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 September 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 November 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 Nine Months Ended
September 30, 1994 and 1993 4
Consolidated Balance Sheets--
September 30, 1994March 31, 1995 and December 31, 19931994 5
Consolidated Statements of Cash Flows--
NineThree Months Ended September 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 1513
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 1614
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 1715
Signature 1816
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 September 30, 1994,March 31, 1995, and the related condensed consolidated
statements of earnings for the three-month and nine-month
periods ended September 30, 1994 and 1993 and the condensed consolidated
statements of cash flows for the nine-monththree-month periods ended September 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 25, 1994,23, 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 LLP
Albuquerque, New Mexico
November 8, 1994May 9, 1995
ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended
Nine Months Ended
September 30 September 30March 31
------------------
----------------1995 1994 1993 1994 1993
---- ----
---- ----
(In thousands except
per share amounts)
Operating revenues:
Electric $175,024 $159,742 $473,548 $441,636$141,608 $148,668
Gas 39,291 39,979 199,669 191,32286,200 109,419
Water 4,402 4,030 10,567 10,179
-------- --------2,427 2,720
-------- --------
Total operating revenues 218,717 203,751 683,784 643,137
-------- --------230,235 260,807
-------- --------
Operating expenses:
Fuel and purchased power 41,413 39,056 105,649 103,89131,866 32,158
Gas purchased for resale 12,756 14,176 98,460 90,25343,582 63,293
Other operation and maintenance 75,973 73,787 238,498 250,58981,211 79,656
Depreciation and amortization 19,047 19,173 55,300 58,41420,515 18,737
Taxes, other than income taxes 10,383 9,956 30,015 29,8079,669 10,193
Income taxes 15,539 9,708 37,435 15,258
-------- --------9,661 14,099
-------- --------
Total operating expenses 175,111 165,856 565,357 548,212
-------- --------196,504 218,136
-------- --------
Operating income 43,606 37,895 118,427 94,925
-------- --------33,731 42,671
-------- --------
Other income and deductions, net of taxes:
Allowance for equity funds used
during construction - 6 - 18
Other (4,557) 8,722 113 11,823
-------- -------- -------- --------
Net other income and deductions (4,557) 8,728 113 11,841
-------- --------taxes 1,575 (47)
-------- --------
Income before interest charges 39,049 46,623 118,540 106,766
-------- --------35,306 42,624
-------- --------
Interest charges:
Interest on long-term debt 15,978 19,012 49,460 55,09415,434 17,182
Other interest charges 1,368 3,766 4,186 10,4251,688 1,405
Allowance for borrowed funds used
during construction (86) (101) (246) (311)
-------- --------- (66)
-------- --------
Net interest charges 17,260 22,677 53,400 65,208
-------- --------17,122 18,521
-------- --------
Net earnings 21,789 23,946 65,140 41,55818,184 24,103
Preferred stock dividend requirements 1,538 1,706 4,895 5,129
-------- --------1,681
-------- --------
Net earnings applicable to common stock $ 20,25116,646 $ 22,240 $ 60,245 $ 36,429
======== ========22,422
======== ========
Average shares of common stock outstanding 41,774 41,774
41,774 41,774
======== ======== ======== ========
Net earnings per share of common stock $ 0.480.40 $ 0.53 $ 1.44 $ 0.87
======== ========0.54
======== ========
Dividends paid per share of common stock $ - $ - $ - $ -
======== ========
======== ========
The accompanying notes are an integral part of these financial statements.
/TABLE
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,March 31, December 31,
1995 1994
1993
-------------------- -----------
(Unaudited)
(In thousands)
ASSETS
Utility plant $2,555,155 $2,550,166$2,619,687 $2,587,592
Accumulated provision for depreciation and amortization (872,975) (846,234)(924,845) (890,905)
---------- ----------
Net utility plant 1,682,180 1,703,9321,694,842 1,696,687
---------- ----------
Other property and investments 35,521 33,96634,040 34,523
---------- ----------
Current assets:
Cash 16,856 20,51023,015 21,029
Temporary investments, at cost 66,930 47,85030,510 74,521
Receivables 117,243 147,223113,119 129,048
Income taxes receivable - 10,4004,182
Fuel, materials and supplies 50,876 48,08649,425 51,068
Gas in underground storage 8,203 8,5998,492 8,744
Other current assets 13,168 11,3479,160 9,549
---------- ----------
Total current assets 273,276 294,015233,721 298,141
---------- ----------
Deferred charges 175,889 180,276166,858 173,914
---------- ----------
$2,166,866 $2,212,189$2,129,461 $2,203,265
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 208,870 $ 208,870
Additional paid-in capital 470,477 470,149469,708 469,648
Excess pension liability, net of tax (2,795) (2,795)(1,106) (1,106)
Retained earnings (deficit) since January 1, 1989
(appropriated $3.1$4.7 million as of September 30, 1994) (60,604) (120,848)March 31, 1995) (29,360) (46,006)
---------- ----------
Total common stock equity 615,948 555,376648,112 631,406
Cumulative preferred stock:
Without mandatory redemption requirements 59,000 59,000
With mandatory redemption requirements 17,975 24,38617,975
Long-term debt, less current maturities 888,212 957,622746,839 752,063
---------- ----------
Total capitalization 1,581,135 1,596,3841,471,926 1,460,444
---------- ----------
Current liabilities:
Short-term debt -65,000 -
Accounts payable 70,466 116,90558,161 105,213
Current maturities of long-term debt 16,075 18,90335,869 148,532
Accrued interest and taxes 58,370 29,99237,148 28,073
Other current liabilities 54,227 51,36444,861 43,662
---------- ----------
Total current liabilities 199,138 217,164241,039 325,480
---------- ----------
Deferred credits 386,593 398,641416,496 417,341
---------- ----------
$2,166,866 $2,212,189$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)
NineThree Months Ended
September 30
-----------------March 31
------------------
1995 1994 1993
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $65,140 $41,558$18,184 $24,103
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Depreciation and amortization 67,229 72,583
Allowance for equity funds used during construction - (18)
Gain on sale of utility property (6,576) (7,350)
Gain on sale of other property and investments - (12,450)
Reserves for bad debts 526 -25,001 22,931
Accumulated deferred investment tax credit (6,084) (7,496)(1,162) (1,295)
Accumulated deferred income tax (2,226) (11,758)249 3,476
Changes in certain assets and liabilities:
Receivables 39,855 9,38620,111 14,204
Fuel, materials and supplies (2,394) 4,4571,895 (3,766)
Deferred charges 4,869 31,2526,727 13,204
Accounts payable (46,422) (110,529)(47,059) (39,744)
Accrued interest and taxes 28,378 20,6289,075 7,553
Deferred credits (10,624) (6,954)(1,714) (2,628)
Other 3,268 6741,805 5,167
Other, net 9,937 8,3301,864 1,711
------- -------
Net cash flows from operating activities 144,876 32,31334,976 44,916
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility plant additions (80,122) (65,723)
Utility plant sales 39,562 49,302
Other(22,779) (26,884)
(Increase) decrease in other property additions (1,715) (5,847)
Other property sales - 18,588299 (274)
Temporary investments, net (19,080) (30,465)44,011 -
------- -------
Net cash flows from investing activities (61,355) (34,145)21,531 (27,158)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of PV lease obligation bonds (132,663) -
Redemptions and repurchases of preferred stock (7,384) (600)
Redemption of first mortgage bonds (45,000) - Bond refinancing costs - (10,272)(1,419)
Bond redemption premium and costs (2,418)(85) -
Proceeds from asset securitization 18,758 -
Repayments of long-term debt - 60,475
Repayments of other long-term debt (27,292) (4,706)(4,000) (10,568)
Net decreaseincrease in short-term debt 65,000 - (51,550)
Dividends paid (5,081) (5,100)(1,531) (1,704)
------- -------
Net cash flows from financing activities (87,175) (11,753)(54,521) (13,691)
------- -------
DecreaseIncrease in cash (3,654) (13,585)1,986 4,067
Cash at beginning of period 21,029 20,510 21,080
------- -------
Cash at end of period $16,856 $ 7,495$23,015 $24,577
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $56,104 $59,647$20,833 $19,368
======= =======
Income taxes paid, net $ 7,000 $10,978- $ -
======= =======
=======The accompanying notes are an integral part of these financial statements.
/TABLE
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 accompanyingaccounting 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.
ITEM 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 June 13,
1995, for an integral partadditional 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 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 and the NMPUC staff
and primary intervenor groups entered into a 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 in September 1994. Public hearings were held as scheduled and 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. ("Williams"), 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
(the "Processing Company"), wholly-owned subsidiaries of the Company, and for
the sale of Northwest and Southwest 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 the discovery process
began. Hearings are scheduled to begin January 10, 1995. In the meantime,
the Company and intervenors have held several meetings to settle certain
issues surrounding the sale and are attempting to reach a stipulated
agreement for NMPUC approval. The Company will continue to meet and work
with the intervenors for a possible settlement prior to the hearings.
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.) Prehearing conferences
were held on June 22, 1994 and August 26, 1994. The NMPUC staff and
intervenors filed their respectable testimonies on October 28, 1994. The
NMPUC staff recommended that the Company retain the estimated after-tax gain
of $6 million for the sale. Hearings have been scheduled to begin December
12, 1994. The Company does not expect any major opposition to the sale. The
Company currently expects that the closing will be in the first quarter of
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently estimates a total of $191 million for its capital
requirements for 1994. The Company expects that such cash requirements are
to be met primarily through internally-generated cash. Through September 30,
1994, the Company generated approximately $145 million in cash flow from its
operating activities. 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 September 30, 1994.
The Facility has an expiration date of June 13,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 additional borrowings in the event of 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
September 30, 1994, such ratio was 65.64%.
As previously reported, 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 Company anticipates either
using cash proceeds from the proposed sales of its water company and certain
gas gathering and processing assets, or other available cash including
potential short-term borrowings, to retire such debt. 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. (See PART II, ITEM 2.--"MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND
CAPITAL RESOURCES" in the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1994.)
RESULTS OF OPERATIONS
The performance of the excluded resources has been improved by the PVNGS Unit
3 write-down and the provision for loss associated with the M-S-R Public
Power Agency, a California public power agency ("M-S-R"), power purchase
contract recorded in 1992. In addition, the gains from the sale of
generating facilities to the City of Anaheim, California, recorded in August
1993 and Utah Associated Municipal Power Systems ("UAMPS") in June 1994 have
contributed positively to the net earnings of the excluded resources.
Operating results for the excluded resources for the quarters and nine months
ended September reflect the allocation of interest charges based on average
investment for the period. Prior year results have been restated to reflect
such change for comparability purposes. Selected financial information for
the excluded resources is shown below:
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1994 1993 1994 1993
---- ---- ---- ----
(In thousands)
Operating revenues $ 10,729 $ 10,415 $ 30,233 $ 33,803
Operating income $ 1,422 $ 380 $ 760 $ 1,781
Net earnings (loss) $ 67 $ 3,883 $ (222) $ 912
Net utility plant at end of period $131,413* $163,392 $131,413* $163,392
* Decrease is a result of the sale of 35MW of San Juan Generating Station
("SJGS") Unit 4 to UAMPS.
Electric gross margin (electric operating revenues less fuel and purchased
power expense) increased $12.9 million and $30.2 million for the quarter and
nine months ended September 30, 1994, respectively, from the corresponding
periods a year ago. Such increase results primarily from an increase in
jurisdictional energy sales of 145.5 million KWh, or $10.1 million for the
quarter, and 314.5 million KWh, or $20.5 million for the nine months ended
September 30, 1994, due to warmer weather than a year ago and customer
growth. Also, gross margin attributable to the excluded resources and firm-
requirements wholesale customers contributed $1.6 million and $.7 million to
the current quarter and year-to-date results, respectively. 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 nine months ended September 30, 1994.
Other operation and maintenance expenses increased $2.2 million for the
quarter due mainly to: (i) recording of workers' compensation liability of
$2.2 million; (ii) an increase in distribution expense of $2.0 million
resulting mainly from weather-related outages and increased tree trimming
activity; (iii) an increase in office supplies and expenses of $1.2 million
due largely to higher computer charges; and (iv) an increase in employee
benefit expenses of $.9 million. Such increases were partially offset by a
deferral of gas operation's retiree health care cost of $2.4 million for
regulatory purposes and decreased administrative and general labor expense of
$1.5 million.
Other operation and maintenance expenses for the nine months ended September
30, 1994 decreased $12.1 million from the corresponding period a year ago
primarily due to the effect of the Company's 1993 severance program of $22.7
million and the above mentioned deferred retiree health care cost of $2.4
million. Such amounts were partially offset by (i) an increase in PVNGS
maintenance expense of $3.0 million due mainly to the Unit 2 mid-cycle outage
and a longer than expected outage of Unit 3, which were partially reduced by
lower PVNGS operation expense of $.5 million resulting mainly from the
reclassification of property taxes between non-leased and leased units; (ii)
an increase in pension and retirees health care costs of $2.8 million due to
lowering the discount rate; (iii) recording of workers' compensation
liability of $2.2 million; (iv) increased SJGS maintenance expense of $1.7
million resulting from two scheduled outages in 1994 as compared to only one
in 1993; (v) increase in electric distribution expense of $1.7 million; and
(vi) increased office supplies and expenses of $1.4 million.
Operating income taxes for the quarter and nine months ended September 30,
1994 increased $5.8 million and $22.2 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
nine months ended September 30, 1994 decreased $13.3 million and $11.7
million, respectively, from the corresponding periods a year ago.
Significant items for the quarter included the following, net of taxes: (i)
an additional 1994 provision for legal expenses of $1.8 million; (ii) an
additional 1994 write off of $1.8 million relating to gas take-or-pay
settlement payments which are not recoverable through rates; (iii) a gain of
$5.6 million from the sale of generating facilities to Anaheim in the third
quarter of 1993; (iv) the tax benefit of $2.0 million related to sharing the
Anaheim gain with jurisdictional customers; (v) tax benefits of $2.5 million
in the third quarter of 1993 due to the Federal tax rate change which allowed
the Company to utilize its net operating loss at a higher tax rate; and (vi)
tax benefits of $1.4 million in the third quarter of 1993 resulting from the
settlement of the IRS examination of the years 1990 and 1991. Partially
offsetting such decreases was a write-off of $2.1 million in the third
quarter of 1993 resulting from costs associated with refunding certain
pollution control bonds, which could not be deferred for regulatory purposes.
Significant year-to-date items include the above items as well as the
following, net of taxes: (i) a gain of $7.5 million from the sale of an
investment during the first quarter of 1993 and (ii) a write off of $1.2
million relating to take-or-pay settlement payments in the second quarter of
1994. Partially offsetting such increases were: (i) the gain of $4.4
million from the sale of generating facilities to UAMPS in June 1994; (ii)
the tax benefit of $1.7 million related to sharing the UAMPS gain with
jurisdictional customers; (iii) a decrease in non-operating taxes (other than
income taxes) of $1.3 million due to a reclassification of such taxes; (iv)
a decrease in 1994 legal expenses of $1.1 million; and (v) a write-off of $.5
million of debt redemption costs in 1993.
Interest charges for the quarter and nine months ended September 30, 1994
decreased $5.4 million and $11.8 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
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
organic 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.)
The EPA has issued two enforcement notices and proposed penalty assessments
related to failure to provide the requisite update in 1990. The proposed
penalty assessments against the Company and its gas subsidiary are $114,000
($42,000 and $72,000, respectively). The Company initiated informal
settlement negotiations with EPA regional officials. EPA suspended
settlement negotiations with the Company pending review of its enforcement
position. EPA and gas processing industry officials have begun discussions
regarding EPA's assessment of proposed penalties against gas processors for
failing to file inventory update reports. If necessary, administrative
hearings will be scheduled.
TSCA reporting (inventory updating) is again due in 1994. The Company and
its gas subsidiary are preparing to meet applicable reporting requirements
for any such reportable substances to the EPA in 1994. The Company cannot
predict the ultimate outcome of the settlement, but believes that such a
settlement will not have a material impact on the Company's results of
operations or financial condition.
Department of Energy ("DOE") Gas Line Replacement
Gas Company of New Mexico, a division of the Company ("GCNM"), is a
contractor to the DOE for the replacement of a natural gas line for which the
Company has subcontracted the construction work. Work on the line commenced
prior to filing a Notice of Intent ("NOI") for coverage under the Storm Water
General Permit for construction activities with the EPA. The EPA has issued
a "Show Cause" letter for this violation. In addition, the New Mexico
Environment Department ("NMED"), responding to complaints regarding dust and
sediment generation, and upon discovery that the requisite NOI and Storm
Water Pollution Prevention Plan ("SWPPP") had not been prepared, requested
the Company to prepare a corrective action plan to implement a SWPPP and
mitigate existing stream channel discharges.
The Company has responded to these requests on a timely basis and is waiting
to hear whether either the EPA or the NMED intend further enforcement
actions. The Company is unable to predict the ultimate outcome of the
enforcement actions, but believes that such enforcement actions will not have
a material impact on the Company's results of operations or financial
condition.
Diethanolamine ("DEA") Spill
On June 3, 1994, the Processing Company experienced a release of DEA due to
an equipment malfunction. DEA wastes are oilfield exempt wastes which are
not subject to regulation as hazardous wastes under the Resource Conservation
and Recovery Act ("RCRA"). The spill and subsequent removal of DEA-
contaminated soils were reported to the New Mexico Oil Conservation Division
("OCD") which has jurisdiction over such spills and wastes. However, the
release of DEA to the air in amounts that exceed the reportable quantity of
one pound is potentially reportable under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") as amended by the
Superfund Amendments and Reauthorization Act ("SARA"). When it was
discovered in September 1994 that the spill had not been reported under
CERCLA/SARA, measures were taken to contact the appropriate regulatory
authorities. Though it was not clear whether, under the circumstances, the
spill was reportable under CERCLA/SARA, as a precaution, the spill
notification/report was forwarded to the National Response Center on
September 22, 1994. The Company is currently unable to predict what, if any,
enforcement action may ensue; however, the Company does not expect that any
outcome of this issue will have a material adverse effect on the Company's
financial condition or results of operations.
Palo Verde Nuclear Generating Station ("PVNGS")
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 reports on Form 10-Q for the
quarters ended March 31, 1994 and June 30, 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. APS believes that
this form of tube degradation, the location of which is uncommon in the
industry, 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 designed to operate. APS has taken, and will continue to
take, remedial actions that it believes will retard further tube
degradation to acceptable levels. These actions have included chemically
cleaning the Unit 2 and 3 steam generators, and improving the water quality
and reducing the operating temperature in all three units.
All of the PVNGS units are now operating at or near 100% capacity. In
March and October 1994, APS performed mid-cycle inspection outages at Unit
2. The October outage revealed that the number of steam generator tubes
with indications of degradation was well within APS's projections. Unit
2 is scheduled for a refueling and maintenance outage in early 1995. Unit
3 completed a refueling outage in June 1994 and is scheduled for a mid-
cycle inspection outage beginning in November 1994. Unit 1 is scheduled
for a refueling outage beginning in April 1995.
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 the remedial actions
referenced above will slow the rate of plugging to an acceptable level.
APS currently believes that the PVNGS steam generators are capable of
operating for their designed life of forty years; although, at some point
in the future, long-term economic considerations may make steam generator
replacement a desirable option.
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 the 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. (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.
The Nation informed the Company on August 18, 1994 that as a condition for
continued negotiations on the easement, the Company was required to negotiate
in good faith with the Navajo Tribal Utility Authority ("NTUA") for the sale
of an unrelated transmission facility. The Nation further required the
Company to agree to a certain methodology for valuation of that transmission
facility and for a purchase/sale agreement to be completed by November 18,
1994. The Company agreed to these conditions, but during subsequent
negotiations, the NTUA informed the Company of a potential issue with this
sale involving a third party. The Company is working with the third party to
resolve the issue and the NTUA has informed the Company of its intention to
request an extension for the completion of the agreement.
The Company met with the Nation on September 22, 1994, regarding the
easement. The Nation informed the Company that the offer submitted by the
Company on April 1, 1994 was not acceptable. The Nation offered a proposal
for settlement and asked for the Company's response by October 15, 1994. The
Company did not agree with the Nation's basis for the valuation of the
easement and responded by providing an alternative proposal. The Nation has
requested a meeting on November 16, 1994, to discuss the Company's proposal.
In addition, on October 31, 1994, the Navajo Nation adopted a Civil Trespass
Statute providing for civil penalties, damages and other remedies, including
removal, to be imposed for unconsented or unauthorized use of Navajo Nation
lands. The Company is in the process of evaluating the impact, if any, of
the new statute.
On November 8, 1994, the Navajo Nation elected a new President. The Company
is unable to predict what effect a new administration will have on the
ongoing negotiations.
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; however, the
Company believes that such outcome will not have a material impact on the
Company's results of operations or financial condition.
El Paso Electric Company
As previously reported, the Company is a creditor in the El Paso Electric
Company ("EPE") Chapter 11 bankruptcy proceeding in the Western District of
Texas. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--El Paso Electric Company" in the 1993 Form 10-K.) The Company has
intervened in various Federal and state regulatory proceedings relative to
the merger plan of reorganization between EPE and Central & South West
Corporation ("CSW") and continues to monitor proceedings in the bankruptcy.
On September 12, 1994, CSW sent a letter to EPE indicating that certain
events, individually and cumulatively, may constitute a material adverse
effect that, unless such events are timely resolved, could preclude closing
of the proposed merger. CSW cited the decision of the City of Las Cruces
("Las Cruces") to proceed with condemnation of EPE's distribution system
within Las Cruces, potential for losses of other New Mexico customers, on-
going investigation of tube cracking at PVNGS, developments in the Texas
Public Utility Commission merger rate case, and developments at the Federal
Energy Regulatory Commission in connection with "comparable transmission
service" as contributing to the uncertainties. Additionally, CSW indicated
that it would not close the merger transaction until the dispute between EPE
and Las Cruces was favorably and timely resolved. EPE subsequently advised
CSW that EPE did not believe that a failure of any closing condition had
occurred. CSW, however, also indicated that it will continue to use its best
efforts to consummate the proposed merger.
Although EPE has responded that CSW may not impose the conditions referred to
in the September 12 letter, the parties have not resolved the issues raised.
Additionally, the bankruptcy court, on September 20, 1994, ordered a lift of
the stay to permit Las Cruces to proceed in New Mexico state court with
condemnation of the EPE electrical distribution system within Las Cruces
limits. At this time, the Company cannot predict the outcome of the merger
proceeding.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
Department of Energy ("DOE") Gas Line Replacement
Reference is hereby made to "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--Department of Energy ("DOE") Gas Line Replacement" in PART I, ITEM
2 of this report.
Diethanolamine ("DEA") Spill
Reference is hereby made to "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--Diethanolamine ("DEA") Spill" 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 relate 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
attorney 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 filed an opposition to the motion and, in
September 1994, the Court denied the RTC's motion to amend. Previously the
Court dismissed the RTC's claims for aiding and abetting violations of the
Federal and Arizona racketeering laws against the Company, the current and
former employees of the Company or Meadows and others.
Subsequent to the Court's denial of the RTC's motion to amend the complaint,
the RTC filed a motion seeking to amend the case management order previously
entered by the Court. The purpose of the motion was to allow the RTC to file
an amended complaint which would include the allegations against the Company
sought by the motion to amend that was denied by the Court in September 1994.
On November 7, 1994, the Court denied this new motion.
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 result of operations
or financial condition.
ITEM 5. OTHER INFORMATION
Fuel and Purchased Power Cost Adjustment Clause ("FPPCAC")
As previously reported, the Company has an electric FPPCAC covering its
retail customers. The purpose of the monthly adjustment clause factor is to
collect from or refund to its retail customers the difference between actual
fuel and purchased power expense and a previously established base level of
fuel and purchased power expense.
On December 14, 1993, the Company and primary intervenors entered into a
stipulation, agreeing to eliminate the FPPCAC from its retail billings, and
set the base fuel cost as a component of the cost of service effective with
the order in the Company's next general electric rate case. (See PART I, ITEM
1.--"BUSINESS--RATES AND REGULATION--FPPCAC" in the 1993 Form 10-K.)
A public hearing was held on September 21, 1994. On October 26, 1994, the
hearing examiner certified that the stipulation is fair, just and reasonable
and is consistent with the public interest, and recommended the stipulation
be approved and adopted as filed. The elimination of the FPPCAC, if approved
by the NMPUC, would coincide with the implementation of rates under the
proposed $30 million rate reduction.
Although the cost of fuel and the conditions in the off-system sales market
could positively or negatively affect the Company's net earnings, the Company
currently does not believe that the elimination of the FPPCAC would have a
material adverse impact on the Company's results of operation or financial
condition.
Natural Gas Supply Matters
As previously reported, on December 18, 1989, the NMPUC issued an order
approving a stipulation relating to imbalance in GCNM's gas supply and
demand. The stipulation provides for the partial recovery of certain gas
costs arising from the reformation of gas purchase contracts and from claims
by certain producers relating to take-or-pay obligations, contract pricing
and other matters. Under the order, GCNM bears 25% of claims settled for
producers' take-or-pay costs. GCNM will be permitted to recover from its
customers the remaining 75% of all producer take-or-pay costs which were
incurred to settle certain contract disputes with producers. Under other
provisions of the stipulation, GCNM is allowed to recover all prudently
incurred costs from settlements involving certain contract pricing claims.
(See PART 1, ITEM 1.--"RATES AND REGULATION--Natural Gas Supply Matters" in
the 1993 Form 10-K.)
On September 13, 1994, GCNM entered into a negotiated agreement with its
intervenors to settle all outstanding issues regarding recovery of payments
GCNM made to settle gas take-or-pay contracts and pricing disputes. Under
the stipulation, GCNM shall be authorized to recover a total of $43.4 million
of the approximately $48.6 million it sought to recover. As a result of the
stipulation, GCNM wrote off approximately $2.9 million of additional amounts
that will not be recovered. The Company expects a final order from NMPUC
approving the stipulation before the end of year.
New Senior Vice President
On October 26, 1994, the Company's executive committee of the board of
directors approved the selection of Mr. Roger J. Flynn as the Electric
Service Business Unit senior vice-president. Effective December 1, 1994, Mr.
Flynn, a former vice president in charge of Pacific Gas & Electric utility
operations in the San Joaquin Valley in California, will be in charge of the
Company's newly structured business unit. Effective January 1, 1995, the
Company will reorganize into four distinct business units, (Electric Service
Business Unit, Gas Business Unit, Bulk Power Services Group and Energy
Services Business Unit) in a manner which aligns corporate resources with
customer needs and a changing marketplace, while providing for real
performance accountability.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
15.0 Letter Re Unaudited Interim Financial Information
27 Financial Data Schedules
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: November 10, 1994 /s/ Donna M. Burnett
-----------------------------------
Donna M. Burnett
Corporate Controller and
Chief Accounting Officer