UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6986
PUBLIC SERVICE COMPANY OF NEW MEXICO
(Exact name of registrant as specified in its charter)
New Mexico 85-0019030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Alvarado Square, Albuquerque, New Mexico 87158
(Address of principal executive offices)
(Zip Code)
(505) 848-2700
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock--$5.00 par value 41,774,083 shares
Class Outstanding at May 1, 1994
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Report of Independent Public Accountants 3
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Earnings--
Three Months Ended March 31, 1994 and 1993 4
Consolidated Balance Sheets--
March 31, 1994 and December 31, 1993 5
Consolidated Statements of Cash Flows--
Three Months Ended March 31, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
Signature 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Public Service Company of New Mexico:
We have reviewed the accompanying condensed consolidated balance sheet of
Public Service Company of New Mexico (a New Mexico corporation) and
subsidiaries as of March 31, 1994, and the related condensed consolidated
statements of earnings and cash flows for the three-month periods ended March
31, 1994 and 1993. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Public Service Company of New
Mexico and subsidiaries as of December 31, 1993 (not presented herein). Our
report on that statement described the Company's adoption, effective January
1, 1993, of Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, and No. 109,
Accounting for Income Taxes. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31,
1993, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
ARTHUR ANDERSEN & CO.
Albuquerque, New Mexico
May 6, 1994
ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended
March 31
------------------
1994 1993
---- ----
(In thousands except
per share amounts)
Operating revenues:
Electric $148,668 $146,158
Gas 109,419 99,989
Water 2,720 2,411
-------- --------
Total operating revenues 260,807 248,558
-------- --------
Operating expenses:
Fuel and purchased power 32,158 35,806
Gas purchased for resale 63,293 53,721
Other operation and maintenance 79,656 101,250
Depreciation and amortization 18,737 19,656
Taxes, other than income taxes 10,193 9,596
Income taxes 14,099 2,178
-------- --------
Total operating expenses 218,136 222,207
-------- --------
Operating income 42,671 26,351
-------- --------
Other income and deductions, net of taxes:
Allowance for equity funds used
during construction - 12
Other (47) 5,652
-------- --------
Net other income and deductions (47) 5,664
-------- --------
Income before interest charges 42,624 32,015
-------- --------
Interest charges:
Interest on long-term debt 17,182 18,010
Other interest charges 1,405 2,252
Allowance for borrowed funds used
during construction (66) (207)
-------- --------
Net interest charges 18,521 20,055
-------- --------
Net earnings 24,103 11,960
Preferred stock dividend requirements 1,681 1,716
-------- --------
Net earnings applicable to common stock $ 22,422 $ 10,244
======== ========
Average shares of common stock outstanding 41,774 41,774
======== ========
Net earnings per share of common stock $ 0.54 $ 0.25
======== ========
Dividends paid per share of common stock $ - $ -
======== ========
The accompanying notes are an integral part of these financial statements.
/TABLE
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1994 1993
-------- -----------
(Unaudited)
(In thousands)
ASSETS
Utility plant $2,572,527 $2,550,166
Accumulated provision for depreciation and amortization (864,400) (846,234)
---------- ----------
Net utility plant 1,708,127 1,703,932
---------- ----------
Other property and investments 34,187 33,966
---------- ----------
Current assets:
Cash 24,577 20,510
Temporary investments, at cost 47,850 47,850
Receivables 143,419 147,223
Income taxes receivable - 10,400
Fuel, materials and supplies 51,852 48,086
Gas in underground storage 7,940 8,599
Other current assets 12,007 11,347
---------- ----------
Total current assets 287,645 294,015
---------- ----------
Deferred charges 166,780 180,276
---------- ----------
$2,196,739 $2,212,189
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 208,870 $ 208,870
Additional paid-in capital 470,149 470,149
Excess pension liability, net of tax (2,795) (2,795)
Retained earnings (deficit) since January 1, 1989
(appropriated $6.7 million as of March 31, 1994) (98,426) (120,848)
---------- ----------
Total common stock equity 577,798 555,376
Cumulative preferred stock:
Without mandatory redemption requirements 59,000 59,000
With mandatory redemption requirements 23,100 24,386
Long-term debt, less current maturities 902,496 957,622
---------- ----------
Total capitalization 1,562,394 1,596,384
---------- ----------
Current liabilities:
Short-term debt - -
Accounts payable 77,168 116,905
Current maturities of long-term debt 63,480 18,903
Accrued interest and taxes 37,545 29,992
Other current liabilities 56,370 51,364
---------- ----------
Total current liabilities 234,563 217,164
---------- ----------
Deferred credits 399,782 398,641
---------- ----------
$2,196,739 $2,212,189
========== ==========
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
------------------
1994 1993
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $24,103 $11,960
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Depreciation and amortization 22,931 25,220
Allowance for equity funds used during construction - (12)
Accumulated deferred investment tax credit (1,295) (1,404)
Accumulated deferred income tax 3,476 9,593
Changes in certain assets and liabilities:
Receivables 14,204 (23,476)
Fuel, materials and supplies (3,766) 4,517
Deferred charges 13,204 13,768
Accounts payable (39,744) (16,079)
Accrued interest and taxes 7,553 11,875
Deferred credits (2,628) (6,718)
Other 5,167 362
Other, net 1,711 1,069
------- -------
Net cash flows from operating activities 44,916 30,675
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility plant additions (26,884) (25,727)
Other property additions (274) (1,829)
Temporary investments, net - (5,665)
------- -------
Net cash flows from investing activities (27,158) (33,221)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions and repurchases of preferred stock (1,419) (600)
Repayments of other long-term debt (10,568) (1,684)
Net increase in short-term debt - 1,650
Dividends paid (1,704) (1,717)
------- -------
Net cash flows from financing activities (13,691) (2,351)
------- -------
Increase (decrease) in cash 4,067 (4,897)
Cash at beginning of period 20,510 21,080
------- -------
Cash at end of period $24,577 $16,183
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $19,368 $14,526
======= =======
Income taxes paid, net $ - $ 1
======= =======
The accompanying notes are an integral part of these financial statements.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General Accounting Policy
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair
presentation of the consolidated financial statements. The accounting
policies followed by Public Service Company of New Mexico (the "Company") are
set forth in note (1) of notes to the Company's consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 Form 10-K") filed with the Securities and
Exchange Commission.
(2) First Mortgage Bond Redemption
On April 20, 1994, the Company redeemed its $45 million 10 1/8% series first
mortgage bonds prior to scheduled maturity. The premium paid for the early
redemption and the unamortized issuance expense were approximately $1.9
million and $.2 million, respectively. Approximately $.5 million of these
amounts will be written off with the remainder being deferred for future
recovery.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's 1993 Form 10-K PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" discusses
management's assessment of the Company's financial condition, results of
operations and other issues facing the Company. The following discussion
supplements the 1993 Form 10-K discussion and should be read in conjunction
with the consolidated financial statements presented herein and in the 1993
Form 10-K.
The January 12, 1994 Stipulation
As previously reported, on January 12, 1994, the Company and the New Mexico
Public Utility Commission ("NMPUC") staff and primary intervenor groups
entered into a stipulation ("stipulation") which addresses retail electric
prices, generation assets and certain financial concerns of the Company. The
Company filed the stipulation with the NMPUC, recommending that electric
retail rates be reduced by $30 million. The stipulation is subject to NMPUC
approval. (See PART II, ITEM 7.--" MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-- January 12, 1994 Stipulation"
in the 1993 Form 10-K.)
On January 3, 1994, the NMPUC issued an order establishing an investigation
of rates for both the Company and Southwestern Public Service Company. The
order requires the Company to file a general rate case no later than July 1,
1994. However, in an order issued March 7, 1994 regarding the stipulation,
the NMPUC preliminarily stayed the requirements of its investigative order as
they pertain to the Company, pending the filing of testimony on the
stipulation and until further order of the NMPUC.
On March 23, 1994, the Company requested an extension for filing its
testimony in support of the stipulation from April 18, 1994 to May 16, 1994.
On March 24, 1994, the NMPUC granted the extension. On May 10, 1994, the
Company requested a second extension for filing its testimony from May 16,
1994 to June 1, 1994. The NMPUC granted the extension on May 13, 1994. No
hearing date has been scheduled.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently estimates a total of $205 million for its capital
requirements for 1994. The Company expects that such cash requirements are
to be met primarily through internally-generated cash. However, to cover
differences in the amounts and timing of cash generation and cash
requirements, the Company intends to utilize short-term borrowings under its
liquidity arrangements, which consist of a $100 million secured revolving
credit facility ("Facility"), an additional $40 million credit facility
collateralized by the Company's electric customer accounts receivable and $11
million in local lines of credit. The Company had no borrowings under such
liquidity arrangements as of March 31, 1994.
The Facility has an expiration date of June 13, 1995 and contains a provision
that could prevent additional borrowings in the event of a material adverse
change in the condition (financial or otherwise), results of operations,
assets, business or prospects of the Company. In respect to the total debt
to total capitalization test under the Facility and the letter of credit
issued to support certain pollution control bonds, the Company is allowed to
exclude from the calculation of total capitalization up to $200 million in
pre-tax write-offs resulting from the Company's restructuring efforts. The
Company was allowed to exclude, from the calculation, approximately $180
million in pre-tax write-offs resulting from the stipulation signed in
January 1994. The maximum allowed ratio of the Company's total debt to total
capitalization under the Facility and the letter of credit is 72%. As of
March 31, 1994, such ratio was 67.49%.
On April 20, 1994, the Company redeemed its $45 million 10 1/8% series first
mortgage bonds. The bonds, originally due October 1, 2004, were called at
104.22% of the principal amount. Annual savings, exclusive of the call
premium, will be approximately $4.6 million or $.07 per share.
RESULTS OF OPERATIONS
Resources excluded from NMPUC jurisdictional rates continue to negatively
impact the Company's results of operations; however, as a result of the Palo
Verde Nuclear Generating Station ("PVNGS") Unit 3 write-down and the
provision for loss associated with the M-S-R Public Power Agency, a
California public power agency ("M-S-R"), power purchase contract recorded in
1992, the Company has experienced positive operating income from the excluded
resources. Selected financial information for the excluded resources is
shown below:
Three Months Ended
March 31
--------
1994 1993
---- ----
(In thousands)
Operating revenues $ 9,854 $ 13,873
Operating income $ 619 $ 2,522
Net loss $ (2,456) $ (1,678)
Net utility plant at end of period $158,350* $198,968
* Decrease is a result of the sale of 50 MW of San Juan Generating Station
("SJGS") Unit 4 to the City of Anaheim, California.
Electric gross margin (electric operating revenues less fuel and purchased
power expense) increased $6.2 million in the current quarter primarily due to
a difference of $6.7 million (or $.10 per share) between the estimated
unbilled revenues reported in the fourth quarter of 1993 and actual unbilled
revenues. In addition, there was an increase in jurisdictional energy sales
of 22.1 million KWh, or $1.8 million. These increases were partially offset
by a decrease in the gross margin of the excluded resources and firm-
requirements wholesale customers of $2.5 million as a result of a decrease in
available capacity due to the 1993 sale of a 50 MW undivided interest in SJGS
Unit 4 to the City of Anaheim, California, and a mid-cycle outage and less
than full power operations (86%) of the PVNGS units.
Gas operating revenues and gas purchased for resale increased $9.4 million
and $9.6 million, respectively, in the current quarter, mainly due to higher
purchased gas costs.
Other operation and maintenance expenses decreased $21.6 million from last
year's quarter due mainly to an accrual of $23.3 million related to the
Company's severance program in 1993. Such decrease was partially offset by
an increase in PVNGS maintenance expense of $2.8 million resulting primarily
from the PVNGS Unit 2 mid-cycle outage and an increase in pension and
retirees health care costs accruals of $1.2 million due to lowering the
discount rates from 8 percent to 7 percent for measuring benefit obligations.
Operating income taxes for the current quarter increased $11.9 million from
a year ago due primarily to increased pre-tax earnings for the current
quarter.
Other income and deductions (net) decreased $5.7 million from the same
quarter last year due primarily to an after-tax gain of $7.7 million
recognized from the sale of the Company's investment in ACE Limited stock in
1993, which was partially offset by additional provisions for legal expenses
in 1993.
OTHER ISSUES FACING THE COMPANY
Palo Verde Nuclear Generating Station
Steam Generator Tubes
As previously reported, tube cracking in the PVNGS steam generators
adversely affected operations in 1993, and will continue to do so in 1994
and probably into 1995, because of the cost of replacement power, reduced
off-system sale incentives, maintenance expense associated with unit
outages and corrective actions required to deal with the issue. (See PART
II, ITEM 7.-- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- Palo Verde
Nuclear Generating Station - Steam Generator Tubes" in the Company's 1993
Form 10-K.)
PVNGS Unit 2
The operation of Unit 2 has been particularly affected by this issue.
Arizona Public Service Company ("APS"), as the operating agent, has
encountered axial tube cracking in the upper regions of the two steam
generators in Unit 2. This form of tube degradation is uncommon in the
industry and, in March 1993, led to a tube rupture and an outage of the
unit that extended to September 1993, during which the unit was refueled.
In March 1994, a mid-cycle inspection outage was completed which revealed
further tube degradation in Unit 2. The outage included, among other
things, inspecting and chemically cleaning each of Unit 2's steam
generators, and subsequently starting the unit up using boric acid in the
secondary water system. Unit 2 is scheduled for another mid-cycle
inspection outage in the fall of 1994. The Unit 2 refueling and
maintenance outage which was originally planned for the fall of 1994 is
now scheduled to be completed in early 1995.
PVNGS Unit 3
Unit 3 is currently in a refueling outage, during which APS is inspecting
and has chemically cleaned each of Unit 3's two steam generators and the
unit will be started up with boric acid in the secondary water system.
APS's inspection of these generators has revealed axial cracking in a
small number of tubes in the upper regions of each of the generators. As
a result, APS has expanded the scope of its inspections of these steam
generators to obtain additional information about the extent and severity
of the axial cracking. The expanded inspection in one of the steam
generators has been completed. APS expects that the expanded inspection
in the other steam generator will be completed within the next week. APS
currently expects that Unit 3 will be restarted in June. However, in
light of the axial cracking that APS has found to date, APS anticipates
that Unit 3 would be removed from service in late 1994 for a mid-cycle
inspection of its steam generators.
PVNGS Unit 1
Unit 1 is scheduled for a refueling outage beginning in March 1995. In
late 1993, APS concluded that Unit 1 could be safely operated until the
1995 outage and submitted its supporting analysis to the Nuclear
Regulatory Commission (the "NRC"). However, in light of the axial
cracking found in the Unit 3 steam generators, APS is currently evaluating
the potential need for a mid-cycle steam generator tube inspection outage
in Unit 1 late in 1994.
General
Although its analysis is not yet completed, APS believes that the axial
cracking in the Unit 2 and Unit 3 steam generator tubes is due to the
susceptibility of tube materials to a combination of deposits on the tubes
and the relatively high temperatures at which all three units are
currently designed to operate. APS also believes that it can retard
further tube degradation to acceptable levels by remedial actions, which
include chemically cleaning the generators and performing analyses and
adjustments that will allow the units to be operated at lower temperatures
without appreciably reducing their power output. Chemical cleaning has
been completed in Unit 2 and was completed in Unit 3 during its current
refueling outage. The temperature analyses should be concluded within the
next several months. In the meantime, the lower temperatures will be
achieved by operating the units at less than full power (86%).
APS previously reported that all three units should be returned to full
power by mid-1995, and one or more of the units could be returned to full
power during 1994. However, due to the axial cracking found in Unit 3,
APS cannot currently predict when one or more of the units will be
returned to full power.
So long as the three units are involved in mid-cycle outages and are
operated at less than full power (86%), the Company will incur additional
replacement power costs and reduced off-system sale incentives of
approximately $8.8 million during 1994. Approximately 70% (61% related
to retail customers and 9% related to firm-requirements wholesale
customers) of these additional costs will be recovered through the fuel
and purchased power cost adjustment clauses ("FPPCAC"). (See PART I, ITEM
1.--"BUSINESS--RATES AND REGULATION--FPPCAC" in the Company's 1993 Form
10-K.) The future recovery of these costs from retail customers will be
dependent upon receiving an order from the NMPUC regarding the elimination
of the FPPCAC.
The Company estimates that additional operations and maintenance expenses
totaling approximately $2.0 million (before income taxes) will be incurred
if mid-cycle inspection outages are performed at Units 1 and 3 in late
1994.
When tube cracks are detected during any outage, the affected tubes are
taken out of service by plugging. That has occurred in a number of tubes
in all three units, particularly in Unit 2, which is by far the most
affected by cracking and plugging. APS expects that because of the
foregoing remedial actions, the rate of plugging will slow considerably
and that, while it may ultimately reach some limit on plugging, it can
operate the present steam generators over a number of years.
PVNGS Decommissioning Funding
As previously reported, the Company has a program for funding its share of
nuclear plant decommissioning costs for PVNGS. (See PART II, ITEM 7 --
"MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- OTHER ISSUES FACING THE COMPANY -- PVNGS Decommissioning
Funding" in the 1993 Form 10-K.)
The Company's share of the PVNGS decommissioning costs was estimated at the
end of 1993 at approximately $143.2 million in present value, or $755.1
million in future value. These estimates are based on the estimated
remaining useful lives of 32 years, 32.75 years and 36 years for PVNGS
Units 1, 2 and 3, respectively and an assumed escalation rate of 5% per
year. The amount of the annual provision for 1994 using these assumptions
is $4.8 million. This amount is charged to operating expense in the income
statement and accrued as a provision for decommissioning in the liability
section of the Company's balance sheet. The total provision for nuclear
plant decommissioning reflected in the Company's balance sheet as of March
31, 1994 is approximately $18.7 million.
The Company has established a decommissioning trust fund to which it makes
annual deposits. The annual deposit approved by the NMPUC in 1987 is
$396,000 per unit. The NMPUC jurisdictional share of this amount related
to PVNGS Units 1 and 2 is included in retail rates. The market value of
trust assets at the end of 1993 was approximately $11.0 million. Operating
expenses (decommissioning expense) are adjusted at year end to reflect the
market value of the trust assets.
As previously reported, a supplemental investment program will be needed as
a result of both cost increases and the under performance of the existing
investment program. However, a supplemental funding program will not be
established until clarification and/or possible revisions to a FERC order
issued in October 1993 regarding restricted investment vehicles for nuclear
decommissioning trusts are obtained. Although a supplemental program will
not be established pending resolution from the FERC, the Company has
requested recovery of the increased decommissioning costs in the
stipulation.
A Transmission Right-of-Way
As previously reported, the Company has an easement for right-of-way with the
Navajo Nation for portions of two transmission lines that emanate from SJGS
and connect with Four Corners Power Plant and with a switching station in the
Albuquerque area. This easement expired January 17, 1993 and the Company has
been attempting to renew the grant. (See PART II, ITEM 7.--"MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
OTHER ISSUES FACING THE COMPANY-- A Transmission Right-of-Way" in the 1993
Form 10-K.)
On April 1, 1994, the Company submitted a proposal to the Navajo Nation for
a long-term renewal of the easement and the Company is currently awaiting a
response to that proposal. The Company continues to assess its options but
is not pursuing other alternatives unless it receives indications that
agreement cannot be reached in a satisfactory manner. The Company is
currently unable to predict the outcome of the negotiations or the costs
resulting therefrom.
Sale of SJGS Unit 4
As previously reported, the Company executed a purchase and participation
agreement with Utah Associated Municipal Power Systems (UAMPS) to sell 35 MW
of SJGS Unit 4 for approximately $40 million, which was subject to, among
other things, regulatory approvals. (See PART II, ITEM 7.--MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
OTHER ISSUES FACING THE COMPANY--Excess Capacity Sales/Wholesale Power
Market" in the Company's 1993 Form 10-K.)
The Company has received required regulatory approvals for the sale, and the
transaction is currently scheduled to close on June 2,1994. The Company
expects to receive cash proceeds of approximately $40 million and anticipates
recognizing approximately $5.7 million ($.14 per share) for the gain and tax
benefits associated with sharing the gain with the New Mexico jurisdictional
customers.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
OTHER PROCEEDINGS
As previously reported, on March 31, 1993, certain individuals ("the New
Mexico Plaintiffs"), formerly affiliated with Bellamah Community Development
("BCD") whose general partners include Meadows Resources Inc., a subsidiary
of the Company ("Meadows"), filed suit ("the New Mexico suit") in the United
States District Court for the District of New Mexico against numerous
parties, including the Company, current and former employees of the Company
or Meadows, and MCB Financial Group, Inc., a Delaware corporation ("MCB"),
50% of which stock is owned by Meadows. (See PART I, ITEM 3.--"LEGAL
PROCEEDINGS--OTHER PROCEEDINGS" in the Company's 1993 Form 10-K.) The New
Mexico Plaintiffs have not requested any monetary relief against the Company
or certain current and former employees of the Company and Meadows but have
joined those parties in connection with insurance coverage and bad faith
insurance practices alleged against the insurance company which had issued a
directors and officers liability policy to various entities, including MCB
and BCD. The insurance allegations are made in connection with claims which
were then threatened by the Resolution Trust Corporation ("RTC"), as receiver
for Western Savings & Loan Association ("Western"), against the Company and
others. The New Mexico Plaintiffs also sued the RTC for a declaration that
they are not liable for any claims asserted by the RTC involving Western and
BCD. The Company and the current and former employees of the Company or
Meadows counterclaimed against the New Mexico Plaintiffs and cross-claimed
against the insurance company and the RTC in connection with insurance
coverage and bad faith insurance practices. In addition, the Company and the
current and former employees of the Company or Meadows cross-claimed against
the RTC, seeking a declaration of non-liability.
The RTC moved to transfer the New Mexico suit to the United States District
Court for the District of Arizona. On February 7, 1994, an order was entered
transferring the case in its entirety. Prior to the transfer, however, the
Federal magistrate judge in New Mexico issued a proposed order which, if
accepted by the district judge, would require the parties to enter into
mediation of all the claims. The parties are negotiating a form of order
dismissing without prejudice the claims asserted in the New Mexico suit
against MCB, the RTC, and the insurance company, ordering the mediation of
the claims asserted in the Arizona proceeding (described below) by the RTC
against all of the other parties in the New Mexico suit except the insurance
company and MCB, and preserving a motion for sanctions filed against the RTC
by the Company, its current or former employees named in the New Mexico suit,
and the New Mexico Plaintiffs.
On April 16, 1993, the Company and certain current and former employees of
the Company or Meadows were named as defendants in an action filed in the
United States District Court for the District of Arizona by the RTC, as
receiver for Western. Three of the individuals sued by the RTC have
indemnity agreements with the Company. The claims related to alleged actions
of the Company's employees in 1987 in connection with a loan procured by BCD
from Western and the purchase by that partnership of property owned by
Western. The RTC apparently claims that the Company's liability stems from
the actions of a former employee who allegedly acted on behalf of the Company
for the Company's benefit. The RTC is claiming in excess of $40 million in
actual damages from the BCD/Western transactions and alternatively is
claiming damages substantially exceeding that amount on Arizona racketeering,
civil conspiracy and aiding and abetting theories. These allegations involve
claims against the Company for damages to Western caused by other defendants
and from other transactions to which BCD was not a party. The RTC claims
that damages under the Arizona racketeering statute would be trebled under
applicable Arizona law. The RTC may also seek attorneys fees and costs. In
February 1994, the RTC advised that the RTC would be seeking to amend the
complaint to allege against the Company civil conspiracy, common law fraud
and aiding and abetting breach of fiduciary duties, aiding and abetting
common law fraud and aiding and abetting violation of Federal and Arizona
racketeering laws (all of which claims are already asserted against the
Company's current and former employees named in the suit) and is considering
claims against Meadows and against the Company as "successor to and alter
ego" of Meadows. As of May 11, 1994, the RTC has not sought to amend its
complaint.
On March 3 and 4, 1994, the parties participated in a mediation session aimed
at settling the litigation. The session ended without a settlement. The
mediator has continued settlement discussions with the parties.
In July 1993, the Company and certain current or former employees of the
Company or its subsidiaries were also named in an action filed in Federal
District Court in Arizona on behalf of a class of common stockholders of
Western. The allegations were similar to those filed in the RTC actions
described above. On January 24, 1994, motions to dismiss filed by the
Company and certain current or former employees of the Company or its
subsidiaries were granted by the Arizona court for lack of standing to bring
the actions. Although the plaintiffs may appeal the order of the court, the
Company believes the claims are without merit.
The Company continues to investigate all of the claims made by the RTC in
this litigation and is vigorously defending those claims. The Company cannot
predict the ultimate outcome of the case but believes that the RTC's
contentions are without merit and currently believes that the outcome will
not result in a material adverse impact on the Company's results of
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on April 27, 1994, the
shareholders elected the following three nominees to serve as directors until
the annual meeting of shareholders in 1997, or until their successors are
duly elected and qualified, as follows:
Votes
Against Broker
Director Votes For or Withheld Abstentions Non-Votes
-------- --------- ----------- ----------- ---------
Robert G. Armstrong 35,796,772 426,625 * *
Reynaldo U. Ortiz 35,725,332 498,065 * *
Paul F. Roth 35,776,580 446,817 * *
The approval of the selection by the Company's Board of Directors ("Board")
of Arthur Andersen & Co. as independent auditors for the fiscal year ending
December 31, 1994, was voted on, as follows:
Votes
Against Broker
Votes for or Withheld Abstentions Non-Votes
--------- ----------- ----------- ---------
35,824,851 194,430 204,116 *
* Not applicable or not readily available.
ITEM 5. OTHER INFORMATION
Palo Verde Nuclear Generating Station
Notice of Violation
By letter dated April 1, 1994, the NRC sent a Notice of Violation and
Proposed Imposition of Civil Penalty notifying APS, as the operating agent,
that the NRC proposes to impose a civil penalty in the amount of $100,000
for two violations aggregated into one "Severity Level III" problem. The
notice relates to two APS-identified violations of NRC regulatory
requirements and PVNGS security procedures involving failure to ensure that
a contractor of APS (1) conducted adequate background investigations before
APS granted certain individuals unescorted site access to PVNGS and (2)
required annual audits of private investigative agencies that assisted the
contractor in conducting background investigations. On April 29, 1994, APS
responded to the notice and paid the $100,000 penalty.
Discrimination Allegations
As previously reported, on December 15, 1993, APS and a former contract
employee at PVNGS, who had filed discrimination claims with the Department
of Labor against APS, entered into a settlement agreement, a part of which
was subject to approval by the Secretary of Labor. The claims related to
allegations that APS had discriminated against the contract employee
because he engaged in "protected activities" (as defined under Federal
regulations). (See PART I, ITEM 2.--"PROPERTIES--ELECTRIC--Nuclear Plant--
Discrimination Allegations" in the Company's 1993 Form 10-K.) On March 21,
1994, the Secretary of Labor issued a final order approving the settlement.
New Director Appointed
On April 5, 1994, Mr. Manuel Lujan, Jr., the former Secretary of the Interior
and United States Congressman, was appointed by the Board as a new Board
member. This appointment fills the position vacated by former Board member
Vickie Fisher, who resigned her position as a director for the Company in
December 1993 when she accepted a position with the City of Albuquerque.
(See ITEM 5. "OTHER EVENTS--Director Resignation" in the Company's Form 8-K
dated January 13, 1994.)
For the past year, Mr. Lujan has been acting as a consultant for various
firms. From 1989 to 1993, Mr. Lujan served as Secretary of the Interior
under President George Bush. Mr. Lujan was elected in 1968 to the U.S. House
of Representatives from New Mexico District 1 and served through 1988 in the
91st through 100th Congresses. His Congressional committee memberships
included Interior and Insular Affairs, Water and Power Resources Committee,
Energy and Environment Subcommittee, Science and Technology Committee,
Science Research and Technology Committee and the Fossil and Nuclear Energy
Research and Development Subcommittee.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
3.2 Bylaws of Public Service Company of New Mexico With All
Amendments to and Including April 27, 1994
10.5.5 Modification No. 8 to San Juan Project Co-Tenancy Agreement
between Public Service Company of New Mexico and Tucson Electric
Power Company dated September 15, 1993
10.5.6 Modification No. 9 to San Juan Project Co-Tenancy Agreement
between Public Service Company of New Mexico and Tucson Electric
Power Company dated January 12, 1994
10.6.3 Modification No. 8 to San Juan Project Construction Agreement
between Public Service Company of New Mexico and Tucson Electric
Power Company dated January 12, 1994
10.7.3 Modification No. 8 to San Juan Project Operating Agreement
between Public Service Company of New Mexico and Tucson Electric
Power Company dated September 15, 1993
10.7.4 Modification No. 9 to San Juan Project Operating Agreement
between Public Service Company of New Mexico and Tucson Electric
Power Company dated January 12, 1994
10.11 San Juan Unit 4 Early Purchase and Participation Agreement dated
as of September 26, 1983, between the Company and M-S-R Public
Power Agency, and Modification No. 2 to the San Juan Project
Agreements dated December 31, 1983 (refiled)
10.40.2* Second Amendment to the Public Service Company of New Mexico
Director Restricted Stock Retainer Plan dated April 27, 1994
10.54.1* Health Care and Retirement Benefit Agreement By and Between the
Public Service Company of New Mexico and John T. Ackerman dated
February 1, 1994
15.0 Letter Re Unaudited Interim Financial Information
*Designates each management contract, compensatory plan or arrangement
required to be filed as an exhibit to this report.
b. Reports on Form 8-K:
None, other than the previously filed Form 8-Ks described in the 1993
Form 10-K.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW MEXICO
(Registrant)
Date: May 13, 1994 /s/ Donna M. Burnett
-----------------------------------
Donna M. Burnett
Corporate Controller and
Chief Accounting Officer
EXHIBIT INDEX
Paper (P) or
Exhibit Electronic (E)
- - ------- --------------
3.2 Bylaws of Public Service Company of New Mexico With All
Amendments to and Including April 27, 1994 E
10.5.5 Modification No. 8 to San Juan Project Co-Tenancy
Agreement between Public Service Company of New
Mexico and Tucson Electric Power Company dated
September 15, 1993 E
10.5.6 Modification No. 9 to San Juan Project Co-Tenancy
Agreement between Public Service Company of New Mexico
and Tucson Electric Power Company dated January 12, 1994 E
10.6.3 Modification No. 8 to San Juan Project Construction
Agreement between Public Service Company of New Mexico
and Tucson Electric Power Company dated January 12, 1994 E
10.7.3 Modification No. 8 to San Juan Project Operating Agreement
between Public Service Company of New Mexico and Tucson
Electric Power Company dated September 15, 1993 E
10.7.4 Modification No. 9 to San Juan Project Operating Agreement
between Public Service Company of New Mexico and Tucson
Electric Power Company dated January 12, 1994 E
10.11 San Juan Unit 4 Early Purchase and Participation
Agreement dated as of September 26, 1983, between
the Company and M-S-R Public Power Agency, and
Modification No. 2 to the San Juan Project Agreements
dated December 31, 1983 (refiled) E
10.40.2 Second Amendment to the Public Service Company of
New Mexico Director Restricted Stock Retainer Plan
dated April 27, 1994 E
10.54.1 Health Care and Retirement Benefit Agreement By and
Between the Public Service Company of New Mexico and
John T. Ackerman dated February 1, 1994 E
15.0 Letter Re Unaudited Interim Financial Information E