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, 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 1-6986
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, 1996
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, 1996 and 1995......... 4
Consolidated Balance Sheets--
June 30, 1996 and December 31, 1995.............................. 5
Consolidated Statements of Cash Flows--
Six Months Ended June 30, 1996 and 1995.......................... 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............................................ 12
ITEM 5. OTHER INFORMATION............................................ 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 15
Signature................................................................ 16
2
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, 1996, and the related condensed consolidated statements of earnings for
the three-month and six-month periods ended June 30, 1996 and 1995, and the
condensed consolidated 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 New
Mexico and subsidiaries as of December 31, 1995 (not presented herein), and, in
our report dated February 13, 1996, 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, 1995, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
August 2, 1996
3
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
------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands except per share amounts)
Operating revenues:
Electric $ 154,438 $ 136,698 $ 306,540 $ 278,306
Gas 43,159 51,126 132,961 137,326
Water -- 3,708 -- 6,135
--------- --------- --------- ---------
Total operating revenues 197,597 191,532 439,501 421,767
--------- --------- --------- ---------
Operating expenses:
Fuel and purchased power 40,848 32,923 80,573 64,789
Gas purchased for resale 19,214 20,414 65,703 63,996
Other operation and maintenance 78,582 78,037 151,482 159,248
Depreciation and amortization 18,555 20,737 38,585 41,252
Taxes, other than income taxes 8,598 8,869 17,828 18,538
Income taxes 6,454 5,528 21,509 15,189
--------- --------- --------- ---------
Total operating expenses 172,251 166,508 375,680 363,012
--------- --------- --------- ---------
Operating income 25,346 25,024 63,821 58,755
--------- --------- --------- ---------
Other income and deductions, net of taxes: 1,036 13,118 1,853 14,693
Income before interest charges 26,382 38,142 65,674 73,448
--------- --------- --------- ---------
Interest charges:
Interest on long-term debt 12,118 12,957 24,203 28,391
Other interest charges 722 1,766 1,481 3,454
Net interest charges 12,840 14,723 25,684 31,845
--------- --------- --------- ---------
Net earnings 13,542 23,419 39,990 41,603
Preferred stock dividend requirements 146 1,534 293 3,072
--------- --------- --------- ---------
Net earnings applicable to common stock $ 13,396 $ 21,885 $ 39,697 $ 38,531
========= ========= ========= =========
Average shares of common stock outstanding 41,774 41,774 41,774 41,774
========= ========= ========= =========
Net earnings per share of common stock $ 0.32 $ 0.52 $ 0.95 $ 0.92
========= ========= ========= =========
Dividends paid per share of common stock $ 0.12 $ -- $ 0.12 $ --
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
---------- -----------
(Unaudited)
(In thousands)
ASSETS
Utility plant $2,492,650 $2,467,161
Accumulated provision for depreciation
and amortization (921,468) (892,727)
---------- ----------
Net utility plant 1,571,182 1,574,434
---------- ----------
Other property and investments 35,390 33,433
---------- ----------
Current assets:
Cash 6,157 4,228
Temporary investments, at cost 129,131 95,972
Receivables 121,438 127,642
Income taxes receivable -- 4,792
Fuel, materials and supplies 43,696 44,660
Gas in underground storage 2,670 5,431
Other current assets 9,083 7,186
---------- ----------
Total current assets 312,175 289,911
---------- ----------
Deferred charges 132,927 137,891
---------- ----------
$2,051,674 $2,035,669
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 208,870 $ 208,870
Additional paid-in capital 470,358 470,358
Excess pension liability, net of tax (2,101) (1,623)
Retained earnings since January 1, 1989 54,914 25,243
---------- ----------
Total common stock equity 732,041 702,848
Cumulative preferred stock without mandatory
redemption requirements 12,800 12,800
Long-term debt, less current maturities 712,593 728,843
---------- ----------
Total capitalization 1,457,434 1,444,491
---------- ----------
Current liabilities:
Short-term debt -- --
Accounts payable 84,274 93,666
Dividends payable 5,453 147
Current maturities of long-term debt 16,250 146
Accrued interest and taxes 26,716 26,856
Other current liabilities 38,523 44,552
---------- ----------
Total current liabilities 171,216 165,367
---------- ----------
Deferred credits 423,024 425,811
---------- ----------
$2,051,674 $2,035,669
========== ==========
The accompanying notes are an integral part of these financial statements.
5
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30
------------------
1996 1995
-------- ---------
(In thousands)
Cash Flows From Operating Activities:
Net earnings $39,990 $ 41,603
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization 47,219 49,621
Gain on sale of plant and property -- (28,126)
Accumulated deferred investment tax credit (2,332) (2,325)
Accumulated deferred income tax 20 (40,113)
Changes in certain assets and liabilities:
Receivables 10,996 36,734
Fuel, materials and supplies 3,726 (33,050)
1,895
Deferred charges 4,515 11,418
Accounts payable (9,436) (29,723)
Accrued interest and taxes (140) 46,975
9,075
Deferred credits (5,601) 22,415
Other (7,447) 5,542
Other, net 2,958 3,583
------- ---------
Net cash flows from operating activities 84,468 84,554
------- ---------
Cash Flows From Investing Activities:
Utility plant additions 40,655) (49,127)
Utility plant sales -- 154,087
Other property additions (3,089) (107)
Temporary investments, net 33,159) (85,564)
------- ---------
Net cash flows from investing activities 76,903) 19,289
------- ---------
Cash Flows From Financing Activities:
Redemptions of PV lease obligation bonds -- (132,663)
Redemptions and repurchases of preferred stock -- (208)
Bond redemption premium and costs (196) (253)
Proceeds from asset securitization -- 18,758
Repayments of other long-term debt (179) (28,007)
Net increase in short-term debt -- 35,550
Dividends paid (5,261) (3,076)
------- ---------
Net cash flows from financing activities (5,636) (109,899)
------- ---------
Increase (decrease) in cash 1,929 (6,056)
Cash at beginning of period 4,228 21,029
------- ---------
Cash at end of period $ 6,157 $ 14,973
======= =========
Supplemental Cash Flow Disclosures:
Interest paid $25,205 $ 36,972
======= =========
Income taxes paid, net $25,500 $ 15,200
======= =========
The accompanying notes are an integral part of these financial statements.
6
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 significant 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, 1995 (the "1995 Form
10-K") filed with the Securities and Exchange Commission.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's 1995 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 and
analysis by management focuses on those factors that had a material effect on
the Company's financial condition and results of operations during the three and
six months ended June 30, 1996 and 1995. It should be read in conjunction with
the Company's consolidated financial statements. Trends and contingencies of a
material nature are discussed to the extent known and considered relevant.
Liquidity and Capital Resources
The capital requirements for 1996 were originally projected at $207 million,
including a discretionary cash outlay for debt retirement of $90 million. Due to
the Company's proposed plan for the purchase of up to $300 million of the Palo
Verde Nuclear Generation Station ("PVNGS") lease obligation bonds and Eastern
Interconnection Project ("EIP") secured facility bonds over the next three years
(discussed below), total capital requirements for 1996 have been revised to $317
million. The revised capital requirements contemplate the purchase of $200
million of PVNGS lease obligation bonds during the remainder of 1996, which is
subject to the New Mexico Public Utility Commission ("NMPUC") approval. The
Company spent approximately $41 million for its utility construction
expenditures during the first half of 1996. For the second half of 1996, the
Company anticipates it will spend approximately $74 million for additional
utility construction expenditures.
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. At June 30, 1996, the
Company had available liquidity arrangements of $211 million, consisting of a
$100 million secured revolving credit facility ("Facility"), a $100 million
credit facility collateralized by the Company's utility customer accounts
receivable and certain amounts being recovered from gas customers relating to
certain gas contract settlements ("Accounts Receivable Facility") and $11
million in local lines of credit. The Accounts Receivable Facility has a five
year term. The Facility will expire in June 1998 and includes a maximum allowed
debt to capitalization ratio of 70%. As of June 30, 1996, such ratio was 64.2 %.
In March 1996, the Company filed for the NMPUC approval to purchase up to $300
million of PVNGS lease obligation bonds and/or EIP secured facility bonds over
the next three years. Although these purchases will be accounted for as
investments in securities, the rating agencies will view the Company's debt
leverage as having been reduced. On July 12, 1996, the Company received a
recommended decision from the hearing examiner recommending that the NMPUC
approve the Company's request. The Company is awaiting final decision from the
NMPUC. The Company currently intends to use cash from temporary investments and
liquidity arrangements to fund these purchases.
8
As of June 30, 1996, the Company had approximately $129 million in temporary
investments. On July 8, 1996, the Company requested NMPUC approval to refinance
$23 million of the 1984 series A Pollution Control Revenue Bonds and $77 million
of the 1977 series Pollution Control Revenue Refunding Bonds. The Company
continues to evaluate its investment and debt retirement options to optimize its
financing strategy and earnings potential.
Credit Rating and Dividends
Moody's Investors Service ("Moody's") has recently revised the rating outlook on
the Company to "positive" from "stable" based on planned debt repayments by the
Company over the course of the next three years. Moody's also stated that "to
the extent that management is able to maintain its current focus, Moody's
anticipates a material improvement in the Company's financial profile". In May
1996, the Company resumed the payment of cash dividends on common stock
beginning with a quarterly dividend of 12 cents per common share to stockholders
of record as of May 1, 1996. On June 11, 1996, the Company's board of directors
("Board") declared a quarterly cash dividend of 12 cents per common share,
payable August 23, 1996, to stockholders of record as of August 1, 1996. The
Company's Board reviews the Company's dividend policy on a continuing basis. The
declaration of a common dividend is dependent upon a number of factors including
earnings and financial condition of the Company and market conditions.
RESULTS OF OPERATIONS
Net earnings applicable to common stock decreased $8.5 million ($.20 per share)
for the quarter ended June 30, 1996 from the same quarter of last year due to a
gain, net of tax, of $13.1 million ($.31 per share) recognized from the sale of
certain of the Company's gas assets in June 1995. Net earnings applicable to
common stock for the six months ended June 30, 1996 increased $1.2 million ($.03
per share) from the same period of last year.
Electric gross margin (electric operating revenues less fuel and purchased power
expense) increased $9.8 million and $12.5 million for the quarter and six months
ended June 30, 1996, respectively, from the corresponding periods a year ago.
These increases were attributable to retail load growth and warmer than normal
weather in the second quarter of 1996 and increased off-system sales margin due
to the Company's aggressive marketing strategies aided by the warmer than normal
weather.
Gas gross margin (gas operating revenues less gas purchased for resale)
decreased $6.8 million and $6.1 million for the quarter and six months ended
June 30, 1996, respectively, from the corresponding periods a year ago. The main
contributor to these decreases was the effect of the sale of the gas assets in
1995, which was partially offset by increased off-system sales margin in the
current periods.
The sale of the Company's water division in July 1995 has reduced the current
year operating revenues by $3.7 million and $6.1 million for the quarter and the
six months ended June 30, 1996, respectively.
9
Other operation and maintenance ("O&M") expenses increased $.5 million for the
quarter over the corresponding period a year ago due to increases in (i) labor
expense of $2.7 million and (ii) office supplies and expense and outside
services of $2.7 million. Such increases were offset by the O&M reduction of
$4.3 million resulting from the sales of the water division and certain gas
assets and decreased employee benefits expense of $1.2 million.
Other O&M expenses for the six months ended June 30, 1996 decreased $7.8 million
from the corresponding period last year due to (i) a reduction in O&M expense of
$8.8 million resulting from the sales of the water division and certain gas
assets in 1995, (ii) an adjustment of $3.4 million for retirees' health care
costs in 1996, and (iii) decreased other employee benefits expense of $2.0
million. Offsetting such decreases were (i) increased office supplies and
expense and outside service expense of $4.3 million and (ii) increased labor
expense of $2.7 million.
Depreciation and amortization expenses decreased $2.2 million and $2.7 million
for the quarter and six months ended June 30, 1996, respectively, from the
corresponding periods a year ago as a result of the sale of the Company's water
division and gas assets in 1995 and an adjustment recorded in the second quarter
of 1996 for the over amortization of certain intangible utility plant.
Operating income taxes for the quarter and six months ended June 30, 1996
increased $.9 million and $6.3 million, respectively, over the corresponding
periods a year ago due to increased pre-tax earnings for the current periods.
Other income and deductions, net of taxes, for the quarter and six months ended
June 30, 1996 decreased $12.1 million and $12.8 million, respectively, from the
corresponding periods a year ago. Significant items, net of taxes, for the 1995
quarter included the gain of $13.1 million from the gas assets sale in June 1995
and income of $1.4 million related to adjusting reclamation reserves for certain
mining operations. Offsetting such decreases was an additional 1995 regulatory
reserve of $1.5 million. In addition, year-to-date 1995 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 offset by an after-tax write off
of debt retirement costs of $.9 million.
Net interest charges decreased $1.9 million and $6.2 million for the quarter and
six months ended June 30, 1996, respectively, from the corresponding periods a
year ago. The quarter decrease was due to the higher short term borrowings
incurred for the retirement of the PVNGS lease obligation bonds of $132.7
million in 1995. The six month decrease also resulted from the retirement of the
PVNGS lease obligation bonds in March 1995.
Preferred stock dividend requirements decreased $1.4 million and $2.8 million
for the quarter and six months ended June 30, 1996, respectively, from the
corresponding periods a year ago due to the retirement of $64 million of
preferred stock in August 1995.
10
OTHER ISSUES FACING THE COMPANY
Gas Rate Case
As previously reported, in August 1995, the Company filed a request for a $13.3
million increase for its retail natural gas sales and transportation rates. The
NMPUC Staff and intervenors in the case filed their testimony in January 1996.
The NMPUC Staff recommended a $2.5 million rate decrease and the New Mexico
Attorney General ("AG") recommended a $13.2 million rate decrease. (See PART II,
ITEM 7.--"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--OTHER ISSUES FACING THE COMPANY--GAS RATE CASE" in the
1995 Form 10-K.)
In March 1996, a stipulated agreement was entered into by the Company, NMPUC
Staff, the AG and the Regents of the University of New Mexico, whereby the
Company agreed not to seek a rate increase in this case but would be allowed to
recover certain deferred costs incurred through July 1, 1996. It also imposed
certain conditions on the Company's transportation customers. Many of the
transportation customers opposed the stipulation. In April 1996, the NMPUC
issued an order, rejecting a hearing of the proposed settlement and adopting a
procedure for hearings on the Company's originally proposed $13.3 million rate
increase.
The hearings which began on May 6, 1996 have been completed. The Company is
currently awaiting the hearing examiner's recommended decision which is expected
before mid-August and the NMPUC's final order is expected before mid-September.
The Company is currently unable to predict the ultimate outcome of this
proceeding.
Santa Fe Station
As previously reported, the New Mexico Environment Department ("NMED") was
conducting an investigation of the groundwater contamination detected beneath
the former Santa Fe Generating Station ("Santa Fe Station") site to determine
the source of the contamination. The Company has been and is continuing to
cooperate with the NMED site investigation pursuant to a settlement agreement
between the Company and the NMED. In May 1995, the NMED notified the Company
that the NMED had determined that the Santa Fe Station was the source of
gasoline contaminated groundwater at the site and vicinity. The Company
contested the NMED's determination and believes insufficient data exists to
identify the sources of groundwater contamination. At the request of the NMED,
the Company conducted a minimum site assessment ("MSA") of the two former
underground storage tank sites at the Santa Fe Station under the settlement
agreement. The MSA report, which indicated that the Santa Fe Station did not
appear to have been a source of gasoline contamination, was submitted to the
NMED and is currently pending NMED review. (See PART II, ITEM 7.--"MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-- OTHER
ISSUES FACING THE COMPANY" in the 1995 Form 10-K.)
On June 24, 1996, the Company received a letter from the NMED, indicating that
the NMED believes that the Company is the source of gasoline contamination in a
municipal well supplying the City of Santa Fe and the groundwater underlying the
Santa Fe Station. Further, the letter stated that the Company was required to
proceed with interim remediation of the contamination pursuant to the New Mexico
Water Quality Control Commission ("NMWQCC") regulations. The Company intends to
vigorously contest and defend against this determination. In that respect, the
11
Company has invoked the dispute resolution process of the settlement agreement
and filed an administrative appeal of this determination with the NMWQCC.
Concurrently with this appeal, the Company and the NMED have engaged in
settlement discussions for possible resolution of this dispute. These
discussions are ongoing and the Company is currently unable to predict the
ultimate outcome of the settlement discussions.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Republic Savings Bank ("RSB") Litigation
On July 1, 1996, in a 7-2 decision in the case of United States v. Winstar
Corporation, the United States Supreme Court ruled that the federal government
had breached its contractual obligations with certain thrifts in refusing to
recognize the accounting practices of supervisory goodwill and capital credits.
Contracts had been negotiated with certain federal agencies providing for the
purchase of failing thrifts on the condition that supervisory goodwill and
capital credits be recognized for purposes of determining compliance with
regulatory capital requirements. When Congress enacted the Financial
Institutions Reform, Recovery and Enforcement Act ("FIRREA") in 1989, these
accounting practices were prohibited, thus driving otherwise healthy thrifts out
of compliance with the capital requirements. Many, including RSB, were taken
over and liquidated as a result.
Meadows owns indirectly a 50% ownership interest in Republic Holding Company
("RHC"), and RSB was a wholly-owned subsidiary of RHC. Meadows and RHC have
pending before the United States Court of Federal Claims, a lawsuit filed on
April 13, 1992, alleging similar contractual arrangements to those at issue in
the Winstar case. The federal government has filed a counterclaim alleging
breach by RHC of its obligation to maintain RSB's net worth and has moved to
dismiss Meadows' claim for lack of standing.
RSB was the thrift organized upon the acquisition of Citizens Federal Savings
and Loan Association and Fireside Federal Savings and Loan Association, both
Illinois corporations, in 1985. The plaintiffs invested $17 million of new
capital in the failing institutions. The federal regulators expressly promised
that approximately $23 million of supervisory goodwill created by the
transaction could be accounted for as an intangible asset to be counted toward
regulatory capital. Additionally, the regulators promised to allow a $3 million
cash contribution by the Federal Savings and Loan Insurance Corporation to be
recorded as a direct credit to regulatory capital. On June 5, 1992, the Office
of Thrift Supervision placed RSB in receivership and appointed the Resolution
Trust Corporation ("RTC") as receiver. On November 6, 1992, RTC sold RSB as a
going concern for a premium of nearly $1 million, with approximately $215.5
million in assets and $203.9 million in liabilities.
The RSB case has been held in abeyance pending the ruling by the Supreme Court.
The Company believes that the Winstar decision establishes the federal
government's liability to Meadows and RHC in the RSB litigation and the amount
of damages owed as a result will be vigorously litigated. It is premature to
estimate the amount of recovery, if any, by Meadows and RHC.
12
PVNGS Property Taxes
As previously reported, in November 1995, the Arizona Court of Appeals held that
an Arizona state property tax law, effective December 31, 1989, is
unconstitutional and a lawsuit filed by the PVNGS participants, including the
Company, was returned to the Arizona Tax Court for determination of the
appropriate remedy consistent with that decision. (See PART I, ITEM 3.--"LEGAL
PROCEEDINGS--PVNGS PROPERTY TAXES" in the 1995 Form 10-K.) In April 1996, the
participants and the Arizona Department of Revenue reached an agreement to
settle the pending litigation. Pursuant to the tentative settlement, the Company
will relinquish its claims for relief with respect to prior years and the
defendants will not challenge the Court of Appeals' decision concerning
prospective relief (for tax years 1996 and thereafter).
On July 18, 1996, the Arizona legislature passed, and the Governor of Arizona
subsequently signed, a property tax reduction which codifies the terms of the
settlement. Final documents are currently being prepared for the signatures of
the parties to this action. The result of the legislation and the settlement
would be a reduction in the Company's Arizona property tax of approximately $3.5
million annually beginning in 1996 and extending at least three years, barring
any subsequent changes in the applicable tax law.
ITEM 5. OTHER INFORMATION
Energy and Utility Related Subsidiaries
As previously reported, in June 1995, the Company filed an application for
authorization for the creation of three wholly-owned subsidiaries and sought
approval to invest a maximum of $50 million in the three subsidiaries over time
and to enter into reciprocal loan agreements for up to $30 million with these
subsidiaries. In January 1996, the hearing examiner assigned to the case
recommended that the NMPUC deny the Staff's motion to have the case dismissed.
In February 1996, the NMPUC Staff filed a motion seeking to have the Company
report on its non-regulated activities, explain why NMPUC approval is not
required and why sanctions should not be considered if approval is required. The
Company filed its response describing its activities and presented legal
authority demonstrating its compliance with the New Mexico Public Utility Act.
(See PART 1, ITEM 1.--"BUSINESS--RATES AND REGULATION--Energy and Utility
Related Subsidiaries" in the 1995 10-K.)
In March 1996, the NMPUC issued an order adopting the hearing examiner's
recommendation and denied NMPUC Staff's motion to dismiss the case. On July 8,
1996, hearings in the case began and were concluded on July 19, 1996. The
Company currently cannot predict the ultimate outcome of this proceeding but
intends to vigorously defend against any allegation that it is in violation of
any legal requirements.
Proposed Rulemaking
On June 5, 1995, the NMPUC issued a Notice of Inquiry ("NOI") seeking comments
on whether and how NMPUC Rule 450, which governs affiliate transactions, should
be revised. On June 3, 1996, the NMPUC issued its Notice of Proposed Rulemaking
and Order on the NOI proposing certain amendments to NMPUC Rule 450 and seeking
comments and suggested language changes to its proposed amendments by August 5,
13
1996. The proposed amendments would, in effect, limit the Company's non-utility
business ventures. The Company will vigorously oppose these limitations and
intends to file comments and suggested language changes. The Company contends
that many of the proposed amendments are unwarranted or prohibited under the New
Mexico Public Utility Act.
Gas Transmission Pipeline
As previously reported, in May 1996, the Company submitted a bid for acquiring a
gas transmission pipeline from the Department of Energy ("DOE") which had issued
a request for proposal for the sale of 130 miles of transmission pipeline and
associated right-of-way ("DOE pipeline"). The Company currently leases the DOE
pipeline from the DOE for transportation of natural gas to certain customers in
northern New Mexico, including the county of Los Alamos and Los Alamos National
Laboratory. (See PART I, ITEM 2.--"PROPERTIES--NATURAL GAS" in the 1995 Form
10-K.) On June 21, 1996, the DOE accepted the Company's proposal to purchase the
DOE pipeline for $3.1 million, subject to the successful negotiations of the
transfer and transitional transportation agreements. The acquisition by the
Company is subject to the approval of the NMPUC and the DOE providing
right-of-way satisfactory to the Company. The parties are working to close the
transaction by September 30, 1996.
Palo Verde Nuclear Generating Station
On July 5, 1996, the Nuclear Regulatory Commission ("NRC") issued a Systematic
Assessment of Licensee Performance ("SALP") for PVNGS. The SALP report evaluates
the station's performance as it relates to safe operation of nuclear power
generation for the period of December 1, 1994 through June 1, 1996. The SALP
reports rate nuclear plants in four functional areas--plant operations,
maintenance, engineering and plant support, and assign ratings of category 1, 2
or 3, reflecting "superior", "good" or "adequate" performance, respectively. The
NRC rated PVNGS "superior" in the areas of operations, maintenance and
engineering, and "good" in the area of plant support. In the previous SALP
report issued in December 1994, all four areas of PVNGS were rated as "good".
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10.56.1 Amended and Restated Receivables Purchase Agreement dated
May 20, 1996, between Public Service Company of New Mexico,
Citibank and Citicorp North America, Inc., and Amended
Restated Collection Agent Agreement dated May 20, 1996,
between Public Service Company of New Mexico, Corporate
Receivables Corporation and Citibank, N.A.
15.0 Letter Re Unaudited Interim Financial Information
27 Financial Data Schedule
In addition to those exhibits listed above, the Company hereby
incorporates the following exhibits pursuant to Exchange Act Rule 126-32
and Regulation S-K, section iv, paragraph (d):
Description Filed as Exhibit
First Restated and Amended Public Service 99.1 of the Form S-8 Registration
Company of New Mexico Director Retainer Plan Statement No. 333-03303 filed May
8, 1996.
First Restated and Amended Public Service 99.1 of the Form S-8 Registration
Company of New Mexico Performance Stock Statement No. 333-03289 filed May
Plan 8, 1996.
b. Reports on Form 8-K:
None.
15
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 2, 1996 /s/ Donna M. Burnett
------------------------------------
Donna M. Burnett
Corporate Controller and
Chief Accounting Officer
(Officer duly authorized to sign this report)
16