NMPUC issued a Notice of Inquiry regarding the
restructuring of regulation of the electric utility industry in New Mexico. The
NMPUC is seeking input on a variety of questions related to competition, retail
wheeling and state vs. Federal jurisdiction. The Company in its February 15,
1996 response stated that it believes that: (i) competition and customer choice
may be beneficial to all affected interests in New Mexico if done appropriately
and (ii) in order to achieve restructuring, there must be cooperative state and
Federal action to avoid prolonged uncertainty and litigation, as well as to
avert inconsistent state actions that would inhibit the development of
competitive markets and restrict the benefits that they may provide. The Company
proposed a five-year period to accomplish the transition to a workable
competitive market. The Company also stated that it supports action by the
United States Congress to clarify boundaries between state and Federal
jurisdiction over the electric utility industry, and to ensure that retail
wheeling can be implemented in a manner that ensures fair competition and
provides utilities the opportunity to recover all stranded asset costs.
Although it is uncertain as to the ultimate outcome of possible open access
or retail wheeling initiatives, the Company will continue to be active at both
the state and Federal levels in the public policy debate on the restructuring of
the electric utility industry. By working with customers, regulators and
legislators, the Company believes that an agreement will be reached that will
protect the interests of stockholders as well as offer the potential benefits of
a competitive marketplace to all customers.
Uncertainties
The future structure of the industry, the form and timing of competition
and the method of regulation in a competitive environment remain uncertain. If
retail wheeling is implemented, it is possible that, based on other deregulated
industries' experiences, retail energy prices could drop significantly. Should
that be the case, the value of a utility's assets could be affected
significantly in the transition to a more competitive market from a traditional
rate regulated environment. Currently, the Company's generation costs are above
those of neighboring utilities to the north and east of the Company's service
territory.
The Company believes that the 1994 electric retail rate reduction improved
its competitive position, but recognizes that lower cost producers may have an
advantage if the regulatory framework changes significantly towards retail
wheeling. The Company's owned nuclear capacity is currently valued at
approximately $900 per KW. If the Company were required to value its leased
nuclear capacity at the same level as its owned nuclear capacity, it would be
valued at approximately $180 million versus approximately $560 million. If there
were no provision for the recovery of stranded asset costs, the Company would be
required to charge against earnings approximately $380 million.
Preparation for the Changes
In order to mitigate the exposures associated with a competitive electric
market and transition into this changing environment, the Company established
the following strategic plan in 1995: (i) secure financial flexibility by
retiring debt, (ii) control operation and maintenance costs, (iii) focus on
maximizing shareholder value for the nuclear generation assets, and (iv) develop
new business opportunities in the energy and utility related area. As part of
this plan, the Company restructured its operation into four distinctive business
units, each targeted at a specific segment of its customer base with emphasis on
being more customer oriented and responsive to the changing competitive
environment. The four business units are as follows: (i) Electric Services, (ii)
Gas Services, (iii) Bulk Power Services and (iv) Energy Services.
24
In order to maximize value of the nuclear generation assets, the Company's
board of directors (the "Board"), at its December 5, 1995 meeting, confirmed
that it is in the best interest of the Company at this time to focus its efforts
and resources on maximizing shareholder value from PVNGS as an asset (leased and
owned) of the Company rather than disposing of it. Growth in the region, rapid
growth in the Company's own local service territory and the continuous
improvement in the operating performance of the plant were all factors in the
change of approach. The Board stated that the Company no longer considers it to
be a goal to dispose of its interests in PVNGS.
In conjunction with the development of new business opportunities, the
Company focused on three energy and utility related activities under its Energy
Services Unit. These activities will provide energy marketing, alternative fuel
vehicle services and energy management services focused on residential and small
customers, management services for water and wastewater systems and utility
related management and operation services for Federal installations and other
large commercial institutions. The Company believes that successful operation of
these ventures will better position the Company in an increasingly competitive
utility environment. The Company is currently seeking NMPUC approval for
investment in energy and utility related subsidiaries under the Company's
general diversification plan. The NMPUC Staff filed a motion in September 1995
to have the case dismissed. On January 31, 1996, the hearing examiner assigned
to the case recommended that the NMPUC deny the Staff's motion. On February 5,
1996, the Staff filed a motion seeking to have the Company file an immediate
report on its non-regulated activities being conducted without prior NMPUC
approval; explain why NMPUC approval is not required; and explain why sanctions
should not be considered if approval is required. On February 19, 1996, the
Company filed its response describing its non-utility (energy and utility
related) activities and presenting the legal authority demonstrating that prior
NMPUC approval is not required. The Company currently cannot predict the
ultimate outcome of this proceeding but intends to vigorously defend against any
allegation that it is in violation of any legal requirements.
LIQUIDITY AND CAPITAL RESOURCES
Capital Requirements
Total capital requirements include construction expenditures as well as
other major capital requirements, including retirement of long-term debt,
preferred stock and long-term debt sinking funds and preferred stock dividend
requirements. The main focus of the construction program is upgrading generating
systems, upgrading and expanding the electric and gas transmission and
distribution systems, and purchasing nuclear fuel. Total capital requirements
for 1995 and projections for 1996-2000 are $367.4 million and $676.8 million,
respectively. These estimates are under continuing review and subject to
on-going adjustment.
The Company currently anticipates that internal cash generation will be
sufficient to meet capital requirements during 1996 through 2000. To cover the
difference in the amounts and timing of cash generation and cash requirements,
the Company intends to utilize short-term borrowings under its liquidity
arrangements.
Liquidity and Financing
The Company's construction expenditures for 1995 were entirely funded
through cash generated from operations. In addition to cash flow from
operations, the Company received approximately $206.5 million from the sale of
gas gathering and processing assets and the Company's water division. During
1995, the Company retired approximately $133 million of PVNGS LOBs, redeemed, at
par, $64 million of the Company's cumulative preferred stock and retired
approximately $58 million of other long-term debt. At the end of 1995, the
Company had $96 million of temporary investments and no short-term borrowings.
25
In addition, at year-end 1995, the Company had available liquidity arrangements
of $151 million, consisting of a $100 million secured revolving credit facility
("Facility"), $40 million credit facility collateralized by the Company's
electric customer accounts receivable (the "Accounts Receivable Facility") and
$11 million in local lines of credit. On January 30, 1996, the Company requested
NMPUC approval to increase the capacity of the Accounts Receivable Facility up
to $100 million by including in the collateral pool the Company's gas accounts
receivable and certain amounts being recovered from gas customers relating to
certain gas contract settlements. The Facility will expire in June 1998 and
includes a maximum allowed debt to capitalization ratio of 70%. As of December
31, 1995, such ratio was 65%.
The Company's ability to finance its construction program at a reasonable
cost and to provide for other capital needs is largely dependent upon its
ability to earn a fair return on equity, results of operations, credit ratings,
regulatory approvals and financial market conditions. Financing flexibility is
enhanced by providing a high percentage of total capital requirements from
internal sources and having the ability, if necessary, to issue long-term
securities, and to obtain short-term credit. All of the Company's securities are
rated below investment grade by Standard & Poor's Corp., Moody's Investors
Service and Fitch Investors Service, Inc., which may result in limited credit
markets being available and/or higher financing costs to the Company. Duff &
Phelps Credit Rating Co. maintains an investment grade rating for the Company's
first mortgage bonds, but continues to rate all other of the Company's
securities below investment grade.
Financing Capability and Dividend Restrictions
One impact of the Company's current ratings, together with covenants in the
Company's PVNGS Units 1 and 2 lease agreements (see PART I, ITEM 2. --
"PROPERTIES -- Nuclear Plant"), is to limit the Company's ability, without
consent of the owner participants and bondholders in the lease transactions, (i)
to enter into any merger or consolidation, or (ii) except in connection with
normal dividend policy, to convey, transfer, lease or dividend more than 5% of
its assets in any single transaction or series of related transactions. The
Facility and a reimbursement agreement associated with the letter of credit
supporting $37.3 million of pollution control revenue bonds impose similar
restrictions irrespective of credit ratings.
The issuance of first mortgage bonds by the Company is subject to earnings
coverage and bondable property provisions of the Company's first mortgage
indenture. The Company also has the capability under the mortgage indenture,
without regard to the earnings test but subject to other conditions, to issue
first mortgage bonds on the basis of certain previously retired bonds. At
December 31, 1995, based on the earnings test, the Company could have issued
approximately $124 million of additional first mortgage bonds, assuming an
annual interest rate of 9.25 percent. The Company's restated articles of
incorporation limit the amount of preferred stock which may be issued. Assuming
a preferred stock dividend rate of 9.75 percent, the Company could have issued
$381 million of preferred stock as of year-end.
The Company currently has no requirements for long-term financing during
the period of 1996 through 2000. However, during this period, the Company could
enter into long-term financings for the purpose of strengthening its balance
sheet and reducing its cost of capital. The Company continues to evaluate its
investment and debt retirement options to optimize its financing strategy and
earnings potential. The Company currently plans to retire approximately $90
million of long-term debt in 1996.
The Company has not declared dividends on its common stock since January
1989 and anticipates announcing a dividend plan sometime before the end of the
second quarter of 1996. The Company's board of directors reviews the Company's
dividend policy on a continuing basis. The resumption of common dividends is
dependent upon a number of factors including earnings and financial condition of
the Company and market conditions. The deficit in retained earnings was
eliminated during 1995.
26
Capital Structure:
The Company's capitalization, including short-term debt, at December 31 is
shown below:
1995 1994 1993
---- ---- ----
Common Equity...................................... 48.6% 39.2% 34.4%
Preferred Stock.................................... 0.9 4.8 5.2
Long-term Debt (including current maturities) ..... 50.5 56.0 60.4
---- ---- ----
Total Capitalization*........................... 100.0% 100.0% 100.0%
===== ===== =====
- -----------
* Total capitalization does not include the present value of the
Company's lease obligations for PVNGS Units 1 and 2 and EIP as debt but
does include, for 1994 and 1993, the debt associated with the
beneficial interests in certain PVNGS Units 1 and 2 leases purchased by
the Company, which were retired in March 1995.
RESULTS OF OPERATIONS
Net earnings per common share in 1995 were $1.72, compared to net earnings
of $1.77 per common share in 1994 and a loss of $1.64 per common share in 1993.
The loss experienced in 1993 was due to the Company recording an after-tax
charge of $108.2 million to earnings resulting from the write-down in connection
with the Company's $30 million retail electric rate reduction.
The financial performance of the excluded resources has been improved by
the PVNGS Unit 3 write-down and the provision for loss associated with the M-S-R
power purchase contract recorded in 1992. The gains from the sale of generating
facilities to Anaheim recorded in August 1993 and to UAMPS recorded in June 1994
have also improved the financial performance of the excluded resources.
A number of items contributed to the $3.5 million decrease in net earnings
of the excluded resources as compared with 1994 results. The most significant
item was the UAMPS gain recorded in June 1994. Operating results for the
excluded resources for all these periods reflect the allocation of interest
charges based on the average investment in excluded net utility plant as a
percent of total utility plant for the period.
Selected financial information for the excluded resources for 1995, 1994
and 1993 is shown below:
1995 1994 1993
----------- ----------- -----------
(In thousands)
Operating revenues..................$ 35,317 $ 39,227 $ 42,517
Operating income ...................$ 2,372 $ 2,358 $ 2,034
Net earnings (loss).................$ (1,710) $ 1,838 $ (2,099)
Net utility plant at year-end.......$ 133,757 $ 133,697 $ 159,387
The following discussion highlights other significant items which affected
the results of operations in 1995, 1994 and 1993, and certain items expected to
impact future earnings.
Electric gross margin (electric operating revenues less fuel and purchased
power expense) decreased $37.9 million in 1995 due to the retail rate reduction
implemented in late 1994, reduced off-system sales as a result of the expiration
of three sales contracts and generally poor wholesale power market conditions.
Partially offsetting such decreases was the increase in retail revenues
resulting from retail sales growth.
27
Electric gross margin increased $32.3 million in 1994 compared to 1993,
$23.2 million of which was due to an increase in jurisdictional energy sales.
This increase was partially due to warmer weather and a difference of $6.7
million between the estimated unbilled revenues reported in 1993 and actual
unbilled revenues in 1994.
Gas gross margin (gas operating revenues less gas purchased for resale)
decreased $16.4 million from a year ago due to a decrease of $5.5 million in gas
deliveries resulting from warmer than normal weather in 1995 and reduced margin
of $11.7 as a result of the gas gathering and processing assets sale in June
1995. Gas gross margin decreased $5.1 million in 1994 from 1993. Principal
factors were the write-off of certain deferred charges relating to costs of gas
and a decrease in gas deliveries resulting from a warmer than normal winter in
1994.
Other operation and maintenance expenses ("O&M") decreased $12.3 million in
1995 due to the following: (i) a $2.1 million decrease in PVNGS O&M expense as a
result of a reduction in scheduled maintenance outage hours and lower property
taxes in the current period, (ii) decreased Four Corners O&M expenses of $2.0
million resulting from a maintenance outage of Unit 4 in 1994, (iii) decreased
SJGS O&M expenses of $1.7 million resulting from lower maintenance outage hours
in 1995, (iv) a decrease in gas production and products extraction expense of
$6.2 million resulting from the gas assets sale in June 1995, (v) a decrease in
injuries and damages expense of $4.5 million as a result of the recording of
workers' compensation liability in 1994, (vi) lower office supplies and expenses
of $3.0 million as a result of a decrease in temporary office labor and postage
expense and (vii) a decrease in water O&M expense of $2.1 million resulting from
the sale of the Company's water division in July 1995. Such decreases were
partially offset by (i) higher administrative and general labor expense of $4.7
million, (ii) higher employee benefit expense of $2.7 million caused by the
retroactive deferral of the gas operation's retirees health care costs for
regulatory purposes recorded in 1994 and (iii) higher production O&M expenses
for the gas and oil-fired plants of $1.7 million resulting from the maintenance
outages in 1995.
Other O&M expenses decreased $5.1 million in 1994 from 1993 due to the
following: (i) a $10.6 million decrease as a result of the Company's 1993
severance program, (ii) a deferral of gas operation's retirees health care costs
of $2.8 million for regulatory purposes and (iii) lower electric regulatory
commission expense of $2.1 million. Offsetting such decrease was the following:
(i) increased pension and retirees health care cost of $3.0 million, (ii)
increased electric distribution expense of $3.6 million due to weather-related
outages and increased tree trimming activity, (iii) increased generating station
maintenance expense of $2.4 million and (iv) increased workers' compensation
liability of $2.2 million.
Depreciation and amortization expenses increased $6.7 million from a year
ago as a result of the implementation of new depreciation rates approved by the
NMPUC in November 1994.
Other, under the caption Other Income and Deductions, increased $44.2
million from a year ago and increased $9.3 million in 1994 from 1993.
Significant 1995 items, net of taxes, included the following: (i) the gain of
$12.8 million recognized from the sale of the gas gathering and processing
assets, (ii) the gain of $6.4 million recognized from the sale of the Company's
water division, (iii) an after-tax accrual of $2.6 million of income pertaining
to the carrying costs related to gas take-or-pay settlement amounts, (iv) income
of $1.9 million for insurance recovery and (v) income of $1.4 million related to
adjusting reclamation reserves for certain mining operations. Partially
offsetting such increases were: (i) additional regulatory reserves of $4.8
million and (ii) write-downs of $1.8 million for various non-utility properties.
Significant 1994 items, net of taxes, included the following: (i) the
write-off of $3.0 million relating to gas take-or-pay settlement payments which
are not recoverable through rates, (ii) additional provisions for legal expense
of $3.6 million and (iii) a gain and associated tax benefits of $6.1 million
from the sale of generating facilities to UAMPS.
28
Significant 1993 items, net of taxes, included the following: (i) the gain
of $7.5 million recognized from the sale of an investment, (ii) the gain and
associated tax benefits of $7.6 million from the sale of generating facilities
to Anaheim and (iii) tax benefits of $3.2 million from the Federal income tax
rate change which allows the Company to utilize its net operating loss at a
higher tax rate. Partially offsetting such increases were: (i) additional
provisions for legal and litigation expenses of $5.7 million, (ii) a write-off
of $4.6 million of other deferred costs, (iii) PVNGS decommissioning fund
adjustment of $2.8 million and (iv) a write-off of $2.1 million resulting from
costs associated with refunding certain pollution control and EIP bonds, which
represents the amount related to FERC firm-requirement wholesale customers and
resources excluded from New Mexico jurisdictional rates.
Net interest charges decreased $12.7 million in 1995 as a result of the
retirement of $130 million of PVNGS LOBs in March 1995 and the retirement of $45
million of first mortgage bonds in April 1994. In 1994, net interest charges
decreased $15.2 million compared to 1993. Major factors were: (i) lower
short-term borrowings in 1994, (ii) the refinancing of $182 million of pollution
control revenue bonds in January ($46 million) and September ($136 million) of
1993 and (iii) the retirement of $45 million of first mortgage bonds in April
1994.
Preferred stock dividend requirements decreased $2.7 million in 1995 as a
result of the retirement of $64 million of preferred stock in August 1995.
OTHER ISSUES FACING THE COMPANY
TRANSMISSION ISSUES
OLE Transmission Project
OLE, a proposed 345 Kv transmission line connecting the existing Ojo 345 Kv
line to the Norton Station in northern New Mexico, was designed to provide a
needed improvement to the northern New Mexico transmission system and to allow
greater delivery of power into the Company's two largest service territories,
the greater Albuquerque area and the Santa Fe/Las Vegas area. OLE has faced
considerable opposition by persons concerned primarily about the environmental
impacts of the project.
The Company filed in 1991 for NMPUC approval for construction of OLE. On
November 20, 1995, the NMPUC issued a final order disapproving the project. On
December 20, 1995, the Company filed a limited Motion for Rehearing, accepting
the NMPUC's determination that the OLE routing should not be pursued but seeking
reconsideration of various parts of the final order which discuss system
planning and reliability matters. The NMPUC took no action on the Company's
request which in effect deemed it denied. The Company has elected not to appeal
the NMPUC order or denial of rehearing. The Company has incurred approximately
$17 million for the OLE project and has established accounting reserves as
deemed appropriate. The Company intends to seek recovery of these costs as
legitimate and prudent costs in future appropriate proceedings.
Transmission Right-of-Way
The Company has easements for right-of-way with the Navajo Nation for
portions of several transmission lines that deliver the Company's generation
resources to the Albuquerque metropolitan area. One grant of easement for
approximately 4.2 miles of right-of-way for two parallel 345 Kv transmission
lines expired in 1993. Prior to the expiration, the Company had numerous
unsuccessful negotiation meetings with the Navajo Nation for the renewal of the
long-term grant. In 1994, the Navajo Nation adopted a Civil Trespass Statute
providing for civil penalties, damages and other remedies, including removal, to
be imposed for unconsented or unauthorized use of Navajo Nation lands. During
29
1995, the Company reached a tentative agreement with the Navajo Nation for a
twenty-year renewal of the transmission easement and a resolution of all other
transmission right-of-way issues. Prior to the execution of the agreement,
another agency of the Navajo Nation notified the Company that it was contesting
certain water rights at the SJGS, which has delayed resolution of the
transmission right-of-way issues. The Company continues to work with the Navajo
Nation to resolve this conflict.
The Company continues to assess its options but is not pursuing other
alternatives unless it receives indications that settlement cannot be reached in
a satisfactory manner. The Company currently cannot predict the outcome of the
negotiations or the costs resulting therefrom; however, the Company believes
that resolution of this issue will not have a material adverse impact on the
Company's financial condition or results of operations.
Transmission Disputes
The Company receives approximately $14.0 million annually for the provision
of firm transmission service to several customers. Most of these customers,
through various actions, have initiated formal FERC investigations into the
transmission service billing units and transmission rates charged by the
Company. If these various allegations and requested rate reductions are approved
by the FERC, the Company's revenues for transmission services could be reduced
by as much as $9 million annually. The Company has responded to these
allegations and has requested that the FERC dismiss the complaints. The Company
is currently awaiting the FERC decision. In a related FERC filing, the Company
committed to file, on or before April 1, 1996, a rate change for all firm,
point-to-point and network service transmission customers, including those
customers that have filed the pending complaints. Although the Company
anticipates a reduction in rates resulting from the filing, the Company does not
anticipate any material adverse impact on the Company's financial condition or
results of operations.
SALE OF GAS GATHERING AND PROCESSING ASSETS
As part of the Company's announced action plan in 1993 to focus on its core
utility business, the Company, in 1994, entered into an agreement with Williams
for the sale of substantially all of the assets of Gathering Company and
Processing Company and for the sale of Northwest and Southeast gas gathering and
processing facilities of the Company.
The sales transaction provides for three 10-year contracts, each with an
option to renew for an additional 5-year term, with Williams for competitively
priced gathering and processing services. The purchase and sale agreement
contains contractual requirements for the Company to address various
environmental deficiencies identified as retained liabilities. It also contains
environmental representations and warranties and indemnification provisions
whereby the Company indemnifies Williams for a five-year period after closing
for breaches of the environmental representations and warranties and against
third party claims to a maximum of $10.6 million. After the $10.6 million cap
has been reached, or after the expiration of the five-year post-closing
indemnification period, whichever comes first, Williams indemnifies the Company
against further environmental expenditures related to the properties sold. On
June 30, 1995, following NMPUC approval, the Company and Williams closed the
sale of the assets. As a result, the Company and its gas subsidiaries received
$154 million from Williams and recognized an after-tax gain of $12.8 million, or
31 cents per share. Under the NMPUC approval, the Company recorded a liability
of approximately $35 million, representing an estimate of a portion of the gain
resulting from the sale, which will be credited to the Company's gas customers'
bills over five years. After completion of the fifth year, the amount of the
gain will be recalculated to reflect actual expenses associated with the
transaction which were appropriately and legitimately incurred. Such amount
should include amounts expended to indemnify Williams as described above. Any
resulting differences will be refunded or billed to customers over a one year
period.
30
As a result of the gas assets sales, the operations of the Company's two
wholly-owned gas subsidiaries, Gathering Company and Processing Company, have
been substantially discontinued, effective June 30, 1995.
ENVIRONMENTAL ISSUES
The Company is committed to complying with all applicable environmental
regulations in a responsible manner. Environmental issues have presented and
will continue to present a challenge to the Company. The Company has evaluated
the potential impacts of the following environmental issues and believes, after
consideration of established reserves, that the ultimate outcome of these
environmental issues will not have a material adverse effect on the Company's
financial condition or results of operations.
Electric Operations
Person Station
The Company, in compliance with the New Mexico Environment Department
Corrective Action Directive, determined that groundwater contamination exists in
the deep and shallow water aquifers. The Company is required to delineate the
extent of the contamination and remediate the contaminants in the groundwater.
The extent of the contaminated plume in the deep water aquifer has been assessed
and results have been reported to the NMED. The Company has also proposed
revised remedial options to the NMED. The Company is awaiting a final response
from the NMED. The Company's current estimate to decommission its retired
fossil-fueled plants includes approximately $10.9 million to complete the
groundwater remediation program at Person Station. As part of the financial
assurance requirement of the Person Station Hazardous Waste Permit, the Company
posted a $5.1 million performance bond with a trustee. The remediation program
continues on schedule.
Santa Fe Station
The NMED has been conducting an investigation of the groundwater
contamination detected beneath the Santa Fe Station site to determine the source
of the contamination. The Company has been and is continuing to cooperate with
the NMED site investigation pursuant to a settlement agreement between the
Company and the NMED. In May 1995, the Company received a letter from the NMED
indicating that the NMED had made a determination that Santa Fe Station was the
source of gasoline-contaminated groundwater at the site and vicinity. The
Company contested the NMED's determination and believes insufficient data exists
to definitely identify the sources of groundwater contamination. A minimum site
assessment ("MSA") of the two former underground storage tank sites at the Santa
Fe Station site was conducted by the Company under the settlement agreement. The
MSA report indicated that the Santa Fe Station site does not appear to have been
a source of gasoline contamination. The MSA report has been submitted to the
NMED and is currently pending NMED review.
Albuquerque Electric Service Center
Trenching work at the electric service center revealed oil contaminated
soil in an area of the service center where used oil in drums were stored. The
trenched area bisects a small portion of the storage area, indicating that
potentially the area could be underlain with contaminated soil. The Company
requested a laboratory analysis on the soil to determine the type of
contamination. The Company may be required to assess soil and groundwater for
contamination as well as remediate extensive volumes of soil in the area. The
Company currently cannot predict the outcome of the analysis, to what extent the
soil was contaminated or the costs of the remediation, if any.
31
In addition, leaking underground fuel lines, which have been replaced,
caused soil and groundwater contamination in the vicinity of the leak. The
Company proposed a quarterly sampling plan to the NMED for the site. The NMED
has expressed concerns regarding the placement of monitoring wells and the
relatively high levels of residual contamination remaining in the soil at the
site. Based on the recent analysis of the groundwater sampling, the contaminated
soil does not appear to be a continual recharge source to the groundwater
contamination. The NMED may require additional monitoring wells and soil
remediation work at the site.
Gas Operations
Air Permits
In 1994, following an environmental audit performed in conjunction with the
Company's sale of certain gas assets, which audit brought to light certain
discrepancies regarding required air permits associated with certain natural gas
facilities, the Company met with the NMED to discuss the nature of the permit
discrepancies and to propose methods and schedules to resolve the discrepancies.
The Company submitted in 1994 its permit modification application for the
Lybrook Gas Processing Plant ("Lybrook"). The Lybrook permit has now been issued
to Williams, the purchaser of the gas assets.
The Company submitted an air permit modification application for the Kutz
Canyon Gas Processing Plant ("Kutz") in the first quarter of 1995. In October
1995, the Company received a Notice of Violation ("NOV") from the NMED with
specified corrective actions on the permit discrepancies in the Kutz air permit.
In January 1996, the Company accepted a settlement offer for the NOV from the
NMED in the amount of $15,000. The Company cannot predict when the final permit
will be issued by the NMED or whether additional requirements will be imposed by
the NMED as conditions for issuance of the permit.
Gas Wellhead Pit Remediation
The New Mexico Oil Conservation Commission ("NMOCC") issued an order,
effective on January 14, 1993, that affects the gas gathering facilities, which
were sold to Williams, located in the San Juan Basin in northwestern New Mexico.
The order prohibits the further discharge of fluids associated with the
production of natural gas into unlined earthen pits in certain specified areas
of the San Juan Basin. The order also required the submission of closure plans
for the closure of pits in which production fluids were previously discharged.
The BLM has issued a similar ruling. The Company has complied with such rulings
and submitted and received approval of the pit closure plans from the OCD, the
Energy Minerals and Natural Resources Department, as well as the BLM.
The Company has received letters and directives from the OCD directing the
Company to determine if certain unlined discharge pits have contributed to the
groundwater contamination plumes that were identified at those sites. The
Company is currently assessing the sites in accordance with the OCD directive.
The Company continues to assess unlined pits in accordance with the OCD
directive and is addressing potential groundwater contamination issues as they
arise during the assessment process.
On March 3, 1995, the Jicarilla Apache Tribe ("Jicarilla") enacted an
ordinance directing that unlined surface impoundments located within
environmentally sensitive areas be remediated and closed by December 1996, and
that all other unlined surface impoundments on Jicarilla's lands be remediated
and closed by December 1998. The Company has received a claim for
indemnification by Williams for the environmental work required to comply with
the Jicarilla ordinance. The Company has submitted a closure/remediation plan to
the Jicarilla, which has been approved, and the Company anticipates initiating
the remediation process in the spring of 1996. The costs of remediation will be
charged against the $10.6 million indemnification cap contained in the purchase
32
and sale agreement between the Company and Williams. The Company does not
anticipate that the claim for indemnification will have any material impact on
the Company's financial condition or results of operations.
GAS RATE CASE
On August 28, 1995, the Company filed a request for a $13.3 million
increase in its retail natural gas sales and transportation rates. NMPUC Staff
and intervenors in the case filed their testimony on January 16, 1996. The Staff
recommended a $2.5 million rate decrease and the AG recommended a $14.7 million
rate decrease. The major issues in the case center around the Company's request
to recover certain costs associated with reservation fees, discounts given to
large and industrial transportation customers and losses incurred to reacquire
debt. The Company anticipates that it will have deferred as regulatory assets
approximately $22 million related to these items through July 1, 1996, the date
when rates are anticipated to go into effect. The Company will file its rebuttal
testimony on February 23, 1996 and hearings will begin on March 4, 1996.
Although the Company cannot predict the ultimate outcome of this case, the
Company believes that it has meritorious claims and will vigorously pursue the
recovery of these assets.
ALBUQUERQUE FRANCHISE ISSUES
The Company's non-exclusive electric service franchise with the City of
Albuquerque (the "City") expired in 1992. The franchise agreement provided for
the Company's use of City rights-of-way for placement of electric service
facilities. The Company provides service to the area which contributed 46% of
the Company's total 1995 electric operating revenues. The absence of a franchise
does not change the Company's right and obligation to serve those customers
under state law.
In 1991, the NMPUC issued an order concluding, among other things, that the
City could bid for services to its own facilities (Albuquerque municipal loads
generated approximately $16.6 million in annual revenue for 1995), but not for
service to other customers. However, the New Mexico Supreme Court ("Court")
ruled that a city can negotiate rates for its citizens in addition to its own
facility uses. The Court also ruled that any contracts with utilities for
electric rates are a matter of statewide concern and subject to approval,
disapproval or modification by the NMPUC. In addition, the Court reaffirmed the
NMPUC's exclusive power to designate providers of utility service within a
municipality and confirmed that municipal franchises are not licenses to serve
but rather provide access to public rights-of-way.
During 1992, representatives of the Company and the City had numerous
meetings in attempts to resolve the franchise renewal issue. Since that time, no
meetings have been held. The City continues to maintain its options by
advocating industry restructuring and monitoring the municipalization activities
of the City of Las Cruces. A measure designed to start municipalization
activities in Albuquerque was defeated by the City Council. The Company
continues to collect and pay franchise fees to the City.
PVNGS NUCLEAR DECOMMISSIONING
Decommissioning Costs and Trust Funds
The Company has a program for funding its share of decommissioning costs
for PVNGS. Under this program, the Company makes a series of annual deposits to
an external trust fund over the estimated useful life of each unit with the
trust funds being invested under a plan which allows the accumulation of funds
largely on a tax-deferred basis through the use of life insurance policies on
certain current and former employees. The results of the 1995 decommissioning
study indicate that the Company's share of the PVNGS decommissioning costs will
be approximately $145.6 million, a decrease from $157.8 million based on the
previous 1992 study (both amounts are stated in 1995 dollars).
33
The Company has determined that a supplemental investment program will be
needed as a result of both cost increases identified in the 1992 study and the
lower than anticipated performance of the existing program. On September 29,
1995, the Company filed a request for permission from the NMPUC to establish a
qualified tax advantaged trust for PVNGS Units 1 and 2. Due to Internal Revenue
Service ("IRS") regulations, PVNGS Unit 3 will remain in a non-qualified trust.
The Company, on February 7, 1996, filed a motion for interim relief for
establishment of a qualified trust pending final NMPUC action. The interim
request was necessary in order to meet the March 15 deadline under IRS
requirements for the qualified trust to be effective for the current year. On
February 19, 1996, the NMPUC granted this request.
The market value of the existing trust at the end of 1995 was approximately
$12.4 million, which includes the cash surrender value of the current insurance
policies.
Decommissioning Costs of Nuclear Power Plants
In February 1996, the Financial Accounting Standards Board ("FASB") issued
an Exposure Draft on the accounting for closure and removal costs, including
decommissioning, of nuclear power plants. If current electric utility industry
accounting practices for nuclear power plant decommissioning are changed, the
annual provision for decommissioning could increase relative to 1995, and
estimated costs for decommissioning could be recorded as a liability (rather
than as accumulated depreciation), with recognition of an increase in the cost
of related nuclear power plants. The Company is unable to predict the ultimate
outcome of this project.
PVNGS PROPERTY TAXES
On June 29, 1990, an Arizona state tax law was enacted, effective as of
December 31, 1989, which adversely impacted the Company's earnings in the years
of 1990 through 1995 by approximately $5 million per year, before income taxes.
On December 20, 1990, the PVNGS participants, including the Company, filed a
lawsuit in the Arizona Tax Court, a division of the Maricopa County Superior
Court, against the Arizona Department of Revenue, the Treasurer of the State of
Arizona, and various Arizona counties, claiming, among other things, that
portions of the new tax law are unconstitutional. In December 1992, the court
granted summary judgment to the taxing authorities, holding that the law is
constitutional. The PVNGS participants appealed this decision to the Arizona
Court of Appeals. On November 21, 1995, the Arizona Court of Appeals ruled in
favor of the PVNGS participants. Due to the significance of this decision, it is
anticipated that the case will be further pursued through the courts. The
Company cannot currently predict the ultimate outcome of this matter.
EL PASO
El Paso, one of the joint owners of PVNGS and Four Corners, has been
operating under Chapter 11 of the Bankruptcy Code since 1992. After the failed
merger transaction with Central and South West Corporation, in September 1995,
El Paso filed with the bankruptcy court a revised plan whereby, among other
things, certain issues would be resolved, including its assumption of the joint
facilities operating agreements. The revised plan, as amended, was confirmed by
order of the Bankruptcy Court on January 9, 1996. The order approves an amended
Assumption and Cure Agreement between El Paso and all participants at PVNGS. As
a part of its plan, El Paso also assumed agreements at Four Corners and paid all
sums outstanding under the agreements. In addition, El Paso assumed various
transmission agreements with the Company. Currently, there are no remaining
claims by the Company to be resolved in connection with the bankruptcy. El Paso
emerged from bankruptcy on February 12, 1996.
34
ACCOUNTING STANDARDS
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of
In March 1995, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 121. This statement requires companies to review their long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. SFAS No. 121 also
requires all regulatory assets, which must have a high probability of recovery
to be initially established, must continue to meet that high probability
standard to avoid being written off. However, if written off, a regulatory asset
can be restored if, through regulatory actions, it again becomes probable of
recovery. The adoption of SFAS No. 121 had no impact on the Company's financial
condition or results of operations.
PVNGS -- 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 further tube degradation. The steam generator tubes in
each unit continue to be inspected in conjunction with their respective outages.
APS currently believes that the PVNGS steam generators in Units 1 and 3 are
capable of operating for their designed life of forty years, although, at some
point, long-term economic considerations may warrant examination of possible
steam generator replacement. APS's ongoing analyses indicate that it will be
economically desirable for APS to replace the Unit 2 steam generators, which
have been most affected by tube cracking, in five to ten years. APS expects that
the steam generator replacement can be accomplished within financial parameters
established before replacement was a consideration. Based on APS's analyses, the
Company believes that its share of the replacement costs (in 1995 dollars and
including installation and replacement power costs) would be between $10.5
million and $17.5 million, most of which would be incurred after the year 2000.
APS expects that the replacement would be performed in conjunction with a normal
refueling outage in order to limit additional incremental outage time to
approximately 50 days. APS believes that replacement of the Unit 2 steam
generators within five to ten years will be economically desirable. The Company
is evaluating this and other options in regards to this issue.
All of the PVNGS units were operating at full power at December 31, 1995
and are expected to continue operating at full power, except for scheduled
(mid-cycle or refueling) outages. Last year, PVNGS had three refueling outages,
one for each of the three units.
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
--------
Management's Responsibility for Financial Statements................... F-1
Report of Independent Public Accountants .............................. F-2
Financial Statements:
Consolidated Statements of Earnings (Loss).......................... F-3
Consolidated Statements of Retained Earnings (Deficit).............. F-4
Consolidated Balance Sheets......................................... F-5
Consolidated Statements of Cash Flows............................... F-6
Consolidated Statements of Capitalization........................... F-7
Notes to Consolidated Financial Statements.......................... F-8
Supplementary Data:
Quarterly Operating Results......................................... F-34
Comparative Operating Statistics.................................... F-35
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Public Service Company of New Mexico is responsible
for the preparation and presentation of the accompanying consolidated financial
statements. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include amounts
that are based on informed estimates and judgments of management. Management
maintains a system of internal accounting controls which it believes is adequate
to provide reasonable assurance that assets are safeguarded, transactions are
executed in accordance with management authorization and the financial records
are reliable for preparing the consolidated financial statements. The system of
internal accounting controls is supported by written policies and procedures, by
a staff of internal auditors who conduct comprehensive internal audits and by
the selection and training of qualified personnel. The board of directors,
through its audit committee comprised entirely of outside directors, meets
periodically with management, internal auditors and the Company's independent
auditors to discuss auditing, internal control and financial reporting matters.
To ensure their independence, both the internal auditors and independent
auditors have full and free access to the audit committee. The independent
auditors, Arthur Andersen LLP, are engaged to audit the Company's consolidated
financial statements in accordance with generally accepted auditing standards.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Public Service Company of New Mexico:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Public Service Company of New Mexico (a New Mexico
corporation) and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of earnings (loss), retained earnings (deficit), and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Public Service Company of New
Mexico and subsidiaries as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As explained in notes 1 and 7 to the financial statements, effective January 1,
1993, the Company adopted Statement of Financial Accounting Standards No. 106,
Employer's Accounting for Postretirement Benefits Other Than Pensions, and No.
109, Accounting for Income Taxes.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
February 13, 1996
F-2
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Year Ended December 31,
---------------------------------
1995 1994 1993
---- ---- ----
(In thousands except per share amounts)
Operating Revenues:
Electric.....................................$ 584,284 $ 621,794 $ 589,728
Gas.......................................... 217,985 269,510 271,087
Water........................................ 6,196 13,407 13,063
--------- --------- ---------
Total operating revenues........................ 808,465 904,711 873,878
--------- --------- ---------
Operating Expenses:
Fuel and purchased power..................... 140,752 140,411 140,674
Gas purchased for resale..................... 94,299 129,381 125,940
Other operation expenses..................... 257,627 264,391 274,023
Maintenance and repairs...................... 55,809 61,386 56,821
Depreciation and amortization................ 80,865 74,137 77,326
Taxes, other than income taxes............... 35,531 39,717 40,089
Income taxes................................. 30,194 44,210 25,721
--------- --------- ---------
Total operating expenses.................. 695,077 753,633 740,594
--------- --------- ---------
Operating income.......................... 113,388 151,078 133,284
--------- --------- ---------
Other Income and Deductions:
Write-down of the PVNGS Units 1 and 2
leases, regulatory assets and other
deferred costs............................ -- -- (178,954)
Other........................................ 40,707 (3,512) (12,792)
Income tax benefit (expense)................. (20,599) 3,339 82,799
--------- --------- ---------
Net other income and deductions........... 20,108 (173) (108,947)
--------- --------- ---------
Income before interest charges............ 133,496 150,905 24,337
--------- --------- ---------
Interest Charges:
Interest on long-term debt................... 52,637 65,511 72,525
Other interest charges....................... 5,297 5,341 13,719
Allowance for borrowed funds used during
construction............................. -- (265) (421)
--------- --------- ---------
Net interest charges...................... 57,934 70,587 85,823
--------- --------- ---------
Net Earnings (Loss)............................. 75,562 80,318 (61,486)
Preferred Stock Dividend Requirements........... 3,714 6,433 6,829
--------- --------- ---------
Net Earnings (Loss) Available for Common Stock..$ 71,848 $ 73,885 (68,315)
========= ========= =======
Average Number of Common Shares Outstanding..... 41,774 41,774 41,774
========= ========= =======
Net Earnings (Loss) per Share of Common Stock...$ 1.72 $ 1.77 $ (1.64)
========= ========= =======
Dividends Paid per Share of Common Stock........$ -- $ -- $ --
========= ========= =======
The accompanying notes are an integral part of these financial statements.
F-3
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
Year Ended December 31,
---------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Balance at Beginning of Year.................$(46,006) $(120,848) $ (52,533)
Net earnings (loss).......................... 75,562 80,318 (61,486)
Redemption of cumulative preferred stock..... (599) 957 --
Cumulative preferred stock dividends......... (3,714) (6,433) (6,829)
-------- --------- ---------
Balance at End of Year.......................$ 25,243 $ (46,006) $(120,848)
======== ========= =========
The accompanying notes are an integral part of these financial statements.
F-4
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-----------------------
1995 1994
---- ----
(In thousands)
Utility Plant, at original cost except PVNGS:
Electric plant in service.............................$1,871,897 $1,783,962
Gas plant in service.................................. 421,607 537,762
Water plant in service................................ -- 63,048
Common plant in service............................... 35,222 49,049
Plant held for future use............................. 639 894
---------- ----------
2,329,365 2,434,715
Less accumulated depreciation and amortization........ 892,727 890,905
---------- ----------
1,436,638 1,543,810
Construction work in progress......................... 106,892 119,308
Nuclear fuel, net of accumulated amortization of
$26,395 and $35,333 ............................... 30,904 33,569
---------- ----------
Net utility plant.................................. 1,574,434 1,696,687
---------- ----------
Other Property and Investments:
Non-utility property, net of accumulated
depreciation of $1,547 and $1,328.................. 4,063 5,752
Other investments..................................... 29,370 28,771
---------- ----------
Total other property and investments............... 33,433 34,523
---------- ----------
Current Assets:
Cash.................................................. 4,228 21,029
Temporary investments, at cost........................ 95,972 74,521
Receivables........................................... 127,642 129,048
Income taxes receivable............................... 4,792 4,182
Fuel, materials and supplies, at average cost......... 44,660 51,068
Gas in underground storage, at average cost........... 5,431 8,744
Other current assets.................................. 7,186 9,549
---------- ----------
Total current assets............................. 289,911 298,141
---------- ----------
Deferred charges......................................... 137,891 173,914
---------- ----------
$2,035,669 $2,203,265
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock outstanding-- 41,774,083 shares.......$ 208,870 $ 208,870
Additional paid-in capital......................... 470,358 469,648
Excess pension liability, net of tax............... (1,623) (1,106)
Retained earnings (deficit) since January 1, 1989.. 25,243 (46,006)
----------- ----------
Total common stock equity........................ 702,848 631,406
Cumulative preferred stock without mandatory
redemption requirements.......................... 12,800 59,000
Cumulative preferred stock with mandatory
redemption requirements.......................... -- 17,975
Long-term debt, less current maturities............... 728,843 752,063
----------- ----------
Total capitalization............................. 1,444,491 1,460,444
----------- ----------
Current Liabilities:
Short-term debt....................................... -- --
Accounts payable...................................... 93,666 105,213
Current maturities of long-term debt.................. 146 148,532
Accrued interest and taxes............................ 26,856 28,073
Other current liabilities............................. 44,699 43,662
----------- ----------
Total current liabilities........................ 165,367 325,480
----------- ----------
Deferred Credits:
Accumulated deferred investment tax credits........... 66,734 71,564
Accumulated deferred income taxes..................... 78,829 77,207
Other deferred credits................................ 280,248 268,570
----------- ----------
Total deferred credits........................... 425,811 417,341
----------- ----------
Commitments and Contingencies (notes 2 through 12)
$2,035,669 $2,203,265
========== ==========
The accompanying notes are an integral part of these financial statements.
F-5
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
Cash Flows From Operating Activities:
Net earnings (loss)................................$ 75,562 $ 80,318 $(61,486)
Adjustments to reconcile net earnings (loss) to
net cash flows from operating activities:
Depreciation and amortization................... 93,125 90,656 95,415
Accumulated deferred investment tax credit...... (4,830) (6,898) (8,321)
Accumulated deferred income taxes............... 1,622 23,069 (63,393)
Gain on sale of utility property................ (39,050) (6,576) (7,350)
Gain on sale of other property and investments.. -- -- (12,394)
Write-down of the PVNGS Units 1 & 2 leases,
regulatory assets and other deferred costs.... -- -- 178,954
Changes in certain assets and liabilities:
Receivables................................... 795 23,868 (12,551)
Fuel, materials and supplies.................. (26,505) (3,126) 3,222
Deferred charges.............................. 6,731 8,427 20,936
Accounts payable.............................. (11,527) (11,893) (53,973)
Accrued interest and taxes.................... (1,218) (1,919) 631
Deferred credits.............................. 29,185 (5,418) (7,137)
Other......................................... 7,090 (3,604) 10,571
Other, net...................................... 16,095 14,160 14,181
------ ------ ------
Net cash flows from operating activities... 147,075 201,064 97,305
------- ------- ------
Cash Flows From Investing Activities:
Utility plant additions............................ (106,627) (119,284) (100,784)
Utility plant sales................................ 206,482 39,562 49,302
Other property additions........................... (801) (1,307) (2,554)
Other property sales............................... -- -- 19,912
Temporary investments, net......................... (21,451) (26,671) (47,665)
------- ------- -------
Net cash flows from investing activities... 77,603 (107,700) (81,789)
------ -------- -------
Cash Flows From Financing Activities:
Redemptions of PVNGS lease obligation bonds ....... (132,663) -- --
Redemptions and repurchases of preferred stock..... (64,175) (7,711) (600)
Redemption of first mortgage bonds................. -- (45,000) --
Bond refinancing costs............................. -- -- (8,960)
Bond redemption premium and costs.................. (505) (2,732) --
Proceeds from asset securitization................. 18,758 -- 60,475
Repayments of long-term debt....................... (57,768) (31,002) (8,842)
Net decrease in short-term debt.................... -- -- (51,550)
Dividends paid..................................... (5,126) (6,400) (6,609)
------ ------ ------
Net cash flows from financing activities... (241,479) (92,845) (16,086)
-------- ------- -------
Increase (Decrease) in Cash........................... (16,801) 519 (570)
Cash at Beginning of Year............................. 21,029 20,510 21,080
--------- --------- ----------
Cash at End of Year...................................$ 4,228 $ 21,029 $ 20,510
========= ========= ==========
Supplemental cash flow disclosures:
Interest paid......................................$ 63,366 $ 70,720 $ 83,248
========= ========= ==========
Income taxes paid..................................$ 52,405 $ 20,000 $ 13,978
========= ========= ==========
Cash consists of currency on hand and demand deposits.
The accompanying notes are an integral part of these financial statements.
F-6
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
----------------------
1995 1994
---------- ----------
(In thousands)
Common Stock Equity:
Common Stock, par value $5 per share.................................... $ 208,870 $ 208,870
Additional paid-in capital.............................................. 470,358 469,648
Excess pension liability, net of tax.................................... (1,623) (1,106)
Retained earnings (deficit) since January 1, 1989....................... 25,243 (46,006)
----------- ----------
Total common stock equity.......................................... 702,848 631,406
----------- ----------
Shares
Outstanding
at Current
Stated December 31, Redemption
Value 1995 Price
-------- ------------ ----------
Cumulative Preferred Stock:
Without mandatory redemption
requirements:
1965 Series, 4.58%........... $100 128,000 $102.00 12,800 13,000
8.48% Series................. 100 -- -- -- 20,000
8.80% Series................. 100 -- -- -- 26,000
------- ------- ------- ----------
128,000 12,800 59,000
======= ------- ----------
With mandatory redemption
requirements:
8.75% Series................. 100 -- -- -- 17,975
Redeemable within one year... -- -- --
------- ------- ----------
-- -- 17,975
======= ------- ----------
Long-Term Debt:
Issue and Final Maturity Interest Rates
- ------------------------ ----------------
First mortgage bonds:
1997............................... 5 7/8% 14,650 14,650
1999 through 2002.................. 7 1/4% to 8 1/8% 43,063 43,272
2004 through 2007.................. 8 1/8% to 9 1/8% 43,421 43,421
2008............................... 9 % 54,374 54,374
Pollution control revenue bonds:
2008 through 2023.................. 5.9% to 7 3/4% 537,045 537,045
2022............................... Variable rate 37,300 37,300
---------- ----------
Total first mortgage bonds....... 729,853 730,062
Lease obligation bonds of First PV
Funding
Corporation:
Funding Corporation:
1996 through 2016.................. 8.95% to 10.3% -- 132,663
Asset securitization.................. -- 38,805
Other, including unamortized
premium and (discount), net........ (864) (935)
---------- ----------
Total long-term debt............. 728,989 900,595
Less current maturities............... 146 148,532
---------- ----------
Long-term debt, less current
maturities....................... 728,843 752,063
---------- ----------
Total Capitalization..................... $1,444,491 $1,460,444
========== ==========
The accompanying notes are an integral part of these financial statements.
F-7
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
Systems of Accounts
The Company maintains its accounts for utility operations primarily in
accordance with the uniform systems of accounts prescribed by the Federal Energy
Regulatory Commission ("FERC") and the National Association of Regulatory
Utility Commissioners ("NARUC"), and adopted by the New Mexico Public Utility
Commission ("NMPUC").
Organization
Public Service Company of New Mexico (the "Company") is an investor-owned
utility company engaged in the generation, transmission, distribution and sale
of electricity. The Company provides retail electric service to a large area of
north central New Mexico, including the cities of Albuquerque, Santa Fe, Rio
Rancho, Las Vegas, Belen and Bernalillo. The Company provides service to
customers in the City of Albuquerque without a franchise agreement, which
contributes approximately one-half of the Company's total electric operating
revenues. The absence of a franchise does not change the Company's right and
obligation to serve these customers under state law. The Company also provides
retail electric service to Deming in southwestern New Mexico and to Clayton in
northeastern New Mexico. The Company is also engaged in the transmission,
distribution and sale of natural gas within the State of New Mexico. The Company
distributes natural gas to most of the major communities in New Mexico,
including Albuquerque and Santa Fe.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and subsidiaries in which it owns a majority voting interest. All significant
intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual recorded amounts could differ from those estimated.
Utility Plant
Utility plant, with the exception of Palo Verde Nuclear Generating
Station ("PVNGS") Unit 3 and the Company's purchased 22% beneficial interests in
the PVNGS Units 1 and 2 leases, is stated at original cost, which includes
capitalized payroll-related costs such as taxes, pension and other fringe
benefits, administrative costs and an allowance for funds used during
construction ("AFUDC"). Utility plant includes certain electric assets not
subject to NMPUC regulation. The results of operations of such electric assets
are included in operating income.
F-8
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies (Continued)
PVNGS Unit 3 and the Company's purchased 22% beneficial interests in the
PVNGS Units 1 and 2 leases were written down in 1992 and 1993, respectively, to
their net realizable value to reflect a permanent impairment to their original
costs.
It is Company policy to charge repairs and minor replacements of property
to maintenance expense and to charge major replacements to utility plant. Gains
or losses resulting from retirements or other dispositions of operating property
in the normal course of business are credited or charged to the accumulated
provision for depreciation.
Depreciation and Amortization
Provision for depreciation and amortization of utility plant is made at
annual straight-line rates approved by the NMPUC. The average rates used are as
follows:
1995 1994 1993
------------- ----------- -----------
Electric plant........................ 3.32% 3.01% 2.98%
Gas plant............................. 3.21% 3.15% 3.12%
Water plant (1)....................... -- 2.68% 2.62%
Common plant (2)...................... -- 4.94% 4.90%
(1) Water plant was sold in July 1995 (see note 12).
(2) As a result of the water plant sale, common plant was transferred
to electric plant.
Effective January 1, 1995, depreciation rates were revised and include a
provision for the recovery of fossil-fueled plant decommissioning costs approved
by the NMPUC in 1994 (see note 11).
The provision for depreciation of certain equipment is charged to
clearing accounts and subsequently allocated to operating expenses or
construction projects based on the use of the equipment. Depreciation of
non-utility property is computed on the straight-line method. Amortization of
nuclear fuel is computed based on the units of production method.
Nuclear Decommissioning
The Company accounts for nuclear decommissioning costs on a straight-line
basis over the estimated useful life of the facilities. Such amounts are based
on the net present value of expenditures estimated to be required to
decommission the plant.
Fuel and Purchased Power Adjustment Clause ("FPPCAC")
The Company's FPPCAC for its retail customers was eliminated in November
1994. A base fuel cost was incorporated with the overall rates approved by the
NMPUC. The Company uses the deferral method of accounting for fuel and purchased
power costs for its firm-requirements wholesale customers. Such amounts are
reflected in subsequent periods under a FPPCAC approved by the FERC.
F-9
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies (Continued)
Purchased Gas Adjustment Clause ("PGAC")
The Company uses the deferral method of accounting for gas purchase costs
which are settled in subsequent periods under gas adjustment clauses. Future
recovery of these costs is subject to approval by the NMPUC.
Amortization of Debt Discount, Premium and Expense
Discount, premium and expense related to the issuance of long-term debt
are amortized over the lives of the respective issues. In connection with the
retirement of long-term debt, such amounts associated with resources subject to
NMPUC regulation are amortized over the lives of the respective issues. Amounts
associated with the Company's firm-requirements wholesale customers and its
excluded resources are recognized immediately as expense or income as they are
incurred.
Income Taxes
The Company reports income tax expense in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
SFAS No. 109 requires deferred income taxes for temporary differences between
book and tax to be recorded using the liability method. Deferred income taxes
are computed using the statutory tax rates scheduled to be in effect when the
temporary differences reverse. Current NMPUC jurisdictional rates include the
tax effects of the majority of these temporary differences (normalization).
Recovery of reversing temporary differences previously accounted for under the
flow-through method is also included in rates charged to customers. For
regulated operations, any changes in tax rates applied to accumulated deferred
income taxes may not be immediately recognized because of ratemaking and tax
accounting provisions contained in the Tax Reform Act of 1986. For items
accorded flow-through treatment under NMPUC 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.
Accounting for Stock-Based Compensation
The Company has a stock option plan for certain selected key employees.
The Company accounts for this plan under Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, under which no compensation cost
has been recognized (see note 7).
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of
In March 1995, the FASB issued SFAS No. 121. This statement requires
companies to review their long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. SFAS No. 121 also requires all regulatory assets, which must
have a high probability of recovery to be initially established, must continue
to meet that high probability standard to avoid being written off. However, if
written off, a regulatory asset can be restored if, through regulatory actions,
it again becomes probable of recovery. The adoption of SFAS No. 121 had no
impact on the Company's financial condition or results of operations.
F-10
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(2) Risks and Uncertainties
Competitive Electric Market
The electric utility industry is currently undergoing a period of
fundamental change intended to promote a competitive environment in the retail
and wholesale energy marketplaces. Legislators and regulators at both the state
and Federal level are considering whether, and how, to promote competition among
suppliers of electricity and how to provide customers with choice among
suppliers.
At the Federal level, the FERC promulgated a Notice of Proposed Rule Making
("Mega-NOPR") in March 1995, which proposes to require utilities to unbundle
their generation and transmission services and to provide open access
transmission. The Mega-NOPR also supplemented a prior NOPR concerning the
appropriate treatment of stranded asset costs associated with the transition.
Specifically, the FERC stated that recovery of legitimate and verifiable
stranded asset costs is critical to the successful transition of the electric
utility industry from a tightly regulated cost-of-service industry to an open
transmission access, competitively priced industry. The Company in its response
to the Mega-NOPR supported the FERC initiative toward open access transmission,
but requested that all transmission asset owners, including municipal and
Federal, be subject to the same requirements in order to establish a level
playing field for all participants in the electric utility industry. The Company
also agreed with the FERC regarding the proposed recovery of stranded asset
costs. A final decision on the Mega-NOPR is expected in the middle of 1996. On
January 22, 1996, a U.S. Senate bill, "Electricity Competition Act of 1996", was
introduced, providing a national framework for a competitive electric industry
by no later than the year 2010. The bill provides for recovery of stranded asset
costs. On February 14, 1996, the Council of Economic Advisors issued an economic
report to Congress in which it cautioned that electric industry competition
should ensure competitive benefits to all power buyers and should not aggravate
pollution or cause supply cuts to the poor. The report favors recovery of
stranded asset costs borne by all parties on whose behalf the stranded costs
were incurred, including customers that switch to other suppliers.
Representative Dan Schaeffer, Chairman of the Energy Subcommittee of the House
of Commerce Committee, has announced that he plans to conduct hearings on
electric industry restructuring, possibly beginning this summer. The Company
does not expect Congressional legislation to pass this year, but does expect
Congressional interest to continue next year.
F-11
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(2) Risks and Uncertainties (Continued)
In November 1995, after three years of study, the Integrated Water and
Resource Planning Committee of the New Mexico State Legislature (the "IWRPC")
issued a resolution reporting its findings on the advantages and disadvantages
of retail wheeling and alternative restructuring schemes applicable to the
electric power industry in New Mexico. The IWRPC's recommendation stated that
any proposed restructuring (i) must benefit all ratepayers in the state, (ii)
must maintain and possibly encourage the financial health and economic viability
of each of the state's utilities, (iii) must provide for appropriate protection
from unfair or advantaged competition from utilities or others from outside the
state, and (iv) must share equitably any costs, including stranded asset costs,
among the varied interests benefitted. The IWRPC also recommended that the
NMPUC, under legislative direction and guidance, should monitor and evaluate the
electric power industry and applicable market influences and factors and report
its findings, conclusions and recommendations to the New Mexico State
Legislature for legislative approval and action, as necessary, before any
proposed restructuring may be implemented. The resolution further indicated that
this continuing evaluation was necessary because of continuing changes even
though restructuring and retail wheeling are not justified or in the public
interest at this time. The Committee resolution was presented to the full
Legislature as a Senate Joint Memorial. It was unanimously passed by the Senate
and the House.
In November 1995, the NMPUC issued a Notice of Inquiry regarding the
restructuring of regulation of the electric utility industry in New Mexico. The
NMPUC is seeking input on a variety of questions related to competition, retail
wheeling and state vs. Federal jurisdiction. The Company in its February 15,
1996 response stated that it believes that: (i) competition and customer choice
may be beneficial to all affected interests in New Mexico if done appropriately
and (ii) in order to achieve restructuring, there must be cooperative state and
Federal action to avoid prolonged uncertainty and litigation, as well as to
avert inconsistent state actions that would inhibit the development of
competitive markets and restrict the benefits that they may provide. The Company
proposed a five-year period to accomplish the transition to a workable
competitive market. The Company also stated that it supports action by the
United States Congress to clarify boundaries between state and Federal
jurisdiction over the electric utility industry, and to ensure that retail
wheeling can be implemented in a manner that ensures fair competition and
provide utilities the opportunity to recover all stranded asset costs.
Although it is uncertain as to the ultimate outcome of possible open access
or retail wheeling initiatives, the Company will continue to be active at both
the state and Federal levels in the public policy debate on the restructuring of
the electric utility industry. By working with customers, regulators and
legislators, the Company believes that an agreement will be reached that will
protect the interests of stockholders as well as offer the potential benefits of
a competitive marketplace to all customers.
F-12
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(2) Risks and Uncertainties (Continued)
Uncertainties
The future structure of the industry, the form and timing of competition
and the method of regulation in a competitive environment remain uncertain. If
retail wheeling is implemented, it is possible that, based on other deregulated
industries' experiences, retail energy prices could drop significantly. Should
that be the case, the value of a utility's assets could be affected
significantly in the transition to a more competitive market from a traditional
rate regulated environment. Currently, the Company's generation costs are above
those of neighboring utilities to the north and east of the Company's service
territory.
The Company believes that the 1994 electric retail rate reduction improved
its competitive position, but recognizes that lower cost producers may have an
advantage if the regulatory framework changes significantly towards retail
wheeling. The Company's owned nuclear capacity is currently valued at
approximately $900 per KW. If the Company were required to value its leased
nuclear capacity at the same level as its owned nuclear capacity, it would be
valued at approximately $180 million versus approximately $560 million. If there
were no provision for the recovery of stranded asset costs, the Company would be
required to charge against earnings approximately $380 million.
Preparation for the Changes
In order to mitigate the exposures associated with a competitive electric
market and transition into this changing environment, the Company established
the following strategic plan in 1995: (i) secure financial flexibility by
retiring debt, (ii) control operation and maintenance costs, (iii) focus on
maximizing shareholder value for the nuclear generation assets, and (iv) develop
new business opportunities in the energy and utility related area. As part of
this plan, the Company restructured its operation into four distinctive business
units, each targeted at a specific segment of its customer base with emphasis on
being more customer oriented and responsive to the changing competitive
environment. The four business units are as follows: (i) Electric Services, (ii)
Gas Services, (iii) Bulk Power Services and (iv) Energy Services.
In order to maximize value of the nuclear generation assets, the Company's
board of directors (the "Board"), at its December 5, 1995 meeting, confirmed
that it is in the best interest of the Company at this time to focus its efforts
and resources on maximizing shareholder value from PVNGS as an asset (leased and
owned) of the Company rather than disposing of it. Growth in the region, rapid
growth in the Company's own local service territory and the continuous
improvement in the operating performance of the plant this year were all factors
in the change of approach. The Board stated that the Company no longer considers
it to be a goal to dispose of its interests in PVNGS.
F-13
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(2) Risks and Uncertainties (Continued)
On December 30, 1994, the Company filed a petition for declaratory order
with the NMPUC. In the petition, the Company requested, among other things, a
declaratory order that its corporate reorganization into four main business
units was in compliance with NMPUC regulations and previous orders and otherwise
lawful. Subsequently, on June 23, 1995, the Company filed an application for
authorization for the creation of three wholly-owned subsidiaries to: (i) manage
and operate water and wastewater systems, (ii) pursue energy marketing,
alternative fuel vehicle services and energy management services; and (iii)
pursue utility management services and related energy management services for
federal installations and large commercial customers. The Company sought
approval to invest a maximum of $50 million in the three subsidiaries over time
and to enter into reciprocal loan agreements for up to $30 million with these
subsidiaries. The NMPUC Staff filed a motion on September 20, 1995 to have the
case dismissed. On January 31, 1996, the hearing examiner assigned to the case
recommended that the NMPUC deny the Staff's motion. On February 5, 1996, the
Staff filed a motion seeking to have the Company file an immediate report on its
non-regulated activities being conducted without prior NMPUC approval; explain
why NMPUC approval is not required; and explain why sanctions should not be
considered if approval is required. On February 19, 1996, the Company filed its
response describing its non-utility (energy and utility related) activities and
presenting the legal authority demonstrating that prior NMPUC approval is not
required. The Company currently cannot predict the ultimate outcome of this
proceeding but intends to vigorously defend against any allegation that it is in
violation of any legal requirements.
F-14
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(3) Regulatory Assets and Liabilities
The Company is subject to the provisions of SFAS No. 71, "Accounting for
the Effects of Certain Types of Regulation" on operations regulated by the
NMPUC. Regulatory assets represent probable future revenue to the Company
associated with certain costs which will be recovered from customers through the
ratemaking process. Regulatory liabilities represent probable future reductions
in revenues associated with amounts that are to be credited to customers through
the ratemaking process. Regulatory assets and liabilities reflected in the
Consolidated Balance Sheets as of December 31, relate to the following:
1995 1994
---------- ----------
(in thousands)
Deferred Income Taxes................................$ 71,094 $ 77,020
Gas Take-or-Pay Costs................................ 50,870 64,858
Gas Imputed Revenues................................. 8,113 4,529
Loss on Reacquired Debt.............................. 6,377 7,360
Gas Reservation Fees................................. 5,622 2,805
Gas Retirees' Health Care Costs...................... 4,437 2,776
Gas Rate Case Costs.................................. 1,100 --
Purchased Gas Adjustment Clause...................... 931 2,868
Fuel and Purchased Power Cost Adjustment Clause...... 121 1,224
--------- ---------
Subtotal........................................ 148,665 163,440
--------- ---------
Deferred Income Taxes................................ (60,815) (64,877)
Customer Gain on Gas Assets Sale..................... (31,559) --
PVNGS Prudence Audit................................. (7,313) (7,688)
Settlement Due Customers............................. (4,101) (5,049)
Gain on Reacquired Debt.............................. (669) (842)
Revenue Subject to Refund............................ (382) --
--------- ---------
Subtotal (104,839) (78,456)
--------- ---------
Net Regulatory Assets...........................$ 43,826 $ 84,984
========= =========
If a portion of the Company's operations under the NMPUC jurisdiction
becomes no longer subject to the provisions of SFAS No. 71, a write off of
related regulatory assets and liabilities would be required, unless some form of
transition cost recovery (refund) continues through rates established and
collected for the Company's remaining regulated operations.
F-15
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(4) Capitalization
Changes in common stock, additional paid-in capital and cumulative
preferred stock are as follows:
Cumulative Preferred Stock
------------------------------------------------
With Mandatory
Without Mandatory Redemption
Redemption Requirements
Common Stock Requirements Requirements
----------------------------------------- ----------------------- -----------------------
Additional Aggregate Aggregate
Number of Aggregate Paid-In Number Stated Number Stated
Shares Par Value Capital of Shares Value of Shares Value
------------ ------------ ----------- ---------- ----------- ----------- ----------
(Dollars in thousands)
Balance at December 31, 1993..... 41,774,083 $ 208,870 $ 470,149 590,000 $ 59,000 243,861 $ 24,386
Redemption of preferred stock. -- -- (501) -- -- (64,111) (6,411)
---------- ------------ ----------- ------- ----------- -------- ----------
Balance at December 31, 1994..... 41,774,083 208,870 469,648 590,000 59,000 179,750 17,975
Redemption of preferred stock. -- -- 710 (462,000) (46,200) (179,750) (17,975)
---------- ------------ ----------- ------- ----------- -------- ----------
Balance at December 31, 1995..... 41,774,083 $ 208,870 $ 470,358 128,000 $ 12,800 -- --
========== ============ =========== ======= =========== ======== ==========
Common Stock
The number of authorized shares of common stock with par value of $5 per
share is 80 million shares.
The Company has not declared dividends on its common stock since January
1989 and anticipates announcing a dividend plan sometime before the end of the
second quarter of 1996. The Company's board of directors reviews the Company's
dividend policy on a continuing basis. The resumption of common dividends is
dependent upon a number of factors including earnings and financial condition of
the Company and market conditions. The deficit in retained earnings was
eliminated during 1995.
Cumulative Preferred Stock
The number of authorized shares of cumulative preferred stock is 10
million shares. The Company's restated articles of incorporation limit the
amount of preferred stock which may be issued. The earnings test in the
Company's restated articles of incorporation currently allows for the issuance
of preferred stock.
On August 7, 1995, the Company redeemed, at par, all of its 8.48% Series,
8.80% Series and 8.75% Series of cumulative preferred stock outstanding as of
July 6, 1995. The redemption price of $64 million included accrued dividends
through the redemption date.
Long-Term Debt
Substantially all utility plant is pledged to secure the Company's first
mortgage bonds. A portion of certain series of long-term debt will be redeemed
serially prior to their due dates. The issuance of first mortgage bonds by the
Company is subject to earnings coverage and bondable property provisions of the
Company's first mortgage indenture. The Company also has the capability under
the mortgage indenture to issue first mortgage bonds on the basis of certain
previously retired bonds and earnings.
F-16
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(4) Capitalization (Continued)
On March 8, 1995, $121 million of PVNGS Lease Obligation Bonds ("LOBs")
were retired. The retired LOBs consisted of $58 million of 10.30% LOBs due 2014
retired at a price of 100% of par and $63 million of 10.15% LOBs due 2016
retired at a price of 97.8% of par. Additionally, $4.4 million and $4.8 million
of LOBs due 1996 and 1997 at interest rates of 9.125% and 8.95%, respectively,
were retired at par on March 22, 1995. In conjunction with these retirements,
the Company wrote off $1.5 million of net costs related to these transactions.
The retirement of the LOBs, which were the Company's highest cost debt, will
save the Company approximately $11 million annually in interest expense over a
five year period.
The aggregate amounts (in thousands) of maturities for 1996 through 2000
on long-term debt outstanding at December 31, 1995 are as follows:
1996.......................................................... $ 146
1997.......................................................... $ 16,470
1998.......................................................... $ 4,275
1999.......................................................... $ 16,185
2000.......................................................... $ 5,460
Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments
(including current maturities) at December 31, is as follows:
1995 1994
----------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In thousands)
Long-Term Debt.................$728,989 $730,337 $900,595 $805,000
Redeemable Preferred Stock..... -- -- $ 17,975 $ 15,638
Estimates are based on market quotes provided by the Company's investment
bankers.
F-17
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(5) Revolving Credit Facility and Other Credit Facilities
The carrying amounts reflected on the consolidated balance sheets
approximate fair value for cash, temporary investments, and receivables and
payables due to the short period of maturity.
At December 31, 1995, the Company had a $100 million secured revolving
credit facility (the "Facility") with an expiration date of June 30, 1998. The
Company must pay commitment fees of 3/8% per year on the total amount of the
Facility. The Company also has a $40 million credit facility, collateralized by
the Company's electric customer accounts receivable (the "Accounts Receivable
Facility") with an expiration date of December 20, 1998. On January 30, 1996,
the Company requested NMPUC approval to increase the capacity of the Accounts
Receivable Facility up to $100 million by including in the collateral pool the
Company's gas accounts receivable and certain amounts being recovered from gas
customers relating to certain gas contract settlements. This would increase the
Company's liquidity arrangements up to $211 million from $151 million, including
local lines of credit of $11 million. As of December 31, 1995, there were no
borrowings outstanding under the Facility, the Accounts Receivable Facility or
any of the local lines of credit.
F-18
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(6) Income Taxes
Income taxes consist of the following components:
1995 1994 1993
---- ---- ----
(In thousands)
Current Federal income tax...........................$45,940 $24,243 $ 12,502
Current State income tax............................. 5,864 -- --
Deferred Federal income tax.......................... (3,212) 15,449 (52,827)
Deferred State income tax............................ 7,031 8,077 (8,433)
Amortization of accumulated investment tax credits... (4,442) (4,701) (5,036)
Recognition of accumulated deferred investment tax
credits relating to sales of utility property .... (388) (2,197) (3,284)
------ ------ -------
Total income taxes................................$50,793 $40,871 $(57,078)
======= ======= ========
Charged to operating expenses........................$30,194 $44,210 $ 25,721
Charged (credited) to other income and deductions.... 20,599 (3,339) (82,799)
------ ------ -------
Total income taxes ...............................$50,793 $40,871 $(57,078)
======= ======= ========
The Company's provision for income taxes 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:
1995 1994 1993
---- ---- ----
(In thousands)
Federal income tax at statutory rates................$44,224 $42,417 $(41,497)
Investment tax credits............................... (4,442) (4,701) (5,036)
Depreciation of flow-through items................... 723 1,112 1,719
Gains on the sale and leaseback of PVNGS
Units 1 and 2..................................... (527) (527) (514)
State income tax..................................... 7,146 5,222 (5,585)
Gains on sale of utility property.................... 3,090 (2,139) (3,169)
Federal income tax rate change to 35%................ -- -- (2,527)
Other................................................ 579 (513) (469)
------- ------- ---------
Total income taxes ...............................$50,793 $40,871 $(57,078)
======= ======= ========
F-19
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(6) Income Taxes (Continued)
Deferred income taxes result from certain differences between the
recognition of income and expense for tax and financial reporting purposes, as
described in note 1. The major sources of these differences for which deferred
taxes have been provided and the tax effects of each are as follows:
1995 1994 1993
------------- ------------ --------------
(In thousands)
Deferred fuel costs............................................. $ (3,990) $ (1,945) $ 4,549
Depreciation and cost recovery.................................. 12,730 22,118 17,668
Loss provision for the M-S-R power purchase contract............ 3,497 5,632 6,335
Contributions in aid of construction............................ (4,308) (5,055) (4,491)
Alternative minimum tax in excess of regular tax................ (26,002) (24,100) (13,808)
Net operating losses utilized .................................. 55,217 35,077 15,067
PVNGS decommissioning........................................... (2,321) (2,445) (3,962)
Write-down of interests in PVNGS Units 1 and 2.................. -- -- (51,585)
Hedge loss write-off............................................ -- -- (3,908)
Loss on reacquired debt write-off............................... -- -- (5,561)
Gains on sale of utility property............................... (29,868) (8,421) (11,321)
Contribution to 401(h) plan..................................... (885) 1,204 (3,226)
Reserve for litigation.......................................... -- -- (1,979)
OLE Transmission Project........................................ (3,177) (792) (929)
Other........................................................... 2,926 2,253 (4,109)
------------- ----------- ----------
Net deferred taxes provided.................................. $ 3,819 $ 23,526 $ (61,260)
============= =========== ==========
The components of the net accumulated deferred income tax liability
were:
1995 1994
------------ ------------
(In thousands)
Deferred Tax Assets:
Net operating losses.............................. $ -- $ 51,199
Alternative minimum tax credit carryforward....... 66,628 40,626
Nuclear decommissioning........................... 14,023 11,703
Regulatory liabilities............................ 60,070 64,877
Other............................................. 45,403 41,446
------------ ------------
Total deferred tax assets......................$ 186,124 $ 209,851
------------ ------------
Deferred Tax Liabilities:
Depreciation......................................$ 168,562 $ 175,068
Investment tax credit............................. 66,734 71,564
Fuel costs........................................ 24,804 28,794
Regulatory assets................................. 70,348 77,020
Other............................................. 1,239 6,176
------------ ------------
Total deferred tax liabilities................. 331,687 358,622
------------ ------------
Accumulated deferred income taxes, net...............$ 145,563 $ 148,771
============ ============
F-20
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(6) Income Taxes (Continued)
The Company has no net operating loss carryforwards as of December 31,
1995.
The Company defers investment tax credits related to utility assets and
amortizes them over the estimated useful lives of those assets. Investment tax
credits related to non-utility assets have been flowed through in earlier years.
(7) Employee and Post-Employment Benefits
Pension Plan
The Company and its subsidiaries have a pension plan covering
substantially all of their employees, including officers. The plan is
non-contributory and provides for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Company and the
average of their highest annual base salary for three consecutive years. The
Company's policy is to fund actuarially-determined contributions. Contributions
to the plan reflect benefits attributed to employees' years of service to date
and also for services expected to be provided in the future. Plan assets
primarily consist of common stock, fixed income securities, cash equivalents and
real estate. The components of pension cost (in thousands) are as follows:
1995 1994 1993
----------- ----------- -----------
Service cost...........................$ 6,770 $ 8,121 $ 7,263
Interest cost.......................... 18,332 17,589 16,849
Actual loss (return) on plan assets.... (42,148) 1,079 (18,148)
Net amortization and deferral.......... 23,295 (18,731) (878)
----------- ----------- -----------
Net periodic pension cost.............. 6,249 8,058 5,086
Curtailment loss....................... -- -- 1,657
----------- ----------- -----------
Total pension expense..................$ 6,249 $ 8,058 $ 6,743
=========== =========== ===========
F-21
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(7) Employee and Post-Employment Benefits (Continued)
The following sets forth the plan's funded status and amounts (in
thousands) at December 31:
1995 1994
------------ ------------
Vested benefits.................................... $ 222,501 $ 183,364
Non-vested benefits................................ 10,556 8,071
------------ ------------
Accumulated benefit obligation..................... 233,057 191,435
Effect of future compensation levels............... 46,889 36,581
------------ ------------
Projected benefit obligation....................... 279,946 228,016
Fair value of plan assets.......................... 246,670 208,751
------------ ------------
Projected benefit obligation in excess of assets... 33,276 19,265
Unrecognized prior service cost.................... (214) (248)
Net unrecognized loss from past experience
different from assumed and the effects of
changes in assumptions.......................... (41,185) (27,183)
Unamortized asset at transition, being amortized
through the year 2002........................... 6,978 8,142
------------ ------------
Accrued pension asset.............................. $ (1,145) $ (24)
============ ===========
The weighted average discount rate used to measure the projected benefit
obligation was 7.50% and 8.25% for 1995 and 1994, respectively, and the expected
long-term rate of return on plan assets was 8.75% for 1995 and 1994. The rate of
increase in future compensation levels based on age-related scales was 4.1% for
1995 and 1994.
Other Postretirement Benefits
The Company provides medical and dental benefits to eligible retirees.
Currently, retirees are offered the same benefits as active employees after
reflecting Medicare coordination. The components of postretirement benefit cost
(in thousands) are as follows:
1995 1994 1993
---------- -------- ----------
Service cost................................$ 1,869 $ 1,389 $ 1,175
Interest cost............................... 4,962 3,250 2,974
Actual loss (return) on plan assets......... (2,726) 100 (56)
Transition obligation amortization.......... 1,817 1,817 1,857
Net amortization and deferral............... 2,498 (295) --
---------- -------- ----------
Net periodic postretirement benefit cost.... 8,420 6,261 5,950
Curtailment loss............................ -- -- 4,295
---------- -------- ----------
Total postretirement benefit expense........$ 8,420 $ 6,261 $ 10,245
========== ======== ==========
F-22
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(7) Employee and Post-Employment Benefits (Continued)
The following sets forth the plan's funded status and amounts (in
thousands) at December 31:
1995 1994
------------ -------------
Accumulated benefit obligations for:
Retirees....................................... $ 29,088 $ 32,085
Fully eligible employees....................... 7,144 1,848
Active employees............................... 39,854 27,387
----------- ------------
Accumulated benefit obligation.................... 76,086 61,320
Fair value of plan assets......................... 15,600 8,559
----------- ------------
Funded status..................................... (60,486) (52,761)
Net unrecognized loss............................. 22,196 15,310
Unrecognized transition obligation (being
amortized through the year 2012)............... 30,891 32,708
----------- ------------
Accrued postretirement liability.................. $ (7,399) $ (4,743)
=========== ============
Plan assets consist primarily of domestic common stock, fixed income
securities and cash equivalents.
The weighted average discount rate used to measure the projected benefit
obligation was 7.5% and 8.25% for 1995 and 1994, respectively, and the expected
long-term rate of return on plan assets was 8.75% for 1995 and 1994. The health
care cost trend rate was 8.0%, 7.5% and 6.0% for 1995, 1994 and 1993,
respectively. The effect of a 1% increase in the health care trend rate
assumption would increase the accumulated postretirement benefit obligation as
of December 31, 1995 by approximately $11.8 million and the aggregate service
and interest cost components of net periodic postretirement benefit cost for
1995 by approximately $1.2 million. The health care cost trend rate was expected
to decrease to 6.0% by 2010 and to remain at that level thereafter.
The Company received NMPUC approval in 1994 for the recovery of the full
accrual amount of Electric Business Unit's retirees' health care costs expense.
The Company currently defers the benefit costs in excess of the pay-as-you-go
basis for PNMGS ($4.4 million deferred as of December 31, 1995) and has
addressed the recovery of this amount as well as the full accrual amount of
retirees' health care costs related to PNMGS in its general rate case which was
filed in August 1995.
Performance Stock Plan
In 1993, the Company adopted a nonqualified stock option plan covering a
group of management employees. Options are granted at the fair market value of
the shares on the date of grant. Options granted through December 31, 1995, vest
on June 30, 1996, and have a purchase term of up to 10 years.
F-23
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(7) Employee and Post-Employment Benefits (Continued)
The Performance Stock Plan activity for 1993, 1994 and 1995 is summarized
as follows:
Shares Range of
Subject Exercise Prices
to Option Per Share
------------- ----------------------
Balance at December 31, 1993....... 370,000 $13.75
Options Granted............... 817,135 $11.50 - $13.00
Options Cancelled............. --
Balance at December 31, 1994....... 1,173,542 $11.50 - $13.75
Options Granted............... 507,238 $17.625
Options Cancelled............. --
Balance at December 31, 1995....... 1,664,500 $11.50 - $17.625
Options may be exercised following vesting as described in the plan. The
aggregate maximum number of options granted under the current plan during its
five-year time frame is two million shares, subject to certain adjustments. As
proposed under an amended plan, all subsequent awards granted after December 31,
1995, shall vest three years from the grant date of the award and the maximum
number of options would be increased to five million shares through December 31,
2000. This amended plan is subject to shareholder approval at the next annual
meeting in April 1996.
Executive Retirement Program
The Company has an executive retirement program for a group of management
employees. The program was intended to attract, motivate and retain key
management employees. The Company's projected benefit obligation for this
program, as of December 31, 1995, was $18.5 million, of which the accumulated
and vested benefit obligation was $17.6 million. As of December 31, 1995, the
Company has recognized an additional liability of $1.6 million for the amount of
unfunded accumulated benefits in excess of accrued pension costs. The net
periodic pension cost for 1995, 1994 and 1993 was $2.0 million, $2.2 million and
$2.1 million, respectively. In 1989, the Company established an irrevocable
grantor trust in connection with the executive retirement program. Under the
terms of the trust, the Company may, but is not obligated to, provide funds to
the trust, which was established with an independent trustee, to aid it in
meeting its obligations under such program. Funds in the amount of approximately
$10.5 million (fair market value of $13.0 million) are presently in trust. No
additional funds have been provided to the trust since 1989.
(8) Construction Program and Jointly-Owned Plants
It is estimated that the Company's construction expenditures for 1996 will
be approximately $123 million, including expenditures on jointly-owned projects.
The Company's proportionate share of expenses for the jointly-owned plants is
included in operating expenses in the consolidated statements of earnings.
F-24
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(8) Construction Program and Jointly-Owned Plants (Continued)
At December 31, 1995, 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).... $ 729,516 $ 308,656 $ 5,653 46.3%
Palo Verde Nuclear Generating
Station (Nuclear)*................. $ 189,504 $ 38,301 $ 15,743 10.2%
Four Corners Power Plant Units 4
and 5 (Coal)....................... $ 115,729 $ 42,179 $ 4,316 13.0%
- -----------
* Includes the Company's interest in PVNGS Unit 3, the Company's
interest in common facilities for all PVNGS units and the 22%
beneficial interests in the PVNGS Units 1 and 2 leases.
San Juan Generating Station ("SJGS")
The Company operates and jointly owns SJGS. At December 31, 1995, 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 and 8.2% by Century Power Corporation ("Century"). Century sold
its remaining 8.2% interest to Tri-State Generation and Transmission
Association, Inc. Unit 4 is owned 38.457% by the Company, 8.475% by the City of
Farmington, 28.8% by M-S-R Public Power Agency, a California public power agency
("M-S-R"), 7.2% by the County of Los Alamos, 10.04% by the City of Anaheim,
California and 7.028% by Utah Associated Municipal Power Systems.
Palo Verde Nuclear Generating Station
The Company has a 10.2% interest in PVNGS. Commercial operation commenced
in 1986 for Unit 1 and Unit 2 and 1988 for Unit 3. In 1985 and 1986, the Company
completed sale and leaseback transactions for its undivided interests in Units 1
and 2 and certain related common facilities.
In 1992, the Company purchased approximately 22% of the beneficial
interests in PVNGS Units 1 and 2 leases for approximately $17.5 million,
recording $158.3 million as utility plant and $140.8 million as long-term debt.
In 1993, such utility plant was written down to $46.7 million in conjunction
with the electric retail rate reduction.
F-25
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(8) Construction Program and Jointly-Owned Plants (Continued)
The PVNGS participants have insurance for public liability payments
resulting from nuclear energy hazards to the full limit of liability under
Federal law. This potential liability is covered by primary liability insurance
provided by commercial insurance carriers in the amount of $200 million and the
balance by an industry wide retrospective assessment program. The maximum
assessment per reactor under the retrospective rating program for each nuclear
incident occurring at any nuclear power plant in the United States is
approximately $79.3 million, subject to an annual limit of $10 million per
incident. Based upon the Company's 10.2% interest in the three PVNGS units, the
Company's maximum potential assessment per incident is approximately $24.3
million, with an annual payment limitation of $3 million. The insureds under
this liability insurance include the PVNGS participants and "any other person or
organization with respect to his legal responsibility for damage caused by the
nuclear energy hazard".
The PVNGS participants maintain "all-risk" (including nuclear hazards)
insurance for nuclear property damage to, and decontamination of, property at
PVNGS in the aggregate amount of approximately $2.75 billion as of January 1,
1996, a substantial portion of which must first be applied to stabilization and
decontamination. The Company has also secured insurance against a portion of the
increased cost of generation or purchased power resulting from certain
accidental outages of any of the three PVNGS units if such outage exceeds 21
weeks.
The Company has a program for funding its share of decommissioning costs
for PVNGS. Under this program, the Company makes a series of annual deposits to
an external trust over the estimated useful life of each unit with the trust
funds being invested under a plan which allows the accumulation of funds largely
on a tax-deferred basis through the use of life insurance policies on certain
current and former employees. The results of the 1995 decommissioning study
indicate that the Company's share of the PVNGS decommissioning costs will be
approximately $145.6 million, a decrease from $157.8 million based on the
previous 1992 study (both amounts are stated in 1995 dollars).
The Company has determined that a supplemental investment program will be
needed as a result of both cost increases identified in the 1992 study and the
lower than anticipated performance of the existing program. On September 29,
1995, the Company filed a request for permission from the NMPUC to establish a
qualified tax advantaged trust for PVNGS Units 1 and 2. Due to Internal Revenue
Service ("IRS") regulations, PVNGS Unit 3 will remain in a non-qualified trust.
The Company, on February 7, 1996, filed a motion for interim relief for
establishment of a qualified trust pending final NMPUC action. The interim
request was necessary in order to meet the March 15 deadline under IRS
requirements for the qualified trust to be effective for the current year. On
February 19, 1996, the NMPUC granted this request.
The market value of the existing trust at the end of 1995 was
approximately $12.4 million, which includes the cash surrender value of the
current insurance policies.
F-26
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(9) Long-Term Power Contracts and Franchises
The Company had two long-term contracts for the purchase of electric
power. Under a contract with M-S-R, which expired in early 1995, the Company was
obligated to pay certain minimum amounts and a variable component representing
the expenses associated with the energy purchased and debt service costs
associated with capital improvements. Total payments under this contract
amounted to approximately $14 million for 1995 and $42 million in each year for
1994 and 1993.
The Company has a long-term contract with Southwestern Public Service
Company ("SPS") for up to 200 MW of interruptible power from May 1995 through
May 2011. Total payments under this contract amounted to approximately $12.1
million in 1995. Minimum payments under the contract amount to approximately
$14.0 million for 1996 and 1997. In addition, the Company will be required to
pay for any energy purchased under the contract. The amount of minimum payments
for future years will depend on whether the Company exercises its option to
reduce its purchase obligations under the contract. The Company provided such
notice in 1995 to reduce the purchase by 25 MW in 1999.
(10) Lease Commitments
The Company classifies its leases in accordance with generally accepted
accounting principles. The Company leases Units 1 and 2 of PVNGS, 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. Prior to 1992, the aggregate lease expense for the PVNGS
leases was $84.6 million per year over the base lease terms; however, this
amount was reduced by the purchase of approximately 22% of the beneficial
interests in the PVNGS Units 1 and 2 leases (see note 8). Each PVNGS lease
contains renewal and fair market value purchase options at the end of the base
lease term.
Future minimum operating lease payments (in thousands) at December 31,
1995 are:
1996................................................ $ 77,926
1997................................................ 77,674
1998................................................ 77,563
1999................................................ 77,268
2000................................................ 77,217
Later years......................................... 1,102,754
-------------
Total minimum lease payments..................... $ 1,490,402
=============
Operating lease expense, inclusive of PVNGS leases, was approximately $80
million in 1995, $79.1 million in 1994 and $80.6 million in 1993. Aggregate
minimum payments to be received in future periods under noncancelable subleases
are approximately $7.2 million.
F-27
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(11) Environmental Issues and Fossil-Fueled Plant Decommissioning Costs
The Company is committed to complying with all applicable environmental
regulations in a responsible manner. Environmental issues have presented and
will continue to present a challenge to the Company. The Company has evaluated
the potential impacts of the following environmental issues and believes, after
consideration of established reserves, that the ultimate outcome of these
environmental issues will not have a material adverse effect on the Company's
financial condition or results of operations.
Electric Operations
Person Station
The Company, in compliance with the New Mexico Environment Department
("NMED") Corrective Action Directive, determined that groundwater contamination
exists in the deep and shallow water aquifers. The Company is required to
delineate the extent of the contamination and remediate the contaminants in the
groundwater. The extent of the contaminated plume in the deep water aquifer has
been assessed and results have been reported to the NMED. The Company has also
proposed revised remedial options to the NMED. The Company is awaiting a final
response from the NMED. The Company's current estimate to decommission its
retired fossil-fueled plants includes approximately $10.9 million to complete
the groundwater remediation program at Person Station. As part of the financial
assurance requirement of the Person Station Hazardous Waste Permit, the Company
posted a $5.1 million performance bond with a trustee. The remediation program
continues on schedule.
Santa Fe Station
The NMED has been conducting an investigation of the groundwater
contamination detected beneath the Santa Fe Station site to determine the source
of the contamination. The Company has been and is continuing to cooperate with
the NMED site investigation pursuant to a settlement agreement between the
Company and the NMED. In May 1995, the Company received a letter from the NMED
indicating that the NMED had made a determination that Santa Fe Station was the
source of gasoline-contaminated groundwater at the site and vicinity. The
Company contested the NMED's determination and believes insufficient data exists
to definitely identify the sources of groundwater contamination. A minimum site
assessment ("MSA") of the two former underground storage tank sites at the Santa
Fe Station site was conducted by the Company under the settlement agreement. The
MSA report indicated that the Santa Fe Station site does not appear to have been
a source of gasoline contamination. The MSA report has been submitted to the
NMED and is currently pending NMED review.
F-28
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(11) Environmental Issues and Fossil-Fueled Plant Decommissioning Costs
(Continued)
Albuquerque Electric Service Center
Trenching work at the electric service center revealed oil contaminated
soil in an area of the service center where used oil in drums were stored. The
trenched area bisects a small portion of the storage area, indicating that
potentially the entire area could be underlain with contaminated soil. The
Company requested a laboratory analysis on the soil to determine the type of
contamination. The Company may be required to assess soil and groundwater for
contamination as well as remediate extensive volumes of soil in the area. The
Company currently cannot predict the outcome of the analysis, to what extent the
soil was contaminated or the costs of the remediation, if any.
In addition, leaking fuel lines, which have been replaced, caused soil
and groundwater contamination in the vicinity of the leak. The Company proposed
a quarterly sampling plan to the NMED for the site. The NMED has expressed
concerns regarding the placement of monitoring wells and the relatively high
levels of residual contamination remaining in the soil at the site. Based on the
recent analysis of the groundwater sampling, the contaminated soil does not
appear to be a continual recharge source to the groundwater contamination. The
NMED may require additional monitoring wells and soil remediation work at the
site.
Gas Operations
Air Permits
In 1994, following an environmental audit performed in conjunction with
the Company's sale of certain gas assets, which audit brought to light certain
discrepancies regarding required air permits associated with certain natural gas
facilities, the Company met with the NMED to discuss the nature of the permit
discrepancies and to propose methods and schedules to resolve the discrepancies.
The Company submitted in 1994 its permit modification application for the
Lybrook Gas Processing Plant ("Lybrook"). The Lybrook permit has now been issued
to Williams Gas Processing-Blanco, Inc.("Williams"), the purchaser of the gas
assets.
The Company submitted an air permit modification application for the Kutz
Canyon Gas Processing Plant ("Kutz") in the first quarter of 1995. In October
1995, the Company received a Notice of Violation ("NOV") from the NMED with
specified corrective actions on the permit discrepancies in the Kutz air permit.
In January 1996, the Company accepted a settlement offer for the NOV from the
NMED in the amount of $15,000. The Company cannot predict when the final permit
will be issued by the NMED or whether additional requirements will be imposed by
the NMED as conditions for issuance of the permit.
F-29
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(11) Environmental Issues and Fossil-Fueled Plant Decommissioning Costs
(Continued)
Gas Wellhead Pit Remediation
The New Mexico Oil Conservation Commission ("NMOCC") issued an order,
effective on January 14, 1993, that affects the gas gathering facilities, which
were sold to Williams, located in the San Juan Basin in northwestern New Mexico.
The order prohibits the further discharge of fluids associated with the
production of natural gas into unlined earthen pits in certain specified areas
of the San Juan Basin. The order also required the submission of closure plans
for the closure of pits in which production fluids were previously discharged.
The Bureau of Land Management ("BLM") has issued a similar ruling. The Company
has complied with such rulings and submitted and received approval of the pit
closure plans from the New Mexico Oil Conservation Division ("OCD"), the Energy
Minerals and Natural Resources Department, as well as the BLM.
The Company has received letters and directives from the OCD directing
the Company to determine if certain unlined discharge pits have contributed to
the groundwater contamination plumes that were identified at those sites. The
Company is currently assessing the sites in accordance with the OCD directive.
The Company continues to assess unlined pits in accordance with the OCD
directive and is addressing potential groundwater contamination issues as they
arise during the assessment process.
On March 3, 1995, the Jicarilla Apache Tribe ("Jicarilla") enacted an
ordinance directing that unlined surface impoundments located within
environmentally sensitive areas be remediated and closed by December 1996, and
that all other unlined surface impoundments on Jicarilla's lands be remediated
and closed by December 1998. The Company has received a claim for
indemnification by Williams for the environmental work required to comply with
the Jicarilla ordinance. The Company has submitted a closure/remediation plan to
the Jicarilla, which has been approved, and the Company anticipates initiating
the remediation process in the spring of 1996. The costs of remediation will be
charged against the $10.6 million indemnification cap contained in the purchase
and sale agreement between the Company and Williams (see note 12). The Company
does not anticipate that the claim for indemnification will have any material
impact on the Company's financial condition or results of operations.
Fossil-Fueled Plant Decommissioning Costs
The Company's six owned or partially owned, in service and retired,
fossil-fueled generating stations are expected to incur dismantling and
reclamation costs as they are decommissioned. The Company's share of
decommissioning costs for all of its fossil-fueled generating stations is
projected to be approximately $141 million stated in 1995 dollars, including
approximately $24.0 million (of which $12.1 million has already been expended)
for Person, Prager and Santa Fe Stations which have been retired.
The Company is currently recovering estimated decommissioning costs from
NMPUC retail customers through its depreciation rates. Depreciation amounts for
the retired generating units are not being recovered.
F-30
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(12) Asset Sales
Sale of Sangre de Cristo Water Company
In February 1994, the Company and the City of Santa Fe (the "City")
executed a purchase and sale agreement for the Company's water division, subject
to NMPUC approval. On May 22, 1995, the NMPUC issued a final order approving the
sale. On July 3, 1995, the closing of the sale was finalized. As a result, the
Company received $51.2 million (exclusive of current assets netted against
current liabilities) from the sale and recorded an after-tax gain of $6.4
million, or 15 cents per share. Pursuant to the purchase and sale agreement, the
Company, through its Energy Services Unit, will continue to operate the water
utility up to four years for a fee under a contract with the City.
Sale of Gas Gathering and Processing Assets
As part of the Company's announced action plan in 1993 to focus on its
core utility business, the Company, in 1994, entered into an agreement with
Williams for the sale of substantially all of the assets of Gathering Company
and Processing Company and for the sale of Northwest and Southeast gas gathering
and processing facilities of the Company.
The sales transaction provides for three 10-year contracts, each with an
option to renew for an additional 5-year term, with Williams for competitively
priced gathering and processing services. The purchase and sale agreement
contains contractual requirements for the Company to address various
environmental deficiencies identified as retained liabilities. It also contains
environmental representations and warranties and indemnification provisions
whereby the Company indemnifies Williams for a five-year period after closing
for breaches of the environmental representations and warranties and against
third party claims to a maximum of $10.6 million. After the $10.6 million cap
has been reached, or after the expiration of the five-year post-closing
indemnification period, whichever comes first, Williams indemnifies the Company
against further environmental expenditures related to the properties sold. On
June 30, 1995, following NMPUC approval, the Company and Williams closed the
sale of the assets. As a result, the Company and its gas subsidiaries received
$154 million from Williams and recognized an after-tax gain of $12.8 million, or
31 cents per share. Under the NMPUC approval, the Company recorded a liability
of approximately $35 million, representing an estimate of a portion of the gain
resulting from the sale, which will be credited to the Company's gas customers'
bills over five years. After completion of the fifth year, the amount of the
gain will be recalculated to reflect actual expenses associated with the
transaction which were appropriately and legitimately incurred. Such amount
should include amounts expended to indemnify Williams as described above. Any
resulting differences will be refunded or billed to customers over a one year
period.
As a result of the gas assets sales, the operations of the Company's two
wholly-owned gas subsidiaries, Gathering Company and Processing Company, have
been substantially discontinued, effective June 30, 1995.
F-31
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(13) Segment Information
The financial information pertaining to the Company's electric, gas and
other operations for the years ended December 31, 1995, 1994 and 1993 are as
follows:
Electric* Gas Other Total
--------------- ------------ ----------- --------------
(In thousands)
1995:
Operating revenues.....................................$ 584,284 $ 217,985 $ 6,196 $ 808,465
Operating expenses excluding income taxes.............. 470,824 190,128 3,931 664,883
--------------- ------------ ----------- --------------
Pre-tax operating income............................... 113,460 27,857 2,265 143,582
Operating income tax................................... 24,884 4,313 997 30,194
--------------- ------------ ----------- --------------
Operating income.......................................$ 88,576 $ 23,544 $ 1,268 $ 113,388
=============== ============ =========== ==============
Depreciation and amortization expense..................$ 63,047 $ 17,248 $ 570 $ 80,865
=============== ============ =========== ==============
Construction expenditures..............................$ 76,610 $ 26,315 $ 4,741 $ 107,666
=============== ============ =========== ==============
Identifiable assets:
Net utility plant...................................$ 1,298,103 $ 276,218 $ 113 $ 1,574,434
Other............................................... 327,547 125,387 8,301 461,235
--------------- ------------ ----------- --------------
Total assets......................................$ 1,625,650 $ 401,605 $ 8,414 $ 2,035,669
=============== ============ =========== ==============
1994:
Operating revenues.....................................$ 621,794 $ 269,510 $ 13,407 $ 904,711
Operating expenses excluding income taxes.............. 468,519 233,743 7,161 709,423
--------------- ------------ ----------- --------------
Pre-tax operating income............................... 153,275 35,767 6,246 195,288
Operating income tax................................... 32,998 9,158 2,054 44,210
--------------- ------------ ----------- --------------
Operating income.......................................$ 120,277 $ 26,609 $ 4,192 $ 151,078
=============== ============ =========== ==============
Depreciation and amortization expense.....................$ 56,003 $ 16,847 $ 1,287 $ 74,137
=============== ============ =========== ==============
Construction expenditures..............................$ 80,282 $ 31,518 $ 8,506 $ 120,306
=============== ============ =========== ==============
Identifiable assets:
Net utility plant...................................$ 1,302,467 $ 341,232 $ 52,988 $ 1,696,687
Other............................................... 307,010 187,748 11,820 506,578
--------------- ------------ ----------- --------------
Total assets......................................$ 1,609,477 $ 528,980 $ 64,808 $ 2,203,265
=============== ============ =========== ==============
F-32
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995, 1994 and 1993
(13) Segment Information (Continued)
Electric* Gas Other Total
--------------- ------------ ----------- --------------
(In thousands)
1993:
Operating revenues.....................................$ 589,728 $ 271,087 $ 13,063 $ 873,878
Operating expenses excluding income taxes.............. 467,659 239,859 7,355 714,873
--------------- ------------ ----------- --------------
Pre-tax operating income............................... 122,069 31,228 5,708 159,005
Operating income tax................................... 19,184 5,347 1,190 25,721
--------------- ------------ ----------- --------------
Operating income.......................................$ 102,885 $ 25,881 $ 4,518 $ 133,284
=============== ============ =========== ==============
Depreciation and amortization expense..................$ 59,298 $ 16,859 $ 1,169 $ 77,326
=============== ============ =========== ==============
Construction expenditures..............................$ 67,886 $ 26,593 $ 2,847 $ 97,326
=============== ============ =========== ==============
Identifiable assets:
Net utility plant...................................$ 1,324,110 $ 333,862 $ 45,960 $ 1,703,932
Other............................................... 257,153 240,908 10,196 508,257
--------------- ------------ ----------- --------------
Total assets......................................$ 1,581,263 $ 574,770 $ 56,156 $ 2,212,189
=============== ============ =========== ==============
- -----------
* Includes the resources excluded from NMPUC regulation.
On June 30, 1995, the Company sold substantially all of the gas gathering
and processing assets of the Company and its gas subsidiaries and on July 3,
1995, the Company sold its water division (see note 12).
F-33
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
QUARTERLY OPERATING RESULTS
The unaudited operating results by quarters for 1995 and 1994 are as follows:
Quarter Ended
------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------- ------------- ---------------- ---------------
(In thousands except per share amounts)
------------- ---------------- ---------------
1995:
Operating Revenues............................... $ 230,235 $ 191,532 $ 195,586 $ 191,112
Operating Income................................. $ 33,731 $ 25,024 $ 34,734 $ 19,899
Net Earnings (1)................................. $ 18,184 $ 23,419 $ 28,969 $ 4,990
Net Earnings per Share (1)....................... $ 0.40 $ 0.52 $ 0.68 $ 0.12
1994:
Operating Revenues............................... $ 260,807 $ 204,260 $ 218,717 $ 220,927
Operating Income................................. $ 42,671 $ 32,150 $ 43,606 $ 32,651
Net Earnings .................................... $ 24,103 $ 19,248 $ 21,789 $ 15,178
Net Earnings per Share .......................... $ 0.54 $ 0.42 $ 0.48 $ 0.33
In the opinion of management of the Company, all adjustments (consisting
of normal recurring accruals) necessary for a fair statement of the results
of operations for such periods have been included.
- -------------------
(1) On June 30, 1995, the Company consummated the sale of substantially all
of the gas gathering and processing assets of the Company and its gas
subsidiaries to Williams. The Company recorded an after-tax gain of
$12.8 million, or 31 cents per share. On July 3, 1995, the Company
consummated the sale of the Company's water division to the City of
Santa Fe. The Company recorded an after-tax gain of $6.4 million, or 15
cents per share.
F-34
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
1995 1994 1993 1992 1991
------------- ------------- ------------- -------------- --------------
Electric Service Energy Sales -- KWh (in thousands):
Residential.................................. 1,795,371 1,786,292 1,683,213 1,650,491 1,606,993
Commercial................................... 2,578,243 2,534,507 2,398,725 2,353,152 2,299,213
Industrial................................... 1,434,974 1,268,208 1,145,369 1,087,357 1,025,420
Other ultimate customers..................... 220,777 364,144 219,481 267,246 208,328
--------- --------- --------- --------- ---------
Total sales to ultimate customers......... 6,029,365 5,953,151 5,446,788 5,358,246 5,139,954
Sales for resale............................. 2,590,513 3,361,933 3,375,216 3,685,418 3,091,541
--------- --------- --------- --------- ---------
Total KWh sales........................... 8,619,878 9,315,084 8,822,004 9,043,664 8,231,495
========= ========= ========= ========= =========
Electric Revenues (in thousands):
Residential.................................. $ 168,633 $ 172,559 $ 163,131 $ 158,190 $ 155,162
Commercial................................... 218,222 229,851 218,263 211,086 207,929
Industrial................................... 79,964 79,729 74,157 69,590 67,031
Other ultimate customers..................... 18,749 24,147 15,548 16,521 14,472
--------- --------- --------- --------- ---------
Total revenues to ultimate
customers............................... 485,568 506,286 471,099 455,387 444,594
Sales for resale............................. 80,949* 96,821* 99,895* 123,291 107,636
--------- --------- --------- --------- ---------
Total revenues from energy sales.......... 566,517 603,107 570,994 578,678 552,230
Miscellaneous electric revenues.............. 17,767 18,687 18,734 17,645 16,256
--------- --------- --------- --------- ---------
Total electric revenues................... $ 584,284 $ 621,794 $ 589,728 $ 596,323 $ 568,486
============= ============= ============= ============== ==============
Customers at Year End:
Residential.................................. 296,821 287,369 278,357 271,155 264,425
Commercial................................... 35,390 34,336 33,568 32,504 31,666
Industrial................................... 374 384 381 386 385
Other ultimate customers..................... 598 599 576 537 499
--------- --------- --------- --------- ---------
Total ultimate customers.................. 333,183 322,688 312,882 304,582 296,975
Sales for Resale............................. 37 42 37 47 33
--------- --------- --------- --------- ---------
Total customers........................... 333,220 322,730 312,919 304,629 297,008
======= ======= ======= ======= =======
Reliable Net Capability-- KW.................... 1,506,000 1,506,000 1,541,000 1,591,000 1,591,000
Coincidental Peak Demand-- KW................... 1,247,000 1,189,000 1,104,000 1,053,000 1,018,000
Average Fuel Cost per Million BTU............... $ 1.3177 $ 1.3488 $ 1.3844 $ 1.3263 $ 1.3696
BTU per KWh of Net Generation................... 10,811 10,817 11,036 11,039 11,086
Water Service**
Water Sales-- Gallons (in thousands 1,616,544 3,366,388 3,414,950 3,224,271 2,996,587
Revenues (in thousands)...................... $ 6,196 $ 13,407 $ 13,063 $ 12,471 $ 11,613
Customers at Year End........................ 23,752 23,452 22,743 22,098 21,522
- ---------
* Due to the provision for the loss associated with the M-S-R
contingent power purchase contract recognized in 1992, operating
revenues were reduced by $7.3 million, $25.0 and $20.5 million for
1995, 1994 and 1993, respectively.
** On July 3, 1995, the Company sold its water utility division (see
note 12 of the notes to consolidated financial statements). Water
Service's comparative operating statistics for 1995 are through this
date.
F-35
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
1995 1994 1993 1992 1991
----------- ------------ ----------- ------------ ------------
PNMGS*
Gas Throughput--Decatherms (in thousands) GCNM:
Residential....................................... 25,865 27,139 28,031 27,063 26,237
Commercial........................................ 8,864 9,767 10,428 10,590 11,375
Industrial........................................ 661 831 923 707 766
Public authorities................................ 2,411 2,465 2,473 4,199 4,951
Irrigation........................................ 1,245 1,272 1,259 1,134 1,374
Sales for resale.................................. 2,442 680 1,041 2,035 1,357
Unbilled.......................................... (1,764) (309) (636) 649 --
------- ------- ------- ------- -------
GCNM sales........................................ 39,724 41,845 43,519 46,377 46,060
Transportation throughput......................... 49,136 43,135 46,059 48,674 38,976
------- ------- ------- ------- -------
GCNM throughput................................... 88,860 84,980 89,578 95,051 85,036
Gathering Company:
Spot market sales................................. 39 -- -- 858 1,624
Transportation throughput......................... 20,695 47,091 45,754 24,889 23,631
------- ------- ------- ------- -------
Total PNMGS throughput......................... 109,594 132,071 135,332 120,798 110,291
======= ======= ======= ======= =======
Gas Revenues (in thousands) GCNM:
Residential....................................... $ 125,290 $ 149,439 $ 149,796 $ 125,313 $ 137,436
Commercial........................................ 32,328 42,725 44,575 37,222 46,676
Industrial........................................ 1,873 2,905 3,369 2,063 2,754
------- ------- ------- ------- -------
Public authorities................................ 7,939 9,969 9,694 12,313 17,711
Irrigation........................................ 3,077 4,061 4,418 2,713 4,495
Sales for resale.................................. 4,999 2,462 3,137 4,460 3,848
Imbalance penalties............................... 1,786 944 -- -- --
Unbilled.......................................... (2,430) 267 (1,573) 716 --
------- ------- ------- ------- -------
Revenues from gas sales........................... 174,862 212,772 213,416 184,800 212,920
Transportation.................................... 18,532 19,742 19,376 14,861 13,386
Other............................................. 1,897 2,392 2,453 4,974 9,062
------- ------- ------- ------- -------
GCNM gas revenues................................. 195,291 234,906 235,245 204,635 235,368
Gathering Company:
Spot market sales................................. 42 -- 4 1,410 1,771
Transportation.................................... 3,640 7,850 7,353 3,892 3,611
Imbalance penalties............................... 418 26 -- -- --
Processing Company:
Sales of liquids.................................. 13,414 16,090 18,724 26,427 30,500
Processing fees................................... 5,180 10,638 9,761 6,795 5,819
------- ------- ------- ------- -------
Total PNMGS revenues........................... $ 217,985 $ 269,510 $ 271,087 $ 243,159 $ 277,069
=========== ============ =========== ============ ============
Customers at Year End
GCNM:
Residential....................................... 358,822 348,715 337,768 329,385 320,546
Commercial........................................ 30,493 30,139 30,151 29,765 29,608
Industrial........................................ 59 57 72 61 72
Public authorities................................ 2,444 2,463 1,958 2,004 2,153
Irrigation........................................ 886 899 951 1,012 1,043
Sales for resale.................................. 2 3 3 4 7
Transportation.................................... 38 43 37 43 41
------- ------- ------- ------- -------
GCNM customers.................................... 392,744 382,319 370,940 362,274 353,470
Gathering Company:
Off-system sales.................................. -- -- 1 2 13
Transportation.................................... -- 21 21 16 8
Processing Company................................... -- 32 25 22 21
Total customers................................ 392,744 382,372 370,987 362,314 353,512
======= ======= ======= ======= =======
* On June 30, 1995, the Company sold substantially all of the gas gathering and
processing assets of the Company and its gas subsidiaries (see note 12 of the
notes to consolidated financial statements). PNMGS' comparative operating
statistics for Gathering Company and Processing Company are through this
date.
F-36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Reference is hereby made to "Election of Directors" in the Company's
Proxy Statement relating to the annual meeting of stockholders to be held on
April 30, 1996 (the "1996 Proxy Statement") and to PART I, SUPPLEMENTAL ITEM --
"EXECUTIVE OFFICERS OF THE COMPANY".
ITEM 11. EXECUTIVE COMPENSATION
Reference is hereby made to "Executive Compensation" in the 1996 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is hereby made to "Voting Information", "Election of Directors"
and "Stock Ownership of Certain Executive Officers" in the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the 1996 Proxy Statement for such disclosure,
if any, as may be required by this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) -- 1. See Index to Financial Statements under Item 8.
(a) -- 2. Financial Statement Schedules for the years 1995, 1994,
and 1993 are omitted for the reason that they are
not required or the information is otherwise supplied.
(a) -- 3-A. Exhibits Filed:
Exhibit
No. Description
--- -----------
10.1.1 Amendment and Supplement No. 1 to Supplemental and Additional
Indenture of Lease dated April 25, 1985 between the Navajo Tribe
of Indians and Arizona Public Service Company, El Paso Electric
Company, Public Service Company of New Mexico, Salt River
Project Agricultural Improvement and Power District, Southern
California Edison Company, and Tucson Electric Power Company
(refiled).
10.5.3 Modification No. 4 dated October 25, 1984 and Modification No. 5
dated July 1, 1985 to Co-Tenancy Agreement between the Company
and Tucson Electric Power Company (refiled).
10.5.7 Modification No. 10 to San Juan Project Co-Tenancy Agreement
between Public Service Company of New Mexico and Tucson Electric
Power Company dated November 30, 1995.
E-1
Exhibit
No. Description
--- -----------
10.7.1 Modification No. 4 dated October 25, 1984 and Modification No. 5
dated July 1, 1985 to San Juan Project Operating Agreement
between the Company and Tucson Electric Power Company (refiled).
10.7.5 Modification No. 10 dated November 30, 1995 to San Juan Project
Operating Agreement between Public Service Company of New Mexico
and Tucson Electric Power Company.
10.8.5 Amendment No. 10 dated as of November 21, 1985 and Amendment No.
11 dated as of June 13, 1986 and effective January 10, 1987 to
Arizona Nuclear Power Project Participation Agreement (refiled).
10.9.5 Amendment No. Eight to Coal Sales Agreement, dated as of
September 1, 1995, among San Juan Coal Company, the Company and
Tucson Electric Power Company .
10.18* Facility Lease dated as of December 16, 1985 between The First
National Bank of Boston, as Owner Trustee, and Public Service
Company of New Mexico together with Amendments No. 1, 2 and 3
thereto. (refiled).
10.24** Management Life Insurance Plan (July 1985) of the Company
(refiled).
10.67** Deferred Compensation Agreement for Jeffry E. Sterba
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
99.1 Collateral Trust Indenture dated as of December 16, 1985 among
First PV Funding Corporation, Public Service Company of New
Mexico and Chemical Bank, as Trustee together with Series 1986A
Bond Supplemental, Series 1986B Bond Supplemental, Unit 1
Supplemental and Unit 2 Supplemental thereto (refiled).
99.2* Participation Agreement dated as of December 16, 1985, among the
Owner Participant named therein, First PV 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 (refiled).
99.4* Assignment, Assumption and Further Agreement dated as of
December 16, 1985, between Public Service Company of New Mexico
and The First National Bank of Boston, as Owner Trustee
(refiled).
(a) -- 3-B. Exhibits Incorporated By Reference:
- -----------
* One or more additional documents, substantially identical in
all material respects to this exhibit, have been entered into,
relating to one or more additional sale and leaseback
transactions. Although such additional documents may differ in
other respects (such as dollar amounts and percentages), there
are no material details in which such additional documents
differ from this exhibit.
** Designates each management contract or compensatory plan or
arrangement required to be identified pursuant to paragraph 3
of Item 14(a) of Form 10-K.
E-2
In addition to those Exhibits shown above, the Company hereby
incorporates the following Exhibits pursuant to Exchange Act Rule 12b-32 and
Regulation S-K section 10, paragraph (d) by reference to the filings set forth
below:
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
Exhibit
No. Description Filed As Exhibit: File No:
2.1 Purchase and Sale Agreement By and 4-(b) to Registration 2-99990
Among Public Service Company of New Statement No. 2-99990 of
Mexico, Sunterra Gas Gathering the Company.
Company, Sunterra Gas Processing
(Sellers) and Williams Gas Processing-
Blanco, Inc. (Buyer).
2.1.1 First Amendment to Purchase and Sale 2.1.1 to Annual Report of 1-6986
Agreement By and Among Public Service the Registrant on Form 10-K
Company of New Mexico, Sunterra Gas for fiscal year ended
Gathering Company, Sunterra Gas December 31, 1994.
Processing Company (Sellers) and
Williams Gas Processing-Blanco, Inc.
(Buyer)
2.1.2 Second Amendment to Purchase and Sale 2.1.2 to Annual Report of 1-6986
Agreement By and Among Public Service the Registrant on Form 10-K
Company of New Mexico, Sunterra Gas for fiscal year ended
Gathering Company, Sunterra Gas December 31, 1994.
Processing Company (Sellers) and
Williams Gas Processing-Blanco, Inc.
(Buyer)
2.2
2.2.1 First Amendment to Agreement to 2.2.1 to Annual Report of 1-6986
Purchase and Sell Between the City of the Registrant on Form 10-K
Santa Fe, New Mexico and Public Service for fiscal year ended
Company of New Mexico. December 31, 1994.
2.2.2 Second Amendment to Agreement to 2.2.2 to Annual Report of 1-6986
Purchase and Sell Between the City of the Registrant on Form 10-K
Santa Fe, New Mexico and Public Service for fiscal year ended
Company of New Mexico. December 31, 1994.
2.2.3 Third Amendment to Agreement to 2.2.3 to Annual Report of 1-6986
Purchase and Sell Between the City of the Registrant on Form 10-K
Santa Fe, New Mexico and Public Service for fiscal year ended
Company of New Mexico. December 31, 1994.
2.2.4 Fourth Amendment to Agreement to 2.2.4 to Annual Report of 1-6986
Purchase and Sell Between the City of the Registrant on Form 10-K
Santa Fe, New Mexico and Public Service for fiscal year ended
Company of New Mexico. December 31, 1994.
E-3
Exhibit
No. Description Filed As Exhibit: File No:
2.2.5 Fifth Amendment to Agreement to 2.2.5 to Annual Report of 1-6986
Purchase and Sell Between the City of the Registrant on Form 10-K
Santa Fe, New Mexico and Public Service for fiscal year ended
Company of New Mexico. December 31, 1994.
2.2.6 Sixth Amendment to Agreement to 2.2.6 to Annual Report of 1-6986
Purchase and Sell Between the City of the Registrant on Form 10-K
Santa Fe, New Mexico and Public Service for fiscal year ended
Company of New Mexico. December 31, 1994.
2.2.7 Seventh Amendment to Agreement to 2.2.7 to the Company's 1-6986
Purchase and Sell Between the City of Quarterly Report on Form
Santa Fe, New Mexico and Public Service 10-Q for the quarter ended
Company of New Mexico. June 30, 1995.
Articles of Incorporation and By-laws
3.1 Restated Articles of Incorporation of the 4-(b) to Registration 2-99990
Company, as amended through May 10, Statement No. 2-99990 of
1985. the Company.
Instruments Defining the Rights of Security Holders, Including Indentures
4.1 Indenture of Mortgage and Deed of Trust 4-(d) to Registration 2-99990
dated as of June 1, 1947, between the Statement No. 2-99990 of
Company and The Bank of New York the Company.
(formerly Irving Trust Company), as
Trustee, together with the Ninth
Supplemental Indenture dated as of
January 1, 1967, the Twelfth
Supplemental Indenture dated as of
September 15, 1971, the Fourteenth
Supplemental Indenture dated as of
December 1, 1974 and the Twenty-second
Supplemental Indenture dated as of
October 1, 1979 thereto relating to First
Mortgage Bonds of the Company.
4.2 Portions of sixteen supplemental 4-(e) to Registration 2-99990
indentures to the Indenture of Mortgage Statement No. 2-99990 of
and Deed of Trust dated as of June 1, the Company.
1947, between the Company and The
Bank of New York (formerly Irving Trust
Company), as Trustee, relevant to the
declaration or payment of dividends or the
making of other distributions on or the
purchase by the Company of shares of the
Company's Common Stock.
E-4
Exhibit
No. Description Filed As Exhibit: File No:
Material Contracts
10.1 Supplemental Indenture of Lease dated as 4-D to Registration 2-26116
of July 19, 1966 between the Company Statement No. 2-26116 of
and other participants in the Four Corners the Company.
Project and the Navajo Indian Tribal
Council.
10.2 Fuel Agreement, as supplemented, dated 4-H to Registration 2-35042
as of September 1, 1966 between Utah Statement No. 2-35042 of
Construction & Mining Co. and the the Company.
participants in the Four Corners Project
including the Company.
10.3 Fourth Supplement to Four Corners Fuel 10.3 to Annual Report of the 1-6986
Agreement No. 2 effective as of January 1, Registrant on Form 10-K for
1981, between Utah International Inc. fiscal year ended
and the participants in the Four Corners December 31, 1991.
Project, including the Company.
10.4 Contract between the United States and 5-L to Registration 2-41010
the Company dated April 11, 1968, for Statement No. 2-41010 of
furnishing water. the Company.
10.4.1 Amendatory Contract between the United 5-R to Registration 2-60021
States and the Company dated Statement No. 2-60021 of
September 29, 1977, for furnishing water. the Company.
10.5 Co-Tenancy Agreement between the 5-O to Registration 2-44425
Company and Tucson Gas & Electric Statement No. 2-44425 of
Company dated February 15, 1972, the Company.
pertaining to the San Juan generating
plant.
10.5.5 Modification No. 8 to San Juan Project 10.5.5 to the Company's 1-6986
Co-Tenancy Agreement between Public Quarterly Report on Form
Service Company of New Mexico and 10-Q for the quarter ended
Tucson Electric Power Company dated March 31, 1994.
September 15, 1993.
10.5.6 Modification No. 9 to San Juan Project 10.5.6 to the Company's 1-6986
Co-Tenancy Agreement between Public Quarterly Report on
Service Company of New Mexico and Form 10-Q for the quarter
Tucson Electric Power Company dated ended March 31, 1994.
January 12, 1994.
10.7 San Juan Project Operating Agreement 5-S to Registration 2-50338
between the Company and Tucson Gas & Statement No. 2-50338 of
Electric Company, executed December 21, the Company.
1973.
10.7.3 Modification No. 8 to San Juan Project 10.7.3 to the Company's 1-6986
Operating Agreement between Public Quarterly Report on
Service Company of New Mexico and Form 10-Q for the quarter
Tucson Electric Power Company dated ended March 31, 1994.
September 15, 1993.
E-5
Exhibit
No. Description Filed As Exhibit: File No:
10.7.4 Modification No. 9 to San Juan Project 10.7.4 to the Company's 1-6986
Operating Agreement between Public Quarterly Report on
Service Company of New Mexico and Form 10-Q for the quarter
Tucson Electric Power Company dated ended March 31, 1994.
January 12, 1994.
10.8 Arizona Nuclear Power Project 5-T to Registration 2-50338
Participation Agreement among the Statement No. 2-50338 of
Company and Arizona Public Service the Company.
Company, Salt River Project Agricultural
Improvement and Power District, Tucson
Gas & Electric Company and El Paso
Electric Company, dated August 23, 1973.
10.8.1 Amendments No. 1 through No. 6 to 10.8.1 to Annual Report of 1-6986
Arizona Nuclear Power Project the Registrant on Form 10-K
Participation Agreement. for fiscal year ended
December 31, 1991.
10.8.2 Amendment No. 7 effective April 1, 1982, 10.8.2 to Annual Report of 1-6986
to the Arizona Nuclear Power Project the Registrant on Form 10-K
Participation Agreement (refiled). for fiscal year ended
December 31, 1991.
10.8.3 Amendment No. 8 effective September 12, 10.58 to Annual Report of 1-6986
1983, to the Arizona Nuclear Power the Registrant on Form 10-K
Project Participation Agreement. (refiled) for fiscal year ended
December 31, 1993.
10.8.4 Amendment No. 9 to Arizona Nuclear 10.8.4 to Annual Report of 1-6986
Power Project Participation Agreement the Registrant on Form 10-K
dated as of June 12, 1984 (refiled). for fiscal year ended
December 31, 1994.
10.8.7 Amendment No. 12 to Arizona Nuclear 19.1 to the Company's 1-6986
Power Project Participation Agreement Quarterly Report on
dated June 14, 1988, and effective Form 10-Q for the quarter
August 5, 1988. ended September 30, 1990.
10.8.8 Amendment No. 13 to the Arizona 10.8.10 to Annual Report of 1-6986
Nuclear Power Project Participation Registrant on Form 10-K for
Agreement dated April 4, 1990, and the fiscal year ended
effective June 15, 1991. December 31, 1990.
10.9 Coal Sales Agreement executed August 18, 10.9 to Annual Report of the 1-6986
1980 among San Juan Coal Company, the Registrant on Form 10-K for
Company and Tucson Electric Power fiscal year ended
Company, together with Amendments December 31, 1991.
No. One, Two, Four, and Six thereto.
E-6
Exhibit
No. Description Filed As Exhibit: File No:
10.9.1 Amendment No. Three to Coal Sales 10.9.1 to Annual Report of 1-6986
Agreement dated April 30, 1984 among the Registrant on Form 10-K
San Juan Coal Company, the Company for fiscal year ended
and Tucson Electric Power Company. December 31, 1994
(confidentiality treatment was
requested at the time of
filing the Annual Report
of the Registrant on
Form 10-K for fiscal year
ended December 31, 1984;
exhibit was not filed
therewith based on the
same confidentiality request).
10.9.2 Amendment No. Five to Coal Sales 10.9.2 to Annual Report of 1-6986
Agreement dated May 29, 1990 among the Registrant on Form 10-K
San Juan Coal Company, the Company for fiscal year ended
and Tucson Electric Power Company. December 31, 1991
(confidentiality treatment was
requested as to portions of
this exhibit, and such
portions were omitted from
the exhibit filed and were
filed separately with the
Securities and Exchange
Commission).
10.9.3 Amendment No. Seven to Coal Sales 19.3 to the Company's 1-6986
Agreement, dated as of July 27, 1992 Quarterly Report on
among San Juan Coal Company, the Form 10-Q for the quarter
Company and Tucson Electric Power ended September 30, 1992
Company. (confidentiality treatment
was requested as to portions
of this exhibit, and
such portions were omitted
from the exhibit filed
and were filed separately
with the Securities and
Exchange Commission).
10.9.4 First Supplement to Coal Sales Agreement, 19.4 to the Company's 1-6986
dated July 27, 1992 among San Juan Coal Quarterly Report on
Company, the Company and Tucson Form 10-Q for the quarter
Electric Power Company. ended September 30, 1992
(confidentiality treatment
was requested as to portions
of this exhibit, and such
portions were omitted from
the exhibit as of filed and
were filed separately with the
Securities and Exchange
Commission).
E-7
Exhibit
No. Description Filed As Exhibit: File No:
10.11 San Juan Unit 4 Early Purchase and 10.11 to the Company's 1-6986
Participation Agreement dated as of Quarterly Report on
September 26, 1983 between the Form 10-Q for the quarter
Company and M-S-R Public Power ended March 31, 1994.
Agency, and Modification No. 2 to the
San Juan Project Agreements dated
December 31, 1983. (refiled)
10.11.1 Amendment No. 1 to the Early Purchase 10.11.1 to Annual Report of 1-6986
and Participation Agreement between the Registrant on Form 10-K
Public Service Company of New Mexico for fiscal year ended
and M-S-R Public Power Agency, executed December 31, 1987.
as of December 16, 1987, for San Juan
Unit 4.
10.12 Amended and Restated San Juan Unit 4 10.12 to Annual Report of 1-6986
Purchase and Participation Agreement the Registrant on Form 10-K
dated as of December 28, 1984 between for the fiscal year ended
Company and the Incorporated December 31, 1994.
County of Los Alamos (refiled).
10.14 Participation Agreement among the 10.14 to Annual Report of 1-6986
Company, Tucson Electric Power the Registrant on Form 10-K
Company and certain financial institutions for fiscal year ended
relating to the San Juan Coal Trust dated December 31, 1992.
as of December 31, 1981 (refiled).
10.16 Interconnection Agreement dated 10.16 to Annual Report of 1-6986
November 23, 1982, between the the Registrant on Form 10-K
Company and Southwestern Public for fiscal year ended
Service Company (refiled). December 31, 1992.
10.18.4* Amendment No. 4 dated as of March 8, 10.18.4 to the Company's 1-6986
1995, to Facility Lease between Public Quarter Report on Form 10-
Service Company of New Mexico and the Q for the quarter ended
First National Bank of Boston, dated as of March 31, 1995.
December 16, 1985.
10.19 Facility Lease dated as of July 31, 1986, 28.1 to the Company's 1-6986
between The First National Bank of Quarterly Report on
Boston, as Owner Trustee, and Public Form 10-Q for the quarter
Service Company of New Mexico. ended June 30, 1986.
10.19.1 Amendment No. 1 dated as of 28.5 to the Company's 1-6986
November 18, 1986, to Facility Lease Current Report on Form 8-K
dated as of July 31, 1986. dated November 25, 1986.
10.19.2 Amendment No. 2 dated as of 10.22.2 to Annual Report of 1-6986
December 11, 1986, to Facility Lease the Registrant on Form 10-K
dated as of July 31, 1986. for fiscal year ended
December 31, 1986.
E-8
Exhibit
No. Description Filed As Exhibit: File No:
10.19.3 Amendment No. 3 dated as of April 8, 10.22.3 to Annual Report of 1-6986
1987, to Facility Lease dated as of July 31, the Registrant on Form 10-K
1986. for fiscal year ended
December 31, 1987.
10.20* Facility Lease dated as of August 12, 1986, 28.1 to the Company's 1-6986
between The First National Bank of Current Report on Form 8-K
Boston, as Owner Trustee, and Public dated August 18, 1986.
Service Company of New Mexico.
10.20.1* Amendment No. 1 dated as of 28.9 to the Company 1-6986
November 18, 1986, to Facility Lease Current Report on Form 8-K
dated as of August 12, 1986. dated November 25, 1986.
10.20.2 Amendment No. 2 dated as of 10.23.2 to Annual Report of 1-6986
November 25, 1986, to Facility Lease the Registrant on Form 10-K
dated as of August 12, 1986. for fiscal year ended
December 31, 1986.
10.20.3 Amendment No. 3 dated as of March 8, 10.20.3 to the Company's 1-6986
1995, to Facility Lease between Public Quarterly Report on Form
Service Company of New Mexico and the 10-Q for the quarter ended
First National Bank of Boston, dated as of March 31, 1995.
August 12, 1996.
10.21 Facility Lease dated as of December 15, 28.1 to the Company's 1-6986
1986, between The First National Bank of Current Report on Form 8-K
Boston, as Owner Trustee, and Public dated December 17, 1986.
Service Company of New Mexico (Unit 1
Transaction).
10.21.1 Amendment No. 1 dated as of April 8, 10.24.1 to Annual Report of 1-6986
1987, to Facility Lease dated as of the Registrant on Form 10-K
December 15, 1986. for fiscal year ended
December 31, 1987.
10.22 Facility Lease dated as of December 15, 28.9 to the Company's 1-6986
1986, between The First National Bank of Current Report on Form 8-K
Boston, as Owner Trustee, and Public dated December 17, 1986.
Service Company of New Mexico (Unit 2
Transaction).
10.22.1 Amendment No. 1 dated as of April 8, 10.25.1 to Annual Report of 1-6986
1987, to Facility Lease dated as of the Registrant on Form 10-K
December 15, 1986. for fiscal year ended
December 31, 1987.
10.23** Restated and Amended Public Service 19.5 to the Company's 1-6986
Company of New Mexico Accelerated Quarterly Report on
Management Performance Plan (1988). Form 10-Q for the quarter
(August 16, 1988.) ended September 30, 1988.
E-9
Exhibit
No. Description Filed As Exhibit: File No:
10.23.1** First Amendment to Restated and 19.6 to the Company's 1-6986
Amended Public Service Company of New Quarterly Report on
Mexico Accelerated Management Form 10-Q for the quarter
Performance Plan (1988). (August 30, ended September 30, 1988.
1988.)
10.23.2** Second Amendment to Restated and 10.26.2 to Annual Report of 1-6986
Amended Public Service Company of New the Registrant on Form 10-K
Mexico Accelerated Management for fiscal year ended
Performance Plan (1988). (December 29, December 31, 1989.
1989).
10.25** Amended and Restated Medical 19.6 to the Company's 1-6986
Reimbursement Plan of Public Service Quarterly Report on
Company of New Mexico. Form 10-Q for the quarter
ended March 31, 1987.
10.25.1** Second Restated and Amended Public 10.25.1 to Annual Report of 1-6986
Service Company of New Mexico the Registrant on Form 10-K
Executive Medical Plan. for the fiscal year ended
December 31, 1992.
10.27 Amendment No. 2 dated as of April 10, 10.53 to Annual Report of 1-6986
1987, to the Facility Lease dated as of the Registrant on Form 10-K
August 12, 1986, between The First for fiscal year ended
National Bank of Boston, as Owner December 31, 1987.
Trustee, and Public Service Company of
New Mexico. (Unit 2 Transaction.) (This
is an amendment to a Facility Lease
which is substantially similar to the
Facility Lease filed as Exhibit 28.1
to the Company's Current Report on
Form 8-K dated August 18, 1986.)
10.29 Decommissioning Trust Agreement 10.55 to Annual Report of 1-6986
between Public Service Company of New the Registrant on Form 10-K
Mexico and First Interstate Bank of for fiscal year ended
Albuquerque dated as of July 31, 1987. December 31, 1987.
10.30 New Mexico Public Service Commission 10.56 to Annual Report of 1-6986
Order dated July 30, 1987, and Exhibit 1 the Registrant on Form 10-K
thereto, in NMPUC Case No. 2004, for fiscal year ended
regarding the PVNGS decommissioning December 31, 1987.
trust fund.
10.31** Executive Retention Agreements. 10.42 to Annual Report of 1-6986
the Registrant on Form 10-K
for fiscal year ended
December 31, 1990.
10.32** Supplemental Employee Retirement 19.4 to the Company's 1-6986
Agreements dated August 4, 1989. Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1989.
E-10
Exhibit
No. Description Filed As Exhibit: File No:
10.33** Supplemental Employee Retirement 10.47 to Annual Report of 1-6986
Agreement dated March 6, 1990. the Registrant on Form 10-K
for fiscal year ended
December 31, 1989.
10.34 Settlement Agreement between Public 10.48 to Annual Report of 1-6986
Service Company of New Mexico and the Registrant on Form 10-K
Creditors of Meadows Resources, Inc. for fiscal year ended
dated November 2, 1989. December 31, 1989.
10.34.1 First amendment dated April 24, 1992 to 19.1 to the Company's 1-6986
the Settlement Agreement dated Quarterly Report on
November 2, 1989 among Public Service Form 10-Q for the quarter
Company of New Mexico, the lender ended September 30, 1992.
parties thereto and collateral agent.
10.35 Amendment dated April 11, 1991 among 19.1 to the Company's 1-6986
Public Service Company of New Mexico, Quarterly Report on
certain banks and Chemical Bank and Form 10-Q for the quarter
Citibank, N.A., as agents for the banks. ended September 30, 1991.
10.36 San Juan Unit 4 Purchase and 19.2 to the Company's 1-6986
Participation Agreement Public Service Quarterly Report on
Company of New Mexico and the City of Form 10-Q for the quarter
Anaheim, California dated April 26, 1991. ended March 31, 1991.
10.36.1 Second stipulation in the matter of 10.38 to Annual Report of 1-6986
application of Public Service Company of the Registrant on Form 10-K
New Mexico for NMPSC approval to sell a for fiscal year ended
10.04% undivided interest in San Juan December 31, 1992.
Generating Station Unit 4 to the City
of Anaheim, California, and for related
orders and approvals.
10.37** Executive Retention Plan. 10.37 to Annual Report of 1-6986
the Registrant on Form 10-K
for fiscal year ended
December 31, 1991.
10.38 Restated and Amended San Juan Unit 4 10.2.1 to the Company's 1-6986
Purchase and Participation Agreement Quarterly Report on
between Public Service Company of New Form 10-Q for the quarter
Mexico and Utah Associated Municipal ended September 30, 1993.
Power Systems.
10.39 Purchase agreement dated February 7, 10.39 to Annual Report of 1-6986
1992 between Burnham Leasing the Registrant on Form 10-K
Corporation and Public Service Company for fiscal year ended
of New Mexico. December 31, 1991.
10.40** Director Restricted Stock Retainer Plan. 10.40 to Annual Report of 1-6986
the Registrant on Form 10-K
for fiscal year ended
December 31, 1991.
E-11
Exhibit
No. Description Filed As Exhibit: File No:
10.40.1** First Amendment to the Public Service 19.3 to the Company's 1-6986
Company of New Mexico Director Quarterly Report on
Restricted Stock Retainer Plan. Form 10-Q for the quarter
ended March 31, 1993.
10.40.2** Second Amendment to the Public Service 10.40.2 to the Company's 1-6986
Company of New Mexico Director Quarterly Report on
Restricted Stock Retainer Plan dated Form 10-Q for the quarter
April 27, 1994. ended March 31, 1994.
10.41 Waste Disposal Agreement, dated as of 19.5 to the Company's 1-6986
July 27, 1992 among San Juan Coal Quarterly Report on
Company, the Company and Tucson Form 10-Q for the quarter
Electric Power Company. ended September 30, 1992
(confidentiality treatment
was requested as to portions
of this exhibit, and such
portions were omitted from
the exhibit and were filed
separately with the Securities
and Exchange Commission).
10.42 Stipulation in the matter of the 10.42 to Annual Report of 1-6986
application of Gas Company of New the Registrant on Form 10-K
Mexico for an order authorizing recovery for fiscal year ended
of MDL costs through Rate Rider December 31, 1992.
Number 8.
10.43** Description of certain Plans which include 10.43 to Annual Report of 1-6986
executive officers as participants. the Registrant on Form 10-K
for fiscal year ended
December 31, 1992.
10.44** Public Service Company of New 10.44 to Annual Report of 1-6986
Mexico-Non-Union Voluntary Separation the Registrant on Form 10-K
Program. for fiscal year ended
December 31, 1992.
10.44.1** First Amendment dated April 6, 1993 to 19.2 to the Company's 1-6986
the First Restated and Amended Public Quarterly Report on
Service Company of New Mexico Form 10-Q for the quarter
Non-Union Severance Pay Plan dated ended March 31, 1993.
August 1, 1992.
10.45** Public Service Company of New Mexico 99.1 to Registration 33-65418
Performance Stock Plan. Statement No. 33-65418 of
the Company.
10.46** Public Service Company of New Mexico 10.1 to the Company's 1-6986
Asset Sales Incentive Plan. Quarterly Report on
Form 10-Q for the quarter
ended June 30, 1993.
E-12
Exhibit
No. Description Filed As Exhibit: File No:
10.46.1** Amendment No. 1 to the Public Service 10.46.1 to the Company's 1-6986
Company of New Mexico Asset Sales Quarterly Report on
Incentive Plan dated August 1, 1994. Form 10-Q for the quarter
ended June 30, 1994.
10.47** Compensation Arrangement with Chief 10.3 to the Company's 1-6986
Executive Officer. Quarterly Report on
Form 10-Q for the quarter
ended June 30, 1993.
10.47.1** Pension Service Adjustment Agreement for 10.3.1 to the Company's 1-6986
Benjamin F. Montoya. Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1993.
10.47.2** Severance Agreement for Benjamin F. 10.3.2 to the Company's 1-6986
Montoya. Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1993.
10.47.3** Executive Retention Agreement for 10.3.3 to the Company's 1-6986
Benjamin F. Montoya. Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1993.
10.48** Public Service Company of New Mexico 10.4 to the Company's 1-6986
OBRA '93 Retirement Plan. Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1993.
10.49** Employment Contract By and Between 10.49 to Annual Report of 1-6986
the Public Service Company of New the Registrant on Form 10-K
Mexico and Roger J. Flynn. for fiscal year ended
December 31, 1994.
10.50** Public Service Company of New Mexico 10.50 to Annual Report of 1-6986
Section 415 Plan. the Registrant on Form 10-K
for fiscal year ended
December 31, 1993.
10.51** First Amendment to the Public Service 10.51 to Annual Report of 1-6986
Company of New Mexico Executive the Registrant on Form 10-K
Retention Plan. for fiscal year ended
December 31, 1993.
10.51.1** Second Amendment to the Public Service 10.51.1 to the Company's 1-6986
Company of New Mexico Executive Quarterly Report on
Retention Plan. Form 10-Q for the quarter
ended June 30, 1994.
10.52** First Amendment to the Public Service 10.52 to Annual Report of 1-6986
Company of New Mexico Performance the Registrant on Form 10-K
Stock Plan. for fiscal year ended
December 31, 1993.
E-13
Exhibit
No. Description Filed As Exhibit: File No:
10.53 January 12, 1994 Stipulation. 10.53 to Annual Report of 1-6986
the Registrant on Form 10-K
for fiscal year ended
December 31, 1993.
10.54** Employment, Retirement and Release 10.54 to Annual Report of 1-6986
Agreement By and Between the Public the Registrant on Form 10-K
Service Company of New Mexico and for fiscal year ended
William M. Eglinton. December 31, 1993.
10.54.1** Health Care and Retirement Benefit 10.54.1 to the Company's 1-6986
Agreement By and Between the Public Quarterly Report on
Service Company of New Mexico and Form 10-Q for the quarter
John T. Ackerman dated February 1, ended March 31, 1994.
1994.
10.57 U.S. $100,000,000 Revolving Credit 10.57 to Annual Report of 1-6986
Agreement Dated as of December 14, the Registrant on Form 10-K
1993 Among Public Service Company of for fiscal year ended New
Mexico and certain Banks Herein December 31, 1993.
(Banks) and Chemical Bank and Citibank,
N.A. (Co-Agents)
10.57.1 Amendment No. 1, dated June 7, 1995 to 10.57.1 to the Company's 1-6986
the U.S. $100,000,000 Revolving Credit Quarterly Report on Form
Agreement Dated as of December 14, 10-Q for the quarter ended
1993 Among Public Service Company of June 30, 1995.
New Mexico and certain Banks Herein
(Banks) and Chemical Bank and Citibank,
N.A. (Co-Agents)
10.59* Amended and Restated Lease dated as of 10.59 to Annual Report of 1-6986
September 1, 1993, between The First the Registrant on Form 10-K
National Bank of Boston, Lessor, and the for fiscal year ended
Company, Lessee. (EIP Lease) December 31, 1993.
10.60 Reimbursement Agreement, dated as of 4.5 to Registration Statement 33-65418
November 1, 1992 between Public Service No. 33-65418 of the
Company of New Mexico and Canadian Company.
Imperial Bank of Commerce, New York
Agency.
10.60.1 Amendment No. 1 dated as of July 1, 10.60.1 to the Company's 1-6986
1994, to the Reimbursement Agreement Quarterly Report on
dated as of November 1, 1992 between Form 10-Q for the quarter
Public Service Company of New Mexico ended June 30, 1994.
and Canadian Imperial Bank of
Commerce, New York Agency.
10.60.2 Amendment No. 2 dated as of October 1, 10.60.2 to the Company's 1-6986
1995, to the Reimbursement Agreement Quarterly Report on Form
dated as of November 1, 1992 between 10-Q for the quarter ended
Public Service Company of New Mexico September 30, 1995.
and Canadian Imperial Bank of
Commerce, New York Agency.
E-14
Exhibit
No. Description Filed As Exhibit: File No:
10.61 Participation Agreement dated as of 10.61 to Annual Report of 1-6986
June 30, 1983 among Security Trust the Registrant on Form 10-K
Company, as Trustee, the Company, for fiscal year ended
Tucson Electric Power Company and December 31, 1993.
certain financial institutions relating to the
San Juan Coal Trust. (refiled)
10.62 Agreement of the Company pursuant to 10.62 to Annual Report of 1-6986
Item 601(b)(4)(iii) of Regulation SK. the Registrant on Form 10-K
(refiled) for fiscal year ended
December 31, 1993.
10.63 A Stipulation regarding sale of certain 10.63 to Current Report on 1-6986
natural gas gathering and processing Form 8-K dated January 26,
assets. 1995.
10.64* Results Pay 10.64 to the Company's 1-6986
Quarterly Report on Form
10-Q for the quarter ended
March 31, 1995.
10.65 Agreement for Contract Operation and 10.64 to the Company's 1-6986
Maintenance of the City of Santa Fe Quarterly Report on Form
Water Supply Utility System, dated July 3, 10-Q for the quarter ended
1995. June 30, 1995.
10.66 Stipulation regarding negotiated 10.50 to Annual Report of 1-6986
agreement with intervenors to settle all the Registrant on Form 10-K
outstanding issues regarding recovery of for fiscal year ended
payments GCNM made to settle gas December 31, 1994.
take-or-pay contracts and pricing disputes.
Additional Exhibits
22 Certain subsidiaries of the registrant. 22 to Annual Report of the 1-6986
Registrant on Form 10-K for
fiscal year ended
December 31, 1992.
99.1.5 1994 Supplemental Indenture dated as of 99.1.5 to the Company's 1-6986
June 8, 1994 among First PV Funding Quarterly Report on
Corporation, Public Service Company of Form 10-Q for the quarter
New Mexico, and Chemical Bank, as ended June 30, 1994.
Trustee.
99.1.6 1995 Supplemental Indenture among First 99.1.6 to the Company's 1-6986
PV Funding Corporation, Public Service Quarterly Report on Form
Company of New Mexico and Chemical 10-Q for the quarter ended
Bank, as Trustee dated as of February 14, March 31, 1995.
1995.
99.2.1* Amendment No. 1 dated as of July 15, 2.1 to the Company's 1-6986
1986, to Participation Agreement dated as Current Report on Form 8-K
of December 16, 1985. dated July 17, 1986.
E-15
Exhibit
No. Description Filed As Exhibit: File No:
99.2.2* Amendment No. 2 dated as of 2.1 to the Company's 1-6986
November 18, 1986, to Participation Current Report on Form 8-K
Agreement dated as of December 16, dated November 25, 1986.
1985.
99.3* Trustee Indenture, Mortgage, Security 28(b) to the Company's 1-6986
Agreement and Assignment to Rents dated Current Report on Form 8-K
as of December 16, 1985, between The dated December 31, 1985.
First National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Indenture
Trustee.
99.3.1* Supplemental Indenture No. 1 dated as of 28.2 to the Company's 1-6986
July 15, 1986, to the Trust Indenture, Current Report on Form 8-K
Mortgage, Security Agreement and dated July 17, 1986.
Assignment of Rents dated as of
December 16, 1985.
99.3.2* Supplemental Indenture No. 2 dated as of 28.2 to the Company's 1-6986
November 18, 1986, to the Trust Current Report on Form 8-K
Indenture, Mortgage, Security Agreement dated November 25, 1986.
and Assignment of Rents dated as of
December 16, 1985.
99.3.3 Supplemental Indenture No. 3 dated as of 99.3.3 to the Company's 1-6986
March 8, 1995, to Trust Indenture Quarterly Report on Form
Mortgage, Security Agreement and 10-Q for the quarter ended
Assignment of Rents between The First March 31, 1995.
National Bank of Boston and Chemical
Bank dated as of December 16, 1985.
99.5 Participation Agreement dated as of 2.1 to the Company's 1-6986
July 31, 1986, among the Owner Quarterly Report on Participant
named therein, First Form 10-Q for the quarter
PV Funding Corporation. The First ended June 30, 1986.
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.
99.5.1 Amendment No. 1 dated as of 28.4 to the Company's 1-6986
November 18, 1986, to Participation Current Report on Form 8-K
Agreement dated as of July 31, 1986. dated November 25, 1986.
E-16
Exhibit
No. Description Filed As Exhibit: File No:
99.6 Trust Indenture, Mortgage, Security 28.2 to the Company's 1-6986
Agreement and Assignment of Rents dated Quarterly Report on
as of July 31, 1986, between The First Form 10-Q for the quarter
National Bank of Boston, as Owner ended June 30, 1986.
Trustee, and Chemical Bank, as Indenture
Trustee.
99.6.1 Supplemental Indenture No. 1 dated as of 28.6 to the Company's 1-6986
November 18, 1986, to the Trust Current Report on Form 8-K
Indenture, Mortgage, Security Agreement dated November 25, 1986.
and Assignments of Rents dated as of
July 31, 1986.
99.7 Assignment, Assumption, and Further 28.3 to the Company's 1-6986
Agreement dated as of July 31, 1986, Quarterly Report on
between Public Service Company of New Form 10-Q for the quarter
Mexico and The First National Bank of ended June 30, 1986.
Boston, as Owner Trustee.
99.8* Participation Agreement dated as of 2.1 to the Company's 1-6986
August 12, 1986, among the Owner Current Report on Form 8-K
Participant named therein, First dated August 18, 1986.
PV 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.
99.8.1* Amendment No. 1 dated as of 28.8 to the Company's 1-6986
November 18, 1986, to Participation Current Report on Form 8-K
Agreement dated as of August 12, 1986. dated November 25, 1986.
99.9* Trust Indenture, Mortgage, Security 28.2 to the Company's 1-6986
Agreement and Assignment of Rents dated Current Report on Form 8-K
as of August 12, 1986, between The First dated August 18, 1986.
National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Indenture
Trustee.
99.9.1* Supplemental Indenture No. 1 dated as of 28.10 to the Company's 1-6986
November 18, 1986, to the Trust Current Report on Form 8-K
Indenture, Mortgage, Security Agreement dated November 25, 1986.
and Assignment of Rents dated as of
August 12, 1986.
E-17
Exhibit
No. Description Filed As Exhibit: File No:
99.9.2 Supplemental Indenture No. 2 dated as of 99.9.1 to the Company's 1-6986
March 8, 1995, to Trust Indenture, Quarterly Report on Form
Mortgage, Security Agreement and 10-Q for the quarter ended
Assignment of Rents between The First March 31, 1995.
National Bank of Boston and Chemical
Bank dated as of August 12, 1986.
99.10* Assignment, Assumption, and Further 28.3 to the Company's 1-6986
Agreement dated as of August 12, 1986, Current Report on Form 8-K
between Public Service Company of New dated August 18, 1986.
Mexico and The First National Bank of
Boston, as Owner Trustee.
99.11 Participation Agreement dated as of 2.1 to the Company's 1-6986
December 15, 1986, among the Owner Current Report on Form 8-K
Participant named therein, First dated December 17, 1986.
PV Funding Corporation, The First
National Bank of Boston, in its individual
capacity and as Owner Trustee (under a
Trust Agreement dated as of December 15, 1986,
with the Owner Participant), Chemical
Bank, in its individual capacity and as
Indenture Trustee (under a Trust Indenture,
Mortgage, Security Agreement and Assignment
of Rents dated as of December 15, 1986,
with the Owner Trustee), and Public Service
Company of New Mexico, including Appendix
A definitions (Unit 1 Transaction).
99.12 Trust Indenture, Mortgage, Security 28.2 to the Company's 1-6986
Agreement and Assignment of Rents dated Current Report on Form 8-K
as of December 15, 1986, between The dated December 17, 1986.
First National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Indenture
Trustee (Unit 1 Transaction).
99.13 Assignment, Assumption and Further 28.3 to the Company's 1-6986
Agreement dated as of December 15, Current Report on Form 8-K
1986, between Public Service Company of dated December 17, 1986.
New Mexico and The First National Bank
of Boston, as Owner Trustee (Unit 1
Transaction).
E-18
Exhibit
No. Description Filed As Exhibit: File No:
99.14 Participation Agreement dated as of 2.2 to the Company's 1-6986
December 15, 1986, among the Owner Current Report on Form 8-K
Participant named therein, First dated December 17, 1986.
PV Funding Corporation, The First
National Bank of Boston, in its individual
capacity and as Owner Trustee (under a Trust
Agreement dated as of December 15, 1986,
with the Owner Participant), Chemical
Bank, in its individual capacity and as
Indenture Trustee (under a Trust Indenture,
Mortgage, Security Agreement and Assignment
of Rents dated as of December 15, 1986,
with the Owner Trustee), and Public Service
Company of New Mexico, including Appendix
A definitions (Unit 2 Transaction).
99.15 Trust Indenture, Mortgage, Security 28.10 to the Company's 1-6986
Agreement and Assignment of Rents dated Current Report on Form 8-K
as of December 15, 1986, between the dated December 17, 1986.
First National Bank of Boston, as Owner
Trustee, and Chemical Bank, as Indenture
Trustee (Unit 2 Transaction).
99.16 Assignment, Assumption, and Further 28.11 to the Company's 1-6986
Agreement dated as of December 15, Current Report on Form 8-K
1986, between Public Service Company of dated December 17, 1986.
New Mexico and The First National Bank
of Boston, as Owner Trustee (Unit 2
Transaction).
99.17* Waiver letter with respect to "Deemed 28.12 to the Company's 1-6986
Loss Event" dated as of August 18, 1986, Current Report on Form 8-K
between the Owner Participant named dated August 18, 1986.
therein, and Public Service Company of
New Mexico.
99.18* Waiver letter with respect to "Deemed 28.13 to the Company's 1-6986
Loss Event" dated as of August 18, 1986, Current Report on Form 8-K
between the Owner Participant named dated August 18, 1986.
therein, and Public Service Company of
New Mexico.
99.19 Agreement No. 13904 (Option and 28.19 to Annual Report of 1-6986
Purchase of Effluent), dated April 23, the Registrant on Form 10-K
1973, among Arizona Public Service for fiscal year ended
Company, Salt River Project Agricultural December 31, 1986.
Improvement and Power District, the
Cities of Phoenix, Glendale, Mesa,
Scottsdale, and Tempe, and the Town of
Youngtown.
E-19
Exhibit
No. Description Filed As Exhibit: File No:
99.20 Agreement for the Sale and Purchase of 28.20 to Annual Report of 1-6986
Wastewater Effluent, dated June 12, 1981, the Registrant on Form 10-K
among Arizona Public Service Company, for fiscal year ended
Salt River Project Agricultural December 31, 1986.
Improvement and Power District and the
City of Tolleson, as amended.
- -----------
* One or more additional documents, substantially identical in all material
respects to this exhibit, have been entered into, relating to one or more
additional sale and leaseback transactions. Although such additional
documents may differ in other respects (such as dollar amounts and
percentages), there are no material details in which such additional
documents differ from this exhibit.
** Designates each management contract or compensatory plan or arrangement
required to be identified pursuant to paragraph 3 of Item 14(a) of Form
10-K.
(b) Reports on Form 8-K:
During the quarter ended December 31, 1995 and during the period beginning
January 1, 1996 and ending February 22, 1996, the Company filed, on the dates
indicated, the following reports on Form 8-K.
Dated: Filed: Relating to:
------ ------ ------------
December 8, 1995 December 8, 1995 Palo Verde Nuclear Generating Station
December 21, 1995 December 21, 1995 Ojo Line Extension Transmission Project
E-20
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: February 22, 1996 By /s/ B. F. MONTOYA
-------------------------------------
B. F. Montoya
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ B. F. MONTOYA Principal Executive Officer and February 22, 1996
- ------------------------------------------------- Director
B. F. MONTOYA
President and Chief Executive Officer
/s/ M. H. MAERKI Principal Financial Officer February 22, 1996
- -------------------------------------------------
M. H. Maerki
Senior Vice President and
Chief Financial Officer
/s/ D. M. BURNETT Principal Accounting Officer February 22, 1996
- -------------------------------------------------
D. M. Burnett
Corporate Controller and
Chief Accounting Officer
/s/ J. T. ACKERMAN Chairman of the Board February 22, 1996
- -------------------------------------------------
J. T. Ackerman
/s/ R. G. ARMSTRONG Director February 22, 1996
- -------------------------------------------------
R. G. Armstrong
/s/ J. A. GODWIN Director February 22, 1996
- -------------------------------------------------
J. A. Godwin
/s/ L. H. LATTMAN Director February 22, 1996
- -------------------------------------------------
L. H. Lattman
/s/ M. LUJAN JR. Director February 22, 1996
- -------------------------------------------------
M. Lujan Jr.
/s/ R. U. ORTIZ Director February 22, 1996
- -------------------------------------------------
R. U. Ortiz
/s/ R. M. PRICE Director February 22, 1996
- -------------------------------------------------
R. M. Price
/s/ P. F. ROTH Director February 22, 1996
- -------------------------------------------------
P. F. Roth
E-21