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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, 1996 Commission File Number 1-6986
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, 1997 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 $20.00 per
share reported by the Wall Street Journal, was $835,481,660.
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 29, 1997--PART III.
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TABLE OF CONTENTS
Page
----
GLOSSARY............................................................... iv
PART I
ITEM 1. BUSINESS........................................................ 1
THE COMPANY................................................... 1
ELECTRIC OPERATIONS........................................... 1
Service Area and Customers.................................. 1
Power Sales................................................. 2
Sources of Power............................................ 3
Fuel and Water Supply....................................... 4
NATURAL GAS OPERATIONS........................................ 7
Service Area and Customers.................................. 7
Natural Gas Supply.......................................... 7
Natural Gas Sales........................................... 8
RATES AND REGULATION.......................................... 9
Proposed Rulemaking......................................... 9
Fossil-Fueled Plant Decommissioning Costs................... 9
PGAC Continuation Filing.................................... 9
FPPCAC...................................................... 10
Public Regulation Commission................................ 10
ENVIRONMENTAL FACTORS......................................... 10
ITEM 2. PROPERTIES...................................................... 12
ELECTRIC...................................................... 12
Fossil-Fueled Plants........................................ 12
Nuclear Plant............................................... 13
Other Electric Properties................................... 15
NATURAL GAS................................................... 15
OTHER INFORMATION............................................. 15
ITEM 3. LEGAL PROCEEDINGS............................................... 16
PVNGS WATER SUPPLY LITIGATION................................. 16
SAN JUAN RIVER ADJUDICATION................................... 16
PVNGS PROPERTY TAXES.......................................... 16
OTHER PROCEEDINGS............................................. 17
Federal Deposit Insurance Corporation ("FDIC") Litigation... 17
Republic Savings Bank ("RSB") Litigation.................... 18
Four Corners................................................ 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 19
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY..................... 20
ii
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 22
ITEM 6. SELECTED FINANCIAL DATA......................................... 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 24
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-23
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
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
FASB.................................... Financial Accounting Standards Board
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
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
SEC..................................... Securities and Exchange Commission
SJCC.................................... San Juan Coal Company
iv
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
USBR.................................... United States Bureau of Reclamation
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 is
pursuing 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 -- Competitive Strategy").
The total population of the area served by one or more of the Company's
utility services is estimated to be approximately 1.3 million, of which 53% live
in the greater Albuquerque area.
For the year ended December 31, 1996, the Company derived 73.1% of its
operating revenues from electric operations, 25.7% from natural gas operations
and 1.2% from energy services operations.
As of December 31, 1996, the Company employed 2,739 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, 1996, approximately 342,000 retail electric customers
were served by the Company, the largest of which accounted for approximately
3.5% of the Company's total electric revenues for the year ended December 31,
1996.
The Company holds 22 long-term, non-exclusive franchise agreements for
its electric retail operations, expiring between June 1997 and November 2028.
The City of Albuquerque (the "City") franchise expired in early 1992. Customers
in the area covered by the expired franchise represent approximately 43.0% of
the Company's 1996 total electric operating revenues, and no other franchise
area represents more than 6.6%. These franchises are agreements that provide the
Company access to public rights-of-way for placement of the Company's electric
1
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.
(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 1992 through 1996, retail KWh sales have grown at a
compound annual rate of approximately 4.6%. 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)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Retail................................. $507,821 $485,568 $506,286 $471,099 $455,387
Firm-requirements wholesale............ $ 12,359 $ 20,282 $ 22,296 $ 18,468 $ 20,173
Other contracted off-system sales...... $ 86,689 $ 43,158+ $ 54,862+ $ 56,214+ $ 62,348
Economy energy sales................... $ 22,281 $ 17,509+ $ 19,663+ $ 25,213+ $ 40,770
ELECTRIC SALES BY MARKET
(Megawatt hours)
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
Retail............................. 6,406,296 6,029,365 5,953,151 5,446,788 5,358,246
Firm-requirements wholesale........ 282,534 447,629 489,182 342,137 322,177
Other contracted off-system
sales........................... 2,928,321 594,367 1,403,480 1,450,966 1,198,250
Economy energy sales............... 1,364,365 1,548,517 1,469,271 1,582,113 2,164,991
- -----------
+ 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)
1996 1995 1994 1993 1992
--------- --------- --------- --------- --------
Summer............... 1,217 1,247 1,189 1,104 1,053
Winter............... 1,111 1,076 1,040 982 992
- -----------
* System peak demand relates to retail and firm-requirements wholesale
customers only.
2
During 1996 and 1995, the Company's sales in the off-system markets
accounted for approximately 39.1% and 24.9%, respectively, of its total KWh
sales and approximately 17.3% and 11.8% (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 1996, 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 the 1985 power purchase
agreement were unjust, unreasonable and unduly discriminatory. SDG&E requested
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 result in 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.
On March 18, 1996, SDG&E filed a second complaint with the FERC against
the Company, again alleging that charges under the agreement were unjust,
unreasonable and unduly discriminatory. SDG&E is again requesting that the FERC
investigate charges under the agreement. The Company responded to the second
complaint on April 26, 1996. The relief under the second complaint is similar to
that requested under the first complaint. The refund period requested in the
first complaint, if granted, would extend for a fifteen month period beginning
December 26, 1993. The refund period requested under the second complaint would
extend for a fifteen month period beginning May 17, 1996. The FERC has not
issued a ruling on either the first or second complaint and has not indicated
when or if either complaint will be considered. The Company believes that both
complaints are without merit, and the Company intends to vigorously resist both
complaints.
The APPA contract requires APPA to purchase varying amounts of power from
the Company through May 2008 and allows APPA to make adjustments to the purchase
amounts subject to certain notice provisions. APPA provided notice that it was
invoking its option to reduce its power demand in 1997. This will result in a
peak demand in 1997 of 89 MW.
The Company furnished firm-requirements wholesale power in New Mexico in
1996 to the cities of Farmington and Gallup, and TNP. 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 1996 were approximately 26 MW. 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. During 1996, TNP purchased 15 MW
and gave notice that it will continue to purchase 15 MW in 1997. TNP has also
provided notice of its intent to terminate service after 1998. No
firm-requirements wholesale customer accounted for more than 1.3% of the
Company's total electric operating revenues for the year ended December 31,
1996.
Sources of Power
As of December 31, 1996, 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, expiring in May 2011. The Company may reduce its purchases from SPS by
25 MW annually upon three years' notice. The Company provided such notice to
reduce the purchase by 25 MW in 1999 and by an additional 25 MW in 2000. Also,
the Company has 39 MW of contingent capacity obtained from El Paso under a
transmission capacity for generation capacity trade arrangement that increases
up to 70 MW from 1998 through 2003. In addition, the Company is interconnected
with various utilities for economy interchanges and mutual assistance in
emergencies.
3
The Company anticipates the need for approximately 100 to 200 MW of
additional capacity in the 1998 through 2000 timeframe. To meet this need, on
October 4, 1996, the Company entered into a long-term power purchase contract
with the Cobisa-Person Limited Partnership ("PLP") to purchase approximately 100
MW of unit contingent peaking capacity from a gas turbine generating unit for a
period of 20 years, with an option to renew for an additional five years. The
gas turbine generating unit will be constructed and operated by PLP and will be
located on the Company's retired Person Generating Station site located in
Albuquerque, New Mexico. The site for the generating unit was chosen, in part,
to provide needed benefits to the Company's constrained transmission system.
Depending on the regulatory timing of NMPUC and FERC approvals and the securing
of necessary permits, construction could start in August 1998 with commercial
operation beginning by May 1999. The operational date was chosen to satisfy both
resource and transmission needs for the Company's jurisdictional load. During
October 1996, the Company filed a request for approval from the NMPUC and PLP
filed its application for requisite state commission determinations from the
NMPUC. These two applications were consolidated by the NMPUC. In December 1996,
the NMPUC established a procedural schedule for the consolidated applications.
The Company and PLP have requested a final order from the NMPUC by July 31,
1997. Thereafter, certain actions from the FERC will be required, including
approval of PLP's status as an "exempt wholesale generator" under Section 32 of
the Public Utility Holding Company Act.
In addition to the long-term power purchase contract with PLP, the
Company is pursuing other options to ensure its additional capacity needs are
met.
Fuel and Water Supply
The percentages of the Company's generation of electricity (on the basis
of KWh) fueled by coal, nuclear fuel and gas and oil, and the average costs to
the Company of those fuels (in cents per million BTU), during the past five
years were as follows:
Coal Nuclear Gas and Oil
------------------------ ------------------------ --------------------------
Percent of Average Percent of Average Percent of Average
------------ ----------- ------------ ---------- ------------ ------------
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
1996............. 68.9 159.3 30.4 49.7 0.7 238.2
The estimated generation mix for 1997 is 70.4% coal, 28.9% nuclear and
0.7% gas and oil. Due to locally available natural gas and oil supplies, the
utilization of locally available coal deposits and the generally abundant supply
of nuclear fuel, the Company believes that adequate sources of fuel are
available for its generating stations.
Coal
The coal requirements for 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 114 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
4
SJGS in the La Plata area of northwestern New Mexico. 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 1997 through
2005. The average cost of fuel, including ash disposal and land reclamation
costs, for SJGS for the years 1994, 1995 and 1996 was 172.1 cents, 184.6 cents
and 167.0 cents, respectively, per million BTU ($33.62, $35.75 and $32.18 per
ton, respectively). For other information related to coal requirements, see PART
II, ITEM 7. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- COAL FUEL SUPPLY".
Four Corners is supplied with coal under a fuel agreement between the
owners and BHP, under which BHP agreed to supply all the coal requirements for
the life of the plant. BHP holds a long-term coal mining lease, with options for
renewal, from the Navajo Nation and operates a surface mine adjacent to Four
Corners with the coal supply expected to be sufficient to supply the units for
their estimated useful lives. The average cost of fuel, including ash disposal
and land reclamation costs, for the years 1994, 1995 and 1996 at Four Corners
was 125.8 cents, 113.4 cents and 125.9 cents, respectively, per million BTU
($22.03, $20.04 and $22.90 per ton, respectively).
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. 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
5
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. The DOE has announced that it
is not likely to have an operating permanent repository facility before 2015. In
December 1996, DOE sent a letter to the contract holders including APS, advising
that DOE will not be able to fulfill its contractual obligations to accept spent
fuel by January 31, 1998. Because of the uncertainty as to when DOE will be able
to begin spent fuel acceptance, the DOE is inviting the views of all contract
holders on how the delay can best be accommodated. 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 2002 and to safely store spent fuel until
DOE's scheduled shipments from PVNGS begin.
Currently, low-level radioactive waste is being shipped to the low level
waste repository in Barnwell, South Carolina. In addition, a low-level waste
facility was built in 1995 at the PVNGS site. This facility is being used and
has the capability to store an amount of waste equivalent to 10 years of normal
operation of PVNGS.
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 USBR ("USBR Contract") 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 formally initiated the renewal and extension process for requesting
rights through the year 2025. The Company is actively conducting an
environmental assessment with the USBR and a biological assessment with the U.S.
Fish and Wildlife Service. These studies are required by the Federal agencies
before the existing water contract can be renewed. In June 1996, the Navajo
Nation requested the USBR to withhold renewal of the USBR Contract due to water
shortages of the Navajo Indian Irrigation Project. Other tribes in the Four
Corners area have also voiced concern to the USBR about the renewal by the
Company of the USBR Contract. The Company is currently involved in discussions
with the Navajo Nation to resolve concerns about renewal of the USBR Contract.
The Company is currently unable to predict the outcome of these matters but does
not anticipate any material adverse impact on the Company's financial condition
or results of operation.
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".)
6
NATURAL GAS OPERATIONS
Service Area and Customers
The Company's gas operating division, PNMGS, distributes natural gas to
most of the major communities in New Mexico, including Albuquerque and Santa Fe,
serving approximately 401,000 customers as of December 31, 1996. The Albuquerque
metropolitan area accounts for approximately 54.8% 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' customer base includes both "sales-service" customers and
"transportation-service" customers. Sales-service customers purchase natural gas
and receive transportation and delivery services from PNMGS for which PNMGS
receives both cost-of-gas and cost-of-service revenues. Cost-of-gas revenues
collected from on-system sales-service customers are 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. Additionally, PNMGS makes
occasional gas sales to off-system customers. Off-system sales deliveries
generally occur at interstate pipeline interconnects with PNMGS' system.
Transportation-service customers, who procure gas independently of PNMGS and
contract with PNMGS for transportation and related services, provide PNMGS with
cost-of-service revenues only. Transportation services are provided to gas
marketers, producers and end users for delivery to locations throughout the
PNMGS distribution systems, as well as for delivery to interstate pipelines.
PNMGS provided gas transportation deliveries to approximately 1,050 gas
marketers, producers and end users during 1996.
For the twelve months ended December 31, 1996, PNMGS had throughput of
approximately 100.1 million decatherms, including sales of 53.1 million
decatherms to both sales-service customers and off-system customers. No single
"sales-service" customer accounted for more than 4.4% of PNMGS' therm sales in
1996. During 1996, approximately 47.0% of the PNMGS' total gas throughput was
related to transportation gas deliveries. PNMGS' transportation rates are
unbundled, and transportation customers only pay for the service they receive.
PNMGS' total operating revenues for the year ended December 31, 1996, were
approximately $227.3 million. Cost-of-gas revenues, received from sales-service
and off-system customers, accounted for approximately 45.8% 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 44.1% of PNMGS'
total therm sales in 1996 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 resolved all of the
producer litigation and reformed its supply portfolio so that it better matches
the demands of PNMGS' sales-service customers. These reformations allow 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
PNMGS peak-day demand.
PNMGS serves certain cities which depend on EPNG or Transwestern Pipeline
Company for transportation of gas supplies. Because these cities are not
directly connected to PNMGS transmission facilities, gas transported by these
companies is the sole supply source for those cities. Such transportation is
regulated by FERC. As a result of FERC Order 636, PNMGS' options for
transporting gas to such cities and other portions of its distribution system
have increased.
7
Natural Gas Sales
The following table shows gas throughput by customer class**:
GAS THROUGHPUT
(Millions of decatherms)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Residential................ 27.4 25.9 27.1 28.0 27.1
Commercial................. 9.3 8.9 9.8 10.4 10.6
Industrial................. 2.1 0.7 0.8 0.9 0.7
Public authorities......... 2.6 2.4 2.5 2.5 4.2
Irrigation................. 1.4 1.2 1.3 1.3 1.1
Sales for resale........... 0.8 1.3 0.7 1.0 2.0
Unbilled................... 1.4 (1.8) (0.3) (0.6) 0.6
Transportation*............ 47.1 69.8 90.2 91.8 73.6
Off-system sales........... 8.0 1.2 -- -- 0.9
----- ----- ----- ----- -----
100.1 109.6 132.1 135.3 120.8
===== ===== ===== ===== =====
The following table shows gas revenues by customer class**:
GAS REVENUES
(Thousands of dollars)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Residential................ $129,911 $125,290 $149,439 $149,796 $125,313
Commercial................. 33,022 32,328 42,725 44,575 37,222
Industrial................. 5,179 1,873 2,905 3,369 2,063
Public authorities......... 8,018 7,939 9,969 9,694 12,313
Irrigation................. 3,252 3,077 4,061 4,418 2,713
Sales for resale........... 2,106 3,114 2,462 3,137 4,460
Unbilled................... 2,677 (2,430) 267 (1,573) 716
Transportation*............ 17,215 22,172 27,592 26,729 18,753
Liquids.................... 7,608 13,414 16,090 18,724 26,427
Processing fees............ -- 5,180 10,638 9,761 6,795
Off-system sales........... 14,353 1,927 -- 4 1,410
Other...................... 3,960 4,101 3,362 2,453 4,974
-------- -------- -------- -------- --------
$227,301 $217,985 $269,510 $271,087 $243,159
======== ======== ======== ======== ========
- --------------------
* 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.
Proposed Rulemaking
On June 5, 1995, the NMPUC issued a Notice of Inquiry ("NOI") seeking
comments on whether and how NMPUC Rule 450, which governs affiliate
transactions, should be revised. On June 3, 1996, the NMPUC issued its Notice of
Proposed Rulemaking and Order on the NOI proposing certain amendments to NMPUC
Rule 450 and seeking comments and suggested language changes to its proposed
amendments by August 5, 1996. The proposed amendments would, in effect, limit
the Company's non-utility business ventures. The Company vigorously opposed
these limitations and filed its comments and suggested language changes with the
NMPUC. The Company contends that many of the proposed amendments are unwarranted
or prohibited under the New Mexico Public Utility Act. To date, the NMPUC has
not acted on the comments and suggested language changes it requested.
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 $145 million stated in 1996 dollars, including
approximately $24.0 million (of which $13.7 million has already been expended)
for Person, Prager and Santa Fe Stations which have been retired.
The Company is currently recovering estimated decommissioning costs for its
in-service fossil-fueled generating facilities through rates charged to its
NMPUC retail customers.
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. On February 13, 1997, the NMPUC denied recovery of these same
reservation fees in the ongoing general rate proceeding (see PART II, ITEM 7. --
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- GAS RATE CASE"). 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. In
October 1996, the NMPUC issued an order establishing a working group including
the NMPUC staff, the AG and other New Mexico gas utilities to rewrite the rule.
Several intervenors including New Mexico industrial end users and national gas
marketing companies have been allowed to join the working group.
9
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 permit 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.
Public Regulation Commission
On November 5, 1996, New Mexico voters approved an amendment to the state
constitution which will replace the present State Corporation Commission and the
NMPUC with a single, elected five member regulatory authority. The new Public
Regulation Commission will be responsible for overseeing registration of all New
Mexico corporations, as well as regulating insurers, transportation and
telecommunications companies, oil and gas pipelines, and gas, electric, water
and sewer public utilities operating in the state. Implementing the new
regulatory structure will require legislation to establish new voting districts
and revise the statutes which now govern the two existing regulatory bodies.
For other rates and regulation issues facing the Company, see PART II, ITEM
7. -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- OVERVIEW -- OTHER ISSUES FACING THE COMPANY -- GAS RATE CASE --
NMPUC ORDER --THE COMPANY'S JANUARY 1997 PGAC FACTOR VARIANCE REQUEST; ORDER TO
FILE NEW RETAIL ELECTRIC and GAS RATE CASES and TRANSMISSION ISSUES -- FERC
Transmission Issues".
ENVIRONMENTAL FACTORS
The Company, in common with other electric and gas utilities, is subject to
stringent regulations for protection of the environment by state, Federal and
tribal authorities. In addition, PVNGS is subject to the jurisdiction of the
NRC, which has authority to issue permits and licenses and to regulate nuclear
facilities in order to protect the health and safety of the public from
radioactive hazards and to conduct environmental reviews pursuant to the
National Environmental Policy Act. 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 to meet environmental regulations in 1997 and 1998.
However, in order to achieve operational efficiencies, the Company and
participants decided to begin a retrofit environmental project at SJGS which
will cost the SJGS participants approximately $80 million over the next two
years.
10
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 provisions (both sulfur dioxide and nitrogen dioxide) 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 in 1995, as
required. 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 to the Company as of this date.
The Act 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. The Commission submitted its findings and recommendations
to the EPA in June 1996.
The Commission's recommendations regarding stationary sources are to: (i)
implement existing Clean Air Act requirements through the year 2000, (ii)
establish stationary source emission targets as regulatory triggers, (iii)
develop a plan for allocating trading credits under a regulatory program
emissions cap, (iv) review compliance with targets and establish incentives, (v)
complete source attribution studies and (vi) develop an improved monitoring and
accounting system.
The Commission did not recommend any additional emission reductions for
point sources. The recommendations include monitoring the impact of existing
Clear Air Act requirements on emission reductions and the resulting effect on
visibility, setting regional targets for SO2 emissions from stationary sources
for the year 2000 and developing a regulatory program to implement if the
targets are exceeded. The regulatory program will most likely include a
market-based trading of emissions allowances. The targets and the regulatory
program have not yet been developed; however, the Company does not expect a
material adverse effect on the Company's financial condition or results of
operations.
In a related matter, the EPA proposed revisions to the National Ambient Air
Quality Standards for ozone and particulate matter. The nature of and cost of
the impacts of these proposed revisions, if any, to the Company's operations
cannot be determined at this time; however, the Company does not anticipate any
material adverse impact on the Company's financial condition or results of
operations.
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".
11
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, 1996, 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, 28.8% by M-S-R, 10.04% by Anaheim, 8.475% by
Farmington, 7.2% by Los Alamos and 7.028% by UAMPS. The Company's net aggregate
ownership in SJGS is 750 MW.
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.
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.
12
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 1996, PVNGS was operated at a capacity factor of 89.1% which was
the highest yearly capacity factor attained at the plant. This capacity factor
was primarily attributable to record setting low refueling outage days.
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 originally 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 stipulated with the NMPUC in 1994, the Company
wrote down the purchased beneficial interests in PVNGS Units 1 and 2 leases to
$46.7 million. In March 1995, the Company retired approximately $130 million of
PVNGS lease obligation bonds ("LOBs").
In October 1996, the Company purchased $200 million of the PVNGS LOBs.
The bonds are held as an investment on the Company's books. For rating agency
purposes, the PVNGS LOBs are included in the calculation of the debt to equity
ratio and various financial coverage ratios. The purchase of the $200 million of
PVNGS LOBs is treated by the rating agencies as a defeasance of the bonds,
thereby resulting in an improvement to the ratios.
13
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
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 $147.5 million, a decrease from $157.8 million based on the
previous 1992 study (both amounts are stated in 1995 dollars).
The Company determined that a supplemental investment program will be
needed as a result of both historical cost increases 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.
Pursuant to NMPUC approval, the Company funded an additional $12.5
million into the qualified and non-qualified funds. The estimated market value
of the trusts, including the current life insurance policies, at the end of 1996
was approximately $25.6 million.
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 for all three units is
approximately $24.3 million, with an annual payment limitation of $3 million per
incident. The insureds under this liability insurance include the PVNGS
participants and "any other person or organization with respect to his legal
responsibility for damage caused by the nuclear energy hazard". If the funds
provided by this retrospective assessment program prove to be insufficient,
Congress could impose revenue raising measures on the nuclear industry to pay
claims.
14
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,
1997, a substantial portion of which must be applied to stabilization and
decontamination. The Company has also secured insurance against portions of the
increased cost of generation or purchased power and business interruption
resulting from certain accidental outages of any of the three PVNGS units if the
outage exceeds 21 weeks. The Company is a member of two industry mutual
insurers. These mutual insurers provide both the "all-risk" and increased cost
of generation insurance to the Company. In the event of adverse losses
experienced by these insurers, the Company is subject to an assessment. The
Company's maximum share of any assessment is approximately $3.9 million per
year.
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 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".)
In July 1996, the Company and other SJGS participants signed an agreement
to convert the existing flue gas desulfurization (SO2 removal) system at the
SJGS into a much simpler and cost effective limestone system. The conversion
project will cost the participants approximately $80 million over the next two
years. The NMPUC has been notified of the conversion and expected cost savings.
The NMED approval of a new air permit for the limestone system and a disposal
permit for the mine has been requested. Construction is scheduled to begin in
April 1997 and expected to be completed by the end of 1998.
As of December 31, 1996, the Company owned, jointly owned or leased 2,803
circuit miles of electric transmission lines, 5,333 miles of distribution
overhead lines, 3,299 cable miles of underground distribution lines (excluding
street lighting) and 226 substations.
NATURAL GAS
The natural gas property as of December 31, 1996 consisted primarily of
natural gas storage, transmission and distribution systems. Provisions for
storage made by the Company include ownership and operation of an underground
storage facility located near Albuquerque, New Mexico. The transmission systems
consisted of approximately 1,277 miles of pipe with appurtenant compression
facilities. The distribution systems consisted of approximately 10,098 miles of
pipe.
On June 21, 1996, the Company entered into a purchase agreement with the
DOE for the purchase of approximately 130 miles of transmission pipe for $3.1
million for the transmission of natural gas to Los Alamos and to certain other
communities in northern New Mexico. The purchase is subject to the DOE providing
right-of-way satisfactory to the Company. The acquisition by the Company was
approved by the NMPUC in December 1996. Right-of-way resolution is expected to
be completed in the first quarter of 1997.
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.
15
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
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. In addition, the ultimate outcome of this matter will
not have a material adverse effect on the Company's financial condition or
results of operation.
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 -- 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.
16
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. In April 1996, the participants and the Arizona
Department of Revenue reached an agreement to settle the pending litigation.
Pursuant to the tentative settlement, the Company will relinquish its claims for
relief with respect to prior years and the defendants will not challenge the
Court of Appeals decision concerning prospective relief (for tax years 1996 and
thereafter).
On July 18, 1996, the Arizona legislature passed, and the Governor of
Arizona subsequently signed, a $200 million property tax reduction which
codifies the terms of the settlement. Final documents are currently being
prepared for the signatures of the parties to this action. The result of the
legislation and the settlement will be a reduction in the Company's Arizona
property tax of approximately $4.0 million annually beginning in 1996 and
extending at least three years, barring any subsequent changes in the applicable
tax law.
OTHER PROCEEDINGS
Federal Deposit Insurance Corporation ("FDIC") Litigation, formerly Resolution
Trust Corporation ("RTC") Litigation ("MDL-995")
On April 16, 1993, the Company and certain current and former employees
of the Company or Meadows ("BCD parties") 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 Savings and Loan Association ("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.
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.
17
On April 11, 1996, representatives of the BCD parties and the FDIC met
with a mediator to continue settlement discussions. The mediation session
resulted in an agreement to settle the case for approximately $5.8 million,
approximately $3.1 million of which would be paid by the Company and the
remainder to be paid by insurance covering the BCD parties. Settlement documents
are being drafted for submission to the Court for approval. After consideration
of established reserves, the Company believes that there will be no material
adverse effect on the Company's financial condition or results of operations.
The Company continues to believe that all of the claims made by the FDIC
in this case are without merit but, for business reasons, believes that the
settlement is in the best interest of the Company.
Republic Savings Bank ("RSB") Litigation
On July 1, 1996, in a 7-2 decision in the case of United States v.
Winstar Corporation, the United States Supreme Court ruled that the Federal
government had breached its contractual obligations with certain thrifts in
refusing to recognize the accounting practices of supervisory goodwill and
capital credits. Contracts had been negotiated with certain Federal agencies
providing for the purchase of failing thrifts on the condition that supervisory
goodwill and capital credits be recognized for purposes of determining
compliance with regulatory capital requirements. When Congress enacted the
Financial Institutions Reform, Recovery and Enforcement Act in 1989, these
accounting practices were prohibited, thus driving otherwise healthy thrifts out
of compliance with the capital requirements. Many, including RSB, were taken
over and liquidated as a result.
Meadows owns directly a 100% ownership interest in Republic Holding
Company ("RHC"), and RSB was a wholly-owned subsidiary of RHC. Meadows and RHC
have pending before the United States Court of Federal Claims, a lawsuit filed
on April 13, 1992, alleging similar contractual arrangements to those at issue
in the Winstar case. The Federal government has filed a counterclaim alleging
breach by RHC of its obligation to maintain RSB's net worth and has moved to
dismiss Meadows' claim for lack of standing.
RSB was the thrift organized upon the acquisition of Citizens Federal
Savings and Loan Association and Fireside Federal Savings and Loan Association,
both Illinois corporations, in 1985. The plaintiffs invested $17 million of new
capital in the failing institutions. The Federal regulators expressly promised
that approximately $23 million of supervisory goodwill created by the
transaction could be accounted for as an intangible asset to be counted toward
regulatory capital. Additionally, the regulators promised to allow a $3 million
cash contribution by the Federal Savings and Loan Insurance Corporation to be
recorded as a direct credit to regulatory capital. On June 5, 1992, the Office
of Thrift Supervision placed RSB in receivership and appointed the RTC as
receiver. On November 6, 1992, RTC sold RSB as a going concern for a premium of
nearly $1 million, with approximately $215.5 million in assets and $203.9
million in liabilities.
The RSB case has been held in abeyance pending the ruling by the Supreme
Court. The Company believes that the Winstar decision establishes the Federal
government's liability to Meadows and RHC in the RSB litigation and the amount
of damages owed as a result will be vigorously litigated. It is premature to
estimate the amount of recovery, if any, by Meadows and RHC.
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. 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
18
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 but does not anticipate any material adverse impact
on the Company's financial condition or results of operation.
For a discussion of other legal proceedings, see PART II, ITEM 7. --
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- GAS RATE CASE and NMPUC ORDER
- -- THE COMPANY'S JANUARY 1997 PGAC FACTOR VARIANCE REQUEST; ORDER TO FILE RETAIL
ELECTRIC AND GAS RATE CASES".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
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,
1996, except as otherwise noted:
Initial Effective
Name Age Office Date
---- --- ------ -----------------
B. F. Montoya........ 61 President and Chief Executive Officer August 1, 1993
M. P. Bourque*....... 49 Senior Vice President, Energy Services December 6, 1994
Senior Vice President, Marketing and
Customer Services December 7, 1993
Senior Vice President, Marketing and March 2, 1993
Energy Management
Senior Vice President, Gas Management June 19, 1990
Services
M. D. Christensen.... 48 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.......... 54 Senior Vice President, Electric Services December 1, 1994
M. H. Maerki......... 56 Senior Vice President and Chief Financial December 7, 1993
Officer
Senior Vice President, Administration March 2, 1993
and Chief Financial Officer
Senior Vice President and Chief Financial June 1, 1988
Officer
P. T. Ortiz.......... 46 Senior Vice President, General Counsel December 6, 1994
and Secretary
Senior Vice President, Regulatory Policy, December 7, 1993
General Counsel and Secretary
Senior Vice President, Public Policy, March 2, 1993
General Counsel and Secretary
Senior Vice President, General Counsel February 4, 1992
and Corporate Secretary
Senior Vice President and General October 14, 1991
Counsel
W. J. Real........... 48 Senior Vice President, Gas Services December 6, 1994
Senior Vice President, Utility Operations December 7, 1993
Senior Vice President, Customer Service March 2, 1993
and Operations
Executive Vice President, Gas Operations June 19, 1990
R. B. Ridgeway....... 38 Senior Vice President, Energy Services December 14, 1996
Vice President, Corporate Planning August 10, 1996
Director, Corporate Strategy July 2, 1994
Consultant, Competitive Analysis October 5, 1992
Director, Strategic Planning February 1, 1991
Manager, Gas Supply Planning June 4, 1990
20
Initial Effective
Name Age Office Date
---- --- ------ -----------------
J. E. Sterba............41 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 Electric and January 29, 1991
Water Services
Senior Vice President, Business September 1, 1988
Development Group, Electric and Water
Operations
J. A. Zanotti...........56 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
- -----------
*M. P. Bourque resigned as an executive officer of the Company effective
December 24, 1996.
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 B. F. Montoya and R. J. Flynn. 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.
21
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange.
Ranges of sales prices of the Company's common stock, reported as composite
transactions (Symbol: PNM), and dividends paid on common stock for 1996 and
1995, by quarters, are as follows:
Quarter Range of
Ended Sales Prices
- ------------------- ------------------------ Dividends
High Low per Share
--------- ---------- -----------
1996:
December 31.......................... 19 7/8 18 1/8 $0.12
September 30......................... 20 3/8 19 $0.12
June 30.............................. 20 1/2 17 1/4 $0.12
March 31............................. 18 3/4 17 3/8 $0.00
-----
Fiscal Year....................... 20 1/2 17 1/4 $0.36
=====
1995:
December 31.......................... 18 1/4 16 1/8 $0.00
September 30......................... 16 3/8 13 3/4 $0.00
June 30.............................. 14 1/4 12 3/8 $0.00
March 31............................. 13 7/8 12 1/4 $0.00
-----
Fiscal Year....................... 18 1/4 12 1/4 $0.00
=====
On January 31, 1997, there were 18,835 holders of record of the Company's
common stock.
On December 31, 1996, the Company's Board of Directors ("Board") declared
a quarterly cash dividend of 12 cents per share of common stock payable February
21, 1997 to shareholders of record as of February 3, 1997. This will be the
fourth quarterly dividend to the Company's common shareholders since the Company
reinstated its common stock dividend in May 1996.
The Board set the dividend payout ratio below the industry average to
allow for dividend growth in the future and to sustain financial flexibility for
the Company to respond to potential opportunities in the evolving energy
marketplace. The Board had not declared cash dividends on common stock since
1989. In establishing its new dividend policy, the Board weighed the Company's
current financial position and its future business plan, as well as the
regulatory and business climate in New Mexico. Future dividend declaration will
be reviewed for action by the Board and coordinated with quarterly earnings
announcements. The payment of future dividends will depend on earnings, the
financial condition of the Company, market conditions and other factors.
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
1996 and 1995.
22
ITEM 6. SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(In thousands except per share amounts and ratios)
Total Operating Revenues................ $ 883,386 $ 808,465 $ 904,711 $ 873,878 $ 851,953
Net Earnings (Loss)..................... $ 72,580 $ 75,562 $ 80,318 $ (61,486)* $ (104,255)+
Earnings (Loss) per Common
Share................................ $ 1.72 $ 1.72 $ 1.77 $ (1.64)* $ (2.67)+
Total Assets............................ $2,230,314 $2,035,669 $2,203,265 $2,212,189 $2,375,582
Preferred Stock with Mandatory
Redemption Requirements.............. -- -- $ 17,975 $ 24,386 $ 25,700
Long-Term Debt, less Current
Maturities........................... $ 713,919 $ 728,843 $ 752,063 $ 957,622 $ 911,252
Common Stock Data:
Market price per common
share at year end................. $ 19.625 $ 17.625 $ 13.00 $ 11.25 $ 12.375
Book value per common share
at year end....................... $ 18.06 $ 16.82 $ 15.11 $ 13.29 $ 15.00
Average number of common
shares outstanding................ 41,774 41,774 41,774 41,774 41,774
Cash dividend declared per
common share...................... $ 0.48 -- -- -- --
Return on Average Common
Equity............................... 9.8% 10.7% 12.4% (10.7)% (15.0)%
Capitalization:
Common stock equity.................. 50.9% 48.6% 43.2% 34.8% 38.6%
Preferred stock:
Without mandatory
redemption requirements......... 0.9 0.9 4.1 3.7 3.6
With mandatory redemption
requirements.................... -- -- 1.2 1.5 1.6
Long-term debt, less current
maturities........................ 48.2 50.5 51.5 60 56.2
----------- ----------- ----------- ---------- -----------
100% 100% 100% 100% 100%
=========== =========== =========== ========== ===========
- -----------
* 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.
23
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
Restructuring the Electric Utility Industry
The electric utility industry continues to be in 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
levels continue to consider how to promote competition among suppliers of
electricity and how to provide customers with choice among suppliers.
At the state level, the Integrated Water and Resource Planning Committee of
the New Mexico State Legislature (the "IWRPC") held hearings during 1996 which
focused on the issues related to restructuring of the electric industry in New
Mexico. The Company participated extensively in these hearings and, at the
invitation of the IWRPC, submitted draft legislation to be used as a starting
point for the various parties to consider regarding the electric industry
restructuring. The draft legislation would allow an electric utility to recover
all of its prudently incurred stranded costs, and also provide a path for
business flexibility. The AG testified that retail competition should not be
introduced at this time but, if it is, there should be independent ownership of
generation, transmission and distribution facilities, due to market power
concerns. At its November 1996 meeting, the IWRPC voted not to recommend
restructuring legislation in the 1997 session but instead to recommend
continuation of the IWRPC and a study of the tax effects of restructuring. The
IWRPC also sent a letter to the NMPUC calling for no restructuring to be
undertaken by the NMPUC without legislative approval. The New Mexico legislative
session is currently in progress and the Company will closely monitor any
legislative action regarding restructuring of the electric utility industry.
During 1996, the NMPUC conducted a series of workshop meetings in its
"Investigation of Restructuring of Regulation of the Electric Industry in New
Mexico". The Company actively participated in these workshops and presented the
Company's position on various matters related to industry restructuring. The
Company provided data and analysis in the areas of market structure, measurement
and collection of stranded costs, market power, potential changes in Company
structure and issues related to the transition phase. In conjunction with the
workshop meetings, the NMPUC ordered all utilities under its jurisdiction to
file their estimates of stranded costs, absent any recovery method being
adopted, based on the Texas Public Utility Commission Economic Cost Over Market
("ECOM") model. The Company, in its filing, presented two methodologies: (i)
using the ECOM model, the Company's stranded cost estimates run from $657
million for a 1998 full retail access case to $119 million for a 2002 full
retail access case, and (ii) using a second methodology, based upon the
difference between the Company's costs of existing generation and the costs of
new combined cycle and combustion turbine units to serve the same load, the
Company's costs above the level of new gas units, in 1997 dollars, were
estimated at $748 million for a 1998 full retail access case to $327 million for
a 2002 full retail access case. The Company advised the NMPUC that the results
of the ECOM model are highly sensitive to various assumptions, primarily
projections of future gas prices. To date, the NMPUC has not acted on the
requested information.
At the Federal level, two orders and a Notice of Proposed Rulemaking
("NOPR") related to the provision of transmission service by public utilities
were issued in 1996. FERC Order 888, effective July 9, 1996, addresses, among
other things, numerous subjects related to the terms and conditions under which
public utilities are required to provide access to transmission services, to
purchase transmission service on comparable terms for their own wholesale
24
marketing activities, to recover stranded costs from departing wholesale
customers and to conform existing power pool agreements to the open access
provision of the order. All public utilities were required to have filed, by the
effective date, an Open Access Transmission Tariff based on the provisions of
the order. In July 1996, the Company filed its compliance Open Access
Transmission Tariff under Order 888.
FERC Order 889, effective January 3, 1997, requires public utilities to
install and operate an Open Access Same-time Information System and comply with
certain standards of conduct among employees in transmission operations and
wholesale power marketing, designed to prevent employees of a public utility or
its affiliates engaged in wholesale marketing functions from obtaining
preferential access to transmission-related information or from engaging in
unduly discriminatory business practices regarding access to transmission
service. On January 2, 1997, the Company filed with the FERC its Standards of
Conduct report in compliance with provisions of Order 889.
A NOPR relating to transmission capacity reservation proposed the
elimination of the provision of separate "network" and "point-to-point" service
as provided in Order 888, providing all open access service under a capacity
reservation tariff. Industry comments were submitted to the FERC on October 1,
1996. The FERC has provided no indication of any future activity on the proposed
rulemaking. The Company continues to assess the impact of both the rules and the
potential impact of the proposed rulemaking.
In July 1996, legislation was introduced in the United States Congress to
allow retail competition by the year 2000. Since then, a number of bills have
been drafted for potential introduction in Congress. It is anticipated that
these bills will be heavily lobbied by utilities, industrials, power marketers,
generators, environmental groups, consumer groups and state regulators.
Although it is currently unable to predict the ultimate outcome of possible
retail wheeling initiatives, the Company has been and will continue to be active
at both the state and Federal levels in the public policy debates on the
restructuring of the electric utility industry. The Company will continue to
work with customers, regulators and legislators and other interested parties to
find solutions that bring competitive benefits while recognizing past
commitments.
Competitive Strategy
The Company's strategy for dealing with competition in changing market
places includes ongoing cost reductions, increased productivity, pursuit of
growth opportunities, seeking to improve credit ratings to investment grade and
strengthening of customer relations. To accomplish these objectives, the Company
continues to maintain the focus on its core business and is aggressively
pursuing its efforts to expand its energy related business into carefully
targeted markets for new business opportunities.
In pursuing new business opportunities, the Company is focusing on energy
and utility related activities under its Energy Services Business Unit. These
activities will provide energy marketing 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 in the Southwest. The
Energy Services Business Unit is also pursuing business opportunities in Mexico.
In June 1995, the Company filed an application with the NMPUC for
authorization for the creation of three wholly-owned non-utility subsidiaries as
part of the Energy Services Business Unit. 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. In March 1996, the NMPUC issued an order adopting
the hearing examiner's recommendation and denied NMPUC staff's motion to dismiss
the case. On July 8, 1996, hearings in the case began and were concluded on July
25
19, 1996. The NMPUC staff alleged that certain activities undertaken by the
Company, that would be transferred to the subsidiaries if approval is granted,
required prior approval thus leaving the Company subject to sanctions. The
Company currently cannot predict the ultimate outcome of this proceeding but has
and intends to continue to vigorously defend against any allegation that it is
in violation of any legal requirements.
In December 1996, the Company filed an application for certain variances
and authorization to invest up to $7.5 million of equity capital in a
partially-owned subsidiary company to be incorporated under the laws of the
United Mexican States, and to provide guarantees, as necessary, of up to $10
million that may be required in connection with the forming of a subsidiary in
Mexico. The Company jointly with Triturados Basalticos y Derivados, S.A.
("Tribasa"), one of the largest construction companies in Mexico, submitted a
bid to develop, design, construct, manage and operate natural gas distribution
systems in the cities of Chihuahua, Cuauhtemoc-Anahuac and Delicias in the State
of Chihuahua, Mexico. If the Company and Tribasa, and possibly a third entity,
were to be awarded the permit jointly, these companies would be required, under
Mexican law, to form and capitalize a Mexican corporation to comply with permit
requirements. In such event, the Company would serve as technical participant
and would be required to maintain a certain equity ownership interest. On
January 17, 1997, the NMPUC gave the Company conditional approval to proceed. On
February 3, 1997, the Company made its compliance filing pursuant to the NMPUC's
conditional approval. The Company is currently unable to predict the outcome of
the bid.
The Company believes that successful operation of the Energy Services
Business Unit activities will better position the Company in an increasingly
competitive utility environment. The Company is currently awaiting NMPUC action
on the formation of the energy and non-utility related subsidiaries under the
Company's general diversification plan discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Capital Requirements and Liquidity
Total capital requirements include construction expenditures as well as
other major capital requirements, including retirement of long-term debt,
long-term debt sinking funds and cash dividend requirements for both common and
preferred stock. The main focus of the Company's construction program is
upgrading generating systems, upgrading and expanding the electric and gas
transmission and distribution systems and purchasing nuclear fuel. Total capital
requirements and construction expenditures for 1996 were $321.0 million and
$103.1 million, respectively. Projections for total capital requirements and
construction expenditures for years 1997-2001 are $914.7 million and $563.7
million, respectively. These estimates are under continuing review and subject
to on-going adjustment. In conjunction with upgrading generating systems, the
Company has begun a retrofit environmental project at the SJGS which will cost
the Company approximately $40 million during the next two years.
The Company's construction expenditures for 1996 were entirely funded
through cash generated from operations. The Company currently anticipates that
internal cash generation will be sufficient to meet capital requirements during
1997 through 2001. 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.
In September 1996, the NMPUC granted the Company's request for the purchase
of up to $300 million of PVNGS LOBs and Eastern Interconnection Project secured
facility bonds over the next three years. In October 1996, the Company purchased
$200 million of PVNGS LOBs at a premium with accrued interest. In purchasing the
LOBs, the Company borrowed $100 million against the credit facility
collateralized by the Company's utility customer accounts receivable and certain
amounts being recovered from gas customers relating to certain gas contract
settlements and utilized $118 million of its cash. Although the PVNGS LOBs are
26
off-balance sheet debt, these outstanding bonds have been included in the
calculation of the Company's debt to capitalization ratio as well as various
financial coverage ratios by the major rating agencies. The purchase of the LOBS
will not only improve these ratios, but will also increase earnings in the form
of interest income. At the end of 1996, the Company had $20.3 million in cash
and temporary investments and $100.4 million in short-term borrowings.
In addition, at year-end 1996 the Company had $110.6 million of available
liquidity arrangements, consisting of $100 million from the revolving credit
facility ("Facility") and $10.6 million in local lines of credit . The Facility
will expire in June 1998 and includes a maximum allowed debt to capitalization
ratio of 70%. As of December 31, 1996, such ratio was 61.7 %, including the
PVNGS and EIP leases as debt. The Company expects to renew the Facility before
its expiration date.
Financing Capability and Dividend Restrictions
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. In September 1996, Standard &
Poor's Corp. and Moody's Investors Service, Inc. upgraded the Company's credit
ratings to one level below investment grade. Duff & Phelps Credit Rating Co.
maintains an investment grade rating for the Company's first mortgage bonds, but
continues to rate all other securities of the Company below investment grade.
The Company may face limited credit markets and higher financing costs as a
result of its securities being rated below investment grade.
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
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, 1996, based on
the earnings test, the Company could have issued approximately $254 million of
additional first mortgage bonds, assuming an annual interest rate of 8.65
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
9.40 percent, the Company could have issued $379 million of preferred stock as
of year-end.
In December 1996, the Company refinanced $23 million 1984 Series A
Pollution Control Revenue Bonds, $77.045 million 1977 Series Pollution Control
Revenue Bonds and $65 million 1978 Series A Pollution Control Revenue Bonds with
fixed rates of 6.3%, 6.3% and 5.7%, respectively. The maturity dates for these
new bonds are December 2026, December 2016 and December 2016, respectively. In
addition, the Company is currently in the process of refinancing an additional
$190 million of pollution control revenue bonds. On January 21, 1997, the
Company received NMPUC approval for the refinancing of such bonds, and closing
is anticipated for late February 1997. The remaining $60 million of the 1978
Series A Pollution Control Revenue Bonds and $40 million of the Company's 1979
Series A Pollution Control Revenue Bonds will be refinanced as variable rate
bonds in the weekly mode. The initial variable rate will be determined prior to
closing. The remaining $90 million of the 1979 Series A Pollution Control
Revenue Bonds will be refinanced with a fixed rate of 6.375%. The total of the
$190 million bonds will mature in April 2022.
27
The Company currently has no requirements for long-term financing during
the period of 1997 through 2001. However, during this period, the Company could
enter into long-term financing 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 resumed the payment of cash dividends on common stock starting
in May 1996 and continued a quarterly cash dividend of 12 cents per common share
during 1996. The Company's board of directors reviews the Company's dividend
policy on a continuing basis. The declaration of common dividends is dependent
upon a number of factors including earnings and financial condition of the
Company and market conditions.
Capital Structure
The Company's capitalization, including current maturities of long-term
debt, at December 31 is shown below:
1996 1995 1994
----- ----- -----
Common Equity..................................... 50.4% 48.6% 39.2%
Preferred Stock................................... 0.9 0.9 4.8
Long-term Debt (including current maturities) .... 48.7 50.5 56.0
------ ------ ------
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, 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
Earnings per share of common stock were $1.72, $1.72 and $1.77 for 1996,
1995 and 1994, respectively. The sales of the gathering and processing assets
and the Company's water division in 1995 had a significant positive earnings
effect in 1995 and impacted 1996 earnings by reducing operating margin, reducing
operating expenses, reducing interest charges and increasing investment income.
Electric gross margin (operating revenues less fuel and purchased power
expense) increased $23.3 million in 1996 as a result of retail load growth and
warmer than normal weather and increased off-system sales margin as a result of
improved wholesale power market conditions.
Electric gross margin decreased $37.9 million in 1995 from 1994 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. An offset to such decreases was the increase in
revenues resulting from retail load growth.
Gas gross margin (operating revenues less gas purchased for resale) was
unchanged from 1995. Higher off-system sales margin and higher retail sales
margin as a result of cooler than normal weather in 1996 were offset by the
absence of the gas gathering and processing margin in 1996 due to the sale of
the gas assets in 1995.
Gas gross margin decreased $16.4 million in 1995 from 1994 due to decreased
gas deliveries resulting from warmer than normal weather in 1995 and reduced
margin as a result of the sale of the gas assets in 1995.
28
Other operation and maintenance expenses ("O&M") decreased $.3 million in
1996 from 1995 due to the following: (i) lower production O&M expenses of $7.9
million as a result of reduced scheduled maintenance outages in 1996, decreased
down time in 1996 for refueling outages and lower property taxes in 1996, (ii) a
decrease of $6.3 million in gas production and products extraction expense
resulting from the gas assets sale in June 1995, (iii) lower pension and benefit
costs of $4.2 million as a result of an adjustment to the retiree's health care
costs and (iv) a decrease in water O&M expense of $3.0 million resulting from
the sale of the Company's water division in July 1995. Such decreases were
offset by higher administrative and general ("A&G") expense of $21.0 million due
to increased labor, increased office supplies and expense and higher outside
services.
Other O&M expenses decreased $12.3 million in 1995 from 1994 due to the
following: (i) a decrease of A&G expense of $7.5 million due to decreased
injuries and damages as a result of the recording of worker's compensation
liability in 1994 and a decrease in temporary office labor and postage expense,
(ii) a decrease in gas production and products extraction expense of $6.2
million resulting from the gas assets sale in 1995, (iii) a $4.1 million
decrease in production O&M expenses as a result of a reduction in scheduled
maintenance outage hours and (iv) a decrease in water O&M expense of $2.1
million resulting from the sale of the Company's water division in 1995. Such
decreases were offset by (i) higher A&G labor expense of $4.7 million and (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.
Depreciation and amortization expenses decreased $2.7 million from a year
ago as a result of the sale of the Company's water division and gas assets in
1995 and an adjustment recorded in 1996 for the over amortization of certain
intangible utility plant. Depreciation and amortization expenses for 1995
increased $6.7 million from 1994 as a result of the implementation of new
depreciation rates approved by the NMPUC in November 1994.
Net other income and deductions decreased $18.8 million from a year ago and
increased $20.3 million in 1995 from 1994. Significant 1996 items, net of taxes,
included the following: (i) a regulatory liability of $10.1 million, (ii) a $1.7
million write-down of certain assets related to the Company's natural gas
vehicle program and (iii) an additional accrual of $1.0 million for
environmental liabilities associated with the 1995 gas assets sale. Offsetting
such decreases was a curtailment gain of $8.0 million related to the change of
the Company's defined benefit pension plan and higher interest income of $7.6
million as a result of increased temporary investments in 1996 and the purchase
of the PVNGS LOBs.
Significant 1995 items, net of taxes, included the following: (i) a gain of
$12.8 million recognized from the gas assets sale, (ii) a gain of $6.4 million
recognized from the sale of the Company's water division, (iii) a $2.6 million
adjustment to the carrying costs related to gas take-or-pay settlement amounts,
(iv) a $1.9 million insurance recovery and (v) the $1.4 million related to
adjusting reclamation reserves for certain mining operations. 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) a
write-off of $3.0 million relating to gas take-or-pay settlement payments which
were not recoverable through rates, (ii) an additional provision for legal
expenses of $3.6 million and (iii) a gain and associated tax benefits of $6.1
million from the sale of generating facilities to UAMPS.
Net interest charges decreased $3.2 million and $12.7 million in 1996 and
1995, respectively, as a result of the retirement of $132.7 million of PVNGS
LOBs in March 1995. An offset to the 1996 decrease was higher short-term
interest charges resulting from short-term borrowings for the purchase of the
PVNGS LOBs and an interest assessment from the IRS. In addition, the 1995
decrease included the effect of the retirement of $45 million of first mortgage
bonds in April 1994.
29
Preferred stock dividend requirements decreased $3.1 million and $2.7
million in 1996 and 1995, respectively, as a result of the retirement of $64
million of preferred stock in August 1995.
OTHER ISSUES FACING THE COMPANY
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 $13.2 million
rate decrease. On February 13, 1997, the NMPUC issued a final order in the gas
rate case, ordering a rate decrease of $7.0 million. In ordering the rate
decrease, among other things, the NMPUC disallowed the recovery of certain
regulatory assets. The Company strongly disagrees with the NMPUC's final order
and filed an appeal with the New Mexico Supreme Court on February 17, 1997. The
Company has evaluated the impacts of the rate reduction and has established
appropriate reserves in its 1996 financial statements, pending the outcome of
the appeal.
NMPUC ORDER -- THE COMPANY'S JANUARY 1997 PGAC FACTOR VARIANCE REQUEST;
ORDER TO FILE NEW RETAIL ELECTRIC AND GAS RATE CASES
Due to rapidly rising gas supply costs in December 1996, PNMGS requested a
variance, on December 18, 1996, from the NMPUC to increase its gas cost factor
by more than 10% without a prior mandatory hearing. Pursuant to NMPUC rules,
PNMGS implemented the new gas cost factor with its January billing cycle. This
increase in gas cost along with increased gas consumption and longer billing
periods for some customers resulted in a substantial increase to customers'
bills. The NMPUC denied PNMGS' variance to increase the factor more than 10%
without a hearing and held public hearings to receive public comment and
testimony. These hearings began on January 22 and concluded on January 30, 1997.
The Company provided testimony regarding the higher gas costs.
The NMPUC issued a final order in this case on February 13, 1997. In the
order, the NMPUC imposed, but suspended, a fine of $2.2 million to the Company
due to an allegedly incorrect cost factor (too low) that was filed in November
1996. In addition, the NMPUC disallowed collection of $1.6 million of gas costs
and ordered an independent audit to be conducted to review the Company's PGAC
factor calculations for the period of December 1995 through January 1997. The
NMPUC also ordered the docketing of two new investigations. The first, which
requires a Company filing by March 15, 1997, will investigate whether or not the
Company should exit the merchant function in providing gas supplies to
customers. The second, will investigate the prudence of the Company's portfolio
strategies and purchase practices. In addition, the NMPUC ordered the Company to
file a new gas rate case by August 1, 1997, and also ordered the Company to file
an electric retail rate case by May 1, 1997.
In the order, the NMPUC accused the Company of intentionally filing an
inaccurate factor to avoid a hearing, thus, impairing the NMPUC's ability to
investigate rising gas prices. The Company strongly disagrees with the NMPUC's
final order and is evaluating its options, including rehearing and a possible
appeal to the New Mexico Supreme Court.
TRANSMISSION ISSUES
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
30
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. In 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 continued to work with the Navajo
Nation in 1996 to resolve this conflict.
The Company continues to assess its options but will not pursue 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.
FERC Transmission Issues
In April 1996, the Company filed a notice of change in rates for firm and
non-firm transmission services. The Company also filed two transmission service
tariffs and a market-based generation tariff. The Company requested that the
rate change filings, as well as the transmission and generation tariff filings,
be consolidated with four Section 206 complaint proceedings of four affected
customers, as well as a rate change proceeding related to the Company's
provision of firm transmission service to EPE. Seven dockets (the "consolidated
dockets") were consolidated for purposes of determining appropriate transmission
service rates.
In addition, two wholesale customers separately filed requests for
transmission service under Section 211 of the Federal Power Act in 1996. One of
these customers notified the Company of its intention to terminate certain
transmission service agreements and the Company filed notice of termination of
this transmission service agreement with the FERC.
Prior to the scheduled hearings in the case, the parties were able to reach
a negotiated settlement of the consolidated dockets, the transmission service
requests and the Company's market-based generation rate tariff. Certain
provisions of the Company's Open Access Transmission Tariff ("the Tariff") were
also incorporated into the settlement, leaving portions of the Tariff subject to
further FERC review. A stipulation on the settlement reached by the parties was
filed with the FERC on December 16, 1996. In accordance with the stipulated
agreement, the Company will refund approximately $3.7 million of revenues it
collected from the customers during the time their Section 206 complaints were
pending. In addition, the Company's firm wholesale transmission service revenues
will be reduced by approximately $1.6 million annually. The stipulation was
certified by the Administrative Law Judge to the FERC on January 22, 1997. The
Company anticipates that the FERC will take action on the stipulation before the
end of the second quarter of 1997. The Company does not anticipate any material
adverse impact on the Company's financial condition or results of operations
from the settlement agreement.
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.
31
Electric Operations
Santa Fe Station
The Company and the NMED have conducted investigations of the groundwater
contamination detected beneath the former Santa Fe Generating Station site to
determine the source of the contamination. The Company has been and is
continuing to cooperate with the NMED regarding site investigations and remedial
planning pursuant to a settlement agreement between the Company and the NMED. In
June 1996, the Company received a letter from the NMED, indicating that the NMED
believes the Company is the source of gasoline contamination in a municipal well
supplying the City of Santa Fe and groundwater underlying the Santa Fe Station.
Further, the NMED letter stated that the Company was required to proceed with
interim remediation of the contamination pursuant to the New Mexico Water
Quality Control Commission ("NMWQCC") regulations.
In July 1996, the Company filed an appeal with the NMWQCC protesting the
determination and directives contained in the NMED's June 1996 letter.
Subsequently, negotiation meetings were conducted between the Company and the
NMED for a resolution of the groundwater contamination issue.
On October 3, 1996, the Company and the NMED signed an Amendment to the
Settlement Agreement concerning the groundwater contamination. As part of the
Amendment, the Company agreed to spend approximately $1.2 million ("Settlement
Amount") for certain costs related to sampling, monitoring, and development and
implementation of a remediation plan. The remediation plan is to be developed
jointly by the Company and the NMED. Since the contamination affects a municipal
well supplying the City of Santa Fe, the cooperation of the City of Santa Fe
will also be sought in the development of the plan. The amended Settlement
Agreement does not, however, provide the Company with a full and complete
release from potential further liability for remediation of the groundwater
contamination. After the Company has expended the Settlement Amount, if the NMED
can establish through binding arbitration that the Santa Fe Station is the
source of the contamination, the Company could be required to perform further
remediation that is determined to be necessary. The Company continues to dispute
any contention that the Santa Fe Station is the source of the groundwater
contamination and believes that insufficient data exists to identify the sources
of groundwater contamination. The Company has completed an aquifer
characterization report and a groundwater quality report associated with the 40
day reactivation of the adjacent Santa Fe supply well in July and August of
1996. These reports strongly suggest the groundwater contamination does not
originate from the Santa Fe Station site and has been drawn under the site by
the pumping of the Santa Fe supply well. In addition, other urban wells in Santa
Fe are likely vulnerable to contamination from off-site sources. The Company is
working to provide a remedial approach plan by April 1997 in accordance with the
amended Settlement Agreement.
Person Station
The Company, in compliance with the NMED's 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 was assessed and results were
reported to the NMED. The Company 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 Permit, the Company posted a $5.1 million performance bond
with a trustee. The remediation program continues on schedule.
32
Gas Operations
Gas Wellhead Pit Remediation
The New Mexico Oil Conservation Commission issued an order, effective on
January 14, 1993, that affects the gas gathering facilities located in the San
Juan Basin in northwestern New Mexico. The BLM has issued a similar order. The
order prohibits the further discharge of fluids associated with the production
of natural gas into unlined earthen pits in specified areas (designated as
"vulnerable areas") in the San Juan Basin. The order also required the
submission of closure plans for the pits where further discharge was prohibited.
The Company has complied with the orders and has submitted and received approval
for pit closures from the New Mexico Oil Conservation Division ("OCD") and the
BLM.
These gas gathering facilities were sold to Williams on June 30, 1995. As a
part of the sale agreement, the Company agreed to cease discharge to unlined
earthen pits in designated vulnerable areas and to retain the responsibility for
pit closures for a stated period of time and to a stated dollar amount. The
Company has assessed the pits in accordance with OCD/BLM directives, and is now
in the process of closing pits and remediating them, if necessary, at wellhead
locations within the designated vulnerable areas. The Company has submitted a
groundwater management plan to the OCD and has received approval of the plan,
and is proceeding with delineation of groundwater contamination and, as
necessary, cleanup, in accordance with the approved plan. The Company will
address groundwater contamination within the dollar and time limitations imposed
by the sale agreement with Williams, and in accordance with the requirements of
the OCD.
In March 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. In 1995, the Company received a claim for
indemnification by Williams, the purchaser of the Company's gas gathering and
processing assets, for the environmental work required to comply with the
Jicarilla ordinance. The Company submitted a closure/remediation plan to the
Jicarilla, which was approved. The Company's remediation work pursuant to the
plan commenced in mid-1996, and the costs of remediation are being charged
against the $10.6 million indemnification cap contained in the purchase and sale
agreement between the Company and Williams. The Company met the requirement for
closing and remediating pits within the environmentally sensitive area by
December 1996, and anticipates closing and remediating all other pits associated
with the gas gathering and processing assets by the December 1998 deadline
specified in the ordinance.
COAL FUEL SUPPLY
In July 1996, the Company was notified by BHP, fuel supplier to the SJGS,
that the Navajo Nation has proposed to select certain properties within the San
Juan and La Plata Mines (the "mining properties") pursuant to the Navajo-Hopi
Land Settlement Act of 1974 (the "Act"). The mining properties are operated by
BHP under leases from the BLM and comprise a portion of the fuel supply for
SJGS. An administrative appeal by BHP is pending. In the appeal, BHP expressed
concern that transfer of the mining properties to the Navajo Nation may subject
the mining operations to taxation and additional regulation by the Navajo
Nation, both of which could increase the price of coal that might potentially be
passed on to SJGS through the existing Coal Sale Agreement. A stay of all
actions by the BLM has been ordered by the Interior Board of Land Appeals
pending resolution of the issues on appeal. The Company is monitoring closely
the appeal and other developments on this issue and will continue to assess
potential impacts to SJGS and the Company's operations. Currently, the Company
is unable to predict the ultimate outcome of this matter but does not believe it
will have a material adverse effect on the Company's financial condition or
results of operations.
33
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 facilities.
The Company provides service to the area which contributed 43.0% of the
Company's total 1996 electric operating revenues. The absence of a franchise
does not change the Company's right and obligation to serve those customers
under state law. The Company continues to collect and pay franchise fees to the
City.
In 1991, 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.
In October 1996, a local news media reported that the Mayor of the City had
met with two NMPUC Commissioners about his concern that state efforts regarding
retail wheeling were proceeding too slowly and that he was evaluating the City's
option to implement Article XV of the City Charter requiring competitive bids
for electric franchises. The Company has taken the position that the NMPUC does
not have authority to order retail wheeling. (See "OVERVIEW -- Restructuring the
Electric Utility Industry".)
Although a measure designed to start municipalization activities in
Albuquerque was defeated by the City Council, the City continues to maintain its
options by advocating industry restructuring and monitoring the municipalization
activities of the City of Las Cruces. In September 1996, the Court agreed to
decide the question. In August 1996, in an action brought seeking condemnation,
the Federal Magistrate Court ruled that the City of Las Cruces had failed to
prove that condemnation would not materially impair service by El Paso to
customers outside Las Cruces and certified the question of whether state law
allows condemnation of an electric utility to the Court.
The Company filed a "friend of the Court" brief in support of El Paso. The
Court heard oral argument on February 11, 1997, and took the case under
advisement. The Company is currently unable to predict the outcome of these
matters, but does not anticipate any material impact on the Company's financial
condition or results of operation.
ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION
As described in note 3 to the consolidated financial statements, the
Company complies with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 71, Accounting for the Effects of Certain Types of
Regulation. In the event the Company determines that it no longer meets the
criteria for following SFAS No. 71, the accounting impact would be an
extraordinary, non-cash charge to operations of an amount that could be
material. Criteria that may give rise to the discontinuance of SFAS No. 71
include (1) increasing competition that restricts the Company's ability to
establish prices to recover specific costs and (2) a significant change in the
manner in which rates are set by regulators from cost-based regulation to
another form of regulation. The Company periodically reviews these criteria to
ensure that the continuing application of SFAS No. 71 is appropriate. Based on a
current evaluation of the various factors and conditions that are expected to
impact future cost recovery, the Company believes that its regulatory assets
(net of related regulatory liabilities), including those related to generation,
are probable of future recovery.
34
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 1996 dollars and
including installation and replacement power costs) would be approximately $15.3
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. However, a formal decision as to when to
replace the steam generators has not been made by the PVNGS participants.
ACCOUNTING STANDARDS
Environmental Remediation Liabilities. Effective January 1, 1997, the
Company will adopt the provisions for Statement of Position ("SOP") 96-1,
Environmental Remediation Liabilities. This Statement provides authoritative
guidance for recognition, measurement, display and disclosure of environmental
remediation liabilities in financial statements. The Company previously recorded
environmental liabilities of $24.0 million for its retired fossil-fueled plants.
Approximately $13.7 million of the $24.0 million has been expended through
December 31, 1996. The Company does not expect that the adoption of SOP 96-1
will have a material impact on the Company's financial position or results of
operations.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. In June 1996, FASB issued SFAS No. 125. This
Statement establishes, among other things, new criteria for determining whether
a transfer of financial assets should be accounted for as a sale or as a pledge
of collateral in a secured borrowing. SFAS No. 125 also establishes new
accounting requirements for pledged collateral. SFAS No. 125 is effective for
all transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively, and earlier or retroactive application is not permitted.
Nuclear Plant Decommissioning. The staff of the SEC has questioned certain
of the current accounting practices of the electric utility industry regarding
the recognition, measurement and classification of decommissioning costs for
nuclear generating stations in financial statements of electric utilities. In
response to these questions, the FASB has added a project to its agenda to
review 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 1996, and the estimated
cost for decommissioning could be recorded as a liability (rather than as
accumulated depreciation), with recognition of an increase in the cost of the
related nuclear power plant. The Company does not believe that such changes, if
required, would have a material adverse effect on results of operations due to
the fact that decommissioning costs related to its two leased nuclear units are
currently being recovered in rates.
35
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their companies without fear of
litigation so long as those statements are identified as forward-looking and are
accompanied by meaningful, cautionary statements identifying important factors
that could cause actual results to differ materially from those projected in the
statement. Accordingly, the Company hereby identifies the following important
factors which could cause the Company's actual financial results to differ
materially from any such results which might be projected, forecasted, estimated
or budgeted by the Company in forward-looking statements: (i) adverse actions of
utility regulatory commissions, (ii) utility industry restructuring, (iii)
failure to recover stranded assets, (iv) failure to obtain new customers or
retain existing customers, (v) inability to carry out marketing and sales plans,
(vi) adverse impacts resulting from environmental regulations, (vii) loss of
favorable fuel supply contracts, (viii) failure to obtain water rights and
rights-of-way, (ix) operational and environmental problems at generating
stations and (x) failure to maintain adequate transmission capacity.
Many of the foregoing factors discussed have been addressed in the
Company's previous filings with the SEC pursuant to the Securities Exchange Act
of 1934. The foregoing review of factors pursuant to the Act should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of the Act.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
--------
Management's Responsibility for Financial Statements.................. F-1
Report of Independent Public Accountants ............................. F-2
Financial Statements:
Consolidated Statements of Earnings ............................... F-3
Consolidated 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 (the "Company")
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, 1996 and 1995, and the related
consolidated statements of earnings, retained earnings (deficit), and cash flows
for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
February 13, 1997
F-2
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands except per share amounts)
Operating Revenues:
Electric..................................................$ 645,639 $ 584,284 $ 621,794
Gas....................................................... 227,301 217,985 269,510
Energy Services........................................... 10,446 -- --
Water..................................................... -- 6,196 13,407
---------- --------- ----------
Total operating revenues..................................... 883,386 808,465 904,711
---------- --------- ----------
Operating Expenses:
Fuel and purchased power.................................. 178,807 140,752 140,411
Gas purchased for resale.................................. 113,059 94,299 129,381
Other operation expenses.................................. 263,432 257,627 264,391
Maintenance and repairs................................... 49,694 55,809 61,386
Depreciation and amortization............................. 78,116 80,865 74,137
Taxes, other than income taxes............................ 34,864 35,531 39,717
Income taxes.............................................. 39,395 30,194 44,210
Total operating expenses............................... 757,367 695,077 753,633
---------- --------- ----------
Operating income....................................... 126,019 113,388 151,078
---------- --------- ----------
Other Income and Deductions:
Other..................................................... 2,367 40,707 (3,512)
Income tax benefit (expense).............................. (1,099) (20,599) 3,339
Net other income and deductions........................ 1,268 20,108 (173)
---------- --------- ----------
Income before interest charges......................... 127,287 133,496 150,905
---------- --------- ----------
Interest Charges:
Interest on long-term debt................................ 49,009 52,637 65,511
Other interest charges.................................... 5,698 5,297 5,341
Allowance for borrowed funds used during construction..... -- -- (265)
---------- --------- ----------
Net interest charges................................... 54,707 57,934 70,587
---------- --------- ----------
Net Earnings ................................................ 72,580 75,562 80,318
Preferred Stock Dividend Requirements........................ 586 3,714 6,433
---------- --------- ----------
Net Earnings Available for Common Stock......................$ 71,994 $ 71,848 $ 73,885
========== ========== ==========
Average Number of Common Shares Outstanding.................. 41,774 41,774 41,774
========== ========== ==========
Net Earnings per Share of Common Stock.......................$ 1.72 $ 1.72 $ 1.77
========== ========== ==========
Dividends Paid per Share of Common Stock.....................$ 0.36 $ -- $ --
========== ========== ==========
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,
--------------------------------
1996 1995 1994
--------- -------- ----------
(In thousands)
Balance at Beginning of Year.................. $ 25,243 $(46,006) $ (120,848)
Net earnings ................................. 72,580 75,562 80,318
Redemption of cumulative preferred stock...... -- (599) 957
Dividends:
Cumulative preferred stock dividends....... (586) (3,714) (6,433)
Common stock dividends .................... (20,052) -- --
--------- -------- ----------
Balance at End of Year........................ $ 77,185 $ 25,243 $ (46,006)
========= ======== ==========
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
As of December 31,
-----------------------
1996 1995
----------- -----------
(Dollars in thousands)
Utility Plant, at original cost except PVNGS:
Electric plant in service................................ $ 1,918,238 $ 1,871,897
Gas plant in service..................................... 424,827 419,346
Energy services plant in service......................... 1,241 2,261
Common plant in service.................................. 40,005 35,222
Plant held for future use................................ 639 639
----------- -----------
2,384,950 2,329,365
Less accumulated depreciation and amortization........... 937,228 892,727
----------- -----------
1,447,722 1,436,638
Construction work in progress............................ 76,038 106,892
Nuclear fuel, net of accumulated amortization
of $20,413 and $26,395 ................................ 28,933 30,904
----------- -----------
Net utility plant..................................... 1,552,693 1,574,434
----------- -----------
Other Property and Investments:
Non-utility property, net of accumulated depreciation
of $1,774 and $1,547................................... 3,434 4,063
Other investments, at cost............................... 250,834 29,370
----------- -----------
Total other property and investments.................. 254,268 33,433
----------- -----------
Current Assets:
Cash..................................................... 11,125 4,228
Temporary investments, at cost........................... 9,128 95,972
Receivables, net of allowance for uncollectible
accounts of $709 and $569.............................. 197,025 127,642
Income taxes receivable.................................. 18,825 4,792
Fuel, materials and supplies, at average cost............ 41,260 44,660
Gas in underground storage, at average cost.............. 2,679 5,431
Other current assets..................................... 6,632 7,186
----------- -----------
Total current assets................................ 286,674 289,911
----------- -----------
Deferred Charges............................................ 136,679 137,891
----------- -----------
$ 2,230,314 $ 2,035,669
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock outstanding-- 41,774,083 shares.......... $ 208,870 $ 208,870
Additional paid-in capital............................ 470,358 470,358
Excess pension liability, net of tax.................. (2,102) (1,623)
Retained earnings since January 1, 1989............... 77,185 25,243
----------- -----------
Total common stock equity........................... 754,311 702,848
Cumulative preferred stock without mandatory redemption
requirements........................................... 12,800 12,800
Long-term debt, less current maturities.................. 713,919 728,843
----------- -----------
Total capitalization................................ 1,481,030 1,444,491
----------- -----------
Current Liabilities:
Short-term debt.......................................... 100,400 --
Accounts payable......................................... 130,661 93,666
Dividends payable........................................ 5,159 --
Current maturities of long-term debt..................... 14,970 146
Accrued interest and taxes............................... 23,356 26,856
Other current liabilities................................ 25,477 44,699
----------- -----------
Total current liabilities........................... 300,023 165,367
----------- -----------
Deferred Credits:
Accumulated deferred investment tax credits.............. 62,258 66,734
Accumulated deferred income taxes........................ 110,266 78,829
Other deferred credits................................... 276,737 280,248
----------- -----------
Total deferred credits.............................. 449,261 425,811
----------- -----------
Commitments and Contingencies (notes 2 through 12)
$ 2,230,314 $ 2,035,669
=========== ===========
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,
---------------------------------
1996 1995 1994
--------- ---------- ----------
(In thousands)
Cash Flows From Operating Activities:
Net earnings ................................................... $ 72,580 $ 75,562 $ 80,318
Adjustments to reconcile net earnings to net cash flows from
operating activities:
Depreciation and amortization................................ 91,340 93,125 90,656
Accumulated deferred investment tax credit................... (4,476) (4,830) (6,898)
Accumulated deferred income taxes............................ 31,436 1,622 23,069
Gain on sale of utility property............................. (309) (39,050) (6,576)
Write-down of natural gas vehicle program.................... 2,810 1,445 --
Curtailment gain on defined benefit pension plan............. (13,316) -- --
Changes in certain assets and liabilities:
Receivables................................................ (83,416) 795 23,868
Fuel, materials and supplies............................... 5,795 (26,505) (3,126)
Deferred charges........................................... 5,190 6,731 8,427
Accounts payable........................................... 36,930 (11,527) (11,893)
Accrued interest and taxes................................. (3,500) (1,218) (1,919)
Deferred credits........................................... 12,655 29,185 (5,418)
Other...................................................... (9,279) 5,645 (3,604)
Other, net................................................... 7,278 16,095 14,160
--------- ---------- ----------
Net cash flows from operating activities................ 151,718 147,075 201,064
--------- ---------- ----------
Cash Flows From Investing Activities:
Utility plant additions......................................... (88,904) (106,627) (119,284)
Utility plant sales............................................. 333 206,482 39,562
Other property sales............................................ 702 (801) (1,307)
Net increase in other property and investments.................. (14,706) -- --
Purchase of PVNGS lease obligation bonds........................ (208,446) -- --
Decrease (increase) in temporary investments, net............... 86,844 (21,451) (26,671)
--------- ---------- ----------
Net cash flows from investing activities................ (224,177) 77,603 (107,700)
--------- ---------- ----------
Cash Flows From Financing Activities:
Redemptions of PVNGS lease obligation bonds .................... -- (132,663) --
Redemptions and repurchases of preferred stock.................. -- (64,175) (7,711)
Redemption of first mortgage bonds.............................. -- -- (45,000)
Bond redemption premium and costs............................... (5,158) (505) (2,732)
Proceeds from asset securitization.............................. 100,400 18,758 --
Repayments of long-term debt.................................... (326) (57,768) (31,002)
Dividends paid.................................................. (15,560) (5,126) (6,400)
--------- ---------- ----------
Net cash flows from financing activities................ 79,356 (241,479) (92,845)
--------- ---------- ----------
Increase (Decrease) in Cash........................................ 6,897 (16,801) 519
Cash at Beginning of Year.......................................... 4,228 21,029 20,510
--------- ---------- ----------
Cash at End of Year................................................ $ 11,125 $ 4,228 $ 21,029
========= ========== ==========
Supplemental cash flow disclosures:
Interest paid................................................... $ 55,480 $ 63,366 $ 70,720
========= ========== ==========
Income taxes paid............................................... $ 31,617 $ 52,405 $ 20,000
========= ========== ==========
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,
------------------------
1996 1995
----------- -----------
Common Stock Equity:
Common Stock, par value $5 per share............................................ $ 208,870 $ 208,870
Additional paid-in capital...................................................... 470,358 470,358
Excess pension liability, net of tax............................................ (2,102) (1,623)
Retained earnings since January 1, 1989......................................... 77,185 25,243
---------- ------------
Total common stock equity.................................................. 754,311 702,848
---------- ------------
Shares
Outstanding
at Current
Stated December 31, Redemption
Value 1996 Price
------- ------------ -----------
Cumulative Preferred Stock:
Without mandatory redemption
requirements:
1965 Series, 4.58%.................. $100.00 128,000 $102.00 12,800 12,800
------------ ----------- ----------
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% 42,876 43,063
2004 through 2007................... 8 1/8% to 9 1/8% 43,276 43,421
2008................................ % 54,374 54,374
Pollution control revenue bonds:
2007 through 2026................... 5.7% to 7 3/4% 537,045 537,045
2022................................ Variable rate 37,300 37,300
---------- -----------
Total first mortgage bonds........ 729,521 729,853
Other, including unamortized
premium and (discount), net......... (632) (864)
---------- -----------
Total long-term debt.............. 728,889 728,989
Less current maturities................ 14,970 146
---------- -----------
Long-term debt, less current
maturities........................ 713,919 728,843
---------- -----------
Total Capitalization...................... $1,481,030 $ 1,444,491
========== ===========
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, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
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. The Company is also engaged in the operation
and management of the City of Santa Fe's Water System and is pursuing new
business activities in the energy and utility related services area.
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").
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual recorded amounts could differ from those estimated.
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 . Utility plant includes certain electric assets not subject to
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, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies (Continued)
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:
1996 1995 1994
------------ ----------- -----------
Electric plant..................... 3.32% 3.32% 3.01%
Gas plant.......................... 3.27% 3.21% 3.15%
Water plant (1).................... -- -- 2.68%
Common plant (2)................... -- -- 4.94%
(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.
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, 1996, 1995 and 1994
(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
resources excluded from NMPUC retail rates 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.
Investments in Debt and Equity Securities
Certain of the Company's other investments are classified as
Held-to-Maturities under the terms of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", and measured at amortized cost in
the statement of financial position.
F-10
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies (Continued)
Accounting Standards
Environmental Remediation Liabilities. Effective January 1, 1997, the
Company will adopt the provisions of Statement of Position ("SOP") 96-1,
Environmental Remediation Liabilities. This Statement provides authoritative
guidance for recognition, measurement, display and disclosure of environmental
remediation liabilities in financial statements. The Company previously recorded
environmental liabilities of $24.0 million for its retired fossil-fueled plants.
Approximately $13.7 million of the $24.0 million has been expended as of
December 31, 1996. The Company does not expect that the adoption of SOP 96-1
will have a material impact on the Company's financial position or results of
operations.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. In June 1996, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. This Statement establishes,
among other things, new criteria for determining whether a transfer of financial
assets should be accounted for as a sale or as a pledge of collateral in a
secured borrowing. SFAS No. 125 also establishes new accounting requirements for
pledged collateral. SFAS No. 125 is effective for all transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively, and earlier or retroactive application
is not permitted.
Nuclear Plant Decommissioning. The staff of the Securities and Exchange
Commission has questioned certain of the current accounting practices of the
electric utility industry regarding the recognition, measurement and
classification of decommissioning costs for nuclear generating stations in
financial statements of electric utilities. In response to these questions, the
FASB has added a project to its agenda to review 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 1996, and the estimated cost for decommissioning could be
recorded as a liability (rather than as accumulated depreciation), with
recognition of an increase in the cost of the related nuclear power plant. The
Company does not believe that such changes, if required, would have a material
adverse effect on results of operations due to the fact that decommissioning
costs related to its two leased nuclear units are currently being recovered in
rates.
(2) Risks and Uncertainties
The electric utility industry continues to be in 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
levels continue to consider how to promote competition among suppliers of
electricity and how to provide customers with choice among suppliers.
F-11
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(2) Risks and Uncertainties (Continued)
At the state level, the Integrated Water and Resource Planning Committee
of the New Mexico State Legislature (the "IWRPC") held hearings during 1996
which focused on the issues related to restructuring of the electric industry in
New Mexico. The Company participated extensively in these hearings and, at the
invitation of the IWRPC, submitted draft legislation to be used as a starting
point for the various parties to consider regarding the electric industry
restructuring. The draft legislation would allow an electric utility to recover
all of its prudently incurred stranded costs and also provide a path for
business flexibility. The AG testified that retail competition should not be
introduced at this time but, if it is, there should be independent ownership of
generation, transmission and distribution facilities, due to market power
concerns. At its November 1996 meeting, the IWRPC voted not to recommend
restructuring legislation in the 1997 session but instead to recommend
continuation of the IWRPC and a study of the tax effects of restructuring. The
IWRPC also sent a letter to the NMPUC calling for no restructuring to be
undertaken by the NMPUC without legislative approval. The New Mexico legislative
session is currently in progress and the Company will closely monitor any
legislative action regarding restructuring of the electric utility industry.
During 1996, the NMPUC conducted a series of workshop meetings in its
"Investigation of Restructuring of Regulation of the Electric Industry in New
Mexico". The Company actively participated in these workshops and presented the
Company's position on various matters related to industry restructuring. The
Company provided data and analysis in the areas of market structure, measurement
and collection of stranded costs, market power, potential changes in Company
structure and issues related to the transition phase. In conjunction with the
workshop meetings, the NMPUC ordered all utilities under its jurisdiction to
file their estimates of stranded costs, absent any recovery method being
adopted, based on the Texas Public Utility Commission Economic Cost Over Market
("ECOM") model. The Company, in its filing, presented two methodologies: (i)
using the ECOM model, the Company's stranded cost estimates run from $657
million for a 1998 full retail access case to $119 million for a 2002 full
retail access case, and (ii) using a second methodology, based upon the
difference between the Company's costs of existing generation and the costs of
new combined cycle and combustion turbine units to serve the same load, the
Company's costs above the level of new gas units were estimated at $748 million
for a 1998 full retail access case to $327 million for a 2002 full retail access
case. The Company advised the NMPUC that the results of the ECOM model are
highly sensitive to various assumptions, primarily projections of future gas
prices. To date, the NMPUC has not acted on the requested information.
F-12
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(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:
1996 1995
--------- ---------
(In thousands)
Deferred Income Taxes............................ $ 71,682 $ 71,094
Gas Take-or-Pay Costs............................ 36,335 50,870
Purchased Gas Adjustment Clause.................. 28,873 931
Gas Imputed Revenues............................. 10,362 8,113
Loss on Reacquired Debt.......................... 7,850 6,377
Gas Reservation Fees............................. 7,029 5,622
Deferred Customer Expense on Gas Assets Sale..... 5,260 2,755
Gas Retirees' Health Care Costs.................. 4,437 4,437
Proposed Transmission Line Costs................. 3,111 --
Gas Rate Case Costs.............................. 1,571 1,100
Other............................................ 598 422
--------- ---------
Subtotal.................................... 177,108 151,721
--------- ---------
Deferred Income Taxes............................ (56,961) (60,815)
Gas Regulatory Reserve........................... (24,614) (7,328)
Customer Gain on Gas Assets Sale................. (22,230) (31,559)
PVNGS Prudence Audit............................. (6,937) (7,313)
Settlement Due Customers......................... (4,072) (4,101)
Revenue Subject to Refund........................ (3,594) (382)
Gain on Reacquired Debt.......................... (559) (669)
--------- ---------
Subtotal (118,967) (112,167)
--------- ---------
Net Regulatory Assets....................... $ 58,141 $ 39,554
========= =========
As of December 31, 1996, substantially all of the Company's regulatory
assets and regulatory liabilities are being recovered in rates charged to
customers or have been addressed in a regulatory proceeding. 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-13
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(3) Regulatory Assets and Liabilities (Continued)
Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of.
This statement imposes a stricter criterion for regulatory assets by requiring
that such assets be probable of future recovery at each balance sheet date.
Based on the current regulatory structure in which the Company operates,
adoption of this standard did not have a material impact on the Company's
financial position or results of operations. However, the Company's ability to
meet the criterion may change in the future as competitive factors influence
wholesale and retail pricing in this industry.
(4) Capitalization
Changes in common stock, additional paid-in capital and cumulative
preferred stock are as follows:
Cumulative Preferred Stock
----------------------------------------------
Without Mandatory With Mandatory
Redemption Redemption
Common Stock Requirements Requirements
----------------------------- ---------------------- ----------------------
Number Additional Aggregate Aggregate
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, 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
and 1996........................ 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.
On December 31, 1996, the Company's Board of Directors ("Board") declared
a quarterly cash dividend of 12 cents per share of common stock payable February
21, 1997 to shareholders of record as of February 3, 1997. This will be the
fourth quarterly dividend to the Company's common shareholders since the Company
reinstated its common stock dividend in May 1996.
On September 16, 1996, the Company implemented a dividend reinvestment
and stock purchase plan for investors, including customers and employees. The
plan, called PNM Direct, also includes safekeeping services and automatic
investment features. Initially, the Company's stock will be purchased in the
open market to meet plan requirements.
F-14
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(4) Capitalization (Continued)
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.
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.
The aggregate amounts (in thousands) of maturities for 1997 through 2001
on long-term debt outstanding at December 31, 1996 are as follows:
1997.............................................................. $ 14,970
1998.............................................................. $ 350
1999.............................................................. $ 12,030
2000.............................................................. $ 1,050
2001.............................................................. $ 16,038
Revolving Credit Facility and Other Credit Facilities
At December 31, 1996, the Company has a $100 million revolving credit
facility (the "Facility") with an expiration date of June 30, 1998. The Company
must pay commitment fees of 3/10% per year on the total amount of the Facility.
The Company expects to renew the Facility before its expiration date. The
Company also has a $100 million credit facility, which expires on May 20, 2001,
and is collateralized by the Company's electric and gas customer accounts
receivable and certain amounts being recovered from gas customers relating to
certain gas contract settlements. As of December 31, 1996, the Company has
$110.6 million of available liquidity arrangements, consisting of $100 million
from the Facility and $10.6 million from local lines of credit.
Off-Balance Sheet Items
Although the PVNGS LOBs are off-balance sheet debt, these bonds are
included in the calculation of the Company's debt to equity ratio as well as
various financial coverage ratios by the major rating agencies. The purchase of
the PVNGS LOBs is treated by the rating agencies as a defeasance of the bonds
thereby resulting in an improvement to these ratios. The purchase of the PVNGS
LOBs has also increased earnings in the form of interest income.
F-15
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(5) Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments
(including current maturities) at December 31, is as follows:
1996 1995
------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(In thousands)
Long-Term Debt.................. $728,889 $731,358 $728,989 $730,337
Investment in PVNGS LOBs........ $212,979 $211,327 -- --
Fair value is based on market quotes provided by the Company's investment
bankers.
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.
F-16
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(6) Income Taxes
Income taxes consist of the following components:
1996 1995 1994
------- ------- -------
(In thousands)
Current Federal income tax........................... $14,815 $45,940 $24,243
Current state income tax............................. 2,847 5,864 --
Deferred Federal income tax.......................... 22,372 (3,212) 15,449
Deferred state income tax............................ 4,936 7,031 8,077
Amortization of accumulated investment tax credits... (4,476) (4,442) (4,701)
Recognition of accumulated deferred investment tax
credits relating to sales of utility property .... -- (388) (2,197)
------- ------- --------
Total income taxes................................ $40,494 $50,793 $40,871
Charged to operating expenses........................ $39,395 $30,194 $44,210
Charged (credited) to other income and deductions.... 1,099 20,599 (3,339)
------- ------- --------
Total income taxes ............................... $40,494 $50,793 $40,871
======= ======= =======
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:
1996 1995 1994
------- ------- -------
(In thousands)
Federal income tax at statutory rates................$39,576 $44,224 $42,417
Investment tax credits............................... (4,476) (4,442) (4,701)
Depreciation of flow-through items................... 519 723 1,112
Gains on the sale and leaseback of PVNGS
Units 1and 2...................................... (527) (527) (527)
State income tax..................................... 5,192 7,146 5,222
Gains on sale of utility property.................... -- 3,090 (2,139)
Other................................................ 210 579 (513)
------- ------- --------
Total income taxes ...............................$40,494 $50,793 $40,871
======= ======= =======
F-17
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(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:
1996 1995 1994
------- -------- ---------
(In thousands)
Deferred fuel costs.............................. $ 8,234 $ (3,990) $ (1,945)
Depreciation and cost recovery................... 18,048 12,730 22,118
Loss provision for the M-S-R power purchase
contract....................................... -- 3,497 5,632
Contributions in aid of construction............. (4,053) (4,308) (5,055)
Alternative minimum tax in excess of regular
tax............................................ (1,052) (26,002) (24,100)
Net operating losses utilized ................... -- 55,217 35,077
PVNGS decommissioning............................ 537 (2,321) (2,445)
Gains on sale of utility property................ -- (29,868) (8,421)
Contribution to 401(h) plan...................... (510) (885) 1,204
Regulatory liability............................. (6,651) -- --
Curtailment gain (pension plan).................. 5,272 -- --
Transmission project cost........................ 4,898 (3,177) (792)
Other............................................ 2,585 2,926 2,253
-------- -------- ---------
Net deferred taxes provided................... $27,308 $ 3,819 $ 23,526
======= ======== =========
The components of the net accumulated deferred income tax liability
were:
1996 1995
-------- --------
(In thousands)
Deferred Tax Assets:
Alternative minimum tax credit carryforward.......... $ 67,681 $ 66,628
Nuclear decommissioning.............................. 16,303 14,023
Regulatory liabilities............................... 54,430 60,070
Other................................................ 48,944 45,403
-------- --------
Total deferred tax assets......................... $187,358 $186,124
-------- --------
Deferred Tax Liabilities:
Depreciation......................................... $179,430 $168,562
Investment tax credit................................ 62,258 66,734
Fuel costs........................................... 33,038 24,804
Regulatory assets.................................... 69,151 70,348
Other................................................ 16,005 1,239
-------- --------
Total deferred tax liabilities.................... 359,882 331,687
-------- --------
Accumulated deferred income taxes, net.................. $172,524 $145,563
======== ========
F-18
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(6) Income Taxes (Continued)
The following table reconciles the change in the net accumulated deferred
income tax liability to the deferred income tax expense included in the
statement of earnings for the period:
Net change in deferred income tax liability per above table....... $ 26,961
Change in tax effects of income tax related regulatory assets
and liabilities............................................ (4,443)
Tax effect of excess pension liability............................ 314
--------
Deferred income tax expense for the period........................ $ 22,832
========
The Company has no net operating loss carryforwards as of December 31,
1996.
(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:
1996 1995 1994
--------- -------- --------
Service cost................................. $ 8,540 $ 6,770 $ 8,121
Interest cost................................ 20,546 18,332 17,589
Actual loss (return) on plan assets.......... (31,211) (42,148) 1,079
Net amortization and deferral................ 9,577 23,295 (18,731)
--------- -------- --------
et periodic pension cost.................... 7,452 6,249 8,058
Curtailment gain............................. (13,317) -- --
--------- -------- --------
Total pension expense (income)............... $ (5,865) $ 6,249 $ 8,058
========= ======== ========
F-19
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(7) Employee and Post-Employment Benefits (Continued)
In December 1996, the Company's board of directors approved changes to
the Company's defined benefit pension plan and implementation of a defined
contribution plan no later than January 1, 1998. As a result, the Company
recorded a curtailment gain of approximately $13.3 million in the financial
statements for the year ended December 31, 1996.
The following sets forth the plan's funded status and amounts (in
thousands) at December 31:
1996 1995
-------- --------
Vested benefits............................................ $233,687 $222,501
Non-vested benefits........................................ 13,470 10,556
-------- --------
Accumulated benefit obligation............................. 247,157 233,057
Effect of future compensation levels....................... 11,894 46,889
-------- --------
Projected benefit obligation............................... 259,051 279,946
Fair value of plan assets.................................. 273,981 246,670
-------- --------
Projected benefit obligation in excess of (less than)
assets................................................... (14,930) 33,276
Unrecognized prior service cost............................ (180) (214)
Net unrecognized loss from past experience different
from assumed and the effects of changes in assumptions... (5,814) (41,185)
Unamortized asset at transition, being amortized through
the year 2002............................................ 5,814 6,978
-------- --------
Accrued pension asset...................................... $(15,110) $ (1,145)
======== ========
The weighted average discount rate used to measure the projected benefit
obligation was 7.75% and 7.50% for 1996 and 1995, respectively, and the expected
long-term rate of return on plan assets was 8.75% for 1996 and 1995. The rate of
increase in future compensation levels based on age-related scales was 4.1% for
1996 and 1995.
F-20
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(7) Employee and Post-Employment Benefits (Continued)
Other Postretirement Benefits
The Company provides medical and dental benefits to eligible retirees.
Currently, retirees are offered the same benefits as active employees after
reflecting Medicare coordination. The components of postretirement benefit cost
(in thousands) are as follows:
1996 1995 1994
------- ------- ------
Service cost..................................... $ 1,449 $ 1,869 $1,389
Interest cost.................................... 4,478 4,962 3,250
Actual loss (return) on plan assets.............. (1,208) (2,726) 100
Transition obligation amortization............... 1,817 1,817 1,817
Net amortization and deferral.................... (159) 2,498 (295)
------- ------- ------
Total postretirement benefit expense............. $ 6,377 $ 8,420 $6,261
======= ======= ======
The following sets forth the plan's funded status and amounts (in
thousands) at December 31:
1996 1995
-------- --------
Accumulated benefit obligations for:
Retirees.............................................. $ 25,237 $ 29,088
Fully eligible employees.............................. 15,375 7,144
Active employees...................................... 17,787 39,854
-------- --------
Accumulated benefit obligation........................... 58,399 76,086
Fair value of plan assets................................ 20,930 15,600
--------- ---------
Funded status............................................ (37,469) (60,486)
Net unrecognized loss.................................... 2,416 22,196
Unrecognized transition obligation (being amortized
through the year 2012)................................. 29,074 30,891
--------- ---------
Accrued postretirement liability......................... $ (5,979) $ (7,399)
======== ========
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 7.75% and 7.50% for 1996 and 1995, respectively, and the expected
long-term rate of return on plan assets was 8.75% for 1996 and 1995. The health
care cost trend rate was 8.0%, 8.0% and 7.5% for 1996, 1995 and 1994,
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, 1996 by approximately $10.4 million and the aggregate service
and interest cost components of net periodic postretirement benefit cost for
1996 by approximately $1.1 million. The health care cost trend rate was expected
to decrease to 6.0% by 2010 and to remain at that level thereafter.
F-21
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(7) Employee and Post-Employment Benefits (Continued)
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, 1996, was $18.3 million, of which the accumulated
and vested benefit obligation was $17.4 million. As of December 31, 1996, the
Company has recognized an additional liability of $2.1 million for the amount of
unfunded accumulated benefits in excess of accrued pension costs. The net
periodic pension cost for 1996, 1995 and 1994 was $2.1 million, $2.0 million and
$2.2 million, respectively. In 1989, the Company established an irrevocable
grantor trust in connection with the executive retirement program. Under the
terms of the trust, the Company may, but is not obligated to, provide funds to
the trust, which was established with an independent trustee, to aid it in
meeting its obligations under such program. Funds in the amount of approximately
$10.1 million (fair market value of $13.9 million) are presently in trust. No
additional funds have been provided to the trust since 1989.
Performance Stock Plan
The Company has a non-qualifying stock option plan, covering a group of
management employees. Options are granted at the fair market value of the shares
on the date of the grant. Options granted through December 31, 1995, vested on
June 30, 1996, have an exercise term of up to 10 years. All subsequent awards
granted after December 31, 1995, shall vest three years from the grant date of
the awards and the maximum number of options are five million shares through
December 31, 2000. In addition, the Company has a Director Restricted Stock
Retainer Plan. The number of option shares granted in 1996 under the restricted
stock retainer plan was 4,000 shares with an exercise price of $5.50. No options
under the restricted stock retainer plan were exercised during 1996.
The option price of each option grant is determined on the date of grant
using the Black-Scholes option-pricing model with the following average
assumptions used for grants in 1995 and 1996, respectively: dividend yield of
2.7% and 2.4%; expected volatility of 20% and 18%; risk-free interest rates of
5.5% and 5.59%; and expected lives of four years.
The Company applies APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its plan. Accordingly,
no compensation cost has been recognized for its fixed stock option plan. Had
compensation cost for the Company's stock based compensation plan been
determined consistent with SFAS No. 123, Accounting for Stock-Based
Compensation, the effect on the Company's pro forma net income and pro forma
earnings per share would not be material.
F-22
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(7) Employee and Post-Employment Benefits (Continued)
A summary of the status of the Company's fixed stock option plan
(Performance Stock Plan) at December 31, 1996 and 1995 and changes during the
years then ended is presented below:
1996 1995
--------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
- ---------------------------------- -------- --------- --------- --------
Outstanding at beginning of year 508,986 $17.625 -- --
Granted 390,228 $19.480 508,9866 $17.625
Exercised 52,427 -- -- --
Forfeited -- -- -- --
-------- --------
Outstanding at end of year 846,787 $18.480 508,9866 $17.625
======== ========
Options exercisable at year-end 456,559 --
Weighted-average fair value of
options granted during the year $3.56 $3.49
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
----------------------------------------- ------------------------
Weighted-
Average Weighted
Range of Number Remaining Average Number Weighted
Exercise Outstanding Contractual Exercise Exercisable Average
Prices at 12/31/96 Life Prices at 12/31/96 Price
- --------- -------------- -------------- ---------- ------------- ---------
$ 5.50 -
$19.625 846,787 9.46 years $18.547 456,559 $17.625
F-23
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(8) Construction Program and Jointly-Owned Plants
It is estimated that the Company's construction expenditures for 1997 will
be approximately $165 million, including expenditures on jointly-owned projects.
The Company's proportionate share of expenses for the jointly-owned plants is
included in operating expenses in the consolidated statements of earnings.
At December 31, 1996, 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)... $724,525 $319,962 $ 3,755 46.3%
Palo Verde Nuclear Generating
Station (Nuclear)*................ $198,549 $ 43,052 $10,723 10.2%
Four Corners Power Plant Units 4
and 5 (Coal)...................... $117,884 $ 48,879 $ 3,613 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, 1996, 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 Tri-State Generation and Transmission Association,
Inc. Unit 4 is owned 38.457% by the Company, 28.8% by M-S-R Public Power Agency,
California public power agency ("M-S-R"), 10.04% by the City of Anaheim,
California, 8.475% by the City of Farmington, 7.2% by the County of Los Alamos,
and 7.028% by Utah Associated Municipal Power Systems.
Palo Verde Nuclear Generating Station
The Company has a 10.2% undivided 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 the 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-24
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(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 for all three units is
approximately $24.3 million, with an annual payment limitation of $3 million per
incident. The insureds under this liability insurance include the PVNGS
participants and "any other person or organization with respect to his legal
responsibility for damage caused by the nuclear energy hazard". If the funds
provided by this retrospective assessment program prove to be insufficient,
Congress could impose revenue raising measures on the nuclear industry to pay
claims.
The 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,
1997, a substantial portion of which must be applied to stabilization and
decontamination. The Company has also secured insurance against portions of the
increased cost of generation or purchased power and business interruption
resulting from certain accidental outages of any of the three PVNGS units if the
outage exceeds 21 weeks. The Company is a member of two industry mutual
insurers. These mutual insurers provide both the "all-risk" and increased cost
of generation insurance to the Company. In the event of adverse losses
experienced by these insurers, the Company is subject to an assessment. The
Company's maximum share of any assessment is approximately $3.9 million per
year.
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 $147.5 million, a decrease from $157.8 million based on the
previous 1992 study (both amounts are stated in 1995 dollars).
The Company determined that a supplemental investment program will be
needed as a result of both historical cost increases 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
regulations, PVNGS Unit 3 will remain in a non-qualified trust.
Pursuant to NMPUC approval the Company funded an additional $12.5 million
into the qualified and non-qualified funds. The estimated market value of the
trusts, including the current life insurance policies, at the end of 1996 was
approximately $25.6 million.
F-25
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(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 for 1994.
The Company has a power purchase contract with Southwestern Public Service
Company ("SPS") for up to 200 MW, expiring in May 2011. The Company may reduce
its purchases from SPS by 25 MW annually upon three years' notice. The Company
provided such notice to reduce the purchase by 25 MW in 1999 and by an
additional 25 MW in 2000. Also, the Company has 39 MW of contingent capacity
obtained from El Paso Electric Company 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 capacity in the 1998 through 2000 timeframe. To meet this need, on
October 4, 1996, the Company entered into a long-term power purchase contract
with the Cobisa-Person Limited Partnership ("PLP") to purchase approximately 100
MW of unit contingent peaking capacity from a gas turbine generating unit for a
period of 20 years, with an option to renew for an additional five years. The
gas turbine generating unit will be constructed and operated by PLP and will be
located on the Company's retired Person Generating Station site located in
Albuquerque, New Mexico. The site for the generating unit was chosen, in part,
to provide needed benefits to the Company's constrained transmission system.
Depending on the regulatory timing of NMPUC and FERC approvals and the securing
of necessary permits, construction could start in August 1998 with commercial
operation beginning by May 1999. The operational date was chosen to satisfy both
resource and transmission needs for the Company's jurisdictional load. During
October 1996, the Company filed a request for approval from the NMPUC and PLP
filed its application for requisite state commission determinations from the
NMPUC. These two applications were consolidated by the NMPUC. In December 1996,
the NMPUC established a procedural schedule for the consolidated applications.
The Company and PLP have requested a final order from the NMPUC by July 31,
1997. Thereafter, certain actions from the FERC will be required, including
approval of PLP's status as an "exempt wholesale generator" under Section 32 of
the Public Utility Holding Company Act.
In addition to the long-term power purchase contract with PLP, the Company
is pursuing other options to ensure its additional capacity needs are met.
F-26
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(10) Lease Commitments
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. Covenants in the
Company's PVNGS Units 1 and 2 lease agreements limit the Company's ability,
without consent of the owner participants and bondholders in the lease
transactions, (i) to enter into any merger or consolidation, or (ii) except in
connection with normal dividend policy, to convey, transfer, lease or dividend
more than 5% of its assets in any single transaction or series of related
transactions.
Future minimum operating lease payments (in thousands) at December 31, 1996
are:
1997.............................................................. $ 79,028
1998.............................................................. 78,700
1999.............................................................. 78,333
2000.............................................................. 78,213
2001.............................................................. 78,100
Later years....................................................... 1,026,864
----------
Total minimum lease payments................................... $1,419,238
==========
Operating lease expense, inclusive of PVNGS leases, was approximately
$80.3 million in 1996, $80.0 million in 1995 and $79.1 million in 1994.
Aggregate minimum payments to be received in future periods under noncancelable
subleases are approximately $6.6 million.
(11) Environmental Issues and Retired Fossil-Fueled Plant Decommissioning Costs
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.
F-27
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(11) Environmental Issues and Retired Fossil-Fueled Plant Decommissioning
Costs (Continued)
Electric Operations
Santa Fe Station
The Company and the New Mexico Environmental Department ("NMED") have
conducted investigations of the groundwater contamination detected beneath the
former Santa Fe Generating Station site to determine the source of the
contamination. The Company has been and is continuing to cooperate with the NMED
regarding site investigations and remedial planning pursuant to a settlement
agreement between the Company and the NMED. In June 1996, the Company received a
letter from the NMED, indicating that the NMED believes the Company is the
source of gasoline contamination in a municipal well supplying the City of Santa
Fe and groundwater underlying the Santa Fe Station. Further, the NMED letter
stated that the Company was required to proceed with interim remediation of the
contamination pursuant to the New Mexico Water Quality Control Commission
("NMWQCC") regulations.
In July 1996, the Company filed an appeal with the NMWQCC protesting the
determination and directives contained in the NMED's June 1996 letter.
Subsequently, negotiation meetings were conducted between the Company and the
NMED for a resolution of the groundwater contamination issue.
On October 3, 1996, the Company and the NMED signed an Amendment to the
Settlement Agreement concerning the groundwater contamination. As part of the
Amendment, the Company agreed to spend approximately $1.2 million ("Settlement
Amount") for certain costs related to sampling, monitoring, and development and
implementation of a remediation plan. The remediation plan is to be developed
jointly by the Company and the NMED. Since the contamination affects a municipal
well supplying the City of Santa Fe, the cooperation of the City of Santa Fe
will also be sought in the development of the plan. The amended Settlement
Agreement does not, however, provide the Company with a full and complete
release from potential further liability for remediation of the groundwater
contamination. After the Company has expended the Settlement Amount, if the NMED
can establish through binding arbitration that the Santa Fe Station is the
source of the contamination, the Company could be required to perform further
remediation that is determined to be necessary. The Company continues to dispute
any contention that the Santa Fe Station is the source of the groundwater
contamination and believes that insufficient data exists to identify the sources
of groundwater contamination. The Company has completed an aquifer
characterization report and a groundwater quality report associated with the 40
day reactivation of the adjacent Santa Fe supply well in July and August of
1996. These reports strongly suggest the groundwater contamination does not
originate from the Santa Fe Station site and has been drawn under the site by
the pumping of the Santa Fe supply well. In addition, other urban wells in Santa
Fe are likely vulnerable to contamination from off-site sources. The Company is
working to provide a remedial approach plan by April 1997 in accordance with the
amended Settlement Agreement.
F-28
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(11) Environmental Issues and Retired Fossil-Fueled Plant Decommissioning
Costs (Continued)
Person Station
The Company, in compliance with the NMED's 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 was assessed and results were
reported to the NMED. The Company 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 Permit, the Company posted a $5.1 million performance bond
with a trustee. The remediation program continues on schedule.
Gas Operations
Gas Wellhead Pit Remediation
The New Mexico Oil Conservation Commission issued an order, effective on
January 14, 1993, that affects the gas gathering facilities located in the San
Juan Basin in northwestern New Mexico. The Bureau of Land Management ("BLM") has
issued a similar order. The order prohibits the further discharge of fluids
associated with the production of natural gas into unlined earthen pits in
specified areas (designated as "vulnerable areas") in the San Juan Basin. The
order also required the submission of closure plans for the pits where further
discharge was prohibited. The Company has complied with the orders and has
submitted and received approval for pit closures from the New Mexico Oil
Conservation Division ("OCD") and the BLM.
These gas gathering facilities were sold to Williams Gas
Processing-Blanco Inc., a subsidiary of Williams Field Services Group, Inc., of
Tulsa Oklahoma ("Williams") on June 30, 1995. As a part of the sale agreement,
the Company agreed to cease discharge to unlined earthen pits in designated
vulnerable areas and to retain the responsibility for pit closures for a stated
period of time and to a stated dollar amount (see note 12). The Company has
assessed the pits in accordance with OCD/BLM directives, and is now in the
process of closing pits and remediating them, if necessary, at wellhead
locations within the designated vulnerable areas. The Company has submitted a
groundwater management plan to the OCD and has received approval of the plan,
and is proceeding with delineation of groundwater contamination and, as
necessary, cleanup, in accordance with the approved plan. The Company will
address groundwater contamination within the dollar and time limitations imposed
by the sale agreement with Williams, and in accordance with the requirements of
the OCD.
F-29
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(11) Environmental Issues and Retired Fossil-Fueled Plant Decommissioning
Costs (Continued)
In March 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. In 1995, the Company received a claim for
indemnification by Williams, the purchaser of the Company's gas gathering and
processing assets, for the environmental work required to comply with the
Jicarilla ordinance. The Company submitted a closure/remediation plan to the
Jicarilla, which was approved. The Company's remediation work pursuant to the
plan commenced in mid-1996, and the costs of remediation are being charged
against the $10.6 million indemnification cap contained in the purchase and sale
agreement between the Company and Williams. The Company met the requirement for
closing and remediating pits within the environmentally sensitive area by
December 1996, and anticipates closing and remediating all other pits associated
with the gas gathering and processing assets by December 1998 deadline specified
in the ordinance.
(12) Asset Sales
In 1995, the Company and its subsidiaries sold certain non-strategic gas
assets for approximately $154 million to Williams, recognizing an after-tax gain
of $12.8 million. This gain was adjusted to $11.8 million in 1996 due to an
accrual for additional gas environmental costs. Under the NMPUC order approving
the sale, the Company is required to share approximately $35 million from the
sale with customers, which will be credited to the customers' bills over five
years. After completion of the fifth year, the amount of gain will be
recalculated to include actual expenses specified in the agreement, subject to
NMPUC review. As of December 31, 1996, the Company has a remaining balance of
$22.2 million for future years credit to the customers. In addition, the
Company, in 1995, sold its water division to the City of Santa Fe for $51.2
million (exclusive of current assets netted against current liabilities),
recognizing a after-tax gain of $6.4 million. Pursuant to the purchase and sale
agreement, the Company, through its Energy Service Business Unit, will continue
to operate the water utility up to four years from the closing date for a fee
under a contract with the City of Santa Fe.
F-30
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(13) Segment Information
The financial information pertaining to the Company's electric, gas and
other operations for the years ended December 31, 1996, 1995 and 1994 are as
follows:
Electric* Gas Other Total
---------- -------- ------- ----------
(In thousands)
1996:
Operating revenues................................... $ 645,639 $227,301 $10,446 $ 883,386
Operating expenses excluding income taxes............ 509,804 191,922 16,246 717,972
---------- -------- ------- ----------
Pre-tax operating income (loss)...................... 135,835 35,379 (5,800) 165,414
Operating income tax................................. 32,422 8,927 (1,954) 39,395
---------- -------- ------- ----------
Operating income (loss).............................. $ 103,413 $ 26,452 $(3,846) $ 126,019
========== ======== ======= ==========
Depreciation and amortization expense................ $ 64,817 $ 13,122 $ 177 $ 78,116
========== ======== ======= ==========
Construction expenditures............................ $ 76,572 $ 26,497 $ 18 $ 103,087
========== ======== ======= ==========
Identifiable assets:
Net utility plant................................. $1,270,141 $281,348 $ 1,204 $1,552,693
Other............................................. 449,478 202,725 25,418 677,621
---------- -------- ------- ----------
Total assets.................................... $1,719,619 $484,073 $26,622 $2,230,314
========== ======== ======= ==========
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
========== ======== ======= ==========
Contruction 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
========== ======== ======= ==========
F-31
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(13) Segment Information (Continued)
Electric* Gas Other Total
---------- -------- ------- ----------
(In thousands)
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
========== ======== ======= ==========
- -----------
* Includes the resources excluded from NMPUC retail rates 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).
(14) Subsequent Events
On February 13, 1997, the NMPUC issued a final order in the gas rate
case, ordering a rate decrease of $7.0 million. (See PART II, ITEM 7. --
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- GAS RATE CASE and NMPUC ORDER
- -- THE COMPANY'S JANUARY 1997 PGAC FACTOR VARIANCE REQUEST; ORDER TO FILE RETAIL
ELECTRIC AND GAS RATE CASES" in this report.) In ordering the rate decrease,
among other things, the NMPUC disallowed the recovery of certain regulatory
assets. The Company strongly disagrees with the NMPUC's final order and filed an
appeal with the New Mexico Supreme Court on February 17, 1997. The Company has
evaluated the impacts of the rate reduction and has established appropriate
reserves in its 1996 financial statements, pending the outcome of the appeal.
F-32
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
(14) Subsequent Events (Continued)
The NMPUC issued a final order in the Company's January 1997 PGAC Factor
Variance Request on February 13, 1997. In the order, the NMPUC imposed, but
suspended, a fine of $2.2 million to the Company due to an allegedly incorrect
cost factor (too low) that was filed in November 1996. In addition, the NMPUC
disallowed collection of $1.6 million of gas costs and ordered an independent
audit to be conducted to review the Company's PGAC factor calculations for the
period of December 1995 through January 1997. The NMPUC also ordered the
docketing of two new investigations. The first, which requires a Company filing
by March 15, 1997, will investigate whether or not the Company should exit the
merchant function in providing gas supplies to customers. The second, will
investigate the prudence of the Company's portfolio strategies and purchase
practices. In addition, the NMPUC ordered the Company to file a new gas rate
case by August 1, 1997, and also ordered the Company to file an electric retail
rate case by May 1, 1997.
In the order, the NMPUC accused the Company of intentionally filing an
inaccurate factor to avoid a hearing, thus, impairing the NMPUC's ability to
investigate rising gas prices. The Company strongly disagrees with the NMPUC's
final order and is evaluating its options, including rehearing and a possible
appeal to the New Mexico Supreme Court.
F-33
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
QUARTERLY OPERATING RESULTS
The unaudited operating results by quarters for 1996 and 1995 are as follows:
Quarter Ended
-------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(In thousands except per share amounts)
1996:
Operating Revenues................ $241,904 $197,597 $210,757 $233,128
Operating Income.................. $ 38,475 $ 25,346 $ 32,412 $ 29,786
Net Earnings (1), (2) ............ $ 26,448 $ 13,542 $ 19,940 $ 12,650
Net Earnings per Share (1), (2)... $ 0.63 $ 0.32 $ 0.47 $ 0.30
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
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. The gain amount was adjusted by
$1.0 million or two cents per share in 1996 due to an accrual for
additional gas environmental costs. 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 (see note 12).
(2) During the quarter ended December 31, 1996, the Company made a
provision for loss of $10.0 million, net of tax ($.24 per common
share), as a result of the gas rate order, pending the outcome of the
appeal. In addition, the Company recorded an after-tax curtailment gain
of $8.0 million ($.19 per common share) related to the change of the
Company's defined benefit pension plan.
F-34
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ----------
Electric Service Energy Sales -- KWh
(in thousands):
Residential.................................. 1,892,290 1,795,371 1,786,292 1,683,213 1,650,491
Commercial................................... 2,698,087 2,578,243 2,534,507 2,398,725 2,353,152
Industrial................................... 1,505,801 1,434,974 1,268,208 1,145,369 1,087,357
Other ultimate customers..................... 310,118 220,777 364,144 219,481 267,246
----------- ---------- ---------- ---------- ----------
Total sales to ultimate customers......... 6,406,296 6,029,365 5,953,151 5,446,788 5,358,246
Sales for resale............................. 4,575,220 2,590,513 3,361,933 3,375,216 3,685,418
----------- ---------- ---------- ---------- ----------
Total KWh sales........................... 10,981,516 8,619,878 9,315,084 8,822,004 9,043,664
=========== ========== ========== ========== ==========
Electric Revenues (in thousands):
Residential.................................. $ 177,220 $ 168,633 $ 172,559 $ 163,131 $ 158,190
Commercial................................... 226,146 218,222 229,851 218,263 211,086
Industrial................................... 83,651 79,964 79,729 74,157 69,590
Other ultimate customers..................... 20,804 18,749 24,147 15,548 16,521
----------- ---------- ---------- ---------- ----------
Total revenues to ultimate
customers............................... 507,821 485,568 506,286 471,099 455,387
Sales for resale............................. 121,329 80,949* 96,821* 99,895* 123,291
----------- ---------- ---------- ---------- ----------
Total revenues from energy sales.......... 629,150 566,517 603,107 570,994 578,678
Miscellaneous electric revenues.............. 16,489 17,767 18,687 18,734 17,645
----------- ---------- ---------- ---------- ----------
Total electric revenues................... $ 645,639 $ 584,284 $ 621,794 $ 589,728 $ 596,323
=========== ========== ========== ========== ==========
Customers at Year End:
Residential.................................. 304,900 296,821 287,369 278,357 271,155
Commercial................................... 36,292 35,390 34,336 33,568 32,504
Industrial................................... 375 374 384 381 386
Other ultimate customers..................... 632 598 599 576 537
----------- ---------- ---------- ---------- ----------
Total ultimate customers.................. 342,199 333,183 322,688 312,882 304,582
Sales for Resale............................. 56 37 42 37 47
----------- ---------- ---------- ---------- ----------
Total customers........................... 342,255 333,220 322,730 312,919 304,629
=========== ========== ========== ========== ==========
Reliable Net Capability-- KW.................... 1,506,000 1,506,000 1,506,000 1,541,000 1,591,000
Coincidental Peak Demand-- KW................... 1,217,000 1,247,000 1,189,000 1,104,000 1,053,000
Average Fuel Cost per Million BTU............... $ 1.2735 $ 1.3177 $ 1.3488 $ 1.3844 $ 1.3263
BTU per KWh of Net Generation................... 10,768 10,811 10,817 11,036 11,039
Water Service**
Water Sales-- Gallons (in thousands) -- 1,616,544 3,366,388 3,414,950 3,224,271
Revenues (in thousands)...................... -- $ 6,196 $ 13,407 $ 13,063 $ 12,471
Customers at Year End........................ -- 23,752 23,452 22,743 22,098
- ---------
* 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 $20.5 million for
1995, 1994 and 1993, respectively.
** On July 3, 1995, the Company sold its water utility division (see
note 12 of the notes to consolidated financial statements). Water
Service's comparative operating statistics for 1995 are through this
date.
F-35
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
1996 1995 1994 1993 1992
--------- --------- -------- -------- ---------
Gas Throughput--Decatherms (in thousands)
PNMGS:
Residential.................................. 27,387 25,865 27,139 28,031 27,063
Commercial................................... 9,310 8,864 9,767 10,428 10,590
Industrial................................... 2,136 661 831 923 707
Public authorities........................... 2,591 2,411 2,465 2,473 4,199
Irrigation................................... 1,418 1,245 1,272 1,259 1,134
Sales for resale............................. 3,094 1,266 680 1,041 2,035
Off-System Sales............................. 5,745 1,176 -- -- --
Unbilled..................................... 1,405 (1,764) (309) (636) 649
--------- --------- -------- -------- ---------
PNMGS sales.................................. 53,086 39,724 41,845 43,519 46,377
Transportation throughput.................... 47,010 49,136 43,135 46,059 48,674
--------- --------- -------- -------- ---------
PNMGS throughput............................. 100,096 88,860 84,980 89,578 95,051
Gathering Company:
Spot market sales............................ -- 39 -- -- 858
Transportation throughput.................... -- 20,695 47,091 45,754 24,889
--------- --------- -------- -------- ---------
Total throughput.......................... 100,096 109,594 132,071 135,332 120,798
========= ========= ======== ======== =========
Gas Revenues (in thousands)
PNMGS:
Residential..................................$ 129,911 $ 125,290 $149,439 $149,796 $ 125,313
Commercial................................... 33,022 32,328 42,725 44,575 37,222
Industrial................................... 5,179 1,873 2,905 3,369 2,063
Public authorities........................... 8,018 7,939 9,969 9,694 12,313
Irrigation................................... 3,252 3,077 4,061 4,418 2,713
Sales for resale............................. 2,106 3,114 2,462 3,137 4,460
Off-System Sales............................. 14,352 1,885 -- -- --
Imbalance penalties.......................... 1,231 1,786 944 -- --
Unbilled..................................... 2,677 (2,430) 267 (1,573) 716
--------- --------- -------- -------- ---------
Revenues from gas sales...................... 199,749 174,862 212,772 213,416 184,800
Transportation............................... 17,215 18,532 19,742 19,376 14,861
Liquids...................................... 7,608 12,782 14,551 18,214 25,620
Other........................................ 2,729 3,606 4,705 3,576 5,810
--------- --------- -------- -------- ---------
PNMGS operating revenues..................... 227,301 209,782 251,770 254,582 231,091
Gathering Company:
Spot market sales............................ -- 42 -- 4 1,410
Transportation............................... -- 3,640 7,850 7,353 3,892
Imbalance penalties.......................... -- 418 26 -- --
Processing Company:
Liquids revenue.............................. -- 632 (621) (311) 807
Processing fees.............................. -- 3,471 10,485 9,459 6,795
--------- --------- -------- -------- ---------
Total operating revenues..................$ 227,301 $ 217,985 $269,510 $271,087 $ 243,159
========= ========= ======== ======== =========
Customers at Year End
PNMGS:
Residential.................................. 367,025 358,822 348,715 337,768 329,385
Commercial................................... 30,757 30,493 30,139 30,151 29,765
Industrial................................... 54 59 57 72 61
Public authorities........................... 2,462 2,444 2,463 1,958 2,004
Irrigation................................... 1,076 886 899 951 1,012
Sales for resale............................. 3 2 3 3 4
Transportation............................... 36 38 43 37 43
--------- --------- -------- -------- ---------
PNMGS customers.............................. 401,413 392,744 382,319 370,940 362,274
Gathering Company:
Off-system sales............................. -- -- -- 1 2
Transportation............................... -- -- 21 21 16
Processing Company.............................. -- -- 32 25 22
--------- --------- -------- -------- ---------
Total customers........................... 401,413 392,744 382,372 370,987 362,314
========= ========= ======== ======== =========
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). Comparative operating statistics
for Gathering Company and Processing Company are through this date.
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 29, 1997 (the "1997 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 1997 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 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the 1997 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 1996, 1995,
and 1994 are omitted for the reason that they are not
required or the information is otherwise supplied.
(a) -- 3-A. Exhibits Filed:
Exhibit
No. Description
- ------- -----------
10.9.6 Amendment Number Nine to Coal Sales Agreement, dated as of
December 31, 1995, among San Juan Coal Company, the Company and
Tucson Electric Power Company.
10.19 Facility Lease dated as of July 31, 1986, 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).
E-1
Exhibit
No. Description
- ------- -----------
10.20* Facility Lease dated as of August 12, 1986, between The First
National Bank of Boston, as Owner Trustee, and Public Service
Company of New Mexico together with Amendments No. 1 and 2
thereto (refiled).
10.21 Facility Lease dated as of December 15, 1986, between The First
National Bank of Boston, as Owner Trustee, and Public Service
Company of New Mexico (Unit 1 Transaction) together with
Amendment No 1 thereto (refiled).
10.22 Facility Lease dated as of December 15, 1986, between The First
National Bank of Boston, as Owner Trustee, and Public Service
Company of New Mexico (Unit 2 Transaction) together with
Amendment No. 1 thereto (refiled).
10.70** Employment Termination and Release Agreement for M. Phyllis
Bourque.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
99.5 Participation Agreement dated as of July 31, 1986, 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 July
31, 1986, with the Owner Participant), Chemical Bank, in its
individual capacity and as Indenture Trustee (under a Trust
Indenture, Mortgage, Security Agreement and Assignment of Rents
dated as of July 31, 1986, with the Owner Trustee), and Public
Service Company of New Mexico, including Appendix A definitions
together with Amendment No. 1 thereto (refiled).
99.6 Trust Indenture, Mortgage, Security Agreement and Assignment of
Rents dated as of July 31, 1986, between The First National Bank
of Boston, as Owner Trustee, and Chemical Bank, as Indenture
Trustee together with Supplemental Indenture No. 1 thereto
(refiled).
99.7 Assignment, Assumption, and Further Agreement dated as of
July 31, 1986, between Public Service Company of New Mexico and
The First National Bank of Boston, as Owner Trustee (refiled).
99.9* Trust Indenture, Mortgage, Security Agreement and Assignment of
Rents dated as of August 12, 1986, between The First National
Bank of Boston, as Owner Trustee, and Chemical Bank, as
Indenture Trustee together with Supplemental Indenture No. 1
thereto (refiled).
99.15 Trust Indenture, Mortgage, Security Agreement and Assignment of
Rents dated as of December 31, 1986, between the First National
Bank of Boston, as Owner Trustee, and Chemical Bank, as
Indenture Trustee (Unit 2 Transaction) (refiled)
99.17* Waiver letter with respect to "Deemed Loss Event" dated as of
August 18, 1986, between the Owner Participant named therein,
and Public Service Company of New Mexico (refiled).
99.18* Waiver letter with respect to "Deemed Loss Event" dated as of
August 18, 1986, between the Owner Participant named therein,
and Public Service Company of New Mexico (refiled).
E-2
Exhibit
No. Description
- ------- -----------
99.19 Agreement No. 13904 (Option and Purchase of Effluent), dated
April 23, 1973, among Arizona Public Service Company, Salt River
Project Agricultural Improvement and Power District, the Cities
of Phoenix, Glendale, Mesa, Scottsdale, and Tempe, and the Town
of Youngtown (refiled).
99.20 Agreement for the Sale and Purchase of Wastewater Effluent,
dated June 12, 1981, among Arizona Public Service Company, Salt
River Project Agricultural Improvement and Power District and
the City of Tolleson, as amended (refiled).
- -----------
* 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.
(a) -- 3-B. Exhibits Incorporated By Reference:
In addition to those Exhibits shown above, the Company hereby
incorporates the following Exhibits pursuant to Exchange Act Rule 12b-32 and
Regulation S-K section 10, paragraph (d) by reference to the filings set forth
below:
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
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)
E-3
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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 Agreement to Purchase and Sell Between 4-(b)to the Registration 2-99990
City of Santa Fe, New Mexico and Public Statement No. 2-99990 of
Service Company of New Mexico. the Company.
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.
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.
E-4
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
3.2 By-laws of Public Service Company of 3.2 to Annual Report of the 1-6986
New Mexico With All Amendments to Registrant on Form 10-K for
and including December 5, 1994. the fiscal year ended
December 31, 1994.
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.
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 the Company.
Corners Project and the Navajo Indian
Tribal Council.
E-5
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
10.1.1 Amendment and Supplement No. 1 to 10.1.1 to Annual Report of 1-6986
Supplemental and Additional Indenture the Registrant on Form 10-K
of Lease dated April 25, 1985 between the for fiscal year ended
Navajo Tribe of Indians and Arizona December 31, 1995.
Public Service Company, El Paso Electric
Company, Public Service Company of
New Mexico, Salt River Project
Agricultural Improvement and Power
District, Southern California Edison
Company, and Tucson Electric Power
Company (refiled).
10.2 Fuel Agreement, as supplemented, dated 4-H to Registration 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.
10.5.3 Modification No. 4 dated October 25, 10.5.3 to Annual Report of 1-6986
1984 and Modification No. 5 dated July Registrant on Form 10-K for
1, 1985 to Co-Tenancy Agreement fiscal year ended December
between the Company and Tucson 31, 1995.
Electric Power Company (refiled).
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.
E-6
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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.
10.5.7 Modification No. 10 to San Juan Project 10.5.7 to Annual Report of 1-6986
Co-Tenancy Agreement between Public the Registrant on Form 10-K
Service Company of New Mexico and for fiscal year ended
Tucson Electric Power Company dated December 31, 1995.
November 30, 1995.
10.7 San Juan Project Operating Agreement 5-S to Registration 2-50338
between the Company and Tucson Statement No. 2-50338 of
Gas & Electric Company, executed the Company.
December 21, 1973.
10.7.1 Modification No. 4 dated October 25, 10.7.1 to Annual Report of 1-6986
1984 and Modification No. 5 dated July Registrant on Form 10-K for
1, 1985 to San Juan Project Operating fiscal year ended December
Agreement between the Company and 31, 1995.
Tucson Electric Power Company (refiled).
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.
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.
10.7.5 Modification No. 10 dated November 30, 10.7.5 to Annual Report of 1-6986
1995 to San Juan Project Operating the Registrant on Form 10-K
Agreement between Public Service for fiscal year ended
Company of New Mexico and Tucson December 31, 1995.
Electric Power Company.
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.
E-7
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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 10.58 to Annual Report of 1-6986
September 12, 1983, to the Arizona the Registrant on Form 10-K
Nuclear Power Project Participation for fiscal year ended
Agreement. (refiled) 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.
10.8.5 Amendment No. 10 dated as of 10.8.5 to Annual Report of 1-6986
November 21, 1985 and Amendment No. the Registrant on Form 10-K
11 dated as of June 13, 1986 and effective for fiscal year ended
January 10, 1987 to Arizona Nuclear December 31, 1994.
Power Project Participation Agreement
(refiled).
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 10.9 to Annual Report of the 1-6986
August 18, 1980 among San Juan Coal Registrant on Form 10-K for
Company, the Company and Tucson fiscal year ended
Electric Power Company, together with December 31, 1991.
Amendments No. One, Two, Four, and
Six thereto.
E-8
Exhibit
No. Description of Exhibit 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).
E-9
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
10.9.4 First Supplement to Coal Sales 19.4 to the Company's 1-6986
Agreement, dated July 27, 1992 among Quarterly Report on
San Juan Coal Company, the Company Form 10-Q for the quarter
and Tucson 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).
10.9.5 Amendment No. Eight to Coal Sales 10.9.5 to Annual Report of 1-6986
Agreement, dated as of September 1, the Registrant on Form 10-K
1995, among San Juan Coal Company, for fiscal year ended the
Company and Tucson Electric Power December 31, 1995.
Company .
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, December 31, 1987.
executed 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 fiscal year ended the
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 for fiscal year ended
institutions relating to the San Juan Coal December 31, 1992.
Trust dated as of December 31, 1981
(refiled).
E-10
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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* Facility Lease dated as of December 16, 10.18 to Annual Report of 1-6986
1985 between The First National Bank of the Registrant on Form 10-K
Boston, as Owner Trustee, and Public for fiscal year ended
Service Company of New Mexico together December 31, 1995.
with Amendments No. 1, 2 and 3 thereto.
(refiled).
10.18.4* Amendment No. 4 dated as of March 8, 10.18.4 to the Company's 1-6986
1995, to Facility Lease between Public Quarter Report on Form 10-Q
Service Company of New Mexico and the for the quarter ended
First National Bank of Boston, dated as of March 31, 1995.
December 16, 1985.
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.
10.23** 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.
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).
10.24** Management Life Insurance Plan (July 10.24 to Annual Report of 1-6986
1985) of the Company (refiled). the Registrant on Form 10-K
for fiscal year ended
December 31, 1995.
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.
E-11
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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.
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.
E-12
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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 for fiscal year ended
a 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** First Restated and Amended Public 99.1 to Registration 333-03303
Service Company of New Mexico Director Statement No. 333-03303
Retainer Plan. filed May 8, 1996.
E-13
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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** First Restated and Amended Public 99.1 to Registration 333-03289
Service Company of New Mexico Statement No. 333-03289
Performance Stock Plan. filed May 8, 1996.
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.
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.
E-14
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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 10.3.1 to the Company's 1-6986
for Benjamin F. Montoya. Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1993.
10.47.2** Severance Agreement for Benjamin F. 10.3.2 to the Company's 1-6986
Montoya. Quarterly Report on
Form 10-Q for the quarter
ended September 30, 1993.
10.47.3** 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.
10.53 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.
E-15
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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).
10.56.1 Amended and Restated Receivables 10.56.1 to the Company's 1-6986
Purchase Agreement dated May 20, 1996, Quarterly Report on Form
between Public Service Company of New 10-Q for the quarter ended
Mexico, Citibank and Citicorp North June 30, 1996.
America, Inc. and Amended Restated
Collection Agent Agreement dated May
20, 1996, between Public Service
Company of New Mexico, Corporate
Receivables Corporation and Citibank,
N.A.
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 33-65418
November 1, 1992 between Public Service Statement No. 33-65418 of
Company of New Mexico and Canadian the Company.
Imperial Bank of Commerce, New York
Agency.
E-16
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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.
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 10-Q for the quarter ended
3, 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.
10.67** Deferred Compensation Agreement for 10.67 to Annual Report of 1-6986
Jeffry E. Sterba the Registrant on Form 10-K
for fiscal year ended
December 31, 1995.
E-17
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
10.68 Master Decommissioning Trust 10.68 to the Company's 1-6986
Agreement for Palo Verde Nuclear Quarterly Report on Form
Generating Station dated March 15, 10-Q for the quarter ended
1996, between Public Service Company March 31, 1996.
of New Mexico and Mellon Bank, N.A.
10.69* Refunding Agreement No. 3 dated as 10.69 to the Company's 1-6986
of September 27, 1996 between Public Quarterly Report on Form
Service Company of New Mexico, The 10-Q for the quarter ended
Owner Participant named therein, September 30, 1996.
State Street Bank and Trust Company,
as Owner Trustee, The Chase Manhattan,
Bank, as Indenture Trustee, and First PV
Funding Corporation.
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 Collateral Trust Indenture dated as of 99.1 to Annual Report of the 1-6986
December 16, 1985 among First PV Registrant on Form 10-K for
Funding Corporation, Public Service fiscal year ended December
Company of New Mexico and Chemical 31, 1995.
Bank, as Trustee together with Series
1986A Bond Supplemental, Series 1986B
Bond Supplemental, Unit 1 Supplemental
and Unit 2 Supplemental thereto (refiled).
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 99.1.6 to the Company's 1-6986
First PV Funding Corporation, Public Quarterly Report on Form
Service Company of New Mexico and 10-Q for the quarter ended
Chemical Bank, as Trustee dated as of March 31, 1995.
February 14, 1995.
E-18
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
99.2* Participation Agreement dated as of 99.2 to Annual Report of the 1-6986
December 16, 1985, among the Owner Registrant on Form 10-K for
Participant named therein, First PV fiscal year ended December
Funding Corporation. The First National 31, 1995.
Bank of Boston, in its individual capacity
and as Owner Trustee (under a Trust
Agreement dated as of December 16,
1985 with the Owner Participant),
Chemical Bank, in its individual capacity
and as Indenture Trustee (under a Trust
Indenture, Mortgage, Security Agreement
and Assignment of Rents dated as of
December 16, 1985 with the Owner
Trustee), and Public Service Company of
New Mexico, including Appendix A
definitions together with Amendment No.
1 dated July 15, 1986 and Amendment
No. 2 dated November 18, 1986 (refiled).
99.3 Trust Indenture, Mortgage, Security 99.3 to the Company's 1-6986
Agreement and Assignment of Rents Quarterly Report on Form
dated as of December 16, 1985, between 10-Q for the quarter ended
the First National Bank of Boston, as March 31, 1996.
Owner Trustee, and Chemical Bank, as
Indenture Trustee together with
Supplemental Indentures Nos. 1 and 2
(refiled).
99.3.3 Supplemental Indenture No. 3 dated as 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.
99.4* Assignment, Assumption and Further 99.4 to Annual Report of the 1-6986
Agreement dated as of December 16, Registration on Form 10-K
1985, between Public Service Company for fiscal year ended
of New Mexico and The First National December 31, 1995.
Bank of Boston, as Owner Trustee
(refiled).
E-19
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
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 November 28.8 to the Company's 1-6986
18, 1986, to Participation Agreement Current Report on Form 8-K
dated as of August 12, 1986. dated November 25, 1986.
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.
E-20
Exhibit
No. Description of Exhibit Filed as Exhibit: File No:
- ------- ---------------------- ---------------- --------
99.11* Participation Agreement dated as of 2.1 to the Company Current 1-6986
December 15, 1986, among the Owner Report on Form 8-K dated
Participant named therein, First PV December 17, 1986.
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 Current Report on Form 8-K
dated as of December 15, 1986, between dated December 17, 1986.
The 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-21
Exhibit
No. Description of Exhibit 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).
99.16 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).
99.21* 1996 Supplemental Indenture dated as of 99.21 to the Company's 1-6986
September 27, 1996 to Trust Indenture, Quarterly Report on Form
Mortgage, Security Agreement and 10-Q for the quarter ended
Assignment of Rents dated as of September 30, 1996.
December 16, 1985 between State Street
Bank and Trust Company, as Owner
Trustee, and The Chase Manhattan Bank,
as Indenture Trustee
- -----------
* One or more additional documents, substantially identical in all material
respects to this exhibit, have been entered into, relating to one or more
additional sale and leaseback transactions. Although such additional
documents may differ in other respects (such as dollar amounts and
percentages), there are no material details in which such additional
documents differ from this exhibit.
** Designates each management contract or compensatory plan or arrangement
required to be identified pursuant to paragraph 3 of Item 14(a) of Form
10-K.
(b) Reports on Form 8-K:
None.
E-22
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 18, 1997 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 18, 1997
- ------------------------------------------ Director
B. F. MONTOYA
President and Chief Executive Officer
/s/ M. H. MAERKI Principal Financial Officer February 18, 1997
- ------------------------------------------
M. H. Maerki
Senior Vice President and
Chief Financial Officer
/s/ D. M. BURNETT Principal Accounting Officer February 18, 1997
- ------------------------------------------
D. M. Burnett
Corporate Controller and
Chief Accounting Officer
/s/ J. T. ACKERMAN Chairman of the Board February 18, 1997
- ------------------------------------------
J. T. Ackerman
/s/ R. G. ARMSTRONG Director February 18, 1997
- ------------------------------------------
R. G. Armstrong
/s/ J. A. GODWIN Director February 18, 1997
- ------------------------------------------
J. A. Godwin
/s/ L. H. LATTMAN Director February 18, 1997
- ------------------------------------------
L. H. Lattman
/s/ M. LUJAN JR. Director February 18, 1997
- ------------------------------------------
M. Lujan Jr.
/s/ R. U. ORTIZ Director February 18, 1997
- ------------------------------------------
R. U. Ortiz
/s/ R. M. PRICE Director February 18, 1997
- ------------------------------------------
R. M. Price
/s/ P. F. ROTH Director February 18, 1997
- ------------------------------------------
P. F. Roth
E-23