Exhibit 99.01
| | |
| El Paso Electric | |  |
NEWS RELEASE
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For Immediate Release | | Contact: | | Media | | Investor Relations |
Date: February 28, 2008 | | | | Teresa Souza | | Steve Busser |
| | | | 915/543-5823 | | 915/543-5983 |
| | | | | | Rachelle Williams |
| | | | | | 915/543-2257 |
El Paso Electric Announces Fourth Quarter Financial Results
Overview
| | • | | For the fourth quarter 2007, EE reported net income, excluding extraordinary items, of $13.9 million, or $0.31 basic and diluted earnings per share. In the fourth quarter of 2006, EE reported net income, excluding extraordinary items, of $9.7 million or $0.21 basic and diluted earnings per share. Including extraordinary items, in the fourth quarter of 2006 EE reported net income of $15.8 million, or $0.34 basic and diluted earnings per share. |
| | • | | For the twelve months ended December 31, 2007, EE reported net income, excluding extraordinary items, of $74.8 million, or $1.64 and $1.63 basic and diluted earnings per share, respectively. Net income excluding extraordinary items for the twelve months ended December 31, 2006 was $61.4 million or $1.29 and $1.27 basic and diluted earnings per share, respectively. Including extraordinary items, for the twelve months ended December 31, 2006 EE reported net income of $67.5 million, or $1.42 and $1.40 basic and diluted earnings per share, respectively. |
“We were pleased with the increase in earnings, before extraordinary gains, for both the quarter and year ended December 31, 2007 relative to 2006,” said J. Frank Bates, Interim President and Chief Executive Officer. “The primary factor affecting the growth in earnings was increased kilowatt-hour sales to our customers reflecting both customer growth and increased weather related sales in 2007. Earnings were also positively impacted by an increase in capitalized construction financing costs reflecting a significant increase in new utility investments and a change in accounting for such financing costs beginning in 2007. We were also pleased to see reductions in operation and maintenance expenses at our fossil fuel plants in 2007. However, fossil fuel plant cost savings were more than offset by increased expenses for our share of Palo Verde operation and maintenance costs.”
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El Paso Electric— P.O. Box 982— El Paso, Texas 79960
Earnings Summary
The table and explanations below present the major factors affecting 2007 net income relative to 2006 net income before the consideration of the extraordinary gain in 2006.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended | | | Twelve Months Ended | |
| | | Pre-Tax
Effect | | | After-Tax
Net
Income | | | Basic
EPS | | | Pre-Tax
Effect | | | After-Tax
Net
Income | | | Basic
EPS | |
December 31, 2006 | | | | | | $ | 9,758 | | | $ | 0.21 | | | | | | | $ | 61,387 | | | $ | 1.29 | |
Changes in: | | | | | | | | | | | | | | | | | | | | | | | | |
Retail base revenue | | $ | 8,638 | | | | 5,442 | | | | 0.12 | | | $ | 18,568 | | | | 11,698 | | | | 0.25 | |
Adjustments to income tax accruals | | | — | | | | 3,897 | | | | 0.09 | | | | — | | | | 2,442 | | | | 0.05 | |
AFUDC and capitalized interest | | | 2,565 | | | | 2,250 | | | | 0.05 | | | | 6,990 | | | | 6,189 | | | | 0.13 | |
Transmission wheeling revenue | | | 774 | | | | 488 | | | | 0.01 | | | | (2,400 | ) | | | (1,512 | ) | | | (0.03 | ) |
Administrative and general | | | 595 | | | | 375 | | | | 0.01 | | | | 5,510 | | | | 3,471 | | | | 0.07 | |
Investment and interest income | | | 140 | | | | 88 | | | | — | | | | 3,148 | | | | 1,983 | | | | 0.04 | |
Off-system sales retained margins | | | (5,743 | ) | | | (3,618 | ) | | | (0.08 | ) | | | (2,747 | ) | | | (1,731 | ) | | | (0.04 | ) |
Palo Verde O&M | | | (5,460 | ) | | | (3,440 | ) | | | (0.08 | ) | | | (11,292 | ) | | | (7,114 | ) | | | (0.15 | ) |
Fossil fuel plant O&M | | | (1,662 | ) | | | (1,047 | ) | | | (0.02 | ) | | | 5,781 | | | | 3,642 | | | | 0.08 | |
2007 New Mexico Stipulation | | | (681 | ) | | | (429 | ) | | | (0.01 | ) | | | 3,134 | | | | 1,975 | | | | 0.04 | |
State income tax adjustment | | | — | | | | — | | | | — | | | | — | | | | (6,174 | ) | | | (0.13 | ) |
New Mexico capacity cost adjustment | | | — | | | | — | | | | — | | | | (2,079 | ) | | | (1,310 | ) | | | (0.03 | ) |
Other | | | — | | | | 183 | | | | — | | | | — | | | | (193 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2007 | | | | | | $ | 13,947 | | | | 0.30 | | | | | | | $ | 74,753 | | | | 1.57 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in weighted average number of shares | | | | | | | | | | | 0.01 | | | | | | | | | | | | 0.07 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2007 earnings per share | | | | | | | | | | $ | 0.31 | | | | | | | | | | | $ | 1.64 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Fourth Quarter 2007
Earnings for the quarter ended December 31, 2007 when compared to the same period last year were positively affected by:
| | • | | An 8.3% increase in retail base revenues primarily due to a 4.0% increase in retail kWh sales. The kWh sales increase reflects a 2.2% increase in the average number of retail customers. |
| | • | | A reduction in income tax expense reflecting adjustments to income tax accruals related to prior quarters of 2007 and prior years including an adjustment to deferred taxes associated with the accrual of other post-retirement benefits. |
| | • | | Increased capitalized interest and AFUDC (allowance for funds used during construction) in 2007 due to the re-application of SFAS No. 71 to our Texas jurisdiction beginning in 2007 and higher balances of construction work in progress and nuclear fuel subject to AFUDC and capitalized interest in 2007. |
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El Paso Electric— P.O. Box 982— El Paso, Texas 79960
Earnings for the quarter ended December 31, 2007 when compared to the same period last year were negatively affected by:
| | • | | Decreased off-system sales margins retained in 2007 as a result of decreased energy available for sale in part due to the refueling and replacement of steam generators at Palo Verde Unit 3 and lower margins due to higher costs of energy used to make off-system sales. |
| | • | | Increased Palo Verde non-fuel O&M expenses in 2007 due to increased maintenance costs at Unit 3 associated with the replacement of steam generators and increased operating costs at all units. |
| | • | | Increased O&M costs at our gas-fired generating plants due to the timing of planned maintenance. |
Full Year 2007
Earnings for the twelve months ended December 31, 2007 when compared to the same period last year were positively affected by:
| | • | | A 4.2% increase in retail base revenues in 2007 primarily due to a 3.0% increase in retail kWh sales. KWh sales growth was primarily the result of a 2.4% increase in the average number of retail customers. |
| | • | | Increased capitalized interest and AFUDC (allowance for funds used during construction) in 2007 due to the re-application of SFAS No. 71 to our Texas jurisdiction beginning in 2007 and higher balances of construction work in progress and nuclear fuel subject to AFUDC and capitalized interest in 2007. |
| | • | | Decreased O&M costs at our gas-fired generating plants due to a reduction of unplanned and planned maintenance in the first three quarters of 2007 compared to 2006. |
| | • | | Decreased administrative and general expenses due to an increase in capitalized employee salaries and benefits, decreased workers compensation insurance expense, and a sales tax refund in 2007. |
| | • | | Increased investment and interest income due to gains on the sale of securities held in the decommissioning trusts and interest income from the decommissioning trusts, and interest earned on a Texas sales tax refund in 2007 with no comparable activity in 2006. |
| | • | | Higher proxy market prices for Palo Verde Unit 3 power sold to our retail customers and the removal of the $0.021 kWh price cap for 10% of New Mexico kWh sales in accordance with the 2007 New Mexico Stipulation. |
| | • | | A reduction in income tax expense reflecting adjustments to income tax accruals related to prior years including an adjustment to deferred taxes associated with the accrual of other post-retirement benefits. |
Earnings for the twelve months ended December 31, 2007 when compared to the same period last year were negatively affected by:
| | • | | Increased Palo Verde non-fuel O&M expenses in 2007 due to increased operations costs at all three units and increased maintenance costs at Unit 3 associated with the replacement of steam generators. |
| | • | | A reduction in income tax expense in 2006 to recognize the change in tax rates resulting from changes in the Texas franchise (income) tax law in May 2006 with no comparable change in tax law in 2007. This adjustment was a non-cash change in the second quarter of 2006 affecting deferred income tax liabilities. |
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El Paso Electric— P.O. Box 982— El Paso, Texas 79960
| | • | | Decreased off-system sales margins retained in 2007 due to lower margins per MWh reflecting slightly lower market prices and higher costs of energy used to make off-system sales. The decrease in average margin was partially offset by increased MWh sales from greater availability of Palo Verde power in the first six months of 2007. |
| | • | | Decreased transmission wheeling revenues in 2007 as a result of the reduction of transmission wheeling revenues recognized for transmission provided to Tucson Electric Power. |
| | • | | A fuel revenue adjustment in 2006 based on a final order of the New Mexico Public Regulation Commission finding that the Company could recover purchased power capacity costs for 2004 and 2005 through its New Mexico fuel adjustment clause with no comparable adjustment in 2007. |
Key Earnings Drivers
Historically, our earnings have been largely influenced by base revenues from retail electric customers, operations at Palo Verde, and off-system sales margins.
Retail Non-fuel Base Revenues
Retail non-fuel base revenues increased by $8.6 million, pre-tax, or 8.3% in the fourth quarter of 2007 compared to the same period in 2006. Residential non-fuel base revenues increased by $2.1 million, pre-tax, or 5.5%, small commercial and industrial revenues increased $3.8 million, pretax, or 9.9% and other public authorities revenues increased $3.5 million, pretax, or 21.0% in the fourth quarter of 2007 compared to the same period in 2006. KWh sales to residential, small commercial and industrial customers and other public authorities increased 5.8%, 6.2% and 6.8%, respectively. KWh sales growth was primarily driven by an increase in the average number of customers and residential sales were positively affected by additional cooling degree days due to above average temperatures in October 2007. In the fourth quarter of 2007 the average number of residential customers increased 1.8%, the average number of small commercial and industrial customers increased 6.5% and the average number of other public authorities customers increased 1.0% compared to the fourth quarter of 2006. Revenues in 2007 were also impacted by a small increase in non-fuel base rates in New Mexico, effective in July 2007, and by an increase in revenues from sales to public authorities which reflects the settlement of a rate dispute with a large customer resulting in the elimination of a $1.7 million reserve for rate refund in the fourth quarter of 2007. Non-fuel base revenues from large commercial and industrial customers decreased $0.8 million or 7.4% primarily reflecting a 5.1% decrease in kilowatt-hour sales largely as a result of customers migrating to the small commercial and industrial class.
Retail non-fuel base revenues for the twelve months ended December 31, 2007 increased $18.6 million, pre-tax, or 4.2% due to a 2.4% increase in the average number of retail customers served and colder winter weather in the first quarter of 2007 compared to the same period in 2006. KWh sales to residential customers increased 5.6% in the twelve-month period compared to the same period last year largely as a result of a 2.1% increase in the average number of residential customers served and the colder winter weather in the first quarter of 2007. Heating degree days increased 13.2% while cooling degree days increased 2.2% for the twelve-month period in 2007 compared to the same period last year. Small commercial and industrial non-fuel base revenues increased $6.7 million or 4.2% in the twelve-month period ended December 31, 2007 reflecting an increase in kWh sales of 2.6% and a small increase in non-fuel base rates in New Mexico effective in July 2007. Other public authorities’ non-fuel base revenues increased $4.3 million or 6.3% due to a 3.1% increase in kWh sales along with a small increase in non-fuel base rates in New Mexico and higher rates to a large Texas customer whose contract expired. Large commercial and industrial non-fuel base revenues decreased
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El Paso Electric— P.O. Box 982— El Paso, Texas 79960
$1.4 million or 3.5% primarily due to customers migrating to the small commercial and industrial class.
Palo Verde Operations
We own approximately 633 MW (undivided interest) of generating capacity in the three generating units at the Palo Verde nuclear power station. The operation of Palo Verde not only affects our ability to make off-system sales, but also impacts fuel costs to native load customers and represents a significant portion of our non-fuel operating expenses. Palo Verde operated at a capacity factor of 57.1% in the fourth quarter of 2007 compared to a capacity factor of 74.7% in the same period last year, which was primarily due to the refueling outage and steam generator replacement at Palo Verde Unit 3, an outage which began September 29, 2007. Palo Verde Unit 3 returned to service and reached full capacity January 24, 2008. Palo Verde operated at a capacity factor of 78.5% in the twelve-month period ended December 31, 2007 compared to a capacity factor of 70.4% in the twelve-month period ended December 31, 2006. Generation at Palo Verde increased 11.5% in the twelve months ended December 31, 2007 compared to the same period in 2006 primarily due to increased output from Palo Verde Unit 1 partially offset by the outage to replace the steam generators at Palo Verde Unit 3. Palo Verde Unit 1 operated at a substantially reduced capacity factor during the first quarter of 2006 and did not operate during the second quarter of 2006 while repairs and modifications were made to one of its shutdown cooling lines. Palo Verde Unit 1 reached full capacity on July 16, 2006.
Palo Verde operation and maintenance expenses increased $5.5 million in the fourth quarter of 2007 compared to the fourth quarter of 2006 primarily due to increased maintenance costs at Unit 3 and higher operating costs at all three Palo Verde units. Palo Verde operation and maintenance expense increased $11.3 million for the twelve months ended December 31, 2007 compared to the same period last year reflecting increased operating costs in response to an enhanced inspection regimen imposed by the Nuclear Regulatory Commission (NRC) and the steam generator replacement at Palo Verde Unit 3.
Off-System Sales
We continue to make off-system sales in the wholesale power markets when competitively priced excess power is available from our generating plants and purchased power contracts. The table below shows off-system sales MWh and the pre-tax margins realized and retained by us from these sales for the quarter and twelve month periods ended December 31, 2007 and 2006:
| | | | | | | | | | | | |
| | | Quarter Ended
December 31, | | Twelve Months Ended
December 31, |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| | | | |
MWh sales | | | 490,891 | | | 580,151 | | | 2,201,294 | | | 1,635,407 |
Total margins (in thousands) | | $ | 1,599 | | $ | 8,603 | | $ | 19,581 | | $ | 22,600 |
Retained margins (in thousands) | | $ | 1,201 | | $ | 6,944 | | $ | 15,514 | | $ | 18,261 |
For the quarter ended December 31, 2007, retained margins from off-system sales decreased approximately $5.7 million, pre-tax, over the corresponding period in 2006 due primarily to higher costs of energy to make off-system sales. The average retained margin per MWh decreased $9.52. Also, in July 2007, we began sharing 25% of New Mexico jurisdiction off-system sales margins with
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El Paso Electric— P.O. Box 982— El Paso, Texas 79960
customers pursuant to a rate settlement (the same percentage margin sharing treatment as Texas). In addition, MWh sold decreased 15% reflecting decreased output from Palo Verde.
For the twelve months ended December 31, 2007, our retained margins decreased approximately $2.7 million, pre-tax, over the corresponding period in 2006 reflecting slightly lower market prices and higher costs of energy used to make off-system sales. The decrease in average margin was partially offset by increased MWh sales. As a result, the average retained margin per MWh decreased $4.12. We had increased energy available for sale in the twelve months of 2007 compared to the same period in 2006 primarily due to the increased energy generated at Palo Verde in the first six months of 2007 compared to the same period in 2006. The table below shows on a per MWh basis, pretax revenues, costs and margins from off-system sales for 2007 and 2006:
| | | | | | | | | |
Quarter Ended | | Average
Revenue
Per MWh | | Average
Cost of
Energy
Per MWh | | Average
Gross
Margin
Per MWh |
| | | |
March 31, 2006 | | $ | 68.99 | | $ | 49.07 | | $ | 19.92 |
June 30, 2006 | | $ | 48.39 | | $ | 45.70 | | $ | 2.69 |
September 30, 2006 | | $ | 63.97 | | $ | 49.48 | | $ | 14.49 |
December 31, 2006 | | $ | 53.38 | | $ | 38.55 | | $ | 14.83 |
| | | |
March 31, 2007 | | $ | 54.24 | | $ | 38.92 | | $ | 15.32 |
June 30, 2007 | | $ | 56.03 | | $ | 48.61 | | $ | 7.41 |
September 30, 2007 | | $ | 57.61 | | $ | 50.26 | | $ | 7.35 |
December 31, 2007 | | $ | 58.57 | | $ | 55.32 | | $ | 3.26 |
Capital and Liquidity
At December 31, 2007, common stock equity comprised 49.7% of our permanent capitalization (common stock, long-term debt and the current portion of long-term debt and financing obligations).
Cash flows from operations for the twelve months ended December 31, 2007 decreased to $182.3 million from $218.0 million for the twelve months ended December 31, 2006 due to reduced collections of deferred fuel revenues in 2007. The Company had net collections of deferred fuel revenues of $59.7 million in 2006 compared to $4.9 million in 2007. In Texas, fuel costs including purchased power energy costs are recovered through a fixed fuel factor which may be adjusted twice a year. We record deferred fuel revenues for the under-recovery of fuel costs until they can be recovered from Texas customers. In 2007, we completed the recovery of two fuel surcharges to collect under-recovered fuel costs through November 2005. The first was a twenty-four month surcharge that was completed in September 2007 and the second was a twelve month surcharge that was completed in January 2007. In the twelve-month periods ended December 31, 2007 and December 31, 2006, we collected $22.9 million and $56.9 million of deferred fuel revenues in Texas through the fuel surcharges, increasing our cash flow in those periods. During the twelve-month period ended December 31, 2007, we incurred an additional under-collection of fuel costs of $17.8 million compared to an over-collection of fuel costs of $3.7 million in 2006. At December 31, 2007, we had a total company fuel under-recovery balance of $27.7 million including a fuel under-recovery balance of $29.2 million in Texas offset by a $1.5 million fuel over-recovery balance in New Mexico. We filed a
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El Paso Electric— P.O. Box 982— El Paso, Texas 79960
request with the Public Utility Commission of Texas in January 2008 to institute a fuel surcharge to recover the Texas portion of the under-recovery balance through November 2007 of $27.5 million, plus applicable interest, over a twelve month period beginning March 2008.
During the twelve months ended December 31, 2007, our primary capital requirements were for construction of electric utility plant, purchase of nuclear fuel and the repurchase of common stock. Capital requirements for new electric plant were $144.6 million for the twelve-month period ended December 31, 2007 compared to $103.2 million for the twelve-month period ended December 31, 2006. We financed capital requirements for electric plant and common stock repurchases with cash flows from operations. At December 31, 2007, we had a balance of $5.0 million in cash and cash equivalents. The Company also had a $20 million temporary cash investment in short-term 28 day auction rate debt at December 31, 2007. During January 2008, $16 million of this investment was liquidated.
Our capital requirements for nuclear fuel increased substantially in 2007 as a result of increases in prices for uranium concentrates and an increase in our inventory of nuclear fuel feedstock. We finance our nuclear fuel inventory through a trust that borrows under our $200 million credit facility to acquire and process the nuclear fuel. In 2007, borrowings under the credit facility for nuclear fuel increased $36.8 million to $83.0 million as of December 31, 2007. During 2006 our borrowings for nuclear fuel increased $4.3 million.
During the twelve months ended December 31, 2007, we repurchased 1,344,338 shares of common stock at an aggregate cost of $31.4 million, which completed the 2006 common stock repurchase plan. In November 2007, EE’s Board of Directors authorized the repurchase of up to an additional 2 million shares of the Company’s common stock (the “2007 Plan”). There were no repurchases of common stock in the fourth quarter of 2007. As of December 31, 2007, 2 million shares remain available for repurchase under the currently authorized stock repurchase program.
2008 Earnings Guidance
We have revised our earnings guidance for 2008 to a range of $1.50 to $1.90 per basic share from previous guidance of $1.60 to $1.95 per basic share.
Conference Call
A conference call to discuss fourth quarter 2007 earnings is scheduled for 4 p.m. Eastern Time, February 28, 2008. The dial-in number is 800-621-7762 with a passcode of 2008. The conference leader will be Scott Wilson, Executive Vice President, Chief Financial and Chief Administrative Officer of EE. A replay will run through March 15, 2008. The dial-in number is 866-354-2026 and a passcode is not required for the replay. The conference call and presentation slides will be webcast live on EE’s website found athttp://www.epelectric.com. A replay of the webcast will be available shortly after the call.
Safe Harbor
This news release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This information may involve risks and uncertainties that could cause actual results to differ materially from such
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El Paso Electric— P.O. Box 982— El Paso, Texas 79960
forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: (i) increased prices for fuel and purchased power and the possibility that regulators may not permit EE to pass through all such increased costs to customers; (ii) determinations by regulators that may adversely affect EE’s ability to recover previously incurred fuel costs in rates; (iii) fluctuations in off-system sales margins due to uncertainty in the economy power market and the availability of generating units; (iv) unanticipated increased costs associated with scheduled and unscheduled outages; (v) costs at Palo Verde, including additional costs relating to an enhanced NRC oversight and inspection regimen; (vi) the costs of legal defense and possible judgments which may accrue as the result of ongoing litigation or any regulatory proceeding; (vii) deregulation of the electric utility industry; (viii) reduced wholesale margins; (ix) possible increased costs of compliance with environmental or other laws, regulations and policies; (x) possible income tax and interest payments as a result of audit adjustments proposed by the IRS; (xi) possible warranty obligations attributable to MiraSol Energy Services, a subsidiary of EE; and (xii) other factors detailed by EE in its public filings with the Securities and Exchange Commission. EE’s filings are available from the Securities and Exchange Commission or may be obtained through EE’s website,www.epelectric.com. Any such forward-looking statement is qualified by reference to these risks and factors. EE cautions that these risks and factors are not exclusive. EE does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of EE except as required by law.
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El Paso Electric— P.O. Box 982— El Paso, Texas 79960
El Paso Electric Company and Subsidiary
Consolidated Statements of Operations
Quarter Ended December 31, 2007 and 2006
(In thousands except for per share data)
(Unaudited)
| | | | | | | | | | | |
| | | 2007 | | | 2006 | | Variance | |
Operating revenues, net of energy expenses: | | | | | | | | | | | |
Base revenues | | $ | 112,973 | | | $ | 104,362 | | $ | 8,611 | (a) |
Off-system sales margins, net of sharing | | | 1,201 | | | | 6,944 | | | (5,743 | ) |
Other | | | 3,138 | | | | 3,745 | | | (607 | ) |
| | | | | | | | | | | |
Operating Revenues Net of Energy Expenses | | | 117,312 | | | | 115,051 | | | 2,261 | |
| | | |
Other Operating Expenses: | | | | | | | | | | | |
Other operations and maintenance | | | 44,699 | | | | 44,590 | | | 109 | |
Palo Verde operations and maintenance | | | 27,695 | | | | 22,235 | | | 5,460 | |
Taxes other than income taxes | | | 11,104 | | | | 10,769 | | | 335 | |
Other income | | | 2,227 | | | | 3,033 | | | (806 | ) |
| | | | | | | | | | | |
Earnings Before Interest, Taxes, Depreciation and Amortization | | | 36,041 | | | | 40,490 | | | (4,449 | )(b) |
| | | |
Depreciation and amortization | | | 17,843 | | | | 17,489 | | | 354 | |
Interest on long-term debt | | | 9,553 | | | | 9,202 | | | 351 | |
AFUDC and capitalized interest | | | 4,121 | | | | 1,556 | | | 2,565 | |
Other interest expense | | | 227 | | | | 83 | | | 144 | |
| | | | | | | | | | | |
| | | |
Income Before Income Taxes and Extraordinary Item | | | 12,539 | | | | 15,272 | | | (2,733 | ) |
| | | |
Income tax expense (benefit) | | | (1,408 | ) | | | 5,514 | | | (6,922 | ) |
| | | | | | | | | | | |
| | | |
Income Before Extraordinary Item | | | 13,947 | | | | 9,758 | | | 4,189 | |
Extraordinary item, net | | | — | | | | 6,063 | | | (6,063 | ) |
| | | | | | | | | | | |
Net Income | | $ | 13,947 | | | $ | 15,821 | | $ | (1,874 | ) |
| | | | | | | | | | | |
| | | |
Basic Earnings per Share: | | | | | | | | | | | |
Income before extraordinary item | | $ | 0.31 | | | $ | 0.21 | | $ | 0.10 | |
Extraordinary item, net | | | — | | | | 0.13 | | | (0.13 | ) |
| | | | | | | | | | | |
Net Income | | $ | 0.31 | | | $ | 0.34 | | $ | (0.03 | ) |
| | | | | | | | | | | |
| | | |
Diluted Earnings per Share: | | | | | | | | | | | |
Income before extraordinary item | | $ | 0.31 | | | $ | 0.21 | | $ | 0.10 | |
Extraordinary item, net | | | — | | | | 0.13 | | | (0.13 | ) |
| | | | | | | | | | | |
Net Income | | $ | 0.31 | | | $ | 0.34 | | $ | (0.03 | ) |
| | | | | | | | | | | |
| | | |
Weighted average number of shares outstanding | | | 45,012 | | | | 46,414 | | | (1,402 | ) |
| | | | | | | | | | | |
| | | |
Weighted average number of shares and dilutive potential shares outstanding | | | 45,364 | | | | 46,961 | | | (1,597 | ) |
| | | | | | | | | | | |
| (a) | Base revenues exclude fuel recovered through New Mexico base rates of $16.0 million and $6.9 million, respectively. |
| (b) | EBITDA is a non-GAAP financial measure and is not a substitute for net income or other measures of financial performance in accordance with GAAP. |
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El Paso Electric Company and Subsidiary
Consolidated Statements of Operations
Twelve Months Ended December 31, 2007 and 2006
(In thousands except for per share data)
(Unaudited)
| | | | | | | | | | |
| | | 2007 | | 2006 | | Variance | |
Operating revenues, net of energy expenses: | | | | | | | | | | |
Base revenues | | $ | 466,427 | | $ | 447,734 | | $ | 18,693 | (a) |
Off-system sales margins, net of sharing | | | 15,514 | | | 18,261 | | | (2,747 | ) |
Other | | | 17,864 | | | 20,115 | | | (2,251 | )(b) |
| | | | | | | | | | |
Operating Revenues Net of Energy Expenses | | | 499,805 | | | 486,110 | | | 13,695 | |
| | | |
Other Operating Expenses: | | | | | | | | | | |
Other operations and maintenance | | | 163,808 | | | 173,773 | | | (9,965 | ) |
Palo Verde operations and maintenance | | | 89,067 | | | 77,775 | | | 11,292 | |
Taxes other than income taxes | | | 49,212 | | | 50,554 | | | (1,342 | ) |
Other income | | | 6,650 | | | 3,728 | | | 2,922 | |
| | | | | | | | | | |
Earnings Before Interest, Taxes, Depreciation and Amortization | | | 204,368 | | | 187,736 | | | 16,632 | (c) |
| | | |
Depreciation and amortization | | | 69,397 | | | 68,446 | | | 951 | |
Interest on long-term debt | | | 36,844 | | | 35,652 | | | 1,192 | |
AFUDC and capitalized interest | | | 11,897 | | | 4,907 | | | 6,990 | |
Other interest expense | | | 804 | | | 1,092 | | | (288 | ) |
| | | | | | | | | | |
Income Before Income Taxes and Extraordinary Item | | | 109,220 | | | 87,453 | | | 21,767 | |
| | | |
Income tax expense | | | 34,467 | | | 26,066 | | | 8,401 | (d) |
| | | | | | | | | | |
| | | |
Income Before Extraordinary Item | | | 74,753 | | | 61,387 | | | 13,366 | |
Extraordinary item, net | | | — | | | 6,063 | | | (6,063 | ) |
| | | | | | | | | | |
Net Income | | $ | 74,753 | | $ | 67,450 | | $ | 7,303 | |
| | | | | | | | | | |
| | | |
Basic Earnings per Share: | | | | | | | | | | |
Income before extraordinary item | | $ | 1.64 | | $ | 1.29 | | $ | 0.35 | |
Extraordinary item, net | | | — | | | 0.13 | | | (0.13 | ) |
| | | | | | | | | | |
Net Income | | $ | 1.64 | | $ | 1.42 | | $ | 0.22 | |
| | | | | | | | | | |
| | | |
Diluted Earnings per Share: | | | | | | | | | | |
Income before extraordinary item | | $ | 1.63 | | $ | 1.27 | | $ | 0.36 | |
Extraordinary item, net | | | — | | | 0.13 | | | (0.13 | ) |
| | | | | | | | | | |
Net Income | | $ | 1.63 | | $ | 1.40 | | $ | 0.23 | |
| | | | | | | | | | |
| | | |
Weighted average number of shares outstanding | | | 45,564 | | | 47,664 | | | (2,100 | ) |
| | | | | | | | | | |
| | | |
Weighted average number of shares and dilutive potential shares outstanding | | | 45,928 | | | 48,164 | | | (2,236 | ) |
| | | | | | | | | | |
| (a) | Base revenues exclude fuel recovered through New Mexico base rates of $51.5 million and $30.0 million, respectively. |
| (b) | Other revenues in 2006 include a $2.1 million fuel adjustment to include capacity charges in New Mexico and $3.1 million of disputed transmission revenues from TEP with no comparable amounts in 2007. Other revenues in 2007 reflect higher market prices for Palo Verde Unit 3 power sold to retail customers resulting in a $1.6 million increase in revenues. |
| (c) | EBITDA is a non-GAAP financial measure and is not a substitute for net income or other measures of financial performance in accordance with GAAP. |
| (d) | The 2006 income tax expense includes the recognition of a benefit due to a change in deferred income tax liability of $6.2 million resulting from changes in the Texas franchise (income) tax law in May 2006. |
Page 10 of 16
El Paso Electric Company and Subsidiary
Cash Flow Summary
Twelve Months Ended December 31, 2007 and 2006
(In thousands and Unaudited)
| | | | | | | | |
| | | 2007 | | | 2006 | |
Cash flows from operating activities: | | | | | | | | |
Net income | | $ | 74,753 | | | $ | 67,450 | |
Adjustments to reconcile net income to net cash provided by operations: | | | | | | | | |
Depreciation and amortization of electric plant in service | | | 69,397 | | | | 68,446 | |
Extraordinary item, net | | | — | | | | (6,063 | ) |
Deferred income taxes, net | | | 10,392 | | | | 19,751 | |
Other | | | 23,875 | | | | 25,743 | |
Change in working capital items: | | | | | | | | |
Net recovery of deferred fuel revenues | | | 4,886 | | | | 59,749 | |
Other | | | (993 | ) | | | (17,078 | ) |
| | | | | | | | |
Net cash provided by operating activities | | | 182,310 | | | | 217,998 | |
| | | | | | | | |
| | |
Cash flows from investing activities: | | | | | | | | |
Cash additions to utility property, plant and equipment | | | (144,588 | ) | | | (103,182 | ) |
Cash additions to nuclear fuel | | | (52,400 | ) | | | (17,602 | ) |
Decommissioning trust funds | | | (10,964 | ) | | | (8,318 | ) |
Other | | | (20,692 | ) | | | (2,166 | ) |
| | | | | | | | |
Net cash used for investing activities | | | (228,644 | ) | | | (131,268 | ) |
| | | | | | | | |
| | |
Cash flows from financing activities: | | | | | | | | |
Proceeds from exercise of stock options | | | 4,315 | | | | 3,140 | |
Acquisition of treasury stock | | | (31,447 | ) | | | (62,392 | ) |
Nuclear fuel financing obligation | | | 36,775 | | | | 4,333 | |
Other | | | 1,566 | | | | 334 | |
| | | | | | | | |
Net cash provided by (used for) financing activities | | | 11,209 | | | | (54,585 | ) |
| | | | | | | | |
| | |
Net (decrease) increase in cash and temporary investments | | | (35,125 | ) | | | 32,145 | |
| | |
Cash and cash equivalents at beginning of period | | | 40,101 | | | | 7,956 | |
| | | | | | | | |
| | |
Cash and cash equivalents at end of period | | $ | 4,976 | | | $ | 40,101 | |
| | | | | | | | |
| | |
Cash interest payments | | $ | 34,146 | | | $ | 33,302 | |
| | | | | | | | |
Page 11 of 16
El Paso Electric Company and Subsidiary
Quarter Ended December 31, 2007 and 2006
Sales and Revenues Statistics
| | | | | | | | | | | | | | |
| | | 2007 | | 2006 | | | Increase (Decrease) | |
| | | | | Amount | | | Percentage | |
MWh sales: | | | | | | | | | | | | | | |
Retail: | | | | | | | | | | | | | | |
Residential | | | 497,650 | | | 470,346 | | | | 27,304 | | | 5.8 | % |
Commercial and industrial, small | | | 530,765 | | | 499,634 | | | | 31,131 | | | 6.2 | % |
Commercial and industrial, large | | | 302,640 | | | 318,960 | | | | (16,320 | ) | | (5.1 | %) |
Sales to public authorities | | | 340,104 | | | 318,383 | | | | 21,721 | | | 6.8 | % |
| | | | | | | | | | | | | | |
Total retail sales | | | 1,671,159 | | | 1,607,323 | | | | 63,836 | | | 4.0 | % |
| | | | | | | | | | | | | | |
Wholesale: | | | | | | | | | | | | | | |
Sales for resale | | | 9,155 | | | 9,394 | | | | (239 | ) | | (2.5 | %) |
Off-system sales | | | 490,891 | | | 580,151 | | | | (89,260 | ) | | (15.4 | %) |
| | | | | | | | | | | | | | |
Total wholesale sales | | | 500,046 | | | 589,545 | | | | (89,499 | ) | | (15.2 | %) |
| | | | | | | | | | | | | | |
Total MWh sales | | | 2,171,205 | | | 2,196,868 | | | | (25,663 | ) | | (1.2 | %) |
| | | | | | | | | | | | | | |
| | | | |
Operating revenues (in thousands): | | | | | | | | | | | | | | |
Non-fuel base revenues: | | | | | | | | | | | | | | |
Retail: | | | | | | | | | | | | | | |
Residential | | $ | 40,699 | | $ | 38,571 | | | $ | 2,128 | | | 5.5 | % |
Commercial and industrial, small | | | 42,103 | | | 38,302 | | | | 3,801 | | | 9.9 | % |
Commercial and industrial, large | | | 9,748 | | | 10,525 | | | | (777 | ) | | (7.4 | %) |
Sales to public authorities | | | 20,065 | | | 16,579 | | | | 3,486 | | | 21.0 | % |
| | | | | | | | | | | | | | |
Total retail non-fuel base revenues | | | 112,615 | | | 103,977 | | | | 8,638 | | | 8.3 | % |
Wholesale: | | | | | | | | | | | | | | |
Sales for resale | | | 358 | | | 385 | | | | (27 | ) | | (7.0 | %) |
| | | | | | | | | | | | | | |
Total non-fuel base revenues | | | 112,973 | | | 104,362 | | | | 8,611 | | | 8.3 | % |
Fuel revenues: | | | | | | | | | | | | | | |
Recovered from customers during the period (a) | | | 43,573 | | | 52,223 | | | | (8,650 | ) | | (16.6 | %) |
Under (over) collection of fuel | | | 4,950 | | | (5,127 | ) | | | 10,077 | | | — | |
New Mexico fuel in base rates | | | 15,988 | | | 6,852 | | | | 9,136 | | | — | |
| | | | | | | | | | | | | | |
Total fuel revenues | | | 64,511 | | | 53,948 | | | | 10,563 | | | 19.6 | % |
| | | | |
Off-system sales | | | 28,753 | | | 30,968 | | | | (2,215 | ) | | (7.2 | %) |
Other | | | 4,957 | | | 4,003 | | | | 954 | | | 23.8 | % |
| | | | | | | | | | | | | | |
Total operating revenues | | $ | 211,194 | | $ | 193,281 | | | $ | 17,913 | | | 9.3 | % |
| | | | | | | | | | | | | | |
| | | | |
Off-system sales (in thousands): | | | | | | | | | | | | | | |
Gross margins | | $ | 1,599 | | $ | 8,603 | | | $ | (7,004 | ) | | (81.4 | %) |
Retained margins | | | 1,201 | | | 6,944 | | | | (5,743 | ) | | (82.7 | %) |
| | | | |
Average number of retail customers: | | | | | | | | | | | | | | |
Residential | | | 316,763 | | | 311,271 | | | | 5,492 | | | 1.8 | % |
Commercial and industrial, small | | | 35,058 | | | 32,916 | | | | 2,142 | | | 6.5 | % |
Commercial and industrial, large | | | 54 | | | 58 | | | | (4 | ) | | (6.9 | %) |
Sales to public authorities | | | 4,841 | | | 4,792 | | | | 49 | | | 1.0 | % |
| | | | | | | | | | | | | | |
Total | | | 356,716 | | | 349,037 | | | | 7,679 | | | 2.2 | % |
| | | | | | | | | | | | | | |
| | | | |
Number of retail customers (end of period): | | | | | | | | | | | | | | |
Residential | | | 317,091 | | | 311,923 | | | | 5,168 | | | 1.7 | % |
Commercial and industrial, small | | | 35,147 | | | 32,950 | | | | 2,197 | | | 6.7 | % |
Commercial and industrial, large | | | 53 | | | 58 | | | | (5 | ) | | (8.6 | %) |
Sales to public authorities | | | 4,853 | | | 4,800 | | | | 53 | | | 1.1 | % |
| | | | | | | | | | | | | | |
Total | | | 357,144 | | | 349,731 | | | | 7,413 | | | 2.1 | % |
| | | | | | | | | | | | | | |
| | | | |
Weather statistics: | | | | | | | 10 Yr Average | | | | |
Heating degree days | | | 911 | | | 980 | | | | 1028 | | | | |
Cooling degree days | | | 151 | | | 72 | | | | 103 | | | | |
| (a) | Excludes $13.8 million for 2006 of prior periods deferred fuel revenues recovered through Texas fuel surcharges. |
Page 12 of 16
El Paso Electric Company
Quarter Ended December 31, 2007 and 2006
Generation and Purchased Power Statistics
| | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | Increase (Decrease) | |
| | | | | Amount | | | Percentage | |
Generation and purchased power (MWh): | | | | | | | | | | | | |
Palo Verde | | 775,078 | | | 1,014,062 | | | (238,984 | ) | | (23.6 | %) |
Four Corners | | 204,699 | | | 199,459 | | | 5,240 | | | 2.6 | % |
Gas plants | | 691,717 | | | 585,796 | | | 105,921 | | | 18.1 | % |
| | | | | | | | | | | | |
Total generation | | 1,671,494 | | | 1,799,317 | | | (127,823 | ) | | (7.1 | %) |
Purchased power | | 621,299 | | | 519,460 | | | 101,839 | | | 19.6 | % |
| | | | | | | | | | | | |
Total available energy | | 2,292,793 | | | 2,318,777 | | | (25,984 | ) | | (1.1 | %) |
Line losses and Company use | | 121,588 | | | 121,909 | | | (321 | ) | | (0.3 | %) |
| | | | | | | | | | | | |
Total | | 2,171,205 | | | 2,196,868 | | | (25,663 | ) | | (1.2 | %) |
| | | | | | | | | | | | |
| | | | |
Palo Verde capacity factor | | 57.1 | % | | 74.7 | % | | (17.6 | %) | | | |
Four Corners capacity factor | | 89.1 | % | | 86.9 | % | | 2.2 | % | | | |
Page 13 of 16
El Paso Electric Company and Subsidiary
Twelve Months Ended December 31, 2007 and 2006
Sales and Revenues Statistics
| | | | | | | | | | | | | | |
| | | 2007 | | 2006 | | | Increase (Decrease) | |
| | | | | Amount | | | Percentage | |
MWh sales: | | | | | | | | | | | | | | |
Retail: | | | | | | | | | | | | | | |
Residential | | | 2,232,668 | | | 2,113,733 | | | | 118,935 | | | 5.6 | % |
Commercial and industrial, small | | | 2,216,428 | | | 2,159,599 | | | | 56,829 | | | 2.6 | % |
Commercial and industrial, large | | | 1,195,038 | | | 1,204,707 | | | | (9,669 | ) | | (0.8 | %) |
Sales to public authorities | | | 1,384,380 | | | 1,343,129 | | | | 41,251 | | | 3.1 | % |
| | | | | | | | | | | | | | |
Total retail sales | | | 7,028,514 | | | 6,821,168 | | | | 207,346 | | | 3.0 | % |
| | | | | | | | | | | | | | |
Wholesale: | | | | | | | | | | | | | | |
Sales for resale | | | 48,290 | | | 45,397 | | | | 2,893 | | | 6.4 | % |
Off-system sales | | | 2,201,294 | | | 1,635,407 | | | | 565,887 | | | 34.6 | % |
| | | | | | | | | | | | | | |
Total wholesale sales | | | 2,249,584 | | | 1,680,804 | | | | 568,780 | | | 33.8 | % |
| | | | | | | | | | | | | | |
Total MWh sales | | | 9,278,098 | | | 8,501,972 | | | | 776,126 | | | 9.1 | % |
| | | | | | | | | | | | | | |
| | | | |
Operating revenues (in thousands): | | | | | | | | | | | | | | |
Non-fuel base revenues: | | | | | | | | | | | | | | |
Retail: | | | | | | | | | | | | | | |
Residential | | $ | 184,562 | | $ | 175,641 | | | $ | 8,921 | | | 5.1 | % |
Commercial and industrial, small | | | 168,091 | | | 161,359 | | | | 6,732 | | | 4.2 | % |
Commercial and industrial, large | | | 39,092 | | | 40,502 | | | | (1,410 | ) | | (3.5 | %) |
Sales to public authorities | | | 72,763 | | | 68,438 | | | | 4,325 | | | 6.3 | % |
| | | | | | | | | | | | | | |
Total retail non-fuel base revenues | | | 464,508 | | | 445,940 | | | | 18,568 | | | 4.2 | % |
Wholesale: | | | | | | | | | | | | | | |
Sales for resale | | | 1,919 | | | 1,794 | | | | 125 | | | 7.0 | % |
| | | | | | | | | | | | | | |
Total non-fuel base revenues | | | 466,427 | | | 447,734 | | | | 18,693 | | | 4.2 | % |
| | | | |
Fuel revenues: | | | | | | | | | | | | | | |
Recovered from customers during the period (a) | | | 197,383 | | | 225,441 | | | | (28,058 | ) | | (12.4 | %) |
Under (over) collection of fuel | | | 17,828 | | | (3,655 | ) | | | 21,483 | | | — | |
New Mexico fuel in base rates | | | 51,487 | | | 30,033 | | | | 21,454 | | | 71.4 | % |
| | | | | | | | | | | | | | |
Total fuel revenues | | | 266,698 | | | 251,819 | | | | 14,879 | | | 5.9 | % |
| | | | |
Off-system sales | | | 125,974 | | | 95,932 | | | | 30,042 | | | 31.3 | % |
Other | | | 18,328 | | | 20,970 | | | | (2,642 | ) | | (12.6 | %) |
| | | | | | | | | | | | | | |
Total operating revenues | | $ | 877,427 | | $ | 816,455 | | | $ | 60,972 | | | 7.5 | % |
| | | | | | | | | | | | | | |
| | | | |
Off-system sales (in thousands): | | | | | | | | | | | | | | |
Gross margins | | $ | 19,581 | | $ | 22,600 | | | $ | (3,019 | ) | | (13.4 | %) |
Retained margins | | | 15,514 | | | 18,261 | | | | (2,747 | ) | | (15.0 | %) |
| | | | |
Average number of retail customers: | | | | | | | | | | | | | | |
Residential | | | 315,114 | | | 308,483 | | | | 6,631 | | | 2.1 | % |
Commercial and industrial, small | | | 34,199 | | | 32,591 | | | | 1,608 | | | 4.9 | % |
Commercial and industrial, large | | | 56 | | | 58 | | | | (2 | ) | | (3.4 | %) |
Sales to public authorities | | | 4,834 | | | 4,797 | | | | 37 | | | 0.8 | % |
| | | | | | | | | | | | | | |
Total | | | 354,203 | | | 345,929 | | | | 8,274 | | | 2.4 | % |
| | | | | | | | | | | | | | |
| | | | |
Number of retail customers (end of period): | | | | | | | | | | | | | | |
Residential | | | 317,091 | | | 311,923 | | | | 5,168 | | | 1.7 | % |
Commercial and industrial, small | | | 35,147 | | | 32,950 | | | | 2,197 | | | 6.7 | % |
Commercial and industrial, large | | | 53 | | | 58 | | | | (5 | ) | | (8.6 | %) |
Sales to public authorities | | | 4,853 | | | 4,800 | | | | 53 | | | 1.1 | % |
| | | | | | | | | | | | | | |
Total | | | 357,144 | | | 349,731 | | | | 7,413 | | | 2.1 | % |
| | | | | | | | | | | | | | |
| | | | |
| | | | | | | | 10 Yr Average | | | | |
Weather statistics | | | | | | | | | | | | | | |
Heating degree days | | | 2,286 | | | 2,020 | | | | 2,329 | | | | |
Cooling degree days | | | 2,512 | | | 2,457 | | | | 2,525 | | | | |
| (a) | Excludes $22.9 million and $56.9 million, respectively of prior periods deferred fuel revenues recovered through Texas fuel surcharges. |
Page 14 of 16
El Paso Electric Company & Subsidiary
Twelve Months Ended December 31, 2007 and 2006
Generation and Purchased Power Statistics
| | | | | | | | | | | | |
| | | 2007 | | | 2006 | | | Increase (Decrease) | |
| | | | | Amount | | | Percentage | |
Generation and purchased power (MWh): | | | | | | | | | | | | |
Palo Verde | | 4,229,915 | | | 3,793,728 | | | 436,187 | | | 11.5 | % |
Four Corners | | 714,164 | | | 827,181 | | | (113,017 | ) | | (13.7 | %) |
Gas plants | | 2,763,016 | | | 2,287,097 | | | 475,919 | | | 20.8 | % |
| | | | | | | | | | | | |
Total generation | | 7,707,095 | | | 6,908,006 | | | 799,089 | | | 11.6 | % |
Purchased power | | 2,188,904 | | | 2,208,661 | | | (19,757 | ) | | (0.9 | %) |
| | | | | | | | | | | | |
Total available energy | | 9,895,999 | | | 9,116,667 | | | 779,332 | | | 8.5 | % |
Line losses and Company use | | 617,901 | | | 614,695 | | | 3,206 | | | 0.5 | % |
| | | | | | | | | | | | |
Total | | 9,278,098 | | | 8,501,972 | | | 776,126 | | | 9.1 | % |
| | | | | | | | | | | | |
| | | | |
Palo Verde capacity factor | | 78.5 | % | | 70.4 | % | | 8.1 | % | | | |
Four Corners capacity factor | | 78.4 | % | | 90.8 | % | | (12.4 | %) | | | |
Page 15 of 16
El Paso Electric Company and Subsidiary
Financial Statistics
At December 31, 2007 and 2006
(In thousands, except number of shares, book value per share, and ratios)
| | | | | | | | |
Balance Sheet | | 2007 | | | 2006 | |
Cash and temporary investments | | $ | 24,976 | | | $ | 40,101 | |
| | | | | | | | |
| | |
Common stock equity (a) | | $ | 666,459 | | | $ | 579,675 | |
Long-term debt, net of current portion | | | 590,894 | | | | 590,865 | |
Financing obligations, net of current portion | | | 64,217 | | | | 25,265 | |
| | | | | | | | |
Total capitalization | | $ | 1,321,570 | | | $ | 1,195,805 | |
| | | | | | | | |
| | |
Current portion of long-term debt and financing obligations | | $ | 18,798 | | | $ | 20,975 | |
| | | | | | | | |
| | |
Number of shares—end of period | | | 45,149,659 | | | | 45,994,900 | |
| | | | | | | | |
| | |
Book value per common share | | $ | 14.76 | | | $ | 12.60 | |
| | | | | | | | |
| | |
Common equity ratio | | | 49.7 | % | | | 47.6 | % |
Debt ratio | | | 50.3 | % | | | 52.4 | % |
| (a) | Includes an adjustment recorded in the first quarter of 2007 to increase Retained Earnings by $1.9 million related to the implementation of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.” |
Page 16 of 16
