UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(X) COMBINED ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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TNP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
4100 International Plaza,
P. O. Box 2943, Commission File
Texas Fort Worth, Texas 76113 Number: 1-8847
- -------- ------------------------- ------------------
(State of (Address and zip code of
incorporation) principal executive offices)
Telephone number, including area code: 817-731-0099 75-1907501
------------ ------------------
(I.R.S. employer
identification no.)
Securities registered pursuant to Section 12(b) of the Act:
Shares Outstanding Name of each exchange
Title of each class on February 28, 1999 on which registered
- --------------------- -------------------- ----------------------
Common stock, no par value 13,373,933 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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. \ \
The aggregate market value of TNP Enterprises, Inc. common stock
held by nonaffiliates on February 28, 1999, was $385,910,255 based on the
common stock's closing price on the New York Stock Exchange on the same
date of $29.25 per share.
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TEXAS-NEW MEXICO POWER COMPANY
(Exact name of registrant as specified in its charter)
4100 International Plaza,
P. O. Box 2943, Commission File
Texas Fort Worth, Texas 76113 Number: 2-97230
- -------- ------------------------- ------------------
(State of (Address and zip code of
incorporation) principal executive offices)
Telephone number, including area code: 817-731-0099 75-0204070
------------ ------------------
(I.R.S. employer
identification no.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ------------------------
First mortgage bonds: Series U, 9.25% due 2000 None
Secured debentures: Series A, 10.75% due 2003 None
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\
TNP Enterprises, Inc. holds all 10,705 outstanding common shares
of Texas-New Mexico Power Company.
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DOCUMENTS INCORPORATED BY REFERENCE
Document Part Where Incorporated
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Proxy Statement for 1999 Annual Meeting of
Holders of TNP Enterprises, Inc. Common Stock III
TNP ENTERPRISES INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998
This combined annual report on Form 10-K is filed separately by TNP
Enterprises, Inc. and Texas-New Mexico Power Company. Information contained in
this report relating to Texas-New Mexico Power Company is filed by TNP
Enterprises, Inc. and separately by Texas-New Mexico Power Company on its own
behalf. Texas-New Mexico Power Company makes no representation as to information
relating to TNP Enterprises, Inc. or to any other affiliate or subsidiary of TNP
Enterprises, Inc., except as it may relate to Texas-New Mexico Power Company.
TABLE OF CONTENTS
Glossary of Terms.......................................................... 3
Part I
Item 1. BUSINESS......................................................... 4
Introduction..................................................... 4
TNMP's Service Areas............................................. 4
Seasonality of Business.......................................... 5
Sources of Energy................................................ 5
Government Regulation............................................ 6
Employees and Executive Officers................................. 6
Item 2. PROPERTIES....................................................... 8
Generating Facilities............................................ 8
Transmission and Distribution Facilities......................... 8
Administrative and Service Facilities............................ 8
Item 3. LEGAL PROCEEDINGS................................................ 8
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 9
Part II
Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.................................. 9
Item 6. SELECTED FINANCIAL DATA........................... .............. 10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................. 12
Competitive Conditions........................................... 12
Results of Operations............................................ 13
Liquidity and Capital Resources.................................. 16
Other Matters.................................................... 19
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 20
TNP Enterprises, Inc. and Subsidiaries........................... 24
Texas-New Mexico Power Company and Subsidiaries.................. 29
Notes to Consolidated Financial Statements....................... 34
Selected Quarterly Consolidated Financial Data................... 46
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................. 46
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 47
Directors........................................................ 47
Executive Officers............................................... 47
Item 11. EXECUTIVE COMPENSATION........................................... 47
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 47
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 47
Part IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K... 47
TNP ENTERPRISES INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998
Glossary of Terms
As used in this combined report, the following abbreviations, acronyms, or
capitalized terms have the meanings set forth below:
Abbreviation, Acronym,
or Capitalized Term Meaning
- ---------------------- -----------
AFUDC ................. Allowance for borrowed funds used during construction
Bond Indenture......... Document pursuant to which FMBs are issued
Clear Lake ............ Clear Lake Cogeneration Limited Partnership
EPE ................... El Paso Electric Company
EPS ................... Earnings (loss) per share of common stock
ERCOT.................. Electric Reliability Council of Texas
FWI.................... Facility Works, Inc., a wholly owned subsidiary of TNP
FERC .................. Federal Energy Regulatory Commission
FMB(s)................. One or more First Mortgage Bonds issued by TNMP
GWH ................... Gigawatt-Hours IRS Internal Revenue Service
ITC ................... Investment Tax Credits
KWH ................... Kilowatt-Hours
MW .................... Megawatts
MWH ................... Megawatt-Hours
NMPRC.................. New Mexico Public Regulation Commission
NMPUC.................. New Mexico Public Utility Commission
PPM.................... PPM America, Inc.
PUCT................... Public Utility Commission of Texas
SPS ................... Southwestern Public Service Company
SFAS .................. Statement of Financial Accounting Standards
TEP ................... Tucson Electric Power Company
TGC ................... Texas Generating Company, a wholly owned subsidiary of
TNMP
TGC II................. Texas Generating Company II, a wholly owned subsidiary
of TNMP
TNP One................ A two-unit, lignite-fueled, circulating fluidized-bed
generating plant located in Robertson County, Texas
TNMP................... Texas-New Mexico Power Company, a wholly owned
subsidiary of TNP
TNP ................... TNP Enterprises, Inc.
Transition Plan........ TNMP's transition-to-competition plan in Texas
TU..................... Texas Utilities Electric Company
Unit 1................. The first electric generating unit of TNP One
Unit 2................. The second electric generating unit of TNP One
Y2K .................. The Year 2000 Issue
Statement Regarding Forward Looking Information
The discussions in this document that are not historical facts, including,
but not limited to, the continued application of regulatory accounting
principles, future cash flows and the potential recovery of stranded costs, are
based upon current expectations. Actual results may differ materially. Among the
facts that could cause the results to differ materially from expectations are
the following: legislation in Texas and New Mexico, the states TNMP serves,
affecting the regulation of TNMP's business; changes in regulations affecting
TNP and TNMP's businesses; PUCT or court disapproval of litigation settlement;
future acquisitions or strategic partnerships; general business and economic
conditions, and price fluctuations in the electric power market; the
effectiveness of TNMP's Y2K mitigation plan, and the timely Y2K compliance by
TNP' and TNMP's vendors; and other factors described from time to time in TNP's
and TNMP's reports filed with the Securities and Exchange Commission. TNP and
TNMP wish to caution readers not to place undue reliance on any such forward
looking statements, which are made pursuant to the Private Securities Litigation
Reform Act of 1995 and, as such, speak only as of the date made.
PART I
Item 1. BUSINESS.
Introduction
TNP was organized as a holding company in 1983 and transacts business
through its subsidiaries. TNMP is a public utility engaged in generating,
purchasing, transmitting, distributing, and selling electricity to customers in
Texas and New Mexico. TNMP's predecessor was organized in 1925. TNMP has two
subsidiaries, TGC and TGC II, both of which were organized to facilitate TNMP's
acquisitions of TNP One, Unit 1 and Unit 2, in 1990 and 1991, respectively.
FWI is a wholly owned subsidiary of TNP that began operations in 1996. TNP
discontinued the construction operations of FWI in the late 1997, and
discontinued all remaining operations in the third quarter of 1998. The impact
of these discontinued operations to TNP's results of operations are described in
Item 7, "Results of Operations--Overall Results," and Note 3.
TNP, TNMP, TGC, TGC II and FWI are all Texas corporations. Their executive
offices are located at 4100 International Plaza, P.O. Box 2943, Fort Worth,
Texas 76113 and the telephone number is (817) 731-0099. Unless otherwise
indicated, all financial information in this report is presented on a
consolidated basis.
TNMP's Service Areas
TNMP provides electric service to 85 Texas and New Mexico municipalities
and adjacent rural areas with more than 228,000 customers. TNMP serves a market
niche of smaller to medium sized communities. Only two of the 85 communities in
TNMP's service area have populations in excess of 50,000. TNMP's service areas
are organized into three operating regions: the Gulf Coast Region, the
North-Central Region, and the Mountain Region.
Gulf Coast Region
The Gulf Coast Region includes the area along the Texas Gulf Coast between
Houston and Galveston. The oil and petrochemical industries, agricultural
industry and general commercial activity in the Houston area support the economy
of this area.
North-Central Region
The North-Central Region extends from Lewisville, Texas, which is 10 miles
north of Dallas-Fort Worth International Airport, to municipalities along the
Red River. TNMP provides electric service to a variety of commercial,
agricultural and petroleum industry customers in this area. This region also
includes municipalities and communities south and west of Fort Worth. This
area's economy depends largely on agriculture and, to a lesser extent, tourism
and oil production.
Mountain Region
The Mountain Region includes areas in southwest and south central New
Mexico. This region's economy is primarily dependent upon mining and
agriculture. Copper mines are the major industrial customers in this region.
This region also includes the area in far west Texas between Midland and El
Paso. The economy in this area is based primarily on oil and gas production,
agriculture, and food processing.
TNMP's revenues in all regions come primarily from retail customers. TNMP's
other sales represent resale of electricity to customers outside TNMP's system.
Revenues contributed by each operating sector and its percentage of total
operating revenues in 1998, 1997, and 1996, respectively, are set forth in the
following table. No single customer accounted for more than 10% of operating
revenues during the years presented in the table.
Operating Revenues ($000s)
Sector 1998 1997 1996
-------- ----------------- ------------------- ---------------------
Gulf Coast $ 295,181 50.3% $ 315,596 54.3% $ 269,535 53.6%
North-Central 162,696 27.7 144,098 24.8 134,236 26.7
Mountain 117,407 20.0 107,243 18.5 98,966 19.7
Other 11,161 2.0 13,756 2.4 - -
---------- ----- ---------- ------- ---------- -----
Total $ 586,445 100.0% $ 580,693 100.0% $ 502,737 100.0%
========== ===== ========== ===== ========== =====
Franchises and Certificates of Public Convenience and Necessity
TNMP holds 83 franchises with terms ranging from 20 to 50 years and two
franchises with indefinite terms from the 85 municipalities to which it provides
electric service. These franchises will expire on various dates from 1999 to
2039. Three Texas franchises, comprising 27% of total company revenues, are
scheduled to expire in 1999. However, Texas law does not require an electric
utility to execute a franchise agreement with a Texas municipality to be
entitled to provide or continue to provide electrical service within the
municipality. A franchise agreement documents the mutually agreeable terms under
which the service will be provided. TNMP intends to negotiate and execute new or
amended franchise agreements to be effective before existing franchises expire.
TNMP also holds PUCT certificates of public convenience and necessity
covering all Texas areas that TNMP serves. These certificates include terms that
are customary in the public utility industry. TNMP generally has not been
required to have certificates of public convenience and necessity to provide
electric power in New Mexico.
Seasonality of Business
TNMP experiences increased sales and operating revenues during the summer
months as a result of increased air conditioner usage in hot weather. In 1998,
approximately 41% of annual revenues were recorded in June, July, August, and
September.
Sources of Energy
TNMP owns one 300 MW lignite-fueled generating facility, TNP One. During
1998, TNP One provided approximately 20% of TNMP's system wide energy
requirements. Power generated at TNP One is transmitted over TNMP's own
transmission lines to other utilities' transmission systems for delivery to
TNMP's Texas service area systems. To maintain a reliable power supply for its
customers and to coordinate interconnected operations, TNMP is a member of the
ERCOT and the Western Systems Coordinating Council.
TNMP purchases the remainder of its electricity from various suppliers with
diversified fuel sources. The availability and cost of purchased power to TNMP
is subject to changes in supplier costs, regulations and laws, fuel costs, and
other factors. TNMP has adequate resources through its firm contracts to serve
its entire customer load. These contracts allow TNMP the option to purchase
power within a specified minimum and maximum range. Purchases on the spot market
are primarily made in lieu of firm contract options when the spot market price
represents savings to TNMP's customers. In recent years TNMP has reduced its
reliance upon long-term power supply contracts in favor of contracts of a
shorter term. This enhances TNMP's ability to achieve greater purchased power
savings during periods of decreasing power costs, but exposes TNMP to greater
risk in the presence of rising costs. For example, TNMP incurred higher
purchased power costs in the summer of 1998, when the spot market price
ofpurchased power increased sharply.
The following table illustrates the composition of TNMP's sources of
electric energy in 1998.
Year Contract Percent of
Expires Energy Provided
Generation
TNP One.................................... - 20%
Purchased Power
Firm contracts expiring in 1999............ - 4
Firm contracts expiring in 2000-2004
Texas Utilities.......................... 2002 18
Clear Lake Cogeneration L.P.............. 2004 8
Others................................... Various 5
Firm contracts expiring in 2005 or later... 2005 2
Buy-sell agreements........................ - 24
Spot market purchases...................... - 19
----
Total 100%
====
Recovering Purchased Power and Fuel Costs
During 1998, fuel costs and the energy portion of purchased power costs in
the Texas jurisdiction were recovered from TNMP customers through the fuel
adjustment clause authorized by the PUCT. With the implementation of the
Transition Plan, the demand portion of purchased power costs, which had been
previously passed through to customers, are now being recovered through base
rates. The fixed fuel recovery factor and the related fuel reconciliation filed
with the PUCT are described in Note 2. In New Mexico, TNMP recovered purchased
power costs as specified by Community ChoiceR, which was effective May 1, 1997.
This plan froze rates (including the recovery of purchased power) for a
three-year transition period, beginning on the effective date.
Government Regulation
TNMP is subject to PUCT and NMPRC regulation. Some of its activities, such
as issuing securities, are also subject to FERC regulation. Utility industry
regulation continues to change both in reaction to, and as a primary force
behind, a more competitive industry. These changes are discussed in Item 7,
"Competitive Conditions."
In addition to regulation as a utility, TNMP's facilities are regulated by
the Environmental Protection Agency and Texas and New Mexico environmental
agencies. TNP One uses environmentally superior circulating fluidized bed
technology that eliminates the need for expensive scrubbers. TNMP was allotted
sufficient emission allowances to comply with the Clean Air Act of 1990 through
the year 2000. After 2000, TNMP expects to institute further controls or
purchase emission credits. During 1998, 1997, and 1996, TNMP incurred expenses
related to air, water, and solid waste pollution abatement (including ash
removal) of approximately $4.0 million, $5.0 million, and $6.1 million,
respectively.
Employees and Executive Officers
At December 31, 1998, TNMP had 823 employees, FWI had 58 employees, and TNP
had 4 employees. The employees are not represented by a union or covered by a
collective bargaining agreement. Management believes relations with its
employees are good.
Executive officers of TNP and TNMP, who are elected annually by the
respective boards of directors and serve at the discretion of the boards, are as
follows:
Name Age Position with TNP
Kevern R. Joyce 52 Chairman, President, & Chief Executive Officer
Jack V. Chambers, Jr. 49 Senior Vice President
Manjit S. Cheema 44 Senior Vice President & Chief Financial Officer
John P. Edwards 56 Senior Vice President
Ralph Johnson 55 Senior Vice President
W. Douglas Hobbs 55 Vice President
R. Michael Matte 45 Vice President
John A. Montgomery 37 Vice President
Michael D. Blanchard 48 Vice President & General Counsel
Patrick L. Bridges 40 Treasurer
Michael J. Ricketts 40 Controller
Paul W. Talbot 42 Secretary
Name Age Position with TNMP
Kevern R. Joyce 52 Chairman, President, & Chief Executive Officer
Jack V. Chambers, Jr. 49 Senior Vice President & Chief Customer Officer
Manjit S. Cheema 44 Senior Vice President & Chief Financial Officer
John P. Edwards 56 Senior Vice President - Corporate Relations
Ralph Johnson 55 Senior Vice President - Power Resources
Dennis R. Cash 45 Vice President & Regional Customer Officer
Allan B. Davis 61 Vice President & Regional Customer Officer
Larry W. Dillon 44 Vice President & Regional Customer Officer
John A. Montgomery 37 Vice President - Marketing
Melissa D. Davis 41 Vice President - Human Resources
Michael D. Blanchard 48 Vice President & General Counsel
Patrick L. Bridges 40 Treasurer
Scott Forbes 41 Chief Information Officer
Michael J. Ricketts 40 Controller
Paul W. Talbot 42 Secretary
Kevern R. Joyce joined TNP and TNMP in April 1994 as President and Chief
Executive Officer. He became Chairman in April 1995
Jack V. Chambers has served as Senior Vice President and Chief Customer
Officer of TNMP since 1994 and as Senior Vice President of TNP since April 1996.
He was TNMP's Sector Vice President - Revenue Production from 1990 to 1994.
Manjit S. Cheema joined TNMP in June 1994. He was Treasurer of TNMP from
June 1994 until September 1995. In December 1994, he became Vice President &
Chief Financial Officer of TNP and TNMP. He became Senior Vice President & Chief
Financial Officer of TNMP in July 1996 and became Senior Vice President & Chief
Financial Officer of TNP in May 1997.
John P. Edwards joined TNMP and TNP in July 1996 as Senior Vice President -
Corporate Relations. From October 1994 until joining TNMP and TNP, he was Senior
Vice President/Customer Group and Special Assistant to the Chief Operating
Officer, Tennessee Valley Authority. His primary responsibilities were general
administration of TVA's transmission operations, customer relationships, and
regulatory affairs.
Ralph Johnson joined TNMP and TNP in January 1995 as a consultant and
became Vice President in February 1995. In July 1996, he was named Senior Vice
President - Power Resources of TNMP. In May 1997, he was appointed Senior Vice
President at TNP. From March 1991 until he joined TNMP and TNP, Mr. Johnson was
Assistant General Manager for Tri-State Generation and Transmission Cooperative
in Denver, Colorado, which sells power to rural electric cooperatives.
Michael D. Blanchard became Vice President and General Counsel of TNMP and
TNP in February 1998. He was Corporate Secretary and General Counsel of TNMP and
TNP from 1987 to February 1998.
Patrick L. Bridges was appointed Treasurer of TNP and TNMP in September
1995. He served as TNMP's Director Finance from 1994 to September 1995 and as
Assistant Treasurer from 1993 to September 1995.
Dennis R. Cash became a TNMP Vice President and Regional Customer Officer
effective March 1999. He served as Vice President - Human Resources of TNMP from
1994 until March 1999.
Allan B. Davis has been a TNMP Vice President and Regional Customer Officer
since 1994.
Larry W. Dillon has been a TNMP Vice President and Regional Customer
Officer since 1994.
W. Douglas Hobbs was appointed as Vice President - Business Development of
TNP in May 1997. He was Vice President - Business Development of TNMP from
February 1997 to May 1997. He was a TNMP Vice President and Regional Customer
Officer from 1994 to February 1997.
John A. Montgomery was elected Vice President - Marketing of TNMP in
November 1998 and became Vice President of TNP in April 1996. He served as
President of FWI from April 1996 until May 1998. From December 1995 to January
1997 he served as TNMP's Vice President - Marketing. From February 1994 until he
joined TNMP, he served as Director of Marketing and Regional Marketing Director
of Greyhound Lines, Inc., a bus transportation company.
Melissa D. Davis was appointed Vice President - Human Resources of TNMP
effective March 1999. She served as a TNMP Vice President and Regional Customer
Officer from February 1997 until March 1999. From September 1995 to February
1997 she was TNMP's Controller. From 1994 to September 1995, she was Director -
Financial Accounting and Assistant Controller of TNMP.
Scott Forbes was elected Chief Information Officer of TNMP in June 1998. He
was Controller of TNMP from February 1997 to June 1998 and was Controller of TNP
from May 1997 to June 1998. From September 1996 to February 1997, he was
Manager-Financial Systems and Reporting. From January 1994 to September 1996 he
was Manager-Financial Reporting and Accounting Policy with Entergy Services,
Inc.
Paul W. Talbot was elected Corporate Secretary of TNP and TNMP in February
1998. He has been Senior Counsel of TNMP since August 1996. Before joining TNMP,
he was in the private practice of law in Dallas, Texas, for more than ten years.
R. Michael Matte became President of FWI in May 1998 and became Vice
President - Business Development of TNP effective November 1998. From January
1997 until joining FWI in May 1998, he was an independent management and utility
services consultant in Atlanta, Georgia. From March 1996 to January 1997, he
served as Regional Vice President Operations for ADT Security Services, an
electronic services company, and from January 1991 to March 1996, he served as
Regional General Manager of ADT.
Michael J. Ricketts was elected Controller of TNMP and TNP in June 1998.
From November 1996 to June 1998, he was Manager - Accounting Projects and from
1994 to November 1996, he was Supervisor - Accounting Support of TNMP.
Item 2. PROPERTIES.
Substantially all of TNMP's real and personal property secures its FMBs.
Substantially TNMP's entire real and personal property in Texas also secures its
Series A, 10.75% secured debentures. TNMP's long-term debt is described in Note
6.
Generating Facilities
TNP One is a two-unit, lignite-fueled generating plant, located in
Robertson County, Texas. TNP One generates power for TNMP's Texas service areas
and operates as a base load facility.
Transmission and Distribution Facilities
Management believes that TNMP's transmission and distribution facilities
are of sufficient capacity to serve existing customers adequately and can be
extended and expanded to serve customer growth for the foreseeable future. These
facilities primarily consist of overhead and underground lines, substations,
transformers, and meters. TNMP generally constructs its transmission and
distribution facilities on easements or public rights of way and not on real
property held in fee simple.
Administrative and Service Facilities
TNP's, TNMP's and FWI's corporate headquarters are located in an office
building in Fort Worth, Texas. Space in this building is leased through 2003.
TNMP owns or leases local offices in 39 of the municipalities that it
serves. TNMP owns 14 construction/service centers in Texas and New Mexico.
Item 3. LEGAL PROCEEDINGS.
TNMP and Clear Lake Limited Partnership ("Clear Lake") agreed in March 1999
to settle the lawsuit styled Clear Lake Cogeneration Limited Partnership vs.
Texas-New Mexico Power Company, pending in the 234th District court of Harris
County, Texas, and the parallel proceeding pending before the PUCT. These
proceedings arose out of disagreements between TNMP and Clear Lake over the
interpretation of certain terms of an agreement under which TNMP purchases
cogenerated electricity from Clear Lake. The settlement, which must be approved
by the PUCT, resolves all outstanding issues raised in these proceedings.
Under the settlement, TNMP, Clear Lake and Calpine Power Services Company
(an affiliate of Clear Lake) have entered into a revised purchased power
contract, effective as of October 1, 1998, governing energy and capacity
transactions between the parties. The key elements of the revised contract are:
- The capacity rate under which TNMP will purchase capacity from Clear
Lake is significantly reduced. The energy rate is virtually
unchanged.
- Clear Lake will be able to provide 250 MW of capacity from multiple
sources. Except for power plants named in the agreement, TNMP retains
certain rights of prior approval as to other sources of power and
energy.
- TNMP will pay for the cost of transmitting power from the existing
Clear Lake power plant to TNMP's load centers in the Gulf Coast Region
pursuant to new PUCT rules. Clear Lake will reimburse TNMP for any
excess transmission costs that TNMP would incur as a result of
delivery from points other than the Clear Lake Plant.
- Clear Lake will no longer pay for nor receive standby power, but will
generally guarantee 100% availability of capacity and energy. Clear
Lake may request that TNMP obtain or generate replacement power at a
negotiated fixed cost under certain limited conditions.
- Future disputes shall be resolved through consultation and
arbitration.
The settlement also provides that TNMP will pay Clear Lake $8 million when
the PUCT has approved the overall settlement and revised purchased power
contract. The settlement calls for regulatory recovery by TNMP of all payments
to be made by TNMP for power and energy, as well as the $8 million settlement
payment. TNMP does not expect this settlement to have a material adverse impact
on its financial position or results of operations.
TNMP is the defendant in a suit styled Phillips Petroleum Company vs.
Texas-New Mexico Power Company. This lawsuit was filed on October 1, 1997 and is
pending in the 149th Judicial District Court of Brazoria County, Texas. In this
matter, Phillips Petroleum Company contends that it sustained economic losses of
approximately $36 million following a one and one-half hour interruption in its
electrical service on May 17, 1997. TNMP claims that most, if not all of
Phillips Petroleum alleged damages are barred by limitations contained within
our tariff approved by the PUCT. The lawsuit is in the initial discovery stage.
In regard to this matter, TNMP believes that it has insurance coverage on most
claims of Phillips Petroleum up to a total of $31 million, with a $500,000
self-retention.
Information regarding additional regulatory and legal matters is provided
in Notes 2 and 9.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of 1998.
PART II
Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
TNP's common stock is traded on the New York Stock Exchange under the
symbol "TNP." The high and low prices of, and the amount of dividends declared
and paid on, TNP's common stock during each quarter in 1998 and 1997 were as
follows:
TNP
MARKET PRICE RANGE DIVIDENDS
1998 1997 PAID
-------------------- ---------------------- -----------------
QUARTER HIGH LOW HIGH LOW 1998 1997
------- ---- --- ---- --- ---- ----
First $33 7/8 $31 5/16 $27 3/4 $21 3/8 $ 0.27 $ 0.245
Second 34 1/32 30 11/16 24 18 7/8 0.27 0.245
Third 34 15/16 29 25 15/16 22 15/16 0.27 0.245
Fourth 38 11/16 31 3/8 33 3/4 24 7/16 0.29 0.270
------- --------
$ 1.10 $ 1.005
====== =======
As of January 31, 1999, there were approximately 3,481 record holders of
TNP common stock.
TNP holds all 10,705 outstanding common shares of TNMP. During 1998 and
1997, TNMP paid common dividends to TNP as follows (in thousands):
QUARTER 1998 1997
------- ---- ----
First $ 10,000 $ 9,000
Second 3,600 11,800
Third 5,500 9,500
Fourth - 14,000
--------- ---------
Total $ 19,100 $ 44,300
========= =========
Item 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data of TNP and TNMP for
1994 through 1998.
1998 1997 1996 1995 1994
-------------- ------------ --------------- ------------- ------------
TNP ENTERPRISES, INC. (In thousands except per share amounts and percentages)
Consolidated results
Operating revenues $ 586,493 $ 580,693 $ 502,737 $ 485,823 $ 477,989
Income (loss) from continuing operations before
the cumulative effect of change in accounting $ 32,134 $ 42,561 $ 26,150 $ 33,060 $ (17,441)
Net income (loss) $ 19,424 $ 29,678 $ 23,053 $ 41,505 $ (17,441)
Total assets $ 993,765 $ 991,926 $ 1,006,784 $ 1,030,433 $ 1,054,488
Common shares outstanding
Weighted average 13,244 13,083 11,465 10,901 10,750
End of year 13,294 13,133 13,006 10,920 10,866
Per share of common stock
Earnings (loss) from continuing operations before
the cumulative effect of change in accounting $ 2.42 $ 3.24 $ 2.27 $ 2.98 $ (1.70)
Earnings (loss) $ 1.46 $ 2.26 $ 2.00 $ 3.75 $ (1.70)
Cash dividends declared $ 1.10 $ 1.00 $ 0.93 $ 0.82 $ 1.22
Book value $ 23.19 $ 22.71 $ 21.41 $ 19.91 $ 17.01
Capitalization
Common shareholders' equity $ 308,294 $ 298,241 $ 278,474 $ 217,457 $ 184,869
Preferred stock 3,060 $ 3,240 $ 3,420 $ 3,600 $ 8,680
Long-term debt, less current maturities 459,000 $ 478,041 $ 533,964 $ 611,925 $ 682,832
============ ============= ============== ============= =============
Total capitalization $ 770,354 $ 779,522 $ 815,858 $ 832,982 $ 876,381
============ ============= ============== ============= =============
Capitalization ratios
Common shareholders' equity 40.0% 38.3% 34.1% 26.1% 21.1%
Preferred stock 0.4 0.4 0.4 0.4 1.0
Long-term debt, less current maturities 59.6 61.3 65.5 73.5 77.9
============ ============= ============== ============= =============
Total capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
============ ============= ============== ============= =============
TEXAS-NEW MEXICO POWER COMPANY
Consolidated results
Operating revenues $ 586,445 $ 580,693 $ 502,737 $ 485,823 $ 477,989
Income (loss) before the cumulative effect
of change in accounting $ 34,321 $ 43,918 $ 26,862 $ 33,364 $ (16,634)
Net income (loss) $ 34,321 $ 43,918 $ 26,862 $ 41,809 $ (16,634)
Total assets $ 973,566 $ 967,006 $ 1,002,157 $ 1,024,943 $ 1,043,178
Capitalization
Common shareholder's equity $ 302,096 $ 287,021 $ 287,548 $ 224,351 $ 185,777
Preferred stock $ 3,060 $ 3,240 $ 3,420 $ 3,600 $ 8,680
Long-term debt, less current maturities $ 450,000 $ 477,900 $ 533,800 $ 611,925 $ 682,832
============ ============= ============== ============= =============
Total capitalization $ 755,156 $ 768,161 $ 824,768 $ 839,876 $ 877,289
============ ============= ============== ============= =============
Capitalization ratios
Common shareholder's equity 40.0% 37.4% 34.9% 26.7% 21.2%
Preferred stock 0.4 0.4 0.4 0.4 1.0
Long-term debt, less current maturities 59.6 62.2 64.7 72.9 77.8
============ ============= ============== ============= =============
Total capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
============ ============= ============== ============= =============
TEXAS-NEW MEXICO POWER COMPANY
SELECTED OPERATING STATISTICS
1998 1997 1996 1995 1994
------------------ --------------- --------------- --------------- ---------------
Operating revenues (in thousands):
Residential* $ 225,870 $ 211,398 $ 206,748 $ 200,455 $ 194,933
Commercial* 164,800 155,539 150,034 148,908 141,886
Industrial* 150,883 170,169 129,972 113,728 122,714
Other* 33,731 29,831 15,983 22,732 18,456
Power Marketing 11,161 13,756 - - -
================== =============== =============== =============== ===============
Total $ 586,445 $ 580,693 $ 502,737 $ 485,823 $ 477,989
================== =============== =============== =============== ===============
Sales (MWH):
Residential 2,439,478 2,251,119 2,230,558 2,141,553 2,085,621
Commercial 1,883,422 1,772,591 1,725,650 1,681,130 1,618,840
Industrial 4,981,773 5,523,907 3,797,776 2,704,159 2,652,844
Other 113,535 107,847 108,039 113,985 114,190
Power Marketing 425,216 494,705 - - -
================== =============== =============== =============== ===============
Total 9,843,424 10,150,169 7,862,023 6,640,827 6,471,495
================== =============== =============== =============== ===============
Number of customers (at year end):
Residential 197,155 192,005 187,796 183,863 185,364
Commercial 30,884 30,289 29,864 29,361 30,624
Industrial 138 139 135 136 142
Other 227 222 224 244 237
Power Marketing 16 16 - - -
================== =============== =============== =============== ===============
Total 228,420 222,671 218,019 213,604 216,367
================== =============== =============== =============== ===============
Revenue statistics:
Average annual use per residential
customer (KWH) 12,491 11,835 11,973 11,476 11,354
Average annual revenue per residential
customer (dollars) 1,157 1,111 1,110 1,074 1,061
Average revenue per KWH sold
per residential customer (cents) 9.26 9.39 9.27 9.36 9.35
Average revenue per KWH sold
total sales (cents) 5.96 5.72 6.39 7.32 7.39
Net generation and purchases (MWH):
Generated 2,062,958 2,089,448 2,296,056 2,351,000 2,336,830
Purchased 8,256,857 8,443,990 5,769,173 4,612,186 4,472,306
================== =============== =============== =============== ===============
Total 10,319,815 10,533,438 8,065,229 6,963,186 6,809,136
================== =============== =============== =============== ===============
Average cost per KWH purchased (cents) 3.38 3.09 3.51 3.87 4.35
Employees (year-end)
Texas-New Mexico Power Company 823 811 819 858 894
Facility Works 58 494 116 - -
TNP Enterprises 4 - - - -
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
SIGNIFICANT EVENTS AND KNOWN TRENDS AFFECTING TNP AND TNMP
Competitive Conditions
The electric utility industry continues its transition toward an
environment of increased competition. TNMP expects the portions of operations
pertaining to transmission and distribution to continue to be regulated.
Pressures that underlie the movement toward increasing competition are numerous
and complex. They include legislative and regulatory changes, technological
advances, consumer demands, greater availability of natural gas, environmental
needs, and other factors. The increasingly competitive environment presents
opportunities to compete for new customers, as well as the risk of loss of
existing customers.
The most significant effect of competition on TNMP, as well as other
utilities, will be the ability to recover potential stranded costs. "Stranded
costs" is the difference between what it costs TNMP to provide energy and what a
customer would be willing to pay for energy in a competitive market. The
inability to recover a significant portion of stranded costs would adversely
impact TNP's and TNMP's financial condition. In Texas, TNMP's potential stranded
cost relates to TNP One, its 300 MW generating unit, and could potentially be
more than $270 million. In New Mexico, TNMP's potential stranded cost relates to
its fixed purchased power contracts. As of December 31, 1998, TNMP had reserved
$3.4 million for its potential stranded costs in New Mexico. Additional stranded
costs could potentially be zero to $7 million, depending on the market price of
purchased power at the onset of competition.
Legislators in both Texas and New Mexico have introduced bills that propose
to open the business to competition. The bills also address recovery of stranded
costs. In Texas, TNMP's Transition Plan includes provisions for modifying the
plan so that it conforms to subsequently enacted legislation
The following discusses TNMP's strategy to transition to competition and to
provide TNMP the ability to recover its potential stranded costs in Texas and
New Mexico. Although the recoverability and amount of stranded costs is
uncertain, management realizes there is some risk that shareholders may be
required to share the financial burden of stranded costs with customers.
Texas Transition Plan
On July 22, 1998, the PUCT approved TNMP's Transition Plan, and issued a
final order documenting its approval on November 7, 1998. The Transition Plan
includes a number of provisions that impact TNMP's financial results. They are:
- TNMP will implement a series of residential and commercial
rate reductions totaling 9% and 3%, respectively, during a
five-year transition period. The first rate reductions for
residential and commercial customers of 3% and 1%,
respectively, were implemented retroactive to January 1, 1998.
The remaining reductions will be effective in January of 2000
and 2001.
- TNMP's earnings on its Texas operations are capped at an
11.25% return on equity less assumed discounts on industrial
rates, which, for 1998, were $4.1 million. In 1999, the
discounts are expected to be approximately $2.9 million. TNMP
will apply Texas earnings in excess of the cap to recover
stranded costs related to its generation investment (TNP One)
or will refund them to customers, according to PUCT
guidelines.
- The Plan includes a cap on allowed operating and maintenance
expenses applicable to TNMP's Texas operations based on cost
incurred per customer in 1996.
- TNMP will record $15 million of additional depreciation
annually during 1999-2002 to recover stranded costs.
- Finally, the manner in which TNMP recovers the cost of
purchased power from its customers has changed. In the past,
all of these costs were passed directly through to TNMP's
customers via adjustment factors that could change as often as
monthly. Under this methodology, purchased power expense had
no impact on operating income. Effective with the new rates
under the Transition Plan, only the energy-related portion of
purchased power will be passed through directly to customers
via the fuel adjustment clause. The demand-related portion of
purchased power will be recovered through base rates and is
not subject to adjustment or future reconciliation. Therefore,
any difference, between the amount of demand-related purchased
power recovered through TNMP's rates and the actual cost of
such, will affect operating income.
Absent legislation implementing retail competition, at the end of the
five-year transition period, TNMP shall file with the PUCT a proposal to
voluntarily implement retail access, contingent upon the approval of an
appropriate mechanism for recovery of any remaining stranded costs. The PUCT has
committed to full recovery of stranded costs if they are quantified using a
market-based methodology, TNMP offers retail access, and stranded costs are
allocated fairly to all customers.
During the year ended December 31, 1998, the Transition Plan reduced TNMP's
operating income as summarized in the table below (amounts in thousands except
per share items):
Pre-tax amounts Per share
One-time charges:
Costs to implement the plan $ 3,300 $ 0.17
One-time customer refund 1,447 0.06
-------- ------
Subtotal 4,747 0.23
-------- ------
1998 impacts:
Rate structure change 9,940 0.49
Lower recovery of demand
purchased power expenses 7,548 0.37
-------- ------
Subtotal $17,488 0.86
------- ------
Total effect of the plan $22,235 $ 1.09
======== ======
The combination of the one-time customer refund and implementing the rate
structure change reduced operating revenue by $11.4 million (pre-tax). TNMP's
earnings for the year ended December 31, 1998 did not exceed the earnings cap
imposed by the Transition Plan. The Transition Plan includes a provision that
allows the PUCT to review TNMP's earnings and the related earnings cap.
New Mexico Community Choice
On April 11, 1997, the NMPUC approved TNMP's plan for transition to
competition in its New Mexico service territory, called Community Choice. TNMP
implemented Community Choice effective May 1, 1997. Community Choice provides
TNMP's customers the right to choose their electricity provider after a
three-year transition period. The plan freezes rates (including the recovery of
purchased power) during the transition period, and allows for customer
aggregation based on market forces. As of December 31, 1998, TNMP had reserved
$3.4 million for its potential stranded costs in New Mexico.
Impact of Competition on TNMP
In addition to pursuing the satisfactory resolution of the stranded cost
issue, TNMP is pursuing strategies to retain and attract new customers. TNMP's
competitive position has been strengthened with the PUCT open access to
transmission rule. Management believes TNMP's revenue growth opportunities are
through an increased customer base and new services.
As noted above, the Transition Plan changes the way TNMP recovers the
demand component of purchased power. The change increases the risk that TNMP
will have to absorb increases in the demand cost of purchased power, while at
the same time it allows TNMP to retain the benefit of savings realized from
lowering these costs. TNMP is actively managing its resources to optimize the
rewards and diminish the risks in it power supply portfolio.
Results of Operations
Overall Results
Income applicable to common stock was $19.3 million for 1998, compared to
$29.5 million in 1997. The 1998 results included the effect of FWI's
discontinued operations of $12.7 million, and costs to implement the transition
plan of $3.0 million. The 1997 results included a $12.9 million loss associated
with FWI's discontinued operations. Exclusive of one-time items, the 1998
earnings were $35.0 million, a $7.4 million decrease as compared to the 1997
earnings of $42.4 million.
Income applicable to common stock was $22.9 million in 1996. Results for
1996 included a $3.1 million loss associated with FWI's discontinued operations,
and a $1.3 million after tax charge for the settlement of litigation associated
with the Series T FMB retirement in 1995. Excluding the one-time items, 1997
earnings were $15.1 million higher than 1996 earnings of $27.3 million.
The following table sets forth results of operations for 1998, 1997, and
1996 and the impact of one-time items:
1998 1997 1996
------------------ ------------------- -----------
Amount EPS Amount EPS Amount EPS
------- ------- --------- --------- --------- -------
(In thousands except per share amounts)
Income applicable to common
stock before one-time items.................. $ 34,969 $ 2.65 $ 42,403 $ 3.24 $ 27,283 $ 2.38
--------- -------- ---------- ---------- --------- ------
One-time items, net of income taxes:
Discontinued operations of FWI............... (12,710) (0.96) (12,883) (0.98) (3,097) (0.27)
Transition plan costs........................ (2,985) (0.23) - - - -
Series T litigation settlement............... - - - - (1,300) (0.11)
--------- -------- ---------- --------- ---------- ------
Total one-time items, net................ (15,695) (1.19) (12,883) (0.98) (4,397) (0.38)
--------- -------- ---------- --------- --------- ------
Income applicable to common stock............... $ 19,274 $1.46 $ 29,520 $ 2.26 $ 22,886 $ 2.00
========= ======== ========== ========== ========== ======
Beginning in 1996, FWI's operations included construction and service
activities. In late 1997, management reevaluated FWI's strategy and adopted a
revised strategy to concentrate on service and maintenance activities and to
discontinue the construction segment. In 1998, TNP elected to discontinue all
remaining operations of FWI. See Note 3 for additional information regarding the
discontinued operations.
The operations of TNMP currently represent most of TNP's operations. The
following discussion focuses on TNMP's operations, except where stated
otherwise.
Operating Revenues
The following table summarizes the components of operating revenues (in
thousands).
Increase (Decrease)
1998 1997 1996 `98 v. `97 `97 v. `96
---------- --------- ---------- ------------ -----------
Operating revenues $ 586,445 $ 580,693 $ 502,737 $ 5,752 $ 77,956
Purchased power & fuel expenses 316,911 302,773 243,682 14,138 59,091
---------- --------- ---------- --------- ---------
Base revenues $ 269,534 $ 277,920 $ 259,055 $ (8,386) $ 18,865
========== ========= ========== ========= =========
Purchased power & fuel expenses are discussed in "Results of
Operations--Operating Expenses."
The following table summarizes the components of the base revenues
increase (decrease) from 1998 to 1997 and from 1997 to 1996 (in thousands).
`98 v. `97 `97 v. `96
---------- ----------
Weather related $11,711 $ (332)
Customer growth 4,896 4,053
Reserve for Texas customer refunds (10,971) -
Lower recovery of Texas demand purchased power costs (7,548) -
Industrial - firm rate sales (9,020) (2,448)
Industrial - Texas economy rate sales 148 5,331
Transmission revenue 831 8,251
Unbilled revenue and other 1,567 4,010
--------- ---------
Base revenues increase (decrease) $ (8,386) $18,865
========= =======
The base revenue decrease of $8.4 million during 1998 resulted primarily
from the implementation of the Texas Transition Plan and the loss of a
significant industrial customer (see Note 9). As discussed in Note 2, the
Transition Plan had the effect of reducing base rate revenues and reducing
recovery of demand purchased power costs. Offsetting the base revenue decrease
were increased sales due to hotter than normal weather during the summer, and
customer growth in the residential and commercial classes.
The base revenue increase of $18.9 million during 1997 resulted primarily
from implementing the new transmission access rules during 1997, growth in
residential and commercial customers, and a full year of operation of its
control area in Texas that TNMP implemented on July 31, 1996. The control area
is an electrical system that enables TNMP to instantaneously balance its system
resources with loads. Implementation of the control area enabled TNMP to enhance
its industrial economy rate sales, non-industrial standby revenues, and power
marketing sales. The control area also permitted TNMP to replace standby power
for TNP One with the purchase of planning reserves.
The components of GWH sales for 1998 and 1997 are summarized in the
following table:
1998 1997 Variance %
---- ---- -------- -----
Residential 2,440 2,251 189 8.4
Commercial 1,883 1,772 111 6.3
Industrial:
Firm 505 1,080 (575) (53.2)
Economy 4,476 4,444 32 0.7
Power marketing 425 495 (70) (14.1)
Other 114 108 6 5.6
------ ------- ------- -----
Total GWH sales 9,843 10,150 (307) (3.0)
===== ======= ======= =====
1998 sales decreased 307 GWHs (or 3%), from 1997 levels, due to the
movement of a significant industrial customer to self-generation and decreased
off-system sales. This decrease was partially offset by increased residential
and commercial sales due to hotter-than-normal weather and customer growth.
As discussed in "Competitive Conditions--Texas Transition Plan" and Note 2,
the PUCT approved the Texas Transition Plan during 1998. The Transition Plan
includes a five-year transition period, with a series of rate reductions for
residential and commercial customers beginning in 1998. The agreement provides
for TNMP to recover a portion of its potential stranded costs during the
transition period. Also, TNMP's earnings on Texas operations are capped at
11.25% return on equity less assumed discounts on industrial rates, which, for
1998, were $4.1 million. Texas earnings in excess of the cap will be applied by
TNMP to recover stranded costs related to its generation investment (TNP One) or
refunded to customers. During 1998, TNMP did not have any excess earnings on its
Texas operations. This was primarily due to higher than expected demand
purchased power costs as discussed in "Operating Expenses - Purchased Power &
Fuel."
As discussed in "Competitive Conditions--New Mexico Community Choice" and
Note 2, TNMP implemented its Community Choice plan in New Mexico on May 1, 1997.
The plan provides TNMP's customers the right to choose their energy provider
after a three-year transition period and freezes rates (including the recovery
of purchased power) during the transition period. The rates represent a slight
reduction as compared to rates in effect prior to May 1997. The reduced rates
have not had a material adverse effect on TNP's or TNMP's financial condition.
A significant industrial customer in Texas left TNMP's system in February
1998 and replaced the power previously provided by TNMP with power from a
cogeneration plant built by a third party wholesale power producer. This
customer provided sales of 629 GWH and annual revenues of $28.3 million in 1997
($10.1 million in base revenues). Purchases by this customer in 1998 were 74
GWH, providing total revenues of $3.1 million and base revenues of $0.9 million.
During late 1997, TNMP renegotiated with a large industrial customer in New
Mexico to continue providing full service until the end of the New Mexico
Community Choice transition period (April 30, 2000). Effective January 1, 1999,
this customer reduced its firm purchased power commitment by 55%. After the end
of the transition period, TNMP will provide firm transmission service to this
customer, and this customer can purchase its KWH requirements on the open
market. Currently, TNMP is this customer's lowest cost U.S. electric supplier.
This customer provided sales of 1,101 GWH and revenues of $39.9 million in 1998
($11.9 million in base revenues).
Operating Expenses
Operating expenses for 1998 were $18.1 million higher than in 1997, due
primarily to higher purchased power expenses.
Operating expenses for 1997 were $72.4 million higher than in 1996, due
primarily to higher purchased power expenses stemming from increased sales
requirements under agreements with two cogeneration customers and income taxes.
Purchased Power & Fuel Expenses
The following table summarizes the components of purchased power and fuel
expenses (in thousands).
Increase (Decrease)
1998 1997 1996 `98 v. `97 `97 v. `96
---------- ---------- ---------- ---------- ---------
Pass-through expenses
Purchased power $ 155,679 $ 259,605 $ 196,481 $ (103,926) $ 63,124
Fuel 38,299 39,676 45,300 (1,377) (5,624)
---------- ---------- ---------- ---------- ---------
Subtotal 193,978 299,281 241,781 (105,303) 57,500
Non pass-through purchased power 121,287 1,438 - 119,849 1,438
Other 1,646 2,054 1,901 (408) 153
---------- ---------- ---------- ---------- ---------
Total $ 316,911 $ 302,773 $ 243,682 $ 14,138 $ 59,091
========== ========== ========== ========== =========
During 1998, purchased power and fuel expenses increased by $14.1 million
due to increased purchased power expenses during the hotter-than-normal summer
weather, recognition of expenses in compliance with the Transition Plan, and
settlement of a billing dispute. As discussed in Note 2, the Transition Plan
changes the method of recovering purchased power expenses from customers.
Effective January 1, 1998, only the energy-related portion of purchased power is
passed through directly to customers via the fixed fuel recovery factor. The
demand-related portion of purchased power will be recovered through base rates.
Therefore, any difference between the amount of demand-related purchased power
recovered through TNMP's rates and the actual costs will affect operating
income. Texas demand charges are $98.3 million of the $121.3 million shown above
as non pass-through purchased power. Firm purchased power costs in New Mexico
account for the remainder. Recovery of demand purchased power in Texas amounted
to $90.8 million in 1998, resulting in a reduction of $7.5 million in pre-tax
operating income. Prior to January 1, 1998, the majority of purchased power
costs were recoverable from customers via a recovery clause.
During 1997, purchased power and fuel expenses increased by $59.1 million
primarily due to additional MWHs purchased to meet increased sales requirements
from the agreements negotiated with the two cogeneration customers during the
second quarter of 1996.
Other Operating Expenses
Other operating expenses in 1998 increased by $6.9 million compared to
1997. This resulted from additional transmission expenses of $3.1 million as
compared to 1997, and the $3.3 million write-off of deferred costs related to
the Transition Plan, as discussed in "Competitive Conditions--Texas Transition
Plan" and Note 2.
Other operating expenses in 1997 were comparable to 1996. Cost savings from
reduced standby expenses resulting from implementation of the control area
offset a $2.0 million increase in the Texas transmission expenses.
Interest Charges
During 1998, interest charges decreased $3.2 million due primarily to
reduced borrowings and lower interest rates on the credit facilities.
During 1997, interest charges decreased $12.5 million due primarily to the
retirement of Series T FMBs in January 1997 and applying cash flow from
operations to reduce debt levels. The 11.25% Series T FMBs were retired with
lower cost borrowings from the credit facilities and an equity contribution from
TNP in late 1996, resulting from its common stock sale.
In January 1999, TNMP retired its 12.5% secured debentures when they
matured. It also issued $175 million of 6.25% Senior Notes due in 2009. Interest
charges are expected to continue to decrease during 1999 due to the lower
interest rate on the Senior Notes and reduced borrowings against the credit
facilities.
Liquidity and Capital Resources
Sources of Liquidity
The main sources of liquidity for TNP are cash flow from operations,
borrowings from credit facilities and sale of additional common stock.
TNP's cash flow from operations totaled $72.9 million, $103.9 million and
$65.2 million in 1998, 1997 and 1996. Cash flow from operations decreased in
1998 due to increases in purchased power costs and expenses for nonregulated
activities. In addition, 1997 cash flow included $20.5 million from the one-time
factoring of unbilled accounts receivables. Cash flow from operations increased
in 1997 from 1996 due to factoring unbilled receivables and increased base
revenues. The changes in TNMP's cash flow from operations mirrored those of TNP.
TNMP has two existing credit facilities with a total of $100 million of
unused borrowings available, as of December 31, 1998. In January 1999, TNMP
entered into a third credit facility that provides $35 million of borrowing
capacity through April 1999.
In November 1998, TNP entered into a new credit facility with a total
commitment of $50 million, and unused borrowing capacity of $41 million at
December 31, 1998. Borrowings under this facility can be used for investing in
TNP's subsidiaries, payment of dividends to TNP's shareholders, investing in
nonregulated businesses, and other general corporate purposes.
TNP reserved one million shares of common stock for issuance through a
direct stock purchase plan that began in 1997. The plan is designed to provide
investors with a convenient method to purchase shares of TNP's common stock
directly from the company and to reinvest cash dividends. The plan has replaced
TNP's prior dividend reinvestment plan. As of December 31, 1998, the remaining
reserve for direct stock purchase plan was 946,000 shares.
Capital Resources
TNP's and TNMP's capital structure continued to improve during 1998, as
TNMP was able to reduce debt due to continued strong earnings for the year. The
equity portion of TNP's capital structure increased from 38.3% at December 31,
1997, to 40.0% at December 31, 1998. Conversely, the long-term debt ratio
decreased from 61.3% to 59.6% for the same period. TNMP experienced similar
results with its capital ratios.
TNMP's capital requirements through 2003 are projected to be as follows
(amounts in millions):
1999 2000 2001 2002 2003
------- -------- -------- -------- -------
FMB and secured debenture maturities (see Note 6) $ - $ 100.0 $ - $ - $ 140.0
Capital expenditures 37.7 33.5 33.8 35.3 36.5
------- -------- -------- ------- -------
Total capital requirements $ 37.7 $ 133.5 $ 33.8 $ 35.3 $ 176.5
======= ======== ======== ======= =======
TNMP believes that cash flow from operations, borrowings in the capital
markets, and periodic borrowings under the credit facilities will be sufficient
to meet working capital requirements and planned capital requirements through
the foreseeable future.
Other Matters
Application of SFAS 71
As a result of the Energy Policy Act of 1992 and actions of regulatory
commissions, the electric utility industry is moving toward a combination of
competition and a modified regulatory environment. TNMP's financial statements
currently reflect assets and costs based on current cost-based ratemaking
regulations in accordance with SFAS 71, Accounting for the Effects of Certain
Types of Regulation. Continued applicability of SFAS 71 to TNMP's financial
statements requires that rates set by an independent regulator on a
cost-of-service basis can actually be charged to and collected from customers.
In the event that all or a portion of a utility's operations cease to meet
those criteria for various reasons, including deregulation, a change in the
method of regulation, or a change in the competitive environment for the
utility's regulated service, the utility will have to discontinue SFAS 71 for
that portion of operations. That discontinuation would be reported by the
write-off of unrecoverable regulatory assets and liabilities.
As discussed in Note 2, as a result of the Community Choice program in New
Mexico, TNMP discontinued the application of SFAS 71 to its generation/power
supply operations in New Mexico during 1997. The discontinuing of regulatory
accounting principles had no effect on TNMP's financial condition. Also, as
discussed in "Competitive Conditions--Texas Transition Plan" and Note 2, on July
22, 1998, the PUCT approved TNMP's Transition Plan, and issued a final order
documenting its approval on November 7, 1998. The PUCT has committed to full
recovery of stranded costs if they are quantified using a market-based
methodology, TNMP offers retail access, and stranded costs are allocated fairly
to all customers. Rates under the Transition Plan continue to be cost-based, and
TNMP will continue to apply SFAS 71 to its Texas generation/power supply
operations until it requests, and the PUCT approves authority to implement
retail competition.
Year 2000
TNMP is actively addressing the Year 2000 Issue (Y2K) throughout its
operating and office environments. Many existing computer programs were designed
and developed to use only two digits to identify a year in the date field. If
not addressed, these computer systems could fail, with possible material adverse
effects on TNMP's operations.
In mid-1997 TNMP's information technology staff began to identify and
assess corporate software applications, equipment and operating systems. In
early 1998, the project was expanded to include professionals from throughout
the company and to identify and assess embedded systems. TNMP's project to
analyze Y2K has included the following phases: identification, assessment,
remediation/implementation and testing.
In its analysis to identify and assess Y2K impact on company systems, TNMP
has conducted extensive studies to analyze the impact of Y2K on all operating
systems. As a result of these studies, TNMP has developed a Y2K mitigation plan.
The plan requires TNMP to amend, replace, or upgrade most of its primary
corporate information systems, some of which were already being replaced or
upgraded pursuant to a previously approved plan to replace or upgrade such
systems.
The following is a brief summary of the renovation and validation, and
implementation progress for the critical business areas of TNMP - generation,
transmission, distribution, energy management, and corporate information
systems.
Generating Units. TNMP owns one power plant, TNP One, which is located in
Robertson County, Texas. TNP One has two units that burn lignite as the primary
fuel source to generate power. The total lignite supply is provided from a mine
adjacent to the power plant. TNP plans to increase the coal supply to provide
for an additional six-week supply prior to January 1, 2000. The plant is also
capable of burning natural gas, as well as various waste products. TNP One
personnel are consulting with the manufacturers of the Plant Control Computer
which provides for most of the computerized operations of the boiler and turbine
controls, as well as the Continuous Emissions Monitoring System. Integrated
testing of the Plant Control Computer was completed on Unit 1 in early February
1999. The integrated testing on Unit 1 detected no Y2K problems. Testing will be
done on Unit 2 while the plant is down for a maintenance outage this spring.
Tests of the Continuous Emissions Monitoring System determined that only
non-critical Y2K issues were detected. Upgrades to that software are currently
underway. An extensive list of other minor suspect devices has been compiled and
is also in the process of being tested.
As of March 1, 1999, the TNP One generation plant has completed the
assessment of all mission-critical facilities, and is approximately 52 percent
complete with the testing and remediation of those facilities. All testing and
remediation is expected to be complete by June 1999.
Distribution System. TNMP is primarily a distribution company. Over 600
suspect distribution system devices have been identified and are being tested.
TNMP is currently testing the devices that have external clock functions.
Devices that have no external clock function are being checked with the
manufacturer and TNMP is reviewing their testing of those devices. All of TNMP's
critical distribution substations have designs which contain redundant relaying
or bypass switching schemes to remove failed devices and equipment for normal
operations, allowing for quick restoration of power to customers.
As of March 1, 1999, TNMP is 84 percent complete on the assessment of all
Distribution System mission-critical facilities, and is approximately 53 percent
complete with the testing and remediation of those facilities. All testing and
remediation is expected to be complete by June 1999.
Transmission System. TNMP has transmission lines which are a part of the
transmission grid comprised within the Electric Reliability Council of Texas
(ERCOT). The transmission grid within ERCOT is operated by member utilities in
conjunction with an Independent System Operator. TNMP is participating on
ERCOT's Year 2000 Technical Task Force and on the Year 2000 Operational
Preparedness and Planning Task Force. TNMP will be participating in all testing,
drills and contingency planning done by the Independent System Operator.
Testing of transmission line electronic protective devices by TNMP
personnel is underway with completion anticipated by June 1999.
Supervisory Control and Data Acquisition Systems (SCADA) and Energy
Management Systems. TNMP has three SCADA systems in Texas. A SCADA system
reports on the status on protective devices, allows for the remote control of
these same devices, and reports and tracks critical power flow information on
the transmission and distribution grids. These systems are new, having been
upgraded in 1997 and 1998. TNMP is in the process of replacing the SCADA system
in New Mexico, which is not Year 2000 compliant.
As of March 1, 1999, TNMP is 93 percent complete on the assessment of all
SCADA and Energy Management Systems mission-critical facilities, and is
approximately 22 percent complete with the testing and remediation of those
facilities. All testing and remediation is expected to be complete by June 1999,
except for the New Mexico SCADA system that will be complete in August 1999.
Information Technology Systems. As of March 1, 1999, approximately 90% of
TNMP's infrastructure supporting its business systems has been tested and
verified as Y2K compliant. TNMP expects to have the remaining infrastructure Y2K
compliant by the end of the first quarter of 1999. TNMP has completed the
upgrade of its financial and accounting system to a Y2K compliant version.
Integrated testing of the upgraded financial system will be done in April 1999.
A new customer information system is expected to be implemented and tested
during the third quarter of 1999 and other corporate information systems
directly related to TNMP's operations are expected to be installed and tested by
September 1999. TNMP incorporates unit testing, system testing, integration
testing and acceptance testing into the verification methodology.
Y2K Remediation Cost. The costs associated with TNMP's Y2K efforts are
expected to be approximately $10.2 million. Approximately $9 million of the
total cost is to upgrade or replace various information technology systems, as
discussed above, as well as improve the infrastructure to support those systems.
TNMP does not expect these costs to have a material impact on its financial
position or results of operations. TNMP continues to work with key software
vendors and outside consultants to validate its Y2K compliance project. To date,
TNMP has spent approximately $4.3 million on Y2K remediation. TNMP has in the
past used, and expects to continue to use, cash flow from operations to fund
costs associated with Y2K.
Third-Party Vendors. In addition to its own mitigation plan, TNMP is
actively working with its key vendors and other third parties with which TNMP
has a material relationship to assist such parties in achieving compliance with
respect to Y2K in those systems affecting TNMP's operations. Such parties
include electric power providers in Texas and New Mexico; the fuel, ash
disposal, and limestone contractors at TNP One; transmission and distribution
material suppliers; and banking partners. Although TNMP believes that such
persons are working diligently to properly address Y2K, TNMP cannot guarantee
that these third-party systems will be timely converted, or that a failure to
convert by another company or a conversion that is incompatible with TNMP's
systems, would not have a material adverse effect on TNMP.
Contingency Plans. The primary operating processes of TNMP's business
(e.g., the production, transmission, and distribution of electric power) are
subject to contingencies related to weather, equipment failure, and other
factors. TNMP has drafted Y2K contingency plans by adapting previously existing
contingency plans. TNMP will complete the Y2K contingency plan by June 1999.
The Risks of the Company's Year 2000 Issues. Based upon its current
assessment and testing of the Y2K issue, TNMP believes the reasonably likely
worst-case Y2K scenarios would have the following impacts upon it and its
operations. With respect to its ability to provide energy to its customers, TNMP
believes that the reasonably likely worst-case scenario is for small, localized
interruptions of electrical service that are restored in a time frame that is
within normal service levels. With respect to services that are essential to
TNMP's operations, such as customer service, business operations, supplies and
emergency response capabilities, the reasonably likely worst-case scenario is
for minor disruptions of essential services with rapid recovery and all
essential information and processes ultimately recovered.
While risks related to the third parties' lack of Y2K readiness could
materially and adversely affect TNMP's business, results of operations and
financial condition, TNMP expects its Y2K readiness efforts to reduce
significantly its level of uncertainty about the impact of third party Y2K
issues on both its IT systems and non-IT systems.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
TNP's and TNMP's involvement in the trading of market risk sensitive
instruments is minimal and does not have a material impact to either company's
financial condition or results of operations. As noted in Item 1, "Sources of
Energy", TNMP's exposure to changes in the prevailing market price of power has
increased. This exposure is due to TNMP's greater reliance on shorter term
contracts and, as discussed in item 7, "Competitive Conditions", the fact that
TNMP no longer passes the demand component of purchased power costs directly
through to its customers. As a result, TNMP is exposed to the risk of executing
new purchased power contracts at market prices. Conversely, TNMP has the
opportunity to benefit from a favorable market for purchased power.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of TNP Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of TNP Enterprises, Inc. (a Texas corporation) (the
"Company") as of December 31, 1998 and 1997, and the related consolidated
statements of income, common shareholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 the Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Fort Worth, Texas
February 12, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder and Board of Directors of
Texas-New Mexico Power Company:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Texas-New Mexico Power Company (a Texas
corporation) (the "Company") as of December 31, 1998 and 1997, and the related
consolidated statements of income, common shareholder's equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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 the Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Fort Worth, Texas
February 12, 1999
Independent Auditor's Report
The Board of Directors and Shareholders
TNP Enterprises, Inc.:
We have audited the accompanying consolidated statements of income, common
shareholders' equity, and cash flows of TNP Enterprises, Inc. and subsidiaries
for the year ended December 31, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
TNP Enterprises, Inc. and subsidiaries for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG LLP
Fort Worth, Texas
January 30, 1997
Independent Auditor's Report
The Board of Directors
Texas-New Mexico Power Company:
We have audited the accompanying consolidated statements of income, common
shareholder's equity, and cash flows of Texas-New Mexico Power Company (a wholly
owned subsidiary of TNP Enterprises, Inc.) and subsidiaries for the year ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Texas-New Mexico Power Company and subsidiaries for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
KPMG LLP
Fort Worth, Texas
January 30, 1997
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
1998 1997 1996
---------------- ---------------- ----------------
(In thousands except per share amounts)
OPERATING REVENUES (Note 2) $ 586,493 $ 580,693 $ 502,737
---------------- ---------------- ----------------
OPERATING EXPENSES:
Purchased power and fuel 316,911 302,773 243,682
Other operating and maintenance 95,168 86,385 84,417
Depreciation 38,056 38,853 38,172
Taxes other than income taxes 36,014 33,667 33,256
Income taxes 15,480 21,242 10,375
---------------- ---------------- ----------------
Total operating expenses 501,629 482,920 409,902
---------------- ---------------- ----------------
NET OPERATING INCOME 84,864 97,773 92,835
---------------- ---------------- ----------------
OTHER INCOME:
Other income and deductions, net 1,280 1,443 1,956
Income taxes (125) 257 722
---------------- ---------------- ----------------
Other income, net of taxes 1,155 1,700 2,678
---------------- ---------------- ----------------
INCOME BEFORE INTEREST CHARGES 86,019 99,473 95,513
---------------- ---------------- ----------------
INTEREST CHARGES:
Interest on long-term debt 48,393 52,557 64,654
Other interest and amortization of debt-related costs 5,492 4,355 4,709
---------------- ---------------- ----------------
Total interest charges 53,885 56,912 69,363
---------------- ---------------- ----------------
INCOME FROM CONTINUING OPERATIONS 32,134 42,561 26,150
Loss from discontinued nonregulated operations, net of taxes
(Note 3) 12,710 12,883 3,097
---------------- ---------------- ----------------
NET INCOME 19,424 29,678 23,053
Dividends on preferred stock 150 158 167
---------------- ---------------- ----------------
INCOME APPLICABLE TO COMMON STOCK $ 19,274 $ 29,520 $ 22,886
================ ================ ================
EARNINGS PER SHARE OF COMMON STOCK:
Earnings from continuing operations $ 2.42 $ 3.24 $ 2.27
Loss from discontinued nonregulated operations (0.96) (0.98) (0.27)
---------------- ---------------- ----------------
EARNINGS PER SHARE $ 1.46 $ 2.26 2.00
================ ================ ================
DIVIDENDS PER SHARE OF COMMON STOCK $ 1.10 $ 1.005 $ 0.93
================ ================ ================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,244 13,083 11,465
================ ================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1998 1997 1996
---------------- ------------------ -----------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales to customers $ 600,596 $ 625,032 $ 505,307
Purchased power and fuel costs paid (318,616) (299,554) (244,272)
Cash paid for payroll and to other suppliers (116,852) (125,188) (75,138)
Interest paid, net of amounts capitalized (51,592) (57,337) (69,247)
Income taxes paid (6,825) (9,089) (15,684)
Other taxes paid (35,089) (32,990) (32,243)
Other operating cash receipts and payments, net 1,250 2,979 (3,522)
---------------- ------------------ -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 72,872 103,853 65,201
---------------- ------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (37,534) (28,232) (28,006)
Additions to other property and nonregulated investments (1,020) (1,777) (2,771)
Withdrawals from (deposits to) escrow account (1,902) - -
---------------- ------------------ -----------------
NET CASH USED IN INVESTING ACTIVITIES (40,456) (30,009) (30,777)
---------------- ------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (14,729) (13,305) (10,866)
Common stock issuances 5,355 3,392 48,798
Borrowings from (repayments to) revolving credit facilities - net (11,000) 45,000 12,000
Other long-term debt issuances - - 202
Deferred expenses associated with financings (7,382) - (588)
Redemptions:
First mortgage bonds (8,000) (100,900) (96,508)
Obligation - FWI investment acquisition - (300) -
Other long-term debt (141) (61) -
Preferred stock (180) (180) (180)
---------------- ------------------ -----------------
NET CASH USED IN FINANCING ACTIVITIES (36,077) (66,354) (47,142)
---------------- ------------------ -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,661) 7,490 (12,718)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,877 8,387 21,105
---------------- ------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,216 $ 15,877 $ 8,387
================ ================== =================
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 19,424 $ 29,678 $ 23,053
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 38,056 38,853 38,170
Amortization of debt-related costs and other deferred charges 4,819 3,810 3,329
Allowance for borrowed funds used during construction (228) (47) (99)
Deferred income taxes 4,722 7,434 (193)
Investment tax credits 1,281 1,406 (380)
Cash flows impacted by changes in current assets and liabilities:
Deferred purchased power and fuel costs 894 995 5,696
Accounts payable 976 (1,411) 6,406
Accrued interest (2,303) (3,556) (3,103)
Accrued taxes (3,299) (1,244) (7,372)
Reserve for customer refund 10,971 - -
Changes in other current assets and liabilities (2,215) 25,099 (1,507)
Other, net (226) 2,836 1,201
---------------- ------------------ -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 72,872 $ 103,853 $ 65,201
================ ================== =================
The accompanying notes are an integral part of these consolidated financial
statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
-------------------- -------------------
(In thousands)
ASSETS
UTILITY PLANT:
Electric plant $ 1,260,147 $ 1,235,257
Construction work in progress 6,294 2,281
-------------------- -------------------
Total 1,266,441 1,237,538
Less accumulated depreciation 343,562 314,270
-------------------- -------------------
Net utility plant 922,879 923,268
-------------------- -------------------
OTHER PROPERTY AND INVESTMENTS, at cost 10,384 5,704
-------------------- -------------------
CURRENT ASSETS:
Cash and cash equivalents 12,216 15,877
Accounts receivable 5,955 8,585
Inventories, at lower of average cost or market:
Fuel 677 483
Materials and supplies 4,567 4,440
Deferred purchased power and fuel costs 1,676 2,570
Accumulated deferred income taxes 2,235 1,707
Other current assets 4,403 982
-------------------- -------------------
Total current assets 31,729 34,644
-------------------- -------------------
DEFERRED CHARGES 28,773 28,310
-------------------- -------------------
$ 993,765 $ 991,926
==================== ===================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock - no par value per share. Authorized 50,000,000
shares; issued 13,293,996 shares in 1998 and 13,132,821 in 1997 $ 192,518 $ 187,163
Retained earnings 115,776 111,078
-------------------- -------------------
Total common shareholders' equity 308,294 298,241
Preferred stock 3,060 3,240
Long-term debt, less current maturities 459,000 478,041
-------------------- -------------------
Total capitalization 770,354 779,522
-------------------- -------------------
CURRENT LIABILITIES:
Current maturities of long-term debt - 100
Accounts payable 28,011 27,035
Accrued interest 5,020 7,323
Accrued taxes 14,290 17,589
Customers' deposits 3,609 3,249
Reserve for customer refund 10,971 -
Other current liabilities 25,202 26,665
-------------------- -------------------
Total current liabilities 87,103 81,961
-------------------- -------------------
REGULATORY TAX LIABILITIES 957 6,318
ACCUMULATED DEFERRED INCOME TAXES 97,346 85,250
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 20,916 21,149
DEFERRED CREDITS 17,089 17,726
COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)
-------------------- -------------------
$ 993,765 $ 991,926
==================== ===================
The accompanying notes are an integral part of these consolidated financial
statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
1998 1997
----------------- -------------------
(In thousands)
COMMON SHAREHOLDERS' EQUITY
Common stock with no par value per share
Authorized shares - 50,000,000
Outstanding shares - 13,293,996 in 1998 and 13,132,821 in 1997 $ 192,518 $ 187,163
Retained earnings 115,776 111,078
----------------- -------------------
Total common shareholders' equity 308,294 298,241
----------------- -------------------
PREFERRED STOCK
Preferred stock with no par value
Authorized shares - 5,000,000
Outstanding shares - None
Redeemable cumulative preferred stock of TNMP with $100 par value
Authorized shares - 1,000,000
Redemption
price at TNMP's Outstanding shares
option 1998 1997
------ --------- ---------
Series B 4.65% $ 100.00 19,200 20,400 1,920 2,040
Series C 4.75% 100.00 11,400 12,000 1,140 1,200
--------- --------- ----------------- -------------------
Total redeemable cumulative preferred stock 30,600 32,400 3,060 3,240
--------- --------- ----------------- -------------------
LONG-TERM DEBT
FIRST MORTGAGE BONDS
Series M 8.70% due 2006 - 8,000
Series U 9.25% due 2000 100,000 100,000
SECURED DEBENTURES
12.50% due 1999 130,000 130,000
Series A 10.75% due 2003 140,000 140,000
REVOLVING CREDIT FACILITIES
1995 Facility - -
1996 Facility 80,000 100,000
1998 Facility 9,000 -
OTHER
- 141
----------------- -------------------
Total long-term debt 459,000 478,141
Less current maturities - (100)
----------------- -------------------
Total long-term debt, less current maturities 459,000 478,041
----------------- -------------------
TOTAL CAPITALIZATION $ 770,354 $ 779,522
================= ===================
The accompanying notes are an integral part of these consolidated financial
statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
For the Years Ended December 31,
Common Shareholders' Equity
-------------------------------------------------------------------------------
Common Stock Retained
Shares Amount Earnings Total
------------------ ---------------- ---------------- ----------------
(In thousands)
YEAR ENDED DECEMBER 31, 1996
Balance at January 1, 1996 10,920 $ 134,973 $ 82,484 $ 217,457
Net income - - 23,053 23,053
Dividends on preferred stock - - (167) (167)
Dividends on common stock - $0.93 per share - - (10,699) (10,699)
Sale of common stock 2,086 48,798 - 48,798
Retirement of preferred stock - - 32 32
------------------ ---------------- ---------------- ----------------
Balance at December 31, 1996 13,006 183,771 94,703 278,474
YEAR ENDED DECEMBER 31, 1997
Net income - - 29,678 29,678
Dividends on preferred stock - - (158) (158)
Dividends on common stock - $1.005 per share - - (13,158) (13,158)
Sale of common stock 127 3,392 - 3,392
Retirement of preferred stock - - 13 13
------------------ ---------------- ---------------- ----------------
Balance at December 31, 1997 13,133 187,163 111,078 298,241
YEAR ENDED DECEMBER 31, 1998
Net income - - 19,424 19,424
Dividends on preferred stock - - (150) (150)
Dividends on common stock - $1.10 per share - - (14,579) (14,579)
Sale of common stock 161 5,355 - 5,355
Retirement of preferred stock - - 3 3
------------------ ---------------- ---------------- ----------------
Balance at December 31, 1998 13,294 $192,518 $ 115,776 $ 308,294
================== ================ ================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
1998 1997 1996
------------------- ------------------ ------------------
(In thousands)
OPERATING REVENUES (Note 2) $ 586,445 $ 580,693 $ 502,737
------------------- ------------------ ------------------
OPERATING EXPENSES:
Purchased power and fuel 316,911 302,773 243,682
Other operating and maintenance 91,171 84,294 83,948
Depreciation of utility plant 38,054 38,851 38,170
Taxes other than income taxes 36,298 33,260 32,727
Income taxes 16,863 22,062 10,333
------------------- ------------------ ------------------
Total operating expenses 499,297 481,240 408,860
------------------- ------------------ ------------------
NET OPERATING INCOME 87,148 99,453 93,877
------------------- ------------------ ------------------
OTHER INCOME:
Other income and deductions, net 952 1,120 1,626
Income taxes (52) 257 722
------------------- ------------------ ------------------
Other income, net of taxes 900 1,377 2,348
------------------- ------------------ ------------------
INCOME BEFORE INTEREST CHARGES 88,048 100,830 96,225
------------------- ------------------ ------------------
INTEREST CHARGES:
Interest on long-term debt 48,342 52,557 64,654
Other interest and amortization of debt-related costs 5,385 4,355 4,709
------------------- ------------------ ------------------
Total interest charges 53,727 56,912 69,363
------------------- ------------------ ------------------
NET INCOME 34,321 43,918 26,862
Dividends on preferred stock 150 158 167
------------------- ------------------ ------------------
INCOME APPLICABLE TO COMMON STOCK $ 34,171 $ 43,760 $ 26,695
=================== ================== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1998 1997 1996
------------------- ------------------ -------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales to customers $ 579,482 $ 606,803 $ 502,954
Purchased power and fuel costs paid (318,616) (299,554) (244,272)
Cash paid for payroll and to other suppliers (72,590) (86,607) (75,807)
Interest paid, net of amounts capitalized (51,545) (57,331) (69,236)
Income taxes paid (2,786) (8,464) (14,242)
Other taxes paid (35,492) (32,980) (31,219)
Other operating cash receipts and payments, net 864 2,600 1,135
------------------- ------------------ -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 99,317 124,467 69,313
------------------- ------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (37,506) (27,942) (28,006)
Withdrawals from (deposits to) escrow account (1,902) 1,670 (1,669)
------------------- ------------------ -------------------
CASH FLOWS USED IN INVESTING ACTIVITIES (39,408) (26,272) (29,675)
------------------- ------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (19,249) (44,458) (10,867)
Equity contribution from TNP Enterprises - - 47,170
Borrowings from (repayments to) revolving credit facilities-net (20,000) 45,000 12,000
Deferred expenses associated with financings (7,275) - (588)
Redemptions:
First mortgage bonds (8,000) (100,900) (96,508)
Preferred stock (180) (180) (180)
------------------- ------------------ -------------------
NET CASH USED IN FINANCING ACTIVITIES (54,704) (100,538) (48,973)
------------------- ------------------ -------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,205 (2,343) (9,335)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,772 5,115 14,450
------------------- ------------------ -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,977 $ 2,772 $ 5,115
=================== ================== ===================
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 34,321 $ 43,918 $ 26,862
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of utility plant 38,054 38,851 38,170
Amortization of debt-related costs and other deferred charges 4,710 3,810 3,329
Allowance for borrowed funds used during construction (228) (47) (99)
Deferred income taxes 9,559 10,650 1,140
Investment tax credits 1,173 2,121 (111)
Cash flows impacted by changes in current assets and liabilities:
Deferred purchased power and fuel costs 894 995 5,696
Accounts payable 2,029 (2,395) 5,214
Accrued interest (2,319) (3,556) (3,103)
Accrued taxes 2,698 850 (8,429)
Reserve for customer refund 10,971 - -
Changes in other current assets and liabilities (4,485) 24,751 786
Other, net 1,940 4,519 (142)
------------------- ------------------ -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 99,317 $ 124,467 $ 69,313
=================== ================== ===================
The accompanying notes are an integral part of these consolidated financial
statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
---------------- ------------------
(In thousands)
ASSETS
UTILITY PLANT:
Electric plant $ 1,260,099 $ 1,235,239
Construction work in progress 6,294 2,281
---------------- ------------------
Total 1,266,393 1,237,520
Less accumulated depreciation 343,562 314,270
---------------- ------------------
Net utility plant 922,831 923,250
---------------- ------------------
OTHER PROPERTY AND INVESTMENTS, at cost 2,116 214
---------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents 7,977 2,772
Accounts receivable 923 2,342
Inventories, at lower of average cost or market:
Fuel 677 483
Materials and supplies 4,567 4,440
Deferred purchased power and fuel costs 1,676 2,570
Accumulated deferred income taxes - 1,707
Other current assets 4,093 222
---------------- ------------------
Total current assets 19,913 14,536
---------------- ------------------
DEFERRED CHARGES 28,706 29,006
---------------- ------------------
$ 973,566 $ 967,006
================ ==================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholder's 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 222,149 222,146
Retained earnings 79,840 64,768
---------------- ------------------
Total common shareholder's equity 302,096 287,021
Redeemable cumulative preferred stock 3,060 3,240
Long-term debt, less current maturities 450,000 477,900
---------------- ------------------
Total capitalization 755,156 768,161
---------------- ------------------
CURRENT LIABILITIES:
Current maturities of long-term debt - 100
Accounts payable 26,888 24,859
Accrued interest 5,004 7,323
Accrued taxes 20,449 17,751
Customers' deposits 3,609 3,249
Accumulated deferred income taxes 649 -
Reserve for customer refund 10,971 -
Other current liabilities 17,076 19,148
---------------- ------------------
Total current liabilities 84,646 72,430
---------------- ------------------
REGULATORY TAX LIABILITIES 957 6,318
ACCUMULATED DEFERRED INCOME TAXES 93,378 81,085
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 22,729 21,286
DEFERRED CREDITS 16,700 17,726
COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)
---------------- ------------------
$ 973,566 $ 967,006
================ ==================
The accompanying notes are an integral part of these consolidated financial
statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
1998 1997
----------------- ------------------
(In thousands)
COMMON SHAREHOLDER'S EQUITY
Common stock, $10 par value per share
Authorized shares - 12,000,000
Outstanding shares - 10,705 $ 107 $ 107
Capital in excess of par value 222,149 222,146
Retained earnings 79,840 64,768
----------------- ------------------
Total common shareholder's equity 302,096 287,021
----------------- ------------------
PREFERRED STOCK
Redeemable cumulative preferred stock with $100 par value
Authorized shares - 1,000,000
Redemption
price at TNMP's Outstanding shares
option 1998 1997
------ ---- ----
Series B 4.65% $ 100.00 19,200 20,400 1,920 2,040
Series C 4.75% 100.00 11,400 12,000 1,140 1,200
------------- ------------- ----------------- ------------------
Total redeemable cumulative preferred stock 30,600 32,400 3,060 3,240
------------- ------------- ----------------- ------------------
LONG-TERM DEBT
FIRST MORTGAGE BONDS
Series M 8.70% due 2006 - 8,000
Series U 9.25% due 2000 100,000 100,000
SECURED DEBENTURES
12.50% due 1999 130,000 130,000
Series A 10.75% due 2003 140,000 140,000
REVOLVING CREDIT FACILITIES
1995 Facility - -
1996 Facility 80,000 100,000
----------------- ------------------
Total long-term debt 450,000 478,000
Less current maturities - (100)
----------------- ------------------
Total long-term debt, less current maturities 450,000 477,900
----------------- ------------------
TOTAL CAPITALIZATION $ 755,156 $ 768,161
================= ==================
The accompanying notes are an integral part of these consolidated financial
statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
For the Years Ended December 31,
Common Shareholder's Equity
--------------------------------------------------------------------------------
Capital in
Common Stock Excess of Retained
Shares Amount Par Value Earnings Total
------ ------ --------- -------- -----
(In thousands)
YEAR ENDED DECEMBER 31, 1996
Balance at January 1, 1996 11 $ 107 $ 174,931 $ 49,313 $ 224,351
Net income - - - 26,862 26,862
Dividends on preferred stock - - - (167) (167)
Dividends on common stock - - - (10,700) (10,700)
Equity contribution from TNP Enterprises - - 47,170 - 47,170
Retirement of preferred stock - - 32 - 32
---------- --------------- --------------- ------------- -----------------
Balance at December 31, 1996 11 107 222,133 65,308 287,548
YEAR ENDED DECEMBER 31, 1997
Net income - - - 43,918 43,918
Dividends on preferred stock - - - (158) (158)
Dividends on common stock - - - (44,300) (44,300)
Retirement of preferred stock - - 13 - 13
---------- --------------- --------------- ------------- -----------------
Balance at December 31, 1997 11 107 222,146 64,768 287,021
YEAR ENDED DECEMBER 31, 1998
Net income - - - 34,321 34,321
Dividends on preferred stock - - - (150) (150)
Dividends on common stock - - - (19,099) (19,099)
Retirement of preferred stock - - 3 - 3
---------- --------------- --------------- ------------- -----------------
Balance at December 31, 1998 11 $ 107 $ 222,149 $ 79,840 $ 302,096
========== =============== =============== ============= =================
TNP ENTERPRISES, INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
General Information
The consolidated financial statements of TNP and subsidiaries include the
accounts of TNP and its wholly owned subsidiaries, TNMP, FWI, and TNP Operating
Company. The consolidated financial statements of TNMP and subsidiaries include
the accounts of TNMP and its wholly owned subsidiaries, TGC and TGC II. All
intercompany transactions and balances have been eliminated in consolidation.
TNMP is TNP's principal operating subsidiary. TNMP is a public utility
engaged in generating, purchasing, transmitting, distributing, and selling
electricity in Texas and New Mexico. TNMP is subject to PUCT and NMPRC
regulation. Some of TNMP's activities, including the issuance of securities, are
subject to FERC regulation, and its accounting records are maintained in
accordance with FERC's Uniform System of Accounts.
The use of estimates is required to prepare TNP's and TNMP's consolidated
financial statements in conformity with generally accepted accounting
principles. Management believes that estimates are essential and will not
materially differ from actual results. However, adjustments may be necessary in
the future to the extent that future estimates or actual results are different
from the estimates used in the 1998 financial statements.
Accounting for the Effects of Regulation
Electric utilities operate in a highly regulated environment. TNP's and
TNMP's consolidated financial statements reflect the application of certain
accounting standards, including SFAS 71, "Accounting for the Effects of Certain
Types of Regulation," which provide for recognition of the economic effects of
rate regulation. Among these effects are the recognition of regulatory assets
and liabilities. Regulatory assets represent revenues associated with certain
costs that TNMP expects to recover from customers in future rates. Regulatory
liabilities are costs previously collected from customers or other amounts that
reduce future rates. The following table summarizes TNP's and TNMP's regulatory
assets and liabilities as of December 31, 1998 and 1997.
1998 1997
---------- ---------
(In thousands)
Regulatory Assets:
Deferred purchased power and fuel costs $ 1,676 $ 2,570
Deferred charges:
Losses on reacquired debt 6,494 8,621
Rate case expenses 1,396 3,638
Deferred accounting amounts 3,221 4,026
---------- ---------
Total $ 12,787 $ 18,855
========== =========
Regulatory Liabilities:
Income tax related $ 957 $ 6,318
========== =========
As discussed in Note 2, TNMP has two plans - the Texas Transition Plan and
the New Mexico Community Choice plan - approved by the regulatory commissions in
the respective jurisdictions. Based on these plans, management believes it
probable that TNMP will continue, for the foreseeable future, to meet the
criteria for continued application of SFAS 71 to its transmission and
distribution portions of its business, and the generation/power supply portion
of its business in Texas. Also, the Texas Transition Plan allows TNMP to recover
from customers the regulatory assets included in the table above.
Utility Plant
Utility plant is stated at the historical cost of construction, which
includes labor, materials, indirect charges for such items as engineering and
administrative costs, and AFUDC. Property repairs and replacement of minor items
are charged to operating expenses; major replacements and improvements are
capitalized to utility plant.
AFUDC is a non-cash item designed to enable a utility to capitalize
interest costs during periods of construction. Established regulatory practices
enable TNMP to recover these costs from customers. The composite rate used for
AFUDC was 6.0% in each of the years 1998, 1997, and 1996.
The costs of depreciable units of plant retired or disposed of in the
normal course of business are eliminated from utility plant accounts and such
costs plus removal expenses less salvage are 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.
Depreciation is provided on a straight-line method based on the estimated
lives of the properties as indicated by periodic depreciation studies. A portion
of depreciation of transportation equipment used in construction is charged to
utility plant accounts in accordance with the equipment's use. Depreciation as a
percentage of average depreciable cost was 3.2%, 3.3%, and 3.2% in 1998, 1997,
and 1996, respectively. As explained in Note 2, TNMP will record $15 million of
additional depreciation annually during 1999-2002 to recover stranded costs, and
may record additional amounts of depreciation based on operation of the earnings
cap, due to implementation of the Transition Plan.
Cash Equivalents
All highly liquid debt instruments with maturities of three months or less
when purchased are considered cash equivalents.
Customer Receivables and Operating Revenues
TNMP accrues estimated revenues for electricity delivered since the latest
billing. TNMP, under a factoring arrangement with an unaffiliated company, sells
its customer receivables on a nonrecourse basis. Amounts estimated to have been
delivered, but remaining unbilled, are also sold in connection with this
agreement.
Purchased Power and Fuel Costs
As discussed in Note 2, TNMP has two plans - the Texas Transition Plan and
the New Mexico Community Choice plan - approved by the regulatory commissions in
the respective jurisdictions.
In Texas, as of January 1, 1998, the recovery of the demand-related portion
of purchased power costs has changed pursuant to the Texas Transition Plan as
discussed in Note 2. There are no changes to the recovery of the energy-related
portion of purchased power costs and fuel costs.
In New Mexico, as of May 1, 1997, the recovery of purchased power costs
changed pursuant to the New Mexico Community Choice plan discussed in Note 2.
Prior to the implementation of both plans, differences between amounts
collected and allowable costs were generally recovered either as purchased power
subject to refund or deferred purchased power and fuel costs in accordance with
regulatory ratemaking policy.
Deferred Charges
Expenses incurred in issuing long-term debt and related discount and
premium are amortized on a straight-line basis over the lives of the respective
issues.
Included in deferred charges are other assets that are expected to benefit
future periods and certain costs that are deferred for ratemaking purposes and
amortized over periods allowed by regulatory authorities.
Derivatives
The initial cost of an interest rate collar is being amortized over the
term of the related agreement. Unamortized premiums of $164,000 are included in
Deferred Charges in the consolidated balance sheets. Amounts to be received or
paid under the agreement, if any, will be recognized when they occur as a
component of interest expense. As of December 31, 1998, no such amounts have
been received or paid.
Income Taxes
TNP files a consolidated federal income tax return that includes its
subsidiaries and the consolidated operations of TNMP. The amounts of income
taxes recognized in TNMP's accompanying consolidated financial statements were
computed as if TNMP and its subsidiaries filed a separate consolidated federal
income tax return.
ITC amounts utilized in the federal income tax return are generally
deferred and amortized to earnings ratably over the estimated service lives of
the related assets.
Fair Values of Financial Instruments
Fair values of cash equivalents, temporary investments, and customer
receivables approximated the carrying amounts because of the short maturities of
those instruments.
The estimated fair values of long-term debt and preferred stock were based
on quoted market prices of the same or similar issues. The estimated fair values
of TNMP's financial instruments are as follows:
December 31, 1998 December 31, 1997
------------------------------ -----------------------------
Carrying Amount Fair Values Carrying Amount Fair Values
--------------- ----------- --------------- -----------
(In thousands)
Assets
Interest rate collar $ 164 $ (333) $ 262 $ 235
Capitalization and Liabilities
Long-term debt 459,000 475,189 478,000 505,400
Preferred stock 3,060 1,978 3,240 2,653
Common Stock
At December 31, 1998, 81,999 shares of TNP's common stock were reserved for
issuance to TNMP's 401(k) plan, and 1,198,356 shares of TNP's common stock were
reserved for subsequent issuance under other stock compensation or shareholder
plans.
Shareholder Rights Plan
TNP has a shareholder rights plan that is designed to protect TNP's
shareholders from coercive takeover tactics and inadequate or unfair takeover
bids. The rights plan provides for the distribution of one right for each share
of TNP's common stock currently outstanding or issued until the close of
business on August 11, 2008.
Upon the occurrence of certain events, each right entitles a shareholder to
elect to purchase one share of common stock at $100 per share or, under certain
circumstances, shares of common stock at half the then-current market price or
to receive TNP common stock or other securities having an aggregate value equal
to the excess of (i) the value of the common stock or other securities on the
date the rights are exercised over (ii) the cash payment that would have been
payable upon exercise of the rights if cash payment had been elected.
Until certain triggering events occur, the rights will trade together with
TNP's common stock and separate rights certificates will not be issued. Among
the triggering events are the acquisition by a person or group of 10% or more of
TNP's outstanding common stock or the commencement of a tender or exchange offer
that, upon consummation, would result in a person or group of persons owning 15%
or more of TNP's outstanding common stock. The rights expire August 11, 2008,
unless earlier redeemed or exchanged by TNP, and have had no effect on EPS.
Stock-Based Compensation
As discussed in Note 4, TNP has an equity based incentive compensation plan
that awards stock-based compensation. In 1995 the FASB issued SFAS 123,
"Accounting for Stock-Based Compensation", that changes the method for
calculating expenses associated with stock-based compensation. SFAS 123, which
became effective for 1996, also allows companies to retain the approach as set
forth in APB Opinion 25, "Accounting for Stock Issued to Employees", for
measuring expense for its stock-based compensation. TNP has elected to continue
to apply the provisions of APB Opinion 25 in calculating stock-based
compensation. The application of SFAS 123 would have had no effect on the amount
of expense associated with TNP's stock-based compensation.
Reclassification
Certain items in 1996 and 1997 were reclassified to conform to the 1998
presentation.
Note 2. Regulatory Matters
As the electric utility industry continues its transition toward an
environment of increased competition, the most significant effect of competition
on TNMP, as well as many other utilities, will be the ability to recover
potential stranded costs. "Stranded costs" is the difference between what it
currently costs TNMP to provide electricity and what a customer would be willing
to pay for such service in a competitive market. The inability to recover a
significant portion of stranded costs would adversely impact TNP's and TNMP's
financial condition. In Texas, TNMP's potential stranded cost relates to TNP
One, its 300 MW generating unit, and could potentially be more than $270
million. As of December 31, 1998, TNMP had reserved $3.4 million for its
potential stranded costs in New Mexico. Additional stranded costs could
potentially be zero to $7 million, depending on the market price of purchased
power at the onset of competition.
The following discusses TNMP's strategy to transition to competition and to
recover its potential stranded costs in Texas and New Mexico.
Texas Transition Plan
On July 22, 1998, the PUCT approved TNMP's transition-to-competition plan
(Transition Plan), and issued a final order documenting its approval on November
7, 1998. The Transition Plan includes a number of provisions that impact TNMP's
financial results. They are:
- TNMP will implement a series of residential and commercial
rate reductions totaling 9% and 3%, respectively, during a
five-year transition period. The first rate reductions for
residential and commercial customers of 3% and 1%,
respectively, were implemented retroactive to January 1, 1998.
The remaining reductions will be effective in January of 2000
and 2001.
- TNMP's earnings on its Texas operations are capped at an
11.25% return on equity less assumed discounts on industrial
rates, which, for 1998, were $4.1 million. In 1999, the
discounts are expected to be approximately $2.9 million. TNMP
will apply Texas earnings in excess of the cap to recover
stranded costs related to its generation investment (TNP One)
or will refund them to customers, according to PUCT
guidelines.
- The Plan includes a cap on allowed operating and maintenance
expenses applicable to TNMP's Texas operations based on cost
incurred per customer in 1996.
- TNMP will record $15 million of additional depreciation
annually during 1999-2002 to recover stranded costs.
- Finally, the manner in which TNMP recovers the cost of
purchased power from its customers has changed. In the past,
all of these costs were passed directly through to TNMP's
customers via adjustment factors that could change as often as
monthly. Under this methodology, purchased power expense had
no impact on operating income. Effective with the new rates
under the Transition Plan, only the energy-related portion of
purchased power will be passed through directly to customers
via the fuel adjustment clause. The demand-related portion of
purchased power will be recovered through base rates and is
not subject to adjustment or future reconciliation. Therefore,
any difference, between the amount of demand-related purchased
power recovered through TNMP's rates and the actual cost of
such, will affect operating income.
Absent legislation implementing retail competition prior to the end of the
five-year transition period, TNMP shall file with the PUCT, at the end of the
transition period, a proposal to voluntarily implement retail access, contingent
upon the approval of an appropriate mechanism for recovery of any remaining
stranded costs. The PUCT has committed to full recovery of stranded costs if
they are quantified using a market-based methodology, TNMP offers retail access,
and stranded costs are allocated fairly to all customers. Rates under the
Transition Plan continue to be cost-based, and TNMP will continue to apply SFAS
71 to its Texas generation/power supply operations until it requests, and the
PUCT approves authority to implement retail competition.
Implementation of the Transition Plan reduced operating revenue by $11.4
million (pre-tax). The base rate reductions accounted for $9.9 million of the
change, and a one-time customer refund accounted for the remaining $1.5 million.
TNMP's earnings for the year ended December 31, 1998, did not exceed the
earnings cap imposed by the Transition Plan.
New Mexico Community Choice
Following NMPUC approval on April 11, 1997, TNMP implemented Community
Choice, its plan for transition to competition for its New Mexico service
territory effective May 1, 1997. The plan provides TNMP's customers the right to
choose their electricity provider after a three-year transition period. The plan
freezes rates (including the recovery of purchased power) during the transition
period, and allows for customer aggregation based on market forces. As of
December 31, 1998, TNMP had reserved $3.4 million for its potential stranded
costs in New Mexico.
As a result of the New Mexico Community Choice plan, the power supply
portion of TNMP's New Mexico operations no longer qualifies for the application
of SFAS 71. Accordingly, in 1997, TNMP discontinued regulatory accounting
principles for the New Mexico power supply operations. The discontinuation of
SFAS 71 had no effect on TNMP's financial statements in the period of adoption.
The transmission and distribution operations in New Mexico will continue to
follow SFAS 71.
Fuel Reconciliation
TNMP's fixed fuel factor in Texas remains constant until changed as part of
a general rate case or fuel reconciliation, or until the PUCT orders a
reconciliation for any over or under collections of fuel costs. TNMP filed a
reconciliation of fuel costs in June 1997, for the period of October 1993
through December 1996. In January 1998, TNMP reached a stipulated agreement with
the staff of the PUCT and several other interested parties. The agreement, which
was approved by the PUCT on April 21, 1998, specified that all fuel costs
incurred during the reconciliation period were reasonable and necessary. Also,
the agreement did not propose a change to the fixed fuel factor.
Note 3. Discontinued Nonregulated Operations
Management, with approval from the Board of Directors, authorized a plan to
discontinue the construction activities of FWI in late 1997. During the third
quarter of 1998, TNP elected to discontinue all remaining operations of FWI.
The pre-tax loss on discontinued operations recognized in 1998 was $19.6
million ($12.7 million, net of taxes, or $0.96 per share). The 1998 pre-tax loss
resulted from construction delays, a shortage of skilled labor, and job site
performance problems. Due to these reasons, there are a few jobs not completed
at December 31, 1998. TNP expects the jobs to be completed during 1999.
The pre-tax loss on discontinued operations recognized in 1997 was $19.8
million ($12.9 million, net of taxes, or $0.98 per share). All losses incurred
by FWI, both construction and service, incurred in 1997 have been reclassified
as losses from discontinued operations.
Note 4. Employee Benefit Plans
Pension and Postretirement Benefits Plan
TNMP has a defined benefit pension plan covering substantially all of its
employees. Benefits are based on an employee's years of service and
compensation. TNMP's funding policy is to contribute the minimum amount required
by federal funding standards. TNMP also sponsors a health care plan that
provides postretirement medical and death benefits to retirees who satisfied
minimum age and service requirements during employment.
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
(In thousands)
Change in projected benefit obligation:
Benefit obligation at beginning of year $ 76,316 $ 66,406 $ 10,651 $ 16,805
Service cost 1,439 1,371 309 467
Interest cost 5,055 5,074 736 1,253
Participant contributions - - 183 92
Plan amendments (873) - - (8,000)
Actuarial (gain) or loss, including changes
in discount rate 1,366 8,273 442 1,436
Benefits paid (6,908) (4,808) (1,446) (1,402)
--------- ---------- ----------- -----------
Benefit obligation at end of year $ 76,395 $ 76,316 $ 10,875 $ 10,651
======== ========= ========== ==========
TNMP amended its pension and postretirement benefit plans effective October
1, 1997. The amendments were recognized at January 1, 1998, for the pension
plan, and at October 1, 1997, for the postretirement benefit plan.
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
-------- --------- ---------- ----------
(In thousands)
Change in plan assets:
Fair value of plan assets at beginning of year $ 95,751 $ 82,771 $ 8,274 $ 6,975
Actual return on plan assets, net of expenses 8,871 17,788 1,105 861
Employer contributions - - 1,597 1,624
Participant contributions - - 183 92
Benefits paid (6,908) (4,808) (1,223) (1,278)
-------- --------- ---------- ----------
Fair value of plan assets at end of year $ 97,714 $ 95,751 $ 9,936 $ 8,274
======== ========= ========== ==========
Reconciliation of funded status:
Funded status $ 21,319 $ 19,435 $ (938) $ (2,377)
Unrecognized actuarial gain (25,620) (24,779) (6,216) (6,168)
Unrecognized transition (asset) or obligation (35) (59) 4,540 12,864
Unrecognized prior service cost (2,152) (1,434) - (8,000)
--------- ---------- ----------- -----------
Prepaid (accrued) benefit cost $ (6,488) $ (6,837) $ (2,614) $ (3,681)
======== ========= ========== ==========
Components of net periodic benefit cost:
Service cost $ 1,439 $ 1,371 $ 309 $ 468
Interest cost 5,055 5,074 736 1,253
Expected return on plan assets (6,664) (6,219) (484) (434)
Amortization of prior service cost (156) (154) - -
Amortization of transitional (asset) or obligation (24) (24) 325 857
Recognized actuarial gain - - (326) (405)
--------- ---------- ----------- -----------
Net periodic benefit cost $ (350) $ 48 $ 560 $ 1,739
======== ========= ========== ==========
Weighted-average assumptions as of December 31:
Discount rate 6.75% 7.00% 6.75% 7.00%
Expected long-term rate of return on plan assets 9.50% 9.50% 5.25% 5.25%
Average rate of compensation increase 4.00% 4.00% N/A N/A
The assumed health care cost trend rate used to measure the expected cost
of benefits was 5.3% for 1998 and is assumed to trend downward slightly each
year to 4.3% for 2003 and thereafter. Assumed health care cost trend rates could
have a significant effect on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects (in thousands):
One-Percentage-Point One-Percentage-Point
Increase Decrease
-------------------- --------------------
Effect on total of service and interest cost
components for 1998 $ 3 $ (4)
Effect on year-end 1998 postretirement
benefit obligation 48 (61)
Incentive Plans
TNP and TNMP have several incentive compensation plans. All employees
participate in one or more of these plans. Incentive compensation is based on
meeting key financial and operational performance goals such as cash value added
or earnings per share, operations and maintenance costs per KWH, and system
reliability measures. Operating expenses for 1998, 1997, and 1996 included costs
for the various cash and equity plans of $5.9 million, $6.0 million, and $4.8
million, respectively.
Other Employee Benefits
TNMP has a 401(k) plan designed to enhance the other retirement plans
available to its employees. Employees may invest their contributions in fixed
income securities, mutual funds, or TNP common stock. TNMP's contributions are
used to purchase TNP common stock, which employees may later convert to other
investment options.
TNMP has employment contracts with certain members of management and other
key personnel. The contracts provide for lump sum compensation payments and
other rights in the event of termination of employment or other adverse
treatment of such persons following a "change in control" of TNP or TNMP. Such
event is defined to include, among other things, substantial changes in the
corporate structure, ownership, or board of directors of either entity.
An excess benefit plan has been provided for certain key personnel and
retired employees. The payment of benefits under the excess benefit plan is
partially provided under an insurance policy arrangement for paying the benefits
that generally would have been provided by the pension and thrift plans except
for federal limitations.
Note 5. Income Taxes
Components of income taxes were as follows:
TNP TNMP
---------------------------------- ------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(In thousands)
Taxes on net operating income:
Federal - current $ 9,751 $ 12,251 $ 10,240 $ 6,299 $ 9,140 $ 8,596
State - current 164 428 86 197 428 86
Federal - deferred 3,962 6,747 49 8,872 9,963 1,381
ITC adjustments 1,603 1,816 - 1,495 2,531 270
-------- ---------- ---------- --------- ---------- ----------
15,480 21,242 10,375 16,863 22,062 10,333
-------- ---------- ---------- --------- ---------- ----------
Taxes on other income (loss):
Federal - current (313) (534) (100) (313) (534) (100)
Federal - deferred 760 687 (241) 687 687 (241)
ITC adjustments (322) (410) (381) (322) (410) (381)
-------- ---------- ---------- --------- ---------- ----------
125 (257) (722) 52 (257) (722)
-------- ---------- ---------- --------- ---------- ----------
Tax benefit from discontinued
nonregulated operations (Note 3) (6,843) (6,660) (1,658) - - -
-------- ---------- ---------- --------- ---------- ----------
Total income taxes $ 8,762 $ 14,325 $ 7,995 $ 16,915 $ 21,805 $ 9,611
======== ========== ========== ========= ========== ==========
The amounts for total income taxes differ from the amounts computed by
applying the appropriate federal income tax rate to earnings (loss) before
income taxes for the following reasons:
TNP TNMP
--------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(In thousands)
Tax at statutory tax rate $ 9,796 $ 15,252 $ 10,850 $ 17,864 $ 22,854 $ 12,735
Amortization of
accumulated deferred ITC (1,525) (1,403) (1,323) (1,525) (1,403) (1,323)
Amortization of
excess deferred taxes (141) (141) (143) (141) (141) (143)
State income taxes 197 428 86 197 428 86
ITC related to 1995
PUCT disallowance (322) (410) (191) (322) (410) (191)
ITC adjustment - - (760) - - -
Other, net 757 599 (524) 842 477 (1,553)
-------- -------- --------- -------- -------- --------
Actual income taxes $ 8,762 $ 14,325 $ 7,995 $ 16,915 $ 21,805 $ 9,611
======== ======== ========= ======== ======== ========
The tax effects of temporary differences that gave rise to significant
portions of net current and net noncurrent deferred income taxes as of December
31, 1998, and 1997, are presented below.
TNP TNMP
-------------------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
Current deferred income taxes:
Deferred tax assets:
Unbilled revenues $ 91 $ 2,905 $ 91 $ 2,905
Other 2,999 - 115
----------- ----------- --------- -----------
3,090 2,905 206 2,905
Deferred tax liability:
Deferred purchased power and fuel costs (855) (1,198) (855) (1,198)
----------- ----------- ----------- -----------
Current deferred income taxes, net $ 2,235 $ 1,707 $ (649) $ 1,707
=========== =========== =========== ===========
Noncurrent deferred income taxes:
Deferred tax assets:
Minimum tax credit carryforwards $ 30,241 $ 27,414 $ 34,437 $ 34,377
ITC carryforwards 5,018 6,608 3,206 6,472
Regulatory related items 12,731 17,135 12,731 17,135
Accrued employee benefit costs 3,330 3,195 3,330 3,195
Other (890) 3,449 694 787
----------- ----------- ----------- -----------
50,430 57,801 54,398 61,966
----------- ----------- ----------- -----------
Deferred tax liabilities:
Utility plant, principally due to
depreciation and basis differences (135,870) (128,913) (135,870) (128,913)
Deferred charges (4,611) (6,101) (4,611) (6,101)
Regulatory related items (7,295) (8,037) (7,295) (8,037)
----------- ----------- ----------- -----------
(147,776) (143,051) (147,776) (143,051)
----------- ----------- ----------- -----------
Noncurrent deferred income taxes, net $ (97,346) $ (85,250) $ (93,378) $ (81,085)
=========== =========== =========== ===========
Federal tax carryforwards as of December 31, 1998, were as follows:
TNP TNMP
--- ----
(In thousands)
Minimum tax credits
Amount $ 30,241 $ 34,437
Expiration period None None
Investment tax credit
Amount $ 5,018 $ 3,206
Expiration period 2005 2005
Note 6. Long-Term Debt
First Mortgage Bonds
FMBs issued under the Bond Indenture are secured by substantially all
utility plant owned directly by TNMP. The Bond Indenture restricts cash dividend
payments on TNMP common stock as discussed in Note 7.
The maximum amount of any additional FMBs that TNMP can issue is determined
by both a collateral requirement and by an interest coverage requirement. The
collateral requirement is a function of property additions, previuosly redeemed
FMBs, and cash deposited with the trustee. As of December 31, 1998, the
collateral requirement was more restrictive than the interest coverage
requirement, and TNMP could therefore issue up to $267 million of additional
FMBs. After the issuance of $175 million of FMBs in January 1999 to secure the
Senior Notes, TNMP could issue an additional $92 million of FMBs.
Secured Debentures
TNMP's Series A, 10.75% secured debentures ($140 million) are secured with
a first lien on a portion of Unit 1, and by second liens on substantially all
utility plant in Texas owned directly by TNMP. The secured debentures also
contain restrictions on dividends and asset dispositions. TNMP's 12.5% secured
debentures ($130 million) were retired at maturity in January 1999.
Senior Notes
In January 1999, TNMP issued $175 million of 6.25% Senior Notes due in 2009
and used the proceeds to retire its 12.5% secured debentures and reduce
outstanding borrowings under the credit facilities. The Senior Notes were issued
under a new indenture that allows the issuance of unsecured debt. The new notes
are initially secured by FMBs. However, when TNMP repays its existing FMBs and
secured debentures, the collateral securing the Senior Notes will be released,
and they will become unsecured, but will remain the senior debt obligations of
TNMP.
Revolving Credit Facilities
The following table summarizes the terms of TNP's and TNMP's revolving
credit facilities at December 31,1998:
Total Amount Commitment 1998 Average
Commitment Outstanding Expires Interest Rate Security
(in thousands)
1998 TNP Facility $ 50,000 $ 9,000 November 2003 5.62% Unsecured
1995 TNMP Facility 100,000 - November 2000 7.45% Unsecured
1996 TNMP Facility 80,000 80,000 September 2001 6.96% Unsecured
Interim TNMP Facility 35,000 - April 1999 N/A Unsecured
The composite average borrowing rates under TNMP's credit facilities were
6.99% and 7.15% for 1998 and 1997, respectively. The interest rate margins on
the 1996 and 1995 facilities have decreased by 0.50% since the ratings on TNMP's
FMBs have been upgraded by the rating agencies.
TNMP has a $50 million interest rate collar to mitigate exposure to
variable interest rates. The collar sets floor and ceiling rates on the 90-day
LIBOR rate at 5.25% and 7.50%, respectively. The term of the interest rate
collar is September 1997 through September 2000. TNMP also has a $100 million
interest rate collar to mitigate the risk of refinancing the Series A, 10.75%
Secured Debentures and the 9.25% FMBs. The collar sets floor and ceiling rates
on the 10-year U. S. Treasury bond at 4.91% and 6.25%, respectively. The collar
expires, and is exercisable only on, September 15, 2000.
TNMP has sufficient liquidity to satisfy the possibility of any known
contingencies. Management believes cash flow from operations, the new debt
described above, and periodic borrowings under its two credit facilities should
be sufficient to meet working capital requirements and planned capital
expenditures at least through 1999.
Under specified conditions, TNMP's credit facilities restrict the payment
of cash dividends on TNMP common stock. The credit facilities also prohibit the
sale, lease, transfer, or other disposition of assets other than in the ordinary
course of business.
Maturities
As of December 31, 1998, FMB and secured debenture maturities and sinking
fund requirements for the five years following 1998 are as follows:
Credit Secured
Year FMBs Facilities Debentures Total
---- ---- ---------- ---------- -----
(In thousands)
1999 $ - $ - $ - $ -
2000 100,000 - - 100,000
2001 - 80,000 - 80,000
2002 - - - -
2003 - 9,000 140,000 149,000
In January 1999, TNMP retired upon their maturity, $130 million of 12.5%
secured debentures, and issued $175 million of 6.25% Senior Notes due in 2009.
TNMP's Series A, 10.75% Secured Debentures of $140 million are callable at par
on September 15, 2000.
Note 7. Capital Stock and Dividends
TNP
In November 1998, TNP increased its quarterly dividend from $0.27 to $0.29
per share.
In October 1996, TNP issued 2 million shares of common stock in a public
offering, with net proceeds of approximately $47,170,000. The net proceeds were
transferred to TNMP as an equity contribution and used to retire debt.
TNMP
The 1995 and 1996 TNMP Credit Facilities restrict the payment of cash
dividends by TNMP. As of December 31, 1998, $14.7 million of unrestricted
retained earnings were available for dividends.
Note 8. Segment and Related Information
During 1998, TNP adopted FASB Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information". TNP has two reportable
segments. The primary segment is TNMP, which provides regulated electric service
in Texas and New Mexico. The other reportable segment is FWI, which before
operations were discontinued, provided integrated mechanical, electrical,
plumbing and other maintenance and repair services to commercial customers in
Texas metropolitan areas. TNP manages the segments separately to respond to the
unique distinctions between regulated and unregulated businesses.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Intersegment revenues are not
material.
The following tables present information about profits, losses and assets
of TNP's reportable segments (in thousands):
1998
-----
TNMP FWI All Other Eliminations Consolidated
---- --- --------- ------------ ------------
Operating revenues $ 586,445 $ - $ 48 $ - $ 586,493
Depreciation and amortization 42,161 - 2 - 42,163
Income taxes 16,863 - (1,383) - 15,480
Interest revenue 944 - 391 - 1,335
Total interest charges 53,727 - 158 - 53,885
Income (loss) from continuing operations 34,321 - (2,187) - 32,134
Loss from discontinued nonregulated
operations - 12,710 - - 12,710
Net income (loss) 34,321 (12,710) (2,187) - 19,424
Total assets 973,566 10,081 10,344 (226) 993,765
Property additions 37,506 - 1,048 - 38,554
1997
---- TNMP FWI All Other Eliminations Consolidated
---- --- --------- ------------ ------------
Operating revenues $ 580,693 $ - $ - $ - $ 580,693
Depreciation and amortization 40,169 - 2 - 40,171
Income taxes 22,062 - (820) - 21,242
Interest revenue 1,497 - 326 - 1,823
Total interest charges 56,912 - - - 56,912
Income (loss) from continuing operations 43,918 - (1,357) - 42,561
Loss from discontinued nonregulated
operations - 12,883 - - 12,883
Net income (loss) 43,918 (12,883) (1,357) - 29,678
Total assets 967,006 10,239 11,748 2,933 991,926
Property additions 27,942 - 2,067 - 30,009
1996
---- TNMP FWI All Other Eliminations Consolidated
---- --- --------- ------------ ------------
Operating revenues $ 502,737 $ - $ - $ - $ 502,737
Depreciation and amortization 39,488 - 2 - 39,490
Income taxes 10,333 - 42 - 10,375
Interest revenue 1,250 - 326 - 1,576
Total interest charges 69,363 - - - 69,363
Income (loss) from continuing operations 26,862 - (712) - 26,150
Loss from discontinued nonregulated
operations - 3,097 - - 3,097
Net income (loss) 26,862 (3,097) (712) - 23,053
Total assets 1,002,157 2,361 7,836 (5,570) 1,006,784
Property additions 28,006 - 2,771 - 30,777
Note 9. Commitments and Contingencies
Fuel Supply Agreement
TNMP has an agreement with the Walnut Creek Mining Company to purchase
lignite for TNP One through at least 2017. Depending on the output of TNP one,
the contract could supply the plant for several years beyond 2017. Phillips Coal
Company and Peter Kiewit Sons' jointly own Walnut Creek Mining Company, Inc.
Wholesale Purchased Power Agreements
TNMP purchases approximately 80% of its electricity requirements from
various wholesale suppliers. These contracts are scheduled to expire in various
years through 2005.
In 1998, TU was TNMP's largest wholesaler of electricity. In 1998, TU
supplied approximately 32% of TNMP's Texas capacity and 23% of its Texas energy
requirements. During 1995, pursuant to terms of the contract, TNMP notified TU
of its intent to cease purchasing electricity at 19 of the 20 points of delivery
served by TU, effective January 1, 1999. The nineteen points of delivery account
for approximately 70% of the electricity delivered to TNMP from TU. At that
time, the TU Agreement required TNMP to continue purchasing electricity at the
remaining point of delivery through May of 2010. In late 1997, TNMP and TU
modified the agreement to change the termination date of the contract from May
2010 to June 2002. Therefore, TNMP currently has no obligation to purchase
electricity from TU beyond June 2002.
At December 31, 1998, TNMP had various outstanding commitments for take or
pay agreements, including the fuel supply agreement discussed above. Detailed
below are the fixed and determinable portion of the obligations (amounts in
millions):
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
Purchased power agreements $ 74.3 $ 53.3 $ 58.9 $ 26.9 $ 17.3
Fuel supply agreements 32.0 32.8 33.6 34.4 35.3
------- -------- -------- ------- -------
Total $ 106.3 $ 86.1 $ 92.5 $ 61.3 $ 52.6
======= ======== ======== ======= =======
Significant Customer
A significant industrial customer in Texas left TNMP's system in February
1998 and replaced the power previously provided by TNMP with power from a
cogeneration plant built by a third party wholesale power producer. This
customer provided sales of 629 GWH and annual revenues of $28.3 million in 1997
($10.1 million in base revenues). Purchases by this customer in 1998 were 74
GWH, providing total revenues of $3.1 million and base revenues of $0.9 million.
Legal Actions
TNMP and Clear Lake Limited Partnership ("Clear Lake") agreed in March 1999
to settle the lawsuit styled Clear Lake Cogeneration Limited Partnership vs.
Texas-New Mexico Power Company, pending in the 234th District court of Harris
County, Texas, and the parallel proceeding pending before the PUCT. These
proceedings arose out of disagreements between TNMP and Clear Lake over the
interpretation of certain terms of an agreement under which TNMP purchases
cogenerated electricity from Clear Lake. The settlement, which must be approved
by the PUCT, resolves all outstanding issues raised in these proceedings.
Under the settlement, TNMP, Clear Lake and Calpine Power Services Company
(an affiliate of Clear Lake) have entered into a revised purchased power
contract, effective as of October 1, 1998, governing energy and capacity
transactions between the parties. The key elements of the revised contract are:
- The capacity rate under which TNMP will purchase capacity from Clear
Lake is significantly reduced. The energy rate is virtually
unchanged.
- Clear Lake will be able to provide 250 MW of capacity from multiple
sources. Except for power plants named in the agreement, TNMP retains
certain rights of prior approval as to other sources of power and
energy.
- TNMP will pay for the cost of transmitting power from the existing
Clear Lake power plant to TNMP's load centers in the Gulf Coast Region
pursuant to new PUCT rules. Clear Lake will reimburse TNMP for any
excess transmission costs that TNMP would incur as a result of
delivery from points other than the Clear Lake Plant.
- Clear Lake will no longer pay for nor receive standby power, but will
generally guarantee 100% availability of capacity and energy. Clear
Lake may request that TNMP obtain or generate replacement power at a
negotiated fixed cost under certain limited conditions.
- Future disputes shall be resolved through consultation and
arbitration.
The settlement also provides that TNMP will pay Clear Lake $8 million when
the PUCT has approved the overall settlement and revised purchased power
contract. The settlement calls for regulatory recovery by TNMP of all payments
to be made by TNMP for power and energy, as well as the $8 million settlement
payment. TNMP does not expect this settlement to have a material adverse impact
on its financial position or results of operations.
Phillips Petroleum. TNMP is the defendant in a suit styled Phillips
Petroleum Company vs. Texas-New Mexico Power Company. This lawsuit was filed on
October 1, 1997 and is pending in the 149th Judicial District Court of Brazoria
County, Texas. In this matter, Phillips Petroleum Company contends that it
sustained economic losses of approximately $36 million following a one and
one-half hour interruption in its electrical service on May 17, 1997. TNMP
claims that most, if not all of Phillips Petroleum alleged damages are barred by
limitations contained within our tariff approved by the PUCT. The lawsuit is in
the initial discovery stage. In regard to this matter, TNMP believes that it has
insurance coverage on most claims of Phillips Petroleum up to a total of $31
million, with a $500,000 self-retention.
TNMP is involved in various claims and other legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
dispositions of these matters will not have a material adverse effect on TNMP's
and TNP's consolidated financial position or results of operations.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
Selected Quarterly Consolidated Financial Data
The following selected quarterly consolidated financial data for TNP is
unaudited, and, in the opinion of TNP's management, is a fair summary of the
results of operations for such periods:
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(In thousands except per share amounts)
1998
Operating revenues........................................ $ 124,581 $ 143,111 $ 189,439 $ 129,362
Net operating income...................................... 18,491 19,101 33,119 14,153
Income from continuing operations......................... 5,130 5,832 20,890 282
Net income (loss)......................................... 4,626 (767) 18,561 (2,996)
Earnings per share of common stock from
continuing operations*................................. 0.39 0.44 1.58 0.02
Earnings (loss) per share of common stock................. 0.35 (0.06) 1.40 (0.23)
Dividends per share of common stock....................... $ 0.27 $ 0.27 $ 0.27 $ 0.29
Weighted average common shares outstanding................ 13,188 13,240 13,263 13,283
1997
Operating revenues........................................ $ 126,222 $ 132,361 $ 187,035 $ 135,075
Net operating income...................................... 19,430 23,023 37,510 17,810
Income from continuing operations......................... 5,120 8,847 23,741 4,853
Net income (loss)......................................... 4,110 7,431 20,694 (2,557)
Earnings per share of common stock from
continuing operations*................................. 0.39 0.68 1.81 0.37
Earnings (loss) per share of common stock *............... 0.31 0.56 1.58 (0.20)
Dividends per share of common stock....................... $ 0.245 $ 0.245 $ 0.245 $ 0.27
Weighted average common shares outstanding................ 13,025 13,069 13,092 13,128
* The individual quarters do not add to the yearly totals since the per share
amounts are based upon the average number of shares outstanding during each
quarter.
Generally, the variations between quarters reflect the seasonal
fluctuations of TNMP's business. Provisions for losses related to discontinuing
operations at FWI's construction segment account for the decreases in operating
results reported in the fourth quarter of 1997, and the second and fourth
quarters of 1998. Discontinuing operations of FWI's service segment caused the
decreased operating results shown in the third quarter of 1998. Implementation
of the Texas Transition Plan also had a negative impact on operating results in
the second, third, fourth quarters of 1998.
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.
Directors
The information required by this item is incorporated by reference to
"Election of Directors" and "Security Ownership of Management and Certain
Beneficial Owners" in the proxy statement relating to the 1999 Annual Meeting of
TNP Common Shareholders.
Executive Officers
The information set forth under "Employees and Executives" in Part I is
incorporated here by reference.
Item 11. EXECUTIVE COMPENSATION.*
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.*
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.*
* The information required by Items 11, 12, and 13 is incorporated by
reference to "Compensation of Executive Officers," "Election of Directors -
Direct Compensation," and "Security Ownership of Management and Certain
Beneficial Owners" in the proxy statement relating to the 1999 Annual
Meeting of TNP Common Shareholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following financial statements are filed as part of this report:
Page
Reports of Independent Public Accountants.................................... 20
Independent Auditors' Reports................................................ 22
TNP
Consolidated Statements of Income, Three Years Ended December 31, 1998....... 24
Consolidated Statements of Cash Flows, Three Years Ended December 31, 1998... 25
Consolidated Balance Sheets, December 31, 1998, and 1997..................... 26
Consolidated Statements of Capitalization, December 31, 1998, and 1997....... 27
Consolidated Statements of Common Shareholders' Equity, Three Years
Ended December 31, 1998.................................................... 28
TNMP
Consolidated Statements of Income, Three Years Ended December 31, 1998....... 29
Consolidated Statements of Cash Flows, Three Years Ended December 31, 1998... 30
Consolidated Balance Sheets, December 31, 1998, and 1997..................... 31
Consolidated Statements of Capitalization, December 31, 1998, and 1997....... 32
Consolidated Statements of Common Shareholder's Equity, Three Years
Ended December 31, 1998.................................................... 33
Notes to Consolidated Financial Statements................................... 34
Selected Quarterly Consolidated Financial Data - TNP......................... 46
(b) TNP and TNMP filed a Form 8-K relating to TNP's amended Shareholders' Rights
Plan on October 9, 1998.
(c) The Exhibit Index on pages 49 - 54 is incorporated here by reference.
(d) All financial statement schedules are omitted, as the required
information is not applicable or the information is presented in the
consolidated financial statements or related Notes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
TNP ENTERPRISES, INC. AND TEXAS-NEW MEXICO POWER COMPANY
Date: March 19, 1999 By: /s/ Manjit S. Cheema
--------------------------------------
Manjit S. Cheema, Senior Vice President
& 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
Registrants and in the capacities and on the dates indicated.
Title Date
----- ----
By /s/ Kevern R. Joyce Chairman, President, & Chief Executive Officer 3/19/99
------------------------- -------
Kevern R. Joyce
By /s/ Manjit S. Cheema Senior Vice President & Chief Financial Officer 3/19/99
------------------------- of TNMP and TNP -------
Manjit S. Cheema
By /s/ Michael J. Ricketts Controller of TNMP & TNP 3/19/99
------------------------- -------
Michael J. Ricketts
By /s/ R. Denny Alexander Director 3/19/99
------------------------- -------
R. Denny Alexander
By /s/ John A. Fanning Director 3/19/99
------------------------- -------
John A. Fanning
By /s/ Sidney M. Gutierrez Director 3/19/99
------------------------- -------
Sidney M. Gutierrez
By /s/ J. R. Holland, Jr. Director 3/19/99
------------------------- -------
J. R. Holland, Jr.
By /s/ Harris L. Kempner, Jr. Director 3/19/99
------------------------- -------
Harris L. Kempner, Jr.
By /s/ Dr. Carol D. Smith Surles Director 3/19/99
------------------------- -------
Dr. Carol D. Smith Surles
By /s/ Larry G. Wheeler Director 3/19/99
------------------------- -------
Larry G. Wheeler
By /s/ Dennis H. Withers Director 3/19/99
------------------------- -------
Dennis H. Withers
EXHIBIT INDEX
Exhibits filed with this report are denoted by "*."
Exhibit
No. Description
- ------- -------------
TNP incorporates the following exhibits by reference to the exhibits and filings
noted in parenthesis.
3(a) - Articles of Incorporation and Amendments through March 6, 1984 (Exhibit
3(a) to TNP 1984 Form S-14, File No. 2-89800).
3(b) - Amendment to Articles of Incorporation filed September 25, 1984
(Exhibit 3(b) to TNP 1984 Form 10-K, File No. 1-8847).
3(c) - Amendment to Articles of Incorporation filed August 29, 1985 (Exhibit
3(a) to TNP 1985 Form 10-K, File No. 1-8847).
3(d) - Amendment to Articles of Incorporation filed June 2, 1986 (Exhibit 3(a)
to TNP 1986 Form 10-K, File No. 1-8847).
3(e) - Amendment to Articles of Incorporation filed May 10, 1988 (Exhibit 3(e)
to TNP 1988 Form 10-K, File No. 1-8847).
3(f) - Amendment to Articles of Incorporation filed May 10, 1988 (Exhibit 3(f)
to TNP 1988 Form 10-K, File No. 1-8847).
3(g) - Amendment to Articles of Incorporation filed December 27, 1988 (Exhibit
3(g) to TNP 1988 Form 10-K, File No. 1-8847).
3(h) - Bylaws, as amended (Exhibit 3(h) to joint 1994 Form 10-K, File Nos.
1-8847 and 2-97230).
4(u) - Amended and Restated Rights Agreement between TNP Enterprises, Inc. and
Bank of New York, as Rights Agent, dated August 11, 1998and Form of Right
Certificate, effective August 11, 1998 (Exhibit 10 to TNP Form 8-K filed
October 9, 1998, File No. 1-8847).
*23 - Independent Public Accountants' Consent - Arthur Andersen LLP.
Independent Auditors' Consent - KPMG LLP.
*27 - Financial Data Schedule for TNP.
TNMP incorporates the following exhibits by reference to the exhibits and
filings noted in parenthesis.
3(i) - Restated Articles of Incorporation. (Exhibit 3(i) to TNMP 1996 10-K, File
No. 2-97230)
3(ii)- Bylaws, as amended November 15, 1994 (Exhibit 3(hh) to TNMP 1994 Form
10-K, File No. 2-97230).
*27 - Financial Data Schedule for TNMP.
TNP and TNMP incorporate the following exhibits by reference to the exhibits and
filings noted in parenthesis.
4(a) - Indenture of Mortgage and Deed of Trust dated as of November 1, 1944
(Exhibit 2(d) to Community Public Service Co. ("CPS") 1978 Form S-7,
File No. 2-61323).
4(b) - Seventh Supplemental Indenture dated as of May 1, 1963 (Exhibit 2(k) to
CPS Form S-7, File No. 2-61323).
4(c) - Eighth Supplemental Indenture dated as of July 1, 1963 (Exhibit 2(1), to
CPS Form S-7, File No. 2-61323).
4(d) - Ninth Supplemental Indenture dated as of August 1, 1965 (Exhibit 2(m), to
CPS Form S-7, File No. 2-61323).
4(e) - Tenth Supplemental Indenture dated as of May 1, 1966 (Exhibit 2(n), to
CPS Form S-7, File No. 2-61323).
4(f) - Eleventh Supplemental Indenture dated as of October 1, 1969 (Exhibit
2(o), to CPS Form S-7, File No. 2-61323).
4(g) - Twelfth Supplemental Indenture dated as of May 1, 1971 (Exhibit 2(p), to
CPS Form S-7, File No. 2-61323).
4(h) - Thirteenth Supplemental Indenture dated as of July 1, 1974 (Exhibit 2(q),
to CPS Form S-7, File No. 2-61323).
4(i) - Fourteenth Supplemental Indenture dated as of March 1, 1975 (Exhibit
2(r), to CPS Form S-7, 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 of TNMP 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 of TNMP 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 of TNMP 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 of TNMP for the year ended December 31, 1991,
File No. 2-97230).
4(r)- Twenty-Third Supplemental Indenture dated as of September 15, 1993
(Exhibit 4(r) to Form 10-K of TNMP for the year ended December 31, 1993,
File No. 2-97230).
4(s)- Twenty-Fourth Supplemental Indenture dated as of November 3, 1995
(Exhibit 4(s) to Form 10-K of TNMP for the year ended December 31, 1993,
File No. 2-97230).
4(t)- Twenty-Fifth Supplemental Indenture dated as of September 10, 1996
(Exhibit 4(t) to Form 10-Q of TNMP for the quarter ended September 30,
1996, File No. 2-97230).
4(u)*- Twenty-Sixth Supplemental Indenture dated January 1, 1999.
4(v) - Indenture and Security Agreement for 10 3/4% Secured Debentures dated
as of September 15, 1993 (Exhibit 4(t) to TNMP 1993 Form 10-K, File No.
2-97230).
4(w)*- Indenture dated as of January 1, 1999 between TNMP and the Chase Bank
of Texas, N. A.
4(x)*- First Supplemental Indenture dated as of January 1, 1999 to Indenture
dated as of January 1, 1999 between TNMP and the Chase Bank of Texas, N.
A.
Contracts Relating to TNP One
10(a)- Fuel Supply Agreement, dated November 18, 1987, between Phillips Coal
Company and TNMP(Exhibit 10(j) to TNMP 1987 Form 10-K, File No. 2-97230).
10(a)1-Amendment No. 1, dated as of April 1, 1988, to Fuel Supply Agreement
dated November 18, 1987, between Phillips Coal Company and TNMP (Exhibit
10(a)1 to Joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230).
10(a)2 - Amendment No. 2, dated as of November 29, 1994, between Walnut Creek
Mining Company and TNMP, to Fuel Supply Agreement dated November 18,
1987, between Phillips Coal Company and TNMP, (Exhibit 10(a)2 to joint
1994 Form 10-K, File Nos. 1-8847 and 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 TNMP,
TGC, certain banks (the "Unit 1 Banks") and Chase Manhattan Bank
(National Association), as Agent for the Unit 1 Banks (the "Unit 1
Agent"), (Exhibit 10(c) to TNMP 1991 Form 10-K, File No. 2-97230).
10(b)1 - Participation Agreement, dated as of January 8, 1992, among certain
banks, Participants, and the Unit 1 Agent (Exhibit 10(c)1 to TNMP 1991
Form 10-K, File No. 2-97230).
10(b)2 - Amendment No. 1, dated as of September 21, 1993, to the Unit 1 Credit
Agreement (Exhibit 10(b)2 to TNMP 1993 Form 10-K , File No. 2-97230).
10(c) - Assignment and Security Agreement, dated as of January 8, 1992, among
TGC and the Unit 1 Agent (Exhibit 10(d) to TNMP 1991 Form 10-K, File No.
2-97230).
10(d) - Amended and Restated Subordination Agreement, dated as of October 1,
1988, among TNMP, Continental Illinois National Bank and Trust Company of
Chicago and the Unit 1 Agent (Exhibit 10(uu) to TNMP 1988 Form 10-K, File
No. 2-97230).
10(e) - Unit 1 Mortgage and Deed of Trust, dated as of December 1, 1987,
(Exhibit 10(ee) to TNMP 1987 Form 10-K, File No. 2-97230).
10(e)1 - Supplemental Unit 1 Mortgage and Deed of Trust executed on January 27,
1992, (Exhibit 10(g)4 to TNMP 1991 Form 10-K , File No. 2-97230).
10(e)2 - First TGC Modification and Extension Agreement, dated as of January 24,
1992, among the Unit 1 Banks, the Unit 1 Agent, TNMP, and TGC (Exhibit
10(g)1 to TNMP 1991 Form 10-K, File No. 2-97230).
10(e)3 - Second TGC Modification and Extension Agreement, dated as of January
27, 1992, among the Unit 1 Banks, the Unit 1 Agent, TNMP, and TGC
(Exhibit 10(g)2 to TNMP 1991 Form 10-K, File No. 2-97230).
10(e)4 - Third TGC Modification and Extension Agreement, dated as of January 27,
1992, among the Unit 1 Banks, the Unit 1 Agent, TNMP, and TGC (Exhibit
10(g)3 to TNMP 1991 Form 10-K, File No. 2-97230).
10(e)5 - Fourth TGC Modification and Extension Agreement, dated as of September
29, 1993, among the Unit 1 Banks, the Unit 1 Agent, TNMP, and TGC
(Exhibit 10(f)5 to TNMP 1993 Form 10-K, File No. 2-97230).
10(e)6 - Fifth TGC Modification and Extension Agreement, dated as of September
29, 1993, among the Unit 1 Banks, the Unit 1 Agent, TNMP, and TGC
(Exhibit 10(f)6 to TNMP 1993 Form 10-K, File No. 2-97230).
10(f) - Indemnity Agreement dated December 1, 1987, by Westinghouse, CE and
Zachry, (Exhibit 10(ff) to TNMP 1987 Form 10-K, File No. 2-97230).
10(g) - Unit 1 Second Lien Mortgage and Deed of Trust dated as of December 1,
1987, (Exhibit 10(jj) to TNMP 1987 Form 10-K, File No. 2-97230).
10(g)1 - Correction Second Lien Mortgage and Deed of Trust, dated as of December
1, 1987, (Exhibit 10(vv) to TNMP 1988 Form 10-K, File No. 2-97230).
10(g)2 - Second Lien Mortgage and Deed of Trust Modification, Extension and
Amendment Agreement, dated as of January 8, 1992 (Exhibit 10(i)2 to TNMP
1991 Form 10-K, File No. 2-97230).
10(g)3 - TNMP Second Lien Mortgage Modification No. 2, dated as of September 21,
1993 (Exhibit 10(h)3 to TNMP 1993 Form 10-K, File No. 2-97230).
10(h) - Agreement for Conveyance and Partial Release of Liens, dated as of
December 1, 1987, by PFC and the Unit 1 Agent (Exhibit 10(kk) to TNMP
1987 Form 10-K, File No. 2-97230).
10(i) - Inducement and Consent Agreement, dated as of June 15, 1988, among
Phillips Coal Company, Kiewit Texas Mining Company, TNMP, Phillips
Petroleum Company, and Peter Kiewit Son's, Inc. (Exhibit 10(nn) to TNMP
1988 Form 10-K, File No. 2-97230).
10(j) - Assumption Agreement, dated as of October 1, 1988, by TGC, in favor of
certain banks, the Unit 1 Agent, and the Depositary, as defined therein
(Exhibit 10(ww) to TNMP 1988 Form 10-K, File No. 2-97230).
10(k) - Guaranty, dated as of October 1, 1988, by TNMP of TGC obligations under
Unit 1 Credit Agreement (Exhibit 10(xx) to TNMP 1988 Form 10-K of TNMP,
File No. 2-97230).
10(l) - First Amended and Restated Facility Purchase Agreement dated as of
January 8, 1992, between TNMP and TGC (Exhibit 10(n) to TNMP 1991 Form
10-K, 1991, File No. 2-97230).
10(m) - Operating Agreement, dated as of October 1, 1988, between TNMP and TGC
(Exhibit 10(zz) to TNMP 1988 Form 10-K, File No. 2-97230).
10(n) - Unit 2 First Amended and Restated Project Loan and Credit Agreement,
dated as of January 8, 1992 (the "Unit 2 Credit Agreement"), among TNMP,
TGC II, certain banks (the "Unit 2 Banks") and The Chase Manhattan Bank
(National Association), as Agent for the Unit 2 Banks (the "Unit 2
Agent") (Exhibit 10(q) to TNMP 1991 Form 10-K, File No. 2-97230).
10(n)1 - Amendment No. 1, dated as of September 21, 1993, to the Unit 2 Credit
Agreement (Exhibit 10(o)1 to TNMP 1993 Form 10-K, File No. 2-97230).
10(o) - Assignment and Security Agreement, dated as of January 8, 1992, among
TGC II and the Unit 2 Agent (Exhibit 10(r) to TNMP 1991 Form 10-K, File
No. 2-97230).
10(p) - Assignment and Security Agreement dated as of October 1, 1988, by TNMP
to the Unit 2 Agent (Exhibit 10(jjj) to TNMP 1988 Form 10-K, File No.
2-97230).
10(q) - Subordination Agreement, dated as of October 1, 1988, among TNMP,
Continental Illinois National Bank and Trust Company of Chicago, and the
Unit 2 Agent (Exhibit 10(mmm) to TNMP 1988 Form 10-K, File No. 2-97230).
10(r) - Unit 2 Mortgage and Deed of Trust dated as of October 1, 1988 (Exhibit
10(uuu) to TNMP 1988 Form 10-K, File No. 2-97230).
10(r)1 - First TGC II Modification and Extension Agreement, dated as of January
24, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNMP, and TGC II
(Exhibit 10(u)1 to TNMP 1991 Form 10-K, File No. 2-97230).
10(r)2 - Second TGC II Modification and Extension Agreement, dated as of January
27, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNMP and TGC II
(Exhibit 10(u)2 to TNMP 1991 Form 10-K, File No. 2-97230).
10(r)3 - Third TGC II Modification and Extension Agreement, dated as of January
27, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNMP, and TGC II
(Exhibit 10(u)3 to TNMP 1991 Form 10-K, File No. 2-97230).
10(r)4 - Fourth TGC II Modification and Extension Agreement, dated as of
September 29, 1993, among the Unit 2 Banks, the Unit 2 Agent, TNMP, and
TGC II (Exhibit 10(s)4 to TNMP 1993 Form 10-K, File No. 2-97230).
10(r)5 - Fifth TGC II Modification and Extension Agreement, dated as of June 15,
1994, among the Unit 2 Banks, the Unit 2 Agent, TNMP, and TGC II (Exhibit
10(s)5 to TNMP Form 10-Q for quarter ended June 30, 1994, File No.
2-97230).
10(s) - Release and Waiver of Liens and Indemnity Agreement, dated October 1,
1988, by Westinghouse, CE, and Zachry (Exhibit 10(vvv) to TNMP 1988 Form
10-K, File No. 2-97230).
10(t) - Second Lien Mortgage and Deed of Trust, dated as of October 1, 1988,
(Exhibit 10(www) to TNMP 1988 Form 10-K, File No. 2-97230).
10(t)1 - Second Lien Mortgage and Deed of Trust Modification, Extension and
Amendment Agreement, dated as of January 8, 1992, (Exhibit 10(w)1 to TNMP
1991 Form 10-K, File No. 2-97230).
10(t)2 - TNMP Second Lien Mortgage Modification No. 2, dated as of September 21,
1993, (Exhibit 10(u)2 to TNMP 1993 Form 10-K, File No. 2-97230).
10(u) - Intercreditor and Nondisturbance Agreement, dated as of October 1,
1988, among PFC, Texas PFC, Inc., TNMP, certain creditors, as defined
therein, and the Collateral Agent, as defined therein (Exhibit 10(xxx) to
TNMP 1988 Form 10-K, File No. 2-97230).
10(u)1 - Amendment No. 1, dated as of January 8, 1992, to Intercreditor and
Nondisturbance Agreement, (Exhibit 10(x)1 to TNMP 1991 Form 10-K, File
No. 2-97230).
10(u)2 - Amendment No. 2, dated as of September 21, 1993, to Intercreditor and
Nondisturbance Agreement, (Exhibit 10(v)2 to TNMP 1993 Form 10-K of TNMP,
File No. 2-97230).
10(v) - Grant of Reciprocal Easements and Declaration of Covenants Running with
the Land, dated October 1, 1988, between PFC and Texas PFC, Inc. (Exhibit
10(yyy) to TNMP 1988 Form 10-K, File No. 2-97230).
10(w) - Non-Partition Agreement, dated as of May 30, 1990, among TNMP, TGC, and
the Unit 1 Agent (Exhibit 10(ss) to TNMP 1990 Form 10-K of TNMP, File No.
2-97230).
10(x) - Assumption Agreement, dated as of May 31, 1991, by TGC II in favor of
certain banks, the Unit 2 Agent, and the Depositary, as defined therein
(Exhibit 10(kkk) to Amendment No. 1 to File No. 33-41903).
10(y) - Guaranty, dated as of May 31, 1991, by TNMP, for TGC II obligations
under the Unit 2 Credit Agreement (Exhibit 10(lll) to Amendment No. 1 to
File No. 33-41903).
10(z) - First Amended and Restated Facility Purchase Agreement dated as of
January 8, 1992, between TNMP, and TGC II (Exhibit 10(dd) to TNMP 1991
Form 10-K, File No. 2-97230).
10(z)1 - Amendment No. 1 to the Unit 2 First Amended and Restated Facility
Purchase Agreement, dated as of September 21, 1993, between TNMP and TGC
II (Exhibit 10(aa)1 to TNMP 1993 Form 10-K, File No. 2-97230).
10(aa) - Operating Agreement, dated as of May 31, 1991, between TNMP and TGC II
(Exhibit 10(nnn) to Amendment No. 1 to File No. 33-41903).
10(bb) - Non-Partition Agreement, dated as of May 31, 1991, among TNMP, TGC II,
and the Unit 2 Agent (Exhibit 10(ppp) to Amendment No. 1 to File No.
33-41903).
10(cc) - Revolving Credit Facility Agreement, dated as of November 3, 1995,
among TNMP, certain lenders, and Chemical Bank, as Administrative Agent
and Collateral Agent. (Exhibit 10(cc) to Form 10-K of TNP and TNMP for
1996, File Nos. 1-8847 and 2-97230).
10(cc)1- Form of Guarantee and Pledge Agreement, dated as of November 3, 1995,
between TGC II, and Chemical Bank, as collateral agent (Exhibit D to
Revolving Credit Facility Agreement). (Exhibit 10(cc)1 to Form 10-K of
TNP and TNMP for 1996, File Nos. 1-8847 and 2-97230).
10(cc)2- Form of Bond Agreement, dated as of November 3, 1995, between TNMP and
Chemical Bank, as Collateral Agent (Exhibit E to Revolving Credit
Facility Agreement). (Exhibit 10(cc)2 to Form 10-K of TNP and TNMP for
1996, File Nos. 1-8847 and 2-97230).
10(cc)3- Form of Note Pledge Agreement, dated as of November 3, 1995, between
TNMP and Chemical Bank, as collateral agent (Exhibit F to Revolving
Credit Facility Agreement). (Exhibit 10(cc)3 to Form 10-K of TNP and TNMP
for 1996, File Nos. 1-8847 and 2-97230).
10(cc)4- Form of Sixth TGC II Modification and Extension Agreement, dated as of
November 3, 1995, among the Unit 2 Banks, The Chase Manhattan Bank, as
agent, TNMP, and TGC II (Exhibit H to the Revolving Credit Facility
Agreement). (Exhibit 10(cc)4 to Form 10-K of TNP and TNMP for 1996, File
Nos. 1-8847 and 2-97230).
10(cc)5- Form of Second Lien Mortgage and Deed of Trust Modification, Extension
and Amendment Agreement No. 3, dated as of November 3, 1995 (Exhibit I to
the Revolving Credit Facility Agreement). (Exhibit 10(cc)5 to Form 10-K
of TNP and TNMP for 1996, File Nos. 1-8847 and 2-97230).
10(cc)6- Form of Assignment and Amendment Agreement, dated as of November 3,
1995, among TNMP, TGC II, and Chemical Bank, as administrative agent and
collateral agent (Exhibit J to the Revolving Credit Facility Agreement).
(Exhibit 10(cc)6 to Form 10-K of TNP and TNMP for 1996, File Nos. 1-8847
and 2-97230).
10(cc)7- Form of Assignment of TGC II Mortgage Lien, dated as of November 3,
1995, by The Chase Manhattan Bank as agent to Chemical Bank (Exhibit K to
the Revolving Credit Facility Agreement). (Exhibit 10(cc)7 to Form 10-K
of TNP and TNMP for 1996, File Nos. 1-8847 and 2-97230).
10(cc)8- Form of Collateral Transfer of Notes, Rights and Interests, dated as of
November 3, 1995, between TNMP and Chemical Bank, as Administrative Agent
and as Collateral Agent (Exhibit L to the Revolving Credit Facility
Agreement). (Exhibit 10(cc)8 to Form 10-K of TNP and TNMP for 1996, File
Nos. 1-8847 and 2-97230).
10(cc)9- Form of Assignment of Second Lien Mortgage and Deed of Trust, dated as
of November 3, 1995, between the Chase Manhattan Bank, as Agent, and
Chemical Bank, as agent (Exhibit M to the Revolving Credit Facility
Agreement). (Exhibit 10(cc)9 to Form 10-K of TNP and TNMP for 1996, File
Nos. 1-8847 and 2-97230).
10(cc)10- Form of Collateral Transfer of Notes, Rights and Interests, dated as
of November 3, 1995, between TNMP and Chemical Bank, as Administrative
Agent and as Collateral Agent (Exhibit N to the Revolving Credit Facility
Agreement). (Exhibit 10(cc)10 to Form 10-K of TNP and TNMP for 1996, File
Nos. 1-8847 and 2-97230).
10(cc)11- Form of Amendment No. 1, dated as of November 3, 1995, to the
Assignment and Security Agreement between TNMP, and The Chase Manhattan
Bank, as agent (Exhibit O to the Revolving Credit Agreement). (Exhibit
10(cc)11 to Form 10-K of TNP and TNMP for 1996, File Nos. 1-8847 and
2-97230).
10(cc)12- Amendment No. 1 dated October 28, 1998 to Revolving Credit Facility
Agreement dated as of November 3, 1995 among TNMP, certain lenders, and
Chase Bank, N.A. (successor by merger to Chemical Bank) as Administrative
Agent and Collateral Agent (Exhibit 10(a) to Form 10Q of TNP and TNMP for
quarter ended September 30, 1998. (File Nos. 1-8847 and 2-97230.)
Power Supply Contracts
10(dd) - Contract dated May 12, 1976, between TNMP and Houston Lighting & Power
Company (Exhibit 5(a), File No. 2-69353).
10(dd)1- Amendment, dated January 4, 1989, to contract between TNMP and Houston
Lighting & Power Company (Exhibit 10(cccc) to TNMP 1988 Form 10-K, File
No. 2-97230).
10(ee) - Amended and Restated Agreement for Electric Service dated May 14, 1990,
between TNMP and Texas Utilities Electric Company (Exhibit 10(vv) to TNMP
1990 Form 10-K, File No. 2-97230).
10(ee)1- Amendment, dated April 19, 1993, to Amended and Restated Agreement for
Electric Service, between TNMP and Texas Utilities Electric Company
(Exhibit 10(ii)1 to 1993 Form S-2, Registration Statement, File No.
33-66232).
10(ff) - Contract dated April 27, 1977, between TNMP and West
Texas Utilities Company, as amended (Exhibit 10(e) of Form 8 applicable
to TNMP 1986 Form 10-K, File No. 2-97230).
10(gg) - Contract dated April 29, 1987, between TNMP and El Paso Electric
Company (Exhibit 10(f) of Form 8 applicable to TNMP 1986 Form 10-K, File
No. 2-97230).
10(hh) - Amended and Restated Contract for Electric Service, dated April 29,
1988, between TNMP and Public Service Company of New Mexico (Exhibit
10(zz)3 to Amendment No. 1 to File No. 33-41903).
10(ii) - Contract dated December 8, 1981, between TNMP and SPS as amended
(Exhibit 10(h) of Form 8 applicable to TNMP 1986 Form 10-K, File No.
2-97230).
10(ii)1- Amendment, dated December 12, 1988, to contract between TNMP and SPS
(Exhibit 10(llll) to TNMP 1988 Form 10-K, File No. 2-97230).
10(ii)2- Amendment, dated December 12, 1990, to contract between TNMP and SPS
(Exhibit 19(t) to TNMP 1990 Form 10-K, File No. 2-97230).
10(jj) - Contract dated August 31, 1983, between TNMP and Capitol Cogeneration
Company, Ltd. (Exhibit 10(i) of Form 8 applicable to TNMP 1986 Form 10-K,
File No. 2-97230).
10(jj)1- Agreement Substituting a Party, dated May 3, 1988, among Capitol
Cogeneration Company, Ltd., Clear Lake Cogeneration Limited Partnership
and TNMP (Exhibit 10(nnnn) to TNMP 1988 Form 10-K, File No. 2-97230).
10(jj)2- Letter Agreements, dated May 30, 1990, and August 28, 1991, between
Clear Lake Cogeneration Limited Partnership and TNMP (Exhibit 10(oo)2 to
TNMP 1992 Form 10-K, File No. 2-97230).
10(jj)3- Notice of Extension Letter, dated August 31, 1992, between Clear Lake
Cogeneration Limited Partnership and TNMP (Exhibit 10(oo)3 to TNMP 1992
Form 10-K, File No. 2-97230).
10(jj)4- Scheduling Agreement, dated September 15, 1992, between Clear Lake
Cogeneration Limited Partnership and TNMP (Exhibit 10(oo)4 to TNMP 1992
Form 10-K, File No. 2-97230).
10(kk) - Interconnection Agreement between TNMP and Plains Electric Generation
and Transmission Cooperative, Inc. dated July 19, 1984 (Exhibit 10(j) of
Form 8 applicable to TNMP 1986 Form 10-K, File No. 2-97230).
10(ll) - Interchange Agreement between TNMP and El Paso Electric Company dated
April 29, 1987 (Exhibit 10(l) of Form 8 applicable to TNMP 1986 Form
10-K, File No. 2-97230).
10(mm) - Amendment No. 1, dated November 21, 1994, to Interchange Agreement
between TNMP and El Paso Electric Company (Exhibit 10(nn)1 to joint 1994
Form 10-K, File Nos. 1-8847 and 2-97230).
10(nn) - DC Terminal Participation Agreement between TNMP and El Paso Electric
Company dated December 8, 1981 as amended (Exhibit 10(m) of Form 8
applicable to TNMP 1986 Form 10-K, File No. 2-97230).
10(oo) - Agreement for Purchase and Sale of Energy effective as of May 1, 1996
among TNMP, Amoco Chemical Company and Amoco Oil Company (Exhibit 10 (pp)
to joint 1997 Form 10-K, File Nos. 1-8847 and 2-97230).
10(pp) - Agreement dated December 30, 1994 between TNMP and Union Carbide
Corporation ("UCC") for Purchase of Capacity and Energy from UCC (Exhibit
10(qq) to joint 1997 Form 10-K, File Nos. 1-8847 and 2-97230).
10(qq) Letter agreement dated November 24, 1997 between TNMP and Texas Utilities
Electric Company (Exhibit 10(qq) to joint 1998 Form 10-K, File Nos.
1-8447 and 2-97230.
Management Contracts
10(rr) - Form of TNMP Executive Agreement for Severance Compensation Upon Change
in Control and schedule of substantially identical agreements (Exhibit
10(rr) to joint 1998 Form 10-K, File Nos. 1-8447and 2-97230).
10(ss) - Agreement dated March 25, 1994 between Kevern Joyce and TNP and TNMP
(Exhibit 10(tt) to TNP and TNMP 1994 Form 10-Q, File Nos. 1-8847 and
2-97230).
10(tt) - Amendment dated February 16, 1998 to Agreement dated March 25, 1994
between Kevern Joyce and TNP and TNMP (Exhibit 10(rr) to joint 1998 Form
10-K, File Nos. 1-8447and 2-97230).
10(uu) - Agreement dated February 16, 1998 between John Edwards and TNMP
(Exhibit 10(rr) to joint 1998 Form 10-K, File Nos. 1-8447and 2-97230).
10(vv) - Agreement dated February 16, 1998 between Ralph S. Johnson and TNMP
(Exhibit 10(rr) to joint 1998 Form 10-K, File Nos. 1-8447and 2-97230).
*10(ww)- Form of TNP Incentive Compensation Award Agreement and schedule of
substantially identical agreements.
*21 - Subsidiaries of the Registrants.