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 quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Exact name of registrant as specified in its
charter, State or other jurisdiction of
incorporation or organization, Address of
Commission principal executive offices and Registrant's IRS Employer
File Number Telephone Number, including area code Identification No.
- ----------- ------------------------------------- ------------------
1-12927 NEW CENTURY ENERGIES, INC. 84-1334327
(a Delaware Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3280 PUBLIC SERVICE COMPANY OF COLORADO 84-0296600
(a Colorado Corporation)
1225 17th Street
Denver, Colorado 80202
Telephone (303) 571-7511
1-3789 SOUTHWESTERN PUBLIC SERVICE COMPANY 75-0575400
(a New Mexico Corporation)
Tyler at Sixth
Amarillo, Texas 79101
Telephone (303) 571-7511
-------------------
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
On May 11, 1998, 111,266,057 shares of the Registrant's Common Stock were
outstanding. The aggregate market value of this common stock held by
nonaffiliates based on the closing price on the New York Stock Exchange was
approximately $5,215,596,422.
Southwestern Public Service Company meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q
with the reduced disclosure format specified in General Instruction H (2) to
such Form 10-Q.
Table of Contents
PART I - FINANCIAL INFORMATION
Item l. Financial Statements ............................................. 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 39
Item 6. Exhibits and Reports on Form 8-K.................................. 39
This combined Form 10-Q is separately filed by New Century Energies, Inc.,
Public Service Company of Colorado and Southwestern Public Service Company.
Information contained herein relating to any individual company is filed by such
company on its own behalf. Each registrant makes representations only as to
itself and makes no other representations whatsoever as to information relating
to the other registrants.
This report should be read in its entirety. No one section of the report deals
with all aspects of the subject matter.
FORWARD-LOOKING INFORMATION
The following discussions include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Investors and prospective investors are
cautioned that the forward-looking statements contained herein with respect to
the revenues, earnings, capital expenditures, resolution and impact of
litigation, competitive performance, or other prospects for the business of New
Century Energies, Inc., Public Service Company of Colorado and/or Southwestern
Public Service Company or their affiliated companies, including any and all
underlying assumptions and other statements that are other than statements of
historical fact, may be influenced by factors that could cause actual outcomes
and results to be materially different than projected. Such factors include, but
are not limited to, the effects of weather, future economic conditions, the
performance of generating units, fuel prices and availability, regulatory
decisions and the effects of changes in state and federal laws, the pace of
deregulation of domestic retail natural gas and electricity markets, the timing
and extent of change in commodity prices for all forms of energy, capital
spending requirements, the evolution of competition, earnings retention and
dividend payout policies, changes in accounting standards, and other factors.
From time to time, New Century Energies, Inc., Public Service Company of
Colorado and Southwestern Public Service Company may publish or otherwise make
available forward-looking statements. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of each
company, are also expressly qualified by these cautionary statements.
i
TERMS
The abbreviations or acronyms used in the text and notes are defined below:
Abbreviation or Acronym Term
- ----------------------- ----
AEP.....................................................American Electric Power
CDPHE......................................Colorado Department of Public Health
and Environment
Cheyenne.................................Cheyenne Light, Fuel and Power Company
CPUC...................The Public Utilities Commission of the State of Colorado
Denver District Court ................................District Court in and for
the City and County of Denver
DOE........................................................Department of Energy
DSM......................................................Demand Side Management
DSMCA....................................Demand Side Management Cost Adjustment
Dth...................................................................Dekatherm
ECA......................................................Energy Cost Adjustment
e prime..........................................e prime, inc. and subsidiaries
FERC.......................................Federal Energy Regulatory Commission
Fort St. Vrain ......................Fort St. Vrain Electric Generating Station,
formerly a nuclear generating station
Fuelco ..........................................Fuel Resources Development Co.,
a dissolved Colorado Corporation
GCA.........................................................Gas Cost Adjustment
ICA...................................................Incentive Cost Adjustment
Kwh...............................................................kilowatt-hour
Merger............................the business combination between PSCo and SPS
Natural Fuels.........................................Natural Fuels Corporation
NCE or Company.......................................New Century Energies, Inc.
NC Enterprises.............................................NC Enterprises, Inc.
NCI.............................................New Century International, Inc.
NMPUC......................................New Mexico Public Utility Commission
NOx..............................................................Nitrogen Oxide
PSCo.........................................Public Service Company of Colorado
PUHCA................................Public Utility Holding Company Act of 1935
PSCCC............................................PS Colorado Credit Corporation
PUCT.........................................Public Utility Commission of Texas
QF..........................................................Qualifying Facility
Quixx........................................Quixx Corporation and subsidiaries
SEC..........................................Securities and Exchange Commission
SO2..............................................................Sulfur Dioxide
SPS.........................................Southwestern Public Service Company
SFAS 71....................Statement of Financial Accounting Standards No. 71 -
"Accounting for the Effects of Certain Types of Regulation"
SFAS 112..................Statement of Financial Accounting Standards No. 112 -
"Employers' Accounting for Postemployment Benefits"
SFAS 121..................Statement of Financial Accounting Standards No. 121 -
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of"
Thunder Basin........................................Thunder Basin Coal Company
UE.............................Utility Engineering Corporation and subsidiaries
WGI....................................................WestGas InterState, Inc.
Yorkshire Electricity..........................Yorkshire Electricity Group plc
Yorkshire Power......................................Yorkshire Power Group Ltd.
ii
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
March 31, December 31,
1998 1997
---- ----
(Unaudited)
Property, plant and equipment, at cost:
Electric ........................................ $6,735,650 $6,703,863
Gas.............................................. 1,152,410 1,136,231
Steam and other.................................. 107,570 120,322
Common to all departments........................ 469,054 437,636
Construction in progress......................... 374,063 318,124
------- -------
8,838,747 8,716,176
Less: accumulated depreciation .................. 3,237,807 3,182,800
--------- ---------
Total property, plant and equipment............ 5,600,940 5,533,376
--------- ---------
Investments, at cost:
Investment in Yorkshire Power and other
unconsolidated subsidiaries (Note 2)......... 299,077 295,316
Other............................................ 66,123 71,411
------- ------
Total investments........................... ... 365,200 366,727
------- -------
Current assets:
Cash and temporary cash investments................ 76,005 72,623
Accounts receivable, less reserve for uncollectible
accounts ($5,143 at March 31, 1998; $5,355 at
December 31, 1997) .... ......................... 300,166 315,539
Accrued unbilled revenues.......................... 103,830 110,877
Recoverable purchased gas and electric energy costs
- net .......................................... 101,765 129,292
Materials and supplies, at average cost............ 65,037 68,411
Fuel inventory, at average cost.................... 22,094 23,162
Gas in underground storage, at cost (LIFO)......... 14,923 47,394
Prepaid expenses and other......................... 57,402 56,868
------ ------
Total current assets.............................. 741,222 824,166
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 417,918 430,475
Unamortized debt expense .......................... 20,276 20,833
Other.............................................. 144,337 134,704
------- -------
Total deferred charges............................ 582,531 586,012
------- -------
$7,289,893 $7,310,281
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
1
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
CAPITAL AND LIABILITIES
March 31, December 31,
1998 1997
---- ----
(Unaudited)
Common stock ........................................ $1,716,152 $1,694,195
Retained earnings.................................... 680,667 659,050
------- -------
Total common equity.............................. 2,396,819 2,353,245
Preferred stock of subsidiaries:
Not subject to mandatory redemption............... 140,002 140,002
Subject to mandatory redemption at par............ 39,253 39,253
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS ................... 100,000 100,000
Long-term debt of subsidiaries ...................... 1,986,183 1,987,955
--------- ---------
4,662,257 4,620,455
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions ....................................... 65,089 62,716
Employees' postemployment benefits ............... 27,319 27,953
------ ------
Total noncurrent liabilities..................... 92,408 90,669
------ ------
Current liabilities:
Notes payable and commercial paper ............... 608,761 588,343
Long-term debt due within one year................ 207,486 257,469
Preferred stock subject to mandatory redemption
within one year ................................ 2,576 2,576
Accounts payable.................................. 228,253 298,469
Dividends payable................................. 69,083 68,296
Customers' deposits............................... 29,153 27,993
Accrued taxes..................................... 121,668 66,587
Accrued interest.................................. 36,456 52,615
Current portion of accumulated deferred income
taxes .......................................... 23,773 27,391
Other............................................. 83,602 87,380
------ ------
Total current liabilities........................ 1,410,811 1,477,119
--------- ---------
Deferred credits:
Customers' advances for construction.............. 52,778 53,041
Unamortized investment tax credits ............... 104,868 106,147
Accumulated deferred income taxes................. 918,057 922,341
Other............................................. 48,714 40,509
------- ------
Total deferred credits........................... 1,124,417 1,122,038
--------- ---------
Commitments and contingencies (Notes 3 and 4)........ --------- ---------
$7,289,893 $7,310,281
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
2
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1998 1997
---- ----
Operating revenues:
Electric........................................... $ 599,988 $ 588,357
Gas................................................ 319,707 291,624
Other.............................................. 19,809 10,030
------- ------
939,504 890,011
Operating expenses:
Fuel used in generation............................ 140,919 148,879
Purchased power.................................... 148,864 127,833
Cost of gas sold................................... 224,912 206,989
Other operating and maintenance expenses........... 147,681 135,121
Depreciation and amortization...................... 62,418 61,167
Taxes (other than income taxes) ................... 32,873 34,022
------- ------
757,667 714,011
Operating income..................................... 181,837 176,000
Other income and deductions:
Merger expenses.................................... (785) (4,058)
Equity in earnings of Yorkshire Power and other
unconsolidated subsidiaries (Note 2)............. 3,752 253
Miscellaneous income and deductions - net.......... (2,183) (1,534)
------ ------
784 (5,339)
Interest charges and preferred dividends of subsidiaries:
Interest on long-term debt......................... 40,473 39,421
Other interest..................................... 8,494 4,917
Allowance for borrowed funds used during construction (4,506) (2,301)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS ........... 1,963 1,963
Dividend requirements on preferred stock of subsidiaries 2,929 2,943
----- -----
49,353 46,943
Income before income taxes............................ 133,268 123,718
Income taxes.......................................... 47,119 45,562
------- -------
Net income............................................ $86,149 $78,156
======= =======
Weighted average common shares outstanding............ 110,973 103,994
======= =======
Basic and diluted earnings per share of common stock
outstanding ......................................... $ 0.78 $0.75
====== =====
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
3
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1998 1997
---- ----
Operating activities:
Net income......................................... $ 86,149 $ 78,156
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 64,887 62,162
Amortization of investment tax credits........... (1,279) (1,314)
Deferred income taxes............................ (6,433) 18,490
Equity in earnings of Yorkshire Power and other
unconsolidated subsidiaries, net............... (3,756) -
Allowance for funds used during construction..... 3 (5)
Change in accounts receivable.................... 15,373 18,139
Change in inventories............................ 36,913 24,221
Change in other current assets................... 34,040 (7,015)
Change in accounts payable....................... (70,216) (107,695)
Change in other current liabilities.............. 45,221 6,414
Change in deferred amounts....................... 5,192 (10,766)
Change in noncurrent liabilities................. 1,738 (574)
Other............................................ - (296)
------- --------
Net cash provided by operating activities...... 207,832 79,917
Investing activities:
Construction expenditures.......................... (127,989) (89,904)
Allowance for equity funds used during construction (3) 5
Proceeds from disposition from property, plant and
equipment ....................................... 441 1,244
Purchase of other investments...................... (214) (1,125)
Sale of other investments.......................... 5,458 4,205
------ -----
Net cash used in investing activities.......... (122,307) (85,575)
Financing activities:
Proceeds from sale of common stock................. 13,038 7,658
Proceeds from sale of long-term notes and bonds.... - 323,733
Redemption of long-term notes and bonds............ (51,854) (16,510)
Short-term borrowings - net........................ 20,418 116,425
Dividends on common stock.......................... (63,745) (56,536)
-------- -------
Net cash provided by (used in)financing
activities .................................. (82,143) 374,770
------- -------
Net increase in cash and temporary cash
investments ................................. 3,382 369,112
Cash and temporary cash investments at beginning
of period ................................... 72,623 50,015
------ ------
Cash and temporary cash investments at end of
period ...................................... $ 76,005 $419,127
======== ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements
4
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
March 31, December 31,
1998 1997
---- ----
(Unaudited)
Property, plant and equipment, at cost:
Electric .......................................... $4,113,935 $4,088,447
Gas................................................ 1,113,569 1,100,003
Steam and other.................................... 78,707 78,740
Common to all departments.......................... 454,162 432,840
Construction in progress........................... 213,160 170,503
------- -------
5,973,533 5,870,533
Less: accumulated depreciation .................... 2,182,818 2,145,673
--------- ---------
Total property, plant and equipment.............. 3,790,715 3,724,860
--------- ---------
Investments, at cost:
Investment in Yorkshire Power (Note 2)............. - 286,703
Note receivable from affiliate (Note 2)............ 292,620 -
Other.............................................. 23,898 43,311
------- ------
Total investments................................. 316,518 330,014
------- -------
Current assets:
Cash and temporary cash investments................ 19,665 18,909
Accounts receivable, less reserve for uncollectible
accounts ($2,006 at March 31, 1998; $2,272 at
December 31, 1997) .............................. 180,611 191,155
Accrued unbilled revenues ......................... 83,243 94,284
Recoverable purchased gas and electric energy costs
- net .......................................... 86,221 103,197
Materials and supplies, at average cost............ 44,569 48,030
Fuel inventory, at average cost.................... 19,792 20,862
Gas in underground storage, at cost (LIFO)......... 14,561 46,576
Prepaid expenses and other......................... 34,874 39,594
------- ------
Total current assets.............................. 483,536 562,607
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 300,207 310,658
Unamortized debt expense .......................... 10,416 10,800
Other.............................................. 61,760 55,794
------- ------
Total deferred charges............................ 372,383 377,252
------- -------
$4,963,152 $4,994,733
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
5
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Thousands of Dollars)
CAPITAL AND LIABILITIES
March 31, December 31,
1998 1997
---- ----
(Unaudited)
Common stock.......................................... $1,302,119 $1,302,119
Retained earnings..................................... 342,335 319,280
------- -------
Total common equity............................... 1,644,454 1,621,399
Preferred stock:
Not subject to mandatory redemption................ 140,002 140,002
Subject to mandatory redemption at par............. 39,253 39,253
Long-term debt........................................ 1,336,351 1,338,138
--------- ---------
3,160,060 3,138,792
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions ........................................ 57,964 58,695
Employees' postemployment benefits................. 25,031 25,031
------- -------
Total noncurrent liabilities...................... 82,995 83,726
------- -------
Current liabilities:
Notes payable and commercial paper................. 353,500 348,555
Long-term debt due within one year................. 207,236 257,160
Preferred stock subject to mandatory redemption
within one year ................................. 2,576 2,576
Accounts payable................................... 171,238 218,773
Dividends payable.................................. 45,842 40,975
Customers' deposits................................ 22,996 21,888
Accrued taxes...................................... 94,489 42,549
Accrued interest................................... 26,658 39,177
Current portion of accumulated deferred income taxes 17,228 19,872
Other.............................................. 59,996 59,880
------ ------
Total current liabilities......................... 1,001,759 1,051,405
--------- ---------
Deferred credits:
Customers' advances for construction............... 51,599 51,830
Unamortized investment tax credits ................ 98,158 99,355
Accumulated deferred income taxes.................. 532,550 534,246
Other.............................................. 36,031 35,379
------- -------
Total deferred credits............................ 718,338 720,810
------- -------
Commitments and contingencies (Notes 3 and 4)......... ---------- ----------
$4,963,152 $4,994,733
========== ==========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
6
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1998 1997
---- ----
Operating revenues:
Electric........................................... $375,446 $373,863
Gas................................................ 265,483 291,624
Other.............................................. 3,713 3,230
------- -------
644,642 668,717
Operating expenses:
Fuel used in generation............................ 50,629 44,261
Purchased power.................................... 124,057 122,626
Gas purchased for resale........................... 176,482 206,989
Other operating and maintenance expenses........... 93,945 98,157
Depreciation and amortization...................... 42,896 42,937
Taxes (other than income taxes) ................... 19,969 22,496
Income taxes ..................................... 36,818 35,270
------- -------
544,796 572,736
Operating income...................................... 99,846 95,981
Other income and deductions:
Merger expenses.................................... 418 (1,280)
Equity earnings in Yorkshire Power (Note 2)........ 3,446 -
Miscellaneous income and deductions - net.......... (3,303) (1,508)
------- -------
561 (2,788)
Interest charges:
Interest on long-term debt......................... 27,600 26,906
Amortization of debt discount and expense less premium 978 928
Other interest..................................... 5,653 3,939
Allowance for borrowed funds used during construction (2,721) (1,461)
------ ------
31,510 30,312
------ ------
Net income............................................ 68,897 62,881
Dividend requirements on preferred stock.............. 2,929 2,943
------- -------
Earnings available for common stock................... $65,968 $59,938
======= =======
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
7
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1998 1997
---- ----
Operating activities:
Net income......................................... $68,897 $62,881
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 44,124 43,932
Amortization of investment tax credits........... (1,197) (1,252)
Deferred income taxes............................ (801) 23,609
Equity in earnings of Yorkshire Power............ (3,446) -
Change in accounts receivable.................... 10,165 14,528
Change in inventories............................ 36,546 24,592
Change in other current assets................... 32,739 (15,659)
Change in accounts payable....................... (46,326) (99,862)
Change in other current liabilities.............. 39,889 15,366
Change in deferred amounts....................... (2,194) 85
Change in noncurrent liabilities................. (732) 264
Other............................................ - (296)
------- --------
Net cash provided by operating activities...... 177,664 68,188
Investing activities:
Construction expenditures.......................... (107,298) (57,545)
Proceeds from disposition of property, plant and
equipment ....................................... 1,393 1,244
Purchase of other investments...................... (152) (418)
Sale of other investments.......................... 5,026 4,205
------- ------
Net cash used in investing activities.......... (101,031) (52,514)
Financing activities:
Proceeds from sale of common stock................. - 7,658
Proceeds from sale of long-term notes and bonds.... - 323,733
Redemption of long-term notes and bonds............ (51,800) (1,755)
Short-term borrowings - net........................ 16,899 50,675
Dividends on common stock.......................... (38,047) (34,030)
Dividends on preferred stock....................... (2,929) (2,943)
------- -------
Net cash provided by (used in) financing
activities ................................. (75,877) 343,338
------- -------
Net increase in cash and temporary cash
investments ................................ 756 359,012
Cash and temporary cash investments at beginning
of period .................................. 18,909 9,406
Cash and temporary cash investments at end of
period ..................................... $ 19,665 $368,418
========= ========
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
8
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
March 31, December 31,
1998 1997
---- ----
(Unaudited)
Property, plant and equipment, at cost:
Electric .......................................... $2,562,573 $2,557,579
Construction in progress........................... 157,435 144,452
2,720,008 2,702,031
Less: accumulated depreciation .................... 1,004,030 987,487
Total property, plant and equipment............... 1,715,978 1,714,544
--------- ---------
Investments, at cost:
Notes receivable from affiliate ................... 119,036 119,036
Other.............................................. 5,894 5,832
------- -------
Total investments................................. 124,930 124,868
------- -------
Current assets:
Cash and temporary cash investments................ 9,119 986
Accounts receivable, less reserve for uncollectible
accounts ($2,315 at March 31, 1998; $2,442 at
December 31, 1997) .............................. 80,540 96,548
Accrued unbilled revenues ......................... 19,727 15,468
Recoverable electric energy costs - net............ 13,057 23,086
Materials and supplies, at average cost............ 16,641 16,337
Fuel inventory, at average cost.................... 2,302 2,301
Prepaid expenses and other......................... 3,130 3,367
------- -------
Total current assets.............................. 144,516 158,093
------- -------
Deferred charges:
Regulatory assets (Note 1)......................... 117,164 119,244
Unamortized debt expense .......................... 9,229 9,395
Other.............................................. 53,538 55,349
------- -------
Total deferred charges............................ 179,931 183,988
------- -------
$2,165,355 $2,181,493
========== ==========
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
9
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONSDENSED BALANCE SHEETS
(Thousands of Dollars)
CAPITAL AND LIABILITIES
March 31, December 31,
1998 1997
---- ----
(Unaudited)
Common stock.......................................... $ 348,402 $ 348,402
Retained earnings..................................... 343,125 349,988
------- -------
Total common equity............................... 691,527 698,390
SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
subordinated debentures of SPS ..................... 100,000 100,000
Long-term debt........................................ 620,667 620,598
------- -------
1,412,194 1,418,988
Noncurrent liabilities:
Employees' postretirement benefits other than
pensions ........................................ 4,153 3,800
Employees' postemployment benefits................. 1,812 2,446
------- -------
Total noncurrent liabilities...................... 5,965 6,246
------- -------
Current liabilities:
Notes payable and commercial paper................. 158,762 154,244
Notes payable to affiliates........................ 17,660 25,160
Long-term debt due within one year................. 114 173
Accounts payable................................... 98,325 107,465
Dividends payable.................................. 25,002 22,546
Customers' deposits................................ 5,515 5,471
Accrued taxes...................................... 31,168 28,051
Accrued interest................................... 9,320 12,715
Current portion of accumulated deferred income taxes 6,174 10,740
Other.............................................. 6,291 7,415
------- -------
Total current liabilities......................... 358,331 373,980
------- -------
Deferred credits:
Unamortized investment tax credits ................ 5,406 5,469
Accumulated deferred income taxes ................. 374,113 372,447
Other.............................................. 9,346 4,363
------- -------
Total deferred credits............................ 388,865 382,279
------- -------
Commitments and contingencies (Notes 3 and 4).........
$2,165,355 $2,181,493
========== ==========
The accompanying notes to condensed financial statements are an
integral part of these financial statements.
10
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1998 1997
---- ----
Operating revenues:
Electric........................................... $199,732 $214,495
Other.............................................. - 6,800
------- -------
199,732 221,295
Operating expenses:
Fuel used in generation............................ 90,290 104,618
Purchased power.................................... 2,641 5,207
Other operating & maintenance expenses............. 34,396 36,965
Depreciation and amortization...................... 17,776 18,230
Taxes (other than income taxes) ................... 12,065 11,526
Income taxes ...................................... 11,225 10,292
------- -------
168,393 186,838
------- -------
Operating income...................................... 31,339 34,457
Other income and deductions:
Merger expenses.................................... (1,203) (2,778)
Miscellaneous income and deductions - net ......... 2,278 275
------- -------
1,075 (2,503)
Interest charges:
Interest on long-term debt......................... 10,943 11,025
Amortization of debt discount and expense less premium 561 562
Other interest..................................... 2,579 1,026
Allowance for borrowed funds used during construction (1,771) (840)
Dividends on SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely subordinated debentures of SPS ............ 1,963 1,963
----- -----
14,275 13,736
------ ------
Net income............................................ $18,139 $18,218
======= =======
Theaccompanying notes to condensed financial statements are an
integral part of these financial statements.
11
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
Three Months Ended
March 31,
1998 1997
---- ----
Operating activities:
Net income......................................... $18,139 $18,218
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................... 18,859 18,230
Amortization of investment tax credits........... (63) (62)
Deferred income taxes............................ (4,969) (5,119)
Allowance for funds used during construction..... 3 (5)
Change in accounts receivable.................... 16,008 3,611
Change in inventories............................ (305) (371)
Change in other current assets................... 6,008 8,644
Change in accounts payable....................... (9,140) (7,833)
Change in other current liabilities.............. (1,359) (8,952)
Change in deferred amounts....................... 10,438 (10,851)
Change in noncurrent liabilities................. (279) (838)
------- -------
Net cash provided by operating activities...... 53,340 14,672
Investing activities:
Construction expenditures.......................... (18,601) (32,359)
Allowance for equity funds used during construction (3) 5
Cost of disposition of property, plant and equipment (1,013) -
Purchase of other investments...................... (62) (707)
------- -------
Net cash used in investing activities.......... (19,679) (33,061)
Financing activities:
Redemption of long-term notes and bonds............ - (14,755)
Short-term borrowings - net........................ (2,982) 65,750
Dividends on common stock.......................... (22,546) (22,506)
------- -------
Net cash provided by (used in) financing
activities ................................. (25,528) 28,489
------- ------
Net increase in cash and temporary cash
investments ................................ 8,133 10,100
Cash and temporary cash investments at beginning
of period .................................. 986 40,609
--- ------
Cash and temporary cash investments at end of
period ..................................... $ 9,119 $ 50,709
======== ========
The accompanying notes to condensed financial statements
are an integral part of these financial statements
12
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies (NCE, PSCo and SPS)
Effective August 1, 1997, following the receipt of all required state and
Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE. Each
outstanding share of PSCo common stock was canceled and converted into the right
to receive one share of NCE common stock, and each outstanding share of SPS
common stock was canceled and converted into the right to receive 0.95 of one
share of NCE common stock. Effective with the Merger, certain utility and
non-utility subsidiaries were transferred within NCE's common controlled
subsidiaries. The common stock of Quixx and UE, former SPS subsidiaries, were
transferred through the sale by SPS of the common stock of such subsidiaries at
net book value, aggregating approximately $119.0 million, to NC Enterprises in
exchange for notes payable of NC Enterprises. Subsidiaries of PSCo (Cheyenne,
WGI, e prime and Natural Fuels) were transferred by a declaration of a dividend
of the subsidiaries' stock, at net book value, aggregating approximately $49.9
million to NCE. NCE subsequently made a capital contribution of the e prime and
Natural Fuels common stock, at net book value, aggregating approximately $29.5
million to NC Enterprises.
The NCE consolidated condensed financial statements reflect the accounting
for the Merger as a pooling of interests. The Company's 1997 consolidated
condensed statements of income and cash flows include the consolidated financial
statements for both PSCo and SPS for the three months ended March 31, 1997.
Business, Utility Operations and Regulation
NCE is a registered holding company under the PUHCA and its utility
subsidiaries (PSCo, SPS and Cheyenne) are engaged principally in the generation,
purchase, transmission, distribution and sale of electricity and in the
purchase, transmission, distribution, sale and transportation of natural gas.
Both the Company and its subsidiaries are subject to the regulatory provisions
of the PUHCA. The utility subsidiaries are subject to regulation by the FERC and
state utility commissions in Colorado, Texas, New Mexico, Wyoming, Kansas and
Oklahoma. Over 90% of the Company's revenues are derived from its regulated
utility operations.
Regulatory Assets and Liabilities
The Company's regulated subsidiaries prepare their financial statements in
accordance with the provisions of SFAS 71, as amended. SFAS 71 recognizes that
accounting for rate regulated enterprises should reflect the relationship of
costs and revenues introduced by rate regulation. A regulated utility may defer
recognition of a cost (a regulatory asset) or recognize an obligation (a
regulatory liability) if it is probable that, through the ratemaking process,
there will be a corresponding increase or decrease in revenues.
13
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
The following regulatory assets are reflected in the accompanying
condensed consolidated balance sheets (in thousands):
March 31, 1998 NCE PSCo SPS
------ ------ -----
Income taxes ....................... $158,889 $80,816 $78,604
Nuclear decommissioning costs....... 75,252 75,252 -
Employees' postretirement benefits
other than pensions .............. 61,613 58,620 2,993
Early retirement costs.............. 5,703 4,430 1,273
Employees' postemployment
benefits (Note 3) ................ 24,335 23,835 -
Demand-side management costs........ 41,898 37,824 4,074
Unamortized debt reacquisition costs 35,824 17,285 17,960
Thunder Basin judgment (Note 3)..... 4,921 - 4,921
Other............................... 9,483 2,145 7,339
------ ------ ------
Total............................. $417,918 $300,207 $117,164
======== ======== ========
December 31, 1997 NCE PSCo SPS
------ ------ -----
Income taxes........................ $162,985 $84,356 $79,161
Nuclear decommissioning costs....... 76,881 76,881 -
Employees' postretirement benefits
other than pensions............... 63,023 59,995 3,028
Early retirement costs.............. 8,008 6,645 1,363
Employees' postemployment
benefits (Note 3) ................ 24,455 23,932 -
Demand-side management costs........ 42,503 38,518 3,985
Unamortized debt reacquisition costs 36,717 17,791 18,344
Thunder Basin judgment (Note 3)..... 5,912 - 5,912
Other............................... 9,991 2,540 7,451
------ ------ ------
Total............................. $430,475 $310,658 $119,244
======== ======== ========
The regulatory assets of the Company's regulated subsidiaries as of March
31, 1998 and December 31, 1997 are reflected in rates charged to customers over
periods ranging from two to thirty years. The Company believes its utility
subsidiaries will continue to be subject to rate regulation. In the event that a
portion of the Company's operations is no longer subject to the provisions of
SFAS 71, as a result of a change in regulation or the effects of competition,
the Company's subsidiaries could be required to write-off their regulatory
assets, determine any impairment to other assets resulting from deregulation and
write-down any impaired assets to their estimated fair value, which could have a
material adverse effect on NCE's, PSCo's and SPS's financial position, results
of operations or cash flows.
On January 27, 1997, the CPUC issued its order on PSCo's 1996 gas rate
case. The CPUC allowed recovery of postemployment benefit costs on an accrual
basis under SFAS 112 and denied amortization of the approximately $8.9 million
regulatory asset recognized upon the adoption of SFAS 112. PSCo has appealed in
the Denver District Court the decision related to this issue. PSCo believes that
it will be successful on appeal and that the associated regulatory asset is
realizable. On April 1, 1998, in connection with PSCo's earnings test filing,
PSCo has requested approval to recover its electric jurisdictional portion of
the postemployment benefit costs regulatory asset totaling approximately $15
million over three years. PSCo believes that it will be allowed recovery of SFAS
112 costs on an accrual basis. If PSCo is ultimately unsuccessful in its appeal
of the gas rate case decision and/or in its request to recover its electric
jurisdictional regulatory asset, all unrecoverable amounts will be written off
(see Note 3. Regulatory Matters - Electric Department Earnings Test and Quality
of Service Plan).
14
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
As of March 31, 1998, SPS has approximately $4.9 million in regulatory
assets associated with the Thunder Basin judgment. The judgment amount paid is
recoverable from customers subject to review by various regulatory agencies (see
Note 3. Regulatory Matters - Electric and Gas Cost Adjustment Mechanisms).
Non-utility Subsidiaries and International Investments
The Company's non-utility subsidiaries are principally involved in
engineering, design and construction management, non-regulated energy services,
including gas and power marketing, the management of real estate and certain
life insurance policies, the financing of certain current assets of PSCo and
investments in cogeneration facilities, electric wholesale generators and a
foreign utility company. The Company's international investments are subject to
regulation in the countries in which such investments are made (see Note 2.
Investment in Yorkshire Power). Financial statements of foreign subsidiaries are
translated into U.S. dollars at current exchange rates, except for revenues,
costs and expenses which are translated at average current exchange rates during
each reporting period.
Statements of Cash Flows - Non-cash Transactions:
Effective February 26, 1998, the Company issued 222,362 shares of its
common stock, valued at the market price on date of issuance of approximately
$10 million to the Employees' Savings and Stock Ownership Plan of Public Service
Company of Colorado and Participating Subsidiary Companies. Prior to the Merger,
during 1997, PSCo issued 250,058 shares of its common stock to the Employees'
Savings and Stock Ownership Plan of Public Service Company of Colorado and
Participating Subsidiary Companies valued at the market price on date of
issuance of approximately $10 million. The estimated issuance values were
recognized in other operating expenses during the respective preceding years.
On March 31, 1998, PSCo sold its common stock investment in NCI (at net
book value of approximately $292.6 million) to NC Enterprises, a subsidiary of
NCE. Consideration paid by NC Enterprises for such sale was a 20 year 7.02%
promissory note (see Note 2. Investment in Yorkshire Power).
Comprehensive Income
The Company and its subsidiaries adopted Statement of Financial Accounting
Standards No. 130 Reporting Comprehensive Income, effective January 1, 1998. The
individual and cumulative components of other comprehensive income are not
material to the Company and its subsidiaries.
General
See Note 1. of the Notes to Consolidated Financial Statements in NCE's,
PSCo's and SPS' 1997 Annual Report on Form 10-K for a summary of the companies
and their subsidiaries significant accounting policies. Certain prior year
amounts have been reclassified to conform to the current year's classification.
2. Investment in Yorkshire Power (NCE and PSCo)
During the second quarter of 1997, Yorkshire Power, a subsidiary equally
owned by PSCo, through NCI, and AEP, acquired indirectly all of the outstanding
ordinary shares of Yorkshire Electricity, a United Kingdom regional electricity
company. NCI accounts for its investment in Yorkshire Power using the equity
method. Yorkshire Power's results of operations include 100% of Yorkshire
Electricity's results since April 1, 1997. NCI's equity earnings in Yorkshire
Power is 50%, the same as its ownership share.
The total consideration paid by Yorkshire Power was approximately $2.4
billion (1.5 billion pounds sterling). The acquisition was financed by Yorkshire
Power through a combination of approximately 25% equity and 75% debt, including
the assumption of the existing debt of Yorkshire Electricity. The funds for the
15
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
acquisition were obtained from PSCo's and AEP's investment in Yorkshire Power of
approximately $360 million (220 million pounds sterling) each, with the
remainder obtained by Yorkshire Power through the issuance of non-recourse debt.
PSCo funded its entire equity investment in Yorkshire Power through $250 million
of publicly issued secured medium-term notes with varying maturities and
drawings of approximately $110 million on its short-term lines of credit
pursuant to its short-term credit agreement with Bank of America, as agent.
As approved by the SEC on May 14, 1998 under the PUHCA, effective March 31,
1998, PSCo sold its common stock investment in NCI to NC Enterprises, an NCE
subsidiary. NCI's primary investment is Yorkshire Power. PSCo received as
consideration a 20 year promissory note from NC Enterprises in the amount of
approximately $292.6 million. Annual interest payments are required for the
first three years followed by principal and interest payments for the remaining
seventeen years. The interest rate on the note is 7.02%. NCE intends to make
additional capital contributions to NC Enterprises to provide the necessary cash
flow requirements to make payments on the promissory note to PSCo.
Summarized income statement information for the three months ended March
31, 1998 is presented below (in millions):
Yorkshire Power:
Operating revenues....................... $ 663.2
--------
Operating income......................... 89.7
--------
Net income (1)........................... $ 6.9
========
NCI's equity in earnings of Yorkshire Power $ 3.4
========
(1)Includes a penalty, which was applicable to all United Kingdom regional
electricity utilities, designed to recognize the effects of the delay in
implementation of full competition for the period April 1998 to September
1998 (Yorkshire Power's portion was $8.3 million).
The unaudited pro forma financial information presented below for NCE
assumes that Yorkshire Power was acquired on January 1, 1997. The pro forma
adjustments include recognition of equity in the estimated earnings of Yorkshire
Power, an adjustment for interest expense on debt associated with the investment
in Yorkshire Power and related income taxes. The estimated earnings of Yorkshire
Power were based on historical earnings of Yorkshire Electricity, prior to its
acquisition by Yorkshire Power, adjusted for the estimated effects of purchase
accounting (including the amortization of goodwill), conversion to United States
generally accepted accounting principles, interest expense on debt issued by
Yorkshire Power associated with the acquisition and related income taxes. Sales
of electricity are affected by seasonal weather patterns and, therefore, the
results of Yorkshire Power/Yorkshire Electricity will not be distributed evenly
during the year. Equity in earnings of Yorkshire Power has been converted at the
average exchange rates for the quarter ended March 31, 1998 and March 31, 1997,
of $1.646/pound and $1.632/pound, respectively.
16
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Based on the above assumptions, shown below is unaudited pro forma
financial information for the three months ended March 31, 1998 and 1997 (in
millions, except per share amounts):
NCE Earnings
Available for
common stock Per share (1)
------------ -------------
1998 1997 1998 1997
---- ---- ---- ----
Net income............................. $86.1 $ 78.2 $0.78 $0.75
===== =====
Pro forma adjustments:
Equity in earnings of
Yorkshire Power, net of
U.S. tax benefits (2)............... - (10.1)
Interest expense, net of tax......... - (3.5)
----- ------
Pro forma result....................... $86.1 $ 64.6 $0.78 $0.62
===== ====== ===== =====
(1) Based on the weighted average number of common shares outstanding for the
period.
(2) The first quarter of 1997 amount includes $24.0 million ($17.9 million
after-tax) of write-offs related to certain computer development costs,
acquisition expenses and costs incurred for the preparation for
deregulation.
The unaudited pro forma financial information presented below for PSCo
assumes that NCI (primarily representing Yorkshire Power) was sold to NC
Enterprises effective January 1, 1997. NCI was formed in connection with the
investment in Yorkshire Power and had no operations during the first three
months of 1997. The pro forma adjustments represent the removal of NCI's net
income from PSCo for the first quarter of 1998 and the inclusion of interest
income, net of tax, from the promissory note to PSCo from NC Enterprises.
Based upon the above assumptions, shown below is unaudited pro forma
financial information for the three months ended March 31, 1998 (in millions):
PSCo
Earnings
1998
----
Net income............................................... $ 68.9
Pro forma adjustments:
NCI's net income ...................................... (2.8)
Interest income from promissory note, net of tax....... 3.3
------
Pro forma result......................................... $ 69.4
======
3. Regulatory Matters (NCE, PSCo and SPS)
Merger Rate Filings
The discussion below summarizes the significant conditions imposed by the
state utility regulatory commissions in Colorado, Texas, New Mexico, Wyoming,
Oklahoma and Kansas in their respective approvals of the Merger.
17
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
PSCo
The CPUC decision approving the Merger established a five-year performance
based regulatory plan and acknowledged that the Merger was in the public
interest. The major provisions of the decision include the following, some of
which are discussed in other sections of this note:
- a $6 million annual electric rate reduction, which was instituted October
1, 1996, followed by an additional $12 million annual electric rate
reduction effective with the implementation of new gas rates on February
1, 1997;
- an annual electric department earnings test with the sharing of earnings
in excess of an 11% return on equity for the calendar years 1997-2001 and
the implementation of a Quality of Service Plan;
- a freeze in base electric rates for the period through December 31, 2001
with the flexibility to make certain other rate changes, including those
necessary to allow for the recovery of DSM, QF capacity and
decommissioning costs. The freeze in base electric rates does not prohibit
PSCo from filing a general rate case or deny any party the opportunity to
initiate a complaint or show cause proceeding; and
- the replacement of the ECA with an ICA.
Subsequent to the CPUC's decision approving the Merger, the CPUC approved
the recovery of merger costs, amortized from the effective date of the Merger
through December 31, 2001. PSCo has expensed merger costs as incurred and
recovery of such costs will be reflected in the electric department earnings
test, discussed below in Electric Department Earnings Test and Quality of
Service Plan. Merger costs attributable to Colorado gas retail customers were
included in the gas rate case approved by the CPUC, discussed below in Rate
Cases- PSCo Retail Gas.
SPS
Under the various regulatory commission approvals, SPS is required to
provide credits to customers over five years for one-half of the measured
non-fuel operation and maintenance expense savings associated with the Merger.
SPS will provide guaranteed minimum annual credits to retail customers of $3
million in Texas, $1.2 million in New Mexico, $100,000 in Oklahoma and $10,000
in Kansas and $1.5 million to wholesale customers.
Cheyenne
The WPSC approved the Merger on August 16, 1996. Cheyenne agreed not to
file a retail electric rate case for two years after the Merger is consummated.
Cheyenne expects to file a combined gas and electric rate case with the WPSC in
1999 after the two year moratorium expires.
Rate Cases
PSCo
Retail - Gas
On June 5, 1996, PSCo filed a retail rate case with the CPUC requesting an
annual increase in its jurisdictional gas department revenues of approximately
$34 million. In early 1997, the CPUC approved an overall increase of
approximately $18 million with an 11.25% return on equity, effective February 1,
1997 and as modified on May 15, 1997. The CPUC disallowed the recovery of
certain postemployment benefit costs under SFAS 112 and imputed anticipated
merger related savings net of costs related to the gas business (see Note 1.
Summary of Significant Accounting Policies). PSCo filed a petition with the
Denver District Court appealing the CPUC's decision. A decision from the Denver
District Court is expected in the last half of 1998.
18
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
SPS
New Mexico
On November 17, 1997, the NMPUC issued an order investigating SPS's rates.
In the order, the NMPUC determined that because of the rapid changes occurring
in the electric industry there is a need for the NMPUC to require rate case
filings by the major electricity suppliers who have not adopted a plan to
provide retail open access and customer choice of suppliers. SPS filed a
compliance filing on May 5, 1998, proposing a $1.7 million annual rate reduction
for certain retail customers in New Mexico, which incorporates the $1.2 million
guaranteed minimum annual credits, discussed above.
Wholesale - FERC
On December 19, 1989, the FERC issued its final order regarding a 1985
wholesale rate case. SPS appealed certain portions of the order that related to
recognition in rates of the reduction of the federal income tax rate from 46% to
34%. The United States Court of Appeals for the District of Columbia Circuit
remanded the case directing the FERC to reconsider SPS's claim of an offsetting
cost and limiting the FERC's actions. The FERC issued its Order on Remand in
July 1992, the required filings were made and a hearing was completed in
February 1994. In October 1994, the administrative law judge ("ALJ") issued a
favorable initial decision that, if approved by the FERC, would result in a
substantial revenue recovery for SPS. Negotiated settlements with SPS's partial
requirements customers and TNP were approved by the FERC in July 1993 and
September 1993, respectively, and SPS received approximately $2.8 million,
including interest. In a settlement with SPS's New Mexico rural electric
cooperative customers, SPS received approximately $7.0 million, including
interest. The FERC approved this settlement in July 1995. Resolutions of these
matters with the remaining wholesale customers, the Golden Spread member
cooperatives and Lyntegar Electric Cooperative, have not been achieved. On May
5, 1998, the FERC issued its opinion substantially modifying the ALJ's initial
decision, raising issues which may lower amounts previously expected to be
recoverable from wholesale customers. SPS is evaluating the impact of the FERC's
order.
Cheyenne
On May 12, 1997, Cheyenne filed an application with the WPSC for an
overall annual increase in retail gas revenues of approximately $1.25 million.
On September 23, 1997, the WPSC approved an increase in retail gas revenues of
approximately $1.19 million with an 11.71% return on equity, effective October
1, 1997.
Electric and Gas Cost Adjustment Mechanisms
PSCo
During 1994 and 1995, the CPUC conducted several proceedings to review
issues related to the ECA. The CPUC opened a docket to review whether the ECA
should be maintained in its then present form, altered or eliminated, and on
January 8, 1996, combined this docket with the merger docket discussed above.
The CPUC decision on the Merger modified and replaced the ECA with an ICA. The
ICA, which became effective October 1, 1996, allows for a 50%/50% sharing of
certain fuel and energy cost increases and decreases among customers and
shareholders. As of March 31, 1998, PSCo has deferred approximately $1.2
million, as recoverable fuel and energy costs. Management does not believe the
cost adjustment mechanism will have a significant impact on the Company's
results of operations, financial position or cash flows.
The CPUC had a docket to review and prescribe a standardized GCA process
to determine the prudence of gas commodity and pipeline delivery service costs
incurred by gas utilities. Other issues addressed in this docket included
whether the GCA should be maintained in its present form, altered or eliminated.
The CPUC issued an order on May 7, 1997, which provides for the current GCA to
be maintained and the adoption of certain standardized filing and gas purchase
reporting requirements. In early 1998, the CPUC issued another Notice of
Proposed Rulemaking seeking
19
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
comments on various customer notice and reporting requirements related to
changes in gas costs. On March 25, 1998, the CPUC decision was issued with no
material changes to the GCA.
SPS
Texas
A PUCT substantive rule requires periodic examination of SPS's fuel and
purchased power costs, the efficiency of the use of such fuel and purchased
power, fuel acquisition and management policies and purchase power commitments.
Under the PUCT's regulations, SPS is required to file an application for the
Commission to retrospectively review, at least every three years, the operations
of a utility's electricity generation and fuel management activities. SPS will
file a reconciliation in 1998 for the generation and fuel management activities
totaling approximately $690 million, for the period from January 1995 through
December 1997. For this same period, SPS had approximately $21.2 million in
underrecovered fuel costs associated with the Texas retail jurisdiction.
Currently, Texas retail customers are being surcharged for approximately $6.4
million of such underrecovered fuel costs. This surcharge does not include the
Thunder Basin judgment discussed below.
On May 1, 1995, SPS filed with the PUCT a petition for a fuel
reconciliation for the months of January 1992 through December 1994. The PUCT
issued an order in January 1996 requiring SPS to make a $3.9 million fuel refund
consisting of $2.1 million of overrecovered fuel costs and $1.8 million of
disallowed fuel costs for the period. This refund was made in April 1996.
Additionally, the order required SPS to pass through to customers 100% of
margins from non-firm off-system opportunity sales as of January 1995. Prior
PUCT rulings had allowed SPS to retain 25% of these margins. The 100% flow
through is required by PUCT rules, absent a waiver. A motion for rehearing on
the fuel disallowance (which was adjusted to $1.9 million) was subsequently
denied by the PUCT and SPS was ordered to flow through 100% of the non-firm
off-system sales margin effective with the first billing cycle after the date of
the order. Upon appeal by SPS to the Travis County District Court in May 1996,
the PUCT's decision on the disallowed fuel costs was upheld. SPS appealed the
decision and on January 29, 1998 the Texas Court of Appeals upheld the PUCT
decision to disallow fuel costs. On March 16, 1998, SPS filed an appeal to the
Supreme Court of Texas.
SPS was named as a defendant in a case entitled Thunder Basin Coal Co. vs.
Southwestern Public Service Co., No. 93-CV304B (D. Wyo.). On November 1, 1994,
the jury returned a verdict in favor of Thunder Basin and awarded damages of
approximately $18.8 million. SPS appealed the judgment to the Tenth Circuit
Court of Appeals and, on January 7, 1997, that Court found in favor of Thunder
Basin and upheld the judgment. SPS filed a motion for rehearing which was
denied. In February 1997, SPS recorded the liability for the judgment including
interest and court costs. The amount of approximately $22.3 million was paid in
April 1997.
On September 17, 1996, the FERC issued an order granting SPS conditional
approval to collect the FERC jurisdictional portion of the Thunder Basin
judgment from wholesale customers. On October 24, 1997, the NMPUC issued an
order granting recovery of the New Mexico retail jurisdictional portion of the
judgment. On May 1, 1997, SPS filed a request with the PUCT to surcharge
undercollected fuel and purchased power expenses, which included $9.1 million of
the Thunder Basin judgment. In November 1997, the PUCT issued a decision which
denied recovery of the judgment through a surcharge, on the grounds that the
costs are not classified as fuel costs. In 1997, SPS expensed approximately
$12.1 million of the Texas retail jurisdictional portion of the Thunder Basin
judgment and recognized an equal amount as deferred revenue in anticipation of
future recovery through the fuel reconciliation proceeding.
SPS believes that recovery of the Thunder Basin costs for the Texas retail
jurisdiction will be approved in a fuel reconciliation proceeding in 1998, but
cannot predict the ultimate outcome. Under the PUCT regulations, a utility may
recover eligible fuel expenses or fuel-related expenses, which result in
benefits to customers that exceed the costs that customers would otherwise have
to pay. The Thunder Basin costs resulted in total net savings to customers of
$8.9 million, of which $4.8 million net savings is attributable to Texas retail
jurisdictional customers.
20
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
Electric Department Earnings Test and Quality of Service Plan
PSCo
The CPUC's decision on the Merger implemented an electric department
earnings test with the sharing of earnings in excess of an 11% return on equity
for the calendar years 1997-2001 as follows:
Electric Department Sharing of Excess Earnings
Return on Equity Customers Shareholders
---------------- --------- ------------
11-12% 65% 35%
12-14% 50% 50%
14-15% 35% 65%
over 15% 100% 0%
The CPUC's decision on the Merger also implemented a QSP which provides
for bill credits totaling up to $5 million in year one and increasing to $11
million in year five, if PSCo does not achieve certain performance measures
relating to electric reliability, customer complaints and telephone response to
inquiries. On October 15, 1997, the CPUC issued an order addressing the
implementation of a reward mechanism in the QSP which provides up to $3 million
of annual rewards if PSCo achieves certain performance measures relating to
electric reliability.
On April 1, 1998, PSCo filed with the CPUC its proposed Performanced-Based
Regulatory Plan adjustment for calendar year 1997. This adjustment will provide
the means for implementing the sharing mechanism for the customers' portion of
earnings over PSCo's authorized return on equity threshold resulting from the
1997 electric department earnings test, net of QSP reward earned revenue. As of
December 31, 1997, PSCo recorded an estimated customer refund obligation of
approximately $16.4 million related to the 1997 electric department earnings
test, net of QSP rewards. As of March 31, 1998, PSCo has recorded a liability of
approximately $5.6 million for the 1998 electric department earnings test.
4. Commitments and Contingencies (NCE, PSCo and SPS)
Environmental Issues
The Company and its subsidiaries are subject to various environmental
laws, including regulations governing air and water quality and the storage and
disposal of hazardous or toxic wastes. The Company and its subsidiaries assess,
on an ongoing basis, measures to ensure compliance with laws and regulations
related to air and water quality, hazardous materials and hazardous waste
compliance and remediation activities.
Environmental Site Cleanup
As described below, PSCo has been or is currently involved with the clean
up of contamination from certain hazardous substances. In all situations, PSCo
is pursuing or intends to pursue insurance claims and believes it will recover
some portion of these costs through such claims. Additionally, where applicable,
PSCo intends to pursue recovery from other Potentially Responsible Parties
("PRPs"). To the extent such costs are not recovered, PSCo currently believes it
is probable that such costs will be recovered through the rate regulatory
process. To the extent any costs are not recovered through the options listed
above, PSCo would be required to recognize an expense for such unrecoverable
amounts.
Under the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), the U.S. Environmental Protection Agency ("EPA") identified, and
a Phase II environmental assessment revealed, low level, widespread
contamination from hazardous substances at the Barter Metals Company ("Barter")
properties located in
21
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
central Denver. For an estimated 30 years, PSCo sold scrap metal and electrical
equipment to Barter for reprocessing. PSCo has completed the cleanup of this
site at a cost of approximately $9 million and has received responses from the
Colorado Department of Public Health and Environment ("CDPHE") indicating that
no further action is required related to these properties. On January 3, 1996,
in a lawsuit by PSCo against its insurance providers, the Denver District Court
entered final judgment in favor of PSCo in the amount of $5.6 million for
certain cleanup costs at Barter. Several appeals and cross appeals have been
filed by one of the insurance providers and PSCo in the Colorado Court of
Appeals. The insurance provider has posted supersedeas bonds in the amount of
$9.7 million ($7.7 million attributable to the Barter judgment). On July 10,
1997, the Colorado Court of Appeals overturned the previously awarded $7.7
million judgment on the basis that the jury had not been properly instructed by
the Judge regarding a narrow issue associated with certain policies. Previously,
PSCo had received certain insurance settlement proceeds from other insurance
providers for Barter and other contaminated sites and a portion of those funds
remains to be allocated to this site by the trial court. In addition, in August
1996, PSCo filed a lawsuit against four PRPs seeking recovery of certain Barter
related costs. Settlement has been achieved with two smaller PRP's. On December
16, 1997, the U. S. District Court awarded summary judgment in favor of the
remaining PRPs, on the basis PSCo failed to follow CERCLA guidelines in the
cleanup. On January 15, 1998, PSCo appealed the summary judgment to the U.S.
Court of Appeals. In March 1998, PSCo sold the remaining Barter properties, and
the total proceeds of were $1.2 million.
PCB presence was identified in the basement of an historic office building
located in downtown Denver. The Company was negotiating the future cleanup with
the current owners; however, on October 5, 1993, the owners filed a civil action
against PSCo in the Denver District Court. The action alleged that PSCo was
responsible for the PCB releases and additionally claimed other damages in
unspecified amounts. On August 8, 1994, the Denver District Court entered a
judgment approving a $5.3 million offer of settlement between PSCo and the
building owners resolving all claims. In December 1995, complaints were filed by
PSCo against all applicable insurance carriers in the Denver District Court. On
June 30, 1997, the Court ruled in favor of the carriers on summary judgment
motions addressing late notice and other issues. On August 27, 1997, PSCo filed
an appeal of the decision with the Colorado Court of Appeals. Two carriers were
excluded from this proceeding; subsequently, one carrier received approval to be
dismissed on the same basis as the other carriers. In March 1998, PSCo reached a
settlement with the remaining carrier. The Company is pursuing the recovery of
$3.3 million net costs in the electric department earnings test over a three
year period.
In addition to these sites, PSCo has identified several other sites where
clean up of hazardous substances may be required. While potential liability and
settlement costs are still under investigation and negotiation, PSCo believes
that the resolution of these matters will not have a material adverse effect on
PSCo's financial position, results of operations or cash flows. PSCo fully
intends to pursue the recovery of all significant costs incurred for such
projects through insurance claims and/or the rate regulatory process.
Other Environmental Matters
Under the Clean Air Act Amendments of 1990 ("CAAA"), coal fueled power
plants are required to reduce SO2 and NOx emissions to specified levels through
a phased approach. PSCo's and SPS's facilities must comply with the Phase II
requirements, which will be effective in the year 2000. Currently, these
regulations permit compliance with SO2 emission limitations by using SO2
allowances allocated to plants by the EPA, using allowances generated by
reducing emissions at existing plants and by using allowances purchased from
other companies. The Company expects to meet the Phase II emission standards
placed on SO2 through the combination of: a) use of low sulfur coal, b) the
operation of air quality control equipment on certain generation facilities, and
c) allowances issued by the EPA and purchased from other companies. PSCo and SPS
will be required to modify certain boilers by the year 2000 to reduce the NOx
emissions in order to comply with Phase II requirements. The estimated Phase II
costs for future plant modifications to meet NOx requirements is approximately
$14.4 million for PSCo's Cherokee Unit 1 and 2 and Arapahoe Unit 3.
SPS installed two new gas turbines at its Cunningham Station in 1997. The
two gas turbine units have undergone performance testing to meet the
requirements of the air quality permit. The test results indicated the units may
22
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
not be in compliance with certain emission limitations. SPS is working with the
vendor and the New Mexico Environmental Department to ensure compliance with all
permit limits.
PSCo has announced its intention to spend approximately $211 million on
its Denver and Boulder Metro area coal-fueled power plants to further reduce
such emissions below the required regulatory levels discussed above, but will
only do so if the following three conditions are met: 1) the Colorado General
Assembly and the CPUC approve recovery of these costs, 2) PSCo obtains
flexibility in operating the plants and 3) PSCo is assured the emission
reduction plan is sufficient to meet future state requirements for 15 years.
Hayden Steam Electric Generating Station
On May 21, 1996, PSCo and the other joint owners of Hayden Station reached
an agreement resolving violations alleged in complaints filed by a conservation
organization, the CDPHE and the EPA against the joint owners. PSCo is the
operator and owns an average undivided interest of approximately 53% of the
station's two generating units. In connection with the settlement, the joint
owners of the Hayden station were required to install emission control equipment
of approximately $130 million (PSCo's portion is approximately $70 million). The
settlement included stipulated future penalties for failure to comply with the
terms of the agreement, including specific provisions related to meeting
construction deadlines associated with the installation of additional emission
control equipment and complying with particulate, SO2 and NOx emissions
limitations. In August 1996, the U.S. District Court for the District of
Colorado entered the settlement agreement which effectively resolved this
litigation. The Company is completing the installation of the emission control
equipment.
Craig Steam Electric Generating Station
On October 9, 1996, a conservation organization filed a complaint in the
U.S. District Court pursuant to provisions of the Federal Clean Air Act (the
"Act") against the joint owners of the Craig Steam Electric Generating Station
located in western Colorado. Tri-State Generation and Transmission Association,
Inc. is the operator of the Craig station and PSCo owns an undivided interest
(acquired in April 1992) in each of two units at the station totaling
approximately 9.7%. The plaintiff alleged that: 1) the station exceeded the 20%
opacity limitations in excess of 14,000 six minute intervals during the period
extending from the first quarter of 1991 through the second quarter of 1996, and
2) the owners failed to operate the station in a manner consistent with good air
pollution control practices. The complaint seeks, among other things, civil
monetary penalties and injunctive relief. The Act provides for penalties of up
to $25,000 per day per violation, but the level of penalties imposed in any
particular instance is discretionary. A settlement conference was held in
February 1998, although no settlement was reached. Resolution of this matter may
require installation of emission control equipment. Management does not believe
that this potential liability, the future impact of this litigation on plant
operations, or any related cost will have a material adverse impact on PSCo's
financial position, results of operations, or cash flows.
Pepsi Center
Hazardous substances resulting from manufactured gas plant operations have
been identified at the site of the Pepsi Center, a sports arena under
construction in lower downtown Denver. The site owners have approached PSCo,
seeking recovery of most of the costs of cleanup of the site. Total estimated
soil cleanup costs range from $1-2 million. The estimate does not include
potential costs to clean up affected ground water contamination, if any exists.
PSCo's insurance carriers have been notified.
Fort St. Vrain
In 1989, PSCo announced its decision to end nuclear operations at Fort St.
Vrain. Defueling of the reactor to the Independent Spent Fuel Storage
Installation ("ISFSI") was completed in June 1992. In March 1996, PSCo and the
decommissioning contractors announced that the physical decommissioning
activities at the facility had been completed. The final site survey was
completed in late October 1996. On August 5, 1997, the NRC approved PSCo's
request to
23
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
terminate the Part 50 license. This concluded the decommissioning activities as
the facilities and site were released for unrestricted use.
On February 9, 1996, PSCo and the DOE entered into an agreement resolving
all the defueling issues. As part of this agreement, PSCo has agreed to the
following: 1) the DOE assumed title to the fuel currently stored in the ISFSI,
2) the DOE will assume title to the ISFSI and will be responsible for the future
defueling and decommissioning of the facility, 3) the DOE agreed to pay PSCo $16
million for the settlement of claims associated with the ISFSI, 4) ISFSI
operating and maintenance costs, including licensing fees and other regulatory
costs, will be the responsibility of the DOE, and 5) PSCo provided to the DOE a
full and complete release of claims against the DOE resolving all contractual
disputes related to storage/disposal of Fort St. Vrain spent nuclear fuel. On
December 17, 1996, the DOE submitted a request to the NRC to transfer the title
of the ISFSI. This request is being reviewed by the NRC and PSCo anticipates
approval in late-1998.
Under the Price-Anderson Act, PSCo remains subject to potential
assessments levied in response to any nuclear incidents prior to early 1994.
PSCo continues to maintain primary commercial nuclear liability insurance of
$100 million for the Fort St. Vrain site and the adjoining ISFSI. PSCo also
maintains coverage of $20.4 million to provide property damage and
decontamination protection in the event of an accident involving the ISFSI.
Employee Matters
Several employee lawsuits have been filed against PSCo involving alleged
discrimination or workers' compensation issues which have arisen during the
normal course of business. Also, lawsuits have been filed against PSCo alleging
breach of certain fiduciary duties to employees. The plaintiffs lawsuits are in
various stages of litigation and/or appeal(s), including settlement discussions,
with the appropriate state and federal judicial courts. PSCo intends to contest,
or is actively contesting, all such lawsuits, and believes the ultimate outcome
will not have a material adverse impact on PSCo's financial position, results of
operations or cash flows.
During 1996, ninety former Information Technology and Systems ("IT&S")
employees filed a lawsuit against the Company. The complaint alleged that PSCo
unfairly amended its severance plan in connection with a restructuring in late
1994 to exclude the IT&S function/positions that were outsourced to a subsidiary
of IBM, effective February 1, 1995. On June 16, 1997, the Denver District Court
issued a decision in favor of the former IT&S employees and awarded
approximately $1.6 million in severance costs and, in a judgment on October 10,
1997, the former IT&S employees were awarded interest and attorney fees as well,
making the total judgment against PSCo $2.1 million. An additional case with 153
former IT&S employees was filed asserting identical claims. Settlement on both
cases was achieved in early 1998. During 1997, PSCo accrued related costs,
including estimated interest and attorney fees. In early 1998, two additional
lawsuits, asserting identical claims, were filed on behalf of a total of 26
former IT&S employees.
Year 2000 Costs
The Company has further refined its initial estimates and now expects to
incur costs of approximately $35-40 million during 1998 and 1999 to modify its
computer software, hardware and other automated systems used in operations
enabling proper data processing relating to the year 2000 and beyond. The
majority of these costs will be incurred by or allocated to the Company's
operating utilities, primarily PSCo and SPS. The Company continues to evaluate
appropriate courses of corrective action, including the replacement of certain
systems. A significant portion of these costs will represent the redeployment of
existing information technology resources. If such modifications and conversions
are not completed on a timely basis, the year 2000 problem may have a material
impact on the operations of the Company. Management does not anticipate these
activities will have a material adverse impact on the financial position,
results of operations or cash flows of the Company or its subsidiaries.
24
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
5. Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust
Holding Solely Subordinated Debentures (NCE, PSCo and SPS)
In October 1996, Southwestern Public Service Capital I, a wholly-owned trust
of SPS, issued in a public offering $100 million of its 7.85% Trust Preferred
Securities, Series A. The sole asset of the trust is $103 million principal
amount of SPS's 7.85% Deferrable Interest Subordinated Debentures, Series A due
September 1, 2036.
In May 1998, PSCo Capital Trust I, a wholly-owned trust of PSCo, issued in a
public offering $194 million of its 7.60% Trust Originated Preferred Securities.
The sole asset of the trust is $200 million principal amount of PSCo's 7.60%
Deferrable Interest Subordinated Debentures due June 30, 2038. The proceeds from
the issuance of the sale of the 7.60% Trust Originated Preferred Securities will
be used to redeem all of PSCo's outstanding preferred stock (totaling $181.8
million at March 31, 1998) on June 10, 1998.
6. Management's Representations (NCE, PSCo and SPS)
In the opinion of the registrants, the accompanying unaudited consolidated
condensed financial statements for NCE, PSCo and SPS include all adjustments
necessary for the fair presentation of the financial position of the Company and
its subsidiaries at March 31, 1998 and December 31, 1997 and the results of
operations and cash flows for the three months ended March 31, 1998 and 1997.
The consolidated condensed financial information and notes thereto should be
read in conjunction with the consolidated financial statements and notes
included in the combined 1997 Form 10-K for NCE, PSCo and SPS.
Because of seasonal and other factors, the results of operations for the
three months ended March 31, 1998 should not be taken as an indication of
earnings for all or any part of the balance of the year.
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NEW CENTURY ENERGIES, INC.:
We have reviewed the accompanying consolidated condensed balance sheet of New
Century Energies, Inc. (a Delaware corporation) and subsidiaries as of March 31,
1998, and the related consolidated condensed statements of income and cash flows
for the three-month periods ended March 31, 1998 and 1997. 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 New Century Energies, Inc. and
subsidiaries as of December 31, 1997 (not presented herein), and, in our report
dated February 13, 1998, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying consolidated
condensed balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
May 14, 1998
26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO PUBLIC SERVICE COMPANY OF COLORADO:
We have reviewed the accompanying consolidated condensed balance sheet of Public
Service Company of Colorado (a Colorado corporation) and subsidiaries as of
March 31, 1998, and the related consolidated condensed statements of income and
cash flows for the three-month periods ended March 31, 1998 and 1997. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Public Service Company of Colorado
and subsidiaries as of December 31, 1997 (not presented herein), and, in our
report dated February 13, 1998, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 1997, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
May 14, 1998
27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SOUTHWESTERN PUBLIC SERVICE COMPANY:
We have reviewed the accompanying condensed balance sheet of Southwestern Public
Service Company (a New Mexico corporation) as of March 31, 1998, and the related
condensed statements of income and cash flows for the three-month periods ended
March 31, 1998 and 1997. 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 balance sheet of Southwestern Public Service Company as of
December 31, 1997 (not presented herein), and, in our report dated February 13,
1998, we expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying condensed balance sheet as of December
31, 1997, is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Denver, Colorado,
May 14, 1998
28
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (NCE, PSCo and SPS)
NCE's Management's Discussion and Analysis of Financial Condition and Results
of Operations
Earnings
Earnings per share were $0.78 for the first quarter of 1998 as compared to
$0.75 for the first quarter of 1997. The higher earnings were primarily
attributable to moderate increases in electric and gas sales resulting from
continued customer growth. The increased sales were mitigated to a certain
degree by mild weather experienced during the current period.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the first quarter of 1998 as compared to the same period in
1997.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Electric operating revenues:
Retail............................................... $ 4,065
Wholesale............................................ 471
Non-regulated power marketing........................ 9,716
Other (including unbilled revenues and provision for
rate refunds) .................................... (2,621)
------
Total revenues...................................... 11,631
Fuel used in generation............................... (7,960)
Purchased power....................................... 21,031
-------
Net decrease in electric margin..................... $(1,440)
=======
The following table compares electric Kwh sales by major customer classes
for the first quarter of 1998 and 1997.
Millions of Kwh Sales
1998 1997 %Change *
---- ---- ---------
Residential ............................... 2,680 2,620 2.3%
Commercial and Industrial ................ 6,592 6,502 1.4
Public Authority .......................... 181 179 0.9
----- -----
Total Retail............................. 9,453 9,301 1.6
Wholesale.................................. 2,736 2,291 19.4
Non-regulated power marketing.............. 823 367 **
----- -----
Total...................................... 13,012 11,959 8.8
====== ======
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Electric margin decreased slightly in the first quarter of 1998, when
compared to the first quarter of 1997, despite a 1.6% increase in total retail
sales and an 8.8% increase in total sales. PSCo's recognition of an estimated
customer refund obligation (approximately $5.6 million in the first quarter
1998, while no obligation was recorded in the first quarter 1997) in connection
with the earnings sharing in excess of 11% return on equity which resulted for
the settlement of the Merger proceedings in Colorado (see Note 3. Regulatory
Matters in Item 1. FINANCIAL STATEMENTS) and PSCo's retail rate reductions
(approximately $1.6 million) implemented in February 1997 were the primary
contributors to the decrease. PSCo's higher non-firm wholesale electric sales
contributed to increased revenues, but had little impact on electric margin. SPS
for the same period had lower wholesale revenues attributable to mild wet
weather during the first quarter of 1998 negating the need for irrigation.
29
The Company's regulated subsidiaries had cost adjustment mechanisms which
recognize the majority of the effects of changes in fuel used in generation and
purchased power costs and allow recovery of such costs on a timely basis. PSCo's
ICA, which allows for a 50%/50% sharing of certain fuel and energy cost
increases and decreases among customers and shareholders, did not significantly
impact electric margin for the first quarter of 1998 or 1997 (see Note 3.
Regulatory Matters in Item 1. FINANCIAL STATEMENTS).
Fuel used in generation expense decreased approximately $8.0 million
during the first quarter of 1998 as compared to the same quarter in 1997. Lower
prices of coal and natural gas at SPS were offset by increased generation levels
at PSCo.
Purchased power expense increased during the first quarter of 1998, as
compared to the same quarter in 1997, primarily due to an increase in power
marketing activities at the Company's non-regulated subsidiaries.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the first quarter of 1998 as compared to the same
period in 1997.
Increase (Decrease)
-------------------
(Thousands of Dollars)
Revenues from gas sales (including unbilled revenues). $26,806
Gas purchased for resale.............................. 17,923
-------
Net increase in gas sales margin..................... $ 8,883
=======
The following table compares gas Dth deliveries by major customer classes
for the first quarter of 1998 and 1997.
Millions of Dth Deliveries
--------------------------
1998 1997 % Change *
---- ---- ----------
Residential................................ 39.9 39.6 1.0%
Commercial................................. 19.3 21.3 (9.5)
Non-regulated gas marketing................ 16.4 15.6 4.7
----- -----
Total Sales.............................. 75.6 76.5 (1.2)
Transportation............................. 27.5 25.2 9.3
----- -----
Total.................................... 103.1 101.7 1.4
===== =====
* Percentages are calculated using unrounded amounts
Gas sales margin increased during the first quarter of 1998, when compared
to the first quarter of 1997, primarily due to an increase in PSCo's base
revenues associated with the higher rates effective February 1, 1997, resulting
from the 1996 rate case (see Note 3. Regulatory Matters in Item 1.
FINANCIAL STATEMENTS).
Gas transportation, gathering and processing revenues increased $1.3
million during the first quarter of 1998, when compared to the first quarter of
1997, primarily due to higher transportation rates effective February 1, 1997,
resulting from the Company's 1996 rate case (see Note 3. Regulatory Matters in
Item 1. FINANCIAL STATEMENTS).
PSCo and Cheyenne have in place a GCA mechanism for natural gas sales,
which recognizes the majority of the effects of changes in the cost of gas
purchased for resale and adjusts revenues to reflect such changes in cost on a
timely basis. As a result, the changes in revenues associated with these
mechanisms during the first quarter of 1998, as compared to the first quarter of
1997, had little impact on net income. However, the fluctuations in gas sales
impact the amount of gas the Company's gas utilities must purchase and,
therefore, along with the increases and decreases in the per-unit cost of gas,
affect total gas purchased for resale. The higher per-unit
30
average cost of gas during the first quarter of 1998, along with an increase in
the quantity of gas purchased, contributed to the increase in cost of gas
purchased for resale.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses increased $12.6 million during
the first quarter of 1998, as compared to the same period in 1997, primarily due
to higher operating costs from non-regulated operations and higher advertising
costs, offset, in part, by lower labor and employee benefit costs attributable
to the Company's overall costs containment efforts.
Other income and deductions increased approximately $6.1 million during
the first quarter of 1998, when compared to the first quarter of 1997, primarily
due to the recognition of equity earnings in Yorkshire Power and a decrease in
merger expenses.
Interest charges increased $2.4 million during the first quarter of 1998,
when compared to the same quarter in 1997, primarily due to interest on
borrowings utilized to finance capital expenditures and the April 1997
investment in Yorkshire Power (see Note 2 Investment in Yorkshire Power in Item
1. FINANCIAL STATEMENTS).
Commitments and Contingencies
Issues relating to regulatory matters, environmental issues, employee
lawsuits and Year 2000 costs are discussed in Notes 3 and 4 in Item 1. FINANCIAL
STATEMENTS. These matters and the future resolution thereof may impact the
Company's future results of operations, financial position or cash flows.
Based on a preliminary analysis, the Company expects to incur costs of
approximately $35-40 million over the next two years to modify its computer
software, hardware and other automated systems used in operations enabling
proper data processing relating to the year 2000 and beyond. The majority of
these costs will be incurred by or allocated to the Company's operating
utilities, primarily PSCo and SPS. The Company continues to evaluate appropriate
courses of corrective action, including the replacement of certain systems. A
significant portion of these costs will represent the redeployment of existing
information technology resources. If such modifications and conversions are not
completed on a timely basis, the year 2000 problem may have a material impact on
the operations of the Company. Management does not anticipate these activities
will have a material adverse impact on the financial position, results of
operations or cash flows of the Company or its subsidiaries.
Common Stock Dividend
During the first quarter, the Board of Directors approved a $0.58 per
share dividend payable to shareholders of the Company. The Company's common
stock dividend level is dependent upon the Company's results of operations,
financial position, cash flows and other factors. The Board of Directors of the
Company will continue to evaluate the common stock dividend on a quarterly
basis.
Liquidity and Capital Resources
Cash Flows - Three Months Ended March 31
1998 1997 Increase
---- ---- --------
Net cash provided by operating
activities (in millions) ............. $207.8 $79.9 $127.9
Cash provided by operating activities increased during the first quarter
of 1998, when compared to the first quarter of 1997, primarily due to the
decrease in payments to gas suppliers resulting from lower gas costs during the
first quarter of 1998 as compared to the first quarter of 1997. A portion of
these lower gas costs have been deferred through the GCA and have reduced the
amount to be recovered from customers in the future.
31
1998 1997 Increase
---- ---- --------
Net cash used in investing
activities (in millions) ............ $(122.3) $(85.6) $(36.7)
Cash used in investing activities increased during 1998, when compared to
1997, primarily due to an increase in construction expenditures and the purchase
of certain leased assets.
1998 1997 Decrease
---- ---- --------
Net cash provided by (used in) financing
activities (in millions) ............. $ (82.1) $374.8 $(456.9)
Cash provided by financing activities decreased during 1998, when compared
to 1997, primarily due to PSCo's issuance of medium-term notes in January and
March 1997. The proceeds from the $75 million financing by PSCo in January 1997
and the $250 million financing by PSCo in March 1997 were used to fund
construction expenditures and the investment in Yorkshire POWER. See Note 2.
Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS.
Financing Activities
Long-Term Debt
In April 1998, PSCo issued $250 million of 6% First Collateral Trust Bonds
due April 15, 2003. The proceeds will be used for general corporate purposes and
to repay short-term and other debt incurred for such purposes.
Obligated Mandatorily Redeemable Preferred Securities
In May 1998, PSCo Capital Trust I, a wholly-owned trust of PSCo, issued in
a public offering $194 million of its 7.60% Trust Originated Preferred
Securities. The sole asset of the trust is $200 million principal amount of
PSCo's 7.60% Deferrable Interest Subordinated Debentures due June 30, 2038. The
proceeds from the issuance of the sale of the 7.60% Trust Originated Preferred
Securities will be used to redeem all of PSCo's outstanding preferred stock
(totaling $181.8 million at March 31, 1998) on June 10, 1998.
Electric Utility Industry
Electric utilities have historically operated in a highly regulated
environment in which they have an obligation to provide electric service to
their customers in return for an exclusive franchise within their service
territory with an opportunity to earn a regulated rate of return. This
regulatory environment is changing. The generation sector has experienced
competition from nonutility power producers and the FERC is requiring utilities,
including the Company, to provide wholesale transmission service to others and
may order electric utilities to enlarge their transmission systems to facilitate
transmission services without impairing reliability. State regulatory
authorities are in the process of changing utility regulations in response to
federal and state statutory changes and evolving markets, including
consideration of providing open access to retail customers. All of the Company's
jurisdictions continue to evaluate utility regulations with respect to
competition. The Company is unable to predict what financial impact or effect
the adoption of these proposals would have on its operations.
32
PSCo's Management's Discussion and Analysis of Financial Condition and
Results of Operations
Merger
Effective August 1, 1997, following receipt of all required state and
Federal regulatory approvals, PSCo and SPS merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE, which is a
registered holding company under PUHCA. This transaction was accounted for as a
pooling of interests for accounting purposes. Effective with the Merger,
Cheyenne, WGI, e prime and Natural Fuels were transferred by a declaration of a
dividend of the subsidiaries' stock, at net book value, aggregating
approximately $49.9 million, to NCE. NCE subsequently made a capital
contribution of the e prime and Natural Fuels common stock, at net book value,
aggregating approximately $29.5 million, to NC Enterprises. See Note 1. Summary
of Significant Accounting Policies in Item 1. FINANCIAL STATEMENTS for
additional discussion regarding PSCo, the Merger and the transfer of Cheyenne,
WGI, e prime and Natural Fuels. The consolidated statements of income and cash
flows for the three months ended March 31, 1997 reflect the results of
operations of Cheyenne, WGI, e prime and Natural Fuels. Where relevant,
additional information has been presented to discuss the impact of the transfer
of these subsidiaries.
Earnings Available for Common Stock
Earnings increased approximately 10% to $66.0 million for the first
quarter of 1998, as compared to $59.9 million for the first quarter of 1997. The
increase was primarily attributable to an increase in the gas margin resulting
from an increase in rates which were effective February 1, 1997, and lower labor
and employee benefit costs and other general reductions resulting from the
Merger and continued cost containment efforts.
Electric Operations
The following table details the change in electric operating revenues and
energy costs for the three months ended March 31, 1998, as compared to the same
period in 1997 (in thousands of dollars).
Increase (Decrease)
-------------------
Cheyenne
PSCo Only &e prime Consolidated
--------- -------- ------------
Electric operating revenues:
Retail..................................... $ 7,956 $ (9,612) $ (1,656)
Wholesale - regulated...................... 11,719 - 11,719
Non-regulated power marketing.............. - (5,648) (5,648)
Other (including unbilled revenues and
provision for rate refunds).............. (2,927) 95 (2,832)
------ -- ------
Total revenues............................ 16,748 (15,165) 1,583
Fuel used in generation..................... 6,368 - 6,368
Purchased power............................. 14,115 (12,684) 1,431
------- -------- -------
Net decrease in electric margin.......... $(3,735) $ (2,481) $ (6,216)
======== ======== ========
The following table compares electric Kwh sales by major customer classes
for the three months ended March 31, 1998 and 1997.
Millions of Kwh Sales % Change *
-------------------- ----------
1998 1997 Consolidated PSCo Only
---- ---- ------------ ---------
Residential ..................... 1,856 1,867 (0.6)% 2.7%
Commercial and Industrial ...... 3,755 3,842 (2.3) 1.9
Public Authority ................ 47 48 (1.6) .8
----- ------
Total Retail................... 5,658 5,757 (1.7) 2.2
Wholesale - Regulated............ 1,493 850 75.6 75.6
Non-regulated Power Marketing.... - 367 ** -
----- ------
Total............................ 7,151 6,974 2.5 11.9
===== ======
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
33
Electric margin decreased in the first quarter of 1998, when compared to
the first quarter of 1997, primarily due to the recognition of an estimated
customer refund obligation (approximately $5.6 million in the first quarter of
1998 while no obligation was recognized in the first quarter of 1997) in
connection with the earnings sharing in excess of 11% return on equity which
resulted from the settlement of the Merger proceedings in Colorado (see Note 3.
Regulatory Matters in Item 1. FINANCIAL STATEMENTS) and the retail rate
reductions (approximately $1.6 million) implemented in February 1997. Electric
margin, however, was favorably impacted by an overall increase in PSCo's retail
sales of 2.2% resulting primarily from customer growth of approximately 2.8%.
Higher wholesale electric sales also contributed to increased operating
revenues, however, the margin on such sales is minimal.
PSCo has cost adjustment mechanisms which recognize the majority of the
effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. PSCo's ICA, which allows for a
50%/50% sharing of certain fuel and energy cost increases and decreases among
customers and shareholders, did not significantly impact the electric margin for
the first quarter of 1998 or 1997 (see Note 3. Regulatory Matters in Item 1.
FINANCIAL STATEMENTS).
Fuel used in generation expense increased approximately $6.4 million
during the first quarter of 1998, as compared to the same quarter in 1997 due to
increased generation levels at PSCo's power plants.
Purchased power expense increased slightly during the first quarter of
1998, as compared to the same quarter in 1997, primarily due to purchases to
meet increased wholesale requirements and other customer demands.
Gas Operations
The following table details the change in revenues from gas sales and gas
purchased for resale for the first quarter of 1998, as compared to the same
period in 1997 (in thousands of dollars).
Increase (Decrease)
-----------------
Cheyenne
Natural Fuels
WGI &
PSCo Only e prime Consolidated
--------- ------- ------------
Revenues from gas sales
(including unbilled revenues) ...... $28,760 $ (56,055) $ (27,295)
Gas purchased for resale.............. 21,926 (52,433) (30,507)
------ -------- --------
Net increase(decrease)in gas
sales margin....................... $6,834 $ (3,622) $ 3,212
====== ========= =========
The following table compares gas Dth deliveries by major customer classes
for the first quarter of 1998 and 1997.
Millions of Dth Deliveries % Change *
1998 1997 Consolidated PSCo Only
---- ---- ------------ ---------
Residential................... 38.8 39.6 (1.8)% 0.9%
Commercial.................... 18.4 21.3 (13.7) (10.4)
Non-regulated gas marketing... - 15.6 ** -
----- ----
Total sales................. 57.2 76.5 (25.2) (3.0)
Transportation, gathering and
processing ................. 23.3 25.2 (7.6) 13.3
----- ----
Total....................... 80.5 101.7 (20.8) 1.2
===== =====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased during the first quarter of 1998, when compared
to the first quarter of 1997, primarily due to an increase in PSCo's base
revenues associated with the higher rates effective February 1, 1997,
34
resulting from the 1996 rate case. This increase was offset, in part, by a 3.0%
decrease in sales which resulted from warmer weather during the first quarter of
1998 despite a 2.7% increase in customers.
Gas transportation, gathering and processing revenues increased
approximately $1.2 million during the first quarter of 1998, when compared to
the first quarter of 1997, primarily due to higher transportation rates
effective February 1, 1997, resulting from PSCo's 1996 rate case and an increase
in transport deliveries. The increase in transport deliveries continues to be
impacted by the shifting of various commercial customers to transport customers.
PSCo has in place a GCA mechanism for natural gas sales, which recognizes
the majority of the effects of changes in the cost of gas purchased for resale
and adjusts revenues to reflect such changes in cost on a timely basis. As a
result, the changes in revenues associated with these mechanisms during the
first quarter of 1998, as compared to the first quarter of 1997, had little
impact on net income. However, the fluctuations in gas sales impact the amount
of gas PSCo must purchase and, therefore, along with the increases and decreases
in the per-unit cost of gas, affect total gas purchased for resale. The lower
per-unit average cost of gas during the first quarter of 1998, along with a
decrease in the quantity of gas purchased, contributed to the decrease in cost
of gas purchased for resale.
Non-Fuel Operating Expenses and Other Income and Deductions
Other operating and maintenance expenses decreased approximately $4.2
million during the first quarter of 1998, as compared to the first quarter of
1997. Excluding the effects of the sale of Cheyenne, WGI, e prime and Natural
Fuels, other operating and maintenance expenses decreased approximately $3.1
million due to lower labor and employee benefit costs and other general
reductions resulting from the Merger.
Taxes other than income taxes decreased approximately $2.5 million during
the first quarter of 1998, as compared to the first quarter of 1997. Excluding
the effects of the sale of Cheyenne, WGI, e prime and Natural Fuels, taxes other
than income taxes decreased approximately $2.0 million primarily due to lower
property tax accruals.
Other income and deductions increased approximately $3.4 million during
the first quarter of 1998, when compared to the first quarter of 1997, primarily
due to the recognition of equity earnings in Yorkshire Power ($3.4 million). On
March 31, 1998, NCI and its subsidiaries, including Yorkshire Power, were
transferred through the sale by PSCo of all the outstanding common stock at net
book value (approximately $292.6 million), to NC Enterprises, an intermediate
holding company for NCE, and received as consideration a promissory note from NC
Enterprises. See Note 2. Investment in Yorkshire Power in Item 1. FINANCIAL
STATEMENTS. Merger and business integration costs decreased approximately $1.7
million in the first quarter of 1998, as compared to the first quarter of 1997.
Miscellaneous income and deductions-net, changed primarily due to a decrease in
interest income as a result of higher investment balances during the first
quarter of 1997 from the proceeds of financings for the Yorkshire Power
investment.
Interest charges increased approximately $1.2 million during the first
quarter of 1998, as compared to the first quarter of 1997, primarily due to
interest on borrowings utilized to finance capital expenditures and the April
1997 investment in Yorkshire Power (see Note 2. Investment in Yorkshire Power in
Item 1. FINANCIAL STATEMENTS).
Commitments and Contingencies
See Note 4. Commitments and Contingencies in Item 1. FINANCIAL
STATEMENTS.
35
Liquidity and Capital Resources
Cash Flows - Three Months Ended March 31
1998 1997 Increase
---- ---- --------
Net cash provided by operating activities
(in millions) .......................... $177.7 $68.2 $109.5
Cash provided by operating activities increased during the first quarter
of 1998, when compared to the first quarter of 1997, primarily due to the
decrease in payments to gas suppliers resulting from lower gas costs during the
first quarter of 1998 as compared to the first quarter of 1997. A portion of
these lower gas costs have been deferred through the GCA and have reduced the
amount to be recovered from customers in the future.
1998 1997 Increase
---- ---- --------
Net cash used in investing activities
(in millions) ......................... $(101.0) $(52.5) $ (48.5)
Cash used in investing activities increased during the first quarter of
1998, when compared to the first quarter of 1997, primarily due to higher
construction expenditures and the purchase of certain leased assets.
1998 1997 Increase
---- ---- --------
Net cash provided by(used in)financing
activities (in millions) ............. $ (75.9) $343.3 $(419.2)
Cash provided by financing activities decreased during the first quarter
of 1998, when compared to the first quarter of 1997, primarily due to the
issuance of $75 million and $250 million of medium-term notes in January and
March 1997, respectively. The proceeds from these financings were used to fund
PSCo's construction program and the investment in Yorkshire Power. See Note 2.
Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS.
Financing Activities Subsequent to March 31, 1998
Discussion relating to PSCo's financing activities subsequent to March 31,
1998, is covered under "Financing Activities" in NCE's Management's Discussion
and Analysis of Financial Condition and Results of Operations.
36
SPS's Management's Discussion and Analysis of Financial Condition and Results
of Operations
Merger
Effective August 1, 1997, following receipt of all required state and
Federal regulatory approvals, SPS and PSCo merged in a tax-free "merger of
equals" transaction and became wholly-owned subsidiaries of NCE, which is a
registered holding company under PUHCA. This transaction was accounted for as a
pooling of interests for accounting purposes. Effective with the Merger, Quixx
and UE, previously wholly-owned subsidiaries, were transferred through the sale
by SPS of all of the outstanding common stock of such subsidiaries at net book
value, to NC Enterprises, an intermediate holding company of NCE. The statements
of income and cash flows for the three months ended March 31, 1997 reflect the
results of operations of Quixx and UE.
Earnings Available for Common Stock
Earnings available for common stock were $18.1 million and $18.2 million
during the first quarter of 1998 and 1997, respectively. Operating income
decreased slightly with the sale of Quixx and UE and lower merger related costs
favorably impacted net income.
Operating Revenues
Electric Operations
Substantially all of SPS's operating revenues result from the sale of
electric energy. The principal factors impacting revenues are the amount and
price of energy sold. The following table details the change in electric
operating revenues and energy costs for the three months ended March 31, 1998 as
compared to the same period in 1997 (thousands of dollars).
Increase (Decrease)
------------------
Electric operating revenues:
Retail.............................. $(3,884)
Wholesale........................... (11,248)
Other (including unbilled revenues). 369
-------
Total revenues.................... (14,763)
Fuel used in generation.............. (14,328)
Purchased power...................... (2,566)
-------
Net increase in electric margin... $ 2,131
=======
The following table compares electric Kwh sales by major customer classes
for the three months ended March 31, 1998 and 1997.
Millions of Kwh Sales
1998 1997 % Change*
---- ---- ---------
Residential ............ 764 753 1.4%
Commercial ............ 663 682 (2.9)
Industrial ............ 2,014 1,978 1.9
Public Authority ....... 132 131 1.0
----- -----
Total Retail.......... 3,573 3,544 0.8
Wholesale............... 1,243 1,441 (13.7)
----- -----
Total................... 4,816 4,985 (3.4)
===== =====
* Percentages are calculated using unrounded amounts.
37
Electric operating revenues decreased $14.8 million or 6.9% during the
three months ended March 31, 1998, when compared to the same period in 1997,
primarily due to lower wholesale revenues and $1.1 million of merger savings
passed on to customers. The decrease in wholesale revenues is attributable to a
lower average selling price per Kwh and a decrease in Kwh sales resulting from
mild wet weather in 1998. Under the various state regulatory approvals, SPS is
required to provide credits to retail customers over five years for one-half of
the measured non-fuel operation and maintenance expense savings associated with
the Merger. SPS will provide a guaranteed minimum annual savings to retail
customers of $3.0 million in Texas, $1.2 million in New Mexico, $100,000 in
Oklahoma, $10,000 in Kansas and $1.5 million to wholesale customers.
Fuel used in generation expense decreased $14.3 million or 13.7% during
the first quarter of 1998, when compared to the same period in 1997, primarily
due to lower prices of coal and natural gas. The decrease in coal costs is
primarily due to the expiration of a coal supply contract in 1997 and
negotiation with a new supplier in 1998 for consumption at the Harrington
generating station. Cost of natural gas used in generation decreased, largely
due to the decrease in the market price of gas. Flexibility in the procurement
of gas supply under the spot market has provided for lower gas costs for the
first quarter of 1998. SPS purchased approximately 48% of its gas supply
requirements on the spot market during this first quarter of 1998. SPS
generation levels for 1998 and 1997 were comparable.
SPS has fuel cost adjustment mechanisms which recognize the majority of
the effects of changes in fuel used in generation and purchased power costs and
allow recovery of such costs on a timely basis. As a result, the changes in
revenues associated with these mechanisms during the first quarter of 1998, when
compared to the first quarter of 1997, had little impact on net income.
Purchased power decreased $2.6 million during the first quarter of 1998,
when compared to the same period in 1997, primarily due to decreased wholesale
purchases. SPS generates substantially all of its power for sale to its firm
retail and wholesale customers and sells non-firm energy as the market demands.
Similarly, SPS purchases low-cost non-firm energy when available.
Other Operating Revenues
Other operating revenues decreased $6.8 million during the first quarter
of 1998, when compared to the same period in 1997, primarily due to the sale of
Quixx and UE in connection with the Merger as discussed above.
Non-Fuel Operating Expenses
Other operating and maintenance expenses decreased $2.6 million during the
first quarter of 1998 as compared to the same period in 1997. Excluding the
effects of the sale of Quixx and UE, other operating and maintenance expenses
increased $1.8 million, primarily due to higher operation and maintenance costs
at one of SPS's steam plants that was non-operational in March 1998 and
increased costs associated with demand side management programs.
Income taxes increased $0.9 million during the first quarter of 1998,
primarily due to higher pre-tax income, when compared to the same period in
1997. Additional income tax expense was recognized in both years for
non-deductible merger costs resulting in an effective income tax for the first
quarter of 38.2% in 1998 and 36.1% in 1997.
Other Income and Deductions
Other income and deductions increased $3.6 million during the first
quarter of 1998, as compared to the same period in 1997, primarily due to lower
1998 merger and business integration expenses and higher interest income related
to the note receivable from NC Enterprises for the sale of Quixx and UE.
38
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part 1. See Note 4. Commitments and Contingencies in Item 1, Part 1.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Supplemental Indenture dated as of April 1, 1998, establishing a
series of PSCo First Mortgage Bonds under the Indenture dated as of
December 31, 1939.
4(b) Supplemental Indenture No. 7 dated as of April 1, 1998, establishing
a series of PSCo First Collateral Trust Bonds under the Indenture
dated as of October 1, 1993.
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for PSCo is set forth at page 41 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated
Combined Fixed Charges and Preferred Stock Dividends for PSCo is
set forth at page 42 herein.
12(c) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for SPS is set forth at page 43 herein.
15(a) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 44 herein for NCE.
15(b) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 45 herein for PSCo.
15(c) Letter from Arthur Andersen LLP regarding unaudited interim
information is set forth at page 46 herein for SPS.
27(a) Financial Data Schedule for NCE as of March 31, 1998.
27(b) Financial Data Schedule for PSCo as of March 31, 1998.
27(c) Financial Data Schedule for SPS as of March 31, 1998.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by PSCo since the beginning of the
first quarter of 1998.
- A report on Form 8-K dated April 28, 1998, was filed by PSCo on April
28, 1998. The item reported was Item 5. Other Events: Filing of Bond Purchase
Contract, dated as of April 15, 1998.
- A report on Form 8-K dated April 30, 1998, was filed by PSCo on April 30,
1998. The item reported was Item 5. Other Events: Selected consolidated
financial information for PSCo was presented for the three months ended March
31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995.
- A report on Form 8-K/A dated April 30, 1998, was filed by PSCo on May 1,
1998. The item reported was Item 5. Other Events: Selected consolidated
financial information for PSCo was presented for the three months ended March
31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995.
- A report on Form 8-K dated May 6, 1998 was filed by PSCo on May 14,1998.
The item reported was Item 5. Other Events: Filing of an underwriting
Agreement and other documents in connection with a financing.
39
NEW CENTURY ENERGIES, INC.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, New Century Energies, Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
14th day of May, 1998.
NEW CENTURY ENERGIES, INC.
By /s/ R. C. Kelly
---------------------------------
R. C. KELLY
Executive Vice President and
and Chief Financial Officer
PUBLIC SERVICE COMPANY OF COLORADO
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Public Service Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 14th day of May, 1998.
PUBLIC SERVICE COMPANY OF COLORADO
By /s/Brian P. Jackson
---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services and
Chief Financial Officer
SOUTHWESTERN PUBLIC SERVICE COMPANY
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Southwestern Public Service Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on the 14th day of May, 1998.
SOUTHWESTERN PUBLIC SERVICE COMPANY
By /s/Brian P. Jackson
---------------------------------
Brian P. Jackson
Senior Vice President, Finance and
Administrative Services and
Chief Financial Officer
40
EXHIBIT INDEX
4(a) Supplemental Indenture dated as of April 1, 1998, establishing a series of
PSCo First Mortgage Bonds under the Indenture dated as of December 31,
1939.
4(b) Supplemental Indenture No. 7 dated as of April 1, 1998, establishing a
series of PSCo First Collateral Trust Bonds under the Indenture dated as
of October 1, 1993.
12(a) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for PSCo is set forth at page 41 herein.
12(b) Computation of Ratio of Consolidated Earnings to Consolidated Combined
Fixed Charges and Preferred Stock Dividends for PSCo is set forth at page
42 herein.
12(c) Computation of Ratio of Consolidated Earnings to Consolidated Fixed
Charges for SPS is set forth at page 43 herein.
15(a) Letter from Arthur Andersen LLP regarding unaudited interim information is
set forth at page 44 herein for NCE.
15(b) Letter from Arthur Andersen LLP regarding unaudited interim information is
set forth at page 45 herein for PSCo.
15(c) Letter from Arthur Andersen LLP regarding unaudited interim information is
set forth at page 46 herein for SPS.
27(a) Financial Data Schedule for NCE as of March 31, 1998.
27(b) Financial Data Schedule for PSCo as of March 31, 1998.
27(c) Financial Data Schedule UT for SPS as of March 31, 1998.
41
EXHIBIT 12(a)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
Three Months Ended
March 31,
1998 1997
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt................... $27,600 $26,906
Interest on borrowings against corporate-owned
life insurance contracts................... 11,671 10,736
Other interest................................ 5,653 3,939
Amortization of debt discount and expense less
premium ................................... 978 928
Interest component of rental expense......... 2,061 2,583
------ ------
Total ..................................... $47,963 $45,092
======= =======
Earnings (before fixed charges and taxes on income):
Net income................................... $68,897 $62,881
Fixed charges as above....................... 47,963 45,092
Provisions for Federal and state taxes on
income, net of investment tax credit
amortization............................... 36,818 35,317
------- ------
Total...................................... $153,678 $143,290
======== ========
Ratio of earnings to fixed charges.............. 3.20 3.18
====== ======
42
EXHIBIT 12(b)
PUBLIC SERVICE COMPANY OF COLORADO
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(not covered by Report of Independent Public Accountants)
Three Months Ended
March 31,
1998 1997
---- ----
(Thousands of Dollars, except ratios)
Fixed charges and preferred stock dividends:
Interest on long-term debt.................... $27,600 $26,906
Interest on borrowings against corporate-owned
life insurance contracts................... 11,671 10,736
Other interest................................ 5,653 3,939
Amortization of debt discount and expense less
premium ................................... 978 928
Interest component of rental expense.......... 2,061 2,583
Preferred stock dividend requirement.......... 2,929 2,943
Additional preferred stock dividend requirement 1,565 1,653
----- -----
Total .................................... $52,457 $49,688
======= =======
Earnings (before fixed charges and taxes on income):
Net income.................................... $68,897 $62,881
Interest on long-term debt.................... 27,600 26,906
Interest on borrowings against corporate-owned
life insurance contracts................... 11,671 10,736
Other interest................................ 5,653 3,939
Amortization of debt discount and expense less
premium ................................... 978 928
Interest component of rental expense.......... 2,061 2,583
Provisions for Federal and state taxes on income,
net of investment tax credit amortization..... 36,818 35,317
------ -------
Total....................................... $153,678 $143,290
======== ========
Ratio of earnings to fixed charges
and preferred stock dividends................ 2.93 2.88
==== ====
43
EXHIBIT 12(c)
SOUTHWESTERN PUBLIC SERVICE COMPANY
AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
TO CONSOLIDATED FIXED CHARGES
(not covered by Report of Independent Public Accountants)
Three Months Ended
March 31,
1998 1997
---- ----
(Thousands of Dollars, except ratios)
Fixed charges:
Interest on long-term debt..................... $10,943 $11,025
Dividends on SPS obligated mandatorily redeemable
preferred securities........................ 1,963 1,963
Other interest................................. 2,579 1,026
Amortization of debt discount and expense less
premium .................................... 561 562
Interest component of rental expense........... 202 311
------ ------
Total ....................................... $16,248 $14,887
======= =======
Earnings (before fixed charges and taxes on income):
Net income..................................... $18,139 $18,218
Fixed charges as above......................... 16,248 14,887
Provisions for Federal and state taxes on income,
net of investment tax credit amortization...... 11,225 10,292
-------- --------
Total........................................ $45,612 $43,397
======= =======
Ratio of earnings to fixed charges................ 2.81 2.92
====== ======
44
EXHIBIT 15(a)
May 14, 1998
New Century Energies, Inc.:
We are aware that New Century Energies, Inc. has incorporated by reference
in its Registration Statement (Form S-8, File No. 333-28639) pertaining to the
Omnibus Incentive Plan; its Registration Statement (Form S-3, File No.
333-28637) pertaining to the Dividend Reinvestment and Cash Payment Plan and its
Registration Statement (Form S-3, File No. 333-40361) pertaining to the
registration of NCE Common Stock, its Form 10-Q for the quarter ended March 31,
1998, which includes our report dated May 14, 1998, covering the unaudited
consolidated condensed financial statements contained therein. Pursuant to
Regulation C of the Securities Act of 1933, that report is not considered a part
of the registration statement prepared or certified by our Firm or a report
prepared or certified by our Firm within the meaning of Sections 7 and 11 of the
Act.
Very truly yours,
ARTHUR ANDERSEN LLP
45
EXHIBIT 15(b)
May 14, 1998
Public Service Company of Colorado:
We are aware that Public Service Company of Colorado has incorporated by
reference in its Registration Statement (Form S-3, File No. 33-62233) pertaining
to the Automatic Dividend Reinvestment and Common Stock Purchase Plan; its
Registration Statement (Form S-3, File No. 33-37431) as amended on December 4,
1990, pertaining to the shelf registration of Public Service Company of
Colorado's First Mortgage Bonds; its Registration Statement (Form S-8, File No.
33-55432) pertaining to the Omnibus Incentive Plan; its Registration Statement
(Form S-3, File No. 33-51167) pertaining to the shelf registration of Public
Service Company of Colorado's First Collateral Trust Bonds; its Registration
Statement (Form S-3, File No. 33-54877) pertaining to the shelf registration of
Public Service Company of Colorado's First Collateral Trust Bonds and Cumulative
Preferred Stock and its Registration Statement (Form S-3, File No. 333-47485)
pertaining to the registration of PSCo Capital Trust I's Preferred Securities,
Public Service Company of Colorado's First Collateral Trust Bonds, Senior Debt
Securities and Subordinated Debt Securities, its Form 10-Q for the quarter ended
March 31, 1998, which includes our report dated May 14, 1998, covering the
unaudited consolidated condensed financial statements contained therein.
Pursuant to Regulation C of the Securities Act of 1933, that report is not
considered a part of the registration statement prepared or certified by our
Firm or a report prepared or certified by our Firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
46
EXHIBIT 15(c)
May 14, 1998
Southwestern Public Service Company:
We are aware that Southwestern Public Service Company has incorporated by
reference in its Registration Statement (Form S-3, File No. 333-05199)
pertaining to Southwestern Public Service Company's Preferred Stock and Debt
Securities; its Registration Statement (Form S-8, File No. 33-27452) pertaining
to Southwestern Public Service Company's 1989 Stock Incentive Plan and its
Registration Statement (Form S-8, File No. 33-57869) pertaining to Southwestern
Public Service Company's Employee Investment Plan and Non-Qualified Salary
Deferral Plan, its Form 10-Q for the quarter ended March 31, 1998, which
includes our report dated May 14, 1998, covering the unaudited condensed
financial statements contained therein. Pursuant to Regulation C of the
Securities Act of 1933, that report is not considered a part of the registration
statement prepared or certified by our Firm or a report prepared or certified by
our Firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
47