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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 1-3280
Public Service Company of Colorado
(Exact name of registrant as specified in its charter)
Colorado 84-0296600
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1225 17th Street, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (303) 571-7511
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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
At August 5, 1996, 64,249,239 shares of the registrant's Common Stock,
$5.00 par value (the only class of common stock), were outstanding.
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Table of Contents
PART I - FINANCIAL INFORMATION
Item l Financial Statements .............................................. 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 25
Item 4. Submission of Matters to a Vote of Security Holders............... 25
Item 6. Exhibits and Reports on Form 8-K.................................. 26
SIGNATURE.................................................................. 27
EXHIBIT INDEX.............................................................. 28
EXHIBIT 12(a).............................................................. 29
EXHIBIT 12(b).............................................................. 30
EXHIBIT 15 ................................................................ 31
In addition to the historical information contained herein, this report
contains a number of "forward-looking statements", within the meaning of the
Securities Exchange Act of 1934. Such statements address future events and
conditions concerning capital expenditures, resolution and impact of litigation,
regulatory matters, liquidity and capital resources, and accounting matters.
Actual results in each case could differ materially from those projected in such
statements by reason of factors including, without limitation, electric utility
restructuring; future economic conditions; earnings retention and dividend
payout policies; developments in the legislative, regulatory and competitive
environments in which the Company operates; and other circumstances that could
affect anticipated revenues and costs, such as compliance with laws and
regulations. These and other factors are discussed in the Company's filings with
the Securities and Exchange Commission including this report.
i
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
June 30, December 31,
1996 1995
---- ----
(Unaudited)
Property, plant and equipment, at cost:
Electric .......................................... $3,841,710 $3,751,321
Gas................................................ 1,011,096 989,215
Steam and other.................................... 78,194 88,446
Common to all departments.......................... 425,397 380,809
Construction in progress........................... 128,516 192,580
------- -------
5,484,913 5,402,371
Less: accumulated depreciation .................... 1,981,001 1,921,659
--------- ---------
Total property, plant and equipment.............. 3,503,912 3,480,712
--------- ---------
Investments, at cost, and receivables................. 38,188 24,282
------ ------
Current assets:
Cash and temporary cash investments................ 13,008 14,693
Accounts receivable, less reserve for uncollectible
accounts ($4,009 at June 30, 1996; $3,630 at
December 31, 1995) .............................. 133,187 124,731
Accrued unbilled revenues ......................... 71,061 96,989
Materials and supplies, at average cost............ 53,738 56,525
Fuel inventory, at average cost.................... 28,506 35,654
Gas in underground storage, at cost (LIFO)......... 26,917 44,900
Current portion of accumulated deferred income taxes 23,972 19,229
Regulatory assets recoverable within one year (Note 1) 42,762 40,247
Prepaid expenses and other......................... 30,281 35,619
------ ------
Total current assets.............................. 423,432 468,587
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 307,686 321,797
Unamortized debt expense .......................... 10,766 10,460
Other.............................................. 49,622 48,457
------ ------
Total deferred charges............................ 368,074 380,714
------- -------
$4,333,606 $4,354,295
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
1
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
CAPITAL AND LIABILITIES
June 30, December 31,
1996 1995
---- ----
(Unaudited)
Common stock.......................................... $1,022,168 $ 997,106
Retained earnings..................................... 372,401 346,539
------- -------
Total common equity............................... 1,394,569 1,343,645
Preferred stock:
Not subject to mandatory redemption................ 140,008 140,008
Subject to mandatory redemption at par............. 41,289 41,289
Long-term debt........................................ 1,316,847 1,195,553
--------- ---------
2,892,713 2,720,495
--------- ---------
Noncurrent liabilities:
Employees' postretirement benefits other than pensions 52,642 51,704
Employees' postemployment benefits................. 23,500 23,500
Defueling and decommissioning liability (Note 2)... - 23,115
---- ------
Total noncurrent liabilities...................... 76,142 98,319
------ ------
Current liabilities:
Notes payable and commercial paper ................ 225,875 288,050
Long-term debt due within one year................. 24,958 82,836
Preferred stock subject to mandatory redemption
within one year ................................ 2,576 2,576
Accounts payable................................... 130,292 156,109
Dividends payable.................................. 36,613 35,284
Recovered purchased gas and electric energy costs -
net (Note 1) ................................... 58,229 9,508
Customers' deposits................................ 19,077 17,462
Accrued taxes...................................... 30,556 55,393
Accrued interest................................... 31,848 32,071
Current portion of defueling and decommissioning
liability (Note 2) .............................. 21,483 24,055
Other.............................................. 59,480 78,451
------ ------
Total current liabilities......................... 640,987 781,795
------- -------
Deferred credits:
Customers' advances for construction............... 55,006 99,519
Unamortized investment tax credits ................ 110,703 113,184
Accumulated deferred income taxes ................ 526,453 508,143
Other.............................................. 31,602 32,840
------ ------
Total deferred credits............................ 723,764 753,686
Commitments and contingencies (Note 4)................ $4,333,606 $4,354,295
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
2
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars Except per Share Data)
Three Months Ended
June 30,
1996 1995
Operating revenues:
Electric.......................................... $357,764 $341,516
Gas............................................... 117,395 148,312
Other............................................. 9,628 8,871
----- -----
484,787 498,699
Operating expenses:
Fuel used in generation........................... 44,676 43,935
Purchased power................................... 119,056 117,983
Gas purchased for resale.......................... 72,383 102,164
Other operating expenses.......................... 85,469 86,734
Maintenance....................................... 15,705 16,156
Depreciation and amortization..................... 38,046 35,027
Taxes (other than income taxes)................... 21,288 21,412
Income taxes...................................... 16,313 12,654
------ ------
412,936 436,065
Operating income..................................... 71,851 62,634
Other income and deductions:
Allowance for equity funds used during construction 192 1,107
Miscellaneous income and deductions - net......... (9) 101
-- ---
183 1,208
Interest charges:
Interest on long-term debt........................ 21,714 21,337
Amortization of debt discount and expense less
premium ........................................ 865 806
Other interest.................................... 15,562 14,403
Allowance for borrowed funds used during
construction ................................... (644) (959)
---- ----
37,497 35,587
Net income........................................... 34,537 28,255
Dividend requirements on preferred stock............. 2,971 3,000
----- -----
Earnings available for common stock.................. $ 31,566 $ 25,255
======== ========
Weighted average common shares outstanding (thousands) 63,998 62,846
====== ======
Earnings per weighted average
share of common stock outstanding................. $ 0.49 $ 0.40
========= ========
Dividends per share declared on common stock......... $ 0.525 $ 0.51
========= ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
3
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars Except per Share Data)
Six Months Ended
June 30,
1996 1995
Operating revenues:
Electric.......................................... 727,881 $708,099
Gas............................................... 359,623 392,869
Other............................................. 20,200 18,327
------ ------
1,107,704 1,119,295
Operating expenses:
Fuel used in generation........................... 91,013 91,120
Purchased power................................... 241,491 239,461
Gas purchased for resale.......................... 233,107 270,299
Other operating expenses.......................... 162,115 176,548
Maintenance....................................... 30,077 30,860
Depreciation and amortization..................... 74,908 70,193
Taxes (other than income taxes)................... 43,593 44,503
Income taxes...................................... 57,459 41,988
------ ------
933,763 964,972
Operating income..................................... 173,941 154,323
Other income and deductions:
Allowance for equity funds used during construction 703 1,858
Miscellaneous income and deductions - net......... (2,537) (3,782)
------ ------
(1,834) (1,924)
Interest charges:
Interest on long-term debt........................ 43,782 42,843
Amortization of debt discount and expense less premium 1,842 1,597
Other interest.................................... 29,233 27,711
Allowance for borrowed funds used during construction (1,716) (1,651)
------ ------
73,141 70,500
Net income........................................... 98,966 81,899
Dividend requirements on preferred stock............. 5,943 6,001
----- -----
Earnings available for common stock.................. $ 93,023 $ 75,898
========== ========
Weighted average common shares outstanding (thousands) 63,839 62,680
====== ======
Earnings per weighted average
share of common stock outstanding................. $ 1.46 $ 1.21
========= =========
Dividends per share declared on common stock......... $ 1.05 $ 1.02
========= =========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
4
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Six Months Ended
June 30,
1996 1995
---- ----
Operating activities:
Net income........................................ $ 98,966 $ 81,899
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 77,292 72,159
Amortization of investment tax credits........... (2,481) (2,487)
Deferred income taxes............................ 20,292 3,179
Allowance for equity funds used during construction (703) (1,858)
Change in accounts receivable.................... (8,456) 24,707
Change in inventories............................ 27,918 18,458
Change in other current assets................... 27,722 54,574
Change in accounts payable....................... (25,817) (40,525)
Change in other current liabilities.............. (7,233) 47,991
Change in deferred amounts....................... (1,627) 710
Change in noncurrent liabilities................. (17,073) (12,596)
Other............................................ 1,392 65
----- --
Net cash provided by operating activities..... 190,192 246,276
------- -------
Investing activities:
Construction expenditures......................... (135,615) (119,605)
Allowance for equity funds used during construction 703 1,858
Proceeds from (cost of) disposition of property,
plant and equipment ........................... 1,574 (11,933)
Purchase of other investments..................... (2,333) (7,283)
Sale of other investments......................... 416 365
--- ---
Net cash used in investing activities......... (135,255) (136,598)
Financing activities:
Proceeds from sale of common stock................ 15,041 13,796
Proceeds from sale of long-term debt.............. 143,221 22,135
Redemption of long-term debt...................... (80,933) (38,149)
Short-term borrowings - net....................... (62,175) (38,500)
Dividends on common stock......................... (65,833) (63,051)
Dividends on preferred stock...................... (5,943) (6,001)
------ ------
Net cash used in financing activities......... (56,622) (109,770)
------- --------
Net decrease in cash and temporary cash
investments ................................ (1,685) (92)
Cash and temporary cash investments at
beginning of period ........................ 14,693 5,883
------ -----
Cash and temporary cash investments at end
of period .................................. $ 13,008 $ 5,791
========= ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
5
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
Business, utility operations and regulation
The Company is an operating public utility engaged, together with its
utility subsidiaries, principally in the generation, purchase, transmission,
distribution and sale of electricity and in the purchase, transmission,
distribution, sale and transportation of natural gas. The Company is subject to
the jurisdiction of The Public Utilities Commission of the State of Colorado
("CPUC") with respect to its retail electric and gas operations and the Federal
Energy Regulatory Commission ("FERC") with respect to its wholesale electric
operations and accounting policies and practices. Approximately 90% of the
Company's electric and gas revenues are subject to CPUC jurisdiction. Cheyenne
Light, Fuel and Power Company ("Cheyenne") and WestGas Interstate, Inc. ("WGI")
are subject to the jurisdiction of the Public Service Commission of Wyoming
("WPSC") and the FERC, respectively.
Regulatory assets and liabilities
The Company and its regulated subsidiaries prepare their financial
statements in accordance with the provisions of Statement of Financial
Accounting Standards No. 71 - "Accounting for the Effects of Certain Types of
Regulation" ("SFAS 71"). In general, SFAS 71 recognizes that accounting for rate
regulated enterprises should reflect the relationship of costs and revenues
introduced by rate regulation. As a result, a regulated utility may defer
recognition of a cost (a regulatory asset) or recognize an obligation (a
regulatory liability) if it is probable that, through the ratemaking process,
there will be a corresponding increase or decrease in revenues.
In response to the increasingly competitive environment for utilities, the
regulatory climate also is changing. The Company continues to participate in
regulatory and legislative proceedings which could change or impact current
regulation. However, the Company believes it will continue to be subject to rate
regulation that will allow for the recovery of all of its deferred costs.
Although the Company does not currently anticipate such an event, to the extent
the Company concludes in the future that collection of such revenues (or payment
of liabilities) is no longer probable, through changes in regulation and/or the
Company's competitive position, the Company may be required to recognize as
expense, at a minimum, all deferred costs currently recognized as regulatory
assets on the consolidated condensed balance sheet.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS
121 imposes stricter criteria for the continued recognition of regulatory assets
on the balance sheet by requiring that such assets be probable of future
recovery at each balance sheet date. The Company adopted this standard on
January 1, 1996, the effective date of the new statement, and such adoption did
not have a material impact on the Company's results of operations, financial
position or cash flows.
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
The following regulatory assets are reflected in the Company's
consolidated condensed balance sheets:
June 30, December 31, Recovery
1996 1995 Through
---- ---- -------
(Thousands of Dollars)
Nuclear decommissioning costs (Note 2).... $ 93,771 $ 97,801 2005
Income taxes ............................. 103,893 110,617 2006
Employees' postretirement benefits
other than pensions..................... 51,025 47,600 2013
Early retirement costs.................... 19,936 24,366 1998
Employees' postemployment benefits........ 23,307 23,500 Undetermined
Demand-side management costs.............. 32,477 30,188 2002
Unamortized debt reacquisition costs...... 20,927 21,940 2024
Other..................................... 5,112 6,032 1999
----- -----
Total................................... 350,448 362,044
Classified as current..................... 42,762 40,247
------ ------
Classified as noncurrent.................. $307,686 $321,797
======== ========
Certain costs associated with the Company's Demand Side Management ("DSM")
programs are deferred and recovered in rates over five to seven year periods
through the Demand Side Management Cost Adjustment ("DSMCA"). Non-labor
incremental expenses, carrying costs associated with deferred DSM costs and
incentives associated with approved DSM programs are recovered on an annual
basis.
Costs incurred to reacquire debt prior to scheduled maturity dates are
deferred and amortized over the life of the debt issued to finance the
reacquisition or as approved by the regulator.
Recovered/Recoverable purchased gas and electric energy costs - net
The Company and Cheyenne tariffs contain clauses which allow recovery of
certain purchased gas and electric energy costs in excess of the level of such
costs included in base rates. Currently, these cost adjustment tariffs are
revised periodically, as prescribed by the appropriate regulatory agencies, for
any difference between the total amount collected under the clauses and the
recoverable costs incurred. The cumulative effects are recognized as a current
asset or liability until adjusted by refunds or collections through future
billings to customers. However, if the Merger stipulation and agreement
discussed in Note 4. Commitments and Contingencies - Regulatory Matters is
accepted by the CPUC, the Company's Energy Cost Adjustment ("ECA") will be
modified to allow for a 50/50 sharing (among customers and shareholders) of
certain fuel and energy cost increases or decreases.
Other
Property, plant and equipment includes approximately $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design of
the future Pawnee 2 generating station and certain water rights located in
southeastern Colorado, also obtained for a future generating station. The
Company is earning a return on these investments based on the Company's weighted
average cost of debt and preferred stock in accordance with a CPUC rate order.
Statements of Cash Flows - Non-cash Transactions
Shares of common stock (274,934 in 1996 and 310,546 in 1995), valued at
the market price on date of issuance (approximately $9 million in 1996 and $10
million in 1995), were issued to the Employees' Savings and Stock Ownership Plan
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
of Public Service Company of Colorado and Participating Subsidiary Companies.
The estimated issuance values were recognized in other operating expenses during
the respective preceding years. Shares of common stock (6,470 in 1996 and 3,891
in 1995), valued at the market price on the date of issuance ($0.2 million in
1996 and $0.1 million in 1995), were issued to certain executives pursuant to
the applicable provisions of the executive compensation plans. These stock
issuances were non-cash transactions and are not reflected in the consolidated
condensed statements of cash flows.
General
See Note 1. of the Notes to Consolidated Financial Statements in the
Company's 1995 Annual Report on Form 10-K for a summary of the Company's
significant accounting policies.
2. Fort St. Vrain
Overview
In 1989, the Company announced its decision to end nuclear operations at
the Fort St. Vrain Nuclear Generating Station ("Fort St. Vrain") and to proceed
with the defueling and decommissioning of the reactor. While the defueling of
the reactor to the Independent Spent Fuel Storage Facility ("ISFSI") was
completed in June 1992, several issues related to the ultimate storage/disposal
of Fort St. Vrain's spent nuclear fuel remained unresolved. However, as
described below, on February 9, 1996, the Company and the Department of Energy
("DOE") entered into a contract resolving all issues related to this matter.
Additionally, on March 22, 1996, the Company and the decommissioning contractors
engaged to complete such activities, announced the completion of the physical
decommissioning work at the facility with only Nuclear Regulatory Commission
("NRC") site release remaining to be obtained. It is currently expected that
site release activities will be completed in 1996 and that the Company's NRC
Part 50 license will be terminated in early 1997.
Fort St. Vrain is being repowered as a gas fired combined cycle steam
plant consisting of two combustion turbines and two heat recovery steam
generators totaling 471 Mw. The certificate of public convenience and necessity,
which was received in July 1994, provides for the repowering of Fort St. Vrain
in a phased approach as follows: Phase 1A - 130 Mw in 1996, Phase 1B - 102 Mw in
1998 and Phase 2 - 239 Mw in 2000. The repowering of Phase 1A has been completed
and commercial operation commenced on May 1, 1996. The phased repowering allows
the Company flexibility in timing the addition of this generation supply to meet
future load growth.
Defueling
On February 9, 1996, the Company and the DOE entered into an agreement
relating to the disposal of Fort St. Vrain's spent nuclear fuel. As part of this
agreement, the Company has agreed to the following: 1) the DOE assumed title to
the fuel currently stored in the ISFSI, 2) the DOE will assume title to the
ISFSI and will be responsible for the future defueling and decommissioning of
the facility, 3) the DOE agreed to pay the Company $16 million for the
settlement of claims associated with the ISFSI, 4) ISFSI operating and
maintenance costs, including licensing fees and other regulatory costs, will be
the responsibility of the DOE, and 5) the Company provided to the DOE a full and
complete release of claims against the DOE resolving all contractual disputes
related to storage/disposal of Fort St. Vrain spent nuclear fuel.
As a result of the DOE settlement, coupled with a complete review of
expected remaining decommissioning costs and establishment of the anticipated
refund to customers discussed below, pre-tax earnings for the first quarter of
1996 were positively impacted by approximately $16 million. In accordance with
the 1991 CPUC approval to recover certain decommissioning costs described below,
50% of any cash amounts received from the DOE as part of a settlement, net of
costs incurred by the Company, including legal fees, is to be refunded or
credited to customers. While final determination of the amount to be refunded to
customers has not yet been completed, the Company established an $8 million
liability for such refunds.
8
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Decommissioning
Following the 1991 CPUC approval, effective July 1, 1993 the Company began
collecting from customers decommissioning costs which are expected to total
approximately $124.4 million (plus a 9% carrying cost). Such amount, which is
expected to be collected over a twelve year period, represented the
inflation-adjusted estimated remaining cost of decommissioning activities not
previously recognized as expense at the time of CPUC approval. At June 30, 1996,
approximately $93.8 million of such amount remains to be collected from
customers and, therefore, is reflected as a regulatory asset on the consolidated
condensed balance sheet. The amount recovered from customers each year is
approximately $13.9 million.
As previously noted, on March 22, 1996, the Company and the
decommissioning contractors announced that the physical decommissioning
activities at the facility have been completed and that only NRC site release
remained to be obtained. At June 30, 1996, approximately $328.7 million had been
spent for defueling and decommissioning activities with a remaining $21.5
million defueling and decommissioning liability reflected on the consolidated
condensed balance sheet. The Company believes this remaining decommissioning
liability is adequate to complete all final decommissioning activities.
Funding
Under NRC regulations, the Company is required to make filings with, and
obtain the approval of, the NRC regarding certain aspects of the Company's
decommissioning proposals, including funding. On January 27, 1992, the NRC
accepted the Company's funding aspects of the decommissioning plan. The Company
has also obtained an unsecured irrevocable letter of credit totaling $125
million that meets the NRC's stipulated funding guidelines including those
proposed on August 21, 1991 that address decommissioning funding requirements
for nuclear power reactors that have been prematurely shut down. In accordance
with the NRC funding guidelines, the Company is allowed to reduce the balance of
the letter of credit based upon milestone payments made under the fixed-price
decommissioning contract. As a result of such payments, at June 30, 1996, the
letter of credit had been reduced to $34 million.
Nuclear Insurance
During commercial operation and defueling, the Company participated in a
federally mandated program to provide funding in the event public liability
claims arose from a nuclear incident which exceeded available commercial
insurance capacity. Under the requirements of the Price-Anderson Act, the
Company remains subject to potential assessments of up to $79 million per
incident, in amounts not to exceed $10 million per incident per year. The
Company was granted an NRC waiver from participation in this program on February
17, 1994 and, therefore, remains subject to assessments levied in response to
incidents prior to such date. The Company continues to maintain primary
commercial nuclear liability insurance of $100 million for the Fort St. Vrain
site and the adjoining ISFSI.
On June 7, 1995, the NRC granted the Company an exemption from the
requirement to purchase nuclear property damage and decontamination coverage
following an environmental assessment and finding of no significant impact. The
Company maintains coverage of $10 million to provide property damage and
decontamination protection in the event of an accident involving the ISFSI.
3. Merger
On August 22, 1995, the Company, Southwestern Public Service Company
("SPS"), a New Mexico corporation, and New Century Energies, Inc. ("NCE"), a
newly formed Delaware corporation, entered into an Agreement and Plan of
9
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Reorganization ("Merger Agreement") providing for a business combination as peer
firms involving the Company and SPS in a "merger of equals" transaction (the
"Merger"). Based on outstanding common stock of the Company and SPS at June 30,
1996, the Merger would result in the common shareholders of the Company owning
62% of the common equity of NCE and the common shareholders of SPS owning 38% of
the common equity of NCE. In January 1996, NCE filed its application with the
Securities and Exchange Commission ("SEC") to be a registered public utility
holding company and the parent company for the Company and SPS.
The shareholders of the Company and SPS approved the Merger Agreement on
January 31, 1996. Additionally, the Merger is subject to customary closing
conditions, including the receipt of all necessary governmental approvals and
the making of all necessary governmental filings, including approvals and
findings of state utility regulators in Colorado, Texas, New Mexico, Wyoming and
Kansas as well as the approval of the FERC, the NRC, the SEC, the Federal Trade
Commission and the U.S. Department of Justice. The required authorizations from
the WPSC, the Kansas Corporation Commission and the NRC have been obtained.
During June and July 1996, hearings were held in Colorado, Texas and New Mexico,
although final decisions have not been received. See Note 4. Commitments and
Contingencies - Regulatory Matters. The FERC has set hearings regarding the
proposed Merger for September 25, 1996 and directed an initial decision to be
issued by January 31, 1997. The Company is pursuing settlement discussions which
may accelerate obtaining FERC approval of the Merger. The Company expects that
the SEC will make its ruling on the Merger within 30-60 days following the FERC
decision. While timing of the effective date of the Merger is primarily
dependent on the regulatory process, it is currently expected that the Merger
will be completed no later than the spring of 1997.
A transition management team, consisting of executives from each company,
is working toward the common goal of creating one company with integrated
operations to achieve a more efficient and economic utilization of facilities
and resources. It is management's intention that the consolidated company begin
realizing certain savings upon the consummation of the Merger and, accordingly,
costs associated with the Merger and the transition planning and implementation
are expected to negatively impact earnings during 1996 and 1997. During the
first half of 1996, the Company recognized approximately $4.2 million of costs
associated with the Merger. The Merger is expected to qualify as a tax-free
reorganization and as a pooling of interests for accounting purposes.
The Company recognizes that the divestiture of its existing gas business
or certain non-utility ventures is a possibility under the new registered
holding company structure, but is seeking approval from the SEC to maintain
these businesses. If divestiture is ultimately required, the SEC has
historically allowed companies sufficient time to accomplish divestitures in a
manner that protects shareholder value. Additionally, in the event that
divestiture of the gas business is required, the Company intends to pursue an
alternative corporate organizational structure designed to permit retention of
the gas business.
4. Commitments and Contingencies
Regulatory Matters
1995 Merger Rate Filings
In connection with the Merger with SPS, in November 1995 the Company filed
comprehensive proposals with the CPUC, the WPSC and the FERC to obtain approval
of such Merger and the associated comprehensive proposals from such regulatory
agencies.
Hearings were held in Colorado in July 1996 and in an effort to settle the
significant issues raised by several parties, the Company, the CPUC Staff, the
Colorado Office of Consumer Counsel ("OCC") and substantially all other parties
entered into a stipulation and agreement. The agreement establishes a five year
performance based regulatory plan and acknowledges that the Merger is in the
public interest. The major provisions of this agreement include:
10
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
- a $6 million electric rate reduction effective October 1, 1996; followed
by an additional $12 million electric rate reduction effective with the
implementation of new gas rates resulting from the recently filed general
gas rate case, or June 1, 1997, whichever is earlier,
- an annual electric department earnings test with the sharing of earnings
in excess of an 11% return on equity for the calendar years 1997-2001 as
follows:
Electric Department Sharing of Excess Earnings
Return on Equity Customers Company
---------------- --------- -------
11-12% 65% 35%
12-14% 50% 50%
14-15% 35% 65%
over 15% 100% 0%
- the termination of the Qualifying Facilities Capacity Cost Adjustment
("QFCCA") earnings test which was to become effective on October 1, 1996;
- a freeze in base electric rates for the period through December 31, 2001
with the flexibility to make certain other rate changes, including those
necessary to allow for the recovery of DSM, Qualifying Facility ("QF") and
decommissioning costs;
- a modification to the Company's ECA to allow for a 50/50 sharing of
certain fuel and energy cost increases or decreases among customers and
shareholders; and
- the implementation of a Quality of Service Plan ("QSP") which provides
for penalties totaling up to $5 million in year one and increasing to $11
million in year five, if the Company does not achieve certain performance
measures relating to electric reliability, customer complaints and
telephone response to inquiries.
The rate reductions, the earnings sharing, the QSP and the modification to the
ECA will remain in effect even if the Merger is not consummated. The freeze in
base electric rates does not prohibit the Company from filing a general rate
case or deny any party the opportunity to initiate a complaint or show cause
proceeding. A final decision by the CPUC is expected by the end of the third
quarter 1996.
Approval of the Merger was received from the WPSC on May 30, 1996 and a
written order is expected shortly. On June 26, 1996, the FERC announced an
expedited schedule with hearings to begin in late September and an initial
decision to be issued by January 31, 1997. Two issues were set for hearing which
are related to hold harmless provisions and competition issues. Separately, in
early 1996, the FERC issued a Notice of Inquiry in which it requested comments
on whether it should revise its criteria and policies for evaluating utility
mergers in light of the fundamental changes in the electric industry and the
regulation of the industry. The Company submitted comments to such proceeding,
which were due on May 7, 1996. The FERC Order indicated that the Merger will be
subject to any additional criteria or changes in policy as a result of this
Notice of Inquiry.
Electric and Gas Cost Adjustment Mechanisms
The Company's QFCCA allows for the recovery of purchased capacity costs
from new QF projects not reflected in base rates. In January 1996, the CPUC
issued a final decision which required the following: 1) an earnings test be
implemented with a 50/50 sharing between the ratepayers and shareholders of
earnings in excess of 11%, the Company's authorized rate of return on regulated
common equity; 2) the calculation will be based on the Company's electric
department earnings only; and 3) implementation will be on a prospective basis
effective October 1, 1996, utilizing a test period for the prior twelve months
ended June 30, 1996, unless superseded by a CPUC decision prior to the effective
date. The stipulation and agreement discussed above, if approved by the CPUC,
will result in the termination of the QFCCA earnings test before implementation.
11
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
During 1994 and 1995, the CPUC conducted several proceedings to review
issues related to the ECA. The CPUC opened a docket to review whether the ECA
should be maintained in its present form, altered or eliminated, and on January
8, 1996, combined this docket with the merger docket discussed above.
The CPUC approved the recovery of certain energy efficiency credits from
retail jurisdiction customers through the DSMCA in June 1994. In December 1994,
the OCC filed an appeal of the CPUC's decision in the District Court in and for
the City and County of Denver ("Denver District Court"). The Denver District
Court approved the collection of these credits in June 1995, subject to refund.
Accordingly, effective July 1, 1995, the Company began collection of the
December 31, 1994 balance of unbilled revenue related to these credits. To date,
the Company has recognized approximately $11.0 million of revenue related to
these credits ($4.4 million unbilled). On April 9, 1996, the Denver District
Court issued an order affirming the CPUC's decision, however, the OCC has
appealed this issue to the Colorado Supreme Court. The Company believes the
CPUC's decision will be upheld. The Colorado Supreme Court will address this
issue in late 1996 or early 1997.
Rate Cases
In November 1993, the CPUC issued a final written decision regarding the
Company's 1993 rate case, lowering the Company's annual base rate revenue
requirement by approximately $5.2 million. The Phase II proceedings related to
this rate case addressed cost allocation issues and specific rate changes for
the various customer classes based on the results of the Phase I decision. The
CPUC approved a settlement agreement related to gas rates and the new gas rates
were implemented effective October 1, 1995. A final decision on rehearing,
reargument and reconsideration for the Phase II proceedings related to electric
rates was issued in February 1996 and new rates became effective in early May
1996.
On June 5, 1996, the Company filed a retail rate case with the CPUC
requesting an annual increase in its jurisdictional gas department revenues of
approximately $34 million, with new rates expected to become effective in early
1997. Hearings have been scheduled for December 1996.
The Company filed a rate case with the FERC on December 29, 1995,
requesting a slight overall rate increase (less than 1%) from its wholesale
electric customers. This filing, among other things, requested approval for
recovery of Other Postretirement Employee Benefits ("OPEB") costs under
Statement of Financial Accounting Standards No. 106 - "Employers' Accounting for
Postretirement Benefits Other Than Pensions", postemployment benefit costs under
Statement of Financial Accounting Standards No. 112 - "Employers' Accounting for
Postemployment Benefits" and new depreciation rates based on the Company's most
recent depreciation study. On March 29, 1996, the FERC issued an order accepting
for filing and suspending certain proposed rate changes. Hearings are currently
scheduled for October 1996.
Federal Energy Regulatory Commission
On April 24, 1996, the FERC issued Order No. 888, Order No. 889 and a
Notice of Proposed Rulemaking ("NOPR"). Order No. 888 requires jurisdictional
utilities owning, controlling, or operating transmission facilities to file
non-discriminatory open-access tariffs that satisfy the comparability standard--
i.e., that offer transmission services consistent with what is provided for in
their own operations. The FERC required that all such utilities file the single
pro forma tariff (combined network and point-to-point tariff) by July 9, 1996.
The FERC is requiring that utilities use the pro forma tariff for new
requirements services and, after year-end, for new economy transactions under
existing coordination agreements. Order No. 888 also requires that power pools,
including the Inland Power Pool of which the Company is a member, file an
open-access tariff for pool transactions.
Order No. 888 also provides for the recovery of legitimate, prudent, and
verifiable stranded investment costs incurred when existing wholesale
requirements customers and retail customers leave utilities' generation systems
12
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
through FERC jurisdictional open-access tariffs and obtain their electric power
from other energy suppliers. The FERC will permit utilities to seek extra
contractual recovery of stranded costs associated with wholesale requirements
contracts executed prior to July 11, 1994. The FERC is to be the primary forum
for utilities seeking to recover stranded costs arising where retail customers
become wholesale transmission customers of a utility. In addition, the FERC will
allow utilities to seek to recover stranded costs resulting from retail
wheeling, but only in circumstances where a state regulator does not have the
authority to address retail stranded costs at the time when retail wheeling is
required.
In Order No. 888, the FERC determined not to allow for the general
abrogation of existing requirements contracts, but stated that it would permit
customers and utilities to seek modification of certain contracts on a
case-by-case basis, and subject to appropriate stranded cost recovery.
Order No. 889 requires utilities to implement standards of conduct and an
Open Access Same-time Information System ("OASIS"). The intent of the rule is to
ensure that owners of transmission facilities, including the Company and its
affiliates, do not have an unfair competitive advantage in using transmission
facilities to market their power. Order No. 889 requires the marketing area of a
utility to obtain information about their transmission system for their own
wholesale power transactions from the utility's OASIS in the same way as their
competition does, and that utilities completely separate their wholesale power
marketing and transmission operations functions.
Simultaneously with its issuance of Order Nos. 888 and 889, the FERC
issued a NOPR on Capacity Reservation Open Access Transmission Tariffs. This
proposed rule specifies filing requirements to be followed by public utilities
in making transmission tariff filings based on capacity reservations for all
transmission users. If adopted, the capacity reservation open access tariff
would replace the pro forma tariff implemented in Order No. 888.
On March 29, 1996, following several filings during 1995 and early 1996,
the FERC accepted the transmission tariffs filed by the Company and Cheyenne.
The terms and conditions were subject to any changes required by Order No. 888
and the rates subject to the outcome of a separate rate proceeding. In the same
order, the FERC accepted the request of e prime, a non-regulated subsidiary, for
authorization to act as a power marketer, subject to certain conditions. On
April 8, 1996, the Company and Cheyenne filed an Offer of Settlement in the rate
proceeding, which is currently pending. On April 15, 1996, e prime filed a
compliance filing and a request for rehearing on one of the conditions approved
by the FERC in its order authorizing e prime to act as a marketer. The FERC
accepted the compliance filing and the request for rehearing is still pending.
As required by Order No. 888, the Company filed a compliance tariff on
behalf of itself and Cheyenne on July 9, 1996. The Company is also taking
other necessary measures to insure timely compliance with the various other
requirements of Order Nos. 888 and 889.
Environmental Issues
Environmental Site Cleanup
As described below, the Company has been or is currently involved with the
clean-up of contamination from certain hazardous substances. In all situations,
the Company is pursuing or intends to pursue insurance claims and believes it
will recover some portion of these costs through such claims. Additionally,
where applicable, the Company intends to pursue recovery from other potentially
responsible parties. To the extent such costs are not recovered, the Company
currently believes it is probable that such costs will be recovered through the
rate regulatory process. To the extent any costs are not recovered through the
options listed above, the Company would be required to recognize an expense for
such unrecoverable amounts.
Under the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), the U.S. Environmental Protection Agency ("EPA") has identified,
and a Phase II environmental assessment has revealed, low level, widespread
13
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
contamination from hazardous substances at the Barter Metals Company properties
located in central Denver. For an estimated 30 years, the Company sold scrap
metal and electrical equipment to Barter for reprocessing. The Company has
completed the cleanup of this site at a cost of approximately $9 million. On
January 3, 1996, in a lawsuit by the Company against its insurance providers,
the Denver District Court entered final judgment in favor of the Company in the
amount of $5.6 million for certain cleanup costs at Barter. Several appeals and
cross appeals have been filed by one of the insurance providers and the Company
in the Colorado Court of Appeals. The insurance provider has posted supersedeas
bonds in the amount of $9.7 million ($7.7 million attributable to the Barter
judgment). Previously, the Company had received certain insurance settlement
proceeds from other insurance providers for Barter and other contaminated sites
and a portion of those funds remains to be allocated to this site by the trial
court. In addition, the Company expects to recoup additional expenditures by
sale of the Barter property and from other potentially responsible parties.
Polychlorinated biphenyl ("PCB") presence was identified in the basement
of an historic office building located in downtown Denver. The Company was
negotiating the future cleanup with the current owners; however, on October 5,
1993, the owners filed a civil action against the Company in the Denver District
Court. The action alleged that the Company was responsible for the PCB releases
and additionally claimed other damages in unspecified amounts. On August 8,
1994, the Denver District Court entered a judgment approving a $5.3 million
offer of settlement between the Company and the building owners resolving all
claims between the Company and the building owners. In December 1995, complaints
were filed by the Company against all applicable insurance carriers in the
Denver District Court.
The Ramp Industries disposal facility, located in Denver, Colorado has
been designated by the EPA as a Superfund hazardous waste site pursuant to
CERCLA and, on November 29, 1995, the Company received from the EPA a Notice of
Potential Liability and Request for Information related to such site. The EPA is
conducting an investigation of the contamination at this site and is in the
process of identifying the nature and quantities of hazardous wastes delivered
to, processed and currently stored at the site by Potentially Responsible
Parties. The Company has responded to the EPA's request. The estimated cost to
investigate and remediate site contamination is not available as the EPA is in
the initial stages of its investigation. At this time, the Company cannot
estimate the amount, if any, of its potential liability related to this matter.
In addition to these sites, the Company has identified several sites where
cleanup of hazardous substances may be required. While potential liability and
settlement costs are still under investigation and negotiation, the Company
believes that the resolution of these matters will not have a material effect on
its financial position, results of operations or cash flows. The Company fully
intends to pursue the recovery of all significant costs incurred for such
projects through insurance claims and/or the rate regulatory process.
Environmental Matters Related to Air Quality and Pollution Control
Under the Clean Air Act Amendments of 1990, coal burning power plants are
required to reduce sulfur dioxide ("SO2") and nitrogen oxide ("NOx") emissions
to specified levels through a phased approach. The Company is currently meeting
Phase I emission standards placed on SO2 through the use of low sulfur coal and
the operation of pollution control equipment on certain generation facilities.
The Company will be required to modify certain boilers by the year 2000 to
reduce NOx emissions in order to comply with Phase II requirements. The
estimated costs for future plant modifications total approximately $51.4
million. The Company is studying its options to reduce SO2 emissions and
currently does not anticipate that these regulations will significantly impact
its operations.
The Company believes that, consistent with historical regulatory
treatment, any costs for pollution control equipment to comply with pollution
control regulations would be recovered from its customers. However, no assurance
can be given that this practice will continue in the future.
14
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
Hayden Steam Electric Generating Station
In April 1992, the Company acquired interests in the two generating units
at the Hayden Steam Electric Generating Station located near Hayden, Colorado.
The Company currently is the operator of the Hayden station and owns an
undivided interest in each of the two generating units at the station which in
total average approximately 53%.
On August 18, 1993, a conservation organization filed a complaint in the
U.S. District Court for the District of Colorado ("U.S. District Court")
pursuant to Section 304 of the Federal Clean Air Act, against the Company and
the other joint owners of the Hayden station. The plaintiff alleged that: 1) the
station exceeded the 20% opacity limitations in excess of 19,000 six minute
intervals during the period extending from the last quarter of 1988 through
mid-1993 based on the data and reports obtained from the station's continuous
opacity monitors ("COMs"), which measure average emission stream opacity in six
minute intervals on a continuous basis, 2) the station was operated for over two
weeks in late 1992 without a functioning electrostatic precipitator which
constituted a modification of the station without the requisite permit from the
Colorado Department of Public Health and Environment ("CDPHE"), and 3) the
owners failed to operate the station in a manner consistent with good air
pollution control practices. The complaint sought, among other things, civil
monetary penalties and injunctive relief. The joint owners of the station
contested all of these claims and contended that there were no violations of the
opacity limitation.
Discovery was completed and oral arguments on summary judgment motions
were heard in mid-May 1995. On July 21, 1995, the U.S. District Court entered
partial summary judgment on liability issues in favor of the plaintiff in
regards to the claims described in items 1) and 3) above and denied the
plaintiff's motion in regards to the claims described in item 2) above. On July
31, 1995, the joint owners filed a petition for an interlocutory appeal with the
10th Circuit Court of Appeals. On August 21, 1995, the joint owners' petition
for permission to appeal was denied. Subsequent to the denial of the joint
owners' petition, the U.S. District Court dismissed the plaintiff's claims
described in item 2) above.
Additionally, the Company had received and responded to a request from the
EPA for information related to the plant and, on January 18, 1996, the EPA
issued a notice of violation stating that the plant had exceeded the 20% opacity
limitations in excess of 10,000 additional six-minute intervals during the
period extending from mid-1993 to mid-1995.
On May 21, 1996, the Company and the other joint owners of the Hayden
station reached an agreement in principle with the conservation organization,
the CDPHE and the EPA which provides for a complete and final release of all
civil claims for the violations alleged in the complaints filed by the
conservation organization, the EPA and the CDPHE through the date of the
agreement and further addresses future environmental compliance requirements and
issues. The primary provisions of the agreement include: 1) the installation of
pollution control equipment on both generating units to reduce future
particulate (opacity), SO2 and NOx emissions to be completed by December 31,
1998 and December 31, 1999 or conversion of the facility to natural gas as a
primary fuel supply, 2) a payment of $2 million to be paid to the U. S.
Treasury, 3) a contribution of $2 million to a "Land Trust Fund" to be used for
the purchase of land and/or conservation easements in the Yampa Valley to
protect and enhance the air quality in the region, 4) a contribution of $250,000
to be used for the conversion of vehicles and/or wood burning appliances to
natural gas in the Yampa Valley, and 5) stipulated future penalties for failure
to comply with the terms of the agreement, including specific provisions related
to meeting construction deadlines associated with the installation of additional
pollution control equipment and complying with particulate, SO2 and NOx
emissions limitations. Additionally, the joint owners have agreed that these
limitations will be determined using data from the continuous emissions monitors
installed on each generating unit. The Company is responsible for approximately
53% of the costs described above in items 2 - 4 and, in anticipation of such
settlement, the Company made provision for such amounts in the first quarter of
1996.
The joint owners have begun planning efforts for the installation of
additional pollution control equipment and have up to six months from the date
of the agreement to decide whether to pursue conversion of the Hayden station's
primary fuel source from coal to natural gas. Assuming coal remains the primary
fuel source, the joint owners estimate that the cost of installing pollution
control equipment capable of reducing the emissions to the levels required under
15
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Continued)
the agreement, consisting of fabric filter dust collectors, lime spray dryers
and low NOx burners on both units, is approximately $130 million, with the
Company's portion totaling approximately $70 million. At December 31, 1995, the
Company included approximately $46 million in its five year construction
estimates for certain additional pollution control equipment at the Hayden
station. While the alternative of natural gas as a primary fuel source would
eliminate the need for certain additional pollution control equipment, it would
require the construction of a natural gas pipeline to the generating facility as
well as certain boiler changes. In general, assuming natural gas is the primary
fuel source, the initial capital investment in additional pollution control
equipment may be less; however, it is expected that the on-going cost of
operating the facility would be higher.
Valmont Steam Electric Generating Station
On July 1, 1996, the Company received a Notice of Violation ("NOV") from
the CDPHE which alleges excess SO2 emissions at the Valmont Steam Electric
Generating Station for the period January 1, 1995 through August 22, 1995. The
Company has responded to the NOV and believes that the amount of penalties, if
any, that may result from such alleged violations would not have a material
impact on the Company's results of operations, financial position or cash flows.
Employee Litigation
Several employee lawsuits have been filed against the Company involving
alleged sexual/age/race/disability discrimination and breach of alleged
employment contracts.
On July 19, 1996, a class action complaint was filed by fourteen
plaintiffs allegedly on behalf of all non-managerial, non-clerical women in the
Company's regional facilities. The complaint asserts that the Company has
engaged in company-wide sexual discrimination and sexual harassment, including
retaliation. A previous class complaint filed by some of these plaintiffs along
with other named plaintiffs, was withdrawn after the Company filed its response.
It is too early to predict the outcome of the class action complaint. The
Company intends to actively contest the class action and all other employee
lawsuits and believes the ultimate outcome of the individual plaintiffs' cases
will not have a material impact on the Company's results of operations,
financial position or cash flows.
Certain named employees terminated as part of the Company's 1991/1992
organizational analysis asserted breach of contract and promissory estoppel with
respect to job security and breach of the covenant of good faith and fair
dealing. Of the 21 actions filed, the trial court directed verdicts in favor of
the Company in 19 cases. Two cases went to a jury, which entered verdicts
adverse to the Company. All 21 decisions are currently on appeal, but the
Company believes its liability, if any, will not have a material impact on the
Company's results of operations, financial position or cash flows.
Union Contracts
In early December 1995, the Company's contracts with the International
Brotherhood of Electrical Workers, Local 111 (IBEW Local 111) expired.
Approximately 2,150 employees, or 45% of the Company's total workforce, are
represented by IBEW Local 111. Previously, an arbitrator had rejected the
Company's attempt to cancel the contract. The parties were unable to reach
agreement on the contract issues reopened through the negotiation process and,
as a result, entered into binding arbitration on March 20, 1996, as required
under the provisions of the contracts. On June 4, 1996, the arbitrator ruled
that the Operations, Production and Maintenance (OP&M) collective bargaining
agreement with the Union would continue until May 31, 1997 and that the
employees covered by the agreement would receive a wage increase of 3.5%
retroactive to December 1995. Such amount has been previously accrued.
Subsequent to the arbitrator's decision on the OP&M agreement, the Company
and the IBEW Local 111 came to an agreement on the Meter Reader, Order Reader
and Field Credit Representative contract with a contract term and a wage
increase consistent with the OP&M agreement. In addition, IBEW Local 111 has
filed several grievances relating to the employment of certain non-union
personnel to perform services for the Company. A decision has been entered on
16
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Concluded)
one of the multiple grievances, requiring that the Company pay union wage rates
on a new construction job performed by an outside vendor.
On June 21, 1996, the National Labor Relations Board ordered the Company
to reinstate 150 union employees laid off or moved to other positions in the
1994 restructuring. The Company was ordered to make whole, with interest, any
net loss of earnings or other benefits since the layoff. The Company is
currently in the process of estimating the additional costs associated with this
order which is not expected to have a material impact on the Company's results
of operations, financial position or cash flows.
5. Divestiture of Nonutility Assets
Since 1993, the Company has been pursuing the divestiture of all
properties owned by Fuel Resources Development Co. (Fuelco), a wholly-owned
subsidiary which was primarily involved in the exploration and production of oil
and natural gas. On July 1, 1996, Fuelco sold its last remaining properties, the
San Juan Coal Bed Methane properties, at approximately book value.
6. Management's Representations
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements include all adjustments necessary for the fair
presentation of the financial position of the Company and its subsidiaries at
June 30, 1996 and December 31, 1995, and the results of operations for the three
and six months ended June 30, 1996 and 1995 and cash flows for the six months
ended June 30, 1996 and 1995. The consolidated condensed financial information
and notes thereto should be read in conjunction with the consolidated financial
statements and notes for the years ended December 31, 1995, 1994 and 1993
included in the Company's 1995 Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
Because of seasonal and other factors, the results of operations for the
three and six month periods ended June 30, 1996 should not be taken as an
indication of earnings for all or any part of the balance of the year.
17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
PUBLIC SERVICE COMPANY OF COLORADO
We have reviewed the accompanying consolidated condensed balance sheet of Public
Service Company of Colorado (a Colorado corporation) and subsidiaries as of June
30, 1996, and the related consolidated condensed statements of income for the
three and six month periods ended June 30, 1996 and 1995 and the consolidated
condensed statements of cash flows for the six month periods ended June 30, 1996
and 1995. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Public Service Company of Colorado
and subsidiaries as of December 31, 1995 (not presented herein), and, in our
report dated February 15, 1996, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 1995, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 6, 1996
18
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended June 30, 1996 Compared to the Three Months Ended June 30,
1995
Earnings
Earnings per share were $0.49 for the second quarter of 1996 as compared
to $0.40 for the second quarter of 1995. The higher earnings were primarily
attributable to increased electric margin (electric revenues less energy costs)
due to higher retail electric kwh sales and lower operating and maintenance
expenses resulting from lower labor and employee benefit costs and other general
cost reductions, reflecting the Company's commitment to cost containment.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the second quarter of 1996 as compared to the same period in
1995.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Electric operating revenues:
Retail............................................... $16,136
Wholesale............................................ (1,242)
Other (including unbilled revenues).................. 1,354
-----
Total revenues...................................... 16,248
Fuel used in generation............................... 741
Purchased power....................................... 1,073
-----
Net increase in electric margin..................... $14,434
=======
The following table compares electric Kwh sales by major customer classes
for the second quarter of 1996 and 1995.
Millions of Kwh Sales
---------------------
1996 1995 %Change *
---- ---- ---------
Residential ............................... 1,504 1,455 3.4%
Commercial and Industrial ................ 3,837 3,585 7.0
Public Authority .......................... 43 40 6.7
----- -----
Total Retail............................. 5,384 5,080 6.0
Wholesale.................................. 637 683 (6.7)
----- -----
Total.................................... 6,021 5,763 4.5
===== =====
* Percentages are calculated using unrounded amounts
Electric operating revenues increased in the second quarter of 1996, when
compared to the second quarter of 1995, primarily due to higher electric Kwh
retail sales resulting from customer growth.
The Company and Cheyenne currently have cost adjustment mechanisms which
recognize the majority of the effects of changes in fuel used in generation and
purchased power costs and allow recovery of such costs on a timely basis. As a
result, the changes in revenues associated with these mechanisms during the
second quarters of 1996 and 1995 had little impact on net income. However, as
discussed in Note 4. Commitments and Contingencies - Regulatory Matters in Item
1. FINANCIAL STATEMENTS, as part of a stipulation and agreement among the
Company, the CPUC Staff, the OCC and other parties, which is subject to approval
of the CPUC, effective October 1, 1996, the ECA will be modified to allow for a
50/50 sharing among the Company and customers of certain fuel and energy cost
increases or decreases.
19
Fuel used in generation expense increased approximately $741,000 or 1.7%
during the second quarter of 1996, as compared to the same quarter in 1995, due
to increased generation levels at the Company's power plants in the second
quarter of 1996.
In conjunction with the increase in fuel used in generation expense,
purchased power expense also increased approximately $1.1 million or 0.9% in the
second quarter of 1996, as compared to the same period in 1995, primarily due to
an increase in economy purchases from other utilities to meet customer demand.
Gas Operations
The following table details the change in gas operating revenues and gas
purchased for resale for the second quarter of 1996 as compared to the same
period in 1995.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Gas operating revenues................................ $(30,917)
Less: gathering, processing and transportation revenues 872
---
Revenues from gas sales.............................. (31,789)
Gas purchased for resale.............................. (29,781)
-------
Net decrease in gas sales margin..................... $(2,008)
=======
The following table compares gas Mcf deliveries by major customer classes
for the second quarter of 1996 and 1995.
Millions of Mcf Deliveries
--------------------------
1996 1995 % Change *
---- ---- ----------
Residential................................ 22.0 23.9 (8.2%)
Commercial, Industrial and Resale.......... 14.3 14.6 (2.0)
---- ----
Total Sales.............................. 36.3 38.5 (5.8)
Gathering and Processing................... 0.4 0.3 35.3
Transportation............................. 28.4 24.5 15.9
---- ----
Total.................................... 65.1 63.3 2.8
==== ====
* Percentages are calculated using unrounded amounts
Gas sales margin decreased in the second quarter of 1996, when compared to
the second quarter of 1995, primarily due to lower retail gas sales resulting
from warmer weather in the second quarter of 1996 The weather was unusually cold
during the second quarter of 1995, which served to increase the level of gas
(Mcf) sales during that period.
The Company and Cheyenne have in place GCA mechanisms for natural gas
sales, which recognize the majority of the effects of changes in the cost of gas
purchased for resale and adjust revenues to reflect such changes in cost on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during the second quarters of 1996 and 1995 had little impact on net
income.
The fluctuations in gas sales impact the amount of gas the Company
purchases and, therefore, affect total gas purchased for resale along with
increases and decreases in the per-unit cost of gas. The $29.8 million decrease
in gas purchased for resale for the second quarter of 1996, as compared to the
second quarter of 1995, is primarily due to lower gas sales and a lower per unit
cost of gas.
Non-Fuel Operating Expenses
Depreciation and amortization expense increased approximately $3.0 million
or 8.6% in the second quarter of 1996, as compared to the same period in 1995,
primarily due to the depreciation of property additions.
20
The increase in income taxes for the second quarter of 1996, as compared
to the same period in 1995, is primarily due to higher pre-tax income.
Interest expense increased approximately $1.9 million or 5.4% primarily
due to interest on overrecovered electric and gas costs and additional policy
loans.
Six Months Ended June 30, 1996 Compared to the Six Months Ended June 30, 1995
Earnings
Earnings per share were $1.46 for the first six months of 1996 as compared
to $1.21 for the first six months of 1995. The higher earnings were primarily
attributable to increased electric and gas margins due to higher retail sales
and lower operating and maintenance expenses which include the favorable impact
of the February 9, 1996 settlement agreement with the DOE resolving all spent
nuclear fuel storage and disposal issues at Fort St. Vrain (see Note 2. Fort St.
Vrain in Item 1. FINANCIAL STATEMENTS).
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the first six months of 1996 as compared to the same period in
1995.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Electric operating revenues:
Retail............................................... $28,032
Wholesale............................................ (1,775)
Other (including unbilled revenues).................. (6,475)
------
Total revenues...................................... 19,782
Fuel used in generation............................... (107)
Purchased power....................................... 2,030
-----
Net increase in electric margin..................... $17,859
=======
The following table compares electric Kwh sales by major customer classes
for the first six months of 1996 and 1995.
Millions of Kwh Sales
---------------------
1996 1995 % Change *
---- ---- ----------
Residential ............................... 3,337 3,183 4.8%
Commercial and Industrial.................. 7,613 7,275 4.6
Public Authority .......................... 94 88 6.4
-- --
Total Retail............................. 11,044 10,546 4.7
Wholesale.................................. 1,428 1,477 (3.3)
----- -----
Total.................................... 12,472 12,023 3.7
====== ======
* Percentages are calculated using unrounded amounts
Electric operating revenues increased in the first six months of 1996,
when compared to the first six months of 1995, primarily due to higher electric
Kwh retail sales resulting from customer growth offset, in part, by lower
unbilled revenues ($6.4 million). Electric customer growth has averaged
approximately 2% since December 31, 1995.
The Company and Cheyenne currently have cost adjustment mechanisms which
recognize the majority of the effects of changes in fuel used in generation and
purchased power costs and allow recovery of such costs on a timely basis. As a
result, the changes in revenues associated with these mechanisms during the
21
first six months of 1996 and 1995 had little impact on net income. However, as
discussed in Note 4. Commitments and Contingencies - Regulatory Matters in Item
1. FINANCIAL STATEMENTS, as part of a stipulation and agreement among the
Company, the CPUC Staff, the OCC and other parties, which is subject to approval
of the CPUC, effective October 1, 1996, the ECA will be modified to allow for a
50/50 sharing among the Company and customers of certain fuel and energy cost
increases or decreases.
While fuel used in generation expense remained relatively constant, when
comparing the two periods, purchased power expense increased approximately $2.0
million or 0.8% during the first six months of 1996 as compared to the same
period in 1995, primarily due to an increase in economy purchases from other
utilities to meet a higher level of customer demand.
Gas Operations
The following table details the change in gas operating revenues and gas
purchased for resale for the first six months of 1996 as compared to the same
period in 1995.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Gas operating revenues................................ $(33,246)
Less: gathering, processing and transportation revenues 903
---
Revenues from gas sales.............................. (34,149)
Gas purchased for resale.............................. (37,192)
-------
Net increase in gas sales margin..................... $ 3,043
========
The following table compares gas Mcf deliveries by major customer classes
for the first six months of 1996 and 1995.
Millions of Mcf Deliveries
--------------------------
1996 1995 % Change *
---- ---- ----------
Residential................................ 68.2 64.7 5.5%
Commercial, Industrial and Resale.......... 41.5 38.1 8.8
---- ----
Total Sales.............................. 109.7 102.8 6.7
Gathering and Processing................... 0.7 0.8 (10.5)
Transportation............................. 53.9 48.7 10.6
---- ----
Total.................................... 164.3 152.3 7.9
===== =====
* Percentages are calculated using unrounded amounts
Gas sales margin increased during the first six months of 1996, when
compared to the first six months of 1995, primarily due to higher retail gas
sales resulting from moderate customer growth. Weather for the two periods was
generally the same, which was slightly colder than normal. While total gas sales
increased 6.7%, revenues from gas sales decreased in the first six months of
1996, as compared to the same period in 1995, primarily due to the effects of
lower gas costs which are recoverable through GCA mechanisms.
The Company and Cheyenne have in place GCA mechanisms for natural gas
sales, which recognize the majority of the effects of changes in the cost of gas
purchased for resale and adjust revenues to reflect such changes in cost on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during the first six months of 1996 and 1995 had little impact on net
income.
Increases and decreases in the per-unit cost of gas along with the
fluctuations in the amount of gas sales impact the amount of gas the Company
purchases and affect the total cost of gas purchased for resale. The $37.1
million decrease in gas purchased for resale for the six months ended June 30,
1996, as compared to the same period in 1995, is primarily due to a lower per
unit cost of gas which was offset, in part, by the increase in gas purchases.
22
Non-Fuel Operating Expenses
Other operating and maintenance expenses decreased $15.2 million or 7.3%
during the six months ended June 30, 1996, when compared to the same period in
1995, primarily due to the favorable impact of the February 9, 1996 settlement
agreement with the DOE resolving all spent nuclear fuel storage and disposal
issues at Fort St. Vrain (approximately $16 million) and lower labor and
employee benefit costs resulting from the hiring freeze instituted in August
1995, which were offset, in part, by costs incurred during the first six months
of 1996 associated with the Merger ($4.2 million) and the settlement of certain
environmental issues related to the operations of the Hayden station. These
items are discussed further in Note 2. Fort St. Vrain, Note 3. Merger and Note
4. Commitments and Contingencies - Environmental Issues, respectively, in Item
1. FINANCIAL STATEMENTS.
Depreciation and amortization expense increased approximately $4.7 million
or 6.7% in the first six months of 1996, as compared to the same period in 1995,
primarily due to higher depreciation expense from property additions and
amortization of regulatory assets.
The increase in income taxes for the first six months of 1996, as compared
to the same period in 1995, is primarily due to higher pre-tax income, the tax
effects of certain merger and environmental liability costs incurred in 1996
which are non-deductible for income tax purposes and the accrual of additional
tax liabilities for prior years.
The change in miscellaneous income and deductions - net was primarily due
to the 1995 recognition of a $2.1 million refund obligation related to the sale
of WestGas Gathering, Inc. in accordance with a 1995 settlement agreement with
the OCC.
Financial Position
Recovered purchased gas and electric energy costs - net increased
approximately $48.7 million at June 30, 1996, as compared to December 31, 1995,
primarily due to lower purchased gas costs charged by the Company's suppliers.
Effective April 2, 1996, as approved by the CPUC, natural gas rates were reduced
by approximately $44 million on an annual basis to lower any future overrecovery
of purchased gas costs. This reduction has had no impact on net income. The
decrease in accounts payable is also primarily attributable to lower gas costs.
The $25.7 million decrease in the defueling and decommissioning liability
was primarily due to expenditures during the six months of 1996 coupled with
recognizing the effects of the February 9, 1996 settlement agreement with the
DOE resolving all spent nuclear fuel storage and disposal issues at Fort St.
Vrain (See Note 2. Fort St. Vrain in Item 1. FINANCIAL STATEMENTS). Customer
advances for construction decreased by approximately $44.5 million due to a 1996
transfer of amounts to property, plant and equipment, which served to reduce
such investments, after determining that these amounts would not be refunded to
customers in the future.
Commitments and Contingencies
Issues relating to the Merger with SPS, and regulatory and environmental
matters are discussed in Notes 3 and 4, respectively, in Item 1. FINANCIAL
STATEMENTS. These matters and the future resolution thereof may impact the
Company's future results of operations, financial position or cash flows.
Common Stock Dividend
During the first quarter of 1996, the Company increased the quarterly
common stock dividend of $0.51 per share to $0.525 per share. The Company's
common stock dividend level is dependent upon the Company's results of
23
operations, financial position, cash flows and other factors. The Board of
Directors of the Company will continue to evaluate the common stock dividend
level on a quarterly basis.
Liquidity and Capital Resources
Cash Flows - Six Months Ended June 30
1996 1995 Decrease
---- ---- --------
Net cash provided by operating activities (in millions) $190.2 $246.3 $(56.1)
Cash provided by operating activities decreased in the first six months of
1996, when compared to the first six months of 1995, primarily due to an
increase in accounts receivable ($33.2 million) and a decrease in the recovery
of purchased gas and electric energy costs ($39.3 million). The increase in
accounts receivable was due to a gas refund made late in 1995 which was applied
directly to customers' accounts resulting in lower cash receipts during the
first quarter of 1996. The decrease in recovered purchased gas and electric
energy costs was due to the reduction in the level of over-collection of these
costs during the first six months of 1996, as compared to the first six months
of 1995, thereby lowering cash receipts during the first six months of 1996.
At June 30, 1996, the Company's decommissioning liability, excluding
defueling, was approximately $19.5 million. The expenditures related to this
obligation are expected to be incurred during the next year. The annual
decommissioning amount being recovered from customers is approximately $13.9
million, which will continue through June 2005. At June 30, 1996, approximately
$93.8 million remains to be collected from customers and is reflected as a
regulatory asset on the consolidated condensed balance sheet. Accordingly,
operating cash flows will continue to be negatively impacted until the
decommissioning of Fort St. Vrain is completed (see Note 2. Fort St. Vrain in
Item 1. FINANCIAL STATEMENTS ).
1996 1995 Decrease
---- ---- --------
Net cash used in investing activities (in millions) $(135.3) $(136.6) $(1.3)
Cash used in investing activities, which substantially consists of
construction expenditures, decreased only slightly during the six months ended
June 30, 1996, when compared to the same period in 1995, reflecting a consistent
level of capital expenditures between the periods.
1996 1995 Decrease
---- ---- --------
Net cash used in financing activities (in millions) $(56.6) $(109.8) $(53.2)
Cash used in financing activities decreased (indicating that there were
more borrowings) in the first six months of 1996, when compared to the first six
months of 1995, primarily due to the issuance of $125 million First Collateral
Trust Bonds in May 1996. The proceeds from this financing were used to fund the
Company's construction program, for other general corporate purposes and to
repay short-term indebtedness incurred for such purposes.
24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part 1. Issues relating to decommissioning and defueling are discussed in
Note 2. Fort St. Vrain and issues relating to the recovery of energy
efficiency credits, environmental site cleanup and other
environmental matters, employee litigation and union contracts are
discussed in Note 4. Commitments and Contingencies in Item 1, Part
1.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1996 Annual Meeting of Shareholders of the Company was held on May
14, 1996.
(b) Five matters were voted upon at the meeting: 1) the election of
directors; 2) the appointment of Arthur Andersen LLP as the Company's
independent public accountants; 3) a shareholder proposal to provide
for cumulative voting; 4) a shareholder proposal that would have
reduced the number of directors to seven, and 5) a shareholder proposal
to require individuals who have been directors for two years and are
nominated for a third year to have an unencumbered cash investment in
Company stock equal to the total compensation received from the Company
in the previous calendar year.
With respect to the election of directors, the votes were as follows:
Wayne H. Brunetti 53,668,145 shares for 1,952,021 shares withheld
Collis P. Chandler, Jr. 53,637,146 shares for 1,983,020 shares withheld
Dr. Doris M. Drury 53,620,235 shares for 1,999,931 shares withheld
Thomas T. Farley 53,732,474 shares for 1,887,692 shares withheld
Gayle L. Greer 53,591,884 shares for 2,028,282 shares withheld
A. Barry Hirschfeld 53,655,301 shares for 1,964,865 shares withheld
D. D. Hock 53,657,498 shares for 1,962,668 shares withheld
George B. McKinley 53,619,332 shares for 2,000,834 shares withheld
Will F. Nicholson, Jr. 53,688,271 shares for 1,931,895 shares withheld
J. Michael Powers 53,748,005 shares for 1,872,161 shares withheld
Thomas E. Rodriguez 53,699,200 shares for 1,920,966 shares withheld
Rodney E. Slifer 53,749,059 shares for 1,871,107 shares withheld
W. Thomas Stephens 53,748,303 shares for 1,871,863 shares withheld
Robert G. Tointon 53,703,451 shares for 1,916,715 shares withheld
With respect to the appointment of Arthur Andersen LLP, the vote was:
54,016,791 shares for; 944,690 shares against; 658,685 shares abstain.
With respect to the shareholder proposal on cumulative voting, the vote
was: 11,774,585 shares for; 34,011,750 shares against; 2,156,001 shares
abstain. The proposal did not pass.
With respect to the shareholder proposal that would have reduced the number
of directors to seven, the vote was: 6,701,470 shares for; 39,356,643
shares against; 1,884,223 shares abstain. The proposal did not pass.
With respect to the shareholder proposal on directors' investment, the
vote was: 7,795,554 shares for; 38,233,421 shares against; 1,913,361 shares
abstain. The proposal did not pass.
There were zero broker non-votes with respect to the election of directors
and the appointment of Arthur Andersen LLP. Broker non-votes had no effect
on the outcome of the three shareholder proposals.
25
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Supplemental Indenture dated as of May 1, 1996 establishing a series
of First Mortgage Bonds under the Indenture dated as of December 31,
1939.
4(b) Supplemental Indenture No. 4 dated as of May 1, 1996 establishing
a series of First Collateral Trust Bonds under the Indenture dated
as of October 1, 1993.
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges is set forth at page 29 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends is set forth
at page 30 herein.
15 Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 31 herein.
27 Financial Data Schedule UT
(b) Reports on Form 8-K
A report on Form 8-K, dated May 21, 1996, was filed on May 22, 1996. The
item reported was Item 5 - Other Events, which presented information
substantially the same as presented in Note 4. Commitments and Contingencies -
Regulatory Matters - Environmental Issues - Environmental Matters Related to Air
Quality and Pollution Control - Hayden Steam Electric Generating
Station in Item 1. FINANCIAL STATEMENTS herein.
26
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Public Service Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE COMPANY OF COLORADO
By /s/ R. C. Kelly
---------------------------------
R. C. KELLY
Senior Vice President,
Finance, Treasurer and
Chief Financial Officer
Dated: August 7, 1996
27
EXHIBIT INDEX
4(a) Supplemental Indenture dated as of May 1, 1996 establishing a series of
First Mortgage Bonds under the Indenture dated as of December 31, 1939.
4(b) Supplemental Indenture No. 4 dated as of May 1, 1996 establishing a series
of First Collateral Trust Bonds under the Indenture dated as of October 1,
1993.
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges is set forth at page 29 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends is set forth at page
30 herein.
15 Letter from Arthur Andersen LLP regarding unaudited interim information
is set forth at page 31 herein.
27 Financial Data Schedule UT.
28
EXHIBIT 12(a)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
Six Months Ended
June 30,
1996 1995
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $43,782 $ 42,843
Interest on borrowings against corporate-owned
life insurance contracts.................. 19,286 16,601
Other interest............................... 9,947 11,110
Amortization of debt discount and expense less
premium .................................. 1,842 1,597
Interest component of rental expense......... 5,379 3,403
----- -----
Total ..................................... $80,236 $ 75,554
======= ========
Earnings (before fixed charges and taxes on income):
Net income................................... $98,966 $ 81,899
Fixed charges as above....................... 80,236 75,554
Provisions for Federal and state taxes on
income, net of investment tax credit
amortization .............................. 57,459 41,988
------ ------
Total...................................... $236,661 $199,441
======== ========
Ratio of earnings to fixed charges.............. 2.95 2.64
==== ====
29
EXHIBIT 12(b)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(not covered by Report of Independent Public Accountants)
Six Months Ended
June 30,
1996 1995
---- ----
(Thousands of Dollars, except ratios)
Fixed charges and preferred stock dividends:
Interest on long-term debt.................. $ 43,782 $ 42,843
Interest on borrowings against corporate-owned
life insurance contracts................. 19,286 16,601
Other interest.............................. 9,947 11,110
Amortization of debt discount and expense less
premium ................................. 1,842 1,597
Interest component of rental expense........ 5,379 3,403
Preferred stock dividend requirement........ 5,943 6,001
Additional preferred stock dividend requirement 3,450 3,076
----- -----
Total .................................... $ 89,629 $ 84,631
======== ========
Earnings (before fixed charges and taxes on income):
Net income.................................. $ 98,966 $ 81,899
Interest on long-term debt.................. 43,782 42,843
Interest on borrowings against corporate-owned
life insurance contracts................. 19,286 16,601
Other interest.............................. 9,947 11,110
Amortization of debt discount and expense less
premium ................................. 1,842 1,597
Interest component of rental expense........ 5,379 3,403
Provisions for Federal and state taxes on income,
net of investment tax credit amortization... 57,459 41,988
------ ------
Total..................................... $236,661 $199,441
======== ========
Ratio of earnings to fixed charges
and preferred stock dividends................ 2.64 2.36
==== ====
30
EXHIBIT 15
August 6, 1996
Public Service Company of Colorado:
We are aware that Public Service Company of Colorado has incorporated by
reference in its Registration Statement (Form S-3, File No. 33-62233) pertaining
to the Automatic Dividend Reinvestment and Common Stock Purchase Plan; the
Company's Registration Statement (Form S-3, File No. 33-37431), as amended on
December 4, 1990, pertaining to the shelf registration of the Company's First
Mortgage Bonds; the Company's Registration Statement (Form S-8, File No.
33-55432) pertaining to the Omnibus Incentive Plan; the Company's Registration
Statement (Form S-3, File No. 33-51167) pertaining to the shelf registration of
the Company's First Collateral Trust Bonds and the Company's Registration
Statement (Form S-3, File No. 33-54877) pertaining to the shelf registration of
the Company's First Collateral Trust Bonds and Cumulative Preferred Stock, its
Form 10-Q for the quarter ended June 30, 1996, which includes our report dated
August 6, 1996, covering the unaudited consolidated condensed financial
statements contained therein. Pursuant to Regulation C of the Securities Act of
1933, that report is not considered a part of the registration statement
prepared or certified by our Firm or a report prepared or certified by our Firm
within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
31