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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) August 1, 1997
NEW CENTURY ENERGIES, INC.
--------------------------------------------------
(exact name of registrant as specified in charter)
Delaware
----------------------------
(State or other jurisdiction
of incorporation)
1-12927 84-1334327
------------------ -------------------
(Commission File No.) (IRS Employer
Identification No.)
1225 Seventeenth Street, Denver, Colorado 80202
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 571-7511
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Terms............................................................................ 1
Item 2 - Acquisition or Disposition of Assets.................................... 3
Item 7. Financial Statements and Exhibits........................................ 3
Signatures....................................................................... 4
Exhibit Index.................................................................... 5
Exhibit 23(a) Consent of Deloitte & Touche LLP................................... 6
Exhibit 23(b) Consent of Arthur Andersen LLP..................................... 7
Exhibit 99-1 News Release of New Century Energies Inc., dated
August 1, 1997................................................................. 8
Exhibit 99-2 Supplemental Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................ 10
Reports of Independent Public Accountants...................................... 19
Supplemental Consolidated Balance Sheets....................................... 21
Supplemental Consolidated Statements of Income................................. 23
Supplemental Consolidated Statements of Shareholders' Equity.................. 24
Supplemental Consolidated Statements of Cash Flows............................. 25
Notes to Supplemental Consolidated Financial Statements........................ 26
Exhibit 99-3 Supplemental Consolidated Condensed Quarterly Financial Statements
Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................ 56
Supplemental Consolidated Condensed Balance Sheet as of March 31, 1997......... 61
Supplemental Consolidated Condensed Statements of Income for the three
months ended March 31, 1997 and 1996......................................... 63
Supplemental Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 1997 and 1996......................................... 64
Notes to Supplemental Consolidated Condensed Financial Statements - March 31,
1997......................................................................... 65
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FORWARD LOOKING INFORMATION
In addition to the historical information contained herein, this report
contains a number of "forward looking statements", within the meaning of the
Securities and Exchange Act of 1934. Such statements address future events and
conditions concerning capital expenditures, resolution and impact of litigation,
regulatory matters, liquidity and capital resources, and accounting matters.
Actual results in each case could differ materially from those projected in such
statements due to a variety of factors including, without limitation,
restructuring of the utility industry; future economic conditions; the impact of
the merger; earnings retention and dividend payout policies; developments in the
legislative, regulatory and competitive environments in which the Company and
its subsidiaries operate; and other circumstances that could affect anticipated
revenues and costs, such as compliance with laws and regulations. These and
other factors are discussed in this report and other filings with the Securities
and Exchange Commission by the Company and its subsidiaries.
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TERMS
The abbreviations or acronyms used in the text and notes are defined below:
ABBREVIATION OR ACRONYM TERM
- ----------------------- ----
AEP..................................................... American Electric Power
AFDC................................Allowance for Funds Used During Construction
CDPHE.......................Colorado Department of Public Health and Environment
Cheyenne..................................Cheyenne Light, Fuel and Power Company
Company or NCE........................................New Century Energies, Inc.
COLI..............................................Corporate-owned life insurance
CPUC....................The Public Utilities Commission of the State of Colorado
DOE.........................................................Department of Energy
DSM.......................................................Demand Side Management
DSMCA.....................................Demand Side Management Cost Adjustment
ECA.......................................................Energy Cost Adjustment
e prime...........................................e prime, inc. and subsidiaries
EPAct.........................................National Energy Policy Act of 1992
EWG...................................................Exempt Wholesale Generator
FERC........................................Federal Energy Regulatory Commission
Fort St. Vrain................Fort St. Vrain Nuclear Electric Generating Station
Fuelco..........Fuel Resources Development Co., a dissolved Colorado Corporation
GCA......................................................... Gas Cost Adjustment
ICA................................................... Incentive Cost Adjustment
IPPF...................................... Independent Power Production Facility
Merger............................ the business combination between PSCo and SPS
Merger Agreement.............. Agreement and Plan of Reorganization by and among
PSCo, SPS, and NCE, as amended
NMPUC.......................................New Mexico Public Utility Commission
Nox...............................................................Nitrogen Oxide
OCC..........................................Colorado Office of Consumer Counsel
OPEB......................................Other Postretirement Employee Benefits
PSCo..........................................Public Service Company of Colorado
PUHCA.................................Public Utility Holding Company Act of 1935
PSCCC.............................................PS Colorado Credit Corporation
PSRI.......................................................PSR Investments, Inc.
PUCT..........................................Public Utility Commission of Texas
QF...........................................................Qualifying Facility
QFCCA.............................Qualifying Facilities Capacity Cost Adjustment
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 106...................Statement of Financial Accounting Standards No. 106 -
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
SFAS 107...................Statement of Financial Accounting Standards No. 107 -
"Disclosures about Fair Value of Financial Instruments"
SFAS 109...................Statement of Financial Accounting Standards No. 109 -
"Accounting for Income Taxes"
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"
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SFAS 123...................Statement of Financial Accounting Standards No. 123 -
"Accounting for Stock-Based Compensation"
Thunder Basin.........................................Thunder Basin Coal Company
TNP...............................................Texas-New Mexico Power Company
TOG.........................................................Texas-Ohio Gas, Inc.
TOP....................................................Texas-Ohio Pipeline, Inc.
UE..............................Utility Engineering Corporation and subsidiaries
WGG......................................................WestGas Gathering, Inc.
Yorkshire Electricity............................Yorkshire Electricity Group plc
Yorkshire Holdings........................................Yorkshire Holdings plc
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 1, 1997, following the receipt of all required State and Federal
regulatory approvals, PSCo and SPS combined to form NCE with the result that the
common shareholders of PSCo and SPS became the common shareholders of NCE.
Pursuant to the Merger Agreement, each outstanding share of PSCo common stock,
par value $5.00 per share, was canceled and converted into one share of NCE
common stock and each outstanding share of SPS common stock, $1.00 par value per
share, was canceled and converted into 0.95 of one share of NCE common stock.
A copy of the news release with respect to such transaction is attached as an
exhibit to this report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements:
The following documents, previously filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended, are
hereby incorporated by reference:
1. New Century Energies, Inc. Annual Report on Form 10-K for the year
ended December 31, 1996 (File No. 33-64951).
2. Public Service Company of Colorado's Annual Report on Form 10-K and
10-K/A for the year ended December 31, 1996 (File No. 1-3280).
3. Southwestern Public Service Company's Annual Report on Form 10-K for
the twelve months ended August 31, 1996 (File No. 1-3789).
4. Southwestern Public Service Company's Transition Report on Form 10-K
for the transition period from September 1, 1996 to December 31, 1996
(File No. 1-3789).
5. New Century Energies, Inc. Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 (including NCE Unaudited Pro Forma
Financial Information) (File No. 33-64951).
6. Public Service Company of Colorado's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 (File No. 1-3280).
7. Southwestern Public Service Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 (File No. 1-3789).
8. Southwestern Public Service Company's Reports on Form 8-K, dated
February 7, 1997, February 24, 1997, April 22, 1997 and June 30, 1997
(File No. 1-3789).
9. Public Service Company of Colorado's Reports on Form 8-K, dated
February 24, 1997, April 1, 1997 and July 2, 1997 (File No. 1-3280).
10. Public Service Company of Colorado's Report on Form 8-K/A, dated
April 1, 1997 (File No. 1-3280).
Exhibits:
All exhibits are listed in the Exhibit Index on Page 5.
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SIGNATURES
Pursuant to the requirements 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.
NEW CENTURY ENERGIES, INC.
By /s/ R. C. Kelly
--------------------------------------
R. C. Kelly
Executive Vice President,
Chief Financial Officer and Treasurer
Dated: August 1, 1997
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2 Merger Agreement and Plan of Reorganization dated August 22,
1995 (incorporated by reference to Form S-4, Annex I, dated
December 13, 1995 (File No. 33-64951)
23(a) Consent of Deloitte & Touche LLP
23(b) Consent of Arthur Andersen LLP
27-1 Financial Data Schedule - Period ending December 31, 1996
27-2 Financial Data Schedule - Period ending March 31, 1997
99-1 News Release of New Century Energies, Inc., dated August 1, 1997
99-2 Supplemental Consolidated Financial Statements
99-3 Supplemental Consolidated Condensed Quarterly Financial
Statements
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Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Registration Statement No.
333-05199 of Southwestern Public Service Company on Form S-3, Registration
Statements No. 33-27452 and 33-57869 of Southwestern Public Service Company
on Form S-8, Registration Statement No. 333-28637 of New Century Energies,
Inc. on Form S-3, and Registration Statement No. 333-28639 of New Century
Energies, Inc. on Form S-8 of our report dated February 28, 1997 (June 19,
1997, as to the Carolina Energy Limited Partnership (Note 2 herein))
(related to the financial statements of Southwestern Public Service Company
for the year ended December 31, 1996, not presented separately herein), and
we consent to the incorporation by reference in this Form 8-K of our report
dated October 10, 1996, appearing in the Annual Report on Form 10-K of
Southwestern Public Service Company for the year ended August 31, 1996.
Dallas, Texas DELOITTE & TOUCHE LLP
August 1, 1997
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Exhibit 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 8-K, into the Company's
previously filed Registration Statement (Form S-8, File No. 333-28639)
pertaining to the New Century Energies, Inc. Omnibus Incentive Plan and the
Company's Registration Statement (Form S-3, File No. 333-28637) pertaining to
the New Century Energies, Inc. Dividend Reinvestment and Cash Payment Plan,
and we hereby consent to the incorporation by reference in this Form 8-K of
our report dated February 6, 1997, included in the New Century Energies, Inc.
Form 10-K for the year ended December 31, 1996, and to the use in this Form
8-K of our report dated February 24, 1997, included in the Public Service
Company of Colorado Form 10-K for the year ended December 31, 1996, and to
all references to our Firm included in this Form 8-K.
Denver, Colorado ARTHUR ANDERSEN LLP
August 1, 1997
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EXHIBIT 99-1
CONTACT: MEDIA RELATIONS
Public Service Co. of Colorado Southwestern Public Service Company
(303) 294-8900 (806) 378-2116
CONTACT: INVESTOR RELATIONS
Public Service Co. of Colorado Southwestern Public Service Company
(303) 294-2588 (806) 378-2841
FOR IMMEDIATE RELEASE
REFERENCE: PSCO & SPS MERGER APPROVED BY SEC,
COMPANIES TO CLOSE MERGER AUG. 1
August 1, 1997
DENVER - The long-awaited merger between Public Service Co. of Colorado
and Southwestern Public Service Company cleared the final regulatory hurdle
in the companies' plans to combine under a common holding company - New
Century Energies. This two-year effort marks the first successful merger of
more than 20 pending or withdrawn investor-owned electric utility mergers or
acquisitions recently announced in the midst of major utility restructuring.
The Securities and Exchange Commission approved the merger in a written
order received Friday, August 1. With this SEC approval, the merger will
become effective Aug. 1. The OK from the SEC follows numerous federal and
state regulatory approvals already received from such entities as the Federal
Energy Regulatory Commission and the public utility commissions in the six
states in which the new company will operate - Colorado, Texas, New Mexico,
Wyoming, Kansas and Oklahoma. The merger was originally announced August 1995.
With the completion of the merger, shares will begin trading on the New
York Stock Exchange on Aug. 4. It will trade under the "NCE" symbol and be
one of the nation's largest geographic electricity and natural gas companies.
"Considering the dramatic efforts of the two companies in the past two
years, it is an understatement to say that we are extremely pleased that our
merger of equals has been finally approved," said Bill D. Helton, the new
chairman and CEO of New Century Energies.
"As we said two years ago and we repeat today, this merger is about
providing our customers with continued reliable services at low rates. We
expect to save $770 million in costs during the next 10 years from this
merger, and these savings will be reflected in lower energy bills for our
customers." Helton noted that electricity customers in Colorado are already
enjoying the benefits of an $18 million annual rate reduction, and customers
in areas served by Southwestern Public Service have been guaranteed similar
savings.
Wayne Brunetti, current president and CEO of Public Service Co. of
Colorado and vice chairman, president and chief operating officer of New
Century Energies, said this merger is important for shareholders, as it
enhances their investment in the evolving electricity and natural gas
marketplace.
"New Century Energies offers an opportunity to leverage our strengths,
reduce our weaknesses and move ahead as a leaner and much more competitive
player in the national and international energy marketplace," he said.
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The new holding company will include the operating companies of Public
Service Co. of Colorado, Southwestern Public Service Co. and Cheyenne Light,
Fuel and Power. Additionally, New Century Energies will be the parent
company of various subsidiaries including Quixx Corp., e prime, Natural
Fuels Corp., Utility Engineering and WestGas Interstate, Inc. The newest
subsidiary - New Century International - owns a 50 percent interest in the
United Kingdom's Yorkshire Electricity Group, which serves approximately 2
million customers in central England.
New Century Energies will have annual operating revenues of more than $3
billion and serve more than 1.6 million electric customers and a million
natural gas customers. NCE will employ approximately 6,300 employees, with
corporate headquarters in Denver.
NCE OFFICERS & BOARD OF DIRECTORS
As previously disclosed, the chairman and chief executive officer of New
Century Energies is Bill D. Helton. Wayne H. Brunetti is vice chairman,
president and chief operating officer. Other key officers under NCE include
Richard C. Kelly, executive vice president and chief financial officer;
Patricia T. Smith, senior vice president and general counsel; David M. Wilks,
president of retail services; Doyle R. Bunch, senior vice president of
corporate planning and development; and Henry H. Hamilton, executive vice
president of commodity services.
The board of directors of New Century Energies is made up of six
directors from Southwestern Public Service Co.'s board and eight directors
from the former Public Service Co. of Colorado board. The directors from
Southwestern are: Bill D. Helton, Coney C. Burgess, Danny H. Conklin, Giles
M. Forbess, R.R Hemminghaus and J. Howard Mock. Directors from Public
Service Co. of Colorado are: Wayne H. Brunetti, Gayle L. Greer, A. Barry
Hirshfeld, Will F. Nicholson, Jr., J. Michael Powers, Rodney E. Slifer, W.
Thomas Stephens and Robert G. Tointon.
DIVIDEND INFORMATION
It is anticipated that New Century Energies initially will pay dividends
on its common stock of $2.32 annually, subject to final determination by the
NCE board of directors. The board's determination will be based on NCE's
results of operations, financial condition, capital requirements and other
relevant considerations.
SHAREHOLDER INFORMATION
A shareholder rights plan has been adopted that automatically attaches
the right to purchase preferred stock to each share of NCE common stock.
Details of the rights plan - which may only be exercised under certain
conditions - will be mailed to all common stockholders in the near future.
The Bank of New York has been selected by the board as the transfer
agent for NCE stock.
New Century Energies' Internet address is http://www.psco.com.
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EXHIBIT 99-2
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
NCE, a Delaware corporation, is a newly created holding company which
will be registered under the PUHCA. On August 1, 1997, PSCo and SPS combined
to form NCE, with PSCo and SPS becoming wholly-owned subsidiaries of NCE.
The common shareholders of PSCo and SPS received one and 0.95, respectively,
of one share of NCE common stock, par value of $1.00 per share, and became
common shareholders of NCE.
The Merger is being accounted for as a pooling-of-interests, and the
Supplemental Consolidated Financial Statements included in this Form 8-K are
presented as if the Merger were consummated as of the beginning of the
earliest period presented. However, the Supplemental Consolidated Financial
Statements are not necessarily indicative of the results of operations,
financial position or cash flows that would have occurred had the Merger been
consummated for the periods for which it is given effect, nor is it
necessarily indicative of future results of operations, financial position or
cash flows.
After effecting the Merger, NCE will own the following direct
subsidiaries: PSCo, SPS, Cheyenne, WestGas Interstate, Inc., New Century
Services, Inc., and NC Enterprises, Inc. PSCo owns the following
subsidiaries: PSCCC, PSRI, 1480 Welton, Inc., Fuelco, a dissolved
corporation, and New Century International, Inc., which was established in
1997 in connection with the acquisition of Yorkshire Electricity. NC
Enterprises, Inc., an intermediate holding company, owns the following
subsidiaries: Quixx, e prime, UE and Natural Fuels Corporation.
References to the Company are to NCE on a consolidated basis; however,
in certain circumstances, the separate subsidiaries are separately referred
to in order to distinguish between the different business activities of the
companies.
INDUSTRY OUTLOOK
Unprecedented change is occurring in the electric utility industry
nationwide, furthering the development of a competitive environment. In
general, the economics of the electric generation business have fundamentally
changed with open transmission access and the increased availability of
electric supply alternatives. Customer demands for lower prices and supplier
choices, the availability of alternative supplies (IPPFs, QFs, EWGs and power
marketers), and open access to the utility transmission grid have resulted in
a commodity market for bulk electric supply. The EPAct directly addressed
this issue by giving the FERC the authority to require utilities to provide
non-discriminatory open access to the transmission grid for purposes of
providing wholesale customers with direct access. In response to such
authority, in early 1996, the FERC issued new rules on open access
transmission services. Furthermore, an increasing number of states with
above average energy prices are pursuing full competition in the electric
industry, and several of the states in which the Company's regulated
subsidiaries operate are considering regulations with respect to retail
competition.
The presence of competition and the associated pressure on prices may
ultimately lead to the unbundling of products and services similar to what
has evolved in the natural gas industry. Today's market view of the future
envisions an unbundled electric utility industry consisting of at least four
major business segments: energy supply, transmission, distribution and energy
services - each having a different driving force.
The SEC has also responded to increasing competition in the utility
industry and changes in state and federal utility regulation. In June 1995,
the SEC issued its report which focused on both legislative and
administrative options for the reform of public utility holding company
regulation. The report presented three
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possible recommendations for legislative reform of PUHCA: 1) conditional
repeal of PUHCA, 2) unconditional repeal of PUHCA, and 3) PUHCA remains
unmodified, but grants the SEC broader exemptive authority under PUHCA. Any
changes in regulation will be determined by Congress.
RECENT DEVELOPMENTS
ACQUISITION OF YORKSHIRE ELECTRICITY
On April 1, 1997, Yorkshire Holdings, a joint venture between PSCo and
AEP, declared the cash tender offer for all the outstanding and to be issued
ordinary shares of Yorkshire Electricity wholly unconditional in all respects
and, thereby, committed the joint venture to purchase all the outstanding
shares of Yorkshire Electricity. As of June 30, 1997, valid acceptances of
Yorkshire Holdings' offer to purchase shares of Yorkshire Electricity had
been received representing virtually 100% of Yorkshire Electricity's issued
share capital.
Total consideration paid by Yorkshire Holdings was approximately $2.4
billion (1.5 billion pounds sterling). Effective April 1, 1997, PSCo,
through New Century International, Inc., recorded its 50% ownership interest
in Yorkshire Electricity with a total equity investment of approximately $360
million. This investment is being accounted for using the equity method of
accounting. For a more detailed discussion regarding this acquisition, see
Note 2. Acquisition and Divestiture of Investments in the Notes to
Supplemental Consolidated Financial Statements.
On July 2, 1997, the United Kingdom's Labour Party proposed a budget
that includes a windfall tax on certain privatized business entities. The
windfall tax liability for Yorkshire Electricity is estimated to be 135
million pounds sterling ($222 million). The tax is expected to be enacted in
the third quarter of 1997 and would be payable in two installments with the
first in December 1997 and the second installment a year later. PSCo's share
of the proposed tax is estimated to be approximately $111 million. The net
earnings effect on PSCo of the proposed tax is currently being assessed and
is expected to be recorded when the proposed tax is enacted.
EARNINGS
Earnings per share were $2.64, $2.77 and $2.54 during 1996, 1995 and
1994, respectively. For the years 1995 and 1994, SPS results are included
for the fiscal years ending August 31. For all years, SPS's earnings have
been adjusted to reflect the exchange of SPS common stock into NCE common
stock at the ratio of 0.95 of one share of NCE common stock for each share of
SPS common stock. The majority of the earnings per share is generated from
the Company's utility operations. The decreased earnings in 1996 are
primarily due to an increase in merger and business integration expenses and
the write-off of the BCH Energy Limited Partnership investment held by Quixx
(see Note 2. Acquisition and Divestiture of Investments in the Notes to
Supplemental Consolidated Financial Statements). This decrease was partially
offset by an increase in both the electric and gas margins and the sale of
certain water rights. The increased earnings in 1995, as compared to 1994,
are primarily attributable to increased electric and gas margins resulting
primarily from higher sales and lower operating and maintenance expenses.
In June 1997, both Quixx and UE wrote-off their net investments in the
Carolina Energy Limited Partnership (see Note 2. Acquisition and Divestiture
of Investments in the Notes to the Supplemental Consolidated Financial
Statements).
As discussed above, on July 2, 1997, the United Kingdom's Labour Party
proposed a budget that includes a windfall tax on certain privatized business
entities. The windfall tax liability for Yorkshire Electricity is estimated
to be 135 million pounds sterling ($222 million). The tax is expected to be
enacted in the third quarter of 1997 and would be payable in two installments
with the first in December 1997 and the second installment a year later.
PSCo's share of the proposed tax is estimated to be approximately $111
million. The net earnings effect on PSCo of the proposed tax is currently
being assessed and is expected to be recorded when the proposed tax is
enacted.
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ELECTRIC OPERATIONS
The following table details the annual change in electric operating
revenues and energy costs as compared to the preceding year:
INCREASE (DECREASE)
FROM PRIOR YEARS
1996 1995*
---- -----
(THOUSANDS OF DOLLARS)
Electric operating revenues:
Retail ................................ $ 81,786 $ 53,431
Wholesale ............................. 42,856 (5,558)
Other (including unbilled revenues) ... 8,718 (7,978)
-------- ---------
Total revenues ....................... 133,360 39,895
Fuel used in generation................. 83,233 (49,278)
Purchased power......................... 23,383 45,508
-------- ---------
Net increase in electric margin......... $ 26,744 $ 43,665
-------- ---------
-------- ---------
* Includes SPS information for the twelve months ending August 31, 1995.
The following table summarizes electric sales by major customer classes:
MILLIONS OF % CHANGE *
KWH SALES FROM PRIOR YEARS
--------------- ----------------
1996 1995** 1996 1995
------ ------ ------ ------
Residential ................... 9,521 8,991 5.9% 2.1%
Commercial and Industrial ..... 26,542 25,528 4.0 2.2
Public Authority ............... 778 736 5.6 2.1
------ ------
Total Retail ................. 36,481 35,255 4.5 2.2
Wholesale....................... 10,551 9,510 10.9 (3.9)
------ ------
Total......................... 47,392 44,765 5.9 0.8
------ ------
------ ------
* Percentages are calculated using unrounded amounts.
** Includes SPS information for the twelve months ending August 31, 1995.
Electric operating revenues increased in 1996, when compared to 1995,
primarily due to an overall 4.5% increase in retail sales resulting primarily
from customer growth of 2.6%. The hotter than normal late spring and early
summer in the SPS territory also favorably impacted retail and firm wholesale
sales. The increase in wholesale revenues was also due to customer growth and
higher economy sales by the Company's utility subsidiaries and power
marketing activities of non-regulated subsidiaries. However, these additional
electric Kwh sales contributed little to the increase in electric margins as
the per unit amounts earned on such sales is less than comparable amounts
earned on sales to other classes of customers. Electric operating revenues
increased in 1995, when compared to 1994, primarily due to higher retail
electric Kwh sales resulting from customer growth and additional revenues
related to collection of QF purchased power capacity costs. Wholesale
revenues decreased in 1995, as compared to 1994, as a result of lower
wholesale Kwh sales. The demand for wholesale energy during 1995 was
negatively impacted by an available supply of low-cost non-firm energy. See
Note 8. Regulatory Matters in the Notes to Supplemental Consolidated
Financial Statements for information as to the impact of the Merger and other
rate cases on electric revenues.
The Company's utility subsidiaries currently have 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 in 1996 and 1995, when compared to the respective preceding
year, had little impact on net income. However, the CPUC, in its decision on
the Merger, replaced PSCo's ECA with an ICA, effective October 1, 1996, which
allows for a 50%/50% sharing of certain fuel and energy cost increases and
decreases among customers and shareholders. The
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change did not impact the cost recoveries for the last quarter of 1996. This
is not expected to significantly impact future results of operations,
financial position or cash flows.
Fuel used in generation expense increased $83.2 million in 1996, when
compared to 1995, primarily due to increased natural gas and coal costs.
Fuel used in generation expense decreased $49.2 million during 1995, as
compared to the prior year, primarily due to decreased natural gas prices and
decreased generation.
Purchased power expense increased $23.4 million in 1996 primarily due to
purchases in connection with increased non-regulated power marketing sales
and the availability of limited quantities of lower cost energy available for
purchase. Purchased power expense increased $45.5 million in 1995, as
compared to 1994, primarily due to increased purchases from QFs as mandated
by certain regulatory agencies. The cost of electric energy purchased from
QFs is over 50% higher per Kwh than that purchased from other suppliers.
GAS OPERATIONS
The following table details the annual change in revenues from gas sales
and gas purchased for resale as compared to the preceding year:
INCREASE (DECREASE)
FROM PRIOR YEARS
1996 1995
(THOUSANDS OF DOLLARS)
Revenues from gas sales .................. $11,211 $ 7,281
Gas purchased for resale ................. 483 (5,197)
------- --------
Net increase in gas sales margin ........ $10,728 $12,478
------- --------
------- --------
The following table summarizes gas deliveries by major customer classes:
MILLIONS OF % CHANGE*
DTH DELIVERIES FROM PRIOR YEARS
-------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
Residential ................................ 86.1 82.2 4.8% 5.4%
Commercial ................................. 50.1 50.5 (0.7) 3.6
Wholesale .................................. 1.6 0.3 ** (38.0)
Non-regulated gas marketing ................ 21.8 0.2 ** **
----- -----
Total Sales .............................. 159.6 133.2 19.8 4.8
Transportation, gathering and processing ... 91.4 77.1 18.6 (15.8)
----- -----
Total .................................... 251.0 210.3 19.4 (3.8)
----- -----
----- -----
* Percentages are calculated using unrounded amounts.
** Percentage change is significant, but presentation of the amount is not
meaningful.
Gas sales margin increased in 1996, when compared to 1995, primarily due
to higher retail gas sales resulting from customer growth of 3.4% and
slightly colder weather. Increased gas marketing activities by non-regulated
subsidiaries favorably impacted gas sales margin in 1996. Gas sales margin
increased in 1995, as compared to 1994, primarily due to higher retail gas
sales resulting from moderate customer growth and approximately 17% colder
weather in 1995 than in 1994.
Gas transportation, gathering and processing revenues increased $4.7
million in 1996, as compared to 1995, primarily due to an increase in
transport deliveries resulting from the shifting of various commercial
customers to firm transport customers which accelerated in October 1995 with
the implementation of new gas rates. Transportation, gathering and
processing revenues decreased $7.6 million in 1995 primarily due to the sale
of WGG in August 1994 (see Note 2. Acquisition and Divestiture of Investments
in the Notes to Supplemental Consolidated Financial Statements.)
The Company's utility subsidiaries have in place GCA mechanisms for
natural gas sales, which recognize the majority of the effects of changes in
the cost of gas purchased for resale and adjust revenues to reflect such
13
<PAGE>
changes in cost on a timely basis. As a result, the changes in revenues
associated with these mechanisms in 1996 and 1995, when compared to the
respective preceding year, had little impact on net income. However, the
fluctuations in gas sales impact the amount of gas the Company's gas utility
subsidiaries must purchase and, therefore, along with increases and decreases
in the per-unit cost of gas, affect total gas purchased for resale. In 1996,
the increase in the quantity of gas purchased was offset substantially by the
lower per unit average cost of gas for the year. The $5.2 million decrease
in gas purchased for resale for 1995 is primarily due to lower per unit cost
of gas offset, in part, by a slight increase in gas purchases.
NON-FUEL OPERATING EXPENSES
Other operating and maintenance expenses decreased $14.0 million during
1996, as compared to 1995, primarily due to the favorable impact of the
February 9, 1996 settlement agreement with the DOE resolving all spent
nuclear fuel storage and disposal issues at Fort St. Vrain (see Note 9.
Commitments and Contingencies in the Notes to Supplemental Consolidated
Financial Statements), lower labor and employee benefit costs resulting from
the hiring freeze instituted in late 1995 and other general cost reductions
resulting from the Company's cost containment efforts. These reductions were
offset, in part, by higher operating costs from non-regulated operations and
higher maintenance costs.
Other operating and maintenance expenses decreased $17.9 million in
1995, as compared to 1994, primarily due to lower labor and employee benefit
costs resulting from the Company's cost containment efforts which included
the restructuring and downsizing accomplished by PSCo in 1994 (approximately
a $26 million reduction) and the recognition of approximately $8.7 million of
involuntary severance costs in 1994. These decreases in 1995 were offset, in
part, by the $2.5 million write-off of software costs due to the cancellation
of a materials management project, three months of additional amortization of
the early retirement/severance program costs totaling $2.2 million and $2.2
million of additional repair costs associated with an early winter snow storm.
As of December 31, 1996, physical decommissioning of Fort St. Vrain was
complete. However, during 1994, additional expenses were recognized
aggregating approximately $43.4 million for increased costs associated with
the defueling and decommissioning of Fort St. Vrain and the impairment of
certain Fort St. Vrain related property and inventory. The additional
expense was primarily associated with radiation levels in the reactor core
being higher than originally anticipated and increased uncertainty related to
spent fuel disposal issues (see Note 9. Commitments and Contingencies in the
Notes to Supplemental Consolidated Financial Statements).
Depreciation and amortization expense increased $19.3 million in 1996
and $5.5 million in 1995 primarily due to higher depreciation expense from
property additions and amortization of software costs.
Income taxes decreased $9.4 million in 1996, as compared to 1995,
primarily due to lower pre-tax income, offset, in part, by the write-off of
additional investment tax credits for retired property and additional tax
benefits at PSRI. The $56.1 million increase in income taxes during 1995, as
compared to 1994, is primarily due to higher pre-tax income and the effects
of two items recorded in 1994 which served to lower tax expense during that
period. These items included: 1) an adjustment associated with the adoption
by PSCo of full normalization which was provided for in a rate order issued
by the CPUC (approximately $21.3 million), and 2) the true-up of the tax
accrual related to the filing of the PSCo 1993 tax return (approximately $5.1
million).
Other income and deductions decreased $29.1 million during 1996, as
compared to the preceding year, primarily due to higher merger and business
integration costs ($10.1 million), the write-off by Quixx of an investment
in a waste-to-energy cogeneration facility ($16.0 million) and the
recognition of certain severance costs ($4.1 million). These decreases were
offset, in part, by the sale by Quixx of certain water rights ($7.7 million).
Other income and deductions decreased $29.7 million in 1995 primarily due to
the net effects of the pre-tax gain of approximately $34.5 million recognized
on the sale of WGG in 1994 (see Note 2. Acquisition and Divestiture of
Investments in the Notes to Supplemental Consolidated Financial Statements)
and $4.8 million of merger and business integration costs, offset, in part,
by approximately $3.0 million of interest income recognized as a result of a
rate case settlement with New Mexico wholesale customers and the 1994
reversal of the $3.0 million gas search award, as the Colorado Supreme Court
reversed an incentive award previously granted by the CPUC.
14
<PAGE>
In June 1997, Quixx wrote-off its investment of approximately $13.6
million in the Carolina Energy Limited Partnership. Additionally, UE
wrote-off its net investment of approximately $2.4 million in this same
partnership (see Note 2. Acquisition and Divestiture of Investments in the
Notes to Supplemental Consolidated Financial Statements).
Interest charges and preferred dividends increased $12.0 million during
1996, as compared to 1995 resulting from an increase in long-term debt used
to finance capital expenditures and other corporate cash requirements.
Interest charges increased $13.4 million during 1995 as compared to 1994.
Other interest increased due to higher interest rates and an increased level
of short-term borrowings in 1995, the recognition of interest costs related
to the over-collection of expenses under the Company's utility subsidiaries
cost adjustment mechanisms and higher interest on COLI contracts.
FINANCIAL POSITION
Accounts receivable increased at December 31, 1996, as compared to 1995,
primarily due to overall sales growth, including marketing activities by
non-regulated subsidiaries, which was partially offset by a gas refund made
late in 1995 that was applied directly to customers' accounts, serving to
lower the accounts receivable balance at December 31, 1995. Accounts payable
increased primarily due to PSCo's higher gas costs at the end of 1996 and
increased activities by non-regulated subsidiaries.
The $38.5 million decrease in the defueling and decommissioning
liability was due to expenditures during 1996. This decrease and the
increase in noncurrent investments and receivables were also affected by the
February 9, 1996 settlement agreement with the DOE resolving all spent
nuclear fuel storage and disposal issues at Fort St. Vrain. Customers'
advances for construction decreased by approximately $49.2 million due to a
1996 transfer of amounts to property, plant and equipment, which served to
reduce such investments, after determining that these amounts would not be
refunded to customers in the future.
COMMITMENTS AND CONTINGENCIES
Issues relating to regulatory and environmental matters are discussed in
Note 8. Regulatory Matters and Note 9. Commitments and Contingencies in the
Notes to Supplemental Consolidated Financial Statements. These matters and
the future resolution thereof, may impact the Company's future results of
operations, financial position and cash flows.
COMMON STOCK DIVIDEND
It is currently anticipated that the Company will initially pay
dividends on its common stock of $2.32 per share annually. The Company's
common stock dividend level is dependent upon the Company's results of
operations, financial condition, cash flows, capital requirements and other
relevant considerations. The Board of Directors will evaluate the common
stock dividend on a quarterly basis.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
1996 1995 1994
------ ------ ------
Net cash provided by operating activities
(IN MILLIONS) ........................ $481.2 $558.4 $428.5
Net cash provided by operating activities decreased $77.2 million in
1996 primarily due to the undercollection of purchased gas and electric
energy costs ($62.5 million) and lower cash receipts because of a gas refund
that was applied directly to customers' accounts in late 1995. Higher
earnings and lower decommissioning and defueling expenditures positively
impacted operating cash flows for 1995. The increase in 1995, as compared to
1994, was also significantly impacted by the overcollection of purchased gas
and electric energy costs.
At December 31, 1996, PSCo's decommissioning liability, excluding
defueling, was approximately $6.6 million. The remaining expenditures
related to this obligation are expected to be incurred over the next year.
15
<PAGE>
The annual decommissioning amount being recovered from customers is
approximately $13.9 million which will continue through June 2005. At
December 31, 1996, approximately $89.7 million remained to be collected from
customers and is reflected as a regulatory asset on the consolidated balance
sheet.
1996 1995 1994
---- ---- ----
Net cash used in investing activities
(IN MILLIONS) ................... $(443.2) $(407.5) $(281.9)
Net cash used in investing activities, which substantially consisted of
construction expenditures, was higher in both 1996 and 1995, compared to the
respective prior years. Proceeds from the sale of WGG in 1994 and the sale
of certain Fuelco properties in 1994 and 1996 reduced the net cash used in
investing activities (see Note 2. Acquisition and Divestiture of Investments
in the Notes to Supplemental Consolidated Financial Statements).
1996 1995 1994
---- ---- ----
Net cash used in financing activities
(IN MILLIONS) ................... $(16.3) $(126.0) $(169.1)
Net cash used in financing activities decreased significantly in 1996
primarily due to the issuance of additional long-term debt. Additionally,
proceeds of $100 million were received in October 1996 from the issuance of
SPS obligated mandatorily redeemable preferred securities of a subsidiary
trust. These combined proceeds were used to fund the Company's subsidiaries'
construction programs, for other general corporate purposes and to repay
short-term indebtedness incurred for such purposes. Cash used in financing
activities decreased slightly in 1995 over 1994 primarily due to increased
net proceeds from the issuance of long-term debt.
PROSPECTIVE CAPITAL REQUIREMENTS
The estimated cost as of December 31, 1996 of the Company's subsidiaries
construction programs and other capital requirements for the years 1997, 1998
and 1999 are shown in the table below:
1997*** 1998 1999
------- ---- ----
(MILLIONS OF DOLLARS)
Electric
Production* .............................. $ 251 $ 208 $ 205
Transmission ............................. 31 31 20
Distribution ............................. 157 123 115
Gas ........................................ 73 80 59
General** .................................. 70 57 42
----- ----- -----
Total construction expenditures .......... 582 499 441
Less: AFDC ................................. 15 15 12
Add: Sinking funds and debt maturities
and refinancings ........................ 301 161 214
----- ----- -----
Total capital requirements ................. $ 868 $ 645 $ 643
----- ----- -----
----- ----- -----
* Capital requirements for Electric Production include approximately $121
million for Fort St. Vrain repowering and approximately $108 million for
pollution control equipment.
** Capital requirements in the "General" category include assets leased under
a leasing program.
*** The 1997 capital requirements do not include PSCo's $360 million investment
in Yorkshire Electricity which was recorded in April 1997 (see Note 2.
Acquisition and Divestiture of Investments in the Notes to Supplemental
Consolidated Financial Statements).
The construction programs of the Company's subsidiaries are subject to
continuing review and modification. In particular, actual construction
expenditures may vary from the estimates due to changes in the electric
system projected load growth, the desired reserve margin and the availability
of purchased power, as well as alternative plans for meeting the Company's
long-term energy needs. In addition, the Company's ongoing evaluation of
merger, acquisition and divestiture opportunities to support corporate
strategies (see Note 2. Acquisition and Divestiture of Investments in the
Supplemental Consolidated Financial Statements for discussion
16
<PAGE>
of the 1997 acquisition of Yorkshire Electricity), and future requirements to
install pollution control equipment may impact actual capital requirements
(see Note 9. Commitments and Contingencies - Environmental Issues in the
Notes to Supplemental Consolidated Financial Statements).
CAPITAL SOURCES
At December 31, 1996, the Company and its subsidiaries estimate that
their 1997-1999 capital requirements will be met principally with a
combination of funds from external sources and funds from operations. The
portion of the Company's construction expenditures to be provided by
internally generated funds is anticipated to be approximately 45% in 1997.
The Company and its subsidiaries may meet their external capital requirements
through the sale of common stock by NCE, the issuance of long-term debt,
including first mortgage bonds of NCE subsidiaries, the sale of preferred
stock by NCE subsidiaries and the issuance of short-term debt by NCE and its
subsidiaries. The Company plans to refinance $360 million of PSCo's
outstanding debt through the issuance of NCE common stock within 6 to 18
months, subject to market and other conditions. The financing needs are
subject to continuing review and can change depending on market and business
conditions and changes, if any, in the construction programs and other
capital requirements of the Company and its subsidiaries.
REGISTRATION STATEMENTS
On June 6, 1997, the Company filed a registration statement with the SEC
for the issuance of 10 million shares of common stock to be issued under the
Company's Dividend Reinvestment and Cash Payment Plan. Any proceeds received
by the Company will be used for general corporate purposes. This program
allows for either the purchase of shares on the open market or the issuance
of new shares. The Dividend Reinvestment Plan allows the Company's
shareholders to purchase additional shares of the Company's common stock
through the reinvestment of cash dividends and the purchase of additional
shares of common stock with optional cash payments.
SUBSIDIARY REGISTRATION STATEMENTS
In 1994, PSCo filed a registration statement with the SEC for the
issuance of First Collateral Trust Bonds and cumulative preferred stock in an
amount not to exceed $306 million. On May 31, 1996, PSCo issued $125 million
aggregate principal amount of its First Collateral Trust Bonds under such
registration statement.
In 1996 and in early 1997, PSCo established a $250 million Secured
Medium-Term Note Program, Series B and a $150 million Secured Medium-Term
Note Program, Series C pursuant to a registration statement for the issuance
of $400 million of First Collateral Trust Bonds. All securities under these
Medium-Tern Note Programs have been issued.
SPS has an effective shelf registration statement under which $220
million of debt securities and/or preferred stock are available for issuance.
SHORT-TERM BORROWING ARRANGEMENTS
NCE is arranging a $225 million credit facility which is expected to be
in place shortly after the effective date of the merger. NCE can only borrow
$100 million under this credit facility until PSCCC is transferred to NCE.
In addition, NCE has arranged a $30 million bridge loan facility to provide
the funds necessary for the repayment of certain pre-merger PSCo subsidiary
short-term borrowings to permit the transfer of such subsidiaries to NCE or
to NCE's intermediate holding company, NC Enterprises, Inc., on the effective
date of the merger.
PSCo, PSCCC and certain subsidiaries have available committed and
uncommitted lines of credit to meet their short-term cash requirements. PSCo
and PSCCC have a credit facility with several banks which provides $300
million in committed bank lines of credit and is used primarily to support
the issuance of commercial paper by PSCo and PSCCC, and to provide for direct
borrowings thereunder. At December 31, 1996, $55.3 million remained unused
under this facility. Generally, the banks participating in the credit
facility would have no obligation to continue their commitments if there has
been a material adverse change in the consolidated financial condition,
operations, business or otherwise that would prevent PSCo and PSCCC from
performing their
17
<PAGE>
obligation under the credit facility. This facility expires on November 17,
2000. Also, PSCo has individual arrangements for uncommitted bank lines of
credit which totaled $75 million, and all remained unused at December 31,
1996. These individual arrangements expire on December 31, 1997. PSCo may
borrow under uncommitted preapproved lines of credit upon request; however,
the banks have no firm commitment to make such loans (see Note 6. Short-term
Borrowing Arrangements in the Notes to Supplemental Consolidated financial
Statements).
PSCCC may periodically issue medium-term notes (in addition to the
short-term debt discussed above) to supplement the financing/purchase of
PSCo's customer accounts receivable and fossil fuel inventories. As of
December 31, 1996, PSCCC had issued and had outstanding $100 million in
medium-term notes. The level of financing of PSCCC is tied directly to daily
changes in the level of PSCo's outstanding customer accounts receivable and
monthly changes in fossil fuel inventories and will vary minimally from year
to year although seasonal fluctuations in the level of assets will cause
corresponding fluctuations in the level of associated financing.
On April 30, 1997, PSCo entered into a new credit facility providing an
additional $125 million in committed bank lines of credit. The facility
expires on April 30, 1998.
Arrangements by SPS for committed lines of credit are maintained by a
combination of fee payments and compensating balances. At December 31, 1996,
$171.0 million of such balances were maintained through a fee and $9.0
million required account deposits of 1 1/2% of the unused portion of the
loan commitment. Unsecured borrowings permitted under bank lines of credit
were $180 million in 1996.
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO NEW CENTURY ENERGIES, INC:
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of Public Service Company of Colorado (a Colorado
corporation) and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996, included in Public
Service Company of Colorado's 1996 Annual Report on Form 10-K, which also
includes our report dated February 24, 1997. Our report expressed an
unqualified opinion on those statements based on our audits.
We have also made a similar audit of the accompanying supplemental consolidated
balance sheets of New Century Energies, Inc. (a Delaware corporation) and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. The supplemental consolidated
statements give retroactive effect to the merger between Public Service Company
of Colorado and Southwestern Public Service Company on August 1, 1997, which has
been accounted for as a pooling of interests as described in Note 1. These
supplemental financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these supplemental
financial statements based on our audits.
We did not audit the consolidated financial statements of Southwestern Public
Service Company for the years ended December 31, 1996 and August 31, 1995 and
1994, included in the supplemental consolidated financial statements of New
Century Energies, Inc., which statements reflect total assets constituting 31%
and 31% in 1996 and 1995, respectively, and total revenues constituting 31%, 30%
and 30% in 1996, 1995 and 1994, respectively, of the related supplemental
consolidated totals. These statements were audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Southwestern Public Service
Company, is based solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audit and the report of the other auditors, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the financial position of New Century Energies, Inc.
and its subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, after giving retroactive effect to the merger between Public
Service Company of Colorado and Southwestern Public Service Company as described
in Note 1, all in conformity with generally accepted accounting principles.
Denver, Colorado ARTHUR ANDERSEN LLP
August 1, 1997
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
New Century Energies, Inc.:
We have audited the consolidated balance sheets and statements of capitalization
of Southwestern Public Service Company and subsidiaries as of December 31, 1996
and August 31, 1995 and 1994, and the related consolidated statements of
earnings, common shareholders' equity and cash flows for the years ended
December 31, 1996 and August 31, 1995 and 1994 (not presented herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Southwestern Public Service
Company and subsidiaries at December 31, 1996 and August 31, 1995 and 1994,
and the results of their operations and their cash flows for the years ended
December 31, 1996 and August 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 28, 1997
(June 19, 1997, as to the Carolina Energy
Limited Partnership (Note 2 herein))
20
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31, 1996 AND 1995 (NOTE 1)
ASSETS
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
Property, plant and equipment, at cost:
Electric $ 6,448,993 $ 6,117,756
Gas 1,035,394 989,215
Steam and other 115,766 127,612
Common to all departments 418,262 380,809
Construction in progress 260,943 223,606
----------- -----------
8,279,358 7,838,998
Less: accumulated depreciation 2,990,275 2,783,490
----------- -----------
Total property, plant and equipment 5,289,083 5,055,508
----------- -----------
Investments, at cost, and receivables 80,996 60,513
----------- -----------
Current assets:
Cash and temporary cash investments 50,015 51,553
Accounts receivable, less reserve for uncollectible accounts
($6,623 at December 31, 1996; $6,124 at December 31, 1995) 285,912 197,993
Accrued unbilled revenues (Note 1) 106,198 125,615
Recoverable purchased gas and electric energy costs - net (Note 1) 47,003 -
Materials and supplies, at average cost 66,748 75,827
Fuel inventory, at average cost 27,059 37,999
Gas in underground storage, at cost (LIFO) 42,826 44,900
Current portion of accumulated deferred income taxes (Note 12) - 22,327
Regulatory assets recoverable within one year (Note 1) 52,110 48,247
Prepaid expenses and other 46,773 40,504
----------- -----------
Total current assets 724,644 644,965
----------- -----------
Deferred charges:
Regulatory assets (Note 1) 414,001 421,877
Unamortized debt expense 20,839 16,020
Other 87,879 61,911
----------- -----------
Total deferred charges 522,719 499,808
----------- -----------
$ 6,617,442 $ 6,260,794
----------- -----------
----------- -----------
The accompanying notes to supplemental consolidated financial statements
are an integral part of these financial statements.
</TABLE>
21
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31, 1996 AND 1995 (NOTE 1)
CAPITAL AND LIABILITIES
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
Common stock (Note 3) $ 1,396,849 $ 1,344,400
Retained earnings 773,191 719,997
----------- -----------
Total common equity 2,170,040 2,064,397
Preferred stock of subsidiaries (Note 3):
Not subject to mandatory redemption 140,008 212,688
Subject to mandatory redemption at par 39,913 41,289
SPS obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely subordinated debentures
of SPS (Note 4) 100,000 -
Long-term debt of subsidiaries (Note 5) 1,879,928 1,771,625
----------- -----------
4,329,889 4,089,999
----------- -----------
Noncurrent liabilities:
Employees' postretirement benefits other than pensions (Note 11) 58,551 51,872
Employees' postemployment benefits (Note 11) 27,551 26,581
Defueling and decommissioning liability (Note 9) - 23,115
----------- -----------
Total noncurrent liabilities 86,102 101,568
----------- -----------
Current liabilities:
Notes payable and commercial paper (Note 6) 298,561 288,050
Long-term debt due within one year 170,261 83,112
Preferred stock subject to mandatory redemption within one year
(Note 3) 2,576 2,576
Accounts payable 317,260 208,460
Dividends payable 36,973 57,789
Recovered purchased gas and electric energy costs - net (Note 1) - 15,477
Customers' deposits 27,283 23,748
Accrued taxes 78,989 95,150
Accrued interest 46,948 41,138
Current portion of defueling and decommissioning liability (Note 9) 8,665 24,055
Current portion of accumulated deferred income taxes (Note 12) 8,143 -
Other 97,799 106,253
----------- -----------
Total current liabilities 1,093,458 945,808
----------- -----------
Deferred credits:
Customers' advances for construction 50,635 99,845
Unamortized investment tax credits 111,647 119,237
Accumulated deferred income taxes (Note 12) 906,354 852,937
Other 39,357 51,400
----------- -----------
Total deferred credits 1,107,993 1,123,419
----------- -----------
Commitments and contingencies (Note 9) ----------- -----------
$ 6,617,442 $ 6,260,794
----------- -----------
----------- -----------
The accompanying notes to supplemental consolidated financial statements
are an integral part of these financial statements.
</TABLE>
22
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (NOTE 1)
<TABLE>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Electric $ 2,416,539 $ 2,283,179 $ 2,243,284
Gas 640,497 624,585 624,922
Other 73,946 84,354 67,201
----------- ----------- -----------
3,130,982 2,992,118 2,935,407
Operating expenses:
Fuel used in generation 635,280 552,047 601,325
Purchased power 510,582 487,199 441,691
Gas purchased for resale 393,163 392,680 397,877
Other operating expenses 469,757 488,732 505,129
Maintenance 98,824 93,876 95,396
Defueling and decommissioning (Note 9) - - 43,376
Depreciation and amortization 224,865 205,584 200,052
Taxes (other than income taxes) 128,980 125,146 128,858
Income taxes (Note 12) 153,653 163,005 106,888
----------- ----------- -----------
2,615,104 2,508,269 2,520,592
----------- ----------- -----------
Operating income 515,878 483,849 414,815
Other income and deductions:
Allowance for equity funds used during construction 936 4,011 3,699
Gain on sale of WestGas Gathering, Inc. (Note 2) - - 34,485
Miscellaneous income and deductions - net (Notes 1 and 2) (29,217) (3,149) (7,648)
----------- ----------- -----------
(28,281) 862 30,536
Interest charges and preferred dividends:
Interest on long-term debt 138,301 127,015 126,898
Amortization of debt discount and expense less premium 5,766 5,316 5,149
Other interest 63,639 59,823 45,930
Allowance for borrowed funds used during construction (5,945) (5,776) (5,063)
Dividends on SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely subordinated
debentures of SPS 1,526 - -
Dividend requirements on preferred stock of subsidiaries 11,969 16,841 16,892
----------- ----------- -----------
215,256 203,219 189,806
----------- ----------- -----------
Net income $ 272,341 $ 281,492 $ 255,545
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares outstanding 103,059 101,804 100,419
----------- ----------- -----------
----------- ----------- -----------
Earnings per weighted average share of common stock outstanding $ 2.64 $ 2.77 $ 2.54
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes to supplemental consolidated financial statements
are an integral part of this statement.
</TABLE>
23
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(THOUSANDS OF DOLLARS, EXCEPT SHARE INFORMATION)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (NOTE 1)
<TABLE>
COMMON STOCK, $1 PAR VALUE
-------------------------- RETAINED
SHARES AMOUNT PAID IN CAPITAL EARNINGS TOTAL
------------ --------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 99,329,388 $ 99,330 $1,158,812 $ 614,943 $1,873,085
Net income - - - 255,545 255,545
Dividends declared on Common stock - - - (213,399) (213,399)
Issuance of common stock
Employees' Savings Plan 334,223 334 9,776 - 10,110
Dividend Reinvestment Plan 1,355,104 1,355 36,728 - 38,083
Omnibus Incentive Plan 7,892 8 219 - 227
Other - - - 3 3
----------- -------- ---------- --------- ----------
Balance at December 31, 1994 101,026,607 101,027 1,205,535 657,092 1,963,654
Net income - - - 281,492 281,492
Dividends declared on Common stock - - - (218,606) (218,606)
Issuance of common stock
Employees' Savings Plan 310,546 310 9,395 - 9,705
Dividend Reinvestment Plan 889,331 889 27,133 - 28,022
Omnibus Incentive Plan 3,657 4 107 - 111
Other - - - 19 19
SPS transitional period to calendar year-end
(Notes 1 &15)
Net Income - - - 28,573 28,573
Dividends declared on Common Stock - - - (22,505) (22,505)
Other - - 1,108 - 1,108
----------- -------- ---------- --------- ----------
Balance at December 31, 1995 102,230,141 102,230 1,243,278 726,065 2,071,573
Net income - - - 272,341 272,341
Dividends declared on Common stock - - - (225,130) (225,130)
Issuance of common stock
Employees' Savings Plan 274,934 275 9,519 - 9,794
Dividend Reinvestment Plan 809,603 810 27,818 - 28,628
Omnibus Incentive Plan 58,346 58 1,661 - 1,719
Acquisitions (Note 2) 317,748 318 10,882 - 11,200
Other - - - (85) (85)
----------- -------- ---------- --------- ----------
Balance at December 31, 1996 103,690,772 $103,691 $1,293,158 $ 773,191 $2,170,040
----------- -------- ---------- --------- ----------
----------- -------- ---------- --------- ----------
Authorized shares of common stock were 260 million at December 31, 1996, 1995 and 1994
The accompanying notes to supplemental consolidated financial statements
are an integral part of these financial statements.
</TABLE>
24
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (NOTE 1)
<TABLE>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income $ 272,341 $ 281,492 $ 255,545
Adjustments to reconcile net income to net
cash provided by operating activities (Note 1):
Depreciation and amortization 225,264 206,439 203,394
Defueling and decommissioning expenses - - 43,376
Gain on sale of WestGas Gathering, Inc. - - (34,485)
Amortization of investment tax credits (7,507) (5,348) (5,799)
Deferred income taxes 69,116 48,637 45,548
Allowance for equity funds used during construction (936) (4,011) (3,699)
Change in accounts receivable (92,600) 34,829 (12,201)
Change in inventories 23,479 837 8,512
Change in other current assets (54,508) 2,475 (1,695)
Change in accounts payable 141,771 (21,756) (34,599)
Change in other current liabilities (85,321) 33,628 (35,118)
Change in deferred amounts (24,771) (20,385) (33,920)
Change in noncurrent liabilities (9,725) (5,367) 15,321
Other 17,297 6,905 13,234
--------- --------- ---------
Net cash provided by operating activities 481,182 558,375 428,486
Investing activities:
Construction expenditures (454,968) (380,407) (409,485)
Allowance for equity funds used during construction 936 4,011 3,699
Proceeds from sale of WestGas Gathering, Inc. - - 87,000
Proceeds from disposition of property, plant and equipment 24,292 2,470 49,438
Payment for purchase of companies, net of cash acquired (Note 2) 3,649 - -
Purchase of other investments (17,790) (38,468) (13,718)
Sale of other investments 664 4,898 1,148
--------- --------- ---------
Net cash used in investing activities (443,217) (407,496) (281,918)
Financing activities:
Proceeds from sale of common stock (Note 1) 30,115 28,030 38,086
Proceeds from sale of long-term notes and bonds (Note 1) 359,715 178,064 250,068
Proceeds from sale of SPS obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely subordinated debentures of SPS 100,000 - -
Redemption of long-term notes and bonds (175,298) (61,593) (307,379)
Short-term borrowings - net (105,739) (51,744) 62,919
Retirement of preferred stock of subsidiaries (1,636) (1,376) (213)
Dividends on common stock (223,414) (217,372) (212,551)
--------- --------- ---------
Net cash used in financing activities (16,256) (125,991) (169,070)
--------- --------- ---------
Net increase (decrease) in cash and temporary cash investments 21,709 24,888 (22,502)
Cash and temporary cash investments at beginning of year 51,553 26,665 49,167
Net decrease in cash and temporary cash investments for SPS for the
transition period (Notes 1 and 15) (23,247) - -
--------- --------- ---------
Cash and temporary cash investments at end of year $ 50,015 $ 51,553 $ 26,665
--------- --------- ---------
--------- --------- ---------
The accompanying notes to supplemental consolidated financial statements
are an integral part of these financial statements.
</TABLE>
25
<PAGE>
NEW CENTURY ENERGIES INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MERGER AND SUPPLEMENTAL FINANCIAL STATEMENTS (BASIS OF PRESENTATION)
Effective August 1, 1997, following the receipt of all required state and
Federal regulatory approvals, PSCo and SPS combined to form NCE. The
supplemental consolidated financial statements reflect the accounting for the
Merger as a pooling of interests and are presented as if the companies were
combined as of the earliest period presented. However, the financial
information is not necessarily indicative of the results of operations,
financial position or cash flows that would have occurred had the Merger been
consummated for the periods for which it is given effect, nor is it necessarily
indicative of future results of operations, financial position, or cash flows.
The 1996 supplemental consolidated financial statements combine the historical
audited consolidated financial statements for both PSCo and SPS as of and for
the year ended December 31, 1996. The 1995 and 1994 supplemental statements
combine the historical audited consolidated financial statements of PSCo as of
and for the years ended December 31, 1995 and 1994, respectively, with the
historical audited consolidated financial statements of SPS as of and for the
years ended August 31, 1995 and 1994, respectively. Certain items have been
reclassified in the accompanying supplemental consolidated financial statements
to conform to the presentation used by the Company.
The supplemental consolidated financial statements reflect the conversion
of each outstanding share of PSCo Common Stock into one share of NCE Common
Stock, and each outstanding share of SPS Common Stock into 0.95 of one share
of NCE Common Stock in accordance with the terms of the Merger Agreement.
References to the Company are to NCE on a consolidated basis; however, in
certain circumstances, the separate subsidiaries are separately referred to in
order to distinguish between the different business activities of the companies.
Operating revenues and net income for the three years in the period ended
December 31, 1996, consistent with NCE presentation, were as follows (in
millions):
PSCo SPS NCE*
------ ---- ------
Year ended December 31, 1996:
Operating revenues $2,171 $960 $3,131
Net income 190 94 272
Year ended December 31, 1995:
Operating revenues $2,111 $881** $2,992
Net income 179 119 281
Year ended December 31, 1994:
Operating revenues $2,057 $878** $2,935
Net income 170 102 256
* NCE's net income is net of dividend requirements on preferred stock of
subsidiaries.
** SPS operating revenues have been reclassified to include non-utility
operating revenues, consistent with the NCE presentation.
BUSINESS, UTILITY OPERATIONS AND REGULATION
NCE will be a registered holding company under the PUHCA whose utility
subsidiaries will be engaged in the generation, purchase, transmission,
26
<PAGE>
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. During 1996,
NCE's subsidiaries adopted SFAS 121 which imposes stricter criteria for the
continued recognition of regulatory assets on the balance sheet by requiring
that such assets be probable of future recovery at each balance sheet date. The
adoption of this statement did not have a material impact on the Company's
results of operations, financial position or cash flows. The following
regulatory assets are reflected in the Company's supplemental consolidated
balance sheets:
1996 1995
-------- --------
(THOUSANDS OF DOLLARS)
Nuclear decommissioning costs $ 89,731 $ 97,801
Income taxes (Note 12) 179,757 184,441
Employees' postretirement benefits
other than pensions (Note 11) 57,641 50,119
Early retirement costs (Note 11) 15,505 24,366
Employees' postemployment benefits (Note 11) 24,797 23,500
Demand-side management costs 41,462 30,188
Unamortized debt reacquisition costs 39,794 43,202
Other 17,424 16,507
-------- --------
Total 466,111 470,124
Classified as current 52,110 48,247
-------- --------
Classified as noncurrent $414,001 $421,877
======== ========
The regulatory assets of the Company's regulated subsidiaries as of
December 31, 1996 are reflected in rates charged to customers over periods
ranging from two to thirty years. Refer to the discussion below or the Notes
to Supplemental Consolidated Financial Statements as listed in the above table
for a more detailed discussion regarding recovery periods. 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 related 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 the
Company's financial position, results of operations or cash flows.
Effective July 1, 1993, PSCo began collecting from customers nuclear
decommissioning costs expected to total approximately $124.4 million (plus a 9%
carrying cost). Such amount, which is being collected over a twelve year
period, represented the inflation-adjusted estimated remaining cost of
decommissioning activities not previously recognized as expense at the time of
CPUC approval. PSCo is recovering approximately $13.9 million per year from its
customers for such costs.
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 $8.7 million
regulatory asset recognized upon the adoption of SFAS 112 (see Note 11.
Employee Benefits - Postemployment Benefits). PSCo has appealed in the
district court the decision related to this issue and is assessing the impact
of this decision on the future recovery of the electric jurisdictional portion
of
27
<PAGE>
postemployment benefit costs totaling approximately $13.8 million. PSCo
believes that it will be successful on appeal and that the associated
regulatory asset is realizable. If PSCo is ultimately unsuccessful, these
amounts will be written off.
Certain costs associated with PSCo's DSM programs are deferred and
recovered in rates over five to seven year periods through the DSMCA.
Non-labor incremental expenses, carrying costs associated with deferred DSM
costs and incentives associated with approved DSM programs are recovered on an
annual basis. Costs associated with SPS's DSM programs are also deferred and,
as part of a negotiated settlement agreement reached in July 1995, will be
included in rate base and cost of service in future PUCT proceedings.
Costs incurred to reacquire debt prior to scheduled maturity dates are
deferred and amortized over the life of the debt issued to finance the
reacquisition or as approved by the applicable regulatory authority.
In early 1997, SPS recorded an approximately $22.3 million regulatory asset
associated with the Thunder Basin judgment pending authorization of recovery
from the PUCT and the NMPUC (See Note 8. Regulatory Matters in the Notes to
Supplemental Consolidated Financial Statements). Management believes that the
judgment amount paid is recoverable from customers. On September 17, 1996, the
FERC issued an order granting SPS conditional approval to collect the FERC
jurisdictional portion of the judgment from wholesale customers. Therefore,
Management believes that the ultimate resolution will not have a material
adverse effect on the Company's results of operations, financial position or
cash flows.
RECOVERED/RECOVERABLE PURCHASED GAS AND ELECTRIC ENERGY COSTS - NET
The Company's utility subsidiaries have adjustment mechanisms in place
which allow for the recovery of certain purchased gas and electric energy
costs in excess of the level of such costs included in base rates. Currently,
these cost adjustment tariffs are revised periodically, as prescribed by the
appropriate regulatory agencies, for any difference between the total amount
collected under the clauses and the recoverable costs incurred (see Note 8.
Regulatory Matters - Electric and Gas Cost Adjustments).
OTHER PROPERTY
Property, plant and equipment includes approximately $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design
of the future Pawnee 2 generating station and certain water rights located in
southeastern Colorado, also obtained for a future generating station. PSCo is
earning a return on these investments based on its weighted average cost of
debt and preferred stock in accordance with a CPUC rate order.
NON-UTILITY SUBSIDIARIES
The Company's net investment in its non-utility subsidiaries approximated
8.5% of common equity at December 31, 1996. The 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 the investment in cogeneration facilities, foreign utility
companies, EWG's and other non-utility investments.
MANAGEMENT ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONSOLIDATION
The Company follows the practice of consolidating the accounts of its
majority owned and controlled subsidiaries. The Company recognizes equity in
income from its unconsolidated investments accounted for under the equity
method of accounting. All intercompany items and transactions have been
eliminated.
28
<PAGE>
REVENUE RECOGNITION
The Company's utility subsidiaries accrue for estimated unbilled revenues
for services provided after the meters were last read on a cycle billing basis
through the end of each year.
STATEMENTS OF CASH FLOWS
For purposes of the supplemental consolidated statements of cash flows, the
Company and its subsidiaries consider all temporary cash investments to be cash
equivalents. These temporary cash investments are securities having original
maturities of three months or less or having longer maturities but with put
dates of three months or less.
INCOME TAXES AND INTEREST (EXCLUDING AMOUNTS CAPITALIZED) PAID:
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
Income taxes $117,121 $108,750 $ 88,889
Interest $197,073 $182,913 $165,819
NON-CASH TRANSACTIONS:
Shares of PSCo common stock (274,934 in 1996, 310,546 in 1995 and 334,223
in 1994), valued at the market price on date of issuance (approximately $10
million for each year), were issued to the Employees' Savings and Stock
Ownership Plan of Public Service Company of Colorado and Participating
Subsidiary Companies. The estimated issuance values were recognized in other
operating expenses during the respective preceding years. Shares of PSCo
common stock (6,673 in 1996, 3,390 in 1995 and 7,892 in 1994), valued at the
market price on the date of issuance ($0.2 million in 1996, $0.1 million in
1995 and $0.2 million in 1994), were issued to certain executives pursuant to
the applicable provisions of the executive compensation plans.
During 1996, PSCo exchanged shares of its common stock in connection with
the acquisition of TOG and TOP. During 1994, PSCo sold all of its outstanding
common stock of WGG (see Note 2. Acquisition and Divestiture of Investments).
Cash flows from operating activities reflect the changes in assets and
liabilities, net of the effects from these acquisitions and divestiture.
A $40.5 million capital lease obligation was recognized in 1995 in
connection with a 30-year gas storage facility agreement. Additionally, other
capital lease obligations totaling approximately $0.1 million were recognized
in 1995. A $16.8 million capital lease obligation was incurred for computer
equipment in 1994.
PROPERTY AND DEPRECIATION
Replacements and betterments representing units of property are
capitalized. Maintenance and repairs of property and replacements of items of
property determined to be less than a unit of property are charged to
operations as maintenance. The cost of units of property retired, together
with cost or removal, less salvage, is charged against accumulated
depreciation.
Provisions for depreciation of property for financial accounting purposes
are based on straight-line composite rates applied to the various classes of
depreciable property. Depreciation rates include provisions for disposal and
removal costs of property, plant and equipment. Depreciation expense,
expressed as a percentage of average depreciable property, ranged
approximately 2.7%-2.85% for the year ended December 31, 1996, 2.6%-2.86% in
1995 and 2.6%-2.83% in 1994. For income tax purposes, the Company and its
subsidiaries use accelerated depreciation and other elections provided by the
tax laws.
29
<PAGE>
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
AFDC, as defined in the system of accounts prescribed by the FERC,
represents the net cost during the period of construction of borrowed funds
used for construction purposes, and a reasonable rate on funds derived from
other sources. AFDC does not represent current cash earnings. The Company's
regulated subsidiaries capitalize AFDC as a part of the cost of utility plant.
The AFDC ranges of rates used during 1996, 1995 and 1994 were 5.67%-6.78%,
6.5%-7.97% and 6.2%-8.75%, respectively.
MISCELLANEOUS INCOME AND DEDUCTIONS - NET
Miscellaneous income and deductions - net includes items which are
non-operating in nature or, in general, are not considered in the ratemaking
process. Such items include, among other things, merger and business
integration costs, contributions, gains and losses on the sale of property,
investment impairments, certain executive severance costs and environmental
settlement costs.
INCOME TAXES
The Company and its subsidiaries will file consolidated Federal and state
income tax returns. Income taxes are allocated to the subsidiaries based on
separate company computations of taxable income or loss. Investment tax
credits have been deferred and are being amortized over the service lives of
the related property. Deferred taxes are provided on temporary differences
between the financial accounting and tax bases of assets and liabilities using
the tax rates which are in effect at the balance sheet date (see Note 12.
Income Taxes).
STOCK-BASED COMPENSATION
As allowed by SFAS 123, the Company uses the intrinsic value based method
of accounting prescribed by Accounting Principles Board Opinion No. 25
- -"Accounting for Stock Issued to Employees," in accounting for its stock-based
compensation plan (see Note 11. Employee Benefits - Incentive Compensation).
GAS IN UNDERGROUND STORAGE
Gas in underground storage is accounted for under the last-in, first-out
(LIFO) cost method. The estimated replacement cost of gas in underground
storage at December 31, 1996 and 1995 exceeded the LIFO cost by approximately
$52.2 million and $5.3 million, respectively.
CASH SURRENDER VALUE OF LIFE INSURANCE POLICIES
The following amounts related to COLI contracts, issued by one major
insurance company, are recorded as a component of Investments, at cost, and
receivables on the consolidated balance sheets:
1996 1995
-------- --------
(THOUSANDS OF DOLLARS)
Cash surrender value of contracts $359,136 $311,097
Borrowings against contracts 356,421 308,833
-------- --------
Net investment in life insurance contracts $ 2,715 $ 2,264
======== ========
On August 2, 1996, Congress passed legislation that will phase out tax
benefits associated with certain COLI policies. The legislation had minimal
impact on the Company's COLI policies as all policies entered into prior to
July 1, 1986 were grandfathered under the legislation.
30
<PAGE>
2. ACQUISITION AND DIVESTITURE OF INVESTMENTS
ACQUISITION OF YORKSHIRE ELECTRICITY
On April 1, 1997, Yorkshire Holdings, a joint venture between PSCo and AEP,
declared the cash tender offer for all of the outstanding and to be issued
ordinary shares of Yorkshire Electricity wholly unconditional in all respects
and, thereby, committed the joint venture to purchase all the outstanding shares
of Yorkshire Electricity. As of June 30, 1997, valid acceptances of Yorkshire
Holdings' offer to purchase shares of Yorkshire Electricity had been received
representing virtually 100% of Yorkshire Electricity's issued share capital.
Total consideration paid by Yorkshire Holdings was approximately $2.4
billion (1.5 billion pounds sterling). Yorkshire Holdings, is a wholly-owned
subsidiary of Yorkshire Power Group Ltd. ("Yorkshire Power"), which is equally
owned by subsidiary companies of PSCo and AEP. The acquisition has been
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 acquisition were obtained from PSCo's and
AEP's investment in Yorkshire Power of approximately $360 million (220 pounds
sterling) each, with the remainder to be obtained by Yorkshire Power through
the issuance of non-recourse debt. Yorkshire Power will, in turn, fund
Yorkshire Holdings for the purpose of the acquisition. 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 $110 million
on its short-term lines of credit pursuant to its short-term credit agreement
with Bank of America as agent.
Effective April 1, 1997, PSCo recorded its 50% ownership interest in
Yorkshire Electricity, which is accounted for using the equity method of
accounting.
On July 2, 1997, the United Kingdom's Labour Party proposed a budget that
includes a windfall tax on certain privatized business entities. The windfall
tax liability for Yorkshire Electricity is estimated to be 135 million pounds
sterling ($222 million). The tax is expected to be enacted in the third quarter
of 1997 and would be payable in two installments with the first in December 1997
and the second installment a year later. PSCo's share of the proposed tax is
estimated to be approximately $111 million. The net earnings effect on PSCo of
the proposed tax is currently being assessed and is expected to be recorded when
the proposed tax is enacted.
ACQUISITION OF TEXAS-OHIO GAS, INC. AND TEXAS-OHIO PIPELINE, INC.
Effective September 1, 1996, e prime acquired all of the outstanding
stock of TOG and TOP in exchange for a combination of common stock of PSCo and
cash. Such acquisitions were accounted for using the purchase method and the
acquired assets and liabilities have been valued at their estimated fair
market values as of the date of acquisition. These companies are primarily
engaged in gas brokering and marketing activities and are subsidiaries of e
prime.
ACQUISITION OF TNP PROPERTIES
In September 1995, SPS purchased properties of TNP located in the Texas
Panhandle area for $29.2 million. The purchase added approximately 8,000
customers and was accounted for using the purchase method. Cost recovery of
this amount was allowed by the PUCT through a rate surcharge over a ten-year
period.
ACQUISITION OF YOUNG GAS STORAGE COMPANY
On June 25, 1995, PSCo acquired all of the outstanding stock of Young Gas
Storage Company ("YGSC") for $6.3 million. The acquisition was accounted for
using the purchase method. On February 1, 1996, PSCo contributed the common
stock of YGSC to e prime. YGSC owns a 47.5% interest in Young Gas Storage
Company, Ltd. ("Young Storage"), which owns and operates an underground gas
storage facility in northeastern Colorado.
31
<PAGE>
SALE OF WESTGAS GATHERING, INC.
In August 1994, PSCo sold all of its outstanding common stock of WGG, its
wholly-owned subsidiary, and certain related operating assets which were used by
WGG for approximately $87 million, subject to certain final closing adjustments.
PSCo recognized a pre-tax gain of approximately $34.5 million ($19.5 million
after-tax or approximately 31 cents per share). In the first quarter of 1995,
PSCo recognized $2.1 million of this gain as an amount to be refunded to
customers in accordance with a March 20, 1995 settlement with the OCC. The
refund was completed in late 1995.
BCH ENERGY LIMITED PARTNERSHIP INVESTMENT
Quixx holds a 49% limited partnership interest in BCH Energy Limited
Partnership which owns a waste-to-energy cogeneration facility located near
Fayetteville, North Carolina. Limited commercial operation of the BCH project
began in June 1996; however, the facility did not achieve the expected
performance level. An effort was made to restructure the project but it was
not possible to achieve the required improvements on economically viable
terms; therefore, in December 1996, Quixx wrote-off its investment of
approximately $16 million in this project.
QUIXX UNDERGROUND WATER RIGHTS
During 1996, Quixx sold a portion of its underground water rights for
approximately $14 million. Quixx recognized an after-tax gain on the sale of
these water rights of approximately $7.7 million.
CAROLINA ENERGY LIMITED PARTNERSHIP INVESTMENT
The Carolina Energy Partnership is similar to the BCH project, but with
design modifications. Construction was originally scheduled to be completed
later in 1997 but was halted pending an independent analysis of the project's
engineering and financial viability. Additionally, the banks providing debt
financing to the project withheld funds for continued construction. Quixx,
UE, other equity owners, senior creditors and the constructor have been unable
to restructure the project on mutually agreeable terms. The construction
contractor is demobilizing and, in June 1997, the creditors initiated remedies
provided under the credit agreement. Accordingly, Management has determined
it is unlikely the project will be completed under the present ownership, if
at all, and Quixx's and UE's investments in the Carolina Energy Limited
Partnership are unlikely to be recovered.
As a consequence, in June 1997, Quixx wrote-off its investment of
approximately $13.6 million in the Carolina Energy Limited Partnership.
Additionally, UE wrote-off its net investment of approximately $2.4 million in
this same partnership. Quixx held a one-third ownership interest, including a
1% general partnership interest, in the partnership. UE's net investment in
the partnership was comprised of subordinated debt, the related interest
receivable, as well as fees for engineering services.
3. CAPITAL STOCK
SHAREHOLDER RIGHTS
On April 30, 1997, the Board of Directors declared that a dividend of one
right for each Common Share be paid on the effective date of the business
combination among the Company, PSCo and SPS to shareholders of record of the
common shares issued and outstanding at the close of business on the day
before the effective date of the business combination. Each right represents
the right to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock at a price of $100 per one one-hundredth share.
Additionally, the Board of Directors created a Series A Junior Participating
Preferred Stock, $1 par value, and reserved 2,600,000 shares for issuance upon
exercise of the Rights. In the event any person or group acquires 10% or more
of the Company's common stock, the holders of the rights generally will be
entitled to receive, upon exercise, common stock of the Company having a value
equal to two times the exercise price of the right. In addition, the Board of
Directors
32
<PAGE>
may, at its option after a person or group acquires 10% or more of the
Company's common stock, exchange all or part of the rights for shares of the
Company's common stock. In the event that the Company is acquired in a merger
or other business combination of 50% or more of the Company's assets or
earning power is sold or transferred, the holders of the rights have the right
to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the exercise price of the right. The Company may
redeem the rights at a price of $.001 per right at any time prior to the tenth
day following the date any person or group acquires 10% or more of the
Company's common stock. The rights expire 10 years after the record date,
unless earlier redeemed or exchanged by the Company.
33
<PAGE>
PREFERRED STOCK OF SUBSIDIARIES
<TABLE>
1996 1995
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
-------- --------- ------- ----------
(THOUSANDS (THOUSANDS
OF DOLLARS) OF DOLLARS)
<S> <C> <C> <C> <C>
PSCo Cumulative preferred stock, $100 par value,
3 million shares authorized:
Issued and outstanding:
Not subject to mandatory redemption (1):
4.20% series 100,000 $ 10,000 100,000 $ 10,000
4 1/4% series (includes $7,500 premium) 175,000 17,508 175,000 17,508
4 1/2% series 65,000 6,500 65,000 6,500
4.64% series 160,000 16,000 160,000 16,000
4.90% series 150,000 15,000 150,000 15,000
4.90% 2nd series 150,000 15,000 150,000 15,000
7.15% series 250,000 25,000 250,000 25,000
---------- ---------- ---------- ----------
Total 1,050,000 $ 105,008 1,050,000 $ 105,008
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Subject to mandatory redemption (2):
7.50% series 216,000 $ 21,600 216,000 $ 21,600
8.40% series 208,892 20,889 222,652 22,265
---------- ---------- ---------- ----------
424,892 42,489 438,652 43,865
Less: Preferred stock subject to mandatory
redemption within one year (25,760) (2,576) (25,760) (2,576)
---------- ---------- ---------- ----------
Total 399,132 $ 39,913 412,892 $ 41,289
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PSCo cumulative preferred stock, $25 par value,
4 million shares authorized, not subject to
mandatory redemption:
Issued and outstanding:
8.40% (1) 1,400,000 $ 35,000 1,400,000 $ 35,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SPS cumulative preferred stock, $100 par value,
2 million shares authorized, not subject to
mandatory redemption:
Issued and outstanding:
3.70% - 14.50% series (1) - - 496,800 $ 49,680
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SPS cumulative preferred stock, $25 par value,
3 million shares authorized, not subject to
mandatory redemption:
Issued and outstanding:
4.36% - 8.88% series (1) - - 920,000 $ 23,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SPS cumulative preferred stock, $1 par value,
10 million shares authorized with no shares
outstanding (3) - - - -
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(1) The PSCo preferred stock may be redeemed at the option of PSCo upon at
least 30, but not more than 60, days' notice in accordance with the following
schedule of prices, plus an amount equal to the accrued dividends to the date
fixed for redemption; $100 par value, $101 per share, $25 par value, $25.25
per share. On December 27, 1995 and January 9, 1996, SPS retired all the
outstanding shares of its cumulative preferred stock. The aggregate cost to
retire the preferred stock was approximately $76 million, including accrued
dividends.
(2) Mandatory redemption for 7.50% series: $101.75 per share on or prior to
August 31, 1997, reducing each year thereafter by $0.25 per share until
August 31, 2003, after which the redemption price is $100 per share;
mandatory redemption for 8.40% series: $102 per share on or prior to July 31,
1997, and reducing each year thereafter by $0.25 per share until July 31,
2004, after which the redemption price is $100 per share. In 1997 and in each
year thereafter, PSCo must offer to repurchase 12,000 shares of the 7.50% and
13,760 shares of the 8.40% series subject to mandatory redemption at $100 per
share, plus accrued dividends to the date set for repurchase. In 1996 and
1995, PSCo repurchased 13,760 shares of the 8.40% cumulative preferred series
subject to mandatory redemption. In 1994, PSCo repurchased 2,133 shares of
the 8.40% cumulative preferred series subject to mandatory redemption.
3) On January 31, 1996 the shareholders of SPS approved an amendment to the
Restated Articles of Incorporation to replace the existing authorized
preferred stock and to provide for a class of 10 million authorized shares of
preferred stock, $1.00 par value, issuable from time to time in such series
and having such designations, preferences, limitations, and relative rights
as the Board of Directors may determine.
34
<PAGE>
4. SPS OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED DEBENTURES OF SPS
In October 1996, Southwestern Public Service Capital I, a wholly-owned
Trust of SPS, issued 4,000,000 shares of 7.85% Trust Preferred Securities,
Series A for $100 million. The sole asset of the trust is $103 million
principal amount of SPS's 7.85% Deferred Interest Subordinated Debentures,
Series A, due September 1, 2036. Holders of the securities are entitled to
receive quarterly dividends at an annual rate of 7.85% of the liquidation
preference value of $25. The securities are redeemable at the option of SPS
on October 21, 2001 at 100% of the principal amount outstanding plus accrued
interest. The securities are shown as SPS obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely subordinated
debentures of SPS on the supplemental consolidated balance sheets. The net
proceeds were used to reduce short-term debt.
5. LONG-TERM DEBT OF SUBSIDIARIES
<TABLE>
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
First Mortgage Bonds:
5 3/8 retired May 1, 1996 $ - $ 35,000
5.70% due February 1, 1997 15,000 15,000
5-7/8% due July 1, 1997 35,000 35,000
6-3/4% due July 1, 1998 25,000 25,000
6.875% due December 1, 1999 90,000 90,000
6.00% due January 1, 2001 102,667 102,667
7-7/8% due April 1, 2003 4,000 4,000
8-1/8% due March 1, 2004 100,000 100,000
5-7/8% due March 1, 2004 22,500 23,000
7-1/4% due July 15, 2004 135,000 135,000
6-3/8% due November 1, 2005 134,500 134,500
6-1/2% due March 1, 2006 60,000 -
7 1/8% due June 1, 2006 125,000 -
5-5/8% due April 1, 2008 18,000 18,000
7-3/8% due November 1, 2009 27,250 27,250
5-1/2% due June 1, 2012 50,000 50,000
5-7/8% due April 1, 2014 61,500 61,500
9-7/8% due July 1, 2020 75,000 75,000
7.25% due September 1, 2021 7,000 7,000
8-3/4% due March 1, 2022 150,000 150,000
8-1/4% due July 15, 2022 40,000 40,000
8.20% due December 1, 2022 100,000 100,000
7-1/4% due January 1, 2024 110,000 110,000
7.50% due January 1, 2024 8,000 8,000
8.50% due February 15, 2025 70,000 70,000
6.05% - 9.25% medium-term notes, due January 15, 1996 - November 25, 2003 183,500 151,500
Other secured long-term debt 13.25%, due in installments through October 1, 2016 31,506 31,814
Pollution control obligations, securing pollution control revenue bonds:
Not collateralized by First Mortgage Bonds:
variable rate (3.95% at December 31, 1996 and 3.45% at August 31, 1995),
due July 1, 2011 44,500 44,500
variable rate (6.435% effective at December 31, 1996), due July 1, 2016 25,000 -
5-3/4% series, due September 1, 2016 57,300 -
Collateralized by First Mortgage Bonds:
13.25% series, due October 1, 2001 - 25,000
7-1/4% series, due March 1, 2004 - 25,000
6-5/8% series, due March 1, 2009 - 32,300
Less funds held by Trustee: (417) (55)
Unsecured Medium-Term Notes:
5.75% - 6.03%, due November 24, 1997 - December 1, 1998 100,000 80,000
Capital lease obligations, 4.21% - 14.65% due in installments through May 31, 2025 49,154 53,702
Other 527 1,021
Unamortized discount and premium-net (6,298) (5,962)
----------- ----------
2,050,189 1,854,737
Less: maturities due within one year 170,261 83,112
----------- ----------
$1,879,928 $1,771,625
----------- ----------
----------- ----------
</TABLE>
35
<PAGE>
The First Mortgage Bonds include all long-term bonds and notes
(including First Collateral Trust Bonds) issued by the Company's utility
subsidiaries under various mortgage indentures. Substantially all properties
of the Company's utility subsidiaries, other than expressly excepted
property, are subject to the liens securing the First Mortgage Bonds.
The Red River Authority of Texas has issued certain obligations, based
on long-term installment sale agreements executed by SPS, that relate to the
pollution control facilities installed at the Company's coal-fueled
generating units. SPS's payments under the pollution control obligations are
pledged to secure the Red River Authority Pollution Control Revenue Bonds.
The aggregate annual maturities and sinking fund requirements during the
five years subsequent to December 31, 1996 are (in thousands of dollars):
YEAR MATURITIES SINKING FUND REQUIREMENTS TOTAL
1997 $ 170,261 $ 810 $ 171,071
1998 76,672 560 77,232
1999 135,529 560 136,089
2000 31,656 560 32,216
2001 8,302 560 8,862
The sinking fund requirements relate to PSCo and Cheyenne and they
expect to satisfy substantially all of their sinking fund obligations through
the application of property additions. SPS has no significant sinking fund
requirements.
6. SHORT-TERM BORROWING ARRANGEMENTS
NOTES PAYABLE AND COMMERCIAL PAPER
Information regarding notes payable and commercial paper for the years
ended 1996 and 1995 is as follows:
1996 1995
--------- ---------
(THOUSANDS OF DOLLARS)
Notes payable to banks $ 18,478 $ 45,800
Commercial paper 280,083 242,250
--------- ---------
$ 298,561 $ 288,050
--------- ---------
--------- ---------
Weighted average interest rate at year end 5.94% 6.20%
BANK LINES OF CREDIT AND COMPENSATING BANK BALANCES
NCE is arranging a $225 million credit facility which is expected to be
in place shortly after the effective date of the merger. NCE can only borrow
$100 million under this credit facility until PSCCC is transferred to NCE.
In addition, NCE has arranged a $30 million bridge loan facility to provide
the funds necessary for the repayment of certain pre-merger PSCo subsidiary
short-term borrowings to permit the transfer of such subsidiaries to NCE or
to NCE's intermediate holding company, NC Enterprises, Inc., on the effective
date of the merger.
Arrangements by the Company and its subsidiaries for committed lines of
credit are maintained by a combination of fee payments and compensating
balances. Arrangements for uncommitted lines of credit have no fee or
compensating balance requirements.
Borrowing permitted under the committed bank lines of credit totaled
$480 million at December 31, 1996, of which $11.8 million required account
deposits of 1 1/2% of the unused portion of the loan commitment.
36
<PAGE>
Individual arrangements for uncommitted bank lines of credit totaled $75
million at December 31, 1996, of which all remained unused. PSCo and SPS may
borrow under uncommitted preapproved lines of credit upon request; however,
the banks have no firm commitment to make such loans.
On April 30, 1997, PSCo entered into a new credit facility providing an
additional $125 million in committed bank lines of credit. The facility will
expire on April 30, 1998.
7. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's and subsidiaries' significant financial instruments at December 31,
1996 and 1995. The carrying amount of all other financial instruments
approximates fair value. SFAS 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale.
<TABLE>
1996 1995
------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Investments, at cost $ 30,249 $ 30,416 $ 7,575 $ 7,623
Preferred stock of subsidiaries subject
to mandatory redemption 42,489 43,685 43,865 45,184
SPS obligated mandatorily redeemable
preferred securities of subsidiary
trust holding solely subordinated
debentures of SPS 100,000 99,520 - -
Long-term debt of subsidiaries 2,001,035 2,059,972 1,801,035 1,881,124
</TABLE>
The fair value of the debt and equity securities included in
Investments, at cost, is estimated based on quoted market prices for the same
or similar investments. The debt securities are classified as
held-to-maturity and the equity securities are classified as
available-for-sale. The unrealized holding gains and losses for these debt
and equity securities are not significant.
The estimated fair values of preferred stock subject to mandatory
redemption and long-term debt are based on quoted market prices of the same
or similar instruments. Since PSCo, SPS and Cheyenne are subject to
regulation, any gains or losses related to the difference between the
carrying amount and the fair value of these financial instruments would not
be realized by the Company's shareholders.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1996 and 1995. These
fair value estimates have not been comprehensively revalued for purposes of
these financial statements since that date, and current estimates of fair
values may differ significantly from the amounts presented herein.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
PSCo and YGSC have guaranteed 50% of amounts financed under a $32
million Credit Agreement among Young Gas and various lending institutions
entered into on June 27, 1995. This debt financing is for the development,
construction and operation of an underground natural gas storage facility in
northeastern Colorado (See Note 2. Acquisition and Divestiture of
Investments).
In connection with an agreement for the sale of electric power, SPS
guaranteed certain obligations of a customer totaling $48 million. These
obligations related to the construction of certain utility property that, in
the event of default by the customer, would revert to SPS.
SPS has an interest rate swap agreement, which, in effect, fixes the
interest rate on a $25,000,000 notional amount at 6.435%. Amounts paid or
received under this agreement are accrued as interest rates change and are
recognized over the life of the agreement as an adjustment to interest
expense. SPS is exposed to interest
37
<PAGE>
rate risk in the event of nonperformance by counterparties; however, SPS does
not anticipate such nonperformance.
CONCENTRATION OF CREDIT RISK - ACCOUNTS RECEIVABLE
No individual customer or group of customers engaged in similar
activities represents a material concentration of credit risk to the Company
and its subsidiaries.
8. REGULATORY MATTERS
MERGER RATE FILINGS
The discussion below summarizes the significant results of the state
utility regulatory approvals in Colorado, Texas, New Mexico, Wyoming,
Oklahoma and Kansas.
PSCO
The CPUC decision approving the Merger establishes a five year
performance based regulatory plan and acknowledges that the Merger is in the
public interest. The major provisions of the decision include:
- a $6 million electric rate reduction, which was instituted October 1,
1996, followed by an additional $12 million 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;
- 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 and decommissioning costs;
- a replacement of the ECA with an ICA to allow for a 50%/50% sharing
of certain fuel and energy cost increases or decreases among customers
and shareholders; and
- the implementation of a Quality of Service Plan which provides for
penalties 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. A new docket was opened in March 1997
to address the implementation of a reward structure for performance above
certain standards.
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.
SPS
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
business combination. SPS will provide a guaranteed minimum annual savings
of $3 million in Texas, $1.2 million in New Mexico, $100,000 in Oklahoma and
$10,000 in Kansas.
RATE CASES
PSCO
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. The Company has appealed the CPUC's decision
with the District Court of Denver which disallowed the recovery of certain
postemployment benefit costs under SFAS 112 and imputed anticipated merger
related costs savings related to the gas business (see Note 1. Summary of
Significant Accounting Policies).
38
<PAGE>
PSCo filed a rate case with the FERC on December 29, 1995, requesting a
slight overall rate increase (less than 1%) from its wholesale electric
customers. This filing, among other things, requested approval for recovery
of OPEB costs under SFAS 106, postemployment benefit costs under SFAS 112 and
new depreciation rates based on the Company's most recent depreciation study.
On March 29, 1997, the FERC issued an order accepting for filing and
suspending certain proposed rate changes. Settlement agreements have been
reached with all parties and filed with the FERC, which, overall, results in
a slight decrease in rates. A final order approving the settlement
agreements, subject to PSCo making certain compliance filings, was received
in June 1997.
SPS
On December 19, 1989, the FERC issued its final order regarding a 1985
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, required filings were made and a hearing was
completed in February 1994. In October 1994, the administrative law judge
issued a favorable initial decision that, if approved by the FERC, would
result in a substantial 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
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, Golden Spread member
cooperatives and Lyntegar Electric Cooperative, have not been reached. SPS
cannot reasonably estimate the remaining amount recoverable from these
proceedings; however, a favorable resolution could materially improve its
consolidated earnings in the year in which it is resolved.
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 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. Management does not believe this will have a significant impact
on the Company's results of operations, financial position or cash flows.
The CPUC has had an on-going 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.
SPS
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. 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 flow 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 rule
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 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. The Travis County District Court decision has been appealed to the
Texas Court of Appeals which has not yet ruled in the matter.
39
<PAGE>
Management does not believe that the ultimate outcome of this matter will
have a significant impact on the Company's results of operations, financial
position or cash flows. At December 31, 1996, SPS had approximately $16.0
million in underrecovered fuel costs and is surcharging customers for some of
the underrecovery. SPS has requested to continue the surcharge to collect
the remaining amount of underrecovered fuel costs.
COAL LITIGATION
SPS was named as a defendant in a case entitled Thunder Basin Coal Co.
v 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 them
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 was paid in April 1997 and a regulatory asset was recorded pending
authorization from the PUCT and the NMPUC.
Management believes that the judgment amount paid is recoverable from
customers and as such recognized a regulatory asset, although any such
recovery would be subject to review by various regulatory agencies. On
September 17, 1996, the FERC issued an order granting SPS conditional
approval to collect the FERC jurisdictional portion of the judgment from
wholesale customers. Therefore, Management believes that the ultimate
resolution will not have a material adverse effect on the Company's results
of operations, financial position or cash flows.
9. COMMITMENTS AND CONTINGENCIES
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 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 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 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 11, 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 some of the policies. A retrial is expected. 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, PSCo
40
<PAGE>
expects to recoup additional expenditures beyond insurance proceeds through
the sale of the Barter property and from other PRPs. In August 1996, PSCo
filed a lawsuit against four PRPs seeking recovery of certain Barter related
costs.
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. Two carriers were excluded from this proceeding. PSCo intends
to pursue recovery from the remaining two carriers. Additionally, PSCo
intends to appeal the decision to the Colorado Court of Appeals.
The Ramp Industries disposal facility, located in Denver, Colorado has
been designated by the EPA as a Superfund hazardous substance site pursuant
to CERCLA. On November 29, 1995, PSCo received from the EPA a Notice of
Potential Liability and Request for Information related to such site and PSCo
has responded to this request. The EPA is conducting an investigation of the
contamination at this site and is in the process of identifying the nature
and quantities of hazardous wastes delivered to, processed and currently
stored at the site by PRPs. In April, 1997, the EPA informed PSCo and more
than 700 other PRPs (as well as the public) that it plans to thermally treat
and dispose of Ramp hazardous substances off-site. The EPA estimates the
total cost of this site remedy to be approximately $10 million. PSCo's
insurance carriers have been notified of the EPA investigation.
In addition to these sites, PSCo has identified several other sites
where cleanup 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 burning 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 sulfur dioxide 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 pollution control equipment on certain
generation facilities, and c) allowances issued by the EPA. The Company 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 $13 million. The Company is studying its options to reduce NOx
and SO2 emissions and, currently does not anticipate that these regulations
will significantly impact its financial position, results of operations or
cash flow.
HAYDEN STEAM ELECTRIC GENERATING STATION
On May 21, 1996, PSCo and the other joint owners of Hayden Station
reached an agreement, as discussed below, with a conservation organization,
the CDPHE and the EPA which provides for a complete and final release of all
civil claims for violations alleged in complaints filed by the conservation
organization, CDPHE and EPA against the joint owners. The complaints filed,
pursuant to provisions of the Federal Clean Air Act ("Clean Air Act"), by a
conservation organization and the EPA alleged, among other things, that the
station exceeded the 20% opacity limitations during various periods extending
from 1988 to mid-1995. In August 1996, the U.S. District Court for the
District of Colorado entered the settlement agreement which effectively
resolved this litigation. PSCo is the operator and owns an average undivided
interest of approximately 53% of the station's two generating units.
In connection with the above settlement, the joint owners of the Hayden
station, which is located in western Colorado, made the following payments in
1996: 1) a $2 million payment to the U.S. Treasury, 2) a contribution of $2
million to a "Land Trust Fund" to be used for the purchase of land and/or
conservation easements in the Yampa Valley
41
<PAGE>
and 3) a contribution of $250,000 to be used for the conversion of vehicles
and/or wood burning appliances to natural gas in the Yampa Valley. PSCo's
portion of these costs was approximately $2.3 million. The joint owners have
committed to the installation of emission control equipment on both
generating units to reduce future particulate (opacity), SO2 and NOx
emissions over the next three years. The joint owners estimate that the
cost of installing emission control equipment capable of reducing the
emissions to the levels required under the agreement, consisting of fabric
filter dust collectors, lime spray dryers and low NOx burners on both units,
is approximately $130 million, with PSCo's portion totaling approximately $70
million. Also, the settlement includes 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.
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 Clean Air 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 Clean Air 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. On
December 2, 1996, the joint owners of the Craig station filed a motion to
dismiss the complaint. PSCo does not believe that its potential liability or
the future impact of this litigation on plant operations will have a material
adverse impact on its results of operations, financial position, or cash
flows.
FORT ST. VRAIN
In 1989, PSCo announced its decision to end nuclear operations at Fort
St. Vrain and to proceed with the defueling and decommissioning of the
reactor. While the defueling of the reactor to the Independent Spent Fuel
Storage Facility ("ISFSI") was completed in June 1992, several issues related
to the ultimate storage/disposal of Fort St. Vrain's spent nuclear fuel
remained unresolved.
During 1994, PSCo recognized additional expenses aggregating
approximately $43.4 million for increased costs associated with defueling and
decommissioning and the impairment of certain property and inventory. The
additional expense was primarily associated with radiation levels in the
reactor being higher than originally anticipated and increased uncertainty
related to spent fuel issues.
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 Nuclear Regulatory
Commission ("NRC") to transfer the title of the ISFSI. This request is being
reviewed by the NRC and PSCo anticipates approval in mid-1997.
On March 22, 1996, PSCo and the decommissioning contractors announced
that the physical decommissioning activities at the facility have been
completed. The final site survey was completed in late October 1996. NRC
site release activities are continuing. PSCo requested the NRC to terminate
the Part 50 license and it is anticipated that the license will be terminated
by mid-1997. 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 $10 million to provide property damage
and
42
<PAGE>
decontamination protection in the event of an accident involving the ISFSI.
At December 31, 1996, a remaining $8.7 million defueling and decommissioning
liability was reflected on the supplemental consolidated balance sheet. PSCo
believes this remaining decommissioning liability is adequate to complete all
final decommissioning activities.
As a result of the DOE settlement, coupled with a complete review of
expected remaining decommissioning costs and establishment of the anticipated
refund to customers, pre-tax earnings for 1996 were positively impacted by
approximately $16 million. In accordance with the 1991 CPUC approval to
recover certain decommissioning costs, 50% of any cash amounts received from
the DOE as part of a settlement, net of costs incurred by PSCo, including
legal fees, is to be refunded or credited to customers. PSCo established an
$8 million refund liability. In early 1997, such obligation was reduced by
$1.1 million after amounts to be refunded were finally determined.
FUEL PURCHASE REQUIREMENTS
COAL PURCHASES AND TRANSPORTATION
PSCo and SPS have in place various long-term contracts for the purchase
and transportation of coal (and with respect to SPS, the processing of coal
for deliveries to its bunkers) which are used in the generation of
electricity. These contracts expire on various dates through 2017 and at
December 31, 1996 the total estimated obligations, based on 1996 prices, were
approximately $2.2 billion.
GAS PURCHASES AND TRANSPORTATION
PSCo and Cheyenne have long-term contracts for the purchase, firm
transportation and storage of natural gas. These contracts, excluding the
thirty year contract with Young Storage which has been accounted for as a
capital lease, are primarily used to support distribution of natural gas and
expire on various dates through 2002. During 1996, PSCo renegotiated
contracts with its primary gas pipeline supplier and committed to continue
purchasing firm transportation and gas storage services through 2002. At
December 31, 1996, PSCo and Cheyenne have minimum obligations under such
contracts of approximately $123 million in 1997 declining thereafter for a
total estimated commitment of approximately $516 million. SPS does not have
any long-term contracts with minimum obligations.
PURCHASED POWER
PSCo, SPS and Cheyenne have entered into agreements with utilities and
QFs for purchased power to meet system load and energy requirements, replace
generation from company-owned units under maintenance and during outages, and
meet operating reserve obligations to various regional power pools.
PSCo has various pay-for-performance contracts with QFs having
expiration dates through the year 2022. In general, these contracts provide
for capacity payments, subject to the QFs meeting certain contract
obligations, and energy payments based on actual power taken under the
contracts. The capacity and energy costs are recovered through base rates
and other cost recovery mechanisms. Additionally, the Company's regulated
utilities have long-term purchased power contracts with various regional
utilities expiring through 2018. In general, these contracts provide for
capacity and energy payments which approximate the cost of the sellers.
Total capacity and energy payments associated with such contracts were $473
million, $451 million, and $431 million in 1996, 1995 and 1994, respectively.
43
<PAGE>
At December 31, 1996 the estimated future payments for capacity that the
Company's regulated utilities are obligated to purchase, subject to
availability, are as follows:
REGIONAL
QFS UTILITIES TOTAL
---------- ---------- ---------
(THOUSANDS OF DOLLARS)
1997 $ 143,236 $ 181,571 $ 324,807
1998 143,502 184,701 328,203
1999 143,827 175,662 319,489
2000 141,910 164,994 306,904
2001 140,438 143,894 284,332
2002 and thereafter 1,000,001 1,270,872 2,270,873
---------- ---------- ----------
Total $1,712,914 $2,121,694 $3,834,608
---------- ---------- ----------
---------- ---------- ----------
Historically, all minimum coal, coal transportation, natural gas and
purchased power requirements have been met.
SYSTEM PURCHASE OPTION
SPS and the City of Las Cruces, New Mexico ("the City") entered into a
System Purchase Option and Rate Agreement in August 1994, which grants the
City the option to sell to SPS the electric utility system serving the City
(including distribution, subtransmission and transmission facilities), which
the City plans to acquire from El Paso Electric Company ("EPE") by purchase
or through condemnation proceedings. The agreement has a three-year term
beginning at the time the City acquires the facilities and ending no later
than January 1, 2002. The purchase price which would be paid by SPS would be
equal to the amount required to retire all outstanding debt incurred by the
City in acquiring the facilities plus the City's reasonable costs in
acquiring the facilities. SPS has the right to terminate the agreement if,
in SPS's sole discretion, it determines that any proposed condemnation award
is excessive or upon the occurrence of certain other events. The agreement
also provides that, if the City abandons or dismisses condemnation
proceedings as consequence of SPS's termination of the agreement, SPS will
reimburse the City for one-half of its reasonable litigation expenses and for
any of EPE's damages and litigation expenses that the City is obligated to
pay by final court order. In conjunction with the agreement, the NMPUC has
initiated Case 2651 to investigate whether the agreement constitutes a
security, or the guarantee of a security, under the New Mexico Public Utility
Act. SPS has responded to the Commission's Order to Show Cause and does not
believe the agreement to be a security or the guarantee of a security. A
hearing is expected in 1997.
EPE requested a declaratory judgment regarding the condemnation stating
that it is not a legal condemnation. During the first quarter of 1997, the
governor of New Mexico signed and issued legislation regarding municipal
condemnations which allows the City to complete its action against EPE. The
City has not completed its condemnation as it is awaiting a determination of
the stranded costs allocated to its system.
OTHER
In connection with an agreement for the sale of electric power, SPS
guaranteed certain obligations of a customer totaling $48 million at
December 31, 1996. These obligations are related to the construction of certain
utility property that, in the event of default by the customer, would revert
to SPS. Additionally, the Company has commitments related to the purchase of
materials, plant and equipment additions, DSM expenditures and other various
items resulting from the normal course of business.
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 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 the
Company's results of operations, financial position or cash flow.
44
<PAGE>
LEASING PROGRAM
The Company's subsidiaries lease various equipment and facilities used in
the normal course of business, some of which are accounted for as capital
leases. Expiration of the capital leases range from 1998 to 2025. The net
book value of property under capital leases was $49.2 million and $53.7
million at December 31, 1996, and 1995, respectively. Assets acquired under
capital leases are recorded as property at the lower of fair-market value or
the present value of future lease payments, and are amortized over their
actual contract term in accordance with practices allowed by regulators. The
related obligation is classified as long-term debt. Executory costs are
excluded from the minimum lease payments.
The majority of the operating leases are under a leasing program that has
initial noncancellable terms of one year, while the remaining leases have
various terms. These leases may be renewed or replaced. No material restrictions
exist in these leasing agreements concerning dividends, additional debt, or
further leasing. Rental expense for 1996, 1995 and 1994 was $26.9 million, $25.4
million and $31.4 million, respectively.
Estimated future minimum lease payments at December 31, 1996 are as
follows:
CAPITAL OPERATING
LEASES LEASES
-------- --------
(THOUSANDS OF DOLLARS)
1997 $ 9,585 $ 22,976
1998 9,392 23,133
1999 7,903 20,057
2000 5,097 18,019
2001 5,035 13,770
All years thereafter 81,177 23,439
-------- --------
Total future minimum lease payments 118,189 $121,394
Less amounts representing interest 69,035 ========
--------
Present value of net minimum lease payments $ 49,154
========
PSCo has in place a leasing program which includes a provision whereby PSCo
indemnifies the lessor for all liabilities which might arise from the
acquisition, use, or disposition of the leased property.
10. JOINTLY-OWNED ELECTRIC UTILITY PLANTS
The Company's investment in jointly-owned plants (PSCo participation) and
its ownership percentages as of December 31, 1996 is:
<TABLE>
PLANT CONSTRUCTION
IN ACCUMULATED WORK IN
SERVICE DEPRECIATION PROGRESS OWNERSHIP %
-------- ------------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Hayden Unit 1 $ 38,213 $ 29,860 $1,526 75.50
Hayden Unit 258,211 32,873 300 37.40
Hayden Common Facilities 2,117 392 3,287 53.10
Craig Units 1 & 2 57,057 23,352 647 9.72
Craig Common Facilities Units 1 & 2 7,714 3,033 958 9.72
Craig Common Facilities Units 1, 2 & 3 8,371 3,310 407 6.47
Transmission Facilities, Including
Substations 79,166 22,105 95 42.0-73.0
-------- -------- ------
$250,849 $114,925 $7,220
======== ======== ======
</TABLE>
These assets include approximately 320 Mw of net dependable generating
capacity. PSCo is responsible for its proportionate share of operating
expenses (reflected in the Company's supplemental consolidated statement of
income) and construction expenditures.
45
<PAGE>
11. EMPLOYEE BENEFITS
PENSIONS
The Company maintains noncontributory defined benefit pension plans which
cover substantially all employees.
The net pension expense for these plans in 1996, 1995 and 1994 was comprised of:
<TABLE>
1996 1995 1994
--------- --------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost $ 21,226 $ 18,203 $ 22,496
Interest cost on projected benefit obligation 66,503 65,574 63,428
Actual return on plan assets (133,301) (161,443) 8,573
Amortization of net transition assets over
15-17 year periods (7,238) (7,238) (7,238)
Deferral and other items 59,217 91,455 (80,706)
--------- --------- --------
Net pension expense $ 6,407 $ 6,551 $ 6,553
========= ========= ========
Significant assumptions:
Discount rate 7.25-8.0% 8.0-8.75% 7.5-8.0%
Expected long-term increase in
compensation level 4.0-6.0% 5.0-6.0% 5.0-6.0%
Expected weighted average long-term rate
of return on assets 8.0-9.75% 8.0-9.75% 8.0-9.75%
</TABLE>
Variances between actual experience and assumptions for costs and returns
on assets are amortized over the average remaining service lives of employees
in the plans.
A comparison of the actuarially computed benefit obligations and plan
assets at December 31, 1996 and 1995, is presented in the following table.
Plan assets are stated at fair value and are comprised primarily of corporate
debt and equity securities (including common stock of SPS with an estimated
fair market value of approximately $20.7 million at December 31, 1996), a real
estate fund and government securities held either directly or in commingled
funds. The Company's funding policy is to contribute annually, at a minimum,
the amount necessary to satisfy the IRS funding standards.
1996 1995
---- ----
(THOUSANDS OF DOLLARS)
Actuarial present value of benefit obligations:
Vested $ 734,168 $ 714,387
Nonvested 39,557 44,817
--------- ---------
773,725 759,204
Effect of projected future salary increases 145,727 141,616
--------- ---------
Projected benefit obligation 919,452 900,820
Plan assets at fair value (996,085) (895,097)
--------- ---------
Projected benefit obligation less than
(in excess) of plan assets 76,633 (5,723)
Unrecognized net loss (gain) (57,154) 25,245
Prior service costs not yet recognized in net
periodic pension cost 28,897 31,383
Unrecognized net transition assets being
recognized over 15-17 year periods (41,798) (50,224)
--------- ---------
Prepaid pension asset $ 6,578 $ 681
========= =========
Significant assumptions used:
Discount rate 7.25-7.5% 7.25-8.0%
Expected long-term increase in
compensation level 4.25-6.0% 4.0-6.0%
On January 25, 1994, PSCo's Board of Directors approved an amendment to
PSCo's noncontributory defined benefit pension plan (the "Plan") which offered
an incentive for early retirement for employees age 55 or older with 20 years
of service as well as a Severance Enhancement Program ("SEP") option for these
same eligible employees for the period February 4, 1994 to April 1, 1994. The
Plan amendment generally provided for the following retirement enhancements:
a) unreduced early retirement benefits, b) three years of additional credited
service, and c) a supplement of either a one-time payment equal to $400 for
each full year of service to be paid from general corporate funds or a $250
social security supplement each month up to age 62 to be paid by the Plan. The
SEP provided for: a) a one-time severance ranging from $20,000 - $90,000,
depending on an
46
<PAGE>
employee's organization level, b) a continuous years of service bonus (up to
30 years), and c) a cash benefit of $10,000.
Approximately 550 PSCo employees elected to participate in the early
retirement/severance enhancement program, of which approximately 370 employees
elected the early retirement benefit. The total cost of the program was
approximately $39.7 million. These costs were deferred and, effective April 1,
1994, are being amortized to expense over approximately 4.5 years in accordance
with rate regulatory treatment. This amortization period represents the
participants' average remaining years of service to their expected retirement
date.
Additionally, the Company maintains noncontributory defined benefit
supplemental retirement income plans (Supplemental Plan) for certain qualifying
executive personnel. The Supplemental Plan benefits are paid out of/or funded
through the Company's general fund.
DEFINED CONTRIBUTION PLANS
The Company maintains defined contribution plans which cover
substantially all employees. Total contributions to these plans by the Company
for the years 1996, 1995 and 1994 were approximately $12 million, $11 million
and $11 million, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain post-retirement health care and life insurance
benefits for substantially all employees who reach retirement age while working
for the Company. Historically, the Company has recorded the cost of these
benefits for these plans on a pay-as-you-go basis. PSCo and SPS have adopted
SFAS 106 which requires the accrual, during the years that an employee renders
service to the Company, of the expected cost of providing these benefits to the
employee. The Company is amortizing the transition obligations for these plans
over a period of 20 years.
Effective January 1, 1993, PSCo adopted SFAS 106 based on a level of
expense determined in accordance with the CPUC. PSCo is transitioning to full
accrual accounting for OPEB costs between January 1, 1993 and December 31,
1997, consistent with the accounting requirements for rate regulated
enterprises. All OPEB costs deferred during the transition period will be
amortized on a straight line basis over the subsequent 15 years.
Additionally certain state agencies, which regulate the Company's utility
subsidiaries, have issued guidelines related to the recovery or funding of OPEB
costs. SPS is required to fund SFAS 106 costs for Texas and New Mexico rates
and PSCo and Cheyenne are required to fund SFAS 106 costs in irrevocable
external trusts which are dedicated to the payment of these postretirement
benefits. Also, PSCo filed a FERC rate case in December 1995 which included a
request for approval to recover all electric wholesale jurisdiction SFAS 106
costs (see Note 8. Regulatory Matters - Rate Cases, PSCo).
The net periodic postretirement benefit cost in 1996, 1995 and 1994 under
SFAS 106 was comprised of:
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
Service cost $ 8,191 $ 7,240 $ 7,381
Interest cost 27,998 29,604 28,826
Return on plan assets (5,710) (3,301) (1,072)
Amortization of net transition obligation
over a 20 year amortization period 14,775 15,186 14,848
-------- -------- --------
Net postretirement benefit cost required
by SFAS 106 45,254 48,729 49,983
OPEB expense recognized in accordance with
current regulation (37,981) (37,933) (36,515)
-------- -------- --------
Increase in regulatory asset (Note 1) 7,273 10,796 13,468
Regulatory asset at beginning of period 50,368 39,323 25,855
-------- -------- --------
Regulatory asset at end of period $ 57,641 $ 50,119 $ 39,323
======== ======== ========
47
<PAGE>
Significant Assumptions:
Discount rate 7.25-7.5% 8.75-8.0% 7.50-8.0%
Expected long-term increase in
compensation level 4.0-6.0% 5.0-6.0% 5.0-6.0%
Expected weighted average long-term rate
of return on assets 8.0-9.75% 8.0-9.75% 8.0-10.5%
A comparison of the actuarially computed benefit obligations and plan
assets for 1996 and 1995 is presented in the following table. Plan assets are
stated at fair value and are comprised primarily of corporate debt and equity
securities, a real estate fund, government securities and other short-term
investments held either directly or in commingled funds.
1996 1995
--------- ---------
(THOUSANDS OF DOLLARS)
Accumulated postretirement benefit obligation:
Retirees and eligible beneficiaries $ 148,460 $ 162,605
Other fully eligible plan participants 84,439 95,468
Other active plan participants 117,456 125,492
--------- ---------
Total 350,355 383,565
Plan assets at fair value (88,673) (58,258)
--------- ---------
Accumulated benefit obligation in excess of
plan assets 261,682 325,307
Unrecognized net gain (loss) 44,794 (9,234)
Unrecognized transition obligations over a
20 year amortization period (247,925) (264,201)
--------- ---------
Accrued postretirement benefit obligation $ 58,551 $ 51,872
========= =========
Significant assumptions:
Discount rate 7.25-7.5% 7.25-8.0%
Ultimate health care cost trend rate 5.0-5.5% 4.5-5.0%
Expected long-term increase in compensation level 4.25-6.0% 4.0-6.0%
A 1% increase in the assumed health care cost trend rate for 1997
decreasing in 0.5% annual increments to the ultimate health care trend rate
(9-10.5%), will increase the estimated total accumulated benefit obligation by
$70.2 million, and the service and interest cost components of net periodic
postretirement benefit costs by $10.2 million.
POSTEMPLOYMENT BENEFITS
In 1994, the Company and its regulated subsidiaries adopted SFAS 112, which
establishes the accounting standards for employers who provide benefits to
former or inactive employees after employment but before retirement
(postemployment benefits). At December 31, 1996, the Company has recorded a
$27.6 million liability on the consolidated balance sheet, using assumed
discount rates of 7.50-7.75%. These costs have historically been recorded on a
pay-as-you-go basis. Regulatory assets were recorded upon the adoption of SFAS
112 in anticipation of obtaining future rate recovery of these costs recorded
(see Note 1). PSCo filed a FERC rate case in December 1995 and a retail gas
rate case in June 1996 which included requests for recovery of all electric
wholesale and gas retail jurisdictional SFAS 112 costs. A final order approving
the FERC settlement agreement, which includes the recovery of SFAS 112 costs,
was received in June 1997. Management believes it is probable that the Company
will receive the other required regulatory approvals to recover these costs in
the future.
INCENTIVE COMPENSATION
The Company and its subsidiaries have Incentive Compensation Plans
("Incentive Plans") which provide for annual and long-term incentive awards
for key employees. Approximately 1.8 million shares of common stock have been
authorized for these Incentive Plans for the issuance of restricted shares
and/or stock options, with certain vesting and/or exercise requirements. The
Company recognizes compensation expense for restricted stock awards based on
the fair value of the Company's common stock on the date of grant, consistent
with SFAS 123. Cash, restricted stock and stock option awards were made under
these plans during 1996, 1995 and 1994.
As allowed in SFAS 123, the Company applies APB Opinion No. 25 in
accounting for its stock-based compensation and, accordingly, no compensation
cost is recognized for the issuance of stock options as the exercise price of
the options are issued at the fair-market value of the Company's common stock
at the date of grant. Assuming compensation cost for the Company had been
determined consistent with SFAS 123 using the
48
<PAGE>
fair-value based method, the Company's net income would have been reduced by
an insignificant amount with no impact on earnings per share for 1996 and 1995.
SFAS 123's method of accounting for stock-based compensation plans has
not been applied to options granted prior to January 1, 1995 and as a result
the pro forma compensation cost may not be representative of that to be
expected in future years. A summary of the Company's stock options at December
31, 1996, 1995 and 1994 and changes during the years then ended is presented
in the table below:
<TABLE>
1996* 1995* 1994*
----------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 407,117 $29.78 262,932 $29.52 129,619 $30.54
Granted 158,270 $35.13 161,000 $30.29 155,063 $28.80
Exercised (74,303) $30.87 (5,685) $32.38 (6,252) $32.43
Forfeited (13,301) $32.48 (11,130) $29.93 (15,498) $29.67
------- ------ ------- ------ ------- ------
Outstanding at end of year 477,783 $31.46 407,117 $29.78 262,932 $29.52
======= ====== ======= ======
Exercisable at end of year 158,970 $29.05 134,809 $28.88 20,796 $28.50
======= ====== ======= ======
Weighted-average fair value of options granted $ 4.31 $ 5.39 $ 3.61
</TABLE>
* Amounts reflect the conversion of SPS and PSCo stock options to NCE stock
options.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes Option-Pricing Model with the following
weighted-average assumptions:
1996 1995
-------- --------
Expected option life 10 years 10 years
Stock volatility 11.95% 16.11%
Risk-free interest rate 6.21% 7.45%
Dividend yield 5.8% 6.6%
Additionally, PSCo and SPS have other plans which provide for cash awards
to all employees based on the achievement of corporate goals, of which certain
SPS goals were met in 1996 and certain PSCo goals were met in each of last the
three years. The expenses accrued under the above incentive programs totaled
approximately $10.9 million in 1996, $9.1 million in 1995 and $7.3 million in
1994.
In accordance with the terms of the Company's Incentive Plans, certain
unexercisable stock options, restricted stock awards and dividend equivalents
became exercisable or vested on the effective date of the Merger. The NCE
Omnibus Incentive Plan, which was adopted in 1997, contains a change in control
provision under which all stock-based awards, such as options and restricted
shares, will vest 100% and all cash-based awards will be paid out immediately in
cash as if the performance objectives have been achieved through the effective
date of the change in control.
49
<PAGE>
12. INCOME TAXES
The provisions for income taxes for the years ended December 31, 1996,
1995 and 1994 consist of the following:
1996 1995 1994
-------- -------- --------
(THOUSANDS OF DOLLARS)
Current income taxes:
Federal $ 79,365 $115,025 $ 67,313
State 2,832 4,691 (174)
-------- -------- --------
Total current income taxes 82,197 119,716 67,139
-------- -------- --------
Deferred income taxes:
Federal 70,964 47,327 42,093
State 7,998 1,560 3,705
-------- -------- --------
Total deferred income taxes 78,962 48,887 45,798
-------- -------- --------
Investment tax credits - net (7,506) (5,598) (6,049)
-------- -------- --------
Total provision for income taxes $153,653 $163,005 $106,888
-------- -------- --------
-------- -------- --------
During 1994, as a result of a detailed analysis of the income tax
accounts, PSCo recorded a decrease in its income tax liabilities, which
served to reduce Federal and state income tax expenses by approximately $21.3
million. The detailed analysis was completed in conjunction with PSCo's
implementation of the full normalization method of accounting for income
taxes as provided for in a rate order from the CPUC.
A reconciliation of the statutory U.S. income tax rates and the
effective tax rates follows:
<TABLE>
1996 1995 1994
---------------- ---------------- ----------------
(THOUSAND OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Tax computed at U.S. statutory rate on
pre-tax accounting income $153,287 35.0% $161,469 35.0% $132,763 35.0%
Increase (decrease) in tax from:
Allowance for funds used
during construction (1,438) (0.3) (2,495) (0.5) (2,449) (0.7)
Amortization of investment tax credits (7,506) (1.7) (5,598) (1.2) (6,042) (1.6)
Cash surrender value of life
insurance policies (11,265) (2.6) (9,546) (2.1) (7,643) (2.0)
Amortization of PSCo prior flow-through amounts 10,509 2.4 10,509 2.3 10,509 2.8
Tax accrual adjustment - - - - (21,262) (5.6)
Other-net 10,066 2.3 8,666 1.9 1,012 0.3
-------- ---- -------- ---- -------- ----
Total income taxes $153,653 35.1% $163,005 35.4% $106,888 28.2%
-------- ---- -------- ---- -------- ----
-------- ---- -------- ---- -------- ----
</TABLE>
The Company and its regulated subsidiaries have historically provided
for deferred income taxes to the extent allowed by their regulatory agencies
whereby deferred taxes were not provided on all differences between financial
statement and taxable income (the flow-through method). At December 31,
1996, PSCo and SPS are fully normalized for FERC jurisdictional purposes.
For state jurisdictional purposes, PSCo is fully normalized in Colorado and
Wyoming and SPS is fully normalized in Texas and Oklahoma. SPS is fully
normalized to the extent allowed by its regulators in New Mexico and Kansas,
with flow-through treatment of certain temporary differences. To give
effect to temporary differences for which deferred taxes were not previously
required to be provided, a regulatory asset was recognized. The regulatory
asset represents temporary differences primarily associated with prior
flow-through amounts and the equity component of allowance for funds used
during construction, net of temporary differences related to unamortized
investment tax credits and excess deferred income taxes that have resulted
from historical reductions in tax rates (see Note 1).
50
<PAGE>
The tax effects of significant temporary differences representing
deferred tax liabilities and assets as of December 31, 1996 and 1995 are as
follows:
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS)
Deferred income tax liabilities:
Accelerated depreciation and amortization $ 685,244 $ 637,212
Plant basis differences (prior flow-through) 188,120 204,212
Allowance for equity funds used during construction 81,559 84,772
Pensions 40,075 37,992
Other 99,164 75,035
---------- ----------
Total 1,094,162 1,039,223
Deferred income tax assets:
Investment tax credits 68,484 73,149
Contributions in aid of construction 65,489 57,826
Other 45,692 77,638
---------- ----------
Total 179,665 208,613
---------- ----------
Net deferred income tax liability $ 914,497 $ 830,610
---------- ----------
---------- ----------
As of December 31, 1996, PSCo has cumulative AMT carryforwards of
approximately $3.8 million and state (Colorado) tax credit carryforwards of
approximately $1.6 million. A valuation allowance has not been recorded as
PSCo expects that all deferred income tax assets will be realized in the
future.
51
<PAGE>
13. SEGMENTS OF BUSINESS
<TABLE>
1996 ELECTRIC GAS OTHER TOTAL
-------------- ---------- -------- ------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Operating revenues $2,416,539 $640,497 $73,946 $3,130,982
---------- -------- ------- ----------
Operating expenses, excluding depreciation
and income taxes 1,651,960 549,223 35,403 2,236,586
Depreciation and amortization 182,665 35,735 6,465 224,865
---------- -------- ------- ----------
Total operating expenses* 1,834,625 584,958 41,868 2,461,451
---------- -------- ------- ----------
Operating income* 581,914 55,539 32,078 669,531
---------- -------- ------- ----------
---------- -------- ------- ----------
Plant construction expenditures** 356,464 96,842 1,662 454,968
---------- -------- ------- ----------
---------- -------- ------- ----------
Identifiable assets:
Property, plant and equipment** 4,400,189 805,372 83,522 5,289,083
Materials and supplies 58,122 7,325 1,301 66,748
Fuel inventory 26,914 - 145 27,059
Gas in underground storage - 42,826 - 42,826
Other corporate assets 1,191,726
----------
$6,617,442
----------
----------
1995
--------------
Operating revenues $2,283,179 $624,585 $84,354 $2,992,118
---------- -------- ------- ----------
Operating expenses, excluding depreciation
and income taxes 1,548,581 538,620 52,479 2,139,680
Depreciation and amortization 170,566 29,901 5,117 205,584
---------- -------- ------- ----------
Total operating expenses* 1,719,147 568,521 57,596 2,345,264
---------- -------- ------- ----------
Operating income* 564,032 56,064 26,758 646,854
---------- -------- ------- ----------
---------- -------- ------- ----------
Plant construction expenditures** 289,701 86,482 4,224 380,407
---------- -------- ------- ----------
---------- -------- ------- ----------
Identifiable assets:
Property, plant and equipment** 4,188,491 777,420 89,597 5,055,508
Materials and supplies 65,700 8,886 1,241 75,827
Fuel inventory 37,854 - 145 37,999
Gas in underground storage - 44,900 - 44,900
Other corporate assets 1,046,560
----------
$6,260,794
----------
----------
1994
--------------
Operating revenues $2,243,284 $624,922 $67,201 $2,935,407
---------- -------- ------- ----------
Operating expenses, excluding depreciation
and income taxes (1) 1,610,393 558,929 44,330 2,213,652
Depreciation and amortization 168,320 29,078 2,654 200,052
---------- -------- ------- ----------
Total operating expenses* 1,778,713 588,007 46,984 2,413,704
---------- -------- ------- ----------
Operating income* 464,571 36,915 20,217 521,703
---------- -------- ------- ----------
---------- -------- ------- ----------
Plant construction expenditures** 311,842 91,492 6,151 409,485
---------- -------- ------- ----------
---------- -------- ------- ----------
Identifiable assets:
Property, plant and equipment** 4,051,881 674,974 94,244 4,821,099
Materials and supplies 70,078 11,782 1,656 83,516
Fuel inventory 33,547 - 145 33,692
Gas in underground storage - 42,355 - 42,355
Other corporate assets 1,046,444
----------
$6,027,106
----------
----------
</TABLE>
(1) Includes additional expense of approximately $43.4 million for defueling and
decommissioning.
* Before income taxes.
** Net of accumulated depreciation and includes allocation of common utility
property.
52
<PAGE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summarized quarterly information for 1996 and 1995 is
unaudited, but includes all adjustments (consisting only of normal recurring
accruals) which the Company considers necessary for a fair presentation of
the results for the periods. Information for any one quarterly period is not
necessarily indicative of the results which may be expected for a
twelve-month period due to seasonal and other factors.
<TABLE>
THREE MONTHS ENDED
-----------------------------------------------
1996 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---- -------- ------- ------------ -----------
(IN THOUSANDS-EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating revenues $838,931 $733,121 $739,406 $819,524
Operating income $135,289 $114,772 $135,251 $130,566
Net income $ 76,218 $ 59,452 $ 76,547 $ 60,124
Weighted average common shares outstanding 102,551 102,870 103,196 103,620
Earnings per weighted average common share $ 0.74 $ 0.58 $ 0.74 $ 0.58
1995 (1)
--------
Operating revenues $817,820 $730,438 $726,439 $731,037
Operating income $122,876 $110,011 $134,546 $123,054
Net income $ 69,732 $ 60,223 $ 84,975 $ 69,072
Weighted average common shares outstanding 101,385 101,718 101,949 102,163
Earnings per weighted average common share $ 0.69 $ 0.59 $ 0.83 $ 0.68
</TABLE>
(1) SPS data contained in the quarterly information is based on calendar
quarters. As discussed in Note 1, the Supplemental Consolidated Income
Statement for 1995 includes SPS's operating results for the year ended
August 31, 1995.
53
<PAGE>
NOTE 15. SPS CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS
On April 22, 1997, SPS changed its fiscal year-end from August 31 to
December 31. As disclosed in Note 1, the NCE Supplemental Consolidated
Statements of Income combined the historical financial statements of PSCo and
SPS. The following Statement of Income for SPS for the four month period
ended December 31, 1995 has not been included in any of the NCE Supplemental
Consolidated Statements of Income.
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENT OF INCOME
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1995
1995
--------
Operating revenues:
Electric $267,427
Other 11,055
--------
278,482
Operating expenses:
Fuel used in generation 119,081
Purchased power 2,756
Other operating expenses 42,357
Maintenance 9,777
Depreciation and amortization 23,329
Taxes (other than income taxes) 14,590
Income taxes 18,963
--------
230,853
--------
Operating income 47,629
Other income and deductions:
Allowance for equity funds used during construction 60
Miscellaneous income and deductions - net (1,494)
--------
(1,434)
Interest charges and preferred dividends:
Interest on long-term debt 14,424
Amortization of debt discount and expense less premium 682
Other interest 950
Allowance for borrowed funds used during construction (807)
--------
15,249
--------
Net income 30,946
Dividends and premiums on cumulative preferred stock 2,373
--------
Earnings applicable to common stock 28,573
--------
--------
Weighted average common shares outstanding 38,872
--------
--------
Earnings per weighted average share of common stock outstanding $ 0.74
--------
--------
54
<PAGE>
The following statement of cash flows for SPS for the four month period ended
December 31, 1995 has not been included in any of the NCE Supplemental
Consolidated Statements of Cash Flows.
SOUTHWESTERN PUBLIC SERVICE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1995
1995
--------
Operating activities:
Net income $ 30,946
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 21,873
Amortization of investment tax credits (83)
Deferred income taxes 14,400
Allowance for equity funds used during construction (60)
Change in accounts receivable 9,402
Change in inventories (1,386)
Change in other current assets 8,566
Change in accounts payable (42,645)
Change in other current liabilities 27,413
Other (9,594)
--------
Net cash provided by operating activities 58,832
Investing activities:
Construction expenditures (43,961)
Allowance for equity funds used during construction 60
Non-utility property and investments (4,950)
TNP Acquisition (29,200)
--------
Net cash used in investing activities (78,051)
Financing activities:
Retirement of long-term debt (1,583)
Short-term borrowings - net 116,250
Redemption of preferred stock (71,312)
Dividends on common stock and preferred stock (47,383)
--------
Net cash used in financing activities (4,028)
--------
Net decrease in cash and temporary cash investments (23,247)
Cash and temporary cash investments at August 31, 1995 36,860
--------
Cash and temporary cash investments at December 31, 1995 $ 13,613
--------
--------
55
<PAGE>
EXHIBIT 99-3
SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EARNINGS
Earnings per share were $0.75 for the first quarter of 1997 as compared
to $0.74 for the first quarter of 1996. Earnings were positively impacted by
continued customer growth contributing to increased electric sales and gas
deliveries. The 1996 earnings were positively impacted by a settlement
agreement with the DOE resolving all spent nuclear fuel storage and disposal
issues at Fort St. Vrain (See Note 3. Commitments and Contingencies).
RECENT DEVELOPMENTS
ACQUISITION OF YORKSHIRE ELECTRICITY
On April 1, 1997, Yorkshire Holdings, a joint venture between PSCo and
AEP, declared the cash tender offer for all the outstanding and to be issued
ordinary shares of Yorkshire Electricity wholly unconditional in all respects
and, thereby, committed the joint venture to purchase all the outstanding
shares of Yorkshire Electricity. As of June 30, 1997, valid acceptances of
Yorkshire Holdings' offer to purchase shares of Yorkshire Electricity had
been received representing virtually 100% of Yorkshire Electricity's issued
share capital.
Total consideration paid by Yorkshire Holdings was approximately $2.4
billion (1.5 billion pounds sterling). Effective April 1, 1997, PSCo,
through New Century International, Inc., recorded its 50% ownership interest
in Yorkshire Electricity with a total equity investment of approximately $360
million. This investment is being accounted for using the equity method of
accounting. For a more detailed discussion regarding this acquisition, see
Note 2. Acquisition and Divestiture of Investments in the Notes to
Supplemental Consolidated Financial Statements.
On July 2, 1997, the United Kingdom's Labour Party proposed a budget
that includes a windfall tax on certain privatized business entities. The
windfall tax liability for Yorkshire Electricity is estimated to be 135
million pounds sterling ($222 million). The tax is expected to be enacted in
the third quarter of 1997 and would be payable in two installments with the
first in December 1997 and the second installment a year later. PSCo's share
of the proposed tax is estimated to be approximately $111 million. The net
earnings effect on PSCo of the proposed tax is currently being assessed and
is expected to be recorded when the proposed tax is enacted.
CAROLINA ENERGY LIMITED PARTNERSHIP INVESTMENT
The Carolina Energy Partnership, a waste-to-energy cogeneration
facility, was originally scheduled to be completed later in 1997 but was
halted pending an independent analysis of the project's engineering and
financial viability. Additionally, the banks providing debt financing to the
project withheld funds for continued construction. Quixx, UE, other equity
owners, senior creditors and the constructor have been unable to restructure
the project on mutually agreeable terms. The construction contractor is
demobilizing and, in June 1997, the creditors initiated remedies provided
under the credit agreement. Accordingly, Management has determined it is
unlikely the project will be completed under the present ownership, if at
all, and Quixx's and UE's investments in the Carolina Energy Limited
Partnership are unlikely to be recovered.
As a consequence, in June 1997, Quixx wrote-off its investment of
approximately $13.6 million in the Carolina Energy Limited Partnership.
Additionally, UE wrote-off its net investment of approximately $2.4 million
in this same partnership. Quixx held a one-third ownership interest,
including a 1% general partnership interest, in the partnership. UE's net
investment in the partnership was comprised of subordinated debt, the related
interest receivable, as well as fees for engineering services.
ELECTRIC OPERATIONS
56
<PAGE>
The following table details the change in electric operating revenues and
energy costs for the first quarter of 1997 as compared to the same period in
1996.
INCREASE (DECREASE)
----------------------
(THOUSANDS OF DOLLARS)
Electric operating revenues:
Retail........................................... $ 9,467
Wholesale........................................ 4,043
Non-regulated power marketing.................... 5,648
Other (including unbilled revenues).............. (8,467)
-------
Total revenues.................................. 10,691
Fuel used in generation........................... 4,149
Purchased power................................... 1,688
-------
Net increase in electric margin................. $ 4,854
=======
The following table compares electric Kwh sales by major customer
classes for the first quarter of 1997 and 1996.
MILLIONS OF KWH SALES
---------------------
1997 1996 % CHANGE*
------ ------ ----------
Residential ...................... 2,603 2,536 2.6%
Commercial and Industrial ........ 6,458 6,316 2.2
Public Authority.................. 176 178 (.7)
------ ------
Total Retail.................... 9,237 9,030 2.3
Wholesale......................... 2,299 2,223 3.4
Non-regulated power marketing..... 367 - -
------ ------
Total........................... 11,903 11,252 5.8
====== ======
* Percentages are calculated using unrounded amounts
Electric margin increased in the first quarter of 1997, when compared to
the first quarter of 1996, primarily due to higher electric Kwh sales
resulting from customer growth offset, in part, by PSCo rate reductions
effective October 1, 1996 and February 1, 1997, which resulted from the
settlement of the Merger proceedings in Colorado, and lower SPS rates due to
interruptible rates available to certain classes of retail customers in Texas
and New Mexico. Power marketing activities by non-regulated subsidiaries
initiated in the third quarter of 1996 have contributed to increased
operating revenues, however, the margin on such sales is minimal.
The Company's regulated subsidiaries have 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 quarters of 1997 and 1996 had little impact on
net income. However, in its decision on the Merger, the CPUC replaced PSCo's
ECA with an ICA, effective October 1, 1996, which allows for a 50%/50%
sharing of certain fuel and energy cost increases and decreases among
customers and shareholders. The change did not impact the cost recoveries
for the first quarter of 1997.
Fuel used in generation expense increased approximately 2.9% during the
first quarter of 1997, as compared to the same quarter in 1996, primarily due
to higher natural gas and coal costs. This increase was offset, in part, by
decreased generation levels at PSCo's power plants.
Purchased power expense increased approximately 1.3% during the first
quarter of 1997, as compared to the same quarter in 1996. This increase is
primarily due to an increase in the amount of power purchased by SPS compared
to first quarter 1996, as well as an increase in power marketing sales.
57
<PAGE>
GAS OPERATIONS
The following table details the change in revenues from gas sales and gas
purchased for resale for the first quarter of 1997 as compared to the same
period in 1996.
INCREASE (DECREASE)
----------------------
(THOUSANDS OF DOLLARS)
Revenues from gas sales (including unbilled revenues) ...... 48,470
Gas purchased for resale ................................... 46,628
--------
Net increase in gas sales margin .......................... $ 1,842
========
The following table compares gas dekatherm (Dth) deliveries by major
customer classes for the first quarter of 1997 and 1996.
MILLIONS OF DTH DELIVERIES
--------------------------
1997 1996 % CHANGE*
---- ---- ----------
Residential....................... 39.6 39.0 1.4%
Commercial........................ 21.3 22.3 (4.4)
Non-regulated gas marketing....... 15.6 0.7 **
----- ----
Total Sales...................... 76.5 62.0 23.4
Gathering and Processing.......... 0.1 0.2 **
Transportation.................... 25.1 22.3 12.6
----- ----
Total............................ 101.7 84.5 20.3
===== ====
* Percentages are calculated using unrounded amounts
** Percentage change is significant, but presentation of the amount is not
meaningful
Gas sales margin increased in the first quarter of 1997, when compared
to the first quarter of 1996, primarily due to an increase in PSCo's base
revenues associated with the higher rates effective February 1, 1997,
resulting from PSCo's 1996 rate case and higher retail gas sales resulting
from annual customer growth of approximately 3.5%. In addition, gas
marketing activities by non-regulated subsidiaries favorably contributed to
the increase in gas sales margin. Gas costs were higher during the first
quarter of 1997, as compared to the same period of 1996, as a result of
higher gas prices incurred through the winter heating season.
Gas transportation, gathering, processing and other revenues increased
$1.1 million during the first quarter of 1997, when compared to the first
quarter of 1996, primarily due to an increase in transport deliveries. The
higher transport deliveries are attributable to the shifting of various
commercial sales customers to firm transport customers. Historically, this
shifting has not had an impact on gas margin and is not expected to have an
impact in the future.
PSCo and Cheyenne have in place GCA mechanisms for natural gas sales,
which recognize the majority of the effects of changes in the cost of gas
purchased for resale and adjust 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 quarters of 1997 and 1996 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.
NON-FUEL OPERATING EXPENSES
Other operating and maintenance expenses increased $3.3 million during
the first quarter of 1997, as compared to the same period in 1996, primarily
due to the favorable impact on 1996 first quarter earnings of the February 9,
1996 settlement agreement with the DOE resolving all spent nuclear fuel
storage and disposal issues at Fort St. Vrain (approximately $16 million)
offset, in part, by costs incurred during the first quarter of 1996
associated with the settlement agreement of certain environmental issues
related to the operations of the Hayden Steam Electric Generation Station.
In addition, the current period results were favorably impacted by lower
employee benefit costs and other general reductions resulting from the
Company's cost containment efforts.
58
<PAGE>
Depreciation and amortization expense increased $6.7 million in the
first quarter of 1997, as compared to the same period in 1996, primarily due
to the depreciation of property additions and the higher amortization of
software costs.
The decrease in income taxes for the first quarter of 1997, as compared
to the same period in 1996, is primarily due to lower pre-tax income, the tax
effects of recognizing certain non-deductible environmental and Merger costs
in 1996 and the prior year accrual for additional tax liabilities.
Miscellaneous income and deductions - net increased $3.7 million
primarily due to lower merger and business integration costs in 1997 and
higher interest income on temporary cash investments, which resulted from the
borrowings in anticipation of the investment to be made in acquiring
Yorkshire Electricity.
Interest charges and preferred dividends increased $5.8 million during
the first quarter of 1997, when compared to the same quarter in 1996,
primarily due to interest on borrowings utilized to finance capital
expenditures and the anticipated acquisition of Yorkshire Electricity. These
borrowings included the issuance of $75 million and $250 million of
medium-term notes in January and March 1997, respectively. Additionally,
dividends on SPS obligated mandatorily redeemable preferred securities of
subsidiary trust increased due to the October 1996 issuance of $100 million
of SPS Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary
Trust.
COMMON STOCK DIVIDEND
It is currently anticipated that the Company will initially pay
dividends on its common stock of $2.32 per share annually. The Company's
common stock dividend level is dependent upon the Company's results of
operations, financial position, cash flow, capital requirements and other
relevant considerations. The Board of Directors will evaluate the common
stock dividend on a quarterly basis.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - THREE MONTHS ENDED MARCH 31
1997 1996 Decrease
---- ---- --------
Net cash provided by operating activities
(IN MILLIONS) $79.9 $137.3 $(57.4)
Cash provided by operating activities decreased in the first three
months of 1997, when compared to the first three months of 1996, primarily
due to the increase in payments to gas suppliers resulting from the higher
gas costs in late 1996 and early 1997. A portion of these higher gas costs
have been deferred through the GCA and will be recovered from customers in
the future. These decreases were offset, in part, by an increase in accounts
receivable which was attributable to a gas refund made late in 1995 that was
applied directly to customers' accounts and served to lower cash receipts
during the first quarter of 1996.
1997 1996 Decrease
---- ---- --------
Net cash used in investing activities
(IN MILLIONS) $(85.6) $(90.7) $(5.1)
Cash used in investing activities decreased during the three months
ended March 31, 1997, when compared to the same period in 1996, primarily due
to lower construction expenditures.
1997 1996 Increase
---- ---- --------
Net cash provided by (used in) financing
activities (IN MILLIONS) $374.8 $(50.3) $425.1
Cash provided by financing activities increased (indicating that there
were more borrowings) in the first three months of 1997, when compared to the
first three months of 1996, primarily due to PSCo's issuance of $75 million
and $250 million of medium term notes in January and March 1997,
respectively. The proceeds from the $75 million financing were used to fund
PSCo's construction program. PSCo used the proceeds from the $250 million
medium term notes, together with additional borrowings of approximately $110
million on its short-term
59
<PAGE>
lines of credit, to fund its acquisition of Yorkshire Electricity. Both PSCo
and SPS increased short-term borrowings during the first quarter of 1997
compared to the first quarter of 1996.
60
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
(THOUSANDS OF DOLLARS)
MARCH 31, 1997
ASSETS
<TABLE>
<S> <C>
Property, plant and equipment, at cost:
Electric $6,531,741
Gas 1,067,579
Steam and other 116,525
Common to all departments 429,123
Construction in progress 211,926
----------
8,356,894
Less: accumulated depreciation 3,036,198
----------
Total property, plant and equipment 5,320,696
----------
Investments, at cost, and receivables 78,211
----------
Current assets:
Cash and temporary cash investments 419,127
Accounts receivable, less reserve for uncollectible accounts of $6,026 267,773
Accrued unbilled revenues (Note 1) 85,626
Recoverable purchased gas and electric energy costs - net (Note 1) 74,821
Materials and supplies, at average cost 65,568
Fuel inventory, at average cost 26,890
Gas in underground storage, at cost (LIFO) 19,954
Regulatory assets recoverable within one year (Note 1) 44,020
Prepaid expenses and other 45,576
----------
Total current assets 1,049,355
----------
Deferred charges:
Regulatory assets (Note 1) 431,317
Unamortized debt expense 21,722
Other 101,931
----------
Total deferred charges 554,970
----------
$7,003,232
----------
----------
</TABLE>
The accompanying notes to supplemental consolidated condensed financial
statements are an integral part of these financial statements.
61
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
(THOUSANDS OF DOLLARS)
MARCH 31, 1997
CAPITAL AND LIABILITIES
<TABLE>
<S> <C>
Common stock $1,414,274
Retained earnings 794,575
----------
Total common equity 2,208,849
Preferred stock of subsidiaries:
Not subject to mandatory redemption 140,008
Subject to mandatory redemption at par 39,913
SPS obligated mandatorily redeemable preferred securities of subsidiary trust
holding solely subordinated debentures of SPS 100,000
Long-term debt of subsidiaries 2,103,413
----------
4,592,183
----------
Noncurrent liabilities:
Employees' postretirement benefits other than pensions 59,098
Employees' postemployment benefits 26,522
----------
Total noncurrent liabilities 85,620
----------
Current liabilities:
Notes payable and commercial paper 414,986
Long-term debt due within one year 255,305
Preferred stock subject to mandatory redemption within one year 2,576
Accounts payable 231,152
Dividends payable 37,210
Recovered purchased gas and electric energy costs - net (Note 1) -
Customers' deposits 28,047
Accrued taxes 99,623
Accrued interest 37,557
Current portion of defueling and decommissioning liability (Note 3) 7,913
Current portion of accumulated deferred income taxes 17,712
Other 83,097
----------
Total current liabilities 1,215,178
----------
Deferred credits:
Customers' advances for construction 47,425
Unamortized investment tax credits 110,333
Accumulated deferred income taxes 911,676
Other 40,817
----------
Total deferred credits 1,110,251
Commitments and contingencies (Note 3) $7,003,232
----------
----------
</TABLE>
The accompanying notes to supplemental consolidated condensed financial
statements are an integral part of these financial statements.
62
<PAGE>
NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
1997 1996
-------- --------
<S> <C> <C>
Operating revenues:
Electric...................................................... $588,448 $577,757
Gas........................................................... 291,825 242,228
Other......................................................... 18,682 18,496
-------- --------
898,955 838,931
Operating expenses:
Fuel used in generation....................................... 148,879 144,730
Purchased power............................................... 127,833 126,145
Gas purchased for resale...................................... 207,352 160,724
Other operating expenses...................................... 112,848 107,927
Maintenance................................................... 22,044 23,685
Depreciation and amortization................................. 61,087 54,425
Taxes (other than income taxes)............................... 34,014 33,838
Income taxes ................................................. 45,609 52,168
-------- --------
759,666 703,642
-------- --------
Operating income............................................... 139,289 135,289
Other income and deductions:
Allowance for equity funds used during construction........... 5 511
Miscellaneous income and deductions - net..................... (3,411) (7,609)
-------- --------
(3,406) (7,098)
Interest charges and preferred dividends:
Interest on long-term debt.................................... 37,931 33,055
Amortization of debt discount and expense less premium........ 1,490 1,495
Other interest................................................ 15,701 16,255
Allowance for borrowed funds used during construction......... (2,301) (1,925)
Dividends on SPS obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely subordinated
debentures of SPS............................................ 1,963 -
Dividend requirements on preferred stock of subsidiaries....... 2,943 3,093
-------- --------
57,727 51,973
-------- --------
Net income....................................................... $ 78,156 $ 76,218
-------- --------
-------- --------
Weighted average common shares outstanding....................... 103,994 102,551
-------- --------
-------- --------
Earnings per weighted average share of common stock outstanding $ 0.75 $ 0.74
-------- --------
-------- --------
</TABLE>
The accompanying notes to supplemental consolidated condensed financial
statements are an integral part of this statement.
63
<PAGE>
NEW CENTURY ENERGIES INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS OF DOLLARS)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
---------- --------
Operating activities:
Net income............................................... $ 78,156 $ 76,218
Adjustments to reconcile net income to net
cash provided by operating activities (Note 1):
Depreciation and amortization......................... 62,162 55,666
Amortization of investment tax credits................ (1,314) (1,304)
Deferred income taxes................................. 18,490 14,253
Allowance for equity funds used during construction... (5) (511)
Change in accounts receivable......................... 18,139 (27,224)
Change in inventories................................. 24,221 31,299
Change in other current assets........................ (7,015) 13,411
Change in accounts payable............................ (107,695) 18,982
Change in other current liabilities................... 6,414 (22,196)
Change in deferred amounts............................ (10,766) (3,011)
Change in noncurrent liabilities...................... (574) (19,658)
Other................................................. (296) 1,396
---------- --------
Net cash provided by operating activities........... 79,917 137,321
Investing activities:
Construction expenditures................................ (89,904) (92,992)
Allowance for equity funds used during construction...... 5 511
Proceeds from disposition of property, plant and
equipment.............................................. 1,244 734
Purchase of other investments............................ (1,125) (1,316)
Sale of other investments................................ 4,205 2,394
---------- --------
Net cash used in investing activities................ (85,575) (90,669)
Financing activities:
Proceeds from sale of common stock (Note 1).............. 7,658 7,317
Proceeds from sale of long-term notes and bonds (Note 1). 323,733 60,000
Redemption of long-term notes and bonds.................. (16,510) (17,223)
Short-term borrowings - net.............................. 116,425 (45,331)
Redemption of preferred stock............................ - (260)
Dividends on common stock................................ (56,536) (54,818)
---------- --------
Net cash provided by (used in) financing activities..... 374,770 (50,315)
---------- --------
Net increase (decrease) in cash and temporary cash
investments............................................ 369,112 (3,663)
Cash and temporary cash investments at beginning of
period................................................. 50,015 28,306
---------- --------
Cash and temporary cash investments at end of period.... $ 419,127 $ 24,643
---------- --------
---------- --------
The accompanying notes to supplemental consolidated condensed financial
statements are an integral part of these financial statements.
64
<PAGE>
NEW CENTURY ENERGIES INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MERGER AND SUPPLEMENTAL FINANCIAL STATEMENTS (BASIS OF PRESENTATION)
Effective August 1, 1997, following the receipt of all required state and
Federal regulatory approvals, PSCo and SPS combined to form NCE. The
supplemental consolidated condensed financial statements reflect the accounting
for the Merger as a pooling of interests and are presented as if the companies
were combined as of the earliest period presented. However, the financial
information is not necessarily indicative of the results of operation, financial
position or cash flows that would have occurred had the Merger been consummated
for the periods for which it is given effect, nor is it necessarily indicative
of future results of operations, financial condition or cash flows. Certain
items have been reclassified in the accompanying consolidated financial
statements to conform to the presentation expected to be used by the Company.
The supplemental consolidated condensed financial statements reflect the
conversion of each outstanding share of PSCo Common Stock into one share of NCE
Common Stock, and each outstanding share of SPS Common Stock into 0.95 of one
share of NCE Common Stock in accordance with the terms of the Merger Agreement.
References to the Company are to NCE on a consolidated basis; however, in
certain circumstances, the separate subsidiaries are separately referred to in
order to distinguish between the different business activities of the companies.
Operating revenues and net income for the three months ended March 31, 1997
and March 31, 1996, consistent with the NCE presentation were as follows (in
millions):
PSCo SPS NCE*
---- --- ----
Three months ended March 31, 1997:
Operating revenues $678 $221 $899
Net income 63 18 78
Three months ended March 31, 1996:
Operating revenues $623 $216 $839
Net income 64 15 76
* NCE's net income is net of dividend requirements on preferred stock of
subsidiaries
BUSINESS, UTILITY OPERATIONS AND REGULATION
NCE will be a registered holding company under the PUHCA whose utility
subsidiaries are engaged 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 PUCHA. 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
65
<PAGE>
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. During 1996,
NCE's subsidiaries adopted SFAS 121 which imposes stricter criteria for the
continued recognition of regulatory assets on the balance sheet by requiring
that such assets be probable of future recovery at each balance sheet date.
The adoption of this statement did not have a material impact on the Company's
results of operations, financial position or cash flows. The following
regulatory assets are reflected in the Company's supplemental consolidated
condensed balance sheet:
MARCH 31, DECEMBER 31,
1997 1996
-------- --------
(THOUSANDS OF DOLLARS)
Nuclear decommissioning costs........... $ 81,474 $ 89,731
Income taxes............................ 175,623 179,757
Employees' postretirement benefits
other than pensions................... 58,974 57,641
Early retirement costs.................. 14,926 15,505
Employees' postemployment benefits...... 24,700 24,797
Demand-side management costs............ 45,074 41,462
Unamortized debt reacquisition costs.... 38,904 39,794
Thunder Basin judgment.................. 22,346 -
Other................................... 13,316 17,424
-------- --------
Total................................. 475,337 466,111
Classified as current................... 44,020 52,110
-------- --------
Classified as noncurrent................ $431,317 $414,001
======== ========
The regulatory assets of the Company's regulated subsidiaries as of March
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 related 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 the Company's financial position, results of operations or
cash flows.
Effective July 1, 1993, PSCo began collecting from customers nuclear
decommissioning costs expected to total approximately $124.4 million (plus a 9%
carrying cost). Such amount, which is being collected over a twelve year
period, represented the inflation-adjusted estimated remaining cost of
decommissioning activities not previously recognized as expense at the time of
CPUC approval. PSCo is recovering approximately $13.9 million per year from its
customers for such costs.
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 a accrual
basis under SFAS 112 and denied amortization of the approximately $8.7 million
regulatory asset recognized upon the adoption of SFAS 112. PSCo has appealed in
the district court the decision related to this issue and is assessing the
impact of this decision on the future recovery of the electric jurisdictional
portion of postemployment benefit costs totaling approximately $13.8 million.
PSCo believes that it will be successful on appeal and that the associated
regulatory asset is realizable. If PSCo is ultimately unsuccessful, these
amounts will be written off.
In early 1997, SPS recorded an approximately $22.3 million regulatory asset
associated with the Thunder Basin judgment pending authorization of recovery
from the PUCT and the NMPUC. Management believes that the judgment amount paid
is recoverable from customers. On September 17, 1996, the FERC issued an order
granting SPS conditional approval to collect the FERC jurisdictional portion of
the judgment from wholesale customers. Therefore, Management believes that the
ultimate resolution will not have a material adverse effect on the Company's
results of operations, financial position or cash flows.
66
<PAGE>
Certain costs associated with PSCo's DSM programs are deferred and
recovered in rates over five to seven year periods through the DSMCA. Non-labor
incremental expenses, carrying costs associated with deferred DSM costs and
incentives associated with approved DSM programs are recovered on an annual
basis. Costs associated with SPS's DSM programs are also deferred and, as part
of a negotiated settlement agreement reached in July 1995, will be included in
rate base and cost of service in future PUCT proceedings.
Costs incurred to reacquire debt prior to scheduled maturity dates are
deferred and amortized over the life of the debt issued to finance the
reacquisition or as approved by the applicable regulatory authority.
RECOVERED/RECOVERABLE PURCHASED GAS AND ELECTRIC ENERGY COSTS - NET
The Company's utility subsidiaries have adjustment mechanisms in place
which allow for the recovery of certain purchased gas and electric energy costs
in excess of the level of such costs included in base rates. Currently, these
cost adjustment tariffs are revised periodically, as prescribed by the
appropriate regulatory agencies, for any difference between the total amount
collected under the clauses and the recoverable costs incurred.
OTHER PROPERTY
Property, plant and equipment includes approximately $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design of
the future Pawnee 2 generating station and certain water rights located in
southeastern Colorado, also obtained for a future generating station. PSCo is
earning a return on these investments based on its weighted average cost of debt
and preferred stock in accordance with a CPUC rate order.
MISCELLANEOUS INCOME AND DEDUCTIONS - NET
Miscellaneous income and deductions - net includes items which are non-
operating in nature or, in general, are not considered in the ratemaking
process. Such items include, among other things, merger and business
integration costs, contributions and gains and losses on the sale of property.
STATEMENTS OF CASH FLOWS - NON-CASH TRANSACTIONS
Shares of PSCo common stock (250,058 in 1997 and 274,934 on 1996), valued
at the market price on date of issuance (approximately $10 million for both
years), were issued to the Employees' Savings and Stock Ownership Plan of Public
Service Company of Colorado and Participating Subsidiary Companies. The
estimated issuance values were recognized in other operating expenses during the
respective preceding years. Shares of PSCo common stock (6,470 in 1996), valued
at the market price on the date of issuance ($0.2 million in 1996), were issued
to certain executives pursuant to the applicable provisions of the executive
compensation plans.
In February 1997, SPS recorded a regulatory asset and a liability for the
Thunder Basin Coal Co. judgment and related costs which resulted in a non-cash
transaction.
2. COMMITMENTS AND CONTINGENCIES
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 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
67
<PAGE>
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 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 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 11, 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 some of the policies. A retrial is expected. 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, PSCo
expects to recoup additional expenditures beyond insurance proceeds through the
sale of the Barter property and from other PRPs. In August 1996, PSCo filed a
lawsuit against four PRPs seeking recovery of certain Barter related costs.
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. Two carriers were excluded
from this proceeding. PSCo intends to pursue recovery from the remaining two
carriers. Additionally, PSCo intends to appeal the decision to the Colorado
Court of Appeals.
The Ramp Industries disposal facility, located in Denver, Colorado has been
designated by the EPA as a Superfund hazardous substance site pursuant to
CERCLA. On November 29, 1995, PSCo received from the EPA a Notice of Potential
Liability and Request for Information related to such site and PSCo has
responded to this request. The EPA is conducting an investigation of the
contamination at this site and is in the process of identifying the nature and
quantities of hazardous wastes delivered to, processed and currently stored at
the site by PRPs. In April, 1997, the EPA informed PSCo and more than 700 other
PRPs (as well as the public) that it plans to thermally treat and dispose of
Ramp hazardous substances off-site. The EPA estimates the total cost of this
site remedy to be approximately $10 million. PSCo's insurance carriers have
been notified of the EPA investigation.
In addition to these sites, PSCo has identified several other sites where
cleanup 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 burning 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 sulfur dioxide 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 pollution control equipment on certain generation facilities, and
c) allowances issued by the EPA. The
68
<PAGE>
Company 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 $13 million. The Company is studying its
options to reduce NOx and SO2 emissions and, currently does not anticipate
that these regulations will significantly impact its financial position,
results of operations or cash flow.
HAYDEN STEAM ELECTRIC GENERATING STATION
On May 21, 1996, PSCo and the other joint owners of Hayden Station reached
an agreement, as discussed below, with a conservation organization, the CDPHE
and the EPA which provides for a complete and final release of all civil claims
for violations alleged in complaints filed by the conservation organization,
CDPHE and EPA against the joint owners. The complaints filed, pursuant to
provisions of the Federal Clean Air Act ("Clean Air Act"), by a conservation
organization and the EPA alleged, among other things, that the station exceeded
the 20% opacity limitations during various periods extending from 1988 to mid-
1995. In August 1996, the U.S. District Court for the District of Colorado
entered the settlement agreement which effectively resolved this litigation.
PSCo is the operator and owns an average undivided interest of approximately 53%
of the station's two generating units.
In connection with the above settlement, the joint owners of the Hayden
station, which is located in western Colorado, made the following payments in
1996: 1) a $2 million payment to the U.S. Treasury, 2) a contribution of $2
million to a "Land Trust Fund" to be used for the purchase of land and/or
conservation easements in the Yampa Valley and 3) a contribution of $250,000 to
be used for the conversion of vehicles and/or wood burning appliances to natural
gas in the Yampa Valley. PSCo's portion of these costs was approximately $2.3
million. The joint owners have committed to the installation of emission
control equipment on both generating units to reduce future particulate
(opacity), SO2 and NOx emissions over the next three years. The joint owners
estimate that the cost of installing emission control equipment capable of
reducing the emissions to the levels required under the agreement, consisting of
fabric filter dust collectors, lime spray dryers and low NOx burners on both
units, is approximately $130 million, with PSCo's portion totaling approximately
$70 million. Also, the settlement includes 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.
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 Clean Air 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 Clean Air 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. On December 2, 1996, the joint owners of
the Craig station filed a motion to dismiss the complaint. PSCo does not
believe that its potential liability or the future impact of this litigation on
plant operations will have a material adverse impact on its results of
operations, financial position, or cash flows.
FORT ST. VRAIN
In 1989, PSCo announced its decision to end nuclear operations at Fort St.
Vrain and to proceed with the defueling and decommissioning of the reactor.
While the defueling of the reactor to the Independent Spent Fuel Storage
Facility ("ISFSI") was completed in June 1992, several issues related to the
ultimate storage/disposal of Fort St. Vrain's spent nuclear fuel remained
unresolved.
During 1994, PSCo recognized additional expenses aggregating approximately
$43.4 million for increased costs associated with defueling and decommissioning
and the impairment of certain property and inventory. The additional expense was
primarily associated with radiation levels in the reactor being higher than
originally anticipated and increased uncertainty related to spent fuel issues.
69
<PAGE>
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 Nuclear Regulatory
Commission ("NRC") to transfer the title of the ISFSI. This request is being
reviewed by the NRC and PSCo anticipates approval in mid-1997.
On March 22, 1996, PSCo and the decommissioning contractors announced that
the physical decommissioning activities at the facility have been completed.
The final site survey was completed in late October 1996. NRC site release
activities are continuing. PSCo requested the NRC to terminate the Part 50
license and it is anticipated that the license will be terminated by mid-1997.
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 $10 million to provide property damage and decontamination
protection in the event of an accident involving the ISFSI. At March 31, 1997, a
remaining $7.9 million defueling and decommissioning liability was reflected on
the supplemental consolidated balance sheet. PSCo believes this remaining
decommissioning liability is adequate to complete all final decommissioning
activities.
As a result of the DOE settlement, coupled with a complete review of
expected remaining decommissioning costs and establishment of the anticipated
refund to customers, pre-tax earnings for 1996 were positively impacted by
approximately $16 million. In accordance with the 1991 CPUC approval to recover
certain decommissioning costs, 50% of any cash amounts received from the DOE as
part of a settlement, net of costs incurred by PSCo, including legal fees, is to
be refunded or credited to customers. PSCo established an $8 million refund
liability. In early 1997, such obligation was reduced by $1.1 million after
amounts to be refunded were finally determined.
YORKSHIRE ELECTRICITY
On April 1, 1997, Yorkshire Holdings, a joint venture between PSCo and AEP,
declared the cash tender offer for all the outstanding and to be issued ordinary
shares of Yorkshire Electricity wholly unconditional in all respects and,
thereby, committed the joint venture to purchase all the outstanding shares of
Yorkshire Electricity. As of June 30, 1997, valid acceptances of Yorkshire
Holdings' offer to purchase shares of Yorkshire Electricity had been received
representing virtually 100% of Yorkshire Electricity's issued share capital.
Total consideration paid by Yorkshire Holdings was approximately
$2.4 billion (1.5 billion pounds sterling). Effective April 1, 1997, PSCo,
through New Century International, Inc., recorded its 50% ownership interest in
Yorkshire Electricity with a total equity investment of approximately $360
million. This investment is being accounted for using the equity method of
accounting. For a more detailed discussion regarding this acquisition, see Note
2. Acquisition and Divestiture of Investments in the Notes to Supplemental
Consolidated Financial Statements.
On July 2, 1997, the United Kingdom's Labour Party proposed a budget that
includes a windfall tax on certain privatized business entities. The windfall
tax liability for Yorkshire Electricity is estimated to be 135 million pounds
sterling ($222 million). The tax is expected to be enacted in the third quarter
of 1997 and would be payable in two installments with the first in December 1997
and the second installment a year later. PSCo's share of the proposed tax is
estimated to be approximately $111 million. The net earnings effect on PSCo of
the proposed tax is currently being assessed and is expected to be recorded when
the proposed tax is enacted.
CAROLINA ENERGY LIMITED PARTNERSHIP INVESTMENT
The Carolina Energy Partnership, a waste-to-energy cogeneration facility,
was originally scheduled to be completed later in 1997 but was halted pending an
independent analysis of the project's engineering and financial
70
<PAGE>
viability. Additionally, the banks providing debt financing to the project
withheld funds for continued construction. Quixx, UE, other equity owners,
senior creditors and the constructor have been unable to restructure the
project on mutually agreeable terms. The construction contractor is
demobilizing and, in June 1997, the creditors initiated remedies provided
under the credit agreement. Accordingly, Management has determined it is
unlikely the project will be completed under the present ownership, if at all,
and Quixx's and UE's investments in the Carolina Energy Limited Partnership
are unlikely to be recovered.
As a consequence, in June 1997, Quixx wrote-off its investment of
approximately $13.6 million in the Carolina Energy Limited Partnership.
Additionally, UE wrote-off its net investment of approximately $2.4 million in
this same partnership. Quixx held a one-third ownership interest, including a
1% general partnership interest, in the partnership. UE's net investment in the
partnership was comprised of subordinated debt, the related interest receivable,
as well as fees for engineering services.
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 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 the Company's
results of operations, financial position or cash flow.
71
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW CENTURY
ENERGIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1996 AND SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<TOTAL-INTEREST-ON-BONDS> 138,301
<CASH-FLOW-OPERATIONS> 481,182
<EPS-PRIMARY> 2.640
<EPS-DILUTED> 2.640
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW CENTURY
ENERGIES, INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED BALANCE SHEET AS OF
MARCH 31, 1997 AND SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,320,696
<OTHER-PROPERTY-AND-INVEST> 78,211
<TOTAL-CURRENT-ASSETS> 1,049,355
<TOTAL-DEFERRED-CHARGES> 554,970
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,003,232
<COMMON> 104,142
<CAPITAL-SURPLUS-PAID-IN> 1,310,132
<RETAINED-EARNINGS> 794,575
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,208,849
39,913
140,008
<LONG-TERM-DEBT-NET> 2,103,413
<SHORT-TERM-NOTES> 132,351
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 282,635
<LONG-TERM-DEBT-CURRENT-PORT> 255,305
2,576
<CAPITAL-LEASE-OBLIGATIONS> 43,270
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,838,182
<TOT-CAPITALIZATION-AND-LIAB> 7,003,232
<GROSS-OPERATING-REVENUE> 898,955
<INCOME-TAX-EXPENSE> 45,609
<OTHER-OPERATING-EXPENSES> 112,848
<TOTAL-OPERATING-EXPENSES> 759,666
<OPERATING-INCOME-LOSS> 139,289
<OTHER-INCOME-NET> (3,406)
<INCOME-BEFORE-INTEREST-EXPEN> 135,883
<TOTAL-INTEREST-EXPENSE> 57,727
<NET-INCOME> 78,156
0
<EARNINGS-AVAILABLE-FOR-COMM> 78,156
<COMMON-STOCK-DIVIDENDS> 56,773
<TOTAL-INTEREST-ON-BONDS> 37,931
<CASH-FLOW-OPERATIONS> 79,917
<EPS-PRIMARY> 0.750
<EPS-DILUTED> 0.750
</TABLE>
