UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
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 No. 2-97230
TEXAS-NEW MEXICO POWER COMPANY
(Exact name of registrant as specified in its charter)
TEXAS 75-0204070
(State of incorporation) (I.R.S. Employer Identification Number)
4100 International Plaza
P. O. Box 2943
Fort Worth, Texas
76113
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 817-731-0099
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Registrant is reporting pursuant to Section 15(d) of the Act:
Title of Each Class of Securities
First Mortgage Bonds:
Series M, 8.7% due 2006, Series R, 10.0% due 2017, Series S, 9.625% due 2019,
Series T, 11.25% due 1997 and Series U, 9.25% due 2000.
Secured Debentures:
12.5% due 1999
Series A, 10.75% due 2003
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 11, 1994, all 10,705 shares of the Registrant's outstanding Common
Stock ($10 par value) were held, beneficially and of record, by the Registrant's
parent, TNP Enterprises, Inc.
<page >
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
PART 1
Item 1. BUSINESS.
General Development of Business
Texas - New Mexico Power Company
Texas-New Mexico Power Company (Utility) is a public utility engaged in
the generation, purchase, transmission, distribution and sale of
electricity to customers within the States of Texas and New Mexico. The
Utility is qualified to do business as a foreign corporation in the State
of Arizona. Business conducted in Arizona is limited to ownership as
tenant-in-common with two other electric utility corporations in a 345-KV
electric transmission line which transmits electrical energy into New
Mexico for sale to customers in New Mexico.
The Utility is the principal subsidiary of TNP Enterprises, Inc. (TNPE),
a Texas corporation which owns all of the Utility's common stock. TNPE
also files a Form 10-K. The Utility and TNPE are holding companies as
defined in the Public Utility Holding Company Act but each is exempt from
regulation as a "registered holding company" as defined in said act.
The Utility is subject to regulation by the Public Utility Commission of
Texas (PUCT) and the New Mexico Public Utility Commission (NMPUC). The
Utility is subject in some of its activities, including the issuance of
securities, to the jurisdiction of the Federal Energy Regulatory
Commission (FERC), and its accounting records are maintained in
accordance with the FERC Uniform System of Accounts.
The Utility has two wholly owned subsidiaries, Texas Generating Company
(TGC), organized in 1988, and Texas Generating Company II (TGC II),
organized in 1991. All financial information presented herein or
incorporated by reference is on a consolidated basis and all intercompany
transactions and balances have been eliminated.
TNP One
Prior to 1990, the Utility purchased virtually all of its electric
requirements, primarily from other utilities. In an effort to diversify
its energy and fuel sources, the Utility contracted with a consortium
consisting of Westinghouse Electric Corporation, Combustion Engineering,
Inc. and H. B. Zachry Company to construct TNP One. TNP One is a two-
unit lignite-fueled, circulating fluidized bed generating plant in
Robertson County, Texas. Unit 1 and Unit 2 of TNP One together provide,
on an annualized basis, approximately 30% of the Utility's electric
capacity requirements in Texas. The Utility acquired Unit 1 on July 20,
1990, and Unit 2 on July 26, 1991, through TGC and TGC II, respectively.
The Utility operates the two units and sells the output of TNP One to its
Texas customers. Unit 1 began commercial operation on September 12,
1990, and Unit 2 on October 16, 1991. As of December 31, 1993, the costs
of Unit 1 and Unit 2 were approximately $357 million and approximately
$282.9 million, respectively. Portions of the costs were funded by the
Utility, with the majority of the costs borrowed by TGC and TGC II under
separate financing facilities for the two units, which are guaranteed by
the Utility.
Regulatory Proceedings
The Utility has received rate orders from the PUCT placing the majority
of the costs of each of the two units of TNP One in rate base. The
Utility and other parties to the proceedings have appealed both orders.
For a review of the history of the two rate proceedings and the pending
judicial proceedings, see Item 3, "Legal Proceedings" and note 5 to the
consolidated financial statements. See note 2 to the consolidated
financial statements for a discussion of the financings of the two units
including, during 1993, substantial reduction of the TNP One construction
indebtedness and extension of the payment schedule for the remaining
balance of the construction debt. For a discussion of the effects of the
construction and financing of TNP One on the Utility's financial
condition, including the detrimental regulatory treatment received to
date, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<page 2>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Financial Information About Industry Segments
1993 1992 1991
Operating Revenues
(thousands of dollars):
Residential $193,484 175,885 176,651
Commercial 138,680 128,550 119,745
Industrial 124,474 121,027 128,356
Other 17,604 18,365 16,591
Total $474,242 443,827 441,343
Sales
(thousand kilowatt-hours):
Residential 2,047,360 1,947,593 2,017,349
Commercial 1,567,083 1,499,927 1,485,211
Industrial 2,567,552 2,508,837 2,798,369
Other 104,882 109,954 115,406
Total 6,286,877 6,066,311 6,416,335
Number of customers
(at year-end):
Residential 181,298 178,154 174,859
Commercial 30,235 30,359 30,300
Industrial 141 155 160
Other 237 229 230
Total 211,911 208,897 205,549
Kilowatt-hour (KWH) sales in 1993 were assisted by more typical weather
experienced in 1993 as compared to 1992. KWH sales declined in 1992 from
1991 due in part to milder than normal temperatures in the Utility's
service area in Texas; however, revenues were approximately the same for
the two years due primarily to an increase in the Utility's Texas
customers' rates in 1992. Also contributing to the sales decline was the
failure of new customers and revenues to materialize as expected within
the industrial class to ameliorate the loss of KWH sales to certain
industrial customers. During 1993, the number of industrial customers
decreased by 14, but that decrease included the consolidation of 10
customers into 2 customers for billing purposes and the reclassification
of 3 customers to the commercial class of customers.
See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," for a discussion of the changes in operating
revenues, including rate increases.
It is not possible to attribute operating profit or loss and identifiable
assets to each of the classes of customers listed in the above table.
Narrative Description of Business
The Utility purchases and generates electricity for sales to its
customers wholly within the States of Texas and New Mexico. The
Utility's purchases of electricity are primarily from other utilities and
cogenerators (see "Sources of Energy" in this section). The Utility's
current generation of electricity is from TNP One.
The Utility owns and operates electric transmission and distribution
facilities in 90 municipalities and adjacent rural areas in Texas and New
Mexico. The areas served contain a population of approximately 616,000.
The Utility's service is delivered to customers in four operating
divisions in Texas and one operating division in New Mexico.
<page 3>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
The Utility's Southeast Division, on the Texas Gulf Coast, is adjacent to
the Johnson Space Center and lies between the cities of Houston and
Galveston. The economy is supported by the oil and petrochemical
industries, agriculture and the general commercial activity of the
Houston area. This division produced 49.5% of the total operating
revenues in 1993. The Utility's Northern Division is based in
Lewisville, just north of the Dallas-Fort Worth International Airport,
and extends to include municipalities along the Red River and in the
Texas Panhandle. This division serves a variety of commercial,
agricultural and petroleum industry customers and produced 19.5% of the
Utility's revenues in 1993. The economy of the Utility's New Mexico
Division is primarily dependent upon mining and agriculture. Copper
mines are the major industrial customers in the New Mexico Division.
This division produced 16.8% of the total operating revenues in 1993.
The Utility's Central Division includes municipalities and communities
located to the south and west of Fort Worth. This area's economy is
largely dependent on agriculture and to lesser degrees tourism and oil
production. In far west Texas, between Midland and El Paso, the
Utility's Western Division serves municipalities whose economies are
primarily related to oil and gas production, agriculture and food
processing.
The Utility serves and intends to continue serving members of the public
in all of its present service areas. The Utility will construct
facilities as needed to meet increasing demand for its service. The
Utility will also extend service beyond its present service territories
to the extent permitted by law and the orders of regulatory commissions.
For a description of the properties utilized to provide this service, see
Item 2, "Properties."
Operating Revenues
Revenues contributed by the Utility's operating divisions in 1993, 1992
and 1991 and the corresponding percentages of total operating revenues
are shown below:
1993 1992 1991
Operating Revenues Revenues Revenues
Division (000's) %'s (000's) %'s (000's) %'s
Central $39,460 8.3% $35,421 8.0% $34,625 7.8%
Northern 92,265 19.5 83,626 18.9 84,227 19.1
Southeast 234,895 49.5 222,460 50.1 220,581 50.0
Western 28,084 5.9 27,193 6.1 27,487 6.2
New Mexico 79,538 16.8 75,127 16.9 74,423 16.9
Total $474,242 100.0% $443,827 100.0% $441,343 100.0%
In 1993, 1992 and 1991, no single customer accounted for greater than 10%
of operating revenues, although the Utility has two affiliated industrial
customers in the New Mexico Division which, together, contributed between
8% and 10% of the Utility's revenues in each of these years.
Sources of Energy
The Utility obtained its electric energy requirements during the year
ended December 31, 1993, from sources shown in the following table.
<page 4>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Sources of Energy
Year of Percent
Contract of Energy Fuel
Sources* Area Served Expiration Required Source
TEXAS
Generation
TNP One Texas Gulf Coast, - 45.2% Texas Lignite
Central & (Western Coal,
Northern Texas Petroleum Coke &
Natural Gas
Capabilities)
Purchased Power
Clear Lake Cogeneration Texas Gulf Coast 2004 23.5 Natural Gas
Limited Partnership (Oil Standby)
Texas Utilities Electric Company** Central, Northern 2006 & 22.7 Natural Gas, Lignite
(Subsidiary of Texas & West Texas2010 & Nuclear
Utilities Company) (Oil Standby)
Houston Lighting & Power Texas Gulf Coast 2001 4.0 Natural Gas, Coal,
Company (Subsidiary of Lignite, Nuclear
Houston Industries, Inc.) & Cogeneration
(Oil Standby)
West Texas Utilities West Texas 2005 2.5 Natural Gas &
Company (Subsidiary Coal
of Central and South (Oil Standby)
West Corp.)
Southwestern Public Texas Panhandle 2005 2.1 Coal & Natural Gas
Service Company (Oil Standby)
Total 100.0%
NEW MEXICO
Purchased Power
El Paso Electric Southwest 2002 47.9% Coal, Natural Gas,
Company New Mexico Oil & Nuclear
Southwestern Public South Central 2001 22.2 Coal & Natural Gas
Service Company New Mexico (Oil Standby)
Public Service South Central & 2006 16.6 Coal, Natural Gas
Company of Southwest & Nuclear
New Mexico New Mexico (Oil Standby)
Other South Central & Various 13.3 Coal, Natural Gas,
Southwest Oil &
New Mexico Cogeneration
Total 100.0%
* The Utility also has a continual contract with Union Carbide to provide
energy from natural gas sources for the Texas Gulf Coast. This source did
not contribute to the percent of energy required in 1993.
** Except as to one point of delivery, a major source of supply under the
contract with an expiration date of 2010, the contract expires in 2006.
<page 5>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
The Utility's future load growth is considered by the Utility and its
suppliers in planning their future construction expenditures based on
projections or official contract notifications furnished to its
suppliers by the Utility. Currently the resources of TNP One and the
suppliers' availability of lignite-, coal-, nuclear-, and gas-fired
units are adequate to assure projected requirements for power.
To the extent the Utility's suppliers experience delays or increases in
the costs of construction of new generating facilities, additional
costs of complying with regulatory and environmental laws, or increases
in the cost of fuel or shortages in fuel supplies, the availability and
cost of energy to the Utility will likewise be affected for that
portion of supply purchased by the Utility. The Utility does not
expect that the factors discussed in this section will result in the
inability of its suppliers to provide the portions of power
requirements to be purchased by the Utility.
Terminations of service by those suppliers regulated by the FERC (El
Paso Electric Company, Southwestern Public Service Company, West Texas
Utilities Company and Public Service Company of New Mexico) would
require authorization by that commission. The Utility anticipates
renewing and amending its purchased power contracts with its suppliers
as necessary. As a result of the Utility's efforts in contracting for
lower costs of purchased power, the Utility's New Mexico customers are
expected to benefit from a scheduled decrease of approximately $7.1
million in annualized firm purchased power costs in 1994, the effect of
which will be reduced by a $400,000 increase in base rates.
In 1990 and 1991, the Utility commenced replacing portions of its Texas
purchased power requirements when Unit 1 and Unit 2, respectively,
became operational. Beginning in 1992, the full effect of the electric
generation of both units was realized. Provisions in the contracts
with Texas Utilities Electric Company and Houston Lighting & Power
Company allow for reductions in future purchased power commitments.
Power generated at TNP One is transmitted over the Utility's own
transmission line to other utilities' transmission systems for delivery
to the Utility's Texas service area systems. To aid in maintaining a
reliable supply of power for its customers and to coordinate
interconnected operations, the Utility is a member of the Electric
Reliability Council of Texas (ERCOT), the Inland Power Pool and the New
Mexico Power Pool. See Item 3, "Legal Proceedings," Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and notes 2 and 5 to the consolidated financial
statements for additional information about TNP One.
Recovery of Purchased Power and Fuel Costs
The Utility expects to refund or collect within two months or less
those amounts of total purchased power costs (including supplier fuel
costs) billed to the Utility from suppliers that are over- or under-
collected in the current month. Purchased power cost recovery
adjustment clauses in the Utility's rate schedules have been authorized
by the regulatory authorities in Texas and New Mexico. A fixed fuel
recovery factor in Texas has also been approved. Both are of
substantial benefit to the Utility in efforts to recover timely and
adequately these significant elements of operating expenses as
described in note 1(g) to the consolidated financial statements.
Franchises
The Utility holds franchises from each of the 90 municipalities in
which it renders electric service. On December 31, 1993, these
franchises had expiration dates varying from 1994 to 2039, 86 having
stated terms of 25 years or more and two having stated terms of 20
years and two having stated terms of 15 years. The Utility also holds
certificates of public convenience and necessity from the PUCT covering
all of the territories it serves in Texas. The Utility has been issued
certificates for other areas after hearings before the PUCT. These
certificates include terms which are customary in the public utility
industry. In New Mexico, the Utility operates generally under the
grandfather clause of that state's Public Utility Act which authorizes
the continuance of existing service following the date of the adoption
of such act.
Seasonality of Business
The Utility's business is seasonal in character. Summer weather causes
increased use of air-conditioning equipment which produces higher
revenues during the months of June, July, August and September. For
the year ended December 31, 1993, approximately 40% of annual revenues
were recorded in June, July, August and September, and 60% in the other
eight months.
<page 6>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Working Capital
The Utility's major demands on working capital are (1) the monthly
payments for purchased power costs from the Utility's suppliers, (2)
monthly and semi-annual interest payments on long-term debt and (3)
semi-monthly payments for the lignite fuel source for TNP One. The
purchased power and fuel costs are eventually recovered through the
Utility's customers' rates and the purchased power and fuel costs
recovery adjustment clauses and fixed fuel factors, more fully
described in note 1(g) to the consolidated financial statements.
Unlike many other generating utilities, the Utility does not have the
requirement of maintaining a large fuel inventory (lignite) due to the
proximity of TNP One with the lignite mine site.
The Utility sells customer receivables, as do many other utilities.
The Utility sells its customer receivables to a nonaffiliated company
on a nonrecourse basis.
Competitive Conditions
As a regulated public utility, the Utility operates with little direct
competition throughout most of its service territory. Pursuant to the
Texas Public Utility Regulatory Act, the PUCT has issued to all
electric utilities in the State certificates of public convenience and
necessity authorizing them to render electric service. Rural electric
cooperatives, investor-owned electric utilities and municipally owned
electric utilities are all defined in such act as public utilities. In
72 of the 81 Texas municipalities served, the Utility has been the only
electric utility issued a certificate to serve customers within the
municipal limits. The Utility is also the only electric utility
authorized to serve customers in some of the rural areas where it has
electric facilities. In other rural areas served by the Utility, other
electric utilities have also been authorized to serve customers;
however, rural electric cooperatives may, under certain circumstances,
become exempt from the PUCT's rate regulation. Where other electric
utilities have also been certificated to serve customers within the
same service area, the Utility may be subject to competition.
From time to time, industrial customers of the Utility express interest
in cogeneration as a method of reducing or eliminating reliance upon
the Utility as a source of electric service, or to lower fuel costs and
improve operating efficiency of process steam generation. During 1993,
a major industrial customer in the Utility's Southeast Division
requested proposals for a cogeneration project for evaluation by the
customer. The Utility's operating revenues from this customer during
1993 were approximately $28 million. In January 1994, a potential
developer for the proposed project was selected by the customer. The
Utility's goal is to retain this customer and to lower overall system
operating costs through coordination with the potential developer.
Although the Utility cannot predict the ultimate outcome of the
process, the current project as proposed by the customer, and as
outlined by the potential developer, appears to present a means by
which the Utility may retain electric service to this customer, at
current levels. The Utility is actively pursuing the development of
the necessary agreements with the potential developer to further define
the degree to which electric service to this customer is retained and
overall system operating costs may be lowered.
In New Mexico, a utility subject to the jurisdiction of the NMPUC may
not extend into territory served by another utility or into territory
not contiguous to its service territory without a certificate of public
convenience and necessity from the NMPUC. Investor-owned electric
utilities and rural electric cooperatives are subject to the juris-
diction of the NMPUC.
The Energy Policy Act of 1992, adopted in October 1992, significantly
changed the U.S. energy policy, including the governing of the electric
utility industry. Among the features of this act is the creation of
Exempt Wholesale Generators and the authorization of the FERC to order,
on a case-by-case basis, wholesale transmission access. It appears
that these particular features will create competition for the
generation and supply of electricity. Management continues to evaluate
the effects of this act on the Utility. Although the act may not
affect the Utility directly, the Utility believes that this increased
competition will not have an unfavorable impact on it.
<page 7>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Environmental Requirements
Environmental requirements are not expected to materially affect
capital outlays or materially affect the Utility directly. As the
Utility's electric suppliers may be affected by environmental
requirements and resulting costs, the rates charged by them to the
Utility may be increased and thus the Utility will be affected
indirectly.
The Utility's facilities in Texas and New Mexico are regulated by
federal and state environmental agencies. These agencies have
jurisdiction over air emissions, water quality, wastewater discharges,
solid wastes and hazardous substances. The Utility maintains
continuous procedures to insure compliance with all applicable
environmental laws, rules and regulations. Various Utility activities
require permits, licenses, registrations and approvals from such
agencies. The Utility has received all necessary authorizations for
the construction and continued operation of its generation,
transmission and distribution systems.
TNP One's circulating fluidized bed technology produces "clean"
emissions, without the addition of costly scrubbers. Unit 1 and Unit 2
meet the standards of the Clean Air Act of 1990. Under this act, an
entity will be given an allotted number of allowances which permit
emissions up to a specified level. The Utility believes the allowances
received to be sufficient for the level of emissions to be created by
TNP One.
The construction costs for TNP One included approximately $89 million
for environmental protection facilities. During 1993, 1992 and 1991,
as an ongoing operation of air pollution abatement, including ash
removal, TNP One incurred expenses of approximately $2.6 million, $2.7
million and $1.9 million, respectively. The Utility anticipates
additional capital expenditures of $875,000 by 1995 for air emissions
monitoring equipment for TNP One.
The operations of the Utility are subject to a number of federal, state
and local environmental laws and regulations, which govern the storage
of motor fuels, including those regulating underground storage tanks.
In September 1988, the Environmental Protection Agency (EPA) issued
regulations that required all newly installed underground storage tanks
be protected from corrosion, be equipped with devices to prevent spills
and overfills, and have a leak detection method that meets certain
minimum requirements. The effective commencement date for newly
installed tanks was December 22, 1988. Underground storage tanks in
place prior to December 22, 1988, must conform to the new standards by
December 1998. The Utility currently estimates the cost over the next
five years to bring its existing underground storage tanks into
compliance with the EPA guidelines will be $100,000. The Utility also
has the option of removing any existing underground storage tanks.
During 1993, 1992, and 1991, the Utility incurred cleanup and testing
costs on both leaking and nonleaking storage tanks of approximately
$98,000, $89,000, and $84,000, respectively, in complying with these
EPA regulations. A change in the regulations in the State of Texas
permitted the Utility to collect in 1992 from the state environmental
trust fund $65,000 of expenditures paid in prior years.
Both states in which the Utility owns or operates underground storage
tanks have state operated funds which reimburse the Utility for certain
cleanup costs and liabilities incurred as a result of leaks in
underground storage tanks. These funds, which essentially provide
insurance coverage for certain environmental liabilities, are funded by
taxes on underground storage tanks or on motor fuels purchased within
each respective state. The funds require the Utility to pay
deductibles of less than $5,000 per occurrence. During 1992, the Texas
state environmental trust fund delayed reimbursement payments after
September 30, 1992, of certain cleanup costs due to an increase in
claims. Because the state and federal government have the right, by
law, to levy additional fees on fuel purchases, the Utility believes
these cleanup costs will ultimately be reimbursed.
Employees
The number of employees on December 31, 1993, was 1,051.
<page 8>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Item 2. PROPERTIES.
The Utility's electric properties served a total of 211,911 customers
at year-end and consisted of the installations described in the
following sections.
(1) Electric generation, transmission and distribution facilities
located in the State of Texas are as follows:
(A) Central Division. Electric transmission and distribution
systems serving 25 municipalities and 18 unincorporated
communities in 17 counties to the south and west of Fort
Worth, Texas. The division is based at Clifton, Texas.
(B) Northern Division. Electric transmission and distribution
systems serving 36 municipalities and 19 unincorporated
communities in 14 North Texas counties and 3 counties in the
Texas Panhandle. The division is based at Lewisville, Texas.
(C) Southeast Division. Electric transmission and distribution
systems serving 14 municipalities and 2 unincorporated
communities in 3 counties on the Texas Gulf Coast. The
division is based at Texas City, Texas.
(D) Western Division. Electric transmission and distribution
systems serving 6 municipalities and 1 unincorporated
community in 5 counties in West Texas. The division is based
at Pecos, Texas.
(E) Robertson County, Texas. Two 150-megawatt lignite-fueled
generating units (Unit 1 and Unit 2, collectively referred to
as TNP One) using circulating fluidized bed technology. The
Utility also has an 18-mile long transmission line to connect
TNP One to a major transmission grid in Texas.
(2) Electric generation, transmission and distribution facilities in
the State of New Mexico serve 5 municipalities and 5 unincorporated
communities in Grant and Hidalgo Counties, and 4 municipalities and
1 unincorporated community in Otero and Lincoln Counties. The New
Mexico Division is based at Silver City, New Mexico.
(3) The facilities owned by the Utility include those normally used in
the electric utility business. The facilities are of sufficient
capacity to adequately serve existing customers, and such
facilities may be extended and expanded to serve future customer
growth of the Utility in existing service areas. The Utility
generally constructs its transmission and distribution facilities
upon real property held pursuant to easements or public rights of
way and not upon real property held in fee simple by the Utility.
(4) All real and personal property of the Utility, with certain
exceptions such as much of TNP One, is subject to the lien of the
Indenture of Mortgage and Deed of Trust (Bond Indenture) under
which the Utility's First Mortgage Bonds are issued. Certain
exceptions are set forth in the Bond Indenture. The lenders in the
Unit 2 financing facility and the holders of all secured debentures
hold a second lien on all real and personal Texas property of the
Utility.
Holders of the Utility's Secured Debentures, due 1999 and Series A,
Secured Debentures, due 2003 equally and ratably hold first liens
on approximately 59% of Unit 1. The remaining amount of Unit 1
property is subject to a first lien under the Utility's Bond
Indenture and a second lien under the secured debentures'
indentures.
The lenders under the Unit 2 financing facility and the Utility's
Secured Debentures, due 1999, equally and ratably hold first liens
on approximately 74% of Unit 2. The remaining amount of Unit 2
property is subject to a first lien under the Utility's Bond
Indenture and a second lien under the secured debentures'
indentures.
Under certain conditions, upon repayment of portions of the loans
or secured debentures under the financing facilities, the Utility
may purchase undivided interests in Unit 1 or Unit 2 from TGC or
TGC II, respectively, whereupon such undivided interests become
subject to the first lien of the Utility's Bond Indenture. See
note 2 to the consolidated financial statements for additional
information.
<page 9>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Item 3. LEGAL PROCEEDINGS.
Appeals of Regulatory Orders
The following summary discusses the Utility's most recent regulatory
proceedings before the PUCT and the judicial appeals. While the
ultimate outcome of these cases and of other matters discussed below
cannot be predicted, the Utility is vigorously pursuing their favorable
conclusion. Material adverse resolution of certain of the matters
discussed below would have a material adverse impact on earnings in the
period of resolution. More detailed discussions of the proceedings and
related impacts are included in note 5 to the consolidated financial
statements and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PUCT Docket No. 9491
On April 11, 1990, the Utility filed a rate application, Docket No.
9491, with the PUCT for inclusion of the costs of Unit 1 in the
Utility's rate base and for the setting of rates to recover the costs
of that unit. On February 7, 1991, the Utility received a final order
which allowed $298.5 million of the costs of Unit 1 in rate base;
however, the PUCT disallowed from rate base $39.5 million of the
requested investment costs of $338 million for that unit. The PUCT
approved an increase in annualized revenues of approximately $36.7
million, or 67% of the Utility's original $54.9 million rate request.
The PUCT also found that the Utility failed to prove that its decision
to start construction of Unit 2 was prudent. Nevertheless, the PUCT
granted rate base treatment for Unit 2 in Docket No. 10200, as
discussed below.
On appeal by the Utility of the PUCT's order in Docket No. 9491, a
State district court in Travis County, Texas, ruled that the PUCT's
disallowance of rate base treatment for certain costs of Unit 1 was in
error and that the PUCT's "decision to deny $39,508,409 in capital
costs for TNP One Unit 1 is not supported by substantial evidence and
is arbitrary and capricious."
On appeal of the State district court's order by the Utility , the PUCT
and certain of the intervenor cities (the Cities), a Third District
Court of Appeals in Austin, Texas, rendered a judgment partially
reversing the State district court and affirming the PUCT's
disallowances for $30.4 million of the total $39.5 million. The Court
of Appeals remanded the cause to the district court with instructions
that the cause be remanded to the PUCT for proceedings not inconsistent
with the appellate opinion.
On September 9, 1993, the Utility, the Cities and the PUCT filed
motions for rehearing with the Court of Appeals. The Utility's
opponents are seeking, among other things, lower rates and greater
disallowances, and the Utility is seeking higher rates and no
disallowances. The PUCT is not expected to act upon the district
court's ordered remand, discussed above, until the appellate process,
including appeals to the Texas Supreme Court, has been completed.
Based upon the opinions of the Utility's Texas regulatory counsel,
Johnson & Gibbs, a Professional Corporation, management believes that
it will prevail in obtaining a remand of a significant portion of the
disallowances in Docket No. 9491; however, the ultimate disposition and
quantification of these items cannot presently be determined.
Accordingly, no provision for any loss that may ultimately be required
upon resolution of these matters has been made in the consolidated
financial statements.
If the Utility is not successful in obtaining a final favorable
disposition in the appellate proceedings relating to the disallowances
in Docket No. 9491, a write-off of some portion of the $39.5 million
disallowances would be required, which could result in a significant
negative impact on earnings in the period of final resolution.
<page 10>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
PUCT Docket No. 10200
On April 11, 1991, the Utility filed a rate application, Docket
No. 10200, with the PUCT for inclusion of $275.2 million of capital
costs of Unit 2 in the Utility's rate base and for the setting of rates
to recover the costs of that unit.
On March 18, 1993, the Utility received a final order which allowed
$250.7 million of the Unit 2 costs in rate base; however, the PUCT
disallowed from rate base $21.1 million associated with Unit 2 and $0.8
million additional costs requested for Unit 1. The PUCT also
determined that $11.1 million of Unit 2 costs would be addressed in a
future Texas rate application. The PUCT approved an increase in
annualized revenues of approximately $19 million, or 53% of the
Utility's original $35.8 million rate request.
The order in Docket No. 10200 also reflects application to the Utility
of a new method for calculating the amount of Federal income tax
expense allowed in cost of service, which significantly reduced the
Utility's level of annualized revenue increase from $26 million to $19
million.
The Docket No. 10200 rate order has been appealed to a Texas district
court by the Utility and other parties. Because of the Court of
Appeals judgment relating to the prudence of starting construction of
Unit 2 (FF No. 84 in the docket No. 9491), the presiding judge in the
Texas district court for the Docket No. 10200 appeal has ordered that
the procedural schedule in this appeal be abated until final resolution
of the FF No. 84 issue in Docket No. 9491. The Utility will vigorously
pursue reversal of the PUCT's new position regarding Federal income tax
expenses, in addition to seeking judicial relief from the disallowances
and certain other rulings by the PUCT in Docket No. 10200. The
opposing parties are seeking a variety of relief to obtain lower rates
and greater disallowances, including overturning the basis of the
Utility's case as presented to the PUCT and sustaining the PUCT's
adverse Federal income tax position without regard to any IRS ruling on
the normalization issue.
Based upon the opinions of the Utility's Texas regulatory counsel,
Johnson & Gibbs, a Professional Corporation, management believes that
it will prevail in obtaining a remand of a significant portion of the
disallowances in Docket No. 10200; however, the ultimate disposition
and quantification of these items cannot presently be determined.
Accordingly, no provision for any loss that may ultimately be required
upon resolution of these matters has been made in the consolidated
financial statements.
If the Utility is not successful in obtaining a final favorable
disposition in the appellate proceedings relating to the disallowances
in Docket No. 10200, a write-off of some portion of the $21.9 million
disallowances would be required, which could result in a significant
negative impact on earnings in the period of final resolution.
Other Legal Matters
The Utility is involved in various claims and other legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Utility's consolidated financial
position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders in the
fourth quarter of 1993.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
All of the Utility's issued and outstanding common stock, 10,705
shares, is privately held, beneficially and of record, by its parent,
TNPE, and is not publicly traded.
For the years ended December 31, 1993 and 1992, the Utility paid
$17,344,000, and $13,840,200, respectively, in common dividends to its
parent, TNPE. Dividends were paid on a quarterly basis. Restrictions
on the Utility's ability to pay dividends are discussed in notes 2 and
3 to the consolidated financial statements.
<page 11>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
1993 1992 1991 1990 1989
(Dollars in Thousands)
Operating revenues $474,242 443,827 441,343 397,289 378,289
Net operating income $78,240 77,003 62,565 37,069 28,534
Net earnings $11,523 10,845 19,840 15,376 15,315
Earnings available for
common stock $10,644 9,877 18,762 14,161 13,964
Total assets (1) $1,095,119 1,156,567 1,111,281 789,651 409,869
CAPITALIZATION:
Common stock equity $214,184 205,875 171,393 166,419 136,068
Redeemable cumulative
preferred stock 9,560 10,440 11,320 12,600 13,880
Long-term debt, net of
amount due within one
year (2)(3)(4) 678,994 742,087 525,060 350,301 134,893
Total capitalization $902,738 958,402 707,773 529,320 284,841
CAPITALIZATION RATIOS:
Common stock equity 23.7% 21.5 24.2 31.4 47.8
Redeemable cumulative
preferred stock 1.1 1.1 1.6 2.4 4.9
Long-term debt, net of
amount due within one
year (2)(3) 75.2 77.4 74.2 66.2 47.3
Total capitalization 100.0% 100.0 100.0 100.0 100.0
SHORT-TERM DEBT:
Long-term debt due
within one year (2)(3)(4) $1,070 10,288 201,276 78,570 516
Unsecured notes payable
to banks (3) - - 36,000 41,900 13,900
$1,070 10,288 237,276 120,470 14,416
Per common share information omitted; see Item 5.
(1) The significant increases in total assets for 1990 and 1991 reflect the
assumption of the costs of Unit 1 and Unit 2, respectively. Unit 1 and
Unit 2 are two 150-megawatt lignite-fueled generating units using
circulating fluidized bed technology. See Items 1, 2, 3 and 7 and
notes 2 and 5 to the consolidated financial statements for more
information about the units.
(2) The significant increases in long-term debt in 1990 and 1991 reflect
the assumption of the debt obligations of the financing facilities
related to Unit 1 and Unit 2, respectively. See note 2 to the
consolidated financial statements for more information about the
financing facilities.
(3) With proceeds from the issuances of long-term debt securities in
January 1992, the Utility repaid and prepaid certain amounts under the
Unit 1 and Unit 2 financing facilities and repaid a portion of
outstanding unsecured notes payable to banks.
(4) With proceeds from the issuances of long-term debt securities in
September 1993, the Utility prepaid additional amounts under the Unit 1
and Unit 2 financing facilities. See note 2 to the consolidated
financial statements for more information.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and note 5 to the consolidated financial statements
for discussion of material uncertainties which might cause the information
above not to be indicative of future financial condition or results of
operations.
<page 12>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This discussion presents management's analysis of significant factors
in the Utility's financial condition and results of operations and
should be read in conjunction with the consolidated financial
statements and notes thereto.
The Utility currently faces challenges to its financial stability as a
result of uncertainties with respect to detrimental regulatory
treatment and the servicing of debt incurred for refinancings of both
the Unit 1 and the Unit 2 financing facilities. These matters have
arisen by reason of the acquisition and operation by the Utility of TNP
One, a two-unit, 300-megawatt, lignite-fueled, circulating fluidized
bed generating facility located in Robertson County, Texas, and the
related rate proceedings in Texas which disallowed recovery in rates of
certain costs of TNP One. While the outcome of certain of these
matters, and of other matters discussed below, cannot be predicted, the
Utility is vigorously pursuing their favorable conclusion. The adverse
resolution of certain of the matters discussed below would require a
write-off of some portion of the disallowances and could result in a
significant negative impact on earnings in the period of final
resolution. The following discussion of certain regulatory proceedings
related to TNP One is essential to an analysis of the Utility's
financial condition and results of operations.
Financial Condition
TNP One Generating Units and Related Regulatory Matters
Unit 1 and Unit 2 of TNP One each supply 150 megawatts and together are
providing, on an annualized basis, approximately 30% of the Utility's
electric capacity requirements in Texas. The Utility operates the two
units and sells the output of TNP One to its Texas customers. Unit 1
began commercial operation on September 12, 1990, and Unit 2 on October
16, 1991. As of December 31, 1993, the costs of Unit 1 and Unit 2 were
$357 million and $282.9 million, respectively. The costs of the two
units were funded principally by separate financing facilities.
PUCT Docket No. 9491
On February 7, 1991, in Docket No. 9491, the Public Utility Commission
of Texas (PUCT) approved an increase in annualized revenues of
approximately $36.7 million, or 67% of the Utility's original $54.9
million rate request, primarily related to Unit 1. The PUCT's final
order allowed $298.5 million of the costs of Unit 1 in rate base;
however, the PUCT disallowed from rate base $39.5 million of the
requested investment costs of $338 million for that unit. On appeal, a
State district court overturned the disallowances and ordered the case
remanded to the PUCT for further proceedings consistent with the
court's judgment.
The Utility, the PUCT and certain intervenor cities (Cities) appealed
the State district court's judgment to a Texas Court of Appeals. On
August 25, 1993, the Court of Appeals rendered a judgment partially
reversing the State district court and affirming the PUCT's
disallowances for $30.4 million of the total $39.5 million. The Court
of Appeals remanded the cause to the district court with instructions
that the cause be remanded to the PUCT for proceedings not inconsistent
with the appellate opinion. On September 9, 1993, the Utility, the
Cities and the PUCT filed motions for rehearing with the Court of
Appeals. The PUCT is not expected to act upon the district court's
ordered remand until the appellate process, including appeals to the
Texas Supreme Court, has been completed.
Based upon the opinions of the Utility's Texas regulatory counsel,
Johnson & Gibbs, a Professional Corporation, management believes that
it will prevail in obtaining a remand of a significant portion of the
disallowances in Docket No. 9491; however, the ultimate disposition and
quantification of these items cannot presently be determined.
Accordingly, no provision for any loss that may ultimately be required
upon resolution of these matters has been made in the consolidated
financial statements.
If the Utility is not successful in obtaining a final favorable
disposition in the appellate proceedings relating to the disallowances
in Docket No. 9491, a write-off of some portion of the $39.5 million
disallowances would be required, which could result in a significant
negative impact on earnings in the period of final resolution.
For a further discussion of Docket No. 9491, see note 5 to the
consolidated financial statements.
<page 13>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
PUCT Docket No. 10200
On March 18, 1993, in Docket No. 10200, the PUCT approved an increase
in annualized revenues of $19 million, or 53% of the Utility's original
$35.8 million requested rate increase, primarily related to Unit 2.
The PUCT's order determined that the reasonable costs for Unit 2 were
$261.8 million. The PUCT allowed in rate base $250.7 million of the
$275.2 million requested for Unit 2 costs. The difference between the
$261.8 million in costs found to be prudent by the PUCT and the $282.9
million total costs of Unit 2 consisted of disallowances of
approximately $21.1 million. The PUCT also determined that $11.1
million of Unit 2 costs would be addressed in a future Texas rate
application. The PUCT also disallowed $800,000 of $16.1 million in
additional costs requested for Unit 1.
The revenue increase approved by the PUCT reflects application to the
Utility of a new method for calculating the amount of Federal income
tax expense allowed in cost of service, which had the effect of
reducing the allowed revenue increase from $26 million to $19 million.
The PUCT subsequently approved collection by the Utility of an
additional $1.6 million in annualized revenues, subject to refund, on
the condition that the Utility seek and receive from the Internal
Revenue Service (IRS) a private letter ruling supporting the Utility's
position on "normalization" rules with respect to the PUCT order
regarding Federal income tax treatment for ratemaking purposes. After
receiving PUCT approval on October 19, 1993, the Utility filed, on
October 20, 1993, a request with the IRS for a private letter ruling on
the issue of a normalization violation. The Utility expects to receive
the private letter ruling in 1994. If the private letter ruling
supports the Utility's position, the amount of revenues subject to
refund ($3.4 million at December 31, 1993) will be recognized in
operations upon receipt of the letter.
The Docket No. 10200 rate order has been appealed to a Texas district
court by the Utility and other parties. Because of the Court of
Appeals judgment relating to the prudence of starting construction of
Unit 2 (Finding of Fact No. 84 in Docket No. 9491), the presiding judge
in the Texas district court for the Docket No. 10200 appeal has ordered
that the procedural schedule in this appeal be abated until final
resolution of the Finding of Fact No. 84 issue in Docket No. 9491. The
Utility will vigorously pursue reversal of the PUCT's new position
regarding Federal income tax expenses, in addition to seeking judicial
relief from the disallowances and certain other rulings by the PUCT in
Docket No. 10200. The opposing parties are seeking a variety of relief
to obtain lower rates and greater disallowances, including overturning
the basis of the Utility's case as presented to the PUCT and sustaining
the PUCT's adverse Federal income tax position without regard to any
IRS ruling on the normalization issue.
Based upon the opinions of the Utility's Texas regulatory counsel,
Johnson & Gibbs, a Professional Corporation, management believes that
it will prevail in obtaining a remand of a significant portion of the
disallowances in Docket No. 10200; however, the ultimate disposition
and quantification of these items cannot presently be determined.
Accordingly, no provision for any loss that may ultimately be required
upon resolution of these matters has been made in the consolidated
financial statements.
If the Utility is not successful in obtaining a final favorable
disposition in the appellate proceedings relating to the disallowances
in Docket No. 10200, a write-off of some portion of the $21.9 million
disallowances would be required, which could result in a significant
negative impact on earnings in the period of final resolution.
For a further discussion of Docket No. 10200, see note 5 to the
consolidated financial statements.
Other TNP One Matters
In November 1987, the Utility entered into a fuel supply agreement with
Phillips Coal Company (Phillips), owner of a 300-million-ton lignite
reserve in Robertson County in proximity to the TNP One site, to
provide a lignite fuel source for the 38-year life of TNP One.
Phillips subsequently entered into an agreement with a subsidiary of
Peter Kiewit Sons', Inc. for development of the lignite mine by a joint
venture partnership, Walnut Creek Mining Company. Unit 1 and Unit 2
are capable of utilizing Western coal, petroleum coke and natural gas
as alternative fuel sources.
New Mexico Rate Application
In August 1993, the Utility filed an application with the New Mexico
Public Utility Commission (NMPUC) to increase its base rate revenues in
New Mexico by $1.95 million, or 2.87%, and to decrease overall its
annualized revenues by $5.13 million.
<page 14>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
On January 28, 1994, a unanimous settlement was executed by all parties
involved in the Utility's New Mexico rate application. The settlement,
if approved by the NMPUC, would increase the Utility's annual base rate
revenues in New Mexico by approximately $400,000, or 0.57%. However,
when a scheduled decrease of approximately $7.1 million in firm
purchased power costs is considered with the $400,000 increase in base
rates, the Utility's customers will receive a net decrease in their
overall rates. The overall rate decrease is influenced by the fact
that a large part of the total revenue requirements in the Utility's
New Mexico operations is related to the cost of purchased power.
The settlement provides rates that have two very positive aspects.
First, it allows the Utility to recover through the increase in base
rates the current operating cost of providing service to its customers
in New Mexico including a reasonable return on the Utility's
investments. Second, it lowers the overall rates charged to the
Utility's New Mexico customers. Subject to the successful completion
of the proceedings before the NMPUC on the settlement, the proposed
rates would become effective in the spring of 1994.
Liquidity and Capital Resources
Unit 1 and Unit 2 Financing Facilities
The Unit 1 and Unit 2 financing facilities were originally entered into
by separate subsidiaries of a construction consortium for the
construction of Unit 1 and Unit 2 of TNP One. The Unit 1 financing
facility was assumed by Texas Generating Company (TGC) on July 20,
1990. The Unit 2 financing facility was assumed by Texas Generating
Company II (TGC II) on July 26, 1991. TGC and TGC II are wholly owned
subsidiaries of the Utility.
As discussed further below, the balance of the secured notes payable of
the Unit 1 financing facility and a substantial amount of loans under
the Unit 2 financing facility were purchased or prepaid on September
29, 1993 with proceeds from the issuance of new debt securities. Such
purchases and prepayments reduced the amounts remaining to be repaid
under the Unit 2 financing facility to $147.75 million. Thereafter,
the Utility made additional unscheduled prepayments of approximately
$69 million under the Unit 2 financing facility; the Utility used
existing cash and a $15 million equity contribution from the Utility's
parent, TNP Enterprises, Inc. (TNPE), to make these additional
prepayments. At December 31, 1993, the Unit 2 financing facility
balance was $78.8 million which represents secured notes payable,
consisting of a series of renewable loans from various lenders in a
financing syndicate.
In contemplation of the prepayments of the Unit 1 and Unit 2 financing
facilities, the related credit agreements between the secured lenders
and the Utility were amended as of September 21, 1993 to facilitate the
issuance of the secured debentures, due 2003, and to extend the
maturities of the remaining loans from due dates in 1994 and 1995. The
effectiveness of the amendments was contingent upon the application of
net proceeds from the sale of the secured debentures, due 2003, and the
Series U Bonds. The extension of the maturities of the remaining loans
to be outstanding under the Unit 2 financing facility has been approved
by the Federal Energy Regulatory Commission and is subject to approval
by the NMPUC. The Utility expects to receive the necessary approval
prior to June 30, 1994, as required by the amendments. Upon the
effective date of the extension, the lenders will receive an extension
fee of 1/4 of 1% on their pro-rata share of the $147.75 million
commitment. Based upon the December 31, 1993 balance and assuming the
approvals of the extensions of the maturities under the Unit 2
financing facility, $1.6 million will be due on December 31, 1995, $3.4
million will be due on December 31, 1996, with the remaining amounts
due in two equal installments of approximately $36.9 million on
December 31, 1997 and 1998.
Under the amendments to the Unit 2 credit agreement, the Utility is
permitted to prepay up to $141.5 million of the $147.75 million
commitment under the Unit 2 financing facility and reborrow thereunder
up to the amount of such prepayments, subject to scheduled reductions
of the commitment of approximately $36.9 million each in 1996, 1997 and
1998. Such reborrowings under the Unit 2 financing facility will be
subject to compliance with the EBIT test (as described in note 2 to the
consolidated financial statements) and maintenance of an equity to
total capital ratio of 20% or more as defined in the credit agreement.
As of December 31, 1993, the unused commitment available to be borrowed
under the Unit 2 financing facility was approximately $69 million. A
commitment fee of 1/4 of 1% per annum is payable on the unused portion
of the reducing commitment.
<page 15>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
The Utility expects to file, during the first half of 1994, a Texas
application requesting an increase in annualized revenues. If the
Utility receives satisfactory results from the application, the Utility
expects to be able to repay the remaining amount due under the Unit 2
financing facility through receipt of common equity from the Utility's
parent, internal cash generation and issuance of debt. See "Capital
Resources" below for a discussion of the Utility's external sources for
acquiring capital.
Issuance of New Debt Securities
On September 29, 1993, the Utility issued $100,000,000 of 9.25% First
Mortgage Bonds, Series U (New Bonds), due 2000, and $140,000,000 of
10.75% Secured Debentures, Series A, due 2003.
Net proceeds from the issuance of the new securities and existing cash
were applied as follows: (i) $21.78 million to call the aggregate
principal amount, including redemption premiums, of Series H, I, J and
K First Mortgage Bonds, (ii) $9.14 million to reimburse the Utility's
treasury for funds used to redeem Series G First Mortgage Bonds at
maturity on July 1, 1993, (iii) $146 million to prepay or purchase all
of the outstanding secured notes payable to lenders under the Unit 1
financing facility and (iv) $75.75 million to prepay secured notes
payable under the Unit 2 financing facility. Redemption of Series H,
I, J and K First Mortgage Bonds was necessary to permit the issuance of
the $100,000,000 in New Bonds because of certain restrictions under the
Utility's first mortgage bond indenture (Bond Indenture), as discussed
below.
Supplemental indentures relating to Series H, I, J and K First Mortgage
Bonds contained a requirement that Net Earnings Available for Interest
of the Utility for 12 consecutive months out of the preceding 15 months
be at least two-and-one-half (2.5) times the aggregate amount of annual
Interest Charges on Bonded Indebtedness which gives effect to the
interest on the additional Bonds to be issued (the Interest Coverage
Ratio). Under the 2.5 times Interest Coverage Ratio required for
issuance of additional First Mortgage Bonds, only a minimal amount of
additional First Mortgage Bonds could have been issued. Under the
supplemental indentures for the series of Bonds outstanding after the
deposit of proceeds from the offering of the new securities for the
redemption of Series H, I, J and K Bonds, the Interest Coverage Ratio
was reduced to two (2) times.
Capital Requirements
The Utility's 1993 capital requirements consisted of (1) additions to
utility plant and (2) bond sinking fund payments and maturities and
preferred stock redemptions. The Utility's cash flows from operations
for 1993 were reduced by an $18 million rate refund to the appropriate
Texas customers. The refund, discussed in note 5 to the consolidated
financial statements, was related to the period from October 1991
through April 1993, during which customers were billed at bonded rates
which exceeded the finally authorized rates. During 1993, the
Utility's capital requirements were funded with cash flows from
operations (after payment of cash dividends on common and preferred
stock), excluding the rate refund funded from existing cash. Due to
the seasonal nature of the Utility's business, cash flows from
operations may fluctuate between quarters, but the Utility expects
positive cash flows from operations on an annual basis.
During the period from January 1, 1994 to December 31, 1999, the
Utility currently estimates that its total debt and preferred stock
repayments will be $349.4 million. This amount includes the repayments
in 1995, 1996, 1997 and 1998 in discharge of the $78.8 million balance
outstanding under the Unit 2 financing facility at December 31, 1993.
In addition, the Utility expects its utility plant additions to be
approximately $180.9 million during the period from January 1, 1994 to
December 31, 1999. The Utility expects the requirements for utility
plant additions will be funded internally with cash flows from
operations. The amounts and types of the foregoing requirements
through 1999, after giving effect to the extensions under the Unit 2
financing facility, assuming pending regulatory approval, are estimated
as follows:
<page 16>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Capital Requirements (1)
1994 1995 1996 1997 1998 1999 Total
(Dollars in Millions)
Preferred stock redemptions $ 0.9 0.9 0.8 0.6 0.6 0.2 4.0
Unit 2 financing facility (2) - 1.6 3.4 36.9 36.9 - 78.8
First Mortgage Bond sinking
fund payments and retirements 1.1 1.1 1.1 131.1 1.1 1.1 136.6
Secured Debentures,
due 1999 maturity. . . . . - - - - - 130.0 130.0
Total debt and preferred
stock repayments. . . . . 2.0 3.6 5.3 168.6 38.6 131.3 349.4
Utility plant additions . . 25.9 28.3 32.7 30.4 31.5 32.1 180.9
Total capital requirements $27.9 31.9 38.0 199.0 70.1 163.4 530.3
<FN>
(1) See note 2 to the consolidated financial statements for details of
the maturities of all outstanding debt.
(2) Based upon the balance outstanding at December 31, 1993.
Included in the First Mortgage Bond sinking fund payments and
retirements amount for 1997 is $130 million of First Mortgage Bonds,
Series T, which mature January 15, 1997. The Utility anticipates that
it will refinance these bonds and the Secured Debentures due in 1999
through the issuance of additional First Mortgage Bonds or other debt
securities, and/or the receipt of common equity from TNPE. The Utility
does not need additional Available Additions (described below under
"Capital Resources") in order to issue First Mortgage Bonds for the
purpose of refunding outstanding First Mortgage Bonds.
As a result of the assumption of the financing facilities for Unit 1
and Unit 2 in 1990 and 1991, respectively, and related refinancings,
the Utility's capital structure consisted of 75.2% debt, 23.7% common
equity and 1.1% preferred stock at December 31, 1993. Prior to 1990,
the Utility's capital structure contained less than 50% debt. The
Utility's long-term goal is to strive for a conservative capital
structure with a debt ratio of less than 50%.
Capital Resources
At any time, the Utility's ability to access the capital markets on a
reasonable basis or otherwise obtain needed financing for operating and
capital requirements is subject to the receipt of adequate and timely
regulatory relief and market conditions. The Utility's ability to
access the capital markets at reasonable costs will specifically be
impacted by the ultimate resolution of (1) the amount of rate relief
granted for Unit 1 and Unit 2, (2) the contested disallowances of up to
$40.3 million and $21.1 million of the costs of Unit 1 and Unit 2,
respectively, and (3) the adverse PUCT ruling concerning the treatment
of the Federal income tax component of the Utility's cost of service.
In addition to the aforementioned Unit 2 financing facility, the
Utility's external sources for acquiring capital are outlined below:
First Mortgage Bonds. Assuming an interest rate of 9.25% and
satisfactory market conditions, based upon December 31, 1993 financial
information, the Utility could have issued approximately $59 million of
additional First Mortgage Bonds under the Interest Coverage Ratio
requirement. With certain exceptions, the amount of additional First
Mortgage Bonds that may be issued is also limited by the Bond Indenture
to a certain amount of physical properties which are to be
collateralized by the first lien mortgage of the Bond Indenture
(Available Additions). Because of the issuance of the New Bonds in
September 1993, the Utility has limited ability to issue additional
First Mortgage Bonds until more Available Additions are provided upon
further repayment of amounts under the financing facilities.
Secured Debentures. The indenture, under which the Series A Secured
Debentures were issued, permits, generally, the issuance of additional
secured debentures to the extent that the proceeds from such issuance
are used to purchase an equal amount of loans under the Unit 1 and Unit
2 financing facilities.
<page 17>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Preferred Stock. Due to interest and dividend coverage tests required
for issuance of its preferred stock, the Utility cannot presently issue
any preferred stock. The Utility does not expect to have the ability
to issue preferred stock through 1996.
Receipt of Common Equity One source for repayment of the Unit 2
financing facility is anticipated to be the receipt of common equity
from TNPE. Receipt of future equity contributions by the Utility from
TNPE will be largely dependent upon TNPE's ability to issue common
stock. Since most of the assets, liabilities and earnings capability
of TNPE are those of the Utility, the ability of TNPE to issue common
stock and pay dividends will be largely dependent upon the Utility's
operations and the Utility's restrictions regarding payment of cash
dividends on its common stock.
The Utility may not pay dividends on its common stock unless all past
and current dividends on outstanding preferred stock of the Utility
have been paid or declared and set apart for payment and all requisite
sinking or purchase fund obligations for the preferred stock of the
Utility have been fulfilled. Charter provisions relating to the
preferred stock and the Bond Indenture under which First Mortgage Bonds
are issued contain restrictions regarding the retained earnings of the
Utility. At December 31, 1993, pursuant to the terms of the Bond
Indenture, approximately $12.8 million of the Utility's $38.9 million
of retained earnings was restricted. In addition, the financing
facilities place certain restrictions on the Utility's ability to pay
dividends on its common stock, unless certain threshold tests are met.
The Utility has satisfied the threshold tests since they became
effective, and the Utility does not expect that any of the
aforementioned contractual restrictions on the payment of dividends
will become operative in 1994. However, the Utility can give no
assurance that the Utility will satisfy such tests in the future.
The Utility's 1993 common stock dividends of $17.3 million exceeded
1993 earnings available for common stock of $10.6 million; however, the
Utility's retained earnings were sufficient to allow the dividends to
be paid. Contributing to the low-level of earnings in 1993 were the
lower rates from the December 1992 adverse ruling of the PUCT regarding
the Utility's Federal income tax component in its cost of service and
significant interest charges.
As discussed in "Net Earnings" under "Results of Operations",
management has implemented cost saving measures during 1993 and is
seeking equitable regulatory treatment in efforts to improve future
results of operations. Cash dividend payments are subject to approval
of the Board of Directors and are dependent, especially in the longer
term, on the Utility's and TNPE's future financial condition and
adequate and timely regulatory relief, including favorable resolution
of pending judicial appeals of rate cases.
Other Matters
Accounting for Postretirement Benefits
On January 1, 1993, the Utility implemented Statement of Financial
Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which addresses the
accounting for other postretirement employee benefits (OPEBs). For the
Utility, OPEBs are comprised primarily of health care and death
benefits for retired employees. Prior to 1993, the costs of these
OPEBs were expensed on a "pay-as-you-go" basis. Beginning in 1993,
SFAS 106 requires a change from the "pay-as-you-go" basis to the
accrual basis of recognizing the costs of OPEBs during the periods that
employees render service to earn the benefits. The 1993 accrual for
OPEBs of $2,952,000, based on adoption of SFAS 106, was $2,276,000
greater than the amount that would have been recorded under the "pay-
as-you-go" basis.
In March 1993, the PUCT issued its rules for ratemaking treatment of
OPEBs. As part of a general rate case, a utility may request OPEBs
expense in cost of service for ratemaking purposes on an accrual basis
in accordance with generally accepted accounting principles. The
PUCT's rule requires that the amounts included in rates shall be placed
in an irrevocable external trust fund dedicated to the payment of OPEBs
expenses. Based on the PUCT's rule, the Utility intends to seek
recovery of OPEBs expense attributable to its Texas jurisdiction in its
next Texas rate case.
In order to comply with the PUCT's condition for possible recovery of
OPEBs expenses, the Utility established in June 1993 a Voluntary
Employees' Beneficiary Association (VEBA) trust fund, dedicated to the
payment of OPEBs expenses. Monthly cash payments made to the VEBA,
which began in June 1993, will fund OPEBs costs for the Utility's Texas
and New Mexico operations. See note 1(j) to the consolidated financial
statements for information about the funded status of the plan.
<page 18>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
On August 23, 1993, the Utility filed a rate application with the NMPUC
which included a request for recovery of the applicable costs of OPEBs.
A stipulated agreement among the parties to the proceeding, dated
January 28, 1994, subject to approval by the NMPUC, would include such
applicable costs in the proposed New Mexico rates, beginning in 1994.
For future periods, the costs of OPEBs will be affected by changes in
the assumed interest rate and the trends in health care costs; based on
actuarial assumptions, national health care costs are expected to
increase in the future, resulting in further increases in the
Utility's costs.
Accounting for Income Taxes
On January 1, 1993, the Utility implemented Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes."
The implementation of SFAS 109 did not result in any significant charge
to operations. See note 4 to the consolidated financial statements for
details relating to the implementation of SFAS 109.
Accounting for Postemployment Benefits
The FASB has issued Statement of Financial Accounting Standards No. 112
(SFAS 112), "Employers' Accounting for Postemployment Benefits" which
addresses the accounting and reporting for the estimated costs of
benefits provided by an employer to former or inactive employees after
employment but before retirement. SFAS 112 is effective for fiscal
years beginning after December 15, 1993. The Utility estimates such
costs to be immaterial.
Effects of Inflation
The Utility does not believe that the effects of inflation, as measured
by the Consumer Price Index over the last three years, have had a
material impact on the Utility's consolidated results of operations and
financial condition.
Tax Law Change
The Omnibus Budget Reconciliation Act of 1993 was signed into law on
August 10, 1993. Beginning in 1994, the act provides for the
disallowance of certain business deductions, the effect of which is not
expected to be material for the Utility. The act also provided,
effective January 1, 1993, for a corporate income tax rate increase
from 34% to 35% to be phased in for taxable income between $10 million
and $18 million.
Results of Operations
The following table sets forth the percentage relationship of items to
operating revenues in the consolidated statements of earnings:
1993 1992 1991
Operating revenues 100.0% 100.0% 100.0%
Operating expenses:
Power purchased for resale 42.2 39.3 49.1
Fuel 9.4 10.1 5.8
Other operating and general expenses 14.6 15.8 14.8
Maintenance 2.4 2.6 2.5
Depreciation of utility plant 7.6 7.9 6.4
Taxes, other than on income 6.4 6.6 5.4
Income taxes 0.9 0.4 1.8
Total operating expenses 83.5 82.7 85.8
Net operating income 16.5 17.3 14.2
Other income, net of taxes 0.2 0.5 0.2
Earnings before interest charges 16.7 17.8 14.4
Total interest charges 14.3 15.4 9.9
Net earnings 2.4% 2.4% 4.5%
<page 19>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Operating Revenues
Operating revenues for 1993 and 1992 reflect increases of $30,415,000
and $2,484,000 over the respective prior years. The following table
presents the components of the changes in operating revenues:
<cpation>
Increase (Decrease) From Prior Year
1993 1992
(Dollars In Thousands)
Base operating revenues . . . . . . $ (1,515) (0.3)% $35,785 8.1%
Recovery of purchased power costs 25,926 5.8 (42,561) (9.6)
Recovery of fuel costs. . . . . . . (1,230) (0.3) 19,204 4.4
Customer usage. . . . . . . . . . . 8,291 1.9 (11,746) (2.7)
Other revenues. . . . . . . . . . . (1,057) (0.2) 1,802 0.4
Total . . . . . . . . . . . . . $30,415 6.9% $ 2,484 0.6%
Base operating revenues are affected primarily by changes in base rates
resulting from regulatory commission orders and the effects of
variations in sales between customer classifications.
The significant increase in base operating revenues for 1992 was
primarily attributable to bonded rates for Docket No. 10200 being
placed into effect in October 1991. The PUCT's final order approving
these rates was received on October 16, 1992 and subsequently was
amended by the PUCT in an Order on Rehearing on December 22, 1992. The
result of this Order on Rehearing was to lower the previously approved
increase in annualized revenues by approximately $7 million, from $26
million to approximately $19 million. The PUCT later increased,
subject to refund, the annualized revenues by an additional $1.6
million. Because the increase continued to be subject to a possible
refund, no additional revenues were recognized in 1992 or 1993 and such
amounts were included in revenues subject to refund in the consolidated
balance sheets. For more information regarding Docket No. 10200, see
note 5 to the consolidated financial statements.
Purchased power costs are recovered through cost recovery factor
clauses in both Texas and New Mexico. Fuel costs are recovered through
a fixed fuel factor approved by the PUCT. Recoveries of purchased
power and fuel costs are discussed further in "Operating Expenses."
Customer usage increased in 1993 due to a 3.6% increase in kilowatt-
hour (KWH) sales to residential, commercial and industrial customers.
The residential usage increase related to an increase in the number of
residential customers and warmer temperatures in the Texas service
areas; in 1992, milder than normal weather was experienced in the Texas
service areas. Commercial usage increased in the Utility's Texas
service areas as the result of general retail development in the
Northern Division and Southeast Division and the addition of a
greyhound race track in the Southeast Division. During 1993, the
number of industrial customers decreased by 14, but that decrease
included the consolidation of 10 customers into 2 customers for billing
purposes and the reclassification of 3 customers to the commercial
class of customers. The industrial usage increase in the Utility's New
Mexico service area resulted from increased consumption of an existing
mining customer and the addition of a new mining customer.
The 1992 decrease in customer usage primarily reflected a 5.46% KWH
sales decline. Part of the decrease in customer usage was attributable
to the milder than normal temperatures experienced in Texas during
1992. Also contributing to the sales decline was the failure of new
customers and revenues to materialize as expected within the industrial
class to ameliorate the loss of KWH sales to certain industrial
customers.
From time to time, industrial customers of the Utility express interest
in cogeneration as a method of reducing or eliminating reliance upon
the Utility as a source of electric service, or to lower fuel costs and
improve operating efficiency of process steam generation. During 1993,
a major industrial customer in the Utility's Southeast Division
requested proposals for a cogeneration project for evaluation by the
customer. The Utility's operating revenues from this customer during
1993 were approximately $28 million. In January 1994, a potential
developer for the proposed project was selected by the customer. The
Utility's goal is to retain this customer and to lower overall system
operating costs through coordination with the potential developer.
Although the Utility cannot predict the ultimate outcome of the
process, the current project as proposed by the customer, and as
outlined by the potential developer, appears to present a means by
which the Utility may retain electric service to this customer, at
current levels. The Utility is actively pursuing the development of
the necessary agreements with the potential developer to further define
the degree to which electric service to this customer is retained and
overall system operating costs may be lowered.
<page 20>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
For information relating to actual KWH sales, number of customers, and
revenues, see Item 1, "Financial Information about Industry Segments."
Operating Expenses
As a regulated entity, the Utility must demonstrate to the regulatory
commissions in its rate filings that its requests for recovery of
operating expenses to provide service to its customers are reasonable
and necessary. In order to provide reliable service to its customers
at reasonable rates, management endeavors to control costs through
budgeting and monitoring of operating expenses.
Commencement of commercial operations of Unit 1 in September 1990 and
Unit 2 in October 1991 led to increases in certain expenses and
interest charges over prior years; however, the Utility experienced
decreases in the potential cost of power purchased for resale as a
result of the operations of Unit 1 and Unit 2. The 1993 and 1992
levels of expenses each reflect a full year's operations of both units.
Variances in expenses from 1991 to 1992 due to a partial year's
operation of Unit 2 in 1991 are noted in the following discussion.
Power Purchased for Resale
Factors affecting the expense of power purchased for resale are (1) the
number of KWH purchased from suppliers, (2) the cost per KWH purchased,
(3) the recovery or refund of prior under- or over-collections,
respectively, of purchased power costs (deferred purchased power
costs), and (4) occasional fuel cost refunds from the Utility's
suppliers. The Utility's policy regarding the accounting for deferred
purchased power costs is discussed in note 1(g) to the consolidated
financial statements.
Power purchased for resale increased $25,926,000 in 1993, and a
decrease of $42,561,000 was experienced in 1992. The increase in
purchased power expense for 1993 was mainly due to an increase in the
average cost of KWH purchased from suppliers. Information concerning
the Utility's suppliers is disclosed in Item 1 under "Sources of
Energy." Also contributing to the increase in 1993 was an increase in
the number of KWH purchased as a result of increased customer usage,
discussed under "Operating Revenues." The decrease in 1992 resulted
from a decline in the number of KWH purchased. This KWH decrease was
caused by the replacement of purchased power with a full year's
generation of Unit 2 of TNP One and the decrease in customer usage,
discussed under "Operating Revenues." Partially offsetting the effect
of this reduction in the number of KWH purchased in 1992 was an
increase in the recovery of deferred purchased power costs.
As in 1992, the 1993 level of KWH purchases reflects a full year's
generation of TNP One; therefore, KWH purchases for 1993 and 1992 are
comparable in this respect. No significant changes in KWH purchased
resulting from TNP One's operations are expected in the future.
While costs per KWH from purchased power suppliers are not directly
controllable, wholesale rates charged by various suppliers are subject
to regulatory authority. The Utility has intervened and will continue
to intervene in suppliers' rate cases for the purpose of assuring fair
and equitable costs to its customers.
Fuel
Fuel expense decreased $629,000 in 1993, as compared to an increase of
$19,204,000 in 1992.
The decrease in recovery of fuel costs for 1993 resulted from a
slightly lower fuel cost recovery factor than that utilized in 1992.
These differing fuel factors resulted from using a factor related to
bonded rates in 1992 which was adjusted downward in 1993 to comply with
the final order in Docket No. 10200. The large increase in 1992 was
related to a full year's commercial operation of both Unit 1 and Unit
2.
Fuel expense primarily represents the recovery of fuel costs through a
fixed fuel factor set by the PUCT. The fixed fuel factor is intended
to permit the Utility to recover the cost of fuel utilized to generate
electricity sold in Texas. The factor may be changed only upon
approval of the PUCT and is expected to be adjusted for any cumulative
under- or over-recovery of fuel costs. At December 31, 1993, the
Utility had under-recovered fuel costs, including interest, of
approximately $13.6 million related to both units of TNP One. Any
requests to the PUCT for recovery of fuel costs require the Utility's
demonstration that the costs were reasonable.
<page 21>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Beginning in 1993, a filing with the PUCT for a reconciliation of fuel
costs is required if for any given period of time there is an over- or
under-recovery of fuel costs of at least 4% of revenues. Under the
PUCT's rules, the months in which utilities may initiate fuel
reconciliation proceedings are specified; for the Utility, these months
are June and December. In the event of an over- or under-recovery of
fuel costs less than the 4% threshold, a filing to adjust the fuel
factor may be made at the discretion of management. The Utility
expects to file a fuel reconciliation with its next Texas rate
application during the first half of 1994. Management will continue to
monitor its fuel cost recovery to determine the need to request a
change in its fixed fuel factor. For a discussion of the fuel supply
agreement for TNP One, see "Other TNP One Matters" under "Financial
Condition."
Other Operating and General Expenses and Maintenance
Other operating and general expenses decreased $597,000 in 1993 after
an increase of $4,716,000 in 1992. The 1993 decrease represents
primarily decreases in employee pension and thrift benefits and payroll
costs which were offset somewhat by an increase in employee
postretirement medical costs resulting from implementation of SFAS 106.
The decrease in the employee benefits for 1993 was due to an amendment
to the pension plan and the curtailment of employer thrift plan
contributions on January 1, 1993. Payroll costs declined due to a 3.2%
reduction in the number of employees.
The increase in other operating and general expenses for 1992 was due
primarily to additional wheeling costs which were incurred for a full
year's transfer of power generated by Unit 2 and to amortization of
previously deferred rate case expenses. Wheeling costs are incurred
for the transfer of TNP One power over other utilities' transmission
systems for delivery to the Utility's Texas systems. The years 1993
and 1992 reflected wheeling costs for both Unit 1 and Unit 2;
therefore, any future changes in this level of expense would be the
result of changes in monthly wheeling charges. Regarding deferred rate
case expenses, a full year's amortization was reflected in both 1993
and 1992, making them comparable in this respect; in 1994, another
year's amortization remains for the deferred rate case expenses.
As previously discussed under "Financial Condition," implementation of
SFAS 106 may lead to additional costs in the future. Other operating
and general expenses will be affected in 1994 because of a 3%
cost-of-living payroll adjustment for full-time employees effective
January 10, and the restoration of employer thrift plan contributions
scheduled to resume beginning July 1. Since the last cost-of-living
payroll adjustment granted to the Utility's employees was in 1991,
these changes were made to maintain the level of experienced personnel
necessary for providing quality service to the Utility's customers.
No significant variances have occurred in maintenance expense over the
last three years. Maintenance outages are scheduled in the first and
fourth quarters of 1994 for Unit 2 and Unit 1, respectively. Since
prior years reflect expenses for past scheduled outages of the units,
no significant increase in maintenance expense is anticipated in 1994.
Depreciation of Utility Plant
Depreciation expense increased $917,000 and $7,071,000 in 1993 and
1992, respectively. The 1993 increase was related to normal additions
to utility plant while the large increase in 1992 reflects a full
year's expense for Unit 2 and Unit 1. Future increases in depreciation
would be the result of normal utility plant additions and regulatory
approvals of changes in depreciation rates as supported by required
periodic independent studies.
Taxes, Other Than On Income
Taxes, other than on income increased $1,046,000 and $5,462,000 in 1993
and 1992, respectively. The 1993 increase related primarily to an
increase in revenue-related taxes which resulted from increased
revenues upon which the taxes are based. The increase in 1992 was
primarily related to an increase in property-related taxes resulting
from (1) a full year's expense related to Unit 2 as compared to only a
partial year in 1991 and (2) increases in the property tax rates in
Texas.
Income Taxes
Income taxes increased $2,397,000 in 1993 after a decrease of
$5,963,000 in 1992. The increase in 1993 resulted from an increase in
earnings over 1992, a decline in the regulatory-ordered amortization of
excess deferred taxes, and an increase in Federal income tax rates.
Income taxes decreased in 1992 due to the decline in net earnings
compared to 1991. For the years 1993, 1992 and 1991, the Utility
incurred tax net operating losses due to accelerated tax depreciation
deductions and increased interest charges on debt related to TNP One
and subsequent refinancings; however, payments of current income taxes
were required based on minimum tax (MT) requirements. To the extent
that the Utility is subject to MT requirements and limitations on the
utilization of available credits, payments of current Federal income
taxes are expected to be required in 1994.
<page 22>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
As discussed in "Accounting for Income Taxes" under "Financial
Condition," implementation of SFAS 109 did not result in any
significant charge to earnings. For more information regarding the
Utility's income taxes, see note 4 to the consolidated financial
statements.
As with all areas of the Utility's cost of service, recovery of income
tax expenses is expected in rates charged to customers. However, as
discussed in "PUCT Docket No. 10200" under "Financial Condition,"
uncertainties exist with respect to the Utility's Federal income tax
expense component of cost of service. The Utility is pursuing reversal
of the PUCT's adverse decisions.
Other Income, Net of Taxes
Other income, net of taxes increased in 1992 by $1,290,000 primarily
because of interest earned on short-term investments, principally
repurchase agreements and government money trusts, during the year.
Considerable cash was used in 1993 to make optional payments under the
Unit 2 financing facility thereby reducing cash available for the
aforementioned investments. This contributed to the decrease of
$901,000 in 1993.
Interest Charges
Total interest charges decreased slightly by $342,000 in 1993 after an
increase of $24,723,000 in 1992.
The slight decrease in interest on long-term debt in 1993 was the net
result of several transactions. Decreases in 1993 expense resulted
from (1) redemption of Series G First Mortgage Bonds at maturity on
July 1, 1993, (2) redemption of Series H, I, J and K First Mortgage
Bonds to permit issuance of Series U First Mortgage Bonds and (3)
prepayments made under the Unit 1 and Unit 2 financing facilities.
Partially offsetting these decreases in interest on long-term debt were
the issuances of Series U First Mortgage Bonds and Series A Secured
Debentures in September 1993.
Interest on long-term debt increased in 1992 due to the issuance in
January 1992 of $130 million of 11.25% Series T First Mortgage Bonds
and $130 million of 12.50% Secured Debentures, due in 1999. The
Utility used $194 million of the proceeds from the issuance to retire a
portion of the Unit 1 and Unit 2 financing facilities, as was required
for extended payment dates under the amended terms of the financing
facilities. The notes payable under the financing facilities had lower
interest rates than the new securities. Interest charges also
increased in 1992 due to the debt for Unit 2 being outstanding for a
full year as compared to a partial year in 1991.
In 1994, the full effects of the 1993 redemptions and new issuances are
expected to result in a net increase in interest on long-term debt.
Any changes in the interest rates or balances related to the Unit 2
financing facility in 1994 will also have an effect on long-term debt
interest.
Other interest and amortization of debt discount, premium and expense
for 1993 reflects a fourth quarter amortization of debt expense
associated with the issuances of Series U Bonds and Series A Secured
Debentures and further amendments to the Unit 1 and Unit 2 financing
facilities; therefore, an increase in this expense can be expected in
1994 due to a full year's amortization. In 1993, other interest
included interest on the provision for a refund of bonded revenues
billed in excess of the amounts allowed under Docket No. 10200.
Other interest and amortization of debt discount, premium and expense
increased during 1992 primarily as the result of the issuances of the
Series T Bonds and Secured Debentures, due 1999 discussed above, as
well as the amortization of expenses related to the amendments of the
Unit 1 and Unit 2 financing facilities. Other interest expense
increased due to the accrual of interest on the provision for a refund
of bonded revenues billed in excess of the amounts allowed in Docket
No. 10200. Partially offsetting these increases was a decrease in
interest on unsecured notes payable to banks. The Utility utilized a
portion of the proceeds from the issuance of the Series T Bonds and
Secured Debentures, due 1999 to retire $26 million of unsecured notes
payable to banks. The remaining $10 million portion of such notes was
retired in August 1992.
Allowance for borrowed funds used during construction (AFUDC) decreased
in 1992 when compared to 1991 because Unit 2 was placed in commercial
operation on October 16, 1991. AFUDC for 1991 reflected primarily the
qualified capitalization of interest on the financing facility for Unit
2 from the date of assumption (July 26, 1991) until the date Unit 2
began commercial operation.
Receipt of equity contributions and proceeds from future issuances of
debt securities are anticipated to help satisfy the scheduled
repayments of the Unit 2 financing facility. Interest rates on debt
securities are expected to be greater than those interest rates under
the financing facility. Interest rates on additional debt may be
further increased if the Utility's outstanding regulatory matters are
not satisfactorily resolved.
<page 23>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Net Earnings
Net earnings increased $678,000 in 1993 after a significant decline of
$8,995,000 in 1992.
The decline of net earnings in 1992 was due primarily to (1) the
decrease in customer usage as discussed in "Operating Revenues," (2)
the PUCT's abandonment of its long-standing methodology for
determination of the Federal income tax expense component of cost of
service in the PUCT's Order on Rehearing in Docket No. 10200 and (3)
the increases in interest expense.
The slight increase in 1993 resulted from increased KWH sales, the
effect of which was reduced by increases in depreciation expense,
taxes, other than on income and income taxes and a decrease in other
income as previously discussed. The level of 1993 net earnings also
reflects the adverse tax ruling by the PUCT, discussed above in "PUCT
Docket No. 10200" under "Financial Condition."
Early in 1993, the Utility implemented cost saving measures such as (1)
suspension of the Utility's matching contributions to the employees'
thrift plan, (2) revision to the Utility's pension plan and (3)
implementation of a general employee salary and wage freeze and
limitations on hiring new employees and replacements. These cost
saving measures more than offset the increase in expenses related to
the health care and death benefits plans resulting from implementation
of SFAS 106. With the exception of the Utility's wage-step progression
increases reactivated in April 1993, these measures continued in effect
throughout 1993. The Utility reduced its labor force by 3.2% during
1993, trimming $1.1 million from operations and maintenance expenses.
Even so, the Utility's return on common equity for 1993 and 1992 was
4.97% and 4.80%, respectively, although the Utility's rate of return
granted in Docket No. 10200 authorized a return on common equity of
13.16%. Based on the Utility's earnings for 1993 and 1992 and the
expected increases in interest on long-term debt and certain other
expenses, equitable rate relief in Texas appears to be necessary for
any significant improvement in financial results to occur during 1994.
Future regulatory treatment and court decisions regarding Docket Nos.
9491 and 10200, as previously discussed, will have a direct bearing on
future earnings.
<page 24>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Item 8. Consolidated Financial Statements and Supplementary Data.
Independent Auditors' Report
The Board of Directors
Texas-New Mexico Power Company:
We have audited the consolidated financial statements of Texas-New Mexico
Power Company (a wholly owned subsidiary of TNP Enterprises, Inc.) and
subsidiaries as listed in the accompanying index at Part IV. In connection
with our audits of the consolidated financial statements, we also have
audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texas-New
Mexico Power Company and subsidiaries as of December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in note 5 to the consolidated financial statements,
uncertainties exist with respect to the outcome of certain regulatory
matters. The ultimate outcome of these matters cannot presently be
determined. Accordingly, no provision for any loss that may ultimately be
required upon resolution of these matters has been made in the accompanying
consolidated financial statements and financial statement schedules.
As discussed in note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
As discussed in note 1(j), the Company also adopted the provisions of the
Financial Accounting Standards Board's SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions in 1993.
KPMG PEAT MARWICK
Fort Worth, Texas
January 28, 1994
<page 25>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF EARNINGS
Three Years Ended December 31, 1993
1993 1992 1991
(In Thousands)
Operating revenues (note 5) . . . . . $ 474,242 443,827 441,343
Operating expenses:
Power purchased for resale. . . . 200,183 174,257 216,818
. Fuel. . . . . . . . . . . . . . . 44,348 44,977 25,773
Other operating and general
. expenses (note 1(j)). . . . . . 69,406 70,003 65,287
Maintenance . . . . . . . . . . . 11,460 11,342 11,225
Depreciation of utility plant 36,015 35,098 28,027
Taxes, other than on income . . . 30,296 29,250 23,788
Income taxes (note 4) . . . . . . 4,294 1,897 7,860
Total operating expenses . . . 396,002 366,824 378,778
Net operating income . . . . . 78,240 77,003 62,565
Other income, net of taxes (note 4) 1,224 2,125 835
Earnings before interest charges 79,464 79,128 63,400
Interest charges:
Interest on long-term debt. . . . 63,833 63,893 44,919
Other interest and amortization of
. debt discount, premium and expense 4,411 4,539 3,266
Allowance for borrowed funds
used during construction . . . (303) (149) (4,625)
Total interest charges . . . . 67,941 68,283 43,560
Net earnings . . . . . . . . . 11,523 10,845 19,840
Dividends on preferred stocks . . . . 879 968 1,078
Earnings available for common
stock . . . . . . . . . . . . . $ 10,644 9,877 18,762
See accompanying notes to consolidated financial statements.
<page 26>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
ASSETS 1993 1992
(In Thousands)
Utility plant, at original cost (notes 2,5):
Electric plant. . . . . . . . . . . . . . . . . 1,203,636 1,184,635
Construction work in progress . . . . . . . . . 5,282 3,922
1,208,918 1,188,557
Less accumulated depreciation . . . . . . . . . 202,923 172,848
Net utility plant . . . . . . . . . . . . . 1,005,995 1,015,709
Nonutility property, at cost. . . . . . . . . . . 541 183
Current assets:
Cash and cash equivalents . . . . . . . . . . . 2,078 63,843
Customer receivables. . . . . . . . . . . . . . 764 122
Refundable income taxes . . . . . . . . . . . . - 2,870
Inventories, at the lower of average cost
or market:
. Fuel. . . . . . . . . . . . . . . . . . . . . 1,422 1,246
. Materials and supplies. . . . . . . . . . . . 7,793 7,185
Deferred purchased power and fuel costs . . . . 15,151 17,735
Accumulated deferred taxes on income (note 4) 4,251 -
Other current assets. . . . . . . . . . . . . . 1,091 985
Total current assets . . . . . . . . . . . . 32,550 93,986
Regulatory tax assets (note 4). . . . . . . . . . 16,915 -
Deferred charges (note 4) . . . . . . . . . . . . 39,118 46,689
$ 1,095,119 1,156,567
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock, $10 par value per share.
Authorized 12,000,000 shares; issued
10,705 shares . . . . . . . . . . . . . . .$ 107 107
Capital in excess of par value. . . . . . . . 175,094 160,085
Retained earnings (note 3). . . . . . . . . . 38,983 45,683
Total common stock equity. . . . . . . . . 214,184 205,875
Redeemable cumulative preferred
stocks (note 3) . . . . . . . . . . . . . . . 9,560 10,440
Long-term debt, net of amount due within
one year (note 2) . . . . . . . . . . . . . . 678,994 742,087
Total capitalization . . . . . . . . . . . 902,738 958,402
Current liabilities:
Long-term debt due within one year. . . . . . . 1,070 10,288
Accounts payable. . . . . . . . . . . . . . . . 22,450 25,809
Accrued interest. . . . . . . . . . . . . . . . 16,115 8,869
Accrued taxes (note 4). . . . . . . . . . . . . 18,006 20,136
Customers' deposits . . . . . . . . . . . . . . 4,464 4,236
Revenues subject to refund (note 5) . . . . . . 3,400 17,515
Other current and accrued liabilities . . . . . 13,404 7,932
Total current liabilities. . . . . . . . . 78,909 94,785
Customers' advances for construction. . . . . . . 169 311
Regulatory tax liabilities (note 4) . . . . . . . 20,412 -
Accumulated deferred taxes on income
(note 4). . . . . . . . . . . . . . . . . . . . 75,809 84,917
Accumulated deferred investment tax credits
(note 4). . . . . . . . . . . . . . . . . . . . 17,082 18,152
Commitments and contingencies (note 5)
$ 1,095,119 1,156,567
See accompanying notes to consolidated financial statements.
<page 27>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
AND REDEEMABLE CUMULATIVE PREFERRED STOCKS
Three Years Ended December 31, 1993
Common Stock Equity Redeemable
Capital in Cumulative
Common Stock Excess ofRetained Preferred
Shares AmountPar ValueEarnings Total Stocks
(In Thousands)
Year ended December 31, 1991:
Balance, January 1, 1991 10,705 $107 121,588 44,724 166,419 12,600
Net earnings for the year - - - 19,840 19,840 -
Dividends on preferred stocks - - - (1,078) (1,078) -
Dividends on common stock - - - (13,840) (13,840) -
Purchase and retirement of preferred
.stocks - 1,200 shares 4.65% Series B,
.600 shares 4.75% Series C, 1,200
.shares 11% Series D, 600 shares 11%
.Series E, 1,200 shares 11% Series F and
.8,000 shares 11.875% Series G - - 52 - 52 (1,280)
Balance, December 31, 1991 10,705 107 121,640 49,646 171,393 11,320
Year ended December 31, 1992:
Net earnings for the year - - - 10,845 10,845 -
Dividends on preferred stocks - - - (968) (968) -
Dividends on common stock - - - (13,840) (13,840) -
Equity contribution from parent - - 38,405 - 38,405 -
Purchase and retirement of preferred
.stocks - 1,200 shares 4.65% Series B,
.600 shares 4.75% Series C, 1,200
.shares 11% Series D, 600 shares 11%
.Series E, 1,200 shares 11% Series F and
.4,000 shares 11.875% Series G - - 40 - 40 (880)
Balance, December 31, 1992 10,705 107 160,085 45,683 205,875 10,440
Year ended December 31, 1993:
Net earnings for the year - - - 11,523 11,523 -
Dividends on preferred stocks - - - (879) (879) -
Dividends on common stock - - - (17,344) (17,344) -
Equity contribution from parent - - 15,000 - 15,000 -
Purchase and retirement of preferred
.stocks - 1,200 shares 4.65% Series B,
.600 shares 4.75% Series C, 1,200
.shares 11% Series D, 600 shares 11%
.Series E, 1,200 shares 11% Series F
.and 4,000 shares 11.875% Series G - - 9 - 9 (880)
Balance, December 31, 1993 10,705 $107 175,094 38,983 214,184 9,560
See accompanying notes to consolidated financial statements.
<page 28>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 1993
1993 1992 1991
(In Thousands)
CASH FLOWS FROM OPERATIONS:
Net earnings. . . . . . . . . . . . . . . . . . . .$ 11,523 10,845 19,840
Items not requiring cash:
Depreciation of utility plant. . . . . . . . . . 36,015 35,098 28,027
Amortization of debt expense, discount
and premium, and other deferred charges . . . . 4,939 5,667 1,227
Allowance for borrowed funds used during
construction . . . . . . . . . . . . . . . . . (303) (149) (4,625)
Deferred taxes on income. . . . . . . . . . . . . 5,515 1,347 11,540
Investment tax credit adjustments . . . . . . . . (959) (444) (2,869)
Changes in certain current assets and
` liabilities:
Customer receivables . . . . . . . . . . . . . . (642) 1,784 (1,070)
Refundable income taxes. . . . . . . . . . . . . 2,870 - 2,193
Inventories. . . . . . . . . . . . . . . . . . . (784) (451) 113
Deferred purchased power and fuel costs. . . . . 2,584 (5,493) (8,202)
Other current assets . . . . . . . . . . . . . . (106) 5,310 (4,638)
Accounts payable . . . . . . . . . . . . . . . . (3,359) (2,007) 3,271
Accrued interest . . . . . . . . . . . . . . . . 7,246 2,256 (1,865)
Accrued taxes. . . . . . . . . . . . . . . . . . (947) 3,393 7,897
Customers' deposits. . . . . . . . . . . . . . . 228 284 55
Revenues subject to refund . . . . . . . . . . . (14,115) 15,961 1,554
Other current and accrued liabilities. . . . . . 5,472 (1,642) (2,340)
Other - net . . . . . . . . . . . . . . . . . . . . (5,181) (4,048) (9,406)
TOTAL. . . . . . . . . . . . . . . . . . . . 49,996 67,711 40,702
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of
capitalized depreciation and interest. . . . . (25,998) (22,098) (29,931)
Additions to deferred charges . . . . . . . . . . . (362) (312) (12,605)
TOTAL. . . . . . . . . . . . . . . . . . . . (26,360) (22,410) (42,536)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and common stocks. . . . . . (18,223) (14,808) (14,918)
Issuances:
Equity contribution from parent. . . . . . . . . 15,000 38,405 -
Long-term debt . . . . . . . . . . . . . . . . . 240,000 271,500 32,000
Deferred expenses associated with
financings. . . . . . . . . . . . . . . . . . . (8,940) (9,124) -
Redemptions:
Preferred stocks . . . . . . . . . . . . . . . . (880) (880) (1,280)
Long-term debt . . . . . . . . . . . . . . . . . (312,358) (245,498) (574)
Short-term debt. . . . . . . . . . . . . . . . . - (36,000) (5,900)
TOTAL. . . . . . . . . . . . . . . . . . . . (85,401) 3,595 9,328
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . (61,765) 48,896 7,494
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR . . . . . . . . . . . . . . . . . . . . . . 63,843 14,947 7,453
CASH AND CASH EQUIVALENTS AT END OF YEAR. . . . . . .$ 2,078 63,843 14,947
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the years for:
Interest (net of amount capitalized) . . . . . .$ 59,028 62,130 41,708
Income taxes . . . . . . . . . . . . . . . . . . 2,388 1,185 958
<FN>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On July 26, 1991, the Utility's wholly owned subsidiary, Texas Generating
Company II, assumed ownership of TNP One, Unit 2 and assumed the related
liabilities totaling approximately $269 million. In addition, approximately
$12 million of deferred charges related to TNP One, Unit 2 was reclassified
to utility plant.
During 1992, the Utility reclassified approximately $12 million of deferred
charges to utility plant.
On January 1, 1993, the Utility recognized certain assets and liabilities
and certain reclassifications as a result of implementation of Statement of
Financial Accounting Standards No. 109 (SFAS 109). See note 4 to the
consolidated financial statements for further discussion of SFAS 109,
including amounts of these transactions.
See accompanying notes to consolidated financial statements.
<page 29>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Texas-New
Mexico Power Company (Utility) and its wholly owned subsidiaries, Texas
Generating Company (TGC) and Texas Generating Company II (TGC II). All
intercompany transactions and balances have been eliminated in
consolidation.
The Utility is a wholly owned subsidiary of TNP Enterprises, Inc. (TNPE).
The Utility is a public utility engaged in the generation, purchase,
transmission, distribution and sale of electricity within the states of
Texas and New Mexico. The Utility is subject to regulation by the Public
Utility Commission of Texas (PUCT) and the New Mexico Public Utility
Commission (NMPUC). The Utility is subject in some of its activities,
including the issuance of securities, to the jurisdiction of the Federal
Energy Regulatory Commission (FERC), and its accounting records are
maintained in accordance with the FERC's Uniform System of Accounts.
TGC and TGC II were incorporated in Texas in 1988 and 1991, respectively,
as financing entities for the assumption of ownership and liabilities
related to two 150-megawatt lignite-fueled generating units, Unit 1 and
Unit 2, respectively, collectively referred to as TNP One. The units
were constructed by a nonaffiliated consortium in Robertson County,
Texas, and are operated by the Utility under the terms of operating
agreements between the Utility and its subsidiaries. Notes 2 and 5
provide additional information about the financings and regulatory
treatments of Unit 1 and Unit 2.
(b) Utility Plant
The costs of additions to utility plant and replacement of retired units of
property are capitalized. Costs include labor, materials and similar
items and indirect charges for such items as engineering, supervision and
transportation. Property repairs and replacement of minor items of
property are included in maintenance expense.
The cost of depreciable units of plant retired or disposed of in the normal
course of business is eliminated from utility plant accounts, and such
cost plus removal expenses less salvage is charged to accumulated
depreciation. When complete operating units are disposed of, appropriate
adjustments are made to accumulated depreciation, and the resulting gains
or losses, if any, are recognized.
(c) Depreciation
Depreciation is provided on a straight-line basis over the estimated
service lives of the properties. Depreciation of utility plant, other
than transportation equipment, is charged to earnings. Depreciation of
transportation equipment is charged to earnings and property accounts in
accordance with the equipment's use.
Depreciation as a percentage of average depreciable cost was 3.00%, 3.10%
and 3.17% in 1993, 1992 and 1991, respectively.
(d) Unamortized Debt Expense, Discount and Premium on Debt
Expenses incurred in connection with the issuance of outstanding long-term
debt and discount and premium related to such debt are amortized on a
straight-line basis over the lives of the respective issues.
<page 30>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(1) Summary of Significant Accounting Policies - continued
(e) Revenues and Purchased Power
Revenues are recognized on the basis of meter readings which are made on a
monthly cycle. The Utility does not accrue revenues for power sold but
not billed at the end of an accounting period.
Power purchased is recorded on the basis of billings from suppliers; no
accrual is made for power delivered to the Utility between the dates of
such billings and the end of an accounting period.
(f) Customer Receivables
The Utility sells customer receivables to a nonaffiliated company on a
nonrecourse basis.
(g) Deferred Purchased Power and Fuel Costs
The deferral method of accounting is used for the portions of purchased
power and fuel costs which are recoverable in subsequent periods under
purchased power costs recovery adjustment clauses. These clauses provide
the ability to refund or collect, in the second succeeding month, those
amounts of purchased power costs over- or under-collected in the current
month. At December 31, 1993 and 1992, the Utility had under-recovered
purchased power costs of approximately $1,520,000 and $6,640,000,
respectively.
At December 31, 1993 and 1992, the Utility also had under-recovered fuel
costs of approximately $13,631,000 and $11,095,000, respectively, related
to TNP One. A fixed fuel factor approved by the PUCT is intended to
permit the Utility to recover the cost of fuel utilized to generate
electricity sold in Texas. The factor may be changed only upon approval
of the PUCT and is expected to be adjusted for any cumulative over- or
under-recovery of fuel costs.
(h) Allowance for Borrowed Funds Used During Construction
The applicable regulatory uniform system of accounts defines allowance for
funds used during construction as including the net cost during the
period of construction of borrowed funds used for construction purposes
and a reasonable rate on other funds when so used. In that connection,
the Utility used an accrual rate of 7.53% in 1993, 5.8% in 1992 and 8.0%
in 1991 for borrowed funds used during construction, excluding
capitalized interest related to the financing facilities.
Capitalized interest related to the financing facility for Unit 2 (note 2)
was approximately $4,234,000 in 1991. Interest was capitalized from the
date of assumption of the Unit 2 indebtedness, July 26, 1991, until the
date on which Unit 2 began commercial operation, October 16, 1991.
(i) Income Taxes
The Utility and its subsidiaries account for certain income and expense
items differently for financial reporting purposes than for income tax
purposes. Provisions for deferred income taxes are made for such
differences. As discussed in note 4, the Utility changed its method of
accounting for income taxes in 1993 to adopt the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
Investment tax credits utilized are deferred and amortized to earnings
ratably over the estimated service lives of the related assets.
<page 31>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(1) Summary of Significant Accounting Policies - continued
(i) Income Taxes - continued
The consolidated Federal income tax return filed by TNPE includes the
consolidated operations of the Utility and its subsidiaries. The amounts
of income taxes and investment tax credits recognized in the accompanying
consolidated financial statements were computed as if the Utility and its
subsidiaries filed a separate consolidated Federal income tax return, and
the amounts could differ from those recognized as a member of TNPE's
consolidated group.
(j) Employee Benefit Plans
The Utility has in effect a trusteed defined benefit retirement plan
available to employees who are 21 years of age and over and have at least
one year of service with the Utility. The Utility's funding policy is to
contribute annually at least the minimum amount required by government
funding standards, but not more than that which can be deducted for
Federal income tax purposes.
The net pension costs for 1993, 1992 and 1991 included the following
components:
1993 1992 1991
(In Thousands)
Service cost $ 1,472 2,148 1,914
Interest cost on projected
benefit obligation 4,191 4,504 4,197
Reduction for actual return on plan assets (6,126) (5,071) (12,276)
Other - net 300 258 7,706
$ (163) 1,839 1,541
The following table is a summary of the plan's funded status at
December 31, 1993 and 1992:
1993 1992
(In Thousands)
Plan assets (principally marketable
securities) at estimated fair value $ 69,763 66,643
Projected benefit obligation (including
accumulated benefit obligations for
1993 and 1992 of approximately
$55,509,000 and $43,894,000, respectively) (60,618) (58,190)
9,145 8,453
Unrecognized net asset (171) (198)
Unrecognized prior service cost (2,990) 3,668
Unrecognized net gain (9,554) (15,657)
Net pension liability (included in other
current and accrued liabilities in the
consolidated balance sheets) $ (3,570) (3,734)
<page 32>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(1) Summary of Significant Accounting Policies - continued
(j) Employee Benefit Plans - continued
The weighted average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7.15% and 4.15%, respectively, for
1993 and 8.5% and 5.75%, respectively, for 1992. The weighted average
expected long-term rate of return on plan assets for 1993 and 1992 was
9.5%. The vested benefit obligations at December 31, 1993 and 1992, were
approximately $50,457,000 and $39,757,000, respectively.
The defined benefit retirement plan was amended to change, for all
participants retiring after December 31, 1992, the determination of
average monthly compensation used in calculating the amount of retirement
benefits from the average of the three highest consecutive calendar years
to the average of the completed calendar years of compensation after
1992.
The Utility has a voluntary thrift plan, administered by a trustee, with a
provision for the Utility to contribute to the plan amounts equal to
certain percentages of amounts contributed by employees. Employees have
the option of investing their contributions and contributions of the
Utility, if any, in either, or a combination of, certain government
securities, TNPE's common stock or, since January 1, 1992, two mutual
funds. Effective January 1, 1992, the plan calls for the Utility's
contributions to be used to purchase TNPE's common stock which the
employees may later convert into investments in one or more of the other
investing options. Effective January 1, 1993, the Utility suspended its
matching contributions to the thrift plan for an indefinite period;
however, the Utility's Board of Directors has approved restoration of the
Utility's matching contributions, to be effective for employee
contributions made after June 30, 1994. The Utility's contributions to
the thrift plan amounted to approximately $1,592,000 and $1,487,000 in
1992 and 1991, respectively. Thrift plan assets included 1,471,213
shares and 1,482,490 shares of TNPE's common stock at December 31, 1993
and 1992, respectively.
On November 9, 1993, the Board of Directors of the Utility renewed forms of
employment contracts between the Utility and its officers and its other
key personnel. The principal purpose of the contracts is to encourage
retention of management and other key personnel required for the orderly
conduct of the business of the Utility during any threatened or pending
acquisition of TNPE or the Utility and during any transition of
ownership. The terms of the contracts, from date of execution, are three
years as to certain officers and managers of the Utility and two years as
to the other key personnel. Upon the expiration date of each contract,
the Utility, at its option, may extend the contract for additional three
or two year periods, as appropriate. The contracts provide for lump sum
compensation payments and other rights to the officers and the other key
personnel in the event of termination of employment or other adverse
treatment of such persons following a "change in control" of TNPE or the
Utility, which event is defined to include, among other things,
substantial changes in the corporate structure or ownership of either
entity or in the Board of Directors of either entity.
Health care and death benefits and an excess benefit plan have been
provided at minimal or no cost to retired employees. The excess benefit
plan is provided under an insurance policy arrangement and is backed by a
letter of credit which will be funded only if a change in control
occurs.
<page 33>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(1) Summary of Significant Accounting Policies - continued
(j) Employee Benefit Plans - continued
On January 1, 1993, the Utility implemented Statement of Financial
Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which addresses the
accounting for other postretirement employee benefits (OPEBs). For the
Utility, OPEBs are comprised primarily of health care and death benefits
for retired employees. Prior to 1993, the costs of these OPEBs were
expensed on a "pay-as-you-go" basis. For 1992, these costs were
approximately $760,000. Beginning in 1993, SFAS 106 requires a change
from the "pay-as-you-go" basis to the accrual basis of recognizing the
costs of OPEBs during the periods that employees render service to earn
the benefits. SFAS 106 also requires employers to recognize the costs of
benefits already earned by active employees and retirees at the date of
adoption of SFAS 106 (the transition obligation).
For the Utility, an annual accrual for OPEBs is comprised of (1) the
portion of the expected postretirement benefit obligation attributed to
employee service during that period (the service cost), (2) amortization
of the transition obligation and (3) the interest costs associated with
the total unfunded accumulated obligation for future benefits. For 1993,
these costs amounted to approximately $508,000, $934,000 and $1,510,000,
respectively. This total cost of $2,952,000 based on adoption of SFAS
106 was $2,276,000 greater than the amount of $676,000 that would have
been recorded under the "pay-as-you-go" basis. The assumed health care
cost trend rate used to measure the expected cost of benefits was 11.5%
for 1993 and is assumed to diminish to 8.4% for 1994, then trend downward
slightly each year to a level of 6% for 2003 and thereafter. The
Utility's remaining transition obligation of $17,750,000 at December 31,
1993 is to be amortized over a remaining nineteen-year period. A 1%
increase in the assumed health care cost trend rate would result in (1)
an increase of $3,235,000 in the Utility's accumulated benefit obligation
at December 31, 1993 and (2) an increase of $538,000 for 1993 in the
aggregate service and interest costs.
In March 1993, the PUCT issued its rules for ratemaking treatment of OPEBs.
As part of a general rate case, a utility may request OPEBs expense in
cost of service for ratemaking purposes on an accrual basis in accordance
with generally accepted accounting principles. The PUCT's rule includes
recovery of the transition obligation and requires that the amounts
included in rates shall be placed in an irrevocable external trust fund
dedicated to the payment of OPEBs expenses. Based on the PUCT's rule,
the Utility intends to seek recovery of OPEBs expense attributable to its
Texas jurisdiction in its next Texas rate case.
In order to comply with the PUCT's condition for possible recovery of OPEBs
expenses, the Utility established in June 1993 a Voluntary Employees'
Beneficiary Association (VEBA) trust fund, dedicated to the payment of
OPEBs expenses. Monthly cash payments made to the VEBA, which began in
June 1993, will fund the three OPEBs expense components of the Utility's
total Texas and New Mexico operations.
On August 23, 1993, the Utility filed a rate application with the NMPUC
which included a request for recovery of the applicable costs of OPEBs.
A stipulated agreement among the parties in the application, dated
January 28, 1994, subject to approval by the NMPUC, would include such
applicable costs in the proposed New Mexico rates, beginning in 1994.
<page 34>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(1) Summary of Significant Accounting Policies - continued
(j) Employee Benefit Plans - continued
The following table presents the plan's funded status reconciled with
amounts recognized in the consolidated balance sheets at December 31,
1993 and 1992:
1993 1992
(In Thousands)
Accumulated postretirement benefit obligation:
Retirees and dependents $ (15,828) (13,604)
Active employees (7,671) (5,080)
(23,499) (18,684)
Plan assets at fair value 1,297 -
Accumulated postretirement benefit
obligation in excess of plan assets (22,202) (18,684)
Unrecognized net loss 3,533 -
Unrecognized transition obligation 17,750 18,684
Accrued postretirement benefit cost
included in other current
and accrued liabilities $ (919) -
The discount rate used in determining the actuarial present value of the
accumulated postretirement benefit obligation was 7.15% and 8.50% for
1993 and 1992, respectively.
(k) Fair Values of Financial Instruments
The fair value amounts of certain financial instruments included in the
accompanying consolidated balance sheets at December 31, 1993 and 1992
were as follows:
The fair value of cash and cash equivalents approximates the carrying
amount because of the short maturity of those instruments.
The total estimated fair value of long-term debt was approximately $723
million and $755 million in 1993 and 1992, respectively. The total
estimated fair value of preferred stocks was $7.6 million and $7.7
million in 1993 and 1992, respectively. The estimated fair values of
long-term debt and preferred stocks were based on quoted market prices of
the same or similar issues.
(l) Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Utility
considers temporary cash investments with original maturities of three
months or less to be cash equivalents.
<page 35>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(2) Long-term Debt
Long-term debt outstanding was as follows:
1993 1992
(In Thousands)
First mortgage bonds:
Series G, 4.700% due 1993 $ - 9,138
Series H, 4.950 due 1995 - 3,700
Series I, 6.075 due 1996 - 3,750
Series J, 9.000 due 1999 - 7,800
Series K, 8.500 due 2001 - 6,400
Series L, 10.500 due 2000 9,840 9,960
Series M, 8.700 due 2006 8,400 8,500
Series R, 10.000 due 2017 63,700 64,350
Series S, 9.625 due 2019 20,000 20,000
Series T, 11.250 due 1997 130,000 130,000
Series U, 9.250 due 2000 100,000 -
Total 331,940 263,598
Unamortized discount, net of premium (676) (723)
First mortgage bonds, net 331,264 262,875
Secured debentures:
12.50% due 1999 130,000 130,000
Series A, 10.75% due 2003 140,000 -
270,000 130,000
Secured notes payable 78,800 359,500
Total long-term debt 680,064 752,375
Less long-term debt due within one year (1,070) (10,288)
Total long-term debt, net $ 678,994 742,087
Issuance of Additional First Mortgage Bonds and Secured Debentures
On September 29, 1993, the Utility issued $100 million of 9.25% First
Mortgage Bonds, Series U, due September 15, 2000 (New Bonds), and $140
million of 10.75% Secured Debentures, Series A, due September 15, 2003
(Debentures, due 2003).
After fees and expenses, combined net proceeds available to the Utility
from the issuances of the New Bonds and the Debentures, due 2003, and
existing cash were utilized as follows:
(a) $146 million was used to prepay or purchase all of the outstanding
secured notes payable to lenders under the Unit 1 financing facility,
as discussed below;
(b) $75.75 million was used to prepay secured notes payable under the Unit
2 financing facility, as discussed below;
(c) $21.78 million was deposited for the call for redemption of the
aggregate principal amount, including redemption premiums, of Series H,
I, J and K First Mortgage Bonds; and
(d) $9.14 million was used to reimburse the Utility's treasury for funds
used to redeem Series G First Mortgage Bonds at maturity on July 1,
1993.
<page 36>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(2) Long-term Debt - continued
Supplemental indentures relating to Series H, I, J and K First Mortgage
Bonds contained a requirement that Net Earnings Available for Interest of
the Utility for 12 consecutive months out of the preceding 15 months be
at least two-and-one-half (2.5) times the aggregate amount of annual
Interest Charges on Bonded Indebtedness which gives effect to the
interest on the additional Bonds to be issued (the Interest Coverage
Ratio). Under the 2.5 times Interest Coverage Ratio required for
issuance of additional First Mortgage Bonds, only a minimal amount of
additional First Mortgage Bonds could have been issued. Under the
supplemental indentures for the series of Bonds outstanding after the
deposit of proceeds from the offering for the redemption of Series H, I,
J and K Bonds, the Interest Coverage Ratio was reduced to two (2) times.
The maturity of Series G Bonds on July 1, 1993, and the call for
redemption of Series H, I, J and K Bonds permitted the issuance of
additional Bonds and consummation of the offering of $100 million of New
Bonds.
Amendments to the Financing Facilities
At December 31, 1992, secured notes payable represented loans issued under
two financing facilities, which were originally entered into by separate
subsidiaries of a construction consortium, for the construction of Unit 1
and Unit 2 of the TNP One generating plant. The Unit 1 financing
facility was assumed by TGC on July 20, 1990. The Unit 2 financing
facility was assumed by TGC II on July 26, 1991.
On September 29, 1993, the balance of the secured notes payable under the
Unit 1 financing facility was purchased or prepaid, and $75.75 million of
secured notes payable under the Unit 2 financing facility was prepaid,
reducing that outstanding commitment to $147.75 million; funds used for
these prepayments and purchases were provided from issuance of the New
Bonds and the Debentures, due 2003, and from existing cash, as discussed
above. Thereafter, the Utility made additional unscheduled prepayments
of approximately $69 million under the Unit 2 financing facility. The
$78.8 million balance at December 31, 1993 represents secured notes
payable under the Unit 2 financing facility, consisting of a series of
renewable loans from various lenders in a financing syndicate.
In contemplation of the prepayments of the Unit 1 and Unit 2 financing
facilities, the related credit agreements between the secured lenders and
the Utility were amended as of September 21, 1993 to facilitate the
issuance of the Debentures, due 2003, and to extend the maturities of the
remaining loans from due dates in 1994 and 1995. The effectiveness of
the amendments was contingent upon the application of proceeds from the
sale of the Debentures, due 2003, and the New Bonds. The extension of
the maturities of the remaining loans to be outstanding under the Unit 2
financing facility is subject to further approvals from the FERC and the
NMPUC. The Utility expects to receive the necessary approvals within the
period required by the amendments. Upon the effective date of the
extension, the lenders will receive an extension fee of 1/4 of 1% on
their pro-rata share of the $147.75 million commitment. Based upon the
December 31, 1993 balance and assuming the regulatory approvals of the
extensions of the maturities under the Unit 2 financing facility, $1.6
million will be due on December 31, 1995, $3.4 million will be due on
December 31, 1996, with the remaining amounts due in two equal
installments of approximately $36.9 million on December 31, 1997 and
1998.
Under the amendments to the Unit 2 credit agreement, the Utility is
permitted to prepay up to $141.5 million of the $147.75 million
commitment under the Unit 2 financing facility and reborrow thereunder up
to the amount of such prepayments, subject to scheduled reductions of the
commitment of approximately $36.9 million each in 1996, 1997 and 1998.
Such reborrowings under the Unit 2 financing facility will be subject to
compliance with the EBIT test (as described below) and maintenance of an
equity to total capital ratio of 20% or more as defined in the credit
agreement. As of December 31, 1993, the unused commitment available to
be borrowed under the Unit 2 financing facility was approximately $69
million. A commitment fee of 1/4 of 1% per annum is payable on the
unused portion of the reducing commitment.
<page 37>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(2) Long-term Debt - continued
The financing facilities contain certain covenants which, under specified
conditions, restrict the payment of cash dividends on common stock of the
Utility. The most restrictive of such covenants are an interest coverage
test and an equity ratio test. Under the interest coverage test, the
Utility may not pay cash dividends on its common stock unless its prior
twelve months' earnings (exclusive of any writedowns resulting from
actions of the PUCT, to the extent included in operating expenses) before
interest and income taxes equals or exceeds the sum of all of the
interest expense on indebtedness for the same period (said calculation,
the EBIT Test). This restriction becomes effective only after the third
consecutive calendar quarter during which the Utility does not meet the
EBIT Test and continues in effect until after the quarter in which the
Utility has met the twelve-month EBIT Test. The Utility has met the EBIT
Test at each quarterly date since this test became effective. Under the
recently required equity ratio test, the Utility may not pay cash
dividends on its common stock if, at the preceding quarterly date, the
Utility's ratio of equity capitalization to total capitalization is less
than 20%. As of December 31, 1993, this test was met.
Under the two financing facilities, interest rates were determined under
several alternative methods. During 1993, all rates at the time of each
borrowing were no higher than the prime lending rate plus a margin of 1-
3/8%. The effective costs of borrowing under the secured notes payable
were 7.23% and 5.61% at December 31, 1993 and 1992, respectively. Under
the amended Unit 2 financing facility, the margins will increase by 1/2
of 1% each year in 1994 and 1995 and by 1/4 of 1% each year in 1996, 1997
and 1998.
Additional Information
Substantially all utility plant owned directly by the Utility is subject to
the first lien of the Utility's first mortgage bond indenture, as
supplemented (the Bond Indenture). Until repaid, the holders of the
secured notes payable and of the secured debentures have a lien junior to
the first lien of the Bond Indenture on substantially all utility plant
in Texas owned directly by the Utility.
The Debentures, due 2003, are secured by a pledge by the Utility to the new
debenture trustee of a replacement note (1993 Unit 1 Replacement Note) in
an amount equal to the principal amount of the Debentures, due 2003,
purchased by the Utility from secured lenders under the Unit 1 financing
facility. The 1993 Unit 1 Replacement Note is secured ratably by the
original Unit 1 First Lien Mortgage of the Unit 1 financing facility on
the assets of TGC, the existing second mortgage lien on the Utility's
Bond Indenture trust estate assets in Texas and certain other collateral.
The Debentures, due 2003, rank pari passu with the outstanding secured
debentures, due 1999, in their Unit 1 mortgage lien on the assets of TGC
and other security interests.
The secured debentures, due 1999, are secured ratably by a 1992 Unit 1
replacement note and a 1992 Unit 2 replacement note ($65 million each),
which are in turn secured by first liens on the assets of TGC and TGC II,
respectively, and by the existing second mortgage lien on the Utility's
Bond Indenture trust estate assets in Texas and certain other collateral.
Under the terms of each financing facility, the secured notes payable and
the replacement notes are secured by related first liens on Unit 1 and
Unit 2 until undivided interests in Unit 1 and Unit 2 have been purchased
from TGC and TGC II, respectively, by the Utility, whereupon such
undivided interests become subject to the lien of the Bond Indenture. In
connection with the prepayments of the secured notes payable under the
Unit 1 and Unit 2 financing facilities in September 1993, the Utility
purchased from TGC and TGC II certain undivided direct interests in Unit
1 and Unit 2, respectively; accordingly, these interests were released
from the first liens of the financing facilities. These purchases were
in addition to interests in Unit 1 acquired by the Utility in 1992 and
1990.
<page 38>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(2) Long-term Debt - continued
As of December 31, 1993, TGC owns a 205/345 undivided interest in Unit 1
with the remaining fractional interest being owned directly by the
Utility. (The denominator of 345 represents the historical maximum
balance of $345 million that was originally borrowed under the Unit 1
financing facility; the numerator of 205 represents $205 million of
replacement notes secured by the Unit 1 First Lien Mortgage.) TGC's
interest in Unit 1 is subject to the lien of the Unit 1 First Lien
Mortgage, which secures equally and ratably the 1993 Unit 1 replacement
note of $140 million and the 1992 Unit 1 replacement note of $65 million.
As of December 31, 1993, TGC II owns a 212.75/288.50 undivided interest in
Unit 2 with the remaining fractional interest being owned directly by the
Utility. (The denominator of 288.50 represents the historical maximum
balance of $288.50 million that was originally borrowed under the Unit 2
financing facility; the numerator of 212.75 represents $212.75 million of
debt and available loan commitment that remains secured by the Unit 2
First Lien Mortgage.) TGC II's interest in Unit 2 is subject to the lien
of the Unit 2 First Lien Mortgage, which secures all remaining secured
notes payable outstanding under the Unit 2 financing facility and the
1992 Unit 2 replacement note of $65 million.
During the repayment periods, the Utility will operate and finance Unit 1
and Unit 2. Under the terms of each financing facility, upon or after
each repayment of construction debt or replacement notes by TGC or TGC II
through financings by the Utility, the Utility may purchase a
proportionate undivided direct interest in the respective unit from TGC
or TGC II to the extent such purchase is necessary to enable the Utility
to issue, from time to time, first mortgage bonds. Upon such purchase,
the undivided interest will be released from the lien of such unit's
financing facility. In any event, the Utility may not purchase and the
respective subsidiary may not transfer any undivided interest which would
cause the fraction of the undivided interest remaining subject to the
lien of the respective financing facility to be less than a certain
fraction. The numerator of such fraction is the sum of (a) the unused
commitment provided by lenders and the outstanding principal amounts owed
to the lenders under such financing facility and (b) the principal amount
of the respective replacement notes held as security for secured
debentures. The denominator of such fraction is (i) $345 million under
the Unit 1 financing facility and (ii) $288.5 million under the Unit 2
financing facility. The Utility guarantees the obligations of TGC and
TGC II under each respective financing facility.
The Utility expects, assuming adequate regulatory treatment, to be able to
repay the remaining amount due under the Unit 2 financing facility
primarily through the receipt of common equity from the Utility's parent,
internal cash generation and issuance of debt.
Based upon the December 31, 1993 balance and assuming the approvals of the
extensions of the maturities of secured notes payable under the Unit 2
financing facility, maturities and sinking fund requirements for the
Utility's long-term debt for the five years following 1993 are as
follows:
First mortgage bonds Secured notes payable
(In Thousands)
1994 $ 1,070 -
1995 1,070 1,600
1996 1,070 3,400
1997 131,070 36,900
1998 1,070 36,900
<page 39
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(3) Redeemable Cumulative Preferred Stocks
Redeemable cumulative preferred stocks (authorized 1,000,000 shares at $100
par value per share) issued by the Utility and outstanding at December
31, 1993 and 1992, with related redemption prices (at the Utility's
option), were as follows:
Series Redemption price Shares outstanding Total par value
1993 1992 1993 1992 1993 1992
(In Thousands) (In Thousands)
B 4.650% $100.000 100.000 25.2 26.4 $ 2,520 2,640
C 4.750 100.000 100.000 14.4 15.0 1,440 1,500
D 11.000 101.570 102.090 3.2 4.4 320 440
E 11.000 101.570 102.090 1.6 2.2 160 220
F 11.000 101.570 102.090 3.2 4.4 320 440
G 11.875 106.927 107.422 48.0 52.0 4,800 5,200
95.6 104.4 $ 9,560 10,440
On October 1 of each year, the Utility is required to offer to purchase
from the holders of shares in Series B and Series C, at a price not
exceeding $100 per share plus accrued dividends, a number of shares equal
to 2% of the maximum number of shares of each series outstanding at any
one time prior to August 15 of such year. In addition, the Utility is
required to redeem, at a price of $100 per share plus accrued dividends,
1,200 shares each of Series D and F and 600 shares of Series E on each
March 15 through March 1, 1996. The requirement to redeem such shares is
cumulative and totals $300,000 on an annual basis. On each June 15
through June 15, 2008, the Utility is required to redeem 4,000 shares of
Series G at a price of $100 per share plus accrued dividends; the
requirement to redeem such shares is cumulative. The holders of Series G
and/or the Utility separately have the noncumulative option for
redemption of an additional 4,000 shares on each June 15 at a price of
$100 per share plus accrued dividends.
Charter provisions relating to the preferred stocks and the Bond Indenture
under which the bonds are issued contain restrictions as to the payment
of cash dividends on common stock of the Utility. At December 31, 1993,
the amount of restricted retained earnings was approximately $12,800,000.
As discussed in note 2, terms for additional restrictions as to the
payment of common dividends became effective during 1992 and 1993 as a
result of the amended terms of the Unit 1 and Unit 2 financing
facilities.
In the event of voluntary liquidation of the Utility, holders of the
preferred stocks have a preference to the extent of amounts payable on
redemption, and in the event of involuntary liquidation, to the extent of
par plus accrued dividends.
<page 40>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(4) Income Taxes
Income taxes as set forth in the consolidated statements of earnings
consisted of the following components:
1993 1992 1991
(In Thousands)
Charged (credited) to operating
expenses:
Current:
Federal $ (356) 655 (2,652)
State 94 339 435
(262) 994 (2,217)
Deferred Federal income taxes 5,515 1,347 12,946
Investment tax credit adjustments:
Investment tax credits made
available through net
operating loss carrybacks - - (1,911)
Investment tax credits utilized 89 607 66
Amortization of accumulated
deferred investment tax credits (1,048) (1,051) (1,024)
(959) (444) (2,869)
Total 4,294 1,897 7,860
Charged to other income:
Current - Federal 622 1,095 432
Total income taxes $ 4,916 2,992 8,292
The provisions for deferred income taxes for 1992 and 1991 resulted from the
following timing differences:
1992 1991
(In Thousands)
Charged (credited) to operating expenses:
Tax depreciation in excess of
book depreciation $13,615 19,540
Deferred charges and other costs
expensed for tax purposes, net 674 1,943
Deferred purchased power and fuel costs
expensed for tax purposes 1,765 2,049
Unbilled revenues for tax purposes 519 (1,778)
Accrual for revenues subject to refund (5,069) -
Minimum tax credit (2,608) (8,085)
Amortization of excess deferred taxes (1,153) (810)
Change in deferred taxes due to tax
net operating loss (6,256) -
Other (140) 87
$1,347 12,946
<page 41>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(4) Income Taxes - continued
Total income tax expense for 1993, 1992 and 1991 was less than the amount
computed by applying the appropriate statutory Federal income tax rate to
income before income taxes. The reasons for the differences were as
follows:
1993 1992 1991
(In Thousands)
Income tax expense at statutory rate $ 5,557 4,589 9,417
Amortization of accumulated deferred
investment tax credits (1,048) (1,051) (1,024)
Amortization of excess deferred taxes (142) (1,153) (810)
State income tax 94 339 435
Effect of tax rate change 234 - -
Other - net 221 268 274
$ 4,916 2,992 8,292
The Omnibus Budget Reconciliation Act of 1993 (Act) was signed into law on
August 10, 1993. Among other provisions, the Act provided, effective
January 1, 1993, for a corporate income tax rate increase from 34% to 35%
to be phased in for taxable income between $10 million and $18 million.
Adjustments have been made to deferred tax amounts to reflect the future
reversal of temporary differences at the higher tax rate.
Under transitional rules of the Tax Reform Act of 1986, certain capital
expenditures incurred after December 31, 1985 continued to qualify for
investment tax credits (ITC). Accordingly, ITC adjustments reflect
credits for the utilized portion of ITC generated in 1990 associated with
ITC applicable to transitional property. The Utility has ITC
carryforwards for Federal income tax purposes of approximately
$18,700,000 which are available to reduce future Federal income taxes
through 2005.
The Utility generated a Federal minimum tax (MT) for the year ended
December 31, 1993. The MT resulted in a net current Federal income tax
expense of approximately $266,000, after utilization of ITC.
At December 31, 1993, the Utility has net operating loss (NOL)
carryforwards for Federal income tax purposes of approximately
$44,600,000 which are available to offset future Federal taxable income
through 2008. In addition, the Utility has minimum tax credit
carryforwards of approximately $14,900,000 which are available to reduce
future Federal regular income taxes over an indefinite period.
In order to fully realize the Federal regular tax NOL carryforwards, the
Utility will need to generate future taxable income of approximately
$44,600,000 prior to expiration of the Federal regular tax NOL
carryforwards which will begin to expire in 2006. Based on the Utility's
historical and projected pretax earnings, management believes it is more
likely than not that the Utility will realize the benefit of the Federal
regular tax NOL carryforwards existing at December 31, 1993 before such
carryforwards begin to expire in 2006. In addition, the remaining
deferred tax assets, exclusive of the MT credit carryforwards, are
considered current and expected to reverse in the next twelve months.
TNPE's consolidated Federal income tax returns for the years 1987 through
1989 have been examined by the Internal Revenue Service resulting in a
revenue agent report (RAR). The Utility's carryforwards referred to
above and the accompanying consolidated financial statements reflect
adjustments resulting from the RAR. The RAR had no effect on the
Utility's results of operations.
<page 42>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(4) Income Taxes - continued
On January 1, 1993, the Utility implemented Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes."
Prior to implementation of SFAS 109, the Utility accounted for income
taxes under Accounting Principles Board Opinion No. 11 (APB 11).
Implementation of SFAS 109 changed the method of accounting for income
taxes from the deferred method required under APB 11 to the asset and
liability method. Under the deferred method, annual income tax expense
was matched with pretax accounting income by providing deferred taxes at
the then current tax rates for timing differences between pretax
accounting income and taxable income. The objective of the asset and
liability method is to establish deferred tax assets and liabilities for
the temporary differences between the financial reporting basis and the
tax basis of assets and liabilities at enacted tax rates expected to be
in effect when such temporary differences are realized or settled. The
Utility elected to implement SFAS 109 on a prospective basis.
SFAS 109 provides that regulated enterprises are allowed to recognize
adjustments resulting from the adoption of SFAS 109 as regulatory tax
assets or liabilities if such amounts are probable of being recovered
from or returned to customers through future rates.
Deferred taxes recorded under APB 11 were attributable primarily to
differences associated with book and tax depreciation. Temporary
differences under SFAS 109 include all items considered timing
differences under APB 11, as well as certain new items including (1) a
reduction in the depreciable tax basis due to ITC, (2) ITC accounted for
under the deferred method and (3) prior flow-through treatment of tax
benefits.
Adoption of SFAS 109 has affected the consolidated balance sheet due to
deferred Federal income tax effects for temporary differences associated
with prior flow-through ratemaking accounting practices, treatment of tax
rate changes and unamortized ITC. Unamortized ITC represent amounts
being "shared" with customers as future revenue requirements are reduced
by the amortization of accumulated deferred ITC. This gives rise to a
corresponding regulatory liability to reflect the ratemaking treatment.
SFAS 109 requires the recognition of regulatory and deferred tax assets and
liabilities for the cumulative unrecognized temporary differences. The
result as of January 1, 1993 of implementing SFAS 109 was as follows (in
thousands):
December 31, January 1,
1992 Reclassifications 1993
Assets:
Deferred charges $46,689 (17,529) 29,160
Regulatory tax assets - 17,974 17,974
Accumulated deferred taxes on
income - current - 6,006 6,006
46,689 6,451 53,140
Liabilities:
Accrued taxes $20,136 (890) 19,246
Accumulated deferred taxes
on income - noncurrent 84,917 (15,852) 69,065
Regulatory tax liabilities - 23,193 23,193
$105,053 6,451 111,504
The above reclassifications resulted from the recognition of regulatory and
deferred tax assets and liabilities for the cumulative unrecognized
temporary differences, recognition of the 1992 Federal regular tax NOL
carryforward and reclassification of certain other balances to comply
with the provisions of SFAS 109. The implementation of SFAS 109 did not
result in any significant charge to operations.
<page 43>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(4) Income Taxes - continued
The tax effects of temporary differences that gave rise to significant
portions of net current accumulated deferred taxes on income and net
noncurrent accumulated deferred taxes on income at December 31, 1993 are
presented below (in thousands):
Current accumulated deferred taxes on income:
Deferred tax assets:
Unbilled revenues $ 6,914
Revenues subject to refund 1,053
Other 1,435
9,402
Deferred tax liability - Deferred purchased power and
fuel costs (5,151)
Current accumulated deferred taxes on income, net $ 4,251
Noncurrent accumulated deferred taxes on income:
Deferred tax assets:
Minimum tax credit carryforwards $ 14,890
Federal regular tax NOL carryforwards 15,679
Other 792
31,361
Deferred tax liabilities:
Utility plant, principally due to depreciation
and capitalized basis differences (101,839)
Deferred rate case expenses (2,553)
Deferred loss on reacquired debt (1,823)
Deferred accounting treatment (1,617)
Other 662
(107,170)
Noncurrent accumulated deferred taxes on income, net $ (75,809)
(5) Commitments and Contingencies
In October 1991, the second unit of TNP One, the Utility's two-unit, 300-
megawatt, circulating fluidized bed generating facility, was completed
and successfully placed in operation. At December 31, 1993, the costs of
Unit 1 totalled approximately $357 million and the costs of Unit 2
totalled approximately $282.9 million.
The Utility has received rate orders (in Docket Nos. 9491 and 10200) from
the PUCT placing the majority of the costs of the two units of TNP One in
rate base, resulting in rate increases for the Utility's Texas
customers. In Docket No. 9491, the PUCT disallowed from rate base
approximately $39.5 million of the costs of Unit 1. On appeal, a State
district court overturned the disallowances; however, a Texas Court of
Appeals rendered a judgment partially reversing the State district court.
In its October 16, 1992 rate order in Docket No. 10200, the PUCT
disallowed $21.1 million of the costs of Unit 2 . On rehearing of Docket
No. 10200, the PUCT unexpectedly reversed consistent precedent to adopt a
new methodology for calculating the amount allowed in rates for Federal
income taxes. The immediate result was a reduction in the rate increase
previously granted on October 16, 1992. Each of the rate orders is the
subject of continuing appellate process in the courts. Further detailed
information of Docket Nos. 9491 and 10200 is provided below.
<page 44>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(5) Commitments and Contingencies - continued
In litigating Docket Nos. 9491 and 10200, the Utility's opponents are
seeking, among other things, lower rates and greater disallowances, and
the Utility is seeking higher rates and no disallowances. While the
ultimate outcome of these cases and of other matters discussed below
cannot be predicted, the Utility is vigorously pursuing their favorable
conclusion. Material adverse resolution of certain of the matters
discussed below would have a material adverse impact on earnings in the
period of resolution.
PUCT Docket No. 9491
On February 7, 1991, in Docket No. 9491, the PUCT approved an increase in
annualized revenues of approximately $36.7 million, or 67% of the
Utility's original $54.9 million rate request filed in 1990. The
approval allowed $298.5 million of the costs of TNP One, Unit 1 in rate
base; however, the PUCT disallowed $39.5 million of the requested
investment costs of $338 million for that unit. Additional Unit 1 costs,
not requested in Docket No. 9491, were included in the Utility's
subsequent Texas rate request, Docket No. 10200, filed on April 11, 1991.
In Docket No. 9491 in Finding of Fact No. 84 (FF No. 84), the PUCT also
found that the Utility failed to prove that its decision to start
construction of Unit 2 was prudent. Since the costs incurred for Unit 2
construction were not at issue in the Docket No. 9491 proceeding, the
quantification of a disallowance, if any, that might result from this
finding was to be determined subsequently in Docket No. 10200.
On June 5, 1991, the Utility filed a petition in a Travis County district
court which sought to overturn the PUCT's ruling regarding the
disallowances and prudence decisions in Docket No. 9491. Certain
intervenors also appealed other aspects of the PUCT's decisions in Docket
No. 9491. On July 6, 1992, the presiding judge of the district court
signed a judgment finding that the PUCT's disallowance of rate base
treatment for certain costs of Unit 1 was in error and that the PUCT's
"decision to deny $39,508,409 in capital costs for TNP One Unit 1 is not
supported by substantial evidence and is arbitrary and capricious."
The Utility, the PUCT and certain of the intervenor cities (the Cities)
appealed the district court's judgment regarding the appeal of the PUCT's
decision in Docket No. 9491 to the Third District Court of Appeals in
Austin, Texas. The Utility's appeal related to the district court's
decision which upheld the PUCT finding that the Utility failed to prove
that its decision to start construction of Unit 2 was prudent and certain
other matters. The PUCT and the Cities sought to reinstate the
disallowances, and the Cities sought, among other things, to deny rate
base treatment and to significantly lower rates granted by the PUCT.
On August 25, 1993, the Third District Court of Appeals rendered a judgment
partially reversing the district court and affirming the PUCT's
disallowances for $30.4 million of the total $39.5 million. The Court of
Appeals judgment states that the district court erred in (1) reversing
that part of the PUCT's order disallowing "the Compressed Schedule
Payment, the Force Majeure Payment, and a portion of the increased costs
for the installation of a natural gas pipeline in Change Order No. 9,
Item 2;" (2) affirming that part of the PUCT's order dealing with the
prudence of the decision to construct Unit 2 (FF No. 84); and (3)
affirming that part of the PUCT's order that failed to pass on to
ratepayers the federal income tax savings for expenses disallowed by the
PUCT. The Court of Appeals remanded the cause to the district court with
instructions that the cause be remanded to the PUCT for proceedings not
inconsistent with the appellate opinion.
On September 9, 1993, the Utility, the Cities and the PUCT filed motions
for rehearing with the Court of Appeals. The PUCT is not expected to act
upon the district court's ordered remand, discussed above, until the
appellate process, including appeals to the Texas Supreme Court, has been
completed.
<page 45>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(5) Commitments and Contingencies - continued
Based upon the opinions of the Utility's Texas regulatory counsel, Johnson
& Gibbs, a Professional Corporation, management believes that it will
prevail in obtaining a remand of a significant portion of the
disallowances in Docket No. 9491; however, the ultimate disposition and
quantification of these items cannot presently be determined.
Accordingly, no provision for any loss that may ultimately be required
upon resolution of these matters has been made in the accompanying
consolidated financial statements.
If the Utility is not successful in obtaining a final favorable disposition
in the appellate proceedings relating to the disallowances in Docket No.
9491, a write-off of some portion of the $39.5 million disallowances
would be required, which could result in a significant negative impact on
earnings in the period of final resolution.
PUCT Docket No. 10200
On April 11, 1991, the Utility filed a rate application, Docket No. 10200,
with the PUCT for inclusion of $275.2 million of capital costs of Unit 2
and $16.1 million of additional capital costs of Unit 1 in the Utility's
rate base.
The Administrative Law Judge (ALJ) in Docket No. 10200 initially required
briefs of all parties on the issue of whether the inclusion of Unit 2 in
the Utility's rate base would be precluded by the PUCT finding in Docket
No. 9491, FF No. 84, that the Utility failed to prove that its decision
to start construction of Unit 2 was prudent. In its brief to the ALJ,
the Utility argued that FF No. 84 could not have the effect of barring
litigation in Docket No. 10200 of all aspects of Unit 2 costs, asserting
that evidence as to Unit 2 costs presented in Docket No. 9491 had been
presented for the purpose of discussion of facilities which were common
to both Unit 1 and Unit 2. The General Counsel of the PUCT argued that
the issue of the Utility's prudence as to Unit 2 was barred by FF No. 84
and requested that the Utility's entire prudence testimony in Docket No.
10200 be stricken, along with all associated schedules and exhibits.
The ALJ ruled on June 7, 1991 that the PUCT's finding in Docket No. 9491
could not be "relitigated" in Docket No. 10200. However, the ALJ
determined that the PUCT did not decide "what specific action by TNP,
instead of beginning construction when it did, would have been prudent"
and that the PUCT did not "quantify the disallowance resulting from its
finding that TNP had failed to prove that beginning construction of Unit
2 was prudent." Therefore, the ALJ concluded that the parties could
raise those particular issues in Docket No. 10200. The ALJ further
stated that, "The disallowance, if any, will be determined using
principles set forth in previous cases regarding prudence." The ALJ
determined that, in order for the Utility's request for inclusion of the
Unit 2 investment in rate base as plant in service to be considered, the
Utility must present a prima facie case in its direct testimony as to how
a disallowance resulting from FF No. 84 should be quantified. The
Utility appealed the ALJ's ruling to the PUCT, which voted not to hear
the appeal. On August 16, 1991, the Utility filed supplemental prudence
testimony, under protest, responding to the ALJ's order and supporting
the Utility's entitlement to rate base treatment for the costs of Unit 2.
In its supplemental testimony, the Utility contended that it prudently
could have released Unit 2 for construction in February 1989, rather than
September 1988, when the unit was actually released. The Utility argued
that this alternative would cost no less than the actual cost of Unit 2,
and thus no disallowance should result from any imprudence in releasing
Unit 2 for construction in September 1988. Two intervenors in this
proceeding objected to the Utility's presentation of a prudent
alternative, but the PUCT included such evidence in the record.
In a "final" order dated October 16, 1992, the PUCT commissioners approved
an increase in annualized revenues of $26 million, or 72% of the
Utility's original $35.8 million requested increase. The PUCT's order
determined that the reasonable costs for Unit 2 were $261.8 million. The
PUCT allowed in rate base $250.7 million of the $275.2 million requested
for Unit 2 costs. The difference between the $261.8 million in costs
found to be prudent by the PUCT and the $282.9 million total costs of
Unit 2 consisted of disallowances of approximately $21.1 million. The
PUCT also determined that $11.1 million of Unit 2 costs will be addressed
in a future Texas rate application.
<page 46>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(5) Commitments and Contingencies - continued
The order in Docket No. 10200 also allowed approximately $15.3 million of
the requested approximately $16.1 million of Unit 1 costs not sought by
the Utility in Docket No. 9491. The approximately $800,000 disallowance
was primarily related to debt service on disallowed costs determined in
Docket No. 9491.
Subsequent to the issuance of the "final" order on October 16, 1992,
motions for rehearing of certain issues were filed by parties to the
case. On December 22, 1992, the PUCT issued an Order on Rehearing which
reduced the $ 26 million increase in annualized revenues that was
originally granted by the PUCT in its order on October 16, 1992.
The primary issue in the Order on Rehearing was the PUCT's reversal of its
original Docket No. 10200 order as to the use of the "return method" for
calculating the amount allowed in cost of service for the Utility's
Federal income tax expense. The "return method" of computing Federal
income tax expense requested by the Utility followed consistent precedent
of the PUCT. The concept of the "return method" is to match a utility's
taxes with the same revenues and expenses included in rates. The new
method adopted by the PUCT in the Order on Rehearing flowed through to
ratepayers the tax benefits of expenses disallowed and not included in
rates. The net effect of this Order on Rehearing was a decrease of
approximately $7 million from the October 16, 1992 order, resulting in a
$19 million increase in annualized revenues.
On January 26, 1993, the PUCT considered motions for rehearing on the
December 22, 1992 Order on Rehearing but did not alter the $19 million
increase in annualized revenues or the disallowances. In its Order on
Rehearing, dated February 4, 1993, the PUCT ordered the Utility to seek a
private letter ruling from the Internal Revenue Service (IRS) to
determine if the Order on Rehearing resulted in violations of the
"normalization" rules concerning investment tax credits and accelerated
tax depreciation on public utility property.
The PUCT's February 4, 1993 Order on Rehearing stated that the tax method
utilized does not violate the "normalization" rules of the Internal
Revenue Code; however, a December 1992 private letter ruling of the IRS
to an unrelated utility indicates that regulatory treatment which flows
through tax benefits of investment tax credits on disallowed public
utility property violates the "normalization" rules. A "normalization"
violation ultimately results in a utility's loss of benefits from
investment tax credit and/or accelerated depreciation on public utility
property. Without the curative action of the PUCT on March 10, 1993,
discussed in the following paragraph, an IRS determination that a
"normalization" violation had occurred would subject the Utility to
paying additional income taxes for the amount of the accumulated deferred
investment tax credits as of the time of the violation and taxes on the
amount of tax depreciation in excess of book depreciation for all tax
years open for IRS review.
On March 10, 1993, the PUCT considered motions for rehearing on the
February 4, 1993 Order on Rehearing and expressed its position that its
earlier actions not create a "normalization" violation for the Utility.
As a result, in its Order on Rehearing, dated March 18, 1993, the PUCT
ordered that the Utility be granted, subject to refund, an additional
$1.6 million in annualized revenues which matches recovery in rates with
only the investment tax credits and accelerated tax depreciation related
to utility property included in rate base. Accordingly, the benefits of
investment tax credits and accelerated tax depreciation related to
disallowed public utility property would not be passed through to
ratepayers; therefore, the Utility believes that the "normalization"
rules with respect to investment tax credits and accelerated tax
depreciation would not be violated. Further, the PUCT affirmed its
February 4, 1993 Order on Rehearing directing the Utility to seek a
private letter ruling from the IRS to determine if the earlier
methodology adopted in the December 22, 1992 Order on Rehearing would
violate the "normalization" rules concerning investment tax credits and
accelerated tax depreciation on public utility property. If the IRS
determines that the PUCT's December 22, 1992 order would not constitute a
"normalization" violation, then the additional $1.6 million in annualized
revenues would be revoked by the PUCT, and the Utility would be required
to refund excess amounts collected. The PUCT did not reverse its
December 22, 1992 position to pass through to ratepayers the tax benefits
of interest charges related to disallowed public utility property. The
net resultant effect of Docket No. 10200 (by the PUCT action of March 10,
1993) is an increase in annualized revenues of $20.6 million, of which
$1.6 million is subject to refund.
<page 47>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(5) Commitments and Contingencies - continued
The March 18, 1993 Order on Rehearing was appealed by the Utility and
certain intervening parties to a State district court. Because of the
Court of Appeals judgment relating to FF No. 84 in the Docket No. 9491
appeals, the presiding judge in the State district court for the Docket
No. 10200 appeal has ordered that the procedural schedule in this appeal
be abated until final resolution of the FF No. 84 issue in Docket No.
9491. The Utility will vigorously pursue reversal of the PUCT's new
position regarding Federal income tax expense in addition to seeking
judicial relief from the disallowances and certain other rulings by the
PUCT in Docket No. 10200.
During the third quarter of 1993, the Utility refunded, to the appropriate
Texas customers, amounts collected under bonded rates in excess of the
$20.6 million in annualized revenues granted on rehearing in Docket No.
10200. The refund (approximately $18 million, including interest) was
related to the period beginning on the effective date for bonded rates
(October 16, 1991) through April 1993.
After receiving PUCT approval on October 19, 1993, the Utility filed, on
October 20, 1993, a request with the IRS for a private letter ruling on
the issue of a "normalization" violation resulting from the PUCT's
proposed treatment of investment tax credits and accelerated tax
depreciation. Revenues related to the conditionally granted $1.6 million
annualized increase will not be refunded unless the IRS determines that a
"normalization" violation would not result from flowing through benefits
of investment tax credits and accelerated tax depreciation related to
disallowed public utility property. If the IRS so determines, a refund
will be made after that determination. Accordingly, revenues associated
with the $1.6 million annualized increase have not been recognized in
results of operations as of December 31, 1993, and a provision for
revenues subject to refund, including interest, has been made for $3.4
million in the consolidated balance sheet as of December 31, 1993. The
Utility expects to receive the private letter ruling in 1994.
Based upon the opinions of the Utility's Texas regulatory counsel, Johnson
& Gibbs, a Professional Corporation, management believes that it will
prevail in obtaining a remand of a significant portion of the
disallowances in Docket No. 10200; however, the ultimate disposition and
quantification of these items cannot presently be determined.
Accordingly, no provision for any loss that may ultimately be required
upon resolution of these matters has been made in the accompanying
consolidated financial statements.
If the Utility is not successful in obtaining a final favorable disposition
in the appellate proceedings relating to the disallowances in Docket No.
10200, a write-off of some portion of the $21.9 million disallowances
would be required, which could result in a significant negative impact on
earnings in the period of final resolution.
Other TNP One Matters
In Docket No. 9491, the Utility requested deferred accounting treatment
(DAT) for Unit 1 which would (1) defer $1.4 million and $2.8 million of
operating costs and interest costs, respectively, (2) recover such
amounts in rates through amortizations over the life of the unit and (3)
include such unamortized amounts in the Utility's rate base, thereby
recovering a carrying cost on the unamortized amount.
The PUCT granted the Utility's DAT request except the inclusion of interest
costs ($2.8 million) in rate base. In the final order meeting for Docket
No. 9491, the PUCT commissioners indicated that their decision to exclude
interest costs from the Utility's rate base was influenced by a recent
appeals court ruling. In that ruling, which involved an appeal of a
decision by the PUCT granting DAT to an unrelated electric utility, the
appeals court found that the DAT component for interest costs could not
be included in rate base. The electric utility has filed an application
for writ of error with the Texas Supreme Court regarding the appeals
court ruling. The ultimate effect of the appeals court ruling on the
order granting DAT for Unit 1 is uncertain at this time.
<page 48>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprise, Inc.)
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
(5) Commitments and Contingencies - continued
The Utility entered into a fuel supply agreement dated November 18, 1987
with Phillips Coal Company (Phillips), owner of a 300-million-ton lignite
reserve in Robertson County in proximity to TNP One. The agreement
provides for a lignite fuel source for the 38-year life of TNP One.
Phillips subsequently entered into an agreement with a subsidiary of
Peter Kiewit Sons', Inc. for development of the lignite mine by a joint
venture partnership, Walnut Creek Mining Company. Unit 1 and Unit 2 are
capable of utilizing Western coal, petroleum coke and natural gas as
alternative fuel sources.
Legal Actions
The Utility is involved in various claims and other legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Utility's consolidated financial position.
<page 49>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Identification of Directors and Directorships
Set forth below is certain information concerning the nominees:
NOMINEES FOR DIRECTOR
Principal occupation
Director and business experience
of the during past five years;
Name/Age Utility since and other directorships
R. Denny Alexander, 48 1989 Owner, R. Denny Alexander & Company,
since 1978 (investment management)
Managing Partner, OPNB Building Joint
Venture, since 1978 (real estate
investment)
Chairman, Overton Bank and Trust,
National Association, since May 1984
Director of: Overton Bancshares, Inc.,
since 1982
Cass O. Edwards, II, 67 1975 Managing Partner, Edwards - Geren
Limiated (ranching and farming)
Chairman, Overton Bancshares, Inc., since
1982
Chairman and President, Cassco Land
Company, Inc.
Director of: Overton Bank and Trust,
National Association
John A. Fanning, 54 1984 Executive Vice President, Snyder Oil
Corporation, since March 1990 (oil and
gas producer)
December 1987 to March 1990
Director of: Snyder Oil Company, Inc.,
since 1981
Harris L. Kempner, Jr., 54 1980 President, Kempner Capital Management,
since 1981 (investment advisor)
Trustee, H. Kempner Trust Association
Chairman Emeritus and Advisor to the
Board of United States National Bank,
since 1992
Director of: Balmorhea Ranches; Imperial
Holly Corp.; Cullen/Frost Bankers, Inc.,
since 1982; American Indemnity Company,
since 1987; American Indemnity Financial,
since 1990
<page 50>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Dr. Thomas S. Mackey, 63* 1977 President, Key Metals and
Minerals Engineering Corporation, since
1970 (consulting engineers)
President, Texas Copper
Corporation, from 1989 to 1993 (primary
copper processing)
Thomas S. Mackey, P.C., a
law firm, since 1978
President, Airtrust
International Corporation, since 1982
(logistic services to oil industry)
President, USA Offshore Industries
Corporation; USA Logestics Services
Corporation since 1982(equipment exports)
Chairman, Board of Directors,
Neomet Corporation, since 1989
(neodymium eutectic alloy production)
President and Director,
Neomet Corporation, from 1986 to 1989,
and since 1992
President and Director, Cox
Creek Refining Company, since 1990
(copper cathode and rod provider)
Director of: United States
National Bank, since 1970; Reactive
Metals and Alloys, Inc., since 1986
(mischmetal and ferro alloy producer);
Siltec Corporation and Siltec Epitaxial
Corp., since 1986 (silicon wafer
manufacturer); Malaysian Titanium
Corporation, since 1990 (titanium dioxide
pigment for paper and paint industry)
D. R. Spurlock, 61 1993 Interim President & Chief Executive
Officer of TNPE and the Utility, since
November 9, 1993
Sector Vice President -
Operations of the Utility, September 1990
through 1992 (Retired)
Vice President - Division Manager of the
Utility,
August 1979 to September 1990
Director of: TNPE, since April 1993;
Texas City National Bank, since 1976
R. D. Woofter, 70 1975 Chairman of the Board of
TNPE and the Utility, since July 2, 1988
* A member of the Board and Committees, and a nominee until the time of his
death on February 25, 1994.
Three vacancies currently exist on the Board of Directors of the Utility.
One vacancy resulted from the resignation of John Justin as a Director on
February 25, 1993 and the unexpected decision of an advisory director not to
stand for election to the position previously held by Mr. Justin. The
resignation of J. M. Tarpley from the position of President & Chief Executive
Officer and from the Board of Directors as of November 9, 1993, resulted in
the second vacancy. The third vacancy occurred as the result of the untimely
death of Dr. T. S. Mackey on February 25, 1994.
It is expected that upon selection of a successful candidate for the
position of President & Chief Executive Officer of the Utility, the Board of
Directors will appoint that person to the directorship vacated by Mr.
Tarpley's resignation.
At such time as the Board of Directors has evaluated and selected persons
who are qualified to act as directors of the Utility, the Board will make
appointments of such persons to fill the two remaining vacant director
positions. It is anticipated that appointees will stand for election at the
1995 Annual Meeting of the Shareholders of the Utility.
<page 51>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Identification of Executive Officers
Positions & Offices Held Period of
with the Utility Such Office
Name Age Within the Past 5 Years1 Years Months
D. R. Spurlock2 61 Interim President & Chief 0 1
Executive Officer and Director
Sector Vice President - 2 4
Operations
Vice President - 11 1
Division Manager
D. R. Barnard 61 Sector Vice President & 3 8
Chief Financial Officer
Vice President & 1 0
Chief Financial Officer
Vice President & 17 0
Treasurer
J. V. Chambers, Jr. 44 Sector Vice President - 3 8
Revenue Production
Vice President - Contracts 3 2
& Regulation
M. C. Davie 58 Vice President - Corporate 10 11
Affairs
A. B. Davis 56 Vice President - Chief Engineer 1 8
Chief Engineer 1 4
Assistant Chief Engineer 0 1
Manager - Engineering 5 8
L.W. Dillon 39 Vice President - Operations 0 1
Division Manager 3 6
Division Engineering Manager 4 11
R. J. Wright 46 Vice President - 0 6
Corporate Services/Generation
Vice President -
Manager - Generation 4 8
M. D. Blanchard 43 Corporate Secretary & 6 4
General Counsel
Monte W. Smith 40 Treasurer 4 8
Director - Internal Audit 2 11
1 All officers are elected annually by the Utility's Board of Directors
for a one-year term until the next annual meeting of the Board of
Directors or until their successors shall be elected and qualified. The
term of an officer elected at any other time by the Board also will run
until the next succeeding annual meeting of the Board of Directors or
until a successor shall be elected and qualified.
2 Retired as Sector Vice President effective December 31, 1992; named
Interim President & Chief Executive Officer effective November 9, 1993.
With the exception of D. R. Spurlock, each of the above-named officers
is a full-time employee of the Utility and has been for more than five
years prior to the date of the filing of this Form 10-K.
<page 52>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Item 11. Executive Compensation.
Compensation Committee Interlocks and Insider Participation
The Personnel, Organization & Nominating Committee is responsible for
recommending to the Board the appropriate levels of Executive Compensation.
The members of the Committee are Messrs. Edwards and Woofter. Prior to his
death, Dr. Mackey was a member of this Committee. Mr. Woofter, the Chairman
of the Board and formerly the Chief Executive Officer and President of TNPE
and the Utility, retired as an officer of both companies in 1988. Mr.
Edwards is a director of Overton Bank and Trust, National Association, with
which the Utility and TNPE maintain a banking relationship in the ordinary
course of business. To the Utility's knowledge, there were no other inter-
relationships involving members of the Committee.
The following table sets forth information regarding cash compensation paid
for services rendered to the Utility and its subsidiaries to the former CEO,
the Interim President and CEO, and each of the four most highly compensated
executive officers of the Utility whose cash compensation exceeded $100,000,
for each of the last three fiscal years.
Summary Compensation Table
ANNUAL COMPENSATION
FISCAL OTHER ANNUAL ALL OTHER
NAME & PRINCIPAL YEAR SALARY COMPENSATION COMPENSATION
(1) (2) (3)
POSITION (a) (b) (c)
J. M. Tarpley (resigned 11-9-93) 1993 $284,419 $ -0- $2,581 $2,581
President and Chief . . . . . . 1992 309,776 7,526 2,514 10,040
Executive Officer of TNPE . . .1991 295,257 7,306 2,295 9,601
and the Utility
D. R. Spurlock. . . . . . . . . 1993 77,801 -0- -0- -0-
(effective 11-9-93 named. . . .1992 156,649 $24,885 8,728 704 9,432
Interim President and Chief . . 1991 148,089 25,125 8,475 682 9,157
Executive Officer of TNPE
and the Utility) (prior to
retirement effective 12-31-92
- -Sector Vice President-
Operations of the Utility)
D. R. Barnard . . . . . . . . . 1993 147,857 -0- 801 801
Vice President and Chief. . . . 1992 155,993 8,728 682 9,410
Financial Officer of TNPE . . . 1991 145,177 8,475 682 9,157
and Sector Vice President
and Chief Financial
Officer of the Utility
J. V. Chambers. . . . . . . . . 1993 148,404 -0- 801 801
Sector Vice President-. . . . . 1992 154,094 8,728 704 9,432
Revenue Production of . . . . . 1991 147,370 8,475 682 9,157
the Utility
A. B. Davis . . . . . . . . . . 1993 120,224 -0- 609 609
Vice President - Chief Engineer 1992 116,031 6,730 487 7,217f the Utility. . . . . . . . . 1991 100,
R. J. Wright. . . . . . . . . . 1993 127,921 -0- 662 662
Vice President - Corporate. . . 1992 127,058 7,545 582 8,127
Services/Generation of the Utility1991 119,306 7,071 538 7,609
(1) Salaries for the officer group are reviewed annually with any
changes in salary generally effective as of the date of the meeting
of the directors held in conjunction with the Annual Meeting of the
Holders of Common Stock. Because employee salaries are paid bi-
weekly, the actual compensation for 1992 included an extra pay
period.
(2) Housing and transportation allowance.
(3) All Other Compensation consists of the following:
(a) Amounts contributed by Utility to Thrift Plan (401k Plan).
(b) Premiums for Group Life.
(c) Total "All Other Compensation." (a) + (b) = (c).
<page 53>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Utility's Pension Plan
The following table sets forth annual benefits payable to employees of the
Utility under the Utility's Pension Plan at the normal retirement age of 65.
PENSION PLAN TABLE
Remuneration Years of credited service at retirement
15 20 25 30 35 40
$125,000 $ 30,147 $ 40,196 $ 50,245 $ 60,294 $ 70,343 $78,468
*150,000 36,522 48,696 60,870 73,044 85,218 94,968
*175,000 42,897 57,196 71,495 85,794 100,093 111,468
*200,000 49,272 65,696 82,120 98,544 114,968 127,968
*225,000 55,647 74,196 92,745 111,294 129,843 144,468
*250,000 62,022 82,696 103,370 124,044 144,718 160,968
*300,000 74,772 99,696 124,620 149,544 174,468 193,968
*400,000 100,272 133,696 167,120 200,544 233,968 259,968
*450,000 113,022 150,696 188,370 226,044 263,718 292,968
*500,000 125,772 167,696 209,620 251,544 293,468 325,968
_________
<FN>
* Benefits at these levels are shown without taking into account Internal
Revenue Service (IRS) Code Section 415 limits or the $150,000 salary cap in
effect following 1993, resulting from the IRS Code Section 401a 717 limits
and, therefore, a portion of these benefits would be paid from the unfunded
Excess Benefit Plan.
The Utility maintains for the benefit of all eligible employees a non-
contributory defined benefit retirement plan (the "Pension Plan") under which
contributions are actuarially determined each year. All employees who have
one year of service with the Utility and who are 21 years of age are
eligible. As a defined benefit plan, the Utility's Pension Plan
contributions, which are computed on an actuarial basis, cannot be readily
calculated on a per person basis by Plan actuaries. Benefits for each
eligible employee are based on the employee's number of years of service
computed through the month in which he or she retires multiplied by a
specified percentage of the employee's average monthly compensation for each
full calendar year completed after 1993. The average monthly compensation
for the named executive officers consists only of amounts included beneath
the Salary column of the Summary Compensation Table. Pension benefits are
not subject to deduction for Social Security benefits. Pension benefits are
subject to reduction for retirement prior to age 62. For 1993, the Utility
made no contribution to the Pension Plan.
The Utility also maintains an unfunded Excess Benefit Plan to compensate
certain highly compensated employees. Such highly compensated employees must
first have their pensions subject to being reduced below the amount which
would have been provided by the Pension Plan because of compliance with
Section 415 of the Internal Revenue Code of 1986, as amended, and must be
designated as eligible by the Board of Directors for participation in the
Excess Benefit Plan. There are three participants currently designated by
the Board of Directors. A Letter of Credit is purchased each year which will
provide sufficient funds to the Trust to make payments to all persons who are
covered by the Excess Benefit Plan if a "change in control" were to occur as
that term is defined in certain employment contracts which are discussed
hereafter. The Utility owns life insurance policies on the lives of two
employees currently eligible to receive payments under such plan upon their
retirement and one retiree who is currently receiving benefits under the
Excess Benefit Plan. The proceeds of the policies are payable to the Utility
to compensate the Utility for its payments to the eligible employees pursuant
to the terms of the Excess Benefit Plan.
<page 54>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
As of December 31, 1993, the years of credited service for calculation of
the retirement benefits for the named executive officers of the Utility were
as follows:
NAME YEARS OF CREDITED SERVICE
Mr. Tarpley 35 years, 6 months
Mr. Spurlock Retired as of 12-31-92 with
33 years, 7 months
Mr. Barnard 32 years, 6 months
Mr. Chambers 14 years, 11 months
Mr. Davis 28 years, 7 months
Mr. Wright 14 years, 10 months
Except for the Chairman, each member of the Board of Directors who is not
also an officer of the Utility receives an annual retainer fee of $4,500 from
each of TNPE and the Utility. The Chairman of the Board of Directors
receives an annual retainer fee of $36,000 from each of TNPE and the Utility.
The Chairman acts as agent for the Board of Directors and is a member of all
Committees of the Board. Each director also receives $500 for attending each
meeting of the Board of Directors of either TNPE or the Utility or Board
committees of either entity of which he is a member. In the event that
meetings of Boards of both entities or their Committees are held on the same
day, the meeting fee is limited to $500 and is allocated evenly between TNPE
and the Utility.
Utility's Employment Contracts
Employment contracts between the Utility and its officers and its other key
personnel have continued since 1988, in form and substance last reviewed and
approved by the Board of Directors of the Utility at the November, 1993 Board
meeting. The principal purpose of the contracts is to encourage retention of
management and other key personnel required for the orderly conduct of the
business of the Utility during any threatened or pending acquisition of the
Utility or TNPE and during any transition of ownership. The terms of the
contracts, from date of execution, are three years as to certain officers and
managers of the Utility and two years as to the other key personnel. Upon
the expiration of each contract, the Utility, at its option, may extend the
contract for additional three or two year periods, as appropriate. The
contracts for certain officers and managers, including the named executive
officers, provide for lump sum compensation payments equal to three times
their current annual salary, and other rights. The contracts for the other
key personnel provide for payments equal to their annual salary. The lump
sum payments for both the officers and other key personnel only become
effective in the event of termination of employment or other adverse
treatment of such persons following a "change in control" of the Utility or
TNPE, which event is defined to include, among other things, substantial
changes in the corporate structure or ownership of either entity or in the
Board of Directors of either entity.
Pursuant to an agreement between J. M. Tarpley and TNPE and its
subsidiaries, including the Utility, Mr. Tarpley resigned his positions as
officer and member of the Boards of Directors of all such companies,
including his positions as President, Chief Executive Officer and a member of
the Boards of TNPE and the Utility. The agreement provides for November 9,
1993, as the effective time of resignation of such officer and director
positions and, effective January 1, 1994, a contract of employment between
Mr. Tarpley and the Utility. The agreement also sets forth other covenants
and arrangements between the parties safeguarding confidential and
proprietary information of TNPE and its subsidiaries and prohibiting areas of
participation by Mr. Tarpley in opposition to TNPE and the Utility. Upon
attaining age 62 (August 23, 1996), Mr. Tarpley will retire as an employee
and have all rights of a retired employee of the Utility. As an employee and
in consideration of the safeguarding and restricting covenants of Mr.
Tarpley, his annual compensation until retirement, or his earlier death, will
aggregate $284,000 per year. Mr. Tarpley has the rights as an employee to
participate in the benefit plans and programs of the Utility, including such
rights as a retired employee after age 62.
Effective as of November 9, 1993, the Utility entered into an agreement
with D. R. Spurlock to serve as President and Chief Executive Officer on an
interim basis. The agreement provides for the Utility to pay Mr. Spurlock
$30,000 per month, and to reimburse him for certain expenses incurred during
the interim period. Mr. Spurlock does not receive any benefits generally
made available to employees, such as pension accrual and enhanced medical
benefits. The agreement is terminable by either party upon twenty-four hour
written notice.
<page 55>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Director, Nominee and Management Shareholding
The following table sets forth information with respect to the beneficial
ownership of the common stock of TNPE by its directors, nominees for
directors, each executive officer named in the Summary Compensation Table and
all directors and officers as a group, as of January 31, 1994.
Name of
Individual or Group Position with Company Shares Beneficially Owned
R. D. Woofter Chairman of the Board 9,893 (1)
R. Denny Alexander Director 500
Cass O. Edwards, II Director 6,737
Harris L. Kempner, Jr. Director 200 (2)
Thomas S. Mackey * Director 1,386
D. R. Spurlock Director; 1,584
Interim President and CEO
since 11-9-93
J. M. Tarpley ** President, Chief 11,347 (3)
Executive Officer and
Director
D. R. Barnard Sector Vice President 18,491
and Chief Financial
Officer
J. V. Chambers Sector Vice President - 13,964
Revenue Production
A. B. Davis Vice President - 4,002
Chief Engineer
R. J. Wright Vice President - 10,201
Corporate Services/
Generation
Directors and officers
as a group (16 persons)(4) 96,370 ***
_____________________________________
* A member of the Board and Committees until the time of his death on
February 25, 1994.
**Resigned effective November 9, 1993 as President and CEO and Director.
***Less than one (1) percent of outstanding shares of Common Stock.
(1) Does not include 66 shares owned by the wife of Mr. Woofter as her sole
and separate property. Mr. Woofter disclaims any beneficial interest in
all such shares.
(2) Does not include 200 shares owned by the wife of Mr. Kempner as her sole
and separate property. Mr. Kempner disclaims any beneficial interest in
all such shares.
(3) Subsequent to January 31, 1994, Mr. Tarpley disposed of all shares.
(4) Of the nine executive officers of subsidiaries, four are also executive
officers of TNPE. All shares held by such officers and directors are
shares of TNPE.
<page 56>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Item 13. Certain Relationships and Related Transactions.
Mr. R. Denny Alexander is Chairman of the Board and director of Overton
Bank and Trust, National Association. Mr. Cass O. Edwards, II is a director
of Overton Bank and Trust, National Association.
The Utility maintains banking relations with Overton Bank and Trust,
National Association. These banking relations are in the ordinary course of
business for general banking and short-term investments, and all banking
transactions are made on substantially the same terms, including collateral
and interest rates, as those prevailing at the time for comparable
transactions between such bank and other persons.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Items Filed as Part of This Report
Financial Statements
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Earnings,
Three Years Ended December 31, 1993. . . . . . . . . . . . . . . 26
Consolidated Balance Sheets, December 31, 1993 and 1992 27
Consolidated Statements of Common Stock Equity
and Redeemable Cumulative Preferred Stocks,
Three Years Ended December 31, 1993. . . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows,
Three Years Ended December 31, 1993. . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . .30-49
Financial Statement Schedules
V - Utility Plant, Three Years Ended December 31, 1993. . 58
VI - Accumulated Depreciation of Utility Plant,
Three Years Ended December 31, 1993. . . . . . . . . . 59
IX - Short-term Borrowings,
Three Years Ended December 31, 1993. . . . . . . . . . 60
X - Supplementary Consolidated Earnings Statement Information
Three Years Ended December 31, 1993. . . . . . . . . 61
All other schedules are omitted, as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes.
Exhibits
See Exhibit Index, Pages 63-72.
(b) Reports on Form 8-K
None during the last quarter covered by this report.
<page 57>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Utility Plant Schedule V
Three Years Ended December 31, 1993
(In Thousands)
Other
Balance at changes: Balance at
beginning Additions add end of
Classification of period at cost(1) Retirements(deduct) period
Year ended
December 31, 1993:
Electric plant $1,184,635 17,587 5,436 6,850 1,203,636
Construction work
in progress 3,922 8,210 - (6,850) 5,282
$1,188,557 25,797 5,436 - 1,208,918
Year ended
December 31, 1992:
Electric plant $1,159,511 30,365 (6,683) 1,442 1,184,635
Construction work
in progress 2,279 3,085 - (1,442) 3,922
$1,161,790 33,450 (6,683) - 1,188,557
Year ended
December 31, 1991:
Electric plant $ 850,160 313,259 (6,650) 2,742 1,159,511
Construction work
in progress 2,844 2,177 - (2,742) 2,279
$ 853,004 315,436 (6,650) - 1,161,790
Note: See note 1(c) to the consolidated financial statements for
disclosure of depreciation method.
(1) On July 26, 1991, the Utility's wholly owned subsidiary, TGCII,
assumed ownership of TNP One, Unit 2 and assumed the related
liabilities totaling approximately $269 million. In addition,
approximately $12 million of deferred charges related to TNP One,
Unit 2 were reclassified to utility plant. These amounts are
included in the 1991 additions above. See note 5 to the
consolidated financial statements and Items 1, 2, and 7, for more
information about Unit 2.
During 1992, the Utility reclassified approximately $12 million of
deferred charges to utility plant.
<page 58>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Accumulated Depreciation of Utility Plant Schedule VI
Three Years Ended December 31, 1993
(In Thousands)
Other
Additions changes:
Balance at charged to add Balance at
beginning costs and Net (deduct) end of
Description of period expenses retirements (See Notes) period
Year ended
December 31, 1993:
Electric plant $172,848 36,015 (6,268) 328 202,923
Year ended
December 31, 1992:
Electric plant $145,188 35,098 (7,687) 249 172,848
Year ended
December 31, 1991:
Electric plant $124,015 28,027 (7,444) 590 145,188
<FN>
Notes: Other additions represent depreciation of transportation equipment
charged to property accounts in accordance with the equipment's use.
See note 1(c) to the consolidated financial statements for disclosure
of depreciation method.
<page 59>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Short-term Borrowings (1) Schedule IX
Three Years Ended December 31, 1993
(Dollars in Thousands)
Weighted Maximum Weighted
average amount Average amount average
Balance interest outstanding outstanding interest
Category of aggregate at end rate at end during during rate during
Period short-term borrowings of period of period the period(3) the period(2) the period(2)
Year ended Unsecured Notes Payable
December 31, 1993 to Banks $ -0 N/A $ -0- -0- N/A
Year ended Unsecured Notes Payable
December 31, 1992 to Banks $ -0- N/A(2) $36,000 13,004 5.70%
Year ended Unsecured Notes Payable
December 31, 1991 to Banks $36,000 7.10% $60,000 36,698 7.70%
<FN>
Notes:
(1) Unsecured notes payable to banks were issued under revolving lines of credit. Under the terms
of the revolving lines of credit, the interest rates were determined under several alternative
methods. All rates at the time of issuance were the prime lending rate plus 1/2% or lower. A
fee of 1/4 of 1% per annum of the average unused commitments was payable quarterly, with no
compensating bank balance requirements.
(2) For 1991, computation was based on days outstanding for the year. For 1992, computation was
based on the period of January 1, 1992 to August 12, 1992, when all outstanding unsecured
notes payable to banks were retired.
(3) For 1991, represents the maximum amount outstanding at any month end. For 1992, represents
the balance outstanding at January 1, 1992.
<page 60>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Supplementary Consolidated Earnings Statement Information Schedule X
Three Years Ended December 31, 1993
(In Thousands)
Charged to costs and expenses
Item 1993 1992 1991
Taxes, other than payroll and income taxes:
Gross receipts and street rentals $ 11,386 10,064 9,484
Property 14,119 14,272 10,302
Other 2,448 2,431 1,689
$ 27,95 26,767 21,475
<page 61>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(Registrant) TEXAS-NEW MEXICO POWER COMPANY
By \s\ D. R. Barnard
D. R. Barnard, Sector Vice President &
Date: March 22, 1994 Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Title Date
By \s\ R. D. Woofter Chairman March 22, 1994
R. D. Woofter
By \s\ Dwight R. Spurlock Interim President & March 22, 1994
D. R. Spurlock Chief Executive Officer
By \s\ D. R. Barnard Sector Vice President & March 22, 1994
D. R. Barnard Chief Financial Officer
By \s\ Monte W. Smith Treasurer (Principal March 22, 1994
Monte W. Smith Accounting Officer)
By \s\ R. Denny Alexander Director March 22, 1994
R. Denny Alexander
By \s\ Cass O. Edwards, II Director March 22, 1994
Cass O. Edwards, II
By \s\ John A. Fanning Director March 22, 1994
John A. Fanning
By \s\ Harris L. Kempner, Jr. Director March 22, 1994
Harris L. Kempner, Jr.
No annual report to security holders of the Registrant covering the
Registrant's last fiscal year and no proxy material with respect to
solicitations during such fiscal year have been sent to the Registrant's
security holders.
<page 62>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
Exhibits filed herewith are denoted by "*." The other exhibits have
heretofore been filed with the Commission and are incorporated herein by
reference.
Exhibit
No. Description
3(a) - Restated Articles of Incorporation of the Utility (Exhibit
4(a), File No. 2-86282).
3(b) - Amendment to Restated Articles of Incorporation dated October
26, 1983 (Exhibit 3(b) to Form 10-K for the year ended December
31, 1984, File No. 1-2660-2).
3(c) - Amendment to Restated Articles of Incorporation dated April 8,
1984 (Exhibit 3(c) to Form 10-K for the year ended December 31,
1984, File No. 1-2660-2).
3(d) - Amendment to Restated Articles of Incorporation dated October
2, 1984 (Exhibit 3(d) to Form 10-K for the year ended December
31, 1984, File No. 1-2660-2).
3(e) - Articles of Merger dated October 3, 1984 (Exhibit 3(e) to Form
10-K for the year ended December 31, 1984, File No. 1-2660-2).
3(f) - Amendment to Restated Articles of Incorporation dated May 22,
1985 (Exhibit 3(a) to Form 10-K for the year ended December 31,
1985, File No. 2-97230).
3(g) - Amendment to Restated Articles of Incorporation dated August
20, 1985 (Exhibit 3(b) to Form 10-K for the year ended December
31, 1985, File No. 2-97230).
3(h) - Amendment to Restated Articles of Incorporation dated
October 7, 1985 (Exhibit 3(c) to Form 10-K for the year ended
December 31, 1985, File No. 2-97230).
3(i) - Amendment to Restated Articles of Incorporation dated June 12,
1986 (Exhibit 3(a) to Form 10-K for the year ended December 31,
1986, File No. 2-97230).
3(j) - Amendment to Restated Articles of Incorporation dated October
17, 1986 (Exhibit 3(b) to Form 10-K for the year ended December
31, 1986, File No. 2-97230).
3(k) - Amendment to Restated Articles of Incorporation dated July 14,
1987 (Exhibit 3(k) to Form 10-K for the year ended December 31,
1987, File No. 2-97230).
3(l) - Amendment to Restated Articles of Incorporation dated October
23, 1987 (Exhibit 3(l) to Form 10-K for the year ended December
31, 1987, File No. 2-97230).
3(m) - Amendment to Restated Articles of Incorporation dated May 4,
1988 (Exhibit 3(m) to Form 10-K for the year ended December 31,
1988, File No. 2-97230).
3(n) - Amendment to Restated Articles of Incorporation dated May 5,
1988 (Exhibit 3(n) to Form 10-K for the year ended December 31,
1988, File No. 2-97230).
3(o) - Amendment to Restated Articles of Incorporation dated May 5,
1988 (Exhibit 3(o) to Form 10-K for the year ended December 31,
1988, File No. 2-97230).
<page 63>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Exhibit
No. Description
3(p) - Amendment to Restated Articles of Incorporation dated December
5, 1988 (Exhibit 3(p) to Form 10-K for the year ended December
31, 1988, File No. 2-97230).
3(q) - Amendment to Restated Articles of Incorporation dated April 11,
1989 (Exhibit 3(q) to Form 10-K for the year ended December 31,
1989, File No. 2-97230).
3(r) - Amendment to Restated Articles of Incorporation dated July 27,
1989 (Exhibit 3(r) to Form 10-K for the year ended December 31,
1989, File No. 2-97230).
3(s) - Amendment to Restated Articles of Incorporation dated October
23, 1989 (Exhibit 3(s) to Form 10-K for the year ended
December 31, 1989, File No. 2-97230).
3(t) - Amendment to Restated Articles of Incorporation dated May 16,
1990 (Exhibit 3(t) to Form 10-K for the year ended December 31,
1990, File No. 2-97230).
3(u) - Amendment to Restated Articles of Incorporation dated June 26,
1990 (Exhibit 3(u) to Form 10-K for the year ended December 31,
1990, File No. 2-97230).
3(v) - Amendment to Restated Articles of Incorporation dated November
27, 1990 (Exhibit 3(v) to Form 10-K for the year ended December
31, 1990, File No. 2-97230).
3(w) - Amendment to Restated Articles of Incorporation
dated May 1, 1991 (Exhibit 3(w) to Form 10-K
for the year ended December 31, 1991, File No.
2-97230).
3(x) - Amendment to Restated Articles of Incorporation dated July 18,
1991 (Exhibit 3(x) to Form 10-K for the year ended December 31,
1991, File No. 2-97230).
3(y) - Amendment to Restated Articles of Incorporation dated October
18, 1991 (Exhibit 3(y) to Form 10-K for the year ended December
31, 1991, File No. 2-97230).
3(z) - Amendment to Restated Articles of Incorporation dated April 30,
1992 (Exhibit 3(z) to Form 10-K for the year ended December 31,
1992, File No. 2-97230).
3(aa) - Amendment to Restated Articles of Incorporation dated June 19,
1992 (Exhibit 3(aa) to Form 10-K for the year ended December
31, 1992, File No. 2-97230).
3(bb) - Amendment to Restated Articles of Incorporation dated November
3, 1992 (Exhibit 3(bb) to Form 10-K for the year ended December
31, 1992, File No. 2-97230).
*3(cc) - Amendment to Restated Articles of Incorporation dated April 7,
1993.
*3(dd) - Amendment to Restated Articles of Incorporation dated July 22,
1993.
*3(ee) - Amendment to Restated Articles of Incorporation dated October
21, 1993.
3(ff) - Bylaws of the Utility, as amended February 18, 1992 (Exhibit
3(cc) to Form 10-K for the year ended December 31, 1992, File
No. 2-97230).
4(a) - Indenture of Mortgage and Deed of Trust dated as of November 1,
1944 (Exhibit 2(d), File No. 2-61323).
4(b) - Seventh Supplemental Indenture dated as of May 1, 1963 (Exhibit
2(k), File No. 2-61323).
<page 64>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Exhibit
No. Description
4(c) - Eighth Supplemental Indenture dated as of July 1, 1963 (Exhibit
2(1), File No. 2-61323).
4(d) - Ninth Supplemental Indenture dated as of August 1, 1965
(Exhibit 2(m), File No. 2-61323).
4(e) - Tenth Supplemental Indenture dated as of May 1, 1966 (Exhibit
2(n), File No. 2-61323).
4(f) - Eleventh Supplemental Indenture dated as of October 1, 1969
(Exhibit 2(o), File No. 2-61323).
4(g) - Twelfth Supplemental Indenture dated as of May 1, 1971 (Exhibit
2(p), File No. 2-61323).
4(h) - Thirteenth Supplemental Indenture dated as of July 1, 1974
(Exhibit 2(q), File No. 2-61323).
4(i) - Fourteenth Supplemental Indenture dated as of March 1, 1975
(Exhibit 2(r), File No. 2-61323).
4(j) - Fifteenth Supplemental Indenture dated as of September 1, 1976
(Exhibit 2(e), File No. 2-57034).
4(k) - Sixteenth Supplemental Indenture dated as of November 1, 1981
(Exhibit 4(x), File No. 2-74332).
4(l) - Seventeenth Supplemental Indenture dated as of December 1, 1982
(Exhibit 4(cc), File No. 2-80407).
4(m) - Eighteenth Supplemental Indenture dated as of September 1, 1983
(Exhibit (a) to Form 10-Q for the quarter ended September 30,
1983, File No. 1-4756).
4(n) - Nineteenth Supplemental Indenture dated as of May 1, 1985
(Exhibit 4(v), File No. 2-97230).
4(o) - Twentieth Supplemental Indenture dated as of July 1, 1987
(Exhibit 4(o) to Form 10-K for the year ended December 31,
1987, File No. 2-97230).
4(p) - Twenty-First Supplemental Indenture dated as of July 1, 1989
(Exhibit 4(p) to Form 10-Q for the quarter ended June 30, 1989,
File No. 2-97230).
4(q) - Twenty-Second Supplemental Indenture dated as of January 15,
1992 (Exhibit 4(q) to Form 10-K for the year ended December 31,
1991, File No. 2-97230).
*4(r) - Twenty-Third Supplemental Indenture dated as of September 15,
1993.
4(s) - Indenture and Security Agreement for Secured Debentures dated
as of January 15, 1992 (Exhibit 4(r) to Form 10-K for the year
ended December 31, 1991, File No. 2-97230).
*4(t) - Indenture and Security Agreement for Secured Debentures dated
as of September 15, 1993.
<page 65>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Exhibit
No. Description
Material Contracts Relating to TNP One
10(a) - Fuel Supply Agreement, dated November 18, 1987, between
Phillips Coal Company and the Utility (Exhibit 10(j) to Form
10-K for the year ended December 31, 1987, File No. 2-97230).
10(b) - Unit 1 First Amended and Restated Project Loan and Credit
Agreement, dated as of January 8, 1992 (the "Unit 1 Credit
Agreement"), among the Utility, Texas Generating Company
("TGC"), the banks named therein as Banks (the "Unit 1 Banks")
and The Chase Manhattan Bank (National Association), as Agent
for the Unit 1 Banks (the "Unit 1 Agent"), amending and
restating the Project Loan and Credit Agreement among such
parties dated as of December 1, 1987 (Exhibit 10(c) to Form 10-
K for the year ended December 31, 1991, File No. 2-97230).
10(b)1 - Participation Agreement, dated as of January 8, 1992, among the
banks named therein as Banks, the parties named therein as
Participants and the Unit 1 Agent (Exhibit 10(c)1 to Form 10-K
for the year ended December 31, 1991, File No. 2-97230).
*10(b)2 - Amendment No. 1, dated as of September 21, 1993, to the Unit 1
Credit Agreement.
10(c) - Assignment and Security Agreement, dated as of January 8, 1992,
among TGC and the Unit 1 Agent, for the benefit of the Secured
Parties, as defined in the Unit 1 Credit Agreement, amending
and restating the Assignment and Security Agreement among such
parties dated as of December 1, 1987 (Exhibit 10(d) to Form 10-
K for the year ended December 31, 1991, File No. 2-97230).
10(d) - Assignment and Security Agreement, dated December 1, 1987,
executed by the Utility in favor of the Unit 1 Agent for the
benefit of the Secured Parties, as defined therein (Exhibit
10(u) to Form 10-K for the year ended December 31, 1987, File
No. 2-97230).
10(e) - Amended and Restated Subordination Agreement, dated as of
October 1, 1988, among the Utility, Continental Illinois
National Bank and Trust Company of Chicago and the Unit 1
Agent, amending and restating the Subordination Agreement among
such parties dated as of December 1, 1987 (Exhibit 10(uu) to
Form 10-K for the year ended December 31, 1988, File No. 2-
97230).
10(f) - Mortgage and Deed of Trust (With Security Agreement and UCC
Financing Statement for Fixture Filing), dated to be effective
as of December 1, 1987, and executed by Project Funding
Corporation ("PFC"), as Mortgagor, to Donald H. Snell, as
Mortgage Trustee, for the benefit of the Secured Parties, as
defined therein (Exhibit 10(ee) to Form 10-K for the year ended
December 31, 1987, File No. 2-97230).
10(f)1 - Supplemental Mortgage and Deed of Trust (With Security
Agreement and UCC Financing Statement for Fixture Filing),
executed by TGC, as Mortgagor, on January 27, 1992, to be
effective as of December 1, 1987, to Donald H. Snell, as
Mortgage Trustee, for the benefit of the Secured Parties, as
defined therein (Exhibit 10(g)4 to Form 10-K for the year ended
December 31, 1991, File No. 2-97230).
10(f)2 - First TGC Modification and Extension Agreement, dated as of
January 24, 1992, among the Unit 1 Banks, the Unit 1 Agent, the
Utility and TGC (Exhibit 10(g)1 to Form 10-K for the year ended
December 31, 1991, File No. 2-97230).
<page 66>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Exhibit
No. Description
10(f)3 - Second TGC Modification and Extension Agreement, dated as of
January 27, 1992, among the Unit 1 Banks, the Unit 1 Agent, the
Utility and TGC (Exhibit 10(g)2 to Form 10-K for the year ended
December 31, 1991, File No. 2-97230).
10(f)4 - Third TGC Modification and Extension Agreement, dated as of
January 27, 1992, among the Unit 1 Banks, the Unit 1 Agent, the
Utility and TGC (Exhibit 10(g)3 to Form 10-K for the year ended
December 31, 1991, File No. 2-97230).
*10(f)5 - Fourth TGC Modification and Extension Agreement, dated as of
September 29, 1993, among the Unit 1 Banks, the Unit 1 Agent,
the Utility and TGC.
*10(f)6 - Fifth TGC Modification and Extension Agreement, dated as of
September 29, 1993, among the Unit 1 Banks, the Unit 1 Agent,
the Utility and TGC.
10(g) - Indemnity Agreement, made as of the 1st day of December, 1987,
by Westinghouse, CE and Zachry, as Indemnitors, for the benefit
of the Secured Parties, as defined therein (Exhibit 10(ff) to
Form 10-K for the year ended December 31, 1987, File No. 2-
97230).
10(h) - Second Lien Mortgage and Deed of Trust (With Security
Agreement) executed by the Utility, as Mortgagor, to Donald H.
Snell, as Mortgage Trustee, for the benefit of the Secured
Parties, as defined therein (Exhibit 10(jj) to Form 10-K for
the year ended December 31, 1987, File No. 2-97230).
10(h)1 - Correction Second Lien Mortgage and Deed of Trust (with
Security Agreement), dated as of December 1, 1987, executed by
the Utility, as Mortgagor, to Donald H. Snell, as Mortgage
Trustee, for the benefit of the Secured Parties, as defined
therein (Exhibit 10(vv) to Form 10-K for the year ended
December 31, 1988, File No. 2-97230).
10(h)2 - Second Lien Mortgage and Deed of Trust (with Security
Agreement) Modification, Extension and Amendment Agreement,
dated as of January 8, 1992, executed by the Utility to Donald
H. Snell, as Mortgage Trustee, for the benefit of the Secured
Parties, as defined therein (Exhibit 10(i)2 to Form 10-K for
the year ended December 31, 1991, File No. 2-97230).
*10(h)3 - TNP Second Lien Mortgage Modification No. 2, dated as of
September 21, 1993, executed by the Utility to Donald H. Snell,
as Mortgage Trustee, for the benefit of the Secured Parties, as
defined therein.
10(i) - Agreement for Conveyance and Partial Release of Liens, made as
of the 1st day of December, 1987, by PFC and the Unit 1 Agent
for the benefit of the Utility (Exhibit 10(kk) to Form 10-K for
the year ended December 31, 1987, File No. 2-97230).
10(j) - Inducement and Consent Agreement, dated as of June 15, 1988,
between Phillips Coal Company, Kiewit Texas Mining Company, the
Utility, Phillips Petroleum Company and Peter Kiewit Son's,
Inc. (Exhibit 10(nn) to Form 10-K for the year ended December
31, 1988, File No. 2-97230).
10(k) - Assumption Agreement, dated as of October 1, 1988, executed by
TGC, in favor of the Issuing Bank, as defined therein, the Unit
1 Banks, the Unit 1 Agent and the Depositary, as defined
therein (Exhibit 10(ww) to Form 10-K for the year ended
December 31, 1988, File No. 2-97230).
<page 67>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Exhibit
No. Description
10(l) - Guaranty, dated as of October 1, 1988, executed by the Utility
and given in respect of the TGC obligations under the Unit 1
Credit Agreement (Exhibit 10(xx) to Form 10-K for the year
ended December 31, 1988, File No. 2-97230).
10(m) - First Amended and Restated Facility Purchase Agreement, dated
as of January 8, 1992, among the Utility, as the Purchaser, and
TGC, as the Seller, amending and restating the Facility
Purchase Agreement among such parties dated as of October 1,
1988 (Exhibit 10(n) to Form 10-K for the year ended December
31, 1991, File No. 2-97230).
10(n) - Operating Agreement, dated as of October 1, 1988, among the
Utility and TGC (Exhibit 10(zz) to Form 10-K for the year ended
December 31, 1988, File No. 2-97230).
10(o) - Unit 2 First Amended and Restated Project Loan and Credit
Agreement, dated as of January 8, 1992 (the "Unit 2 Credit
Agreement"), among the Utility, Texas Generating Company II
("TGCII"), the banks named therein as Banks (the "Unit 2
Banks") and The Chase Manhattan Bank (National Association), as
Agent for the Unit 2 Banks (the "Unit 2 Agent"), amending and
restating the Project Loan and Credit Agreement among such
parties dated as of October 1, 1988 (Exhibit 10(q) to Form 10-K
for the year ended December 31, 1991, File No. 2-97230).
*10(o)1 - Amendment No. 1, dated as of September 21, 1993, to the Unit 2
Credit Agreement.
10(p) - Assignment and Security Agreement, dated as of January 8, 1992,
among TGCII and the Unit 2 Agent, for the benefit of the
Secured Parties, as defined in the Unit 2 Credit Agreement,
amending and restating the Assignment and Security Agreement
among such parties dated as of October 1, 1988 (Exhibit 10(r)
to Form 10-K for the year ended December 31, 1991, File No. 2-
97230).
10(q) - Assignment and Security Agreement, dated as of October 1, 1988,
executed by the Utility in favor of the Unit 2 Agent for the
benefit of the Secured Parties, as defined therein (Exhibit
10(jjj) to Form 10-K for the year ended December 31, 1988, File
No. 2-97230).
10(r) - Subordination Agreement, dated as of October 1, 1988, among the
Utility, Continental Illinois National Bank and Trust Company
of Chicago and the Unit 2 Agent (Exhibit 10(mmm) to Form 10-K
for the year ended December 31, 1988, File No. 2-97230).
10(s) - Mortgage and Deed of Trust (With Security Agreement and UCC
Financing Statement for Fixture Filing), dated to be effective
as of October 1, 1988, and executed by Texas PFC, Inc., as
Mortgagor, to Donald H. Snell, as Mortgage Trustee, for the
benefit of the Secured Parties, as defined therein (Exhibit
10(uuu) to Form 10-K for the year ended December 31, 1988, File
No. 2-97230).
10(s)1 - First TGCII Modification and Extension Agreement, dated as of
January 24, 1992, among the Unit 2 Banks, the Unit 2 Agent, the
Utility and TGCII (Exhibit 10(u)1 to Form 10-K for the year
ended December 31, 1991, File No. 2-97230).
10(s)2 - Second TGCII Modification and Extension Agreement, dated as of
January 27, 1992, among the Unit 2 Banks, the Unit 2 Agent, the
Utility and TGCII (Exhibit 10(u)2 to Form 10-K for the year
ended December 31, 1991, File No. 2-97230).
<page 68>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Exhibit
No. Description
10(s)3 - Third TGCII Modification and Extension Agreement, dated as of
January 27, 1992, among the Unit 2 Banks, the Unit 2 Agent, the
Utility and TGCII (Exhibit 10(u)3 to Form 10-K for the year
ended December 31, 1991, File No. 2-97230).
*10(s)4 - Fourth TGCII Modification and Extension Agreement, dated as of
September 29, 1993, among the Unit 2 Banks, the Unit 2 Agent,
the Utility and TGCII.
10(t) - Release and Waiver of Liens and Indemnity Agreement, made
effective as of the 1st day of October, 1988, by a consortium
composed of Westinghouse, CE, and Zachry (Exhibit 10(vvv) to
Form 10-K for the year ended December 31, 1988, File No. 2-
97230).
10(u) - Second Lien Mortgage and Deed of Trust (With Security
Agreement), dated as of October 1, 1988, and executed by the
Utility, as Mortgagor, to Donald H. Snell, as Mortgage Trustee,
for the benefit of the Secured Parties, as defined therein
(Exhibit 10(www) to Form 10-K for the year ended December 31,
1988, File No. 2-97230).
10(u)1 - Second Lien Mortgage and Deed of Trust (with Security
Agreement) Modification, Extension and Amendment Agreement,
dated as of January 8, 1992, executed by the Utility to Donald
H. Snell, as Mortgage Trustee, for the benefit of the Secured
Parties, as defined therein (Exhibit 10(w)1 to Form 10-K for
the year ended December 31, 1991, File No. 2-97230).
*10(u)2 - TNP Second Lien Mortgage Modification No. 2, dated as of
September 21, 1993, executed by the Utility to Donald H. Snell,
as Mortgage Trustee, for the benefit of the Secured Parties, as
defined therein.
10(v) - Intercreditor and Nondisturbance Agreement, dated as of October
1, 1988, among PFC, Texas PFC, Inc., the Utility, the Project
Creditors, as defined therein, and the Collateral Agent, as
defined therein (Exhibit 10(xxx) to Form 10-K for the year
ended December 31, 1988, File No. 2-97230).
10(v)1 - Amendment #1, dated as of January 8, 1992, to the Intercreditor
and Nondisturbance Agreement, dated as of October 1, 1988,
among TGC, TGCII, the Utility, the Unit 1 Banks, the Unit 2
Banks and The Chase Manhattan Bank (National Association) in
its capacity as collateral agent for the Unit 1 Banks and the
Unit 2 Banks (Exhibit 10(x)1 to Form 10-K for the year ended
December 31, 1991, File No. 2-97230).
*10(v)2 - Amendment No. 2, dated as of September 21, 1993, to the
Intercreditor and Nondisturbance Agreement, among TGC, TGCII,
the Utility, the Unit 1 Banks, the Unit 2 Banks and The Chase
Manhattan Bank (National Association) in its capacity as
collateral agent for the Unit 1 Banks and the Unit 2 Banks.
10(w) - Grant of Reciprocal Easements and Declaration of Covenants
Running with the Land, dated as of the 1st day of October, 1988
between PFC and Texas PFC, Inc. (Exhibit 10(yyy) to Form 10-K
for the year ended December 31, 1988, File No. 2-97230).
10(x) - Non-Partition Agreement, dated as of May 30, 1990, among the
Utility, TGC and The Chase Manhattan Bank (National
Association), as Agent for the Banks which are parties to the
Unit 1 Credit Agreement (Exhibit 10(ss) to Form 10-K for the
year ended December 31, 1990, File No. 2-97230).
<page 69>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Exhibit
No. Description
10(y) - Assumption Agreement, dated July 26, 1991, to be effective as
of May 31, 1991, by TGCII in favor of the Issuing Bank, the
Unit 2 Banks, the Unit 2 Agent and the Depositary, as defined
therein (Exhibit 10(kkk) to Amendment No. 1 to File No. 33-
41903).
10(z) - Guaranty, dated July 26, 1991, to be effective as of May 31,
1991, by the Utility and given in respect of the TGCII
obligations under the Unit 2 Credit Agreement (Exhibit 10(lll)
to Amendment No. 1 to File No. 33-41903).
10(aa) - First Amended and Restated Facility Purchase Agreement, dated
as of January 8, 1992, among the Utility, as the Purchaser, and
TGCII, as the Seller, amending and restating the Facility
Purchase Agreement among such parties dated July 26, 1991, to
be effective as of May 31, 1991 (Exhibit 10(dd) to Form 10-K
for the year ended December 31, 1991, File No. 2-97230).
*10(aa)1 - Amendment No. 1 to the Unit 2 First Amended and Restated
Facility Purchase Agreement, dated as of September 21, 1993,
among the Utility, as the Purchaser, and TGCII, as the Seller.
10(bb) - Operating Agreement, dated July 26, 1991, to be effective as of
May 31, 1991, between the Utility and TGCII (Exhibit 10(nnn) to
Amendment No. 1 to File No. 33-41903).
10(cc) - Non-Partition Agreement, executed July 26, 1991, to be
effective as of May 31, 1991, among the Utility, TGCII and The
Chase Manhattan Bank (National Association) (Exhibit 10(ppp) to
Amendment No. 1 to File No. 33-41903).
Power Supply Contracts
10(dd) - Contract dated May 12, 1976 between the Utility and Houston
Lighting & Power Company (Exhibit 5(a), File No. 2-69353).
10(dd)1 - Amendment, dated January 4, 1989, to the Contract dated May 12,
1976 between the Utility and Houston Lighting & Power Company
(Exhibit 10(cccc) to Form 10-K for the year ended December 31,
1988, File No. 2-97230).
10(ee) - Contract dated May 1, 1986 between the Utility and Texas
Electric Utilities Company, amended September 29, 1986, October
24, 1986 and February 21, 1987 (Exhibit 10(c) of Form 8
applicable to Form 10-K for the year ended December 31, 1986,
File No. 2-97230).
10(ff) - Amended and Restated Agreement for Electric Service dated May
14, 1990 between the Utility and Texas Utilities Electric
Company (Exhibit 10(vv) to Form 10-K for the year ended
December 31, 1990, File No. 2-97230).
10(ff)1 - Amendment, dated April 19, 1993, to Amended and Restated
Agreement for Electric Service, dated May 14, 1990, As Amended
between the Utility and Texas Utilities Electric Company
(Exhibit 10(ii)1 to Form S-2 Registration Statement, filed on
July 19, 1993, File No. 33-66232).
10(gg) - Contract dated June 11, 1984 between the Utility and
Southwestern Public Service Company (Exhibit 10(d) of Form 8
applicable to Form 10-K for the year ended December 31, 1986,
File No. 2-97230).
<page 70>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Exhibit
No. Description
10(hh) - Contract dated April 27, 1977 between the Utility and West
Texas Utilities Company amended April 14, 1982, April 19, 1983,
May 18, 1984 and October 21, 1985 (Exhibit 10(e) of Form 8
applicable to Form 10-K for the year ended December 31, 1986,
File No. 2-97230).
10(ii) - Contract dated April 29, 1987 between the Utility and El Paso
Electric Company (Exhibit 10(f) of Form 8 applicable to Form
10-K for the year ended December 31, 1986, File No. 2-97230).
10(jj) - Contract dated February 28, 1974, amended May 13, 1974,
November 26, 1975, August 26, 1976 and October 7, 1980 between
the Utility and Public Service Company of New Mexico (Exhibit
10(g) of Form 8 applicable to Form 10-K for the year ended
December 31, 1986, File No. 2-97230).
10(jj)1 - Amendment, dated February 22, 1982, to the Contract dated
February 28, 1974, amended May 13, 1974, November 26, 1975,
August 26, 1976, and October 7, 1980 between the Utility and
Public Service Company of New Mexico (Exhibit 10(iiii) to Form
10-K for the year ended December 31, 1988, File No. 2-97230).
10(jj)2 - Amendment, dated February 8, 1988, to the Contract dated
February 28, 1974, amended May 13, 1974, November 26, 1975,
August 26, 1976, and October 7, 1980 between the Utility and
Public Service Company of New Mexico (Exhibit 10(jjjj) to Form
10-K for the year ended December 31, 1988, File No. 2-97230).
10(jj)3 - Amended and Restated Contract for Electric Service, dated April
29, 1988, between the Utility and Public Service Company of New
Mexico (Exhibit 10(zz)3 to Amendment No. 1 to File No. 33-
41903).
10(kk) - Contract dated December 8, 1981 between the Utility and
Southwestern Public Service Company amended December 12, 1984,
December 2, 1985 and December 19, 1986 (Exhibit 10(h) of Form 8
applicable to Form 10-K for the year ended December 31, 1986,
File No. 2-97230).
10(kk)1 - Amendment, dated December 12, 1988, to the Contract dated
December 8, 1981 between the Utility and Southwestern Public
Service Company amended December 12, 1984, December 2, 1985 and
December 19, 1986 (Exhibit 10(llll) to Form 10-K for the year
ended December 31, 1988, File No. 2-97230).
10(kk)2 - Amendment, dated December 12, 1990, to the Contract dated
December 8, 1981 between the Utility and Southwestern Public
Service Company (Exhibit 19(t) to Form 10-K for the year ended
December 31, 1990, File No. 2-97230).
10(ll) - Contract dated August 31, 1983, between the Utility and Capitol
Cogeneration Company, Ltd. (including letter agreement dated
August 14, 1986) (Exhibit 10(i) of Form 8 applicable to Form
10-K for the year ended December 31, 1986, File No. 2-97230).
10(ll)1 - Agreement Substituting a Party, dated May 3, 1988, among
Capitol Cogeneration Company, Ltd., Clear Lake Cogeneration
Limited Partnership and the Utility (Exhibit 10(nnnn) to Form
10-K for the year ended December 31, 1988, File No. 2-97230).
<page 71>
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Exhibit
No. Description
10(ll)2 - Letter Agreements, dated May 30, 1990 and August 28, 1991,
between Clear Lake Cogeneration Limited Partnership and the
Utility (Exhibit 10(oo)2 to Form 10-K for the year ended
December 31, 1992, File No. 2-97230).
10(ll)3 - Notice of Extension Letter, dated August 31, 1992, between
Clear Lake Cogeneration Limited Partnership and the Utility
(Exhibit 10(oo)3 to Form 10-K for the year ended December 31,
1992, File No. 2-97230).
10(ll)4 - Scheduling Agreement, dated September 15, 1992, between Clear
Lake Cogeneration Limited Partnership and the Utility (Exhibit
10(oo)4 to Form 10-K for the year ended December 31, 1992, File
No. 2-97230).
10(mm) - Interconnection Agreement between the Utility and Plains
Electric Generation and Transmission Cooperative, Inc. dated
July 19, 1984 (Exhibit 10(j) of Form 8 applicable to Form 10-K
for the year ended December 31, 1986, File No. 2-97230).
10(nn) - Interchange Agreement between the Utility and El Paso Electric
Company dated April 29, 1987 (Exhibit 10(l) of Form 8
applicable to Form 10-K for the year ended December 31, 1986,
File No. 2-97230).
10(oo) - DC Terminal Participation Agreement between the Utility and El
Paso Electric Company dated December 8, 1981 amended April 29,
1987 (Exhibit 10(m) of Form 8 applicable to Form 10-K for the
year ended December 31, 1986, File No. 2-97230).
Employment Contracts
*10(pp) - Texas-New Mexico Power Company Executive Agreement for
Severance Compensation Upon Change in Control, executed
November 11, 1993, between Sector Vice President and Chief
Financial Officer and the Utility (Pursuant to Instruction 2 of
Reg. 229.601(a), accompanying this document is a schedule: (i)
identifying documents substantially identical to the document
which have been omitted from the Exhibits; and (ii) setting
forth the material details in which such omitted documents
differ from the document).
*10(qq) - Texas-New Mexico Power Company Key Employee Agreement for
Severance Compensation Upon Change in Control, executed
November 11, 1993, between Assistant Treasurer and the Utility
(Pursuant to Instruction 2 of Reg. 229.601(a), accompanying
this document is a schedule: (i) identifying documents
substantially identical to the document which have been omitted
from the Exhibits; and (ii) setting forth the material details
in which such omitted documents differ from the document).
*10(rr) - Agreement between James M. Tarpley and TNPE and the Utility,
effective January 1, 1994.
*10(ss) - Agreement between Dwight R. Spurlock and TNPE and the Utility,
effective November 9, 1993.
*21 - Subsidiaries of the Registrant.
<page 72>