UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1994March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6986
PUBLIC SERVICE COMPANY OF NEW MEXICO
(Exact name of registrant as specified in its charter)
New Mexico 85-0019030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Alvarado Square, Albuquerque, New Mexico 87158
(Address of principal executive offices)
(Zip Code)
(505) 848-2700241-2700
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock--$5.00 par value 41,774,083 shares
Class Outstanding at August 1, 1994May 11, 1995
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Report of Independent Public Accountants 3
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Earnings--
Three Months Ended March 31, 1995 and Six Months Ended
June 30, 1994 and 1993 4
Consolidated Balance Sheets--
June 30, 1994March 31, 1995 and December 31, 19931994 5
Consolidated Statements of Cash Flows--
SixThree Months Ended June 30,March 31, 1995 and 1994 and 1993 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 1514
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 1615
Signature 1716
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Public Service Company of New Mexico:
We have reviewed the accompanying condensed consolidated balance sheet of
Public Service Company of New Mexico (a New Mexico corporation) and
subsidiaries as of June 30, 1994,March 31, 1995, and the related condensed consolidated
statements of earnings and cash flows for the three-month and six-month
periods ended June 30, 1994March
31, 1995 and 1993.1994. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet of Public Service Company of New
Mexico and subsidiaries as of December 31, 19931994 (not presented herein). OurIn
our report dated February 23, 1995, we expressed an unqualified opinion on
that statement described the Company's adoption, effective January
1, 1993, of Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, and No. 109,
Accounting for Income Taxes.statement. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1993,1994, is
fairly stated,presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
ARTHUR ANDERSEN & CO.LLP
Albuquerque, New Mexico
August 10, 1994May 9, 1995
ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended
Six Months Ended
June 30 June 30March 31
------------------
----------------1995 1994 1993 1994 1993
---- ----
---- ----
(In thousands except
per share amounts)
Operating revenues:
Electric $149,856 $135,736 $298,524 $281,894$141,608 $148,668
Gas 50,959 51,354 160,378 151,34386,200 109,419
Water 3,445 3,738 6,165 6,149
-------- --------2,427 2,720
-------- --------
Total operating revenues 204,260 190,828 465,067 439,386
-------- --------230,235 260,807
-------- --------
Operating expenses:
Fuel and purchased power 32,078 29,029 64,236 64,83531,866 32,158
Gas purchased for resale 22,411 22,356 85,704 76,07743,582 63,293
Other operation and maintenance 82,869 75,552 162,525 176,80281,211 79,656
Depreciation and amortization 17,516 19,585 36,253 39,24120,515 18,737
Taxes, other than income taxes 9,439 10,255 19,632 19,8519,669 10,193
Income taxes 7,797 3,372 21,896 5,550
-------- --------9,661 14,099
-------- --------
Total operating expenses 172,110 160,149 390,246 382,356
-------- --------196,504 218,136
-------- --------
Operating income 32,150 30,679 74,821 57,030
-------- --------33,731 42,671
-------- --------
Other income and deductions, net of taxes:
Allowance for equity funds used
during construction - - - 12
Other 4,717 (2,551) 4,670 3,101
-------- -------- -------- --------
Net other income and deductions 4,717 (2,551) 4,670 3,113
-------- --------taxes 1,575 (47)
-------- --------
Income before interest charges 36,867 28,128 79,491 60,143
-------- --------35,306 42,624
-------- --------
Interest charges:
Interest on long-term debt 16,300 18,072 33,482 36,08215,434 17,182
Other interest charges 1,413 4,407 2,818 6,6591,688 1,405
Allowance for borrowed funds used
during construction (94) (4) (160) (210)
-------- --------- (66)
-------- --------
Net interest charges 17,619 22,475 36,140 42,531
-------- --------17,122 18,521
-------- --------
Net earnings 19,248 5,653 43,351 17,61218,184 24,103
Preferred stock dividend requirements 1,677 1,707 3,358 3,423
-------- --------1,538 1,681
-------- --------
Net earnings applicable to common stock $ 17,57116,646 $ 3,946 $ 39,993 $ 14,189
======== ========22,422
======== ========
Average shares of common stock outstanding 41,774 41,774
41,774 41,774
======== ======== ======== ========
Net earnings per share of common stock $ 0.420.40 $ 0.09 $ 0.96 $ 0.34
======== ========0.54
======== ========
Dividends paid per share of common stock $ - $ -
$ - $ -
======== ========
======== ========
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
/TABLE
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1995 1994
-------- -----------
(Unaudited)
(In thousands)
ASSETS
Utility plant $2,619,687 $2,587,592
Accumulated provision for depreciation and amortization (924,845) (890,905)
---------- ----------
Net utility plant 1,694,842 1,696,687
---------- ----------
Other property and investments 34,040 34,523
---------- ----------
Current assets:
Cash 23,015 21,029
Temporary investments, at cost 30,510 74,521
Receivables 113,119 129,048
Income taxes receivable - 4,182
Fuel, materials and supplies 49,425 51,068
Gas in underground storage 8,492 8,744
Other current assets 9,160 9,549
---------- ----------
Total current assets 233,721 298,141
---------- ----------
Deferred charges 166,858 173,914
---------- ----------
$2,129,461 $2,203,265
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 208,870 $ 208,870
Additional paid-in capital 469,708 469,648
Excess pension liability, net of tax (1,106) (1,106)
Retained earnings (deficit) since January 1, 1989
(appropriated $4.7 million as of March 31, 1995) (29,360) (46,006)
---------- ----------
Total common stock equity 648,112 631,406
Cumulative preferred stock:
Without mandatory redemption requirements 59,000 59,000
With mandatory redemption requirements 17,975 17,975
Long-term debt, less current maturities 746,839 752,063
---------- ----------
Total capitalization 1,471,926 1,460,444
---------- ----------
Current liabilities:
Short-term debt 65,000 -
Accounts payable 58,161 105,213
Current maturities of long-term debt 35,869 148,532
Accrued interest and taxes 37,148 28,073
Other current liabilities 44,861 43,662
---------- ----------
Total current liabilities 241,039 325,480
---------- ----------
Deferred credits 416,496 417,341
---------- ----------
$2,129,461 $2,203,265
========== ==========
The accompanying notes are an integral part of these financial statements.
/TABLE
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
------------------
1995 1994
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $18,184 $24,103
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Depreciation and amortization 25,001 22,931
Accumulated deferred investment tax credit (1,162) (1,295)
Accumulated deferred income tax 249 3,476
Changes in certain assets and liabilities:
Receivables 20,111 14,204
Fuel, materials and supplies 1,895 (3,766)
Deferred charges 6,727 13,204
Accounts payable (47,059) (39,744)
Accrued interest and taxes 9,075 7,553
Deferred credits (1,714) (2,628)
Other 1,805 5,167
Other, net 1,864 1,711
------- -------
Net cash flows from operating activities 34,976 44,916
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility plant additions (22,779) (26,884)
(Increase) decrease in other property 299 (274)
Temporary investments, net 44,011 -
------- -------
Net cash flows from investing activities 21,531 (27,158)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of PV lease obligation bonds (132,663) -
Redemptions and repurchases of preferred stock - (1,419)
Bond redemption premium and costs (85) -
Proceeds from asset securitization 18,758 -
Repayments of long-term debt (4,000) (10,568)
Net increase in short-term debt 65,000 -
Dividends paid (1,531) (1,704)
------- -------
Net cash flows from financing activities (54,521) (13,691)
------- -------
Increase in cash 1,986 4,067
Cash at beginning of period 21,029 20,510
------- -------
Cash at end of period $23,015 $24,577
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $20,833 $19,368
======= =======
Income taxes paid, net $ - $ -
======= =======
The accompanying notes are an integral part of these financial statements.
/TABLE
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1994 1993
-------- -----------
(Unaudited)
(In thousands)
ASSETS
Utility plant $2,552,730 $2,550,166
Accumulated provision for depreciation and amortization (873,813) (846,234)
---------- ----------
Net utility plant 1,678,917 1,703,932
---------- ----------
Other property and investments 38,634 33,966
---------- ----------
Current assets:
Cash 17,240 20,510
Temporary investments, at cost 53,430 47,850
Receivables 123,349 147,223
Income taxes receivable - 10,400
Fuel, materials and supplies 52,030 48,086
Gas in underground storage 7,662 8,599
Other current assets 17,797 11,347
---------- ----------
Total current assets 271,508 294,015
---------- ----------
Deferred charges 170,893 180,276
---------- ----------
$2,159,952 $2,212,189
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 208,870 $ 208,870
Additional paid-in capital 470,151 470,149
Excess pension liability, net of tax (2,795) (2,795)
Retained earnings (deficit) since January 1, 1989
(appropriated $5.0 million as of June 30, 1994) (80,855) (120,848)
---------- ----------
Total common stock equity 595,371 555,376
Cumulative preferred stock:
Without mandatory redemption requirements 59,000 59,000
With mandatory redemption requirements 23,100 24,386
Long-term debt, less current maturities 892,969 957,622
---------- ----------
Total capitalization 1,570,440 1,596,384
---------- ----------
Current liabilities:
Short-term debt - -
Accounts payable 86,220 116,905
Current maturities of long-term debt 16,458 18,903
Accrued interest and taxes 43,122 29,992
Other current liabilities 54,758 51,364
---------- ----------
Total current liabilities 200,558 217,164
---------- ----------
Deferred credits 388,954 398,641
---------- ----------
$2,159,952 $2,212,189
========== ==========
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General Accounting Policy
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary for a fair presentation of the
consolidated financial statements. The accounting policies followed by Public
Service Company of New Mexico (the "Company") are set forth in note (1) of notes
to the Company's consolidated financial statements in the Company's Annual Re-
port on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K")
filed with the Securities and Exchange Commission.
(2) Palo Verde Nuclear Generating Station ("PVNGS") Lease Obligation Bonds
("LOBs") Redemption
On March 8, 1995, approximately $121 million of PVNGS LOBs were retired. The
retired LOBs consisted of approximately $58 million of 10.30% LOBs due 2014
retired at a price of 100% of par and approximately $63 million of 10.15% LOBs
due 2016 retired at a price of 97.8% of par. Additionally, approximately $4.4
million and $4.8 million of LOBs due 1996 and 1997 at interest rates of 9.125%
and 8.95%, respectively, were retired at par on March 22, 1995. In connection
with the LOB retirements, approximately $65 million was borrowed under the
Company's liquidity arrangements and approximately $19 million was obtained un-
der the securitization facility related to certain amounts being recovered from
gas customers relating to certain gas contract settlements. The Company intends
to repay the borrowing from proceeds of pending asset sales. In conjunction with
these retirements, the Company wrote off approximately $1.5 million of net costs
related to these transactions. The retirement of the LOBs, which were the
Company's highest cost debt, will save the Company approximately $11 million
annually in interest expense over the next five years.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30
----------------
1994 1993
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $43,351 $17,612
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Depreciation and amortization 42,581 49,091
Allowance for equity funds used during construction - (12)
GainITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's 1994 Form 10-K PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" discussed manage-
ment's assessment of the Company's financial condition, results of operations
and other issues facing the Company. The following discussion supplements the
1994 Form 10-K discussion and should be read in conjunction with the consoli-
dated financial statements presented herein and in the 1994 Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
The Company's construction expenditures for the first quarter of 1995 were
approximately $22.8 million. During the remainder of 1995, the Company
anticipates it will spend approximately $87 million for additional construction
expenditures and approximately $100 million for the retirement of additional
long-term debt.
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, which consist of a $100
million secured revolving credit facility ("Facility"), a $40 million credit
facility collateralized by the Company's electric customer accounts receivable,
and $11 million in local lines of credit. As of March 31, 1995, the Company had
short-term borrowings of $40 million under the credit facility collateralized by
the electric customer accounts receivable and $25 million under the Facility,
and temporary investments of $ 30.5 million.
The Company received New Mexico Public Utility Commission ("NMPUC") authoriza-
tion on May 1, 1995, to extend the Facility, which was to expire on sale of plant and property (6,576) (12,450)
Reserves for bad debts 526 -
Accumulated deferred investment tax credit (4,788) (2,808)
Accumulated deferred income tax (2,953) 5,017
Changes in certain assets and liabilities:
Receivables 33,749 27,578
Fuel, materials and supplies (6,959) (1,783)
Deferred charges 9,920 8,254
Accounts payable (30,680) (66,003)
Accrued interest and taxes 13,130 (1,541)
Deferred credits (9,286) (13,625)
Other 5,927 3,050
Other, net 4,100 3,286
------- -------
Net cash flows from operating activities 92,042 15,666
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility plant additions (50,503) (44,138)
Utility plant sales 39,725 -
Other property additions (4,777) (7,820)
Other property sales - 16,818
Temporary investments, net (5,580) (7,465)
------- -------
Net cash flows from investing activities (21,135) (42,605)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions and repurchases of preferred stock (1,439) (600)
Redemption of first mortgage bonds (45,000) -
Bond redemption premium and costs (2,222) -
Repayments of long-term debt (22,123) (1,766)
Net increase in short-term debt - 29,650
Dividends paid (3,393) (3,426)
------- -------
Net cash flows from financing activities (74,177) 23,858
------- -------
Decrease in cash (3,270) (3,081)
Cash at beginning of period 20,510 21,080
------- -------
Cash at end of period $17,240 $17,999
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $37,846 $41,897
======= =======
Income taxes paid $ 5,000 $ 500
======= =======
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General Accounting Policy
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair
presentation of the consolidated financial statements. The accounting
policies followed by Public Service Company of New Mexico (the "Company") are
set forth in note (1) of notes to the Company's consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 Form 10-K") filed with the Securities and
Exchange Commission.
(2) First Mortgage Bond Redemption
On April 20, 1994, the Company redeemed its $45 million 10 1/8% series first
mortgage bonds prior to scheduled maturity. The premium paid for the early
redemption and the unamortized issuance expense were approximately $1.9
million and $.2 million, respectively. Approximately $.5 million of these
amounts was written off with the remainder being deferred for future
recovery, which is consistent with past New Mexico Public Utility Commission
("NMPUC") treatment of similar costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's 1993 Form 10-K PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" discusses
management's assessment of the Company's financial condition, results of
operations and other issues facing the Company. The following discussion
supplements the 1993 Form 10-K discussion and should be read in conjunction
with the consolidated financial statements presented herein and in the 1993
Form 10-K.
The January 12, 1994 Stipulation
As previously reported, on January 12, 1994, the Company, the NMPUC staff and
primary intervenor groups 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. The
stipulation is subject to NMPUC approval. (See PART II, ITEM 7.--
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--January 12, 1994 Stipulation" in the 1993 Form 10-K.)
On July 20, 1994, the NMPUC issued a procedural order on the Company's
application for approval of the stipulation and ordered a public hearing to
be held beginning September 14, 1994 through September 16, 1994, with
additional public hearings to be held September 27 through September 29,
1994, if necessary. The procedural order also requires the Company to file
by August 17, 1994 certain supplemental testimony and information as
specified by the order. The Company anticipates a final order during the
fourth quarter of 1994.
Sale of Gas Gathering and Processing Assets
As previously reported, on February 12, 1994, an agreement was executed with
Williams Gas Processing-Blanco, Inc., a subsidiary of the Williams Field
Service Group, Inc. for the sale of substantially all of the assets of
Sunterra Gas Gathering Company and Sunterra Gas Processing Company, wholly-
owned subsidiaries of the Company, and for the sale of Northwest and
Southeast gas gathering and processing facilities of the Company. The
agreement provides for a cash selling price of $155 million, subject to
certain adjustments. (See PART II, ITEM 7.-- "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Sale of Gas
Gathering and Processing Assets" in the 1993 Form 10-K.) Consummation of the
sale is subject to NMPUC approval. The Company filed its application for
approval with the NMPUC on May 20, 1994.
A prehearing conference was held on July 7, 1994 and hearings are scheduled
to begin January 10, 1995. The discovery process is currently in progress.
The Company currently anticipates that, if approved by the NMPUC, the
transaction would be consummated in the first half of 1995.
Sale of Sangre de Cristo Water Company ("SDCW")
As previously reported, on February 28, 1994, the Company and the City of
Santa Fe (the "City") executed a purchase and sale agreement for the
Company's water division for approximately $48 million. (See PART II, ITEM
7. --"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Sale of SDCW" in the 1993 Form 10-K.) The Company and the
City filed their respective applications with the NMPUC for approval of the
transaction. A prehearing conference was held on June 22, 1994 and a hearing
has been scheduled to be held on November 9, 1994. Consummation of a sale
will require approval by the NMPUC. The Company currently expects that the
closing of the sale will be in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently estimates a total of $197 million for its capital
requirements for 1994. 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, which consist of a $100 million secured revolving
credit facility ("Facility"), an additional $40 million credit facility
collateralized by the Company's electric customer accounts receivable, and
$11 million in local lines of credit. The Company had no borrowings under
such liquidity arrangements as of June 30, 1994.
The Facility has an expiration date of June 13,
1995, for an additional three years. The Company expects to renew the Facility
before its expiration date.
Credit Rating
In addition to the recent upgrade of the Company's security rating outlook from
"stable" to "positive" by Standard & Poor's Corp., Duff & Phelps Inc. upgraded
the EIP Funding Corp. secured lease obligation bonds and the Company's preferred
stock. Duff & Phelps Inc. stated that the upgrade reflects, among other things,
the Company's progress toward restructuring its rates and operations, improving
the Company's competitive position by lowering rates and providing the Company
with a reasonable framework for gradually improving its financial position.
Duff & Phelps Inc. further stated that with the Company's reduced regulatory
uncertainty and business risk, credit protection measures are expected to
gradually improve.
RESULTS OF OPERATIONS
The financial performance of the excluded resources improved from last year's
quarter as a result of the sale of 35 MW of San Juan Generating Station ("SJGS")
Unit 4 to Utah Associated Municipal Power Systems ("UAMPS") and reduced PVNGS
Unit 3 operation and maintenance ("O&M") expenses. Operating results for the
excluded resources for these periods reflect the allocation of interest charges
based on the average investment in excluded net utility plant as a percent of
total utility plant for the period. Selected financial information for the
excluded resources is shown below:
Three Months Ended
March 31
--------
1995 1994
---- ----
(In thousands)
Operating revenues $ 9,061 $ 9,854
Operating income $ 11319 $ 87
Net loss $ (116) $ (1,644)
Net utility plant at end of period $140,252* $158,350
* Decrease is a result of the sale of 35 MW of SJGS Unit 4 to UAMPS.
Electric gross margin (electric operating revenues less fuel and purchased power
expense) decreased $6.8 million in the current quarter due to: (1) reduced off-
system sales of $5.8 million as a result of the expiration of three power sale
contracts and generally poor wholesale power market conditions caused by the
abundance of inexpensive hydro power and warmer than usual temperatures and (2)
a difference of $6.7 million between the estimated unbilled revenues reported in
the fourth quarter of 1993 and actual unbilled revenues recorded in the first
quarter of 1994. Partially offsetting such decrease was the increase in retail
revenues (net of the effect of retail rate reductions) resulting from increased
load growth.
Gas gross margin (gas operating revenues less gas purchased for resale) de-
creased $3.5 million from the same quarter last year due to a decrease in gas
deliveries resulting from much warmer than normal weather experienced in the
first quarter of 1995.
Other O&M expenses increased $1.6 million from last year's quarter as a result
of higher distribution expense of $1.4 million attributed to increased tree
trimming and maintenance expenses, higher production O&M expense for the gas and
oil-fired units of $1.1 million resulting from the maintenance outages in the
first quarter of 1995, and higher transmission expense of $.9 million. Such
increases were partially offset by lower O&M expenses of $2.0 million related to
outages at Four Corners Generating Station and PVNGS during the first quarter of
1994.
Depreciation and amortization expenses increased $1.8 million in the current
quarter as a result of implementing the new depreciation rates approved by the
NMPUC.
Other income and deductions (net) increased $1.6 million from the same quarter
last year due to an after-tax accrual of $2.6 million of income resulting from
the carrying costs related to gas take-or-pay settlement amounts, which was
partially offset by an after-tax write-off of debt retirement expenses of $.9
million.
Net interest charges decreased $1.4 million in the current quarter due to the
retirement of $45 million of 10.125% first mortgage bonds in April 1994.
OTHER ISSUES FACING THE COMPANY
OLE Project
As previously reported, plans to construct the OLE transmission line, a 345 Kv
line connecting the existing Ojo 345 Kv line to the Norton station in northern
New Mexico, had faced considerable opposition by persons concerned primarily
about the environmental impacts of the project. As a result, in 1994, an
alternative route was identified. (See PART II, ITEM 7.--"MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER
ISSUES FACING THE COMPANY--TRANSMISSION ISSUES--OLE Transmission Project" in the
Company's 1994 Form 10-K.)
The proposed alternative route required endorsements from the three affected
Indian tribes prior to the construction of the line across those tribal lands.
One of the three Indian tribes has withdrawn its support for the proposed
alternative route. Given that development, the Company advised the hearing
examiner at a prehearing conference held on May 8, 1995, that the Company is
unable to identify a viable alternative and requested a decision on the
application for the OLE line as originally filed. The Company is awaiting a
final decision from the NMPUC.
Sale of SDCW
As previously reported, in February 1994, the Company and the City of Santa Fe
(the "City") entered into a purchase and sale agreement for the Company's water
division. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS--OTHER ISSUES FACING THE COMPANY--
SALE OF SDCW".) The Company's current estimate of the sales price is
approximately $52 million. Such amount will be adjusted in accordance with the
terms and conditions of the contract at the time of sale. On March 9, 1995,
the hearing examiner issued his recommended decision, recommending approval of
the sale and the terms and condition of the agreement reached with the City.
The Company currently expects that the closing will occur in the second quarter
of 1995.
Open Transmission Access and Stranded Cost
On March 29, 1995, the Federal Energy Regulatory Commission ("FERC") issued its
Notice of Proposed Rulemakings on various issues pertaining to restructuring of
the wholesale electric industry. The FERC is seeking comments on various issues,
including non-discriminatory transmission access, stranded cost recovery and
functional unbundling of generation and transmission services. The Company is
currently evaluating these issues and plans to file responses with the FERC.
The Company does not anticipate a final ruling from FERC in 1995.
Gas Assets Sale
As previously reported,in February 1994, an agreement was executed with Williams
Gas Processing--Blanco, Inc, a subsidiary of the Williams Field Services Group,
Inc., of Tulsa, Oklahoma, for the sale of the assets of the Company's gas
gathering and processing subsidiaries and for the sale of Northwest andSoutheast
gas gathering and processing facilities of the Company. The agreement provides
for a cash selling price of $155 million, subject to certain adjustments. The
Company would recognize an after-tax gain of approximately $14.1 million from
the sale.The sale is subject to NMPUC approval.(See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING
THE COMPANY--SALE OF GAS GATHERING AND PROCESSING ASSETS" in the Company's 1994
Form 10-K).
On April 14, 1995, the hearing examiner issued his recommended decision,
recommending approval of the sale. If NMPUC approval is issued on an expedited
basis, the Company expects to finalize the sale by the end of July 1995. How-
ever, the Company cannot predict the ultimate timing or outcome of the NMPUC
action.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Archaeological Site Damage
In March 1995, a contractor installing gas pipeline on State Road 14 on behalf
of the Company damaged an archaeological site located in the New Mexico State
Highway and Transportation Department ("NMSHTD") right-of-way. The contractor
was installing the gas pipeline at the direction of the Company. The Company
notified both the NMSHTD and the New Mexico State Historic Preservation Office
("SHPO"). The Company conducted an investigation and provided information
regarding the site,damage and remedial measures in response to requests from the
NMSHTD. The incident may subject the Company and its employees to criminal and
civil liability under the New Mexico Cultural Properties Act ("NMCPA"). Under
NMCPA, the maximum civil penalty can be the cost of restoration, stabilization
or interpretation of the archaeological site, or twice such cost in the court's
discretion. The likelihood and type of any citations, prosecutions or civil
penalties that may be pursued by either the NMSHTD or the SHPO are unknown at
this time. Although the Company is unable to predict the outcome of any
proceeding stemming from this incident, the Company does not expect that the
ultimate resolution will have a material adverse effect on the Company's
financial condition or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on April 25, 1995, the shareholders
elected the following three nominees to serve as directors until the annual
meeting of shareholders in 1998, or until their successors are duly elected and
qualified, as follows:
Votes
Against Broker
Director Votes For or Withheld Abstentions Non-Votes
-------- --------- ----------- ----------- ---------
J. T. Ackerman 36,296,038 364,260 * *
J. A. Godwin 36,276,828 383,470 * *
M. Lujan, Jr. 36,287,787 372,511 * *
The approval of the selection by the Company's board of directors of Arthur
Andersen LLP as independent auditors for the fiscal year ending December 31,
1995, was voted on, as follows:
Votes
Against Broker
Votes for or Withheld Abstentions Non-Votes
--------- ----------- ----------- ---------
36,354,331 145,877 160,090 *
* Not applicable or not readily available.
LOBs Consent Solicitation
On January 12, 1995, the Company and First PV Funding Corporation ("First PV")
commenced the Solicitation of Consents to certain proposed amendments to the
Indenture governing the 10.30% Lease Obligation Bonds Series 1986A due 2014,
9.125% Lease Obligation Bonds Series 1986A due 1996, 10.15% Lease Obligation
Bonds Series 1986B due 2016 and 8.95% Lease Obligation Bonds Series 1986B due
1997 (the "LOBs"). The purpose of the proposed amendments was to facilitate the
retirement or acquisition at current market prices of certain LOBs.
At the conclusion of the Solicitation of Consents on March 1, 1995, bondholders
owning $560,067,000 in aggregate principal amount of LOBs, or about 91% of the
$614,933,000 of LOBs outstanding had given their consent to amending the
Indenture governing such LOBs. The Company paid $2.50 in cash for each $1,000
in principal amount of LOBs for which a proper consent was given.
ITEM 5. OTHER INFORMATION
Nuclear Fuel Supply
The Company has made arrangements through contract flexibilities to obtain
quantities of uranium concentrates anticipated to be sufficient to meet its
share of uranium concentrates requirements through 2000. The Company's existing
contracts and options could be utilized to meet 75% of such requirements in 2001
and 2002 and 40% of requirements from 2003 through 2007.The Company understands
that other PVNGS participants have made arrangements for the uranium concentrate
requirements through 1997. Their existing contracts and options could be
utilized to meet 80% of requirements in 1998 and 1999 and 70% of requirements
from 2000 through 2006. The PVNGS participants, including the Company,
contracted for all conversion services required through 2000 with options for up
to 70% through 2002. The PVNGS participants, including the Company, also have an
enrichment services contract with United States Enrichment Corporation ("USEC")
which obligates USEC to furnish enrichment services required for the operation
of the three PVNGS units over a term expiring in September 2002, with options to
continue through September 2007.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10.18.4 Amendment No. 4 dated as of March 8, 1995, to Facility Lease
between Public Service Company of New Mexico and The First
National Bank of Boston, dated as of December 16, 1985
10.20.3 Amendment No. 3 dated as of March 8, 1995, to Facility Lease
between Public Service Company of New Mexico and The First
National Bank of Boston, dated as of August 12, 1986
10.64* Results Pay
15.0 Letter Re Unaudited Interim Financial Information
27 Financial Data Schedule
99.1.6 1995 Supplemental Indenture among First PV Funding Corporation,
Public Service Company of New Mexico and Chemical Bank, as
Trustee dated as of February 14, 1995
99.3.3 Supplemental Indenture No. 3 dated as of March 8, 1995, to Trust
Indenture, Mortgage, Security Agreement and Assignment of Rents
between The First National Bank of Boston and Chemical Bank dated
as of December 16, 1985
99.9.1 Supplemental Indenture No. 2 dated as of March 8, 1995, to Trust
Indenture, Mortgage, Security Agreement and Assignment of Rents
between The First National Bank of Boston and Chemical Bank dated
as of August 12, 1986
*Designates each management contract, compensatory plan or arrangement
required to be filed as an exhibit to this report.
b. Reports on Form 8-K:
None, other than the previously filed Form 8-Ks described in the 1994 Form
10-K.
Signature
Pursuant to the requirements 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: May 11, 1995 and contains a provision
that could prevent 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 signed in January 1994.
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 June 30, 1994,
such ratio was 66.16%.
On July 5, 1994, the Company filed with the NMPUC for authorization to retire
up to approximately $134 million of First PV Funding Corporation Lease
Obligation Bonds ("LOBs"). The amounts and maturities of the LOBs proposed
to be retired relate to the beneficial interests in certain Palo Verde
Nuclear Generating Station ("PVNGS") Units 1 and 2 leases that the Company
purchased in 1992. The Company plans to use cash proceeds from the proposed
sales of its water company and certain gas gathering and processing assets,
as well as other available cash, to retire such debt. Both sales remain
subject to NMPUC approval. If the LOBs were retired on January 1, 1995,
estimated first year interest savings from the proposed LOB retirement would
be approximately $13.3 million. Due to the mandatory sinking funds
requirements of the LOBs, the annual interest savings would gradually decline
over the period the LOBs would have been outstanding. Subject to the method
of retirement, the costs (including any applicable redemption premium)
associated with the retirement of the LOBs could be up to approximately $10
million. The Company currently expects to write off such costs. Hearings have
not yet been scheduled. The Company is currently unable to predict when the
NMPUC will act on its request to retire LOBs. The Company will continue to
assess market conditions and alternative investment opportunities before any
debt retirement is implemented.
RESULTS OF OPERATIONS
Resources excluded from NMPUC jurisdictional rates continue to negatively
impact the Company's results of operations; however, as a result of the gain
from the sale of generating facilities to Utah Associated Municipal Power
Systems ("UAMPS") recorded in June 1994, the Company recorded positive net
earnings from resources excluded from NMPUC jurisdictional rates during the
current quarter. The Company experienced positive operating income from the
excluded resources for all periods except the current quarter, primarily as
a result of the PVNGS Unit 3 write-down and provision for loss associated
with the M-S-R Public Power Agency, a California public power agency ("M-S-
R"), power purchase contract recorded in 1992. The Company experienced
negative operating income for the current quarter primarily as a result of
the increased costs associated with the extended outage of PVNGS Unit 3.
Selected financial information for the excluded resources is shown below:
Three Months Ended Six Months Ended
June 30 June 30
------- -------
1994 1993 1994 1993
---- ---- ---- ----
(In thousands)
Operating revenues $ 9,650 $ 9,515 $ 19,504 $ 23,388
Operating income (loss) $ (162) $ 1,192 $ 457 $ 3,714
Net earnings (loss) $ 462 $ (4,825) $ (1,994) $ (6,503)
Net utility plant at end
of period $132,452* $ 197,255 $132,452* $197,255
* Decrease is a result of the sale of 50 MW of San Juan Generating Station
("SJGS") Unit 4 to the City of Anaheim, California and the sale of 35 MW
of SJGS Unit 4 to UAMPS.
Electric gross margin (electric operating revenues less fuel and purchased
power expense) increased $11.1 million and $17.2 million for the quarter and
six months ended June 30, 1994, respectively, from the corresponding periods
a year ago. Such increase results primarily from an increase in
jurisdictional energy sales of 146.9 million KWh, or $8.6 million for the
quarter, and 169.0 million KWh, or $10.4 million for the six months ended
June 30, 1994, due to warmer weather as compared with a year ago and an
increased number of customers. Also, gross margin attributable to the
excluded resources and firm-requirements wholesale customers contributed $1.7
million to the current quarter results. In addition, a difference between
the estimated unbilled revenues reported in the fourth quarter of 1993 and
actual unbilled revenues increased the gross margin by $6.7 million for the
six months ended June 30, 1994. These increases for the six months ended
June 30, 1994 were partially offset by a decrease in the gross margin of the
excluded resources and firm-requirements wholesale customers of $.9 million
as a result of a decrease in available capacity due to the sales of undivided
interests in SJGS Unit 4, and a mid-cycle outage and less than full power
operation of the PVNGS units.
Other operation and maintenance expenses increased $7.3 million for the
quarter due mainly to an increase in SJGS maintenance expense of $2.0 million
resulting from two scheduled outages in 1994 as compared to only one in 1993
and an increase in PVNGS maintenance expense of $1.6 million due primarily to
a Unit 2 mid-cycle outage and a longer than expected outage of Unit 3. In
addition, the increase in other operation and maintenance expenses for the
current quarter reflected an increase in pension and retirees health care
costs of $1.3 million as a result of lowering the discount rate from 8
percent to 7 percent for measuring the benefit obligation, increased office
supply and employee expense of $1.1 million and increased bad debt expense of
$.8 million.
Other operation and maintenance expenses for the six months ended June 30,
1994 decreased $14.3 million from the corresponding period a year ago
primarily due to the Company's 1993 severance program costs of $22.7 million.
Such decrease was partially offset by (i) an increase in PVNGS maintenance
expense of $4.3 million due mainly to the Unit 2 mid-cycle outage and a
longer than expected outage of Unit 3, which increases were partially reduced
by lower PVNGS operating expense of $1.4 million resulting mainly from the
reclassification of property taxes between non-leased and leased units; (ii)
increased SJGS maintenance expense of $2.2 million resulting from two
scheduled outages in 1994 as compared to only one in 1993; (iii) an increase
in pension and retirees health care costs of $2.5 million due to lowering the
discount rate; and (iv) a bad debt expense of $.6 million.
Operating income taxes for the quarter and six months ended June 30, 1994
increased $4.4 million and $16.3 million, respectively, over the
corresponding periods a year ago, due primarily to increased pre-tax earnings
for the current periods.
Other, under the caption, Other Income and Deductions, for the quarter and
six months ended June 30, 1994 increased $7.3 million and $1.6 million,
respectively, over the corresponding periods a year ago. Significant items
for the quarter, net of taxes, included the following: (i) the gain of $4.4
million from the sale of generating facilities to UAMPS; (ii) the tax benefit
of $1.7 million related to sharing the UAMPS gain with jurisdictional
customers; (iii) a decrease in legal expense of $1.2 million; and (iv) a
decrease of $.7 million due to a reclassification of certain costs.
Partially offsetting such increases was a regulatory reserve of $1.2 million.
In addition, significant year to date items included the following: (i) a
decrease in legal expense of $.8 million; (ii) a decrease of $.6 million due
to a reclassification of costs; and (iii) a write-off of $.5 million of debt
redemption costs in 1993. Partially offsetting such increases was a gain of
$7.5 million from the sale of an investment during the first quarter of 1993.
Interest charges for the quarter and six months ended June 30, 1994 decreased
$4.9 million and $6.4 million, respectively, from the corresponding periods
a year ago. This was due primarily to lower short-term borrowings in 1994,
the refinancing of $182 million of pollution control revenue bonds in January
($46 million) and September ($136 million) of 1993 and the retirement of $45
million of first mortgage bonds in April 1994.
OTHER ISSUES FACING THE COMPANY
Sale of SJGS Unit 4
On June 2, 1994, the Company completed the sale of a 35 MW undivided interest
in SJGS Unit 4 to UAMPS. (See PART I, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES
FACING THE COMPANY--Sale of SJGS Unit 4" in the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1994.)
The Company received proceeds of approximately $40 million from the sale. In
accordance with the NMPUC order approving the sale, the Company is required
to pass through $4.4 million of the after-tax gain of approximately $8.8
million to New Mexico jurisdictional customers in three installments
beginning with August 1994 bills. In June 1994, the Company recorded an
after-tax gain and a tax benefit associated with sharing such gain with the
New Mexico retail customers in the amount of $6.1 million ($.15 per share).
Toxic Substances Control Act ("TSCA")
As previously reported, TSCA requires reporting to the U.S. Environmental
Protection Agency (the "EPA") regarding the manufacturing and processing of
certain toxic chemicals, including natural gas substances produced by the
Company and its gas subsidiary. An inventory of such substances must be
submitted to the EPA every four years. Due to the natural gas industry's
interpretation on when unprocessed natural gas becomes a reportable
substance, the Company and its gas subsidiary did not report TSCA substances
to the EPA in prior reporting years of 1986 and 1990. (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--Toxic
Substances Control Act ("TSCA")" in the 1993 Form 10-K.) In March 1994, the
Company and its gas subsidiary filed the requisite TSCA reports for 1986 and
1990 reporting years.
The EPA has issued two enforcement notices and proposed penalty assessments
related to late filing of the requisite inventory update reports in 1990.
The proposed penalty assessments against the Company and its gas subsidiary
are $42,000 and $75,000, respectively. The Company and its subsidiary have
responded to the EPA notices and are pursuing efforts to resolve the matter
with EPA regional officials.
TSCA reporting (inventory updating) is again due in 1994. The Company and
its gas subsidiary are preparing to make the requisite reports in 1994.
Palo Verde Nuclear Generating Station
Steam Generator Tubes
As previously reported, tube cracking in the PVNGS steam generators
adversely affected operations in 1993, and will continue to do so in 1994
and probably into 1995, because of the cost of replacement power, reduced
off-system sale incentives, maintenance expense associated with unit
outages and corrective actions required to deal with the issue. (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" in the 1993 Form 10-K
and PART I, ITEM 2 in the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1994.)
Arizona Public Service Company ("APS"), as the operating agent for PVNGS,
encountered axial tube cracking in the upper regions of the two steam
generators in Unit 2 and, to a lesser degree, in Unit 3. This form of
tube degradation is uncommon in the industry and, in March 1993, led to
a tube rupture in Unit 2 resulting in the extension of a scheduled
refueling outage through September 1993. Although APS's analysis is not
yet completed, APS believes that the axial cracking in the Unit 2 and Unit
3 steam generator tubes is due to the susceptibility of tube materials to
a combination of deposits on the tubes and the relatively high
temperatures at which all three units are currently designed to operate.
APS also believes that it can retard further tube degradation to
acceptable levels by remedial actions, which include chemically cleaning
the generators and performing analyses and adjustments that will allow the
units to be operated at lower temperatures without appreciably reducing
their power output. Chemical cleaning has been completed in Unit 2 and
Unit 3, and APS expects to chemically clean the Unit 1 generators during
its refueling outage in 1995. APS began operating the units at
approximately 86% capacity in October to reduce the operating temperature,
pending the completion of the temperature analyses and appropriate
modification of operating procedures. The temperature analyses have been
concluded for Units 1 and 3, and these units are operating at or near 100%
capacity. APS anticipates that Unit 2, which is currently operating at 88%
capacity, will be returned to full power by late 1994.
In March 1994, a mid-cycle inspection outage was completed on Unit 2 to
assess the status of the unit's steam generators' tubes and to continue
implementing a program of improvements. Unit 2 is scheduled for another
mid-cycle inspection outage beginning in September 1994 and a refueling
and maintenance outage in early 1995. Unit 3 completed a refueling outage
in June 1994 and, in light of the axial cracking that APS has found to
date, Unit 3 is scheduled for a mid-cycle inspection outage beginning in
November 1994. Unit 1 is scheduled for a refueling outage beginning in
April 1995. In late 1993, APS concluded that Unit 1 could be safely
operated until the 1995 outage and submitted its supporting analysis to
the Nuclear Regulatory Commission. However, the potential need for a mid-
cycle steam generator tube inspection outage in Unit 1 late in 1994 is
currently being evaluated.
When tube cracks are detected during any outage, the affected tubes are
taken out of service by plugging. That has occurred in a number of tubes
in all three units, particularly in Unit 2, which is by far the most
affected by cracking and plugging. APS expects that because of its
program to control the tube degradation, the rate of plugging will slow
to a manageable level.
A Transmission Right-of-Way
As previously reported, the Company has an easement for right-of-way with the
Navajo Nation (the "Nation") for portions of two transmission lines that
emanate from SJGS and connect with Four Corners Power Plant and with a
switching station in the Albuquerque area. This easement expired January 17,
1993, and the Company has been attempting to renew the grant. The Nation and
the Company executed an agreement whereby the 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 Nation. (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" in the 1993
Form 10-K.) The Nation's agreement not to challenge the Company's use of
the easement expired on July 17, 1994. However, the Nation has indicated
that it does not intend to challenge the Company's use of the easement unless
the Company fails to exert good faith efforts to reach resolution.
On April 1, 1994, the Company submitted a proposal to the Nation for a long-
term renewal of the easement. On June 18, 1994, the Company received a
request from the Nation, seeking more information regarding the proposal.
The Company is currently developing a response to the request.
The Company continues to assess its options but is not pursuing other
alternatives unless it receives indications that agreement cannot be reached
in a satisfactory manner. The Company is currently unable to predict the
outcome of the negotiations or the costs resulting therefrom.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Archaeological Resources Protection Act
In June 1994, a Company line crew used a bulldozer to blade an access road to
electric transmission towers on U.S. Forest Service land. The Company became
aware after the blading commenced that it did not have permission from the
U.S. Forest Service, as well as other necessary permits. The Company
immediately informed the U.S. Forest Service of the incident. The blading
disturbed at least two and possibly more archaeological sites, as well as
trees and the surface in the general area.
The Company has been advised that the U.S. Forest Service is conducting an
investigation into the incident. The incident may subject the Company and
its employees to civil and/or criminal liability under the Federal
Archaeological Resources Protection Act of 1979 ("ARPA"), as well as other
applicable federal statutes. The likelihood and type of any citations,
prosecutions or civil penalties that may be pursued by the U.S. Forest
Service are not known at this time.
Maximum civil penalties for first violations under ARPA are the full cost of
restoration and repair of the archaeological site plus either the
archaeological value or the commercial value of the archaeological resources
destroyed. The Company will not know the archaeological or commercial value
until the damage assessment is completed. The Company's preliminary estimate
of the cost of restoration and repair of the archaeological sites, the cost
of assessing the damage and establishing a plan to mitigate the damage, and
the cost of restoring the surrounding topography is in the range of $.5
million to $1.0 million. Although the Company is not able to predict the
ultimate outcome of any proceedings in this case, the Company does not expect
the ultimate resolution will have a material adverse effect on the Company's
financial condition or results of operations.
Toxic Substances Control Act
Reference is hereby made to "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--Toxic Substances Control Act ("TSCA")" in PART I, ITEM 2 of this
report.
Other Proceedings
As previously reported, on April 16, 1993, the Company and certain current
and former employees of the Company or Meadows Resources, Inc., a subsidiary
of the Company ("Meadows"), were named as defendants in an action filed in
the United States District Court for the District of Arizona by the
Resolution Trust Corporation ("RTC"), as receiver for Western Savings $ Loan
Association ("Western"). Three of the individuals sued by the RTC have
indemnity agreements with the Company. The claims related to alleged actions
of the Company's or Meadows' employees in 1987 in connection with a loan
procured by Bellamah Community Development ("BCD"), whose general partners
include Meadows, from Western and the purchase by that partnership of
property owned by Western. The RTC apparently claims that the Company's
liability stems from the actions of a former employee who allegedly acted on
behalf of the Company for the Company's benefit. The RTC is claiming in
excess of $40 million in actual damages from the BCD/Western transactions and
alternatively is claiming damages substantially exceeding that amount on
Arizona racketeering, civil conspiracy and aiding and abetting theories.
These allegations involve claims against the Company for damages to Western
caused by other defendants and from other transactions to which BCD was not
a party. The RTC claims that damages under the Arizona racketeering statute
would be trebled under applicable Arizona law. The RTC may also seek
attorneys fees and costs.
On March 3 and 4, 1994, the parties participated in a mediation session aimed
at settling the litigation. The session ended without a settlement. The
mediator is continuing settlement discussions with the parties.
In May 1994, the RTC filed a motion seeking to amend the complaint to allege
against the Company civil conspiracy, common law fraud, negligent
misrepresentation, aiding and abetting breach of fiduciary duties, aiding and
abetting common law fraud, aiding and abetting violation of Federal and
Arizona racketeering laws (all of which claims are already asserted against
the Company's current and former employees named in the suit) and claims
seeking to hold the Company liable on undisclosed principal and unjust
enrichment theories. The Company has filed an opposition to the motion, and
the motion remains pending. In a recent decision on an unrelated motion, the
Court has dismissed the RTC's claims for aiding and abetting violations of
the Federal and Arizona racketeering laws against the
Company, the current and former employees of the Company or Meadows and
others.
The Company continues to investigate all of the claims made by the RTC in
this litigation and is vigorously defending those claims. The Company cannot
predict the ultimate outcome of the case but believes that the RTC's
contentions are without merit and currently believes that the outcome will
not result in a material adverse impact on the Company's results of
operations or financial condition.
For a discussion of certain related litigation, see PART I, ITEM 3.--"LEGAL
PROCEEDINGS--OTHER PROCEEDINGS" in the 1993 Form 10-K and PART II, ITEM 1.--
"LEGAL PROCEEDINGS--Other Proceedings" in the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1994.
ITEM 5. OTHER INFORMATION
Palo Verde Nuclear Generating Station
Discrimination Allegations
As previously reported, on March 21, 1994, the Secretary of Labor issued
a final order approving a settlement agreement between APS and a former
contract employee of APS who had raised a U.S. Department of Labor claim.
(See PART II, ITEM 5.--"OTHER INFORMATION--Palo Verde Nuclear Generation--
Discrimination Allegations" in the Company's quarterly report on Form 10-Q
for the quarter ended March 31, 1994.) On May 19, 1994, the Secretary of
Labor rescinded the order of March 21, 1994 and remanded the matter to the
responsible Administrative Law Judges ordering them to submit new
recommended orders (i) clarifying specifically the scope of the settlement
agreement and (ii) clarifying the extent to which any claims by the former
contract employee remain unresolved by the settlement agreement. APS
currently expects that the settlement agreement, as originally approved,
will ultimately be approved by the Secretary of Labor.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10.46.1* Amendment No. 1 to the Public Service Company of New Mexico
Asset Sales Incentive Plan dated August 1, 1994
10.51.1* Second Amendment to the Public Service Company of New Mexico
Executive Retention Plan
10.60.1 Amendment No. 1 dated as of July 1, 1994, to the Reimbursement
Agreement dated as of November 1, 1992 between Public Service
Company of New Mexico and Canadian Imperial Bank of Commerce,
New York Agency
15.0 Letter Re Unaudited Interim Financial Information
99.1.5 1994 Supplemental Indenture dated as of June 8, 1994 among First
PV Funding Corporation, Public Service Company of New Mexico,
and Chemical Bank, as Trustee
* Designates each management contract, compensatory plan or arrangement
required to be identified as an exhibit to this report.
b. Reports on Form 8-K:
None.
Signature
Pursuant to the requirements 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: August 11, 1994 /s/ Donna M. Burnett
-----------------------------------
Donna M. Burnett
Corporate Controller and
Chief Accounting Officer
EXHIBIT INDEX
Paper (P) or
Exhibit Electronic (E)
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10.46.1 Amendment No. 1 to the Public Service Company of New
Mexico Asset Sales Incentive Plan dated August 1, 1994 E
10.51.1 Second Amendment to the Public Service Company of New
Mexico Executive Retention Plan E
10.6.3 Amendment No. 1 dated as of July 1, 1994, to the
Reimbursement Agreement dated as of November 1, 1992
between Public Service Company of New Mexico and
Canadian Imperial Bank of Commerce, New York Agency E
15.0 Letter Re Unaudited Interim Financial Information E
99.1.5 1994 Supplemental Indenture dated as of June 8, 1994
among First PV Funding Corporation, Public Service
Company of New Mexico, and Chemical Bank, as Trustee E