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 June 30, 1995
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) 241-2700
(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 August 1, 1995
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 and Six Months Ended June 30, 1995 and 1994 4
Consolidated Balance Sheets--
June 30, 1995 and December 31, 1994 5
Consolidated Statements of Cash Flows--
Six Months Ended June 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
Signature 19
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 June 30, 1995, and the related condensed consolidated
statements of earnings for the three-month and six-month periods ended June
30, 1995 and 1994, and the condensed consolidated statements of cash flows
for the six-month periods ended June 30, 1995 and 1994. 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, 1994 (not presented herein), and,
in our report dated February 23, 1995, we expressed an unqualified opinion on
that statement. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1994, is
fairly presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
August 7, 1995
ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands except per share amounts)
Operating revenues:
Electric $136,698 $149,856 $278,306 $298,524
Gas 51,126 50,959 137,326 160,378
Water 3,708 3,445 6,135 6,165
-------- -------- -------- --------
Total operating revenues 191,532 204,260 421,767 465,067
-------- -------- -------- --------
Operating expenses:
Fuel and purchased power 32,923 32,078 64,789 64,236
Gas purchased for resale 20,414 22,411 63,996 85,704
Other operation and maintenance 78,037 82,869 159,248 162,525
Depreciation and amortization 20,737 17,516 41,252 36,253
Taxes, other than income taxes 8,869 9,439 18,538 19,632
Income taxes 5,528 7,797 15,189 21,896
-------- -------- -------- --------
Total operating expenses 166,508 172,110 363,012 390,246
-------- -------- -------- --------
Operating income 25,024 32,150 58,755 74,821
-------- -------- -------- --------
Other income and deductions, net of taxes: 13,118 4,717 14,693 4,670
-------- -------- -------- --------
Income before interest charges 38,142 36,867 73,448 79,491
-------- -------- -------- --------
Interest charges:
Interest on long-term debt 12,957 16,300 28,391 33,482
Other interest charges 1,766 1,413 3,454 2,818
Allowance for borrowed funds used
during construction - (94) - (160)
-------- -------- -------- --------
Net interest charges 14,723 17,619 31,845 36,140
-------- -------- -------- --------
Net earnings 23,419 19,248 41,603 43,351
Preferred stock dividend requirements 1,534 1,677 3,072 3,358
-------- -------- -------- --------
Net earnings applicable to common stock $ 21,885 $ 17,571 $ 38,531 $ 39,993
======== ======== ======== ========
Average shares of common stock outstanding 41,774 41,774 41,774 41,774
======== ======== ======== ========
Net earnings per share of common stock $ 0.52 $ 0.42 $ 0.92 $ 0.96
======== ======== ======== ========
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
June 30, December 31,
1995 1994
-------- -----------
(Unaudited)
(In thousands)
ASSETS
Utility plant $2,515,970 $2,587,592
Accumulated provision for depreciation and amortization (889,304) (890,905)
---------- ----------
Net utility plant 1,626,666 1,696,687
---------- ----------
Other property and investments 33,745 34,523
---------- ----------
Current assets:
Cash 14,973 21,029
Temporary investments, at cost 160,085 74,521
Receivables 96,496 129,048
Income taxes receivable - 4,182
Fuel, materials and supplies 48,653 51,068
Gas in underground storage 8,141 8,744
Other current assets 12,250 9,549
---------- ----------
Total current assets 340,598 298,141
---------- ----------
Deferred charges 134,176 173,914
---------- ----------
$2,135,185 $2,203,265
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 208,870 $ 208,870
Additional paid-in capital 469,722 469,648
Excess pension liability, net of tax (1,106) (1,106)
Retained earnings (deficit) since January 1, 1989
(appropriated $0.6 million as of June 30, 1995) (7,475) (46,006)
---------- ----------
Total common stock equity 670,011 631,406
Cumulative preferred stock:
Without mandatory redemption requirements 13,000 59,000
With mandatory redemption requirements - 17,975
Long-term debt, less current maturities 742,763 752,063
---------- ----------
Total capitalization 1,425,774 1,460,444
---------- ----------
Current liabilities:
Short-term debt 35,550 -
Accounts payable 75,490 105,213
Current maturities of long-term debt 15,954 148,532
Accrued interest and taxes 75,048 28,073
Other current liabilities 108,060 43,662
---------- ----------
Total current liabilities 310,102 325,480
---------- ----------
Deferred credits 399,309 417,341
---------- ----------
$2,135,185 $2,203,265
========== ==========
The accompanying notes are an integral part of these financial statements.
/TABLE
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30
----------------
1995 1994
---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $41,603 $43,351
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Depreciation and amortization 49,621 42,581
Gain on sale of plant and property (28,126) (6,576)
Reserves for bad debts - 526
Accumulated deferred investment tax credit (2,325) (4,788)
Accumulated deferred income tax (40,113) (2,953)
Changes in certain assets and liabilities:
Receivables 36,734 33,749
Fuel, materials and supplies (33,050) (6,959)
Deferred charges 11,418 9,920
Accounts payable (29,723) (30,680)
Accrued interest and taxes 46,975 13,130
Deferred credits 22,415 (9,286)
Other 5,542 5,927
Other, net 3,583 4,100
------- -------
Net cash flows from operating activities 84,554 92,042
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility plant additions (49,127) (50,503)
Utility plant sales 154,087 39,725
Other property additions (107) (4,777)
Temporary investments, net (85,564) (5,580)
------- -------
Net cash flows from investing activities 19,289 (21,135)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions of PV lease obligation bonds (132,663) -
Redemptions and repurchases of preferred stock (208) (1,439)
Redemption of first mortgage bonds - (45,000)
Bond redemption premium and costs (253) (2,222)
Proceeds from asset securitization 18,758 -
Repayments of other long-term debt (28,007) (22,123)
Net increase in short-term debt 35,550 -
Dividends paid (3,076) (3,393)
------- -------
Net cash flows from financing activities (109,899) (74,177)
------- -------
Decrease in cash (6,056) (3,270)
Cash at beginning of period 21,029 20,510
------- -------
Cash at end of period $14,973 $17,240
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $30,820 $37,846
======= =======
Income taxes paid $15,200 $ 5,000
======= =======
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, 1994 (the "1994 Form 10-K") filed with the Securities and
Exchange Commission.
(2) Palo Verde Nuclear Generating Station ("PVNGS") Lease Obligation Bonds
("LOBs") Redemption
On March 8, 1995, $121 million of PVNGS LOBs were retired. The retired LOBs
consisted of $58 million of 10.30% LOBs due 2014 retired at a price of 100%
of par and $63 million of 10.15% LOBs due 2016 retired at a price of 97.8% of
par. Additionally, $4.4 million and $4.8 million of LOBs due 1996 and 1997
at interest rates of 9.125% and 8.95%, respectively, were retired at par on
March 22, 1995. In connection with the LOB retirements, $65 million was
borrowed under the Company's liquidity arrangements and $19 million was
obtained under the securitization facility related to amounts being recovered
from gas customers relating to certain gas contract settlements. In July
1995, the Company repaid the borrowings with proceeds from asset sales. In
conjunction with these retirements, the Company wrote off $1.5 million of net
costs related to these transactions. The retirement of the LOBs, which were
the Company's highest cost debt, will save the Company approximately $11
million annually in interest expense over the next five years.
(3) Sale of Certain Gas Assets
In February 1994, an agreement was reached with Williams Gas Processing-
Blanco, Inc. ("Williams") for the sale of substantially all of the gas
gathering and processing assets of the Company and its gas subsidiaries. On
June 30, 1995, the sale was consummated. As a result, the Company and its
gas subsidiaries received approximately $154.1 million from Williams and
recorded an after-tax gain of $13.1 million, or $.31 per share, in the second
quarter of 1995.
(4) Subsequent Events
Sale of Sangre de Cristo Water Company ("SDCW")
In February 1994, the Company and the City of Santa Fe (the "City") entered
into a purchase and sale agreement for the Company's water division. On
July 3, 1995, the sale was consummated. As a result, the Company received
$51.2 million (exclusive of current assets netted against current
liabilities) from the sale of assets and will record an after-tax gain of
$6.3 million, or $.15 per share, in the third quarter of 1995. As a part
of the sales agreement, the Company will continue to operate the water
utility for up to four years for a fee under a contract with the City.
Cumulative Preferred Stock
On August 7, 1995, the Company redeemed, at par, all of its 8.45% Series,
8.80% Series and 8.75% Series of cumulative preferred stock outstanding as
of July 6, 1995. The Company deposited the redemption price of $64 million
(including accrued dividends to the redemption date) with a redemption
agent.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's 1994 Form 10-K PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" discussed
management's assessment of the Company's financial condition, results of
operations and other issues facing the Company. The following discussion
supplements the 1994 Form 10-K discussion and should be read in conjunction
with the consolidated financial statements presented herein and in the 1994
Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 1995, the Company generated $84.6 million from
operating activities and received proceeds of $154.1 million from the sale of
certain gas gathering and gas processing assets. In July 1995, the Company
also received proceeds of $51.2 million from the sale of the Company's water
division.
The Company's construction expenditures for the first half of 1995 were $49.1
million. During the remainder of 1995, the Company anticipates it will spend
approximately $61 million for additional construction expenditures. The
Company expects that construction expenditures for the remainder of 1995 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, a $40 million credit facility collateralized by the
Company's electric customer accounts receivable and $11 million in local
lines of credit.
In June 1995, the Company amended its $100 million secured revolving credit
facility (the "Prior Facility"). The amended credit facility (the
"Facility") contains improved pricing, a three-year term and some covenant
changes. The maximum allowed ratio of the Company's total debt to total
capitalization under the Prior Facility was 72% and the Company was 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. Under
the Facility, the maximum allowed ratio was changed from 72% to 68% with no
provision for excluding write-off amounts. As of June 30, 1995, such ratio
was 65.4%.
In March 1995, the Company retired $130 million in long-term debt and on
August 7, 1995, the Company retired three series of its cumulative preferred
stock in the amount of $64 million. As of June 30, 1995, the Company had
short-term borrowings of $35.6 million and cash and temporary investments of
$175.1 million. The Company continues to evaluate its investment and debt
retirement options to optimize its financing strategy and earnings potential.
Credit Rating
Moody's Investors Service (Moody's) recently concluded its review of LOBs,
secured lease obligation bonds ("SLOBs") and preferred stock of certain
electric utilities. As a result, Moody's downgraded the Company's PVNGS LOBs
and cumulative preferred stock. Moody's stated that the downgrades were
based on their "assessment that increasing competition in the electricity
industry, concentrated in the generation sector, has impaired nuclear asset
collateral value". Moody's also stated that "as a result of the increase in
unsecured claims represented by the SLOB and LOB holders, the position of
preferred shareholders may be seriously impaired in bankruptcy". The Company
does not expect such downgrades will affect the Company's financial condition
or results of operations.
RESULTS OF OPERATIONS
Resources excluded from New Mexico Public Utility Commission ("NMPUC")
jurisdictional rates continue to negatively impact the Company's results of
operation; however, operating income increased $1.3 million and $2.6 million
for the quarter and six months ended June 30, 1995, respectively, from the
corresponding periods a year ago. Such increases resulted from lower 1995
PVNGS operation and maintenance ("O&M") expenses partially offset by lower
gross margin as a result of poor wholesale power market conditions. However,
net earnings from such excluded resources decreased $4.6 million and $3.2
million for the quarter and six months ended June 30, 1995, respectively,
from a year ago. Such decreases resulted from the June 1994 gain from the
sale of generating facilities to Utah Associated Municipal Power Systems
("UAMPS"), partially offset by reduced 1995 interest expense due to certain
long-term debt retirements.
Operating results for the excluded resources for all these periods reflect
the allocation of interest charges based on average investment in excluded
net utility plant as a percent of total utility plant for the period.
Selected financial information for the excluded resources is shown below:
Three Months Ended Six Months Ended
June 30 June 30
------- -------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands)
Operating revenues $ 8,113 $ 9,650 $ 17,174 $ 19,504
Operating income (loss) $ 532 $ (742) $ 1,870 $ (705)
Net earnings (loss) $ (870) $ 3,726 $ (1,013) $ 2,158
Net utility plant at end of
period $141,721 $ 132,452 $141,721 $132,452
Electric gross margin (electric operating revenues less fuel and purchased
power expense) decreased $14.0 million and $20.8 million for the quarter and
six months ended June 30, 1995, respectively, from the corresponding periods
a year ago. These decreases were attributable to: (1) the retail rate
reduction implemented in late 1994; (2) a difference between the estimated
unbilled revenues reported in the fourth quarter of 1993 and actual revenues
recorded in the first quarter of 1994; and (3) reduced off-system sales
margin as a result of the expiration of three sales contracts and generally
poor wholesale power market conditions. Partially offsetting such decreases
was the increase in retail revenues (net of the effect of the retail rate
reduction) resulting from increased load growth.
Gas gross margin (gas operating revenues less gas purchased for resale)
increased $2.2 million from last year's quarter due to higher retail sales
margin resulting from cooler weather experienced in the current quarter.
However, gas gross margin for the six month period decreased $1.3 million
from the corresponding period a year ago due to a decrease in gas deliveries
resulting from warmer than normal weather in the first quarter of 1995.
Other O&M expenses decreased $4.8 million for the quarter from the
corresponding period a year ago due to a decrease in San Juan Generating
Station ("SJGS") O&M expenses of $2.9 million resulting from two scheduled
outages in 1994 and a decrease in PVNGS O&M expenses of $1.6 million due to
a Unit 2 mid-cycle outage and a longer than expected outage of Unit 3 in
1994. In addition, the current quarter O&M expenses reflect a decrease in
administrative and general ("A&G") expenses of $1.4 million, which were
partially offset by higher production O&M expenses for the gas and oil-fired
units of $1.6 million resulting from the maintenance outages in 1995.
Other O&M expenses for the six months ended June 30, 1995 decreased $3.3
million from the corresponding period a year ago due to a decrease in SJGS
O&M expenses of $3.1 million resulting from two scheduled outages in 1994,
decreased PVNGS O&M expenses of $2.4 million as a result of a reduction in
scheduled maintenance outage hours in the current period and decreased Four
Corners Generating Station O&M expenses of $1.5 million resulting from
scheduled outages in 1994. Also, A&G expenses, which decreased by $1.3
million, contributed to the decrease in the current period. Such decreases
were partially offset by higher production O&M expenses for the gas and oil-
fired units of $2.7 million resulting from the maintenance outages in 1995
and higher transmission expense of $1.5 million.
Depreciation and amortization expenses increased $3.2 million and $5.0
million for the quarter and six months ended June 30, 1995, respectively,
from the corresponding periods a year ago as a result of implementing the new
depreciation rates approved by the NMPUC.
Operating income taxes for the quarter and six months ended June 30, 1995
decreased $2.3 million and $6.7 million, respectively, from the corresponding
periods a year ago due primarily to decreased pre-tax earnings for the
current periods.
Other income and deductions, net of taxes, for the quarter and six months
ended June 30, 1995 increased $8.4 million and $10.0 million, respectively,
over the corresponding periods a year ago. Significant items, net of taxes,
for the quarter include the following: (i) the gain of $13.1 million from
the gas assets sale; (ii) income of $1.4 million related to adjusting
reclamation reserves for certain mining operations; and (iii) establishing a
1994 regulatory reserve of $1.2 million. Partially offsetting such increases
were the following: (i) the gain of $4.4 million from the sale of generating
facilities to UAMPS in 1994; (ii) the tax benefit of $1.7 million related to
sharing the UAMPS gain with jurisdictional customers; and (iii) an additional
1995 regulatory reserve of $1.5 million. In addition, significant year-to-
date items included an after-tax accrual of $2.6 million of income pertaining
to the carrying costs related to gas take-or-pay settlement amounts, which
was partially offset by an after-tax write off of debt retirement costs of
$.9 million.
Net interest charges decreased $2.9 million and $4.3 million for the quarter
and six months ended June 30, 1995, respectively, from the corresponding
periods a year ago. This was due to the retirement of $130 million of PVNGS
LOBs in March 1995 and the retirement of $45 million of first mortgage bonds
in April 1994.
OTHER ISSUES FACING THE COMPANY
PVNGS--Steam Generator Tubes
As previously reported, Arizona Public Service Company ("APS"), as the
operating agent of PVNGS, has encountered tube cracking in the steam
generators and had taken, and will continue to take, remedial actions that it
believes have slowed the rate of tube degradation. The projected service
life of the steam generators is reassessed periodically in conjunction with
inspections made during scheduled outages of the PVNGS units. (See PART II,
ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--OTHER ISSUES FACING THE COMPANY--PVNGS-- STEAM
GENERATOR TUBES" in the 1994 Form 10-K.)
APS's ongoing analyses indicate that it will be economically desirable for
APS to replace the Unit 2 steam generators, which have been most affected by
tube cracking, in five to ten years. APS expects that the steam generator
replacement can be accomplished within financial parameters established
before replacement was a consideration. Based on APS's analyses, the Company
believes that its share of the replacement costs (in 1995 dollars and
including installation and replacement power costs) would be between $10.5
million and $17.5 million, most of which would be incurred after the year
2000. APS expects that the replacement would be performed in conjunction
with a normal refueling outage in order to limit incremental outage time to
approximately 50 days. Based on the latest available data, APS estimates
that the Unit 1 and Unit 3 steam generators should operate for their designed
life of 40 years (until 2025 and 2027, respectively), although APS will
continue its normal periodic assessment of these steam generators.
While APS believes that replacement of the Unit 2 steam generators within
five to ten years will be economically desirable, the Company is not
convinced that future benefits to the Company would exceed the costs of the
replacement, and is evaluating its options in regards to this issue.
Transmission Issues
Ojo Line Extension ("OLE") Transmission Project
As previously reported, plans to construct the OLE transmission line, a
proposed 345 Kv line connecting the existing Ojo 345 Kv line to the Norton
station in northern New Mexico, had faced considerable opposition by persons
concerned primarily about the environmental impacts of the project. OLE was
designed to provide a needed improvement to the Company's northern
transmission system and to allow greater delivery of power into the Company's
two largest service territories, the greater Albuquerque area and the Santa
Fe/Las Vegas area. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES
FACING THE COMPANY--TRANSMISSION ISSUES--OLE Transmission Project" in the
1994 Form 10-K.)
In July 1995, the NMPUC hearing examiner issued a recommended decision,
recommending disapproval of the project. The Company filed exceptions to the
recommended decision on August 7, 1995. The Company strongly believes that
OLE is still the least cost technical solution for the New Mexico bulk power
systems' need that was not contested by the intervenors in this case. The
Company has spent approximately $16 million on the project to date. The
Company has reviewed the costs related to OLE and established accounting
reserves as deemed appropriate. The Company is not able to predict the
outcome of the NMPUC's final decision.
Transmission Right-of-Way
As previously reported, the Company has easements for right-of-way with the
Navajo Nation for portions of several transmission lines that deliver the
Company's generation resources to load centers. One grant of easement for
approximately 4.2 miles of right-of-way for two parallel 345 Kv transmission
lines expired in January 1993. Prior to expiration, the Company had
unsuccessfully attempted 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--TRANSMISSION ISSUES--
Transmission Right-of-Way" in the 1994 Form 10-K.)
The new Navajo Nation Administration recently authorized a negotiating team
to recommence discussions with the Company for settlement of right-of-way
issues. The parties have met three times and are currently drafting the
provisions of a settlement agreement. There are issues remaining to be
resolved. If those issues are resolved, the parties expect to execute the
settlement by September 1, 1995.
Transmission Disputes
The Company receives approximately $14.0 million annually for the provision
of firm transmission service to several customers. Most of these customers,
through various actions, have recently initiated formal Federal Energy
Regulatory Commission ("FERC") investigations into the transmission service
billing units and transmission rates charged by the Company. The Company
believes that the rate reduction allegations are based on erroneous
interpretations of recently proposed FERC pricing policies and is responding
to these allegations according to FERC guidelines. If these various
allegations and alleged rate reductions are approved by the FERC, the
Company's revenues for transmission services could be reduced by as much as
$9.0 million annually. The Company is not able to predict the outcome of this
issue but does not anticipate any material adverse impacts on the Company's
financial condition or results of operation.
Environmental Issues
Santa Fe Station
As previously reported, the New Mexico Environment Department ("NMED") has
been conducting an investigation of the groundwater contamination detected
beneath the Santa Fe Station site to determine the source of the
contamination under a settlement agreement between the Company and the NMED.
(See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE COMPANY--
ENVIRONMENTAL ISSUES--Electric Operations--Santa Fe Station" in the 1994 Form
10-K.)
In May 1995, the Company received a letter from the NMED indicating that the
NMED had made a determination that Santa Fe Station was the source of
gasoline-contaminated groundwater at the site and vicinity. The Company has
contested NMED's determination and believes insufficient data exists to
definitively identify the sources of groundwater contamination. The Company
is continuing to cooperate with the NMED to conduct site investigations to
identify any on site sources of gasoline and other contamination pursuant to
a settlement agreement between the Company and the NMED. Although the
Company is unable to predict the ultimate outcome of the investigation or the
ultimate action by the NMED, after consideration of established reserves, the
Company does not expect that the ultimate resolution of this environmental
issue will have a material adverse effect on the Company's financial
condition or results of operations.
Gas Wellhead Pit Remediation
As previously reported, the New Mexico Oil Conservation Commission ("NMOCC")
issued an order effective on January 14, 1993, that affected the natural gas
gathering facilities located in the San Juan Basin in Northwestern New
Mexico. These facilities werepreviously owned by the Company and Sunterra
Gas Gathering Company ("Gathering Company"), a wholly-owned subsidiary of the
Company. The NMOCC ruling prohibits the further discharge of fluids
associated with the production of natural gas into unlined earthen pits in
certain specified areas of the San Juan Basin. The NMOCC ruling required the
cessation of discharge of production fluids in three specified areas within
specific time frames. In addition, the ruling required the submission of
closure plans for the closure of pits in which production fluids were
previously discharged. The Bureau of Land Management ("BLM") has issued a
similar ruling. The Company and Gathering Company have ceased discharge in
the first two areas identified by the NMOCC and are proceeding to cease
discharge in the final area identified in the NMOCC ruling. The Company and
Gathering Company have also submitted and received approval of their pit
closure plans from the Oil Conversation Division of the New Mexico Energy,
Minerals and Natural Resources Department ("NMOCD"), as well as the BLM.
(See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE COMPANY--
ENVIRONMENTAL ISSUES--Gas Operations--Gas Wellhead Pit Remediation" in the
1994 Form 10-K.) As a result of an agreement reached in connection with the
closing of the sale of gas assets to Williams, the Company and Gathering
Company will proceed to meet the cease discharge requirement for the third
and final area identified in the NMOCC's ruling.
On June 13, 1995, the Company received a letter from the NMOCD directing the
Company to determine if certain unlined discharge pits located at two
specific well sites in San Juan County, New Mexico, have contributed to the
groundwater contamination plume that has been identified at those sites. The
Company has historically operated discharge pits at these well sites. NMOCD
also requested that the Company assess one additional well site in San Juan
County, New Mexico, to determine if there has been contamination of the
groundwater at that site. The Company is proceeding to respond to NMOCD's
directive. Although the Company is unable to predict the ultimate outcome of
this investigation, after consideration of established reserves, the Company
does not expect the ultimate resolution of this environmental matter will
have a material adverse effect on the Company's financial condition or
results of operations.
Possible City Election on Municipalization
A bill regarding possible municipalization was sponsored by two Albuquerque
city councilors calling for a special election to run concurrent with the
October 3, 1995 municipal election. The bill would have included on the
ballot municipalization of the Company's electric distribution system by the
City of Albuquerque (the "City") either by condemnation or a negotiated
purchase. In addition, groups consisting of Concerned Citizens, United We
Stand America and Coalition for Lower Electric Rates, indicated that they
would take this matter to a special election if the proposition was excluded
from the October 3 ballot.
The City Council rejected the municipalization bill at the August 7, 1995
City Council meeting, and no measure will be placed before the voters on the
October 3, 1995 ballot. Whether a task force may be formed as discussed by
the City Mayor, or whether a citizens' initiative will be undertaken for a
special election, remains uncertain at this time.
While the Company remains firmly opposed to a City takeover of the Company's
system, the Company was willing to support a vote at the regular municipal
election in order to determine the sentiment of local voters and to resolve
the issue as quickly as possible.
The Company will continue to participate in any new developments that may
occur and will continue its opposition to a City takeover.
Gas Assets Sale
As previously reported, in February 1994, an agreement was executed with
Williams, for the sale of substantially all of the assets of Gathering
Company and Processing Company, and for the sale of Northwest and Southeast
gas gathering and processing facilities of the Company. (See PART II, ITEM
7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--OTHER ISSUES FACING THE COMPANY--SALE OF GAS GATHERING AND
PROCESSING ASSETS" in the Company's 1994 Form 10-K, PART I, ITEM 2.--
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--OTHER ISSUES FACING THE COMPANY--Gas Assets Sale" in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995
and ITEM 5.--"Other Events--Gas Assets Sale" in the Company's Current Report
on Form 8-K dated June 27, 1995).
On June 30, 1995, the Company and Williams consummated the closing of the gas
gathering and processing assets sale. As a result, the Company and its gas
subsidiaries received approximately $154.1 million from Williams and recorded
an after-tax gain of $13.1 million in the second quarter of 1995.
Sale of SDCW
As previously reported, in February 1994, the Company and the City of Santa
Fe (the "City") executed a purchase and sale agreement for the Company's
water division. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--SALE OF SDCW" in the 1994 Form 10-K.) On July 3, 1995, the closing
of the sale was consummated. As a result, the Company received $51.2 million
(exclusive of current assets netted against current liabilities) from the
sale and will record an after-tax gain of approximately $6.3 million in the
third quarter of 1995. As a part of the sales agreement, the Company will
continue to operate the water utility for up to four years for a fee under a
contract with the City.
El Paso Electric Company ("El Paso") Bankruptcy
As previously reported, El Paso, a joint owner in the PVNGS and Four Corners
Generating Station, has been operating under chapter 11 of the Bankruptcy
Code since 1992. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES
FACING THE COMPANY--El Paso Electric Company Bankruptcy" in the 1994 Form 10-
K.) On June 9, 1995, Central and South West Corporation filed with the
bankruptcy court a revocation of the previously confirmed merger plan
whereby, among other things, certain issues would have been resolved, and El
Paso would have assumed the joint facilities operating agreements.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA")
As previously reported, the Company received a CERCLA Section 104(e) request
for information from the United States Environmental Protection Agency
("EPA") Region VIII regarding the Hansen Container Site in Grand Junction,
Colorado ("Hansen Site"). The EPA investigated the site and requested
information relating to the number and contents of drums, barrels, and other
materials that were sent to the Hansen Site for reconditioning, disposal, or
storage. After an internal investigation, the Company filed its response to
the EPA's request for information on March 2, 1995, and provided information
from the Company's records indicating that the Company sold empty scrap drums
to a drum recycler in the 1980's who has been linked to the Hansen Site by
the EPA. (See PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE
COMPANY--ENVIRONMENTAL ISSUES--Electric Operations--CERCLA" in the 1994 Form
10-K.) On June 30, 1995, the EPA issued its final de minimis settlement
order and final volumetric ranking report, in which EPA identified the
Company as a potentially responsible party for clean-up at the Hansen Site.
The EPA's order offered the Company an opportunity to participate in a de
minimis settlement for the Hansen Site in the amount of approximately $400.
The Company will accept the EPA's offer and participate in the de minimis
settlement for this amount.
Air Permits
As previously reported, on August 30, 1994, the Company submitted its permit
modification application for the Lybrook Gas Processing Plant ("Lybrook").
On November 14, 1994, the Company received a Notice of Violation ("NOV") from
the NMED for Lybrook for alleged violations of air quality control
regulations requiring permits for modification of stationary sources. (See
PART II, ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--OTHER ISSUES FACING THE COMPANY--
ENVIRONMENTAL ISSUES--Gas Operations--Air Permits" in the 1994 Form 10-K.)
In June 1995, the Company accepted a settlement offer from the NMED for the
Lybrook NOV in the amount of $7,000. This constituted final settlement of
the Lybrook NOV.
Sunterra Gas Processing Company, a wholly-owned subsidiary of the Company,
submitted an air permit modification application for the Kutz Canyon Gas
Processing Plant ("Kutz") in the first quarter of 1995. While the Company
cannot be certain, the Kutz filing, which was similar to the Lybrook filing,
may also result in a NOV from the NMED due to apparent permit discrepancies
in the Kutz air permit. To date, the Company has not received notice of a
NOV on the Kutz application. The Company is not able to predict the outcome
of this issue but does not anticipate any material adverse impact on the
Company's financial condition or results of operation.
Archaeological Site Damage
As previously reported, in March 1995, a contractor installing gas pipeline
on behalf of the Company damaged an archaeological site located in the New
Mexico State Highway and Transportation Department ("NMSHTD") right-of-way on
New Mexico State Road 14. The contractor was installing the gas pipeline at
the direction of the Company. The Company notified both the NMSHTD and the
New Mexico State Historic Preservation Office ("SHPO"). The Company
conducted an investigation and provided additional information regarding the
site damage and remedial measures in response to requests from the NMSHTD.
(See PART II, ITEM 1. "LEGAL PROCEEDINGS--Archaeological Site Damage" in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.)
In June 1995, the NMSHTD issued a permit to the Company for the gas pipeline
installed at this location. Both the NMSHTD and the SHPO approved the
Company's proposal for remedial measures at the archaeological site. To
date, there has been no administrative enforcement action taken by either the
NMSHTD or the SHPO. The Company has no reason to believe that any
enforcement action will be undertaken in the future.
ITEM 5. OTHER INFORMATION
Kirtland Air Force Base ("KAFB")
As previously reported, the Company's largest retail customer, KAFB, was
recommended by the Department of the Air Force for realignment, which could
have resulted in a maximum potential reduction of approximately 12,000 jobs
(both direct and indirect) over the 1996-2001 time period in the Bernalillo
County area of New Mexico. (See PART I, ITEM 1.--"BUSINESS--ELECTRIC
OPERATIONS--Service Area and Customers" in the 1994 Form 10-K.)
In July 1995, the Department of Defense reversed its original recommendation
to close KAFB. The President of the United States subsequently affirmed the
Department of Defense's revised recommendation for the base closure and
realignment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
2.2.7 Seventh Amendment to Agreement to Purchase and Sell Between the
City of Santa Fe, New Mexico and Public Service Company of New
Mexico
10.57.1 Amendment No. 1, dated June 7, 1995 to the U.S. $100,000,000
Revolving Credit Agreement Dated as of December 14, 1993 Among
Public Service Company of New Mexico (Borrower) and certain
Banks (Banks) and Chemical Bank and Citibank, N.A. (Co-Agents)
10.64 Agreement for Contract Operation and Maintenance of the City of
Santa Fe Water Supply Utility System, dated July 3, 1995
15.0 Letter Re Unaudited Interim Financial Information
27 Financial Data Schedule
b. Reports on Form 8-K:
Report dated May 22, 1995 and filed June 2, 1995 relating to the sale of
Sangre de Cristo Water Company.
Report dated June 27, 1995 and filed July 19, 1995 relating to the gas
assets sale, the sale of Sangre de Cristo Water Company, application of
a portion of asset sales proceeds and the Ojo Line Extension transmission
project.
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: August 9, 1995 /s/ Donna M. Burnett
-----------------------------------
Donna M. Burnett
Corporate Controller and
Chief Accounting Officer