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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1993 COMMISSION FILE NUMBER 1-6986
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PUBLIC SERVICE COMPANY OF NEW MEXICO
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEW MEXICO 85-0019030
(I.R.S. Employer
(State or other jurisdiction Identification No.)
of incorporation or organization)
87158
ALVARADO SQUARE
ALBUQUERQUE, NEW MEXICO (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (505) 848-2700
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $5.00 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(TITLE OF CLASS)
CUMULATIVE PREFERRED STOCK ($100 STATED VALUE AND WITHOUT SINKING FUND)
COMPRISED OF THE FOLLOWING SERIES:
1965 Series, 4.58% 8.48% Series 8.80% Series
8.75% CUMULATIVE PREFERRED STOCK ($100 STATED VALUE AND WITH A PERIODIC 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, 1994 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
$13 1/4 per share reported by the Wall Street Journal, was $553,506,600.
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 27, 1994--PART III.
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TABLE OF CONTENTS
PAGE
----
GLOSSARY................................................................... iii
PART I
ITEM 1. BUSINESS........................................................... 1
THE COMPANY.............................................................. 1
ELECTRIC OPERATIONS...................................................... 2
Service Area and Customers............................................. 2
Power Sales............................................................ 2
Sources of Power....................................................... 4
Fuel and Water Supply.................................................. 4
NATURAL GAS OPERATIONS................................................... 7
Acquisition of Natural Gas Operations.................................. 7
Proposed Sale of Gathering and Processing Assets....................... 7
Gas Company of New Mexico Division..................................... 7
Gathering Company...................................................... 8
Processing Company..................................................... 8
Natural Gas Supply..................................................... 8
Natural Gas Sales...................................................... 9
RATES AND REGULATION..................................................... 10
January 12, 1994 Stipulation........................................... 10
FPPCAC................................................................. 10
Fossil-Fueled Plant Decommissioning Costs.............................. 11
Postretirement Benefits................................................ 11
Consolidation Issues................................................... 11
Natural Gas Supply Matters............................................. 12
Other Natural Gas Matters.............................................. 12
ENVIRONMENTAL FACTORS.................................................... 13
ITEM 2. PROPERTIES......................................................... 14
ELECTRIC................................................................. 14
Coal-fired Plants...................................................... 14
Nuclear Plant.......................................................... 14
Other Electric Properties.............................................. 16
NATURAL GAS.............................................................. 17
WATER.................................................................... 17
OTHER INFORMATION........................................................ 17
ITEM 3. LEGAL PROCEEDINGS.................................................. 18
NATURAL GAS SUPPLY LITIGATION............................................ 18
PVNGS WATER SUPPLY LITIGATION............................................ 18
SAN JUAN RIVER ADJUDICATION.............................................. 19
PVNGS PROPERTY TAXES..................................................... 19
OTHER PROCEEDINGS........................................................ 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 21
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY....................... 21
i
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS............................................................ 23
ITEM 6. SELECTED FINANCIAL DATA........................................... 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................. 25
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-17
ii
GLOSSARY
AEPCO............................... Arizona Electric Power Cooperative
AFUDC............................... Allowance for funds used during construction
AG.................................. New Mexico Attorney General
Amoco............................... Amoco Production Company
Anaheim............................. City of Anaheim, California
APPA................................ Arizona Power Pooling Association
APS................................. Arizona Public Service Company
BCD................................. Bellamah Community Development
BHP................................. BHP Minerals International, Inc.
BLM................................. Bureau of Land Management
BTU................................. British Thermal Unit
Century............................. Century Power Corporation
Conoco.............................. Conoco, Inc.
decatherm........................... 1,000,000 BTUs
DOE................................. United States Department of Energy
EIP................................. Eastern Interconnection Project
El Paso............................. El Paso Electric Company
EPA................................. United States Environmental Protection Agency
EPNG................................ El Paso Natural Gas Company
Farmington.......................... City of Farmington, New Mexico
FERC................................ Federal Energy Regulatory Commission
Four Corners........................ Four Corners Power Plant
FPPCAC.............................. Fuel and Purchased Power Cost Adjustment Clause
Gathering Company................... Sunterra Gas Gathering Company, a wholly-owned subsidiary
of the Company
GCNM................................ Gas Company of New Mexico, a division of the Company
IID................................. Imperial Irrigation District in Southern California
Kv.................................. Kilovolt
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
NMPUC............................... New Mexico Public Utility Commission
NRC................................. United States Nuclear Regulatory Commission
OCD................................. New Mexico Oil Conservation Division
OLE................................. Ojo Line Extension
PGAC................................ GCNM's Purchased Gas Adjustment Clause
Plains.............................. Plains Electric Generation and Transmission Cooperative,
Inc.
PSCo................................ Public Service Company of Colorado
Processing Company.................. Sunterra Gas Processing Company, a wholly-owned subsidiary
of the Company
PVNGS............................... Palo Verde Nuclear Generating Station
RICO................................ Racketeer Influenced and Corrupt Organizations Act
Salt River Project.................. Salt River Project Agricultural Improvement and Power
District
iii
SCE................................. Southern California Edison Company
SCPPA............................... Southern California Public Power Authority
SDCW................................ Sangre de Cristo Water Company, a division of the Company
SDG&E............................... San Diego Gas and Electric Company
SFAS................................ Statement of Financial Accounting Standards
SJCC................................ San Juan Coal Company
SJGS................................ San Juan Generating Station
Southern Union...................... Southern Union Company
SPS................................. Southwestern Public Service Company
TNP................................. Texas-New Mexico Power Company
throughput.......................... Volumes of gas delivered, whether or not owned by GCNM
or Gathering Company
Tucson.............................. Tucson Electric Power Company
UAMPS............................... Utah Associated Municipal Power Systems
USEC................................ United States Enrichment Corporation
iv
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 505-848-2700). The Company is a
public utility engaged in the generation, transmission, distribution and sale
of electricity and in the gathering, processing, transmission, distribution and
sale of natural gas within the State of New Mexico. The Company also owns
facilities for the pumping, storage, transmission, distribution and sale of
water in Santa Fe, New Mexico.
On January 11, 1993, the Company announced its intention to dispose of the
Company's natural gas gathering and natural gas processing assets and SDCW. On
February 12, 1994, an agreement was executed for the sale of substantially all
of the gas gathering and processing assets of Gathering Company and Processing
Company and for the sale of the Northwest and Southeast gas gathering and
processing facilities of GCNM. On February 28, 1994, the Company and the City
of Santa Fe signed a purchase and sale agreement for the sale of the Company's
water utility division. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Sale of Gas
Gathering and Processing Assets" and "--Sale of SDCW.")
The total population of the area served by one or more of the Company's
utility services is estimated to be approximately 1.1 million, of which 52.0%
live in the greater Albuquerque area.
For the year ended December 31, 1993, the Company derived 67.5% of its
utility operating revenues from electric operations, 31.0% from natural gas
operations and 1.5% from water operations.
As of December 31, 1993, the Company employed 2,619 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 12 of the notes to consolidated financial statements.
1
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, 1993, approximately 313,000 retail electric customers were
served by the Company, the largest of which accounted for approximately 3.6% of
the Company's total electric revenues for the year ended December 31, 1993.
The Company holds 23 long-term, non-exclusive franchise agreements for its
electric retail operations, expiring between August 1996 and November 2028. The
City of Albuquerque (the "City") franchise expired in early 1992. Customers in
the area covered by the City franchise represent approximately 46.0% of the
Company's 1993 total electric operating revenues, and no other franchise area
represents more than 7.0%. These franchises are agreements that provide the
Company access to public rights-of-way for placement of the Company's electric
facilities. The Company remains obligated under state law to provide service to
customers in the franchise area even in the absence of a franchise agreement
with the City. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--Albuquerque Franchise Issues".)
POWER SALES
For the years 1989 through 1993, retail KWh sales have grown at a compound
annual rate of approximately 3.1%. However, the growth rate has been lower than
had been anticipated at the time the Company committed to construct new
generating units in the 1970's. As a result, the Company has excess capacity
and has marketed most of such capacity in the off-system sales market.
Additionally, the Company is attempting to reduce its excess capacity through
asset sales. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--Excess Capacity Sales/Wholesale Power Market".) The Company has
contracted to sell and continues to market power at prices which only recover
variable costs and a portion of the fixed costs of its excess capacity.
Remaining energy produced by excess capacity is then sold in the economy energy
market at prices which average only slightly above incremental operating costs.
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)
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Retail........................... $471,099 $455,387 $444,594 $427,505 $413,644
Firm-requirements wholesale...... 18,468 20,173 22,390 25,739 27,679
SPS contract..................... -- -- -- -- 109,773
Other contracted off-system
sales........................... 56,214+ 62,348 55,581 70,640 52,804
Economy energy sales*............ 25,213+ 40,770 29,665 26,052 14,507
2
ELECTRIC SALES BY MARKET
(MEGAWATT HOURS)
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
Retail....................... 5,446,788 5,358,246 5,139,954 5,048,830 4,909,592
Firm-requirements wholesale.. 342,137 322,177 308,390 376,040 397,792
SPS contract................. -- -- -- -- 1,618,694
Other contracted off-system
sales....................... 1,450,966 1,198,250 1,223,212 1,743,196 1,079,972
Economy energy sales*........ 1,582,113 2,164,991 1,559,939 1,378,270 735,558
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* Pursuant to FERC Order No. 529, all spot market economy sale transactions
were reclassified from net purchased power to revenue.
+ 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 $20.5
million. (See Note 2 of the notes to consolidated financial statements.)
SYSTEM PEAK DEMAND*
(MEGAWATTS)
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
Summer............................................ 1,104 1,053 1,018 1,051 1,006
Winter............................................ 982 992 955 897 896
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* System peak demand relates to retail and firm-requirements wholesale markets
only.
During 1993 and 1992, the Company's sales in the off-system markets accounted
for approximately 34.4 percent and 37.2 percent, respectively, of its total KWh
sales and approximately 17.2 percent (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) and 17.8 percent,
respectively, of its total revenues from energy sales. During 1993, the
Company's major off-system sale contracts in effect were with SDG&E, APPA,
AEPCO, IID and PSCo.
The SDG&E contract requires SDG&E to purchase 100 MW from the Company through
April 2001. On October 27, 1993, SDG&E filed a complaint with the FERC against
the Company, alleging that certain charges under this 1985 power purchase
agreement are unjust, unreasonable and unduly discriminatory. SDG&E is
requesting that the FERC investigate the rates charged under the agreement and
establish a refund date effective as of December 26, 1993. The relief, if
granted, would reduce annual demand charges paid by SDG&E by up to $11 million
per year from the effective refund date through April 2001, subject to certain
limitations if the FERC has not acted within 15 months. The Company responded
to the complaint on December 8, 1993, and SDG&E and the Company filed
subsequent pleadings. The Company believes that the complaint is without merit,
and the Company intends to vigorously resist the complaint.
The APPA contract requires APPA to purchase varying amounts of power from the
Company through May 2008. Under the terms of the agreement, APPA will increase
its purchase starting June 1, 1994 from 33 MW to 89 MW, decreasing in October
1994 to 74 MW. The AEPCO contract requires AEPCO to purchase from 9 MW to 15 MW
of power through May 31, 1994, depending upon AEPCO's customer requirements.
The IID contract requires IID to purchase 56 MW of power from the Company
through February 1995 and an additional 25 MW of power in the months of April
through October during the term of the contract. On April 27, 1993, PSCo and
the Company entered into an agreement whereby the Company will sell 75 MW of
capacity and associated energy to PSCo from October 1, 1993 through September
30, 1994.
The Company furnishes firm-requirements wholesale power in New Mexico to the
cities of Farmington and Gallup, TNP and Plains. Plains may terminate its
contract for 10 MW at any time with one year's advance notice. The Company
expects to receive a termination notice from Plains but cannot predict the
3
timing of such notice. In February 1993, the Company began a new 10 year firm
power contract with the City of Gallup. Under terms of its contract, TNP has
increased its purchase, beginning January 1994, from a peak of 25 MW to 36 MW.
No firm-requirements wholesale customer accounted for more than 1.4% of the
Company's total electric operating revenues for the year ended December 31,
1993.
For other information concerning the competitive conditions affecting off-
system sales, see PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--Excess Capacity Sales/Wholesale Power Market".
SOURCES OF POWER
As of December 31, 1993, the total net generation capacity of facilities
owned or leased by the Company was 1,541 MW. The Company's electric generating
stations in commercial service as of December 31, 1993, were as follows:
NET MW
GENERATION
TYPE NAME LOCATION CAPACITY
---- ---- -------- ----------
Nuclear..................... PVNGS (a) Wintersburg, Arizona 390
Coal........................ SJGS (b) Waterflow, New Mexico 785
Coal........................ Four Corners (c) Fruitland, New Mexico 192
Gas/Oil..................... Reeves (d) Albuquerque, New Mexico 154
Gas/Oil..................... Las Vegas (d) Las Vegas, New Mexico 20
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1,541
=====
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(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 (see ITEM 2.--"PROPERTIES--ELECTRIC--
Nuclear Plant").
(b) SJGS Units 1, 2 and 3 are 50% owned by the Company; SJGS Unit 4 is 45.485%
owned by the Company.
(c) Four Corners Units 4 and 5 are 13% owned by the Company.
(d) These stations are used for peaking capacity and transmission support
requirements only.
In addition, the Company has power purchase contracts with M-S-R for 105 MW
through April 1995 and with SPS for up to 100 MW of interruptible power through
April 1995 and up to 200 MW from May 1995 through May 2011. The Company may
reduce its purchases from SPS by 25 MW annually upon three years' notice. Also,
the Company has 39 MW of contingent capacity obtained from El Paso under a
transmission capacity for generation capacity trade arrangement. In addition,
the Company is interconnected with various utilities for economy interchanges
and mutual assistance in emergencies.
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
---------- ------- ---------- ------- ---------- -------
1989.................. 89.3 139.3 10.3 76.3 0.4 364.1
1990.................. 74.6 152.0 25.2 73.1 0.2 310.3
1991.................. 67.1 167.9 32.9 67.9 -- 216.5
1992.................. 69.2 161.7 30.5 59.8 0.3 239.7
1993.................. 72.9 164.7 26.7 58.1 0.4 331.7
4
The estimated generation mix for 1994 is 74.4% coal, 25.3% nuclear and 0.3%
gas and oil. Due to locally available natural gas and oil supplies, the
utilization of locally available coal deposits and the generally abundant
supply of nuclear fuel, the Company believes that adequate sources of fuel are
available for its generating stations.
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 132 million tons of
coal during its remaining term. Such amount would supply substantially all the
requirements of SJGS through approximately 2017. The primary sources of coal
are a mine adjacent to SJGS and a mine located approximately 25 miles northeast
of SJGS in the La Plata area of northwestern New Mexico. The average cost of
fuel, including ash disposal and land reclamation costs, for SJGS for the years
1991, 1992 and 1993 was 183.3 cents, 175.5 cents and 177.4 cents, respectively,
per million BTU ($36.63, $34.28 and $34.59 per ton, respectively).
Four Corners is supplied with coal under a fuel agreement between the owners
and BHP, under which BHP agreed to supply all the coal requirements for the
life of the plant. BHP holds a long-term coal mining lease, with options for
renewal, from the Navajo Nation and operates a strip mine adjacent to Four
Corners with the coal supply expected to be sufficient to supply the units for
their estimated useful lives. The average cost of fuel, including ash disposal
and land reclamation costs, for the years 1991, 1992 and 1993 at Four Corners
was 112.6 cents, 114.3 cents and 114.9 cents, respectively, per million BTU
($19.94, $20.19 and $20.11 per ton, respectively).
Natural Gas
The natural gas used as fuel for the Company's Albuquerque electric
generating plant (Reeves) is delivered by GCNM. (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 gas supplied by GCNM or
other sources.
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 PVNGS participants made arrangements to obtain quantities of
uranium concentrates anticipated to be sufficient to meet operational
requirements through 1996. Existing contracts and options could be utilized to
meet approximately 75% of requirements in 1997 and 50% of requirements from
1998 through 2000. Spot purchases in the uranium market will be made, as
appropriate. The PVNGS participants contracted for all conversion services
required through 1994 and for up to 65% of conversion services required through
1998, with options to continue through the year 2000. The PVNGS participants,
including the Company, 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 November 2014, with annual options to
terminate each year of the contract with ten years prior notice. The
participants exercised this option, terminating 30% of requirements for 1996
through 1998 and 100% of requirements during the years 1999 through 2002. In
addition, existing contracts will provide fuel assembly fabrication services
for at least ten years from the date of operation of each PVNGS unit and
through contract options, approximately fifteen additional years are available.
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
5
2005. Pursuant to the Nuclear Waste Policy Act of 1982, as amended in 1987 (the
"Waste Act"), DOE is obligated to accept and dispose of all spent nuclear fuel
and other high-level radioactive wastes generated by all domestic power
reactors. The NRC, pursuant to the Waste Act, also requires operators of
nuclear power reactors to enter into spent fuel disposal contracts with DOE.
APS, on its own behalf and on behalf of the other PVNGS participants, executed
a spent fuel disposal contract with DOE. The Waste Act also obligates DOE to
develop the facilities necessary for the permanent disposal of all spent fuel
generated and to be generated by domestic power reactors and to have the first
such facility in operation by 1998 under prescribed procedures. In November
1989, DOE reported that such a permanent disposal facility will not be in
operation until 2010. As a result, under DOE's current criteria for shipping
allocation rights, PVNGS's spent fuel shipments to the DOE permanent disposal
facility would begin in approximately 2025. In addition, APS believes that on-
site storage of spent fuel may be required beyond the life of the PVNGS Units.
APS currently believes that alternative interim spent fuel storage methods are
or will be available on-site or off-site for use by PVNGS to allow its
continued operation beyond 2005 and to safely store spent fuel until DOE's
scheduled shipments from PVNGS begin.
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. The Company and Tucson have a contract with the United States Bureau
of Reclamation for consumption of 16,200 acre feet of water per year for SJGS,
which contract expires in 2005, and in addition, the Company was granted the
authority to consume 8,000 acre feet of water per year under a state permit
that is held by BHP. The Company is of the opinion that sufficient water is
under contract for SJGS until 2005.
On January 29, 1993, the U.S. Fish and Wildlife Service proposed a portion of
the San Juan River as critical habitat for two fish species. This designation
may impact uses of the river and its flood plains and will require certain
analysis under the Endangered Species Act of 1973 of all significant Federal
actions. Renewal of the SJGS water contract is considered a significant Federal
action. The Company is currently unable to assess any impacts to operations but
is reviewing the issue and commenting to the agencies.
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
ACQUISITION OF NATURAL GAS OPERATIONS
On January 28, 1985, the Company acquired substantially all of the New Mexico
natural gas utility assets of Southern Union (principally a natural gas retail
distribution system operated by Southern Union as the Gas Company of New Mexico
division and now operated by the Company as GCNM) and Sunbelt acquired all of
the stock of Southern Union Gathering Company (subsequently renamed Sunterra
Gas Gathering Company), a wholly-owned subsidiary of Southern Union, in
connection with the settlement of antitrust litigation against Southern Union
in which the Company and others were plaintiffs. In a separate transaction, a
wholly-owned subsidiary of Sunbelt acquired from Southern Union all of the
stock of Southern Union Processing Company (subsequently renamed Sunterra Gas
Processing Company) on December 31, 1986. In January 1990, the Company acquired
all of the common stock of Gathering Company and Processing Company from
Sunbelt and the Sunbelt subsidiary, respectively. Together with GCNM, Gathering
Company and Processing Company are referred to as the Company's natural gas
operations.
PROPOSED SALE OF GATHERING AND PROCESSING ASSETS
On February 12, 1994, the Company, Gathering Company and Processing Company
entered an agreement to sell substantially all of their gas gathering and
processing facilities. The Company believes that the sale, which requires prior
NMPUC approval, will improve its flexibility in accessing competitively priced,
reliable and secure gas supplies. (See PART II, ITEM 7.--"MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Sale
of Gas Gathering and Processing Assets".)
GAS COMPANY OF NEW MEXICO DIVISION
The Company distributes natural gas through GCNM to most of the major
communities in New Mexico, including Albuquerque and Santa Fe, serving
approximately 371,000 customers as of December 31, 1993. The Albuquerque
metropolitan area accounts for approximately 54% of the Company's total
customers. The Company holds long-term, non-exclusive franchises with varying
expiration dates in all incorporated communities requiring franchise
agreements. The expiration dates for the Company's franchises in Albuquerque
and Santa Fe are 1998 and 1995, respectively. GCNM's customer base includes
both "sales-service" customers and "transportation-service" customers. Sales-
service customers purchase natural gas and receive transportation and delivery
services from GCNM for which GCNM receives both cost-of-gas and cost-of-service
revenues. Cost-of-gas revenues collected from sales service customers are a
recovery of the cost of purchased gas in accordance with NMPUC rules and
regulations and, in that sense, do not affect the net earnings of the Company.
Transportation-service customers, who procure gas independently of GCNM and
contract with GCNM for transportation and related services, provide GCNM with
cost-of-service revenues only. Transportation services are provided both to gas
marketers generally for delivery to locations throughout GCNM's distribution
systems and to natural gas producers generally for delivery to other interstate
pipelines.
For the twelve months ended December 31, 1993, GCNM had throughput of
approximately 89.6 million decatherms, including sales of 43.5 million
decatherms to sales-service customers. No single customer accounted for more
than 6.5% of GCNM's therm sales in 1993.
GCNM's total operating revenues for the year ended December 31, 1993, were
approximately $235.2 million. Cost-of-gas revenues, received from sales-service
customers, accounted for approximately 46% of GCNM's total operating revenues.
Since a major portion of GCNM's load is related to heating, levels of therm
sales are affected by the weather. Approximately 45% of GCNM's total therm
sales in 1993 occurred in the months of January, February, November and
December.
7
During the 1980's, FERC and NMPUC orders relating to the nondiscriminatory
transportation of gas in certain instances, as well as other changes in the
natural gas industry, led to increased competition for sales of natural gas
within New Mexico. An order issued by the NMPUC requires New Mexico gas
utilities to offer transportation service to all customers. Thus, GCNM's
customers may choose to purchase natural gas from sources other than GCNM and
require transportation by GCNM, subject to the capacity of GCNM's system.
During 1993, approximately 51% of GCNM's total gas throughput was related to
transportation gas deliveries. GCNM's transportation rates are unbundled, and
transportation customers only pay for the amount of transportation service they
receive from GCNM.
GATHERING COMPANY
Gathering Company is engaged in the ownership and operation of gas gathering
facilities primarily in the San Juan Basin in northwestern New Mexico, the
purchase of gas from sources in the San Juan Basin, the sale of natural gas to
GCNM and third parties and the gathering of natural gas for third parties. In
1993, Gathering Company sold approximately 13.7 million decatherms of natural
gas to GCNM and gathered 45.8 million decatherms of natural gas for third
parties.
In January 1990, Gathering Company entered into a natural gas sale and
gathering contract with GCNM. The contract allows Gathering Company to recover
from GCNM, effective January 1988, substantially all of its operating costs,
net of its third-party revenues (including revenues received from Processing
Company), and to earn a regulated return on its investment in its operating
assets. In addition, Gathering Company is permitted under the contract to
charge to GCNM all payments made arising from take-or-pay obligations and from
contract reformation. (See "RATES AND REGULATION--Natural Gas Supply Matters".)
PROCESSING COMPANY
Processing Company processes natural gas for GCNM, Gathering Company and
others. The natural gas is processed at Processing Company's plants under
separate contracts. Both GCNM and Gathering Company executed contracts with
Processing Company in January 1990. The GCNM contract provides that GCNM will
reimburse Processing Company for all of its operating costs, net of its third-
party revenues (including fees from Gathering Company), and provides a return
on Processing Company's investment in its operating assets, in return for
providing the service of processing GCNM's natural gas. Additionally,
Processing Company reimburses GCNM for all revenues from liquid by-products
derived from GCNM's throughput processed at the plants. Such revenues,
including all third party processing fees, are ultimately credited to GCNM's
sales-service customers through the PGAC. The Gathering Company's contract with
Processing Company provides the same service for Gathering Company and in
return for such service, Gathering Company pays Processing Company a fee per
mcf of gas which is processed on behalf of Gathering Company. Processing
Company reimburses Gathering Company for all revenues from liquid by-products
derived from Gathering Company's throughput processed at the plants.
NATURAL GAS SUPPLY
GCNM obtains its supply of natural gas primarily from New Mexico wells
pursuant to contracts with producers and brokers. A significant portion of
GCNM's natural gas supply is provided through Gathering Company. (See
"Gathering Company".) The contracts of GCNM and Gathering Company are generally
sufficient to meet GCNM's peak-day demand.
GCNM serves certain cities which depend on EPNG or Transwestern Pipeline
Company for transportation of gas supplies. Because these cities are not
directly connected to GCNM's transmission facilities, gas purchased from or
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, it is
expected that GCNM's cost for supplying those cities and for any natural gas
delivered to other interconnecting points on GCNM's system will increase. It is
anticipated that such increases will not materially affect GCNM's total cost of
gas charged to all of its sales-service customers. It is also anticipated that
any increased costs would qualify for collection by GCNM through its PGAC.
8
At the time of the Company's acquisition of GCNM and Gathering Company, GCNM
obtained its natural gas supply generally pursuant to long-term contracts with
producers that obligated GCNM and Gathering Company to take volumes of gas in
excess of GCNM's sales-service customers' annual demand. At that time, GCNM and
Gathering Company were able to sell all excess gas to interstate pipelines. At
about the same time as the acquisition of the gas operations, the FERC began
promulgating a series of orders that have dramatically altered the way gas is
bought, transported and sold nationwide. In essence, these orders allowed
customers of the interstate pipelines to purchase non-pipeline supplies and use
the interstate pipeline's transmission facilities to transport that gas. Since
GCNM and Gathering Company traditionally had sold off-peak excess supplies to
interstate pipelines, the regulatory changes dramatically altered the Company's
ability to market these non-peak supplies. The inability of the Company to
market its non-peak supplies at competitive prices led to breach of contract
claims from some producers.
GCNM and Gathering Company responded to the changes in the Federal and state
regulations by seeking reformation or termination of certain natural gas
purchase contracts with producers which required GCNM and Gathering Company to
take gas in excess of demand. This effort has enabled GCNM to better match its
obligations to take gas with the demands of its sales-service customers.
Virtually all of the claims relating to natural gas contracts have been settled
in recent years and those contracts have been reformed or terminated. (See ITEM
3.--"LEGAL PROCEEDINGS--Natural Gas Supply Litigation".) In addition, by
increasing supply sourcing options through the construction of new pipeline
interconnects, GCNM has created further flexibility to provide reliable
supplies without incurring, for the most part, take-or-pay contractual
obligations with producers. As a result, the Company expects to have minimal
exposure to litigation resulting from the Company's 1993 natural gas purchasing
activities.
During 1993 and in the future, requirements of GCNM's gas supply contracts
with take-or-pay obligations have been or will be met through GCNM's baseload
demands. By purchasing swing and peaking supplies which do not have year-round
take-or-pay obligations, GCNM will be able to meet the seasonal demand swings
associated with its predominately residential and commercial sales-service
markets. GCNM may purchase natural gas through contracts which contain
reservation fees. The NMPUC is currently examining in GCNM's PGAC continuation
filing whether reservation fees which have been paid to suppliers for standing
ready to serve GCNM's needs during the contract's purchase period should be
recovered from sales-service customers through the PGAC or should be recovered
in some other fashion. In addition, with the implementation of FERC Order 636,
GCNM could have natural gas storage and peak supply services available that it
has not had before.
NATURAL GAS SALES
The following table shows gas throughput by customer class:
GAS THROUGHPUT
(MILLIONS OF DECATHERMS)
1993 1992 1991 1990 1989
----- ----- ----- ---- ----
Residential........................................ 28.0 27.1 26.2 25.2 23.2
Commercial......................................... 10.4 10.6 11.4 11.3 10.7
Industrial......................................... 0.9 0.7 0.8 1.3 1.5
Public authorities................................. 2.5 4.2 4.9 5.3 5.5
Irrigation......................................... 1.3 1.1 1.4 1.8 2.0
Sales for resale................................... 1.0 2.0 1.4 3.5 4.6
Unbilled........................................... (0.6) 0.6 -- -- --
Transportation*.................................... 91.8 73.6 62.6 42.5 19.6
Spot market sale................................... -- 0.9 1.6 8.1 11.1
Brokerage.......................................... -- -- -- -- 0.8
----- ----- ----- ---- ----
135.3 120.8 110.3 99.0 79.0
===== ===== ===== ==== ====
9
The following table shows gas revenues by customer class:
GAS REVENUES
(THOUSANDS OF DOLLARS)
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Residential....................... $149,796 $125,313 $137,436 $137,633 $130,130
Commercial........................ 44,575 37,222 46,676 49,575 47,876
Industrial........................ 3,369 2,063 2,754 4,993 5,693
Public authorities................ 9,694 12,313 17,711 20,392 21,757
Irrigation........................ 4,418 2,713 4,495 5,934 7,001
Sales for resale.................. 3,137 4,460 3,848 7,253 9,874
Unbilled.......................... (1,573) 716 -- -- --
Transportation*................... 26,729 18,753 16,997 11,939 7,618
Liquids........................... 18,724 26,427 30,500 39,086 25,294
Processing fees................... 9,761 6,795 5,819 3,127 448
Spot market sales................. -- 1,410 1,771 13,880 19,810
Brokerage......................... -- -- -- -- 1,378
Other............................. 2,457 4,974 9,062 8,292 5,948
-------- -------- -------- -------- --------
$271,087 $243,159 $277,069 $302,104 $282,827
======== ======== ======== ======== ========
- --------
* Customer-owned gas.
RATES AND REGULATION
The Company is subject to the jurisdiction of the NMPUC with respect to its
retail electric, gas and water rates, service, accounting, issuance of
securities, construction of new generation and transmission facilities and
other matters. The FERC has jurisdiction over rates and other matters related
to wholesale electric sales.
JANUARY 12, 1994 STIPULATION
On January 12, 1994, the Company and the NMPUC staff and primary intervenor
groups (the AG, the New Mexico Industrial Energy Consumers, the City of
Albuquerque, the United States Executive Agencies and the New Mexico Retail
Association) ("interested parties") entered into a stipulation ("stipulation")
which addresses retail electric prices, generation assets and certain financial
concerns of the Company. The Company filed the stipulation with the NMPUC,
recommending that electric retail rates be reduced by $30 million. (See PART
II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--January 12, 1994 Stipulation".)
FPPCAC
The Company has electric FPPCACs covering its retail and firm-requirements
wholesale customers. There is an approximate 60-day time lag in implementation
of the FPPCAC for billing purposes, except for firm-requirements wholesale
customers for which there is an approximate 30-day time lag.
On December 22, 1993, the Company and primary intervenors entered into a
stipulation, agreeing to eliminate the FPPCAC from the Company's retail
billings, and set the base fuel cost (defined in the stipulation as fuel costs
plus net purchased power costs less off-system sales revenues) as a component
of the cost of service effective with the order in the Company's next general
rate case. In return, the Company would be allowed to keep any savings it
achieves by efficient fuel management or increases in off-system sales revenues
10
between rate cases. In future rate cases, any fuel savings achieved by the
Company or increases in off-system sales revenues would be factored into the
new rates. Based on the current relative stability of the Company's fuel cost,
the Company does not anticipate any material adverse impact on the Company's
financial condition or results of operations as a result of this change. The
Company filed testimony in support of the stipulation on February 24, 1994.
Hearings on the case are scheduled in March 1994. The methodology for
establishing the base fuel costs has been incorporated into the cost of service
filed with the January 12, 1994 stipulation. (See PART II, ITEM 7.--
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--January 12, 1994 Stipulation".)
The Company's FPPCAC for its firm-requirement wholesale customers has been at
variance with the filed FERC tariffs. As a result, the Company filed a petition
with FERC on October 28, 1993 to request deviation from the filed FERC tariffs
for the period of July 1985 through January 1993. The Company's filing
indicated that the four firm-requirement 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. The Company does not anticipate any material adverse impacts on the
Company's financial condition or results of operations as a result of this
issue.
FOSSIL-FUELED PLANT DECOMMISSIONING COSTS
The Company expects to incur decommissioning costs for its fossil-fueled
generating stations. The Company filed for recovery of decommissioning costs by
factoring them into its depreciation rates included in the Company's
depreciation rate study filed with the NMPUC on June 30, 1993. (See Part II,
ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--OTHER ISSUES FACING THE COMPANY--Fossil-Fueled Plant
Decommissioning Costs".)
POSTRETIREMENT BENEFITS
The Company adopted SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, effective January 1, 1993. SFAS No. 106 requires
accrual of postretirement benefits during the years employees provide services.
Prior to 1993, the costs of these benefits were expensed on a pay-as-you-go
basis. On December 20, 1993, the NMPUC issued a final order in a NMPUC case
regarding an inquiry into SFAS No. 106. In its final order, the NMPUC adopted a
policy which provides for accrual accounting for the postretirement benefit
costs, funding requirements into an irrevocable trust and specific reporting
for the benefit costs in future rate cases. The order also provides for
specific waiver provisions with respect to the external trust funding
requirements and a deferral of the benefit costs in excess of the pay-as-you-go
basis. The Company has requested recovery of the full accrual amount of SFAS
No. 106 expense in the stipulation for its electric business unit. (See PART
II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--January 12, 1994 Stipulation".) The Company will address
the recovery of the amounts related to the gas business unit in a future rate
case. The Company currently intends to fund the amount of the annual costs in
1994.
CONSOLIDATION ISSUES
Pursuant to a prior NMPUC order, the Company filed an application on December
21, 1993 for NMPUC approval to combine certain customer service functions of
its gas and electric utility divisions in order to achieve cost savings. At the
same time, the Company filed a separate request for a declaratory order from
the NMPUC confirming that the Company's realignment of senior corporate
officers' responsibilities during 1993 complies with a 1984 NMPUC order placing
certain organizational restrictions on the operation of the gas and electric
divisions. On February 7, 1994, the NMPUC consolidated the two proceedings
because both involve the permissible extent of the relationship between the
Company's gas and electric operations. The Company awaits a pre-hearing
conference and setting of a schedule in this matter.
11
NATURAL GAS SUPPLY MATTERS
On December 18, 1989, the NMPUC issued an order approving a stipulation
relating to imbalances in GCNM's gas supply and demand. This stipulation
provides for the partial recovery of certain gas costs arising from reformation
of gas purchase contracts and from claims by certain producers relating to
take-or-pay obligations, contract pricing and other matters. The mechanism
established by the order does not apply to any suits not settled or for which
no initial judgement on the merits had been rendered by December 31, 1993.
Under the order, GCNM bears 25% of producer take-or-pay costs (including such
costs paid by GCNM to Gathering Company under their gas sale and gas gathering
contract) for claims settled. GCNM will be permitted to recover from its sales
and transportation customers the remaining 75% of take-or-pay costs over a
period of years. The order allows GCNM to recover from its customers all take-
or-pay costs assessed by interstate pipelines. The order also provides that
GCNM may recover all costs (including costs paid by GCNM to Gathering Company
under their natural gas sale and gathering contract) determined by the NMPUC to
be prudently incurred or just and reasonable (on a case-by-case basis) as the
result of the settlement or litigation of claims ("MDL contract claims")
arising from certain intrastate natural gas purchase contracts that were the
subject of the antitrust litigation that resulted in the Company's acquisition
of GCNM from Southern Union in January 1985.
On March 29, 1993, GCNM was ordered to submit testimony concerning the
allocation of certain take-or-pay settlement amounts paid to Unicon Producing
Company ("Unicon"), Pioneer Exploration Company, Oryx Energy Company and EPNG.
GCNM is currently recovering 75% of approximately $16 million incurred to
settle the disputes with such companies. On October 22 and October 26, 1993,
the NMPUC staff and the AG, respectively, filed testimony claiming that some of
the amounts paid to Unicon were not for settlement of take-or-pay claims and
therefore not recoverable under the NMPUC's December 18, 1989 order. Under the
positions taken by the NMPUC staff and the AG, GCNM would be unable to collect
approximately $3 million of the amount being recovered. The hearings have been
held, briefs have been submitted and the Company now awaits the recommended
decision of the hearing examiner. The Company believes that the settlement
amounts have been properly allocated to the take-or-pay claims under the
December 18, 1989 order and will vigorously defend its position that the amount
it seeks to collect is all recoverable under that order.
On July 12, 1993, the NMPUC issued an order granting motions filed by GCNM,
the NMPUC staff and the AG concerning settlements among GCNM, Gathering
Company, Amoco, Conoco, Mobil Producing Texas and New Mexico, Texaco, Inc. and
Texaco Production Inc. The order required GCNM to file testimony concerning the
amounts paid in the settlements, the allocation of such amounts between take-
or-pay and contract pricing issues, and the prudence of the settlements
involving the contract pricing issues. On December 15, 1993, GCNM filed
testimony. The Company believes that the amounts it seeks to recover have been
properly allocated and prudently incurred, and will vigorously pursue a final
order confirming and permitting recovery. The hearing examiner has set a
hearing for August 23, 1994. GCNM is seeking to recover approximately $27.5
million as producer take-or-pay costs and $9 million for MDL contract claims or
other contract pricing costs. Pursuant to the December 1989 order, GCNM began
collecting the producer take-or-pay costs on July 1, 1993, subject to refund.
OTHER NATURAL GAS MATTERS
GCNM's retail gas rate schedules contain a PGAC which provides for timely
recovery of the cost of gas purchased by GCNM for resale to its sales-service
customers. On August 20, 1990, GCNM filed its biannual application for
continued use of its PGAC pursuant to NMPUC rules. On January 19, 1993, the
NMPUC issued its final order which provided for the continuation of GCNM's PGAC
substantially in its present form. The final order also required GCNM to file
its PGAC continuation filing by April 20, 1993 and specifically ordered GCNM to
explain how its composite gas procurement strategy will be affected by the
announced intention to sell all or major portions of Gathering Company's and
Processing Company's assets. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Sale of Gas
Gathering and Processing Assets".) On April 20, 1993,
12
GCNM filed its application for continued use of its PGAC. A hearing is set for
April 26, 1994. The NMPUC, through its review of the PGAC costs, has
jurisdiction over amounts charged to GCNM by Gathering Company and Processing
Company and for gas purchases and for gathering and processing services
provided to GCNM. The NMPUC has ordered that recovery of such costs in excess
of 1990/1991 levels be deferred and examined in a separate proceeding that the
Company anticipates filing by June 1994.
ENVIRONMENTAL FACTORS
The Company, in common with other electric and gas utilities, is subject to
stringent regulations for protection of the environment by both state and
Federal authorities. PVNGS is subject to the jurisdiction of the NRC, which has
authority to issue permits and licenses and to regulate nuclear facilities in
order to protect the health and safety of the public from radioactive hazards
and to conduct environmental reviews pursuant to the National Environmental
Policy Act. The Company believes that it is in compliance, in all material
respects, with the environmental laws. The Company does not currently expect
that material expenditures for environmental control facilities will be
required in 1994 and 1995.
The Clean Air Act amendments of 1990 (the "Act") impose stringent limits on
emissions of sulfur dioxide and nitrogen oxides from fossil-fueled electric
generating plants. The Act is intended to reduce air contamination from every
sizeable source of air pollution in the nation. Electric utilities with fossil-
fueled generating units will be affected particularly by the section of the Act
which deals with acid rain. To be in compliance with the Act, many utilities
will be faced with installing expensive sulfur dioxide removal equipment,
securing low sulfur coal, buying sulfur dioxide emission allowances, or a
combination of these. Due to the existing air pollution control equipment on
the coal-fired SJGS and Four Corners, the Company believes that it will not be
faced with any material capital expenditures in order to be in compliance with
the acid rain provision of the Act. 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. A monitoring requirement of the Act requires SJGS and Four
Corners to have flow monitors on all units by January 1, 1995. The existing
continuous emission monitoring systems are being evaluated to determine if they
will meet the new monitoring requirements of the Act. The Company does not
believe that the new monitoring requirements of the Act will result in a
material capital expenditure.
The Act also established the Grand Canyon Visibility Transport Commission
("Commission") and charged it with assessing adverse impacts on visibility at
the Grand Canyon. The Commission broadened its scope to assess visibility
impairment in mandatory Class I areas (parks and wilderness areas) located in
the Colorado Plateau ("Golden Circle"). The Commission must report to the EPA
by November 1995 on its findings and make recommendations regarding what
actions, if any, should be pursued in order to remedy the visibility impairment
in the Golden Circle. Depending on the recommendations of the Commission, the
EPA may require stricter controls on sources that may be contributing to the
visibility impairment. Both SJGS and Four Corners are located near the Golden
Circle. The exact nature and cost of additional controls, if any, that may be
required as a result of the recommendations cannot be estimated at this time.
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--Gas" and "--
Environmental Issue--Electric".
13
ITEM 2. PROPERTIES
Substantially all of the Company's utility plant is mortgaged to secure its
first mortgage bonds.
ELECTRIC
COAL-FIRED 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 Century. Century has agreed to sell its remaining
8.2% interest to Tri-State Generation and Transmission Association, Inc. Unit 4
is owned 45.485% by the Company, 8.475% by Farmington, 28.8% by M-S-R, 7.2% by
Los Alamos and 10.04% by Anaheim. The Company has agreed to sell 35 MW of SJGS
Unit 4 to UAMPS. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--Excess Capacity Sales/Wholesale Power Market".) The Company's net
aggregate ownership in SJGS is 785 MW. In connection with the Company's sale to
M-S-R in December 1983 of a 28.8% interest in SJGS Unit 4, the Company agreed
to purchase under certain conditions 73.53% (105 MW) of M-S-R's capacity
through April 30, 1995, an amount which may be reduced by M-S-R under certain
conditions. The Company also agreed to market the energy associated with the
remaining 26.47% portion of M-S-R's capacity through April 30, 1995. This
marketing arrangement may be terminated by M-S-R at any time upon 30 days
notice.
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.
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 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.
Operation and Regulation. A stipulation adopted by the NMPUC on March 6, 1990
establishes a performance standard for the operation of PVNGS. Under the
performance standards, a "dead band" was established at capacity factors of 60%
through 75%, as measured by the capacity factor of all three PVNGS units over
the fuel cycle. Within the dead band, the Company would receive no reward or
penalty. The Company would be penalized with one-half of the additional fuel
costs incurred for PVNGS capacity factors of 50% to 60% and would be rewarded
with one-half of the avoided fuel costs if PVNGS operates at capacity factors
from 75% through 85%. Capacity factors above 85% or below 50% would reward or
penalize the Company by an amount equal to the additional fuel costs avoided or
incurred. During 1993, PVNGS Units 1, 2 and 3 had capacity factors of
approximately 67.5%, 46.1% and 84.4%, respectively, for a station capacity
factor of 66.0%. These performance standards would be terminated if the NMPUC
approves the stipulation entered into by the Company requesting elimination of
the FPPCAC. (See ITEM 1.--"RATES AND REGULATION--FPPCAC".)
14
In July 1993, the NRC issued a Systematic Assessment of Licensee Performance
("SALP") for PVNGS for the period March 1, 1992 through May 31, 1993. The SALP
is the standard performance grading process used by the NRC to communicate to
the public in a formal manner how each nuclear plant operates. The ratings have
slightly declined since the previous assessment. Overall, however, the SALP
Board found the performance of licensed activities at PVNGS to be acceptable
and directed toward safe facility operation.
Steam Generator Tubes. For information concerning steam generator tubes, see
PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE COMPANY--Palo Verde Nuclear
Generating Station--Steam Generator Tubes".
Discrimination Allegations. By letter dated July 7, 1993, the NRC advised APS
that, as a result of a recommended decision and order by a Department of Labor
Administrative Law Judge (the "DOL ALJ") finding that APS discriminated against
a former contract employee at PVNGS because he engaged in "protected
activities" (as defined under Federal regulations), the NRC intended to
schedule an enforcement conference with APS.
Following the DOL ALJ's finding, APS investigated various elements of both
the substantive allegations and the manner in which the U.S. Department of
Labor (the "DOL") proceedings were conducted. As a result of that
investigation, APS determined that one of its employees had falsely testified
during the proceedings, that there were inconsistencies in the testimony of
another employee, and that certain documents were requested in, but not
provided during, discovery. The two employees in question are no longer with
APS. APS provided the results of its investigation to the DOL ALJ, who referred
matters relating to the conduct of the two former employees of APS to the U.S.
Attorney's office in Phoenix, Arizona. On December 15, 1993, APS and the former
contract employee who had raised the DOL claim entered into a settlement
agreement, a part of which remains subject to approval by the Secretary of
Labor.
By letter dated August 10, 1993, APS also provided the results of its
investigation to the NRC, and advised the NRC that, as a result of APS's
investigation, APS had changed its position opposing the finding of
discrimination. The NRC is investigating this matter and APS is fully
cooperating with the NRC in this regard.
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 aggregate lease payments for the Company's PVNGS leases are
approximately $66.3 million per year. Throughout the terms of the leases, the
Company continues to have full and exclusive authority and responsibility to
exercise and perform all of the rights and duties of a participant in PVNGS
under the Arizona Nuclear Power Project Participation Agreement and retains the
exclusive right to sell and dispose of its 10.2% share of the power and energy
generated by PVNGS Units 1 and 2. The Company also retains responsibility for
payment of its share of all taxes, insurance premiums, operating and
maintenance costs, costs related to capital improvements and decommissioning
and all other similar costs and expenses associated with the leased facilities.
On September 2, 1992, the Company purchased approximately 22% of the beneficial
interests in the PVNGS Units 1 and 2 leases for $17.5 million. For accounting
purposes, this transaction was recorded as a purchase with the Company
recording approximately $158.3 million as utility plant and $140.8 million as
long-term debt on the Company's consolidated balance sheet. The purchase is
expected to provide the Company with (1) the residual value of a certain
portion of the PVNGS Units at no cost, (2) reduced exposure to indemnification
provisions in the lease agreements and (3) added flexibility to cause the
retirement of the underlying lease obligation bonds ("LOBs"). (See also Notes 7
and 9 of the notes
15
to consolidated financial statements.) The retirement of the LOBs would only be
caused if (1) adequate cash is available, (2) it is determined to be the best
use of funds, and (3) the appropriate approvals are obtained. In connection
with the stipulation, the Company wrote down the purchased beneficial interests
in PVNGS Units 1 and 2 leases to $46.7 million. (See PART II, ITEM 7.--
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--January 12, 1994 Stipulation.")
Each lease describes certain events, "Events of Loss" or "Deemed Loss
Events", the occurrence of which could require the Company to, among other
things, (1) 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 (2) 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: (a) 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 (b) with respect to other "Deemed Loss Events," which
would involve a significant change in current law and policy, the Company is
unaware of any pending proposals or proposals being considered for introduction
in Congress or any state legislative or regulatory body that, if adopted, would
cause any such events.
PVNGS Decommissioning Funding. For information concerning PVNGS
decommissioning funding, see PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING
THE COMPANY--PVNGS Decommissioning Funding".
PVNGS Liability and Insurance Matters. The PVNGS participants have insurance
for public liability payments resulting from nuclear energy hazards to the full
limit of liability under Federal law. This potential liability is covered by
primary liability insurance provided by commercial insurance carriers in the
amount of $200 million and the balance by an industry-wide retrospective
assessment program. The maximum assessment per reactor under the retrospective
rating program for each nuclear incident occurring at any nuclear power plant
in the United States is approximately $79.3 million, subject to an annual limit
of $10 million per incident. Based upon the Company's 10.2% interest in the
three PVNGS units, the Company's maximum potential assessment per incident is
approximately $24.3 million, with an annual payment limitation of $3 million.
The insureds under this liability insurance include the PVNGS participants and
"any other person or organization with respect to his legal responsibility for
damage caused by the nuclear energy hazard". The PVNGS participants maintain
"all-risk" (including nuclear hazards) insurance for nuclear property damage
to, and decontamination of, property at PVNGS in the aggregate amount of $2.75
billion as of January 1, 1994, a substantial portion of which must be applied
to stabilization and decontamination. The Company has also secured insurance
against a portion of the increased cost of generation or purchased power
resulting from certain accidental outages of any of the three PVNGS units if
the outage exceeds 21 weeks.
OTHER ELECTRIC PROPERTIES
Four Corners and a portion of the facilities adjacent to SJGS are located on
land held under easements from the United States and also under leases from the
Navajo Nation, the enforcement of which leases might require Congressional
consent. The risk with respect to the enforcement of these easements and leases
is not deemed by the Company to be material. However, the Company is dependent
in some measure upon the
16
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--A Transmission
Right-of-Way".)
As of December 31, 1993, the Company owned, jointly owned or leased 2,781
circuit miles of electric transmission lines, 5,218 miles of distribution
overhead lines, 2,826 cable miles of underground distribution lines (excluding
street lighting) and 215 substations.
On May 1, 1984, the Company's board of directors approved plans to proceed
with OLE, which involves construction of a 345 Kv transmission line connecting
the existing Ojo 345 Kv line to the existing Norton Station. For discussion of
issues relating to OLE, see PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING
THE COMPANY--OLE Transmission Project".
NATURAL GAS
The property owned by GCNM, as of December 31, 1993, consisted primarily of
natural gas gathering, storage, transmission and distribution systems. The
gathering systems consisted of approximately 1,184 miles (approximately 308
miles of which are leased to Gathering Company) of pipe with compression and
treatment facilities. Provisions for storage made by GCNM include ownership and
operation of an underground storage facility located near Albuquerque and an
agreement with owners of a unitized oil field located near Artesia, New Mexico,
in which GCNM has injection and redelivery rights. The transmission systems
consisted of approximately 1,355 miles of pipe with appurtenant compression
facilities. The distribution systems consisted of approximately 9,471 miles of
pipe.
GCNM leases approximately 128 miles of transmission pipe from the DOE for
transportation of natural gas to Los Alamos and to certain other communities in
northern New Mexico. The lease can be terminated by either party on 30 days
written notice, although the Company has the right to use the facility for two
years after termination.
The property of Gathering Company includes approximately 552 miles of
gathering pipe with appurtenant compression facilities.
Processing Company owns facilities located in northwestern New Mexico having
an aggregate design capacity for processing of natural gas of approximately
300,000 mcf per day.
The Company, Gathering Company and Processing Company have entered into an
agreement to sell substantially all of their natural gas gathering and
processing assets. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Sale of Gas Gathering and
Processing Assets".)
WATER
The Company's water property consists of wells, water rights, pumping and
treatment plants, storage reservoirs and transmission and distribution mains.
The Company has reached agreement with the City of Santa Fe for the sale of its
water utility division. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Sale of SDCW".)
OTHER INFORMATION
The electric and gas transmission and distribution lines are generally
located within easements and rights-of-way on public, private and Indian lands.
The Company leases interests in PVNGS Units 1 and 2 and related property, EIP
and associated equipment, data processing, communication, office and other
equipment, office space, utility poles (joint use), vehicles and real estate.
The Company also owns and leases service and office facilities in Albuquerque
and in other operating divisions throughout its service territory.
17
ITEM 3. LEGAL PROCEEDINGS
NATURAL GAS SUPPLY LITIGATION
A lawsuit was filed on August 31, 1990 in the United States District Court
for the District of New Mexico by a group of producers seeking damages under a
gas purchase contract. This action was brought by Caulkins Producing Company as
the operator and Caulkins Oil Co. (collectively "Caulkins"), Louis Dreyfus
Natural Gas Corp. ("Dreyfus") and Marathon Oil Company ("Marathon") for alleged
breach of a long-term natural gas purchase contract by GCNM. The suit alleged
that GCNM failed to take or pay for contracted quantities of natural gas for
the period of 1986 to the present, and further, that GCNM failed to take gas
ratably from the producers during the same period of time.
In August 1993, Caulkins, Dreyfus and GCNM reached an agreement settling all
disputes arising under the contract as to those parties for $7.9 million. The
parties also entered into gas purchase agreements which are favorable to GCNM
as part of the settlements. On October 14, 1993, the Company and Marathon
entered into an agreement settling all disputes between GCNM and Marathon. GCNM
paid Marathon $4.9 million on November 10, 1993 and obtained favorable terms in
new gas purchase and related contracts. The Company had previously made
sufficient reserves for losses in this litigation. Pursuant to a prior order of
the NMPUC, GCNM began collecting 75% of the amounts paid to settle this lawsuit
in January 1994.
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.
18
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 the Four Corners plant, at SJGS and at Santa
Fe. (See ITEM 1. "BUSINESS--ELECTRIC OPERATIONS--Fuel and Water Supply".) The
Company cannot at this time anticipate the effect, if any, of any water rights
adjudication on the present arrangements for water at SJGS and Four Corners,
nor can it determine what effect the action will have on water for Santa Fe. 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 1990,
1991, 1992 and 1993 tax years by approximately $5 million per year, before
income taxes and capitalized and deferred costs. 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. The
Company cannot currently predict the ultimate outcome of this matter.
OTHER PROCEEDINGS
On March 31, 1993, certain individuals ("the New Mexico Plaintiffs"),
formerly affiliated with Bellamah Community Development ("BCD") whose general
partners include Meadows, filed suit ("the New Mexico suit") in the United
States District Court for the District of New Mexico against numerous parties,
including the Company, current and former employees of the Company or Meadows,
and MCB Financial Group, Inc., a Delaware corporation ("MCB"), 50% of which
stock is owned by Meadows. The New Mexico Plaintiffs have not requested any
monetary relief against the Company or certain current and former employees of
the Company and Meadows but have joined those parties in connection with
insurance coverage and bad faith insurance practices alleged against the
insurance company which had issued a directors and officers liability policy to
various entities, including MCB and BCD. The insurance allegations are made in
connection with claims which were then threatened by the Resolution Trust
Corporation ("RTC"), as receiver for Western Savings & Loan Association
("Western"), against the Company and others. The New Mexico Plaintiffs also
sued the RTC for a declaration that they are not liable for any claims asserted
by the RTC involving Western and BCD. The Company and the current and former
employees of the Company or Meadows counterclaimed against the New Mexico
Plaintiffs and cross-claimed against the insurance company and the RTC in
connection with insurance coverage and bad faith insurance practices. In
addition, the Company and the current and former employees of the Company or
Meadows cross-claimed against the RTC, seeking a declaration of non-liability.
The RTC moved to transfer the case to the United States District Court for
the District of Arizona. On February 7, 1994, an order was entered transferring
the case in its entirety. Prior to the transfer, however, the New Mexico
magistrate judge issued a proposed order which, if accepted by the district
judge, would require the parties to enter into mediation of all the claims. The
parties have agreed to a form of order dismissing without prejudice the claims
asserted in the New Mexico suit against MCB and against the RTC, recommending
the remand of the remaining claim for declaratory relief against the insurance
company to the Federal District Court in New Mexico, and ordering the mediation
of the claims asserted in the Arizona proceeding (described below) by the RTC
against all of the other parties in the New Mexico suit except the insurance
company and MCB.
19
On April 16, 1993, the Company and certain current and former employees of
the Company or Meadows were named as defendants in two actions filed in the
United States District Court for the District of Arizona by the RTC, as
receiver for Western. The claims related to alleged actions of the Company's
employees in connection with a loan procured by BCD from Western and the
purchase by that partnership of property owned by Western in 1987. 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 alternatively is claiming damages
substantially exceeding that amount on a joint and several liability theory for
injury to Western from an alleged conspiracy in which the Company and the other
defendants are alleged to be co-conspirators. The conspiracy allegations
involve all other transactions claimed by the RTC to have harmed Western but to
which BCD was not a party. The RTC claims the $40 million damages would be
trebled under application of Arizona law. The RTC may also seek attorneys fees
and costs. In February 1994, the RTC advised that the RTC would be seeking to
amend the complaint to allege civil conspiracy, common law fraud and aiding and
abetting breach of fiduciary duties, aiding and abetting common law fraud and
aiding and abetting violation of federal and Arizona RICO statutes against the
Company and is considering claims against Meadows and against the Company as
"successor to and alter ego" of Meadows.
Three of the individuals sued by the RTC have indemnity agreements with the
Company.
On March 3 and 4, 1994, the parties participated in a mediation session aimed
at settling the litigation. The session ended without a settlement. It is
anticipated that settlement discussions will continue although no dates have
been scheduled yet for future meetings.
In July 1993, the Company and certain current or former employees of the
Company or its subsidiaries were also named in an action filed in Federal
District Court in Arizona on behalf of a class of common stockholders of
Western. The allegations were similar to those filed in the RTC actions
described above. On January 24, 1994, motions to dismiss filed by the Company
and certain current or former employees of the Company or its subsidiaries were
granted by the Arizona court for lack of standing to bring the actions.
Although the plaintiffs may appeal the order of the court, the Company believes
the claims are without merit.
Although the Company continues to investigate all of the relevant claims
raised in all of the suits, the Company believes that a material loss to the
Company will not likely occur as a result of claims that have been or may be
asserted by any of the parties.
20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
Executive officers, their ages, offices held with the Company in the past
five years and initial effective dates thereof, were as follows on December 31,
1993:
NAME AGE OFFICE INITIAL EFFECTIVE DATE
---- --- ------ ----------------------
J. T. Ackerman.. 52 Chairman of the Board August 1,1993
Chairman, President and Chief
Executive Officer May 23, 1991
President and Chief Executive
Officer June 19, 1990
President, Gas Company of New
Mexico Division February 5, 1985
President and Chief Executive
B. F. Montoya... 58 Officer August 1, 1993
Executive Vice President,
W. M. Eglinton*. 44 Transition Activities March 2, 1993
Executive Vice President and
Chief Operating Officer September 20, 1991
Executive Vice President and
Chief Operating Officer,
Electric and Water Operations September 1, 1988
Executive Vice President and
Chief Operating Officer,
Electric Operations June 1, 1988
Senior Vice President,
Operations, Electric Operations June 23, 1987
Senior Vice President,
Operations April 1, 1986
Senior Vice President and Chief
M. H. Maerki.... 53 Financial Officer December 7, 1993
Senior Vice President,
Administration and Chief
Financial Officer March 2, 1993
Senior Vice President and Chief
Financial Officer June 1, 1988
Chief Financial Officer, Meadows
Resources, Inc. May 24, 1984
Senior Vice President, Corporate
J. E. Sterba.... 38 Development December 7, 1993
Senior Vice President, Asset
Restructuring April 6, 1993
Senior Vice President, Retail
Electric and Water Services January 29, 1991
Senior Vice President, Business
Development Group, Electric and
Water Operations September 1, 1988
Vice President, Revenues
Management, Electric Operations January 27, 1987
Vice President, Revenues
Management May 1, 1986
Senior Vice President, Power
J. L. Godwin.... 50 Supply Resources December 7, 1993
Vice President, Electric Supply
Sourcing March 2, 1993
Senior Vice President, Wholesale
Marketing and Power Supply January 29, 1991
Vice President, Electric
Operations Group, Electric and
Water Operations September 1, 1988
Vice President, Power Supply,
Electric Operations April 26, 1988
Vice President, Power Production
and Manager, San Juan Station,
Electric Operations June 23, 1987
Senior Vice President, Utility
W. J. Real...... 45 Operations December 7, 1993
Senior Vice President, Customer
Service and Operations March 2, 1993
Executive Vice President, Gas
Operations June 19, 1990
Vice President, Operations Gas
Operations Regional Vice
President, Central Gas
Operations September 1, 1988
Regional Vice President, Central
Region, Gas Company of New
Mexico Division January 28, 1986
21
NAME AGE OFFICE INITIAL EFFECTIVE DATE
---- --- ------ ----------------------
Senior Vice President,
Marketing and Customer
M. P. Bourque..... 46 Services December 7, 1993
Senior Vice President,
Marketing and Energy
Management March 2, 1993
Senior Vice President, Gas
Management Services June 19, 1990
Vice President, Gas Supply,
Gas Company of New Mexico
Division March 2, 1987
P. T. Ortiz....... 43 Senior Vice President,
Regulatory Policy, General
Counsel and Secretary December 7, 1993
Senior Vice President, Public
Policy and General Counsel
and Secretary March 2, 1993
Senior Vice President, General
Counsel and Corporate
Secretary February 4, 1992
Senior Vice President and
General Counsel October 14, 1991
Vice President, Human
J. A. Zanotti..... 53 Resources March 2, 1993
Senior Vice President, Human
Resources and Communications July 26, 1990
Vice President, Human
Resources and Staff Services,
Gas Company of New Mexico
Division September 1, 1988
District Vice President,
Southwest, Gas Company of New
Mexico Division April 26, 1988
Director, Public Affairs, Gas
Company of New Mexico
Division July 15, 1980
M. D. Christensen. 45 Vice President, Public Affairs December 7, 1993
Vice President, Communications July 22, 1991
- --------
* W. M. Eglinton retired effective December 31, 1993.
All officers are elected annually by the board of directors of the Company.
All of the above executive officers have been employed by the Company and/or
its subsidiaries for more than five years in executive or management positions,
with the exception of P. T. Ortiz, M. D. Christensen and B. F. Montoya. Prior
to employment with the Company, P. T. Ortiz was employed by U S WEST
Communications during the period of January 1988 to October 1991 as Chief
Counsel--New Mexico and during the period of June 1985 to January 1988, as an
attorney by U S WEST Communications (then known as Mountain Bell). The
principal business of U S WEST Communications is telecommunications. Prior to
employment with the Company, M. D. Christensen was employed with Southern
California Gas since 1978. During the period 1990 through 1991, M. D.
Christensen was Vice President of Planning and for the period 1987 through
1990, M. D. Christensen was Vice President of Public Affairs. Prior to 1987, M.
D. Christensen held various management positions relating to marketing and
legislative services. 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.
22
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange. Ranges
of sales prices of the Company's common stock, reported as composite
transactions (Symbol: PNM) for 1993 and 1992, by quarters, are as follows:
RANGE OF
SALES
QUARTER ENDED PRICES
- ------------- ----------
HIGH LOW
------ ---
1993:
December 31..................................................... 11 1/2 9 1/2
September 30.................................................... 13 7/8 10 5/8
June 30......................................................... 13 3/4 11 5/8
March 31........................................................ 12 5/8 9 7/8
Fiscal Year................................................... 13 7/8 9 1/2
1992:
December 31..................................................... 13 1/2 12
September 30.................................................... 14 1/8 12 1/2
June 30......................................................... 13 1/2 11
March 31........................................................ 11 7/8 9 3/8
Fiscal Year................................................... 14 1/8 9 3/8
On January 31, 1994, there were 24,469 holders of record of the Company's
common stock.
CUMULATIVE PREFERRED STOCK
While isolated sales of the Company's cumulative preferred stock have
occurred in the past, the Company is not aware of any active trading market for
its cumulative preferred stock. Quarterly cash dividends were paid on each
series of the Company's cumulative preferred stock at their stated rates during
1993 and 1992.
For a discussion of dividend restrictions on the Company's common and
preferred stock, see Note 3 of notes to consolidated financial statements and
ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES--Financing Capability
and Dividend Restrictions".
23
ITEM 6. SELECTED FINANCIAL DATA
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
Total Operating
Revenues*.............. $ 873,878 $ 851,953 $ 857,168 $ 881,186 $ 929,817
Net Earnings (Loss)..... $ (61,486)** $ (104,255)+ $ 22,960 $ 442 $ 82,593
Earnings (Loss) per
Common Share........... $ (1.64)** $ (2.67)+ $ 0.32 $ (0.23) $ 1.73
Total Assets............ $2,212,189 $2,375,582 $2,344,332 $2,313,709 $2,387,005
Preferred Stock with
Mandatory Redemption
Requirements........... $ 24,386 $ 25,700 $ 26,982 $ 45,581 $ 49,268
Long-Term Debt, less
Current Maturities..... $ 957,622 $ 911,252 $ 786,279 $ 790,126 $ 801,706
Common Stock Data:
Dividends paid per
common share........... $ -- $ -- $ -- $ -- $ 0.38
Dividend pay-out ratio.. -- -- -- -- 22.0%
Market price per common
share
at year end............ $ 11.250 $ 12.375 $ 9.75 $ 8.375 $ 14.625
Book value per common
share
at year end............ $ 13.29 $ 15.00 $ 17.69 $ 17.36 $ 18.02
Average number of common
shares outstanding..... 41,774 41,774 41,774 41,774 41,774
Return on Average Common
Equity................. (10.7)% (15.0)% 1.8% (1.3)% 9.5%
Capitalization:
Common stock equity.... 34.8% 38.6% 45.8% 44.8% 45.3%
Preferred stock:
Without mandatory
redemption
requirements......... 3.7 3.6 3.7 3.6 3.5
With mandatory
redemption
requirements......... 1.5 1.6 1.7 2.8 3.0
Long-term debt, less
current maturities.... 60.0 56.2 48.8 48.8 48.2
---------- ---------- ---------- ---------- ----------
100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ==========
- --------
* As discussed in note 1 to consolidated financial statements, the Company
changed its method of accounting for unbilled revenues in 1992.
** Includes the write-down of the 22% beneficial interests in 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 PVGNS 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.
24
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.
On January 11, 1993, the Company announced specific actions which were
determined to be necessary in order to accelerate the Company's preparation for
the new challenges in the competitive electric energy market. Included in the
announcement was the Company's intention to file a plan ("framework filing")
with the NMPUC designed to lower electric prices by consolidating certain gas
and electric functions, restructuring assets and reducing operation and
maintenance expenses by $25 million annually. The Company separated the gas and
electric customer service consolidation issues from the balance of the
framework filing and filed for necessary approvals for the consolidation of the
customer service functions on December 21, 1993. On January 11, 1993, the
Company also announced its intention to dispose of the Company's natural gas
gathering and natural gas processing assets and SDCW. (See "Sale of Gas
Gathering and Processing Assets" and "Sale of SDCW".)
January 12, 1994 Stipulation
On January 12, 1994, the Company and the NMPUC staff and primary intervenor
groups (AG, the New Mexico Industrial Energy Consumers, the City of
Albuquerque, the United States Executive Agencies and the New Mexico Retail
Association) ("interested parties") entered into a stipulation ("stipulation")
which addresses retail electric prices, generation assets and certain financial
concerns of the Company. The Company filed the stipulation with the NMPUC,
recommending that electric retail rates be reduced by $30 million. This
reduction is accomplished primarily through 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,
the write-off of certain PVNGS Units 1 and 2 common costs and the Company's
previously announced cost reduction efforts. In connection with the
stipulation, the Company has charged approximately $108.2 million, after-tax,
to the 1993 results of operations. Such after-tax charge resulted in the
Company continuing to have a deficit in retained earnings as of December 31,
1993. As a result, the Company is unable to resume payment of dividends on its
common stock. The Company evaluated the possibility of a quasi-reorganization
but does not intend to implement a quasi-reorganization at this time.
The stipulation contains provisions which call for PVNGS Units 1 and 2 to be
confirmed as "used and useful" for New Mexico customers pursuant to tests
previously set forth by the NMPUC. The stipulation also establishes transition
and gain allocation mechanisms to be implemented if generation assets are sold
or otherwise removed from rates. The interested parties acknowledged that
restructuring of the Company's generation mix may result in benefits to both
customers and stockholders and future generation asset sales may need to
include a mix of PVNGS and coal-fired generation. If any PVNGS unit included in
rates is sold, subleased, assigned, or removed from full cost of service
recovery for any reason, the difference between the cost of PVNGS units
included in rates and its sale price shall continue to be recovered through
rates. The Company's ability to record this difference as a regulatory asset,
for financial reporting purposes, will be subject to the continued
determination that the regulated portion of its electric operations meets the
provisions of SFAS No.71, Accounting for the Effects of Certain Types of
Regulation. The interested parties also agreed that the reduction in cost of
service resulting from any future refinancing or restructuring of the PVNGS
Units 1 and 2 leases shall be allocated 60% to shareholders and 40% to
customers. The stipulation affirms the Company's right to recover all fair,
just and reasonable costs arising from the decommissioning of its fossil-fueled
generating plants in service, including demolition, waste disposal,
environmental and site restoration. The stipulation also resolves the issues of
decertification and decommissioning of the Company's three retired fossil-
fueled generating stations resulting in the Company foregoing recovery of the
first $24.4 million of decommissioning costs associated with these stations.
The interested parties also agreed to use a
25
targeted capital structure in the cost of service filed with the stipulation,
which recognized the Company's need to move toward investment grade guidelines.
In the stipulation, the Company expressed its intent not to seek general rate
changes and the interested parties expressed their intent not to cause the
filing of general rate changes before January 1, 1998. However, should
unforeseen circumstances occasion the need for a review of general rate levels
before January 1, 1998, the interested parties will meet before seeking a
change in rates.
The stipulation is subject to NMPUC approval. The Company believes that the
approval of the stipulation would result in a reduction of competitive risk and
regulatory uncertainty. However, there can be no assurance that the stipulation
will be approved by the NMPUC. If the stipulation is not approved in its
entirety, unless otherwise agreed to by all interested parties, the stipulation
shall be null and void.
On January 3, 1994, the NMPUC issued an order establishing investigations of
rates for both the Company and SPS. The order required the Company to file a
general rate case no later than July 1, 1994. However, at the prehearing
conference held on February 23, 1994, regarding the stipulation, the NMPUC
vacated the requirements of its original request and will allow the stipulation
to satisfy their requirements. Hearings on the stipulation have not been
scheduled; however, the Company and interested parties are scheduled to file
testimony on April 18, 1994. The NMPUC confirmed the oral rulings in a written
order issued on March 7, 1994.
On March 7, 1994, the Albuquerque City Council deadlocked on endorsing the
Mayor's signing of the stipulation. The Company is currently unable to
determine what impact, if any, the City Council's action might have on the
stipulation. However, the Company remains committed to the process and will
meet with the other parties who signed the stipulation to evaluate this new
development. The Company believes that the stipulation will continue through
the hearing process being established by the NMPUC.
Sale of Gas Gathering and Processing Assets
On January 11, 1993, the Company announced its intention to dispose of the
Company's natural gas gathering and natural gas processing assets. A purchaser
has now been selected following a competitive bidding process.
On February 12, 1994, an agreement was executed with Williams Gas
Processing--Blanco, Inc. ("Williams"), a subsidiary of the Williams Field
Services Group, Inc. of Tulsa, Oklahoma, for the sale of substantially all of
the assets of Gathering Company and Processing Company, and for the sale of the
Northwest and Southeast gas gathering and processing facilities of GCNM. The
agreement provides for a cash selling price of $155 million, subject to certain
adjustments. In addition, the Company and Williams entered into agreements for
gas gathering and processing services, which the Company believes to be
competitively priced, to be provided by Williams on the facilities being sold
for a period up to 15 years. The transaction is subject to applicable waiting
periods under the Federal Hart-Scott-Rodino Antitrust Improvements Act of 1976
and subject to approval by the NMPUC. If approved, the closing is expected to
take place in 1995. The closing is also subject to other customary closing
conditions, such as obtaining necessary material consents from lenders and
other third parties.
Under the sale agreement, the Company agreed to retain certain liabilities
pertaining to the assets being sold, including certain environmental
liabilities. Such retained environmental liabilities include liabilities under
environmental laws as of closing associated with (i) the mercury meter
remediation project, (ii) identified friable asbestos, (iii) environmental
permits required by various agencies, and (iv) pits at certain abandoned
compressor sites. The Company's retained environmental liabilities also include
liabilities associated with certain unlined disposal pits subject to an
existing New Mexico Oil Conservation Division ("OCD") order. The Company has
also agreed to retain liability for a portion of potential liabilities relating
to a contaminated landfill that has been declared a Federal superfund site.
Further, the Company agreed to indemnify Williams against other third party
environmental claims arising from pre-closing ownership, operations or
conditions and for breaches of environmental representations and warranties for
a period of
26
five years after closing in an amount up to $10.6 million. The Company's
retained environmental liabilities described above are not subject to the $10.6
million cap. The Company has evaluated the potential impact of the above
retained environmental liabilities. The Company 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 (see "OTHER ISSUES FACING THE COMPANY--
Environmental Issues--Gas"). The Company intends to offset costs associated
with the environmental liabilities with proceeds from the sale to the maximum
extent possible.
Under the agreement, the Company also agreed to indemnify Williams, subject
to equal sharing of the first $1.5 million, (i) against third party claims
(other than environmental) arising from pre-closing ownership, operations and
conditions for a period of two years after closing, (ii) for breaches of other
customary representations and warranties for a period of two years from the
date of closing, and (iii) for 30 days past the applicable statute of
limitations for breaches of the Company's tax representations. The Company also
agreed to indemnify Williams for three years after closing for third party
claims relating to certain property rights. Under the agreement, the Company
will, subject to prior NMPUC approval, guarantee the obligations of its
subsidiaries which are parties to the agreement.
The book value of the facilities being sold, plus regulatory assets and
deferred charges, is expected to be approximately $85 million. In addition, the
Company expects approximately $8 million to be incurred for transaction and
other ascertainable costs prior to closing. The Company anticipates that a
significant amount of income tax will become payable as a result of this
transaction.
Also, the NMPUC will determine the allocation of the resulting gain between
the Company's gas customers and shareholders. Therefore, the Company is not
able at this time to estimate the amount of any gain that would be allocated to
shareholders.
The Company believes that the sale of these assets will improve its
flexibility to take advantage of changing market conditions while maintaining
continued access to competitively priced, reliable and secure long-term gas
supplies.
Sale of SDCW
On July 29, 1993, Santa Fe city officials announced a verbal agreement under
which the City of Santa Fe (the "City") would purchase SDCW. Under the verbal
agreement, the Company would receive approximately $48 million for its water
utility division. The proposed agreement excluded from the sale certain Santa
Fe area real estate which the Company would either sell or trade separately.
The Company would also continue to operate the water utility for up to four
years for a fee under a proposed contract with the City. On September 3, 1993,
a nonbinding memorandum of understanding was entered into with the City, which
contains the general principles for the sale of the Company's water utility
division. The Company's board of directors authorized the sale on January 11,
1994. On February 23, 1994, the City Council authorized the transaction and the
Company and the City signed a purchase and sale agreement on February 28, 1994.
The Company anticipates filing for regulatory approvals in March 1994.
Consummation of a sale will require approval by the NMPUC. The Company expects
to consummate the sale by the end of 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to generate sufficient amounts of cash to meet its
operating and capital cash requirements ("liquidity") is a function of the
rates it is allowed to charge and its ability to access the credit markets. The
Company's filed stipulation and potential longer-term effects of a more
competitive energy market are expected to affect the Company liquidity through
reductions in the level of rates charged for the Company's electric operations,
partially mitigated by the Company's cost reduction effort and anticipated
proceeds from sales of assets. The Company currently anticipates that cash
generated from internal sources will be sufficient to meet the capital
requirements during the 1994 through 1998 period.
27
CAPITAL REQUIREMENTS
Total capital requirements include construction expenditures as well as other
major capital requirements. Construction projects of significance include
upgrading generating systems, upgrading and expanding the electric and gas
transmission and distribution systems and purchasing nuclear fuel. Total
capital requirements for 1993 and projections for 1994-1998 are shown below:
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
(IN MILLIONS)
CONSTRUCTION EXPENDITURES:
Generation/Environmental/Production........ $ 21 $ 27 $ 20 $ 20 $ 17 $ 20
Distribution............................... 42 45 42 42 42 43
Transmission............................... 10 25 50* 24 12 16
Nuclear Fuel............................... 12 11 11 11 11 11
Common & General/Other..................... 12 21 18 20 18 19
---- ---- ---- ---- ---- ----
Total Construction Expenditures**........ 97 129 141 117 100 109
Contributions in aid of construction &
retirements............................... (9) (3) (5) (5) (5) (5)
Other Major Requirements***................ 92 71 29 29 46 20
---- ---- ---- ---- ---- ----
Total Capital Requirements............... $180 $197 $165 $141 $141 $124
==== ==== ==== ==== ==== ====
- --------
* Includes expenditures for construction of OLE.
** Total construction expenditures do not include expenditures for SDCW after
1993 and for Gathering Company and Processing Company after 1994. (See "Sale
of Gas Gathering and Processing Assets" and "Sale of SDCW".)
*** Other major capital requirements include bond maturities/sinking funds,
debt retirement and preferred stock redemptions/preferred stock dividends.
Requirements for 1993 also include payments for gas contract settlements
and the severance program. Requirements for 1994 and 1997 include
retirement of approximately $45 million and approximately $15 million of
first mortgage bonds, respectively.
These estimates are under continuing review and subject to on-going
adjustment.
LIQUIDITY
In addition to cash flow from operations, the Company received cash proceeds
from certain asset sales and an asset securitization during 1993. On August 3,
1993, the Company received $60 million from the securitization relating to
amounts being recovered from gas customers relating to certain gas contract
settlements. On August 12, 1993, the Company also received $55 million from the
sale of a 10.04% undivided interest in SJGS Unit 4 to Anaheim. Proceeds
therefrom were used to pay off short-term debt and to establish short-term
investments. Also during 1993, pollution control revenue bonds totaling $182
million and EIP Secured Facility Bonds totaling $51.3 million were refunded and
replaced. The refundings will provide pre-tax interest savings of approximately
$5.5 million per year and $.4 million in reduced lease payments.
In addition, in 1993, the Company entered into a $100 million secured
revolving credit facility ("Facility") and the Company entered into an
additional $40 million credit facility collateralized by the Company's electric
customer accounts receivable (the "Accounts Receivable Securitization"). The
Accounts Receivable Securitization has a term of five years. Together with $11
million in local lines of credit, the Company thus has $151 million in
liquidity arrangements.
The Company currently estimates a total of $768 million for its capital
requirements for the period of 1994 through 1998. The Company expects that such
cash requirements are to be met primarily through internally-generated cash.
However, to cover differences in the amounts and timing of cash generation and
cash requirements, the Company intends to utilize short-term borrowings under
its liquidity arrangements, including the Facility.
28
The Facility has an expiration date of June 13, 1995 and contains a provision
that could prevent additional borrowings in the event of a material adverse
change in the condition (financial or otherwise), results of operations,
assets, business or prospects of the Company. In respect to the total debt to
total capitalization test under the Facility and the letter of credit issued to
support certain pollution control bonds, the Company is allowed to exclude from
the calculation of total capitalization up to $200 million in pre-tax write-
offs resulting from the Company's restructuring efforts. The Company was
allowed to exclude, from the calculation, approximately $180 million in pre-tax
write-offs resulting from the stipulation. The maximum allowed ratio of the
Company's total debt to total capitalization under the Facility and the letter
of credit is 72%. As of December 31, 1993, such ratio was 68.3%.
The Company also expects to receive cash proceeds from additional asset sales
during 1994 and 1995. The Company is seeking to close the UAMPS transaction in
the first half of 1994. The purchase price for the 35 MW of SJGS Unit 4 is
approximately $40 million. In addition, the Company expects to consummate the
sale of the Company's water division to the City of Santa Fe for approximately
$48 million in the second half of 1994. The Company, along with its
subsidiaries, Gathering Company and Processing Company, also anticipates to
receive approximately $155 million from the sale of certain natural gas
gathering and processing assets. If these sales are consummated, the proceeds
from these sales which the Company is allowed to retain after tax payments and
sharing of the gains could be used to retire long-term debt. The sale of these
assets, as well as the amount of proceeds the Company would ultimately retain
and the use of those proceeds will be subject to a number of conditions and
various regulatory approvals.
FINANCING CAPABILITY AND DIVIDEND RESTRICTIONS
The Company's ability to raise external capital and the cost of such funds
depend on, among other things, its results of operations, credit ratings,
regulatory approvals and financial market conditions. During 1993, the
Company's securities which were not already rated below "investment grade" were
downgraded to below "investment grade" by the major rating agencies. The
immediate effect of the reduction in the Company's credit ratings by the major
rating agencies was to increase the Company's cost of short-term borrowings
under the Facility and the cost of the letter of credit supporting $37.3
million pollution control revenue bonds. The Company believes that the
downgrade of the above securities does not affect materially the Company's
current financial condition and results of operations.
One impact of the Company's current ratings, together with covenants in the
Company's PVNGS Unit 1 and Unit 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, including cash, in any single transaction or series of
related transactions. The Facility and the Reimbursement Agreement impose
similar restrictions irrespective of credit ratings.
The issuance of first mortgage bonds by the Company is subject to earnings
coverage and bondable property provisions of the Company's first mortgage
indenture. The Company 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. The Company
currently has no requirements for long-term financing during the 1994 through
1998 period. However, during this period, the Company could enter into long-
term financings for the purpose of strengthening its balance sheet and reducing
its cost of capital. In 1994, the Company plans to redeem $45 million of its 10
1/8% first mortgage bonds due 2004.
The Company's board of directors, which reviews the Company's dividend policy
on a continuing basis, has not declared dividends on its common stock since
January 1989. As of December 31, 1993, the Company had a deficit in retained
earnings of $120.8 million and is currently unable to resume payment of
dividends on its common stock. The resumption of common dividends is dependent
upon a number of factors including the outcome of the stipulation discussed
herein, earnings and financial condition of the Company and market
29
conditions. The Company evaluated its ability to continue paying dividends on
its preferred stock under restrictions imposed by the Federal Power Act due to
the Company's negative retained earnings. By letter dated April 7, 1993, the
Company advised the FERC staff of the Company's position that payment of
preferred stock dividends would not be in violation of the Federal Power Act.
As a result, the Company has continued to declare and pay dividends on its
preferred stock on scheduled dates.
CAPITAL STRUCTURE:
The Company's capitalization, including short-term debt, at December 31 is
shown below:
1993 1992 1991
----- ----- -----
Common Equity.............................................. 34.8% 37.1% 45.0%
Preferred Stock............................................ 5.2 5.0 6.3
Long-term Debt (including current maturities).............. 60.0 54.8 47.9
Short-term Debt............................................ -- 3.1 .8
----- ----- -----
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 leases as debt, but does
include the debt associated with the beneficial interests in certain PVNGS
Units 1 and 2 leases purchased by the Company on September 2, 1992.
RESULTS OF OPERATIONS
The Company sustained a loss per common share in 1993 of $1.64, compared to a
loss of $2.67 per common share in 1992 and earnings of $.32 per common share in
1991. The loss experienced in 1993 was due primarily to the Company recording
an after-tax charge of $108.2 million to 1993 earnings resulting from the
stipulation filed with the NMPUC recommending that electric retail rates be
reduced by $30 million. The loss experienced in 1992 was due primarily to the
write-down of PVNGS Unit 3 and the provision for loss associated with the M-S-R
power purchase contract. This resulted in an $126.2 million after-tax charge to
1992 earnings.
Resources excluded from NMPUC jurisdictional rates continue to negatively
impact the Company's results of operations; however, as a result of the PVNGS
Unit 3 write-down and the provision for loss associated with the M-S-R power
purchase contract recorded in 1992, the Company experienced positive operating
income from the excluded resources during 1993.
Selected financial information for the excluded resources for 1993, 1992 and
1991, is shown below:
1993 1992 1991
-------- --------- --------
(IN THOUSANDS)
Operating revenues.............................. $ 42,517* $ 60,063 $ 59,248
Operating income (loss)......................... $ 4,297 $ (13,912) $(17,324)
Net loss........................................ $ (5,553) $(145,835) $(33,729)
Net utility plant at year-end................... $159,387 $ 200,707 $377,262
- --------
* 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
$20.5 million.
The following discussion highlights other significant items which affected
the results of operations in 1993, 1992 and 1991, and certain items impacting
future earnings.
30
Electric gross margin (electric operating revenues less fuel and purchased
power expense) increased $30.1 million in 1993 due primarily to increased gross
margin of $20.9 million from the excluded resources resulting from the 1992
provision for loss associated with the M-S-R power purchase contract and $9.3
million resulting from a 2.7% increase in jurisdictional energy sales of 145.5
million KWh. Electric gross margin also increased $15.2 million in 1992
compared to 1991 primarily resulting from a 4.3% increase in jurisdictional
energy sales of 161.3 million KWh, or $10.1 million, and an increase in off-
system sales revenues of $15.7 million due to increased sales activity in the
wholesale power market.
Gas operating revenues increased $27.9 million and gas purchased for resale
increased $27.4 million in 1993 when compared to 1992 due primarily to an
increase in transportation revenues and higher purchased gas costs (which are
recovered from customers through the PGAC). Purchased gas costs affect revenues
and gas purchased for resale equally. Gas operating revenues and gas purchased
for resale decreased $33.9 million and $33.0 million, respectively, in 1992
compared to 1991 mainly due to lower purchased gas costs.
Other operation and maintenance expenses increased $3.4 million in 1993 over
1992 primarily due to the $10.6 million effect of the Company's severance
program, increased pension and benefit expense of $4.8 million due to the
adoption of SFAS No. 106, Employer's Accounting for Postretirement Benefits
Other Than Pensions, higher electric regulatory expenses of $2.5 million due to
the framework filing and PVNGS related NRC fees, and higher PVNGS
decommissioning expense of $2.4 million. Such increases were partially offset
by a decrease in PVNGS lease expense of $12.2 million resulting from the
Company's purchase of approximately 22% of the beneficial interests in the
PVNGS Units 1 and 2 leases in September 1992 and a decrease in PVNGS operating
costs of $5.6 million as a result of the cost cutting efforts at PVNGS. Other
operation and maintenance expenses decreased $7.2 million in 1992 compared to
1991 primarily as a result of reduced lease payments resulting from the
Company's purchase of approximately 22% of the beneficial interests in the
PVNGS Units 1 and 2 leases and to a decrease in administrative and general
expenses. Another item contributing to the decrease was an accrual in the
second quarter of 1991 for estimated costs associated with the clean-up of
mercury at gas metering sites.
The Company recorded an after-tax charge of $108.2 million in 1993 as a
result of the stipulation. In 1992, the Company recorded an after-tax charge of
$126.2 million resulting from 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 (see note 2 of notes to consolidated financial statements).
Other, under the caption, Other Income and Deductions increased $16.1 million
from a year ago. Significant 1993 items, net of taxes, include the following:
(1) the gain of $7.5 million recognized from the sale of an investment, (2) the
gain of $5.6 million from the sale of generating facilities to Anaheim, (3) the
tax benefit of $2.0 million related to sharing the Anaheim gain with
jurisdictional customers, (4) tax benefits of $3.2 million due to the Federal
income tax rate change which will allow the Company to utilize its net
operating loss at a higher tax rate and (5) tax benefits of $1.4 million
resulting from the settlement of the Internal Revenue Service ("IRS")
examination of the years 1990 and 1991. Partially offsetting such increases
were: (1) additional provisions for legal and litigation expenses of $5.7
million, (2) a write-off of $4.6 million of other deferred costs, (3) a PVNGS
decommissioning fund adjustment of $2.8 million to recognize the cash surrender
value of the policies, (4) a write-off of $2.1 million resulting from costs
associated with refunding certain pollution control and, EIP bonds which
represents the amount related to FERC firm-requirement wholesale customers and
resources excluded from New Mexico jurisdictional rates, which cannot be
deferred for regulatory purposes and (5) a provision for gas environmental
costs of $1.8 million.
Significant 1992 items, net of taxes, included the following: (1) a $9.8
million charge recorded as a result of the Company's conclusion in the fourth
quarter of 1992 that it did not meet the criteria of SFAS No. 71, Accounting
for the Effects of Certain Types of Regulation, for recording electric
regulatory assets, (2) additional loss provision of $6.3 million related to gas
contract disputes, (3) recognition of an additional $2.3 million of PVNGS
decommissioning and decontamination costs related to the excluded resources,
(4) write-offs of $2.3 million resulting from the application of SFAS No. 101,
Accounting for the Discontinuance of
31
Application of SFAS No. 71, to the Company's firm-requirement wholesale
customers, (5) write-downs of $2.2 million for various non-utility properties,
(6) a write-off of $2.2 million relating to a canceled transmission project,
(7) additional transaction privilege taxes of $2.1 million, and (8) a number of
other miscellaneous items of $2.3 million. Partially offsetting such charges
were the cumulative effect of the change in the method of accounting for
unbilled revenues of $12.7 million (see note 1 of notes to consolidated
financial statements) and the gain of $2.3 million recognized from the sale of
an investment.
Significant 1991 items, net of taxes, included the following: (1) additional
shareholder litigation expenses of $7.1 million, (2) an additional provision
for loss of $2.5 million for disputes related to gas purchase contracts, (3)
losses of $2.4 million related to the M-S-R energy brokerage agreement caused
by the poor wholesale power market and (4) the write-off of AFUDC and
depreciation related to Four Corners of $2.2 million. Partially offsetting such
charges was the recapture of damage payments of $2.8 million related to the
Company's exit from diversification activities.
Net interest charges increased $12.4 million in 1993 due primarily to: (1)
recording long-term debt of $141 million for the purchase of approximately 22%
of the beneficial interests in the PVNGS Units 1 and 2 leases in September
1992, (2) the recording of the interest component of the provision for loss on
the M-S-R power purchase contract which was recorded in 1992, and (3) interest
resulting from the IRS examination settlement. Net interest charges increased
$7.7 million in 1992 compared to 1991 primarily due to the interest expense
resulting from the purchase of approximately 22% of the beneficial interests in
the PVNGS Units 1 and 2 leases, interest owed to PGAC customers and the
interest payment related to the settlement of PVNGS transaction privilege
taxes.
OTHER ISSUES FACING THE COMPANY
Excess Capacity Sales/Wholesale Power Market
In its January 11, 1993 announcement, the Company stated its intention to
dispose of excess electric generating capacity not needed by New Mexicans
including, if possible, some or all of the Company's share of PVNGS. Excess
electric generating capacity includes excluded capacity, as well as excess
capacity which is currently in New Mexico jurisdictional rates and excess
capacity associated with the firm-requirement wholesale customers. As of
December 31, 1993, the Company's excluded capacity consists of 130 MW of PVNGS
Unit 3, 80 MW of San Juan Unit 4 and the 105 MW M-S-R power purchase contract.
The 105 MW purchase from M-S-R expires April 30, 1995.
In connection with the determination to sell PVNGS Unit 3, the Company has
made on-going assessments of its net realizable value. The Company continues to
evaluate its estimates of such amounts on an on-going basis but currently does
not anticipate additional write-downs or write-offs relating to PVNGS Unit 3.
The Company continues to seek prospective buyers.
On May 27, 1993, the Company executed a purchase and participation agreement
with UAMPS to sell not less than 6.024% (30 MW) and up to 8.03% (40 MW)
undivided ownership interest in SJGS Unit 4.On September 1, 1993, the Company
and UAMPS amended the purchase and participation agreement to establish the
UAMPS purchase of excluded SJGS Unit 4 capacity at 35 MW for approximately $40
million. On November 19, 1993, the Company filed an application with the NMPUC
for approval of this sale. On January 21, 1994, the Company, the NMPUC Staff
and the New Mexico Industrial Energy Consumers entered into a stipulation
requesting approval of the sale. Hearings were held February 15, 1994, and the
Company is awaiting a recommended decision. In addition, the Company made three
filings with the FERC associated with the sale and has received approval on two
and is awaiting the outcome of the remaining filing. Closing of the transaction
will depend on the fulfillment of numerous closing conditions and will be
subject to regulatory approvals from the NMPUC and the FERC. If approved, the
Company anticipates that the closing of the sale will be in the first half of
1994.
32
Until such time as excess electric generating resources can be disposed of,
the Company continues to be dependent on the wholesale power market for the
recovery of its costs associated with the excluded portion of these excess
resources. The Company has experienced price competition in the wholesale
market due to the availability of surplus capacity from other utilities,
projected natural gas fuel prices and the existence of cogeneration,
independent power producers and self-generation as competing energy sources,
and expects such availability to continue. The Company has committed most of
its excess capacity to off-system sales during the 1994 to 2001 timeframe.
On October 27, 1993, SDG&E filed a complaint with the FERC against the
Company, alleging that certain charges under its 1985 power purchase agreement
are unjust, unreasonable and unduly discriminatory. SDG&E is requesting that
the FERC investigate the rates charged under the agreement and establish a
refund date effective as of December 26, 1993. The relief, if granted, would
reduce annual demand charges paid by SDG&E by up to $11 million per year from
the effective refund date through April 2001, subject to certain limitations if
the FERC has not acted within 15 months. The Company responded to the complaint
on December 8, 1993, and SDG&E and the Company filed subsequent pleadings. The
Company believes that the complaint is without merit, and the Company intends
to vigorously resist the complaint.
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 fund over the estimated useful life of each unit, and the trust
funds are 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 annual trust deposit, approved by the
NMPUC in 1987, is currently $396,000 per unit. The NMPUC jurisdictional share
of this amount related to PVNGS Units 1 and 2 is currently included in retail
rates. The results of the 1992 decommissioning cost study indicate that the
Company's share of the PVNGS decommissioning costs will be approximately $143.2
million, an increase from $94.2 million based on the previous study (both
amounts are stated in 1993 dollars). The Company has determined that a
supplemental investment program will be needed as a result of both the cost
increase and the under performance of the existing investment program. However,
a supplemental funding program will not be established until clarification
and/or possible revisions to a FERC order issued in October 1993 regarding
restricted investment vehicles for nuclear decommissioning trusts are obtained.
Although a supplemental program will not be established pending resolution from
the FERC, the Company has requested recovery of the increased decommissioning
costs in the stipulation. The market value of the existing trust at the end of
1993 was approximately $11.0 million, including cash surrender value of the
policies.
A Transmission Right-of-Way
The Company has easements for right-of-way with the Navajo Nation for
portions of two transmission lines that emanate from SJGS and connect with Four
Corners and with a switching station in the Albuquerque area. One grant of
easement for approximately 4.2 miles of right-of-way for two parallel 345 Kv
transmission lines expired on January 17, 1993. The Company has been
negotiating with the Navajo Nation to renew the grant and in light of the
expiring grant of easement, requested the development of an interim agreement
under which the parties would operate until a long-term solution could be
reached.
On January 6, 1994, the Navajo Nation and the Company executed an agreement
whereby the Navajo Nation agreed not to object to the Company's operating and
maintaining the facilities on the easement for right-of-way until July 17, 1994
in return for a cash payment and transfer of title to land located near the
Navajo Nation. Additionally, the Navajo Nation and the Company agreed to exert
a good faith effort to reach a long-term right-of-way renewal agreement prior
to July 17, 1994. In pursuit of resolution of this issue, the Navajo Nation
sent the Company on February 4, 1994 a letter identifying non-monetary items
the Navajo Nation would be willing to negotiate as consideration for the grant
of easement. On February 11, 1994, the
33
Navajo Nation and the Company met to establish a schedule for conducting their
negotiations. Additionally, the meeting was conducted for the purpose of the
Navajo Nation's presentation of their consultant's findings on the value of the
easement but did not represent these findings to be the Navajo Nation's
position for compensation for renewal of the easement. The Company is
evaluating the consultant's findings and has committed to submitting a proposal
to the Navajo Nation by mid-March. The Company continues to assess its options
but is not pursuing other alternatives unless it receives indications that
settlement cannot be reached in a satisfactory manner. The Company is currently
unable to predict the outcome of the negotiations or the costs resulting
therefrom.
OLE Transmission Project
In May 1984, the Company's Board of Directors approved plans to construct
OLE, a 345 Kv transmission line connecting the existing Ojo 345 Kv line to the
existing Norton Station. The Company has incurred approximately $15 million of
costs associated with OLE as of December 31, 1993, and it currently estimates
that project costs will total approximately $48 million. OLE is designed to
provide a needed improvement to the northern New Mexico transmission system and
to allow greater delivery of power from SJGS, Four Corners and PVNGS into the
Company's two largest service territories, the greater Albuquerque area and the
Santa Fe/Las Vegas area. The Company obtained right-of-way permits from two of
the three Federal agencies having authority over the lands involved in the
project. Federal district and appellate courts upheld the record of decision on
the OLE environmental impact statement. However, OLE faces considerable
opposition by persons concerned primarily about the environmental impacts of
the project.
On March 11, 1991, the Company filed for NMPUC approval for construction of
OLE. Hearings have been held and final briefs were filed in December 1992.
Until final approvals are received, the Company will use interim measures to
continue to provide reliable service. The Company is awaiting a final decision
from the NMPUC and has no indication of when a decision will be made.
Environmental Issues--Gas
The Company has evaluated the potential impacts of the following
environmental issues. The Company 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.
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA")
Two CERCLA 104(e) orders were received from the EPA in late December 1993,
requesting information regarding shipment of wastes to the Lee Acres Landfill,
located on BLM land near the city of Bloomfield in San Juan County, New Mexico.
The landfill is currently listed on the National Priorities List as a superfund
site. GCNM and Gathering Company have assessed their records and other
information to determine whether wastes were ever shipped from their facilities
to the landfill during the period when they owned and operated the natural gas
facilities. GCNM and Gathering Company's assessment indicated that no hazardous
wastes or cause of such wastes were shipped from their facilities to the
landfill during this time period. Nonetheless, GCNM and Gathering Company could
be determined to be potentially responsible parties if the EPA determines GCNM
and Gathering Company shipped wastes to the site, and could be asked or
compelled to provide funds for site cleanup. GCNM and Gathering Company
prepared and submitted their response to the EPA on March 8, 1994.
Toxic Substances Control Act ("TSCA")
TSCA requires manufacturers and importers of organic chemicals, including
natural gas substances, to report a listing and quantity of certain toxic
chemicals to the EPA every four years. Naturally occurring substances such as
crude oil and unprocessed natural gas need not be reported. Due to the natural
gas industry's interpretation on when unprocessed natural gas becomes a
reportable substance, GCNM and Processing Company did not report TSCA
substances to the EPA in prior reporting years of 1986 and 1990. As a result of
the EPA's clarification on the limited scope of the exemption, GCNM and
Processing Company now have filed their reports for 1986 and 1990 and will
report such substances to the EPA in the 1994 reporting year. The companies may
be subject to administrative fines/penalties for their failure to report in
1986 and 1990. The maximum penalty allowed under the statute is $25,000/day for
every day the report has not been filed.
34
Gas Wellhead Pit Remediation
Effective September 1992, the OCD issued a ruling which affects GCNM and
Gathering Company's natural gas gathering facilities located in the
northwestern part of New Mexico. The ruling prohibits the further discharge of
fluids associated with the production of natural gas into unlined open pits in
certain areas deemed environmentally sensitive due to their proximity to fresh
water supplies. In addition to the cessation of the discharge of fluids, the
ruling requires that GCNM and Gathering Company remediate the areas where
discharges have contaminated fresh water supplies. GCNM has submitted generic
closure plans for the pits, which have been approved by OCD and the BLM.
Air Permits
A recent environmental audit, associated with the Company's proposed sale of
certain gas assets, brought to light certain discrepancies regarding required
air permits associated with certain natural gas facilities. The audit
identified a total of thirteen facilities containing discrepancies. The vast
majority of the discrepancies are minor in nature and include discrepancies in
record keeping, equipment identification and inaccurate information in air
permit applications. The discrepancies at three of the facilities involve
permit issuance and modification and are more serious in nature. The Company is
subject to administrative fines/penalties by the New Mexico Environment
Department ("NMED") for these discrepancies.
The Company plans to meet with the NMED in March 1994 to discuss the nature
of the permit discrepancies and to propose methods and schedules to resolve the
discrepancies. The resolution process will include the filing of permit
applications, modifications and revisions where necessary. After reviewing the
applications, NMED will determine whether to grant the application,
modification or revision and make a determination whether to impose any
fines/penalties.
The CERCLA, air permits and gas wellhead pit remediation issues previously
discussed are part of the retained environmental liabilities under the sale
agreement with Williams (see Sale of Gas Gathering and Processing Assets).
Environmental Issue--Electric
The Company's current estimate to decommission its retired fossil-fueled
plants (see "Fossil-Fueled Plant Decommissioning Costs") includes approximately
$17.2 million for a groundwater remediation program at Person Station. The
Company, in compliance with a New Mexico Environment Action Directive, has
determined that ground water contamination exists in the deep and shallow water
aquifers. The Company is required to delineate the extent of the contamination
and remediate the contaminant in the ground water. The extent of the
contaminant plume in the deep water aquifer is not currently known, and the
estimate assumes that the deep ground water plume can be easily delineated with
a minimum number of monitoring wells. As part of the financial assurance
requirements of the Person Station Hazardous Waste Permit, the Company posted a
$3.7 million performance bond with a trustee. The remediation program continues
on schedule. The Company does not anticipate any material adverse impact on its
financial condition or the results of operations with respect to the
remediation program.
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 $126 million stated in 1992 dollars, including approximately $24
million for Person, Prager and Santa Fe Stations which have been retired.
In June of 1993, the Company filed for recovery of all estimated
decommissioning costs by factoring them into its depreciation rates included in
the Company's depreciation rate study filed with the NMPUC.
35
As previously discussed, the Company and the interested parties entered into
the January 12, 1994 stipulation. The stipulation affirms the Company's right
to recover all fair, just and reasonable costs arising from the decommissioning
of its fossil-fueled generating plants in service, including demolition, waste
disposal, environmental and site restoration. The stipulation also resolves the
issues of decertification and decommissioning of the Company's three retired
fossil-fueled generating stations resulting in the Company foregoing recovery
of the first $24.4 million of decommissioning costs associated with these
stations. The stipulation is subject to NMPUC approval.
Palo Verde Nuclear Generating Station--Steam Generator Tubes
On December 26, 1993, PVNGS Unit 3 returned to service at approximately 85%
power following a mid-cycle outage during which APS inspected Unit 3's steam
generators. APS has informed the NRC that the inspection did not reveal the
type of tube degradation (axial cracking in upper bundle) experienced in Unit
2's steam generators; however, the inspection did reveal another more common
type of tube degradation (circumferential cracking at tubesheet) in Unit 3's
steam generators which has occurred in similarly-designed steam generators at
other plants. The next regular refueling outage for Unit 3 is scheduled to
begin in March 1994, at which time APS plans to inspect and chemically clean
that unit's steam generators.
On January 8, 1994, APS removed Unit 2 from service to inspect and chemically
clean its two steam generators during a mid-cycle outage. The inspection
revealed additional tube degradation of the type (axial cracking in upper
bundle) previously found in that unit's steam generators. The inspection has
also revealed the common type of tube degradation (circumferential cracking at
tubesheet) which has occurred in similarly-designed steam generators at other
plants. Based on these findings, APS expanded the scope of the inspection of
the Unit 2 steam generators and the planned duration of the outage until late
March. However, because APS's analysis of Unit 2's steam generators is ongoing,
APS cannot predict with certainty the timing of the restart of Unit 2. APS is
currently evaluating the need for an additional mid-cycle outage for Unit 2
during 1994.
Unit 1 and Unit 3 continue to operate at approximately 85% power since each
unit returned to service in November 1993 and December 1993, respectively,
after outages during which each unit's steam generators were inspected.
APS has performed, and is continuing, certain corrective actions including,
among other things, chemical cleaning, operating the units at reduced
temperatures, and, for some period, operating the units at approximately 85%
power. As a result of these corrective actions, all three units should be
returned to 100% power by mid 1995, and one or more of the units could be
returned to 100% power during the course of 1994. So long as the three units
are involved in mid-cycle outages and are operated at approximately 85% power,
the Company will incur replacement power costs and reduced wholesale sale
incentives of approximately $5.7 million during 1994, approximately 75% of
which will be recovered through the Company's FPPCAC.
El Paso Electric Company
The Company owns or leases a 10.2% interest in PVNGS and owns a 13% interest
in Four Corners Units 4 and 5, which are operated by APS. El Paso owns or
leases a 15.8% interest in PVNGS and owns a 7.0% interest in Four Corners Units
4 and 5.
On January 8, 1992, El Paso filed a voluntary petition to reorganize under
Chapter 11 of the United States Bankruptcy Code. On September 8, 1992, El Paso
filed a plan of reorganization with the bankruptcy court, which was later
amended pursuant to an October 26, 1992 filing with the court. On May 4, 1993,
El Paso and Central and South West Corporation ("CSW") announced a plan for
merger in connection with El Paso's Chapter 11 reorganization, under which El
Paso would become a wholly-owned subsidiary of CSW.
36
A modified amended El Paso--CSW plan and disclosure statement dated August 27,
1993 has been filed with the bankruptcy court and was approved December 8,
1993. In order for the merger to be implemented, CSW and El Paso must receive
appropriate regulatory approvals, including approval of the NRC and the FERC.
In the El Paso--CSW FERC proceedings, the Company has intervened to protect its
interests relative to the various transmission issues raised by the El Paso--
CSW filings. The Company's regulatory filings in the FERC proceeding address
reliability and potential system impacts that may result to the Company from
the merger. At this time the Company is unable to predict the result of these
regulatory proceedings.
In addition to approving the El Paso--CSW plan, the bankruptcy court approved
the Cure and Assumption Agreement between El Paso and the PVNGS participants,
which provides for (i) various mutual releases and (ii) the execution of a
release by El Paso and any alleged claims regarding the 1989-90 PVNGS outages.
All such releases will be effective on the effective date of the El Paso--CSW
plan. The Cure and Assumption Agreement also provided for payment in full to
the PVNGS participants of pre-petition monies owed by El Paso. El Paso has made
the payment contingent upon its completion of the merger with CSW.
The bankruptcy court also approved the assumption by El Paso of several
wheeling agreements that El Paso and the Company agreed to extend as part of a
120 day transition agreement. In connection with the assumptions, El Paso paid
the Company approximately $2.3 million owed for pre and post-petition wheeling
services. Although the transition agreement has expired by its terms, the
parties have signed an agreement in principle for near-term and longer-term
wheeling services. The agreement would provide El Paso with a total of 80 MW of
transmission service until such time as El Paso installs a phase shifting
transformer ("PST") which is expected to be late 1995. The agreement would
provide El Paso with 20 MW of service after the PST is installed in exchange
for payment by El Paso of proportional costs incurred by the Company for
generation support of the transmission as well as wheeling charges. The Company
and El Paso have also agreed to negotiate both near-term and longer-term
operating procedures, which may include transfer by the Company of operating
agent status for the Southern New Mexico Transmission System to El Paso. The
Company will continue to retain its transmission rights (presently 75 MW) in
southern New Mexico. The wheeling agreement will be subject to regulatory
approval at FERC and will also be reviewed by the NMPUC in connection with
several regulatory filings of El Paso, both predating and in connection with
the El Paso-- CSW merger.
Albuquerque Franchise Issues
The Company's non-exclusive electric service franchise with the City of
Albuquerque (the "City") expired in early 1992. The franchise agreement
provided for the Company's use of City property for electric service rights-of-
way. The Company continues service to the area, which contributed 46% of the
Company's total 1993 electric operating revenues. The absence of a franchise
does not change the Company's right and obligation to serve those customers
under state law. In November 1991, the NMPUC issued an order concluding, among
other things, that the City could bid for services to its own facilities
(Albuquerque municipal loads generated approximately $17.0 million, $16 million
and $17 million in annual revenue for 1993, 1992 and 1991, respectively), but
not for service to other customers. In reaching this conclusion, the NMPUC
noted that New Mexico law reflects a legislative choice to vest the NMPUC with
exclusive control over utility rates and services. The NMPUC also noted that
the Company's obligation to serve its customers in Albuquerque will continue
irrespective of whether the municipal franchise is renewed. The City appealed
the NMPUC's order to the New Mexico Supreme Court (the "Court"). On April 21,
1993, the Court issued its decision on the City's appeal of the NMPUC order.
The 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 were not licenses to serve
but rather to provide access to public rights-of-way.
37
In 1992, representatives of the Company and the City met in attempts to
resolve the franchise renewal issue. Currently, the franchise renewal meetings
are in abeyance due to the City's interest in the outcome of the retail
wheeling legislation which was introduced in the 1993 state legislative
session. The Company continues to pay franchise fees to the City.
Retail Wheeling
During 1992, open access to transmission grids in the electric wholesale
market, as mandated by the National Energy Policy Act, stimulated interest in
the retail wheeling concept in New Mexico, resulting in the introduction of
legislation in the 1993 New Mexico state legislature. On March 6, 1993, the New
Mexico State Senate passed Senate Memorial 54, which calls for the concept of
retail wheeling to be studied by the Integrated Resource Planning Committee
which is an interim legislative committee, with a report to be made to the 1995
legislature. The Company has been providing information for the study effort.
The study is anticipated to be completed by December 1994.
38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
PAGE
----
Management's Responsibility for Financial Statements....................... F-1
Report of Independent Public Accountants................................... F-2
Independent Auditor's Report............................................... F-3
Financial Statements:
Consolidated Statement of Earnings (Loss)................................ F-4
Consolidated Statement of Retained Earnings (Deficit).................... F-5
Consolidated Balance Sheet............................................... F-6
Consolidated Statement of Cash Flows..................................... F-7
Consolidated Statement of Capitalization................................. F-8
Notes to Consolidated Financial Statements............................... F-9
Supplementary Data:
Consolidated Financial Statement Schedules............................... F-31
Quarterly Operating Results.............................................. F-38
Comparative Operating Statistics......................................... F-39
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Public Service Company of New Mexico is responsible for the
preparation and presentation of the accompanying consolidated financial
statements. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include amounts
that are based on informed estimates and judgments of management.
Management maintains a system of internal accounting controls which it
believes is adequate to provide reasonable assurance that assets are
safeguarded, transactions are executed in accordance with management
authorization and the financial records are reliable for preparing the
consolidated financial statements. The system of internal accounting controls
is supported by written policies and procedures, by a staff of internal
auditors who conduct comprehensive internal audits and by the selection and
training of qualified personnel.
The Board of Directors, through its Audit Committee comprised entirely of
outside directors, meets periodically with management, internal auditors and
the Company's independent auditors to discuss auditing, internal control and
financial reporting matters. To ensure their independence, both the internal
auditors and independent auditors have full and free access to the Audit
Committee.
The independent auditors, Arthur Andersen & Co., 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 the Stockholders of
Public Service Company of New Mexico:
We have audited the accompanying consolidated balance sheet and statement of
capitalization of Public Service Company of New Mexico (a New Mexico
corporation) and subsidiaries as of December 31, 1993, and the related
consolidated statements of earnings (loss), retained earnings (deficit), and
cash flows for the year then ended. In connection with our audit of the
consolidated financial statements, we have also audited the financial statement
schedules V, VI and IX for the year ended December 31, 1993. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audit.
We conducted our audit 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 audit provides 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, 1993, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein. These financial statement
schedules are presented for purposes of complying with the Securities and
Exchange Commissions rules and are not part of the basic consolidated financial
statements.
As explained in Notes 1 and 6 to the financial statements, effective January
1, 1993, the Company adopted Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions, and
No. 109, Accounting for Income Taxes.
Arthur Andersen & Co.
Albuquerque, New Mexico
February 25, 1994
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Public Service Company of New Mexico:
We have audited the consolidated balance sheet and statement of
capitalization of Public Service Company of New Mexico and subsidiaries as of
December 31, 1992, and the related statements of earnings (loss), retained
earnings (deficit) and cash flows for each of the years in the two-year period
ended December 31, 1992. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedules V,
VI and IX for each of the years in the two-year period ended December 31, 1992.
These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules 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 consolidated 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, 1992, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1992, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
The Company has substantial excess electric generating capacity, the cost and
amount of which continue to negatively impact financial condition and results
of operations as well as the level of New Mexico retail rates. The Company has
adopted certain plans and is evaluating other options to address the negative
effects related to its excess capacity. Because the ultimate outcome of these
matters, including NMPUC regulatory responses thereto, is not presently
determinable, the recovery of (i) the Company's remaining direct investment in
Palo Verde Nuclear Generating Station (PVNGS) Unit 3, and (ii) its lease costs
related to PVNGS Units 1 and 2, is uncertain. Accordingly, neither a provision
for any additional loss related to PVNGS Unit 3 nor any provision for loss
related to PVNGS Units 1 and 2 has been recognized in the accompanying 1992
consolidated financial statements.
As discussed in note 1 of notes to consolidated financial statements, the
Company changed its method of accounting for unbilled revenues in 1992.
KPMG PEAT MARWICK
Albuquerque, New Mexico
March 11, 1993
F-3
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
-------- --------- --------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
Operating Revenues (note 1):
Electric....................................... $589,728 $ 596,323 $568,486
Gas............................................ 271,087 243,159 277,069
Water.......................................... 13,063 12,471 11,613
-------- --------- --------
Total operating revenues.................... 873,878 851,953 857,168
-------- --------- --------
Operating Expenses:
Fuel and purchased power (note 1).............. 140,674 177,325 164,711
Gas purchased for resale....................... 125,940 98,517 131,479
Other operation expenses....................... 274,023 273,141 282,418
Maintenance and repairs........................ 56,821 54,309 52,229
Depreciation and amortization.................. 77,326 79,256 76,053
Taxes, other than income taxes................. 40,089 40,579 39,214
Income taxes (note 5).......................... 25,721 16,891 13,811
-------- --------- --------
Total operating expenses.................... 740,594 740,018 759,915
-------- --------- --------
Operating income................................ 133,284 111,935 97,253
-------- --------- --------
Other Income and Deductions:
Allowance for equity funds used during
construction.................................. -- 68 1,105
Write-down of PVNGS Unit 3 and the provision
for loss associated with the M-S-R power
purchase contract (note 2).................... -- (221,324) --
Write-down of PVNGS Units 1 and 2 leases,
regulatory assets and other deferred costs
(note 2)...................................... (178,954) -- --
Other.......................................... (12,792) (28,895) (13,284)
Income tax benefit (note 5).................... 82,799 107,371 3,618
-------- --------- --------
Net other income and deductions............. (108,947) (142,780) (8,561)
-------- --------- --------
Income (loss) before interest charges....... 24,337 (30,845) 88,692
-------- --------- --------
Interest Charges:
Interest on long-term debt.................... 72,525 63,826 59,928
Other interest charges........................ 13,719 10,735 7,608
Allowance for borrowed funds used during
construction................................. (421) (1,151) (1,804)
-------- --------- --------
Net interest charges........................ 85,823 73,410 65,732
-------- --------- --------
Net Earnings (Loss)............................. (61,486) (104,255) 22,960
Preferred Stock Dividend Requirements........... 6,829 7,105 9,474
-------- --------- --------
Net Earnings (Loss) Available for Common Stock.. $(68,315) $(111,360) $ 13,486
======== ========= ========
Average Number of Common Shares Outstanding..... 41,774 41,774 41,774
======== ========= ========
Net Earnings (Loss) per Share of Common Stock... $ (1.64) $ (2.67) $ 0.32
======== ========= ========
Dividends Paid per Share of Common Stock........ $ -- $ -- $ --
======== ========= ========
The accompanying notes are an integral part of these financial statements.
F-4
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (DEFICIT)
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
--------- --------- -------
(IN THOUSANDS)
Balance at Beginning of Year..................... $ (52,533) $ 60,189 $46,703
Net earnings (loss).............................. (61,486) (104,255) 22,960
Redemption of cumulative preferred stock......... -- (1,362) --
Dividends:
Cumulative preferred stock..................... (6,829) (7,105) (9,474)
Common stock................................... -- -- --
--------- --------- -------
Balance at End of Year........................... $(120,848) $ (52,533) $60,189
========= ========= =======
The accompanying notes are an integral part of these financial statements.
F-5
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
----------------------
1993 1992
ASSETS ---------- ----------
(IN THOUSANDS)
Utility Plant, at original cost except PVNGS Unit 3
and the 22% beneficial interests in PVNGS Units 1 & 2
leases (notes 1, 2, 3 and 7):
Electric plant in service............................ $1,789,100 $1,985,197
Gas plant in service................................. 511,527 485,637
Water plant in service............................... 54,325 55,819
Common plant in service.............................. 47,581 36,510
Plant held for future use............................ 375 1,258
---------- ----------
2,402,908 2,564,421
Less accumulated depreciation and amortization....... 846,234 812,737
---------- ----------
1,556,674 1,751,684
Construction work in progress........................ 109,333 87,547
Nuclear fuel, net of accumulated amortization of
$30,425 and $25,476................................. 37,925 37,830
---------- ----------
Net utility plant.................................. 1,703,932 1,877,061
---------- ----------
Other Property and Investments:
Non-utility property, at cost, net of accumulated
depreciation, partially pledged..................... 6,489 9,369
Other investments, at cost, partially pledged........ 27,477 31,683
---------- ----------
Total other property and investments............... 33,966 41,052
---------- ----------
Current Assets:
Cash................................................. 20,510 21,080
Temporary investments, at cost....................... 47,850 185
Receivables.......................................... 147,223 135,847
Income taxes receivable.............................. 10,400 9,225
Fuel, materials and supplies, at average cost........ 48,086 51,308
Gas in underground storage, at average cost.......... 8,599 9,014
Other current assets................................. 11,347 7,039
---------- ----------
Total current assets............................... 294,015 233,698
---------- ----------
Deferred charges...................................... 180,276 223,771
---------- ----------
$2,212,189 $2,375,582
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization (note 3):
Common stock equity:
Common stock outstanding--41,774,083 shares.......... $ 208,870 $ 208,870
Additional paid-in capital........................... 470,149 470,149
Excess pension liability, net of tax (note 6)........ (2,795) --
Retained earnings (deficit) since January 1, 1989.... (120,848) (52,533)
---------- ----------
Total common stock equity.......................... 555,376 626,486
Cumulative preferred stock without mandatory
redemption requirements............................. 59,000 59,000
Cumulative preferred stock with mandatory redemption
requirements........................................ 24,386 25,700
Long-term debt, less current maturities.............. 957,622 911,252
---------- ----------
Total capitalization............................... 1,596,384 1,622,438
---------- ----------
Current Liabilities:
Short-term debt...................................... -- 51,550
Accounts payable..................................... 116,905 170,644
Current maturities of long-term debt (note 3)........ 18,903 13,524
Accrued interest and taxes........................... 29,992 29,361
Other current liabilities............................ 51,364 36,596
---------- ----------
Total current liabilities.......................... 217,164 301,675
---------- ----------
Deferred Credits:
Accumulated deferred investment tax credits (note
5).................................................. 78,462 86,783
Accumulated deferred income taxes (note 5)........... 47,283 98,141
Other deferred credits............................... 272,896 266,545
---------- ----------
Total deferred credits............................. 398,641 451,469
---------- ----------
Commitments and Contingencies (notes 2 and 6 through
11).................................................. $2,212,189 $2,375,582
========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------------
1993 1992 1991
--------- ---------- -------
(IN THOUSANDS)
Cash Flows From Operating Activities:
Net earnings (loss).......................... $(61,486) $(104,255) $22,960
Adjustments to reconcile net earnings (loss)
to net cash flows from operating activities:
Depreciation and amortization.............. 95,415 100,510 97,226
Allowance for equity funds used during
construction.............................. -- (68) (1,105)
Accumulated deferred investment tax credit. (8,321) (21,390) (8,323)
Accumulated deferred income tax............ (63,393) (88,664) 25,539
Write-down of PVNGS Unit 3 and the
provision for loss associated
with the M-S-R power purchase contract.... -- 221,324 --
Gain on sale of utility property........... (7,350) -- --
Gain on sale of other property and
investments............................... (12,394) -- (4,346)
Write-down of PVNGS Units 1 and 2 leases,
regulatory assets and other deferred
costs..................................... 178,954 -- --
Changes in certain assets and liabilities:
Receivables.............................. (12,551) (29,224) (787)
Fuel, materials and supplies............. 3,222 621 (3,916)
Deferred charges......................... 20,936 (31,427) (27,312)
Accounts payable......................... (53,973) 13,671 29,592
Accrued interest and taxes............... 631 (155) (1,401)
Deferred credits......................... (7,137) 38,997 (17,372)
Other.................................... 10,571 10,654 (2,602)
Other, net................................. 14,181 7,612 (1,110)
--------- ---------- -------
Net cash flows from operating activities. 97,305 118,206 107,043
--------- ---------- -------
Cash Flows From Investing Activities:
Utility plant additions...................... (100,784) (95,009) (79,894)
Palo Verde lease purchase.................... -- (17,523) --
Utility plant sales.......................... 49,302 -- --
Other property additions..................... (2,554) (8,564) (6,827)
Other property sales......................... 19,912 68 15,878
Temporary investments, net................... (47,665) 3,920 (2,061)
--------- ---------- -------
Net cash flows from investing activities. (81,789) (117,108) (72,904)
--------- ---------- -------
Cash Flows From Financing Activities:
Redemptions and repurchases of preferred
stock....................................... (600) (19,067) (3,462)
Bond refinancing costs....................... (8,960) -- --
Proceeds from asset securitization........... 60,475 -- --
Repayments of long-term debt................. (8,842) (2,456) (12,938)
Net increase (decrease) in short-term debt... (51,550) 38,550 (2,000)
Dividends paid............................... (6,609) (7,750) (9,622)
--------- ---------- -------
Net cash flows from financing activities. (16,086) 9,277 (28,022)
--------- ---------- -------
Increase (Decrease) in Cash................... (570) 10,375 6,117
Cash at Beginning of Period................... 21,080 10,705 4,588
--------- ---------- -------
Cash at End of Year........................... $ 20,510 $ 21,080 $10,705
========= ========== =======
Supplemental cash flow disclosures:
Interest paid................................ $ 83,248 $ 72,630 $66,200
========= ========== =======
Income taxes paid............................ $ 13,978 $ 11,848 $ 2,065
========= ========== =======
Supplemental schedule of noncash investing and financing activities:
On September 2, 1992, the Company acquired approximately 22% of the
lessors' interests in the PVNGS Units 1 and 2 leases. In conjunction with
the acquisition, long-term debt was recorded as follows:
Utility plant acquired..................... $ 158,282
Cash paid for beneficial interests and
transaction costs......................... (17,523)
----------
Long-term debt recorded.................... $ (140,759)
==========
Cash consists of currency on hand and demand deposits.
The accompanying notes are an integral part of these financial statements.
F-7
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITALIZATION
DECEMBER 31,
----------------------
1993 1992
---------- ----------
(IN THOUSANDS)
Common Stock Equity (note 3):
Common Stock, par value $5 per share...................... $ 208,870 $ 208,870
Additional paid-in capital................................ 470,149 470,149
Excess pension liability, net of tax (note 6)............. (2,795) --
Retained earnings (deficit) since January 1, 1989......... (120,848) (52,533)
---------- ----------
Total common stock equity............................... 555,376 626,486
---------- ----------
SHARES CURRENT
STATED OUTSTANDING AT REDEMPTION
VALUE DECEMBER 31, 1993 PRICE
------ ----------------- ----------
Cumulative Preferred
Stock (note 3):
Without mandatory redemption
requirements:
1965 Series, 4.58%.. $100 130,000 $102.00 13,000 13,000
8.48% Series........ 100 200,000 100.00 20,000 20,000
8.80% Series........ 100 260,000 100.00 26,000 26,000
------- ---------- ----------
590,000 59,000 59,000
======= ---------- ----------
With mandatory redemption
requirements:
8.75% Series........ 100 256,861 102.90 25,686 26,286
Redeemable within
one year........... 13,000 1,300 586
------- ---------- ----------
243,861 24,386 25,700
------- ---------- ----------
Long-Term Debt (note 3):
ISSUE AND FINAL MATURITY INTEREST RATES
- ------------------------ -----------------
First mortgage bonds:
1997................ 5 7/8% 15,400 15,551
1999 through 2002... 7 1/4% to 8 1/8% 44,639 44,978
2004 through 2007... 8 1/8% to 10 1/8% 92,461 92,766
2008................ 9% 57,386 57,386
Pollution control
revenue bonds:
1993 through 2023... 5.9% to 7 3/4% 537,045 437,045
2022................ Variable rate 37,300 37,300
---------- ----------
Total first
mortgage bonds... 784,231 685,026
Pollution control
revenue bonds:
2003 through 2013... 10% to 10 1/4% -- 100,000
Lease obligation bonds
of First PV Funding
Corporation:
1996 through 2016... 8.95% to 10.3% 137,164 140,759
Asset securitization.. 56,137 --
Other, including
unamortized premium
and (discount)....... (1,007) (1,009)
---------- ----------
Total long-term
debt............... 976,525 924,776
Less current
maturities........... 18,903 13,524
---------- ----------
Long-term debt, less
current maturities. 957,622 911,252
---------- ----------
Total Capitalization.... $1,596,384 $1,622,438
========== ==========
The accompanying notes are an integral part of these financial statements.
F-8
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Systems of Accounts
The Company maintains its accounts for utility operations primarily in
accordance with the uniform systems of accounts prescribed by the Federal
Energy Regulatory Commission ("FERC") and the National Association of
Regulatory Utility Commissioners ("NARUC"), and adopted by the New Mexico
Public Utility Commission ("NMPUC").
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.
Utility Plant
Utility plant, with the exception of Palo Verde Nuclear Generating Station
("PVNGS") Unit 3 and the Company's purchased 22% beneficial interests in the
PVNGS Units 1 and 2 leases, is stated at original cost, which includes
capitalized payroll-related costs such as taxes, pension and other fringe
benefits, administrative costs and an allowance for funds used during
construction ("AFUDC"). Utility plant includes certain electric assets not
subject to NMPUC regulation. The results of operations of such electric assets
are included in operating income. (See note 2.)
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:
1993 1992 1991
---- ---- ----
Electric plant................ 2.98% 2.94% 2.90%
Gas plant..................... 3.12% 2.91% 3.13%
Water plant................... 2.62% 2.62% 2.58%
Common plant.................. 4.90% 4.92% 6.53%
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.
Allowance for Funds Used During Construction
As provided by the uniform systems of accounts, AFUDC, a noncash item, is
charged to utility plant. AFUDC represents the cost of borrowed funds
(allowance for borrowed funds used during construction) and
F-9
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
a return on other funds (allowance for equity funds used during construction).
The Company capitalizes AFUDC on construction work in progress and nuclear fuel
in the process of enrichment to the extent allowed by regulatory commissions.
With the January 11, 1993 announcement, the Company determined that beginning
with the fourth quarter of 1992, it would suspend recording AFUDC on
construction work in progress pending the outcome of the framework filing (see
note 2). The Company did record AFUDC on nuclear fuel in process during this
time.
AFUDC is computed using the maximum rate permitted by the FERC. The total
AFUDC rates used were 4.37%, 5.27%, and 8.96% for 1993, 1992 and 1991,
respectively, compounded semi-annually.
Fuel, Purchased Power and Gas Purchase Costs
The Company uses the deferral method of accounting for the portion of base
fuel costs (defined as fuel costs plus net purchased power costs less off-
system sales revenues) and gas purchase costs which is reflected in subsequent
periods under fuel and purchased power cost adjustment clauses and gas
adjustment clauses. Future recovery of these costs is based on orders issued by
the regulatory commissions.
Amortization of Debt Discount, Premium and Expense
Discount, premium and expense related to the issuance and retirement of long-
term debt are amortized over the lives of the respective issues. Costs
associated with retirement of long-term debt related to the Company's NMPUC
jurisdictional customers were written off as part of the January 12, 1994
stipulation. (See note 2.)
Income Taxes
Certain revenue and expense items in the consolidated statement of earnings
(loss) are recorded for financial reporting purposes in years different from
those in which they are recorded for income tax purposes. Customers under NMPUC
jurisdiction are charged currently for the tax effects of certain of these
differences (normalization). However, the income tax effects of certain other
differences result in reductions of income tax expense for ratemaking purposes
in the current year as required by the NMPUC (flow-through). This flow-through
method is used primarily for minor differences between book and tax
depreciation. A 1990 NMPUC order in an electric rate case required reversal of
the flow-through treatment previously accorded the premiums on retirement of
first mortgage bonds and losses on hedging transactions, and retroactively
required tax normalization of these items. Additional tax normalization is
required by generally accepted accounting principles ("GAAP") for all temporary
differences not subject to NMPUC rate regulation.
Deferred income taxes are recorded to reflect tax normalization using the
liability method. Deferred tax liabilities are computed using the enacted tax
rates scheduled to be in effect when the temporary differences reverse. 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.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS No.
109 requires the use of the liability method for
F-10
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
recording deferred income taxes on temporary differences between income tax and
financial reporting using the enacted tax rates at which such differences are
expected to reverse. The Company had previously adopted SFAS No. 96, which also
required the use of the liability method. For that reason, the adoption of SFAS
No. 109 had no material effect upon 1993 operating results.
The Revenue Reconciliation Act of 1993, enacted in August of 1993, contains a
provision which raises the corporate Federal income tax rate from 34 to 35
percent, retroactive to January 1, 1993. The effects of this change were
recorded during 1993. Neither this nor any other provision of this Act is
expected to have any material impact on the Company's financial condition or
its results of operations.
Change in Accounting for Unbilled Revenues
Prior to January 1, 1992, the Company recognized utility revenues when
billed. To provide a better matching of the Company's revenues from sales with
the related costs, effective January 1, 1992, the Company changed its method of
accounting to record estimated revenues from sales of utility services provided
subsequent to monthly billing cycle dates but prior to the end of the
accounting period. The cumulative effect of this accounting change as of
January 1, 1992, net of taxes, was $12.7 million or $.30 per common share and
was included in 1992 net earnings as a component of other income and
deductions. The effect of the accounting change on 1992 net income, exclusive
of the cumulative effect, was to increase net earnings and net earnings per
common share by $1.7 million and $.04, respectively. Had the accrual method
been applied in 1991, net earnings for that year would not have been materially
different from that shown in the consolidated statement of earnings. The effect
of this accounting change has resulted in a decrease in net earnings and net
earnings per common share by $1.0 million and $.02, respectively, for the
twelve months ended December 31, 1993.
(2)ELECTRIC OPERATIONS STIPULATION AND WRITE-OFFS
On January 11, 1993, the Company announced specific actions which were
determined to be necessary in order to accelerate the Company's preparation for
the new challenges in the competitive electric energy market. Included in the
announcement was the Company's intention to file a plan ("framework filing")
with the NMPUC designed to lower electric prices by consolidating certain gas
and electric functions, restructuring assets and reducing operation and
maintenance expenses by $25 million annually. The Company separated the gas and
electric customer service consolidation issues from the balance of the
framework filing.
In its January 11, 1993 announcement, the Company also stated its intention
to dispose of excess electric generating capacity not needed by New Mexicans
including, if possible, some or all of the Company's share of PVNGS. Excess
electric generating capacity includes excluded capacity, as well as excess
capacity which is currently in New Mexico jurisdictional rates and excess
capacity associated with the firm-requirement wholesale customers. As of
December 31, 1993, the Company's excluded capacity consists of 130 MW of PVNGS
Unit 3, 80 MW of San Juan Generating Station ("SJGS") Unit 4 and the 105 MW M-
S-R Public Power Agency ("M-S-R") power purchase contract. As a result of the
Company's decision to attempt to sell PVNGS Unit 3, the Company estimated the
net realizable value of PVNGS Unit 3 and the M-S-R power purchase contract and
recorded an after-tax loss of $126.2 million at December 31, 1992. The Company
continues to evaluate its estimate of such amounts on an on-going basis but
currently does not anticipate additional write-downs or write-offs of PVNGS
Unit 3 and the M-S-R power purchase contract. The Company continues to seek
prospective buyers for the PVNGS units.
F-11
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(2)ELECTRIC OPERATIONS STIPULATION AND WRITE-OFFS--(CONTINUED)
On January 12, 1994, the Company and the NMPUC staff and primary intervenor
groups (the New Mexico Attorney General, the New Mexico Industrial Energy
Consumers, the City of Albuquerque, the United States Executive Agencies and
the New Mexico Retail Association) ("interested parties") entered into a
stipulation ("stipulation") which addresses retail electric prices, generation
assets and certain financial concerns of the Company. The Company filed the
stipulation with the NMPUC, recommending that electric retail rates be reduced
by $30 million. This reduction is accomplished primarily through 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, the write-off of certain PVNGS Units 1 and 2 common costs and the
Company's previously announced cost reduction efforts. In connection with the
stipulation, the Company has charged approximately $108.2 million, after-tax,
to the 1993 results of operations. Such after-tax charge resulted in the
Company continuing to have a deficit in retained earnings as of December 31,
1993. As a result, the Company is unable to resume payment of dividends on its
common stock. The Company evaluated the possibility of a quasi-reorganization
but does not intend to implement a quasi-reorganization at this time.
The stipulation is subject to NMPUC approval. The Company believes that the
approval of the stipulation would result in a reduction of competitive risk and
regulatory uncertainty. However, there can be no assurance that the stipulation
will be approved by the NMPUC. If the stipulation is not approved in its
entirety, unless otherwise agreed to by all interested parties, the stipulation
shall be null and void.
On January 3, 1994, the NMPUC issued an order establishing investigations of
rates for both the Company and Southwestern Public Service Company ("SPS"). The
order required the Company to file a general rate case no later than July 1,
1994. However, at the prehearing conference held on February 23, 1994,
regarding the stipulation, the NMPUC vacated the requirements of its original
request and will allow the stipulation to satisfy their requirements. Hearings
on the stipulation have not been scheduled; however, the Company and interested
parties are scheduled to file testimony on April 18, 1994. The NMPUC confirmed
the oral rulings in a written order issued on March 7, 1994.
On March 7, 1994, the Albuquerque City Council deadlocked on endorsing the
Mayor's signing of the stipulation. The Company is currently unable to
determine what impact, if any, the City Council's action might have on the
stipulation. However, the Company remains committed to the process and will
meet with the other parties who signed the stipulation to evaluate this new
development. The Company believes that the stipulation will continue through
the hearing process being established by the NMPUC.
F-12
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(3)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
-------------------- ----------------- -------------------
ADDITIONAL NUMBER AGGREGATE NUMBER AGGREGATE
NUMBER OF AGGREGATE PAID-IN OF STATED OF STATED
SHARES PAR VALUE CAPITAL SHARES VALUE SHARES VALUE
---------- --------- ---------- ------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
Balance at December 31,
1990................... 41,774,083 $208,870 $469,688 590,000 $59,000 629,163 $45,581
Redemption of preferred
stock................. -- -- 135 -- -- (12,642) (1,264)
Redemption within one
year.................. -- -- -- -- -- (346,700) (17,335)
---------- -------- -------- ------- ------- -------- -------
Balance at December 31,
1991................... 41,774,083 208,870 469,823 590,000 59,000 269,821 26,982
Redemption of preferred
stock................. -- -- 326 -- -- (6,960) (696)
Redemption within one
year.................. -- -- -- -- -- (5,861) (586)
---------- -------- -------- ------- ------- -------- -------
Balance at December 31,
1992................... 41,774,083 208,870 470,149 590,000 59,000 257,000 25,700
Redemption of preferred
stock................. -- -- -- -- -- (139) (14)
Redemption within one
year.................. -- -- -- -- -- (13,000) (1,300)
---------- -------- -------- ------- ------- -------- -------
Balance at December 31,
1993................... 41,774,083 $208,870 $470,149 590,000 $59,000 243,861 $24,386
========== ======== ======== ======= ======= ======== =======
Common Stock
The number of authorized shares of common stock with par value of $5 per
share is 80 million shares.
The payment of cash dividends on the common stock of the Company is subject
to certain restrictions, including those contained in the Company's mortgage
indenture, which effectively prevent the payment of dividends on common stock
unless the Company has positive retained earnings. The Company's board of
directors, which reviews the Company's dividend policy on a continuing basis,
has not declared dividends on its common stock since January 1989. As of
December 31, 1993, the Company had a deficit in retained earnings of $120.8
million and is, therefore, currently unable to resume payment of dividends on
its common stock. The resumption of common dividends is dependent upon a number
of factors including the outcome of the stipulation discussed in note 2,
earnings and financial condition of the Company and market conditions.
Cumulative Preferred Stock
The number of authorized shares of cumulative preferred stock is 10 million
shares. The earnings tests in the Company's Restated Articles of Incorporation
currently restrict the issuance of preferred stock.
The Company, upon 30 days notice, may redeem the cumulative preferred stock
at stated redemption prices plus accrued and unpaid dividends. Redemption
prices are at reduced premiums in future years. On February 10, 1992, the
Company redeemed all 346,700 shares of its Cumulative Preferred Stock, 12.52%
series, $50.00 stated value at a redemption price of $52.97 per share plus
accrued and unpaid dividends.
The Company evaluated its ability to continue paying dividends on its
preferred stock under restrictions imposed by the Federal Power Act due to the
Company's negative retained earnings. By letter dated April 7, 1993, the
Company advised the FERC staff of the Company's position that payment of
preferred stock dividends would not be in violation of the Federal Power Act.
As a result, the Company continued to declare and pay dividends on its
preferred stock on scheduled dates.
F-13
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(3)CAPITALIZATION--(CONTINUED)
Mandatory redemption requirements for 1994 through 1998 are $1.3 million
annually. During any period that the Company is unable to pay preferred
dividends, if that should occur, the Company would be prohibited by its
Articles of Incorporation from making future mandatory redemption payments.
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 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.
In November 1992, pollution control revenue refunding bonds, 1992 Series A,
in the principal amount of $37.3 million, were issued. Such bonds are supported
by a letter of credit ("LOC") and are collaterally secured by certain first
mortgage bonds issued by the Company. The LOC will expire on November 26, 1995,
unless extended or renewed, and prior thereto may be terminated or replaced by
an alternate LOC or alternate security. As the Company believes it has the
ability to extend the LOC, the $37.3 million is not included in the aggregate
maturities.
The aggregate amounts (in thousands) of maturities for 1994 through 1998 on
long-term debt outstanding at December 31, 1993 (including estimates of
remittance of collections for the Asset Securitization discussed below) are as
follows:
1994.............................................................. $18,903
1995.............................................................. $20,608
1996.............................................................. $21,090
1997.............................................................. $37,582
1998.............................................................. $12,432
On August 3, 1993, the Company received $60 million from the securitization
relating to amounts being recovered from gas customers relating to certain gas
contract settlements. Proceeds were used to pay down short-term debt. Pollution
control revenue bonds totaling $182 million and EIP Secured Facility Bonds
totaling $51.3 million were refunded and replaced during 1993. The refundings
will provide pre-tax interest savings of approximately $5.5 million per year
and $.4 million in reduced lease payments.
Fair Value of Financial Instruments
Effective January 1, 1992, the Company adopted SFAS No. 107, Disclosures
about Fair Value of Financial Instruments, which requires the disclosure of the
fair value of all financial instruments. As of December 31, 1993, the fair
value of the Company's long-term debt and preferred stock (including current
maturities) is estimated to be approximately $986 million and $75 million,
respectively, based on market quotes obtained from the Company's investment
bankers.
F-14
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(4)REVOLVING CREDIT FACILITY AND OTHER CREDIT FACILITIES
At December 31, 1993, the Company had a $100 million secured revolving credit
facility (the "Facility") with the expiration date of June 13, 1995. The
Company must pay commitment fees of .5% per year on the total amount of the
Facility. The Company also has a $40 million credit facility, collaterialized
by the Company's electric customer account receivable (the "Accounts Receivable
Securitization"). Such credit facility has a term of five years. Together with
$11 million in local lines of credit, the Company has $151 million in liquidity
arrangements. As of December 31,1993, there were no borrowings outstanding
under the Facility, the Accounts Receivable Securitization or any of the local
lines of credit.
(5)INCOME TAXES
Income taxes consist of the following components:
1993 1992 1991
-------- --------- -------
(IN THOUSANDS)
Current Federal income tax...................... $ 12,502 $ 19,285 $ (436)
Current State income tax........................ -- 3,292 4
Deferred Federal income tax..................... (52,827) (76,808) 16,494
Deferred State income tax....................... (8,433) (14,859) 2,453
Investment tax credit carryforward.............. -- 1,036 (2,240)
Amortization of accumulated investment tax cred-
its............................................ (5,036) (6,113) (6,082)
Recognition of accumulated deferred investment
tax credits relating to PVNGS Unit 3 (1992) and
other utility property (1993).................. (3,284) (16,313) --
-------- --------- -------
Total income taxes............................ $(57,078) $ (90,480) $10,193
======== ========= =======
Charged to operating expenses................... $ 25,721 $ 16,891 $13,811
Charged (credited) to other income and deduc-
tions.......................................... (82,799) (107,371) (3,618)
-------- --------- -------
Total income taxes............................ $(57,078) $ (90,480) $10,193
======== ========= =======
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:
1993 1992 1991
-------- -------- -------
(IN THOUSANDS)
Federal income tax at statutory rates............. $(41,497) $(66,210) $11,272
Investment tax credits............................ (5,036) (6,113) (6,082)
Depreciation of flow-through items................ 1,719 2,027 2,367
Gains on the sale and leaseback of PVNGS Units 1
and 2............................................ (514) (491) (491)
Reversal of basis difference resulting from sale
of investment.................................... -- -- 1,328
State income tax.................................. (5,585) (9,249) 1,582
Write-down of PVNGS Unit 3........................ -- (9,529) --
Gain on sale of utility property.................. (3,169) -- --
Federal income tax rate change to 35%............. (2,527) -- --
Other............................................. (469) (915) 217
-------- -------- -------
Total income taxes.............................. $(57,078) $(90,480) $10,193
======== ======== =======
F-15
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(5)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:
1993 1992 1991
-------- -------- -------
(IN THOUSANDS)
Deferred fuel costs............................... $ 4,549 $ 10,938 $ 6,380
Depreciation and cost recovery.................... 17,668 14,632 14,489
Write-down of PVNGS Unit 3........................ -- (62,259) --
Loss provision for the M-S-R power purchase con-
tract............................................ 6,335 (15,464) --
Contributions in aid of construction.............. (4,491) (2,435) (1,932)
Unbilled revenues................................. -- 11,136 (2,036)
Alternative minimum tax in excess of regular tax.. (13,808) 526 2,696
Net operating losses utilized (carryforward)...... 15,067 (38,565) 4,066
PVNGS decommissioning............................. (3,962) (2,925) (652)
Write-down of interests in PVNGS Units 1 and 2.... (51,585) -- --
Hedge loss write-off.............................. (3,908) -- --
Loss on reacquired debt write-off................. (5,561) -- --
Gain on sale of utility property.................. (11,321) -- --
Contribution to 401(h) plan....................... (3,226) -- --
PVNGS decontamination............................. -- (2,590) --
Reserve for litigation............................ (1,979) -- --
Other............................................. (5,038) (4,661) (4,064)
-------- -------- -------
Total deferred taxes provided................... $(61,260) $(91,667) $18,947
======== ======== =======
The gross accumulated deferred income tax liability as of December 31, 1993
was $303.9 million and consisted principally of $265.1 million relating to
accelerated tax depreciation. The gross accumulated deferred income tax asset
was $256.6 million, the largest element of which was $84.4 million relating to
unutilized net operating loss carryforwards, the balance being comprised
primarily of numerous items previously recognized as expenses for financial
accounting purposes which had not been deducted for tax purposes. In addition,
the balance of deferred income taxes at December 31, 1993 includes amounts for
temporary differences related to deferred gains on sale and leaseback
transactions, settlements of gas contract disputes, deferred investment tax
credits and regulatory assets and liabilities.
At December 31, 1993, the Company had net operating loss carryforwards for
Federal income tax purposes of $21.6 million, $133.9 million, $15.1 million,
and $46.6 million which expire in 2003, 2004, 2005 and 2007, respectively. For
purposes of New Mexico state income tax, these carryforwards, if unused, would
expire in 2003, 2004, 2005 and 1997, respectively. New Mexico law provides a
five-year carryforward for all net operating losses incurred after 1990. The
Company anticipates that all of these carryforwards will be fully utilized
before expiration, and the financial statements reflect that expectation.
The application of SFAS No. 109 to regulated enterprises results in the
creation of regulatory assets and liabilities. At December 31, 1993 and 1992,
deferred charges included regulatory assets of $75.2 million and $65.9 million,
respectively, and deferred credits included regulatory liabilities of $69.9
million and $73.1 million, respectively.
F-16
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(5)INCOME TAXES--(CONTINUED)
The Company defers investment tax credits related to utility assets and
amortizes them over the estimated useful lives of those assets. Investment tax
credits related to non-utility assets have been flowed through in earlier
years.
In 1993, the Company reached a settlement with the Internal Revenue Service
regarding income taxes for the years 1990 through 1991. The primary effect of
the settlement is an acceleration of certain previously deferred items into
current income tax expense.
(6)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 their average of 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 (United States government
obligations), cash equivalents and real estate.
The components of pension cost (in thousands) are as follows:
1993 1992 1991
-------- -------- --------
Service cost...................................... $ 7,263 $ 7,701 $ 6,027
Interest cost..................................... 16,849 15,537 13,204
Actual return on plan assets...................... (18,148) (7,547) (35,903)
Asset gain deferred (amortized)................... (167) (10,466) 20,422
Other............................................. (711) (1,130) (1,130)
-------- -------- --------
Net periodic pension cost......................... 5,086 4,095 2,620
Curtailment loss.................................. 1,657 -- --
-------- -------- --------
Total pension expense............................. $ 6,743 $ 4,095 $ 2,620
======== ======== ========
F-17
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(6)EMPLOYEE AND POST-EMPLOYMENT BENEFITS--(CONTINUED)
The following sets forth the plan's funded status and amounts (in thousands)
at December 31, 1993 and 1992:
1993 1992
-------- --------
Vested benefits............................................ $205,909 $160,304
Non-vested benefits........................................ 8,191 6,222
-------- --------
Accumulated benefit obligation............................. 214,100 166,526
Effect of future compensation levels....................... 44,500 38,420
-------- --------
Projected benefit obligation............................... 258,600 204,946
Fair value of plan assets.................................. 212,475 192,660
-------- --------
Projected benefit obligation in excess of assets........... 46,125 12,286
Unrecognized prior service cost............................ (282) (364)
Net unrecognized loss from past experience different from
assumed and the effects of changes in assumptions......... (54,876) (17,768)
Unamortized asset at transition, being amortized through
the year 2002............................................. 9,306 10,470
Additional liability (unfunded accumulated benefits in ex-
cess of accrued pension cost)............................. 1,352 --
-------- --------
Accrued pension liability.................................. $ 1,625 $ 4,624
======== ========
The weighted average discount rate used to measure the projected benefit
obligation was 7.0% for 1993 and 8.0% for 1992 and the expected long-term rate
of return on plan assets was 9.0% for 1993 and 9.5% for 1992. The rate of
increase in future compensation levels based on age-related scales was 4.1% for
1993 and 5.0% for 1992.
As of December 31, 1993, the Company recognized $2.8 million, net of tax, as
a separate component of common stock equity, for the amount of additional
pension liability in excess of the unrecognized prior service cost in
accordance with SFAS No. 87, Employers' Accounting for Pensions.
Other Postretirement Benefits
The Company adopted SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, effective January 1, 1993. 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) for
1993 are as follows:
Service cost........................................................... $ 1,175
Interest cost.......................................................... 2,974
Actual return on plan assets........................................... (56)
Transition obligation amortization..................................... 1,857
-------
Net periodic postretirement benefit cost............................... 5,950
Curtailment loss....................................................... 4,295
-------
Total postretirement benefit expense................................... $10,245
=======
F-18
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(6)EMPLOYEE AND POST-EMPLOYMENT BENEFITS--(CONTINUED)
The following sets forth the plan's funded status and amounts (in thousands)
at December 31, 1993:
Accumulated benefit obligations for:
Retirees............................................................ $24,007
Fully eligible employees............................................ 1,120
Active employees.................................................... 22,144
-------
Accumulated benefit obligation........................................ 47,271
Fair value of plan assets............................................. 2,118
-------
Funded status......................................................... (45,153)
Net unrecognized loss................................................. 3,956
Unrecognized transition obligation (being amortized through the year
2012)................................................................ 34,525
-------
Accrued postretirement liability...................................... $(6,672)
=======
Prior to 1993, the costs of these benefits were expensed on a pay-as-you-go
basis. The cost of providing these benefits was $1,531,000 and $1,139,000 for
1992 and 1991, respectively. As of December 31, 1993, the discount rate used to
measure the postretirement benefit obligation was 7.0% and the health care cost
trend rate was 6%. The effect of a 1% increase in the health care trend rate
assumption would increase the accumulated postretirement benefit obligation as
of December 31, 1993 by approximately $10.2 million and the aggregate service
and interest cost components of net periodic postretirement benefit cost for
1993 by approximately $1.0 million. On December 20, 1993, the NMPUC issued a
final order in a NMPUC case regarding an inquiry into SFAS No. 106. In its
final order, the NMPUC adopted a policy which provides for accrual accounting
for the postretirement benefit costs, funding requirements into an irrevocable
trust and specific reporting for the benefit costs in future rate cases. The
order also provides for specific waiver provisions with respect to the external
trust funding requirements and a deferral of the benefit costs in excess of the
pay-as-you-go basis. The Company has requested recovery of the full accrual
amount of SFAS No. 106 expense in the stipulation for its electric business
unit (see note 2). The Company will address the recovery of the amounts related
to the gas business unit in a future rate case. The Company currently intends
to fund the full amount of these costs in 1994.
Employee Stock Ownership Plan
Effective January 1, 1989, the Company adopted an Employee Stock Ownership
Plan covering substantially all of its employees. Under the plan, the Company
makes cash contributions which are utilized to purchase the Company's common
stock on the open market. Contributions to the plan were approximately $5.3
million in 1989. No contributions or accruals were made in 1990, 1991 and 1992
and effective March 1, 1993, the plan has been cancelled.
Performance Stock Plan
As approved by the Company's shareholders on May 25, 1993, the Company
adopted a nonqualified stock option plan (Performance Stock Plan) covering a
group of management employees. Under the terms of the plan which became
effective on July 1, 1993, options to purchase shares of the Company's common
stock are granted with an exercise price equal to the fair market value of the
stock at the date of grant. On July 1, 1993, the Company granted 370,000 shares
to the covered employees under the plan at an exercise price of
F-19
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(6)EMPLOYEE AND POST-EMPLOYMENT BENEFITS--(CONTINUED)
$13.75 per share. The remaining 1,630,000 shares approved under the plan are
reserved for future grants. Options may be exercised following vesting as
described in the plan. Currently no options are eligible for exercise.
Executive Retirement Program
In addition, the Company had 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, 1993, was $18.5 million, of which the accumulated
and vested benefit obligation was $17.4 million. In addition, in 1993, the
Company recognized an additional liability of $7.2 million for the amount of
unfunded accumulated benefits in excess of accrued pension costs. The net
periodic pension cost for 1993, 1992 and 1991 was $2.1 million, $2.0 million
and $1.8 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 $12.7 million (fair market value of $13.0 million) were provided
to the trust in 1989. No additional funds have been provided to the trust.
(7)CONSTRUCTION PROGRAM AND JOINTLY-OWNED PLANTS
It is estimated that the Company's construction expenditures for 1994 will be
approximately $129 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 statement of earnings.
At December 31, 1993, the Company's interest (including leasehold interests
in PVNGS Units 1 and 2 for power entitlement) 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).......................... $762,437 $285,818 $ 8,026 48.5%
Palo Verde Nuclear Generating
Station (Nuclear)............... $174,873* $ 28,159* $17,556* 10.2%
Four Corners Generating Station
Units 4 and 5 (Coal)............. $114,230 $ 32,490 $ 3,324 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
PVNGS Units 1 and 2 leases purchased on September 2, 1992.
San Juan Generating Station
The Company operates and jointly owns SJGS. At December 31, 1993, SJGS Units
1 and 2 are owned on a 50% shared basis with Tucson Electric Power Company
("Tucson"), Unit 3 is owned 50% by the Company, 41.8% by Southern California
Public Power Authority and 8.2% by Century Power Corporation ("Century"),
(Century has agreed to sell its remaining 8.2% interest to Tri-State Generation
and
F-20
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(7)CONSTRUCTION PROGRAM AND JOINTLY-OWNED PLANTS--(CONTINUED)
Transmission Association, Inc.). Unit 4 is owned 45.485% by the Company, 8.475%
by the City of Farmington, 28.8% by M-S-R, 7.2% by the County of Los Alamos and
10.04% by the City of Anaheim, California.
On May 27, 1993, the Company executed a purchase and participation agreement
with Utah Associated Municipal Power Systems ("UAMPS") to sell not less than
6.024% (30 MW) and up to 8.03% (40 MW) undivided ownership interest in SJGS
Unit 4. On September 1, 1993, the Company and UAMPS amended the purchase and
participation agreement to establish the UAMPS purchase at 35 MW for
approximately $40 million. On November 19, 1993, the Company filed an
application with the NMPUC for approval of this sale. On January 21, 1994, the
Company, the NMPUC staff, and the New Mexico Industrial Energy Consumers
entered into a stipulation requesting approval of the sale. Hearings were held
February 15, 1994, and the Company is awaiting a recommended decision. In
addition, the Company made three filings with the FERC associated with the sale
and has received approval on two and is awaiting the outcome of the remaining
filing. Closing of the transaction will depend on the fulfillment of numerous
closing conditions and will be subject to regulatory approvals from the NMPUC
and the FERC. If approved, the Company anticipates that the closing of the sale
will be in the first half of 1994.
Palo Verde Nuclear Generating Station
The Company has a 10.2% interest in PVNGS. Commercial operation commenced in
1986 for Unit 1 and Unit 2 and 1988 for Unit 3. In 1985 and 1986, the Company
completed sale and leaseback transactions for its undivided interests in Units
1 and 2 and certain related common facilities.
On September 2, 1992, the Company purchased approximately 22% of the
beneficial interests in PVNGS Units 1 and 2 leases for approximately $17.5
million. For accounting purposes, this transaction was recorded as a purchase
with the Company recording approximately $158.3 million as utility plant
(written down to $46.7 million as a result of the stipulation, see note 2) and
$140.8 million as long-term debt on the Company's consolidated balance sheet.
The PVNGS participants have insurance for public liability payments resulting
from nuclear energy hazards to the full limit of liability under Federal law.
This potential liability is covered by primary liability insurance provided by
commercial insurance carriers in the amount of $200 million and the balance by
an industry wide retrospective assessment program. The maximum assessment per
reactor under the retrospective rating program for each nuclear incident
occurring at any nuclear power plant in the United States is approximately
$79.3 million, subject to an annual limit of $10 million per incident. Based
upon the Company's 10.2% interest in the three PVNGS units, the Company's
maximum potential assessment per incident is approximately $24 million, with an
annual payment limitation of $3 million. The insureds, under this liability
insurance include the PVNGS participants and "any other person or organization
with respect to his legal responsibility for damage caused by the nuclear
energy hazard".
The PVNGS participants maintain "all-risk" (including nuclear hazards)
insurance for nuclear property damage to, and decontamination of, property at
PVNGS in the aggregate amount of $2.75 billion as of January 1, 1994, a
substantial portion of which must first be applied to stabilization and
decontamination. The Company has also secured insurance against a portion of
the increased cost of generation or purchased power resulting from certain
accidental outages of any of the three PVNGS units if such outage exceeds 21
weeks.
F-21
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(7)CONSTRUCTION PROGRAM AND JOINTLY-OWNED PLANTS--(CONTINUED)
The Company has a program for funding its share of decommissioning costs for
PVNGS. Under this program, the Company will make a series of annual deposits to
an external trust fund over the estimated useful life of each unit, and the
trust funds are 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 annual trust deposit,
approved by the NMPUC in 1987, is currently $396,000 per unit. The NMPUC
jurisdictional share of this amount related to PVNGS Units 1 and 2 is currently
included in retail rates. The results of the 1992 decommissioning cost study
indicate that the Company's share of the PVNGS decommissioning costs will be
approximately $143.2 million, an increase from $94.2 million based on the
previous study (both amounts are stated in 1993 dollars). Additional expense
associated with the decommissioning cost increase has been included in the cost
of service filed with the NMPUC in the stipulation (see note 2). The Company
has determined that a supplemental investment program will be needed as a
result of both the cost increase and the underperformance of the existing
investment program. However, a supplemental funding program will not be
established until clarification and/or possible revisions to a FERC order
issued in October 1993 regarding restricted investment vehicles for nuclear
decommissioning trusts are obtained. The market value of the existing trust at
the end of 1993 was approximately $11.0 million, including cash surrender value
of the insurance policies.
El Paso Electric Company
The Company owns or leases a 10.2% interest in PVNGS and owns a 13% interest
in the Four Corners Power Plant ("Four Corners") Units 4 and 5, which are
operated by Arizona Public Service Company ("APS"). El Paso Electric Company
("El Paso") owns or leases a 15.8% interest in PVNGS and owns a 7.0% interest
in Four Corners Units 4 and 5.
On January 8, 1992, El Paso filed a voluntary petition to reorganize under
Chapter 11 of the United States Bankruptcy Code. On September 8, 1992, El Paso
filed a plan of reorganization with the bankruptcy court, which was later
amended pursuant to an October 26, 1992 filing with the court. On May 4, 1993,
El Paso and Central and South West Corporation ("CSW") announced a plan for
merger in connection with El Paso's Chapter 11 reorganization, under which El
Paso would become a wholly-owned subsidiary of CSW. A modified amended El
Paso--CSW plan and disclosure statement dated August 27, 1993 has been filed
with the bankruptcy court and was approved December 8, 1993. In order for the
merger to be implemented, CSW and El Paso must receive appropriate regulatory
approvals, including approval of the NRC and the FERC. In the El Paso--CSW FERC
proceedings, the Company has intervened to protect its interests relative to
the various transmission issues raised by the El Paso--CSW filings. The
Company's regulatory filings in the FERC proceeding address reliability and
potential system impacts that may result to the Company from the merger. At
this time the Company is unable to predict the result of these regulatory
proceedings.
In addition to approving the El Paso-CSW plan, the bankruptcy court approved
the Cure and Assumption Agreement between El Paso and the PVNGS participants,
which provides for (i) various mutual releases and (ii) the execution of a
release by El Paso and any alleged claims regarding the 1989-90 PVNGS outages.
All such releases will be effective on the effective date of the El Paso-CSW
plan. The Cure and Assumption Agreement also provided for payment in full to
the PVNGS participants of pre-petition monies owed by El Paso. El Paso has made
the payment contingent upon its completion of the merger with CSW.
The bankruptcy court also approved the assumption by El Paso of several
wheeling agreements that El Paso and the Company agreed to extend as part of a
120 day transition agreement. In connection with the
F-22
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(7)CONSTRUCTION PROGRAM AND JOINTLY-OWNED PLANTS--(CONTINUED)
assumptions, El Paso paid the Company approximately $2.3 million owed for pre
and post-petition wheeling services. Although the transition agreement has
expired by its terms, the parties have signed an agreement in principle for
near-term and longer-term wheeling services. The agreement would provide El
Paso with a total of 80 MW of transmission service until such time as El Paso
installs a phase shifting transformer ("PST") which is expected to be late
1995. The agreement would provide El Paso with 20 MW of service after the PST
is installed in exchange for payment by El Paso of proportional costs incurred
by the Company for generation support of the transmission as well as wheeling
charges. The Company and El Paso have also agreed to negotiate both near-term
and longer-term operating procedures, which may include transfer by the Company
of operating agent status for the Southern New Mexico Transmission System to El
Paso. The Company will continue to retain its transmission rights (presently 75
MW) in southern New Mexico. The wheeling agreement will be subject to
regulatory approval by the FERC and will also be reviewed by the NMPUC in
connection with several regulatory filings of El Paso, both predating and in
connection with the El Paso-CSW merger.
(8)LONG-TERM POWER CONTRACTS AND FRANCHISES
The Company entered into contracts for the purchase of electric power. Under
a contract with M-S-R, which expires in early 1995, the Company is 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 $42 million for 1993, and approximately $40 million and $41
million for each of the years 1992 and 1991, respectively. The minimum payment
for 1994 under this contract is $26.7 million, with a minimum of $9.0 million
for the first four months of 1995, at which time this contract expires. The
Company, based on the January 11, 1993 announcement, recorded a provision for
loss associated with the M-S-R power purchase contract in its 1992 results of
operation. (See note 2.)
The Company has a long-term contract with SPS to purchase interruptible power
which began in June 1991. Total payments under this contract amounted to
approximately $10.8 million in 1993. Minimum payments under the contract amount
to approximately $7.0 million for 1994 and approximately $11.7 million and $14
million for each of the years 1995 and 1996, respectively. In addition, the
Company will be required to pay for any energy purchased under the contract.
The amount of minimum payments after 1995 will depend on whether the Company
exercises certain options to either reduce or increase its purchase
obligations.
The Company holds long-term, non-exclusive franchises of varying durations in
all incorporated communities except for the City of Albuquerque (the "City").
The Company's non-exclusive electric service franchise with the City expired in
early 1992. The franchise agreement provided for the Company's use of City
property for electric service rights-of-way. The Company continues service to
the area, which contributed 46.0% of the Company's total 1993 electric
operating revenues. The absence of a franchise does not change the Company's
right and obligation to serve those customers under state law. In November
1991, the NMPUC issued an order concluding, among other things, that the City
could bid for services to its own facilities (Albuquerque municipal loads
generated approximately $17 million, $16 million and $17 million in annual
revenues for 1993, 1992 and 1991, respectively), but not for service to other
customers. In reaching this conclusion, the NMPUC noted that New Mexico law
reflects a legislative choice to vest the NMPUC with exclusive control over
utility rates and services. The NMPUC also noted that the Company's obligation
F-23
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(8)LONG-TERM POWER CONTRACTS AND FRANCHISES--(CONTINUED)
to serve its customers in Albuquerque will continue irrespective of whether the
municipal franchise is renewed. The City appealed the NMPUC's order to the New
Mexico Supreme Court ("Court") solely on the grounds of the City's authority to
bid for rates for its citizens. On April 21, 1993, the Court issued its
decision on the City's appeal of the NMPUC order. The 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 were not licenses to serve but rather
to provide access to public rights-of-way.
In 1992, representatives of the Company and the City met in attempts to
resolve the franchise renewal issue. Currently, the franchise renewal meetings
are in abeyance due to the City's interest in the outcome of the retail
wheeling legislation which was introduced in the 1993 state legislative
session. The Company continues to pay franchise fees to the City.
During 1992, open access to transmission grids in the electric wholesale
market, as mandated by the National Energy Policy Act, stimulated interest in
the retail wheeling concept in New Mexico, resulting in the introduction of
legislation in the 1993 New Mexico state legislature. On March 6, 1993, the New
Mexico State Senate passed Senate Memorial 54, which calls for the concept of
retail wheeling to be studied by the Integrated Resource Planning Committee,
which is an interim legislative committee, with a report to be made to the 1995
legislature. The Company has been providing information for the study effort.
The study is anticipated to be completed by December 1994.
(9)LEASE COMMITMENTS
The Company classifies its leases in accordance with generally accepted
accounting principles. The Company leases Units 1 and 2 of PVNGS, transmission
facilities, office buildings and other equipment under operating leases. The
aggregate lease payments for the PVNGS leases are $66.3 million per year over
base lease terms expiring in 2015 and 2016. Prior to 1992, the aggregate lease
payments for the PVNGS leases were $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 7). The
1992 aggregate lease payments for the PVNGS leases were approximately $76.4
million. Each PVNGS lease contains renewal and fair market value purchase
options at the end of the base lease term. For regulatory purposes, these
leases continue to be classified as operating leases and costs continue to be
recovered in NMPUC jurisdictional rates.
Future minimum operating lease payments (in thousands) at December 31, 1993
are:
1994.......................................................... $ 76,039
1995.......................................................... 76,550
1996.......................................................... 76,474
1997.......................................................... 76,402
1998.......................................................... 76,321
Later years................................................... 1,254,248
----------
Total minimum lease payments................................ $1,636,034
==========
F-24
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(9)LEASE COMMITMENTS--(CONTINUED)
Operating lease expense, inclusive of PVNGS, was approximately $80.6 million
in 1993, $91.1 million in 1992 and $96.8 million in 1991. The aggregate minimum
payments to be received in future periods under noncancelable subleases are
approximately $7.6 million.
(10)ENVIRONMENTAL ISSUES AND FOSSIL-FUELED PLANT DECOMMISSIONING COSTS
The Company has evaluated the potential impacts of the following
environmental issues. The Company 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.
Environmental Issues--Gas
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA")
Two CERCLA 104(e) orders were received from the United States Environmental
Protection Agency ("EPA") in late December 1993 requesting information
regarding shipment of wastes to the Lee Acres Landfill, located on Bureau of
Land Management ("BLM") land near the city of Bloomfield in San Juan County,
New Mexico. The landfill is currently listed on the National Priorities List as
a superfund site. Gas Company of New Mexico, a division of the Company ("GCNM")
and Sunterra Gas Gathering Company, a wholly-owned subsidiary of the Company
("Gathering Company") have assessed their records and other information to
determine whether wastes were ever shipped from their facilities to the
landfill during the period when they owned and operated the natural gas
facilities. GCNM and Gathering Company's assessment indicated that no hazardous
wastes or cause of such wastes were shipped from their facilities to the
landfill during this time period. Nonetheless, GCNM and Gathering Company could
be determined to be potentially responsible parties if the EPA determines GCNM
and Gathering Company shipped wastes to the site, and could be asked or
compelled to provide funds for site cleanup. GCNM and Gathering Company
prepared and submitted their response to the EPA on March 8, 1994.
Toxic Substances Control Act ("TSCA")
TSCA requires manufacturers and importers of organic chemicals, including
natural gas substances, to report a listing and quantity of certain toxic
chemicals to the EPA every four years. Naturally occurring substances such as
crude oil and unprocessed natural gas need not be reported. Due to the natural
gas industry's interpretation on when unprocessed natural gas becomes a
reportable substance, GCNM and Processing Company did not report TSCA
substances to the EPA in prior reporting years 1986 and 1990. As a result of
the EPA's clarification on the limited scope of the exemption, GCNM and
Processing Company now have filed their reports for 1986 and 1990 and will
report such substances to the EPA in the 1994 reporting year. The maximum
penalty allowed under the statute is $25,000/day for every day the report has
not been filed. The companies may be subject to administrative fines/penalties
for their failure to report in 1986 and 1990.
Gas Wellhead Pit Remediation
Effective September 1992, the New Mexico Oil Conservation Division ("OCD")
issued a ruling which affects GCNM and Gathering Company's natural gas
gathering facilities located in the northwestern part of New Mexico. The ruling
prohibits the further discharge of fluids associated with the production of
natural gas into unlined open pits in certain areas, deemed environmentally
sensitive due to their proximity to fresh water supplies. In addition to the
cessation of the discharge of fluids, the ruling requires that GCNM and
Gathering Company remediate the areas where discharges have contaminated fresh
water supplies. GCNM has submitted generic closure plans for the pits, which
have been approved by OCD and the BLM.
F-25
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(10)ENVIRONMENTAL ISSUES AND FOSSIL-FUELED PLANT DECOMMISSIONING COSTS--
(CONTINUED)
Air Permits
A recent environmental audit, associated with the Company's proposed sale of
certain gas assets, brought to light certain discrepancies regarding required
air permits associated with certain natural gas facilities. The audit
identified a total of thirteen facilities containing discrepancies. The vast
majority of the discrepancies are minor in nature and include discrepancies in
record keeping, equipment identification and inaccurate information in air
permit applications. The discrepancies at three of the facilities involve
permit issuance and modification and are more serious in nature. The Company is
subject to administrative fines/penalties by the New Mexico Environment
Department ("NMED") for these discrepancies.
The Company plans to meet with the NMED in March 1994 to discuss the nature
of the permit discrepancies and to propose methods and schedules to resolve the
discrepancies. The resolution process will include the filing of permit
applications, modifications and revisions where necessary. After reviewing the
applications, NMED will determine whether to grant the application,
modification or revision and make a determination whether to impose any
fines/penalties.
The CERCLA, air permits and gas wellhead pit remediation issues previously
discussed are part of the retained environmental liabilities under the sale
agreement with Williams Gas Processing--Blanco, Inc. ("Williams"), a subsidiary
of the Williams Field Services Group, Inc. of Tulsa, Oklahoma. (See note 11.)
Environmental Issue--Electric
Included in the estimate of $24.4 million to decommission the Company's
retired fossil-fuel plants is approximately $17.2 million for a groundwater
remediation program at Person Station. The Company, in compliance with a New
Mexico Environment Action Directive, has determined that ground water
contamination exists in the deep and shallow water aquifers. The Company is
required to delineate the extent of the contamination and remediate the
contaminant in the ground water. The extent of the contaminant plume in the
deep water aquifer is not currently known, and the estimate assumes that the
deep ground water plume can be easily delineated with a minimum number of
monitoring wells. As part of the financial assurance requirements of the Person
Station Hazardous Waste Permit, the Company posted a $3.7 million performance
bond with a trustee. The remediation program continues to be on schedule and
the Company does not anticipate any material adverse impact on its financial
condition or the results of operations with respect to the remediation program.
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 $126 million stated in 1992 dollars, including approximately $24
million for the Person, Prager and Santa Fe Stations, which have been retired.
In June of 1993, the Company filed for recovery of all estimated
decommissioning costs by factoring them into its depreciation rates included in
the Company's depreciation rate study filed with the NMPUC.
As previously discussed, the Company and the interested parties entered into
the January 12, 1994 stipulation. The stipulation affirms the Company's right
to recover all fair, just and reasonable costs arising
F-26
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(10)ENVIRONMENTAL ISSUES AND FOSSIL-FUELED PLANT DECOMMISSIONING COSTS--
(CONTINUED)
from the decommissioning of its fossil-fueled generating plants in service,
including demolition, waste disposal, environmental and site restoration. The
stipulation also resolves the issues of decertification and decommissioning of
the Company's three retired fossil-fueled generating stations resulting in the
Company foregoing recovery of the first $24.4 million of decommissioning costs
associated with these stations. The stipulation is subject to NMPUC approval.
(11)ASSET SALES
Sale of Gas Gathering and Processing Assets
On January 11, 1993, the Company announced its intention to dispose of the
Company's natural gas gathering and natural gas processing assets. A purchaser
has now been selected following a competitive bidding process.
On February 12, 1994, an agreement was executed with Williams for the sale of
substantially all of the assets of Gathering Company and Sunterra Gas
Processing Company, a wholly-owned subsidiary of the Company and for the sale
of the Northwest and Southeast gas gathering and processing facilities of GCNM.
The agreement provides for a cash selling price of $155 million, subject to
certain adjustments. In addition, the Company and Williams entered into
agreements for gas gathering and processing services, which the Company
believes to be competitively priced, to be provided by Williams on the
facilities being sold for a period up to 15 years. The transaction is subject
to applicable waiting periods under the Federal Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and subject to approval by the NMPUC. If approved, the
closing is expected to take place in 1995. The closing is also subject to other
customary closing conditions, such as obtaining necessary material consents
from lenders and other third parties.
Under the sale agreement, the Company agreed to retain certain liabilities
pertaining to the assets being sold, including certain environmental
liabilities. Such retained environmental liabilities include liabilities under
environmental laws as of closing associated with (i) the mercury meter
remediation project, (ii) identified friable asbestos, (iii) environmental
permits required by various agencies, and (iv) pits at certain abandoned
compressor sites. The Company's retained environmental liabilities also include
liabilities associated with certain unlined disposal pits subject to an
existing New Mexico Oil Conservation Division order. The Company has also
agreed to retain liability for a portion of potential liabilities relating to a
contaminated landfill that has been declared a Federal superfund site. Further,
the Company agreed to indemnify Williams against other third party
environmental claims arising from pre-closing ownership, operations or
conditions and for breaches of environmental representations and warranties for
a period of five years after closing in an amount up to $10.6 million. The
Company's retained environmental liabilities described above are not subject to
the $10.6 million cap. The Company has evaluated the potential impact of the
above retained environmental liabilities. The Company 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. The Company intends to offset
costs associated with the environmental liabilities with proceeds from the
sale.
Under the agreement, the Company also agreed to indemnify Williams, subject
to equal sharing of the first $1.5 million (i) against third party claims
(other than environmental) arising from pre-closing ownership, operations and
conditions for a period of two years after closing, (ii) for breaches of other
customary
F-27
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(11)ASSET SALES--(CONTINUED)
representations and warranties for a period of two years from the date of
closing, and (iii) for 30 days past the applicable statute of limitations for
breaches of the Company's tax representations. The Company also agreed to
indemnify Williams for three years after closing for third party claims
relating to certain property rights. Under the agreement, the Company will,
subject to prior NMPUC approval, guarantee the obligations of its subsidiaries
which are parties to the agreement.
The book value of the facilities being sold, plus regulatory assets and
deferred charges, is expected to be approximately $85 million. In addition, the
Company expects approximately $8 million to be incurred for transaction and
other ascertainable costs prior to closing. The Company anticipates that a
significant amount of income tax will become payable as a result of this
transaction.
Also, the NMPUC will determine the allocation of the resulting gain between
the Company's gas customers and shareholders. Therefore, the Company is not
able at this time to estimate the amount of any gain that would be allocated to
shareholders.
The Company believes that the sale of these assets will improve its
flexibility to take advantage of changing market conditions while maintaining
continued access to competitively priced, reliable and secure long-term gas
supplies.
Sale of Sangre de Cristo Water Company
On July 29, 1993, Santa Fe city officials announced a verbal agreement under
which the City of Santa Fe ("Santa Fe") would purchase the Sangre de Cristo
Water Company ("SDCW"), a division of the Company. Under the verbal agreement,
the Company would receive approximately $48 million for its water utility
division. The proposed agreement excluded from the sale certain Santa Fe area
real estate which the Company would either sell or trade separately. The
Company would also continue to operate the water utility for up to four years
for a fee under a proposed contract with Santa Fe. The Company's board of
directors authorized the sale on January 11, 1994. On February 23, 1994, the
Santa Fe City Council authorized the sales transaction, and the Company and
Santa Fe signed a purchase and sale agreement on February 28, 1994. The Company
anticipates filing for regulatory approvals in March 1994. Consummation of a
sale will require approval by the NMPUC. The Company expects to consummate the
sale by the end of 1994.
F-28
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(12)SEGMENT INFORMATION
The financial information pertaining to the Company's electric, gas (see note
1) and other operations for the years ended December 31, 1993, 1992 and 1991
are as follows:
ELECTRIC* GAS OTHER TOTAL
---------- -------- ------- ----------
(IN THOUSANDS)
1993:
Operating revenues.................... $ 589,728 $271,087 $13,063 $ 873,878
Operating expenses excluding income
taxes................................ 467,659 239,859 7,355 714,873
---------- -------- ------- ----------
Pre-tax operating income.............. 122,069 31,228 5,708 159,005
Operating income tax.................. 19,184 5,347 1,190 25,721
---------- -------- ------- ----------
Operating income...................... $ 102,885 $ 25,881 $ 4,518 $ 133,284
========== ======== ======= ==========
Depreciation and amortization expense. $ 59,298 $ 16,859 $ 1,169 $ 77,326
========== ======== ======= ==========
Construction expenditures............. $ 67,886 $ 26,593 $ 2,847 $ 97,326
========== ======== ======= ==========
Identifiable assets:
Net utility plant.................... $1,324,110 $333,862 $45,960 $1,703,932
Other................................ 257,153 240,908 10,196 508,257
---------- -------- ------- ----------
Total assets....................... $1,581,263 $574,770 $56,156 $2,212,189
========== ======== ======= ==========
1992:
Operating revenues.................... $ 596,323 $243,159 $12,471 $ 851,953
Operating expenses excluding income
taxes................................ 513,919 203,129 6,079 723,127
---------- -------- ------- ----------
Pre-tax operating income.............. 82,404 40,030 6,392 128,826
Operating income tax.................. 7,138 7,879 1,874 16,891
---------- -------- ------- ----------
Operating income...................... $ 75,266 $ 32,151 $ 4,518 $ 111,935
========== ======== ======= ==========
Depreciation and amortization expense. $ 61,832 $ 16,290 $ 1,134 $ 79,256
========== ======== ======= ==========
Construction expenditures............. $ 51,924 $ 25,461 $17,410 $ 94,795
========== ======== ======= ==========
Identifiable assets:
Net utility plant.................... $1,513,224 $317,341 $46,496 $1,877,061
Other................................ 275,775 210,791 11,955 498,521
---------- -------- ------- ----------
Total assets....................... $1,788,999 $528,132 $58,451 $2,375,582
========== ======== ======= ==========
1991:
Operating revenues.................... $ 568,486 $277,069 $11,613 $ 857,168
Operating expenses excluding income
taxes................................ 503,428 236,403 6,273 746,104
---------- -------- ------- ----------
Pre-tax operating income.............. 65,058 40,666 5,340 111,064
Operating income tax.................. 2,114 10,222 1,475 13,811
---------- -------- ------- ----------
Operating income...................... $ 62,944 $ 30,444 $ 3,865 $ 97,253
========== ======== ======= ==========
Depreciation and amortization expense. $ 59,469 $ 15,452 $ 1,132 $ 76,053
========== ======== ======= ==========
Construction expenditures............. $ 54,431 $ 24,620 $ 8,520 $ 87,571
========== ======== ======= ==========
Identifiable assets:
Net utility plant.................... $1,554,776 $306,655 $43,882 $1,905,313
Other................................ 254,157 167,669 17,193 439,019
---------- -------- ------- ----------
Total assets....................... $1,808,933 $474,324 $61,075 $2,344,332
========== ======== ======= ==========
- --------
* Includes the resources excluded from NMPUC regulation (see note 2).
F-29
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
(12)SEGMENT INFORMATION--(CONTINUED)
On January 11, 1993, the Company announced its intention to dispose of SDCW
and all or major portions of the natural gas gathering and natural gas
processing assets (see note 2). Such sales require NMPUC approval.
(13)SUPPLEMENTAL INCOME STATEMENT INFORMATION
Taxes, other than income taxes, charged to operating expenses were as
follows:
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
Ad valorem.............................................. $20,413 $21,211 $19,809
City franchise.......................................... 7,457 7,242 6,983
Payroll................................................. 8,807 7,736 7,938
Other................................................... 3,412 4,390 4,484
------- ------- -------
Total................................................. $40,089 $40,579 $39,214
======= ======= =======
Amortization of intangibles, royalties, and advertising costs were less than
1% of revenues in each of the above periods.
F-30
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
BALANCE AT OTHER CHANGES
CLASSIFICATION BEGINNING ADDITIONS ----------------- BALANCE AT
DECEMBER 31, 1993 OF YEAR AT COST RETIREMENTS ADD DEDUCT END OF YEAR
----------------- ---------- --------- ----------- ------ --------- -----------
(IN THOUSANDS)
Utility plant:
Electric plant in
sevice:
Intangible............ $ 28,344 $ 1,757 $ 3,012 $ -- $ 2,134 $ 24,955
Production............ 1,208,465 15,079 -- -- 177,644 1,045,900
Transmission.......... 220,074 -- -- -- 3,913 216,161
Distribution.......... 416,726 6,892 611 40 120 422,927
General............... 70,988 1,180 -- -- 4,323 67,845
Acquisition
adjustment........... 40,600 -- -- -- 29,288 11,312
---------- ------- ------- ------ --------- ----------
1,985,197 24,908 3,623 40 217,422 1,789,100
---------- ------- ------- ------ --------- ----------
Gas plant in service:
Intangible............ 14,939 187 -- 240 -- 15,366
Production............ 113,638 1,126 5 193 -- 114,952
Natural gas storage... 4,804 -- -- -- -- 4,804
Transmission.......... 74,101 3,881 100 1 -- 77,883
Distribution.......... 234,335 15,692 154 1 -- 249,874
General............... 43,820 5,493 572 -- 93 48,648
---------- ------- ------- ------ --------- ----------
485,637 26,379 831 435 93 511,527
---------- ------- ------- ------ --------- ----------
Water plant in service:
Intangible............ 151 -- -- -- -- 151
Source of supply
plant................ 9,400 -- -- -- 68 9,332
Pumping plant......... 3,599 -- -- -- 1,221 2,378
Water treatment plant. 4,038 -- -- 1 -- 4,039
Transmission and
distribution......... 36,476 -- -- 34 226 36,284
General............... 2,155 -- -- -- 14 2,141
---------- ------- ------- ------ --------- ----------
55,819 -- -- 35 1,529 54,325
---------- ------- ------- ------ --------- ----------
Common plant in
service:
Intangible............ 11,152 7,230 736 -- -- 17,646
General............... 25,358 2,180 -- 2,397 -- 29,935
---------- ------- ------- ------ --------- ----------
36,510 9,410 736 2,397 -- 47,581
---------- ------- ------- ------ --------- ----------
Construction work in
progress............... 87,547 23,953 -- 1,494 3,661 109,333
Electric plant held for
future use............. 1,258 -- -- 255 1,138 375
Nuclear fuel............ 63,306 11,801 6,694 -- 63 68,350
---------- ------- ------- ------ --------- ----------
Total utility plant.. 2,715,274 96,451 11,884 4,656 223,906 2,580,591
Non-utility property.... 10,266 875 8 -- 3,535 7,598
---------- ------- ------- ------ --------- ----------
Total property, plant
and equipment....... $2,725,540 $97,326 $11,892 $4,656 $ 227,441 $2,588,189
========== ======= ======= ====== ========= ==========
DESCRIPTION OF OTHER
CHANGES
--------------------
Transfers between accounts............................... $4,059 $ 4,059
Write-down of PVNGS Units 1 and 2 Purchased.............. -- 156,196
Sale of SJGS Unit 4 (50MW) to City of Anaheim............ -- 59,810
Miscellaneous corrections and adjustments................ 597 7,376
------ ---------
$4,656 $227,441
====== =========
(continued)
F-31
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT--(CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
BALANCE AT OTHER CHANGES
CLASSIFICATION BEGINNING ADDITIONS ------------------ BALANCE AT
DECEMBER 31, 1992 OF YEAR AT COST RETIREMENTS ADD DEDUCT END OF YEAR
----------------- ---------- --------- ----------- -------- --------- -----------
(IN THOUSANDS)
Utility plant:
Electric plant in
service:
Intangible............ $ 29,265 $ 706 $ 374 $ 1,383 $ 2,636 $ 28,344
Production............ 1,264,361 10,683 8,581 142,847 200,845 1,208,465
Transmission.......... 221,892 316 771 220 1,583 220,074
Distribution.......... 402,733 18,670 2,504 378 2,551 416,726
General............... 72,531 845 1,461 158 1,085 70,988
Acquisition
adjustment........... -- -- -- 40,600 -- 40,600
---------- ------- ------- -------- --------- ----------
1,990,782 31,220 13,691 185,586 208,700 1,985,197
---------- ------- ------- -------- --------- ----------
Gas plant in service:
Intangible............ 14,835 54 1 51 -- 14,939
Production............ 111,068 2,911 438 108 11 113,638
Natural gas storage... 4,804 -- -- -- -- 4,804
Transmission.......... 68,476 5,678 69 16 -- 74,101
Distribution.......... 223,108 12,186 934 -- 25 234,335
General............... 43,183 2,448 1,788 30 53 43,820
---------- ------- ------- -------- --------- ----------
465,474 23,277 3,230 205 89 485,637
---------- ------- ------- -------- --------- ----------
Water plant in service:
Intangible............ 190 -- -- -- 39 151
Source of supply
plant................ 8,729 632 -- 39 -- 9,400
Pumping plant......... 2,402 1,197 -- -- -- 3,599
Water treatment plant. 4,038 -- -- -- -- 4,038
Transmission and
distribution......... 35,620 892 37 1 -- 36,476
General............... 2,190 26 61 -- -- 2,155
---------- ------- ------- -------- --------- ----------
53,169 2,747 98 40 39 55,819
---------- ------- ------- -------- --------- ----------
Common plant in serv-
ice:
Intangible............ 12,284 6,384 7,515 -- 1 11,152
General............... 25,425 2,290 2,759 403 1 25,358
---------- ------- ------- -------- --------- ----------
37,709 8,674 10,274 403 2 36,510
---------- ------- ------- -------- --------- ----------
Construction work in
progress.............. 75,007 18,850 -- -- 6,310 87,547
Electric plant held for
future use............ 1,258 -- -- -- -- 1,258
Nuclear fuel........... 76,367 9,651 22,712 -- -- 63,306
---------- ------- ------- -------- --------- ----------
Total utility plant.. 2,699,766 94,419 50,005 186,234 215,140 2,715,274
Non-utility property.... 11,896 376 22 2,678 4,662 10,266
---------- ------- ------- -------- --------- ----------
Total property, plant
and equipment....... $2,711,662 $94,795 $50,027 $188,912 $ 219,802 $2,725,540
========== ======= ======= ======== ========= ==========
DESCRIPTION OF OTHER
CHANGES
--------------------
Transfers between accounts............................... $ 514 $ 514
Transfers of expired contract deposits to plant in serv-
ice..................................................... -- 2,258
Purchase of 22% beneficial interests in the PVNGS Units 1
and 2 leases 184,424 --
Write-down of PVNGS Unit 3............................... -- 210,722
Write-down of non-utility property....................... -- 3,418
Miscellaneous corrections and adjustments................ 3,974 2,890
-------- ---------
$188,912 $219,802
======== =========
(continued)
F-32
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT--(CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
BALANCE AT OTHER CHANGES
CLASSIFICATION BEGINNING ADDITIONS ------------- BALANCE AT
DECEMBER 31, 1991 OF YEAR AT COST RETIREMENTS ADD DEDUCT END OF YEAR
----------------- ---------- --------- ----------- ------ ------ -----------
(IN THOUSANDS)
Utility plant:
Electric plant in
sevice:
Intangible............ $ 31,024 $ 1,862 $ 26 $ 4 $3,599 $ 29,265
Production............ 1,235,215 28,015 1,099 2,230 -- 1,264,361
Transmission.......... 215,430 7,068 666 141 81 221,892
Distribution.......... 390,470 15,326 2,628 215 650 402,733
General............... 66,104 6,420 277 303 19 72,531
---------- ------- ------- ------ ------ ----------
1,938,243 58,691 4,696 2,893 4,349 1,990,782
---------- ------- ------- ------ ------ ----------
Gas plant in service:
Intangible............ 9,479 5,362 -- 5 11 14,835
Production............ 110,189 679 315 515 -- 111,068
Natural gas storage... 4,761 -- -- 43 -- 4,804
Transmission.......... 66,969 1,023 161 645 -- 68,476
Distribution.......... 214,717 8,920 1,622 1,093 -- 223,108
General............... 39,699 3,994 711 201 -- 43,183
---------- ------- ------- ------ ------ ----------
445,814 19,978 2,809 2,502 11 465,474
---------- ------- ------- ------ ------ ----------
Water plant in service:
Intangible............ 151 39 -- -- -- 190
Source of supply
plant................ 7,510 938 -- 281 -- 8,729
Pumping plant......... 2,375 27 -- -- -- 2,402
Water treatment plant. 4,038 -- -- -- -- 4,038
Transmission and
distribution......... 33,721 1,975 75 -- 1 35,620
General............... 2,151 39 -- -- -- 2,190
---------- ------- ------- ------ ------ ----------
49,946 3,018 75 281 1 53,169
---------- ------- ------- ------ ------ ----------
Common plant in
service:
Intangible............ 18,364 1,661 7,741 -- -- 12,284
General............... 21,721 4,093 356 -- 33 25,425
---------- ------- ------- ------ ------ ----------
40,085 5,754 8,097 -- 33 37,709
---------- ------- ------- ------ ------ ----------
Construction work in
progress............... 86,127 (11,120) -- -- -- 75,007
Electric plant held for
future use............. 1,258 -- -- -- -- 1,258
Nuclear fuel............ 77,475 9,981 8,019 47 3,117 76,367
---------- ------- ------- ------ ------ ----------
Total utility plant.. 2,638,948 86,302 23,696 5,723 7,511 2,699,766
Non-utility property.... 10,687 1,269 207 665 518 11,896
---------- ------- ------- ------ ------ ----------
Total property, plant
and equipment....... $2,649,635 $87,571 $23,903 $6,388 $8,029 $2,711,662
========== ======= ======= ====== ====== ==========
DESCRIPTION OF OTHER
CHANGES
--------------------
Transfers between accounts............................... $ 32 $ 32
Transfers of expired contract deposits to plant in serv-
ice..................................................... -- 496
Transfers of termination fees to deferred debits......... -- 2,685
Miscellaneous corrections and adjustments................ 6,356 4,816
------ ------
$6,388 $8,029
====== ======
F-33
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO OTHER CHANGES BALANCE
DESCRIPTION BEGINNING OPERATING OTHER -------------- AT END
DECEMBER 31, 1993 OF YEAR EXPENSES ACCOUNTS RETIREMENTS ADD DEDUCT OF YEAR
----------------- ---------- ---------- ---------- ----------- ------ ------- --------
(IN THOUSANDS)
Utility plant:
Accumulated provision
for depreciation of
utility plant:
Electric plant in
service.............. $599,256 $55,698 $ 619 $ 719 $ 186 $41,744 $613,296
Gas plant in service.. 173,617 14,351 1,037 772 1,022 459 188,796
Water plant in
service.............. 12,437 1,338 43 -- -- 4 13,814
Common plant in
service.............. 7,998 755 1,309 -- 324 -- 10,386
-------- ------- ------- ------- ------ ------- --------
793,308 72,142 3,008 1,491 1,532 42,207 826,292
Accumulated provision
for amortization of
intangible assets--
franchises and computer
software............... 20,208 6,135 -- 3,747 624 2,441 20,779
Accumulated provision
for amortization of
nuclear fuel........... 25,476 -- 11,643 6,694 -- -- 30,425
Retirement work in pro-
gress.................. (779) -- -- (8) -- 68 (839)
-------- ------- ------- ------- ------ ------- --------
Total utility plant.. 838,213 78,277 14,651 11,924 2,156 44,716 876,657
Non-utility property.... 897 -- 218 8 3 -- 1,110
-------- ------- ------- ------- ------ ------- --------
$839,110 78,277 $14,869 $11,932 $2,159 $44,716 $877,767
======== ======= ======= ====== ======= ========
Other................... (951)
-------
$77,326
=======
DESCRIPTION OF OTHER ADDITIONS AND CHANGES
------------------------------------------
Depreciation and amortization of equipment
charged to clearing accounts for distribution
in accordance with use....................... $ 3,008 $ -- $ --
Amortization of nuclear fuel charged to fuel
and purchased power ......................... 11,643 -- --
Depreciation of non-utility property charged
to other income and deductions............... 218 -- --
Transfers between accounts.................... -- 1,349 1,349
Write-down of PVNGS Units 1 & 2 purchased..... -- -- 24,629
Sale of SJGS Unit 4 (50 MW) to City of Ana-
heim......................................... -- -- 17,783
Miscellaneous corrections and adjustments..... -- 810 955
------- ------ -------
$14,869 $2,159 $44,716
======= ====== =======
(continued)
F-34
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT--(CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
ADDITIONS
------------------
BALANCE CHARGED
AT TO CHARGED OTHER CHANGES BALANCE
DESCRIPTION BEGINNING OPERATING TO OTHER ---------------- AT END
DECEMBER 31, 1992 OF YEAR EXPENSES ACCOUNTS RETIREMENTS ADD DEDUCT OF YEAR
----------------- --------- --------- -------- ----------- ------- ------- --------
(IN THOUSANDS)
Utility plant:
Accumulated provision
for depreciation of
utility plant:
Electric plant in
service.............. $556,954 $58,165 $ 583 $13,727 $27,374 $30,093 $599,256
Gas plant in service.. 163,034 12,378 797 2,558 -- 34 173,617
Water plant in
service.............. 11,197 1,310 43 115 2 -- 12,437
Common plant in
service.............. 13,068 1,203 797 7,096 74 48 7,998
-------- ------- ------- ------- ------- ------- --------
744,253 73,056 2,220 23,496 27,450 30,175 793,308
Accumulated provision
for amortization of
intangible assets--
franchises and computer
software............... 17,847 6,554 30 4,195 -- 28 20,208
Accumulated provision
for amortization of
nuclear fuel........... 34,273 -- 13,915 22,712 -- -- 25,476
Retirement work in
progress............... (1,920) -- -- (1,302) 3 164 (779)
-------- ------- ------- ------- ------- ------- --------
Total utility plant. 794,453 79,610 16,165 49,101 27,453 30,367 838,213
Non-utility property.... 856 -- 41 -- -- -- 897
-------- ------- ------- ------- ------- ------- --------
$795,309 79,610 $16,206 $49,101 $27,453 $30,367 $839,110
======== ======= ======= ======= ======= ========
Other................... (354)
-------
$79,256
=======
DESCRIPTION OF OTHER ADDITIONS AND
CHANGES
- ----------------------------------
Depreciation and amortization of equipment
charged to clearing accounts for
distribution in accordance with use........ $2,250 $ -- $ --
Amortization of nuclear fuel charged to fuel
and purchased power........................ 13,915 -- --
Depreciation of non-utility property charged
to other income and deductions............. 41 -- --
Purchase of 22% beneficial interests in the
PVNGS Units 1 and 2 leases................. -- 26,565 --
Write-down of PVNGS Unit 3.................. -- -- 29,397
Transfers between accounts.................. -- 351 351
Miscellaneous corrections and adjustments... -- 537 619
------- ------- -------
$16,206 $27,453 $30,367
======= ======= =======
(continued)
F-35
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT--(CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
ADDITIONS
------------------
BALANCE CHARGED
AT TO CHARGED OTHER CHANGES BALANCE
DESCRIPTION BEGINNING OPERATING TO OTHER ---------------- AT END
DECEMBER 31, 1991 OF YEAR EXPENSES ACCOUNTS RETIREMENTS ADD DEDUCT OF YEAR
----------------- --------- --------- -------- ----------- ------- ------- --------
(IN THOUSANDS)
Utility plant:
Accumulated provision
for depreciation of
utility plant:
Electric plant in
service.............. $506,490 $55,108 $ 552 $ 4,690 $ 1,600 $ 2,106 $556,954
Gas plant in service.. 149,132 12,796 934 (207) -- 35 163,034
Water plant in
service.............. 9,722 1,251 43 79 282 22 11,197
Common plant in
service.............. 10,930 1,880 624 357 12 21 13,068
-------- ------- -------- ------- ------- ------- --------
676,274 71,035 2,153 4,919 1,894 2,184 744,253
Accumulated provision
for amortization of
intangible
assets--franchises and
computer software...... 20,196 5,430 119 7,767 29 160 17,847
Accumulated provision
for amortization of
nuclear fuel........... 26,743 -- 15,549 8,019 -- -- 34,273
Retirement work in
progress............... 1,274 -- -- 3,194 -- -- (1,920)
-------- ------- -------- ------- ------- ------- --------
Total utility plant. 724,487 76,465 17,821 23,899 1,923 2,344 794,453
Non-utility property.... 818 -- 41 3 -- -- 856
-------- ------- -------- ------- ------- ------- --------
$725,305 76,465 $ 17,862 $23,902 $ 1,923 $ 2,344 $795,309
======== ======== ======= ======= ======= ========
Other................... (412)
-------
$76,053
=======
DESCRIPTION OF OTHER ADDITIONS AND
CHANGES
- ----------------------------------
Depreciation and amortization of equipment
charged to clearing accounts for
distribution in accordance with use........ $ 2,272 $ -- $ --
Amortization of nuclear fuel charged to fuel
and
purchased power............................ 15,549 -- --
Depreciation of non-utility property charged
to other income and deductions............. 41 -- --
Transfers between accounts.................. -- 21 21
Miscellaneous corrections and adjustments... -- 1,902 2,323
-------- ------- -------
$17,862 $ 1,923 $ 2,344
======== ======= =======
F-36
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
WEIGHTED MAXIMUM AVERAGE AVERAGE
AVERAGE AMOUNT AMOUNT INTEREST
BALANCE AT INTEREST OUTSTANDING OUTSTANDING RATE
CATEGORY OF AGGREGATE END OF RATE AT END DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS YEAR OF YEAR YEAR YEAR YEAR
- --------------------- ---------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
December 31, 1993:
Notes payable to
banks................ -- -- $109,000 $51,090 4.75%
December 31, 1992:
Notes payable to
banks................ $51,550 4.46% $ 75,000 $45,908 5.03%
December 31, 1991:
Notes payable to
banks................ $13,000 6.05% $ 37,300 $24,324 7.63%
- --------
The average amount outstanding during the year is calculated by using average
monthly balances. The average interest rate during the year is calculated by
dividing average interest expense by the average amount outstanding during the
year.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-37
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
QUARTERLY OPERATING RESULTS
The unaudited operating results by quarters for 1993 and 1992 are as follows:
QUARTER ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1993:
Operating Revenues................ $248,558 $190,828 $203,751 $ 230,741
Operating Income.................. $ 26,351 $ 30,679 $ 37,895 $ 38,359
Net Earnings (Loss) (1)........... $ 11,960 $ 5,653 $ 23,946 $(103,045)
Net Earnings (Loss) per Share (1). $ 0.25 $ 0.09 $ 0.53 $ (2.51)
1992:(2)
Operating Revenues................ $236,778 $189,452 $206,273 $ 219,450
Operating Income.................. $ 32,047 $ 20,855 $ 29,094 $ 29,935
Net Earnings (Loss) (3)........... $ 16,183 $ 5,081 $ 8,482 $(134,001)
Net Earnings (Loss) per Share (3). $ 0.34 $ 0.08 $ 0.16 $ (3.25)
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 January 12, 1994, the Company and the NMPUC staff and the interested
parties entered into a stipulation which addresses retail electric prices,
generation assets and the financial concerns of the Company. The Company
filed the stipulation with the NMPUC, recommending that electric retail
rates be reduced by $30 million. This reduction is accomplished primarily
through the write-down of the 22% beneficial interests in the PVNGS Units 1
& 2 leases purchased by the Company, the write-off of certain regulatory
assets and other deferred costs, the write-off of certain PVNGS Units 1 & 2
common costs and the Company's previously announced cost reduction efforts.
In connection with the stipulation, the Company has charged approximately
$108.2 million, after-tax, to the 1993 results of operations. (See PART II,
ITEM 7. --"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--January 12, 1994 Stipulation".)
(2) To provide a better matching of the Company's revenues from sales with the
related costs, effective January 1, 1992, the Company changed its method of
accounting to record estimated revenues from sales of utility services
provided subsequent to monthly billing cycle dates but prior to the end of
the accounting period. The cumulative effect of this accounting change as
of January 1, 1992, net of income taxes, was $12.7 million and has been
reflected in the above schedule in the quarter ended December 31 in its
entirety. The effect of this change has not been reflected in each quarter
as it would not cause a material difference. See note 1 of notes to
consolidated financial statements.
(3) On January 11, 1993, the Company announced specific actions which were
determined to be necessary in order to accelerate the Company's preparation
for the new challenges in the competitive energy market. One element of the
January 11, 1993 announcement was the decision to attempt to sell PVNGS
Unit 3. As a result of such decision the Company has estimated the net
realizable value of PVNGS Unit 3 and the M-S-R power purchase contract, and
recorded an after-tax loss of $126.2 million at December 31, 1992. In
addition, during the fourth quarter of 1992, the Company recorded a write-
down of other charges, aggregating $15.9 million, net of taxes. (See PART
II, ITEM 7. --"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS".)
F-38
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
ELECTRIC SERVICE
Energy Sales--KWh (in
thousands):
Residential............ 1,683,213 1,650,491 1,606,993 1,575,622 1,527,108
Commercial............. 2,398,725 2,353,152 2,299,213 2,270,380 2,203,037
Industrial............. 1,145,369 1,087,357 1,025,420 999,823 961,251
Other ultimate
customers............. 219,481 267,246 208,328 203,005 218,196
---------- ---------- ---------- ---------- ----------
Total sales to
ultimate customers... 5,446,788 5,358,246 5,139,954 5,048,830 4,909,592
Sales for resale....... 3,375,216 3,685,418 3,091,541 3,497,506 3,832,016
---------- ---------- ---------- ---------- ----------
Total KWh sales....... 8,822,004 9,043,664 8,231,495 8,546,336 8,741,608
========== ========== ========== ========== ==========
Electric Revenues (in
thousands):
Residential............ $ 163,131 $ 158,190 $ 155,162 $ 147,059 $ 141,465
Commercial............. 218,263 211,086 207,929 200,041 192,273
Industrial............. 74,157 69,590 67,031 66,351 64,519
Other ultimate
customers............. 15,548 16,521 14,472 14,054 15,387
---------- ---------- ---------- ---------- ----------
Total revenues to
ultimate customers... 471,099 455,387 444,594 427,505 413,644
Sales for resale....... 99,895* 123,291 107,636 122,431 204,763
---------- ---------- ---------- ---------- ----------
Total revenues from
energy sales......... 570,994 578,678 552,230 549,936 618,407
Miscellaneous electric
revenues.............. 18,734 17,645 16,256 17,446 16,481
---------- ---------- ---------- ---------- ----------
Total electric
revenues............. $ 589,728 $ 596,323 $ 568,486 $ 567,382 $ 634,888
========== ========== ========== ========== ==========
Customers at Year End:
Residential............ 278,357 271,155 264,425 259,546 254,864
Commercial............. 33,568 32,504 31,666 31,295 31,402
Industrial............. 381 386 385 392 393
Other ultimate
customers............. 576 537 499 454 415
---------- ---------- ---------- ---------- ----------
Total ultimate
customers............ 312,882 304,582 296,975 291,687 287,074
Sales for Resale....... 37 47 33 34 33
---------- ---------- ---------- ---------- ----------
Total customers....... 312,919 304,629 297,008 291,721 287,107
========== ========== ========== ========== ==========
Reliable Net Capabili-
ty--KW................. 1,541,000 1,591,000 1,591,000 1,591,000 1,591,000
Coincidental Peak De-
mand--KW 1,104,000 1,053,000 1,018,000 1,051,000 1,006,000
Average Fuel Cost per
Million BTU............ $ 1.3844 $ 1.3263 $ 1.3696 $ 1.3384 $ 1.3445
BTU per KWh of Net Gen-
eration................ 11,036 11,039 11,086 11,181 11,034
WATER SERVICE
Water Sales--Gallon (in
thousands) 3,414,950 3,224,271 2,996,587 3,001,391 3,179,711
Revenues (in thousands). $ 13,063 $ 12,471 $ 11,613 $ 11,700 $ 12,102
Customers at Year End... 22,743 22,098 21,522 21,134 20,565
- --------
* 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
$20.5 million. (See Note 2 of the notes to consolidated financial
statements.)
Note: In 1991, the Company implemented a FERC order requiring classification of
economy sales as operating revenues. Prior period amounts have been
reclassified for comparability purposes.
F-39
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
COMPARATIVE OPERATING STATISTICS
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
GAS SERVICE
Gas Throughput--Decatherms (in
thousands)
GCNM:
Residential.................... 28,031 27,063 26,237 25,190 23,253
Commercial..................... 10,428 10,590 11,375 11,344 10,730
Industrial..................... 923 707 766 1,278 1,478
Public authorities............. 2,473 4,199 4,951 5,300 5,492
Irrigation..................... 1,259 1,134 1,374 1,780 2,010
Sales for resale............... 1,041 2,035 1,357 3,539 4,557
Unbilled....................... (636) 649 -- -- --
Brokerage...................... -- -- -- -- 776
-------- -------- -------- -------- --------
GCNM sales..................... 43,519 46,377 46,060 48,431 48,296
Transportation throughput...... 46,059 48,674 38,976 31,717 16,041
-------- -------- -------- -------- --------
GCNM throughput................ 89,578 95,051 85,036 80,148 64,337
Gathering Company:
Spot market sales.............. -- 858 1,624 8,112 11,081
Transportation throughput...... 45,754 24,889 23,631 10,785 3,597
-------- -------- -------- -------- --------
Total gas throughput.......... 135,332 120,798 110,291 99,045 79,015
======== ======== ======== ======== ========
Gas Revenues (in thousands)
GCNM:
Residential.................... $149,796 $125,313 $137,436 $137,633 $130,130
Commercial..................... 44,575 37,222 46,676 49,575 47,876
Industrial..................... 3,369 2,063 2,754 4,993 5,693
Public authorities............. 9,694 12,313 17,711 20,392 21,757
Irrigation..................... 4,418 2,713 4,495 5,934 7,001
Sales for resale............... 3,137 4,460 3,848 7,253 9,874
Unbilled....................... (1,573) 716 -- -- --
Brokerage...................... -- -- -- -- 1,378
-------- -------- -------- -------- --------
Revenues from gas sales........ 213,416 184,800 212,920 225,780 223,709
Transportation................. 19,376 14,861 13,386 10,246 6,788
Other.......................... 2,453 4,974 9,062 8,292 5,948
-------- -------- -------- -------- --------
GCNM gas revenues.............. 235,245 204,635 235,368 244,318 236,445
Gathering Company:
Spot market sales.............. 4 1,410 1,771 13,880 19,810
Transportation................. 7,353 3,892 3,611 1,693 830
Processing Company:
Sales of liquids............... 18,724 26,427 30,500 39,086 25,294
Processing fees................ 9,761 6,795 5,819 3,127 448
-------- -------- -------- -------- --------
Total gas revenues............ $271,087 $243,159 $277,069 $302,104 $282,827
======== ======== ======== ======== ========
Customers at Year End
GCNM:
Residential.................... 337,768 329,385 320,546 312,899 306,604
Commercial..................... 30,151 29,765 29,608 29,305 28,949
Industrial..................... 72 61 72 81 103
Public authorities............. 1,958 2,004 2,153 2,125 2,242
Irrigation..................... 951 1,012 1,043 1,224 1,252
Sales for resale............... 3 4 7 4 7
Transportation................. 37 43 41 40 28
Brokerage...................... -- -- -- -- 1
-------- -------- -------- -------- --------
GCNM customers................. 370,940 362,274 353,470 345,678 339,186
Gathering Company:
Off-system sales............... 1 2 13 12 13
Transportation................. 21 16 8 9 5
Processing Company............... 25 22 21 20 23
-------- -------- -------- -------- --------
Total customers............... 370,987 362,314 353,512 345,719 339,227
======== ======== ======== ======== ========
F-40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On January 5, 1993, the Company notified its certifying accountants, KPMG
Peat Marwick ("KPMG"), that the client-auditor relationship between the Company
and KPMG will be terminated effective with the completion of the 1992 financial
audit. Additionally, the Company announced its new certifying accountants,
Arthur Andersen & Co., to serve as independent accountants for fiscal year
1993. The decision to change accountants was recommended by management and the
Audit Committee and approved by the Company's board of directors, and was
ratified at the Company's annual meeting of stockholders held on May 25, 1993.
The information required by Item 304 of Regulation S-K has been "previously
reports", as that term is defined in Rule 12b-2, in a Current Report on Form 8-
K dated January 8, 1993.
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
27, 1994 (the "1994 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 1994 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 Executor Officer" in the 1994 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is hereby made to the 1994 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. The following consolidated financial information for the years
1993, 1992, and 1991 is submitted under Item 8.
Schedule V-- Property, plant and equipment.
Schedule VI-- Accumulated depreciation and amortization of property,
plant and equipment.
Schedule IX-- Short-term borrowings.
All other schedules are omitted for the reason that they are not applicable,
not required or the information is otherwise supplied.
E-1
(a) -- 3-A. Exhibits Filed:
EXHIBIT
NO. DESCRIPTION
------- -----------
2.1 Purchase and Sale Agreement By and Among Public Service Company of New
Mexico, sunterra Gas Gathering Company, Sunterra Gas Processing
Company (Sellers) and Williams Gas Processing--Blanco, Inc. (Buyer)
2.2 Agreement to Purchase and Sell Between City of Santa Fe, New Mexico
and Public Service Company of New Mexico
3.2 Bylaws of Public Service Company of New Mexico With All Amendments to
and Including March 1, 1994
10.50 Public Service Company of New Mexico Section 415 Plan
10.51 First Amendment to the Public Service Company of New Mexico Executive
Retention Plan
10.52 First Amendment to the Public Service Company of New Mexico
Performance Stock Plan
10.53 January 12, 1994 Stipulation
10.54 Employment, Retirement and Release Agreement By and Between the Public
Service Company of New Mexico and William M. Eglinton
10.55 Receivable Purchase Agreement Dated as of August 2, 1983 Among Public
Service Company of New Mexico (Seller) and CXC Incorporated
(Purchaser) and Citicorp North America, Inc. (Agent)
10.56 U.S. $40,000,000 Receivables Purchase Agreement Dated December 21,
1993 Among Public Service Company of New Mexico (Seller) and Corporate
Receivables Corporation (Investor) and Citicorp North America, Inc.
(Agent)
10.57 U.S. $100,000,000 Revolving Credit Agreement Dated as of December 14,
1993 Among Public Service Company of New Mexico (Borrower) and The
Banks Named Herein (Banks) and Chemical Bank and Citibank, N.A. (Co-
Agents)
10.58 Amendment No. 8 effective September 12, 1983, to the Arizona Nuclear
Power Project Participation Agreement (refiled)
10.59* Amended and Restated Lease dated as of September 1, 1993, between The
First National Bank of Boston, Lessor, and the Company, Lessee. (EIP
Lease)
10.61 Participation Agreement dated as of June 30, 1983 among Security Trust
Company, as Trustee, the Company, Tucson Electric Power Company and
certain financial institutions relating to the San Juan Coal Trust
(refiled).
10.62 Agreement of the Company pursuant to Item 601(b)(4)(iii) of Regulation
S-K (refiled).
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of KPMG Peat Marwick.
(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
201.24 by reference to the filings set forth below:
E-2
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Restated Articles of 4-(b) to Registration 2-99990
Incorporation of the Company, as Statement No. 2-99990 of
amended through May 10, 1985. the Company.
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1 Indenture of Mortgage and Deed 4-(d) to Registration 2-99990
of Trust dated as of June 1, Statement No. 2-99990 of
1947, between the Company and the Company.
The Bank of New York (formerly
Irving Trust Company), as
Trustee, together with the Ninth
Supplemental Indenture dated as
of January 1, 1967, the Twelfth
Supplemental Indenture dated as
of September 15, 1971, the
Fourteenth Supplemental
Indenture dated as of December
1, 1974 and the Twenty-second
Supplemental Indenture dated as
of October 1, 1979 thereto
relating to First Mortgage Bonds
of the Company.
4.2 Portions of sixteen supplemental 4-(e) to Registration 2-99990
indentures to the Indenture of Statement No. 2-99990 of
Mortgage and Deed of Trust dated the Company.
as of June 1, 1947, between the
Company and The Bank of New York
(formerly Irving Trust Company),
as Trustee, relevant to the
declaration or payment of
dividends or the making of other
distributions on or the purchase
by the Company of shares of the
Company's Common Stock.
MATERIAL CONTRACTS
10.1 Supplemental Indenture of Lease 4-D to Registration 2-26116
dated as of July 19, 1966 Statement No. 2-26116 of
between the Company and other the Company.
participants in the Four Corners
Project and the Navajo Indian
Tribal Council.
10.1.1 Amendment and Supplement No. 1 10.1.1 to Annual Report of 1-6986
to Supplemental and Additional the Registrant on Form 10-
Indenture of Lease dated April K for fiscal year ended
25, 1985 between the Navajo December 31, 1985.
Tribe of Indians and Arizona
Public Service Company, El Paso
Electric Company, Public Service
Company of New Mexico, Salt
River Project Agricultural
Improvement and Power District,
Southern California Edison
Company, and Tucson Electric
Power Company.
10.2 Fuel Agreement, as supplemented, 4-H to Registration 2-35042
dated as of September 1, 1966 Statement No. 2-35042 of
between Utah Construction & the Company.
Mining Co. and the participants
in the Four Corners Project
including the Company.
10.3 Fourth Supplement to Four 10.3 to Annual Report of 1-6986
Corners Fuel Agreement No. 2 the Registrant on Form 10-
effective as of January 1, 1981, K for fiscal year ended
between Utah International Inc. December 31, 1991.
and the participants in the Four
Corners Project, including the
Company.
10.4 Contract between the United 5-L to Registration 2-41010
States and the Company dated Statement No. 2-41010 of
April 11, 1968, for furnishing the Company.
water.
E-3
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
10.4.1 Amendatory Contract between the 5-R to Registration 2-60021
United States and the Company Statement No. 2-60021 of
dated September 29, 1977, for the Company.
furnishing water.
10.5 Co-Tenancy Agreement between the 5-O to Registration 2-44425
Company and Tucson Gas & Statement No. 2-44425 of
Electric Company dated February the Company.
15, 1972, pertaining to the San
Juan generating plant.
10.5.1 Modifications No. 1 to San Juan 10.10 to Annual Report of 1-6986
Project Agreements. the Registrant on Form 10-
K for fiscal year ended
December 31, 1991.
10.5.2 Modifications No. 3 to San Juan 10-KK to Annual Report of 1-6986
Project Agreements dated July the Registrant on Form 10-
17, 1984. K for fiscal year ended
December 31, 1984.
10.5.3 Modification No. 4 to Co-Tenancy 10.5.1 to Annual Report of 1-6986
Agreement between the Company the Registrant on Form 10-
and Tucson Electric Power K for fiscal year ended
Company dated October 25, 1984. December 31, 1985.
10.5.4 Modification No. 5 to Co-Tenancy 10.5.2 to Annual Report of 1-6986
Agreement between the Company the Registrant on Form 10-
and Tucson Electric Power K for fiscal year ended
Company dated July 1, 1985. December 31, 1985.
10.6 San Juan Project Construction 5-R to Registration 2-50338
Agreement between the Company Statement No. 2-50338 of
and Tucson Gas & Electric the Company.
Company, executed December 21,
1973.
10.60 Reimbursement Agreement, dated 4.5 to Registration 33-65418
as of November 1, 1992 between Statement No. 33-65418 of
Public Service Company of New the Company.
Mexico and Canadian Imperial
Bank of Commerce, New York
Agency
10.6.1 Modification No. 4 to San Juan 10.6.1 to Annual Report of 1-6986
Project Construction Agreement the Registrant on Form 10-
between the Company and Tucson K for fiscal year ended
Electric Power Company dated December 31, 1985.
October 25, 1984.
10.6.2 Modification No. 5 to San Juan 10.6.2 to Annual Report of 1-6986
Project Construction Agreement the Registrant on Form 10-
between the Company and Tucson K for fiscal year ended
Electric Power Company dated December 31, 1985.
July 1, 1985.
10.7 San Juan Project Operating 5-S to Registration 2-50338
Agreement between the Company Statement No. 2-50338 of
and Tucson Gas & Electric the Company.
Company, executed December 21,
1973.
10.7.1 Modification No. 4 to San Juan 10.7.1 to Annual Report of 1-6986
Project Operating Agreement the Registrant on Form 10-
between the Company and Tucson K for fiscal year ended
Electric Power Company dated December 31, 1985.
October 25, 1984.
E-4
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
10.7.2 Modification No. 5 to San Juan 10.7.2 to Annual Report of 1-6986
Project Operating Agreement the Registrant on Form 10-
between the Company and Tucson K for fiscal year ended
Electric Power Company dated December 31, 1985.
July 1, 1985.
10.8 Arizona Nuclear Power Project 5-T to Registration 2-50338
Participation Agreement among Statement No. 2-50338 of
the Company and Arizona Public the Company.
Service Company, Salt River
Project Agricultural Improvement
and Power District, Tucson Gas &
Electric Company and El Paso
Electric Company, dated August
23, 1973.
10.8.1 Amendments No. 1 through No. 6 10.8.1 to Annual Report of 1-6986
to Arizona Nuclear Power Project the Registrant on Form 10-
Participation Agreement. K for fiscal year ended
December 31, 1991.
10.8.2 Amendment No. 7 effective April 10.8.2 to Annual Report of 1-6986
1, 1982, to the Arizona Nuclear the Registrant on Form 10-
Power Project Participation K for fiscal year ended
Agreement (refiled). December 31, 1991.
10.8.4 Amendment No. 9 to Arizona 10-JJ to Annual Report of 1-6986
Nuclear Power Project the Registrant on Form 10-
Participation Agreement dated as K for fiscal year ended
of June 12, 1984. December 31, 1984.
10.8.5 Amendment No. 10 to Arizona 10.8.7 to Annual Report of 1-6986
Nuclear Power Project the Registrant on Form 10-
Participation Agreement dated as K for fiscal year ended
of November 21, 1985. December 31, 1985.
10.8.6 Amendment No. 11 to Arizona 10.8.8 to Annual Report of 1-6986
Nuclear Power Project the Registrant on Form 10-
Participation Agreement dated K for fiscal year ended
June 13, 1986 and effective December 31, 1986.
January 10, 1987.
10.8.7 Amendment No. 12 to Arizona 19.1 to the Company's 1-6986
Nuclear Power Project Quarterly Report on Form
Participation Agreement dated 10-Q for the quarter ended
June 14, 1988, and effective September 30, 1990.
August 5, 1988.
10.8.8 Amendment No. 13 to the Arizona 10.8.10 to Annual Report 1-6986
Nuclear Power Project of the Registrant on Form
Participation Agreement dated 10-K for fiscal year ended
April 4, 1990, and effective December 31, 1990.
June 15, 1991.
10.9 Coal Sales Agreement executed 10.9 to Annual Report of 1-6986
August 18, 1980 among San Juan the Registrant on Form 10-
Coal Company, the Company and K for fiscal year ended
Tucson Electric Power Company, December 31, 1991.
together with Amendments No.
One, Two, Four, and Six thereto.
E-5
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
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10.9.1 Amendment No. Three to Coal 10-NN to Annual Report of 1-6986
Sales Agreement dated April 30, the Registrant on Form 10-
1984 among San Juan Coal K for fiscal year ended
Company, the Company and Tucson December 31, 1984
Electric Power Company. (confidentiality treatment
was requested and exhibit
was not filed therewith).
10.9.2 Amendment No. Five to Coal Sales 10.9.2 to Annual Report of 1-6986
Agreement dated May 29, 1990 the Registrant on Form 10-
among San Juan Coal Company, the K for fiscal year ended
Company and Tucson Electric December 31, 1991
Power Company. (confidentiality treatment
was requested as to
portions of the 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 19.3 to the Company's 1-6986
Sales Agreement, dated as of Quarterly Report on Form
July 27, 1992 among San Juan 10-Q for the quarter ended
Coal Company, the Company and September 30, 1992
Tucson Electric Power Company. (confidentiality treatment
was requested as to
portions of this exhibit,
and such portions were
omitted from the exhibit
filed and were filed
separately with the
Securities and Exchange
Commission).
10.9.4 First Supplement to Coal Sales 19.4 to the Company's 1-6986
Agreement, dated as of July 27, Quarterly Report on Form
1992 among San Juan Coal 10-Q for the quarter ended
Company, the Company and Tucson September 30, 1992
Electric Power Company. (confidentiality treatment
was requested as to
portions of this exhibit,
and such portions were
omitted from the exhibit
filed and were filed
separately with the
Securities and Exchange
Commission).
10.11.1 Amendment No. 1 to the Early 10.11.1 to Annual Report 1-6986
Purchase and Participation of the Registrant on Form
Agreement between Public Service 10-K for fiscal year ended
Company of New Mexico and M-S-R December 31, 1987.
Public Power Agency, executed as
of December 16, 1987, for San
Juan Unit 4.
10.12 Amended and Restated San Juan 10-OO to Annual Report of 1-6986
Unit 4 Purchase and the Registrant on Form 10-
Participation Agreement dated as K for fiscal year ended
of December 28, 1984 between the December 31, 1984.
Company and the Incorporated
County of Los Alamos.
E-6
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
10.14 Participation Agreement among 10.14 to Annual Report of 1-6986
the Company, Tucson Electric the Registrant on Form 10-
Power Company and certain K for fiscal year ended
financial institutions relating December 31, 1992.
to the San Juan Coal Trust
dated as of December 31, 1981
(refiled).
10.16 Interconnection Agreement dated 10.16 to Annual Report of 1-6986
November 23, 1982, between the the Registrant on Form 10-
Company and Southwestern Public K for fiscal year ended
Service Company (refiled). December 31, 1992.
10.18* Facility Lease dated as of 28(a) to the Company's 1-6986
December 16, 1985, between The Current Report on Form 8-K
First National Bank of Boston, dated December 31, 1985.
as Owner Trustee, and Public
Service Company of New Mexico.
10.18.1* Amendment No. 1 dated as of 28.1 to the Company's 1-6986
July 15, 1986, to Facility Current Report on Form 8-K
Lease dated as of December 16, dated July 17, 1986.
1985.
10.18.2* Amendment No. 2 dated as of 28.1 to the Company's 1-6986
November 18, 1986, to Facility Current Report on Form 8-K
Lease dated as of December 16, dated November 25, 1986.
1985.
10.18.3* Amendment No. 3 dated as of 10.21.3 to Annual Report 1-6986
March 30, 1987, to Facility of the Registrant on Form
Lease dated as of December 16, 10-K for fiscal year ended
1985. December 31, 1987.
10.19 Facility Lease dated as of July 28.1 to the Company's 1-6986
31, 1986, between The First Quarterly Report on Form
National Bank of Boston, as 10-Q for the quarter ended
Owner Trustee, and Public June 30, 1986.
Service Company of New Mexico.
10.19.1 Amendment No. 1 dated as of 28.5 to the Company's 1-6986
November 18, 1986, Facility Current Report on Form 8-K
Lease dated as of July 31, dated November 25, 1986.
1986.
10.19.2 Amendment No. 2 dated as of 10.22.2 to Annual Report 1-6986
December 11, 1986, to Facility of the Registrant on Form
Lease dated as of July 31, 10-K for fiscal year ended
1986. December 31, 1986.
10.19.3 Amendment No. 3 dated as of 10.22.3 to Annual Report 1-6986
April 8, 1987, to Facility of the Registrant on Form
Lease dated as of July 31, 10-K for fiscal year ended
1986. December 31, 1987.
10.20* Facility Lease dated as of 28.1 to the Company's 1-6986
August 12, 1986, between The Current Report on Form 8-K
First National Bank of Boston, dated August 18, 1986.
as Owner Trustee, and Public
Service Company of New Mexico.
10.20.1* Amendment No. 1 dated as of 28.9 to the Company 1-6986
November 18, 1986, to Facility Current Report on Form 8-K
Lease dated as of August 12, dated November 25, 1986.
1986.
E-7
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
10.20.2 Amendment No. 2 dated as of 10.23.2 to Annual Report 1-6986
November 25, 1986, to Facility of the Registrant on Form
Lease dated as of August 12, 10-K for fiscal year ended
1986. December 31, 1986.
10.21 Facility Lease dated as of 28.1 to the Company's 1-6986
December 15, 1986, between The Current Report on Form 8-K
First National Bank of Boston, dated December 17, 1986.
as Owner Trustee, and Public
Service Company of New Mexico
(Unit 1 Transaction).
10.21.1 Amendment No. 1 dated as of 10.24.1 to Annual Report 1-6986
April 8, 1987, to Facility of the Registrant on Form
Lease dated as of December 15, 10-K for fiscal year ended
1986. December 31, 1987.
10.22 Facility Lease dated as of 28.9 to the Company's 1-6986
December 15, 1986, between The Current Report on Form 8-K
First National Bank of Boston, dated December 17, 1986.
as Owner Trustee, and Public
Service Company of New Mexico
(Unit 2 Transaction).
10.22.1 Amendment No. 1 dated as of 10.25.1 to Annual Report 1-6986
April 8, 1987, to Facility of the Registrant on Form
Lease dated as of December 15, 10-K for fiscal year ended
1986. December 31, 1987.
10.23** Restated and Amended Public 19.5 to the Company's 1-6986
Service Company of New Mexico Quarterly Report on Form
Accelerated Management 10-Q for the quarter ended
Performance Plan (1988). September 30, 1988.
(August 16, 1988.)
10.23.1** First Amendment to Restated 19.6 to the Company's 1-6986
and Amended Public Service Quarterly Report on Form
Company of New Mexico 10-Q for the quarter ended
Accelerated Management September 30, 1988.
Performance Plan (1988).
(August 30, 1988.)
10.23.2** Second Amendment to Restated 10.26.2 to Annual Report 1-6986
and Amended Public Service of the Registrant on Form
Company of New Mexico 10-K for fiscal year ended
Accelerated Management December 31, 1989.
Performance Plan (1988).
(December 29, 1989).
10.24** Management Life Insurance Plan 10.39 to Annual Report of 1-6986
(July 1985) of the Company. the Registrant on Form 10-
K for fiscal year ended
December 31, 1985.
10.25** Amended and Restated Medical 19.6 to the Company's 1-6986
Reimbursement Plan of Public Quarterly Report on Form
Service Company of New Mexico. 10-Q for the quarter ended
March 31, 1987.
10.25.1** Second Restated and Amended 10.25.1 to Annual Report 1-6986
Public Service Company of New of the Registrant on Form
Mexico Executive Medical Plan. 10-K for the fiscal year
ended December 31, 1992
E-8
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
10.27 Amendment No. 2 dated as of 10.53 to Annual Report of 1-6986
April 10, 1987, to the Facility the Registrant on Form 10-
Lease dated as of August 12, K for fiscal year ended
1986, between The First National December 31, 1987.
Bank of Boston, as Owner
Trustee, and Public Service
Company of New Mexico. (Unit 2
Transaction.) (This is an
amendment to a Facility Lease
which is substantially similar
to the Facility Lease filed as
Exhibit 28.1 to the Company's
Current Report on Form 8-K dated
August 18, 1986.)
10.28 Amendment No. 3 dated as of 10.54 to Annual Report of 1-6986
March 30, 1987, to the Facility the Registrant on Form 10-
Lease dated as of December 16, K for fiscal year ended
1985, between The First National December 31, 1987.
Bank of Boston, as Owner
Trustee, and Public Service
Company of New Mexico. (Unit 1
Transaction.) (This is an
amendment to a Facility Lease
which is substantially similar
to the Facility Lease filed as
Exhibit 28(a) to the Company's
Current Report on Form 8-K dated
December 31, 1985.)
10.29 Decommissioning Trust Agreement 10.55 to Annual Report of 1-6986
between Public Service Company the Registrant on Form 10-
of New Mexico and First K for fiscal year ended
Interstate Bank of Albuquerque December 31, 1987.
dated as of July 31, 1987.
10.30 New Mexico Public Service 10.56 to Annual Report of 1-6986
Commission Order dated July 30, the Registrant on Form 10-
1987, and Exhibit 1 thereto, in K for fiscal year ended
NMPUC Case No. 2004, regarding December 31, 1987.
the PVNGS decommissioning 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 10.48 to Annual Report of 1-6986
Public Service Company of New the Registrant on Form 10-
Mexico and Creditors of Meadows K for fiscal year ended
Resources, Inc. dated November December 31, 1989.
2, 1989.
10.34.1 First amendment dated April 24, 19.1 to the Company's 1-6986
1992 to the Settlement Agreement Quarterly Report on Form
dated November 2, 1989 among 10-Q for the quarter ended
Public Service Company of New September 30, 1992.
Mexico, the lender parties
thereto and collateral agent.
E-9
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
10.35 Amendment dated April 11, 1991 19.1 to the Company's 1-6986
among Public Service Company Quarterly Report on Form
of New Mexico, certain banks 10-Q for the quarter ended
and Chemical Bank and September 30, 1991.
Citibank, N.A., as agents for
the banks.
10.36 San Juan Unit 4 Purchase and 19.2 to the Company's 1-6986
Participation Agreement Public Quarterly Report on Form
Service Company of New Mexico 10-Q for the quarter ended
and the City of Anaheim, March 31, 1991.
California dated April 26,
1991.
10.36.1 Second stipulation in the 10.38 to Annual Report of 1-6986
matter of application of the Registrant on Form 10-
Public Service Company of New K for fiscal year ended
Mexico for NMPSC approval to December 31, 1992.
sell a 10.04% undivided
interest in San Juan
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 10.2.1 to the Company's
Unit 4 Purchase and Quarterly Report on Form
Participation Agreement 10-Q for the quarter ended
between Public Service Company September 30, 1993.
of New Mexico and Utah
Associated Municipal Power
Systems
10.39 Purchase agreement dated 10.39 to Annual Report of 1-6986
February 7, 1992 between the Registrant on Form 10-
Burnham Leasing Corporation K for fiscal year ended
and Public Service Company of December 31, 1991.
New Mexico.
10.40** Director Restricted Stock 10.40 to Annual Report of 1-6986
Retainer Plan. the Registrant on Form 10-
K for fiscal year ended
December 31, 1991.
10.40.1** First Amendment to the Public 19.3 to the Company's 1-6986
Service Company of New Mexico Quarterly Report on Form
Director Restricted Stock 10-Q for the quarter ended
Retainer Plan March 31, 1993.
10.41 Waste Disposal Agreement, 19.5 to the Company's 1-6986
dated as of July 27, 1992 Quarterly Report on Form
among San Juan Coal Company, 10-Q for the quarter ended
the Company and Tucson September 30, 1992
Electric Power Company. (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).
E-10
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
10.42 Stipulation in the matter of 10.42 to Annual Report of 1-6986
the application of Gas Company the Registrant on Form 10-
of New Mexico for an order K for fiscal year ended
authorizing recovery of MDL December 31, 1992.
costs through Rate Rider
Number 8.
10.43** Description of certain Plans 10.43 to Annual Report of 1-6986
which include executive the Registrant on Form 10-
officers as participants. 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 the Registrant on Form 10-
Separation Program. K for fiscal year ended
December 31, 1992.
10.44.1** First Amendment dated April 6, 19.2 to the Company's 1-6986
1993 to the First Restated and Quarterly Report on Form
Amended Public Service Company 10-Q for the quarter ended
of New Mexico Non-Union March 31, 1993.
Severance Pay Plan dated
August 1, 1992.
10.45** Public Service Company of New 99.1 to Registration 33-65418
Mexico Performance Stock Plan. Statement No. 33-65418 of
the Company.
10.46** Public Service Company of New 10.1 to the Company's 1-6986
Mexico Asset Sales Incentive Quarterly Report on Form
Plan. 10-Q for the quarter ended
June 30, 1993.
10.47** Compensation Arrangement with 10.3 to the Company's 1-6986
Chief Executive Officer. Quarterly Report on Form
10-Q for the quarter ended
June 30, 1993.
10.47.1** Pension Service Adjustment 10.3.1 to the Company's 1-6986
Agreement for Benjamin F. Quarterly Report on Form
Montoya. 10-Q for the quarter ended
September 30, 1993.
10.47.2** Severance Agreement for 10.3.2 to the Company's 1-6986
Benjamin F. Montoya. Quarterly Report on Form
10-Q for the quarter ended
September 30, 1993.
10.47.3** Executive Retention Agreement 10.3.3 to the Company's 1-6986
for Benjamin F. Montoya. Quarterly Report on Form
10-Q for the quarter ended
September 30, 1993.
10.48** Public Service Company of New 10.4 to the Company's 1-6986
Mexico OBRA '93 Retirement Quarterly Report on Form
Plan. 10-Q for the quarter ended
September 30, 1993.
ADDITIONAL EXHIBITS
16.1 Letter re. Change in 16.1 to the Company's 1-6986
Certifying Accountant. Current Report Form 8-K
dated January 8, 1993.
E-11
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
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22 Certain subsidiaries of the 22 to Annual Report of the 1-6986
registrant. Registrant on Form 10-K
for fiscal year ended
December 31, 1992.
99.1 Collateral Trust Indenture dated 28(i) to the Company's 1-6986
as of December 16, 1985, among Current Report on Form 8-K
First PV Funding Corporation, dated December 31, 1985.
Public Service Company of New
Mexico and Chemical Bank, as
Trustee.
99.1.1 Series 1986A Bond Supplemental 28.4 to the Company's 1-6986
Indenture dated as of July 15, Current Report on Form 8-K
1986, to Collateral Trust dated July 17, 1986.
Indenture dated as of December
16, 1985.
99.1.2 Series 1986B Bond Supplemental 28.1.2 to the Company's 1-6986
Indenture dated as of November Current Report on Form 8-K
18, 1986, to Collateral Trust dated November 25, 1986.
Indenture dated as of December
16, 1985.
99.1.3 Unit 1 Supplemental Indenture of 28.8 to the Company's 1-6986
Pledge (Lease Obligation Bonds, Current Report on Form 8-K
Series 1986B) dated as of dated December 17, 1986.
December 15, 1986, to the
Collateral Trust Indenture dated
as of December 16, 1985.
99.1.4 Unit 2 Supplemental Indenture of 28.16 to the Company's 1-6986
Pledge (Lease Obligation Bonds, Current Report on Form 8-K
Series 1986B) dated as of dated December 17, 1986.
December 15, 1986, to the
Collateral Trust Indenture dated
as of December 16, 1985.
99.2* Participation Agreement dated as 2 to the Company's Current 1-6986
of December 16, 1985, among the Report on Form 8-K dated
Owner Participant named therein, December 31, 1985.
First PV Funding Corporation.
The First National Bank of
Boston, in its individual
capacity and as Owner Trustee
(under a Trust Agreement dated
as of December 16, 1985 with the
Owner Participant), Chemical
Bank, in its individual capacity
and as Indenture Trustee (under
a Trust Indenture, Mortgage,
Security Agreement and
Assignment of Rents dated as of
December 16, 1985 with the Owner
Trustee), and Public Service
Company of New Mexico, including
Appendix A definitions.
99.2.1* Amendment No. 1 dated as of July 2.1 to the Company's 1-6986
15, 1986, to Participation Current Report on Form 8-K
Agreement dated as of December dated July 17, 1986.
16, 1985.
99.2.2* Amendment No. 2 dated as of 2.1 to the Company's 1-6986
November 18, 1986, to Current Report on Form 8-K
Participation Agreement dated as dated November 25, 1986.
of December 16, 1985.
99.3* Trust Indenture, Mortgage, 28(b) to the Company's 1-6986
Security Agreement and Current Report on Form 8-K
Assignment of Rents dated as of dated December 31, 1985.
December 16, 1985, between The
First National Bank of Boston,
as Owner Trustee, and Chemical
Bank, as Indenture Trustee.
E-12
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
99.3.1* Supplemental Indenture No. 1 28.2 to the Company's 1-6986
dated as of July 15, 1986, to Current Report on Form 8-K
the Trust Indenture, Mortgage, dated July 17, 1986.
Security Agreement and
Assignment of Rents dated as of
December 16, 1985.
99.3.2* Supplemental Indenture No. 2 28.2 to the Company's 1-6986
dated as of November 18, 1986, Current Report on Form 8-K
to the Trust Indenture, dated November 25, 1986.
Mortgage, Security Agreement and
Assignment of Rents dated as of
December 16, 1985.
99.4* Assignment, Assumption and 28(e) to the Company's 1-6986
Further Agreement dated as of Current Report on Form 8-K
December 16, 1985, between dated December 31, 1985.
Public Service Company of New
Mexico and The First National
Bank of Boston, as Owner
Trustee.
99.5 Participation Agreement dated as 2.1 to the Company's 1-6986
of July 31, 1986, among the Quarterly Report on Form
Owner Participant named therein, 10-Q for the quarter ended
First PV Funding Corporation. June 30, 1986.
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.
99.5.1 Amendment No. 1 dated as of 28.4 to the Company's 1-6986
November 18, 1986, to Current Report on Form 8-K
Participation Agreement dated as dated November 25, 1986.
of July 31, 1986.
99.6 Trust Indenture, Mortgage, 28.2 to the Company's 1-6986
Security Agreement and Quarterly Report on Form
Assignment of Rents dated as of 10-Q for the quarter ended
July 31, 1986, between The First June 30, 1986.
National Bank of Boston, as
Owner Trustee, and Chemical
Bank, as Indenture Trustee.
99.6.1 Supplemental Indenture No. 1 28.6 to the Company's 1-6986
dated as of November 18, 1986, Current Report on Form 8-K
to the Trust Indenture, dated November 25, 1986.
Mortgage, Security Agreement and
Assignments of Rents dated as of
July 31, 1986.
99.7 Assignment, Assumption, and 28.3 to the Company's 1-6986
Further Agreement dated as of Quarterly Report on Form
July 31, 1986, between Public 10-Q for the quarter ended
Service Company of New Mexico June 30, 1986.
and The First National Bank of
Boston, as Owner Trustee.
E-13
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
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99.8* Participation Agreement dated as 2.1 to the Company's 1-6986
of August 12, 1986, among the Current Report on Form 8-K
Owner Participant named therein, dated August 18, 1986.
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 August 12, 1986, with the
Owner Participant), Chemical
Bank, in its individual capacity
and as Indenture Trustee (under
a Trust Indenture, Mortgage,
Security Agreement and
Assignment of Rents dated as of
August 12, 1986, with the Owner
Trustee), and Public Service
Company of New Mexico, including
Appendix A definitions.
99.8.1* Amendment No. 1 dated as of 28.8 to the Company's 1-6986
November 18, 1986, to Current Report on Form 8-K
Participation Agreement dated as dated November 25, 1986.
of August 12, 1986.
99.9* Trust Indenture, Mortgage, 28.2 to the Company's 1-6986
Security Agreement and Current Report on Form 8-K
Assignment of Rents dated as of dated August 18, 1986.
August 12, 1986, between The
First National Bank of Boston,
as Owner Trustee, and Chemical
Bank, as Indenture Trustee.
99.9.1* Supplemental Indenture No. 1 28.10 to the Company's 1-6986
dated as of November 18, 1986, Current Report on Form 8-K
to the Trust Indenture, dated November 25, 1986.
Mortgage, Security Agreement and
Assignment of Rents dated as of
August 12, 1986.
99.10* Assignment, Assumption, and 28.3 to the Company's 1-6986
Further Agreement dated as of Current Report on Form 8-K
August 12, 1986, between Public dated August 18, 1986.
Service Company of New Mexico
and The First National Bank of
Boston, as Owner Trustee.
99.11 Participation Agreement dated as 2.1 to the Company's 1-6986
of December 15, 1986, among the Current Report on Form 8-K
Owner Participant named therein, dated December 17, 1986.
First PV Funding Corporation.
The First National Bank of
Boston, in its individual
capacity and as Owner Trustee
(under a Trust Agreement dated
as of December 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, 28.2 to the Company's 1-6986
Security Agreement and Current Report on Form 8-K
Assignment of Rents dated as of dated December 17, 1986.
December 15, 1986, between The
First National Bank of Boston,
as Owner Trustee, and Chemical
Bank, as Indenture Trustee (Unit
1 Transaction).
E-14
EXHIBIT
NO. DESCRIPTION FILED AS EXHIBIT: FILE NO.
------- ----------- ----------------- --------
99.13 Assignment, Assumption and 28.3 to the Company's 1-6986
Further Agreement dated as of Current Report on Form 8-K
December 15, 1986, between dated December 17, 1986.
Public Service Company of New
Mexico and The First National
Bank of Boston, as Owner Trustee
(Unit 1 Transaction).
99.14 Participation Agreement dated as 2.2 to the Company's 1-6986
of December 15, 1986, among the Current Report on Form 8-K
Owner Participant named therein, dated December 17, 1986.
First PV Funding Corporation,
The First National Bank of
Boston, in its individual
capacity and as Owner Trustee
(under a Trust Agreement dated
as of December 15, 1986, with
the Owner Participant), Chemical
Bank, in its individual capacity
and as Indenture Trustee (under
a Trust Indenture, Mortgage,
Security Agreement and
Assignment of Rents dated as of
December 15, 1986, with the
Owner Trustee), and Public
Service Company of New Mexico,
including Appendix A definitions
(Unit 2 Transaction).
99.15 Trust Indenture, Mortgage, 28.10 to the Company's 1-6986
Security Agreement and Current Report on Form 8-K
Assignment of Rents dated as of dated December 17, 1986.
December 15, 1986, between the
First National Bank of Boston,
as Owner Trustee, and Chemical
Bank, as Indenture Trustee (Unit
2 Transaction).
99.16 Assignment, Assumption, and 28.11 to the Company's 1-6986
Further Agreement dated as of Current Report on Form 8-K
December 15, 1986, between dated December 17, 1986.
Public Service Company of New
Mexico and The First National
Bank of Boston, as Owner Trustee
(Unit 2 Transaction).
99.17* Waiver letter with respect to 28.12 to the Company's 1-6986
"Deemed Loss Event" dated as of Current Report on Form 8-K
August 18, 1986, between the dated August 18, 1986.
Owner Participant named therein,
and Public Service Company of
New Mexico.
99.18* Waiver letter with respect to 28.13 to the Company's 1-6986
"Deemed Loss Event" dated as of Current Report on Form 8-K
August 18, 1986, between the dated August 18, 1986.
Owner Participant named therein,
and Public Service Company of
New Mexico.
99.19 Agreement No. 13904 (Option and 28.19 to Annual Report of 1-6986
Purchase of Effluent), dated the Registrant on Form 10-
April 23, 1973, among Arizona K for fiscal year ended
Public Service Company, Salt December 31, 1986.
River Project Agricultural
Improvement and Power District,
the Cities of Phoenix, Glendale,
Mesa, Scottsdale, and Tempe, and
the Town of Youngtown.
99.20 Agreement for the Sale and 28.20 to Annual Report of 1-6986
Purchase of Wastewater Effluent, the Registrant on Form 10-
dated June 12, 1981, among K for fiscal year ended
Arizona Public Service Company, December 31, 1986.
Salt River Project Agricultural
Improvement and Power District
and the City of Tolleson, as
amended.
E-15
- --------
* 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 arrangement
required to be identified pursuant to paragraph 3 of Item 14(a) of Form 10-
K.
(b) Reports on Form 8-K:
During the quarter ended December 31, 1993, and during the period beginning
January 1, 1994 and ending March 8, 1994, the Company filed, on the dates
indicated, the following reports on Form 8-K.
DATED: FILED: RELATING TO:
------ ------ ------------
August 12, 1993 October 15, 1993 Relating to natural gas supply litigation
and pricing issues, refunding activities,
sale of 50 MW of San Juan Generating
Station Unit 4 and Palo Verde Nuclear
Generating Station
December 8, 1993 January 13, 1994 Framework filing stipulation, S&P's credit
ratings, liquidity facilities, fuel and
purchased power cost adjustment clause, a
transmission right-of-way and director
resignation
December 15, 1993 February 25, 1994 Proposed Sale of Gas Gathering and
Processing Assets and Palo Verde Nuclear
Generating Station
E-16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Public Service Company of New Mexico
(Registrant)
Date: March 8, 1994 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 March 8, 1994
- ------------------------------------ and Director
B. F. Montoya
President and Chief Executive
Officer
/s/ M. H. Maerki Principal Financial Officer March 8, 1994
- ------------------------------------
M. H. Maerki
Senior Vice President and
Chief Financial Officer
/s/ D. M. Burnett Principal Accounting Officer March 8, 1994
- ------------------------------------
D. M. Burnett
Corporate Controller and
Chief Accounting Officer
/s/ J. T. Ackerman Chairman of the Board March 8, 1994
- ------------------------------------
J. T. Ackerman
/s/ R. G. Armstrong Director March 8, 1994
- ------------------------------------
R. G. Armstrong
Director March , 1994
- ------------------------------------
J. A. Godwin
/s/ L. H. Lattman Director March 8, 1994
- ------------------------------------
L. H. Lattman
/s/ R. U. Ortiz Director March 8, 1994
- ------------------------------------
R. U. Ortiz
/s/ R. M. Price Director March 8, 1994
- ------------------------------------
R. M. Price
/s/ P. F. Roth Director March 8, 1994
- ------------------------------------
P. F. Roth
E-17
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBITS PAGE
------- ----------------------- ------------
2.1 Purchase and Sale Agreement By and Among Public Service
Company of New Mexico, Sunterra Gas Gathering Company,
Sunterra Gas Processing Company (Sellers) and Williams
Gas Processing--Blanco, Inc. (Buyer)
2.2 Agreement to Purchase and Sell Between City of Santa
Fe, New Mexico and Public Service Company of New Mexico
3.2 Bylaws of Public Service Company of New Mexico With All
Amendments to and Including March 1, 1994
10.50 Public Service Company of New Mexico Section 415 Plan
10.51 First Amendment to the Public Service Company of New
Mexico Executive Retention Plan
10.52 First Amendment to the Public Service Company of New
Mexico Performance Stock Plan
10.53 January 12, 1994 Stipulation
10.54 Employment Retirement and Release Agreement By and
Between the Public Service Company of New Mexico and
William M. Eglinton
10.55 Receivable Purchase Agreement Dated as of August 2,
1993, Among Public Service Company of New Mexico
(Seller) and CXC Incorporated (Purchaser) and Citicorp
North America, Inc. (Agent)
10.56 U.S. $40,000,000 Receivables Purchase Agreement Dated
December 21, 1993 Among Public Service Company of New
Mexico (Seller) and Corporate Receivables Corporation
(Investor) and Citicorp North America, Inc. (Agent)
10.57 U.S. $100,000,000 Revolving Credit Agreement Dated as
of December 14, 1993 Among Public Service Company of
New Mexico (Borrower) and The Banks Named Herein
(Banks) and Chemical Bank and Citibank, N.A. (Co-
Agents)
10.58 Amendment No. 8 effective September 12, 1983, to the
Arizona Nuclear Power Project Participation Agreement
(refiled)
10.59* Amended and Restated Lease dated as of September 1,
1993, between The First National Bank of Boston,
Lessor, and the Company, Lessee (EIP Lease).
10.61 Participation Agreement dated as of June 30, 1983 among
Security Trust Company, as Trustee, the Company, Tucson
Electric Power Company and certain financial
institutions relating to the San Juan Coal Trust
(refiled)
10.62 Agreement of the Company pursuant to Item
601(b)(4)(iii) of Regulation S-K (refiled)
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of KPMG Peat Marwick