UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
(X) COMBINED QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
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: 1-8847
TNP ENTERPRISES, INC.
---------------------
(Exact name of registrant as specified in its charter)
Texas 75-1907501
- ------------------------ --------------------------------------
(State of incorporation) (I.R.S. employer identification number)
4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code 817-731-0099
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 \ \
TNP Enterprises, Inc. had 13,061,689 shares of common stock outstanding as of
April 28, 1997.
- --------------------------------------------------------------------------------
Commission File Number: 2-97230
TEXAS-NEW MEXICO POWER COMPANY
(Exact name of registrant as specified in its charter)
Texas 75-0204070
- ------------------------ ---------------------------------------
(State of incorporation) (I.R.S. employer identification number)
4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code 817-731-0099
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 \ \
TNP Enterprises, Inc. holds all 10,705 outstanding common shares of Texas-New
Mexico Power Company.
TNP Enterprises, Inc. And Subsidiaries
Texas New-Mexico Power Company And Subsidiaries
Combined Quarterly Report on Form 10-Q for the period ended March 31, 1997
This Combined Quarterly Report on Form 10-Q is filed separately by TNP
Enterprises, Inc., and Texas-New Mexico Power Company. Texas-New Mexico Power
Company makes no representation as to information relating to TNP Enterprises,
Inc., except as it may relate to Texas-New Mexico Power Company, or to any other
affiliate or subsidiary of TNP Enterprises, Inc.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements.
(Unaudited for Periods Ended March 31, 1997, and 1996)
TNP Enterprises, Inc. (TNP) and Subsidiaries:
Consolidated Statements of Income
Three Month Periods Ended March 31, 1997, and 1996 3
Consolidated Statements of Cash Flows
Three Month Periods Ended March 31, 1997, and 1996 4
Consolidated Balance Sheets
March 31, 1997, and December 31, 1996 5
Texas-New Mexico Power Company (TNMP) and Subsidiaries:
Consolidated Statements of Income
Three Month Periods Ended March 31, 1997, and 1996 6
Consolidated Statements of Cash Flows
Three Month Periods Ended March 31, 1997, and 1996 7
Consolidated Balance Sheets
March 31, 1997, and December 31, 1996 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 5. Other Information. 13
Item 6. Exhibits and Reports on Form 8-K. 13
(a) Exhibit Index 13
(b) Reports on Form 8-K 13
Signature page 14
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------------------------------
1997 1996
--------------------- --------------------
(In thousands except per share amounts)
OPERATING REVENUES $ 128,397 $ 99,827
--------------------- --------------------
OPERATING EXPENSES:
Purchased power 58,347 32,635
Fuel 9,969 11,055
Other operating and general expenses 19,609 17,950
Maintenance 3,012 2,737
Depreciation 9,665 9,695
Taxes other than income taxes 7,994 7,351
Income taxes 1,378 618
--------------------- --------------------
Total operating expenses 109,974 82,041
--------------------- --------------------
NET OPERATING INCOME 18,423 17,786
--------------------- --------------------
OTHER INCOME:
Other income and deductions, net 199 208
Income taxes (1) (85)
--------------------- --------------------
Other income, net of taxes 198 123
--------------------- --------------------
INCOME BEFORE INTEREST CHARGES 18,621 17,909
--------------------- --------------------
INTEREST CHARGES:
Interest on long-term debt 13,506 16,569
Other interest and amortization of
debt-related costs 1,005 778
--------------------- --------------------
Total interest charges 14,511 17,347
--------------------- --------------------
NET INCOME 4,110 562
Dividends on preferred stock 40 42
--------------------- --------------------
INCOME APPLICABLE TO COMMON STOCK $ 4,070 $ 520
===================== ====================
EARNINGS PER SHARE OF COMMON STOCK $ 0.31 $ 0.05
===================== ====================
DIVIDENDS PER SHARE OF COMMON STOCK $ 0.245 $ 0.22
===================== ====================
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 13,141 10,986
===================== ====================
The accompanying notes are an integral part of these consolidated financial statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
------------------------------------------
1997 1996
------------------ --------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 130,089 $ 100,052
Purchased power (55,719) (39,758)
Fuel costs paid (9,503) (10,998)
Cash paid for payroll and to other suppliers (33,494) (25,302)
Interest paid, net of amounts capitalized (20,828) (25,407)
Income taxes paid 874 (8,386)
Other taxes paid, net of amounts capitalized (16,110) (16,845)
Other operating cash receipts and payments, net 882 1,636
------------------ --------------------
NET CASH USED IN OPERATING ACTIVITIES (3,809) (25,008)
------------------ --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of capitalized
depreciation and interest (5,818) (6,460)
Additions to other property and nonregulated
investments (2,806) -
------------------ --------------------
NET CASH USED IN INVESTING ACTIVITIES (8,624) (6,460)
------------------ --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (3,238) (2,453)
Borrowings (repayments) under revolving credit
facilities 120,000 30,000
Common stock issuances 1,678 934
Redemptions:
Other long-term debt (19) -
First mortgage bonds (100,800) (120)
----------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,621 28,361
----------------- -------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,188 (3,107)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,387 21,105
----------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,575 $ 17,998
================= ===================
RECONCILIATION OF NET INCOME TO NET
CASH USED IN OPERATING ACTIVITIES:
Net income $ 4,110 $ 562
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,665 9,695
Amortization of debt-related costs and
other deferred charges 967 1,122
Allowance for borrowed funds used during
construction (13) (39)
Deferred income taxes (excluding effect
of change in accounting) 290 901
Investment tax credits 241 (267)
Cash flows impacted by changes in current assets
and liabilities:
Deferred purchased power and fuel costs 2,072 (5,688)
Accrued interest (7,271) (7,252)
Accrued taxes (6,394) (17,780)
Accounts payable (4,101) (4,854)
Changes in other current assets and
liabilities (5,621) (1,045)
Other, net 2,246 (363)
----------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES $ (3,809) $ (25,008)
================= ===================
The accompanying notes are an integral part of these consolidated financial statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 December 31,
(Unaudited) 1996
--------------- ----------------
(In thousands)
ASSETS
UTILITY PLANT:
Electric plant $ 1,219,419 $ 1,215,355
Construction work in progress 819 906
--------------- ----------------
Total 1,220,238 1,216,261
Less accumulated depreciation 290,078 282,322
--------------- ----------------
Net utility plant 930,160 933,939
--------------- ----------------
OTHER PROPERTY AND INVESTMENTS, at cost 6,678 3,927
--------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents 13,575 8,387
Customer receivables 14,846 16,362
Inventories, at lower of average cost or market:
Fuel 534 367
Materials and supplies 6,079 6,384
Deferred purchased power and fuel costs 3,766 3,565
Accumulated deferred income taxes 4,730 1,937
Other current assets 1,432 1,121
--------------- ----------------
Total current assets 44,962 38,123
--------------- ----------------
DEFERRED CHARGES 31,050 30,795
--------------- ----------------
$ 1,012,850 $ 1,006,784
=============== ================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock - no par value per share.
Authorized 50,000,000
shares; issued 13,053,102 shares
in 1997 and 13,006,492 in 1996 $ 185,449 $ 183,771
Retained earnings 95,575 94,703
--------------- ----------------
Total common shareholders' equity 281,024 278,474
Preferred stock 3,420 3,420
Long-term debt, less current maturities 553,145 533,964
--------------- ----------------
Total capitalization 837,589 815,858
--------------- ----------------
CURRENT LIABILITIES:
Current maturities of long-term debt 138 138
Accounts payable 24,345 28,446
Accrued interest 3,608 10,879
Accrued taxes 12,439 18,833
Customers' deposits 2,838 2,662
Deferred purchased power costs 2,273 -
Other current liabilities 7,450 11,797
--------------- ----------------
Total current liabilities 53,091 72,755
--------------- ----------------
REGULATORY TAX LIABILITIES 10,462 10,963
ACCUMULATED DEFERRED INCOME TAXES 78,428 74,844
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 19,974 19,734
DEFERRED CREDITS 13,306 12,630
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
--------------- ----------------
$ 1,012,850 $ 1,006,784
=============== ================
The accompanying notes are an integral part of these consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
------------------------------------
1997 1996
----------------- -----------------
(In thousands)
OPERATING REVENUES $ 126,223 $ 99,827
----------------- -----------------
OPERATING EXPENSES:
Purchased power 58,347 32,635
Fuel 9,969 11,055
Other operating and general expenses 15,758 17,950
Maintenance 3,012 2,737
Depreciation of utility plant 9,610 9,695
Taxes other than income taxes 7,795 7,351
Income taxes 2,065 618
----------------- -----------------
Total operating expenses 106,556 82,041
----------------- -----------------
NET OPERATING INCOME 19,667 17,786
----------------- -----------------
OTHER INCOME:
Other income and deductions, net 159 296
Income taxes (1) (116)
----------------- -----------------
Other income, net of taxes 158 180
----------------- -----------------
INCOME BEFORE INTEREST CHARGES 19,825 17,966
----------------- -----------------
INTEREST CHARGES:
Interest on long-term debt 13,506 16,569
Other interest and amortization of
debt-related costs 1,005 778
----------------- -----------------
Total interest charges 14,511 17,347
----------------- -----------------
NET INCOME 5,314 619
Dividends on preferred stock 40 42
----------------- -----------------
INCOME APPLICABLE TO COMMON STOCK $ 5,274 $ 577
================= =================
The accompanying notes are an integral part of these consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
------------------------------------
1997 1996
------------------ ---------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 129,737 $ 100,052
Purchased power (55,719) (39,758)
Fuel costs paid (9,503) (10,998)
Cash paid for payroll and to other suppliers (27,548) (25,138)
Interest paid, net of amounts capitalized (20,828) (25,407)
Income taxes paid 3 (8,499)
Other taxes paid, net of amounts capitalized (16,852) (16,845)
Other operating cash receipts and payments, net 846 1,723
------------------ ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 136 (24,870)
------------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant, net of capitalized
depreciation and interest (5,818) (6,460)
Additions to other property and investments - -
------------------ ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES (5,818) (6,460)
------------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (9,040) (2,442)
Borrowings (repayments) under revolving credit facilities 120,000 30,000
First mortgage bond redemption (100,800) (120)
------------------ ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,160 27,438
------------------ ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,478 (3,892)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,115 14,450
------------------ ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,593 $ 10,558
================== ===============
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 5,314 $ 619
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of utility plant 9,610 9,695
Amortization of debt-related costs and other
deferred charges 967 1,122
Allowance for borrowed funds used during construction (13) (39)
Deferred income taxes (467) 884
Investment tax credits 334 (262)
Cash flows impacted by changes in current assets and
liabilities:
Deferred purchased power and fuel costs 2,072 (5,688)
Accounts payable (4,819) (4,854)
Accrued interest (7,271) (7,252)
Accrued taxes (6,855) (17,878)
Changes in other current assets and liabilities (1,500) (882)
Other, net 2,764 (335)
------------------ ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 136 $ (24,870)
================== ===============
The accompanying notes are an integral part of these consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED BALANCE SHEETS
March 31, 1997 December 31,
(Unaudited) 1996
-------------- ---------------
(In thousands)
ASSETS
UTILITY PLANT:
Electric plant $ 1,219,419 $ 1,215,355
Construction work in progress 819 906
-------------- ---------------
Total 1,220,238 1,216,261
Less accumulated depreciation 290,078 282,322
-------------- ---------------
Net utility plant 930,160 933,939
-------------- ---------------
OTHER PROPERTY AND INVESTMENTS, at cost 1,884 1,884
-------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents 9,593 5,115
Customer receivables 12,183 15,521
Inventories, at lower of average cost or market:
Fuel 534 367
Materials and supplies 6,079 6,384
Deferred purchased power and fuel costs 3,766 3,565
Accumulated deferred income taxes 4,730 1,937
Other current assets 921 1,324
-------------- ---------------
Total current assets 37,806 34,213
-------------- ---------------
DEFERRED CHARGES 30,935 32,121
-------------- ---------------
$ 1,000,785 $ 1,002,157
============== ===============
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholder's equity:
Common stock, $10 par value per share.
Authorized 12,000,000 shares;
issued 10,705 shares $ 107 $ 107
Capital in excess of par value 222,133 222,133
Retained earnings 61,582 65,308
-------------- ---------------
Total common shareholder's equity 283,822 287,548
Redeemable cumulative preferred stock 3,420 3,420
Long-term debt, less current maturities 553,000 533,800
-------------- ---------------
Total capitalization 840,242 824,768
-------------- ---------------
CURRENT LIABILITIES:
Current maturities of long-term debt 100 100
Accounts payable 22,435 27,254
Accrued interest 3,608 10,879
Accrued taxes 10,046 16,901
Customers' deposits 2,838 2,662
Deferred purchased power costs 2,273 -
Other current liabilities 7,287 10,993
-------------- ---------------
Total current liabilities 48,587 68,789
-------------- ---------------
REGULATORY TAX LIABILITIES 10,462 10,963
ACCUMULATED DEFERRED INCOME TAXES 68,689 65,860
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 19,499 19,164
DEFERRED CREDITS 13,306 12,613
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
-------------- ---------------
$ 1,000,785 $ 1,002,157
============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
TNP Enterprises Inc. and Subsidiaries
Texas-New Mexico Power Company and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Interim Financial Statements
The interim consolidated financial statements of TNP and subsidiaries,
and TNMP and subsidiaries are unaudited, and contain all adjustments (consisting
primarily of normal recurring accruals) necessary for a fair statement of the
results for the interim periods presented. Results for interim periods are not
necessarily indicative of results to be expected for a full year or for
previously reported periods due in part to seasonal revenue fluctuations. It is
suggested that these consolidated financial statements be read in conjunction
with the audited consolidated financial statements and notes thereto included in
TNP's and TNMP's 1996 Combined Annual Report on Form 10-K.
Note 2. Income Taxes
As indicated in the 1996 Combined Annual Report on Form 10-K, an
Internal Revenue Service revenue agent involved in auditing TNP's 1990 and 1991
consolidated federal income tax returns recommended, in March 1995, that a
private letter ruling concerning eligibility of the TNP One generating plant for
investment tax credit (ITC) be revoked retroactively. Management believes that
TNMP's claim for ITC is valid and is contesting the agent's recommendation. Of
the $22.5 million of ITC at issue, TNP and its subsidiaries have utilized $8.2
million in the consolidated returns through 1995 and expect to utilize $1.6
million in the 1996 consolidated tax returns. TNMP's portion is $7.0 million and
$1.8 million respectively. However, since 1990, TNP and TNMP have only
recognized $2.3 million of the amortization of ITC in results of operations.
Note 3. Regulatory Matters
Cities Rate Review
Beginning in late December 1996, certain cities in the Texas gulf coast
area served by TNMP passed resolutions requiring TNMP to file complete rate
information with those cities. During the first quarter of 1997 those cities
agreed to reopen negotiations on a new transition to competition proposal and
have deferred the required rate filing until July 1, 1997. If negotiations on
the new transition to competition proposal are not successful and the rate
filings are made, TNMP does not anticipate a final resolution of the rate review
with the cities before late 1997. Based on its preliminary analysis, TNMP
believes the filing will support the reasonableness of TNMP's current rates.
Texas Transmission Access
During 1996, the Public Utility Commission of Texas (PUCT) passed a
wholesale transmission access rule which established a regional method of
transmission pricing, terms, and conditions. The purpose is to increase
competition in wholesale energy sales within Texas and establish an Independent
System Operator for the Electric Reliability Council of Texas transmission
system. TNMP believes it will benefit from the new rules as competition should
increase in the wholesale power market and result in reduced purchased power and
wheeling costs. The new transmission fee structure was scheduled to start in
early 1997. However, during the first quarter of 1997 several Texas utilities
unsuccessfully petitioned the PUCT to revise the new transmission rules, and an
appeal has been filed in a state district court. Until the new transmission
rules are recognized as being final, TNMP has not recorded the benefits of the
new transmission rules.
Note 4. Accounting for the Effects of Regulation
TNP's and TNMP's consolidated financial statements reflect the
application of certain accounting standards, including Statement of Financial
Accounting Standard (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation," which provide for recognition of the economic effects of rate
regulation. On April 18, 1997, the New Mexico Public Utility Commission (NMPUC)
issued an order approving TNMP's plan for transition to competition in New
Mexico. During the first quarter of 1997, TNMP proposed a new plan for
transition to competition to the communities within TNMP's service territory in
Texas. Additional information regarding these two transition plans is provided
under "MD&A--Regulatory Matters." Continued applicability of SFAS 71 to TNP's
and TNMP's financial statements requires that rates set by an independent
regulator on a cost-of-service basis can actually be charged to and collected
from customers. Management believes that as of March 31, 1997, and for the
foreseeable future, TNP and TNMP satisfy the criteria for accounting in
accordance with SFAS 71.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (MD&A).
The following discussion should be read in conjunction with the related
interim consolidated financial statements and notes.
Results Of Operations
Overall Results
TNP's earnings applicable to common stock were $4.1 million for the
quarter ended March 31, 1997. Earnings increased $3.6 million when compared to
the corresponding 1996 quarter, primarily due to a reduction in interest
expense, control area savings, and additional base revenue from industrial and
commercial sales at TNMP.
Facility Works Inc. (Facility Works), a wholly owned subsidiary of TNP,
began operations in early 1996, and provides energy-related services and
products to commercial and institutional customers. For the quarter ended March
31, 1997, Facility Works had a net loss of $1.0 million on revenues of $2.2
million. Facility Works had no net income or loss in the first quarter of 1996.
Since the operations of TNMP (the principal subsidiary) currently
represent most of TNP's operations, the following discussion focuses on TNMP's
operations unless noted otherwise.
Operating Revenues
TNMP's operating revenues increased $26.4 million as compared to the
corresponding 1996 quarter. Current quarter base revenues increased $3.3
million, or 5.9%, compared to the corresponding 1996 period. Base revenues
increased due to the additional economy rate sales and higher commercial sales
discussed below. The components of TNMP's operating revenues are summarized in
the following table (in thousands):
Three Months Ended March 31,
Increase
1997 1996 (Decrease)
--------- ---------- ----------
Operating revenues $ 126,223 $ 99,827 $ 26,396
Less pass-through items 67,542 44,406 23,136
--------- ---------- ---------
Base revenues $ 58,681 $ 55,421 $ 3,260
========= ========== =========
Base revenues
Weather related $ (572)
Price - sales mix and other 397
Customer growth 851
Industrial - economy rate sales 1,961
Industrial - firm rate sales (278)
Standby revenues - nonindustrial 818
Other electric revenue 83
---------
$ 3,260
=========
Pass-through items are the portion of operating revenues that recover
the costs of purchased power, fuel, and standby power from customers. These
items affect customer rates but do not affect operating income. Explanations for
the first quarter variance are discussed under "Results of Operations --
Operating Expenses."
Current quarter GWH sales increased by 663 GWH, or 41.6%. The increase
was attributed primarily to economy rate sales which are low margin, high
volume, and generally short-term. The majority of the increase in economy rate
sales was due to contractual agreements entered into with two existing
cogeneration customers in mid-1996.
The components of gigawatt-hours (GWH) sales are summarized in the
following table:
Three Months Ended March 31,
---------------------------
Increase
1997 1996 (Decrease)
---- ---- ----------
GWH sales:
Residential 494 498 (4)
Commercial 380 370 10
Industrial:
Firm 267 326 (59)
Economy 1,061 374 687
Other 55 26 29
-------- --------- --------
Total GWH sales 2,257 1,594 663
======== ========= ========
Current quarter sales of 2,257 GWH's, increased over the corresponding
1996 quarter sales of 1,594 GWH's due to increased industrial economy sales.
Contributing to the 89.8% industrial sales increase were contractual agreements
entered into with two existing cogeneration customers in mid-1996.
Operating Expenses
Total operating expenses for the current quarter increased by $24.5
million as compared to the same quarter last year primarily due to an increase
in pass-through expenses. The components of TNMP's operating expenses are
summarized in the following table (in thousands):
Three Months Ended March 31,
---------------------------
Increase
1997 1996 (Decrease)
---- ---- ----------
Pass-through expenses:
Purchased power $ 58,347 $ 32,635 $ 25,712
Standby power - 1,555 (1,555)
Fuel 9,195 10,216 (1,021)
-------- -------- ---------
Total pass-through items 67,542 44,406 23,136
Other operating expenses 29,154 29,666 (512)
Income and other tax expenses 9,860 7,969 1,891
-------- -------- ---------
Operating expenses $106,556 $ 82,041 $ 24,515
======== ======== =========
Pass-through Expenses
Pass-through expenses consist of purchased power, standby power, and
certain fuel costs. Current quarter pass-through expenses increased due to
higher purchased power costs.
Purchased Power. Purchased power costs, including standby, increased by
$24.2 million in the current quarter due primarily to increased power
requirements to meet higher GWH sales. The first quarter of 1996 was reduced by
supplier refunds of $6.7 million which were passed through to Texas customers.
Fuel. The decrease in the current quarter of $1.0 million is attributed
to a reduction in firm rate industrial sales. Fuel cost recovery is excluded
from economy rate sales. The majority of TNMP's monthly fuel costs are recovered
in revenues through a fixed fuel factor per KWH approved by the PUCT. TNMP
records as fuel expense the amount collected through this fixed fuel factor. Any
difference between the amount collected and actual cost is deferred for
collection/refund in future periods.
Other Operating Expenses, Income and Other Tax Expenses
Other operating expenses for the current quarter were approximately the
same as the prior year quarter.
Current quarter income and other tax expenses increased by $1.9
million. The increases are due to higher pre-tax income and additional gross
receipts taxes.
Interest Expense
Interest charges decreased by $2.8 million. The decrease is attributed
to reduced long-term debt levels and refinancing of debt. Borrowings under the
revolving credit facilities and an equity contribution from TNP in late 1996,
resulting from a common stock sale, were used to redeem TNMP's higher interest
rate bonds.
Financial Condition
Liquidity
Currently, the main sources of liquidity for TNMP are cash flow from
operations and borrowings from credit facilities. TNMP's cash flow from
operations improved for the three months ended March 31, 1997 compared to the
three months ended March 31, 1996, due to higher receipts from customers, lower
interest expense, and the timing of income tax payments. As discussed above,
during the first quarter of 1996, TNMP refunded $6.7 million to customers. TNP's
consolidated cash flow from operations also improved for the three months ended
March 31, 1997 compared to the three months ended March 31, 1996, for the same
reasons as discussed above; however, they were offset slightly by $3.1 million
of cash used by Facility Works in its operations. Currently TNP's primary source
of cash are dividends from TNMP.
TNMP has two credit facilities with a total commitment of $250 million
- - the 1995 Facility ($150 million) and the 1996 Facility ($100 million). As of
March 31, 1997, available unused credit under the 1995 Facility was $75 million,
subject to interest coverage and capitalization tests. Under the 1995 Facility,
TNMP can borrow up to $25 million of the unused commitment with no additional
collateral and borrow the remainder of the unused commitment ($50 million) by
pledging first mortgage bonds (FMBs) equal to the principal amount of such
borrowings.
There is currently no available credit under the $100 million 1996
Facility. The interest rates under both facilities are based on the London
Interbank Offered Rate (LIBOR). The interest rate margins on both facilities
will decrease as the ratings on TNMP's FMBs improve.
In January, TNMP used the credit facilities to retire $100.8 million
11.25% Series T FMBs.
TNMP has sufficient liquidity to satisfy the possibility of any known
contingencies. Management believes cash flow from operations and periodic
borrowings under its two revolving credit facilities should be sufficient to
meet working capital requirements and planned capital expenditures at least
through 1998.
Regulatory Matters
Community Choice SM
New Mexico. On March 27, 1997, the NMPUC issued an order approving
Community Choice, TNMP's plan for transition to competition for its New Mexico
service territory as modified by stipulation on February 3. On April 18, 1997,
the NMPUC reaffirmed the approval of Community Choice with two minor
modifications. A motion had been filed on April 11, 1997, requesting a rehearing
on the March 27, 1997 order. The plan went into effect on May 1 and gives TNMP
customers the right to choose their energy provider after a three-year
transition period. The plan freezes rates (including the recovery of purchased
power) for a three-year period, and allows for customer aggregation based on
market forces. TNMP believes the plan will allow it to recover most, if not all,
of its potential stranded costs in New Mexico; however, the actual recovery of
any stranded costs will depend on the future market and price for energy through
May 1, 2000.
Texas. In late February 1997, TNMP proposed a new plan for transition to
competition to the communities within TNMP's service territory in Texas. Due to
the numerous issues involved, TNMP can provide no assurance as to the timing or
outcome of the new transition to competition plan in Texas. As discussed
previously under "Cities Rate Review", certain cities served by TNMP in the
Texas gulf coast area and TNMP agreed to delay a rate review filing until July
1, 1997, in order to reopen negotiations on the new transition to competition
plan.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Wholesale Purchase Power Agreement.
As set forth in TNP's and TNMP's Combined Annual Report on Form 10-K
for 1996 filed with the Securities and Exchange Commission, TNMP filed
proceedings with the PUCT and in a Texas state district court to declare TNMP's
wholesale purchase power agreement (the "TU Agreement") with Texas Utilities
Electric Company (TU) null and void. On August 29, 1996, the PUCT entered an
order declaring two of the terms of the TU Agreement void, but upheld the
validity of the remainder of the contract. In November 1996, TNMP and TU each
filed an appeal of the PUCT's ruling with Texas state district courts and such
appeals are pending.
Early Redemption of Series T FMBs
As reported on TNP's and TNMP's 1996 Combined Annual Report on Form 10-K,
on January 30, 1997, TNMP, Jackson National Life Insurance Company and John
Hancock Life Insurance Company agreed to a tentative settlement of the lawsuit
styled Texas-New Mexico Power Company v. John Hancock Life Insurance Co. et.
al., then pending in the United States District Court for the Northern District
of Texas, Fort Worth Division. The lawsuit arose from TNMP's early retirement of
$29.2 million of 11.25% Series T FMBs in late 1995. In an order dated March 31,
1997, the court approved that settlement. In accordance with the settlement,
TNMP has paid $2,000,000 to the parties of the lawsuit. The full settlement
amount was charged against 1996 income.
Cities Rate Review
See Note 3 for information regarding the Cities Rate Review.
Item 5. Other Information.
Dwight R. Spurlock, a director since 1993, retired from TNP's and TNMP's
boards of directors as of May 1, 1997. Both companies expect to name a successor
later in 1997.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed with this report;
27(a) Financial Data Schedule for TNP.
27(b) Financial Data Schedule for TNMP.
(b) Reports on Form 8-K
TNP and TNMP filed a report on Form 8-K dated February 25, 1997,
reporting information under Item 4 regarding a change in Independent
Accountants and the satisfactory resolution of a disagreement on
accounting.
Statement Regarding Forward Looking Information
The discussions in this document that are not historical facts,
including, but not limited to, the outcome of future rate proceedings, the
effect of new transmission rules, the continued application of regulatory
accounting principles, future cash flows and the potential recovery of stranded
costs, are based upon current expectations. Actual results may differ
materially. Among the facts that could cause the results to differ materially
from expectations are the following: legislation in the states TNMP serves
affecting the regulation of TNMP's business; changes in regulations affecting
TNP and TNMP's businesses; results of regulatory proceedings affecting TNP and
TNMP's operations; future acquisitions or strategic partnerships; general
business and economic conditions; negotiations regarding TNMP's proposal
regarding transition to competition; and other factors described from time to
time in TNP and TNMP's reports filed with the Securities and Exchange
Commission. TNP and TNMP wish to caution readers not to place undue reliance on
any such forward looking statements, which are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
SIGNATURES
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.
(Registrant) TNP ENTERPRISES, INC.
By \s\ MANJIT S. CHEEMA
Manjit S. Cheema
Date: May 6, 1997 Vice President and as Chief Financial Officer
(Registrant) TEXAS-NEW MEXICO POWER COMPANY
By \s\ SCOTT FORBES
Scott Forbes
Date: May 6, 1997 Controller and as Chief Accounting Officer